Commons Sitting of 20 April 2004

Preamble
The House met at half-past Eleven o'clock
PRAYERS
[MR. SPEAKER in the Chair]
Oral Answers to Questions
  TRANSPORT
  The Secretary of State was asked—
  TRANSPORT

    Rural Transport
    Nick Harvey: If he will make a statement on the relationship between transport provision and access to public services in rural areas. [166169]
    The Minister of State, Department for Transport (Dr. Kim Howells): Good transport is important in improving access to public services in rural areas. We recognised that in targeting additional investment to improve accessibility for rural communities. We have invested £240 million in rural transport in the last three years alone, a 54 per cent. increase on the previous three years.
    Nick Harvey: Obviously new investment is welcome, but is the Minister aware that those improvements arise from a very low base? In my constituency, bus services to our hospital have been cut, and although we have welcome new sport and theatre facilities, using them in the evenings is an unimaginable dream for many youngsters because bus services stop at 6 pm. What impact does the Minister expect the forthcoming School Transport Bill to have on public transport provision in rural areas, which is already sparse? It raises the spectre of more children having to pay to travel to school by bus, which will inevitably drive more of them into the car run.
    Dr. Howells: I accept what the hon. Gentleman says. We must encourage people to use buses much more. What worries me is that, although large amounts are being spent on bus subsidies in rural areas, few people use the buses. I know that several initiatives have been launched in the hon. Gentleman's constituency—a 1999 initiative called, I believe, Buses Are Cool, followed by Life in the Bus Lane and Life in the Bus Lane 2. A great deal of money is being spent on efforts to encourage young people in particular to get to the places mentioned by the hon. Gentleman, but there is much more work to be done. Local authorities have a responsibility to publicise the fact that they are investing
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    in bus services, especially in rural areas. If there were more publicity and we could generate a better image for buses, many more people might use them.
    David Taylor: Following the disasters of deregulation and privatisation, this Government's progress since 1997 has been commendable; but for a small extra amount—just £300 million per year—standards could be raised, and the free bus travel for pensioners that is available in other countries of the United Kingdom could be extended to England. Is my hon. Friend confident that we can make progress in that respect, and also raise the minimum standard of the scheme by eliminating rush-hour exemptions? That would enable pensioners in Castle Donington, for instance, to keep appointments at Derby Royal infirmary without having to wait until 9.30 am.
    Dr. Howells: I am sure that my hon. Friend is on top of that quandary for pensioners in his constituency, and can work with local authorities to ensure that proper bus services are provided. The money has not been in short supply. The £300 million that my hon. Friend mentioned is not an inconsiderable sum; it is a very large sum. We are spending huge amounts on bus subsidies, but they are not always used to best effect. There must be a better way of getting value for precious taxpayers' money.

    Railways
    Mr. John Grogan: What representations he has received from Network Rail about the future organisation of the railways. [166170]
    The Secretary of State for Transport (Mr. Alistair Darling): In the course of the rail review, my Department has received representations from a wide range of people in the rail industry, including representatives of Network Rail.
    Mr. Grogan: Given the Government's commendable view that what matters is what works, why not leave the franchise in the hands of South Eastern Trains, which has improved punctuality dramatically since the demise of Connex? To secure two public sector comparators, why not make a similar arrangement for the northern franchise area?
    Mr. Darling: While I am always the first to welcome an improvement in performance, I must tell my hon. Friend that the performance of South Eastern Trains has improved by almost the same amount as that of the other south-east operators. It does not necessarily follow that the fact that the Strategic Rail Authority is currently running the franchise has led to the improvement; it is also due to Network Rail's improved performance.
    During the review I have made it clear that I consider the principle of both public and private participation in the industry to be important and beneficial. Apart from anything else, the private sector brings in almost as much money as the public sector. Although Connex was undoubtedly a supreme example of a bad franchisee, there are many good private sector operators, and some

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    are an awful lot better than British Rail was. It is not necessarily the case that the private sector is bad and the public sector is good.
    Pete Wishart: To assist in the debate about the future organisation of the railways, is the Secretary of State in a position to tell us more about what powers he intends to devolve to the Scottish Executive and other regional bodies? Is he impressed with the contribution of the Federation of Small Businesses in Scotland—it has enjoyed great consensus—which has suggested that perhaps the solution to the Scottish railway problem is to devolve all powers to the Scottish Executive?
    Mr. Darling: I suppose that it follows from the hon. Gentleman's philosophy that, as he does not like England, he would not want railway lines going beyond the border. If he thinks about the logic, let us suppose that Scotland were responsible for all mainline track. Correspondingly, the English attitude to upgrading track in England would be to stop investment at Newcastle and probably at Preston, because it would not be worth going beyond that. The fact is that we have a national railway network, and Scotland benefits from that. For example, when the east coast main line collapsed at Dolphinstone outside Edinburgh three or four years ago, Network Rail was able to step in and do something about that immediately, because although the sums needed were large, they were not for Network Rail. I reject the idea of balkanising Britain's railways, although I understand that that is entirely in tune with the nationalist philosophy.
    In relation to devolving further powers to the Scottish Executive, we are considering that as part of the review. I made that clear on 19 January, and we are continuing to discuss with the Scottish Executive and others how we do that. We are also discussing that in relation to the Welsh Assembly and some of the English passenger transport executives.
    Mr. Graham Stringer: I would not want to balkanise the railway system in any sense. I am sure however, that my right hon. Friend is aware that about £750 million is spent on rail in Greater Manchester. The vast proportion of that money is for local rail services not national rail services. Would it not be sensible, in any future reorganisation, if the proportion of money that is for local services were handed over to the passenger transport executive, so that it could make rational choices to improve the rail system, and rational choices between heavy and light rail and the bus system to provide a better integrated transport system in Greater Manchester.
    > Mr. Darling: I have a lot of sympathy with what my hon. Friend says. I see that a small part of the recent Transport Committee report on the railways suggested that we should do just that. As I said in my statement on 19 January, one of the things that I want to consider is being able to give more responsibility to PTEs to choose between, say, rail, light rail and bus services. There are far too many areas in which people regard rail as a free good, and they do not make sensible choices between other modes of transport. As I said a moment or two ago, in reply to the hon. Member for North Tayside
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    (Pete Wishart), devolving power, not just to Scotland and Wales but to the English PTEs, is an important element, because when looking at Britain's railways, it does not follow automatically that heavy rail is the solution for local transport. Indeed, Greater Manchester, with its metro system, is a very good example of an alternative to heavy rail having been highly successful.
    Mrs. Theresa May: The Secretary of State has just confirmed the importance of private sector investment in improving the railways. He has said in the past that the train operating companies have brought innovation to services, which was lacking. Will he now confirm that his future reorganisation of the railways will maintain the access to the fare box that has enabled train operating companies to compete and innovate in the interests of passengers?
    Mr. Darling: It is important that the right incentives and rewards exist to enable private operators to be confident in investing in the railways and to get a proper return for doing that. As the hon. Lady will know, the whole point of the review is to look at all the options and to make sure that proper incentives and rewards exist. Let us be in no doubt: I am determined that we should maintain the present system in which there is substantial private sector involvement in the railways, as the railways as a whole will be better for that. What is lacking at the moment, however, is a coherent system of management to enable the railways to be run properly, which the review will also set out to achieve.
    Mrs. May: The current system of management of the railways is the one that this Government set up when they established Network Rail and the Strategic Rail Authority. Following the reorganisation that led to Network Rail, the Government announced a series of performance benchmarks for improvements on the railways. Will the Secretary of State confirm that the key benchmark of improving punctuality and reliability has been missed in eight out of the last 10 quarters, and that with reduced services, such as stations closing in Kent, longer journeys for commuters from Maidenhead and Twyford, and cuts in cross-country services, passengers are beginning to ask whether the Government are capable of delivering any improvement on the railways? Is not the spirit of Dr. Beeching alive and well in the Department for Transport?
    Mr. Darling: We must admire the hon. Lady's brass neck, if nothing else. There is probably limited value in going back over old ground about who is to blame for what. [HON. MEMBERS: "Go on."] All right; just for one moment. I remind her that Network Rail was set up because Railtrack, the creature of privatisation, was an abysmal failure. Virtually no one in the country remains in that small and select band, the friends of Railtrack, but she is one of them. As she ought to know, performance is gradually improving across the network. She mentioned cross-country trains and was critical of the decision to thin the services. As a result of that service thinning, reliability has gone up dramatically. The problem was—[Interruption.] I will tell the hon. Lady what was happening. Railtrack oversold the space on the railways, with the result that they became

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    congested and timetables became unreliable. That was a direct result of privatisation and the failure to have a coherent management. If the hon. Lady wants to go into the next election defending the privatisation of the 1990s, let her. For our part, we will go into the election with a reorganised railway which makes sense and which works. I remind her that, last year, Britain's railways carried more passengers than at any time since the 1960s.
    Several hon. Members rose—
    Mr. Speaker: Order. May I gently remind the House that I have an Order Paper to get through and I could do with some help? We are on question No. 2 and it is a quarter to 12.
    Mr. Tony Clarke: In his future discussions with Network Rail, will my right hon. Friend raise the plight of Northampton commuters and make sure that promises made by rail operating companies when they come looking for public expenditure are kept post-expenditure? Ten years ago, trains from Northampton to London took less than an hour. We have now had 10 years of disruption. The west coast main line is still not finished and the rail operating companies are promising us longer train journeys and fewer trains. When will Northampton get more fast trains and shorter journeys? When will the promises made by operating companies be kept?
    Mr. Darling: I am aware of the problems and, in view of your instruction, Mr. Speaker, I shall be brief. I shall get my hon. Friend the Minister of State to write to my hon. Friend about that issue.
    Chris Grayling: Which rail projects outlined in the 10-year plan he expects will not be completed by the end of the 10-year period. [166171]
    The Secretary of State for Transport (Mr. Alistair Darling): The plan set out investment for both the public and private sector over 10 years and substantial progress is being made. Delivery of projects depends on a number of factors including controlling costs and improving performance.
    Chris Grayling: The Transport 2010 document is a work of fiction in many parts. At its launch, the Deputy Prime Minister said that it presented an ambitious vision of what we could achieve by 2010. Has the Secretary of State seen the map on page 48 of the new rail projects to be opened by 2010, on which virtually no work has even started and there is certainly little chance, if any, of them being completed by 2010? Does he now regret the promises made by the Government? What does he plan to do to ensure that some of the projects are completed any time soon?
    Mr. Darling: One way of ensuring that these projects are delivered is not to have a Conservative Government, who would be committed to £600 million of cuts in railway expenditure. Let me give two examples from the map to which he refers. One is the channel tunnel rail link, the first high-speed railway line to be built in this
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    country for 100 years. The first phase is now open and there are more passengers going between London and the continent. Another example is the west coast main line, a project that was in complete ruins under Railtrack, the friends of the hon. Member for Maidenhead (Mrs. May). It is now having £7 billion spent on it and most of the first stage of the work will be completed this year. It will take half an hour off the Manchester run and, when completed, will take nearly an hour off the Glasgow run. Those are two good examples of what investment in the railways can bring under a Labour Government.
    Dr. Alan Whitehead: Does my right hon. Friend continue to endorse the importance that the 10-year transport plan places on the role of major ports as transport hubs, and as vital to our international trade? Does he continue to endorse the improvement of rail freight use to those ports as a key element of freight strategy? In the light of the decision, announced by the Government this morning, on the future of Dibden bay and the expansion of Southampton port, will he give additional priority to the upgrading of the rail link between Southampton and the west midlands to ensure that Southampton freight can travel efficiently on the rail from the port to its destinations?
    Mr. Darling: Yes, it is important that we improve rail links between our ports and other parts of the country. I understand the disappointment that my hon. Friend will have felt at the decision on Dibden bay, but I am sure that he will accept, in the light of the inspector's report and the overwhelming environmental difficulties there, that the Government's decision is right. I say to him and to the House that that decision was made on the individual application. There are other applications for port developments in other parts of the country, on which the Government will decide in due course. The decision on Dibden bay was taken entirely on the application's own merits, and those alone.
    Dr. Julian Lewis: As the MP who represents Dibden bay, I welcome the contribution of the hon. Member for Southampton, Test (Dr. Whitehead). It is only a pity that the Government did not think about upgrading the railways in that connection from the outset. I congratulate the Government on their decision on Dibden bay, in a classic case of David outwitting Goliath. We thank the Government for listening to our community, for observing the environmental safeguards and for taking the right decision today.
    Mr. Darling: I am sure that the hon. Gentleman will tell his constituents of the many gains that a Labour Government have brought to them, of which this is, apparently, one. On the hon. Gentleman's point, protecting our environment is crucial, but most Members accept that it is also important to ensure that we have adequate port development throughout the country. Where that port development is situated will depend on a range of circumstances, many of which are being considered in inquiries that are currently under way, or are about to get under way. As I said, that particular decision was taken on its own merits, and one cannot read anything wider into it.

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    On the more general point, the hon. Gentleman is quite right to say that rail links between ports and other parts of the country are important. I am pleased to say that the railways are carrying more freight than they have done for a long time, which perhaps indicates the success of investing in railways.
    Jonathan Shaw: I welcome the Strategic Rail Authority's decision that the channel tunnel rail link domestic service will stop in the Medway towns, but does my right hon. Friend understand my concerns, and those of my hon. Friends in the Medway towns, at the SRA's proposals to reduce the number of fast services to Victoria and to reduce services to Cannon Street? If the Thames gateway is to meet all our ambitions, we must have increased rail capacity. Will my right hon. Friend talk to the Office of the Deputy Prime Minister and the SRA to ensure that there is joined-up government between the SRA, the ODPM and the Department for Transport so that we get the rail services in Medway that we need for the future?
    Mr. Darling: I am aware of the continuing debate and controversy on the Kent services, and we must come up with a solution that is workable as well as affordable. The consultation is still under way, but I am very aware of the points that my hon. Friend makes.
    Mr. Paul Marsden: Can the Secretary of State explain why the safety radio system, GSM-R—Global System for Mobile Communications for Railway—has been delayed for a second time? It is vital for signallers and drivers. Will he assure the House that that delay will not affect safety or reliability, given that from 2006 the existing system will be prone to interference from other users using the same frequency?
    Mr. Darling: Network Rail is injecting a dose of reality into the project that the hon. Gentleman mentions. Far too many rail projects that were got up during the last few years when Railtrack was around were totally unrealistic in terms of feasibility, affordability and deliverability. The project is being examined closely to ensure that it is realistically planned and has a better chance of being delivered.
    On safety, I remind the hon. Gentleman and the House that the train protection warning system is now fitted on all the track where it is supposed to be fitted, so drivers have communication. I am satisfied that the effort that Network Rail has put in has been right and has not compromised safety. We spend a lot of time and money ensuring that our railways are as safe as they can be, and the TPWS has gone a long way towards achieving that.

    Severn Bridge Tolls
    Mr. Huw Edwards: How many motorists are registered to pay tolls on the Severn bridge by the tag method. [166172]
    The Parliamentary Under-Secretary of State for Transport (Mr. David Jamieson): The tag system is operated by the bridge operators, Severn River Crossing
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    plc. I understand from them that as of 29 February 2004 a total of 38,893 tags were in use. In February 2004, 22 per cent. of all crossings and 68 per cent. of heavy goods vehicle crossings used that system.
    Mr. Edwards: Does my hon. Friend appreciate the concerns of my constituents who, since the opening of the new bridge, find that the old Severn bridge is used largely for local traffic, and find it irritating to have to pay £4.60 to get back to town when they have travelled only a couple of miles to the east of where they live in Chepstow? Will he consider introducing a better discount system to serve the residents of Chepstow and other parts of Monmouthshire, and perhaps others who live near the bridge?
    Mr. Jamieson: I understand the importance of this to my hon. Friend's constituents, and why he would call for a concession for local residents, but if that was imposed by the Government, the operators would almost certainly want to re-finance the deal, which would push back the estimated date of 2016 for the removal of the toll. Those who buy a monthly tag and use the bridge more than 18 times already receive some concession. Any other form of concession would put a considerable burden on the public purse. Perhaps he would like to raise the issue with the Welsh Assembly Government, but I can tell him that there is no easy or low-cost solution.
    Mr. Simon Thomas(PC): Surely that last point is part of the answer. The Richards report has recently come out in Wales, and further devolution to the National Assembly is likely. Surely the future for both Severn crossings is now part of an overall package of road pricing for the whole of the motorway network in south Wales, and it would be better to transfer the responsibilities over a period from the Minister's Department to the National Assembly, to better reflect the views of local residents and the national needs of Wales.
    Mr. Jamieson: We cannot now unpick the Act of Parliament that set up the two bridges. The hon. Gentleman's constituents may not be experiencing the same problems as the constituents of my hon. Friend the Member for Monmouth (Mr. Edwards) but perhaps they can join forces to see whether the Welsh Assembly Government can find a solution, or whether the operators themselves can come up with something. We would be happy to assist in that, but I repeat that there is no easy or low-cost solution.
    Mr. Ken Purchase: Just up the road from the Severn bridge, although it is early days, we have a very successful toll road round the eastern side of our west midlands conurbation. In view of that success, which has eased congestion on the M6, linking to the M5 to the Severn bridge, may I urge the Minister to revisit his consideration of the orbital road around the western side of the west midlands conurbation, especially in relation to tolling?
    Mr. Jamieson: First, I congratulate my hon. Friend on his ingenuity in getting in that question in this

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    context. I recognise the success of the M6 toll—I have used it myself—which considerably reduces journey times north and south around the north of Birmingham, and I am sure that his points will be given careful consideration.

    Speed Cameras
    Bob Russell: If he will estimate how many (a) lives will be saved and (b) serious injuries will be prevented in the next 12 months as a result of the installation of speed safety cameras. [166173]
    The Parliamentary Under-Secretary of State for Transport (Mr. David Jamieson): The independently produced evaluation report of the two-year trial of the safety camera cost recovery scheme showed a 35 per cent. reduction in the number of those killed or seriously injured at camera sites. A report covering the third year of the programme's operation is due to be published shortly.
    Bob Russell: I am grateful for the Minister's encouraging response. Will he confirm that by the end of today—as of any other day in the year—it is likely that about 10 people will have been killed and scores of people seriously injured on our roads? Against that background, can he understand the logic of those who encourage law-breaking? How many deaths are those people prepared to tolerate? Should they not be made to visit some of the families of people who have lost their lives because of excessive speed?
    Mr. Jamieson: The hon. Gentleman makes a very salient point. Last year's report on the eight pilot areas showed a reduction of about 500 collisions in those areas alone. Many of those collisions would have led to death or serious injury. Since cameras have been fitted throughout the country, we have seen a dramatic fall, particularly in death and injury to children, which is most significant. There has been a 35 per cent. reduction in three years. I agree that the people calling for the cameras to be removed—we may hear from the hon. Member for Ashford (Mr. Green) in a few moments—should reflect on the consequences of their policy and assess how many additional deaths of children and elderly people are likely to follow from it.
    Mr. Bill Olner: I welcome the Minister's announcement about the reduction in the number of road injuries and deaths. Those who campaign for the removal of cameras should have on their conscience the consequences for the victims of road traffic accidents. However, I implore the Minister to look further into the issue of speed cameras on motorways. I agree that those cameras are effective when men are working on the motorways, but for long stretches and huge amounts of time there are no roadworks. With modern-day telematics, surely there could be variable speed limits for various parts of the day.
    Mr. Jamieson: My hon. Friend is absolutely right to say that people calling for the removal of the cameras should also answer the question of how many more casualties will result at those sites. He will know that
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    there are very few speed cameras on motorways, which are the safest roads in the country. The few areas where cameras are placed permanently are usually where there has been a record of serious injury or death or where there are roadworks. The figures show that in 18 months, 11 people working on the roads were killed. As I said earlier, I hope that we hear from the hon. Member for Ashford today. Regular attenders of Transport questions will know that we have still not heard about the 4,000 sites that he alleged had cameras in the wrong places. Perhaps we will hear from him some time today.
    Mr. Patrick McLoughlin: Do lorry drivers from foreign countries who are caught on speed cameras have to pay the fine?
    Mr. Jamieson: That is indeed a problem. In association with our colleagues in the EU, we are looking into the problem of tracking down foreign drivers for the payment of fines. The issue of fines and other penalties across the Union is a matter of concern and we are also worried about the number of foreign vehicles in this country that may not be taxed or insured.

    M1 Multi-modal Study
    Dr. Nick Palmer: If he will make a statement on action he plans as a result of the M1 multi-modal study.[166174]
    The Parliamentary Under-Secretary of State for Transport (Mr. Tony McNulty): Last week, we announced that we were putting a £1.9 billion scheme to widen the M1 in the east midlands into the targeted programme of improvements. That will now be taken forward by the Highways Agency. Work to progress other elements of the study's recommendations is being co-ordinated at various stages within the region.
    Dr. Palmer: Together with Broxtowe borough council, I am concerned that the multi-modal study is being cherry picked and that we are seeing a celebration of the roads programme with insufficient progress made on other elements. I am sure that my hon. Friend would agree that the point of a multi-modal study is to integrate the different modes of transport. Will he assure the House that the other elements of the proposals will be taken with equal seriousness?
    Mr. McNulty: I can tell my hon. Friend that, together with various stakeholders and key players in the region, we are progressing as much as we can on all elements of the multi-modal study across the piece, whether it be public transport, road or other elements. I can understand the frustration about the time involved in the process: in some cases it means local authorities making bids for the local transport plan—in conjunction or separately. We are seriously considering the outcome of this and other multi-modal studies across the piece, incorporating public transport as well as road elements.
    Mr. Damian Green: The Minister will know that drivers on the M1, especially in the west and east midlands, will want the multi-modal study to lead to easier, smoother driving on the motorway. In

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    that regard, may I congratulate him and his ministerial colleagues on hinting to selected media that they propose to adopt the Conservative proposal for an 80 mph maximum speed limit on the M1 and other motorways? Can he confirm that he has stolen that very good policy, and may I assure him that we have many more good policies—on speed cameras, uninsured drivers and road humps—that he would be well advised to steal as well?
    Mr. McNulty: The hon. Gentleman might find that he would have more integrity in the House if he had risen during the last question and answered the points made by my fellow Under-Secretary about his previous little wheeze for endorsing those who would break the law on speed cameras. Many, many motorists will welcome what we have already announced in the programme of almost £2 billion for the M1, as they will welcome much of what we have done, in a concentrated and focused roads programme, for further improvements to the M1.
    We take very seriously all suggestions for policies, however bonkers they may be, and we shall put those of the Conservative party into the mix, too. I encourage the hon. Gentleman to pursue his transport policies, because the more he talks about a clear transport policy for the Tories, the more he ensures that he will remain on the Opposition Benches for a long, long time.

    Railway Stations
    Mr. Archie Norman: What plans he has to increase investment in railway stations. [166175]
    The Minister of State, Department for Transport (Dr. Kim Howells): Considerable investment has already been allocated to station improvement by the Strategic Rail Authority, Network Rail and, indeed, the train operating companies, but any proposal to increase investment in railway stations over the coming years will be subject to the availability of future funding, following the Government's spending review later this year.
    Mr. Norman: Does the Minister recall that in successive answers to parliamentary questions, Ministers have reassured Members that resources would be made available and steps taken to ensure that stations meet the requirements of the Disability Discrimination Act 1995? Yet throughout the country, stations such as mine in Tunbridge Wells remain completely non-compliant, no resources have been forthcoming and neither Network Rail nor the train operating companies will take responsibility. In this day and age, does the Minister think it acceptable that disabled people have to make an appointment to be carried down stairs or through tunnels so that they can catch a train and, if not, what does he plan to do about it?
    Dr. Howells: The hon. Gentleman is right: there should not be a system whereby people have to book help to get down stairs. I understand from South Eastern Trains that all stations in the hon. Gentleman's constituency have access problems; that the company has conducted an audit to identify what is required to ensure compliance with the DDA; and that the information has been passed to the SRA. I can also tell
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    him that the SRA is considering how best to prioritise the programme of works to ensure that all stations and train services meet the accessibility requirements of the Act; the implementation works will be subject to the availability of funding.
    However, I understand from South Eastern Trains that stations in the hon. Gentleman's constituency are due for the general tidy-up—repainting, cleaning of graffiti and so on—that they certainly require. Furthermore, on taking over responsibility for the franchise, SET found that there was 20 per cent. shortage of staff, so the company has undertaken a recruitment exercise and expects to be fully staffed by August. I shall certainly follow up the specific cases that the hon. Gentlemen raised about access to and from platforms, but I hope that he will welcome the fact that we have an indication that there could be a general improvement in the state of those stations.
    David Cairns: Through my hon. Friend the Minister, may I thank the Secretary of State for his staunch support for the regeneration of Gourock station in my constituency? Is it not the case that when a station is redeveloped, it can have a very beneficial knock-on effect on the regeneration of the surrounding area? That would certainly be the case in Gourock, where major benefits would flow. To that end, can my hon. Friend ensure that his Department continues to support the regeneration of the station and encourages Network Rail Scotland to spend the money that has already been allocated in its budget wisely, as part of a partnership to ensure the broadest possible regeneration for Gourock when the station is developed?
    Dr. Howells: I can give my hon. Friend the reassurance that my right hon. Friend the Secretary of State is in discussions about that issue at the moment.
    Mr. John Horam: What are the Government's intentions towards investment in London Bridge station? As the Minister and his colleagues will be aware, that station is a huge bottleneck for trains coming in from south-east London and Kent, a fact which has led, among other things, to the Strategic Rail Authority's absolutely disastrous proposals in the integrated Kent franchise to cut peak-hour trains from south-east London. For example, Petts Wood trains are being cut by about a half at peak times and trains from Chelsfield to London termini by about two thirds. Does he not think that it is much better to invest relatively small amounts in increasing capacity at such stations, rather than cutting services, which inevitably leads to even more overcrowding?
    Dr. Howells: I understand that London Bridge is Britain's busiest railway station, and if we could sort out the problems there, it would increase capacity of services in the south-east a great deal, as the hon. Gentleman suggests. However, that is not an inexpensive project—it could be very expensive—and it has been bedevilled by planning problems, such as the future of Borough Road market. The pinch point that the hon. Gentleman mentions runs directly over the roof of the market. Those engineering problems are not easy to sort out, but I have visited the area twice recently and I understand

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    that there are now some feasible engineering solutions to those problems that could well allow us to build at least another track there, which would do a great deal to increase the capacity of the lines in and out of London Bridge station. The hon. Gentleman is right to point out that that is one of the key projects on the British rail network, and it will probably offer very good value for money if we can find a way to solve the list of complex issues that bedevil the regeneration of that station.
    Mr. Barry Sheerman: Does my hon. Friend agree that the best investment that we could possibly make in stations is to stop them being unmanned or unpersoned? I have seen newly painted stations where the graffiti has been wiped out and the stations have been cleaned up, but the graffiti starts to appear again the next day because the stations are unpersoned or unmanned. We will not get accessibility—[Interruption.] I am making a very serious point; I do not know why the Minister finds it amusing. The fact is that people have access to railway lines. Given what they put on railway lines, if they have free access 24 hours a day, with little surveillance, it will lead to another serious accident on the railways. I believe that unmanned stations will lead to accidents, and my hon. Friend should take that seriously.
    Dr. Howells: I assure my hon. Friend that I take it very seriously. I was smiling in sympathy at his struggling with a number of phrases, such as "unmanned" and "unstaffed" and so on.
    We are very concerned about the fact that people should feel safe and secure at stations, and the best way to do that is to ensure that staff are present to meet the train when it arrives and to make sure that everyone is on the train safely when it leaves. Unfortunately, of course, there are a great many stations where the number of people passing through is very small—a tiny number—and it is not economically possible to ensure that there are staff at such places 24 hours a day.
    We have safe station schemes—I visited one in Hereford recently—whereby, without much money being spent, a guarantee is given that staff will be present to meet trains and to see people off on them, and the performance and the state of the station are improved very dramatically. My hon. Friend makes a very important point, but we must be careful to hedge it by pointing out that such things cannot happen at every station and halt in this country.

    Travelling Costs
    Norman Baker: If he will make a statement on the relative changes in the cost of travelling by (a) car, (b) train and (c) bus since 1997. [166176]
    The Parliamentary Under-Secretary of State for Transport (Mr. Tony McNulty): Between 1997 and 2003, the real-terms cost of travelling by car fell by 4.8 per cent., the cost of travelling by train rose by 3.0 per cent. and the cost of travelling by bus rose by 8.2 per cent.
    Norman Baker: Are not those figures an admission of failure in Government transport policy—not only undermining the Government's social inclusion agenda, but encouraging a modal shift from buses and trains to
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    cars? What practical steps—I emphasise the word "practical"—other than hand wringing will the Government take to encourage a real cut in the fares charged by public transport operators? In particular, will the Minister consider the example in my constituency, where South Central, at my request, has cut season ticket fares between Eastbourne and Lewes and Seaford and Lewes by a third, which has led to a 35 per cent. increase in season ticket sales and a 30 per cent. increase in passenger traffic? Is not that the sort of example that he should be championing?
    Mr. McNulty: I suppose that one should not be shocked by the typical mischievous Liberal distortion of statistics. Those figures far more readily reflect the decrease in the overall cost of motoring than the increases in fares. Whether to make deals on fares is entirely up to the franchisees in any area. Significant improvements in bus services throughout the country are plugged in directly to the social inclusion agenda. The hon. Gentleman knows that, overwhelmingly, the 10-year plan and the new review of it are rooted in an integrated transport programme with public transport at its core. However, I look forward to seeing punitively high taxation on motorists in the Liberals' next shadow Budget, which is the inexorable logic of the hon. Gentleman's posturing.
    Mr. Michael Jabez Foster: Does my hon. Friend agree that the secret is to get more people on the buses, and that the easiest way in which to do that would be to give free transport to pensioners countrywide? That would be good for the environment and for pensioners, and it would reduce bus losses.
    Mr. McNulty: My hon. Friend knows that since 1997, because of what the Labour Government have done rather than posturing, pensioners throughout the country experience at least half fares. We have examined and will continue to examine, among other things, the cost of going further than that, but it is only because of what the Labour Government have done since 1997 that pensioners are now in a far better position in terms of public transport than they were under the previous, miserable Administration.
    Sir Nicholas Winterton: Will the Minister deal with my question seriously, because it is genuinely of great concern to my constituency? Bus companies have dramatically increased the cost of the provision of services to Cheshire county council, which seeks to subsidise rural and other routes. As a result, and because of capping and the other problems facing councils, there has been a substantial reduction in the number of routes for which the council has been able to provide a subsidy. I am concerned that the bus companies have increased costs—the charges—by between 35 and 50 per cent. Will he look into the matter?
    Mr. McNulty: I shall of course look at the case in some detail, and if the hon. Gentleman wants to discuss it, I shall be more than happy to meet him. I have two further things to say to him. First, I answer every question seriously. Secondly, if behind his question is a hint that there should be significantly higher public subsidies for buses, especially in shire areas, he should

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    have a word with his Front Benchers about how that would fit in with a £600 million cut in transport provision, should the Conservatives ever get near the Government Dispatch Box.

    Uninsured Drivers
    Chris Bryant: What estimate he has made of the average number of uninsured drivers on the road on any one day in the past 12 months. [166177]
    The Parliamentary Under-Secretary of State for Transport (Mr. David Jamieson): My Department takes the problem of uninsured driving seriously. The insurance industry estimates that about 5 per cent. of motorists drive without insurance. The Association of Chief Police Officers of England, Wales and Northern Ireland recently conducted a survey, checking vehicles across the United Kingdom. The results of that survey are being collated and we will study them most carefully.
    Chris Bryant: Bearing in mind the significant number of uninsured drivers and the appalling expense and inconvenience caused to those who are involved in accidents with such drivers, is it not time that we considered having a joint tax and insurance disc—or at least ensuring that when someone buys a disc for six or 12 months, they can prove that they are insured for the whole period, not just for the day they go into the post office?
    Mr. Jamieson: I note my hon. Friend's interest in this important matter, which he is right to raise. I assure him that I think that uninsured motorists are a menace on our roads. We have not discounted the use of insurance discs on windows, but we have asked Professor David Greenaway to conduct a full inquiry into uninsured driving and we expect his report shortly. We shall examine the recommendations and implement them rapidly. We want tough measures to be taken against those who are clearly flouting the law.
    Mr. Greg Knight: Does the Minister agree that the problem affects us all, as every motorist pays for uninsured drivers through higher insurance premiums? Transport Ministers have been showing a modicum of common sense recently. We suggested the introduction of a statutory code for traffic wardens—Ministers adopted Conservative policy. We suggested looking at higher speed limits on motorways—Ministers are now looking into that Conservative policy. Will the Minister complete the hat trick and adopt Conservative policy on uninsured drivers by giving courts the power to confiscate the vehicles of repeat offenders?
    Mr. Jamieson: One thing we will not be learning from is the Opposition's transport policy. While we concentrate on safety, they wallow in opportunism. The right hon. Gentleman was quite right, however, that uninsured drivers are a menace, and there is a cost to everyone in our insurance policies and in terms of safety on the road. We will look carefully at Professor Greenaway's report—I hope that he and his party will do so as well, and support the measures that we introduce in the House.

  CABINET OFFICE
  The Minister was asked—
  CABINET OFFICE

    Civil Servants
    Mr. Peter Luff: What recent guidance he has provided to Ministers on the public identification of civil servants they believe are responsible for mistakes made by or within their Department. [166189]
    The Minister for the Cabinet Office and Chancellor of the Duchy of Lancaster (Mr. Douglas Alexander): Ministers are accountable to Parliament for the decisions and actions of their Department. That is clearly set out in the ministerial code and a resolution of the House carried on 19 March 1997.
    Mr. Luff: Has not the Government's treatment of civil servants in general been utterly shameful? Special advisers are given powers over civil servants in the burying of bad news; the Lord Chancellor is held to be in contempt of Parliament for his treatment of a civil servant; and recently a Home Office Minister blamed an individual in her private office for policy errors for which she should have carried responsibility. If the Government are to squeeze an extra Bill into the legislative timetable, should it not be a long overdue Civil Service Bill, not a Bill to ban hunting?
    Mr. Alexander: I am intrigued by the Opposition's legislative priorities, as I have previously noted that a Bill that won the support of the Opposition included a provision for executive powers for special advisers retained under that measure. That said, the Government have introduced a code on special advisers and brought unprecedented transparency to their work in government, so we will take no lessons from the Opposition.
    Paddy Tipping: When drafting the Civil Service Bill, will the Minister look at opportunities to deal with this serious problem, which affects not just individual civil servants but the trade unions as well? Will he confirm that he meets civil service trade unions to discuss those issues?
    Mr. Alexander: I assure my hon. Friend that I meet regularly with the Council of Civil Service Unions. The Public Administration Committee published its own draft Civil Service Bill on 5 January, and my officials are currently preparing a draft Government Bill.
    Mr. Oliver Heald: The Minister holds that it is not important to protect the civil service and define the relationships between civil servants, political appointees and Ministers, but that is not what he said in January, when we called for a Civil

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    Service Bill. He promised one then, just as Labour have done every year since 1997, but in the three months since, the Lord Chancellor has been found guilty of contempt of Parliament for his treatment of a civil servant. What a disgrace. On top of that, we have a Home Office Minister—
    Mr. Speaker: Order. I call the Minister.
    Mr. Alexander: Thank you, Mr. Speaker. I shall try to rescue the Opposition spokesman from the difficulties in which he finds himself. The Conservatives had 18 years in which to introduce a Civil Service Bill, but did not take the opportunity to do so in any of those legislative Sessions. We gave a commitment in January in the House, and we will honour it.
    Mr. Bob Blizzard: Is it not the case that if something goes wrong in an organisation it will want to know exactly what happened and who was at fault? With the civil service, however, when the issue comes to public notice, the media's thirst for news makes it inevitable that the identity of civil servants who prove to be at fault will come out. Should we not reflect that reality in a new Civil Service Bill?
    Mr. Alexander: I will bear in mind my hon. Friend's comments in relation to the work that is under way on the Civil Service Bill. As regards some of the specific cases in the news in recent months, there is little that I can usefully add at this stage.
    Norman Baker: Is not the question whether civil servants make mistakes sometimes difficult to establish because of the confusion over the role of special advisers? Can the Minister explain, for a start, why Jonathan Powell should have the right to issue orders to civil servants? Would it not also be helpful if there were a process for identifying publicly the mistakes made by special advisers, such as some of the rubbish put forward by Lord Birt?
    Mr. Alexander: The basis on which power is exercised in Downing street by Mr. Jonathan Powell was made clear in the Order in Council when Labour came to power in 1997. As I said, it is significant that the Conservatives chose to support a draft Bill earlier this year that maintained the power of two executive positions in Downing street for a future Administration. Nevertheless, I shall bear his comments in mind.

    Home Computing Initiative
    David Hamilton: What assessment he has made of how the recently launched home computing initiative will help to reduce the digital divide. [166190]
    The Minister for the Cabinet Office and Chancellor of the Duchy of Lancaster (Mr. Douglas Alexander): Employer-provided home computing initiatives make owning a computer more accessible for many people.
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    Such schemes reduce the costs of acquiring a computer by up to 40 per cent., drive up levels of internet access and use, and improve IT skills as a result.
    David Hamilton: My hon. Friend is well aware that I represent a former mining area. Although I welcome the fact that we are down to 2.5 per cent. unemployment in the area, that camouflages a large number of people who have been long-term sick and long-term unemployed. What access will those people have? What can we do to give them free or low-cost digital access? Is any help available for that?
    Mr. Alexander: My hon. Friend makes an important point. From his work in Midlothian I know of his keenness to tackle long-term unemployment. I know he shares with me pride in the fact that almost 1.75 million more jobs have been created since 1997. On the specific point that he raises concerning internet access in Midlothian, I shall be happy to take the matter up with the Scottish Executive Minister.

    Broadband
    Mr. Michael Connarty: What assessment he has made of the impact of broadband access on the Government's delivery of its e-Government strategy. [166191]
    The Minister for the Cabinet Office and Chancellor of the Duchy of Lancaster (Mr. Douglas Alexander): The UK currently has the third most competitive and extensive broadband network in the G7. Broadband can drive higher take-up of e-government services, as broadband users are around twice as likely to transact online than their narrowband counterparts. Broadband also offers the potential to deliver new and more sophisticated public services, which is why we as a Government are investing more than £1 billion in the period from 2003 to 2006.
    Mr. Connarty rose—
    Mr. Speaker: Order. The noise level in the Chamber is far too high, and that is unfair.
    Mr. Connarty: Thank you, Mr. Speaker. Broadband access is an important topic. If everyone is to have access to the Government's e-agenda, everyone needs to be on broadband, because that is the future of the technology. I note that the Chancellor said that there were rules against state aid, which prevent the development of the market. Is it not time that the Government considered a commitment to 100 per cent. access to broadband in all parts of the UK, and challenged the European Union if it tries to prevent appropriate state aid being made available to brine that about?
    Mr. Alexander: I know of my hon. Friend's concern about the matter and his tireless work on behalf of his constituents. It is worth pointing out for the sake of perspective that there are 40,000 new connections to broadband taking place each week. At the end of February 2004, research revealed that the UK had reached an estimated 3,523,350 broadband customers.

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    That is tremendous progress. I shall bear my hon. Friend's comments in mind and pass them on to the Chancellor in due course.
    Mr. Robert Key: Broadband access in rural areas is essential. It is a lifesaver for hard-smitten rural economies, and the Government are not moving fast enough in that regard. For example, can the Minister explain why, when it comes to the delivery of e-local government services, there are no grants available for parish councils and town councils?
    Mr. Alexander: The hon. Gentleman is no doubt aware that there is the £30 million UK broadband fund, which is taking forward that work. I find it intriguing, to say the least, that a party that seems to support a reduction in the funding for the Department of Trade and Industry is simultaneously pleading for more money for broadband in its members' constituencies.

    Departmental Procurement
    Andrew Selous: What the Cabinet Office policy is on buying British goods. [166192]
    The Minister for the Cabinet Office and Chancellor of the Duchy of Lancaster (Mr. Douglas Alexander): In line with Government policy, my Department bases all procurement decisions on value for money. Information on nationality of companies is recorded only for contracts subject to EU advertising procedures. During 1999–2002 eight such contracts were advertised, of which seven were awarded to British suppliers.
    Andrew Selous rose—[Interruption.]
    Mr. Speaker: Order. Once again, the Chamber must be quiet to allow the question to continue.
    Andrew Selous: There are unemployed motor workers in my constituency following the closure of the Vauxhall plant. Will the Minister explain why 80 per cent. of ministerial cars an not made in Britain?
    Mr. Alexander: The United Kingdom produces more cars than ever before. Procurement laws apply not only to this Government but to all previous Governments, which explains our decisions.

