Sitting of 7 July 2004

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

  Objective 1 Payments
  Sir Nicholas Winterton: What recent discussions he has had with Her Majesty's Treasury on matching the funds of objective 1 payments.[181912]
  The Secretary of State for Wales (Mr. Peter Hain): I have had regular discussions with the Chancellor and the Chief Secretary on the spending review, including objective 1. In both the 2000 and 2002 spending reviews, extra money was made available to Wales, outside the Barnett formula, to provide public spending cover for the structural funds programmes in Wales.
  Sir Nicholas Winterton: As always, I am warmly grateful to the Secretary of State and Leader of the House for his reply. But can he say whether west Wales and the valleys will receive less European Union structural funding after 2006? Will the United Kingdom Government make up the full difference, or is an EU transitional arrangement expected, with the Government making up the differences?
  Mr. Hain: I am always warmly grateful for the hon. Gentleman's questions, whatever they may be about and whether or not they are about Wales.
  We are still in the process of negotiating the post-2006 position, which is not clear. However, we are determined to secure a very good deal for Wales, and I am confident that that will happen as a result of the negotiations in Brussels by, among others, the Chancellor.
  This has been a fantastic boon for west Wales and the valleys. Economic inactivity levels are down by 25,000 and employment is up by 28,000 in the objective 1 area. Business is growing, growth is improving and public expenditure is going in. The funding has been very good news for Wales: it is a once-in-a-generation boost, of which we are taking advantage.
  Mrs. Betty Williams: I am given to understand that the European programmes in Wales have been allocated over £65 million of additional funds as a result of the European Commission's performance reserve. How much of that will be allocated to objective 1 programmes, and does my right hon. Friend have details readily available as to how much will be allocated to north Wales?
  Mr. Hain: I know that objective 1 funding has been very important in my hon. Friend's part of north-west Wales, and that she has been an energetic advocate of the case. I applaud that. I cannot provide the figures for which she asks, but I shall be happy to write to her.
  What is clear is that the money going to my hon. Friend's constituency and to north-west Wales as a whole has been an enormous boost in an area that—at least during the Conservative years—has traditionally had a very rough time economically. That is a tribute to Labour's negotiating skills, and to our achievements.

  National Assembly for Wales
  Miss Anne McIntosh: What recent discussions he has had with the First Minister of the National Assembly for Wales on the devolution of further powers to the Assembly. [181913]
  Gareth Thomas: If he will make a statement on the Richard commission inquiry into the powers and working of the National Assembly for Wales. [181917]
  The Secretary of State for Wales: The First Minister and I have had regular bilaterals on these matters.
  Miss McIntosh: Is the Secretary of State clear about whether the First Minister thinks there should be a transfer of primary law-making powers or an adjustment to the existing devolution settlement, allowing the Assembly to amend laws passed here? Which is it? The First Minister does not seem to be clear about it in his own mind.
  Mr. Hain: The First Minister has floated a different option, which is being explored. I am discussing it with him, and once it is clear exactly how it will translate into legislative terms—if that is required—there will be an answer to the hon. Lady's question.
  It would be interesting to learn from the hon. Lady, or indeed from the shadow Secretary of State, what Conservative policy is on this. We have been clear about our desire to see progress, but it is not clear where the Conservatives stand.
  Gareth Thomas: May I invite the Secretary of State to be rather more definitive than he has been in the past about which of the Richard commission's recommendations would require a referendum before implementation?
  Mr. Hain: If tax-varying powers were to be adopted on the Scottish model, a referendum would certainly be required. There is no argument about that, and I think

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  Richard conceded it, because the Scots had a referendum. As for whether primary legislative powers relating to functions already devolved would require a referendum, I know that my hon. Friend has advocated that, and that it has been advocated by a majority of Welsh Labour Members and a number of Welsh Labour constituencies. We are currently consulting on it.
  Lembit Öpik: May I ask the Secretary of State to explain Rhodri Morgan's compromise option?
  Mr. Hain: The First Minister is arguing that one could adopt the 13.2 option that the Richard commission advocated—essentially, it involves enhanced secondary legislative powers for the Assembly—in a different configuration. Under the proposal, it is not just prospective or current legislation that would be dealt with; the Assembly would also have powers over retrospective legislation. We are looking at that idea and discussing it in detail.
  Alan Howarth: Will my right hon. Friend explore further ways of improving scrutiny of clauses in primary legislation that confer additional powers on the Assembly, thereby building on the new procedure for scrutiny by combined Committees of the Assembly and of this House, as is currently happening with the draft transport Bill for Wales? Will he consider whether Ministers in the Welsh Assembly Government should be invited to have their proposals for primary legislation examined by Standing Committees of this House, and perhaps through other proceedings in this Chamber?
  Mr. Hain: I shall certainly consider that interesting idea. Of course, pre-legislative scrutiny is an important achievement of this Government that the whole House has welcomed. All recent Welsh Bills, including the current Public Audit (Wales) Bill, were subject to pre-legislative scrutiny and were improved as a result. Perhaps I might take this opportunity to remind everybody—especially the nationalists and the Liberal Democrats, who want to rush ahead with this agenda—how much legislation has gone through in the past year under the existing settlement: nine Bills, containing 163 Welsh clauses. That is a very important achievement that this Labour Government have delivered for the people of Wales under the current devolution settlement.
  Adam Price: The Government's proposed regional assemblies will be granted borrowing powers. The Northern Ireland Executive already have such powers and have raised more than £200 million in the past two years. Does the Secretary of State agree that granting such powers to the National Assembly would be of great benefit to Wales, and that it would be one of the few positive changes that would not split the Welsh Labour party?
  Mr. Hain: The Assembly has a huge budget, which is devolved from Westminster. I should remind the hon. Gentleman, whose party advocates independence for Wales, that if that policy were adopted, Wales would be permanently borrowing from just about every bank in
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  the world, because it would be bankrupt as a result of the Mickey Mouse economics that underpin that policy. In fact, since the nationalists have come out totally, transparently and honestly in favour of independence, their vote has actually fallen by 12 per cent.

  Dee Estuary
  Mr. Ben Chapman: What discussions he has had with the First Secretary regarding the necessity of dredging the Dee estuary. [181914]
  The Parliamentary Under-Secretary of State for Wales: My right hon. Friend and I have regular discussions with Assembly Ministers about issues relating to the application to carry out dredging in the Dee estuary.
  Mr. Chapman: While nobody appreciates more than I do the importance of jobs at Airbus—many of my constituents work there—the Dee estuary is one of the most important and highly protected nature conservation sites in the United Kingdom. Can my hon. Friend assure me that when decisions are taken about dredging, the Government will balance the views of the English and Welsh sides of the estuary, take account of the balance of interests of ecology and of commerce, examine alternatives and check the extent to which dredging is actually necessary for the purpose claimed?
  Mr. Touhig: All alternatives must be fully and properly assessed before any decision can be taken, and the process must robustly meet the current relevant legislative requirements. I have no doubt that that will happen.
  Mr. Martyn Jones (Clwyd, South) (Lab): Is my hon. Friend aware that most of this precious habitat appeared only in the last 50 years and that it would be utterly insane to jeopardise 6,000 top-quality jobs within Wales for the sake of some marsh land that has appeared only recently?
  Mr. Touhig: All those factors will be taken into account as the assessment is made, but I appreciate my hon. Friend's point. British Aerospace employs 6,000 people and it is a crucial player in the economy of northeast Wales—and, indeed, of Wales as a whole. The A380 superjumbo Airbus project will further raise the area's profile and will protect, secure and increase job opportunities in that part of Wales. All those matters must be taken into account before a decision is taken.

  Health Spending
  Mr. Andrew Turner: When he last discussed with his Cabinet and Welsh Assembly colleagues the per capita level of health spending in Wales. [181915]
  The Secretary of State for Wales: I regularly meet the Assembly First Minister and the health service in Wales is one of the topics that we frequently discuss.
  Mr. Turner: As the Secretary of State will know, expenditure per head in Wales is 9 per cent. above that in England, yet there are worse health outcomes in Newport, Monmouthshire than in Newport, Isle of Wight. Is that because the number of administrators has increased by 15 per cent. since 1996?
  Mr. Hain: I do not accept the hon. Gentleman's comparison. In fact, under the Welsh Assembly Government, many more nurses have been recruited. Indeed, there are 4,061 more qualified nurses and 305 more qualified equivalent consultants under Labour, after years of cuts that involved hospital closures, the sacking of nurses and doctors and a decrease in hospital beds under the Conservatives. Wales is moving forward under Labour with increased health investment and more treatment for the patients of Wales.
  Chris Bryant: Is not health spending per head one of the silliest ways of measuring health spending? Should not health spending match health need? In the words of Matthew, one of the children in the House today from Llwyncelyn primary school, "Can we have more money for the hospital in Llwynypia?"
  Mr. Hain: I am sure that the Minister with responsibility for health in Wales will look seriously at Matthew's bid, transmitted through my hon. Friend, but the truth is that, whether in his constituency or across Wales, there has been a massive increase—a near doubling—of the Welsh health budget under Labour after years of Conservative cuts. If the Conservatives won the next general election, the result of their patients passport policy would be an immediate cut of £60 million in the Welsh health budget. That would mean either 2,400 nurses or 660 consultants losing their jobs. What a dreadful policy to inflict on the people of Wales.
  Mr. Bill Wiggin: Despite the extra health spending, does the Secretary of State agree with the First Minister that choice in the NHS is not relevant in Wales?
  Mr. Hain: The real choice for the people of Wales is between Tory cuts, privatisation and charges and Labour investment, resulting in more nurses and doctors, more facilities and more patients being seen. About 250,000 more patients are being seen in Wales under the Labour Government. That is a fantastic record compared with a miserable Tory record.
  Mr. Wiggin: Perhaps the Secretary of State can explain why the number of finished consultancy episodes has decreased by 1 per cent. since 1999.
  Mr. Hain: It is time that the hon. Gentleman asked some sensible questions at Welsh questions—questions with some relevance to the people of Wales. The fact is that, under the Labour Government, we have seen nursing and midwifery places increase by 25 per cent. compared with the Tory policy of cutting them by 25 per cent. We have seen a doubling of investment in the NHS in Wales and, as I have said, waiting times for key procedures coming down. Ten new hospitals have been
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  pledged and some are already open. That is a really good record. Of course there is room for improvement and the policy will be driven forward.
  Mr. Wiggin: If the record is so good, why have waiting lists increased by 82 per cent. since 1999?
  Mr. Hain: The truth is that 250,000 more patients have been seen in Wales under Labour than was the case under the Tories. If we set that against the background of a population of 3 million, that is an extraordinary achievement. It has been built on the back of record investment, and the recruitment of more nurses and doctors compared with the Tory programme of cuts, privatisation and charges. That is what the people of Wales would get if the Tories won the next election.
  Llew Smith: As my right hon. Friend will know, in Blaenau Gwent we have some of the worst health problems in Wales, including heart and respiratory diseases, lung cancer and mental health problems. At the same time, we have difficulty in attracting the appropriate number of doctors to the community. Will he say what is being done to rectify that wrong?
  Mr. Hain: Under this Labour Government, health services in Blaenau Gwent and elsewhere in Wales have improved. My hon. Friend has been a consistent champion for his constituency, which is one of the poorest parts of Wales, and we obviously need even more improvement. That will be achieved in future years, and I hope that he will continue to support it.

  Dentistry
  Mr. Andrew Robathan: What recent discussions he has had with National Assembly for Wales Ministers on funding for dentistry in Wales. [181916]
  Mr. Elfyn Llwyd: What discussions he has had with the First Minister of the National Assembly for Wales on ways of increasing the number of students studying dentistry; and if he will make a statement. [181919]
  The Parliamentary Under-Secretary of State for Wales: I discussed dentistry in Wales with the Assembly Health Minister on 16 June, at one of our regular bilateral meetings.
  Mr. Robathan: Does the Minister remember that the Prime Minister said, in September 1999, that in two years everyone in the UK would be able to have access to an NHS dentist? However, only just over 50 per cent. of the Welsh population are registered with an NHS dentist. How does the Minister square those two facts? When will the people of Wales be able to get an NHS dentist?
  Mr. Touhig: The Welsh dental initiative, a funding scheme to increase access to NHS dentistry, has provided more than 23,000 extra places in the NHS in Wales in the past 12 months. We need no lessons from the Conservatives about the NHS in Wales. When they

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  were in power, they closed 70 hospitals, slashed nursing and midwifery training and cut a third of general acute beds. Eighteen years of under-investment—that is what we are putting right.
  Mr. Llwyd: To be fair, the reality is that the crisis in NHS dentistry in Wales has been going on for about 10 or 12 years. However, this Government have been in power for nearly seven years. Will the Minister consider two very important initiatives? First, it is very important to incentivise students to study dentistry. Secondly. rural practices in particular should be assisted to take on trainees so that they can stay on in due course. Those two important measures could easily be put in place. I urge the Minister to discuss them with the First Minister.
  Mr. Touhig: I am aware of those initiatives, which the hon. Gentleman has raised a number of times in the past. Indeed, the all-Wales work force development steering group has given support in principle to expanding the numbers of undergraduate dental students in Wales. A business case for that expansion has been passed to the Assembly and is under consideration. I am also aware that the hon. Gentleman met my right hon. Friend the Secretary of State, who has taken up the matter with the First Minister. I hope that we will be able to take the agenda forward.
  Mr. Huw Edwards: Will my hon Friend the Minister acknowledge that the Assembly's Health Minister has put £5.3 million into dentistry in Wales? Indeed, a new practice was opened in Brecon road in Abergavenny last November by Dr. Mohamed Gazi. Will my hon. Friend join me in congratulating him, and wishing him every success in providing, under the NHS, the sort of service that local people deserve?
  Mr. Touhig: Indeed, eight new dental practice offering NHS treatment have been opened in Wales. In north Wales, they are at Barmouth, Wrexham and Llanrwst; in mid-Wales, they are at Machynlleth and Crickhowell; and in west Wales, they are at Carmarther and Abergavenny—the area to which my hon. Friend referred—and Merthyr Tydfil.
  Denzil Davies: Is my hon. Friend aware that AXA Insurance and Denplan are the main private providers of dentistry in Britain, with about 30 per cent. of the dentistry market? In Llanelli, the marker share is close to 100 per cent. If the trend continues and is not arrested, does he agree that there will be very little left of NHS dentistry, in Wales or Britain as a whole?
  Mr. Touhig: I take my right hon. Friend's point very seriously, and I am aware that we have discussed it in the past. However, the Welsh dental initiative provides grants of up to £50,000 to practices in designated areas and is aimed at increasing NHS dentistry provision in Wales. Grants of up to £20,000 are available to establis1 new vocational training practices. Working in partnership with colleagues in the Assembly, we an seeking to push the agenda forward but, as I said in reply to the hon. Member for Meirionnydd Nant Conwy (Mr Llwyd), we have a long road to travel to make up for the under-investment of 18 years of Tory Government.

  BBC Wales
  Kevin Brennan: What discussions he has had with ministerial colleagues on the future of BBC Wales in relation to renewal of the BBC charter. [181920]
  The Secretary of State for Wales (Mr. Peter Hain): The charter review is still at an early stage. While I cannot prejudge its outcome, I think that the importance of the national and regional dimensions of the BBC's work is well recognised.
  Kevin Brennan: I know that my right hon. Friend recognises the important contribution of the BBC to the civic and economic welfare of Wales. Was he as concerned as I was when the BBC recently cut the post of nations and regions from its executive committee? Will he ensure in his discussions with colleagues that the role of the nations—[Interruption.]
  Mr. Speaker: Order. The right hon. Member for Manchester, Gorton (Sir Gerald Kaufman) should not walk in front of an hon. Member who is speaking.
  Kevin Brennan: Thank you, Mr. Speaker. Will my right hon. Friend ensure that the role of the nations and regions is robustly included in charter renewal discussions by him and his colleagues?
  Mr. Hain: Like my hon. Friend, I am a little troubled by the fact that although each of the nations is represented by a national governor on the BBC's board of directors, the nations are no longer directly represented on the executive board. I understand that management restructuring may be part of the explanation, but I have raised the matter with the director-general. I agree that BBC Wales has a fantastic record of achievement and excellence and that is one of the reasons why Wales is driving forward the digital television agenda, with my support, and why it is fast establishing a reputation as a centre for creative industries in the multi-media field. I know that that will continue under the present director-general, and I hope that he will be as generous to Wales as the previous one was.
  Mr. Roger Williams: BBC Wales is highly regarded for its public service broadcasting, but S4C is also highly regarded in Wales. What actions has the Secretary of State taken to ensure that it receives adequate funding to continue its excellent programme making?
  Mr. Hain:S4C has had a very good record and is currently in the middle of a review—at its request—of its future in the digital age. I am working closely with the company to ensure that it gets a good deal. I also want to ensure that S4C's Welsh language broadcasting continues to move forward, alongside BBC Wales, which provides much of the programming that S4C puts out. All of it is of a very high standard.

  Performance Data
  Mr. Jon Owen Jones: What discussions he has had with National Assembly for Wales Ministers about the implications for local authorities in Wales of the Freedom of Information Act 2000, concerning the publication of performance data. [181921]
  The Parliamentary Under-Secretary of State for Wales: My right hon. Friend and I have regular discussions with Assembly Ministers on a range of matters. Local authorities in Wales are subject to the requirements of the Freedom of Information Act 2000. However, they are already required to publish information annually on their performance in accordance with an order made by the National Assembly for Wales under the Local Government Act 1999.
  Mr. Jones: But the data that are published are far less full than the performance data that are published in Scotland and in England. Does my hon. Friend agree that a healthy democracy is a well-informed one? Is it not regrettable that the Freedom of Information Act 2000 is needed to extract information so that the public can judge how their local authorities perform?
  Mr. Touhig: My hon. Friend raised that matter directly with the First Minister recently at a meeting that I also attended. It is of course for the Assembly to determine the indicators to be measured by Welsh local authorities, and those indicators take account of the Assembly's priorities for improving the performance of local government in Wales. It is for the Audit Commission to decide how their reports should reflect local authority performance in Wales. I understand that it has done that in consultation with the Assembly and local government.

  Entrepreneurs
  Julie Morgan: What steps he is taking to help entrepreneurs in Wales. [181923]
  The Parliamentary Under-Secretary of State for Wales: Besides creating a stable macro-economic environment to enable entrepreneurs to start up and prosper, the Government and the Assembly, working in partnership, have introduced a wide range of measures to support businesses in Wales, from grants to a free business advisory service.
  Julie Morgan: Is my hon. Friend aware of the success of V and A Marketing, based in Llandaff North in my constituency, in producing an award-winning line of feeding equipment for children in conjunction with Dr. Miriam Stoppard? Is he aware that that company is likely to double its work force and will he join me in congratulating the managing director, Mr. Vic Davies, on his achievements?
  Mr. Touhig: I have been aware of that for the last 10 seconds, but I congratulate the company and wish it well. The entrepreneurship action plan, which is the Assembly's strategy, has contributed to 6,700 business
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  starts in 2003–04, which is an almost 60 per cent. increase over 2001–02. In the 2004 Budget, my right hon. Friend the Chancellor of the Exchequer announced incentives to benefit small and medium-sized enterprises, including improvements to research and development tax credits. All that will benefit entrepreneurs and business in Wales and shows that this Government are on the right track to make Wales into a world-class economy.

  The Prime Minister was asked—

  Engagements
  Mr. Andrew Love: If he will list his official engagements for Wednesday 7 July.
  The Prime Minister: Before I list my engagements, I would like to express our condolences on behalf of the Government and the House following the death of the Austrian President, Thomas Klestil. He will be sadly missed, and our thoughts are with his family at this time.
  This morning, I had meetings with ministerial colleagues and others. In addition to my duties in the House, I will have further such meetings later today.
  Mr. Love: Will my right hon. Friend join me in welcoming the proposal for a city academy in my local area? Will he support that application in the Department for Education and Skills? When he publishes his education plans shortly, as well as expanding the academy programme, will he guarantee that there will be no tax concessions for those who wish to take their children out of the state system?
  The Prime Minister: First, I am delighted about the proposal for a city academy in my hon. Friend's constituency. I know that he is working, as we are, with the local authority to ensure that that happens and that it will be a great advance for education in his area. I can assure him that we will carry on with the record investment in education in this country. I want to make it clear on behalf of the Government that there will be no return to the 11-plus and selection. There will be no subsidy to private schools. Instead, there will be an education system providing excellence not for a privileged few, but for all.
  Mr. Michael Howard: There are 21,000 state schools in Britain. Two years ago the Government launched a flagship policy, which they called the power to innovate, to give schools freedoms over the way that they manage themselves. How many schools have been granted freedom under that initiative?
  The Prime Minister: I do not know the precise number that have been granted freedom, but what I do know is that, under this Government, all schools have got greater freedom and independence than they had before; that is absolutely right. But let me make it clear to the

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  right hon. and learned Gentleman that, alongside the extra investment that we are putting in, what we will not grant is the freedom that he wants, which is the freedom to give a subsidy to those who send their children to private schools.
  Mr. Howard: I thought that the Prime Minister was in favour of a choice of providers. That is what he said just a short time ago, and that is what we would give parents, but he did not answer the question that I put to him, which was about a specific policy—the power to innovate. The answer is that, out of 21,000 schools, just four have been granted those freedoms.
  Now, let us look at another of the Prime Minister's initiatives. The Government have boasted that they have provided the opportunity for the most successful schools to expand. How many schools are expanding under that initiative?
  The Prime Minister: Actually, many schools in the country are expanding their numbers, because we have given them a power to expand. However, it is absolutely right that, at the same time, we will not allow a situation to develop where schools are cut adrift and where failing schools are not given the help that they need to succeed.
  If I may just go back to the point that the right hon. and learned Gentleman made about choice in education—[Interruption.] Oh yes—choice in education depends on raising standards in schools, does it not? Let me just remind him that, when we came to power, there were 450 failing schools in this country. Today, the number is less than half of that. The results at primary schools are up. The results at GCSE are up. The results at A-level are up. All because of an investment in a reform programme that he opposed.
  Mr. Howard: And one in three children who leave primary school in our country still cannot read, write and count properly.
  Now, the Prime Minister has not answered the question that I just put to him. It was a very specific question on one of his specific policies. He really must do better and try to answer the questions. He is not setting a very good example to the children in our schools. The answer is that, under that initiative, just four schools are benefiting.
  Now, let us look at another of his initiatives. Two years ago, he launched another flagship policy, which he called earned autonomy, and which the Secretary of State for Education and Skills promised to promote energetically. How many schools have benefited from that initiative?
  The Prime Minister: All 2,000 of the specialist schools in the country are indeed getting more autonomy, as are foundation and voluntary-aided schools. Since we are debating statistics and who is in need of remedial treatment, the right hon. and learned Gentleman said that a third of children left school at 11 without the requisite standards in literacy and numeracy, but I think that he could go on a literacy and numeracy course, because actually 75 per cent. of children are now up to the standard in English with 73 per cent. in maths. What were the figures when he left office? The cheek of the Conservatives is that they are going round the country
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  saying, "Isn't it a scandal that we still have 11-year-olds leaving school without the best results they could get?" Yes, it is, but it is a scandal that we are putting right—measures he opposed. Of all the extra investment going into our education system, he opposed every single penny piece.
  Yes, thankfully, results are going up under this Government, but that contrasts with another record—let me read it to the House. [HON. MEMBERS: "No."] Yes. In 1997, teacher numbers had fallen by 36,000, funding per pupil had been cut, barely half of all 11-year-olds were up to the standard in reading, writing and maths and fewer than half of all children got the right GCSEs. That is the difference between a Tory record and Labour achievement.
  Mr. Howard: The Prime Minister has just admitted that the state of our education is a scandal, but he has been in office for seven years. He has not answered a single one of the questions that I have put to him today. The answer to the last question that I asked about his earned autonomy initiative was that not a single school has been granted earned autonomy—not one! Not a single school has been allowed the freedom that the Prime Minister promised the country at the last election. When parents hear him talking today about school freedom, expanding popular schools and giving parents more choice, all of which we have long called for and supported, will they not recognise that we must judge the Prime Minister not by what he says, but by what he does, and that what he does is never what he says?
  The Prime Minister: First, let me repeat that all the specialist schools have greater autonomy and freedom, which I pointed out to the right hon. and learned Gentleman a short time ago. Since we are talking about scandals in the education system, yes, I think that every single child who is deprived of a decent education in this country represents a loss and social injustice to that child and the country. Let us look at what we have achieved. In seven years, the number of failing schools has halved and the number of state schools getting over 70 per cent. good GCSEs has doubled. The city academies are a great innovation in our system, as are the specialist schools. We have put up the results in primary schools, at GCSE and for A-levels.
  All that has happened, but it is true that we need to do far more. The way to do that is to carry on putting money into, and changing, our public services. The truth is that the right hon. and learned Gentleman wants to give people a subsidy to go out of the public services. Let me make the situation clear, since we are again having the debate that I hope we will carry on having from now until election day. The difference is between extra investment in the public services by this side, and cuts in public investment by that side. The difference is excellence for all, not a return to selection. It is no tolerance of failure, as opposed to his policies, which would cut our children adrift. Let us carry on having this debate.
  Tom Levitt: My right hon. Friend might be aware of reports in today's press showing that the constituency with the fastest growing rise in affluence in the country is the High Peak of Derbyshire. That clearly has a lot to do with Labour's management

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  of the economy and also high-quality local representation. Does he agree that the people who have gained most from an increased quality and standard of living are the pensioners who are receiving pension credit and the 9,000 families in High Peak who are now benefiting from child tax credit?
  The Prime Minister: It is important that we are giving special help to those who need it most through the working families tax credit, through the pensioner credits and through the other things that we have done for pensioners over the past few years, which amount to many billions of pounds a year.
  The other point that my hon. Friend makes is also right. Over the past seven years, we have seen 2 million extra jobs, dramatic falls in unemployment and the longest period of stability that the country has enjoyed in economic policy for many years. Contrast that with just 10 or 15 years ago, when constituencies such as that of my hon. Friend were often facing interest rates of 10 per cent. or even 15 per cent. We had 3 million people unemployed when the right hon. and learned Member for Folkestone and Hythe (Mr. Howard) was sitting in the Cabinet, and an economy that went from boom to bust. [HON. MEMBERS: Hooray!] I am delighted to return to that theme. That is precisely why we will continue with the policies of economic stability, low unemployment and investment in our services.
  Mr. Charles Kennedy: What guarantees can the Prime Minister give us that his education plans will not result in a two-tier state system, with chosen schools getting the lion's share of the money and the rest being left behind?
  The Prime Minister: I can give the right hon. Gentleman the guarantee that we will ensure that there is not a return to selection, which will end with schools choosing parents rather than parents choosing schools. That is why we reject the policy of the Conservative party. We will also ensure that we carry on giving investment to all our schools. The vast bulk of the investment that we have put into our education system has gone on a fair basis to all the schools in the country, and most of it has gone, to, for example, excellence in cities programmes, to some of the most disadvantaged schools in our community.
  I do not accept that we do not have a two-tier system now. Unfortunately, we have a many-tiered system. We must improve the quality of all our schools.
  Mr. Kennedy: Following on from that, is the Prime Minister guaranteeing that he will run a common admissions system for all state-funded schools? If he does not, he will get into exactly the difficulty to which he has just been referring. Surely he will acknowledge that people want high-quality local state schools. They do not want a Labour Government trying to outbid the Tories when it comes to selection.
  The Prime Minister: We already have specialist schools. In the secondary education system, more than half of the schools are specialist schools. I do not know whether Liberal Democrats are still opposed to specialist schools. Are they?
  Mr. Phil Willis: We have never been opposed.
  The Prime Minister: Never been opposed. I think that we will check that one out.
  The rules on selection are exactly the same as those for specialist schools, and they have not led to anything like that which the right hon. Member for Ross, Skye and Inverness, West (Mr. Kennedy) is talking about. We are making sure that where schools are failing, we intervene and we help them. That is why we introduced specialist schools and excellence in cities. The city academies that the right hon. Gentleman now appears to be opposing—[Interruption.] Am I right in that? So the right hon. Gentleman is not opposed to specialist schools, he is not opposed to city academies and he does not want to return to selection. I think that he should cross the Floor.
  Mr. Hilton DawsonThis Government are leading the world—[Interruption.] It happens to be true. They are leading the world in their response to the desperate humanitarian situation in Darfur in the west of Sudan. Having, along with other members of the all-party group on Sudan, witnessed the shocking plight of hundreds of thousands of people who are facing disease and death over the next few months as the rains come, I ask my right hon. Friend whether the Government will do even more, whether they will encourage other European Governments to do much more, and whether they will join in a united appeal throughout the nation to top up the support that individual people from across the United Kingdom can contribute to relieve the suffering of those who are in the most desperate and appalling plight imaginable.
  The Prime Minister: We will do everything that we possibly can in respect of Sudan and the situation there. The United States and the UK are leading the aid effort in Sudan. I spoke to Kofi Annan yesterday to develop the right strategy. Colin Powell, as my hon. Friend will know, has been in Sudan. My right hon. Friend the Secretary of State for International Development has visited the country. The food is there now but we need to be able to get it through to people. We also need to be able to control the activities of the militias there. We have a set of plans and proposals for both, but I want to make it quite clear that we expect the Government of Sudan to co-operate and, if they do not do so, we will have to consider what further measures to take. It is not acceptable, however, if the aid is there that it does not get through to the displaced people.
  Angus Robertson: Despite global instability and military overstretch, Treasury bean counters are undermining Scottish regiments. Defence Ministers are acting like fearties, and the Labour First Minister Jack McConnell will not even stand up for Scottish service personnel, their families or veterans. Will the Prime Minister give the House an assurance that not one Scottish regiment will be amalgamated or disbanded?
  The Prime Minister: First, the hon. Gentleman will have to await the outcome of the spending review, and any proposals for our military based on it will be set out in future. However, we have increased defence spending in real terms, and we take immense pride in our armed forces, in Scotland as elsewhere in the UK. I regard it as a bit of cheek for the Scottish National party to complain about the state of the British military.
  Mr. Robert N. Wareing: Does my right hon. Friend still believe that there are weapons of mass destruction in Iraq?
  The Prime Minister: I told the Liaison Committee yesterday that, although I was confident that those weapons existed last year, I have to accept that they have not been found. However, let me tell my hon. Friend that there is clearly no doubt at all that Saddam Hussein had weapons of mass destruction, and I suppose that he would accept that. It is the case that he used them against his own people, but it is also true that we have not found weapons of mass destruction in Iraq, although we have found plenty of evidence of intention, capability and intent. I simply say to my hon. Friend that it is sensible to wait for the outcome of the work of the Iraq survey group, but I certainly do not accept in any shape or form that Iraq was not a threat to the region and the wider world. I repeat again what I have said on many occasions: I believe that the world and this country are safer without Saddam Hussein in power.
  Mr. Michael Howard: Does the Prime Minister agree that someone who backs child suicide bombings and is banned from the United States because of his alleged terrorist links should not be allowed into this country?
  The Prime Minister: I assume that the right hon. and learned Gentleman is referring to the situation reported in the newspapers overnight and today concerning a particular cleric. My right hon. Friend the Home Secretary has already indicated that we will keep this under strict review. There are rules that must be applied, and they will be applied to this particular individual. I do not want to comment at the moment on his case—that is a decision that my right hon. Friend must make, and he will make it according to the criteria that have been set out. Let me make it clear, however, that we want nothing to do with people who support suicide bombers, whether in Palestine or elsewhere, or terrorists. My right hon. Friend must make his decisions according to the relevant criteria, and he will do so. I will not comment further on the case.
  Mr. Howard: But why has the decision not already been taken? When I was Home Secretary—[Interruption.] Oh yes, crime went down—[Interruption.]
  Mr. Speaker: Order.
  Mr. Howard: When I was Home Secretary, I used my powers to ban people whose presence here was not conducive to the public good. I banned them. Why does not the present Home Secretary do the same?
  The Prime Minister: It is not a party political issue, for goodness' sake. We are totally opposed, as is everyone, to people coming to this country and using their visit as a platform to express views in support of terrorism or extremism of any sort. My right hon. Friend the Home Secretary—the right hon. and learned Gentleman should know this from his time as Home Secretary—must consider the issue and apply certain criteria. He will do so and make the decision accordingly. We have to be sure, however, that if someone is excluded from this country, that is done in a lawful way. That is my right hon. Friend's job, and he will carry it out.
  Mr. Piara S. Khabra: President Bush vowed to capture Osama bin Laden, dead or alive. In view of the latest tape recordings apparently made by bin Laden, what progress have the armed forces made in their search of the border regions of Pakistan and Afghanistan?
  The Prime Minister: Along with the Pakistani authorities, we continue to search for bin Laden, and there has been nothing to report since the last time I spoke about the matter. My hon. Friend knows that that border region is extensive, and it will take some time until we are sure that we are on bin Laden's track.
  Andrew Selous: Lord Steel, who introduced the Abortion Act 1967, now says that the limit on abortions performed for social reasons should be halved to 12 weeks. What does the Prime Minister think?
  The Prime Minister: That is a matter of free vote and conscience on both sides of the House. I have not had an opportunity to study the evidence in detail, but if the situation has changed, it would be advisable to reexamine the question. Certain criteria set out when abortions are lawful, and if the scientific evidence has shifted, it would be sensible to take that into account. I have not had an opportunity to study the evidence in detail, but I am sure that the Government will study it, and if we have proposals to put before the House, we will put them.
  Keith Vaz: The Prime Minister will recognise that pockets of antisocial behaviour still exist, even in the great city of Leicester—I am not referring to the visits over the past few days by so many hon. Members, who behaved quite well. Does the Prime Minister propose to introduce new legislation to toughen up the law on antisocial behaviour, which will help many of our constituents who face that menace, and does he expect to receive cross-party support?
  The Prime Minister: I hope that there is cross-party support on the issue, and it would be good to receive cross-party support. It would be good to think that all parties in this House had combined in order to defeat the menace of antisocial behaviour, but I must say that the Liberal Democrats have disappointed us up to now. I hope that the Liberal Democrats are honest enough to own up to their policies: they opposed closing down crack houses in 48 hours, they opposed fixed penalty notices for antisocial behaviour, they opposed the

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  speeding up of the process to evict noisy neighbours and they opposed fines for the parents of truants. We are working on the better education of the Liberal Democrats, but as my hon. Friend knows, it is a hard task.
  Mr. Simon Thomas: If the Government get their way, at the end of this Parliament it will be illegal to swat a pet insect, but it will still be legal to swat a child. How can the Prime Minister justify that approach to the most vulnerable in our society?
  The Prime Minister: I am still working out the point about the insect. Above all else, people should apply a modicum of common sense—I know that that is an alien concept to the hon. Gentleman and his party. To be frank, I think that most people know the difference between abusing a child and administering parental discipline in a sensible way, and I do not believe that we cannot find a common-sense way through the issue. Most people in the country think that there are serious issues to discuss in relation to the abuse of children, and yes, we must make sure that the law is in a proper state, but in this instance, more than any other, the law would benefit from the application of a lot of common sense.
  Vera Baird: Does my right hon. Friend welcome this week's Supreme Court ruling that US courts have jurisdiction over the detainees in Guantanamo bay, which at least makes the situation clear? That means that the US courts, and not the President, would set the rules by which the detainees could be tried in the States, and those rules would be fair. Is it my right hon. Friend's preference that the British detainees should be tried over there, or does he still intend that they will return to British courts?
  The Prime Minister: Our position remains the same: if the Attorney-General is not satisfied that the rules applying to the trials of the detainees at Guantanamo are consistent with the standards that we expect, we need the detainees to return here. That is not the issue at the moment; the issue is making sure that if the remaining detainees—five are back already, but four are still there—are returned to this country, we have proper mechanisms in place, so that we are sure of our own security and can protect our own security, which is also an obligation of Government.
  Mr. Christopher Chope: What have the Government got against the 4.4 million people in this country who are aged over 75? Why are they specifically excluded from the NHS improvement plan target relating to reducing deaths from cancer, heart disease and stroke?
  The Prime Minister: I think that the position of the hon. Gentleman's party is to get rid of all targets in the national health service, so I assume he is saying that there should be no targets for anyone, not that we should extend them to people over 75. I am delighted that he raises the issue, however, because as a result of this Government's measures cancer deaths among people over 75 are down by 10 per cent. and heart deaths are down by 20 per cent. We have nothing against
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  people over 75—in the contrary, we have introduced special help for those over 75 who are in poverty, and free TV licences for all. That is more than the Tories ever did for them.
  Mr. Keith Bradley: In the light of the recent research on the census by the university of Sheffield, which shows that there is continuing inequality in health between the north and the south, will the Prime Minister have a word with the Secretary of State for Health with a view to returning to Manchester the millions of pounds that were stolen from its health services as a result of the appalling failure of the Office for National Statistics during the census to count the thousands of extra people who live in the city of Manchester?
  The Prime Minister: Apparently—because it says so here—my hon. Friend will be pleased to hear that the report of the findings on reviewing the population estimate for Manchester will be published tomorrow. I hope that that means he will be pleased with the findings as well as with their publication. I know that he and other hon. Members from Manchester have raised this issue before; obviously, the Office for National Statistics must undertake to consider it.
  I am sure that my hon. Friend will accept, however, that whatever his concerns about the impact of the census estimates, we still put a major amount of additional investment into Manchester. As a result, as I recently saw for myself on a visit to Manchester, there is an enormous amount of new hospital building and equipment, as well as extra nurses and doctors. I hope that my hon. Friend will be at least partly, if not wholly, satisfied with what he hears tomorrow.
  Mr. Jonathan Sayeed: Does the Prime Minister believe that Senator Kerry would make a good President of the United States?
  The Prime Minister: I believe that just as the choice for the British people is a choice that they make, the choice for the American people is a choice that they make.
  Ms Karen Buck: This week, Dame Shirley Porter handed over £12 million of the £40 million that she owes for her part in the illegal Conservative homes for votes policy. Will my right hon. Friend join me in congratulating Labour councillors, including Labour leader Councillor Paul Dimoldenberg, and others on their part in exposing and pursuing the scandal over the past 15 years? Does my right hon. Friend understand that most people believe that Shirley Porter is indeed nothing like a dame, and that steps should be taken to remove from her the title of which she has proved so unworthy?
  The Prime Minister: It says here:
  "The Government has no powers to intervene in or judge the settlement that Westminster City Council has reached with Dame Shirley."
  So there it is. I think that I had better leave it to my hon. Friend to make any other comments.
  Mr. David Cameron: Is the Prime Minister aware that the Government's policy of inclusion is being prayed in aid by educationists and health authorities in order to close special schools? Does he understand that many parents with severely disabled children—I speak as one of them—feel that the only place outside home where their children will get the care, therapy and chance to blossom that they need is in a special school? Will the Prime Minister ask the Education Secretary to consider that; and will he ensure that common sense prevails and these schools are kept open?
  The Prime Minister: I agree that some children's needs are obviously best met in special schools. Certainly, the purpose of any policy of inclusion is neither to abolish special schools nor to take children out of an appropriate environment: it is to ensure that if those children are able to be in mainstream schooling, they can be. Of course, I agree that that should not lead to a situation whereby children for whom it is not appropriate to be in mainstream schooling lose the possibility of a special school. I am perfectly happy to
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  ask the Secretary of State for Education and Skills to respond to the hon. Gentleman directly on the points that he raises.
  Gareth Thomas: How important is our membership of the European Union to British jobs and overseas investment in the United Kingdom? What would the Tory policy of getting out mean—[Interruption.]
  Mr. Speaker: Order. Just the first part of the question.
  The Prime Minister: First, my hon. Friend the Member for Clwyd, West (Gareth Thomas) knows that it is good news that foreign investment is still coming into the country. Much of that is specifically geared to our membership of the European Union and to the activities of companies in Europe. Any proposal that Britain marginalise itself in decision making in Europe or withdraw from the European Union would be disastrous for jobs, industry and investment in this country.

Domestic Tradable Quotas (Carbon Emissions)
12.30 pm
Mr. Colin Challen: I beg to move,
That leave be given to bring in a Bill to introduce a domestic trading scheme for carbon emissions; to set a national ceiling for carbon emissions; and for connected purposes.
The principle that underpins domestic tradable quotas—DTQs—has—been largely accepted internationally and nationally. Everyone who has taken a keen interest in combating climate change will be aware of the principles of emissions trading.
Many know that the United Kingdom has been a leader in such matters, that we have already established a limited emissions trading scheme and that it is augmented by similar action at European level, as well as by our national allocation plan, which is due to be operational next year. Emissions trading schemes generally work partly on the principle of what is known as contraction and convergence—we set a target to reduce or contract our emissions each year, and eventually our emissions are no greater than anybody else's. The concept of convergence means that we have a right to use only our fair share of carbon-emitting resources.
The Bill would extend those principles to the domestic market—that is, to members of the population at large. To date, the vast majority of schemes that any Government have introduced to address the terrible and overriding problem of global warming have relied on getting industry or organisations to adjust their ways. For individual citizens, there has been little more than encouragement, piecemeal energy efficiency grants or other forms of cajoling designed to inspire voluntary activity. However, that does not go far enough, fast enough.
There are too many opposite influences, which seem counter-intuitive to the ordinary consumer when it comes to doing something about global warming. The first of those influences is, frankly, cheap energy prices. The market has successfully driven down the price of energy in the past few years. At times, it has seemed as though that has been the energy regulator's only policy. Consequently, many people have come to believe that their energy is and always will be cheap. That means that any major investment, either in the grid, in combined heat and power or in renewables is perceived as some sort of imposition, which if pressed with any sense of urgency will lead to unacceptably high energy bills.
That is the worst form of short-termism, the implication being that, provided that the other costs of climate change do not hit us too hard—as happened, for example, with higher insurance premiums—we can dither on as before without worrying too much about the day after tomorrow, to coin a phrase. There is also an all-pervasive influence on the way in which individuals react to questions such as those posed in recent years by the Department for Environment, Food and Rural Affairs, namely, "Are you doing your bit for the environment? Are you turning off your light switches, TV and computer stand-bys? Are you recycling, composting and so on?"
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The trouble is that when somebody who does all those things discovers that most people are not doing their bit—as indeed most people are not—it is incredibly depressing. People end up feeling that their little bit will not make the slightest jot of difference to the environment. Getting people—all 60 million of us—to act collectively is never easy, and it is even less easy, I acknowledge, when we feel it will cost us more, especially if a privileged few are seen to benefit.
Increased fuel duties have had a disproportionate impact on the worse off, as better-off people will always be able to afford higher petrol costs or electricity bills. In what we do to protect the environment, we should always seek to avoid giving an apparent benefit to one group as opposed to another just because they can afford it. So I am not keen on carbon taxation, which would have precisely that effect. The environment is something that we all share and enjoy, and Government policy should ensure that today's generations have equal opportunities to do so fairly and with respect to future generations.
The Bill stems from an idea that has been worked on by the Tyndall centre for climate change research, and I would like to pay homage especially to the work of Dr. Kevin Anderson and Dr. Richard Starkey on this subject. They are part of a group of people who are exploring ideas and methods for tackling climate change and seeking solutions through changing the way we run things, rather than simply pursuing the technological route—although the two are, of course, not mutually exclusive, and indeed in this case are highly complementary.
Domestic tradable quotas would extend the principle of emissions trading to individual citizens. All of us would be issued with our own equal share of the national carbon emissions cake. In the early years of the scheme, the allocation for most of us would be more than we required. For others it would be less. Between the two, a market in surplus carbon units would be established. The market would determine the price, and those who used less energy would obviously stand to make a gain. Carbon units would expire as the consumer used energy, so their opening allocation would reduce as they went along. Energy utilities would automatically deduct units from the individual's carbon allocation account each time they calculated a consumer's invoice.
Consumers would also have a transaction card—a smart card—that they could, for example, present at petrol stations, just as they now present their reward points cards to get air miles, free cutlery, the collected works of Elvis, or whatever. The technology needed to support the carbon emissions market is no longer a barrier. Those already familiar with reward cards would have no difficulty with this scheme, and the reward in this case would be incalculable. The technology for issuing these smart transaction cards could be combined with that used for another card currently under consideration by the Government, which could make that card even more popular than I think it will be.
In these 10 minutes it would be impossible to address all the detailed issues that arise from the Bill, and I would not deny that more work is needed on it. But as the realisation continues to sink in that global warming is no longer just a threat but a dangerous reality, we will certainly have to extend our response to it beyond the merely voluntary. To do that, we must have a scheme

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that is equitable, fair and efficient. This is not rocket science; it is common sense. More people will do their bit for the environment if they know that it will make a difference, and understand that by the strength of our common endeavour we achieve more than we achieve alone.
I am not suggesting that we print those words—fine though they are—on the back of our smart cards, but when our Prime Minister takes the chair of the G8 summit next year, and indeed the presidency of the European Union, it would be the most serious challenge imaginable to his fellow leaders if he were able to say that the 60 million citizens of the UK were doing their bit for the environment, because that commitment alone would demonstrate that we had understood our uncompromising responsibility to face this challenge urgently and equally. In commending the Bill to the House, I urge hon. Members to take a look at the Tyndall centre's website, where they will find recent material explaining more fully how domestic tradable quotas might work.
Question put and agreed to.
Bill ordered to be brought in by Mr. Colin Challen, Mr. Peter Ainsworth, Mr. David Chaytor, Ms Joan Walley, Mr. Tony McWalter, Brian White, Mr. John Battle, Mr. Andrew Stunell, Mr. Simon Thomas, Sue Doughty and Mr. Gordon Prentice.

DOMESTIC TRADABLE QUOTAS (CARBON EMISSIONS)
Mr. Colin Challenaccordingly presented a Bill to introduce a domestic trading scheme for carbon emissions; to set a national ceiling for carbon emissions; and for connected purposes: And the same was read the First time; and ordered to be read a Second time on Friday 15 October, and to be printed [Bill 136].
Sue Doughty: On a point of order, Mr. Speaker. This is not the first time that when a ten-minute Bill has been introduced, the Minister from the relevant Department has not been on the Treasury Bench to hear what was said—[Interruption.] The Minister was not present at the commencement of the speech by the hon. Member for Morley and Rothwell (Mr. Challen), and did not arrive for three minutes, by which time a substantial part of the speech had been missed. Can we ensure that Ministers hear the full speech on a ten-minute Bill, so that they can take account of the content?
Mr. Speaker: When I was in industry, the first three minutes were not counted: you were considered a good timekeeper, and the Minister is a good timekeeper.

Orders of the Day

  Finance Bill
  [2ND ALLOTTED DAY]
  As amended in the Committee and in the Standing Committee, further considered.

Clause 5

  RATES
  12.40 pm
  Mr. Andrew Tyrie: I beg to move amendment No. 16, in page 4, line 24, at beginning insert
  'Subject to the provisions of subsection (7).'.
  Mr. Speaker: With this it will be convenient to discuss amendment No. 17, in page 4, line 24, at end insert—
  '(7) On any occasion when the average closing spot price of Brent crude oil has been at or above 37.84 US dollars per barrel for a period of fourteen days, the Chancellor of the Exchequer shall make regulations suspending the operation of subsections (1)(a) and (1)(c) of this section.
  (8) In this section
  "Brent crude oil" means oil from the Brent oilfield in the North Sea; and
  "average closing spot price" means the mean of the closing spot prices for Brent crude oil quoted on the International Petroleum Exchange on each day on which that exchange is open for trading within the period of fourteen days.'.
  Mr. Tyrie: The purpose of the amendment is to make sure that the Government implement their stated policy. The Prime Minister, the Chancellor and the Economic Secretary, who is with us today, have all promised that if oil prices remain high, they will remove in August their planned increase of tuppence—the increase they intend to put through, and have announced in the Budget they will put through, in September.
  Unfortunately, instead of giving a clear statement in the House, or even an unambiguous press release, this review has been announced through some unattributable press briefings, whose status it is difficult to know. It is not difficult to work out what headlines the Government wanted, which is what they got. I have some here: for example, "Brown confirms plan to scrap rise in fuel duty", and, in The Daily Telegraph, "Brown plans to abandon fuel duty increase".
  Our amendment would force the Government to deliver on the promises that they have made to the public. It will work in this way: if the average closing spot price of Brent crude, the leading benchmark, rises back to the price at the time that the Government did their press briefings, the duty hike will be suspended. On 3 June, the day of those briefings, the closing spot price was $37¾, as indicated in the amendment. Under the amendment, the oil price will have to remain high for a period of two weeks before it triggers the suspension of the duty rise; a blip for a day or two will not be sufficient. Incidentally, today's price is less than $1 away from the price at the time of that announcement; we are back in the danger zone for oil prices and duty hikes again.

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  The Economic Secretary may have some technical objection to my amendment. I have no doubt that he will have been heavily briefed on such things, but I should be grateful if he would address the principle. If oil prices return to the levels at which they stood when the Chancellor authorised those friendly noises for road users, will the Government suspend the duty hike? If the Economic Secretary cannot say yes, all those press briefings and reassurances that road users have heard will begin to look a bit hollow. People will be forgiven for thinking that they are just another ploy to acquire a few weeks' respite while prices were high.
  We know the level of fuel prices that is needed to trigger friendly noises from the Government. What we really want to know is what increases are needed to trigger action. At the time of the Budget, the Brent crude spot price was over $34 a barrel. At the time of the press briefings, it was just over $37½. That tells us that when the Government set the rates, at the time of the Budget, they already knew that the price was at the very edge of what was tolerable. They knew that a mere 10 per cent. rise would be too much—hence their press briefings.
  From the Government's response to the amendment, we will find out whether they really meant what they briefed or whether it was another case of media spin. We have had quite a bit of that. The Prime Minister has done the rounds, saying on several occasions that he sympathises with road users. Road users do not need sympathy from the Prime Minister. We would rather have firm commitments, which is what we would get from our amendment. If the Government will not accept it, the public will see that they are saying no to their own promises.
  It is worth reflecting for a moment on how we got where we are. How did the Government get themselves into a position where a mere 10 per cent. rise in the oil price after a Budget can lead them to start briefing the press that they will reverse their policy of an increase in September? The short answer is that they are scared stiff of a repetition of the fuel protests that we saw during the last Parliament. The reason there might be protests is that petrol and diesel prices are already higher in Britain than in almost any other country. We have those levels because the Government took the price there. Under the Labour Government over the past seven years petrol prices at the pumps have risen from about 60p to 80p. Two thirds of that increase has been tax going to the Government.
  The longer answer is that, in taking any decision, the Government are susceptible to opinion polls. I have no doubt that they have been doing their own private polling, which was subsequently supported by an ICM poll shortly after the Chancellor's press briefings. The Sunday Telegraph reported:
  "An ICM poll for The Telegraph reveals a high level of support for demonstrations similar to those that brought chaos to Britain four years ago. It also shows widespread public anger at plans by Gordon Brown, the Chancellor"
  to add 2p to the duty on a litre of petrol in September.
  It is clear that the Government were getting signals like that from their focus groups and private polling. That is the reason for their announcement in June.
  Mr. Alex Salmond: As I recall, there was some confusion a few weeks ago about whether the Leader of the Opposition supported such protests. Can the hon. Gentleman clarify the position of the Leader of the Opposition, as he was not able to do so?
  12.45 pm
  Mr. Tyrie: It is for the Government to decide what they intend to do about fuel duty, rather than for the Opposition to decide what they intend to do about fuel protests. I take the hon. Gentleman's point. By implication, he is just as concerned and upset as I am about the scale of the fuel price hikes.
  The Economic Secretary and the Government have embarked on a substantial campaign to convince us that the price hikes are something to do with world oil prices, not anything to do with the rise in fuel duty. He said in Westminster Hall that high petrol and diesel prices are
  "a problem of world fuel prices, not UK fuel duty."
  That is clearly not true. The key cost to the motorist is the taxman, not OPEC. As the AA pointed out,
  "What Gordon Brown does is more important than what the world price does."
  What the Economic Secretary should have said is that high petrol prices at the pumps are a problem of UK fuel duty, not world fuel prices. That would have been a much more accurate statement.
  The Economic Secretary may say he needs the money. That is what he should say about the hikes. He came close to it in Westminster Hall when he said, rather revealingly:
  "It is important…that we have the strength to get the balance right between a fair deal for the motorist and the haulier"
  and
  "the stability of public finances."—[Official Report, Westminster Hall, 8 June 2004; Vol. 422, c. 29-30WH.]
  The public finances are no longer stable. The Chancellor is faced with a rise in borrowing, even though the economy is doing well. Tax revenues are short, which they should not be in an upswing. Raising money from motorists and road hauliers is one way of filling that hole, which is a hole of the Chancellor's making. He cannot easily afford to make concessions on petrol prices, but in what may become an election year, he cannot afford another fuel protest either. I fear that that is why we have had all those press briefings.
  All the same, the Minister can reassure us, as I hope he will. He can accept the amendment or table one of his own that will have a similar intended effect. He can back the promises of his own boss with a statutory requirement, and he can give the motorist and the road hauliers a little more certainty in the months ahead, at least for the second half of this year. I very much hope that he feels able to do so.
  Mr. Alex Salmond: I am rather sympathetic to the idea of trying to establish a link between the world oil price and uncertainty within it, and the tax position in relation to fuel; but I am not convinced that the amendment is the best way of doing that. In what purports to be a substantive amendment, the proposal that, on the basis of the date of a supposed spin or leak from the Chancellor or the Prime Minister,