Europe
12.30 pm
The Prime Minister (Mr. Tony Blair): With permission, Mr. Speaker, I will make a statement on the forthcoming negotiation over the new European treaty. In parallel, the Foreign Secretary is today publishing a White Paper on Europe.
On 1 May, the European Union will enlarge from 15 to 25 members, which will be the biggest increase in Europe's size and will reunify Europe after the travails of Communist dictatorship in eastern and central Europe. It is an historic event that this British Government, and the previous Government, have championed. Whatever problems it poses—we see them in the anxiety over prospective immigration—let us be in no doubt that the prospect of EU membership, together with the courage of the Governments concerned, is the primary reason why those countries have been able to reform their economies and politics so radically and so beneficially, and such change is in the interests of all of Europe. I say unhesitatingly that enlargement is right for Europe and for Britain, and that this country should support it.
In addition, Bulgaria and Romania are set for membership in future years, taking the numbers to 27. Turkey is now taking extraordinary strides on democracy, human rights, economic change and the resolution of the conflict in Cyprus, which would have been unimaginable just a few years ago, under the impulsion of future EU membership. Within the space of a few years, Europe will be transformed, and it will be easily the strongest political union and greatest economic market in the world. Britain should be at the heart of it. That is its right and its destiny.
Because of enlargement, Europe is sensibly seeking to change the way it works. In a Europe of 25, 27 or 28, a rotating six-month presidency makes no sense. The use of the veto should be confined to the areas in which it is truly necessary; otherwise, decision making becomes paralysed. In certain areas—terrorism, security, economic reform and the environment—Europe must do more and do it better.
The new constitutional treaty is designed both to answer the challenge of enlargement and to bring together in one treaty what is currently found in two separate treaties. Indeed, a significant part of the new treaty is the repetition of articles that are already in force. I want to make it clear that Britain will co-operate fully in helping Europe to work better, but to work better as a Europe of sovereign nation states. Maintenance of control of our affairs is essential in certain areas of policy. The national veto must remain in areas such as taxation, foreign policy, defence, social security, how the essentials of our common law and criminal justice system work, and treaty change, and we will insist on the necessary amendments to the current draft treaty to ensure beyond doubt that it does. On that basis, the treaty does not and will not alter the fundamental nature of the relationship between member states and the European Union.
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After ratification by all member states, the new treaty will probably take effect in 2007, with certain key provisions taking effect in 2009. Until then, the key provisions of the Nice treaty will remain in place. If the new treaty contains those essentials, we believe that it is in Britain's interest to sign it. It will replace the six-month rotating presidency with a full-time chairman of the Council—a vital step away from federalism—enabling the Council, which is, of course, the repository of individual European Governments, to become the body that sets Europe's agenda. For the first time, the new treaty will allow national Parliaments the right to object to Commission proposals for legislation, which is a big advance in subsidiarity. It adds a greater ability to co-operate on areas such as terrorism and cross-border crime which are crucial for the world in which we live, and it gives a bigger role for enhanced co-operation between some of the member states, where not all of them wish to participate in certain areas.
That is what the treaty, if amended in the way that we seek, will actually do. Ever since its inception, however, the myths propagated about it have multiplied in those quarters, political and media, which we know to be hostile not just to this treaty, but to the whole notion of Britain playing a central role in Europe. For example, that the EU will be renamed the "United States of Europe". No, it will not. It is to remain the European Union. [Interruption.]
Mr. Speaker: Order. Her Majesty's Opposition wanted this statement to be made. It does no good to shout down the Prime Minister. I will not tolerate it.
The Prime Minister: That the Queen will be replaced as our head of state by an EU President of the Council. In fact, we already have a President of the Council, and always have had. Or that Britain will be forced to join the euro, without a referendum and regardless of the economic tests being passed. No, it will not. The existing agreements on the single currency remain in the new treaty. That Britain—this was said by the Opposition—[HON. MEMBERS: "No!"] Yes, it was. That Britain could not mount a future Falklands war or Iraq campaign without permission from Brussels. Yes, we could. Defence is to remain unanimous and the prerogative of the nation state. Or that we will lose our seat on the UN Security Council. No such provision exists. Or that Brussels will seize control of our oil supplies. No, it will not, and the treaty will make that clear. Or that Brussels will have the power to set taxes in Britain. Taxation is to remain with the nation state.
Or—another myth from the Opposition—that our foreign policy will now be decided by the EU because the new treaty obliges member states to support Europe's common foreign and security policy
"in a spirit of loyalty and mutual solidarity".
I quote from the draft treaty. Actually, those words are taken from the Maastricht treaty; and in any event, common foreign and security policy is decided unanimously. Or—another myth from the Opposition—that we will surrender control over our borders. It is already agreed that our right to control our borders—secured by this Government in 1997—will be specifically retained in the new treaty. That the assumption of innocent until proven guilty in British law will be scrapped. No such provision exists.

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All those, and many others, such as the hardy perennials about being forced to drive on the right, the Germans taking over our nuclear weapons; and, no doubt, the shape of our bananas, too. Even yesterday, the right hon. and learned Gentleman the Leader of the Opposition asserted that if this treaty were in place, I would be unable as British Prime Minister to go to Washington to talk to President Bush. I know that that might recommend itself to some of my colleagues on the Labour Benches, but it happens to be untrue.
It is all nonsense—myth designed to distance people's understanding of what Europe is truly about and loosen this country's belief in its place in Europe. It has been an unrelenting, but, I have to accept, at least partly successful campaign to persuade Britain that Europe is a conspiracy aimed at us, rather than a partnership designed for us and others to pursue our national interest properly in a modern, interdependent world.
It is right to confront this campaign head on. Provided that the treaty embodies the essential British positions, we shall agree to it as a Government. Once agreed—either at the June Council, which is our preference, or subsequently—Parliament should debate it in detail and decide upon it. Then, let the people have the final say. The electorate
"should be asked for their opinion when all our questions have been answered, when all the details are known, when the legislation has been finally tempered and scrutinised in the House, and when Parliament has debated and decided."—[Official Report, 21 May 1997; Vol. 294, c. 735.]
If Conservative Members object to that, it is a quote from the right hon. and learned Gentleman the Leader of the Opposition, speaking about referendums in 1997.
The question will be on the treaty, but the implications go far wider—as I believe we all know. It is time to resolve once and for all whether this country, Britain, wants to be at the centre and heart of European decision making or not; time to decide whether our destiny lies as a leading partner and ally of Europe or on its margins. Let the Eurosceptics, whose true agenda we will expose, make their case. Let those of us who believe in Britain in Europe—not because of Europe alone, but because we believe in Britain and our national interest lying in Europe—make our case, too. Let the issue be put and let the battle be joined.
Mr. Michael Howard: I begin by welcoming the fact that the Prime Minister has, at long last, seen sense and decided to give the British people their say on a question of such fundamental importance, even though he could not bring himself to utter the word "referendum" in his statement this afternoon.
Six months ago, the Prime Minister stood before his party conference and said, with all the lip-quivering intensity for which he has become famous:
"I can only go one way. I've not got a reverse gear."
Today, we could hear the gears grinding as he came before us, lip quivering once again, to eat all those words that he has pronounced so emphatically for so long. Who will ever trust him again?
Last May, the right hon. Gentleman told us all:
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"We do not need a referendum on whatever constitution comes out of the intergovernmental conference."—[Official Report, 21 May 2003; Vol. 405, c. 1004.]
Last July, he said:
"A referendum would be a gross and irresponsible betrayal of the true British national interest".
Only last Saturday, he was insisting on the radio:
"Our policy hasn't changed."
Perhaps he will tell us this afternoon when exactly it changed. Sunday? Monday? Have we all missed something, or was there a secret weekend Cabinet meeting to agree the change in policy? Was the Minister for Europe speaking for the Government when he told the House only last month that the Government would never
"surrender itself to the populist plebiscites of the Rothermere press"?—[Official Report, 30 March 2004; Vol. 419, c. 1530.]
Clearly, no one told him that the policy was likely to change.
No one told the 319 Labour Members, who all dutifully trooped through the Lobby only three weeks ago to vote against a referendum. They not only voted against it but wrote letters to their constituents, explaining why it would be wrong for Britain. I shall make them an offer: if they want help to explain to their constituents why a referendum is right for Britain, the Conservative research department will be only too happy to assist. There they all sit—having been marched up to the top of the hill only three weeks ago to oppose a referendum and marched down again today—the loyal foot soldiers of the Grand Old Duke of Spin.
Now that popular opinion and parliamentary pressure have forced the Prime Minister to eat so many of his words, let him answer the fundamental questions. First, why has he changed his mind? There was not a word of explanation in his statement. Is it because he knows that he is hurtling towards defeat in the European elections in June? Is it because he knows that he cannot win the argument in the next general election? Perhaps he will tell the House whether his change of heart is a product of principle or a decision based purely on opportunism.
The Prime Minister will remember telling us time and again, "I don't believe it's necessary to hold a referendum unless there's a fundamental change in the nature of the relationship between the member states and the European Union." According to the statement, he apparently continues to believe that there is no fundamental change. Does he now therefore believe that a tidying-up exercise justifies a referendum? That, of course, is not how others see it. The Belgian Prime Minister called the constitution the "capstone" of a "federal state", and the German Foreign Minister says that it is
"the most important treaty since the formation of the European Economic Community",
Why does the Prime Minister not recognise what is obvious to everyone else?
Why has the Prime Minister changed his mind about the timing of a referendum? After all, as recently as 26 March he was telling reporters in Brussels:
"The sooner we do this, the better",
and that a "speedy resolution" would "safeguard Britain's interests".

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If the Prime Minister wanted a speedy resolution to safeguard Britain's interests on 26 March, why does he not want one today? The Government will have our full support for the speedy passage of the legislation necessary to hold a referendum, but there is no case whatever for asking Parliament to spend months on ratification legislation before obtaining the consent of the British people. [Interruption.] After all, it was this Prime Minister who held referendums for the Scottish Parliament and the Welsh Assembly before this Parliament had passed the necessary legislation. He did it, and while at that time many of the details remained unclear, on this constitution all the details will be clear. That is the difference: we shall know what they are. How can the Prime Minister say, "Trust the people—but not just yet"?
The Prime Minister has suggested today that the debate on this constitution is in reality about whether we stay in or out of the European Union. He knows that that is a complete misrepresentation of the facts. Will he now confirm that, in order for the constitution to be adopted, every country must agree to it? It is open to any country in the European Union to reject it, and if any country does so, the constitution will be dead. He knows that that is the position; everyone knows it. That is no doubt why the Foreign Secretary said that the constitution was "not … essential".
Will the Prime Minister confirm, once and for all, that Britain or any other country can reject the constitution and remain a full member of the European Union? If Ireland or Denmark vote no, they will remain in the European Union, and if Britain votes no, we will remain in the European Union.
So let us have no more of this nonsense. Let us have the honest debate about Europe that the Prime Minister says that he wants, not a debate about the Aunt Sallies that his statement was full of, or about bananas or driving on the right. Let us have a debate about the real issues that are relevant to the future of Europe. The European Union has achieved a great deal. Together, we have created a single market of 380 million people. But the European Union is failing to face up to the realities of the 21st century, and the constitution will make that failure worse. It will mean greater centralisation, more regulation and less flexibility. It is the exact opposite of what Europe really needs. Far from solving its problems, it will create more.
Conservatives have an alternative vision for Europe. We want a Europe that is flexible. If some countries want to integrate more closely, that is fine, as long as they do not force other countries to follow them if they do not want to do so. Our policy is simple: live and let live. That is a modern and mature approach that will allow Europe to succeed in the 21st century. It is a far better approach than the centralising, top-down constitution to which this Government are wedded, and which we will continue vigorously to oppose.
The Prime Minister: The right hon. and learned Gentleman went on so long about the U-turn that I got the impression that he did not really like it. When he
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talks about changing one's mind on a referendum, I suppose it is rather like him and the Maastricht treaty, is it not?
Mr. Howard indicated dissent.
The Prime Minister: Did he not vote against a referendum on the Maastricht treaty? I rather think so. I thought I remembered that he did. So I am afraid that I am not the only one who can change his mind.
The biggest change that the right hon. and learned Gentleman indicated today, however, was on the view that we should not have a parliamentary debate in the House on the detail of what is a 300-page document, before the people have their say. This is what the right hon. and learned Gentleman said when we were debating Scottish and Welsh referendums:
"A pre-legislative referendum is designed to pre-empt parliamentary debate. It is not a new device. The device was the hallmark of continental dictatorships between the wars. European tyrants used the plebiscite to sideline their Parliaments; they used it to suppress the rights and liberties of their citizens."—[Official Report, 21 May 1997; Vol. 294, c. 736.]
That is what the right hon. and learned Gentleman said. I have listened to him: he should be congratulating me.
The right hon. and learned Gentleman says it is a myth that he said yesterday that it would be not me but the president of Europe who would visit the President of the United States, but it is indeed what he said. He said:
"if … the constitution were in force, the president of Europe, not the British Prime Minister, would have met the President of the United States".—[Official Report, 19 April 2004; Vol. 420, c. 25.]
That is exactly what he said. [HON. MEMBERS: "Read on."] I will read the whole paragraph. Does the right hon. and learned Gentleman want me to? Yes.
"Given that the Prime Minister is always eager to secure the maximum possible agreement in the European Union on such issues, will he confirm that, if such agreement existed and the constitution were in force, the president of Europe, not the British Prime Minister, would have met the President of the United States last week?"—[Official Report, 19 April 2004; Vol. 420, c. 25.]
It does not get any better on a second reading.
These are the myths. In fact, if anything convinced me of the case for a genuine debate in Parliament and then in the country, it was the fact that not once in his response to me did the right hon. and learned Gentleman get down to the details of the constitution. There is a very simple reason for that. He is not against a particular provision of the constitution; he is against it in its entirety. Exactly: the Conservatives nod.
The right hon. and learned Gentleman's position is not that we should amend this phrase, this clause or that article in the constitutional treaty, but that we should get rid of the whole thing. [Interruption.] "Quite right," they say.
Let us just follow that through. This is why the debate will be quite interesting when it is under way. Not one of the 24 other Governments in the European Union agrees with that position: not one. The right hon. and learned Gentleman would have to convince all of them that they should change their position, because any

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treaty change must be agreed unanimously by the Council. In other words, if the right hon. and learned Gentleman wants the whole of Europe to agree to abandon the constitution completely, he will find himself saying either, "We will veto the whole constitution", or "You go ahead as 24 on this basis, without us".
Mr. Howard indicated dissent.
The Prime Minister: I am afraid the right hon. and learned Gentleman is wrong. That is precisely what the European Union would want to do in those circumstances—which is precisely why the case put by his right hon. Friend the Member for Wells (Mr. Heathcoat-Amory), who represented the Conservative party on the Convention, is that we should bring about a situation in which Britain is against the whole constitution and then, as he said, move to a form of associate membership.
Mr. Howard indicated dissent.
The Prime Minister: That is the position of the Conservative party. That is where the right hon. and learned Gentleman will end up, because no one will support his attempt to renegotiate the conditions.
As the debate continues, it will become very clear what the choice is. Either we have Britain at the heart and the centre of Europe, able to play its full part in the European Union, or we end up opting to go down the road set out by the Eurosceptics who now dominate the Conservative party, and fundamentally change the relationship that Britain has with the European Union. That is what is at issue—whether Britain continues at the centre of European decision making, as we passionately believe it should, or we retreat to the margins, where we were when the right hon. and learned Gentleman's party was last in power.
The right hon. and learned Gentleman has already said, for example, that he wants to opt back out of the social chapter—has he not? [Interruption.] That is exactly what he said. And what would that mean? It would mean British workers once more being the only workers anywhere in the European Union without the right to paid holidays.
Mr. Howard indicated dissent.
The Prime Minister: Yes, it would mean exactly that. In 1997 they did not have the right to paid holidays, did they? The Conservative party was against it, and against the social chapter.
That is the debate that we shall have over the coming months. I simply say to the House and the country that it is a debate that everyone who believes in Britain's true destiny in Europe will view with enthusiasm.
Mr. Charles Kennedy: We certainly welcome the Prime Minister's confirmation today that in due course there will be a referendum of the British people on the proposed European constitution. We welcome that, whatever the
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ultimate motives that led the Prime Minister to his overdue decision. I can only express the hope, at the outset, that the co-ordination of a European referendum campaign will be a bit more slick and polished than the co-ordination that led to today's announcement in the House of Commons.
Does the Prime Minister agree that when the referendum comes it must be based on an unloaded, unbiased question which will be subject to confirmation by the Electoral Commission, and that it is best decided after due parliamentary consideration? Does he agree, or at least acknowledge, that one of the subtexts of the dispute, or debate, about timing in which he is now engaged is that—while the other European member states have their own processes, which mirror or will act in parallel with ours, and that is obviously outwith the Government's control—the timing of the next British general election is of course in the hands of the Prime Minister himself? The general election is the only race in the world in which a principal competitor also holds the starting pistol. When it comes to an issue as important as the timing of a referendum on a fundamental matter concerning Britain's role in Europe and the related timing of a general election—if ever there was a case for fixed-term Parliaments, this must surely be it.
It is clear from the exchanges so far that when the referendum comes it will set its own pace and develop its own character. Does the Prime Minister agree that, whatever the expressions of public support over the past year to 18 months, one thing that comes through loud and clear in every analysis of public opinion is that a great percentage of people repeatedly say that they want more unbiased, factual information on which to base their final conclusions about Europe? This campaign must represent the opportunity to provide that.
Does the Prime Minister also agree that, in one of the great missed opportunities of recent years, those of a Eurosceptical or Euro-hostile disposition have been allowed far too much of the running, and that therefore the more quickly the pro-European forces can co-ordinate and make a positive case based on the facts, the better it will be? Does the Prime Minister now propose to move quickly to re-establish a pro-European British campaign, drawn from all political parties and, indeed, from outside formal party politics itself? Does he acknowledge that if the referendum campaign, whenever it comes, were hatched, controlled and spun from No. 10 Downing street, that would not command the confidence or its participants and would not persuade the British public of the desired outcome?
Does the Prime Minister acknowledge that his negotiating position between now and June will be strengthened by today's announcement? Does he acknowledge that that applies particularly to his ability to guarantee the red lines—which, as he knows, we support—especially the maintenance of the national veto over matters concerning constitutional changes, defence, taxation, spending policies, social security and the like? Given his strengthened negotiating stance, will he, between now and June, push for further improvements in the treaty? Not least, will he stress that European Union action should be limited to specific objectives that make sense in the context of nation states, that there must be more enforcement of consistency in regard to EU rulings and laws across

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member states, and that there should be more decentralisation to local communities throughout Europe?
Finally, what discussions does the Prime Minister envisage will take place to decide what will be the umbrella organisation for a pro-European campaign to be registered with the Electoral Commission? Assuming that his Government are in power administering the proposed referendum, will he apply collective Cabinet responsibility or will he take the view of Harold Wilson in the 1970s that it can be suspended?
Surely this is an historic opportunity to settle at last an issue that has bedevilled two generations of British politics and each and every successive Government of whatever political persuasion across those generations. At the end of the day, it will come down, to use the phrase of the leader of the Conservative party, among those of us of all political persuasions where Britain's future engagement in Europe is concerned, to being between those who want to live and let live and those who will increasingly be exposed as wanting, where Britain's future in Europe is concerned, to live and then let die.
The Prime Minister: I can answer briefly on this. We are agreed on the basic position on the treaty and on the measures needed to secure further improvements in it. It is absolutely right that we engage in this debate in a way that allows people to debate the actual details of the treaty. I am sure that that is right. Obviously, the exact nature of any campaign can be decided later, and of course the position is a Government position. It is the Government's view that this treaty should be carried through, and I would expect that to be a Government position.
Mr. Jimmy Hood: I welcome the Prime Minister's statement, particularly his announcement that full and proper parliamentary scrutiny will be applied to the Bill before any referendum. Perhaps history has been made today, because never in my 17 years in the House—and I cannot remember any previous occasion either—has the Leader of Her Majesty's Opposition come to the Dispatch Box and argued against parliamentary scrutiny. It is a moment of history of which everyone should take notice.
In any publicity when we have the referendum debate, whether in White Papers or reports, may I suggest that we make an annexe of the situation before and after—the treaty as it is, and the treaty as it will be in future—so that we can have a proper debate? When Conservative Members criticise the changes in the draft treaty, they have a terrible habit of putting the blame as far back as the treaty of Rome.
The Prime Minister: What my hon. Friend says on these issues is absolutely right, particularly as he is Chairman of the European Scrutiny Committee. On issues of detail, given that the constitutional treaty is a 300-page document, it is surely right and better that the public have their say after an informed debate in the House in which we can thrash out some of these issues. I am happy to go back to some of the questions raised earlier, particularly about what the consequences would be if, say, we rejected in entirety the principle of the
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treaty. We can debate those issues here, and the country will then make its decision on an informed and better view.
Mr. David Heathcoat-Amory: Was not the Prime Minister's announcement today entirely consistent with the rest of his European policy, which is to give categorical and repeated assurances one way, followed by an ignominious retreat while pretending that everything is the same and that everybody has changed except him? Why does he continue to misquote and misrepresent deliberately my arguments in a pamphlet that I wrote last year? Is this to be the way he conducts the referendum when it is held? Will he give a straight answer to a straight question? If another member state—a small country—holds a vote and rejects a constitution before we hold a referendum, will he, assuming he is still the Prime Minister, go ahead with his promised referendum, or will he use that as an excuse to cancel the British national referendum, even though that other country may subsequently be bullied into changing its mind?
The Prime Minister: No, of course not. The referendum should go ahead in any event. [HON. MEMBERS: "Ah."] Of course it should. May I deal with the issue that I constantly misrepresent the right hon. Gentleman about associate membership? I assume that I have an accurate quote. This is what he wrote in his pamphlet on this issue:
"In practice, if a country voted no to the Constitution, the matter would eventually have to be resolved politically. The state concerned would probably allow the others to go ahead, having negotiated an associate membership of some kind".
That is why I keep saying that he is favour of that, and he is.
Mr. Heathcoat-Amory: I was not advocating it.
The Prime Minister: This is where the Conservative party is very tricky. It says, "We are not actually advocating it." Let me explain why that is the consequence of its position. If its position is not simply to oppose one aspect of the constitutional treaty but the whole treaty, the political reality—as it has made it clear that it will be running for a no vote in the referendum campaign—is that no matter what emerges from the negotiation, it will say no. Therefore, it would not go back to the European Council and say, "We think this or that should be changed." It would be coming back and saying, "The whole thing should be scrapped." I will tell Conservative Members, here and now, that the political reality, which is why the right hon. Gentleman wrote what he wrote, is that the rest of Europe would say, "I'm sorry, we are determined to have a constitutional treaty. You move to a different form of relationship with the European Union." That is why he wrote:
"The state concerned would probably allow the others to go ahead, having negotiated an associate membership of some kind".
That is exactly what he wants.
Mr. Frank Field: May I thank the Prime Minister on behalf of the majority of Labour voters, who have longed to hear him make the statement that he has made today? I congratulate him on resisting

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those pressures from colleagues who argued that at all costs he should not concede a referendum on the constitution of Europe. May I also ask him now to resist those same people who will be asking him to knock this issue into the long grass until after the next election? Does he appreciate that Labour voters will see all the difference between a promise that can be delivered before the next election and one that may be delivered after the next election? If the Opposition are genuine about letting the people decide, he may get his Bills on the constitution and the referendum through in such quick time that it would allow him to call the referendum before we vote in the general election.
The Prime Minister: I thank my right hon. Friend for his welcome for the statement. Even though we may be on different sides in relation to some aspects of the constitution, I am sure that he will conduct the debate in a sensible and reasoned way. The issue related to timing arises in this way: should the parliamentary debate come first or not? I happen to believe that this is a case par excellence of when it should come first, so that both Houses of Parliament debate it fully and properly, and the people then have the final say. That is the issue on timing, rather than other issues that must be decided at a different time.
Rev. Ian Paisley: Will the Prime Minister explain what is the difference between now and a few weeks ago when he was opposing a referendum? When did the change come? If this is a genuine conversion to the referendum, I applaud it. I would like to act as Ananias to him and say, "Welcome, Brother Tony, to the referendum supporters," as I believe that this nation should have a say. If it is an expedient U-turn, however, we find ourselves in great difficulty, in the country and the House. He owes the people of this country a solid explanation.
The Prime Minister: The position that I hold on the constitutional treaty is the same in terms of the details of that treaty. I believe the treaty to be right for Europe and right for Britain. I believe that the constitutional treaty is necessary if we are going to make the historic enlargement of the European Union work. I also believe that it does not alter fundamentally the nature of the relationship between the European Union and the member states. I would not agree to a treaty that put us on a path to a federal superstate. I will only agree to one that maintains the rights of sovereign independent states. I must accept that it is not merely that many people in this country want this matter decided finally in a referendum, but that, frankly, it is time to dispel the myths about Europe. The reason why I think people should have their say is not that I agree with the hon. Gentleman—I do not—but that the question of myth versus reality on Europe should finally be laid to rest.
Ms Gisela Stuart: I welcome my right hon. Friend's statement and urge him to ignore the laughter from the Opposition parties for the time being. Once they have to explain their policies, the laughter will disappear quickly. I urge him to have a referendum on the constitution only and not to take this
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opportunity also to have a referendum on the UK's remaining opt-outs. Will he confine the referendum to that subject?
The Prime Minister: My hon. Friend is absolutely right; the referendum should be on the constitutional treaty. That is what we should do, and once we have cleared away all the arguments about process, we can have a proper argument about the substance.
Mr. Ian Taylor: What is it about a referendum on a constitutional treaty that creates such chaos? The Liberal Democrats have called for one and are now gobsmacked that they have been offered it. Traditionally, my party has been against referendums but has suddenly decided that this one is a good thing. The Prime Minister has done a handstand so that the sun can shine out of part of his anatomy. A constitutional treaty is a complex document that needs to be debated and analysed by this House, and that should be the guidance to the public. Why has the Prime Minister suddenly changed his mind on such a fundamental principle of Westminster democracy?
The Prime Minister: The hon. Gentleman and I agree on the substance of most European issues. We agree on the importance of Britain playing its full role in Europe, on the need for this constitutional treaty and on making sure that it is adopted and seen through. But both of us must accept, as pro-Europeans, that the pro-European case has gone by default in many instances. People see that there is some choice or division between the British national interest and Britain's place in Europe. The reality is that when we get to the substance of the discussion of the constitutional treaty, we will be on strong ground. At the moment, the substance of the constitutional treaty is drowned out by the call that we are denying people a say because we are trying to conceal some terrible thing that the constitutional treaty is doing.
I have not changed my mind on the constitutional treaty, but it is the right moment for those of us—in the Conservative party, frankly, as well as on the Labour Benches—who believe passionately that Britain's place is at the centre of European decision making, particularly when Europe evolves into a European Union of 25, 27 and then 28, to make our case. We may believe, rightly, that parliamentary democracy is the normal way in which these things ought to be decided. Personally, I think that it is extraordinary that the Leader of the Opposition has said that Parliament should not debate this matter first. None the less, the hon. Gentleman and I must accept that if we are to make the case, we will have to take it out and make it to the British people.
Mr. Colin Challen: I congratulate my right hon. Friend on his statement and echo the comments of my hon. Friend the Member for Clydesdale (Mr. Hood), the chairman of the European Scrutiny Committee. Having read parts of the draft constitution, I can say that it is difficult to determine what was in previous treaties and what is new. I cite article 51—a minor issue on the recognition of religious organisations and so on—as an example, because there is an addition to article 51. The first thing that the Prime

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Minister should do is to convince the Opposition not to go into a referendum campaign opposing our membership of the EU. From today's debate, it is not at all clear that they want to stay in.
The Prime Minister: The truth is that a very large part of the Conservative party will not want to say that it is going to withdraw from the EU, but will want to provoke a crisis out of which we will have a choice, one that will be a stark one for this country. I am sure that the Leader of the Opposition would prefer not to be put in that position—he has some experience of government—but the truth, as he knows, is that, in a large part of the Conservative party, the centre of gravity has moved to an extreme Eurosceptic position. That is the case and, after all his remarks about U-turns are out of the way, he will have to confront that within his own party.
Mr. Richard Shepherd: I have never heard an initial statement of such transparent bluster. However, if the Prime Minister believes—as I do, profoundly—that it is a principled decision to have a referendum and not merely a question of tactical expediency, will he explain to the House and the country at large the principles by which he changed his view and is now having a referendum?
The Prime Minister: I explained that in answers to the Leader of the Liberal Democrats and to the hon. Member for Esher and Walton (Mr. Taylor). If we both agree that it is right that the people have the final say, let us get on and have the debate about the issue. It is extraordinary; I have done what the Conservative party clamoured for, month after month, but it is now terribly interested in skewering us on the reasons without getting to the substance of the issue. That is the most telling aspect of the debate.
Mr. Iain Luke: As a fervent believer in further European integration, I reluctantly accept the proposition that we need a referendum to dispel the distortions being put out by the Conservative party. But will the Prime Minister undertake today that, on the successful negotiation of such a treaty, the Government will wage an aggressive campaign for entry into the constitution based on Labour's commitment to the European ideal and on Labour's values of internationalism, and that the campaign itself will not seriously impede the move to a referendum on a common currency for Europe?
The Prime Minister: As my hon. Friend will understand, those are separate issues and we have set out our position on the single currency. However, he is right that we need to get across what the treaty does. The truth is that large numbers of people in this country think that, if we sign up to the draft constitutional treaty, we will give up our right to set our taxation rates, conduct our foreign and defence policy and do those things that a nation state should be able to do. That is simply untrue. I do not know of any country in Europe—especially not, incidentally, the new members coming into the EU, who have only, just escaped from the dictatorship of a supranational body—who want to do such a thing. The idea that I or the Prime Minister of
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the day will not be able to conduct our foreign policy as we would wish or set out own tax rates, or that our pension provisions will be determined by Brussels, simply are not true. That is why I agree with my hon. Friend. When people know that there is a referendum at the end of the parliamentary debate, public awareness and interest in it will be rather greater.
Mr. David Trimble: I congratulate the Prime Minister on his statement and on the decision, which—for whatever reason it was taken—is the right thing to do. Could I advise him not to get too dug in at this stage on when the referendum should be? There is still a lot to be sorted out yet. We do not know that there will be an agreement. In my view, it would have to be completely rewritten to be a satisfactory constitution. But if there is agreement, it is only right that one should proceed as quickly as possible to have the debate and a decision. The last thing the Prime Minister wants is to be seen to be trying to deny or delay the decision; the words of the right hon. Member for Birkenhead (Mr. Field) were wise on that. May I further advise him not to be too influenced by the rather foolish comments of the chairman of the Electoral Commission, if it should prove convenient to have the referendum on the same day as the general election?
The Prime Minister: On timing, the issue is whether the parliamentary debate precedes the referendum, which is the key thing for us. I agree with the right hon. Gentleman that we do not yet have the treaty; it is not yet agreed. There is a general assumption that the Polish and Spanish positions have completely changed since the previous negotiation. That may or may not be true about the Spanish position; I simply do not know. I rather doubt whether it is true, in quite the way people think, about the Polish position. Incidentally, it is not merely Britain that has concerns. Virtually every country around the table has concerns about the existing draft. There is still a lot of negotiating to get right, which is why it is sensible to set out a process at this stage, but I agree that the timetable is open.
Mr. Tam Dalyell: As the last of the 69 Labour Members who went into Ted Heath's Lobby to go into the Community and as a hardened veteran of the constitutional arguments that occupied 47 days on Scottish devolution in 1978–79, may I say gently to the Prime Minister that scrutinising temporary legislation is not a quick business? It guzzles up parliamentary time. Has he had a word with the Leader of the House and the Chief Whip on the crucial question of the time available and at what point the guillotine will be put in? Experience of recent devolution Bills has shown that, frankly, huge chunks were unscrutinised and, we now find, unsatisfactory.
The Prime Minister: There is no one in this House who has greater experience of constitutional debates than my hon. Friend, and I shall listen carefully to what he says. The main point is that we must be able to debate the details of the constitutional treaty properly, although I think that in the end that will fall around certain key provisions of the treaty. That will be essential. Let us be quite clear: neither the country nor Parliament will think that we should not sign up to the constitutional treaty on

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the basis that we have qualified majority voting on patents, on the rules of parts of the European Central Bank or on many of the other issues on which we are moving towards qualified majority voting. On the other hand, the House will want to be sure that, on the issues that I mentioned, such as taxation, foreign policy and defence, the rights of the nation state remain.
Mr. Edward Leigh: Will the Prime Minister confirm that the referendum will not be about Britain's membership of the European Union but about the constitution? Will he confirm that, if the British people were to say no, all that would happen would be a renegotiation, as happened when Denmark said no? Will he confirm that, under the existing treaties, no one could force us into associate membership and no one could proceed without unanimity? That is what the treaties say.
The Prime Minister: Of course the question should be on the constitutional treaty, but let me just say this to the hon. Gentleman. Ireland recently first voted against the Nice treaty, then came back to have a further referendum. Of course, it then came back and negotiated certain changes. That is wholly different from the position of the Conservative party, which wants to come back and say, "We are not going to have this treaty at all". That is the Conservative party's position. That is why there are two steps. I agree that the point of associate membership or withdrawal is not reached immediately, but I have to tell the Conservative party that if we were to come back and say that we would not have the treaty at all—not in any shape or form—the other countries around the table would not accept that. If I were in that position, I would not accept it.
Donald Anderson: My right hon. Friend made a powerful and convincing case over the past year that there was no need for a referendum, and there is every reason to think that by June, there will be something of a triumph of British diplomacy in that intergovernmentalism will be enshrined and our red lines maintained. He will not, therefore, be surprised if some of us ask what new and major factor has arisen. There are constants. In my judgment, there has not been a major change in the constituencies. The mythmongering of the newspaper magnates is as before and, even worse, the opportunism of the Opposition, who held no referendum on Maastricht or the Single European Act, is maintained. The so-called alternative vision, as my right hon. Friend has said, is not shared by any other country, and can only be a recipe for either withdrawal or isolation. What is new?
The Prime Minister: My right hon. Friend and I share the same position on Europe, and however much we disdain the position taken by the Conservative party and believe—as I do—that most of its members want to have a fundamentally different relationship with the European Union from our existing one, I am afraid that we must accept that the fact of the matter is that this argument is not yet won in the country. We must accept that. We should not alter in any way our view on
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Britain's place in Europe but, on the contrary, should be prepared to go out and fight for it. That is what we should do.
Mr. David Curry: Does the Prime Minister recall taunting a previous holder of his office with weakness over the management of his party and his Government in respect of Europe? Is he not in exactly the same position? Given the abandonment of everything that he has ever said about the constitution—always with characteristic biblical certainty—does not that description now rightly apply to him: "Weak, weak, weak"?
The Prime Minister: I have not altered my view on the constitutional treaty, its importance, its terms or our negotiating position on it. The right hon. Gentleman, again, is someone who shares my view on Europe, but unfortunately does not share the view on Europe of his Front Bench spokesmen and his party. As he knows, his party wants to take Britain in a fundamentally different direction in Europe. In the end, this is not a question of pressure in the party or anywhere else, but there is now a real desire among the public to debate this issue. As pro-Europeans, we have to accept that.
I have watched matters accumulate over a period of time, including the myths about Europe. When I read those myths out, members of the right hon. Gentleman's party say that of course they are all nonsense; but in fact, some of them are exactly what they have been saying. For example, when the shadow Chancellor stood for election, he said not merely that he was against the single currency, but that he wanted to repatriate powers from Brussels. If that is the case, that negotiation, which is not supported by anyone else in Europe, will have to be conducted. That is the nature of the argument that we now face and if we are serious about winning the argument, now is the time when we have to go out and make it to the public.
Mr. Ian Davidson: May I express my complete and enthusiastic support for Government policy on the referendum? I am sure that the Prime Minister will accept that as genuine, because I am not always as enthusiastic about every aspect of Government policy.
I particularly welcome the fact that the Government have been prepared to listen to the people. Will my right hon. Friend accept that many of us on the Labour Benches know that there is no merit in intransigence for its own sake and welcome the change? However, I ask him not to be too hasty in moving to the necessary debate and exploration of the measure, because it involves complex matters that need to be properly scrutinised. Will there be scope for any amendment or does he intend the measure to come before Parliament and the country entirely on a take-it-or-leave-it basis? Many of us want parts of the constitution to be amended, while we accept other parts thereof.
The Prime Minister: I welcome what my hon. Friend says about wanting to scrutinise this matter carefully in Parliament. That is the right thing to do. In respect of what Parliament can do, anything that we amend that goes to the heart of what is already in the treaty must be negotiated with people. However, it is right to say that

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we will have the fullest opportunity to debate the treaty, as we would any constitutional treaty, on the Floor of the House—and not just here, but in the other place.
Angus Robertson: As an historic European nation, Scotland and the Scots have always sought to play a significant role in our continent—but not at any cost. It is right and proper that voters north of the border will be able to cast their ballots on whether the constitution is in Scotland's and Europe's interests, but does the Prime Minister understand that it will be impossible to win a referendum in Scotland unless unacceptable provisions on key industries such as fishing and energy are radically amended?
The Prime Minister: Fishing, is still a shared competence, and we believe that that is right. In respect of energy, concerns have been put to us, but there is already agreement in principle to changes being made on energy to make the position clear. As far as I am aware, the changes have the agreement of the oil industry.

Northern Ireland (Independent Monitoring Commission)
1.28 pm
The Secretary of State for Northern Ireland (Mr. Paul Murphy): With permission, Mr. Speaker, I should like to make a statement about a report that I have received from the Independent Monitoring Commission concerning paramilitary activity in Northern Ireland.
Before I move to the substance of my statement, I should like to take this opportunity to condemn in the strongest terms yesterday's sending of suspect packages to two elected representatives in Northern Ireland, the hon. Member for Belfast, East (Mr. Robinson) and Mr. Alex Attwood. I am sure that the whole House will join me in those sentiments. Police investigations into those incidents are continuing.
As the House will recall, the Independent Monitoring Commission was set up by an international agreement, supported by legislation that we passed in this place last year. It is composed of four distinguished members: John Grieve, former assistant commissioner of the Metropolitan police and Lord Alderdice, formerly presiding officer of the Northern Ireland Assembly, who were both nominated by the British Government; Mr. Joseph Brosnan, formerly secretary of the Irish Department of Justice, who was nominated by the Irish Government; and Mr. Dick Kerr, formerly deputy director of central intelligence in the United States, who was nominated by the US Administration.
Last Wednesday, the British and Irish Governments received the commission's first report. I am today laying it before the House as I am required to do by law. Copies will be available in the Vote Office at the conclusion of my statement.
The report is concerned with the continuing activities of paramilitary groups in Northern Ireland. The commission had originally expected to produce it in the early summer, but at the request of the Governments, it has brought forward its production. At the request of the Governments, in the context of its wider analysis, the report also specifically addresses the incident at Kelly's Cellars, Belfast, on 20 February 2004. That event, as the House will recall, caused profound controversy in Northern Ireland, which has in turn disrupted the conduct of the review of the operation of the Good Friday agreement that began earlier this year.
We are most grateful to the commission for advancing its report, which has clearly involved a great deal of work by all concerned. Notwithstanding the pressures of time, I believe that it has produced a very thorough and far-reaching report. Both Governments accept the commission's conclusions and recommendations.
The commission states that the situation is now much better than it was in past years, but it finds that paramilitary activity is at a disturbingly high level on the part of both republican and loyalist groups. I quote from the report:
"On the basis of reported figures—which, especially for assaults, may not reflect the full picture—the scale of paramilitary violence since 1 January 2003 has been worryingly high: approaching one murder a month; some three victims a week both from shootings and from assaults."