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  a device should kick in in response to a set international price of oil strikes me as rather on the light side. Front Benchers nod. Indeed, like crude oil, the amendment is extremely light.
  I do not think that the argument behind the amendment has been advanced very powerfully, so I shall take the opportunity to advance it now. In fact, the argument in favour of such a link emanates from the Chancellor himself. As I recall, he delayed the duty increase until September as a result of instability in world oil markets. Presumably he is now considering carefully whether they are stable or unstable; any such consideration is, I think, likely to result in the conclusion that they are unstable, and subject to a variety of events. The Government's intervention in Iraq seems to have made things no better in that regard. According to the Chancellor's own logic, there is clearly a case for a review or assessment of the fuel increase that was due in September.
  Another option would be to base the world oil price not on the date of leaks from the Government, but on the forecast in the Red Book, which, if I remember correctly, was $27.5 a barrel. The price has clearly exceeded that for some time. As the projection in the Red Book has been overtaken by events, I hope that Ministers will give us the latest projection for corporation tax and North sea revenues for the current financial year.
  Mr. Tyrie: I am perplexed by the figure of $27.5. I should be grateful for sight of the SNP's heavier amendment; I should also like to know which marker crude the hon. Gentleman is referring to.
  Mr. Salmond: I am speaking from memory, but I thought that $27.5 for Brent crude was the assumed price underlying the Treasury projection of oil revenues amounting to £3.6 billion in this financial year. Conservative Front Benchers shake their heads. I hope that Ministers can clarify the matter, but my recollection is that $27.5 was the underlying price assumption at the time of the Budget. Now Conservative Front Benchers are agreeing with me. That is terrific: I have managed to swing them round.
  I am not talking about the price itself. I am talking about the price assumed by the Treasury for the coming year, on the basis of which it projected the corporation tax from oil and gas revenues. Is that now established in Conservative Members' minds? Surely that price is the key, because on the basis of that price the Government assumed that there would be £3.6 billion of corporation tax revenues from North sea oil. The take will clearly be substantially higher. We may argue about whether it will be £500 million higher, £1 billion higher or even more, but it will be substantially higher almost regardless of any foreseeable change in the price for the rest of the year. Most of this year's corporation tax has already been set on the basis of current and past oil prices.
  The Government ought now to be able to judge whether that additional windfall justifies a move to stop the increase in duty this September. Given the Chancellor's own argument that he delayed the increases in order to judge the extent of instability in the
  848
  world markets; given the acknowledged instability and high prices that prevailed; and given that the Government are due for a windfall over and above Treasury expectations at the time of this year's Budget, they should now be in a position to come up with not a leak, suggestion or assumption, but a firm assessment and some sort of decision. With respect to Conservative Front Benchers, I feel that that is a better benchmark than the prevailing price of Brent crude on a day when the newspapers suggested that the Chancellor was trying to leak the fact that he was about to do something.
  The Government have implicitly acknowledged that there should be some relationship between the prevailing level of duty and the world oil price. If that were not the case, the Chancellor would not have postponed his announcement until September. The Government should now be able to estimate the amount of the expected windfall, and should be able to give the information to us and our hard-pressed constituents—especially in Scotland, which suffers the double whammy of receiving no benefit from the additional oil and gas revenues flowing from our sector of the North sea, and being the part of the UK most exposed to rising fuel costs affecting not just consumers but industry and the retail and distribution chain.
  On behalf of the people of Scotland and of Members of Parliament, let me ask Ministers whether they are in a position to tell us that they will negate this year's planned rise in fuel duty.
  Dr. Vincent Cable: The amendment is useful if it helps to persuade the Minister to clarify his intentions. I rather agree with the hon. Member for Banff and Buchan (Mr. Salmond) that this is not the most helpful way of framing legislative change, but the exercise itself has been useful.
  We should not, however, lose sight of the fundamentals. Putting aside the question of an oil price spike and how the Government might respond to it, I think it eminently sensible for the Government to introduce the basic principle of a duty price increase. In normal circumstances that would have been unexceptionable, and I doubt that we would have been dealing with amendments like this had there not been an oil price spike.
  It is worth reiterating the underlying reasons. The cost of motoring has fallen considerably below the cost of using other modes of transport, as the Government's own transport advisers have been pointing out since 1997. The cost of motoring—admittedly, that includes vehicles as well as fuels—has fallen by about 5 per cent. in real terms, while the cost of bus travel has risen by 8 per cent. and household incomes by about 20 per cent. During the much longer period since the first oil shock about 30 years ago, the cost of motoring has fallen in real terms while the cost of public transport has risen by between 70 and 80 per cent., depending on the mode of transport involved. The system of price incentives is heavily skewed against public transport.
  The proposed arrangement for duty increases makes perfect sense in terms of both transport and environmental policy, and I do not criticise it on those grounds. There is, however, a problem over how that is handled in the event of sudden oil price shocks. There are a couple of reasons why the Government must

  849
  respond in such circumstances. First, as the hon. Member for Banff and Buchan pointed out, at such times the Government enjoy a windfall, partly from a rise in VAT in proportion to the price and partly from the taxation of the upstream. I think the sense of injustice at the revenue windfall enjoyed by the Government, which prompted the original oil price protests, led to a cross-party consensus that we must move away from the escalator.
  The other problem at times of high oil prices is that they feed directly into inflation. If inflation goes up, even on a once-and-for-all basis, interest rates rise with all the attendant consequences for the British economy. So when the oil price shock occurred a few weeks ago, I took the view that the Government would be wise to announce a postponement of the duty increase, were such conditions likely to continue. I still take the view that that is the right policy.
  1 pm
  The international oil market conditions suggest that we may well experience a much worse shock in the coming weeks; indeed, that is entirely plausible. As of today, prices are back above $40, and the basic conditions are very serious. There is hardly any spare capacity in the system. Saudi Arabia—a country that is potentially highly unstable and vulnerable to sabotage in various ways—has a spare capacity of some 1 million barrels a day. The situation is quite different from that which pertained 10 years ago. As a result of the war, Iraq's own production has fallen rather than risen since the days of Saddam Hussein, and the conditions for increasing it are not promising.
  So the world oil economy is poised on a very difficult knife edge. Demand is rising and there is very little spare capacity. It is easy to see how prices could simply go through the roof in such circumstances. If that happens, it is obviously right that the Government withdraw the tax increase until the market stabilises. I am not arguing for a cancellation—that would be irresponsible—but that the increase should be postponed until conditions are more stable.
  It would be useful if the Minister explained a little more precisely what the Chancellor of the Exchequer actually meant by a postponement. What would be the conditions under which a postponement would take place, and when will he announce it? If the amendment succeeds in getting a little clarity in that regard, it will have been worth tabling. That said, in the light of the way in which it is phrased, my colleagues and I would not want to vote for it.
  Mr. Christopher Chope: I congratulate my hon. Friend the Member for Chichester (Mr. Tyrie) on his ingenuity in tabling this amendment and thereby putting the Government on the spot. Their policy on this issue is very confused. For years, they have been telling us that, in order to restrict demand for fuel in this country, they have to raise the price, and that such increases are being implemented for environmental reasons. We then had the spectacle of the Chancellor pleading with the countries of the Organisation of Petroleum Exporting Countries to increase the volume of fuel that they produce. To a simple soul such as me, that seemed incompatible with the Government's earlier approach.
  850
  We must remember that we are fortunate in having a petroleum industry that delivers incredibly efficient services, which is why we have the cheapest pre-tax fuel prices in Europe. But because of the Government's taxation policy, we have by far the most expensive post-tax fuel prices in Europe. The amendment tabled by my hon. Friend amounts to relatively small beer; none the less, when motorists feel that they are being put upon by the Government, it is the straw that breaks the camel's back. As has been pointed out, the Government are gaining both from increased taxation and from the windfall resulting from the increase in the raw material price. As the hon. Member for Banff and Buchan (Mr. Salmond) rightly said, the Government will receive a windfall from North sea oil revenues and, as the hon. Member for Twickenham (Dr. Cable) pointed out, we should also consider the big windfall arising from the payment of VAT on the pump price.
  If the Government accepted the amendment, there would be no overall loss of revenue because they will in any case be making those windfall gains. Perhaps that is why the Chancellor was able to suggest that the Government might think again about increasing the price of fuel in the autumn. However, as with most things that this Government are doing, I suspect that it has more to do with the possible situation in the autumn. The Prime Minister has made it clear that he might want to run for cover and have an early general election, if he thinks that he can get away with it. He has instructed the Cabinet to clear the decks and one way to avoid the embarrassment associated with imposing a fuel price hike during a general election campaign is for the Government to make the announcement that they suggested they might make. The amendment enables us to get the Government to come clean on this issue. Instead of giving off-the-record briefings to sympathetic journalists, they should be up-front and tell the House exactly what they have in mind.
  We should remind our constituents of the very high fuel taxes and overall taxes on motorists, which have gone up from some £31 billion when this Government took office to some £44 billion. Precious little of that is actually being spent on the road infrastructure. Yesterday's feeble announcement, which was grandly entitled "Roads Policy", amounted merely to a consultation document on the possible widening of the M6, using private finance rather than taxpayers' money, and extra lanes for those with chauffeurs, so that they can gain an advantage over the ordinary motorist who cannot afford a chauffeur. The announcement covered up the fact that, while raising these extra revenues from the motorist, this Government are failing to deliver improved services.
  As I have said before in this House, one reason why more people are being killed on our roads under this Government is that they have failed to invest in engineering improvements on our highways. It has long been recognised that there are three elements to reducing accidents and increasing road safety: education, engineering and enforcement—
  Mr. Speaker: Order. As the hon. Gentleman might know, the amendment is somewhat tighter than that. He is going wide of it.
  Mr. Chope: I certainly accept, Mr. Speaker, that I am getting carried away in my enthusiasm for articulating the concerns of the motorist. Motorists have to pay these extra taxes, but they are getting nothing in return. My hon. Friend the Member for Chichester has suggested that the Government are being coy about this issue because they want to use the extra revenue to fund the black hole in their figures and their extra borrowing. But it is clear from what has been said that they will in any event make a windfall profit from the increase in the price of Brent crude, which is likely to stay high.
  The amendment is modest, and in that regard I am attracted by much of the argument of the hon. Member for Banff and Buchan. There is indeed a case for going much further, but my hon. Friend the Member for Chichester is making a modest proposal in the hope that we can persuade the Government to accept it. My constituents and I will certainly be very disappointed if this modest amendment is not accepted.
  Mr. Michael WeirIt will come as no great surprise to discover that I agree with the comments of my hon. Friend the Member for Banff and Buchan (Mr. Salmond). I have some reservations about amendment No. 17, which states that, if the price of Brent crude stays
  "above 37.84 US dollars…for a period of fourteen days, the Chancellor of the Exchequer shall make regulations".
  I wonder whether that is really strong enough, because when fuel prices start to rise, what is required is quick action.
  The recent spike in fuel prices has had a devastating effect on many parts of the rural economy. In areas such as my own, petrol has gone up by well in excess of 20p a gallon in a very short time. Such an increase affects everything. It affects private motorists such as us, who need our cars to get about in rural areas because the alternative transport infrastructure simply is not there. It is all very well to argue on environmental grounds that we should take the train or the bus; that is fine if such transport exists and can get people to where they want to go, when they want to go there. I can take a train from Montrose to Arbroath, or a bus from Montrose to Brechin, but I cannot get from Brechin to the top of Glenisla. We need to travel all around our constituencies and many of our constituents have to do the same in the course of their occupations.
  Worse still, the fuel price rise affects everything that has to be transported around our constituencies. For example, shop goods have to be transported by road because there is no alternative. A spike in the fuel price means that everything, including the loaf of bread in the local shop, goes up because such increases have to be passed on to the consumer.
  We are told that this is an environmentally sound policy, but I am not sure what is environmentally sound about adding to rural depopulation. I read an interesting article in The Times during the oil price hike. I hope that it was tongue-in-cheek, but it argued that, if people living in rural areas could not afford the price of petrol, they should move to the cities. That is a terrible indictment of how rural areas are seen by some metropolitan areas. Rising oil prices affect us greatly.
  Fuel tax is a huge part of the price of petrol. What interested me about the recent hike in oil prices was the speed at which the price at the pumps went up, following
  852
  the increase in the price of oil in the international markets. I am no oil expert, but I imagine that there is a time gap between buying oil and the international market refining it and selling it on as petrol. I cannot help wondering whether there has been profiteering by some of the oil companies, which is a wider issue that the Government should examine.
  The level of fuel duty is important. In my view, it must be brought down in rural areas. As pointed out to the Government on many occasions, provision exists under European law for derogations to allow lower fuel taxes in rural and remote areas where road travel is an essential service. That has been used very successfully in the Greek islands, but not in the islands or remote highland areas of Scotland. [Interruption.] My hon. Friend the Member for Banff and Buchan reminds me that Greece went on to win Euro 2004, so perhaps there is a huge impetus for Scotland to follow suit if we can revive our football team.
  Joking aside, this is a serious issue, because the cost of transport in rural areas is so large. In the island areas of Scotland, it is even larger and derogations could be used to help overcome the problem. The Government should look further into using derogations from fuel duty in certain defined areas and deal with the activities of oil companies. I do not share the faith of the hon. Member for Christchurch (Mr. Chope), who spoke about the oil companies. There has been an element of profiteering, as the price has gone up instantly at the pumps when the oil price has increased in the international market. It could be argued that the point is to level up the prices over a period, but more should be done to examine what is going on.
  Just a few oil companies govern petrol in this country and it was interesting to note that the supermarket chains were able to bring the price down again very quickly. Only then did the oil companies follow suit. It is a complex matter and fuel duty is at its heart. The Government should do more to look into what is going on, because the problem is a matter of huge concern in rural areas. That will continue, as oil prices are rising again. We were told that the last spike was the result of terrorist raids in Saudi Arabia. We are now told that the price could rise substantially because of the problems of the Yukos oil company in Russia and as a result of incidents in parts of the middle east. Our whole economy is affected and the Government must get it right if they are to avoid serious problems.
  The Economic Secretary to the Treasury: Amendments Nos. 16 and 17 would remove the duty increase for ultra-low sulphur diesel and petrol planned for September this year at a time when the international price of Brent crude oil is at or above $37.84 per barrel. For the benefit of the hon. Member for Chichester (Mr. Tyrie), today's Brent crude price is almost $2 lower, not $1 lower, than his level. At noon today, it was $35.97 a barrel.

  853
  I have to tell the hon. Member for Christchurch (Mr. Chope) that this is not a modest amendment. On the contrary—[In terruption.]
  Mr. Tyrie: I do not know what prices the Economic Secretary is using. It shows why we really need Bloomberg in the Library—I requested it, but it was turned down—to ensure that we have accurate and up-to-date market prices for debates. It would cost £5,000 a year, which I believe would be a good investment. I am glad to have been able to get that point on the record. I checked the prices at 11.45 am and unless something dramatic has happened, the Brent spot price is $36.7 a barrel and the forward price for August—when the Economic Secretary says he is going to conduct his review—is $37.1. That is less than a dollar away from the price stipulated in the amendment.
  1.15 pm
  John Healey: No doubt the House authorities will study closely the hon. Gentleman's remarks. On the apparent discrepancy, it may be something for Bloomberg to take up with Reuters. Those two market sources may have different figures.
  My serious point is that the amendment is not modest, as the hon. Member for Christchurch claimed that it was. It is an extraordinary declaration of new policy from the shadow Chancellor and his team. I take it that Conservative Members will back it up by voting for the amendment this morning. They are seriously saying that, if the price of oil is above $37.84, they will not implement the usual inflation increase in fuel duty each year. The usual inflation increase simply ensures that fuel duty maintains its value and its contribution to the public purse. Let me tell the hon. Member for Chichester that that approach amounts to another hole in the Tory spending plans of at least £750 million a year and that many of his shadow colleagues who are responsible for sectors already facing deep cuts will not be best pleased with his arguments today.
  Mr. Tyrie: The Economic Secretary knows that that will not wash. He knows perfectly well that the amendment will not take effect until the next Budget six months away. He also knows that, as the hon. Member for Banff and Buchan (Mr. Salmond) said, though I did not agree with all his points and I am not sure that he fully understood some of mine, that the net effect of the increase—
  Mr. Speaker: Order. The hon. Gentleman will have a chance to reply and he is supposed to be making an intervention, which should be very brief and also about petrol duty.
  Mr. Tyrie: The hon. Member for Banff and Buchan correctly said that the overall revenue effects of changes in oil prices over the last few months are highly favourable to the Government, who will benefit by a ratio of at least 2:1 and possibly 3:1 on my calculations. That is the ratio of increased revenue for every pound lost under the amendment.
  John Healey: Clearly this is a six-month measure, not a serious one. It is simply a short-term reaction to complex current events and not a sensible way to make
  854
  policy. The Tory plans mean that when the daily oil price goes up, the inflation increase is withdrawn. Presumably, when the oil price goes down, the duty increase will be reintroduced—though we are not told—that. It is a hopeless hokey-cokey provision. I must tell the hon. Member for Chichester that it is not possible to manage economic policy and the public finances on such a simplistic and unstable basis.
  Mr. Salmond: It may well be a hokey-cokey amendment, but its weakness is not that it is too bold, but that it is far too modest. Will the Treasury Front Benchers address themselves to the question of how much additional revenue they now expect, given that international oil prices are way beyond the Budget assumptions? What do they intend to do about the windfall revenue in the light of the September rise?
  John Healey: If the hon. Gentleman can be patient, I intend to come on to the points that he and the hon. Member for Angus (Mr. Weir) have raised.
  We are conducting a serious debate on the amendment before the House and it is important to realise that there is no historical precedent for such an approach when the Conservatives were in government. There has, of course, been a precedent for higher oil prices. However, unlike during the periods when oil prices were high under the Conservative Government, the UK economy now has the strength and stability to withstand some of these difficulties.
  In late 1980, for example, when oil prices reached $40 a barrel, inflation was above 15 per cent., interest rates 14 per cent., and gross domestic product had contracted by 4 per cent. over the year. In 1990, when oil prices reached $40 a barrel, UK inflation was almost 11 per cent., interest rates 14 per cent., and the British economy had once again entered recession. Today, as a result of Labour's management of the economy, the UK enjoys the longest continuous growth on record, the lowest sustained inflation for 40 years and unemployment at its lowest level in a generation.
  Turning to the points raised by the hon. Member for Banff and Buchan, if he consults the Red Book and my right hon. Friend the Chancellor's Budget statement, he will see that the delay in the usual increase in inflation is designed to coincide with the differential that we determined to introduce on 1 September to encourage the switch to sulphur-free road fuels.
  The hon. Gentleman asked about revenue projections. He has been in this House a long time—a very long time, in some people's books—and will know that such projections are updated and published at the time of every pre-Budget report and Budget. We do not do those calculations or publish the projections on a day-to-day basis.
  Based on assumptions audited by the National Audit Office and published at the time of the Budget, the crude oil price from which the 2004 figures were derived was 27.40p a barrel. The hon. Members for Banff and Buchan and for Twickenham (Dr. Cable) both talked about a windfall for the British economy resulting from the rise in oil prices. While it is true that North sea revenues increase as the oil price rises, the broader effect on public finances is much more complex.
  Mr. Salmond: I think that the Economic Secretary meant to say that the oil price was $27.40 a barrel. However, it was suggested that the matter was under review. If so, that review must include the Treasury's new expectations of what would be a reasonable assumption for corporation tax and other oil receipts for this year. With respect to the Economic Secretary, I maintain that any responsible Treasury must do those calculations if an assessment has to be made soon about whether to go ahead with the duty increase. So where are they?
  John Healey: The review by my right hon. Friend the Chancellor, and the decision that he takes, will take into account all the economic, social and environmental factors in such a complex decision. North sea revenues may rise with the oil price, but the broader effect on the public finances is much more complex. The overall effect in respect of the economy, business profitability and Government expenditure is broadly neutral.
  Mr. Chope: On 3 June, a few days before the European and local government elections, the Chancellor of the Exchequer led us to believe that he was thinking seriously about not increasing fuel duty this autumn. Was he speaking through his hat?
  John Healey: My right hon. Friend was not speaking through his hat. In fact, I do not think that I have ever seen him wearing one.
  The hon. Member for Angus (Mr. Weir) described vividly the journeys that he can and cannot make across his constituency. I was almost there with him, but derogations for road fuel duty based on regions are, basically, prevented by European law. To get them, we would need the agreement of all 25 EU member states. That is not a viable policy proposition.
  The amendments are flawed in both principle and practice. They do not recognise that, if duty on ultra-low sulphur diesel and petrol were reduced because of increases in the Brent price, the duty on sulphur-free diesel and petrol would be higher than that on the ultra-low sulphur fuels. That would wreck our aim to introduce those fuels at the earliest possible point and our plans to get the environmental benefits that would follow.
  The amendments adopt the wrong approach. The right approach is the one pursued by the Chancellor. It has not been set out in private briefings, but placed on the public record by the Chancellor and the Prime Minister. The problem that we face is the world oil price, not UK duty rates. Therefore, it is right that we concentrate on oil supplies and on ensuring that OPEC meets its targets for sustainable prices.
  The Chancellor has been at the forefront of those discussions. He and other Finance Ministers will continue to press OPEC to meet the increased production targets that have been set and to argue that we should go further still.
  We have said that we will review progress in reducing oil prices and that we will make a judgment on the planned duty change due on 1 September. I urge the House to reject the amendments.
  Mr. Tyrie: As my hon. Friend the Member for Christchurch (Mr. Chope) said, my amendment is
  856
  modest. The hon. Member for Banff and Buchan (Mr. Salmond) was less charitable, and called it light. The amendment is short, but its clarity seems to have elicited some information from the Government. I shall come to that in a moment. The hon. Gentleman did not offer a clear alternative, only general suggestions for a more rigorous approach.
  Mr. Salmond: The clear alternative is for the Government to say how much of a windfall they expect. I am concerned by what the Economic Secretary said about the effect being neutral and I presume that that is based on an assumption of lower economic growth. If so, he should tell us how much of a direct windfall the Government expect and the size of the fall in economic growth that they now forecast. The Economic Secretary's message was very negative.
  Mr. Tyrie: The hon. Gentleman and I seem to be working together more closely than a moment ago.
  Mr. Salmond Mr. Salmond indicated dissent.
  Mr. Tyrie: I do not want to wreck his party's prospects, but I agree with what the hon. Gentleman just said. It would be extremely helpful if the Government made a clear statement, perhaps in a letter, of the overall effect of oil price rises on the public finances. I should be grateful if the Economic Secretary would publish the detailed calculations on which his remarks were based.
  John Healey: I made it clear in my remarks that our main assumptions are audited by the NAO. We publish them in the pre-Budget report and the Budget. That is the time scale to which we work and when the information is made available. A broadly neutral effect is more likely than the large windfall that Opposition Members seem to think will benefit the British economy.
  Mr. Tyrie: The Economic Secretary has alluded to some publications with which I am familiar, but I would not feel able easily to draw the same conclusions. I do not want to linger on this point, but I hope that he will help us by sending a letter pointing out where we can find numbers that are clear and unambiguous. The point at issue is valuable, and the House and the country should have deeper knowledge of it.
  The hon. Member for Twickenham (Dr. Cable) delivered a typically elegant and interesting speech. He is always thoughtful, but today he seemed almost to be pointing in two directions at once. [Interruption.] It is rare for Liberal Democrat Members to do that, but occasionally it can happen inadvertently. Initially, he seemed to support the principle behind the amendment, even if he did not accept the detail. Those were more or less the words that he used, but almost in the same breath he quoted figures that implied that motorists are undertaxed and that they should pay more in tax.
  Dr. Cable Dr. Cable indicated assent.
  Mr. Tyrie: The hon. Gentleman is nodding in agreement. Motorists should therefore know that the Liberal Democrat party's policy is to increase taxation

  857
  and to impose higher levels of duty on diesel and motor spirit. That message will not be lost on people in the months ahead.
  The Economic Secretary said that my amendment was a short-term measure and could not be supported. If that is so, why have the Government briefed the press about their willingness to introduce just such a short-term measure—to suspend the duty rise for six months? Why are they doing exactly what they say should not be done? They are considering a measure along the lines of the amendment, or at least they are trying to get the best publicity that they can for doing so.
  The Economic Secretary called the amendment hokey-cokey. I am not sure what he meant, but the only hokey-cokey activity going on here has been the Government's briefing of the press, when they should have explained their policy to the House. We still do not know exactly what their policy is.
  I come back to my central point and give the Economic Secretary one last opportunity. Will the Government give us a clear commitment that, if prices rise and stay at the level that they were when the Chancellor gave his friendly press briefings, they will set aside the September increase in fuel duty? Will they give us a clear answer to that question? If they will not, we will be forced to divide the House on the issue.
  Question put, That the amendment be made:—
  The House divided: Ayes 109, Noes 250.

  Division No. 218]

  [1:30 pm

  AYES

  Amess, David

  Hague, rh William

  Ancram, rh Michael

  Hammond, Philip

  Arbuthnot, rh James

  Hawkins, Nick

  Atkinson, David (Bour'mth E)

  Hayes, John (S Holland)

  Bacon, Richard

  Heald, Oliver

  Baron, John (Billericay)

  Heathcoat-Amory, rh David

  Beggs, Roy (E Antrim)

  Hendry, Charles

  Beresford, Sir Paul

  Hermon, Lady

  Bottomley, Peter (Worthing W)

  Horam, John (Orpington)

  Brady, Graham

  Howarth, Gerald (Aldershot)

  Brazier, Julian

  Jackson, Robert (Wantage)

  Burns, Simon

  Jenkin, Bernard

  Burt, Alistair

  Key, Robert (Salisbury)

  Cameron, David

  Knight, rh Greg (E Yorkshire)

  Cash, William

  Laing, Mrs Eleanor

  Chapman, Sir Sydney (Chipping

  Lait, Mrs Jacqui

  Barnet)

  Leigh, Edward

  Chope, Christopher

  Letwin, rh Oliver

  Clappison, James

  Liddell-Grainger, Ian

  Conway, Derek

  Lidington, David

  Cormack, Sir Patrick

  Lilley, rh Peter

  Curry, rh David

  Loughton, Tim

  Davis, rh David (Haltemprice &

  McIntosh, Miss Anne

  Howden)

  McLoucifilin, Patrick

  Donaldson, Jeffrey M.