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It goes on to state that two parties represented in the Assembly, Sinn Fein and the Progressive Unionist party, have links with paramilitary groups. It is clear from the report that senior politicians are in a position to exercise significant influence over their activities.
The commission also expresses its belief that the incident in Belfast on 20 February was the responsibility of the Provisional IRA. It urges elected politicians in Northern Ireland to commit themselves to supporting the rule of law and the criminal justice institutions and says that, in the absence of a sitting Northern Ireland Assembly, it is not possible for it to make recommendations on measures that the Assembly itself might consider taking in response to its report. However, it makes it clear that
"had the Assembly now been functioning, we would have recommended in respect of Sinn Fein and the Progressive Unionist Party measures up to and possibly including exclusion from office."
In the absence of a sitting Assembly, however, it recommends that I
"should consider taking action in respect of the salary of Assembly members and/or the funding of Assembly parties, so as to impose an appropriate financial measure in respect of Sinn Fein and the Progressive Unionist Party."
When we debated the legislation relating to the commission last year in this House, I made it clear that the Government believed it very important that its recommendations should be given effect, and said that, in circumstances where it had made recommendations but action had not been taken, I would be able to use the powers of last resort granted to me by that legislation to take action myself in line with such recommendations.
In the light of that, and having considered the report, I am persuaded that it would be right to remove for a period the entitlement to the block financial assistance paid to Assembly parties in respect of both Sinn Fein and the Progressive Unionist party, and I propose to do so next Wednesday, 28 April. I have therefore today made an order under the urgency procedure, amending the Northern Ireland Act 1998 as amended by the legislation that we passed last year, to allow me to take this step in the absence of a sitting Assembly. It will also permit me to act to reduce Members' salaries should I see fit to do so in the light of a future IMC report. I will, however, in line with the legal requirement on me to act fairly, take account of any representations that I receive by next Tuesday from the two parties concerned before reaching a final decision.
The commission's other recommendations, all of which the British Government endorse, include that paramilitary groups must cease all forms of criminal activity; and that all politicians and others in prominent roles must exert every possible influence to bring about a cessation of paramilitary activity. I hope that this report, and the firm but carefully measured action that the Government are taking in response to it, will underline that it is essential that all paramilitary activity, from whatever quarter, should cease fully and completely. The commission's next report on paramilitary activity will be able to test whether that has happened, and if not, whether further action is needed. In the meantime, the Government remain firmly committed to the idea that political progress can be
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achieved only through dialogue. I shall continue to meet all the parties in Northern Ireland to explore how we can achieve the basis for a restoration of the devolved institutions.
In the context of the review, a number of interesting proposals have already been made. There is still much to discuss, but the report underlines starkly what steps need to be taken if we are genuinely to move forward to stable and inclusive devolved government. I must reiterate what the Prime Minister, the Taoiseach and others have said on many occasions: all paramilitary activity must come to an end if there is to be a stable future for devolved government in Northern Ireland. That is what the Prime Minister spelled out when he talked of acts of completion. It is what both Governments made clear in paragraph 13 of the joint declaration. The commission recognises in its report that violence and the threat of violence can have no part in democratic politics.
The Independent Monitoring Commission has a vital role to play in securing that development and underpinning it once devolved government is re-established. It has, through the report, demonstrated its impartiality, its competence and its willingness to speak the truth, even when it is uncomfortable to do so. I believe that the whole House will be grateful to it.
Mr. David Lidington: First, I associate myself with the Secretary of State's condemnation of the attacks yesterday on the hon. Member for Belfast, East (Mr. Robinson) and Mr. Alex Attwood. Those events were a sobering reminder to us all of the risks borne and the courage shown daily by democratic politicians in Northern Ireland—both Unionist and nationalist. I also thank the Secretary of State for advance sight of the statement, and pay tribute to the work of the Independent Monitoring Commission and the quality of its report, which has been produced within a very short period.
The report provides a stark and truthful analysis of what is happening in Northern Ireland. There are no euphemisms in it. All the main organisations—the IRA, the Ulster Volunteer Force, the Ulster Defence Association—remain armed, active and capable of full-scale terrorist activity if they so choose. As the Secretary of State said, there is some good news—the number of murders, bombings and attacks on security forces has decreased—but, as the commission says on page 25,
"the level of other paramilitary violence has been and continues to be considerably higher than before the Belfast Agreement."
It goes on to conclude that
"the leadership of the paramilitary groups is directing, rather than seeking to prevent"
that violence.
Perhaps most startling of all to those of us who live and work in England and other parts of Great Britain is the commission's conclusion that if the level of violence experienced in Northern Ireland were extrapolated to the United Kingdom as a whole, since the beginning of January 2003 there would have been 375 murders, 6,300 victims of shooting and 5,700 assault victims.
I have a number of questions for the Secretary of State. Before I deal with the sanctions, I ask him to confirm that the Government intend that paramilitary violence and the organised crime that supports and

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funds it be met with the full force of law. On 24 July 2002, the Secretary of State's predecessor announced that the Attorney-General was to examine on the Government's behalf whether changes in police powers and the criminal law were needed
"to facilitate successful prosecution for acts of terrorism, violence and organised crime."—[Official Report, 24 July 2002; Vol. 389, c. 984.]
What has happened to that work over the past year and a half? Will the Secretary of State also confirm that there can be no question of security normalisation while paramilitary violence continues as described by the IMC?
On sanctions, we shall support the action that the Secretary of State proposes to take—I hope that he will say for how long he intends to cut off funds from both Sinn Fein and the Progressive Unionist party—but can he really be satisfied that today's announcement is sufficient? Frankly, if Sinn Fein is to sacrifice its Northern Ireland Assembly funding because of its links with paramilitary violence, it is surely outrageous for Sinn Fein Members to continue to enjoy both access to and allowances for the House of Commons. [HON. MEMBERS: "Hear, hear."] Will any financial penalty make much of a difference to paramilitary organisations that, according to the IMC and the Minister for Justice in the Irish Republic, are reaping millions of pounds from drug trafficking and other forms of gangsterism?
So, will the Secretary of State consider additional action? In view of the report's evidence of violence by the paramilitaries, will the Government consider—as we have asked them to do before—specifying the Provisional IRA under the Northern Ireland (Sentences) Act 1998? In his statement, the Secretary of State rightly spoke of the responsibilities of those Northern Ireland politicians with influence over paramilitary groups. Does he share my profound concern on learning that Mr. McGuinness, when speaking in County Tyrone on Easter Sunday, paid tribute to the role that IRA volunteers had played
"and continue to play in the struggle for Irish freedom"?
The Secretary of State knows that the Taoiseach of the Irish Republic has consistently and trenchantly stated that so long as Sinn Fein remains linked to paramilitary violence, it cannot be a fit partner in a coalition Government in the Irish Republic. In the light of the conclusions of today's IMC report, surely the Government must now accept that the principle that is right for a Government in Dublin must be right for the formation of an Executive in Belfast.
Mr. Murphy: I am grateful for the hon. Gentleman's welcome for the statement and for the IMC's report, and I certainly agree that the figures in it are startling. On the force of law bearing down on people who commit such crimes, he may rest assured that the Chief Constable is doing a very good job in that respect. Our Organised Crime Task Force is working extremely well, and I hope that the Assets Recovery Agency will deal with the assets of paramilitaries as soon as possible. Between April 2003 and February this year, 139 loyalists and 80 republicans were charged with serious terrorist and public order offences. In the past year, six individuals have received long sentences for extortion. Other convictions have been secured for armed robbery and
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drug offences, and fuel-laundering plants have been dismantled and illegal fuel seized. The hon. Gentleman is right to point out that normalisation as it appears in the joint declaration document cannot happen unless there are acts of completion.
On sanctions, the hon. Gentleman will of course recall that when the relevant legislation was going through this House, it was the statement and belief of this Government that, whatever the Independent Monitoring Commission recommended, it would be very difficult to envisage a situation in which we would not accept it. On this occasion, we certainly do accept the IMC's recommendations and conclusions—as, indeed, do the Irish Government.
The important point to emphasise is that if the Assembly had been operating, the IMC would have recommended something up to, and possibly including, exclusion from office. We do not know exactly what the IMC would have recommended because, as it is aware, the Assembly is not up and running; but it certainly would have considered such action.
So far as the term of the penalty—the sanction—is concerned, there is no particular end. We can renew the order after a year, so there is no limit. I intend to look at the situation after six months, because that is when the IMC will next report. So, for six months, no allowances will be paid in that respect. Obviously, this is a matter for the Commons to consider, but whatever the sanctions, it is very important that they represent and reflect society's disapproval of, and public displeasure at, what has happened.
Although these revelations are startling and sometimes very dramatic, I still hope that the devolved institutions can be restored as soon as possible, and that that will include all parties. I hope, too, that Sinn Fein and the Progressive Unionist party will be involved in discussions on how we achieve that—but we must of course see an end to paramilitary activity.
Lembit Öpik: The Liberal Democrats also welcome the Independent Monitoring Commission's report and its detailed analysis of what has been going on. I was interested to hear the Secretary of State say, "Both Governments accept the commission's conclusions and recommendations." I am pleased to hear it; indeed, they had little alternative. On the financial penalties that might be incurred by political organisations associated with paramilitaries, it seems appropriate, as my colleague Lord Smith of Clifton has said many times, that a financial penalty be imposed for not participating more overtly in the peace process.
I want to ask some questions concerning the Government's commitment to responding to the IMC's recommendations and conclusions with action. The IMC's report details a wide range of illegal activities committed by a number of organisations. Given that those activities undermine the democratic process and the rule of law, will the report alter the Government's definition of a ceasefire? In the light of the IMC's comments, do the Government intend to change their approach to peace process discussions with parties linked to named paramilitary organisations, or do they intend to carry on as if nothing has happened? Was the postponement of the Lancaster House talks related to the contents of the IMC's report? In the light of that postponement, will the Secretary of State clarify the status of the review?

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Are the Government expecting to have any meaningful discussions this side of the European elections? Given that the IMC has been able to recommend only rather weak sanctions, in the form of financial penalties, what plans do the Government have to review the powers of the body, specifically in the context of a suspension?
We all know that Northern Ireland politics is characterised by long periods of negotiation and, it has to be said, a degree of pragmatism. However, does the Secretary of State accept that, unless the Government show themselves willing to act on the recommendations of the IMC, opportunism and a lack of respect for political institutions will continue to be additional ingredients in the mix?
Mr. Murphy: Obviously, the report is disturbing. Equally, it is important to carry on with the process of trying to achieve a stable and proper democracy in Northern Ireland—based on the operation of devolved institutions, together with the peace process. We must do so with all the political parties in Northern Ireland. We always knew that, after the signing of the Good Friday agreement, it would be a difficult road, as has proved to be the case.
Today we are dealing specifically with a report on paramilitary activity, and the hon. Gentleman asked two questions. One was about the ceasefire; it is interesting to note what the IMC says about it. It underlines
"the importance of moving the debate on from one about ceasefires and breaches of ceasefires to one about the totality of illegal paramilitary activities. Though many fewer are murdered, many more are being shot or assaulted."
The legal definition of a ceasefire remains the same, and we do not judge that there has been a breach, but that should not in any way suggest that what we are dealing with today is any less significant, because the reality of the impact on people's lives in Northern Ireland is, as the information in the report shows, far greater. The conclusions on the effect of so-called punishment paramilitary shootings on the individuals assaulted and their families are devastating.
As to the talks, we came to the conclusion that we had not really made sufficient preparation to conduct them in the next week or two; if we did conduct them, they would not be meaningful talks. The talks likely to occur over the next couple of weeks will not be as intensive or high-powered as we originally envisaged, but we should certainly continue to examine areas considered in the review. We have examined strand 1, but not strands 2 or 3 of the agreement. The Northern Ireland political parties, in common with those in Great Britain, are moving towards a period of election activity, which will inevitably have an impact on what happens over the next couple of weeks. However, we will return to intensive talks as we move forward into the summer. In the meantime, I will talk to all the parties. There is a formal meeting tomorrow of the British and Irish Governments, who will be able to consider in greater detail the points that the hon. Gentleman raised.
Mr. Seamus Mallon: It is right that the report reminds us that it is now 10 years
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since the first IRA ceasefire and six years since the Good Friday agreement was signed. It provides confirmation, if we needed it, that we are still in the stranglehold of paramilitary violence and organised crime. It comes as no surprise to many of us, particularly those who live in Northern Ireland, that the report is as stark as it is.
I would like the Secretary of State to clarify one matter. The commission was charged with assessing whether the political leadership of those connected with paramilitary organisations were complicit in, condoning, supporting or allowing violence and organised crime. If the report specifically fulfils the mandate from Parliament to make that assessment—like many others, I look forward to reading it—and finds that that is so, the type of petty-cash penalties specified are risible and will be an embarrassment not just to the Government but to the political process.
My poor mathematical mind has worked out that the type of organised heist of cigarettes that took place in my constituency at Christmas would pay those penalties for 22 years. I ask the Secretary of State and the Irish Government to consider the matter sincerely in that light. If the Independent Monitoring Commission makes such an assessment, we should not waste time on tokenism. To the richest party in western Europe, those penalties mean nothing. They are like levying fines on a rich footballer—nothing more, nothing less. I view this as tokenism—well meaning and for the right reasons, which will perhaps have a peripheral effect. The reality is that until the two Governments, Sinn Fein and the Democratic Unionist party are able to come to terms about the continuation of violence, we will be working at the edges, not getting to the heart of the problem.
I am always loth to give anyone advice, not least my right hon. Friend the Secretary of State, but after 30-odd years of watching attempts to solve the problem, I say sincerely let us not waste time on scratching at the surface. We have wasted too much time already, and there is precious little to waste.
Mr. Murphy: I understand my hon. Friend's frustration about the sanctions, but I repeat two points that I made in the statement. First, we are putting into effect the recommendation of the commission itself, and we made it clear that the Government would do whatever the IMC recommended. Secondly. I know that the House would agree with the important point that, if the Assembly were up and running, it would have been a different picture. Recommendations would have been made up to and possibly including exclusion from office, but that does not apply because the Assembly is not sitting.
My hon. Friend expresses a view that most people in Northern Ireland know: these activities are going on. However, it has now been formally acknowledged by an independent and international body that those activities are indeed going on and disrupting the peace process.
Part 7 of the report is entitled "Leadership of Paramilitary Groups" and I shall quote a few sentences from it because they relate to my hon. Friend's point. Paragraph 7.5 states:
"We recognise that there might not have been a PIRA ceasefire in the first place without influence from the leadership of Sinn Fein. By the same token Sinn Fein must bear its responsibility for the continuation by PIRA of illegal paramilitary activity and must recognise the implications of being in this position."

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It goes on to say:
"While we are satisfied that the Progressive Unionist Party and others exerted a positive influence in achieving the loyalist ceasefires we believe it has not sufficiently discharged its responsibility to exert all possible influence to prevent illegal activities on the part of the UVF and the RHC."
Rev. Ian Paisley: This report is very important. I thank the Secretary of State for what he said about my colleague, my hon. Friend the Member for Belfast, East (Mr. Robinson), and Mr. Alex Attwood. We all know in Northern Ireland that public and elected figures run the gauntlet and we know not what a day may bring forth. It is right that the House take note of that at all times.
What worries me—it evidently also worries the hon. Member for Newry and Armagh (Mr. Mallon), who takes a different view from me of the present troubles—is the problem of delaying, delaying and delaying. We should not have had to wait for this report. The police had done their work and discovered who was behind one of the incidents that took place. Instead of the police dealing with law and order in a proper way, the matter was shelved off to the commission. Will the Secretary of State explain why the Government wanted it shelved off even longer? Those people acted speedily on their own initiative because the Government set them a date a bit later in the year. Why did they do so? Do the Government not want to face up to those facts?
The good thing about the report is that it deals with loyalist violence—so-called—and with IRA violence. I suggest that Members look at page 22 to find out exactly where we are today with that paramilitarism and its awful aggression.
Something else worries me. Can sanctions be taken against terrorists by introducing a murder tax? That is exactly what the Government are trying to do—introduce a murder tax. The Secretary of State even said that the report's suggestions in that regard were appropriate. I do not think they are appropriate at all. If a man is murdered, do we tell the people who are weeping, "Oh aye, but we are taking back the money that we have already paid out"? What sort of nonsense is that? Are we to play soullessly with the blood of innocent people? This is not the time for doing sums and taking back money that the Government have already paid. Those people are losing nothing—in fact, we heard from the southern Irish Minister for Justice, Equality and Law Reform that they are bringing in millions from other sources. Surely, the time has come when we should face up to the fact that there can be no murder tax.
There is only one remedy: if people do not keep to the rules that govern the talks, they cannot be in the talks. If I did not keep the rules, the Secretary of State would have me out on my ear. I remember that, because I had not signed a paper at the beginning of the talks, it was moved that I be put out of the room immediately—but not so the IRA, not so Sinn Fein. We need proper sanctions. If we cannot have proper sanctions through the Assembly, the Secretary of State must legislate in the House to ensure that those who do not keep to the rules cannot take part in the negotiations. That is the final arbitration.
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Until that is done—think of it!—those men can come into this House and strut around these Corridors, yet nothing will be said to them. Why was something not done about that? Does the House condone what those people are doing when it gives them the run of this place? Why was the House not even mentioned in any of the sanctions?
What about the sanctions relating to Stormont? The only appropriate action that the Secretary of State can take is to say, "You are not in the talks". The leader of the official Unionist party made three efforts to bring those people in—
Madam Deputy Speaker (Sylvia Heal): Order. The hon. Gentleman should bring his comments to a conclusion.
Rev. Ian Paisley: All I wanted to say was that those people were brought in, but did it convert them? No. They are at their same old game—going on with their murders. The time has come to call a stop. I welcome what the hon. Member for Newry and Armagh (Mr. Mallon) said today; it shows that there is agreement on both sides of the House that action, not words, is needed.
Mr. Murphy: I think that the House is very much aware that, despite what we read in the report, Northern Ireland is an infinitely better place in which to live and work than it was 10 years ago, because of the agreement and the advances that we have made since. I have no doubt about that. We no longer have the terrible bomb outrages or the number of murders that we saw in the past, but today we have to deal with something that seriously undermines progress towards a political settlement and the peace and tranquillity of people in Northern Ireland. I do not for one second underestimate the significance of that.
We always indicated that we would act on the recommendations of an independent body. The commission is an independent body—not a Government, but an independent body with international representation—and therefore has different status, which is why we are putting its recommendations into effect. I repeat that were the Assembly up and running there would be different recommendations.
The hon. Gentleman is right to point out that the report highlights loyalist and republican violence equally, right across the board in Northern Ireland. In all honesty, there is no correlation between a death—a murder—and any form of sanction. This is not a murder tax, but one way in which we can express our disapproval of what has occurred.
What is much more significant is that, when people read this dispassionate report by independent experts who have no axe to grind, they will see that the situation set out in the report—drug trafficking, extortion, racketeering, smuggling of fuel and cigarettes and, worse, murder, assaults and shootings—no longer applies. That is what the report outlines. Although

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people in Northern Ireland already know that such things go on, the fact that they are set out in that official report gives its contents great weight.
Several hon. Members rose—
Madam Deputy Speaker: Order. May I ask for shorter contributions from Members, so that more of them can question the Secretary of State?
Kate Hoey: The Secretary of State must realise that, although fewer people are being killed these days, if that level of violence and that scale of murder were occurring across the United Kingdom it would be unthinkable for Members to talk about doing so little as taking away a small amount of money that people did not need. What is the Secretary of State's personal view about the fact that IRA-Sinn Fein Members are allowed to come into this House and use its facilities and receive its benefits? Surely, he could take a lead on that; he could say that the House should vote again and take those benefits away. Given the position of the whole IRA-Sinn Fein party and the fact that we have other democratic parties with large majorities, why cannot we go ahead with talks that involve everyone, including the Social Democratic and Labour party, the mainstream Unionists, the Democratic Unionist party and all the other parties that are signed up to peaceful means, and get the Assembly going again with the people who want to be in it—not those who are holding things up because they are into violence?
Mr. Murphy: The talks will go ahead; they have not stopped. The intensive talks that the two Prime Ministers were to lead will not now take place over the next couple of weeks, but further down the line. As I indicated in a previous answer, our view is that we are not yet prepared for that sort of negotiation and discussion. However, that does not mean for one second that we shall not continue to talk about the issues—for example, those we raised some weeks ago in Parliament Buildings about how to deal with the north-south arrangements, the operation of the Assembly and the number of Ministers and so on. All those issues can still be discussed and we shall continue so to do. It is important to understand, however, that unless we get to grips with the issues identified in the report we shall never reach a permanent, settled situation in Northern Ireland, whereby we can have a permanent devolved Administration.
I think that there is a great appetite among people in Northern Ireland for the return of devolution. I am absolutely convinced of that and no one is sadder than I am that it is not yet the case, but we have to keep trying to resolve the difficulties. Even if the parties that are not involved with paramilitary groups were talking to one another—as my hon. Friend the Member for Vauxhall (Kate Hoey) described—we should still have to resolve the problems outlined in the report. We have to see an end to paramilitary activity, and it is vital that that occurs alongside the discussions for a political settlement.
On my hon. Friend's point about the House of Commons, I repeat that the whole purpose in setting up an independent commission was it would have
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legitimacy, which I hope everyone can accept, so that its recommendations would be agreed. Obviously, we shall listen to the comments made by my hon. Friend and other Members and will come back to them at a future stage.
Mr. David Trimble: Is it not a pity that we did not have the report two years ago when we first proposed such a body?
I welcome especially the reference in the report to the IMC's willingness to exclude from office. May I ask the Secretary of State to comment specifically on that? Will the Government now support such action?
As has been said, there is a weakness: the IMC cannot sanction organisations without political representation. That omission is particularly glaring with regard to the Ulster Defence Association, which is a major offender in terms of continuing violence. But does not the Secretary of State have the power to act under the prisoner release legislation? Would not such action be better than the proposed financial penalties?
Finally, I am sorry that next week's talks have been cancelled. Was the cancellation caused by the fact that, after the action that the Government have announced today, some parties were perhaps unwilling to attend?
Mr. Murphy: It is not a cancellation; it is a postponement. Intensive talks dealing with such matters will take place nearer the summer.
With regard to the point about exclusion, the right hon. Gentleman will know that we made it clear on the Floor of the House—I did so earlier today—that if the IMC recommended a course of action, it would be very difficult for me to envisage a situation where we would not accept that, irrespective of whether it included exclusion. We would obviously have to consider that recommendation if it were made. The IMC has not recommended that. It said that it might have done so if the Assembly had been up and running.
Again, on the prisoner release legislation, I return to the point that, yes, we could do all sorts of things, but the purpose of that body is to make specific recommendations to the Government to deal with the issue. The report does the great service of highlighting what the situation is in Northern Ireland today to people—not just those in Northern Ireland, but those in Great Britain, too, and in Ireland—who may not have studied these things as closely and carefully as hon. Members do.
Mr. Iain Luke: My right hon. Friend is correct to suggest that there has been a movement away from the violence that we saw in previous years, but the statistics are still startling—one death a month and three beatings or shootings a week—and the number of deaths would have doubled in February but for the swift intervention at Kelly's Cellars. Will my right hon. Friend undertake to pass the report to the Leader of the House and the appropriate House authorities, so that proper sanctions can be considered with regard to the access and allowances granted to one of the parties, whose members have access to the House but do not take their seats? There could then be a true set of sanctions to enable a

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realisation that we can achieve a true dialogue in Northern Ireland only by a complete withdrawal from supporting groups with terrorist aims.
Mr. Murphy: I have already indicated that I will certainly pass on my hon. Friend's views and those of other hon. Members who have expressed their views with regard to the House of Commons. Of course, the IMC's members will be able to read in Hansard what the House has discussed today.
With regard to my hon. Friend's emphasis on continued paramilitary violence, he is right to suggest that such violence causes us great worry. What has disturbed me over the past few months is that, each time that I go into the office, the number of so-called paramilitary shootings and so-called paramilitary punishment beatings has gone up and up on both sides, and there is no place for that in a modern democracy.
Mr. Andrew Robathan: I welcome the statement by the Secretary of State, for whom I have great respect. This is a major change of direction in Government policy in Northern Ireland. By accepting the IMC's report and by taking such action, the Government are accepting the principle, beyond peradventure, that the leadership of Sinn Fein and other paramilitary organisations are directly responsible for the direction of paramilitary violence. I am delighted to hear him say that, because everyone has known that for a very long time.
Will the right hon. Gentleman pursue the logic of that position? Will he enforce all aspects of the Belfast agreement, which came into effect nearly six years ago? Will he ensure that, for instance, there is total decommissioning before we have further negotiations with Sinn Fein and others? Will he ensure that no Adams or McGuinness walks these Corridors and draws parliamentary allowances—public money—to further their evil causes? Will he now stand up, as I believe he would wish to, and force the paramilitaries either to accept the Belfast agreement or to be excluded from it altogether?
Mr. Murphy: I do not think that the Government have changed their view on what the report says about paramilitary activity. We have always indicated that we thought that such activity was the great stumbling block to progress. Of course, the hon. Gentleman is also right to point to decommissioning. That, too, is an important issue, which the Belfast agreement addressed, but which had not been addressed properly over the past few months. However, if political parties—whether Sinn Fein or the Progressive Unionist party—wish to progress their political ends in a peaceful and democratic manner, those are legitimate aims for which those parties rightly appeal to the electorate in Northern Ireland. Of course, Sinn Fein increased the number of its members of the Assembly, and the Progressive Unionist party still has a representative in the Assembly. By no means do I dismiss the importance of those political parties to the process—they are immensely important, and there must be an inclusive peace process, but that must be divorced from violence in all its forms.
David Burnside: If I was, God forbid, Gerry Adams, Martin McGuinness or, more
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appropriately today, Slab Murphy, or a brigadier in the Ulster Volunteer Force or the Ulster Defence Association and I was going over the past 12 months' accounts of the criminal empire that I controlled, I would be laughing. I would have a smirk on my face, and I would say, "The British and the Irish Governments—my God, aren't they tough? Haven't they really taken us on?" We are talking about a few thousand pounds for a multi-million pound empire, whether in south Armagh, the UDA or the UVF.
The Government have a choice today: they can use the report and move in one direction; or they can take the report and be laughed and smirked at by the brigadiers and the members of the army council of the IRA. If only a few thousand quid of the Assembly salaries is involved, with no action in Westminster, they will continue to laugh. The Government must take strong measures. The punishment must fit the crime, and the crime and terrorism continue right across all the so-called loyalist bodies and the Provisional IRA. I hope that the Secretary of State will consider moving towards the total expulsion of Sinn Fein and the loyalist paramilitary front organisations from the political process, so that the democrats can move ahead. That is what will frighten the paramilitaries; they are not frightened today, Secretary of State.
Mr. Murphy: I have indicated on more than one occasion, in many ways it is not a financial penalty or sanction which is the important issue. Although that is important, it is not so important as the fact that the independent body—made up of internationally recognised people—has now been able to tell the world what is going on in Northern Ireland in a very special way. All of us as politicians in one form or another over the past few years have said more or less the same thing, but that has now been done formally by an independent commission that was set up by two Parliaments and two Governments, so that the world now knows that these are serious issues that need to be addressed.
Mr. Nigel Dodds: Is not the report a savage indictment of those who as recently as last October were praising the words of Sinn Fein-IRA leaders and getting ready to admit IRA-Sinn Fein to government, not for the first time, not for the second time, not for the third time, but for the fourth time in Northern Ireland, following another so-called decommissioning event? Is not the fundamental lesson that, six years after the Belfast agreement, democracy in Northern Ireland cannot be held to ransom any longer?
The Secretary of State says that, if the Assembly were up and running, other measures would be taken, up to and including the exclusion of Sinn Fein-IRA. Is it not now the time to move ahead with the political process, including the talks, without Sinn Fein-IRA, applying the analogy as though the Assembly were up and running? Let us move forward without them. Let us go forward with those who are committed to exclusively peaceful and democratic means. Let us stop, in the words of the hon. Member for Newry and Armagh (Mr. Mallon), wasting time on laughable fines that will be dismissed out of hand by everyone in Northern Ireland.

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Let us get on with the democratic parties and find a way forward with those who want to make progress in Northern Ireland.
Mr. Murphy: One of the ways forward is to try to stop the activities that are outlined in the report. That has to happen, too. I have given some indication to the House about the way in which the Police Service of Northern Ireland, the Organised Crime Task Force and so on have successfully dealt with those issues. Of course, much still needs to be done and we must carry on along those lines, but there is an important job of work to be done to ensure that we see an end to such activity, so that we can have an inclusive process in Northern Ireland. Now, at the end of the day, if what the hon. Gentleman wants is to come about, it will still have to do so on the basis of an agreement between nationalism and Unionism for it to work.

Orders of the Day

  Finance Bill
  [Relevant document: The Sixth Report from the Treasury Committee, Session 2003–04, on the 2004 Budget, HC 479.]
  Order for Second Reading read.
  Madam Deputy Speaker (Sylvia Heal): I should inform the House that Mr. Speaker has selected the amendment in the name of the Leader of the Opposition.
  2.20 pm
  The Chief Secretary to the Treasury (Mr. Paul Boateng): I beg to move, That the Bill be now read a Second time.
  The 2004 Budget set out the next steps of the Government's economic policy making by outlining what we would do to lock the hard-won progress that we have made into this country's economic stability and growth so that it endures, and to equip the country with the means with which to compete in a global knowledge-based economy. The Government have examined the challenges and pressures that face the nation now and will do so in future, and we are determined to take the right steps to meet those challenges.
  We are here today for the Second Reading of the Finance Bill and, as I look around the Chamber, I see the cast assembling for the many long hours of debate that lie ahead, under the leadership of my right hon. Friend the Paymaster General. I know that those of us who are graduates of previous Finance Bills feel a sense of anticipation regarding the struggle that is to come.
  The Bill reflects the determination on the part of the Government to introduce the measures that will implement the next stage of our economic policy—a policy that has been and continues to be characterised by stability—enterprise fairness. In so doing, the modernisation of the tax system and the protection of tax revenues go hand in hand with greater investment in public services and improvements in efficiency. Together, they will lock in the stability that this country has enjoyed during the seven years of the Labour Government's stewardship of the economy.
  Our proven macro-economic policies and the tough fiscal decisions that we have taken have already provided us with a sound economic foundation on which to base our policies. The United Kingdom is enjoying the lowest inflation for 30 years, the lowest interest rates since 1955, and the lowest unemployment for a generation. While America, Germany, France, Japan and much of Asia have suffered recessions, the British economy has grown uninterrupted since 1997—over 46 consecutive quarters. On that foundation, we shall continue to build an enterprising and knowledge-based culture. In doing so, we shall work to ensure fairness in the tax system and throughout our society, and to strike a balance between economic growth and environmental protection.
  Compare and contrast that record—our policy, our programme—with that of the Conservatives. They ruined the economy in the 1990s. Their record shows why they can never again be trusted with the economy

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  and why our hard-won economic stability cannot be taken for granted. Their extremist policies do not add up, they would require massive cuts in vital public services, and they show why no one can afford to believe the Conservatives, now or in future. Not only have they failed to learn from their mistakes—[Laughter]—but their new policies are more extreme than before. Underpinning their smiling and laughing faces is hard-nosed, hard-faced extremism. [HON. MEMBERS: "Oh!"]
  I hear a certain amount of incredulity from Conservative Members. It is good to see the hon. Member for Arundel and South Downs (Mr. Flight). When he assumes his place, we know that it is that time of year: he has been let out and will be set loose on the Finance Bill. Well, good—Government Members welcome that, because we have some questions for him. We want to ask him about the newsletter that he sent to the Conservative City Circle—an interesting body, which receives newsletters from him from time to time. Whenever the Conservative party wishes to disown the hon. Gentleman, it glosses over the fact that he is the shadow Chief Secretary and refers to him as the party's "City expert". Well, the Conservatives' "City expert" has been writing to the Conservative City Circle, and in his letter he states:
  "Our medium term expenditure strategy … calls for real reductions in areas other than Health, Education, Pensions and Welfare".
  We hope that in the course of the hon. Gentleman's address to the House this afternoon, he will explain where the cuts are to fall.
  The Conservatives have apparently identified some £18 billion in cuts to be made immediately. The shadow Defence Secretary said of the cuts:
  "It is outrageous. You cannot possibly go into an election with this pledge."
  The shadow International Development Secretary said:
  "If we are to be taken seriously as a party of government which cares about the most vulnerable people on the planet, there has to be a public spending commitment."
  Because the cuts must fall on the police and security services as well, the shadow homeland security Secretary has—according to The Sunday Telegraph, a journal of record if ever there was one on matters concerning the Conservative party—
  "protested that the cuts, if implemented, would badly damage their future departments."
  The shadow Home Secretary has
  "asked for reassurance that the freeze would not lead to cuts in police numbers."
  Mr. Michael Jack: Will the right hon. Gentleman give way?
  Mr. Boateng: Let me finish my line of thought first.
  I hope that in the course of his speech this afternoon the shadow Chief Secretary will answer the many concerns that I have outlined, which have been voiced by his right hon. and hon. Friends on the Conservative Front Bench. The nation is entitled to hear where his cuts will fall.
  Mr. Jack: I am most grateful to the Chief Secretary for interrupting his passage of self-congratulation. Will he confirm that it is the Chancellor's intention to cut
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  expenditure on the civil service by some £20 billion over the next few years? If things have been so splendidly managed, how is it that the Government are having to remove 40,000 civil servants from the payroll?
  Mr. Boateng: The right hon. Gentleman is absolutely right to point to our commitment to raise public sector efficiency and to release extra resources to the front line of our priority public services. Our ambition is to deliver some £20 billion of annual efficiency gains by 2007–08 through a 2.5 per cent. annual efficiency target for the whole of the public sector. That has been identified for us through the work taking place under Sir Peter Gershon, which will be reflected in due course in the outcome of the spending review. What we do not see is any exercise on the Conservatives' part that is comparable with the work into which we have entered in the Gershon efficiency review.
  Perhaps this afternoon all will be revealed and the Conservatives will unveil their plans. [Interruption.] The shadow Chancellor says, "Wait and see." We are in for an interesting afternoon if we are to have sight of the Conservatives' spending plans. What we know is that they propose an immediate cut of £18 billion. We know what that would mean. The number of police officers would be cut. The effect on our armed forces would be devastating: a cut in defence spending of £1.5 billion is equivalent to cutting armed forces personnel by 40,000.
  Mr. Peter Atkinson rose—
  Mr. Boateng: I shall finish this point before giving way.
  If that is not the Conservatives' policy, we are entitled to hear what is. We reject the plans of the Opposition, who would fail to invest in employment opportunities by scrapping the new deal. They favour deep spending cuts year on year, regardless of the needs of public services. Their dogmatic plans to cut spending by £18 billion would weaken the economy and put at risk its hard-won stability. The Government recognise the need to introduce measures that would create a platform of stability for business, and enable the UK to keep pace with the global economy. Promoting enterprise and productivity has long been a key aspect of our economic policy making, and the Bill introduces specific measures to advance that aim. I know that it is tedious for the shadow Chancellor, but I fear that I must take him through those measures. After all, that is the purpose of Second Reading.
  Mr. Oliver Letwin rose—
  Mr. Boateng: If the right hon. Gentleman can contain himself, I shall give way in a moment.
  Since 1997, we have taken a number of steps to reform the business tax system and reward entrepreneurship, including cuts in corporation tax and the introduction of targeted measures such as research and development tax credits and measures to reduce the administrative burden of VAT. We have already cut long-term capital gains tax for business assets from 40p to 10p. This year, rates of corporation tax and capital gains tax will both remain frozen. To assist small businesses' cash flow and provide enhanced funding for new investment we have

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  increased the first-year capital allowances for small business investment in plant and machinery from 40 to 50 per cent., and that increased allowance will be available for 12 months from April 2004.
  The VAT threshold has been raised to £58,000, the most generous VAT threshold in Europe. In addition, up to 13,000 businesses will be eligible to benefit from simplified VAT accounting. From next year, in 2,000 enterprise areas, we will further increase the tax incentives to invest. To increase the incentive to invest in research and development, a new definition of research and development tax credits will come into effect on 1 April 2004, extending the tax credit to power, fuel, water and software costs, totalling a further £35 million-worth of support.
  Mr. Atkinson: I thank the Chief Secretary for giving way. The moment, however, has passed, as I wanted to point out that he had been speaking for 10 minutes about our policies. I would rather hear my hon. Friends do so. I was going to ask him when he was going to discuss the Bill, but he has begun to do so.
  Mr. Boateng: The hon. Gentleman must be enjoying enormously what I am saying now.
  To encourage the incentive to invest in new businesses, and following consultation with industry, the Bill confirms the Government's commitment to allowing investments in venture capital trusts to secure tax relief of up to £200,000 a year, not at the lower rate of 20p but at the higher rate of 40p. Promoting enterprise and competition is important, but it must be underpinned by fairness. Our objective continues to be ensuring stable public finances and world-class public services, which are served by a fair tax system in which everyone pays or claims for what is due. To protect revenue for investment in the public services that the country wants and needs, we are determined to tackle tax avoidance and evasion. I hope that in Committee that theme will find support among Members from all parts of the House.
  Mr. David Laws rose—
  Mr. Boateng: No doubt the hon. Member for Yeovil (Mr. Laws), who speaks so well for the Liberal Democrats when he is allowed to do so, will express his support for the measures that my right hon. Friend the Paymaster General will discuss in detail in Committee.
  Mr. Laws: I am delighted to give my support to measures to clamp down on tax evasion and avoidance. Such measures can have unintended consequences, and the Chief Secretary will be aware of concerns over the weekend that many people who ran in the London marathon will have to pay VAT on the money that they are seeking to raise for charity. Do the Government intend to see whether they can remedy that?
  Mr. Boateng: If the hon. Gentleman casts his mind back to debates on the previous Finance Bill, he will agree that we are concerned to avoid unintended consequences. Customs and Excise have issued detailed
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  guidance to charities helping them to avoid such consequences. I hope that charities follow that guidance so that they can avail themselves of the generous concessions available. I am sure that the hon. Gentleman acknowledges that since 1997 there has been an unparalleled increase in such concessions under this Government.
  Mr. Laws rose—
  Mr. Mark Prisk rose—
  Mr. Boateng: For the sake of balance, it is only fair that I give way to the hon. Member for Hertford and Stortford (Mr. Prisk).
  Mr. Prisk: On Saturday, I wrote to the Economic Secretary on this very issue. Could the Chief Secretary tell us whether the Government will ensure that the charities are not out of pocket? That was done after the death of Princess Diana in relation to the charitable returns from the record, "Candle in the Wind". Will the Government repeat that gesture, or do they intend to ignore charities' genuine worries?
  Mr. Boateng: As the hon. Gentleman knows, that is a different matter. He is aware of the considerable contact that the Inland Revenue and Customs and Excise have with the charitable sector and voluntary and community organisations to make sure that they avail themselves of the available concessions. That contact will continue, and I hope that he welcomes the steps that the Government have taken through gift aid and a variety of other measures to ensure that voluntary and community groups and charitable organisations take full advantage of the available concessions.
  Several hon. Members rose—
  Mr. Boateng: I must make progress, I am afraid.
  To protect the revenue for investment in the public services that the country wants we are determined to tackle tax avoidance and evasion. We have therefore introduced a number of legislative changes to close loopholes that have been exploited for tax avoidance, and we are taking steps to target low rates of corporation tax on small businesses that are reinvesting to ensure that distributed profits are subject to a minimum corporation tax rate of 19 per cent. We are protecting the zero rate as an incentive for businesses to invest for growth, enterprise and productivity.
  We have also introduced new requirements to disclose the use of direct tax and VAT avoidance schemes. As a result of the continued high level of spirits duty fraud, we will legislate to implement the Rogues report recommendation to stamp spirit bottles. Recognising the costs to the trade, however, we will assist it with cash-flow costs and defer payments for tax stamps. In addition, spirits duty will remain frozen for the seventh successive year and, as my right hon. Friend the Chancellor made clear, for the remainder of this Parliament. My hon. Friend the Economic Secretary has spent many hours in discussion with the industry, and has made himself available to right hon. and hon.

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  Members in all parts of the House in order to make sure that we get this right. Considerable progress has been made in ensuring that we tackle the evil of the illicit trade in spirits.
  Sir Robert Smith: Not long ago the Prime Minister as leader of the Labour party chose to abolish a different clause IV. Now through clause 4 of the Finance Bill the Government are imposing a burden on the whisky industry that I am not convinced will tackle the problem that they seek to address. Can the Chief Secretary clarify how he means to help operators who have small production lines and therefore cannot necessarily predict whether their bottles will need stamps for the internal market or no stamps for export? That will impose added burdens and costs not just on the cash flow through the acquisition of stamps, but on the production line. The measure will be a burden on all operators, but for the small operators especially, the stamp could be a particular difficulty in the management of their business.
  Mr. Boateng: My hon. Friend the Economic Secretary has spent some time, as have civil servants in Customs and Excise, in discussion with the industry about the particular concerns of small distilleries, and progress has been made in that respect. There will be help with their additional costs, and those discussions continue in order to make sure that they are given every assistance that is reasonable and practical.
  The evasion of duty on spirits is a matter of widespread concern, not least to the industry, because of the way in which illicit trade undermines the brands. The Rogues report went into that in some detail. I recall from my own time as Financial Secretary the detailed discussions and measures that we undertook together with the industry to tackle the problem, but it is clear that it continues to escalate. That is why the measure is a proportionate and reasonable response.
  Mr. Richard Bacon: The Chief Secretary is right that the illicit trade is of concern to the legitimate industry. Does he recognise that it is also of concern to taxpayers that, as was pointed out in the Roques report, the actions of Customs and Excise—which, I accept, have improved since—contributed dramatically to the losses to the taxpayer? Some £800 million of revenue was lost, £341 million to London City Bond alone.
  Mr. Boateng: I rather regret that I gave way to the hon. Gentleman. He knows that that is an entirely different point from the one—
  Mr. Prisk: Will the right hon. Gentleman give way?
  Mr. Boateng: No, I certainly will not. I have been given sufficient forewarning by the intervention of the hon. Member for South Norfolk (Mr. Bacon) not to give way to the hon. Member who sits on the Opposition Front Bench. The point made by the hon. Member for South Norfolk was entirely different from the one that I was making and was recognised in the Roques report. It was a one-off and, as he fairly said, there has been considerable improvement since in the performance of Customs and Excise.
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  Through tax stamps we are dealing with a significant fraud that not only deprives the Exchequer of revenue, but creates unfair competition for honest businesses and serves as a conduit of resource for organised crime. The industry, through the joint alcohol and tobacco consultation group, worked hard and constructively to develop a response to the problem, but we know that the anti-fraud impact of that package fell significantly short, and if it continued, would still fall significantly short of that estimated to result from tax stamps. It is right, therefore, that we should protect the revenue as we propose, but offsetting measures will reduce substantially the impact of compliance costs.
  Mr. Prisk: I appreciate that the situation is awkward for the Chief Secretary, because he is on record previously as being strongly opposed to such a measure, but this is a day for U-turns by those on the Government Benches. May I ask the right hon. Gentleman a simple question? Given that the Government expect to get only £160 million back from the measures, what is the logic for spending £280 million, which is the experts' best estimate of the cost of the scheme? It cannot make sense.
  Mr. Boateng: Those figures are not accurate. The hon. Gentleman knows very well why it has been necessary to take the measures. The work of the National Audit Office, the investigation carried out by the Select Committee and the work of Customs and Excise all indicate a loss that needs to be addressed. We must be clear about this. Yes, it is right that there should be a fund to assist with capital investment. It is right, as the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) said, that we should take particular note of the position of small firms. That is why my hon. Friend the Economic Secretary has targeted the assistance at smaller firms in particular, in order to mitigate their upfront costs. Customs is having further discussions with the trade on design, terms and coverage. It is right that we address this mischief. I hope that in Committee, we will be able to build some sort of consensus around the need to tackle a serious fraud.
  Together with these and other measures to safeguard fairness in the tax system, the Budget makes a real contribution, ensuring that everyone pays their way and that as little as possible is wasted through avoidance and fraud. It is important to tackle such behaviour and to ensure that taxpayers' money is safeguarded and spent efficiently.
  Of course, fairness extends across the generations. The Government recognise that we have an obligation to future generations to pursue sustainable economic growth that delivers our economic, social and environmental objectives, and to meet our domestic and global responsibilities in that regard. Environmental action of the sort enshrined in the Budget and the Bill that puts it into effect is not incompatible with productive business. It is to the advantage of businesses to adapt and invest now in new practices, and so stay ahead of the global trend.
  We have already made considerable progress with the environmental agenda through the introduction of measures such as the climate change levy, the United Kingdom emissions trading scheme, the aggregates levy, and support via the Carbon Trust and through enhanced capital allowances for energy and water-saving

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  technology. These measures are not designed primarily to raise revenue, but to incentivise environmentally responsible behaviour by business.
  In the Bill we will introduce new eligibility criteria for climate change agreements, which will increase the number of businesses that can participate in the scheme, boosting both the environmental impact and business competitiveness. Given business success in delivering on climate change objectives, and taking account of business competitiveness, we will freeze the rates of the climate change levy. There has been a real partnership between industry and Government in this respect and considerable progress has been made. We are keen to encourage households as well as businesses to tackle energy efficiency, and we have introduced a package of measures that includes incentives for the private rented sector to invest in energy efficiency.
  The Finance Bill advances some of the key steps to ensure that the country has the means to meet the challenges of the future, but it is important for individuals to be able to do that too. That need drives our pension simplification measures, which are the most radical changes to the taxation of pensions for a generation. Simplifying the taxation of pensions is the cornerstone of making pensions easy for everyone to understand, thus enabling everyone to prepare for the future.
  The eight different tax regimes for pensions were built on top of each other, leaving us with a maze of regulations through which the citizen and consumer must make their way, and often driving arbitrary distinctions between employees. We are sweeping away that complex system and replacing it with a single regime with an easily understood lifetime allowance for tax-privileged pension saving and a tax-free lump sum of up to 25 per cent. for all.
  Annual limits on savings that vary according to an individual's age, the date on which they joined a scheme or the type of the scheme will end. As decision making becomes easier for savers, so administration will become simpler for employers and providers, which will reduce costs in the long run. Simplification matters if people are to save as flexibly as they now work. When we have simplified the system, it will be possible to draw a pension and carry on working for the same employer, perhaps for fewer hours a week. By creating a simple system that enables people to plan and save for their retirements, the Bill renews and affirms the Government's role in the UK pensions partnership.
  Mr. Andrew Mitchell: I agree with the Chief Secretary about the merits of simplification, which is one good aspect among the litany of bad aspects of the Government's pension changes. If he is trying to encourage savings, however, will he explain why he is reducing the amount that people can save through individual savings accounts and making other disadvantageous changes for ISA holders? Next year, why does he not increase the figure from £7,000 to, for example, £10,000 or even £15,000 per year, instead of reducing the capital figure allowed to £5,000?
  Mr. Boateng: The hon. Gentleman takes an interest in such matters, and will therefore remember the
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  introduction of ISAs. He knows that a transitional period was always intended, which is precisely what has happened. His proposal is over and above the initial ISA scheme, and, although I hear his point, it does not commend itself to the Government.
  The Government aim to maintain the UK's position as a low-tax environment, and that ambition is enshrined in the Finance Bill. The Bill builds on and develops the macro-economic stability that is essential for our future productivity, growth and prosperity. It supports business while ensuring fairness, which will enable this country to match its new-found economic stability with the confidence to excel in the future.
  The dividing lines between the Government and the Opposition are clear, and the choice of two futures for Britain is plain: either sustained economic stability or a return to the Opposition's economic stop-go and recession; either investment and reform in health, education, transport and tackling crime, or cuts, charges and privatisation; either expansion of the new deal to build on the success of helping more than 1 million people move into work and getting unemployment to its lowest levels since 1975, or, under the Conservatives, the abolition of the new deal and a return to high unemployment; and either investment and targeted help to develop science innovation and enterprise in our universities and in communities across Britain, or a Britain of Tory laissez-faire, where the fortunate few succeed and everyone else's potential is simply written off.
  In the competitive global economy of the future, the intellectual capital of our country will drive its economic growth, and it is therefore imperative that we invest in our children's education, in adult skills and training, and in science, innovation and enterprise. Those investments will enable us to reach our potential as individuals and as a nation, and make Britain a world leader of the future global economy.
  Our plans enable us to meet the needs of this country's future. The Conservative party has made its decision, which is to cut spending and privatise and run down our public services. While the Labour party will invest in skills, science and enterprise, the Conservative party would slash spending in all those areas. Conservative Members laugh, but they are committed to axing the new deal—they would weaken the economy and return us to an era of boom and bust. We will invest in those areas that will enable the UK to grow and ensure prosperity not only for some but for all, while the Conservative party would put that at risk and cut public spending by £18 billion.
  The Budget laid down the measures that will enable the UK to respond to and meet the challenges of the global economy, and the Finance Bill sets them in statute.
  2.56 pm
  Mr. Howard Flight: I beg to move,
  That this House declines to give a Second Reading to the Finance Bill because the provisions contained in its 574 pages increase the burden and complexity of taxation, particularly on

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  small owner managed businesses; do nothing to increase the savings rate or improve United Kingdom productivity; and will lead to a further decline in the competitiveness and relative attractiveness of the United Kingdom as a location for investment.
  First, I refer hon. Members to my declaration in the Register of Members' Interests. Secondly, I congratulate the Chief Secretary on a better performance than that in the recent Budget debate, but his promotion of his own Finance Bill lacked both conviction and enthusiasm.
  This is, perhaps, the dullest Finance Bill for a long time, but I imagine that the Chancellor is proud of himself for adding another 574 pages of tax complexity for businesses and citizens to cope with—admittedly, 158 pages deal with the new tax regime for pensions. The reforms were supposed to simplify arrangements and, as the Chief Secretary said, to create a single new system, but if he read through the 158 pages he would find that the Bill sets out six new systems to replace the eight old systems.
  If the Government were in listening mode, they would find that pension professionals are offended and outraged that this massive piece of complex legislation has been introduced without prior consultation, which permits no more than three months of digestion, analysis and criticism as the Finance Bill moves through its parliamentary stages. The time scale is unnecessary because the new measures will not become effective for two years—Green Papers are different from specific consultation on detailed legislation.
  Virtually all economic commentators agree that the background to the Finance Bill is the Chancellor's need to raise taxation sooner or later in the face of a current structural deficit of some £35 billion with, by the Government's own measure, full capacity in the economy next year. In addition, there is an estimated £13 billion black hole arising largely from what the Institute for Fiscal Studies assesses as over-optimistic projections for corporate tax revenues.
  Citizens and businesses do not face major tax increases only if Labour win the next general election— the tax take is going up by nearly 8 per cent. this year, to £31 billion, after a 6 per cent. increase last year and before a further 8 per cent. increase next year.
  Angela Eagle: The hon. Gentleman mentions that the economy will run at full capacity next year. Is he against economies running at full capacity?
  Mr. Flight: Perhaps the hon. Lady might like to take a lesson in basic economics. The simple point is that if an economy is at full capacity and public spending is then in significant deficit, there is a risk that that will lead to inflation. Of course it is a good thing for economies to run as close as possible to full capacity, but it is unwise to operate a structural deficit at that stage of the cycle. Indeed, that is the very principle behind the Chancellor's fiscal rules.
  The shame revealed by the Government's own Office for National Statistics figures is that the massive increases in taxation and public sector spending since 2000 have failed to deliver the improvements in public services that were promised. Rather, the spending has gone on public sector inflation, which has risen to nearly
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  10 per cent. this year compared with just 1.6 per cent. in 1997. Hon. Members may care to note that the ONS data also showed that productivity in the public sector fell by 5 per cent. during the past two years.
  The Chancellor himself now admits to the waste in public spending that his policies have produced. No longer can he or his colleagues make silly assertions that those seeking to make the public sector more efficient have to cut front-line services. Conservative Members hope that the Chancellor will achieve his plans for public sector savings of £20 billion a year and that the Gershon review will be more successful than the Chancellor's discredited targets regime. But like the Treasury Committee, we await further details and explanations as to how the 2.5 per cent. annual efficiency savings will be achieved.
  The working draft efficiency review paper, which I have read, is a highly theoretical analysis. It highlights four main cross-cutting ways in which savings efficiencies can be achieved, but its conclusions on 2.5 per cent. savings do not follow from those four main areas. It looks as though one person wrote the first half of the report and another person wrote the second. Gershon's review is based primarily on benchmarking. It has set targets and leaves it to each Department to determine how they will be achieved. The work that is now being done by the James committee on our behalf is looking much more specifically at each Department and each area of the public sector to determine where and how improved efficiency and improved delivery can be achieved. We have also set six targets by which we will evaluate the Government's efficiency savings plans, as well as our own.
  May I give the Chief Secretary a little lesson in arithmetic in relation to his earlier comments? First, he should be aware that it is delivery that matters, not spending. One can have huge increases in spending, but if delivery does not improve, it is a waste of time. Secondly, if one achieves a situation whereby inflation is 2.5 per cent., which is roughly the Government's target; efficiency savings of 2.5 per cent. are achieved, which is the Government's target; and the amounts spent are frozen, the result is that there is no actual cut in services, because the effective real spending save of 2.5 per cent. is compensated for by the efficiency gains of 2.5 per cent. That is precisely what my City Circle paper was getting at. The Chief Secretary would be welcome to join us so that he can learn a little more about the public finances and improve on the way in which he does his job.
  The Chancellor's general-election-campaigning Budget speech not only failed to address the key issues facing the British economy, but omitted any reference to 48 per cent. of the measures contained in the Bill. As the Chancellor well knows, but dare not say, all his contrivances and changes to the bases of calculations in order to claim that he has met his fiscal rules avoid facing up to the fact that growth has been sustained by consumption growth well in excess of gross domestic product growth and financed by a growing mountain of personal debt; and that will now be added to by another £150 billion of Government debt by 2007, as set out in the Red Book. But the productivity growth that is needed if that is to be sustainable has declined and is half that achieved under the previous Conservative Government. The savings rate has similarly fallen to half what the Labour Government inherited from us in 1997.

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  The Chancellor had nothing to say about addressing those issues. With interest rates now rising, and the Government themselves predicting zero slack capacity in the economy by next year, any prudent Chancellor—particularly one who believes so passionately in micro-management—might have sought at this stage in the cycle, in this Finance Bill, to have increased the savings rate; but the Bill contains no incentives for savers. Rather, as contrived outside the Bill, individual savings accounts will be considerably less attractive for the 12 million ISA savers as a result of the loss of tax credits on equity dividends and the reduction in the limit from £7,000 to £5,000 a year—from £3,000 to £1,000 for cash ISAs. As the Treasury Committee commented, those measures appear to run counter to any policy of encouraging people to save. In particular, the major reduction in the limit for cash ISAs is bad news for lower income and younger savers. We will table a new clause to address those problems.
  Mr. Jack: Does my hon. Friend agree that his critical analysis is made all the more important in light of the substantial losses that many have experienced on endowments and similar financial instruments; and that therefore, to ensure that people can meet their long-term personal financial obligations, encouragement to save at an individual level is even more vital at this time?
  Mr. Flight: I thank my right hon. Friend for making that point, which is particularly relevant in the face of the problems that many have experienced. There is the wider economic point that when an economy is at full capacity and when interest rates are rising, with the threats that that can bring to the economy, one of the things that can prevent that from boiling over into economic problems is boosting the savings rate. A wise Chancellor would try to get the savings rate up at this moment in the economic cycle, as any economist would tell him. The truth, however, is that the Government's savings policy is a mess and has virtually disappeared off the Chancellor's radar screen, just as he has dropped any reference to the equally important need to improve productivity growth.
  There are some measures in this leviathan Finance Bill that Conservative Members support. The rebating of all VAT on church repairs is long overdue, particularly given that charities are collectively paying nearly twice as much tax as under the last Conservative Government following the loss of advance corporation tax. We welcome the delivery of the promised extra relief for community amateur sports clubs and the child care voucher proposals. However, too much of the Bill is about leeching the tax system and will fall particularly hard on small businesses and on ordinary citizens.
  The Chancellor's biggest sting was fixed last year with the freezing of tax thresholds and allowances. As hon. Members will realise, a fiscal drag serves to pull large numbers of additional people into the higher income tax rates. In his Budget speech, the Chancellor failed to mention the tax rise from £110 to £600 a year for drivers who use company vehicles for private use. Nor did he mention the imposition of an income tax charge, retrospectively, on those who have made perfectly legal arrangements in the past to enable them to pass on their
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  houses to their children while occupying them until their death. The cause of the problem there is that, as a result of the Government's policies, house prices have risen by much more than the inheritance tax threshold. The Chief Secretary referred to the natural obligations that one generation feels towards the next, but the Government seem not to understand that it is very natural for parents to want to hand their houses on to their children. There is nothing immoral or wicked about that—virtually everybody has that sort of generation-to-generation motivation. The Chancellor should not underestimate the resentment about the provision that will be felt by the middle class voters whom the Prime Minister is so keen to retain. I believe that the Government should have tightened the gift of reservation laws for inheritance tax purposes. Instead, the new income tax charge in the Bill adds yet further complication to personal taxation for tens of thousands of people and threatens the future of many of our historic homes.
  As we stressed in Committee on the Finance Act 2002, the introduction of the zero corporation tax rate introduced a fiscal distortion that favoured incorporation for small businesses, as opposed to remaining sole traders. As we warned, that led to a massive shift to incorporation, which the Government estimate would cost £420 million in lost tax this year alone. The Government have chosen to tax the distributed profits of small companies, which would otherwise fall within the zero band, at 19 per cent., to deal with that. Again, that will create significant compliance and legislative burdens for small businesses, with complications relating to undistributed prior year profits carried forward, and hit especially the smallest companies, which often find it difficult to retain profits.
  The Law Society commented that the extent and complexity of the provisions are disproportionate to the amount of tax involved. The Treasury Committee stated that it is puzzled about why, unlike other commentators, neither the tax authorities nor the Treasury appear to have anticipated the inevitable incentive to incorporation for small businesses.
  The Paymaster General will remember that she pointed out in Committee that small businesses would not look a gift horse in the mouth. She clearly expected the provisions to encourage small businesses to incorporate, but now we are told that it was not a gift horse after all. Consequently, small businesses now end up with a complex tax charge.
  On another subject relevant to owner-managed businesses, clause 86 seeks to remove the ability of small owner-managed businesses to be held jointly, and the husband and wife to remain taxed on a 50:50 basis. That flies in the face of the provisions that were specifically made in 1990, when independent taxation was introduced. Outside the Finance Bill, aggressive new interpretation of section 660A, universally criticised by the accounting profession, seeks to introduce another stealth tax, to tax as the husband's income dividends from the proportion of owner-managed companies that were historically owned by the spouse. The parliamentary debates and Budget press release relating to the Finance Act 1989 made it clear there was no such intention thus to interpret section 660A.

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  What is fundamentally wrong with these initiatives, essentially designed to extract more taxation from small, owner-managed businesses, is that they impose complicated rules on small businesses, which are costly to administer, potentially penal, and will possibly lead to mistakes. At the end of the day, the earnings are not large. As a constituent wrote to one of my colleagues:
  "I am sick of this Government messing up so many areas of my life. I am fed up with their taxes, anti-family stances and sheer arrogance. They meddle in so many areas where they just do not see the ramifications."
  I am surprised that the Inland Revenue has not previously attacked artificial tax avoidance schemes, which have been widely marketed, well before they have become widely used, and I understand the Government's objectives in the Bill. However, I ask the Chief Secretary to make a commitment that the Government will now publish the prescribed Treasury regulations, mentioned in clause 290, which will define "notifiable arrangements". Without that, we cannot know whether, as the Treasury Committee warned, the arrangements will create undue compliance burdens for taxpayers and their advisers, or undue administrative burdens for the tax authorities. As the national head of Ernst and Young commented, his concerns are that UK businesses should not be put at a competitive disadvantage. I am sure that the Government share that objective.
  I also warn the Government of the dangers of confusing tax evasion and tax avoidance. In those European Union economies where that happens, the outcome has been to make tax evasion socially acceptable. Ultimately, there also needs to be a degree of consent on the part of those asked to pay the taxes levied on them. As the senior partner of Grant Thornton pointed out, many of the Government's problems in their attempts to tackle tax avoidance are of their own making. Moreover, to avoid the new rules imposing excessive and uneconomic burdens on business, they also need to draw a clear line between "offensive" tax avoidance schemes and normal corporate tax planning; otherwise, provisions could have the effect of requiring any transaction on employment or a financial instrument that could have been accomplished in a less tax-efficient manner to be reported. That would impose wasteful time and cost burdens both on business and on the Inland Revenue.
  Clause 298 lacks adequate clarity about when lawyers are bound by their duties of confidentiality to a client and when they will be obliged to report under the new rules.
  It is also notable that, although the Bill contains major anti-avoidance measures, there is a marked absence of Government initiatives to tackle tax evasion and the growing black economy, or for that matter, the £7 billion incorrectly paid out in state benefits as the result of one in five Department for Work and Pensions decisions being wrong, as recently reported by the Public Accounts Committee. Moreover, in the Chancellor's drive to leech the tax system, he might apply his ingenuity to improving the collection of £14 billion of uncollected tax last year, as the recent National Audit Office figures revealed. That partly reflects the growing unwillingness of the rising generation to be bothered with the demands of ever more time consuming, bureaucratic compliance in their private lives.
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  Much the most serious challenges to the UK tax base, however, have come from recent European Court of Justice decisions founded on the principle of freedom of establishment in the EU. The Government have no clear view about what the corporation tax system will look like once all the existing and prospective EJC cases have been decided. The recent ECJ decision in the Delasteyre case applies to British companies and allows UK companies to move abroad without incurring a tax liability.
  Until now, a UK company would be deemed to have made a disposal of assets if it moved to a low corporation tax rate country, such as Ireland, where that represented a major capital gains tax bill deterrent. The Delasteyre case removes this barrier and renders unlawful the new migration charge under clause 48 and schedule 8, thus opening the doors to a Dutch auction of corporation tax rates across the EU. I fear that the Government have done no more than react, with delay and without any overall strategy, to each ECJ decision. We understand the Government's objectives with the UK transfer pricing and UK thin capitalisation proposals in the Bill, but we suggest that the Chancellor note the concerns of the Confederation of British Industry about the huge compliance burden placed on UK businesses and the possible impact of the provisions on competitiveness. The Government should tackle the problem head on in Europe, where it should not be within the jurisdiction of the ECJ to rule on tax issues.
  A full digestion of the 158 pages setting out the new regime for pension savings will have to await the Committee stage. As the Chief Secretary commented, the changes were supposed to reduce the pension system from eight regimes to one, but they create six new systems. Most of the proposals appear generally welcome, but in a long-term territory such as pension saving it is all the more important, in principle and in practice, for changes not to be retrospectively damaging to individuals. When the Conservative Government first introduced the pension cap in 1989, the principle was clearly established that individuals' pension contributions, where they were already members of pension schemes, were grandfathered for as long as they remained in that scheme and employment, or its successor scheme and company. So we believe that it is an important point of principle that such individuals should not be unfairly disadvantaged under the highly complex transitional arrangements that are proposed.
  We also question the Government's apparent reversal of their own measure introduced three years ago to enable women who take a career break to keep up their pension contributions for five years, based on the amounts that they had been earning at the time they stopped work, rather than restricting them to the stakeholder limit—[Interruption.] The Financial Secretary says that that is covered, and I am glad to hear it, but the industry does not feel that that is the case.
  We also have concerns that the 1:20 ratio regime provides substantial tax advantages to members of final salary schemes, while those with money purchase pensions are materially disadvantaged. As we have already pointed out, there is no need in principle for a cap if all employees have to be members of the same company scheme, and if annual contributions and tax-free lump sum withdrawals are subject to reasonable limits. We also wonder whether the new arrangements

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  will provide larger incentives for tax leakage, up to the £1.5 million limit than the Government have anticipated.
  While welcoming in principle effective measures to tackle VAT avoidance, we are worried that clause 20, which tightens up on VAT group relief, will act as a major incentive to banks and other large financial services organisations to sub-contract their back-office functions overseas. Here again, the Government would have done better to tackle the EU VAT problem in this territory head on.
  We understand that the property VAT anti-avoidance measures to outlaw schemes such as those under which the Labour party saved £1 million on the purchase of its new offices in Old Queen street, by treating the acquisition as a business rather than a property, are being discreetly addressed outside the Bill by a separate statutory instrument. However, I am glad to see that the Labour party knows so much about this kind of tax avoidance.
  Next week, we will be addressing more fully the specific Budget resolutions that we voted against, on the Floor of the House. It is extraordinary that the Government should be introducing the costly and complex strip-stamping regime for spirits when, only two years ago, the Chancellor's Budget day press release commented:
  "It was clear from this consultation process that the introduction of tax stamps would have a severe impact on the productivity and compliance costs of the spirits industry … The Government does not consider those costs as proportionate to the benefits of tax stamps."
  We shall look forward to hearing what has changed to make the Government do a volte face, because as far as we can see, nothing has changed.
  The Bill contains a further 51 pages on stamp duty land tax, but fails to address the major distortions now being caused in the residential property market as a result of the Government's stamp duty slab regime. There is a total of six other stealth taxes in the Bill, but after the Chancellor's massive engineered increases in council tax, stamp duty is his second largest stealth tax—[Interruption]. Labour Members might be surprised to learn that stamp duty revenues have risen from £2.5 billion in 1997 to a forecast £9.4 billion this year, and they are forecast to be up another £2 billion on last year. I must point out to the Chief Secretary that those middle class voters whom the Prime Minister is so keen to retain are not happy about what is happening to them on this front, especially first-time buyers who are going to have to find about another £2 billion over the next year in stamp duty.
  The Chancellor's boastful budgetary oratory sits ill with the dreary realities of the Bill and the issues facing the British economy. The once prudent Chancellor has been imprudently profligate in running a structural deficit which might prove to be as high as £50 billion, when there is no slack in the economy. The relative success of the British economy in recent years has been at the price of unsustainable increases in personal and mortgage borrowing, which threatens stability, now that interest rates are rising. The deterioration in Britain's public finances in the last three years has also
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  been the worst in the EU, and taxes in Britain have increased as a proportion of gross domestic product by more than in any other EU country over the past six years.
  In the forthcoming spending review, the Chancellor will not tell us that he will be seeking desperately to put the brakes on out-of-control public spending; nor will he tell us by how much he will be putting up taxation if Labour wins another election. He will not be telling us, either, of his wish for a general election as early as possible, before the risk increases of the economic wheels coming off. Like last year, the reality of this Labour Government is more taxes, more spending, even more borrowing and continuing failure to deliver. The Chancellor's policies are taking Britain back to old Labour tax and spend failure. He has already lost the confidence of much of the business community, and he is well on the way to alienating a majority of British citizens.
  3.25 pm
  Mr. Doug Henderson: I refer the House to my entry in the Register of Members' Interests
  The Opposition parties may not want to face up to it—although the hon. Member for Arundel and South Downs (Mr. Flight) acknowledged it in his third or fourth-last sentence—but the background to this Finance Bill is the fact that Britain has one of the most stable economies in the world. Since 1997, 1.8 million jobs have been created, of which 1.3 million were in the private sector. As we all know from reading our local newspapers, in many parts of the country there are adverts for many more jobs than can be filled. Since 1997, 100,000 extra businesses have been created, and unemployment is now at 2.9 per cent., which is the lowest since 1973.
  That has been possible because we have been able to attain growth rates that were not attainable in recent economic times. Since 2000, our growth rate has been 2.5 per cent., compared with 1.6 per cent. in the eurozone and, significantly, our growth rate has been higher than that of the United States. Why have we been able to maintain that growth rate? In a moment, I shall refer to the past, but it should be clear that if, every time there is an expansion in the economy, it is followed by a quick deflationary effect, there will be instability in the economy which will lead to a lack of confidence and, inevitably, rising prices, higher interest rates and all the other things that help to destabilise an economy. Those have all been avoided in the past five or six years, during which we have had historically stable prices and, consequentially, historically low interest rates.
  I am the first to concede that there is a problem in the manufacturing sector, which has not been able to respond to changes in the global economy as quickly as other sectors, although I think it is now beginning to learn how to respond. We cannot expect always to do things as they were done in the past and to be successful. I am not one of those politicians who say that the Government can come along with a magic wand and resolve the manufacturing sector's problems. What the Government must do is establish the right macroeconomic climate, and the right intervention climate on the micro side—which should be no greater than is

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  absolutely necessary. We are already seeing an improvement in manufacturing, partly because the world economy has experienced more of an upturn than in recent years but also because some of the initiatives taken by the Government over the past five or six years have begun to take effect in businesses throughout the country.
  I do not blame the Conservatives, for we have all been in opposition in our time, but their treatises on the state of the economy suggest that their memories are short when it comes to economic comparisons. That is not a party political point. There are many similarities in the economic performances of Labour and Conservative Governments over the past 30 years or so. I would argue, from a standpoint of partiality, that Labour has a better record—that some of the things we have done have been better—but I concede that many general economic trends have not differed significantly.
  When the Conservatives attack what Labour has done over the last seven years, they fail to take account of a new Government attitude to the economy. They fail to recognise that there really has been change and that the stability that we have struggled to hold on to for any length of time in the past has now been attained. A Conservative party, or any other Opposition party, that does not acknowledge that will not just fail to carry business and the people with it, but discredit its ability to assess economic performance and come up with policies of its own. In a sense, it will let people down.
  When I was a student, Government's role in the economy was to boost it one year and depress it the next, in the hope that over three or four years—given various such cycles—it would be stabilised. That did not happen often and when it did happen, it usually happened by accident. Expectations were not in line with actual movements in the economy. Even when the economy was moving in the right direction. people—be they workers or entrepreneurs—expected things to get worse, and their decisions on wage bargaining or investment policy were based on those expectations rather than on reality.
  I do not think that has changed. I think that is how human beings react. Long-term stability, however, makes it more likely that expectations will be in line with economic realities, which means that people will make better judgments on whether to invest, whether to settle for a certain amount in their wages or whether to save a certain amount. That did not happen in the 1960s or 1970s. Things were more difficult in the 1970s because of the oil crisis in 1973, when we were all trying to cope with a 25 per cent. inflation rate. Under both Conservative and Labour Governments, how could an investor decide where he wanted to be in two years' time when inflation was likely to be 40 per cent. over two years? If the forecast was wrong by 10 per cent., that would mean 4 per cent.—and a company that can register a 4 per cent. profit in its annual returns is doing pretty well. It was very difficult to make investment decisions, which caused further instability in the economy.
  That was repeated in the 1980s, when after a short boom in 1980, the Conservative Government were forced to recognise that it could not be sustained. The huge instability that followed lasted for years, causing massive unemployment and social disruption. It was repeated again in the early 1990s, when the Conservative
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  Government again tried to boost the economy before the 1992 election. I do not blame them for that, but it created enormous instability, with inevitable deflation and massive unemployment. I am happy to discuss that economic thesis with anyone who disputes it, but I think that we have all learnt a lesson from it. There must be a different approach, geared to stability. I shall list some of the things that the Government have done to bring that about.
  Mr. Flight: Does the hon. Gentleman agree that the major change in the past 10 years has been from the forces of globalisation? In the prior periods to which he referred, in more closed economies, inflation could build up more easily, leading to the stop-go cycles that he mentioned. The crucial change, as the Bank of England would admit, is that with open, global economies it is much more difficult for inflation to ignite. Indeed, the Bank of England would argue that the fact that the inflation target has been met has not been the result of a magical ability to manage inflation to that level, but largely the result of international forces. Surely that is the great change.
  Mr. Henderson: I understand what the hon. Gentleman says and recognise that we live in a more global economy, with more interaction between different parts of the world economy. That is the background to what has happened. Without policies geared to stabilisation, however, it would have been perfectly possible, even in an expanding global economy, to have massive stop-go, which would have undermined our ability as an economy to perform. if he looks at some of the examples around the world, he will see that that is the case where economies have not performed in this period of globalisation. One might have thought that the Japanese economy would perform much more effectively in this era, but it has not, because Japan's domestic policies, and the sense of economic integrity in the country, have not been continued over the years. Some EU economies also failed to perform in the way that they perhaps could have, had they been able to achieve greater stability. I recognise that we live in a more globally minded economy, but that does not in itself explain the difference.
  What has changed the economic performance? The basic point is that markets are more confident in their predictions, and wage earners, house purchasers, investors and savers are also more confident. In a sense, stability breeds stability. Some colleagues might argue that all this happened just because there was a Labour Government. I do not argue that, as I implied in my previous remarks. The Labour Government have adopted a change in economic thinking, responded to the changing economy and begun to adopt new approaches. The independence of the Bank of England is an example of that. It would have been heresy for any Labour Member to argue for that in the early 1990s or before. It was recognised, however, that if we are to give markets more confidence—let us remember that markets are not just about capitalism, but about the workers, their expectations and their predictions—people must believe that macro-economic policy has been based on what the economy needs, not on what a political party needs. When we give that degree of

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  independence, while maintaining some influence over the long-term shape of the responsibilities of the Bank of England, we nurture that improvement.
  On borrowing policy, one problem in the past was that, in the 1960s, 1970s and 1980s, many people still lived under the economics of the 1930s. In a less global economy, with massive deflation domestically, public expenditure programmes were necessary to create work. If it was useful work, that was fine—sometimes it may not have been, although most of it was. If we tried to conduct an economy on that basis, with a more globalised economy and a nearness to full employment that did not exist in the 1930s, inevitably, again, expectations would be affected. A crucial reform of the Labour Government was to say that borrowing is for investment over the economic cycle, not for plugging the gaps in revenue except in the very short term. That gave markets great confidence in our economy.
  The social programmes that have been introduced, and the emphasis on expenditure on health, education and so on, have been important in carrying people along with the changes that have taken place. The investment programmes in education, training and science have been important in bringing about the changes, not in the sense of health expenditure, which gives people a belief that things are going well, but because by investing in education we are creating a skill base for tomorrow.
  Those are the main changes that have taken place over the past five or six years that have helped to reinforce the stability of the economy. The Budget this year again does that and I believe that the Finance Bill also provides a fiscal framework for stability.
  Adam Price: I am listening with great interest to the hon. Gentleman, who represents the north-east of England, the economic history of which is not dissimilar to the part of south Wales that I am from. Does he think that the benefits of the economic stability that he describes have been distributed equally throughout the United Kingdom?
  Mr. Henderson: Unemployment has more than halved in my constituency over the past seven years and there are many other improvements that are obvious to the electorate in Newcastle, North that I was going to mention to the House. The hon. Gentleman has just prompted me to do so slightly earlier.
  People can see the social programmes in their communities and that things have changed. In Westerhope—the ward where I live—there is a new primary school that has all the latest technology to encourage a better education for our young people. There are three secondary schools in my constituency. All Saints school is the re-creation of two schools that were failing. It is still a difficult school but it is making enormous strides, and there has been a big investment—for everyone to see—in what is in the classroom, what protects the classroom and the number of teachers.
  In Gosforth high school—I see the hon. Member for Hexham (Mr. Atkinson) opposite; he will know all these places—there has been an obvious investment in new classrooms and essential maintenance of existing buildings, as well as the establishment of a new building.
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  Walbottle school, on the boundary between our constituencies, is to be completely reconstructed, based on the social expenditure that is now possible because of the changes that have taken place in our economy and its strength.
  In West Denton in my constituency, there is a new one-stop community centre in the middle of a redeveloped shopping centre with a wide range of facilities including housing and benefit advice, leisure facilities, work and pensions advice and a new library. All of this is obvious and such changes are replicated in constituencies up and down the country. My answer to the hon. Member for East Carmarthen and Dinefwr (Adam Price) is yes, things have got better and the changes are visible, but there is still some way to go. I do not want to detain the House too long but I would like to mention some of the things that could be done.
  The Budget has addressed the regional imbalance issue, especially in accompanying statements on the dispersal of civil service jobs. Too often, we have located jobs in already congested areas, which does not make economic sense. We have dispersed civil service jobs in the past and we need to disperse more, and that will help to encourage employment and growth in constituencies such as mine in the north-east and that of the hon. Member for East Carmarthen and Dinefwr.
  That will also address, at least partially, the point raised by the hon. Member for Arundel and South Downs about how one reacts in an economy that is getting nearer and nearer to full capacity in many areas. Regional redistribution is an important way of raising the overall level of economic activity and addressing the problems of full capacity.
  People are generally wary of making this point, but I will make it. On immigration, there needs to be far more consideration of the economic factors involved rather than the other factors. Immigration is crucial for economies that are to grow. An economy can be grown to an extent by raising the productivity of the people who are there, but productivity has shot ahead in some economies around the world because more people have been involved. That has happened sometimes because the labour market has grown internally, but it has often happened because of external immigration. If anyone knows an example of where that is not the case, please tell me.
  We in this country must stand up and say that, if we want to continue to be prosperous and meet our economic objectives, there must be an economic context in which we consider such matters as immigration. We all know what happens in London. If there were no immigration into London at the moment, and if there had not been for the past 10 years, there would be no service industries provided in central London. We all know that, so why do we deny it? Some areas of the country now need immigration to ensure that their future capacity is as good as it has been in the past, because areas such as the north-east and Scotland have been losing population. If such areas are to be successful, we need to have a much more progressive approach to immigration. I do not believe that people should just be able to come to this country and pick up what is going, but they should be able to come and make a contribution.

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  That economic argument should be made far more often. If all the political parties accepted that that was the case and did not try to make party political points out of it, it would not only be economically desirable but have beneficial social consequences. I, for one, will not hide from that issue because it is important in economic terms, although I could also justify it in social terms. That does not mean having a completely open-door policy, but we have to allow immigration where it is important.
  I have gone on for long enough, although I could also have identified benefits for small business. It is important to have micro policy to help small businesses, and I am sure that my colleagues will address that in their contributions, as Front-Bench Members have. There is a need to do more on labour mobility, which will also help to address the full capacity issue. Housing policy is crucial in that regard, and the Government's response to the Barker recommendations on housing investment trusts is a good one. I look forward to legislative backing for that.
  On education, the Government's commitment to a 4.4 per cent. real-terms increase during the next four years is crucial, for reasons that I hope everyone in this House recognises.
  Mr. Bacon: The hon. Gentleman has mentioned various points, but I have listened with particular interest to his comments on immigration and his powerful point about services in London. I was struck the other day when, having been served with coffee in Starbucks in Horseferry road by a Brazilian tax lawyer, I then went to the dentist who turned out to be from South Africa, and also saw a dental hygienist from Finland. When I returned to Starbucks later in the evening, a Japanese drama student was behind the counter. The hon. Gentleman is right to say that London services would be decimated without immigration. However, does he agree with Trevor Phillips, the chairman of the Commission for Racial Equality, that multiculturalism—the cultural and social issues are different from the economic ones—has been a failure and should end?
  Mr. Deputy Speaker (Sir Alan Haselhurst): Order. I had been on the edge of suggesting to the hon. Member for Newcastle upon Tyne, North (Mr. Henderson) that he had perhaps dwelt a little too much on immigration in relation to the main substance of the legislation before us. I certainly hope that he will not respond to the hon. Member for South Norfolk (Mr. Bacon).
  Mr. Henderson: I am pleased, Mr. Deputy Speaker, that you have kept the hon. Gentleman and me in order. I was simply trying to address the full capacity issue, which has been raised and is important.
  The Finance Bill is designed to steer our economy towards higher productivity, in line with the issues that have been mentioned from the Front Bench, including the use of our increased resources to fund investment in education and important social expenditure. Some would say that there is very little in the Budget that changes things, but that is not a crime for a Budget. I do not believe in changing regulations if they do not need to be changed. The important thing is that the macroeconomic strategy is right, and the Budget reinforces that.
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  This Finance Bill will help to maintain stability. It will contribute towards raising productivity in our economy, and it is fair. For those reasons, I commend it to the House.
  3.49 pm
  Mr. David Laws: The shadow Chief Secretary said earlier that the Budget was dull and the Bill too long, and I think that I detected the Paymaster General sighing and saying that we say that every year, but unfortunately of late it happens to have been true: Budgets have been dull for a couple of years and Finance Bills too long for quite a few. We may not be able to do much to influence the dullness or otherwise of Budgets, but it is slightly disappointing that our urgings to limit the length of Finance Bills and the complexity of tax legislation have not been heeded.
  The Paymaster General (Dawn Primarolo): I thought the hon. Gentleman and his party were in favour of the tax law rewrite project, so I would expect him to welcome the resulting increase in the volume of Finance Bills—they are longer, but much clearer, which is important.
  Mr. Laws: I am complaining not about the tax law rewrite but about the Government's policies. We have had further examples this year of their having to fill the Finance Bill with measures to unwind the effects of tax loopholes and reliefs introduced in previous Budgets. The shadow Chief Secretary has already mentioned the corporate tax measures that unwind the effects of the zero tax rate introduced only two Budgets ago.
  We shall have an opportunity in the couple of months that we take to deal with the Bill in Committee to discuss many of the clauses in great detail. Today, I want to focus on the broad sweep of the Bill and the Budget, and to follow to some extent the structure of the excellent report published by the Treasury Committee just a couple of weeks ago—a report that usually informs our debates on the Finance Bill at this stage. I want to discuss the macro-economic background and some of the key public expenditure issues before coming to some of the salient tax issues.
  At the urging of the hon. Member for Newcastle upon Tyne, North (Mr. Henderson), I pay tribute to the Government and those in the wider economy for the unprecedented period of economic growth that we can celebrate this year. Of course, that is essential background to the Budget. The success of the economy and its ability to create jobs is one of the factors that allows us politically to concentrate on issues such as the improvement of public services, which was far less salient in the late '70s, the '80s and the early '90s, because so much of our political and economic debate had to focus on the crisis in the macro-economy, and in particular on the huge level of unemployment. When I was first getting interested in politics, the claimant count was well over 3 million, and it is a great pleasure to note that it has now fallen below 900,000, which would have seemed an almost impossible target back in the 1980s and early 1990s.
  It is a great pleasure for me in my first Parliament to represent a constituency where the major complaint from business is about the shortage of employees.