  Malins, Humfrey

  Duncan, Alan (Rutland)

  Maples, John

  Evans, Nigel

  Mawhinney, rh Sir Brian

  Ewing, Annabelle

  May, Mrs Theresa

  Fallon, Michael

  Mercer, Patrick

  Field, Mark (Cities of London &

  Mitchell, Andrew (Sutton

  Westminster)

  Coldtield)

  Flight, Howard

  Moss, Malcolm

  Flook, Adrian

  Murrison, Dr. Andrew

  Forth, rh Eric

  Norman, Archie

  Gibb, Nick (Bognor Regis)

  O'Brien Stephen (Eddisbury)

  Goodman, Paul

  Osborne, George (Tattoo)

  Greenway, John

  Page, Richard

  Gummer, rh John

  Paice, James

  858

  Paterson, Owen

  Taylor, John (Solihull)

  Prisk, Mark (Hertford)

  Taylor, Dr. Richard (Wyre F)

  Randall, John

  Taylor, Sir Teddy

  Robathan, Andrew

  Tredinnick, David

  Robertson, Angus (Moray)

  Trimble, rh David

  Ruffley, David

  Turner, Andrew (Isle of Wight)

  Salmond, Alex

  Tyrie, Andrew

  Sayeed, Jonathan

  Walter, Robert

  Selous, Andrew

  Waterson, Nigel

  Shepherd, rh Mrs Gillian

  Weir, Michael

  Shepherd, Richard

  Whittingdale, John

  Simpson, Keith (M-Norfolk)

  Widdecombe, rh Miss Ann

  Smyth, Rev. Martin (Belfast S)

  Wiggin, Bill

  Spelman, Mrs Caroline

  Wilshire, David

  Spink, Bob (Castle Point)

  Winterton, Sir Nicholas

  Spring, Richard

  (Macclesfield)

  Stanley, rh Sir John

  Wishart, Pete

  Steen, Anthony

  Streeter, Gary

  Tellers for the Ayes:

  Swayne, Desmond

  Gregory Barker and

  Swire, Hugo (E Devon)

  Mr. Peter Atkinson

  NOES

  Abbott, Ms Diane

  Colman, Tony

  Adams, Irene (Paisley N)

  Corbyn, Jeremy

  Ainger, Nick

  Corston, Jean

  Ainsworth, Bob (Cov'try NE)

  Cousins, Jim

  Alexander, Douglas

  Cranston, Ross

  Allen, Graham

  Crausby, David

  Anderson, rh Donald (Swansea E)

  Cryer, John (Hornchurch)

  Anderson, Janet (Rossendale &

  Cummings, John

  Darwen)

  Cunningham, Jim (Coventry S)

  Armstrong, rh Ms Hilary

  Cunningham, Tony (Workington)

  Atherton, Ms Candy

  Curtis-Thomas, Mrs Claire

  Atkins, Charlotte

  Darling, rh Alistair

  Baird, Vera

  Davey, Valerie (Bristol W)

  Banks, Tony

  Davies, rh Denzil (Llanelli)

  Barnes, Harry

  Davies, Geraint (Croydon C)

  Battle, John

  Dawson, Hilton

  Beard, Nigel

  Dean, Mrs Janet

  Beckett, rh Margaret

  Dhanda, Parmjit

  Begg, Miss Anne

  Dismore, Andrew

  Bennett, Andrew

  Dobbin, Jim (Heywood)

  Benton, Joe (Bootle)

  Dobson, rh Frank

  Berry, Roger

  Doran, Frank

  Best, Harold

  Dowd, Jim (Lewisham W)

  Blackman, Liz

  Drew, David (Stroud)

  Blair, rh Tony

  Drown, Ms Julia

  Blizzard, Bob

  Dunwoody, Mrs Gwyneth

  Borrow, David

  Eagle, Angela (Wallasey)

  Bradley, rh Keith (Withington)

  Eagle, Maria (L'pool Garston)

  Bradley, Peter (The Wrekin)

  Edwards, Huw

  Brennan, Kevin

  Efford, Clive

  Bryant Chris

  Ennis, Jeff (Barnsley E)

  Buck, Ms Karen

  Farrelly, Paul

  Burgon, Cohn

  Field, rh Frank (Birkenhead)

  Byers, rh Stephen

  Fisher, Mark

  Cairns, David

  Fitzpatrick, Jim

  Campbell, Mrs Anne (C'bridge)

  Fitzsimons, Mrs Lorna

  Campbell, Ronnie (Blyth V)

  Flint, Caroline

  Caplin, Ivor

  Flynn, Paul (Newport W)

  Casale, Roger

  Follett, Barbara

  Chapman, Ben (Wirral S)

  Foster, Michael Jabez (Hastings

  Clapham, Michael

  & Rye)

  Clark, Mrs Helen (Peterborough)

  Foulkes, rh George

  Clark, Dr. Lynda (Edinburgh

  Gapes, Mike (Ilford S)

  Pentlands)

  Gerrard, Neil

  Clark, Paul (Gillingham)

  Gibson, Dr. Ian

  Clarke, rh Tom (Coatbridge &

  Goggins, Paul

  Chryston)

  Griffiths, Jane (Reading E)

  Clarke, Tony (Northampton S)

  Griffiths, Nigel (Edinburgh S)

  Clelland, David

  Grogan, John

  Clwyd, Ann (Cynon V)

  Hain, rh Peter

  Coaker, Vernon

  Hall, Mike (Weaver Vale)

  Coffey, Ms Ann

  Hamilton, David (Midlothian)

  Cohen, Harry

  Hamilton, Fabian (Leeds NE)

  859

  Hanson, David

  Moffatt, Laura

  Havard, Dai (Merthyr Tydfil &

  Mole, Chris

  Rhymney)

  Moran, Margaret

  Healey, John

  Morgan, Julie

  Henderson, Doug (Newcastle N)

  Mountford, Kali

  Hendrick, Mark

  Munn, Ms Meg

  Hesford, Stephen

  Murphy, Jim (Eastwood)

  Heyes, David

  Naysmith, Dr. Doug

  Hinchliffe, David

  O'Brien, Bill (Normanton)

  Hoey, Kate (Vauxhall)

  O'Hara, Edward

  Hood, Jimmy (Clydesdale)

  Diner, Bill

  Hoon, rh Geoffrey

  O'Neill, Martin

  Hope, Phil (Corby)

  Osborne, Sandra (Ayr)

  Hopkins, Kelvin

  Owen, Albert

  Howarth, George (Knowsley N &

  Perham, Linda

  Sefton E)

  Picking, Anne

  Hughes, Beverley (Stretford &

  Pickthall, Colin

  Urmston)

  Pike, Peter (Burnley)

  Hughes, Kevin (Doncaster N)

  Plaskitt, James

  Hutton, rh John

  Pollard, Kerry

  Iddon, Dr. Brian

  Pond, Chris (Gravesham)

  Illsley, Eric

  Pope, Greg (Hyndburn)

  Jackson, Glenda (Hampstead &

  Pound, Stephen

  Highgate)

  Primarolo, rh Dawn

  Jackson, Helen (Hillsborough)

  Purnell, James

  Johnson, Miss Melanie (Welwyn

  Quinn, Lawrie

  Hatfield)

  Robertson, John (Glasgow

  Jones, Jon Owen (Cardiff C)

  Anniesland)

  Jones, Kevan (N Durham)

  Ruane, Chris

  Jones, Lynne (Selly Oak)

  Russell, Ms Christine (City of

  Jowell, rh Tessa

  Chester)

  Kaufman, rh Sir Gerald

  Ryan, Joan (Enfield N)

  Keeble, Ms Sally

  Sarwar, Mohammad

  Keen, Alan (Feltham)

  Savidge, Malcolm

  Keen, Ann (Brentford)

  Sawford, Phil

  Kelly, Ruth (Bolton W)

  Sedgemore, Brian

  Kennedy, Jane (Wavertree)

  Sheerman, Barry

  Khabra, Piara S.

  Sheridan, Jim

  Kidney, David

  Skinner, Dennis

  King, Andy (Rugby)

  Smith, rh Andrew (Oxford E)

  Kumar, Dr. Ashok

  Smith, Geraldine (Morecambe &

  Ladyman, Dr. Stephen

  Lunesdale)

  Lammy, David

  Smith, Jacqui (Redditch)

  Lawrence, Mrs Jackie

  Smith, Llew (Blaenau Gwent)

  Lepper, David

  Soley, Clive

  Leslie, Christopher

  Southworth, Helen

  Levitt, Tom (High Peak)

  Starkey, Dr. Phyllis

  Lewis, Terry (Worsley)

  Stevenson, George

  Liddell, rh Mrs Helen

  Stewart, David (Inverness E &

  Linton, Martin

  Lochaber)

  Lloyd, Tony (Manchester C)

  Stewart, Ian (Eccles)

  Love, Andrew

  Stinchcombe, Paul

  Lucas, Ian (Wrexham)

  Stoate, Dr. Howard

  Luke, lain (Dundee E)

  Strang, rh Dr. Gavin

  Lyons, John (Strathkelvin)

  Stringer, Graham

  McCafferty, Chris

  Stuart, Ms Gisela

  McDonnell, John

  Sutcliffe, Gerry

  MacDougall, John

  Taylor, Dari (Stockton S)

  McFall, rh John

  Thomas, Gareth (Clwyd W)

  McGuire, Mrs Anne

  Todd, Mark (S Derbyshire)

  Mclsaac, Shona

  Touhig, Don (Islwyn)

  McKechin, Ann

  Trickett, Jon

  McKenna, Rosemary

  Truswell, Paul

  McNamara, Kevin

  Turner, Dennis (Wolverh'ton SE)

  McWalter, Tony

  Turner, Dr. Desmond (Brighton

  Mahon, Mrs Alice

  Kemptown)

  Mendelson, rh Peter

  Turner, Neil (Wigan)

  Marris, Rob (Wolverh'ton SW)

  Tynan, Bill (Hamilton S)

  Marsden, Gordon (Blackpool S)

  Walley, Ms Joan

  Marshall-Andrews, Robert

  Ward, Claire

  Martlew, Eric

  Wareing, Robert N.

  Meale, Alan (Mansfield)

  White, Brian

  Michael, rh Alun

  Whitehead, Dr. Alan

  Milburn, rh Alan

  Wicks, Malcolm

  Miliband, David

  Williams, rh Alan (Swansea W)

  Miller, Andrew

  Williams, Betty (Conwy)

  860

  Wills, Michael

  Wright, Tony (Cannock)

  Winnick, David

  Wood, Mike (Batley)

  Woodward, Shaun

  Tellers for the Noes:

  Wright, Anthony D. (Gt

  Derek Twigg and

  Yarmouth)

  Gillian Merron

  Question accordingly negatived.
  Mr. Peter Kilfoyle: On a point of order, Madam Deputy Speaker. When the last vote was taken, a number of right hon. and hon. Members were in the Marquee. No bell rang down there. May I ask you to ensure that the bells are put into effect? It is obviously rather disconcerting to hear that there is a vote when the information on that vote does not extend throughout the Palace.
  Madam Deputy Speaker: I thank the hon. Gentleman for bringing that matter to the attention of the occupant of the Chair, and I will ensure that the Serjeant at Arms is aware of his comments.

Clause 28

  THE NON-CORPORATE DISTRIBUTION RATE
  Dr. Cable: I beg to move amendment No. 38, in page 23, line 26, leave out '19%' and insert '5%'.
  My hon. Friend the Member for Yeovil (Mr. Laws) spoke on this subject at some length in Committee, and I should like to say a few words on it now. Our aim is to find a somewhat more elegant way to back down than the Government have found in their retreat on the zero rating of incorporated companies in respect of corporation tax. We know the story—I need not rehearse it at length—but the policy has had disastrous consequences. There was a 45 per cent. increase in incorporation in a year and an estimated revenue loss of £1 billion. The Government have had to retreat, and they have chosen to do by introducing a differential tax rate, with a 19 per cent. duty on distributed profits from small incorporated companies, which affects hundreds of thousands of companies that draw their incomes from distributions.
  1.45 pm
  The issues of principle have been debated backwards and forwards. What has emerged very clearly is that the Government's U-turn has managed to antagonise several groups of people simultaneously for different reasons. First, there are all those people who incorporated their companies in good faith because they believed the Government's arguments in support of incorporation. They invested in financial advice and the associated costs. Having followed the Government's advice and responded to the incentive that they were given, the overwhelming bulk of those who draw their income in the form of dividends now find themselves penalised by a high rate of tax.
  Secondly, those whose small companies were already incorporated before the tax inducement and were perfectly happy with that status now face an additional, different and more complex tax regime than before. Thirdly, those with unincorporated companies who felt a sense of grievance that they were treated differently from incorporated companies still feel that they are

  861
  treated differentially. If they plough back their profits into their companies, they are taxed in a way that incorporated companies are not.
  There has been a general sense of frustration about the way that the matter has been handled. Clearly, the Government have had to beat a retreat; the issue is, how should they do that while causing minimum disruption and complexity? We tabled the amendment—my colleagues tabled a similar one in Committee—to try to find a somewhat better way.
  There are two fundamental problems with the route that the Government have taken. First, they have introduced another change to a system that must almost certainly change again in the future. I understand that they are undertaking a review of the issue—that is prudent and necessary—but the review will probably take a year to complete. There will presumably he a consultation document, and the tax regime may well change again. The context is that the tax on such companies has already changed four times in quick succession: from a rate of 20 per cent. to one of 10 per cent; to a zero rate; and now to a zero rate plus the extra tax on dividend distributions. There is a high rate of flux, with all the associated costs of accountancy and financial advice. The Government propose to make another big change. Would it not better to hold off and make a much more modest adaptation of the type that we propose?
  There is a second complexity. Those in industry and the Inland Revenue have been involved in a vigorous debate about tax complexity and whether the Government's proposal will make life extremely difficult for those in small businesses. The Select Committee on Economic Affairs produced a thorough report on the issue. It has no particular axe to grind. It is an all-party report and no voting was involved, so we are dealing with people who considered the issue in a fairly detached way. I shall simply quote a couple of references from the House of Lords report, which gives a reasonably balanced assessment of the complexity produced by the Government's changes. Paragraph 135 says:
  "From the evidence we have received on the issue of technical complexity we noted that there was no meeting of minds between our private sector respondents and the Revenue. In our view, this issue falls to be judged in the context of the population of taxpayers (up to 332,000 owner-managed companies…) who are going to be affected by it".
  The report continues:
  "all our witnesses from the private sector who spoke on this subject expressed the view to us that a straightforward abolition of the 0 per cent. rate would be a much simpler way of achieving essentially the same end result as will be produced by these provisions."
  It is clear from those whom the change will affect that it will be complex and disruptive, and there will almost certainly have to be another change after the review. The amendment would ease the process, making it somewhat more elegant, and less costly and difficult for people who run small companies.
  Mr. Howard Flight: This saga is illustrative of some of the main problems with the Government. The original zero rate was introduced as a piece of spin to try to claim that the Government were small-business friendly. Indeed, we all remember the Paymaster General telling small businesses not to look a gift horse in the mouth. The
  862
  Government failed to heed warnings given at the time by everyone, including the official Opposition, that they were distorting the tax system in favour of incorporation. Unsurprisingly, the tax loss when thousands of sole traders incorporated has turned out to be far too great, so a piece of tax complexity is required to negate that—the Lord giveth, and He taketh away, so the gift horse has gone.
  I believe that the Paymaster General attended a recent conference for small businesses, and as the hon. Member for Twickenham (Dr. Cable) pointed out, many small businesses said that they would rather abolish the zero rate and return to a simple situation rather than being burdened with complex arrangements while the Government undo their mistake. The amendment would not solve the problem and it has tax-revenue implications. It would be far better if the Government were to be a little more brave and honest by addressing the problem of their own making more satisfactorily.
  The Paymaster General (Dawn Primarolo): The hon. Members for Twickenham (Dr. Cable) and for Arundel and South Downs (Mr. Flight) advanced two sets of opposing arguments, and I shall deal first with the points made by the hon. Member for Twickenham. It is a complete fallacy that the introduction of the small companies rate makes calculations for companies more complex—it does not. The scheme is extremely simple and it works through the corporate tax system. The system is straightforward for companies that start as micro-companies, reinvest in themselves and grow, because the zero rate will be left in place to assist such companies.
  I know that the hon. Gentleman would agree that small businesses promote growth and enterprise. They are part of a modern, dynamic economy that needs a strong entrepreneurial base and vibrant small businesses. The Government's policy is designed to ensure that the significant engine for future growth in the economy, which generates the competitiveness that drives innovation, is rewarded when profits are reinvested in companies.
  The fact that the amendment would change the rate to 5 per cent. suggests to me that the hon. Gentleman accepts the principle regarding companies that are driven to incorporate only to access low corporation tax rates when taking a dividend as private income rather than reinvesting in themselves. He is merely quibbling about whether the rate should be 19 per cent. or 5 per cent., but he does not address how costly his scheme would be, as the hon. Member for Arundel and South Downs pointed out, despite the fact that it would have no purpose. The measure would cost about £500 million in 2006–07, and there would be a substantial cost due to those who were driven to incorporate not because they wanted to reinvest profits in their companies to promote growth, but so that they could access a 5 per cent. tax rate and thus reduce their liability for tax on their incomes. That cannot be right.
  The hon. Member for Twickenham set the two benchmarks of complexity and a further change, but he contradicted himself. He would increase complexity by setting a rate of 5 per cent., for which there is no parallel in the tax system for corporates, and would also make a change, which he says that he does not want. For reasons of cost, fairness and the need to reward companies that reinvest profits in themselves to promote growth, the Government's policy is the fairest and the most straightforward option. The changes to which he

  863
  referred have nothing to do with small businesses that try to invest their profits for growth. Specific aspects of the tax system needed to be addressed because some companies were trying to remove profit in other ways, and thus escape tax, which cannot be fair.
  The hon. Member for Arundel and South Downs talked about the zero rate, but his party did not vote against that proposal. It agreed with the principle that we should assist companies that reinvest their profits in themselves in order to grow. I fail to understand how removing the zero rate, yet keeping the 19 per cent. rate, would assist such small companies.
  Mr. Flight: With the greatest respect, I think that the Paymaster General was present when I said that several small companies have commented that they would prefer to be rid of the 19 per cent. rate, which can be complicated in some circumstances, at the price of giving up the zero rate. She knows that one rate essentially offsets the other. Secondly, when the zero rate was introduced, we said that if the Government wanted to give tax incentives to small businesses, they should not distort the tax system, but give incentives, whether companies were sole traders or incorporated.
  Dawn Primarolo: I am glad that the hon. Gentleman mentioned what was said at the meeting of the all-party group on small business—that was the occasion to which he referred—because much mischief has been made, so I would like to put the facts on record. I am not a member of the all-party group, but the hon. Gentleman's colleague, the hon. Member for Hertford and Stortford (Mr. Prisk), is. Several professional organisations attended the meeting, including one lobbyist and two, three or perhaps four representatives of such bodies as the Institute of Chartered Accountants. The Federation of Small Businesses was also represented at the meeting. The hon. Member for Hertford and Stortford asked me, as a courtesy, to attend the meeting to hear what those bodies had to say. They did not purport to represent, or speak on behalf of, all small businesses, and they did not suggest that they wanted the zero rate to be removed. I made no comment on that at the meeting, so let us be clear that people are not lobbying for that measure.
  The amendment is an attempt to buy—literally—a few friends with taxpayers' money. It would affect only a small sector of companies that would prefer not to pay the same tax as everyone else has to. I do not think that that is fair. It is complex and the Exchequer, on behalf of all taxpayers who pay their fair rate of tax, rejects it as a principle. However, I look forward to debates in future with both hon. Gentlemen about the most appropriate way for the tax system to respond to micro, small and medium-sized companies with regard to their contribution to the economy. If the amendment is put to a vote, I shall ask my right hon. and hon. Friends to oppose it.
  2 pm
  Dr. Cable: There is an element of common ground. All three of us—the Minister, the hon. Member for Arundel and South Downs (Mr. Flight) and myself—are concerned about how best to create an environment
  864
  in which entrepreneurs can flourish. One of the painful lessons of the Government's attempts at tax reform is that simply switching artificially from incorporation to unincorporation, treating them as entirely different animals, merely results in distortions of the system and does not promote entrepreneurship.
  Neither the Minister nor I are the best people to judge the issue of complexity; it is those on the receiving end who are best able to judge complexity. It is clear from the evidence that has come forward from the various representative and professional bodies that an enormous amount of complexity is involved. The Inland Revenue describes its three-step process for calculating tax liability as extremely simple. However, it is extremely complex for many people who cannot afford to employ an accountant and have to go through the process themselves. Clearly, there is a difference of interpretation of complexity in this context, but it is clear to most people who run businesses that the arrangement is extremely complex.
  As for reinvestments, it is a little simple to say that there are good and virtuous companies that reinvest their profits and others that take dividends. Until the Government started tinkering with tax arrangements in this area, where many small companies were highly entrepreneurial, some people took their income in the traditional way and paid income tax on it, and others took their income in the form of dividends. That reflected the old system. It does not mean that one company was better than another or that one was more committed to growth than the other. The argument about reinvestment and non-reinvestment is artificial.
  As for the amendment's revenue implications, it is fair to say that the Government's track record of predicting the revenue implications of tax changes have not been particularly good. They lost £1 billion as a result of the inadvertent changes from their own proposals, so to tell us that the amendment would somehow be depriving the Treasury of revenue is a little rich. The problem that the Government now face is how to extricate themselves, as sensibly as possible, from a mistaken initiative. We know that within a year or so the regime will have to change again, and we are looking for the most sensible transitional arrangement. The Government have proposed a complicated one, and ours is rather simpler.
  I do not intend to push the amendment to a vote, but it is worth reminding the Government that they created the problem. We are trying to help them to find a way out of it. I beg to ask leave to withdraw the amendment.
  Amendment, by leave, withdrawn.

Clause 29

  SPECIAL RATES OF TAX APPLICABLE TO TRUSTS
  Mr. Flight: I beg to move amendment No. 224, in page 23, line 40, at end insert—
  '(5) This section shall not apply to the income of a settlement in any year of assessment if the trustees of the settlement have elected that section 691(2) of the Taxes Act (certain income of maintenance funds for historic houses not to become the income of the settlor etc) shall have effect in the case of—

  the settlement, or

  any part of the settlement in relation to that year of assessment'.