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  Unemployment is less than 1.5 per cent. in Yeovil—and throughout south Somerset and into Dorset. In fact, the major employment issue that I have to deal with is the controversy that can arise when people from Portugal and other countries are brought into communities such as the town of Chard because there are not enough employees to fill the posts in local businesses. That is a nice problem to have.
  Mr. Steve Webb: I do not want to interrupt my hon. Friend's characteristic slavish adoration of the Government's economic policies, but does he accept that there are many people who do not feature in the official figures? Perhaps he was going on to say that. Among young people, for example, the number who are not in paid work or on a training course, or who have dropped out of education and so on, is basically the same as it has always been. Far too many do not show up in the headline figures, and there is a lot of wasted talent out there that the Government have failed to do anything about.
  Mr. Laws: I assure my hon. Friend that I have dealt with the good news part of my speech so far as the Government are concerned, and I am extremely conscious of the point that he makes. Many fall outside the labour market statistics altogether, and such people—particularly those on long-term incapacity benefit, for example—should be of great concern to the Government. I hope that they are.
  There are two clouds on the economic horizon—the shadow Chief Secretary has referred to them—and they both relate to debt. The first problem concerns consumer debt and the valuation of housing assets, and the second public sector borrowing. Both should be of great concern to the Government, not least because although, as the Chancellor has observed, we have enjoyed an unprecedented number of years of positive economic growth, it is in the nature of history that such periods always come to an end. We should therefore try to anticipate what could bring these benign circumstances to an end.
  One of our greatest concerns, which has been expressed by my hon. Friend the Member for Twickenham (Dr. Cable), is the accumulation of consumer debt and the appreciation of house prices in particular. House prices have risen by at least 100 per cent. across most of the country in the past four years or so. That speculative bubble in the housing market could burst at some stage, leading to a decline in consumer expenditure, which might be over-extended as a consequence of the high level of consumer debt. I do not get the impression that the Government believe that there could be a problem with consumer debt and the housing market, or that there is a pin out there that will burst the speculative bubble.
  The Treasury Committee touched on the issue in a relatively fair way in its Budget report. It is true that a number of the reasons for the increase in house prices and in consumer borrowing are related to fundamental economic factors, which might give less cause for concern than some of the speculative pressures. We have enjoyed relatively strong growth of real incomes, and low unemployment. The increase in house prices
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  perhaps constitutes an adjustment for the fact that interest rates are at a very low level historically. It is probably reasonable to assume that they will stay low for the foreseeable future; at least, that is what the financial markets are saying.
  Some speculative house buying is taking place as people switch their investments from other classes of assets that have not performed well recently, including the share market. That should give us pause for thought, as should the extraordinarily high level of house prices compared with earnings across the country. Since I became Member of Parliament for Yeovil, the price of houses at the bottom end of the market in my constituency has at least doubled. Properties in Chard— a town marked by very low-paid employment—that were going for £45,000 to £50,000 in 1999 are now on the market for £115,000 to £120,000. It is incredible that the lowest priced houses in a town with such low pay should be that highly priced, and constitute so many multiples of average earnings.
  The Government might be aware of recent statistics produced by financial commentators such as Barclays bank. According to a Barclays bulletin, the major factor that pushed up the value of lower priced properties in the past couple of years was not first-time buyers, but a huge explosion in the speculative market for buy-to-let properties. In the past couple of years, the growth in the number of such properties far outweighed the decline that was otherwise taking place in the number of mortgages taken out by first-time buyers.
  The Government may feel that they can afford some complacency at present, and that even if there might be an overstretched housing market there is no obvious factor on the horizon to end the current position—no pin to burst the bubble. However, we cannot easily anticipate an increase in inflation, not only in this country but overseas, perhaps as a consequence of loose monetary policy in several countries. If, as a consequence, there is a significant rise in UK interest rates, the house price bubble might burst significantly, and that might accumulate in its effect as a result of the amount of speculative buying in the housing market. That seems to be a real risk to the economic outlook, which the Government should take more seriously. They should encourage regulators to police very carefully the way in which lenders are dealing with the property market in particular, and continue to support the Monetary Policy Committee in taking early action on interest rates.
  The second controversy and other cloud on the economic horizon is the borrowing problem and fiscal deficit that the Government face. There has been a significant increase in public sector borrowing and the projections for it over the past few years. As the Select Committee report pointed out, that has happened despite the Government's success over the past year in achieving their growth forecast—something that a year ago many of us felt was somewhat unlikely.
  The Select Committee also pointed out that the Chancellor's problem with public borrowing over the past few years has been a consequence of a shortfall not in growth, but largely in tax revenues per pound of economic growth. Commentators are still expressing considerable scepticism about whether the Chancellor's forecast for increasing tax revenues over the next few years will be borne out. If they are not, we will face the

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  serious risk of public borrowing rising significantly above 3 per cent., which has for a long time been the benchmark with which both the present Government and their predecessors have been comfortable.
  I am not sure yet that my forecast would be as gloomy as those of the shadow Chief Secretary and the shadow Chancellor. After all, the figures on potential deficit and excess in the borrowing forecast mentioned by the Institute for Fiscal Studies and others are of the order of only £10 billion to £12 billion—the average error from looking one year ahead on the public finances. No Government should necessarily be proud of that, but it remains the case. If the Government are lucky and the position turns out to be more benign than the forecast, the deficit could disappear very quickly indeed. However, if they are wrong in the opposite direction, the deficit will be even greater than that expected by the IFS, which should give the Government serious cause for concern.
  What should the Government do? One action that they should consider is giving the same type of credibility to their fiscal regime—particularly transparency—that exists for the monetary policy regime. I wish that the Treasury Committee had gone a little further in its recommendations on that point. It has at least pointed out that it is unsatisfactory when the National Audit Office is called in by the Chancellor only to audit particular assumptions and not other assumptions. Problems have occurred recently in the private sector, but if we proposed a system whereby auditors were instructed to examine only certain assumptions and not others—about oil, stocks and so
  forth—people would be very worried.
  Angela Eagle: As a member of the Treasury Committee I can tell the hon. Gentleman that we debated whether the National Audit Office would be in a better position than the Treasury somehow to oversee and audit official statistics, and we explicitly decided that that would be nonsense. We deliberately said that we should go no further than the recommendation and comments in the report.
  Mr. Laws: I am grateful to the hon. Lady for making that point. I recall that debates in the Select Committee have been going on for some time and that several Members—including the hon. Member for Chichester (Mr. Tyrie) and, I suspect, my hon. Friend the Member for North Norfolk (Norman Lamb), who is in his place behind me—have argued forcefully for greater transparency.
  I am not necessarily saying that giving the NAO more power to audit the assumptions is the only option. We could set up an independent body to make an assessment of the fiscal outlook, alongside the independence on monetary policy. As the Government have done so much to clarify the transparency of macroeconomic policy in general. including fiscal policy, it is a pity that they seem to be nervous about going the whole hog towards proper credibility and transparency in fiscal policy. Of course, we all understand why that is: Governments, especially when a general election is coming up, do not want too much scrutiny of their figures by outside bodies. However, the price of not providing that scrutiny is a greater prospect of the Government making errors in their economic policy.
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  That point naturally leads us to public expenditure. One decision that the Government have taken recently on public expenditure and the control of public borrowing has been to limit public expenditure growth in the next spending round, which will be later this year. We agree with the Government that it is appropriate to slow down the rate of growth of public expenditure, even though for many years we argued that they were too slow to increase it, which is but one of the reasons why public service improvement has taken so long to deliver.
  We do not, however, support the Conservative proposal to reduce public expenditure significantly below the rate of growth of the economy, as we do not believe that that would be consistent with continuing to improve the delivery of public services. The reticence of the shadow Chancellor and the shadow Chief Secretary to spell out precisely where the proposed cuts would fall indicates some of the difficult decisions that they would face. We should not be able to rely only on public sector efficiency savings.
  In another extremely fair part of its report, the Select Committee pointed out the difficulty in assessing whether such efficiency savings could materialise. It noted that the Treasury was one of the Departments that recently dumped its target for 2.5 per cent. efficiency savings on the basis that such savings could not be effectively monitored—a point that has also been made by the IFS.
  The Government need to do two things to deliver their agenda for the improvement of public services. First, within that much tougher public expenditure framework, they must make hard choices about where the priorities lie. Rather than relying solely on efficiency savings—although they should always be sought, they are not always as easy to pin down as they are to claim— we believe that they need to make some hard choices within public expenditure totals. My hon. Friend the Member for Twickenham has explained how we would fund much of the health, education and other programmes that we want to be introduced by cutting specific aspects of Government expenditure, including parts of the Department of Trade and Industry budget and the child trust funds; by opening up defence procurement to greater competition; and by reducing some of the excessively wasteful programmes of the Office of the Deputy Prime Minister.
  Secondly, the Government should consider whether increases in public expenditure are really delivering their intended purpose of improving health, education and policing. Earlier, the shadow Chief Secretary mentioned the poor public sector productivity figures released recently and referred to the fact that most of the money allocated to public expenditure appears, from the figures, to have gone into public sector pay and on an explosion of other public sector costs. We are aware that the Government are holding an inquiry into that matter and that additional public expenditure on such things as reducing class sizes or capital investment will not necessarily show up in the productivity figures, even though such spending is much needed.
  My local experience also indicates the challenge that the Government face in delivering public service improvements from increased public expenditure. Perhaps I could draw the Paymaster General's attention to the budget figures for my local hospital—Yeovil

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  district hospital—which have just been released. The hospital also covers part of the shadow Chancellor's West Dorset constituency.
  It is interesting that the East Somerset NHS trust's budget for that hospital will increase from £57 million in the last financial year to £65 million in this financial year. That £8 million is a significant increase—well over 10 per cent. in cash terms. However, let us consider the cost pressures that the trust faces and where that £8 million will go. I can report to the Paymaster General that £3 million will be spent directly on pay inflation, including the funding of the consultants' contract; that about £1.2 million will fund the European working time directive; that £2.8 million will be spent on superannuation; that £1.2 million will go into a capital project to improve the hospital; and that £300,000 will go into non-pay inflation. In another words, almost all that money is accounted for by pensions, pay and a much needed capital project.
  Later in the assessment of the trust's position, it is reported that the funding available for 2004–05 will be insufficient to maintain the waiting time targets set by the Government. That situation, which must be mirrored throughout the country, shows to both the Government and the Conservative party the difficulty of delivering such improvements in public services, not least after a long period in which far too little has been invested in the capital stock of our public services and in which an attempt to hold down public sector pay has created a great number of improvement projects. Those facts ought to draw the Government's attention to the need to reform public services and, in particular, to decentralise those services—to stop trying to run them all from Whitehall and Westminster.
  The last issue that I want to raise is tax. The most important tax measure that we would like to have seen is not in the Bill, and we await an announcement later this year. The Paymaster General may be interested to know that my colleague the Liberal Democrat shadow Chancellor, my hon. Friend the Member for Twickenham—he is not here at the moment, but he was earlier—recently attended the Liberal Democrat conference in Southport.
  Mr. Mark Prisk: What was he doing there?
  Mr. Laws: It is usual for us to attend our conferences.
  My hon. Friend bumped into the Chancellor of the Exchequer's former spin doctor, Mr. Charles Whelan, who was there, in and around the bars and other places. Mr. Whelan gave two pieces of advice to anyone who would listen about how we ought to take on the Government at the next general election. He said that we should focus on only two issues: trust—interestingly enough—and the council tax. Obviously, one questions the commitment of Mr. Whelan and others to supporting the Prime Minister, given that he urged us to focus on those two issues.
  We would like to have heard more than we heard in the Budget—we still await this—about how the Government will reform council tax or, better still, abolish it altogether. We are certainly not impressed—I
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  do not think that the country is either—by the sticking-plaster solution in the Budget: the payment to pensioners of only £100, which does not address the pressures that many people, including those who are not pensioners, face from the increases in council tax throughout the country.
  In the recent Budget debate, my hon. Friend the Member for Northavon (Mr. Webb) quoted figures issued by the Office for National Statistics that show how the tax burden by decile has changed since 1996–97. We should get the latest tax burden figures from the Government in the next couple of weeks, if they are not delayed or mislaid, as they often are. I expect that those figures will continue to show that under Labour the people who have been particularly hit are those in the lowest income deciles. They pay proportionally more of their income in tax than those in the top deciles, largely because of the increase in backdoor taxes—indirect taxes and council tax—over the past few years. The most notable backdoor tax increase has been in council tax, which alone accounts for 12.1 per cent. of the income of the lowest decile, compared with 1.5 per cent. of the income of the top decile. Even after council tax benefit, council tax accounts for almost £1 in every £10 of income of those on lowest incomes. If the Paymaster has not yet picked up on the fact that that is one of the public's biggest concerns and that council tax is the most unpopular tax in Britain, she will do so in a few weeks' time, when she gets out on the election trail for the European elections and any local government elections taking place in her area.
  Simon Hughes: Before my hon. Friend leaves the subject of backdoor taxes, will he assist me and others in persuading the Government to get rid of another such tax, which came to light last week in an answer given to me by the Chancellor of the Exchequer—a tax on charities whose runners commit themselves to raise a certain sum of money in the marathon? That was not clear before last week, and it needs to be corrected and redressed.
  Mr. Laws: My hon. Friend is right. As he has raised the point, I shall deal with it now. I have been assiduously pursuing the points that he asked me to pursue, because he was unable to be present at the beginning of our debate. I asked the Chief Secretary whether in future it would be necessary to pay VAT on the golden bonds that were used by a number of people running for charities in the London marathon. The answer that I think the Chief Secretary gave and that I hope the Paymaster General, who is mouthing at me—favourable things, I hope—will make clear, is that the Treasury would provide clarification and that there was a possibility that people using golden bonds would not have to pay VAT. My hon. Friend has received representations from London Marathon Ltd., which is, I believe, supportive—
  Dawn Primarolo: Will the hon. Gentleman give way?
  Mr. Laws: Let me finish my point and raise a related one to which I hope the right hon. Lady will respond. The chief executive of London Marathon Ltd. has written to my hon. Friend the Member for Southwark,

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  North and Bermondsey (Simon Hughes) pointing out that the company is very supportive of VAT not being charged on golden bonds, but that it is concerned that if the solution pursued by the Treasury is to end the VAT-exempt status of the event, it could end up paying more VAT. Therefore, the company wants confirmation that any solution will not worsen its position.
  Dawn Primarolo: The hon. Member for Southwark, North and Bermondsey (Simon Hughes) was not present at the beginning of the debate and might not be here at the end, so I shall answer the point now. Let me make it absolutely clear, because misleading information has been given, that charitable donations have always been and remain VAT-free. As for the golden bond, the London marathon organisers and director have made it clear in writing that they prefer to charge the VAT because that enables them to reclaim VAT on the significant costs of mounting the event—I understand that almost £800,000 has been reclaimed. We can have a sensible discussion about the matter, but let us not mislead: no change has teen made to the tax rules. The hon. Gentleman, who is standing in another election, is trying to mislead and he should not do so.
  Mr. Deputy Speaker: Order. The Paymaster General could have described her dispute with the hon. Member for Southwark, North and Bermondsey (Simon Hughes) in a more felicitous way.
  Dawn Primarolo: I am more than happy to accept your guidance, Mr. Deputy Speaker, and to suggest that it might be sensible to base our discussion on the facts. Perhaps the hon. Gentleman would like to raise the matter with my hon. Friend the Economic Secretary, so that it can speedily be cleared up to everyone's advantage.
  Mr. Laws: The Paymaster General's clarification was useful. No doubt my hon. Friend the Member for Southwark, North and Bermondsey will have heard her generous offer to take up the issue, and people outside will have heard that they no longer need to worry about paying VAT on golden bonds in future—at least, I think that that is what the right hon. Lady was saying.
  Dawn Primarolo indicated dissent.
  Mr. Laws: It appears that the meeting will be needed. I think that the Paymaster General is trying to have her cake and eat it.
  I am conscious that time is limited, but I have one more issue to raise. We have already discussed the unfairness of the tax system and highlighted the absence of any measures in the Budget and the Finance Bill to address the unfairness of the local government tax system. Our other perpetual complaint about the tax system, especially under this Chancellor, is its complication and the rapid introduction of a series of ill-thought-out subsidies, often without any calculation of whether they will have any economic advantage. There are examples in every Budget under this Chancellor, and in this year's Budget we witnessed die fiasco of the zero per cent. corporation tax rate. The Chancellor had to introduce a new 19 per cent. tax rate this year to try to deal with the problem of lost revenue that resulted from many people incorporating.
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  That fiasco was entirely foreseeable and, indeed, was foreseen by many people who gave evidence to the Treasury Committee a couple of years ago and by the Institute for Fiscal Studies. It was also widely discussed and debated in the House. A year or so ago, I attended an event in my constituency organised by local accountancy groups that were trying to encourage people to incorporate and pointed out the great advantages that the Government had opened up as a consequence of the zero per cent. tax rate. The tax accountants led, as one would expect, with an explanation of how the measure worked in practice and what their charges were. As a political representative, I was asked only one question—that surely the loophole was too good to last and that once the Government realised they were losing revenue they would close it and people who had paid their money to accountancy firms would be no better off. I am afraid that I naively said that even this Government would not be so short-termist and short-sighted as to end the tax relief within 18 months, particularly before a general election.
  That is the last time that I shall defend the Treasury's long-termism, as business men now ask me how the Government could change their mind so rapidly. Under the Bill, the Government will raise almost £1 billion over the next couple of years by withdrawing all the reliefs that had previously been introduced. It would have been far too embarrassing, however, for the Chancellor to have to announce in the Budget that he was withdrawing the zero per cent. tax rate. That would sound like an anti-business measure, so he presented it as a further reform to stop tax avoidance. The introduction of a new 19 per cent. rate will further complicate the system and, as a result, the tax accountants who were at that meeting will earn even more money from people going back to them for advice.
  It is not for me to suggest how the Government can get out of the mess that they have got themselves into, but I shall make a constructive suggestion before concluding my speech. The Government will issue a discussion paper on the tax rates paid by incorporated and unincorporated smaller businesses later this year, and it will lead to changes in 2006. We do not want people to adjust to the latest change in the tax regime, only to be messed around again in 2006 when the Government change the whole system. The Government should aim to put off that penal increase in taxation. They should accept that the loss of tax revenue is their fault and was entirely predictable. They should not introduce changes in the tax system for small businesses in 2006 until they have thought them through.
  It was fair to characterise the Budget as somewhat dull and the Finance Bill as long. What is not in the Bill concerns us, and should concern the Government too. There is nothing about the fairness and simplicity of the tax system, nothing to address the public expenditure issues facing the Government, and there is complacency about the major macro-economic challenges facing them.
  4.24 pm
  Angela Eagle: It is a pleasure to follow the hon. Member for Yeovil (Mr. Laws), and I welcome his welcome for the success of the Government's policies, particularly their effect on the

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  labour market, an area that I shall address in detail. His thoughtful speech, observations and interventions were more constructive than those of the hon. Member for Arundel and South Downs (Mr. Flight), which consisted of more scaremongering about imminent economic collapse. Every year when we debate the Budget and the subsequent Finance Bill, the Conservatives predict economic crashes, mayhem about to come and recessions made in Downing street—phrases with which we are so familiar. They have done it in debates on every one of the Chancellor's eight Budgets to date, and they have been proved wrong every time. I suppose that, like a clock that has stopped, they hope they will be correct at least twice in the next period. A stopped clock is correct at least twice every 24 hours, so they hope that sooner or later they will be accurate, but there is no sign of it yet. The Chancellor's institutional reforms may mean that stability is here to stay, as the hon. Member for Yeovil and my hon. Friend the Member for Newcastle upon Tyne, North (Mr. Henderson) said.
  Behind all the complexities of a Finance Bill as long and technical as this one—it has 309 clauses and 40 schedules—lie a few simple core values and aims, which are central to the task that the Government and the Chancellor have set themselves: to establish a strong and stable economy, and to use that as a platform to create the conditions for a fair society that provides opportunity for all and security for all. Opportunity may be jobs or the social programmes such as those that my hon. Friend the Member for Newcastle upon Tyne, North noted in his constituency. I could give a similar litany of positive developments in my constituency. Security for all may be the anti-poverty programmes that the Government have successfully launched and which they continue to strengthen and improve, or fairer access to improving public services such as health and education.
  Those core values and aims can be seen running through the Bill like a seam of precious metal running through rock. The Bill resembles a wall of granite, but there are important gems in it that we need to take some care to identify, understand and retrieve from the morass of technical detail with which we are always faced when we look at a Finance Bill.
  The Government's economic record is a major achievement. We have had an unprecedented period of stability, sustained by a bold institutional change that the Conservatives opposed, although they have now changed their minds. We have had astute stewardship of economic affairs, which has enabled the UK to navigate a treacherous international climate that has included economic shocks such as the Asian crisis, the Russian collapse and the high-tech bubble, all of which we have come through unscathed, whereas in previous eras we may not have been able to ride such rough waters unscathed.
  Steady growth and stability have enabled Britain's torn social fabric to be patched up. It is good to see again, represented by some of the topics covered by the Bill, that work has begun to recreate that torn social fabric and put it back together in a way that will allow
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  it to stand the test of time and once again guarantee security and fairness for the vast majority of the people of Britain.
  There are many features that I could highlight in this Second Reading debate that have contributed to the generally successful economic picture that the Bill further promotes. Macro-economic stability has been mentioned in many of the contributions so far, and I am sure it will continue to be a theme, characterised by low inflation, low interest rates and a much more predictable environment in which individuals and companies can plan ahead. The promotion of enterprise, innovation and science is creating the best prospects for future developments in the economy so that we can maintain our general economic excellence and survive in a competitive world market. The increase in fairness that we have seen in our society in recent years is characterised by the Government's determination to tackle child and pensioner poverty, and the poverty of ambition and opportunities that have blighted so many of our fellow citizens in times past.
  The ongoing major investment in our public services is often commented on—it is derided in some quarters—and Labour Members welcome it. After many years of neglect, our public services and infrastructure need renewal, and it is to the great credit of the Chancellor and the Government that they have managed to put aside substantial sums to invest in those important areas. It is clearly vital to ensure that every penny is spent as effectively and efficiently as possible, which is why I welcome the Chancellor's review of public sector productivity. I also welcome the efficiency reorganisations in the machinery of government announced in the Budget.
  I shall focus on employment and the labour market, and show how dry economic indicators translate into transformed lives and new opportunities for my constituents in Wallasey and the millions of others in the UK who have benefited from the success of the Government's labour market policies, which will be strengthened by some of the clauses in the Bill.
  If the Government's economic strategy has succeeded, their employment strategy has succeeded even more—indeed, unemployment has disappeared from the political equation in a way not witnessed for the past 40 years. The statistics are extraordinary: the latest figures from the Office for National Statistics show that 74.9 per cent. of the working age population participate in the labour market—the highest ever rate—and that an extra 183,000 people were employed in the last quarter. Overall, an extra 1.8 million jobs have been created.
  Under the International Labour Organisation definition of unemployment, unemployment declined by 33 per cent. in the last quarter and now stands at 4.8 per cent.—the lowest rate since records began. As the hon. Member for Yeovil fairly pointed out, the claimant count is less than 900,000, the lowest level since September 1975. On top of those excellent figures, more jobs and job vacancies are being generated. The number of jobs has risen by 114,000 to 30.31 million—the highest figure since records began—and job vacancies have increased by 31,000 over the past year.
  In my constituency, the figures are just as heartwarming. In 1997, Wallasey was burdened with 4,450 people on the unemployment register. In 2004, the

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  latest available figures show that the total is down to 1,983, a fall of 55.4 per cent. since the Government took office. Overall, 5 per cent. of the working age population in my area are unemployed, which is close to the national average. In the Conservative years, the figure hovered between 10 and 11 per cent., and it was consistently twice the national average. Furthermore, youth unemployment has been virtually eradicated in my area.
  Those figures illustrate an important point about economic growth, which partially answers the question asked by the hon. Member for Yeovil about whether growth has been distributed equally. The answer is that the distribution of growth has assisted those regions that have fallen behind in the past, but there is more to do. Between 1997 and 2004, the narrowing of the employment gap between north and south was faster than average in some northern areas—that is certainly true of the north-west, Yorkshire and Humberside, Wales and Scotland.
  Underlying those figures are issues that some of the provisions in the Bill begin to tackle. In my area, for example, the 5 per cent. unemployment rate hides the difference between genders—there is 6.8 per cent. male unemployment and 2.7 per cent. female unemployment. That reflects the economic legacy of the area; its shipbuilding and maritime background created a pool of men in their 50s who spent a lot of time working in heavy industry and have not yet found a place in the employment market in this new phase of job creation. Thankfully, the Budget and the Bill concentrate on that problem.
  Another regional issue is so-called gross value added, which will be considered by the Select Committee. Regional variations in productivity demonstrate that although employment in some of the northern regions has caught up faster than the average and the north-south gap has narrowed, the opposite has happened in terms of gross value added. We must ensure that we are able to create high-quality, high-value-added jobs in the regions. Again, I am happy to say that the Bill and some of the Budget documents contain good signs that the Chancellor is aware of that issue.
  Adam Price: The hon. Lady usefully highlights the key problem of the productivity gap between the economic regions. Does she agree that it would be useful if the Government developed a regional perspective on science, technology and research and development policy?
  Angela Eagle: The Select Committee will consider those issues, and I hope that we will be able to give the House a detailed report. In principle, the establishment of the devolved Governments and, in the English regions, of regional development agencies and, possibly, devolved assemblies shows the way in terms of creating institutions with a regional focus to deal with local issues. Sometimes, disparities in productivity, wages and employment levels within a region are even wider than disparities between different regions. Fairness and equal opportunities must apply more effectively throughout our whole economy.
  The first phase of labour market policy is encompassed by the Chancellor's extremely good record on employment creation, which has increased the
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  number of jobs in the economy and banished the scourge of persistent mass unemployment that did so much damage in the Conservative years. The next challenge is to refine, deepen and improve our labour market policies to take account of some of the issues of quality, access to opportunity, high productivity and high-wage jobs throughout the country.
  If we look at how those achievements have been gained, we see the way forward in terms of deepening our labour market policy to create more fairness. We should applaud the role played on the demand side by the generally stable macro-economic conditions that have allowed jobs to be created in record numbers—and, incidentally, saved some £3 billion annually in unemployment benefit payments, which is now being put to far better use. We should also applaud supply side reforms such as the introduction and increasing of the national minimum wage and its extension to 16 to 18year-olds.
  The tax credits system has helped millions of people, as has the national minimum wage. Facilitating self-employment is important in the context of the new diversity of employment issues. The new deal has also been an effective instrument on the supply side. Together, those measures have made work pay and removed the practical and psychological barriers to the labour market that many people who had been excluded from it experience.
  We now need to introduce the second phase of our labour market policies. We must deepen and strengthen them and move entirely from the understandable initial concern with the quantity of the jobs created to focus on their quality. We must concentrate on facilitating moves from low skilled work to higher skilled and higher paid work, which adds more value to the UK's economic performance overall and creates a fairer and more equal distribution of opportunity and income.
  The Bill's enabling clauses facilitate the gear shift from the quantity to the quality of jobs. For example, on the supply side, clauses 25 and 26 maintain a low tax regime for businesses, enabling them to continue to focus on creating more employment, which is also, hopefully, quality employment. Clause 78 makes child care vouchers tax relievable, which enables the enhancement of lone parent job prospects. Clause 79 allows employers to invest in their employees' skill acquisition by loaning them computer equipment without tax liabilities. That helps to upskill employees.
  The measure provides for increases in capital allowances for small businesses that wish to invest in plant and machinery, which would enhance skills or value added by re-equipping the existing plant. There are many other tax incentives on the supply side and my right hon. Friend the Chief Secretary outlined some of them in his opening remarks. They will create a more benevolent environment for investment in highly skilled, quality employment.
  On a broader scale, the Budget documents contain more detail about the new deal for skills, which strengthens learning opportunities for many people who are currently without NVQ level 2 or equivalent qualifications. The new deal has done a remarkable job in removing barriers to work from those who were disadvantaged in the labour market. Clearly, it should not be abolished, as the Conservative party wants, but

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  broadened and refined to assist those who continue to face barriers to employment to take the plunge and get into work.
  The recent skills strategy paper, with its welcome focus on upskilling for the low skilled and the expansion of the employer training pilot, which was announced in the Budget, will help to bolster the drive for quality jobs. I should like the pilots to be extended countrywide as quickly as is practicable.
  I welcome the Budget's focus on policies to get economically inactive people who want jobs back into work. Achieving an increase in employment and opportunities for disadvantaged groups in the labour market is key to our approach to fairness and equal opportunities. The new disability rights Bill, which will be introduced soon, will assist disabled people. Equal pay provisions will assist lone parents who have child care and continuing tax credits. Ethnic minorities need equal access to training and skills opportunities and protection against discrimination when they enter the labour market. Much remains to be done on that. People who are over 50 face discrimination in the labour market and the protections against age discrimination, which were agreed in the European Union, have yet to be implemented. The low skilled clearly need to be assisted through an enhanced skills agenda to set them on the road to higher paid, more productive employment.
  I welcome the welfare reforms that were announced and covered in some detail in the Red Book. They facilitate the move to sustainable work and opportunities for those who have been inactive through disability or illness.
  The experience of work, work-life balance and rights at work have been equally important in improving the quality of jobs and opportunities, which in turn will make our economy more productive. It is also important that, in areas where there are still problems of discrimination, self-organisation and strong trade union organisation allow people to fight low pay, arbitrary treatment or bullying in the workplace. I therefore welcome some of the moves that have been announced recently on freedom from bullying campaigns.
  The next phase for Labour's employment policy should involve a deepening of quality in the labour market, and a deepening of rights, opportunities and chances. I am glad to say that, judging by the announcements in the Budget documents—particularly on the skills agenda and on some of the supply side issues that I have mentioned—the Chancellor and his Treasury colleagues are well aware of the need to proceed in that direction. We have solved the problems relating to the quantity of jobs in the economy; we now need to focus much more on quality.
  Labour market flexibility should mean a highly skilled work force who are adaptable, ready to retrain or move, and eager to work. It should not mean a casualised, low-paid, alienated work force with no rights and no commitment to an employer. The Bill and the Budget have recognised that basic truth and begun to put in place the policies that we need in order to ensure that flexibility means good, high-value opportunities and well-paid jobs that will benefit our economy and our levels of social justice and prosperity.
  4.46 pm
  Mr. Quentin Davies: I should like to start by reminding the House of my interests recorded in the Register of Members' Interests, although I cannot for the life of me think how they would be in any way relevant to what I am about to say.
  I thoroughly agree with the hon. Member for Wallasey (Angela Eagle) about the problem of age discrimination in the job market and in the health service. I have twice introduced ten-minute Bills designed to address that problem—once under the Major Government. I think that I was the first Member to do so on either side of the House, although several people have picked up the cause since then. I once received an answer from the present Prime Minister at Prime Minister's Question Time saying that he intended to legislate on the subject. I am afraid that that was just one more broken Labour promise, but I am glad that at least I have one ally on the other side of the House.
  I want to make three points today. Two of them go to the heart of the Government's fiscal and economic policies, although the one that I shall start with is important, even though it might strike some hon. Members as a strange matter for me to talk about. However, it is a matter of public interest and something should be said about it. I want to talk about the Red Book—or the white book, as it has now become; perhaps we should refer to it as such. It has always—not just in my time, but for generations—been the foundational document for discussions in the House on the Government's fiscal and economic policy and the relationship between fiscal policy and the rest of the economy. It is foundational not only for our discussions in the House; it is the only document that is readily available to the public—to those who send us here, who pay their taxes, who take an intelligent interest in what is going on and who want to have the relevant facts and figures to hand.
  I am worried about the increasing politicisation of that document, and about the declining standard of the presentation of the facts in it. When I first came into the House, the Red Book, as it then was—it was genuinely red in those days, although that does not matter—was a document that simply set out facts in a dispassionate, even austere, fashion. That has been true for many generations under Governments of both parties. There were no gimmicks or politically loaded phrases. There was no political rhetoric of any kind. The book is now full of PR-speak, value judgments and loaded words. There is a great deal about fairness for all and high-quality public services. That is about the most politically controversial statement that can be made at present— whether our public services really are good value—and it is quite inappropriate in a document of this kind.
  More serious still, while there is a clear tendency to make historical comparisons with 1997–98 when they seem favourable to the Government, where the facts or the historical indices would clearly be unfavourable to the Government or would raise embarrassing questions about Government policy, no figures are provided—at least not in the context of comparisons with 1997–98.
  This is, or ought to be, of importance to the whole House. It will certainly be important to the public, and it should be important to Treasury officials who serve the public and whose interest must be in the good economic

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  governance of the country, and hence in maximum credibility for our fiscal policies. They should be sure to resist any political pressures when putting this document together, and in my personal opinion the spin doctors should be locked out of the building.
  Mr. Nigel Beard: It is easy to make general accusations about spin, corruption and so on. If the document is as full of inaccuracies as the hon. Gentleman pretends, can he give us two examples?
  Mr. Davies: I was about to do so. The hon. Gentleman should exercise a little patience. I intend to be very specific. I do not need to go into all the political rhetoric, some of which I have already referred to; what is important is the presence of omissions—lacunae— and one instance of quite egregious distortion of the facts, or confusion about reality, which certainly should not appear in a document of this kind. I should have thought that the hon. Gentleman would agree with me about that striking omission.
  There is nothing about aggregate savings in the economy. It is impossible to know what portion of our gross domestic product we are collectively saving. What we can learn about is the extent of the Government's "dis-saving"—their negative contribution—because the figures for their borrowing, or fiscal deficit, are in the document. There is also something about the rate of saving as a proportion of disposable income, the so-called savings ratio, but we are not told what the level of disposable income is. There is a numerator with no denominator. Nothing in the document tells us what household savings amount to. Nor is there anything about the corporate sector: it is possible to read the whole document without knowing whether it is a net saver or a net borrower.
  How is it possible to have an intelligent discussion about fiscal policy and Government borrowing without knowing what are the counterparts of that borrowing? Who are the lenders, and who are the savers? The Government are borrowing—we know that—but who are the potential lenders? Is the private sector a lender? The savings ratio is clearly very low: the household sector is saving on a net basis. I shall say how low it is in a moment. The corporate sector we simply do not know about. If we want to find out about the fourth relevant variable, the balance of payments on the current account—the extent to which we are importing capital—we discover that the figures are presented in an extraordinarily confused, confusing and potentially misleading fashion.
  There should be a figure for aggregate savings, and clear flow of funds charts showing the position of the household sector, the corporate sector and the Government. I hope that someone is listening, and will ensure that that is done next year.
  There are no historical indices for savings. As the current savings figure is not mentioned, I suppose it is not surprising that there is nothing about past savings. Nor are there any historical comparisons relating to the savings ratio, although a figure of around 5 per cent. is given for the current household savings ratio on page 232. I am glad to see that the hon. Member for Bexleyheath and Crayford (Mr. Beard) is following the
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  book conscientiously. Again, therefore, anyone reading this document will be completely unaware that less than 10 years ago—seven or eight years ago—the household savings ratio was double that rate at 10 per cent., which was probably the average for the previous 40 or so years. To present the current savings ratio with no sense of whether it is increasing or falling, or of how it relates to the historical trend, is an extraordinary state of affairs, and does not give a clear picture of the position to the public, for whom the document is, I imagine, designed; certainly, the public will have paid for this document.
  There is also no figure for household debt. If the Paymaster General would like to intervene on me and tell me that I have missed something—admittedly, it is a long document—of course I will give way to her. I could not find any figure for household debt at all. On page 232, it says that the level of household debt in January this year has increased by 13 per cent., in relation to January 2003. Just giving the percentage increase without the underlying level does not help us much, however. One must wonder why the household debt figure is concealed in this fashion. Why is such a selective percentage increase figure given without the underlying aggregate being revealed? The only possible reason is that it is extremely embarrassing to the Government. That goes to the heart of the integrity of the document and the extent to which it is either a vulgar piece of political propaganda or a piece of professionally presented disinterested information, delivered by Her Majesty's Treasury to the great British public.
  Another matter of great concern is business investment, which we discuss a great deal in this place, and which is always an important part of the national accounts. In any presentation of the national accounts in any other country, I am certain that we would see a figure for business investment. The only way that we can work out business investment from this document is to look at the graph on page 235. If the hon. Member for Bexleyheath and Crayford follows that graph, he can then try to read off business investment. By the way, he will see that it has fallen by about 20 per cent. over the last seven or eight years as a proportion of GDP. There is no absolute figure, but we can, if we want to take a long time, work out roughly the absolute figure, because there are GDP figures elsewhere in the document. When we work out that figure, we find something that is unfavourable to the Government, and a negative part of their record, but it has been concealed by the spin doctoring of the document, which, I repeat, is highly regrettable.
  Mr. Calum MacDonald: Will the hon. Gentleman give way?
  Mr. Davies: Perhaps the hon. Gentleman will tell me that I have missed the figure for business investment, and he will tell me where it is in the document.
  Mr. MacDonald: I am sure that the hon. Gentleman is sincere in his concern for the statistics in the Red Book. He was a Back-Bench supporter of the previous Conservative Government, who, as he will be fully aware, distorted, manipulated and changed unemployment statistics over a long period, which was reflected in each successive Red Book. Is he trying to

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  draw a parallel between the spin doctoring of that time and whatever errors and omissions he might perceive in the Red Book today?
  Mr. Davies: I was a frequent but not an invariable supporter of the previous Conservative Government. I voted against that Government on one or two occasions. One occasion was in relation to the Scott report, when the issue was the integrity with which information was made available to the public. I hope that the hon. Gentleman will give me credit for that. It would be depressing, in any democracy, if he were to feel that an effective and full explanation for any bad conduct by a Government is that the previous Government were equally or almost equally bad. Is that really the basis on which he feels that he can go proudly to his constituents and say, "This is the wonderful democracy in which we live. This is the standard of conduct to which I subscribe, and the measure that we should set as to how effective the Government whom I support are." Is that really his message this afternoon? If so, I will give way to him again, and he can expand on it.
  I said that there was one matter that was even more serious than the issues that I have already raised, which are themselves pretty serious. We move beyond simple omission of awkward facts into technical incompetence, which is a serious charge to deliver against Her Majesty's Treasury. I hesitate to say it, but the alternative—a deliberate attempt to mislead—is even worse. I am referring to the way in which the balance of trade and balance of payments figures are presented in the document.
  I invite the hon. Member for Western Isles (Mr. MacDonald) and other colleagues to look at page 237 and the pages that immediately follow. The balance of payments and balance of trade are important aspects of economic policy. The balance of trade is a major aspect of the balance of payments, which represents the import of capital, which is relevant to fiscal policy as it is one way in which the Government can fund their deficit in the absence of substantial domestic savings.
  Trade in goods and services is set out on page 237 in table B7, which, for 2004, refers to a deficit of £35¾ billion. If the hon. Member for Bexleyheath and Crayford turns to page 241, he will see the breakdown of gross domestic product and its components. For the sake of time, I shall refer again to 2004, but the same distortion runs through other years. The hon. Gentleman will see that export of goods and services amounted to roughly £286 billion and imports were roughly £332 billion. Even I can do simple arithmetic and work out that the gap, the trade balance, is £46 billion. The figure four pages earlier showed the trade balance to be a deficit of £35¾ billion; there is a significant discrepancy.
  A third table adds to the confusion; the one to which I have referred that is the only source in the document of the current account balance. The Government are obviously embarrassed by this as well. The current account balance is buried; one never sees it in a table. The figure is never mentioned in the prose and one must read it off a graph in chart B8. For 2004, the figure is roughly minus 3 per cent. of GDP. That is roughly
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  £30 billion, which is probably the accurate figure. Slightly below that, one can see the goods and services deficit, which is about £30 billion. That is inconsistent with the other figures.
  There are only two ways to view this. It could be a matter of incompetence, which certainly could be the case if the figures were put together on a different technical basis. There is no such explanation in the document, so there is no way for anyone to see whether the figures are not comparable because the methodology of calculation was different. If one did that in an undergraduate essay, a red line would be put through it; it would be torn up.
  The other possibility I leave to the imagination of the House because I do not want to use epithets that would be unparliamentary. I hope that that is taken account of. I repeat; this goes to the heart of the integrity of the document and therefore the integrity and credibility of fiscal policy, which is extremely important for stability and investor confidence, things that we all hold dear.
  My two other points go to the heart of the policy issues behind the Budget. The first has been made clearly by my right hon. and hon. Friends on the Front Bench over the past few weeks; the Government are spending too much, taxing too much and, above all, borrowing too much. We can See the borrowing figures in the white book, as I call it. In view of the differences in the standard of production of the white book from the old Red Book, perhaps it is a good thing that it should have a different cover. It is probably inappropriate, however, that it is white. The white book makes it clear that borrowing this year is £37.5 billion.
  As my right hon. and hon. Friends have said, that is a significant increase in total public debt, which will have to be paid for through future taxes. The Government are very coy about that. I should have thought that Ricardian equivalence was one of the most venerable, tried and tested, and uncontroversial concepts in economic science. I do not think that there is any scope at all for arguing that borrowing is anything other than deferred taxation, but I notice that the Government are always coy about that and will not come clean. They should come clean, in the interests of open government, and explain to the British people that that money has to be repaid and is deferred future taxation. It is the liability of the taxpayer, and £37.5 billion is a serious increase in that liability.
  Let us just take the interest charge on that figure, quite apart from the capital sum. If the gilt rate is slightly less than 5 per cent.—I do not know exactly what it is, but it is probably about 4.7 or 4.8 per cent.—we can easily work out that, in broad-brush terms, the interest charge on £37.5 billion is slightly less than £2 billion. Every year from now on, we will pay nearly £2 billion, just to service one year's increase that this Government have made in the debt.
  What is £2 billion? I can give an immediate comparison: it is exactly the yield from capital gains tax. In my view, that is the most economically damaging tax of all. It is a direct tax on risk taking and on capital mobility, and we should not have it at all. It is a disaster, and we certainly should not have long-term capital gains tax. I have argued that for many years, but we could dispense with the whole thing if only we did not have this additional incremental interest charge. I am not talking