  Madam Deputy Speaker: With this it will be convenient to discuss the following amendments:

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  No. 228, in schedule 15, page 366, line 4, at end insert—
  '(4) If

  within two years of the death of the chargeable person the relevant property is transferred to a settlement, and

  direction is given in respect of the property under the provisions of paragraph 1 of Schedule 4 to IHTA 1984 (maintenance funds for historic buildings),

  sub-paragraph 2(b) shall not apply to the property and the chargeable person shall be treated as the settlor of the property under the provisions of Schedule 4 to IHTA 1984.'.
  No. 229, in schedule 15 page 366, line 27, at end insert—
  '(4) If—

  within two years of the death of the chargeable person the relevant property is transferred to a settlement, and

  a direction is given at respect of the property under the provisions of paragraph 1 of Schedule 4 to IHTA 1984 (maintenance funds for historic buildings),

  sub-paragraph 2(b) shall not apply to the property and the chargeable person shall be treated as the settlor of the property under the provisions of Schedule 4 to IHTA 1984.'.
  No. 230, in schedule 21 page 399, line 10, leave out from 'settlement' to end of line 16 and insert
  'in relation to which a direction under paragraph 1 of Schedule 4 to the Inheritance Tax Act 1984 (maintenance funds for historic buildings) has been given.'.
  No. 231, in schedule 22 page 407, line 23, leave out from 'settlement' to end of line 30 and insert
  'and a direction under paragraph 1 of Schedule 4 to the Inheritance Tax Act 1984 (maintenance funds for historic buildings) was given in relation to a relevant earlier disposal.'.
  Mr. Flight: These five amendments arise from discussions that we have had with the Historic Houses Association and relate to maintenance funds. Hon. Members will be aware that 20 or so years after the second world war the UK lost many historic houses. There was really an all-party agreement thereafter. First, people were required to maintain their historic houses; they could not pull them down or let them fall down. Secondly, some fiscal assistance was given to that end, which is where maintenance funds come in, to keep the houses in good repair. We are not talking about clever tax avoidance vehicles. Once houses are owned by maintenance funds, there is no way in which individuals can take them back and get up to clever tricks.
  Amendment No. 224 is designed to exclude maintenance fund income from the increased 40 per cent. income tax rate that will apply to trust income under clause 29. It is quite a significant cash flow cost to existing maintenance funds to have their tax rate effectively increased by some 20 per cent., especially when maintenance costs are rising, In 1997, the Labour Government introduced the ability to make an election under section 692 of the Income and Corporation Taxes Act 1988. If the election is in force, the income of the maintenance fund is taxed at 34 per cent. rather than 40 per cent. as the income of the settlor. In 1997, that benefit was far greater than it was before Conservative Governments reduced the ridiculously high rates of personal taxation.
  When the notes on the Finance Bill were published—specifically on the reforms of the taxation of trusts, and at the same time as the announcement of the proposed
  866
  increase in the rate applicable to trusts to 40 per cent.— the recommendations contained suggested provisions to prevent the increase in tax applying to trusts for the vulnerable but not for vulnerable historic houses. There was no reference to the position of maintenance funds.
  I submit that maintenance funds for historic houses should be similarly treated. They were set up by the Labour party to give relief from capital transfer tax for property transferred to such trusts. The proposals had all-party support, as did the introduction in 1997 of the right to elect for the income of the maintenance fund to be taxed at the rate applicable to trusts rather than the settlor's rate. The need for maintenance funds has been reduced by the introduction of inheritance tax and potentially exempt transfers in 1986, but they remain an important vehicle for the preservation of heritage. People often die earlier than they expect and historic houses can end up having to be sold and turned into flats.
  Amendments Nos. 228 and 229 are designed to prevent the inheritance tax liabilities otherwise payable by the donor on his death following an election if the donee transfers the property to a maintenance fund. This interrelates to the subsequent pre-owned assets proposals.
  Amendment No. 228 is similar in form to amendment No. 102, which we discussed in Committee. The amendment has been redrafted because the effect should be to make the election to avoid the pre-owned assets charge and then have the option of either paying the inheritance charge or having exemption by transferring to a maintenance fund. As drafted, the clause appears to enable the Revenue to reclaim the pre-claimed assets charged if the property is transferred into a maintenance fund.
  Amendment No. 229 is essentially in the same form, but relates to intangible property, the election of which is dealt with in a separate paragraph.
  The argument that the Paymaster General advanced in Committee for rejecting the principle of permitting maintenance funds to be created for property subject to a schedule 15 election was that it would be wrong to treat such property any differently from property in a potentially exempt transfer that had failed, either because the donor fails to survive seven years or because of reserved benefit. The right hon. Lady's point was that the taxpayer should not have his cake and eat it in this context.
  During consideration of the Finance Bill 1986 in Committee, the then Conservative Minister advanced a similar argument when rejecting a proposal put forward by a Labour Member to commit the owner of property subject to a failed PET to transfer it to a maintenance fund. In 1986, there was some merit in the argument that the situation to be relieved was of the taxpayer's own making—he did not have to risk the failure of his potentially exempt transfer—but a donor who is now subject to a pre-owned assets charge is not in the same position. He will almost certainly have made what the Revenue said in 1986 was not a gift with reservation, and that would remain effective if he lived for at least seven more years. He is now told that he undertook a contrived arrangement, and must pay a penalty tax to deter others. Whether he pays the tax or elects to suffer the inheritance tax charge on his death, the effect is the

  867
  same for the property and the maintenance of the historic house. Far from his having his cake and eating it, he is in a no-win position. Surely, he ought to be entitled to elect to avoid the inheritance tax charge by taking a conditional exemption and maintenance fund relief. I am aware that the Revenue is in discussions with the Historic Houses Association, and if the Paymaster General is not willing to accept my amendments, I hope that she agrees that maintenance funds should be further discussed.
  Amendments Nos. 230 and 231 relate to clauses 111 and 112, which introduce anti-avoidance provisions that are also dealt with in schedules 21 and 22. Clause 111 precludes capital gains tax holder relief on transfers to settlor-interested settlements, and clause 112 precludes principal private residence relief from capital gains tax on the sale of houses that have been the subject of a previous claim for capital gains tax holder relief. Each schedule introduces an exemption for maintenance funds. In the case of schedule 21, it is clearly important that the relief should continue to apply to owners who set up a maintenance fund throughout their lifetime because it is inevitable that the settlor will have interest in the fund to maintain his house. Both reliefs are expected to apply only if an election under section 691 of the Taxes Act 1988 is in force. Under that election, the income of the maintenance fund is subject to the rate applicable to trusts, and is not taxed as the income of the settlor. The Government have just made section 691 redundant. If the rate applicable to trusts is now the same as for individuals, there will be no point in making a section 691 election.
  Capital gains tax holder relief on lifetime transfers to maintenance funds should not be dependent on the existence of an election that is now defunct, and neither should the preservation of principal private residence relief. If amendment No. 224 is rejected, the remaining amendments in the group are necessary to ensure that the reliefs for maintenance funds in schedules 21 and 22 are not dependent on a defunct election. In any event, whether or not the settlor makes a section 691 election, the rate of income tax payable by the fund trustees, and therefore the rate of capital gains tax, has no other effect on the status of the maintenance fund. The availability of capital gains tax holder relief for transfers to maintenance funds and the preservation of principal private residence relief should depend on whether or not the fund has been designated under schedule 4 of the Inheritance Tax Act 1984.
  My amendments are probing and highly technical. As I have said, if the Minister does not see fit to accept them, I hope that she will assure the House that the issues that they raise will be considered in the discussions between the Revenue and the Historic Houses Association on the wider implications of the relevant tax changes.
  Dawn Primarolo: I shall not accept the amendments tabled by the hon. Member for Arundel and South Downs (Mr. Flight), and shall remind the House of the purpose of heritage maintenance funds and trusts: they are designed to maintain historic buildings and other heritage assets. There are fewer than 150 such trusts in
  868
  the UK, but the Government understand and value their role in preserving the nation's historic buildings and works of art. In his amendments, the hon. Gentleman attempts to tie a beneficial structure with a narrow purpose to the pre-owned assets that we shall discuss later. He is therefore inadvertently allowing some people with access to creative tax planning to reopen their heritage maintenance funds and plan their affairs, following changes introduced by the Bill, so that they are no longer liable for inheritance tax.
  2.15 pm
  As I have said, we accept the need for heritage maintenance funds, which is why the Government continue to provide certain tax privileges for them that are not threatened in any way by the Finance Bill. The hon. Gentleman's amendments would expand those privileges. Property may be transferred into a settlement free of inheritance tax if the income from that property is used for the preservation of land, buildings or objects of artistic or historic interest. Payments made by a heritage maintenance fund and used for the maintenance of a property are not treated as the income of the person occupying that property. Heritage maintenance funds feature in a number of exclusions from capital gains tax anti-avoidance rules. The Government's position is therefore clear: we support the use of these funds for genuine heritage purposes, but we will not agree to amendments that seek to extend those privileges or allow a small number of extremely wealthy people—there are only 150 trusts—to have a vehicle to circumvent the requirement that property and works of art should be subject to inheritance tax or treated as pre-owned assets.
  The hon. Gentleman has not explained why the current structure of the heritage maintenance funds does not work or why it should be amended. He has not revealed any flaws in it or a lack of support for the maintenance of historic buildings. His amendments seek to allow greater benefits than is justified, so I shall not support them should he put them to a vote. However, he sought confirmation of something that I confirmed earlier in Committee. Yes, the Inland Revenue has discussions with the Historic Houses Association. We have similar discussions with the Department for Culture, Media and Sport about how to preserve our heritage, works of art and designated property or land while maintaining the principles and the balance of the tax system. I cannot assure the hon. Gentleman that his amendments will eventually be accepted in those discussions, but I can reassure him that the Government will continue to play an active part by engaging with all relevant bodies to ensure the continued preservation of this country's heritage. The taxpayer can play a role in that, whether through tax exemptions or specific structures. On that basis, I ask the hon. Gentleman not to press the amendment to a vote, but if he feels that he needs to do so, I would ask my hon. Friends to oppose the amendment.
  Mr. Flight: The Paymaster General failed to respond to the first and last of the territories that I raised. The first territory has nothing to do with the pre-owned assets charge, and simply concerns the rise in the tax charge on maintenance funds from 34 to 40 per cent.

  869
  The full programme of Government changes to the taxation of trusts makes sense in that a full look through will occur, and taxation will fall to the tax rate of the beneficiary, which seems to be a sensible approach. However, that approach is not relevant to increases to the tax rate on maintenance funds. It is inconsistent for the Government to leave the tax charge on vehicles for the vulnerable at 34 per cent., while increasing the tax charge on vehicles for looking after properties. Although buildings are not as important as individuals, it seems unreasonable not to consider that point.
  Dawn Primarolo: The hon. Gentleman misses the point. The income and gains arising in respect of the property and heritage maintenance fund will be taxed either at the marginal tax rate of the person who settled the property into the trust or the trust-applicable rate. The basic rate taxpayer will pay tax at the basic rate, and the higher rate taxpayer will pay tax at the higher rate, which is perfectly reasonable. The hon. Gentleman is asking for the higher rate taxpayer to pay at a lower rate and for the basic rate taxpayer to pay at the basic rate, which cannot be fair.
  Mr. Flight: The Paymaster General misses the point that those vehicles are not tax wraps from which individuals benefit, because the money goes into the maintenance of a property rather than into an individual's pocket. The point of maintenance funds is to allow people both to own and to look after an historic property. The situation is riot analogous to a trust where an individual is the beneficiary and draws the income for their personal benefit.
  The second territory is the technical point that the section 691 election becomes redundant as a result of the changes to the taxation of trusts, and it seems to me that it is technically rather inappropriate to have exemptions continuing that are dependent on tax issues that have gone away.
  The Paymaster General does not understand this point as I understand it, but if she were involved in the wretched business of maintaining an historic house—not that I own one—perhaps she would. People structure their affairs in various different ways in order to ensure that their properties are looked after and handed on to the next generation to look after. Those arrangements are not about pulling a fast one on the Revenue, and essentially concern the maintenance of historic houses.
  Those who were unwise enough to believe what the Inland Revenue told them and the implication of the Government's actions, which we shall debate shortly, and who chose to structure their arrangements in order to fall into the category that the Government are now attacking with their retrospective pre-owned assets tax, will not have enough money to pay for their properties, which will have to be disposed of. If that is what the Government want, then that is fine.
  The issue concerns worthwhile buildings rather than people, and a fairer tax system would provide a transition relief to allow people to choose to alienate themselves from their property, which they could put into a maintenance fund with money to look after it. People might have done that in the past, if they had known that the rules would change retrospectively. The
  870
  situation does not concern people having their cake and eating it, and one must examine who benefits from the individuals involved, who are not individual beneficiaries, alienating the assets.
  I tabled the amendments as probing amendments, and in the hope that reasonable people in the Revenue would think about them further. I beg to ask leave to withdraw the amendment.
  Amendment, by leave, withdrawn.

Clause 30

  PROVISION NOT AT ARM'S LENGTH: TRANSACTIONS BETWEEN UK TAXPAYERS ETC.
  Amendment made: No. 71, in page 24, line 10, at end insert
  and
  (c) at the end of the paragraph insert—
  "(7) In determining for the purposes of sub-paragraph (1) above the amount that would be taken for tax purposes to be the amount of the profits or losses for a year of assessment in the case of a person who is not resident in the United Kingdom, there shall be left out of account any income of that person which is—

  excluded income for the purposes of section 128 of the Finance Act 1995 (limit on income chargeable on nonresidents: income tax), or

  income to which section 151 of the Finance Act 2003 applies (non-resident companies: extent of charge to income tax).".'.—[Dawn Primarolo.

Clause 44

  INSURANCE COMPANIES: TRANSITIONAL PROVISIONS
  Amendments made: No. 72, in page 53, line 23, at end insert '(a), (c) or (ca),'.
  No. 73, in page 53, line 32, after '76(1)(aa)', insert ', (a), (c) or (ca)'.—[Dawn Primarolo.

Schedule 8

  LOAN RELATIONSHIPS: MISCELLANEOUS AMENDMENTS
  Amendments made: No. 74, in page 303, line 26, leave out 'Schedule' and insert 'Chapter'.
  No. 75, in page 303, line 38, leave out 'Schedule' and insert 'Chapter'.—[Dawn Primarolo

Schedule 10

  AMENDMENT OF ENACTMENTS THAT OPERATE BY REFERENCE TO ACCOUNTING PRACTICE
  Amendments made: No. 76, in page 308, line 40, after 'debit' insert
  '(in the case of an asset) or credit (in the case of a liability)'.
  No. 77, in page 308, line 42, after 'credit' insert
  '(in the case of an asset) or debit (in the case of a liability)'.
  No. 78, in page 309, line 6, after 'credit' insert
  '(in the case of an asset) or debit (in the case of a liability)'.
  No. 79, in page 309, line 8, after 'debit' insert
  '(in the case of an asset) or credit (in the case of a liability)'.
  No. 80, in page 310, line 4, leave out paragraph 10 and insert—
  '10 Omit section 92A of that Act (convertible securities etc: debtor relationships).'.
  No. 81, in page 311, line 11, after 'instruments' insert `or equity instruments'.
  No. 82, in page 322, line 1, leave out from beginning to 'derive' in line 10 and insert—
  Power to make further provision by regulations
  17C (1) The Treasury may by regulations make provision—

  excluding amounts of a prescribed description from paragraph 17B(1);

  requiring amounts of a prescribed description that do not fall within paragraph 17B(1) (by virtue of regulations under paragraph (a) above or otherwise) to be brought into account in determining a company's profit or loss for a period in prescribed circumstances;

  (c) as to the manner in which any such amounts are to be brought into account.

  (2) The regulations may (in particular) make provision by reference to the fact that amounts'.
  No. 83, in page 322, line 16, leave out from beginning to end of line 18 and insert—
  '() Regulations under this paragraph may apply, exclude or modify any of the provisions of this Schedule in relation to cases for which provision is made by the regulations.".'.
  No. 84, in page 329, line 24, leave out paragraphs 77 and 78 and insert—
  '77 For sections 92 to 94AB of the Finance Act 1993 (c. 34) (corporation tax: currency) substitute—

  AMENDMENT OF ENACTMENTS THAT OPERATE BY REFERENCE TO ACCOUNTING PRACTICE

    Corporation tax: currency
    92 The basic rule: sterling to be used

    (1) For the purposes of corporation tax the profits of a company for an accounting period must be computed and expressed in sterling.

    (2) The following sections contain further provision as to the application of subsection (1) to certain profits or losses falling to be computed in accordance with generally accepted accounting practice—

    section 92A (company operating in sterling and preparing accounts in another currency);
    section 92B (company operating in currency other than sterling and preparing accounts in another currency);
    section 92C (company preparing accounts in currency other than sterling).
    92A Company operating in sterling and preparing accounts in another currency
    (1) This section applies if, for a period of account, in accordance with generally accepted accounting practice, a company resident in the United Kingdom—

    prepares its accounts in a currency other than sterling, and

    in those accounts identifies sterling as its functional currency.

    (2) Profits or losses of the company for the period that fall to be computed in accordance with generally accepted accounting practice for corporation tax purposes must be computed in sterling as if the company prepared its accounts in sterling.
    92B Company operating in currency other than sterling and preparing accounts in another currency
    (1) This section applies if, for a period of account, in accordance with generally accepted accounting practice—

    a company resident in the United Kingdom prepares its accounts in one currency,

    in those accounts it identifies another currency as its functional currency, and

    that currency is not sterling.

    (2) Profits or losses of the company for the period that fall to be computed in accordance with generally accepted accounting practice for corporation tax purposes must be computed in sterling by—

    computing those profits or losses in the functional currency as if the company prepared its accounts in that currency, and

    taking the sterling equivalent of those profits or losses.

    (3) Where this section applies, it shall be assumed that any sterling amount mentioned in the Corporation Tax Acts is its equivalent expressed in the functional currency of the company.
    92C Company preparing accounts in currency other than sterling
    (1) This section applies in relation to a company resident in the United Kingdom if, for a period of account—

    the company prepares its accounts in a currency other than sterling (the "accounts currency"), and

    neither section 92A nor section 92B applies.

    (2) This section also applies in relation to a company that is not resident in the United Kingdom if, for a period of account, the company prepares its return of accounts in a currency other than sterling (the "accounts currency").
    (3) Profits or losses of the company for the period that fall to be computed in accordance with generally accepted accounting practice for corporation tax purposes must be computed in sterling by—

    computing those profits or losses in the accounts currency, and

    taking the sterling equivalent of those profits or losses.

    (4) Where this section applies, it shall be assumed that any sterling amount mentioned in the Corporation Tax Acts is its equivalent expressed in the accounts currency of the company.
    92D Translating amounts into equivalent in different currency
    (1) Where, for the purposes of computing the profits or losses of a company for an accounting period, an amount is required by section 92B or 92C to be translated —

    into its sterling equivalent, or

    into its equivalent expressed in the functional currency or the accounts currency of the company,

    the translation must be made by reference to the appropriate exchange rate.
    (2) The "appropriate exchange rate" is—

    the average exchange rate for the current accounting period, or

    an appropriate spot rate of exchange for the transaction in question.

    92E Meaning of "accounts", "return of accounts" and "functional currency"
    (1) References in sections 92A to 92C to the "accounts" of a company resident in the United Kingdom are to—

    the annual accounts of the company required by Part 7 of the Companies Act 19B5 or Part 8 of the Companies (Northern Ireland) Order 1986; or

    873

    if the company is not required to prepare such accounts, the accounts which it is required to keep under the law of the country or territory under whose laws the company is incorporated; or

    if the company is not so required to keep accounts, such of its accounts as most closely correspond to accounts which it would have been required to prepare if the provisions of Part 7 of the Companies Act 1985 applied to it.

    (2) The reference in section 92C to the "return of accounts" of a company not resident in the United Kingdom is to a return of such accounts of its permanent establishment in the United Kingdom as may be required by the Inland Revenue under paragraph 3 of Schedule 18 to the Finance Act 1998 (company tax returns).
    (3) References in sections 92A, 92B And 92D to a company's "functional currency" are to the currency of the primary economic environment in which the company operates.".

    Consequential amendments
    78 (1) Section 730BB of the Taxes Act 1988 (exchange gains and losses on sale and repurchase of securities) is amended as follows.
    (2) In subsection (2)(c) for the words from "section 93 of the Finance Act 1993" to "sterling)" substitute "section 92B or 92C of the Finance Act 1993 (company preparing accounts or operating in currency other than sterling)".
    (3) In subsection (3)—

    in paragraph (a) for "section 93 of the Finance Act 1993" substitute "section 92B or 92C of the Finance Act 1993 (company preparing accounts or operating in currency other than sterling)";

    in paragraph (b) for the words from "relevant foreign currency" to "the company" substitute "relevant currency".

    paragraph (c)(i) and (ii) for "relevant foreign currency" substitute "relevant currency".

    (4) After subsection (3) insert—
    "(3A) In subsection (3), references to the relevant currency are—

    in cases in which section 92B of the Finance Act 1993 applies, to the functional currency (within the meaning of that section), and

    in cases in which section 92C of the Finance Act 1993 applies, to the accounts currency (within the meaning of that section)."

    (5) Omit subsection (12).'—[Dawn Primarolo.]

  Schedule 11

    CONDITIONS FOR REGISTRATION FOR GROSS PAYMENT
    Amendments made: No. 85, in page 333, line 42, leave out
    'periods ending at a time within that period when'
    and insert
    'the period or periods within the qualifying period during which'.
    No. 86, in page 334, line 20, leave out 'ending'.
    No. 87, in page 334, line 37, leave out
    'ending after the end of
    and insert 'after'.
    No. 88, in page 336, line 23, leave out
    'ending after the end of
    and insert 'after'.
    No. 89, in page 339, line 2. leave out 'ending after the end of'
    and insert 'after'.—[Dawn Primarolo.]

  Clause 67

    REGISTRATION FOR GROSS PAYMENT: APPEALS
    Amendment made: No. 90, in page 70, line 7, leave out 'High Court' and insert
    'appropriate court.
    (6) In this section "the appropriate court" means—

    in relation to England and Wales, the High Court;

    in relation to Scotland, the Court of Session, as the Court of Exchequer in Scotland;

    in relation to Northern Ireland, the Court of Appeal in Northern Ireland.'.—[Dawn Primarolo.]

  Schedule 15

    CHARGE TO INCOME TAX ON BENEFITS RECEIVED BY FORMER OWNER OF PROPERTY
    Mr. Flight: I beg to move amendment No. 1, in page 356, line 20, at beginning insert
    'Subject to sub-paragraph (6) below,'.
    Madam Deputy Speaker: With this it will be convenient to discuss the following:
    Amendment No. 2, in page 356. line 26, leave out '17th March 1986' and insert '19th June 2003'.
    Amendment No. 45, in page 356, line 26, leave out '17th March 1986' and insert `9th December 2003'.
    Amendment No. 3, in page 356, line 35, leave out '17th March 1986' and insert '19th June 2003'.
    Amendment No. 46, in page 356, line 35, leave out `17th March 1986' and insert `9th December 2003'.
    Amendment No. 4, in page 356, line 48, at end insert—
    '(6) This paragraph will not apply where the chargeable person occupies the relevant land pursuant to a right or interest granted or acquired at least seven years before the earliest date on which the disposal condition or the contribution condition was met.'.
    Amendment No. 5, in page 358, line 36, leave out '17th March 1986' and insert '19th June 2003'.
    Amendment No. 47, in page 358, line 36, leave out '17th March 1986' and insert '9th December 2003'.
    Amendment No. 6, in page 358, line 44, leave out '17th March 1986' and insert '19th June 2003'.
    Amendment No. 48, in page 358, line 44. leave out '17th March 1986' and insert '9th December 2003'.
    Amendment No. 7, in page 360, line 17, at beginning insert
    'Subject to sub-paragraph (4) below,'.
    Amendment No. 8, in page 360, line 30, leave out '17th March 1986' and insert '19th June 2003'.
    Amendment No. 49, in page 360, line 30, leave out '17th March 1986' and insert '9th December 2003'.
    Amendment No. 9, in page 360, line 34, at end insert—
    '(4) This paragraph shall not apply where—

    the chargeable person has a reversionary interest in the settlement (as defined by section 47 Inheritance Tax Act 1984); or

    the chargeable person's interest in the settlement arises only on the termination of the settlement; or

    in the case of a settlement where there is no subsisting interest in possession, the chargeable person is not currently a member of the class of beneficiaries of the settlement; and

    where the chargeable person has no other interest in the settlement.'.

    Amendment No. 225, in page 360, line 40, leave out
    'of any income tax or capital gains tax'
    and insert
    'on which any income tax or capital gains tax is'.
    Amendment No. 10, in page 361, line 36, at end insert—
    '(f) it is a sale of an interest in land or an undivided share of an interest in land for full consideration in money or money's worth.'.
    Amendment No. 226, in page 361, line 48, leave out from 'and' to the end of line 2 on page 362 and insert
    'the gift and the acquisition referred to in the said paragraphs were not associated operations as defined by section 268 of IHTA 1984.'.
    Government amendment No. 91.
    Amendment No. 227, in page 362, line 44, leave out 'and' and insert 'or'.
    Government amendments Nos. 92 and 93.
    Amendment No. 44, in page 363, line 45, leave out £15,000' and insert £50,000'.
    Government amendments Nos. 94 to 108.
    Amendment No. 11, in page 366, line 41, at end insert—
    '24 (1) This paragraph applies where—

    the provisions of paragraph 3 (land), paragraph 6 (chattels) or paragraph 8 (intangible property) apply to a person during the year of assessment 2004–05 ("the current year") by reference to any property ("the relevant property"); and

    the relevant property is transferred absolutely to the chargeable person during the current year or during the year of assessment 2005–06 either directly or by "associated operations" (as defined by section 268 of the Inheritance Tax Act 1984).

    (2) Where this paragraph applies, no operation by which the relevant property is so transferred shall—

    be a disposition or transfer of value for the purposes of the Inheritance Tax Act 1984,

    be subject to Inheritance Tax under section 65(1) of the Inheritance Tax Act 1984,

    be a disposal for the purposes of paragraphs 3 and 6 above,

    be subject to Stamp Duty Land Tax; and

    the receipt of the relevant property by the chargeable person shall not be subject to Income Tax.

    (3) If any operation by which the property is so transferred constitutes a disposal for the purposes of the Taxation of Chargeable Gains Act 1992, the person making the disposal and the person acquiring the property shall be treated as if the asset was acquired from the person making the disposal for a consideration of such amount as would secure that on the disposal neither a gain nor a loss would accrue to the person making the disposal.'.
    Mr. Flight: The Government's pre-owned assets measures, which are embodied m clause 84 and schedule 15, have elicited more complaint from constitutional lawyers and others than anything else in the Bill. I have been deluged with letters., e-mails and other communications from eminent lawyers, a group of whom are considering taking the matter to the European Court of Justice. Those complaints are made with good reason. What the Government saw as a clever manoeuvre raises major issues of principle in relation not only to the basis of taxation, but to the rule of law; and all sorts of unfairnesses were not fully remedied by the amendments that were passed in Committee. I accept that the Government have addressed some of the worst effects—unintended, I trust—of the measures, but there is still a lot to be considered.
    2.30 pm
    One aspect of the provision that has given rise to objections is its application to individuals whom the Inland Revenue has previously accepted as being outside the gifts with reservation rules. Its alleged intent is to recoup the tax and punish people who had avoided the gifts with reservation rules. It also applies to some individuals who fall within statutory gifts with reservation exemptions, which were introduced by this Government.
    However, the main objection to the provision is that it is retrospective in principle, even if cleverly designed to be retroactive in method. It undermines the traditions of British tax law because the legitimate and reasonable expectations of taxpayers have been denied. It is clearly a piece of inheritance tax legislation in substance, if not in form. The Government's previous policies on inheritance tax cannot be ignored, and must be examined in relation to these proposals.
    Rob Marris: Will the hon. Gentleman explain how his intellectual proposition differs from what his party did in government when they tapered off, then completely abolished, mortgage interest relief? When we took out our mortgage in 1984, we got mortgage interest relief-that was the reasonable expectation, to use the hon. Gentleman's words. When that was done away with, I happened to support it, but one could have advanced the same argument about retrospectivity in that case.
    Mr. Flight: I ask the hon. Gentleman, whose contributions I greatly respect, to be patient, as I was about to go on to explain just that point. As he is well aware, the issue was raised in Committee.
    Amendments Nos. 2, 3, 5, 6 and 8 would restrict the starting date of the measure to 19 June 2003, as that was the date on which the Government last amended the gifts with reservation rules. They gave no indication that those changes should have retrospective effect.

    877
    Correspondingly, and perfectly reasonably, any taxpayer who had undertaken planning under previous versions of the gifts with reservation rules would have been led to understand that their planning had achieved its objectives. Indeed, in summer 2000, Mr. Peter Twiddy of the Inland Revenue capital taxes office specifically confirmed to the Society of Trust and Estate Practitioners that that was the case. That differs greatly from what Governments do in relation to various tax reliefs, whether to mortgages or pension savings. Individuals who had completed their planning would have acted accordingly. Many took out life policies on a seven-year-term basis to cover the tax liability were they to die within seven years of their gift, but they could have reduced their whole of life cover. They would not have organised their financial affairs on the basis that they would need to pay a rent to live in their own homes.
    If the Government had wished to introduce a new income tax in relation to occupation, it would not, much as one might have generally objected to it, have been seen as retrospective. The issue here is that the provision is concerned in substance with inheritance tax and that it is narrow and penal.
    Rob Marris: As the hon. Gentleman knows, I served on the Standing Committee that considered the Bill. My recollection—he will correct me if I am wrong—is that under these provisions the taxpayer is put to an election as to whether they go into the new regime or, so to speak, have the house back and do not pay a rent or quasi-income tax on it. The taxpayer is not forced into one position or the other, but has a choice.
    Mr. Flight: Again, the hon. Gentleman anticipates me, because one of my subsequent points deals with what would be a fair transitional relief. The whole principle underlying British law in this territory is that in such circumstances transitional relief is fair; for reasons that I will deal with later, in this case it is not fair.
    Mr. John Burnett: Does the hon. Gentleman agree that the choice is not as simple as that, but is more like Hobson's choice in certain circumstances? For example, to avoid French inheritance tax laws, shares may be owned by a company that owns property in France. In those circumstances, the shares might attract relief but the property does not. That has most unfortunate consequences.
    Mr. Flight: I thank the hon. Gentleman for his intervention; again, I will come to that in due course.
    Amendments Nos. 9 and 7 would exclude from a pre-owned assets charge those interests in trusts that have never been treated as gifts with reservation, or may not be gifts with reservation depending on the facts. Where the settlor has settled property in a trust for a limited period after which the property reverts to him, the inheritance rules have always included a settlor's future right—his reversionary interest—as part of his estate, valuing it on an actuarial basis. That is, if the settlor recovers the property in a month's time, his interest is more valuable than if he recovers it in 25 years' time; that is perfectly rational. As a result, the gifts with reservation rules have never needed to apply.
    878
    Under the pre-owned asset rules, however, the settlor effectively gets a credit for the value of the reversionary interest, but is nevertheless subject to income tax on the property in the trust, notwithstanding that he cannot benefit for another 25 years. Surely that is perverse.
    Rob Marris: I venture to the hon. Gentleman that he is confusing a gift with a reservation of benefit—a concept that was introduced by his Government in the late 1980s—with a reversionary interest of a settlor. Those are two separate things, but he is eliding them.
    Mr. Flight: Gifts with reservation of whatever kind have all been subject to the existing rules. The application of inheritance tax in relation to all the different situations involving gifts with reservation is covered by one territory. The hon. Gentleman says that these provisions date from when the Conservatives were in power, but I do not see why that makes much difference.
    Mr. Burnett: I fail to perceive the relevance of the previous intervention. My understanding is that gifts of reversionary interest do not attract inheritance tax.
    Mr. Flight: That is precisely the point—we are considering something that previously did not attract inheritance tax. I look forward to an engaging debate between the hon. Member for Torridge and West Devon (Mr. Burnett) and the hon. Member for Wolverhampton, South-West (Rob Marris) on the subject.
    When a settlement is badly drafted, the settlor frequently retains no interest in it while it subsists. However, if it comes to an end and there are no living beneficiaries, the settled assets revert to the settlor by operation of law, by way of what is known as a resulting trust. In all likelihood, the settlor will never benefit from the settled assets but the possibility of benefits means that section 660A of the Taxes Act 1988 applies. If it is accepted that such circumstances do not constitute gifts with reservation, the amendment would ensure that such arrangements escaped the pre-owned assets charge.
    It could be argued that a person who is not a beneficiary of a discretionary settlement but can be added as a beneficiary does not reserve a benefit in the settled property for gifts with reservation purposes, notwithstanding that section 660A would apply. Again, the amendment would keep settlors who are not currently beneficiaries out of a pre-owned assets charge. Of course, they would be covered by the charge if and when they were added as beneficiaries.
    Amendment No. 10 would tackle the most ridiculous aspect of the pre-owned assets rules: that sales of part interest in property for full consideration are caught by the rules. If a child moves in with a parent, who gives the child half a share in the property, there is currently no pre-owned assets charge. However, if the child pays full consideration for the half share, there is such a charge. The Paymaster General suggested that she was worried about opening the door to possible avoidance but it appears that she is far more concerned about the possibility of catching innocent parties. She has failed to identify the mischief that she claims she intends to counter.

    879
    As matters stand, the arrangements have a serious impact on equity release schemes, which are a growing source of revenue for the elderly in the light of the disastrous effect of the Government's policies on pensions saving. The Paymaster General promised to come back to me about that matter, which I raised in Committee, but the Government have tabled no amendment to paragraph 10(1)(a). That means that someone who has an equity release scheme either with a member of the family or a commercial provider will be caught by income tax. That is ridiculous. I have been told confidentially that the Government's view is that not many people have yet prepared equity release schemes and therefore the schemes do not matter. However, many more, in ignorance of the extraordinary tax trap, will take them up. Even if the numbers are not great, new laws should be fair and reasonable.
    The problem is that the pre-owned assets legislation merely requires a disposal, not necessarily a gift, and occupation of the property. The paragraph 10 exemption lets people off pre-owned asset income tax only if there is a sale of their entire interest in the property, except for any right expressly reserved over it. That would not cover sales of, for example, a half share in the freehold, which is part of the typical equity release scheme contract.
    The reference to non-exempt sales that was made in Committee does not deal with the problem because a sale of the entire interest in the land is required and we are referring to sales below value. The contrary aspect is that someone who had arranged to retain a lease and sell the freehold, subject to that lease, for full consideration, would not be affected by the pre-owned assets charge. The result would be essentially the same but via a different legal route. By contrast, selling half the unencumbered freehold in the property—a more typical transaction for the ordinary elderly citizen—is not covered.
    2.45 pm
    In the past, the Financial Times has discussed equity release schemes and the pros and cons in some detail. The Government have supported measures to get equity release schemes satisfactorily regulated by the Financial Services Authority. They are a growing fact of life today. However, many people who have done equity release schemes will not realise that there is an income tax, pre-owned assets charge in those circumstances.
    Amendment No. 11 deals with the transition that the hon. Member for Wolverhampton, South-West raised. It would allow arrangements for those who are caught by the pre-owned assets rules to be unwound without incurring any tax charges and with any potential capital gains in the assets intact. That means that there would be no capital gains tax disadvantage in the process and that the basis of unwinding would be fair.
    The Government's current policy of expecting people who are caught by the new rules to elect into a gifts with reservation charge is penal because the property would be back in the estate for inheritance tax purposes but would continue to belong to the donee. There is therefore an element of double inheritance taxation. As I argued at great length in Committee, there would be no
    880
    capital gains tax uplift for the asset on death. Historically, only the ignorant or badly advised got into gifts with reservation positions. The amendment would introduce fairness into the transitional arrangements by giving people a genuine opportunity to unwind the clock. The Paymaster General complained that only those who wanted to effect new planning would want to do that, but that is unreasonable. People who have to unwind their arrangements will be reluctant to embark on new planning, unless it is specifically endorsed as acceptable. Indeed, that is the Government's intention with the pre-owned assets charge penalty.
    I come now to amendment No. 225. As drafted, the schedule charges tax on the notional annual value after deducting the tax already paid. Surely the deduction should be based on the value on which the tax is paid so that there is no double charge to tax. In other words, 40 per cent. of 100 per cent. net of tax already paid produces a tax charge of 64 per cent., not the intended 40 per cent.
    Amendment No. 226 relates to paragraph 2(b) of schedule 6 of the Inheritance Tax Act 1984, which provides that the reserved gift-tracing provisions do not apply to a gift that is a sum of money in sterling or another currency. That provision follows the former estate duty tracing provisions in section 38 of the Finance Act 1957. The purchase of a property from a benefit may be reserved with a cash gift, which is chargeable only if the purchase and the gift can be regarded as associated operations.
    The problem of tracing cash gifts was discussed in Committee but the pre-owned assets charge should not be used to rewrite schedule 20 of the Finance Act 1986. A gift of cash that is unconnected with a subsequent purchase by a donor from which the donee may benefit is not and never has been a gift with reservation.
    I want to consider problems with the interpretation of section 102C(3) of the Finance Act 1986. It deals with disposals of land after March 1999 and states that there is no reservation of benefit when a donor reverts to occupation due to unforeseen hardship. Paragraph 6 to schedule 20 of the 1986 Act deals with all disposals since March 1986, and states that there is no reservation of benefit where the donor occupies land or chattels for full consideration or reoccupies land due to hardship.
    Paragraph 11(3)(d) to schedule 15 states that the provisions
    "would fall to be so treated but for section 102C(3) of, and paragraph 6 of Schedule 20 to, the 1986 Act".
    The intention is to ensure that, in those circumstances, there is also no income tax charge, but there has been confusion about the use of the word "and" in the above sentence. The effect of the word "and", inserted by amendment No. 141, appears to require both the reliefs covered to apply together to avoid the income tax charge, which most legal specialists believe is not the Government's intention. Does this mean that the conditions of section 102C(3) and paragraph 6 have to be satisfied? If so, the relief from income tax is confusing because it would apply in extremely limited circumstances. Or does it mean that if either section 102C(3) or any of the paragraph 6 conditions are satisfied, there is no income tax charge? This is an important point, because people frequently make gifts

    881
    of chattels or land, and pay a full market value for their use and occupation, and they need to know whether they are in the income tax charge or not.
    Rob Marris: Will the hon. Gentleman remind me from whose brief he is reading?
    Mr. Flight: The hon. Gentleman will pleased to know that it is from an eminent tax counsel.
    The Inland Revenue has confirmed that section 102C(3) covers circumstances not covered by paragraph 6, and that the "and" should therefore be read disjunctively, so that it covers the two distinct cases. I would therefore ask the Paymaster General to confirm that what was previously paragraph 11(1)(d) and is now paragraph 11(3)(d), which states
    "would fall to be so treated but for section 102C(3) of, and paragraph 6 of Schedule 20 to, the 1986 Act"
    refers to two distinct cases, with the effect that the "and" in the sentence should be read disjunctively?
    There also seems to be an omission, because the provision does not cover gifts of land made post-1999, which might be caught only by section 102A or 102B, but where the donor pays full consideration for his occupation of gifts of a share in land. This point has been raised with the Revenue. I trust that the Paymaster General will be aware of these somewhat exotic legal points. More seriously, they illustrate the mistake of not thinking through all the implications of these provisions in such complicated tax areas.
    Dawn Primarolo: I would not describe them as exotic legal points. I would describe them as probing the limits of possible future ways of getting round the legislation.
    Mr. Flight: I am afraid that the Paymaster General's slant on that is incorrect. The law needs to be clear, and many aspects of the Bill are not clear. It is the duty of the Paymaster General to ensure that the law is clear.
    The reaction of the lawyers to Government amendment No. 91 is that it is another case of a lack of clarity. Is the intent that if a property falls within paragraph 11(3)(b), there will be no pre-owned assets charge to be adjusted under 11(3)(a), even though the amendment does not appear to affect amendment No. 227?
    There are other more straightforward areas of the Bill that have yet to be sorted out fairly. I understand that the Revenue is talking to the Historic Houses Association about the issue of historic chattels that belong to a property, and that it now understands the issue and is considering addressing it in its continuing consultations. It seems simple to me that, when chattels are settled and on public view for the normal number of days required for them not to be exempt, and when there is a heritage connection with the building, it would be foolish not to exempt them. They would simply be stored in a barn where no one would be able to see them and they would come to no good, or they would be sold. There would be no benefit to anyone.
    It is still not clear whether a full repairing lease at fair market rent would be acceptable—
    Madam Deputy Speaker: Order. Will the hon. Gentleman help the Chair and other Members by telling us to which amendment he is speaking?
    Mr. Flight: In truth, I do not think that I can. These points relate to all the amendments to schedule 15, which still await clarification. I am about to conclude, but I was giving examples of areas that still need to be tidied up. A lot of problems and unfairnesses need to be addressed. I understand that the Government and the Inland Revenue intend to address these and other issues that have not yet been resolved, either through guidance notes or, if necessary, through legislative changes to schedule 15, before the Bill passes into law.
    This whole area is regarded too lightly by the Government on the ground that it apparently affects only a small number of people. Important issues of principle in relation to retrospection are involved, and important issues of practice in relation to fair transition arrangements and to other areas not intended to be caught by the changes being thus caught.
    Mr. Burnett: I hope that the House will understand that this part of the Bill is causing widespread disquiet, and that, far from affecting only a few people, it could affect many millions of people in this country. I shall return to that point later. I hope that you will allow those of us who catch your eye, Madam Deputy Speaker, to range fairly widely on this matter. It is complex, and it is therefore difficult to be confined purely to the amendments before us.
    We support the Conservative amendments and the comments that have been made about the retrospective element of these provisions, which we believe is grossly unfair. It does not enable people to change and modify their personal affairs in time to meet what are effectively very punitive arrangements, as the hon. Member for Arundel and South Downs (Mr. Flight) has said. He referred particularly to the element of taxation on net rather than gross figures.
    It is a grave mistake to deal with actual as well as perceived inheritance tax defects by using income tax. The reason for that is pretty clear: it is ludicrous to have a nil rate band of inheritance tax of £250,000 and an income tax charge to overcome inheritance tax avoidance on pre-owned assets with a capital value of about £100,000. The Government increased the de minimis limit from £2,500 per annum to £5,000 per annum, but that is still too low. The Government seem to believe that a multiple of 20 is about the right amount, which would mean that we are talking about capital assets worth about £100,000 yielding £5,000.
    I want to make a couple of mundane points that will nevertheless be important to practitioners. Will the Paymaster General confirm whether the £5,000 per annum de minimis limit operates with a slab effect, as with stamp duty? If the £5,000 per annum de minimis limit is exceeded, does the whole sum come into taxation? In addition, will she let the House know whether it is possible to add to that £5,000 per annum de minimis limit the annual exemption and any other exemption, such as the exemption on gifts to children on marriage?
    3 pm
    Dawn Primarolo: This is a complex area. With regard to the £5,000, the hon. Gentleman asked whether it had a slab effect. I would call it a cliff-edge effect: essentially, if the value is £5,001, taxation would be paid on the

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    whole £5,001, not just on the £1 excess. On the issue of gifts for children, I will answer when I reply to all the amendments, as some amendments deal with that issue.
    Mr. Burnett: I am grateful to the Paymaster General. I think that she is saying that it has the cliff-hanger effect—[HON. MEMBERS: "Cliff edge."] I am grateful. We call it the slab effect with stamp duty, and it is the cliff-edge effect with inheritance tax.
    What horrifies me about this tax is that it criminalises the innocent. I referred to that in Committee, and I cannot understand why the Government are not sympathetic. The prices of property in this country are high, and it is prosperous—
    Dawn Primarolo: I understand that the hon. Gentleman feels strongly about this issue, but the proposed arrangements do not criminalise anyone. There are something like 32,000 IHT estates each year: five out of every 100 deaths. When people seek to avoid paying their tax, the arrangements make provision to bring it back in. While not wishing him to reduce the passion that he feels for this subject, I ask him not to mislead anyone: there is no criminality, and no criminal offence, in those proceedings.
    Mr. Burnett: I acknowledge that what the Paymaster General says is right: it would be criminal only if the taxpayer, who was held to have to pay tax, refused to do so. That would present possible criminal liability. Perhaps the language that I have used is slightly exaggerated. What I am saying is that the proposals will bring into account for taxation a number of people who had absolutely no idea whatever that the arrangements that they had innocently made brought them to account for an income tax charge. That is not criminal.
    Dawn Primarolo: I must press the hon. Gentleman on this point, because anyone listening to this debate will be entirely misled. There is not a criminal offence under those proposals. Evasion is a criminal offence that can be prosecuted, but those offences under the tax law are dealt with as civil offences. What is being proposed, however, is that people are not allowed to avoid the tax in the first place, and all good, fair taxpayers comply with that anyway.
    Mr. Burnett: I think that I made it quite clear that what the Paymaster General said in her first intervention on me was correct, and that perhaps I was using slightly exaggerated language. My point is that individuals will innocently be brought to account for income tax without the slightest inkling that the arrangements that they were making would involve any charge to taxation whatever. If she will allow me, I shall elaborate further on that point.
    This is not criminal liability—it could be if the tax was not paid, if a court order to pay the tax was made, and if, thereafter, it was not paid. Conceivably, that could be criminal liability. I shall give the example of a mother and her carer daughter. The daughter forsakes the opportunity to get on the housing ladder and moves in with her mother, who says to her daughter, who might be married or unmarried, "This house will be yours
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    when I die." The daughter spends a considerable amount of money improving the property, and I know from my constituency experience that there are many such families. I reckon that there are many such families throughout the country. There are hundreds of thousands or perhaps even millions of people in those circumstances.
    The mother and daughter—or people in any other relationship—do not realise that at that stage, or as the money is spent, the daughter has acquired an equitable interest in the property. The daughter owns some of the property. [Interruption.] Before the hon. Member for Wolverhampton, South-West (Rob Marris) intervenes, I will tell him that the gifts with reservation provisions would not bite in those circumstances, because owners of equitable interests would be entitled to enjoy property equally, disregarding the shares that they had, and they would not be caught with a reservation of benefit charge.
    As I said, the mother and daughter do not realise that the daughter has an equitable interest in the property. They have received no professional advice, because, of course, they did not know that there was any possible income tax charge that could have been accruing for years after those arrangements had been made. The mother dies, and this charge then falls into account. That is outrageous, and grossly unfair. The least that the Government could do, given the high prices of real estate and high rents, is to increase substantially the de minimis limit.
    Dawn Primarolo: We covered that point in Committee with regard to cases in which the carer moves into the home of the person receiving care, and in relation to the more unusual cases in which somebody moves into a house that they used to own to care for somebody, with the result that they end up with such an interest. He knows that that interest will not be enjoyed for no consideration. and that the schedule 15 charge is most unlikely to arise. We went through that in Committee, with examples, and I implore the hon. Gentleman, while he wishes to discuss this clause, not to raise issues that he knows are settled, and that will not arise under the arrangements provided for. He could be frightening people totally and utterly unnecessarily.
    Mr. Burnett: I am grateful to the Paymaster General for saying that, but she chose her words carefully: she said that the charge is most unlikely to arise. It should not arise at all. I have been to meetings with professional bodies to discuss this matter, and I have asked the question that I have posed to the Paymaster General. At those meetings were some of the most eminent tax lawyers and tax accountants in the country. They could not give me a definitive ruling one way or another. It is absolutely wrong and outrageous that those people should be in any jeopardy whatever. It should be made entirely clear in the Bill that there is no jeopardy.
    Dawn Primarolo: I am grateful to the hon. Gentleman for giving way again, but I have given him this explanation and assurance both as a Minister and on the advice from the Inland Revenue. He seeks to counter-pose advice that he has from some tax experts. I say to him again: that may be their view, but it does not make it right. People listening to these proceedings would get

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    the wrong impression, and many could be frightened by the suggestion that something is going to happen to them when it is not.
    Mr. Burnett: I repeat the Paymaster General's words. She told the House a moment ago that the charge is most unlikely to arise. It should not arise, and that should be absolutely clear.
    Mr. John Gummer: Is not the hon. Gentleman right not only on the specific point that the Minister should be able to say that the charge will not arise, but on the more general point that people will be frightened because the legislation is too complicated to make it reasonable for ordinary people leading ordinary lives to deal with it? 1 he complexity of the legislation frightens people.
    Mr. Burnett: The right hon. Gentleman is exactly right and I entirely agree. The self-assessment aspect of this stuff is even more confounding and difficult. Goodness knows what the average person will think when confronted by their liabilities, and so on. It is difficult enough for specialist professional lawyers and accountants. The provisions are a sledgehammer to crack a nut. The matter should have been resolved not by the income tax route, but by the inheritance tax route. The legislation is an appalling mess.
    I am grateful to you, Mr. Deputy Speaker, for allowing us to range fairly widely in this debate. I shall raise one or two other points. There is a mismatch between the gifts with reservation of benefit exemption and the pre-owned assets provision. I alluded to it in an intervention on the hon. Member for Arundel and South Downs. I gave the example of a private company—say, a French property company—owned by a father who give shares to his children but continues to live in the house owned by the company. He thus reserves the benefit of the assets—that is, the shares gifted—and those, quite properly, remain subject to inheritance tax in his estate. Paragraph 11(3)(a) of schedule 15 seeks to prevent a double charge by exempting from the pre-owned assets provisions property so subject to the gifts with reservation rules. However, the relevant property for the pre-owned assets provisions is not the shares, but the house. Will the Paymaster General correct that defect in the legislation?
    On the complexity of the self-assessment regime and the de minimis provisions, I referred to the problem that could affect many thousands of people and I have not received a precise answer from the Minister on that point. The provisions in paragraph 15 will lead to incredible expense for a great many individuals, who will have to take professional advice. The gifts with reservation of benefit rules at least fell to be interpreted mainly by those who dealt with estate planning professionally or as executors.
    In general, the provisions are a highly complex attempt to patch up deficiencies in one tax code by introducing a different code altogether or attempting to fit the two together. The pieces of the jigsaw do not fit. The provisions are unfair and over-complex, and the Government should think again.
    Rob Marris: I shall try to clear up one point. There was a three-way debate on amendment No. 9 before you
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    arrived, Mr. Deputy Speaker. There is a difference between a gift with a reservation of benefit, and a reversionary interest. A gift with a reservation of benefit means that one does not quite give it all away. A reversionary interest means that one gives it all away, but one might want some of it back later. There is a difference.
    Mr. Flight: The House understands that. The issue is whether, how and when the latter falls within the gifts with reservation rules. That is what I was referring to.
    3.15 pm
    Rob Marris: The House understands the difference. It seemed clear that the hon. Gentleman did not understand it when he was explaining the reasons behind amendment No. 9. I am glad we now have some clarity on the matter. Amendment No. 9 may not address all the issues that the hon. Gentleman wishes it to address because, I suspect, it may be technically deficient, leaving aside the question of whether the concept is desirable or not.
    The debate on this group of amendments has been revealing. At heart Conservative Members do not like inheritance tax, but they will not say so. There is a flavour of that in the remarks of the hon. Member for Torridge and West Devon (Mr. Burnett). The right hon. Member for Suffolk, Coastal (Mr. Gummer) speaks about ordinary people leading ordinary lives. Most people who die in the United Kingdom do not even leave a will, let alone get involved in estate planning, tax planning and so on. Those who get involved in the kind of schema that will be addressed by the proposals are people who have thought about estate planning, or death duties, to use the old phrase, and about capital transfer tax, as was, or inheritance tax, as now is. Unless they are professionals, they will almost invariably have sought professional advice.
    Mr. Burnett: The hon. Gentleman made some fine contributions in Committee. From the thrust of my remarks, he will understand that not everyone will take professional advice in certain circumstances. What is his philosophy about this tax? Does he think the tax is fair, when the very richest people can escape it and middle income is caught by it? Is that not grossly unfair?
    Mr. Deputy Speaker: Order. We are in danger of getting into a wide-ranging debate on taxation generally. I should be grateful if the hon. Member for Wolverhampton, South-West (Rob Marris) avoided the temptation to respond to that intervention and stuck to the points that he was making.
    Rob Marris: I am grateful to you for your guidance, Mr. Deputy Speaker. The comments that the hon. Member for Torridge and West Devon made in his speech, not in his interventions, reveal something about the concept with which some right hon. and hon. Members approach the amendments.
    On two occasions the hon. Member for Torridge and West Devon referred to a French property company. While the House ought to be cognisant of the tax affairs of and possible inequities to all the citizens and taxpayers of the United Kingdom, the number who

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    have French property companies to own their holiday home in France is minuscule. The reason they do that is almost invariably to try to get round French inheritance law.
    Those are individuals who are wealthy. They can afford a property overseas. They have had professional advice, and that advice is, "Get a French property company in which you will own shares as a way to get round French inheritance laws", because French inheritance laws not only have tax consequences, but have a certain family succession built into them, such as we would have for death with intestacy. Under French inheritance law, on which I am not an expert, whatever the terms of the will of the deceased husband, for example, his wife must have a certain share in the estate and so do the children.
    Mr. Burnett: I chose that as an example because hundreds of thousands of people in this country have properties abroad. They enter into corporate arrangements, as the hon. Gentleman acknowledged, not for tax avoidance or, for that matter, tax evasion, which is unacceptable, but as bona fide arrangements made to avoid, as he says, the French inheritance laws. That has nothing to do with taxation.
    It would not matter if there were one or two people in that position, but there are hundreds of thousands of people who have such arrangements. Surely the law should recognise that if those are reciprocal arrangements to cancel out one tax disadvantage with a tax advantage—that is, gifts with reservation and this pre-owned assets provision—they should be complete and they should not sting in part people who make—
    Mr. Deputy Speaker: Order. That is an extremely long intervention and we are again straying away from the amendments. Will the hon. Member for Wolverhampton, South-West (Rob Marris) come back precisely to the amendments before the House?
    Rob Marris: I will endeavour to do so, Mr. Deputy Speaker. The point that I was making about the amendments, in relation to the French property issue, was to suggest—I cannot prove it—that the individuals to whom the hon. Member for Torridge and West Devon referred have almost invariably received professional advice. The hon. Gentleman will know that professional advice of that sort almost invariably involves not only the legal but also the taxation aspects. If a solicitor giving such advice does not feel comfortable about also giving some taxation advice, he or she should, and usually does if acting professionally, refer that individual to a professional tax adviser. The examples given by Opposition Members do relate not to individuals who have wandered into a UK minefield created by schedule 15 and the amendments to it but to individuals who have had professional advice.
    Mr. Burnett: It is not a minefield. I am saying not that individuals in those circumstances do not know what they are doing, but that the legislation is wrong. If there is to be proper choice, they should be able to elect for one thing or the other—they should not be stung by
    both.
    Rob Marris: I concede that I used the word "minefield" and that the hon. Gentleman did not. However, he took up the word complexity, which was introduced by the right hon. Member for Suffolk, Coastal, and I concede that I elided that into "minefield". That was the flavour I understood, but I apologise to the hon. Member for Torridge and West Devon if that was not his meaning; he was talking about complexity and the flavour picked up by me and, I think, by my right hon. and hon. Friends was that innocents abroad—in both senses of that word—would experience the horrible tax regime to be introduced by schedule 15, even with the wonderful amendments.
    Mr. Greg Knight: A few moments ago, the hon. Gentleman asked my hon. Friend the Member for Arundel and South Downs (Mr. Flight) whose brief he was reading. May I ask the hon. Gentleman the same question, because it sounds rather as though he were reading the Government Whips Office narks' brief? When the hon. Gentleman moves on to amendment No. 10, can he tell us what possible objection there could be to the Government accepting it? Did not my hon. Friend make out an unanswerable case?
    Rob Marris: I have in front of me the amendment paper—not a narks' brief. There is a Whip sitting on the Treasury Bench, but I freely confess that I am not aware of whether there is a Government brief on this series of amendments. I have no idea, and I can assure the right hon. Gentleman that I am not reading from anything. Indeed, if he knew me a little better, my comments would ring all too true; I am not prone to reading out Government briefs in the House, nor are most of my hon. Friends. Of course, I do not know what Opposition Members do—perhaps they read out the Conservative narks' briefs.
    Dawn Primarolo: Just in case my hon. Friend thinks he might have missed out on something, I assure him that there is no Government brief for anybody in the Chamber—apart from the explanatory notes to which all Members have access.
    Rob Marris: I am grateful to my right hon. Friend for that comment.
    I should like to look at the amendments in their totality, starting with amendment No. 10, to which the right hon. Member for East Yorkshire (Mr. Knight) referred. The hon. Member for Arundel and South Downs raised some points about equity release schemes and I hope that my right hon. Friend the Paymaster General can reassure us all about them. The hon. Gentleman put a good question and based on my experience of my right hon. Friend, I am sure that she will have an extremely thorough and satisfactory answer that will probably calm my fears and those of the hon. Gentleman.
    Several of the amendments raise retrospective and retroactive points; some of them, including amendments Nos. 6 and 48, refer to dates in 1986 and to dates in June and December 2003. I am uneasy about provisions that go back to 1986 and I hope that my right hon. Friend can again calm my fears. To echo one of her points in the Standing Committee, it would be for the taxpayer