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  about the deficit, just about the interest charge that the Government have piled on the taxpayer's back as a result of this Budget.
  That is a serious matter, but I am coming to more serious ones. The figures in the white book make it clear that the Government have lost control of fiscal policy, on their own measure. What is that measure? The Government came to power saying that they were going to be fiscally prudent, and they had two rules. The golden rule is that the deficits and surpluses should balance out over the cycle, and the sustainable debt rule is that debt should not exceed 40 per cent. of gross domestic product. There is a quirk, however, because the golden rule excludes investment spending. When the Government borrow to spend for investment purposes, that is excluded from the golden rule, so the fiscal policy stance was always going to have an expansionary bias. The Government were always going to be borrowing more than was required simply to have a neutral fiscal effect on demand through the cycle.
  Let us look at the Government's expression of their fiscal policy aims, which are set out on page 35. I agree totally with this objective, which is entirely laudable:
  "The golden rule is set over the economic cycle to allow fiscal policy to support monetary policy in maintaining stability through the operation of the automatic stabilisers."
  In plain language, those automatic stabilisers mean that the Government should run a surplus when the economy is expanding above trend—above the level that is sustainable without incurring risks of inflation— and that there should be a corresponding deficit when the economy is running below trend. In other words, when there is an excess of demand from other sources in the economy, such as consumption, investment and exports, the Government will compensate by taking demand out of the economy through running a surplus; and vice versa.
  That is a simple principle which makes complete sense. A fiscal policy conducted on that basis does indeed support monetary policy, which now has an inflationary target, in preventing the economy from expanding or declining excessively. That is very sensible and means that the Government act as a kind of cushion.
  That principle, however, is not being followed. According to the Government, the economy has been expanding roughly on trend over the past year, at 2.5 per cent., which is the Treasury assumption for a sustainable non-inflationary rate of growth Furthermore, the projection for this year and next is that it will run substantially above trend, at 3.5 per cent., so if the Government were sticking to their policy, one would expect a Government surplus; but in fact, as the figures in the white book show, borrowing for the past financial year was £37.5 billion, and it is projected to be £32.9 billion in 2004–05 and £30.6 billion in 2005–06. The Government are financing a deficit of £30 billion even with the economy expanding substantially above trend.
  I repeat that the Government's prudence is only half prudent, because they apply the golden rule in relation to current but not investment spending, so it would be fair to consider the borrowing required to finance the current deficit, which should indeed follow the golden rule. In 2003–04, with the economy growing on trend, the current deficit was £21.3 billion; in the current
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  financial year it is projected to be £10.5 billion; and in the next, £5.5 billion. That is assuming, incidentally, that the Government have got their projections right and do not yet again, as they have consistently done over the past few years, substantially overrun their spending and borrowing estimates.
  On the current deficit, by their own measure, the Government have completely lost control of fiscal policy. With the economy growing a whole percentage point above trend, far from there being the surplus that they say there should be, there is a significant deficit, which continues to 2005–06, which is where their projections come to an end. That is not allowing
  "fiscal policy to support monetary policy in maintaining stability through the operation of the automatic stabilisers."
  That is going in the opposite direction and destabilising the economy. Far from supporting monetary policy, Government spending and borrowing are creating a burden on the Bank of England's Monetary Policy Committee to compensate for the excess demand contributed to the economy by the Government themselves when demand from other sources is also above trend. It is the exact reverse of their stated policy. That is why I say advisedly that fiscal policy is out of control, on the Government's own measure. We should all reflect carefully on that.
  The Government expect to hold an election next year, and they hope that the chickens will not come home to roost before then and that they will get away with it. We understand that calculation, but for anyone who pays taxes or is concerned about the economy and about stability—that wonderful word that the Government love using—it is a matter of considerable anxiety.
  As I have said, it is clear from the white book that the Government are very embarrassed about the subject of savings. It contains no figures on the subject, except for the current savings ratio—the proportion of household disposable income saved—which is 5 per cent. The blatant and very important fact that the savings ratio has halved in the past seven or eight years is completely disguised in the white book, which remains entirely silent on the subject.
  Does it matter at all if savings fall? It is clear that the Government do not want to address that question. I suppose that the textbooks will say that savings are important to the economy because they provide the resources for investment. However, I am not concerned about that. In any case, the British economy is not investing enough. As I have pointed out, business investment has been falling. Firms are currently very liquid and we live in a world of open capital markets. If they need to, businesses can borrow from abroad; indeed, we already have a significant current account deficit. We are already importing capital to the tune of £30 billion, or whatever the real figure is. We do not know because the Government have fudged their presentation of it in the white book.
  If British business wants to start investing again and to increase the proportion of gross domestic product represented by business investment—I hope that the Government share that objective, at least in their more responsible moments—and if households are saving very little and the Government are borrowing a great deal, such borrowing will have to be done at the expense of the current account. We shall have to import that

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  money from abroad, thereby building up foreign liabilities. That is an arithmetical certainty, given the situation we are in, but that is not my main concern about savings.
  The one concern about savings that I certainly do share is that if the British people are saving only 5 per cent. of their disposable income, they are simply not providing sufficiently for the hazards of life and for their retirement in particular: for the time when they will no longer have an income from work. We should all be concerned about that, particularly in the narrow sense of our role as taxpayers, because here there is an implied liability. If people are not providing through their own savings for the hazards of existence—unemployment, businesses going broke in a recession, retirement and so forth—ultimately, they fall back on the state. They say, "Well, the state has to keep me at an acceptable standard of living because this is a civilised society and I cannot be allowed to starve on the street." However, we should all recognise that, if we want a happy, successful and stable society, we need a decent level of savings.
  What is a decent level of savings? I concede that that must be a matter of judgment, but in the 1980s and 1990s, when this country had a 10 per cent. savings ratio, no one said that we were saving an excessive proportion of our disposable income. Indeed, even back then, ours was the lowest savings ratio in the European Union and one of the lowest in the world. Typically, abroad, savings ratios were well into double figures, and in countries such as Japan, the figure was over 20 per cent. So there was no suggestion that 10 per cent. was a particularly high figure, yet we have halved it in seven or eight years. Is that not a worry? We should reflect on that point. It is the height of irresponsibility, frivolity and cynicism for the Government to try to close down debate on this issue altogether by disguising the figures and keeping quiet about them in the white book. That is a very bad day's work by them, and they should be thoroughly ashamed of it.
  I turn to the real problem in relation to savings and the issue that concerns me most of all. What happens if one halves savings by reducing them from 10 per cent. to 5 per cent. over seven years? Enormous resources for consumption are released, and we have indeed had a consumer-led boom. As we know, in the past seven years the source of demand has been largely consumption; followed, of course, by Government spending. The Government have concealed the figure for household debt—it is not in the white book—but it is at an all-time high.
  So we have had this great consumer boom and the Government are reaping the political rewards, probably congratulating themselves on how wonderful it is and aiming to maintain it until the next election, when all will be fine and dandy. There will be a feeling of general well-being in the country because of the boom, but only at the expense of enormous debts—household debt, Government debt, the implicit liability of households to pay off the Government debt in future, rises in taxation and so forth.
  Robert Lucas won a Nobel prize for discovering the law of rational expectations, but perhaps rational expectations will not work out 100 per cent. and
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  somehow people will not work it all out effectively before the next general election. The Government certainly hope that they will not, which is why they are cooking the figures in the manner that I have described.
  If we have had an enormous consumption-led boom through the halving of the savings ratio from 10 to 5 per cent., what do we do for an encore? When the Government are re-elected, are we to go down to a zero savings ratio and subsequently to a negative ratio? It is not possible theoretically to have a permanently negative savings ratio, so what are the Government going to do for an encore?
  Another question to focus on is what happens if the British public come to the conclusion that their savings ratio is too low and that savings in the economy should be increased. What happens if they want to get back to 10 per cent. on the grounds that that is a prudential policy for themselves and their families? What happens if they do that in response to a crisis? The hon. Member for Yeovil (Mr. Laws) has already raised the more than theoretical possibility of a collapse in the housing market and a negative wealth effect whereby people suddenly increase their desired savings level. What happens in those circumstances?
  The answer is simple and absolutely clear. Just as a reduction in the savings ratio provides an enormous increase in consumer demand, so an increase in the savings ratio results in an abstraction of demand from the economy to an equally dramatic degree. How will we cope with that? Will there be a major economic crisis or a recession as a result? Will we have the opposite of the stability to which the Government claim to aspire?
  There are not a dozen possible solutions. What are the possible responses? Not monetary policy, of course. If consumers reduce their spending and increase their savings, it is no use the Bank of England cutting interest rates to compensate, which would be the monetary approach of maintaining demand in the economy. If that happens, the savings ratio will not rise and the British public will be prevented from getting back to the level of savings to which they aspire.
  That is not the answer, so will the Government replace the demand lost when British households decide to increase their savings ratio to a more prudent level? In that case, the golden rules and sustainable debt provisions can be thrown away entirely. My goodness, in order to provide the equivalent of the present savings in the economy—we are talking about moving from 5 to 10 per cent.—the whole amount currently saved by households would be abstracted in demand. We do not know what the exact figure is, because it is not revealed in the Red Book, but we could make a rough calculation and say that if the Government were to respond to that gap by some sort of deficit spending, it would amount to a substantial burden on fiscal policy. If they did that, no credible fiscal rules whatever would be left.
  What is the solution? The fact of the matter is that there is no clear solution. Indeed, as a matter of fact, there is no solution at all. We have mortgaged and hypothecated the future, and critically reduced our freedom of manoeuvre in the future. All fiscal policy, whether under Labour or Conservative Administrations, will bear that burden and that loss of flexibility. The British people will bear it and we will all pay the price—and for decades to come—for the

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  fundamental mismanagement of the British economy over the last seven years. I have to say that that mismanagement is made no more attractive by the attempts to conceal some of the central facts by irresponsible spin doctoring, which seems to have crept its way even into what used to be a greatly respected and independent Treasury document.
  5.24 pm
  Mr. Calum MacDonald: As always, the hon. Member for Grantham and Stamford (Mr. Davies) made an entertaining speech. He made a number of charges against the Government and, from the way he was talking, it was difficult to recall that, when the Conservatives were in government, they were responsible for the two deepest recessions in post-war history, while the Labour Government are responsible for the longest run of economic growth in a 100 years.
  When we hear the hon. Gentleman banging on about public borrowing, fiscal policy being out of control and the costs of interest payments in the future, we need only recall the level of public debt that the Government inherited in 1997, and the crippling burden on Government finances of paying the interest on it, and compare that with the situation nowadays to realise that the debt and borrowing picture is much healthier than when his party was last in government.
  Mr. Davies: If it was such a bad thing for the Conservative Government in the 1990s to accumulate that debt and that interest charge—I agree that it was—why is it such a good thing for the present Government to go back to increasing them?
  Mr. MacDonald: It is obviously not a good thing to accumulate unsustainably high levels of debt and that is why the Government laid down their golden rule, which the hon. Gentleman cited and which the Government are following, contrary to what he was saying.
  When I intervened, the hon. Gentleman chided me for trying to excuse what he claims are current lapses by referring to the activities of the previous Government, but while listening to the debate I could not help reflecting on the very first Finance Bill debate I ever sat through. That was in 1988, when the Government were coasting on the massive economic consumer boom of the mid-1980s, as the hon. Gentleman will recall because he, too, was a Member then. I well remember the then Chancellor, Nigel Lawson, boasting at the Dispatch Box that he was increasing public spending, reducing public borrowing and, of course, slashing taxation— that was the infamous Finance Bill that cut the top rate to 40 per cent. He was able to do all those things at the same time because he could take advantage of the buoyancy of the economy, but all he achieved was a still further stoking of the consumer boom, leaving himself with no resources to deal with the eventual downturn and crash. With that crash came the crash of his reputation as Chancellor. If the hon. Gentleman is looking for examples of fiscal policy out of control, that one is much more real and telling.
  It is worth reflecting on that example, because the lesson that I draw from it is that the true test of a Government and a Chancellor is not how generous they are in the economic good times—how well they spend
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  money when the economy is growing and tax revenues are buoyant—but how well they manage the inevitable periods of slowdown and slow growth. I have no doubt that the Chancellor has passed that test over the last two or three years, better than any Chancellor I can recall and probably better than any Chancellor of the past 100 years.
  The Chancellor passed the test because his approach is the very opposite of that adopted by the last Government, and notably by the ill-starred Nigel Lawson.
  The Chancellor's approach has been to hoard and hang on to public resources when, as the hon. Member for Grantham and Stamford was saying, the private sector is booming—as it was when we came to office in 1997, when the Chancellor earned his reputation as the Iron Chancellor—thus enabling those resources to be released when the economy is slowing down and there could a danger of dipping into recession. The hon. Gentleman referred to the theory underpinning that approach, which, in the old days of the 1960s and 1970s, used to be called Keynesianism. It used to be a very fashionable economic theory, but it has rather fallen out of date now. The irony is that this is the first Government ever to apply successfully a Keynesian approach to the smoothing of economic cycles.
  By contrast, so far as I can judge, all the other Governments since the war—to be even-handed, I include Labour as well as Tory Governments—have ended up doing precisely the reverse. They tended to increase Government spending, as Nigel Lawson did, when tax revenues were buoyant, but were then forced to cut or slash spending when economic times got harder. By doing that, they ended up exaggerating the booms and busts in the economic cycle, rather than smoothing them out and ensuring stability.
  Conservative Front-Bench Members, as well as the hon. Member for Grantham and Stamford, have made a great case about the Government's borrowing in the past couple of years. In previous debates, Members have asked why the Government ended up borrowing more if the economy has been engaged in a record run of growth. The answer, of course, is that we have enjoyed a record run of economic growth precisely because the Government have been able to borrow more at the appropriate stage in the economic cycle.
  The Government have borrowed to increase investment, to increase employment in the public sector and, yes, to increase public sector wages, about which the hon. Member for Yeovil (Mr. Laws) appeared to complain. I do not complain about that because such increases in the rewards for people who work in the public sector were long overdue.
  Mr. Flight: The Keynesian theory does indeed advise borrowing when an economy is below capacity, but it also advises being in surplus or at least in balance when an economy has moved to capacity. What we have criticised is not the possible use of Keynesian measures when an economy is operating below capacity, but the fact that we are now at full capacity and, rather than borrowing trailing off, it stands at £30 billion or

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  £35 billion and possibly £13 billion more than that. That is our essential point. We have not been saying that it is wrong to borrow when an economy is underperforming.
  Mr. MacDonald: The hon. Gentleman and his colleagues take too mechanistic an approach. They should look at the pattern of borrowing and spending over the entire economic cycle rather than trying to match figures to particular years. On that basis, I hope that they will find that the Keynesian model has been met when the cycle is complete.
  David Taylor: I am listening with interest to my hon. Friend's careful analysis. How does he factor in the fact that, in the seven years of Labour Government, we have racked up private finance initiative off-balance-sheet debt of approximately £120 billion—about 10 per cent. of gross domestic product? Does that have an impact on our borrowing position in the short to medium term?
  Mr. MacDonald: Not necessarily, because the PFI debt remains small compared with overall Government spending and Government capital investment. However, the general point that we cannot ignore PFI debt as an obligation on Government finances is correct. In the past, there has been a temptation to move things off balance sheet to make the figures look better; all Governments should resist that temptation.
  The hon. Member for Yeovil pointed out that the Liberal Democrats advocated a much greater spending increase in 1997. I suspect that, had we followed their advice and boosted public spending when we first came into office, we would have fallen into the same trap that every previous Government fell into. We would have exaggerated both the boom in the economic cycle and the consequent slowdown and bust, which would have caused great harm to the economy, disrupted the stability that we managed to achieve and harmed the living standards of our constituents.
  Rather than the disaster decried by the hon. Member for Grantham and Stamford, the Government's fiscal policy has been one of the building blocks of the economic success and stability that they have achieved. The Government are rightly given credit for their early decision to give the Bank of England operational independence. That, too, has been an important building block, as hon. Members on both sides of the House acknowledge, but our fiscal policy has been just as important to our success in managing the economy. The Red Book indicates that we shall continue to follow that policy, which is precisely why the Government are planning for a slowdown in the rate of growth in Government spending, other than in key areas such as health and education.
  To answer the hon. Member for East Carmarthen and Dinefwr (Adam Price), who asked whether the benefit of the successful economic regime pursued by the Government has been spread evenly throughout the country, I dare say that it has not been. However, I am certain that all parts of the country have benefited. I know that my constituency has. When I was first elected to Parliament in 1987, the unemployment rate in Western Isles was more than 20 per cent. As recently as
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  1997, when the national economy was doing well, it was still in double figures. We all remember how in the 1980s and early 1990s it was regarded as a given that mass unemployment was a feature of our modern economy. In the late 1980s, I would go to local meetings and discuss such things. Everyone accepted that mass unemployment was here to stay, and the debate was about how to reshape and adjust society to cope with the reality of permanent unemployment. Teachers would say how depressing it was to educate children who would leave school and go straight on to the dole queue. People would come to our surgeries having been made redundant. If they were in their mid-40s to early 50s, they knew and we knew that they were never going to work again. All that has changed profoundly.
  Mr. Bacon: Is it not true that many people who were in the Western Isles in that period are no longer there? By how much has the population of the Western Isles declined since then?
  Mr. MacDonald: It has declined at the same rate in every decade except one since the 1920s. It did not decline in the 1970s, when a Labour Government were in power. That, however, was not a big factor in the change—it was the fact that local government reorganisation led to the setting up of a single-tier local authority and a consequent increase in employment in the islands. The hon. Gentleman is right that there has been a constant decline in the population in the Western Isles and other remote and rural parts of Scotland. In the past, the search for jobs drove people out, but nowadays things are a lot more complicated. In 1987, unemployment was over 20 per cent. in my constituency, but it is now 4.3 per cent., and has never been lower. We are now doing something that was inconceivable 20 years ago—importing immigrant labour. I go to factories in my constituency where Russians, Romanians and Bulgarians are working. I talk to the skippers of fishing boats, who tell me—the west coast industry is in a very different position from that of the Scottish east coast, and is much more prosperous and stable—that they are paying the best wages ever but are still short of people to man their boats, so they have to tap into the east European labour market. The population decline is continuing to some extent, but it is underpinned by different factors are equally serious and in need of remedy.
  Angus Robertson: The hon. Gentleman will know that, throughout the highlands and islands, the whisky industry is an important employer, although I appreciate that there are no distilleries in the Western Isles. Does he believe that the introduction of strip stamps will harm the industry, or does he think it is a good thing?
  Mr. MacDonald: The hon. Gentleman is right that that industry is not to be found in my constituency, so I do not have any specialist expertise. I shall therefore listen with interest to subsequent debates when he discusses the matter with the relevant Minister.
  I turn to another couple of items of particular relevance to my constituency. Clauses 5 and 14 deal with fuel duty, which is of particular concern to my constituents. About four years ago, I had an

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  Adjournment debate about the regressive impact of fuel duty on remote and rural locations such as the Western Isles. Since that time, the Government have dropped the automatic escalator and the duty has basically gone up in line with inflation. As a result, we can see from the Red Book that the revenue raised from fuel duty has hardly risen from the time of my Adjournment debate about four years ago and is still around £23 billion.
  I am glad, of course, that the Government dropped the escalator, and I accept that there are strong environmental arguments and reasons for the level of fuel duty, but I still maintain that it is a regressive form of taxation. Only three other taxes raise sums similar to or greater than fuel duty—income tax, VAT and corporation tax. Yet whereas each of those three big taxes has exemptions, bandings or some other device built in to make it more progressive, fuel duty is still a flat-rate, one-size-fits-all tax across the whole United Kingdom. There are exemptions to and variations in it, but they are designed to make it more efficiently green and environmental, not more progressive.
  Fuel duty is regressive because remote rural areas tend to have lower incomes than the national average, but much higher car ownership and a much greater need to use cars than the rest of the country. For example, car ownership is 70 per cent. in the highlands and islands, compared with about 50 per cent. in urban areas, but incomes in the highlands and islands are only 70 per cent. of the national average. Those figures make it clear that car transport in remote areas is essential, not an optional extra, and essential, moreover, for people on low incomes. That should be recognised in the way that fuel duty is levied in the United Kingdom to allow for the difference between remote rural areas and the rest of the country.
  The arguments with regard to air passenger duty are similar. My constituency and Orkney and Shetland are the only ones in Britain where the health service routinely uses air transport to carry patients and staff. Air transport therefore represents a lifeline service. It is not a luxury travel option. The Government are to be congratulated on having recognised that to a significant extent by exempting flights originating within the highlands and islands from the air passenger duty, but flights coming into the islands from the mainland still have to pay tax.
  Although air passenger duty is not mentioned in this year's Finance Bill, I am well aware that the green lobby is constantly agitating and arguing for higher taxes on air transport, so I take the opportunity to make the point to Ministers that, if they are minded to take on those representations from the green lobby, they must first tackle the issue of air transport in the highlands and islands.
  The final matter that I want to raise has already been mentioned—the excellent Lyons report on dispersing civil service jobs, which was published with the Budget last month. I recall writing a few years ago to the then Minister for the Civil Service suggesting that the performance and innovation unit should be asked to look into the case for relocation. To my disappointment, little interest was shown in that suggestion, but I am delighted that the Chancellor is now pursuing jobs dispersal with such vigour. My constituency has managed to attract more than 100 new civil service jobs in the past year, principally from the Department of
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  Trade and Industry and the Department for Work and Pensions. Recruitment for those jobs is happening now, and the reports from those Departments suggest that individuals with higher educational attainments than those who would have been recruited in London or the south-east are applying.
  The Lyons report says that the public sector could gain £2 billion over 15 years from the job dispersal policy, but it is important to recognise that the biggest benefits are more immediate than that time scale suggests. The public sector will gain immediately by recruiting higher-quality staff and by increasing staff retention, and the communities that receive those jobs will experience a much needed, direct boost to their local economies.
  The civil service will, of course, resist the Lyons proposals. Some hon. Members know that that point was highlighted in Scotland, where it took a great deal of effort by the Scottish Executive to get a reluctant Scottish National Heritage to move from Edinburgh to Inverness. However, the wider public interest is undoubtedly paramount, and it is best served by a determined, extensive and sustained policy of civil service job relocation. I urge the Government to make that policy one of their most important priorities.
  5.51 pm
  Mr. Michael Jack: I begin by reminding the House of my declaration in the Register of Members' Interests, and in particular of my position as a non-executive director of a retail tile company.
  Some time before 2 o'clock on Sunday afternoon, I ran past the Paymaster General's office. Despite the pain and suffering and the need for mind to triumph over matter, I sent up a silent incantation that the 26 miles did not include too many for the Chancellor of the Exchequer and Customs and Excise. I am grateful to the Paymaster General for her clarification of what the Chief Secretary said in response to those who raised the issue of VAT and the London marathon.
  I have read some of the comments in the newspapers, and although the Treasury statement makes it clear that charitable donations are not liable to VAT, the relationship between VAT and the golden bond is still cloudy, particularly on the narrow point of charities asking those who secure places in the marathon by the golden bond route to raise a fixed sum of money. Those charities are trying to cover an overhead for securing a place in the race, and it is important that they are not burdened by an unanticipated bill.
  I ran for the National Osteoporosis Society, which hopes to raise about £60,000. All hon. Members hope that all the money raised not only for the National Osteoporosis Society but the other excellent charities for which people gave an enormous amount of time and energy on Sunday goes to the intended good causes. It would be helpful if a clear and definitive guide were published, because the same problem is likely to arise on the great north run, where secured places are also a feature of fund raising. The matter must be clarified because it is confusing.
  I pay tribute to the Paymaster General. Over the past year, she has listened to representations on a number of tax issues, for which I am personally grateful. I am also pleased that Treasury Front Benchers continue to

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  support the tax law rewrite exercise with vigour and enthusiasm, and I concur with the Paymaster General that it is nice to see that some parts of the Finance Bill are more legible than previously—at least somebody is listening. I am however disappointed that this year's Bill, like last year's, does not suggest that the Government want to go further than rewriting tax law in plainer language and a better form, and study how they can genuinely simplify and improve our tax system's operation. I will have more to say about that when I consider clause 290.
  I very much welcome hon. Members' remarks about transparency in the operation of the economy. The time has come when Ministers should publish annually in the Red Book—I must say to my hon. Friend the Member for Grantham and Stamford (Mr. Davies) that I still call it that, notwithstanding the fact that the colour of its cover has changed—a cash flow for the British economy. If the Treasury is willing to put on record the model by which it works out the economic modelling of the United Kingdom, it should be able to put on record the assumptions by which tax revenues are worked out, to enable us to see with greater clarity how the cash flow of the economy is working. As even Ministers recognise, by the time we reach the end of the figures in the Red Book, the proportion of gross domestic product that is raised by tax will have increased.
  My right hon. and hon. Friends on the Front Bench have tabled a reasoned amendment with which I have much sympathy, because it points to the lack of improvement in UK productivity and relates that to the problems that it causes to competitiveness. As I think Liberal Front Benchers would agree, the Chancellor has over the years introduced many micro-management measures, but we have had no feedback on what they have achieved individually. Given the degree to which the economy is managed through the tax system, we should demand a proper impact analysis of any measure that is introduced. It is no use introducing measures with great claims that they will improve the running of the economy if the overall facts on productivity, and therefore competitiveness, do not line up in that direction.
  For those of us who have stamina for legislation, 309 clauses, 42 schedules and 574 pages beckon, and I look forward to our forthcoming debates. One part of the Bill deals with hydrocarbon duties and reduces the preferential rates of duty that red diesel has enjoyed. For those of us with an interest in agricultural and rural matters—I think that the hon. Member for Western Isles (Mr. MacDonald) will sympathise with me—that is not welcome, given that agriculture is only now pulling out of one of the worst phases of its cyclical downturn. Incomes are rising, but not to a very high level. It is not a particularly clever time to make such a move, as farmers must face it against a background of ferocious price competition from their principal customers, the supermarkets. The Government have again been somewhat mean-minded in the help that they give to biodiesel.
  I am sorry that the Economic Secretary is not in his place to reflect on the fact that over the past 12 months no move has been made towards trying to start an indigenous biodiesel industry, based on UK-grown
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  oilseed rape, with processing in this country. Investment has been made in the plant in Motherwell, which will produce an additional 4.5 million litres of that fuel, but it will use cooking oils and fats as its initial feedstock. If the Government are genuinely interested in the agenda of sustainability, improved environment and reduced carbon dioxide emissions, they must make their mind up on the matter. If they give a 40p duty derogation for liquefied petroleum gas because they rate heartily the air improvements that result from that road fuel, they should at least increase beyond the amount in the Bill the duty derogation for biodiesel. Let us forget for a moment the Treasury's worries that that would in some way sponsor a massive rush of imports. If we do not follow the biodiesel route of our own volition, the product will be imported.
  There is a cost-free way of including biodiesel in our fuel source and giving the local industry a chance to generate. In the context of the Energy Bill, we should support efforts to require a target for blending biodiesel and normal hydrocarbon fuels so that the resulting price was whatever it happened to be. More Treasury money would not therefore be required to enable us to have a proper biodiesel industry. If nothing else, the Treasury could, with a 2 per cent. target, adopt the same techniques as for the renewables obligation in electricity and blend the tax position. Although that would result in a small increase in price, especially of diesel fuel, it would get our home-grown biodiesel off the ground.
  Clause 118, which is entitled "'Film-related losses' and 'non-taxable consideration", leads me to the subject of tax avoidance, which I wish to examine in some detail. The Government had a love-in with the film industry, rushed to the barricades to help it in every way, but were caught out Clause 118 is a classic illustration of that. A measure was devised to try to help the film industry but was exploited, and a loophole was created that now has to be filled.
  Dawn Primarolo: I look forward to the right hon. Gentleman's comments on avoidance and the way in which to deal with it. It is incorrect that clause 118 specifically tackles the exploitation of the reliefs that we introduced. It deals with the use of the tax system in ways that were never intended. Such provisions had existed in the tax system previously and were unconnected with the film industry. The clause is therefore not connected with the reliefs that we have given.
  Mr. Jack: I am glad that the Paymaster General used the words "in ways that were never intended." That almost goes to the heart of the challenge of dealing with tax avoidance. The Revenue is the expert on tax in this country—or is it? It is clear that the purveyors of avoidance products or ideas have great resources and much expertise. As clause 118 shows, they noticed something in the relevant part of the tax code that the drafters did not. Avoidance happens partly because people can interpret the words that are written. We do not express our tax law as an academic or scientific formula, but as a set of words. It is expressed in the English language and is therefore interpretable.
  We must consider whether sufficient good advice is available to examine drafting tax law more carefully. That is why I made a point about complexity. In July

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  1999, Mr. Edward Troup, who works for the City law firm of Simmons and Simmons as head of tax strategy, wrote a piece in the Financial Times about general tax avoidance. He argued that
  "the aim of government should"
  be to
  "do its best to ensure that the 'return' from tax planning is as low as possible … a simpler tax system, with fewer reliefs and exemptions and discontinuities would, in the long term, frustrate most of the tax avoiders' ploys."
  The article goes on:
  "But behind the easy macho rhetoric of being tough on tax avoidance, successive chancellors have consistently failed to understand the inevitable nature of avoidance as a reaction to complexity and have ended up addressing its symptoms and not its causes."
  One of the problems in assessing clause 290 of the Bill is that we have to do so almost in a vacuum. The House has not been presented with any kind of analysis of the weaknesses in our present tax code. For example, we do not know where the weaknesses are in the avoidance schemes that have either been marketed or have been detected by the Inland Revenue's mechanisms. We do not know how much money has been put at risk. There are an awful lot of "don't knows", yet we are being asked to adopt a new law under which, instead of the Inland Revenue relying on its expertise and surveillance, it will effectively have to ask people to put their hands up before the act is committed, and to declare what they are going to do in marketing or in finding ways to avoid tax. I return to what the Paymaster General has just said. The reason that we have avoidance is that, in a complex tax system, people see loopholes—in other words, things that were never intended.
  Mr. Troup's article goes on to make a perceant comment:
  "Tax avoidance is paying less tax than Parliament would have wanted."
  That brings us to the question of whether we know what legislation we are passing. Do we know what we really want when we pass tax legislation? I hope that the Bill will receive adequate scrutiny this year, so that Mr. Troup's point can be addressed. He goes on to say:
  "Avoidance is where Parliament got it wrong, or didn't foresee all possible combinations of circumstance."
  If these avoidance laws are to be implemented, will the Minister tell us what is being done to strengthen the work of the Inland Revenue through both the drafting of tax law and the development of its perceptiveness into how tax law operates? What has the Inland Revenue learned from all the tax avoidance schemes that are currently marketed? Is there a theme running through them which shows a weakness in the way in which our tax law is drafted—or must we accept that, because we draft it in such language and form, it will, by definition, always be testable, and that there will therefore always be potential weaknesses?
  Those of us who have served in the Treasury understand the need to protect the Inland Revenue from the sharp minds in the financial community. One could argue that if we had much lower marginal rates and a much clearer tax system, there would not be the inducement to want to avoid paying tax. However, we have not had a debate on the motivations behind the natural desire of any taxpayer to save or to avoid—as
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  opposed to evading, which is clearly illegal—the payment of tax. Mr. Troup gives us some further perspectives:
  "The problem of tax avoidance is reduced to the problem of finding an answer to the question of what parliament intended and making sure that this is complied with. I would not pretend this is a simple task. But recognising this as the issue and dealing with it equitably and constitutionally would be a significant step on the way to tackling avoidance effectively."
  Obviously, we do not yet know whether the provisions in the Bill will have that effect.
  The first cockshy at understanding clause 290 appeared in the 15 April edition of Taxation, whose Finance Bill Update column states:
  "As drafted at present, any thought which reduces tax (although not National Insurance contributions) which passes through anyone's head who is involved in any way with tax services becomes a 'notifiable proposal' once that thought is expressed to another person, whatever the circumstances in which it is expressed. Anyone who has any input, however small, into the idea also makes himself a promoter liable to disclose the idea, if nobody else does. However, much of the detail is left to the scope of regulations yet to be made."
  That is one of the most interesting features of clause 290. Subsection (1) states
  "In this Part 'notifiable arrangements' means any arrangements which … fall within any description prescribed by the Treasury by regulation".
  When I looked at the Government's website to try to obtain more information on what the clause was all about, I was directed to Treasury press notice 29/04, which was issued on 18 March. It told me that all kinds of new information would be made available to me. I discovered that the Treasury's permanent secretary had had a meeting on that day to discuss all this with business leaders. By the time I had read what was already in the public domain, I had established that full details of all this lot would be made available on the publication of the Bill. "Full details" and a regulation yet to be published do not strike me as a full and final disclosure.
  Under "Meaning of 'promoter'" in the Bill, we read that
  "he is to an extent responsible for the design of the proposed arrangements".
  Could one not almost say that the draftsman—the designer of the original legislation, which then became subject to avoidance—produced part of the design of the tax avoidance scheme? I hope that the Paymaster General will able to explain exactly how the proposals will work.
  An interesting case has arisen in the context of the sale by Aberdeen Asset Management of a loss-making activity called the Aberdeen Preferred Income Trust. In the newspapers it was reported that when those who had invested in the organisation sought to get their money back, they were disappointed by the financial returns they received. An article in The Times on 3 April stated:
  "But it has emerged that it is not only the 7,200 Abpref shareholders—who lost 99 per cent. of their money—who should feel cheated. Their misery will help a private company to lower its tax bill, costing the Treasury tens of millions of pounds.

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  Loopholes in the law mean that the property company that bought the Abpref shares for £3.7 million can use the trust's huge tax losses to … avoid paying £45 million in tax."
  The use of tax losses in business to offset taxable profits is nothing new, but in the context of that transaction, would it be caught by clause 290? Clearly someone has looked carefully at a tax-loss situation, taken professional advice and designed a scheme enabling him to buy up the losses of the Aberdeen Preferred Income Trust. The poor investor—a Mr. Davies—who put £7,000 into this duff investment activity got £1.96 in return for his endeavours. As a result of the sale of the tax losses, there is a potential avoidance of £45 million. That is a currently accepted use of tax losses, but is it a product or a case of someone seeing an opportunity? It will be interesting, in considering clause 290, to try to differentiate between the opportunistic exploitation of existing legitimate functions of the tax system and the deliberate creation of functions by reinterpretation of the current tax law. We all want a proper amount of tax sold, but I think that there will be some testing times.
  To give a flavour of the views of the accountancy profession, when probed on the matter, a spokesman for Ernst and Young commented that there are more sellers of tax losses than buyers, so the shares are not easy to sell. He would not be drawn on the ethics of selling tax loss, but insisted that it was in the best interests of all parties. He said:
  "The only reason that investors are getting anything back at all is because we made a deal to sell the company."
  There will be some very interesting and testing grey areas in what is arguably one of the sexier parts of this Finance Bill.
  On the question of savings, I want simply to reinforce the comments that have been made. At a time when individuals' endowment policies are under great pressure, and their pension funds are not yielding the expected amounts, the time was not right for the Government to cut back on individual savings account allowances. They should have looked at more coherent methods of promoting savings, to enable people at least to try to make up for some of the losses that they are suffering on their endowments.
  I conclude with some observations on those two parts of the Finance Bill that deal with the Government's assault on small businesses. We heard the points made by my hon. Friend the Member for Arundel and South Downs (Mr. Flight) on the question of incorporation, and on the operation of section 660A. I shall not go into detail on those matters, but there is a stark contrast in relation to the example that I have just given. While the Government are seeking to deal with general tax avoidance, they ought on the other hand to encourage the retention of moneys in small business. However, with IR35, section 660A, and now other elements of the Finance Bill, they seem to be hammering hard on these small engine room businesses for the British economy. Why does that group seem to have been singled out for particular treatment, when a more considered review might have been the best way forward? Such people are the entrepreneurs of the future and the engine rooms of the service economy, yet they seem to be getting a bad deal in the Finance Bill.
  6.17 pm
  Mr. Nigel Beard: The first thing to emphasise about this Budget, and the Finance Bill that gives effect to it, is that it satisfies the discipline that the Chancellor has imposed on public finances for the past seven years through the fiscal rules: the golden rule and the sustainability rule.
  Adherence to fiscal self-discipline has brought about an unparalleled period of stability in the economy. At the same time, a fair distribution of financial liabilities has been achieved between the generations. Disciplined fiscal policy has been complemented by the Bank of England's independent conduct of monetary policy, which has given the financial system confidence that interest rates are fixed for economic reasons and not for political expediency. The consequence has been an unprecedented period of national prosperity, resulting in record low levels of inflation, interest and mortgage rates and unemployment, a stable economic climate that encourages businesses to invest and plan ahead and a resilience internationally that enabled the British economy to keep growing when the rest of the world moved into recession. On top of that, we are maintaining record investment in health, education and training to remedy 18 years of wanton neglect and to secure the foundations of the future.
  None of that has been achieved at the expense of a fundamental commitment to social justice, which has been maintained through the working and child tax credits, the minimum wage and state pension increases that far surpass what would have been gained by linking pension increases to incomes.
  Those are historic achievements that this Budget and Finance Bill continue. Yes, there are questions for debate, which are raised in the Treasury Committee's report, about regulation, whether consumer debt is too high, the significance of rising house prices, the impact of the falling dollar and future tax revenues. I recognise all that, but those issues are the pimples and scratches on the great edifice of the country's economic achievement. They are real issues, but they must be kept in proportion. Above all, we must not accept what the Opposition would no doubt like the country to believe— that the present prosperity and fair prospects for the future depend not on the policy of the Government but on astrology or the position of the planets in certain constellations. This country's prosperity does depend on Government policy, it will depend on it and it could be wrecked by the ideological folly of the Conservative party. After determined opposition, and some kicking and screaming, they have now accepted the Bank of England's independent role in framing monetary policy.
  The dog that did not bark in the night is the Conservatives' unwillingness to accept the Chancellor's fiscal rules. They are within two years of a general election, but they will not say that they accept these rules or, indeed, any other rules. All they will say is that, whatever the economic circumstances, they will reduce taxes. We know what impact that would have on public spending, and Labour Members will ensure that the public at large understand the local and national impact on the national health service, schools, universities, public transport and roads.
  The other question is what the impact will be on the overall management of the economy when the Conservatives do not accept the discipline of any

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  guiding rules. What will be the impact on jobs, on industry, on interest and mortgage rates and on training? What is there in the golden rule and the sustainability rule that a modern political party cannot accept? The golden rule secures fairness between generations. It says that the Government—on balance, over the five or six years of the economic cycle—should borrow only for capital spending: spending that will benefit the next generation and perhaps beyond. In other words, people who enjoy benefits now and in the future will pay for them. The opposite approach is to borrow for immediate current spending, which benefits only those who are around today but leaves much of the payback to future generations who do not benefit at all.
  The sustainability rule ensures that even if borrowing is for capital investment, the burden of debt now and in future does not build up disproportionately. In other words, it prevents people today from investing in capital projects to such an extent that the next generation is so burdened by inherited debt that they are prevented from investing for their future.
  It is important to stress that the golden rule, whereby borrowing equates to capital spending, does not apply to any one year, but to the whole economic cycle. Thus, when economic activity is at a low ebb and, consequently, Government tax income is low, borrowing may provide for some current expenditure, which then stimulates economic activity, but when the high tide of economic activity comes along again and tax revenue to the Government is high, that revenue must be used to repay the excess borrowing when the economic tide was low.
  Although the Conservative party is reluctant to sign up to the Chancellor's fiscal rules, its economic performance in the past came nowhere near this Government's achievements. It cut public spending when tax revenues declined as the tide of general activity receded; thus, it deepened the recession. As an alternative, when the high tide of economic activity came along and tax revenues increased, the Conservatives cut taxes for the better off and so overheated the economy as to create runaway inflation. They penalised low-income families on the downturn of the economy through unemployment and rewarded the top 10 per cent. or so with tax reductions when the economy improved.
  Mr. Jack: Does the hon. Gentleman not recall that when the higher rate of tax was reduced to 40 per cent., the cash take to the tax system increased?
  Mr. Beard: It might well have done, but it did not satisfy the Conservatives' macro-economic conditions. Such action led to the crisis that Mr. Lawson created, which resulted in interest rates of 15 per cent.
  Boom and bust was not just an historical economic accident that came along while the Tory party happened to be in power: it was the result of the Conservatives' own feckless, ideologically drive policies, which they appear inclined to repeat in 2050, or whatever future date thereafter when they next take power.
  To lift a major part of the country's economic policy out of political controversy, I appeal to the Conservative Front Bench spokesman to say at the end of the debate that the Conservatives accept the
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  Chancellor's fiscal rules as a basis for future economic policy. If that commitment cannot be given, can the House please be told why not?
  I turn to some of the more specific issues that were brought out during the Treasury Committee's consideration of the Budget. The current economic cycle is considered to have started in the financial year 1999–2000 and to end in the financial year 2005–06. On the basis of cautious assumptions, the average annual surplus over that period will be 0.1 per cent. of gross domestic product, so the golden rule will be properly satisfied. However, tax receipts for the past three years have been overestimated and the outturn has been lower than forecast. In the next two years, tax receipts from income and corporation tax are forecast to bounce back.
  Some of the Treasury Committee's external advisers have questioned whether the extent of the forecast increase in tax revenue will be achieved. That question was put to Treasury officials when they gave evidence on the Budget to the Committee. Their answer was that the forecasts are grounded in confidential information from the Inland Revenue and Customs and Excise about how taxes are paid, which feeds into the methods of forecasting tax revenues. Given that that information is so central in assessing whether the golden rule is likely to be satisfied, I emphasise the Committee's recommendation that the Treasury should consider ways of sharing with outside forecasters as much aggregate data on the way in which taxes are paid as possible. That would lead to a more fully informed debate on the extent to which the fiscal rules are likely to be satisfied.
  The Treasury forecasts that the economy will grow at 3 to 3.5 per cent. during the next two years but will then return to a trend growth rate of 2.5 to 3 per cent. The fiscal projections are in line with that economic projection. However, if growth should continue above trend, it is important that the increased fiscal surpluses are retained and not spent, so that fiscal and monetary policy work in the same direction at that point in the economic cycle and so that fiscal flexibility for the next cycle is ensured.
  Now that we can contemplate continuing conditions that are favourable to economic growth and prosperity, to full employment and to major improvements in our public services, the productivity of the United Kingdom economy increases in significance as a factor that could restrain the wealth of this country during the 21st century. In terms of output per hour, the UK is far behind France, Germany and the United States. Between a third and a half of that deficiency is due to a lack of investment in plant, machinery and other physical assets. As a more predictable economic climate takes hold and takes away uncertainties, attitudes to new investment might change. Indeed, the Chancellor's various means of encouraging business investment are to be welcomed.
  What is astonishing, however, is that two thirds of the productivity gap between Britain and the United States exists because Britain lags behind in innovation. This country is one of the most ingenious and inventive in the world, but we do not follow through to gain the economic benefits. Too often, something is invented in Britain but commercialised in America or Japan. In that context, I am pleased to see improved tax incentives for

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  research and development on top of the Government's increased budget for scientific research, and their commitment to excellence in our universities.
  Governments can only enable, however, and there is also a need for a culture change in boardrooms and business schools to give far greater emphasis to business renewal. That is vital not only to catch up with the United States but if we are to hold our own in competition with the rising economic power of China, India and south-east Asia.
  There is another dimension to productivity, which is not a concept that should apply only to market-driven sectors of the economy but to the public sector, too. There must be developed an agreed measure, equivalent to productivity, for health, education, public transport and local authorities. Sir Peter Gershon's recent report addresses the issue, but it is only a snapshot. With increasing resources committed to public services, there must be systematic accountability for what is being achieved.
  Productivity in one form or another will be a major economic issue in the first half of the 21st century and beyond. The Treasury Committee is embarking on an inquiry into United Kingdom productivity and its regional variations. The resulting report may provide the occasion for a much fuller debate on these issues in the Chamber.
  The peacetime history of the past 100 years has been about developed countries learning how to manage their economies in order to mobilise the energy and abilities of the people to increase their own wealth and opportunities. It is a continuing process to which this country has made a major contribution. That contribution has never been greater than what this Government have achieved over the past seven years. It is not at an end. Indeed, the prosperity and temperament of Britain in the 21st century depend on progress continuing. This Budget and this Finance Bill are a further step towards achieving that.
  6.31 pm
  Adam Price: Stability has been the leitmotif of this debate. I am tempted into the heretical thought that, although it may be part of the new Labour creed, the attractions of stability depend on how one experiences it. It looks different from the top of the heap than from the bottom. It is possible to stabilise at a lower level of growth. Death confers a certain stability; it is certainly a permanent state of equilibrium—a term from micro-economics.
  The hon. Member for Western Isles (Mr. MacDonald) is no longer here, but we can see a consistency in the experience of certain parts of the United Kingdom, including his part of Scotland and others, and my part of Wales. We have seen outmigration—in the case of his region, since the 1920s. We may not have stop-go any longer, but they have not stopped going from the Western Isles. We have the same problem of the haemorrhaging of the young from our communities, and there is no sustainable economic future for the long term for any community that continues to lose the best and most talented of its youth.
  Amid the paeans to stability that we have heard, I offer a word of caution. The picture is diverse across the United Kingdom, as hon. Members who represent
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  constituencies to the west and the north of these islands will know. The Bill could have contained different bands of business taxation not only for different sizes of companies but for different regions, as is done in Spain, depending on their economic performance. If we have a lower band of taxation for smaller companies because we believe that that will incentivise growth, surely the same tool could be used with even greater effectiveness in less advantaged parts of the United Kingdom.
  I see the steely gaze of a hired assassin in the Chamber, so I shall give way to him.
  Mr. Wayne David: I thank the hon. Gentleman for that compliment. I am provoked to rise because of his comments about different regional tax rates. Does he not agree that in some parts of our own country of Wales. particularly around Cardiff and Swansea, the economy is doing extremely well? Surely he is not suggesting that there should be different tax rates for areas that are doing extremely well.
  Adam Price: If we are talking about regional taxation, it is obviously true that there is a different pattern of economic activity within every region. To some extent, the relative success of parts of the south-east Wales corner is a reflection of the pattern of economic activity throughout the whole of the UK. Indeed, south-east Wales is mirroring the greater prosperity of the south-east of England. As I understand it, it is not possible under European competition law to have different tax regimes at a very localised level, other than for local taxation. Of course, it is possible to have regional corporation tax, as is the case in the Basque country and in Navarre. I simply offer this as a possible tool for the Government's regional economic policy armoury. We have all signed up to the Treasury's policy aim of narrowing the gap in regional economic growth between northern countries and southern ones. Perhaps different bands of taxation would be a more effective tool in incentivising business growth.
  I want to concentrate on two sources of instability. We have been told that the Government are confidently navigating us through calm waters, but as we have heard, there are certain whirlpools of instability.
  Angus Robertson: Does the hon. Gentleman share my concern about the future of jobs in the whisky industry as a result of the Government's introduction of strip stamps, which will impact not just on the Scotch whisky industry but on the Irish whiskey industry and the renaissance of the Welsh whisky industry at Penderyn? The general manager of one of Speyside's premium distilleries wrote to me a few weeks ago. The letter said:
  "We are considering turning our back on the UK market entirely and by 2006 securing other markets for our products, rather than suffer the new tax regime."
  Reference was also made to the number of jobs that will be lost. Does the hon. Gentleman think that the introduction of tax stamps on spirits is a good idea, given that a workable alternative exists to enable the crackdown on fraud that every Member of this House wants to see?
  Adam Price: I agree entirely with the hon. Gentleman, and when the Committee of the whole House sits next week, I hope that the opportunity will arise to strike

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  down these proposals, which are very damaging to the Scotch whisky industry. The last Welsh distillery closed 120 years ago, and we have waited all that time to get our whisky industry back. Yet within 16 days of the launch of the first single malt Welsh whisky in 120 years, the Chancellor's iniquitous strip stamp proposal is introduced.[Interruption.] We should have kept it under wraps for a little longer. I am not sure whether there is an English whisky, but if so they can join our battalions in defeating these proposals.
  I want to concentrate on two problems of what used to be called political economy—economic problems with a major policy component—that the Government face, the first of which concerns pensions. Some 120 clauses, more than a third of the Bill, are devoted to pensions. Unfortunately, the poor old members of the Pensions Bill Standing Committee are upstairs and have been unable to contribute to this debate. The other issue, which was mentioned by the hon. Member for Yeovil (Mr. Laws) in particular, is the looming fears about the state of the property market. We should consider the two problems together, because they are linked in the Bill. In pensions, we have the crash in the equity market that has already happened; in property, we have the crash that may yet happen. For one set of assets, value has collapsed; for the other set, value has risen exponentially.
  It is interesting to make the contrast. Property is one of the few asset classes that has been successful. The right hon. Member for Fylde (Mr. Jack) spoke about problems in the financial services industry. We know about problems in Equitable Life, problems with the occupational pension funds of ASW and other companies and problems with split capital investment trusts and so forth. Wherever one looks in the financial services industry, there are problems, which contrasts markedly with the exponential rise in property values.
  In the light of that contrast and the contra-cyclical effect of the two markets, it is not surprising that the Government are trying to achieve a more reasonable spread of investments. They are trying to create a more efficient and effective mechanism for making investment in property part of the pension funds through changing the regulations for self-invested personal pensions schemes or SIPPS and small self-administered schemes. The problem is with the timing and the means by which the Government propose to introduce those changes. There is a real fear that by trying to deal with the pensions crisis and particularly the collapse in the equity market, thereby creating a mechanism for property investment for pensions, the Government could be exacerbating the problem of speculative investment in the housing market, or even precipitating and bringing about the very crash in the property market that they tell us we have no need to worry about.
  Mr. Simon Thomas: This afternoon I attended the launch of a Shelter campaign that highlights the fact that a million children are living in poor housing and highlights the general lack of affordable housing within the UK. The Government are attempting to deal with the problem through some of the Budget proposals, and I am happy to acknowledge that. However, one of the facts revealed at the launch of the campaign was that since 1960, the price of bread has gone up six times and the price of housing 60 times.
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  Within that context, does my hon. Friend believe that the Budget does enough for affordable housing in our communities?
  Adam Price: My hon. Friend makes his point extremely well. To be fair, I agree that the Budget statement made some recognition of the problem, just as we have seen belated recognition of the regional economic divide. The Government have recognised the problem of affordability, but the difficulty is that the cupboard is bare of policies. Indeed, the policies in the Finance Bill will make matters worse for housing.
  It is clear from reading the explanatory notes to clauses 171 to 174 and from drawing on the good offices of the Library—[Interruption.] However much the Chief Secretary shakes his head—it is, to quote a famous parliamentarian, his head to shake—it is clear that those clauses introduce changes to SIPPS. There used to be a bar on using SIPPS to invest in residential property—they applied only to commercial property—but that bar is being lifted. They can now be used for all sorts of esoteric investments, but we will not go down that road. The bar is certainly being lifted and in a way that appears very attractive to many people. Currently, about 200,000 people are in SIPPS or small self-administered schemes. Following a certain day in 2006, it is predicted that there will be an exponential rise in their number—[Interruption.] That is the view of independent pension advisers. The head of pensions at Scottish Life, for example, expects there to be very strong interest in them. He certainly knows more about pensions than me, and probably more than many Members. That view is reflected widely in the pension industry; there will be strong interest in the effect of the proposals. If the Government thought that there would be no interest, why did they introduce the changes? Can they answer that?
  In the regulatory impact assessment, the Government consider the extent to which the changes in SIPPS that allow those pension funds to invest in residential property will lead to an increase. They claim that because the number of people in SIPPS is small at present—only 1.3 per cent. of people are covered by such pension schemes—the effect will be only at the margins, but they are changing the regulations. To date, the property use of SIPPS has been limited because they were not widely available, but the Government are, in effect, deregulating through creating the single pension scheme, so there will be no holds barred within the borrowing limit of 50 per cent. of the pension fund. There will be substantial interest in such schemes.
  The problem is that the changes will add oil to the flames of an already overheated housing market. A survey published today by the Royal Institution of Chartered Surveyors showed that March saw the highest increase in housing prices for any month since March 2002, so the housing market has not petered out and reached a soft landing.
  Hywel Williams: Does my hon. Friend agree that there are regional variations? Last year, my constituents in Caernarfon in Gwynedd experienced the highest increase in house prices, which rose by 57 per cent. in one year. What effect will the Government's changes have on that market?
  Adam Price: There has certainly been a problem of affordability in relatively low-wage local economies such as north-west Wales for many, many years, which has now been greatly exacerbated by the massive increase in house prices that has occurred in many other rural areas and now afflicts many urban areas, too. In that context, it seems a crazy move to add further billions of speculative investment to the housing market.
  Colin Brown of Grant Thornton said that the rule change will inevitably lead to a further rise in house prices as individuals flood into the market and change the make-up of their pension funds. Tom McPhail, of independent financial advisers Hargreaves Lansdown, said:
  "It is hard to reconcile the Chancellor's stated ambition of controlling the housing market's disproportionate influence on the economy with a proposal which will allow several hundred billion pounds of pension fund money to wash into the housing market."
  That is what independent observers are saying about clauses 171 to 174.
  The changes come on top of an already overheated housing market. Why is the market overheated? Because, as we heard from the hon. Member for Yeovil, there is a large buy-to-let component. Yesterday, the Financial Times published figures showing that total buy-to-let lending rose from £24 billion in 2002 to £39 billion in 2003. Although there are signs that the rental market has started to overheat, it is not yet damping down. Returns on buy-to-let investment stagnated in the fourth quarter of 2003 due to the over-supply of rental property; too many people have gone into the market. For instance, yields in London are often below 5 per cent., compared with 7 per cent. in the rest of the country. That trend is likely to spread, as more investment goes into that sector.
  Rental yields have been dropping, yet more money is flowing into that market. That is a classic, textbook case of speculative investment. People are basing their investment decisions on expectations of capital gains, regardless of the income base. That is precisely what has happened in Australia, where the buy-to-let sector now represents 45 per cent. of the entire property market and yields have fallen to 2 per cent. Yet the property market is still surging ahead because of the capital gains expectations. That is a classic bubble. Is that the context in which the Government want to create a mechanism that involves a few extra billion pounds? I ask the Paymaster General to give a figure for that when she responds to the debate. To be fair, the Government go into some detail in the regulatory impact assessment to discount some of the arguments that I have adduced, but no figures are given for the extent of the increased investment flowing into the housing market as a result of the changes to SIPPS.
  Obviously, a housing property crash would be catastrophic. That goes without saying and we have heard the reasons for that already. Given the already high level of household indebtedness, factoring in a property crash could put us in an extremely worrying position. However, even if there is no property crash, serious problems are still associated with a property market that continues to rise. As we have heard, affordability is a problem for local young families in many parts of the United Kingdom. For that reason
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  alone, I urge the Government to be cautious about creating such a method for investing in property using pension funds.
  The average age of first-time buyers is rising in the UK. It is now 36 in Wales and 33 across the UK. That may shock hon. Members. In a sense, one's own property has always been a major part of saving for the future. Certainly in this country, a mortgage has been a way to avoid rental expenditure later in life. First-time buyers are increasingly crowded out of the housing market because older, more affluent people are using it as an investment vehicle by buying second or third homes. There are 10,000 people in London with more than 30 homes each and there are thousands more with more than 10 homes. We are crowding out young people from making the most important investment for the future—buying their own home.
  I am trying to be constructive; I can understand the rationale for making a wider portfolio of assets available for pension investment because of the pensions crisis, but the SIPPS mechanism that the Government are choosing is not the best means of proceeding. With interest rates rising and probably set to rise further, the timing is certainly very dangerous, given what we all know about the state of the housing market.
  6.54 pm
  Mr. Richard BaconIt is a pleasure to have the chance to take part in this debate and to follow the hon. Member for East Carmarthen and Dinefwr (Adam Price), to whom I listened with interest.
  The Chief Secretary, who is now back in his place, began the debate by saying that he looked around the Chamber and saw lots of graduates of previous Finance Bills. I have to say that I felt distinctly like an undergraduate at that point because this is my first Finance Bill, so I thought that it would be sensible to restrict my comments to two narrow issues that concern me, and to one rather broader issue. The first of the two narrow points is one on which I am concerned that the Government are not doing enough: their policy on the duty on biofuels. The second—the Government's proposals on duty stamps for whisky—is of huge concern to the hon. Member for Moray (Angus Robertson) and other Scottish Members, and to any single malt whisky drinker. I regret to say that we in South Norfolk have no distilleries, but we have a gratifyingly large number of microbreweries.
  It is increasingly widely, albeit not universally, known that one can make fuel for cars or lorries from wheat, barley, sugar beet and oilseed rape—and from single malt whisky, I suppose, if one were sufficiently desperate. Such fuel has huge benefits in terms of the environment and fuel security, and it benefits the rural economy and farming constituencies such as mine. There is a good case on a wide variety of grounds for encouraging the development of a biofuels industry in this country. Fuel security has not been a great concern in the past, but in the increasingly uncertain world in which we live, its importance is growing.
  I pay tribute to my right hon. Friend the Member for South-West Norfolk (Mrs. Shephard), who has campaigned assiduously on this issue, which has extensive cross-party support within the House, and

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  widespread support from outside bodies including the National Farmers Union, the Road Haulage Association, the British Chambers of Commerce, the Confederation of British Industry and Friends of the Earth—not bodies often seen on the same side of an issue. There is a general view that although the 20p per litre duty reduction on biofuels announced by the Government is a welcome step in the right direction, it is not enough to stimulate the development of a serious biofuels industry in this country.
  The Government frequently repeat their commitment to reducing emissions of greenhouse gases, but research undertaken by Sheffield Hallam university suggests that conventionally produced bioethanol could produce a reduction of 60 per cent in carbon dioxide emissions, and British Sugar research indicates that efficient production methods could increase that figure to 70 per cent. However, to achieve those benefits, we need a biofuels industry. The Government have stated their intention to meet the renewable fuels targets by 2020 and the requirements of the EU biofuels directive by 2005, but those targets will not be met with the UK biofuels industry in its present state.
  The main effect of the Government's duty proposals on biofuels will simply be to suck in imports. Now, oilseed rape is grown in this country, put on a lorry and exported to Germany—the transport generating carbon emissions. There, it is turned into biofuel and reimported to this country to take advantage of the tax break that the Government have introduced. That is ludicrous. It has happened because the German Government introduced a larger tax break to get a serious manufacturing industry up and running. Everyone accepts that the tax break would not have to last for ever. It could tail off. However, at present it is widely understood that the Government's proposed 20p per litre duty cut is not enough even to get the industry in this country started.
  We have to create our own industry. The Curry report on the future of farming, which was commissioned by the Government themselves, refers to biofuels, saying that England—I apologise to Welsh and Scottish Members, but agricultural matters are devolved—
  "needs a long-term strategy for creating and exploiting opportunities in non-food crops, including starch and oils. This area should be a high priority for the research and technology transfers we have outlined. We recommend that the Government should reduce duty on biofuels to that charged on other clean fuels. We believe this will help processors to drive the market forward".
  Lord Whitty, a Minister in another place, has said that the 20p reduction on offer is not enough to deliver the investment needed to create a viable industry and achieve the outcomes that everyone would like. It is disappointing, given the chance to develop an exciting industry that would help the rural economy and the environment and improve our fuel security, that more is not being done to foster that opportunity. I therefore hope that the Government will reconsider their position.
  Clause 4 deals with duty stamp on spirits, an issue that I raised with the chairman of Customs and Excise when he gave evidence to the Public Accounts Committee.
  Angus Robertson: It was unconvincing.
  Mr. Bacon: Curiously enough, that is the same word as I have written down—the chairman was less than
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  fully convincing. The Government have accepted in their regulatory impact assessment that upfront costs to the industry will be £25 million. On top of that, there are annual costs of £60 million—or £54 million, if one believes the Government's figures. On any count, however, there are significant ongoing costs. The value of the stamp is about —5.48 a bottle, so it should be treated not as a piece of paper but as currency. The Government's proposals have security implications, and there are concomitant security costs.
  The Government have made much of the fact that the duty will be frozen for the remainder of this Parliament, but that has no impact on the set-up costs of £25 million that the industry has to find. The proposal raises a number of questions. In his opening remarks, the Chief Secretary referred to the arrangements for deferring duty, which have serious implications for companies' cash flow. It would be helpful if he could tell us when we will have more information, because the Government's proposals for deferring duty are vague, to say the least. The Government have also said that they will "look at" proposals for paying for printing, distribution and security costs, but they have not given a firm commitment, so more detail would be welcome.
  Angus Robertson: The hon. Gentleman has clearly read a lot of background documentation as well as the regulatory impact assessment. Has he been able to identify in that documentation an assessment by the Treasury or Customs and Excise of the projected levels of fraud on strip stamps, a practice that is unfortunately common in the few countries that still use them on spirits?
  Mr. Bacon: The hon. Gentleman makes a good point. Funnily enough, I have not done so, but he anticipates the point that I am about to make. Many countries do not have strip stamps because they are worried about fraud, as I shall explain in a minute. First, however, I have a couple of questions for the Government. They have said that there will be a capital fund of £3 million for small distilleries. It would be helpful to have confirmation that that is the right figure and, if it is not, to know how much will be available. What are the thresholds, and what constitutes a small distillery? The fundamental question, to return to the point made by the hon. Member for Moray, is whether this is going to work. There is no point in doing anything if the proposal will not work, will be open to fraud and, indeed, act as an incentive to commit fraud. The Government must consider the international context, because experience suggests that high-quality forgeries quickly become commonplace. With duty at £5.48 a bottle there is a strong incentive to commit forgery.
  The Government should consider the fact that Ukraine reformulated its tax stamps on 1 January 2004 in an effort to defeat fraud on the existing stamps. Within three weeks, the Ukrainian police reported seizures of 60,000 bottles of illicit spirits, each marked with forgeries of the newly introduced state-of-the-art

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  holograms. In Hungary, it is believed that 15 to 20 per cent. of the market is illicit. Several countries have either abolished the tax stamps regime—
  Angus Robertson: Such as the United States.
  Mr. Bacon: Indeed; and Ecuador and Greece. Others such as Belgium, Norway and Germany, have pulled back from introducing them.
  There is evidence from central and eastern Europe that genuine tax stamps can be used to disguise breaks in the seals after refilling, and that unscrupulous traders use stamps to add authenticity to counterfeit products and thereby steal sales from legitimate producers. The obvious beneficiaries of the Government's proposal will be overseas fraudsters and counterfeiters. Tax stamps will form a barrier to trade and will damage the ability of the whisky industry to compete globally. The market will be fragmented and producers will have to maintain UK-specific stocks, which will reduce the efficiency of the production line and increase costs, all for the sake of a measure that most expert observers believe is not likely to work in practice.
  I turn to my one slightly broader point—the context for the debate about tax and spending. Most people have no idea how much money the Government waste— how much of the tax that they take from us as citizens and businesses goes to waste. In a recent study the National Audit Office suggested that just a 1 per cent. improvement in the way in which the Government spend the money available over the next three years would result in £14.5 billion of extra spending for frontline services.
  I notice the hon. Member for Dagenham (Jon Cruddas) smiling at that. He is thinking of a very good article that he read in The Daily Telegraph a few months ago—at least, I thought it was rather good, but I suppose I can be forgiven for that because I wrote it— and he thinks that I am about to quote from it, as he did in a debate not long ago. He is absolutely right. Unless they bother to examine the issue closely, no one really understands just how much money the Government waste.
  We know about the central Government administration costs going up from £14.8 billion to just under £21 billion—at least, we thought it was just under £21 billion, until we picked up the Financial Times this morning and found out that the figure has exceeded even the Government's estimates by £1 billion. They expected it to go up by about £5 billion or £6 billion, but it has gone up by £1 billion more than the Government expected it to go up at this point. A year ago the bill was planned to be £20.2 billion, and it is now £21.3 billion.
  That is just the icing on the cake. The marzipan and the fruit, which mostly do not get noticed, are things like the fact that the Department for Work and Pensions has had its accounts qualified every year since 1988, and loses between £3 billion and £7 billion a year in fraud, depending on which Government figure one believes. In the 1998 White Paper on safeguarding social security, the Government said the figure was up to £7 billion. They now think it is only about £3 billion. They are the same Government who, five years ago and two years
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  before that, were asked whether housing benefit fraud was going up or down and could not say. Still now, if one asks the Department for Work and Pensions whether housing benefit fraud is going up or down, the Department cannot say. It only knows that it loses a huge amount of money from it.
  There are 40 Apache helicopters worth £1.2 billion sitting in warehouses in Wiltshire. It is costing £6 million to store them because the Ministry of Defence forgot to train the pilots in time. When I wrote the article, Customs and Excise—the responsibility of the Economic Secretary—was losing between £7 billion and £10 billion a year through VAT fraud. The figure is now £12 billion, and as the Economic Secretary knows, it loses a whole lot more through excise fraud. He will say that that is why the Government are introducing the strip stamps, but if those will not work—the international evidence suggests that they will not work—they should find a better way of achieving their aim.
  Each year we spend £240 million a year training teachers, yet £100 million of that goes on teachers who never set foot in a classroom once they have qualified and are never employed by a local education authority or a school. People know to some extent about the computer messes that occur in Government, but they might not be aware of the scale of the spending that goes on and the scale of the waste. The Government Communications Headquarters moved its computer from the old building to the new building. GCHQ thought it would cost £40 million to move the computer, so it told the GCHQ board that it would cost £20 million. It ended up costing £400 million.
  The Emslie report inside the health service said that the Government lose between 16 and 20 per cent. of their budget in the health service each year through waste, fraud, inefficiency and mismanagement. That is the context in which we must discuss the Government's claims that the Conservative party could not find savings. The assistant Chief Whip, my hon. Friend the Member for Mid-Worcestershire (Mr. Luff), suggests that I have spoken for long enough—he is probably right—although we can continue the debate until any hour. Labour Members claim that we cannot find the resources to improve public services, but huge waste is occurring, and it is about time that a Conservative Government put that right.
  7.10 pm
  Mr. Alan Reid: Like the hon. Member for South Norfolk (Mr. Bacon), I am against the introduction of tax stamps on bottles of spirits. I note that the proposal is contained in clause 4, which the Labour Government should definitely abolish.
  My constituency relies on the whisky industry to provide jobs, many of which are in remote, rural communities where alternative employment would be impossible to find—many of those jobs are on the islands of Islay and Jura. I did not recognise the rosy economic picture painted by the hon. Member for Western Isles (Mr. MacDonald), and if people lost their jobs in the distilleries, there are not large numbers of job vacancies for them to walk into. In my constituency, single distilleries are located in Oban, Campbeltown and Tobermory, a further eight are situated on Islay, and

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  there is one on Jura. The distillery on Jura is the main employer on the island, so any proposal that damages the whisky industry would devastate that economy.
  It is patently obvious that the tax stamp proposals will damage the competitiveness of the Scotch whisky industry, although it is important to remember that it will not be the only industry involved, because the gin and vodka industries will also be affected.
  Mr. David Heath: And cider brandy.
  Mr. Reid: The issue concerns more than jobs in distilleries, because the whisky industry provides many jobs in bottling plants, which are often located in urban areas where it is difficult to find other jobs. The tax stamp will also affect the constituency of the hon. Member for South Norfolk, because much of the barley used in the distilling process is sourced from East Anglia.
  It is clear that there is a problem with duty fraud, but it is dubious whether it occurs on the scale claimed by the Government. We must tackle fraud where it occurs, but we must also ensure that the benefits of any antifraud measure outweigh the costs of its introduction. The Scotch whisky industry is also interested in stamping out fraud: it rose to the challenge that the Chancellor set for it in the pre-Budget statement last November, and it has come up with a raft of anti-fraud measures that are far less costly than the tax stamp measures in clause 4.
  The Government proposals relate to three uncertain points—the level of duty fraud, the impact of tax stamps on fraud and the cost of tax stamps to the whisky industry. There is simply not enough evidence to demonstrate that the benefits of such a scheme would outweigh those costs, so it should not be introduced in this Bill. The risks to the economies of small, remote communities far outweigh the positive benefits to the Treasury.
  I shall examine the Government estimates of duty fraud, which are arrived at by gap analysis—using consumer surveys to estimate consumption and subtracting the recorded legitimate trade. Gap analysis relies on consumers accurately remembering their consumption. Remember, we are discussing alcohol—I see that the Financial Secretary is laughing—and gap analysis relies on people accurately remembering their consumption in order to work out the level of fraud, so the margin of error is clearly wide. The Government rely on the Customs and Excise estimate of £600 million of spirits duty fraud in 2001–02.
  However, when the National Audit Office conducted an investigation, it found a massive degree of uncertainty and concluded that a proper reporting of the Customs and Excise study would show that duty fraud was somewhere between £330 million and £1,080 million, not the single figure of £600 million quoted by the Government. The NAO also investigated the gap analysis estimates calculated by the Scotch whisky industry and concluded that its survey estimated the level of duty fraud at somewhere between £10 million and £260 million—considerably less than under the Customs and Excise methodology. The NAO found both methodologies to be theoretically "appropriate". It
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  is obvious, however, that both could not be correct, so faced with two widely conflicting estimates, it sensibly concluded that
  "great care is needed in determining what reliance is to be placed on the results that are presently available."
  Even further doubt was cast on Customs and Excise's methodology for estimating duty fraud by the fact that its annual report for 2002–03 noted that the gap analysis method found that duty fraud on beer was negative. The only conclusion that one can draw from that is that beer drinkers remember drinking a lot less, whereas whisky drinkers remember drinking a lot more. Perhaps whisky is better value for money. The NAO's conclusion that we need to use great care with regard to the Customs and Excise estimates is a warning that the Government should heed. It is important to bear in mind that estimating the level of fraud is not just a theoretical exercise, because if the Government have overestimated it, the reduction in fraud that tax stamps will bring is similarly overestimated.
  As regards the tax stamp's potential impact on fraud, the evidence from abroad is certainly not encouraging. A wide range of countries have introduced tax stamps or thought about doing so and found that they simply do not work. That is why the United States decided to abandon its tax stamp scheme 20 years ago. When Norway considered introducing a scheme, the British Government of the time wrote to their Norwegian counterparts to recommend that they did not do so because it would not work. The hon. Member for South Norfolk mentioned Ukraine, where a new stamp with a hologram seal similar to the one the Government are considering was introduced, yet within a few weeks 60,000 bottles of vodka with very good forged stamps were found. The Government themselves do not seem to think that the tax stamp will have a dramatic impact on fraud. In their analysis report, they estimate that it will reduce fraud by only about a quarter—hardly a dramatic reduction.
  We all know that forgeries will be so good that it will take an experienced Customs and Excise officer to spot them. Ordinary shopkeepers and customers will be taken in, so raids on shops by Customs officers will still be necessary. As we know from evidence given by Customs and Excise to Select Committees, such raids are already able to detect fraud. For example, when officers recently carried out an exercise in the London area, they visited 300 retail premises and found illicit spirits in nearly half of them. What extra benefits will tax stamps bring when current methods can already detect illicit spirits in the shops? Those raids, which involve targeting sectors of the trade that are suspected of being involved in fraud, are surely a better way to detect it than introducing an expensive tax stamp scheme. That is only one of a whole raft of alternatives suggested by the Scotch whisky industry.
  Another proposal involves warehouse keepers providing information to Customs about expected arrivals and advising it of which consignments do not arrive. The reason behind that is that lorry drivers who smuggle into the country spirits on which UK duty has not been paid often book their load into a warehouse as a precaution in case they are stopped and questioned by Customs at the port. If they are stopped, they take their load legitimately to the warehouse, but if they get through without being stopped, they deliver their goods

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  straight to the retailers. If criminals knew that repeated failure to turn up at a warehouse would attract suspicion, that smuggling method would be eliminated.
  The Government estimate that the package of measures that the Scotch whisky industry proposes would reduce fraud by approximately £70 million a year and that tax stamps would lead to a reduction of around £160 million. Even if the Government's estimates are correct, tax stamps would save only £90 million more than the Scotch whisky industry's suggestions. Their estimate of the annual cost to the industry is £54 million on top of the one-off capital cost of £23 million. Even if all the estimates are correct, the amount of savings that can be expected is low. Of course, there is grave concern that they are far from correct.
  So far, the Government have not attempted to estimate security, which worries the industry a great deal. Each tax stamp is a small piece of paper worth £5.48. The industry will therefore have to hold a large number of what are effectively £5 notes on its premises. Many bottling plants are on out-of-town industrial estates and they would have millions of pounds in £5 notes on their premises. The tax stamps are as good as cash to any thief who steals them. What sane company would store millions of pounds in £5 notes in a factory on an out-of-town industrial estate? The police are always telling us to put cash in the bank and not to leave it stored on premises, because of the costs of security. The insurance industry is reluctant to store cash, and insurance premiums to the whisky industry will rocket.
  Stamps will create problems on the production line. The machinery that puts the stamp on the bottle is complex. Bottles will have to be monitored as they come off the production line to ensure that two stamps have not stuck together and been affixed to one bottle. Torn stamps will cause problems. Some bottles will inevitably get broken after the stamp has been affixed. Claiming back the costs of stamps on broken bottles and torn stamps will involve costly administrative procedures.
  We do not know the scale of the problem that the Government are trying to solve, how effective their proposed solution will prove, or the full costs of the scheme. However, we know that great risks are involved. Should the Scotch whisky industry have to cut back its production because of costs, the outcome will be devastating for the economies of small rural communities such as those on Islay and Jura. I appeal to the Government to ditch clause 4 and not to proceed with tax stamps but to adopt the whisky industry's alternative package.
  7.23 pm
  Mr. Mark Prisk: The debate has been informed, surprisingly wide-ranging and extended. I welcome the Chief Secretary to his place. He began the debate in theatrical and entertaining style and it is nice to see him back on his old form. His speech was followed by a thorough and economically robust speech by my hon. Friend the Member for Arundel and South Downs (Mr. Flight). The Chief Secretary's speech was economically lacking but the entertainment is always worth it.
  My hon. Friend's speech was followed by three excellent Back-Bench contributions from my hon. Friend the Member for Grantham and Stamford
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  (Mr. Davies), my right hon. Friend the Member for Fylde (Mr. Jack) and last, but by no means least, the undergraduate on the Bill, my hon. Friend the Member for South Norfolk (Mr. Bacon). I look forward to their contributions in Committee.
  This year's Bill is longer than ever, if that can be believed. It includes 40 schedules and 310 clauses and extends to 574 pages. The explanatory notes alone stretch to more than 650 pages. As the Chief Secretary suggested, it will keep us busy, and I suspect that the undergraduate is beginning to wonder what he has let himself in for. Not only has the Bill got bigger, but the taxes that it covers will increase, too. Despite all the gimmicks and giveaways, and the spin and the gloss of the Budget day speech, the unvarnished truth is that, over the next 12 months, the nation's tax bill will rise by almost 8 per cent. The overall effect of the Budget and of the Bill will be an 8 per cent. rise in tax yield next year, and almost 8 per cent. more the year after. Indeed, the Red Book shows that the Government are planning for the burden of tax to reach its highest level for more than a quarter of a century by 2008. No wonder everyone is warning about Labour's third-term tax rises.
  Our taxes had been rising steadily under Labour even before the Bill. The net effect of the previous seven Budgets and Finance Bills equates to an extra £5,000 per household per year. That is 60 stealth tax rises in seven Budgets, and this year, the Chancellor has slipped in six more stealth taxes. In this Bill, there is a new tax on small companies, a tax on UK businesses for transfer pricing, a tax rise on red diesel, a tax hike on other road fuels, a new tax on trusts and a sixfold tax rise on company vans.
  The greatest act of stealth by the Chancellor came not in those specific changes but in his announcement of frozen tax thresholds and allowances. At the time, he made the tax freeze sound like an act of pure generosity, yet by freezing tax allowances and thresholds in the Bill, he is using the oldest stealth tax of all: fiscal drag. Let us take stamp duty land tax, a favourite of the Chief Secretary. When the Chancellor told the House that he was freezing stamp duty, Labour Members cheered; some even waved their Order Paper in support. But what they failed to understand—and what he forgot to mention—was that, as house prices rise, home buyers' tax bills will rise. To be more precise, the Chancellor expects people to pay £1,900 more in stamp duty next year. What Labour Members cheered on Budget day was a tax hike for first-lime buyers. What they endorsed would mean thousands more key workers being priced out of a home. The Chancellor might be able to fool Labour Members, but he will soon learn that he cannot fool those whom they represent.
  There will be tax increases, but there is another cost at the heart of the tax system under this Government. As the very length of this legislation shows, our tax system is now hideously complex. It has become an expensive burden in its own right. For example, the plan to impose strip stamps on spirit bottles represents a huge increase in costs for the industry, and we have heard Members on both sides of the House seriously urge the Treasury to think again about that proposal.
  The complexity of our tax system stems largely—although not wholly—from a Chancellor who constantly meddles and tinkers with each and every tax, duty and charge. Every year we get a raft of new

  259
  schemes, every Budget produces different rates and credits and every Finance Bill brings more and more rules. Let us take the new tax on small companies, as set out in clause 28. In 2002, the Chancellor cut the corporation tax starting rate from 10 per cent. to zero. Indeed, the Paymaster General actively promoted the change. She said in the Standing Committee that small businesses would not look a gift horse in the mouth. Thousands of businesses took her at her word and incorporated. Indeed, her encouragement was so magnificently successful that 300,000 firms incorporated.
  Unfortunately, that was far more than the Treasury had budgeted for. Suddenly, the Paymaster General's gift horse was beginning to look a little lame. So, in the Budget last month, the whole policy was reversed, with a 19 per cent. tax rate being imposed on many of the smallest companies. Indeed, we are now told that this was not a gift horse at all, but a loophole. What remarkable genius. Only this Government—perhaps only this Paymaster General—could miraculously transform a gift horse into a loophole in 18 months. That is a remarkable achievement.
  Yet the Government were warned of their error at the time. The recent Budget report by the Treasury Committee states:
  "We are puzzled as to why, unlike other commentators, neither the tax authorities nor the Treasury anticipated that this would be the likely effect".
  The Committee's report that goes to say that the cost to the taxpayer was an estimated £670 million in lost revenues.
  In a sense, the cost to business is probably far greater. There are the professional costs of accountancy advice and changing accounts, and the costs of the time lost in that process. But perhaps the greatest price to the UK economy is the uncertainty that this incompetent meddling has created. How are businesses meant to plan ahead when the tax system keeps changing? How can companies invest when they do not know how their investments will be taxed? Perhaps most important of all, what assurances can the Paymaster General give that some of the reliefs and many allowances in this Bill that she and her colleagues have applauded will not also soon be suddenly denounced as loopholes?
  Conservative Members fully accept that seeking to evade legitimate tax liability is illegal and should be dealt with accordingly, but there is a world of difference between illegal tax evasion and tax avoidance or planning. Indeed, I understand that that was once the Labour party's view. Preparing for the debate, I came across a fascinating document, Labour's policy paper "Tackling Tax Abuses, Tackling Unemployment"—a snappy title. It was written when the Chancellor was still the shadow Chancellor. Under the heading, "How avoidance can be countered", it states:
  "The taxpayer is entitled to take advantage of the law to minimise his or her tax bill."
  It goes on
  "as a matter of principle"
  —not a phrase that we hear often from Labour Ministers nowadays—
  "we believe that the citizen is entitled to know where he or she stands before the tax law."
  260
  It concludes:
  "It is the complexity of the present system that has encouraged the growth of a flourishing avoidance industry."
  For once, I agree with the stated policy—as it must have been then—of the Labour party and its supporters, but what is the Paymaster General's view? Does she agree with the Chancellor's view then, or with his actions now? Does she accept that people are entitled to ensure that they pay only the tax that they owe? Does she understand that ceaseless change leaves taxpayers unclear about where they stand? Will she agree in her reply that the more complex the tax law, the greater encouragement there is for tax avoidance?
  The Bill represents a wasted opportunity, which is why I urge all Members to support the amendment. It could have presented a radical plan to help savers and reduced the complexity and burden of the tax system. Yet, instead of helping enterprise, it stings small companies and the self-employed. Instead of helping home owners, it increases the tax burden of first-time buyers. Instead of simplifying our tax system, it adds 574 pages of complex rules and regulations.
  Never has a Finance Bill been so long, and said so little of substance. Long on words, short on vision: that is the reality of this Bill, and that is the record of this Chancellor.
  7.33 pm
  The Paymaster General (Dawn Primarolo): I thank all Members who have spoken. It has been a good debate. At the beginning, Opposition Members asserted that this was a dull Finance Bill, but during the afternoon and evening they got quite worked up. I agree with the hon. Member for Hertford and Stortford (Mr. Prisk) that the debate was wide-ranging.
  My hon. Friends the Members for Newcastle upon Tyne, North (Mr. Henderson) and for Bexleyheath and Crayford (Mr. Beard) rightly pointed out that sustained growth has been combined with low inflation, low interest rates and the lowest levels of unemployment for a generation. New employment figures show that, since 1997, more than 1.8 million jobs have been created and that, every working day, 600 businesses start up. Instead of the record under the previous Government, when we were first in and last out in downturns in the economy, it is right to conclude, as my right hon. Friend the Chancellor did in his Budget statement, that the UK has weathered the global downturn and will continue to grow in 2004.
  Our economic stability, matched by sustained growth and a sound and fair tax system, allows us to commit more investment not less to public services and to choose long-term investment, which matters most to the people of this country. As the hon. Member for Yeovil (Mr. Laws) rightly said, economic stability provides a secure background against which we can consider in greater depth public services, unlike in the 1980s, under the previous Government, which were dominated by bankruptcy, unemployment, house repossession, Government debt and disaster for millions of families. The Finance Bill will build on those economic strengths for the future and prepare the UK for the challenges of the future.
  I want to deal with pension simplification and the points made by the hon. Members for Arundel and South Downs (Mr. Flight) and for East Carmarthen and

  261
  Dinefwr (Adam Price). Basically, the hon. Member for Arundel and South Downs misunderstood completely the pension simplification arrangements. He said that we are replacing eight pensions with six. Clearly, he is confused about the fact that there will be only one regime for taxation, which replaces the existing eight. It is only right that there should be a variety of schemes to meet the range of needs. He went on to say—I do not know whether he was suggesting that we should have different valuation factors—that the single valuation factor was somehow unfair. I know that he must appreciate, as he is knowledgeable on these subjects, that a single valuation factor ensures that administration of the schemes is kept simple. Surely he does not propose that we make it more complex.
  Both the hon. Gentleman and the hon. Member for Hertford and Stortford (Mr. Prisk), in winding up this debate, complained about the length of the Finance Bill. As they well know, the pension simplification alone replaces approximately 350 pages of existing legislation, along with thousands of pages of guidance and has been widely welcomed, particularly as it puts back the implementation date to 2006. The point made about women on maternity leave or in career breaks is absolutely wrong. What we have is simplification. The rule that was referred to is no longer needed, as women are not restricted and can contribute more before and after their career breaks, providing much more flexibility and the ability to save more.
  On the point made by the hon. Member for East Carmarthen and Dinefwr about second homes and the housing market—clearly, we will debate the issue in more depth in Committee—it is simply not true that our proposals will encourage speculative investment. There was much misunderstanding in the early stages and I know that he has quoted in good faith the points that others are making. Now that the proposals are clear to them, I think that he will find that his concerns are misplaced. I look forward to that debate.
  I congratulate the right hon. Member for Fylde (Mr. Jack) on running in the London marathon and I am sorry that I was not there to cheer him on his way past the Treasury. I want to touch on his points with regard to avoidance and whether Parliament has got it wrong. That is a crucial debate, on which the hon. Member for Hertford and Stortford touched in his closing remarks. In 1997, Lord Nolan described avoidance as
  "when a taxpayer reduces his liability to tax without incurring the economic consequences that Parliament intended to be suffered by any taxpayer qualifying for such a reduction in his tax liability. Tax avoidance is a course of action designed to conflict with or defeat the evident intention of Parliament".
  Of course, we would expect all individuals and companies to want to make the most efficient use of the tax system and its reliefs, but we have seen systematic, abusive schemes that give relief for economic activity that was never undertaken or multiple reliefs for the same action that was never intended. The right hon. Gentleman talks about losses or capital allowances and how they are being used now. He cannot seriously be
  262
  suggesting that we take out of our tax system all the capital allowances or lease proposals that so help business to deal with the point.
  Mr. Jack: My purpose in illustrating my concern about clause 290 was not in any way to challenge the efficacy of capital allowances, but merely to probe how clause 290 would operate in the example that I gave.
  Dawn Primarolo: The debate in Committee—on which I hope the right hon. Gentleman will serve—will enable all hon. Members to draw a clear distinction between legitimate tax planning, avoidance and evasion and allow us to discuss how we should respond to these challenges in fairness, treating all taxpayers on an equal basis.
  Both the right hon. Member for Fylde and the hon. Member for Arundel and South Downs asked about legal privilege and whether it was our intention to override it—it is not—and about the regulations that will provide for the disclosure. The regulations will be made available before we get to that part of the Standing Committee. There will be consultation on them, because it is our intention to try to make sure that this works, for exactly the reasons that everybody in this House would expect.
  On transfer pricing, I understand the CBI's concern, but we have consulted it and have made changes to the transfer pricing rules, which was a sensible response.
  Many hon. Members referred to strip stamps. The simple point is that, after nearly three years of discussion and consultation with the industry, given the increased fraud and the illicit market in this area, no alternative solution could be found. We can debate that on the Floor of the House in detail next week, but hon. Members need to apply themselves to this fact: why should honest taxpayers see a loss in revenue because of illegal activity? If that is wrong, how do we deal with it? I must say that the industry has not come forward with any alternative proposals.
  Mr. Alan Reid: The Government's own regulatory impact assessment estimates that the industry's proposals would save £70 million a year.
  Dawn Primarolo: That is less than half the tax yield. We have to address that matter in this House. The hon. Gentleman cannot have it both ways and he needs to face the challenge square on.
  A modern and fair tax system that encourages work, keeps pace with developments in business practice and in the global economy and raises sufficient revenues to fund the Government's objective of building world-class public services is what this Finance Bill provides for. As my hon. Friend the Member for Wallasey (Angela Eagle) said, a strong economy is a platform for a fair and secure society for all, with jobs and investment in public services, innovation and science. The Bill is both responsive to and realistic about the challenges that this country faces in competing in the world economy.
  Let us compare that with the policies of the Conservative party. The expenditure cuts, undermining vital public services, proposed by the shadow Chief

  263
  Secretary would bring a return to the underinvestment, insecurity and disaster of his party's economic policy in the 1980s and early 1990s.
  Our vision is for a Britain that supports fairness, security and opportunity for all. The Finance Bill builds on a platform of economic stability and I commend it to the House.
  Question put, That the amendment be made:—
  The House divided: Ayes 190, Noes 301.