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    concerned to elect whether they wanted to unbundle the inheritance tax avoidance scheme in which they were involved—in some cases, from 1986 onwards—or whether they wanted to pay the assessed income tax that would come in under the proposed regime. I must tell my right hon. Friend that 1986 seems a long time to go back. Coupled with that, can she give us some assurance about transitional arrangements? If there is to be a slab effect, or a cliff-edge effect, on tax changes such as these, it could be most unsettling for some people.
    I do not think that these proposals will have a huge effect in the constituency that I currently have the honour to represent, because house prices in Wolverhampton are not high. I am not aware that any house in the entire city is worth more than £1 million. It was of considerable amazement to the hon. Member for Arundel and South Downs when I made that point in Committee, but I have checked and I still cannot find one. None the less, house prices are rising throughout the country—I do not need to rehearse that—and more and more people could be above the current threshold of £255,000 or £260,000, or whatever the figure is under the Bill.
    Mr. Knight: The hon. Gentleman is raising some important issues. If he does not receive the assurances he seeks from the Paymaster General and if we push the amendments to a Division, will he vote with us? If he does so, I shall be happy to withdraw reference to the word "nark".
    Rob Marris: I am not troubled by references to "nark"—among some of my constituents they would probably go down quite well. As I said about three minutes ago, I have every confidence in my right hon. Friend the Paymaster General. As in the stock market, past performance does not always indicate future performance, but based on my right hon. Friend's past performance, I think she will be able to give me the assurances I seek in her usual lucid way. I am eager to hear those reassurances because there are concerns about transition, about the 1986 date and about equity release schemes. However, I am sure that, armed with her fantastic preparation, my right hon. Friend will be able to reassure me on those points and I await her response.
    Mr. Gummer: I shall not detain the House too long, but I want to make two simple points relating to the apprehension of what we have been discussing.
    The hon. Member for Wolverhampton, South-West (Rob Marris) accused me of intervening from a pre-stated position on the subject of inheritance tax. However, as we are discussing these particular amendments, it would be wholly improper for me to delight the House with my views on inheritance tax, which may be different from the expectations of the hon. Gentleman although probably in a more radical direction.
    Having said that, I should add that I have some clear views on the Government's responsibility to produce legislation that is seen by ordinary people to be fair. I am not keen on the argument that, because the amendments will not affect many people, they are not important. The issue is the fairness—or, even more important, appreciation of the fairness—of the tax system to
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    ordinary people. I do not quite follow the Paymaster General's argument that those who have sought to avoid tax must pay it, although I think it reasonable to say, "From now on, we will have a system whereby this, that or the other may not be done, but the tax will have to be paid."
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    Let me return to the retrospection issue, which some of the amendments try at least to ameliorate. The difficulty is that people have made decisions about their future in the context of the law as it was at a particular time, for all kinds of reasons. They may be esoteric reasons. People may, for instance, consider the Napoleonic code in France to be a peculiar concept. As an enthusiastic pro-European, I think it entirely reasonable for us to have a different view from the French. If I wish to make arrangements—which are legal in France—to ensure that some operation that seems to be peculiar can be protected, that strikes me as perfectly reasonable.
    I agree with the hon. Member for Torridge and West Devon (Mr. Burnett) that there is something offensive in the Government's suggestion that people who have done that have done something wrong, although I realise that he was wrong to use the word "criminal". I have a lot of very decent constituents who do not wish to be judged in this way when the judgment is unfair. The Government are saying, "That which was perfectly all right we now judge not to be all right." Those who have done things that used to be perfectly all right will be brought before the tax system, and the Government seem to be suggesting that although they may not be criminals, they have done something slightly underhand. That is neither the law of England nor, in my view, the morality of England.
    The fact that the Government are doing that has caused real concern among constituents of mine who, although they are not in the category that is being caught by this provision, feel—as is so often the case—that it is not fair. I warn the Paymaster General that the one thing that one must not do in Britain is to be seen to be unfair, and I hope that she will reconsider.
    Dawn Primarolo: The right hon. Gentleman's view about fairness is central. The overwhelming majority of taxpayers pay their tax. Following repeated attempts by this Government and the last Government to stop inheritance tax avoidance schemes, we are giving the taxpayer two options. We are not backdating the provision. Under the Bill, either there will be a charge to income tax on people's new arrangements or they can revert to inheritance tax and pay what is due. That will start in 2005. As I have said, there is no retrospection. All Governments change laws in Budgets, and that is all that is being done in this case.
    Mr. Gummer: I am sure that the Paymaster General has studied rhetoric. If we agree with the first of her statements, everything else becomes rhetorical truth. Her first statement, however, is not correct. That first statement was "We, in retrospect, have decided that something that was perfectly acceptable at the time is now unacceptable." To unbundle a past decision is not the same as not having made the decision at the time. If

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    what the Paymaster General has said were true in the past, my constituents and others might well have made a series of different decisions.
    Equity is not just about saying, "A lot of people think that a lot of other people are getting away with it, and we are going to stop a lot of people getting away with it." Equity is about clarity, and clarity is not something that can be introduced in retrospect. Clarity is about where we are now. The Government are saying that, because they would prefer that people do not do what they did back then, they insist that they undo it. But of course, such people are not in a position to make arrangements of the kind that they might have made in 1970. That is why the provision is retrospective; indeed, it would always have been regarded as such until this Government invented a new definition of retrospection that certainly has not been accepted by the law thus far.
    Mr. Burnett: The right hon. Gentleman is making a perfectly valid point: that because of this provision, transactions entered into after 1986 that would have been free of tax will now be subject to tax, one way or another. If that is not retrospection, I do not know what is.
    Mr. Gummer: The hon. Gentleman makes the point clearly and I hope that the Paymaster General will think this issue through. In terms of the moment, decent people made particular decisions that were legal. Now, many years later, they are being told that, one way or another, as a result of those decisions, they will be taxed, yet when they made them they would not have been taxed. Had they known at the time that that would happen, they might well have done all manner of things differently, but they cannot now do so because of a decision that was perfectly proper and legal when they made it. Whether the Paymaster General likes it or not, the provision is in that sense retrospective.
    I am happy for the Paymaster General to say that she believes in retrospection and considers it perfectly reasonable, but she would be wrong. Such an argument is offensive, but what is more offensive is for her to argue that the provision is not retrospective and that we should therefore accept it. It is a great pity that she has taken that line.
    Complexity is indeed the proper word to use in respect of this provision. It is difficult to accept the argument that the people affected are those who have access to advice and are familiar with such matters. Certain people do not fall into that category. There are those whom the Paymaster General suggested need not be worried about the provision, even though they have never had help from specialist advisers. I would be happy to accept the Paymaster General's argument if she were saying that in no circumstances would such people be charged. However, she said that they would not normally be charged—that it is "unlikely" that they would be charged.
    There is no word in the English language more frightening to anyone who has been a Member of this House for more than two minutes than the word "unlikely". Let us remember the number of Ministers—
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    both Labour and Conservative—who have told the House that a certain thing was "unlikely" to happen. I remind the Paymaster General of what was said about the European convention on human rights. I was not one of those who took an extreme view about it, but it must be said that a lot of "unlikely" things have become very likely—as in certain—as a result. Curiously enough, in the courts, people are not being given the assurances that they expected in that regard.
    If the Paymaster General were to say that the charge will not happen, there would at least be some reason to suppose that she has taken proper advice. But she has used the word "unlikely", and I still wish to stand up for those who cannot rely on any advice other than hers. Such people deserve from her a statement that is without reservation.
    The real reason why I find the whole Bill and the various amendments to it profoundly distressing is that, as a result of such legislation, it will be even more essential for people who own a house to obtain professional advice.
    I will stray for a moment into the court of the hon. Member for Wolverhampton, South-West (Rob Marris) to say that I do have a prejudice about the profession of solicitors. I think that there are too many of them, that they make too much money and that their operations should be restricted by having laws that are clearly comprehensible—insofar as it is possible—to all of us.
    There is another profession about which I have even greater doubts—the accountancy profession, which has been given more jobs under the present Government than under any previous Government ever. The opportunities for accountants to make money have been raised by the constant complications introduced by the Government, but I want those accountants to earn their money in useful ways.
    I believe that what brought down the Roman empire was not, as we all know, sodomy but a very significant increase in bureaucracy and in the number of people who did not actually earn wealth. The Government are great organisers of people who do not earn wealth. I am not talking just about 600,000 more civil servants, but about all the others besides who make money without making wealth. That is why I want a simpler system and why I support the proposals.
    Rob Marris: I am sure that you, Mr. Deputy Speaker, would not let us stray too far into the decline and fall of the Roman empire, but the undermining of the rule of law was what led to the decline, as evidenced by the sack of Rome by the Visigoths. I declare myself to be a solicitor—though a non-practising one because, unlike many Conservative Members, I do not believe in moonlighting—and solicitors are essential to the rule of law.
    My point about realty was that almost all those who engage in transactions involving its sale or lease do so with legal advice, and that the right hon. Gentleman's Government tried to simplify it by getting the solicitors out and introducing what became known as registered conveyancers. I venture to suggest that it is still the case—though I cannot prove it without going to the Library—that well over 90 per cent. of the realty transactions in England and Wales, and

    893
    probably in Scotland, are carried out with professional advisers, either solicitors or licensed conveyancers, in attendance.
    Mr. Gummer: The hon. Gentleman makes my point. Those people have their professional advisers at a particular point in time. When there were such advisers, professional advice was given, which in large measure seems to have been true. The Government are changing the rules and professional advice may not be necessary at this point. Curiously enough, these people feel that everything is all right. They have had their professional advice and think that things are okay. They do not know that the Government have shoved into the legislation all these complicated matters that totally change their position retrospectively. If they get frightened, perhaps with no need, what do they have to do? They have to go again, perhaps 20 years later, to professional advisers to secure the latest deal.
    Those people have never had to do that before in these circumstances. What happened in the past was that the information was necessary only if something was being done afresh. What is wrong is that the professional advice is necessary when something is not being done afresh. That is why the provision is manifestly retrospective. It does not need to be argued in the delicate way of the Paymaster General. The truth is there. Professional advice has to be got when someone is not doing anything. That is retrospective.
    I have expressed my concern about the professions in a fairly jokey way, but I mean what I say about the weight that the Government place on them. The amendments are designed to help a little with the problem of the weight that the Government are placing on the productive economy.
    I am one who believes that Members of Parliament are better off if they do something else outside this House because it makes them a bit more in touch. Otherwise they have only their memories and theories. I wish that the hon. Member for Wolverhampton, South-West were practising as a solicitor because he would then be able to tell us a little about the real world. It is about time that we fought on that basis. I feel very strongly about it, as do my constituents. It is all very well for the hon. Gentleman to say what he did, but the fact of the matter is that there are too many people who earn their living without adding to the wealth of this nation. A system that means that people need all sorts of help to get through their lives is going to be expensively top heavy.
    3.45 pm
    The proposals in the Bill are complex, unfair and retrospective. They will impose additional costs and reduce the country's effectiveness by making life unnecessarily complicated for ordinary people. The Paymaster General cannot get away with that. She is part of a Government who cannot get houses built and whose policies in other areas have increased house prices significantly. It is her fault that nothing has been done about inheritance tax levels to deal with that.
    894
    That is a great pity, as Britain desperately needs to be competitive. The Government are not in the real world: their members have not had to live in the real world for a long time. They have not had to deal with ordinary people in a detailed way, and so do not realise how difficult the proposals will make their lives.
    Dawn Primarolo: I absolutely disagree with the right hon. Member for Suffolk, Coastal (Mr. Gummer). That is why he sits on that side of the House and why I sit on this side. The proposals go to the heart of the Government's views about fairness, taxation and the right of citizens to expect Governments of all political persuasions to act with an even hand. A Government must ensure that, wherever possible, all citizens enjoy a level playing field, so that everyone can have access to the rights conferred on them by Parliament through legislation. This Government do not believe that some citizens' ability to pay for expensive and creative advice should enable them to get more out of the system.
    Many hon. Members contributed to the debate and I shall deal with the points that they made in the order of their contributions. First, the House will be aware—although at times I wondered whether some of its Members were—that the proposals in the Bill are needed to tackle a range of artificial avoidance schemes. The essence of those schemes is that wealthy persons appear to give their assets away so that they can take advantage of the inheritance tax exemption for lifetime gifts. The complex legal footwork that they undertake—which is not forced on them by the Government but for which they pay and knowingly enter into—means that the schemes allow former owners to carry on enjoying the use of the assets very much as before.
    No Government, and especially not this one, ever intended the inheritance tax regime to be used in that way. This Government, and their predecessor, made successive attempts to block such avoidance by making specific changes to the inheritance tax rules. The most recent attempt was in last year's Finance Act 2003.
    I agree with the right hon. Gentleman in one respect, however: previous attempts in this direction led to increasingly complex legislation. Parliament was forced to follow, and mirror, the complexities of avoidance schemes to try to close them off. Parliament has tried before to impose its will by making clear what the inheritance tax regime was intended to achieve and what could be considered legitimate under the law. Despite that, the response of some taxpayers—although not all—has been to develop increasingly contrived schemes that get around the new rules. Such schemes have been marketed as packages and offered by financial advisers to a wide range of clients. As I said in earlier debates, reports suggest that as many as 30,000 such schemes have been sold since—I emphasise the word "since"—the Government declared that they intended to do something about them. That represents a potential tax loss of billions of pounds for the Exchequer.
    Faced with avoidance on such a scale, the Government clearly needed to take action—I disagree with the hon. Member for Arundel and South Downs (Mr. Flight) about that. Schedule 15 addresses the common feature of all the schemes, which is that the former owner continues to enjoy the property that they

    895
    say they have given away. It is a generic solution to a serious problem, although it has been carefully targeted. The Government have taken on board many of the points made by hon. Members, including the need for choice, the need not to have to unscramble previous arrangements and the need to consider what might happen in the future. The Government have not gone back over the past, despite the fact that the avoidance should not have happened, and any consideration of the debates in the House would prove that.
    The amendments that the Government have tabled are minor in nature but complete some of the improvements that were discussed in Committee. Amendments Nos. 91 to 93 refine the exclusions in paragraph 11 of schedule 15 and deal with the point that the hon. Member for Torridge and West Devon (Mr. Burnett) made about overseas property. Paragraph 11 deals with cases in which the property originally disposed of and still enjoyed by the taxpayer is still reflected, directly or indirectly, in the value of the estate for inheritance tax purposes. We have no quarrel with that and have made no change.
    Whatever our differences about the broad approach of this legislation, I hope that we are agreed that the charge should not apply to structures that clearly cannot involve inheritance tax avoidance. We have done everything that we can to ensure that.
    Until now, we have not covered arrangements that are unusually complex. For example, property might be owned by a company and the taxpayer is made a gift, with reservations, of shares in the company. The value of the shares reflects the value of the underlying property. The right hon. Member for Suffolk, Coastal can see, therefore, that such schemes are not simple arrangements that people wander into. The shares are, therefore, treated as part of the taxpayer's estate under existing rules. The case for exempting such schemes is essentially the same as we discussed in Committee and the amendments complete the process that was started in Committee. I hope that they satisfy the points that the hon. Members for Torridge and West Devon and for Arundel and South Downs made.
    Amendment No. 94 corrects an incorrect cross-reference in paragraph 13(3)(c) and does nothing else. Amendments Nos. 95 to 108 refine and improve the election provided for in paragraphs 21 to 23 of the schedule, which allow taxpayers to choose to have the property in question treated as part of their estate for inheritance tax purposes. The election allows people to reverse the tax effects of those avoidance schemes without having to unscramble all the legal machinery that they used to achieve them in the first place.
    It is obviously important that the detailed machinery should work smoothly across the full range of cases to which it applies. In particular, it is important that the election should bring back into inheritance tax only values that are commensurate with what the taxpayer originally sought to shelter from tax. In some cases, the taxpayer will have less than a 100 per cent. stake in the caught property. The charge under schedule 15 is rightly scaled down in such cases to reflect the extent of the taxpayer's interest, and it is right that the same should apply to the value brought back into IHT if the taxpayer makes the election. The Government amendments will
    896
    ensure that, when an election is made, only the appropriate proportion of the property's value is brought back into the person's taxable estate. They also provide the opportunity to clarify the detailed operation of such elections in other respects—for example, what the election applies to if the subject matter changes after the election has been made.
    Before I move on to the Opposition amendments, I wish to say that, as hon. Members know, current provisions in the IHT rules will not be disturbed by these rules in the extreme case where a parent moves back owing to ill health, there is a carer and an arrangement is made. None of that will be disturbed with further exemptions. I was chastised for using certain words, but the value of the property would have to exceed twice the allowance to make any difference. So, frankly, we can dispose of that point as well.
    Mr. Burnett: Will the Paymaster General give way?
    Dawn Primarolo: No, I should be grateful to the hon. Gentleman if he would allow me to make a little progress on the Opposition amendments. I might be able to help with some of those points. If not, of course, I will give way to him.
    I now turn to the Opposition amendments. Amendment Nos. 1 and 4 suggest that the charge under schedule 15 should not apply where the potential taxpayer owned the caught property for at least seven years before getting rid of it. Why? If that is the intention, it is difficult to understand what the point is, apart from a desire to wreck the charge. That may be the intention, but why should we set an arbitrary limit? I am not attracted to those amendments.
    Amendments Nos. 2, 3, 5, 6 and 8 would disapply the charge under schedule 15 from any arrangement made on or before 19 June 2003, which is the effective date for the anti-avoidance legislation in the Finance Act 2003 and directed at the so-called Eversden schemes. Those amendments represent an attempt to reopen something that the House settled last year in the Finance Act 2003. The Government absolutely reject the thinking behind those amendments. I simply do not understand why the Opposition think that the Eversden case gave a permanent seal of approval throughout the tax system to the future consequences of such schemes. I certainly do not accept that suggestion.
    Amendments Nos. 7 and 9 are intended, I imagine, to cover cases where a settlor's continuing interest in the property that he or she once owned is regarded as too remote to justify the charge for one reason or another, but that could be readily exploited to let through cases that we would very much want to be caught by the schedule. Any problem in a case that can be fairly regarded as half innocent will be resolved easily enough using the other means provided in these arrangements. That part of the schedule is directed at very real mischief in the form of artificial—that is, not real—trust arrangements that allow people to put wealth outside their inheritance tax estate, while retaining effective access to those assets. Designers of those schemes have been more than willing to create artificial trust arrangements to exploit loopholes, so we can be quite sure that they would do so again if we were knowingly to leave loopholes in schedule 15, which the amendments would do.

    897
    4 pm
    We cannot accept amendment No. 10, which also touches on equity release. We drafted the proposal in schedule 15 against the background of the widespread and growing use of avoidance schemes by people trying to protect their wealth against inheritance tax. The amendment would allow the great majority of those schemes, and any such future schemes, to escape any charge under the schedule.
    I accept that the amendment also addresses the sale of shares of interests in land. We considered applying the schedule to the sales of part-interests when we discussed the matter in Committee. I agreed that a point deserved thought, so I promised to consider it further, but said that I could not promise to deal with that before Report—I have not been able to do so. However, we accept that an owner could sell a part-interest as an element of an arm's length equity transaction while retaining the right to occupy the property. We are ready to explore that issue further with firms that undertake such transactions to determine whether action is needed and, if so, to establish exactly what needs to be done. Amendment No. 10 demonstrates why we would be wrong to rush into the process, but I am glad to repeat to my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) and the hon. Member for Arundel and South Downs the commitment that I made in Committee to examine part-sales further. If we find that there is a real problem, we will address it either through regulations or a future Bill, and we will cover the time periods that would be relevant.
    Rob Marris: I am reassured by what my right hon. Friend says and thank her for it.
    Dawn Primarolo: I am relived to hear that. Although I do not wish to embarrass my hon. Friend, he has displayed an acute understanding of the issues in the Bill. He has explained things clearly and sometimes challenged Ministers, which is always unexpected from one's own side, but to be welcomed.
    Amendment No. 11 is an attempt to provide a window of opportunity in tax years 2004–05 and 2005–06 for transactions that would otherwise be caught by the charge in schedule 15 to be unscrambled. It would achieve that by undoing the tax consequences that would normally arise—for income tax, capital gains tax, stamp duty land tax and inheritance tax—from any steps taken to get a property back into the hands of a former owner. I must tell the hon. Member for Arundel and South Downs that I would have had sympathy with the thinking behind the amendment if we had not already recognised his underlying concerns and addressed them in a different manner.
    We raised the issue of unscrambling in the consultative document that the Inland Revenue published following last year's autumn statement. We asked for representations on how we might best cater for the transitional issues—my hon. Friend the Member for Wolverhampton, South-West raised that point, too. The responses made it clear that unscrambling would not be practicable for most individuals affected, and that guided our approach on the Bill. We concluded that the election provision in paragraphs 21 to 23 of the schedule represented the best way of allowing former owners
    898
    effectively to take back the value of their properties into their estates for IHT purposes. My hon. Friend will remember that we said in Committee that the election was allowed to roll forward to the point where the income tax charge would arise. It does not necessarily have to be made in 2005—that is, if there were no charge in 2005. I believe that we have provided for the transition as well.
    Amendment No. 44 would increase the de minimis limit in schedule 15 for a benefit of £5,000 a year to one of£50,000, assuming that taxable benefits might typically reflect a yield of 5 per cent. on the capital value of the assets involved. That would allow wealthy owners to get rid of assets worth up to £1 million and retain the use of them without attracting a charge under schedule 15.
    The existing de minimis threshold is already set at a generous level and corresponds to capital values of about £100,000. Increasing the level would allow people who have a great deal of money to continue to have an unfair tax advantage compared with everyone else.
    Mr. Burnett: Will the Minister give way?
    Dawn Primarolo: Perhaps the hon. Gentleman will allow me to finish responding to the amendments. It has been a long debate, but of course I will give way to him. I am nearly at the end of my response.
    Amendments Nos. 45 to 49 would disapply the charge under schedule 15 from any arrangements made before the date of the pre-Budget report. I referred earlier to the fact that between that report and publication of the Finance Bill, at least 30,000 schemes were marketed to try to get round the legislation, which the House has not yet finished considering. That reflects the view that schedule 15 is retrospective in its effect. However much I may offend Conservative Members, I do not accept that view. People with structures affected by schedule 15 have made arrangements that they fully intended to make for future effects. That is the whole point of the exercise. Anyone doing that must face the possibility that future tax changes will affect the future tax consequences of what they have done. I would be amazed if their financial and legal advisers did not have that little caveat at the bottom of the agreement, pointing out that this is not a guarantee for all time because tax consequences can change.
    If schedule 15 brings home the message that avoidance is not a one-way bet—by that, I mean that people do not just get away with it and then do not have to do anything about it—it will be a useful addition to the direction of the benefit in the schedule. We are saying that it is better if people do not attempt change in the first place. The law of the land is that people pay this tax, and we expect them to do that. We as parliamentarians, not as any one political party—
    Mr. Gummer: I can accept what the right hon. Lady says if she will admit the simple fact that this is retrospective legislation. It means that somebody who made a change believing that the law would treat them fairly—believing that what they did was legal then and, therefore, was not attacked, as the right hon. Lady is doing—did so on the understanding that the effect of that would start when the change took place. For example, they might have given away their house and

    899
    not enjoyed it at all. They might have decided that that was a reasonable choice to make. That cannot take place retrospectively. Therefore, the right hon. Lady's actions are retrospective. Will she admit that the provision is retrospective?
    Dawn Primarolo: No, I will not. I cannot admit to that because it is not correct. To be retrospective would be to give ourselves legislation and go back over the years during which we are saying that this process should not have been undertaken. We have said all along that this tax planning should not have been undertaken, but it has. We have set a date in the future—April 2005. Assuming that this part of the Bill passes through Parliament, the provision will become the law of the land and it will have to be complied with. If someone has given their property away and receives no benefit from it—inheritance tax allows for that possibility—they are not affected by the schedule, which is aimed at people who say that they have given away their property, but have not. The provision is not retrospective, but as the law of the land is changing, we have established transitional arrangements and have spelt out a long list of exemptions. I am sure that people will continue to argue that retrospection—the previous Government did, in fact, engage in such practices—should apply so that a change in the law can affect the past. The past is left alone, but people can elect to pay inheritance tax when liable—in such cases, there is no income tax charge—or maintain their existing arrangements. If they benefit from an asset that they allegedly gave away, they will be subject to a de minimis charge of £5,000. I therefore disagree with the right hon. Member for Suffolk, Coastal about retrospection.
    Mr. Burnett: I shall not tackle the right hon. Lady about retrospection, but the position could be ameliorated. We talked about rhetoric, but what about logic? A major problem with the provision is that income tax is being used to deal with a perceived or actual inheritance tax problem. As I said at the start of my speech, assets or gifts in excess of £100,000 will be caught, because the de minimis level is £5,000. Would it not be logical to have a de minimis level of £12,500, to reflect one twentieth of the current inheritance tax exemption?
    Dawn Primarolo: We are using a charge for benefit in kind. If someone has the benefit of something that they claim they no longer own, such as a house or a painting that for centuries has hung in a room and has not left it, the market says that someone else does, so there must be a charge to the former owner for that benefit. The de minimis levels are perfectly reasonable, and I repeat that about 32,000 estates a year are subject to inheritance tax.
    We discussed the issues underlying amendment No. 225 in Committee. People use what schedule 15 calls "settlements" for many good non-tax reasons. Unfortunately, however, others use them for avoiding tax such as income tax and capital gains tax, and there are existing provisions to counter that. They are also used to avoid inheritance tax, and schedule 15 introduces a new income tax charge to make that less
    900
    attractive. Trusts may sometimes fall foul of one or more of the existing anti-avoidance provisions, as well as the new charge under schedule 15. When that occurs, schedule 15 allows a deduction for income tax or capital gains tax already due against the benefit otherwise chargeable under schedule 15. That is generous—arguably, over-generous—but we are content to err on the side of generosity.
    4.15 pm
    The Opposition want to go further and allow a tax credit against tax, so if one paid enough tax under the existing provision, nothing would be paid under schedule 15. That would encourage the artificial arrangements that schedule 15 is designed to discourage and, indeed, the growth of the inheritance tax industry, which the right hon. Member for Suffolk, Coastal wants to prevent.
    Amendment No. 226 is surprising and, perhaps, revealing. It would delete an existing simple relief on straightforward family transactions by people of moderate wealth, and would replace it with a provision that is much less certain in its effects, but much more attractive to wealthy prospective avoiders. It would withdraw relief from many of the innocent cases that Conservative Members purport to want to protect, and is therefore unacceptable.
    Amendment No. 227 makes a point about how inheritance tax stands after the Bill was amended in Standing Committee. The provision in question exempts cases that would normally amount to gifts with reservations for inheritance tax purposes. It was pointed out to us that the Bill, as first published, covered only one of the two instances in the current inheritance tax legislation to which the exemption applies, so we amended it in Standing Committee to extend the relief to both possible instances. We all agree that that amendment was necessary; the only question is whether the text, as amended, achieves the required result. I am told that the schedule achieves that objective, so I am happy to assure the hon. Member for Arundel and South Downs that the Revenue understands the matter in that sense and will apply the legislation accordingly.
    In conclusion, I apologise to the House for the length of my reply, but the issue is hotly contested. I have dealt with the points raised by the amendments and resisted the wider debate about inheritance tax and fairness. I commend the Government amendments to the House and hope that the Opposition amendments are withdrawn, because they are wrong in principle. If the Opposition amendments are pressed to a vote, however, I ask my hon. Friends to oppose them.
    Mr. Flight: The exemption to the gifts with reservations rules to which amendments Nos. 1 and 4 relate was introduced by the Labour Government in 1999 and specifically applies to gifts of farm land, where the donor continues to enjoy the land as a partner under the terms of a partnership that had been in place for at least seven years prior to the gift. That is the simple reason for the reference to seven years, and the amendment is designed to continue an exemption that the Government introduced.
    On the bigger issue, amendment No. 11 is not perfectly worded, but the Paymaster General knows that the Government have refused to address the

    901
    problem with their unscrambling formula. If one unscrambles, one does not end up in the same position as if one had never made the arrangements in the first place, because the property in question ends up with a base cost for capital gains tax, which goes forward to the next generation and is almost certainly hugely below what it would be if one had never made the arrangements in the first place. The unscrambling arrangements are an extremely damaging form of transitional arrangement.
    Without rehearsing all the arguments, my hon. Friends and I remain of the view that the legislation is retrospective. It applies substantial taxation to transactions entered into as far back as 18 years ago, when they were perfectly legal and, indeed, when the Inland Revenue said that they were perfectly legal. If that is not retrospective, I do not know what is.
    We do not wish to put amendment No. 1 to the vote, because the issue is very clear, so long as the Government understand what it is. However, we wish to press to a vote amendment No. 2, which relates to the fundamental issue of retrospection.
    I beg to ask leave to withdraw the amendment.
    Amendment by leave, withdrawn.
    Amendment proposed: No. 2, in page 356, line 26, leave out "17th March 1986" and insert "19th June 2003".[Mr. Flight.]
    Question put, That the amendment be made:—
    The House divided: Ayes 153, Noes 265.