  Division No. 133]

  [7:45 pm

  AYES

  Amess, David

  Flook, Adrian

  Ancram, rh Michael

  Forth, rh Eric

  Atkinson, David (Bour'mth E)

  Foster, Don (Bath)

  Atkinson, Peter (Hexham)

  Fox, Dr Liam

  Bacon, Richard

  Francois, Mark

  Barker, Gregory

  Garnier, Edward

  Baron, John (Billericay)

  George, Andrew (St. Ives)

  Barrett, John

  Gibb, Nick (Bognor Regis)

  Beggs, Roy (E Antrim)

  Gidley, Sandra

  Bellingham, Henry

  Grayling, Chris

  Beresford, Sir Paul

  Green, Damian (Ashford)

  Blunt, Crispin

  Green, Matthew (Ludlow)

  Boswell, Tim

  Grieve, Dominic

  Bottomley, Peter (Worthing W)

  Hague, rh William

  Bottomley, rh Virginia (SW Surrey)

  Hammond, Philip

  Harvey, Nick

  Brady, Graham

  Hawkins, Nick

  Brazier, Julian

  Heald, Oliver

  Brooke, Mrs Annette L.

  Heath, David

  Browning, Mrs Angela

  Heathcoat-Amory, rh David

  Burns, Simon

  Hendry, Charles

  Burnside, David

  Hermon, Lady

  Burstow, Paul

  Hoban, Mark (Fareham)

  Burt, Alistair

  Hogg, rh Douglas

  Cable, Dr. Vincent

  Holmes, paul

  Cameron, David

  Horam, John (Orpington)

  Campbell, Gregory (E Lond'y)

  Howarth, Gerald (Aldershot)

  Campbell, rh Sir Menzies (NE Fife)

  Hunter, Andrew

  Jack, rh Michael

  Carmichael, Alistair

  Jackson, Robert (Wantage)

  Cash, William

  Jones, Nigel (Cheltenham)

  Chapman, Sir Sydney (Chipping Barnet)

  Keetch, Paul

  Key, Robert (Salisbury)

  Chope, Christopher

  Kirkbride, Miss Julie

  Clappison, James

  Kirkwood,Sir Archy

  Clarke, rh Kenneth (Rushcliffe)

  Knight, rh Greg (E Yorkshire)

  Collins, Tim

  Laing, Mrs Eleanor

  Conway, Derek

  Lait, Mrs Jacqui

  Cormack, Sir Patrick

  Lamb, Norman

  Cotter, Brian

  Lansley, Andrew

  Cran, James (Beverley)

  Laws, David (Yeovil)

  Curry, rh David

  Leigh, Edward

  Davey, Edward (Kingston)

  Lewis, Dr. Julian (New Forest E)

  Davies, Quentin (Grantham & Stamford)

  Lidington, David

  Lilley, rh Peter

  Davis, rh David (Haltemprice & Howden)

  Llwyd, Elfyn

  Djanogly, Jonathan

  Loughton, Tim

  Dodds, Nigel

  Luff, Peter (M-Worcs)

  Donaldson, Jeffrey M.

  Mclntosh, Miss Anne

  Dorrell, rh Stephen

  Mackay, rh Andrew

  Doughty, Sue

  Maclean, rh David

  Duncan, Alan (Rutland)

  McLoughlin, Patrick

  Duncan, Peter (Galloway)

  Maples, John

  Duncan Smith, rh lain

  Marsden, Paul (Shrewsbury & Atcham)

  Evans, Nigel

  Fabricant, Michael

  Mates, Michael

  Fallon, Michael

  Maude, rh Francis

  Field, Mark (Cities of London & Westminster)

  Mawhinney, rh Sir Brian

  May, Mrs Theresa

  Flight, Howard

  Mercer, Patrick

  264

  Mitchell, Andrew (Sutton Coldfield)

  Spicer, Sir Michael

  Spink, Bob (Castle Point)

  Moore, Michael

  Spring, Richard

  Moss, Malcolm

  Stanley, rh Sir John

  Murrison, Dr. Andrew

  Steen, Anthony

  Norman, Archie

  Streeter, Gary

  Oaten, Mark (Winchester)

  Stunell, Andrew

  O'Brien, Stephen (Eddisbury)

  Swayne, Desmond

  Öpik, Lembit

  Swire, Hugo (E Devon)

  Osborne, George (Tatton)

  Syms, Robert

  Ottaway, Richard

  Tapsell, Sir Peter

  Page, Richard

  Taylor, Ian (Esher)

  Paice, James

  Taylor, John (Solihull)

  Paisley, Rev. Ian

  Taylor, Matthew (Truro)

  Paterson, Owen

  Taylor, Dr. Richard (Wyre F)

  Portillo, rh Michael

  Teather, Sarah

  Price, Adam (E Carmarthen & Dinefwr)

  Thomas, Simon (Ceredigion)

  Turner, Andrew (Isle of Wight)

  Prisk, Mark (Hertford)

  Tyler, Paul (N Cornwall)

  Pugh, Dr. John

  Tyrie, Andrew

  Randall, John

  Waterson, Nigel

  Redwood, rh John

  Watkinson, Angela

  Reid, Alan (Argyll & Bute)

  Webb, Steve (Northavon)

  Rendel, David

  Weir, Michael

  Robathan, Andrew

  Whittingdale, John

  Robertson, Angus (Moray)

  Widdecombe, rh Miss Ann

  Robertson, Hugh (Faversham & M-Kent)

  Wiggin, Bill

  Willetts, David

  Robertson, Laurence (Tewk'b'ry)

  Williams, Hywel (Caernarfon)

  Robinson, Peter (Belfast E)

  Williams, Roger (Brecon)

  Rosindell, Andrew

  Willis, Phil

  Russell, Bob (Colchester)

  Wilshire, David

  Sanders, Adrian

  Winterton, Ann (Congleton)

  Sayeed, Jonathan

  Winterton, Sir Nicholas

  Selous, Andrew

  (Macclesfield)

  Shephard, rh Mrs Gillian

  Wishart, Pete

  Shepherd, Richard

  Young, rh Sir George

  Simmonds, Mark

  Younger-Ross, Richard

  Simpson, Keith (M-Norfolk)

  Smith, Sir Robert (W Ab'd'ns & Kincardine)

  Tellers for the Ayes:

  Mr. Geoffrey Clifton-Brown

  Smyth, Rev. Martin (Belfast S)

  and

  Spelman, Mrs Caroline

  Mr. David Ruffley

  NOES

  Abbott, Ms Diane

  Byers, rh Stephen

  Ainger, Nick

  Caborn, rh Richard

  Ainsworth, Bob (Cov'try NE)

  Cairns, David

  Allen, Graham

  Campbell, Alan (Tynemouth)

  Anderson, rh Donald (Swansea E)

  Campbell, Ronnie (Blyth V)

  Anderson, Janet (Rossendale & Darwen)

  Caplin, Ivor

  Casale, Roger

  Atherton, Ms Candy

  Caton, Martin

  Atkins, Charlotte

  Cawsey, Ian (Brigg)

  Bailey, Adrian

  Challen, Colin

  Baird, Vera

  Chapman, Ben (Wirral S)

  Battle, John

  Clapham, Michael

  Beard, Nigel

  Clark, Mrs Helen (Peterborough)

  Begg, Miss Anne

  Clark, Dr. Lynda (Edinburgh Pentlands)

  Bennett, Andrew

  Berry, Roger

  Clarke, rh Tom (Coatbridge & Chryston)

  Best, Harold

  Betts, Clive

  Clarke, Tony (Northampton S)

  Blackman, Liz

  Clelland, David

  Blears, Ms Hazel

  Coffey, Ms Ann

  Boateng, rh Paul

  Cohen, Harry

  Borrow, David

  Coleman, Iain

  Bradley, rh Keith (Withington)

  Cook, Frank (Stockton N)

  Bradley, Peter (The Wrekin)

  Cook, rh Robin (Livingston)

  Bradshaw, Ben

  Cooper, Yvette

  Browne, Desmond

  Corston, Jean

  Bryant, Chris

  Cousins, Jim

  Buck, Ms Karen

  Cranston, Ross

  Burden, Richard

  Crausby, David

  Burgon, Colin

  Cruddas, Jon

  Burnham, Andy

  Cryer, Ann (Keighley)

  265

  Cummings, John

  Illsley, Eric

  Cunningham, Jim (Coventry S)

  Ingram, rh Adam

  Cunningham, Tony (Workington)

  Irranca-Davies, Huw

  Curtis-Thomas, Mrs Claire

  Jackson, Glenda (Hampstead & Highgate)

  Dalyell, Tam

  Davey, Valerie (Bristol W)

  Jackson, Helen (Hillsborough)

  David, Wayne

  Jamieson, David

  Davidson, Ian

  Jenkins, Brian

  Davies, rh Denzil (Llanelli)

  Johnson, Alan (Hull W)

  Davis, rh Terry (B'ham Hodge H)

  Jones, Helen (Warrington N)

  Dawson, Hilton

  Jones, Jon Owen (Cardiff C)

  Dean, Mrs Janet

  Jones, Martyn (Clwyd S)

  Denham, rh John

  Joyce, Eric (Falkirk W)

  Dhanda, Parmjit

  Kaufman, rh Gerald

  Dismore, Andrew

  Keeble, Ms Sally

  Dobbin, Jim (Heywood)

  Keen, Alan (Feltham)

  Dobson, rh Frank

  Kelly, Ruth (Bolton W)

  Donohoe, Brian H.

  Kemp, Fraser

  Doran, Frank

  Kennedy, Jane (Wavertree)

  Dowd, Jim (Lewisham W)

  Khabra, Piara S.

  Drew, David (Stroud)

  Kidney, David

  Dunwoody, Mrs Gwyneth

  Kilfoyle, Peter

  Eagle, Angela (Wallasey)

  King, Ms Oona (Bethnal Green & Bow)

  Eagle, Maria (L'pool Garston)

  Edwards, Huw

  Knight, Jim (S Dorset)

  Efford, Clive

  Kumar, Dr. Ashok

  Ellman, Mrs Louise

  Lammy, David

  Etherington, Bill

  Lawrence, Mrs Jackie

  Farrelly, Paul

  Laxton, Bob (Derby N)

  Field, rh Frank (Birkenhead)

  Lazarowicz, Mark

  Fisher, Mark

  Lepper, David

  Fitzpatrick, Jim

  Leslie, Christopher

  Fitzsimons, Mrs Lorna

  Levitt, Tom (High Peak)

  Flint, Caroline

  Linton, Martin

  Flynn, Paul (Newport W)

  Lloyd, Tony (Manchester C)

  Follett, Barbara

  Love, Andrew

  Foster, rh Derek

  Lucas, Ian (Wrexham)

  Foster, Michael (Worcester)

  Luke, Iain (Dundee E)

  Foster, Michael Jabez (Hastings & Rye)

  Lyons, John (Strathkelvin)

  McAvoy, Thomas

  Foulkes, rh George

  McCafferty, Chris

  Francis, Dr. Hywel

  McCartney, rh Ian

  Gapes, Mike (Ilford S)

  McDonagh, Siobhain

  George, rh Bruce (Walsall S)

  MacDonald, Calum

  Gerrard, Neil

  McDonnell, John

  Gibson, Dr. Ian

  MacDougall, John

  Goggins, Paul

  McFall, John

  Griffiths, Win (Bridgend)

  McGuire, Mrs Anne

  Grogan, John

  McIsaac, Shona

  Hall, Mike (Weaver Vale)

  McKechin, Ann

  Hall, Patrick (Bedford)

  Mactaggart, Fiona

  Hamilton, David (Midlothian)

  McWalter, Tony

  Hanson, David

  McWilliam, John

  Harman, rh Ms Harriet

  Mahmood, Khalid

  Havard, Dai (Merthyr Tydfil & Rhymney)

  Mahon, Mrs Alice

  Mallaber, Judy

  Healey, John

  Mann, John (Bassetlaw)

  Henderson, Doug (Newcastle N)

  Marris, Rob (Wolverh'ton SW)

  Henderson, Ivan (Harwich)

  Marsden, Gordon (Blackpool S)

  Hendrick, Mark

  Marshall, Jim (Leicester S)

  Hepburn, Stephen

  Marshall-Andrews, Robert

  Hesford, Stephen

  Martlew, Eric

  Hewitt, rh Ms Patricia

  Meacher, rh Michael

  Hill, Keith (Streatham)

  Meale, Alan (Mansfield)

  Hinchliffe, David

  Merron, Gillian

  Hoey, Kate (Vauxhall)

  Michael, rh Alun

  Hood, Jimmy (Clydesdale)

  Miliband, David

  Hope, Phil (Corby)

  Miller, Andrew

  Howarth, George (Knowsley N & Sefton E)

  Mitchell, Austin (Gt Grimsby)

  Moffatt, Laura

  Hoyle, Lindsay

  Mole, Chris

  Hughes, Beverley (Stretford & Urmston)

  Moonie, Dr. Lewis

  Moran, Margaret

  Humble, Mrs Joan

  Morgan, Julie

  Hutton, rh John

  Morris, rh Estelle

  Iddon, Dr. Brian

  Mountford, Kali

  266

  Mudie, George

  Skinner, Dennis

  Munn, Ms Meg

  Smith, Angela (Basildon)

  Murphy, Denis (Wansbeck)

  Smith, rh Chris (Islington S & Finsbury)

  Murphy, Jim (Eastwood)

  Naysmith, Dr. Doug

  Smith, Geraldine (Morecambe & Lunesdale)

  O'Hara, Edward

  Olner, Bill

  Smith, Llew (Blaenau Gwent)

  Organ, Diana

  Soley. Clive

  Osborne, Sandra (Ayr)

  Southworth, Helen

  Owen, Albert

  Spellar, rh John

  Palmer, Dr. Nick

  Starkey, Dr. Phyllis

  Pearson, Ian

  Steinberg, Gerry

  Perham, Linda

  Stewart, David (Inverness E & Lochaber)

  Picking, Anne

  Pickthall, Colin

  Stewart, Ian (Eccles)

  Pike, Peter (Burnley)

  Stinchcombe, Paul

  Plaskitt, James

  Stringer, Graham

  Pollard, Kerry

  Stuart, Ms Gisela

  Pond, Chris (Gravesham)

  Sutcliffe, Gerry

  Pope, Greg (Hyndburn)

  Taylor, Dari (Stockton S)

  Pound Stephen

  Taylor, David (NW Leics)

  Prentice, Ms Bridget (Lewisham E)

  Timms, Stephen

  Tipping, Paddy

  Prescott, rh John

  Todd, Mark (S Derbyshire)

  Primarolo, rh Dawn

  Trickett, Jon

  Prosser, Gwyn

  Truswell, Paul

  Purchase Ken

  Turner, Dennis (Wolverh'ton SE)

  Purnell James

  Turner, Dr. Desmond (Brighton Kemptown)

  Quinn, Lawrie

  Rammell Bill

  Turner, Neil (Wigan)

  Rapson, Syd (Portsmouth N)

  Twigg, Derek (Halton)

  Raynsford, rh Nick

  Twigg, Stephen (Enfield)

  Reed, Andy (Loughborough)

  Tynan, Bill (Hamilton S)

  Robertson, John (Glasgow Anniesland)

  Vaz, Keith (Leicester E)

  Vis, Dr. Rudi

  Robinson, Geoffrey (Coventry NW)

  Walley, Ms Joan

  Ward, Claire

  Roche, Mrs Barbara

  Wareing, Robert N.

  Rooney, Terry

  Whitehead, Dr. Alan

  Ross, Ernie (Dundee W)

  Wicks, Malcolm

  Roy, Frank (Motherwell)

  Williams, rh Alan (Swansea W)

  Ruane, Chris

  Williams, Betty (Conwy)

  Ruddock, Joan

  Wills, Michael

  Russell, Ms Christine (City of Chester)

  Winnick, David

  Wood, Mike (Batley)

  Ryan, Joan (Enfield N)

  Woodward, Shaun

  Salter, Martin

  Woolas, Phil

  Sarwar, Mohammad

  Worthington, Tony

  Savidge, Malcolm

  Wright, Anthony D. (Gt Yarmouth)

  Sedgemore, Brian

  Wright, David (Telford>)

  Shaw, Jonathan

  Sheridan, Jim

  Tellers for the Noes:

  Simpson, Alan (Nottingham S)

  Vernon Coaker and

  Singh, Marsha

  Mr. John Heppell

  Question accordingly negatived.
  Main Question put forthwith, pursuant to Standing Order No. 62 (Amendment on second or third reading), and agreed to.
  Bill accordingly read a Second time.
  Motion made, and Question put forthwith, pursuant to Standing Order No. 63(3) (Committal of Bills),
  That Clauses Nos. 4, 5, 20, 28, 57 to 77, 86, 111 and 282 to 289 and Schedules 1, 3, 11 12, 21 and 37 to 39 shall be committed to a Committee of the whole House;
  That the remainder of the Bill shall be committed to a Standing Committee;
  That when the provisions of the Bill considered, respectively, by the Committee of the whole House and by the Standing Committee have been reported to the House, the Bill shall be proceeded with as if it had been reported as a whole to the House from the Standing Committee.—[Dawn Primarolo]
  Question agreed to.
  Committee tomorrow.

  Finance Bill
  Ordered,
  That, during proceedings on the Finance Bill, the Standing Committee on the Bill shall have leave to sit twice on the first day on which it shall meet.—[Mr. Jim Murphy.]

PETITION

  John Charles
  7.59 pm
  Lembit Öpik: I wish to present a petition that has been organised in association with the Wales on Sunday newspaper. It is about the late great John Charles, the Welsh footballer. The petition has 703 signatures, and has been supplemented by 440 names on the Wales on Sunday website.
  The petition states:
  To the House of Commons.
  The petition of readers of Wales on Sunday,
  Declares that the late John Charles made a huge contribution to football, sportsmanship and to Wales and that 703 people have recognised this and supported the petition through a newspaper campaign.
  The petitioners therefore request that the House of Commons urge the Prime Minister to recommend the late John Charles for a posthumous knighthood.
  And the Petitioners remain, etc.
  To lie upon the Table.

  Cider Apple Orchards
  Motion made, and Question proposed, That this House do now adjourn.—[Mr. Jim Murphy.]
  8 pm
  Mr. David Heath: Debate in the House is often about great matters of national or international policy. Occasionally, it is right that we debate perhaps smaller matters that affect fewer people, but about which certain people feel passionately. That is why I am so pleased to have this opportunity to represent my constituents in the Adjournment debate.
  Many people in Somerset feel deeply about the traditional cider apple orchards, which are such an important part of our landscape, environment, history and culture. The people who know them best are the growers and producers. I am indebted to constituents whom I saw at my surgery in Langport on Saturday. They include Mr. Fry of Long Sutton, and Messrs. Meaker, both senior and junior, of Pitney, as well as those to whom I spoke in Kingsbury Episcopi on Monday morning, including Mr. Male, Mr. Hebditch and Mr. Temperley. Many others have written either to me or to my hon. Friend the Member for Yeovil (Mr. Laws). Those people told me how worried they were that this year would see the loss of so many acres of precious orchards. Whether that fear is justified—I think that it is—it is genuinely held and needs a serious response.
  I suspect that the problem is well known to the Minister. This year sees the introduction of the new single farm payment scheme, and land must be registered by the end of 2004. Land given over to permanent crops—and apple orchards are specifically included in that definition—is not eligible for registration. Landowners are therefore in the unenviable position of having to decide within the calendar year whether to clear orchards and grub out their trees in order to register, or to forgo those payments in perpetuity.
  In the case of modern, commercial planting, grubbing up is unlikely to be the best option, but for those orchards that are marginal or past their peak of production, no responsible landowner could possibly ignore either the loss of income that in the current state of agriculture—particularly, I have to say, in parts of my constituency—might be critical to any profitability, or the loss of capital value that they would incur.
  Mr. Paul Keetch: I congratulate my hon. Friend on securing the debate. Does he agree that, given that the Government are committed to a mixed landscape and biodiversity in agriculture, any measures that have the effect of reducing biodiversity are, on the surface at least, contrary to Government policy? Does he hope that in his response the Minister will explain that apparent ambiguity in the system?
  Mr. Heath: My hon. Friend, who is the chairman and founder member of the parliamentary cider group, is absolutely right on that matter, to which I shall return.
  Mr. Bill Wiggin: I may have to register an interest, as in the next few weeks I hope to

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  buy a field containing apple trees. I hope that in his reply, the Minister will also say whether other European countries such as France are taking the same line as our Government—or will the French be subsidising their apple production while we do not do the same for our apple producers?
  Mr. Heath: I hope that the Minister will respond to the hon. Gentleman's question.
  Matters are made considerably worse by the uncertain state of the commercial-scale cider industry. Both Matthew Clark Cider and Bulmer are reducing the acreage under contract and many marginal orchards are unlikely to find ready markets. Nor will a reduction in total apple production restore apple prices and encourage replanting; history suggests that production shortfalls will be met by the importation of concentrate rather than enhanced domestic production.
  Why does that matter? I could wax lyrical about the beauties of Somerset orchards and I would be justified in doing so. They are a special part of our landscape and it is hard to imagine Somerset, or other parts of the west country, without orchards. That point has been made forcefully by the Countryside Agency, among many others.
  I could mention the environmental importance. The ecology of orchards is unique—a point made by my hon. Friend the Member for Hereford (Mr. Keetch)—and enormously valuable. English Nature has intervened in the debate and initiated studies to underline what it considers a hugely important managed natural resource. It has even mentioned the invertebrate, Gnorimus nobilis—the noble chafer. I have to confess that I do not know much about the noble chafer, but the environmental benefits of orchards are apparent even to those of us who are not entomologists. It is hard to think of another form of agricultural production that is so benign in environmental terms.
  Then there is the diversity of apple varieties. If we lose the older, more traditional orchards, we shall inevitably lose yet more of the myriad apple varieties unique to Britain. More than 156 apple varieties are recorded as having connections with Somerset alone, and their names are every bit as redolent and evocative of the county as any cultural artefact. They include varieties such as Yarlington Mill, Black Dabinett, Glory of the West, Slack-me-Girdle, Hoary Morning and Bastard Foxwhelp—I had better stop there, but I hope that I have made my point.
  The Minister for Rural Affairs and Local Environmental Quality (Alun Michael): The hon. Gentleman has mentioned many of his distinguished constituents and many species of apple, and it strikes me that he is making his case primarily in relation to traditional orchards. I should like us to be clear about that, as some of the public discussion seems to have confused traditional orchards with the more modern commercial growers. I should like my response to be accurate, so am I right in my interpretation of his remarks? Is he primarily concerned with traditional orchards?
  Mr. Heath: I am grateful to the right hon. Gentleman. Yes, I am concerned about the traditional orchards that
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  are so much part of our landscape, but there are also questions about the commercial orchards and I do not want to lose sight of them in this debate.
  Brian Cotter: My hon. Friend will know that there is a well known cider maker in my constituency, Thatchers Cider. Businesses have been encouraged to invest in this country because the Government have told them that there is stability, so it is very discouraging for Thatchers Cider to have invested in planting up a lot of orchards recently only to find that—as it were—the ground has been swept away.
  Mr. Heath: I am grateful to my hon. Friend for that comment. Over recent years, we have seen a welcome revival in the planting of orchards, which has been encouraged by the Government through agri-environmental schemes and also locally. Somerset county council has been active in promoting the replanting of traditional apple varieties. It is thus perverse that we are switching to reverse gear.
  Once those ancient varieties are lost, they are gone for ever; they will not be recovered. Genetic diversity is as important in arboriculture as in animal breeding, in which I declare some interest as, at one stage, I was a member of the Rare Breeds Association and bred a rare breed of pig.
  Is the loss inevitable? I think not. I know that the Department for Environment, Food and Rural Affairs has held discussions with representatives of the industry and others, and I hope that the Minister may be able to expand on the results.
  Let us deal with some of the possible avenues for escape. First, there is the definition of "permanent crop". There is some flexibility in the definitions. I understand—perhaps the Minister will confirm this—that the Department has already exempted some permanent crops, such as withies, hops and asparagus beds. If the definition is amendable in that form, why not do so with apple trees?
  One of the growers—a gentleman who was a commercial-scale grower—told me how absurd he thought it was that the raspberry canes that he had on part of his land were eligible for single farm payment grants, but the top fruit that he had on other parts of his land was not. Where is the logic in that? Another gentleman pointed out to me that, under the new scheme, someone who grows a field of potatoes—a very valuable crop, but not one with a great landscape value—will receive a benefit, but those who have beautiful orchards, whether of apple or cherry or whatever, will not. That seems perverse.
  Secondly, there is dual use. Orchards were never included, per se, in the integrated administration and control scheme, but traditional orchards are grown over a sward that is very often used for grazing. Under the old scheme, traditional cider orchards used for grazing for more than six months of the year qualified as forage acreage. Although those orchards did not qualify, per se, for subsidy, they were nevertheless included in the bundle. I understand that the Department is reconsidering the position on that—I hope that it is— because the arguments about dual use are just as pertinent now. I also hope that the Minister can give us some further thoughts on his conclusions.

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  Thirdly, although I have seen nothing in writing, there is talk of an upper limit on density as a working definition for what is a traditional, as opposed to a modern, commercial orchard. I have heard the figure of 50 trees a hectare mentioned. That is a step in the right direction, but most traditional orchards that I have seen come closer to about 50 trees an acre, rather than 50 trees a hectare. Clearly, if we can refine that definition, there is scope for finding a workable yardstick for exemption.
  Fourthly—this applies in the fully commercial world—will the Minister say whether it would be possible to register land for eligibility for payments as and when it reverts to other crops within the normal 30year rotation? There is a perverse situation at the moment in that land would normally be used for other crops after 30 years, but unless people do that before the end of this year, that land will not qualify for single farm payments. That seems not to be the intention. If the Minister could help us with that, he would at a stroke dispel many concerns that might cause the premature destruction of orchards.
  One of the Department's counter-arguments is that orchards will continue to qualify for the countryside stewardship scheme. That would be fine but for the fact that, as the Minister knows, the countryside stewardship scheme is closed to new entrants at the moment. No application can even be considered until 2005. By then, the growers whom I represent will have had to take commercial decisions about what to do with their land. I fear that it will be too late by then, even if the countryside stewardship scheme provides all the support that we hope it would. We need absolutely clarity now, not a wish list for the future.
  Alun Michael: The hon. Gentleman is making an important point. The countryside stewardship scheme is open each year for a window. Although the scheme may change next year, because we are moving into the new arrangements post-CAP reform, there will be a similar window next year. Contrary to the impression that he seems to be giving, if this year's window in the countryside stewardship scheme is missed, it is not over for ever and a day. I can certainly assure him on that point.
  Mr. Heath: I am grateful to the right hon. Gentleman, but that is not what I meant. The point that I am trying to communicate is that there is no capacity to apply for inclusion in the countryside stewardship scheme now, before 1 January 2005. Before that date, a person must have either removed the trees from their land in order to qualify for the single farm payment scheme, or not done so. People are having to take that decision without knowing with certainty whether they will be included in a countryside stewardship scheme. They need clarity.
  The other point raised in correspondence by the Department is that the sums do not add up. The Department says that the cost of grubbing up is £1,000 per hectare, and when that is taken into account, no one will grub up. No one in my part of the world recognises that as a reasonable figure for the cost of grubbing up. The cost would be far less—the Department's figure is hugely inflated. I do not know where the Department found it, but I hope that it is not basing its policy on that
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  figure, because it is unhelpful and reduces the Department's credibility in the eyes of those with whom it is dealing.
  I do not think that the destruction of orchards is the Government's intention. It is an unanticipated consequence of the policy and it can be avoided. The acreage involved is not huge—it is estimated that there are 16,000 acres of orchard, of which perhaps 5,000 acres are in danger of being lost by the end of the year. Saving our orchards is entirely in line with stated Government policy: supposedly the whole point of the reform is to benefit benign forms of cropping and agriculture, which orchards exemplify in the clearest possible way.
  Can anyone imagine this debate happening in any other country? Can anyone imagine traditional and ancient Burgundy vineyards being destroyed and even whole grape varieties lost because no one foresaw the consequences of a policy? Such a thing is unthinkable— yet we in Britain seem to be prepared to lose those things that are most precious and best define our landscape and our culture. I hope that the Minister will find a way to stop that happening.
  8.17 pm
  The Minister for Rural Affairs and Local Environmental Quality (Alun Michael): I congratulate the hon. Member for Somerton and Frome (Mr. Heath) on obtaining this debate and on the way in which he introduced it. His speech contained a subtle mixture of bad and good information, although I entirely accept the lists of names of his constituents and of the distinguished varieties of apple that grow in his constituency. I am happy to confirm that we are anxious to protect biodiversity, which is helped by the existence of traditional orchards. However, in much of the coverage given to the matter, environmental issues have become muddled with questions of subsidy in relation to modern commercial orchards. That is why I am pleased to have had the hon. Gentleman's main concerns confirmed this evening. I understand the reasons for those concerns. A sensible debate is needed, but the public debate has been confused and clarification is needed.
  Some of those who intervened in the debate seemed to suggest that there might be an advantage to growers in other countries—France was specifically mentioned. There will be no benefit in any other member state. Apple trees and others will be treated as permanent crops. In countries that are taking the historic payment route, there will not even be the possibility of acreage that has been used for apple trees qualifying for a flat rate, because there is no flat rate; it is only the flat rate element of the single farm payment that comes into play. In that respect, the concern that has been expressed is quite out of proportion.
  As the hon. Gentleman is aware, the subject falls under the portfolio of my noble Friend Lord Whitty, and I have brought a fresh mind to the issue in my preparations for today's debate. My incredulity has mounted because yet another issue has been reported in various inaccurate ways, as Lord Whitty said this morning. I concur with him, and advise anybody who owns a traditional orchard or is contemplating the purchase of one not to read the headlines about getting

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  an entitlement of £340 a hectare if the rules are changed. That is nonsense—it would take eight years to get more than £200 a hectare, and in the meantime there are better returns on the land and the orchard. Grubbing up to qualify for the area payment would make sense only for commercial or intensive growers—ltheir position is quite different from people with traditional orchards—whose trees have reached the end of their useful life. They would take a commercial decision to grub up anyway, and any gain from area payments would be small compared with the income from a successful apple plantation.
  The hon. Gentleman rightly referred to rotation. A grubbed up commercial orchard would usually be left fallow or put to another use for 15 or 20 years, or perhaps longer, as he suggested, and the grower would plant other land in the meantime. I am happy to assure the hon. Gentleman that we are looking at that issue and are seeking a solution, including the possible use of the national reserve and other options, but that is not the substance of our debate. English Nature has expressed concerns about biodiversity, and we are exploring definitions of, for example, grazing land, which may help to protect it. However, that is different from opening up subsidies for commercial orchards—the issues have become confused.
  Mr. Keetch: Importantly, the Minister distinguished between small growers and commercial growers. As time is short tonight, will he give a commitment that he or his noble Friend Lord Whitty will meet a delegation of small growers from my constituency and from the constituencies of my hon. Friend the Member for Somerton and Frome (Mr. Heath) and other Members in the Chamber tonight, as they would like to present their case directly to Ministers?
  Alun Michael: There has been confusion and misunderstanding, so I am happy to try to clarify the issue with the hon. Gentleman and his hon. Friends, and we can ask others who have more expertise than me to go into the fine detail.
  The underlying themes of our debate were twofold. First, there was a request for subsidies and, secondly, there was concern that perverse incentives could damage biodiversity. I hope that I have shown that the perceived perverse incentive is much less serious than has been suggested. The key feature of the CAP reform settlement is the decoupling of support from production. Existing support for farmers is redirected to encourage them to make the best use of market opportunities. Fruit growing has not benefited from the CAP subsidies that are to be replaced by the single payment. Fruit trees have been planted because there was a market demand for the fruit, not because of subsidies. It is entirely consistent with that philosophy that trees that are no longer needed for commercial production should be grubbed up if there is a more commercial use for the land. In the end, the area used for cider production must reflect the market demand for cider apples and the most commercially appropriate methods of growing them.
  On biodiversity, we must reinforce the point about the lack of incentive to grub up and must counter what has been said. If a grower has been cultivating apples and
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  not claiming on a piece of land, grubbing up will entitle him only to the flat rate element of the single payment, often called the single farm payment. That rate is just over £20 a hectare in the first year, 2005, which is far below both the £340 quoted in the press and media and the £230 area payment, which takes eight years to reach, as the flat rate element in the new payment system builds up through the traditional route. That is without taking into account the cost of grubbing up, and I acknowledge the expenditure mentioned by the hon. Member for Somerton and Frome. The National Farmers Union has put it at about £300 a hectare, although it could be much higher in different circumstances.
  Mr. Heath: I do not want the right hon. Gentleman to mislead himself, as it were, about the perverse incentive. No one in my part of the world believed the incorrect figure that he cited, and they understand perfectly well the rates, the gradual increase and the effective ceiling. What worries them is that that is an important factor in the profitability of their land, and that the capital value of their land is massively reduced if it is not included in the eligibility criteria.
  Alun Michael: A number of complex issues are tied together. One is the possibility of entering into the IACS arrangement—the integrated administration and control scheme—which obtains up to this year. That was inflexible, so there is a change in the arrangements. As I have indicated. there are various other ways in which eligibility can be considered—for example, the issue of trading. There are several complex issues that open a number of doors that are not as closed as has been implied.
  On the key point that the hon. Gentleman made at the start of his contribution, it is important to understand that some orchards—long-established traditional orchards in particular— provide considerable environmental benefits. That is why there is a real incentive to retain them. Those benefits are recognised in the countryside stewardship scheme, which provides payments of about £250 per hectare for maintenance of traditional orchards. That is much higher than the full rate that would be applicable under the new system, and more than the full rate of single payment. Two thirds of the total area of traditional orchards is already protected in this way, through 1,500 agreements, at an annual cost of £600,000. Payment rates for one-off activities such as pruning have been increased by 55 per cent.
  It is open to other growers to come into the stewardship scheme during the annual window. Although the hon. Gentleman is right to say that the window has closed for this year, the window will be there next year, although there will be changes in the scheme, so the opportunity to go into stewardship, which offers much greater rewards than the single payment option, will be available in relation to places where the biodiversity value, which he put at the heart of his comments, is the real issue.
  Andrew George: Does the Minister accept that where the Department is seeking to intervene to put right possible unintended consequences in severely disadvantaged areas—I understand the

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  Department is prepared to do that—notwithstanding country stewardship, there is still the potential for unintended consequences at the end of the transitional period in 2012? Surely the Minister must recognise that he should investigate the possible impact of that and consider revisions to take into account the needs of traditional orchards.
  Alun Michael: I am trying to explain that there can be a perverse incentive—and therefore the grubbing up of orchards—only if those taking such a decision have totally misunderstood the options available to them. I understand the importance of certainty, which the hon. Gentleman is referring to and which the hon. Member for Somerton and Frome mentioned in his speech. It is true that there are CAP reform decisions that are still to be made.
  We cannot realistically expect to reopen the question of permanent crops in the near future. We can, however, take account of the need to protect orchards in planning to implement the single payment scheme. We have been speaking to the National Farmers Union about that. We recognise the need for growers to know what the rules will be, and we will take this into account in the planning announcements—for instance, on the 10-month rule, which determines when land used to support a claim must be at the farmer's disposal. We are also considering the NFU's suggestions about the possible use of the national reserve in certain situations.
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  Finally, we recognise that some old orchards are used for grazing and that this has been taken into account in the existing IACS rules. It would be perverse to create a discrepancy between the current arrangements and the new ones. We are seeking to ensure that the treatment of land under the single payment rules reflects the same considerations.
  We believe that the fears of wholesale orchard grubbing have been exaggerated and would come about only if there was misunderstanding about the options available. We recognise the need for clarity about new rules and are working to resolve the outstanding issues. Countryside stewardship provides an important and successful means of protecting traditional orchards, and we need to consider that as the solution to some of the problems that the hon. Member for Somerton and Frome placed at the heart of his contribution. We should not forget the outstanding achievement that CAP reform represents, moving away from production-related subsidy to production for the market and payment for public good, including biodiversity, the very issue that the hon. Gentleman rightly said was at the heart of the Government's policies, as it was at the heart of his plea in relation to traditional orchards. We recognise, as he does, the contribution that they make to biodiversity.
  Question put and agreed to.
  Adjourned accordingly at half-past Eight o'clock.