    Division No. 219]

    [4:20 pm

    AYES

    Ainsworth, Peter (E Surrey)

    Davis, rh David (Haltemprice &

    Allan, Richard

    Howden)

    Amess, David

    Doughty, Sue

    Ancram, rh Michael

    Duncan, Peter (Galloway)

    Arbuthnot, rh James

    Evans Nigel

    Atkinson, David (Bour'mth E)

    Ewing, Annabelle

    Bacon, Richard

    Fallon. Michael

    Baldry, Tony

    Field, Mark (Cities of London &

    Barker, Gregory

    Westminster)

    Baron, John (Billericay)

    Flight Howard

    Beggs, Roy (E Antrim)

    Flook Adrian, rh Eric

    Beresford, Sir Paul

    Forth, rh Eric

    Bottomley, Peter (Worthing W,)

    Foster, Don (Bath)

    Brady, Graham

    Francois, Mark

    Brazier Julian

    George, Andrew (St. Ives)

    Brooke, Mrs Annette L.

    Gibb, Nick (Bognor Regis)

    Burnett, John

    Gillan Mrs Cheryl

    Burns Simon

    Goodman, Paul

    Grayling, Chris

    Burt, Alistair

    Greer, Damian (Ashford)

    Cable, Dr. Vincent

    Greenway, John

    Cameron, David

    Grieve, Dominic

    Campbell, rh Sir Menzies (NE

    Gummer, rh John

    Fife)

    Hague, rh William

    Cash, William

    Hammond, Philip

    Chapman, Sir Sydney (Chipping

    Hancock, Mike

    Barnet)

    Harris, Dr. Evan (Oxford W &

    Chidgey, David

    Abingdon)

    Chope, Christopher

    Harvey, Nick

    Clappison, James

    Hawkins, Nick

    Conway, Derek

    Heald, Oliver

    Cormack, Sir Patrick

    Heathcoat-Amory, rh David

    Cotter, Brian

    Hendry, Charles

    Cran, James (Beverley)

    Hermon, Lady

    Curry, rh David

    Holmes, Paul

    Davies, Quentin (Grantham &

    Horam, John (Orpington)

    Stamford)

    Howarth, Gerald (Aldershot)

    902

    Jackson, Robert (Wantage)

    Sayeed, Jonathan

    Jenkin, Bernard

    Selous, Andrew

    Johnson, Boris (Henley)

    Shepherd, rh Mrs Gillian

    Key, Robert (Salisbury)

    Shepherd, Richard

    Kirkbride, Miss Julie

    Simpson, Keith (M-Norfolk)

    Kirkwood, Sir Archy

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

    Knight, rh Greg (E Yorkshire)

    Kincardine)

    Laing, Mrs Eleanor

    Smyth, Rev. Martin (Belfast S)

    Lait, Mrs Jacqui

    Soames, Nicholas

    Laws, David (Yeovil)

    Spelman, Mrs Caroline

    Leigh, Edward

    Spicer, Sir Michael

    Letwin, rh Oliver

    Spink, Bob (Castle Point)

    Liddell-Grainger, Ian

    Spring, Richard

    Lidington, David

    Stanley, rh Sir John

    Lilley, rh Peter

    Steen, Anthony

    Llwyd, Elfyn

    Stunell, Andrew

    Loughton, Tim

    Swire, Hugo (E Devon)

    McIntosh, Miss Anne

    Tapsell, Sir Peter

    Mackay, rh Andrew

    Taylor, Ian (Esher)

    McLoughlin, Patrick

    Taylor, Matthew (Truro)

    Malins, Humfrey

    Taylor, Dr. Richard (Wyre F)

    Mates, Michael

    Taylor, Sir Teddy

    Mawhinney, rh Sir Brian

    Teather, Sarah

    May, Mrs Theresa

    Thomas, Simon (Ceredigion)

    Mercer, Patrick

    Thurso, John

    Mitchell, Andrew (Sutton

    Tonge, Dr. Jenny

    Coldfield)

    Trimble, rh David

    Moore, Michael

    Tyler, Paul (N Cornwall)

    Moss, Malcolm

    Tyrie, Andrew

    Murrison, Dr. Andrew

    Walter, Robert

    Osborne, George (Tatton)

    Waterson, Nigel

    Ottaway, Richard

    Webb, Steve (Northavon)

    Page, Richard

    Weir, Michael

    Paice, James

    Widdecombe, rh Miss Ann

    Paterson, Owen

    Wiggin, Bill

    Price, Adam (E Carmarthen &

    Wilkinson, John

    Dinefwr)

    Williams, Hywel (Caernarfon)

    Prisk, Mark (Hertford)

    Willis, Phil

    Pugh, Dr. John

    Wilshire, David

    Randall, John

    Winterton, Sir Nicholas

    Redwood, rh John

    (Macclesfield)

    Robathan, Andrew

    Wisher, Pete

    Robertson, Angus (Moray)

    Young, rh Sir George

    Robertson, Laurence (Tewk'b'ry)

    Russell, Bob (Colchester)

    Tellers for the Ayes:

    Salmond, Alex

    Mr. David Ruffley and

    Sanders, Adrian

    Mr. Peter Atkinson

    NOES

    Abbott, Ms Diane

    Bradley, Peter (The Wrekin)

    Ainger, Nick

    Brennan, Kevin

    Ainsworth, Bob (Cov'try NE)

    Brown, rh Nicholas (Newcastle E

    Alexander, Douglas

    Wallsend)

    Allen, Graham

    Browne, Desmond

    Anderson, rh Donald (Swansea E)

    Buck, Ms Karen

    Anderson, Janet (Rossendale &

    Burden, Richard

    Darwen)

    Burgon, Colin

    Armstrong, rh Ms Hilary

    Burnham, Andy

    Atkins, Charlotte

    Byers, rh Stephen

    Austin, John

    Caborn, rh Richard

    Baird, Vera

    Cairns, David

    Banks, Tony

    Campbell, Mrs Anne (C 'bridge)

    Barnes, Harry

    Campbell, Ronnie (Blyth V)

    Barron, rh Kevin

    Caplin, Ivor

    Battle, John

    Casale, Roger

    Beard, Nigel

    Chapman, Ben (Wirral S)

    Begg, Miss Anne

    Chaytor, David

    Bennett, Andrew

    Clapham, Michael

    Benton, Joe (Bootle)

    Clark, Mrs Helen (Peterborough)

    Berry, Roger

    Clark, Dr. Lynda (Edinburgh

    Best, Harold

    Pentlands)

    Blackman, Liz

    Clark, Paul (Gillingham)

    Blears, Ms Hazel

    Clarke, rh Tom (Coatbridge &

    Blizzard, Bob

    Chryston)

    Borrow, David

    Clelland, David

    Bradley, rh Keith (Withington)

    Clwyd, Ann (Cynon V)

    903

    Coffey, Ms Ann

    Hughes, Beverley (Stretford &

    Cohen, Harry

    Urmston)

    Colman, Tony

    Hughes, Kevin (Doncaster N)

    Connarty, Michael

    Hurst, Alan (Braintree)

    Corbyn, Jeremy

    Iddon, Dr. Brian

    Corston, Jean

    Illsley, Eric

    Cousins, Jim

    Jackson, Glenda (Hampstead &

    Cranston, Ross

    Highgate)

    Crausby, David

    Johnson, Alan (Hull W)

    Cryer, Ann (Keighley)

    Johnson, Miss Melanie (Welwyn

    Cryer, John (Hornchurch)

    Hatfield)

    Cummings, John

    Jones, Jon Owen (Cardiff C)

    Cunningham, Jim (Coventry S)

    Jones, Kevan (N Durham)

    Cunningham, Tony (Workington)

    Jones, Lynne (Selly Oak)

    Curtis-Thomas, Mrs Claire

    Jowell, rh Tessa

    Dalyell, Tam

    Kaufman, rh Sir Gerald

    Darling, rh Alistair

    Keeble, Ms Sally

    Davey, Valerie (Bristol W)

    Keen, Alan (Feltham)

    Davies, rh Denzil (Llanelli)

    Keen, Ann (Brentford)

    Davies, Geraint (Croydon C)

    Kelly, Ruth (Bolton W)

    Dawson, Hilton

    Khabra, Piara S.

    Dean, Mrs Janet

    Kidney, David

    Denham, rh John

    Kilfoyle, Peter

    Dhanda, Parmjit

    Kumar, Dr. Ashok

    Dismore, Andrew

    Ladyman, Dr. Stephen

    Dobbin, Jim (Heywood)

    Lammy, David Frank

    Dobson, rh Frank

    Lawrence, Mrs Jackie

    Doran, Frank

    Lepper, David

    Dowd, Jim (Lewisham W)

    Leslie, Christopher

    Drown, Ms Julia

    Levitt, Tom (High Peak)

    Eagle, Angela (Wallasey)

    Lewis, Terry (Worsley)

    Eagle, Maria (L'pool Garston)

    Liddell, rh Mrs Helen

    Edwards, Huw

    Linton, Martin

    Efford, Clive

    Lloyd, Tony (Manchester C)

    Ellman, Mrs Louise

    Love, Andrew

    Ennis, Jeff (Barnsley E)

    Lucas, Ian (Wrexham)

    Etherington, Bill

    Luke, lain (Dundee E)

    Lyons, John (Strathkelvin)

    Farrelly, Paul

    McCabe, Stephen

    Field, rh Frank (Birkenhead)

    McCafferty, Chris

    Fisher, Mark

    McDonnell, John

    Fitzpatrick, Jim

    MacDougall, John

    Fitzsimons, Mrs Lorna

    McFall, rh John

    Flynn, Paul (Newport W)

    McGuire, Mrs Anne

    Follett, Barbara

    Mclsaac, Shona

    Foster, rh Derek

    McKechin, Ann

    Foster, Michael Jabez (Hastings

    McKenna, Rosemary

    & Rye)

    McNamara, Kevin

    Foulkes, rh George

    Mactaggart, Fiona

    Gapes, Mike (Ilford' S)

    McWalter, Tony

    Gerrard, Neil

    Mahon, Mrs Alice

    Gibson, Dr. Ian

    Mandelson, rh Peter

    Godsiff, Roger

    Marris, Rob (Wolverh'ton SW)

    Goggins, Paul

    Marsden, Gordon (Blackpool S)

    Griffiths, Jane (Reading E)

    Marshall-Andrews, Robert

    Grogan, John

    Martlew, Eric

    Hain, rh Peter

    Meacher, rh Michael

    Hall, Mike (Weaver Vale)

    Meale, Alan (Mansfield)

    Hamilton, David (Midlothian)

    Merron, Gillian

    Hanson, David

    Michael, rh Alun

    Harman, rh Ms Harriet

    Milburn, rh Alan

    Havard, Dai (Merthyr Tydfil &

    Miliband, David

    Rhymney)

    Moffatt, Laura

    Henderson, Doug (Newcastle N)

    Mole, Chris

    Hendrick, Mark

    Moran, Margaret

    Hesford, Stephen

    Morgan, Julie

    Heyes, David

    Morley, Elliot

    Hill, Keith (Streatham)

    Mountford, Kali

    Hinchliffe, David

    Mudie, George

    Hood, Jimmy (Clydesdale)

    O'Brien, Bill (Normanton)

    Hoon, rh Geoffrey

    O'Hara, Edward

    Hope, Phil (Corby)

    Olner, Bill

    Hopkins, Kelvin

    Osborne, Sandra (Ayr)

    Howarth, rh Alan (Newport E)

    Owen, Albert

    Howarth, George (Knowsley N &

    Perham, Linda

    Sefton E)

    Picking, Anne

    904

    Pickthall, Colin

    Stevenson, George

    Pike, Peter (Burnley)

    Stewart, David (Inverness E &

    Pollard, Kerry

    Lochaber)

    Pond, Chris (Gravesham)

    Stewart, Ian (Eccles)

    Pope, Greg (Hyndburn)

    Stirichcombe, Paul

    Pound, Stephen

    Stoate, Dr. Howard

    Prentice, Ms Bridget (Lewisham

    Strang, rh Dr. Gavin

    E)

    Stringer, Graham

    Prentice, Gordon (Pendle)

    Stuart, Ms Gisela

    Primarolo, rh Dawn

    Taylor, rh Ann (Dewsbury)

    Purchase, Ken

    Taylor, Dan (Stockton S)

    Purnell, James

    Thomas, Gareth (Clwyd W)

    Quinn, Lawrie

    Touhig, Don (Islwyn)

    Rammell, Bill

    Trickett, Jon

    Robertson, John (Glasgow

    Truswell, Paul

    Anniesland)

    Turner, Dennis (Wolverh'ton SE)

    Ruane, Chris

    Turner, Dr. Desmond (Brighton

    Ruddock, Joan

    Kemptown)

    Russell, Ms Christine (City of

    Turner, Neil (Wigan)

    Chester)

    Twigg, Derek (Halton)

    Ryan, Joan (Enfield N)

    Twigg, Stephen (Enfield)

    Salter, Martin

    Tynan, Bill (Hamilton S)

    Sarwar, Mohammad

    Walley, Ms Joan

    Savidge, Malcolm

    Ward, Claire

    Sawford, Phil

    Wareing, Robert N.

    Sedgemore, Brian

    White, Brian

    Sheerman, Barry

    Whitehead, Dr. Alan

    Sheridan, Jim

    Wicks, Malcolm

    Shipley, Ms Debra

    Williams, rh Alan (Swansea W)

    Short, rh Clare

    Williams, Betty (Conwy)

    Skinner, Dennis

    Wills, Michael

    Smith, rh Andrew (Oxford E)

    Winlick, David

    Smith, rh Chris (Islington S &

    Wood, Mike (Batley)

    Finsbury)

    Woodward, Shaun

    Smith, Geraldine (Morecambe &

    Worthington, Tony

    Lunesdale)

    Wright, Anthony D. (Gt

    Smith, Jacqui (Redditch)

    Yarmouth)

    Smith, Llew (Blaenau Gwent)

    Soley, Clive

    Tellers for the Noes:

    Southworth, Helen

    Mr. Jim Murphy and

    Starkey, Dr. Phyllis

    Vernon Coaker

    Question accordingly negatived.

  Schedule 15

    CHARGE TO INCOME TAX ON BENEFITS RECEIVED BY FORMER OWNER OF PROPERTY
    Amendments made: No. 91, in page 362, line 30, leave out from 'time' to end of line 31 and insert—
    when—

    the relevant property, or

    any other property—

    (i) which derives its value from the relevant property, and

    (ii) whose value, so far as attributable to the relevant property, is not substantially less than the value of the relevant property,

    falls within sub-paragraph (3B) in relation to him.
    (3A) Where any property which falls within sub-paragraph (3B) in relation to a person includes property—

    which derives its value from the relevant property, and

    whose value, so far as attributable to the relevant property, is substantially less than the value of the relevant property,

    the appropriate rental value in paragraph 4, the appropriate amount in paragraph 7 or the chargeable amount in paragraph 9 (as the case may be) is to be reduced by such proportion as is reasonable to take account of that fact
    (3B) Property falls within this sub-paragraph in relation to a person at a time when it—'
    No. 92, in page 363, line 10, leave out from 'whether' to first 'in' in line 11 and insert
    'any property falls within sub-paragraph (3B)(b), (c) or (d)'.
    No. 93, in page 363, leave out line 23 and insert
    'Property is not to be treated as falling within sub-paragraph (3B)(b) at any time'.
    No. 94, in page 364, line 14, leave out '8(2)' and insert '8(3)'.
    No. 95, in page 365, line 31, after 'to' insert 'his enjoyment of'.
    No. 96, in page 365, line 32, leave out
    'by reference to the relevant property'.
    No. 97, in page 365, line 34, at end insert
    'by reference to his enjoyment of the relevant property, or of any other property for which the relevant property has been substituted.'.
    No. 98, in page 365, line 36, leave out
    'by reference to the relevant property.
    No. 99, in page 365, line 38, after 'assessment' insert
    'by reference to his enjoyment of the relevant property or of any property which may be substituted for the relevant property'.
    No. 100, in page 365, line 42, after first 'the' insert 'chargeable proportion of the'.
    No. 101, in page 365, line 45, at end insert—
    '(2A) In this paragraph, "the chargeable proportion", in relation to any property, means—
    DV/V
    where DV and V are to be read in accordance with sub-paragraph 4(2) or 7(2), as the case requires, but as if—

    any reference in paragraph 4(2) or 7(2) to the valuation date were a reference—

    (i) in the case of property falling within subsection (3) of section 102 of the Finance Act 1986, to the date of the death of the chargeable person, and

    (ii) in the case of property falling within subsection (4) of that section, to the date on which the property ceases to be treated as property subject to a reservation, and

    the transactions to be taken into account in calculating DV included transactions after the time when the election takes effect as well as transactions before that time.'.

    No. 102, in page 366, line 10, leave out
    'by reference to the relevant property'.
    No. 103, in page 366, line 11, at end insert
    'by reference to the relevant property or any property which the relevant property represents or is derived from'.
    No. 104, in page 366, line 13, leave out
    'by reference to the relevant property'.
    No. 105, in page 366, line 15, after 'assessment' insert
    'by reference to the relevant property or any property which represents or is derived from the relevant property'.
    No. 106, in page 366, line 17, leave out 'the property' and insert
    'the relevant property and any property which represents or is derived from the relevant property'.
    No. 107, in page 366, line 22, leave out from 'property' to 'remains' in line 24 and insert
    or the property which represents or is derived from the relevant property'.
    No. 108. in page 366, line 41, at end insert—
    '(6) Subject to sub-paragraph (5), the election takes effect for the purposes of inheritance tax from the beginning of the initial year within the meaning of paragraph 21 or (as the case requires) paragraph 22 or, if later, the date on which the chargeable person would (but for the election) have first become chargeable under this Schedule by reference to the property to which the election relates.'.—Dawn Primarolo.

  Schedule 16

    RELIEF WHERE NATIONAL INSURANCE CONTRIBUTIONS MET BY EMPLOYEE
    Amendment made: No. 109, in page 372, line 18, after 'section 484(7)' insert
    'of the Income Tax (Earnings and Pensions) Act 2003'.—[Dawn Primarolo.]

  Clause 131

    COMPANIES IN PARTNERSHIP
    Amendment made: No. 110, in page 117, line 41, at end insert—
    '(5A) If any non-income amount is taken into account in computing a relevant profit, then for the purposes of subsection (5) the amount of the company's due share of the relevant profit and the amount of the share of the relevant profit that was actually allocated to the company shall be taken to be what they would have been if all non-income amounts had been left out of account in computing the relevant profit.
    (5B) In subsection (5A) a "non-income amount" means an amount that for the purposes of corporation tax would not be taken into account as income or in computing income.'.—[Dawn Primarolo.]

  Clause 147

    MEANING OF "PENSION SCHEME"
    Amendment made: No. 111, in page 141, line 40, leave out from 'Part' to end of line 45 and insert
    "'overseas pension scheme" means a pension scheme (other than a registered pension scheme) which—

    is established in a country or territory outside the United Kingdom, and

    satisfies any requirements prescribed for the purposes of this subsection by regulations made by the Board of Inland Revenue.

    (8)In this Part "recognised overseas pension scheme" means an overseas pension scheme which—

    is established in a country or territory prescribed, or of a description prescribed, for the purposes of this subsection by regulations made by the Board of Inland Revenue, or'.—[Dawn Primarolo.]

  Clause 162

    PENSION RULES
    Mr. George Osborne: I beg to move amendment No. 27, in page 151, line 16, leave out
    '70% of the basis amount for the alternatively secured pension year'
    and insert
    the greater of:

    70% of the basis amount for that alternatively secured pension year, or

    907

    in an alternatively secured pension year other than the first alternatively secured pension year, the aggregate of:

    (i) the total amount of alternatively secured pension which could have been paid to the member in all previous alternatively secured pension years less the amount actually paid to the member in those alternatively secured pension years ("the undrawn alternatively secured pension"), and

    (ii) 70% of the basis amount for that alternatively secured pension year (calculated after deducting from the sums and assets representing the member's alternatively secured pension fund on the nominated date the amount of the undrawn alternatively secured pension).'.

    Mr. Deputy Speaker: With this it will be convenient to discuss the following:
    Amendment No. 28, in page 152, line 44, leave out
    '70% of the basis amount for the alternatively secured pension year'
    and insert
    'the greater of-

    70% of the basis amount for that alternatively secured pension year, or

    in an alternatively secured pension year other than the first alternatively secured pension year, the aggregate of:

    the total amount of alternatively secured pension which could have been paid to the dependant in all previous alternatively secured pension years less the amount actually paid to the dependant in those alternatively secured pension years ("the undrawn alternatively secured pension"), and

    70% of the basis amount for that alternatively secured pension year (calculated after deducting from the sums and assets representing the dependant's alternatively secured pension fund on the nominated date the amount of the undrawn alternatively secured pension).'.

    Amendment No. 18, in schedule 28, page 441, line 3, leave out '50 members' and insert
    "20 members or such other number of members as may be prescribed from time to time'.
    Amendment No. 19, in schedule 28, page 441, line 9, leave out
    'with 50 or more members'
    and insert
    'to which sub-paragraph (1) does not apply'.
    Amendment No. 29, in schedule 28, page 445, line 22, at beginning insert
    'Where this sub-paragraph (4) applies by virtue of subparagraph (3), when the member dies,'.
    Amendment No. 30, in schedule 28, page 445, line 37, leave out second 'the' and insert 'that'.
    Amendment No. 31, in schedule 28, page 445, line 39, leave out second 'the' and insert 'that'.
    Amendment No. 20, in schedule 28, page 446, line 26, leave out '50 members' and insert
    '20 members or such other number of members as may be prescribed from time to time'.
    Amendment No. 21, in schedule 28, page 446, line 33, leave out
    'with 50 or more members'
    and insert
    'to which sub-paragraph (1) does not apply'.
    Amendment No. 32, in schedule 28, page 450, line 31, leave out second 'the' and insert 'that'.
    Amendment No. 33, in schedule 28, page 450, line 33, leave out second 'the' and insert 'that'.
    Government amendments Nos. 112 and 113.
    Amendment No. 34, in clause 186, page 165, line 31, at end insert—
    '(6) An individual may by notice to the Board of Inland Revenue elect that contributions made on or before 31st January in any tax year are to be treated as having been paid during the preceding tax year.'.
    Amendment No. 15, in schedule 31, page 470, line 12, at end insert—
    '(2A) In that subsection, immediately before the entry relating to section 616, insert—
    "section 607 (retirement annuity contracts)".
    Mr. Osborne: We now come to a group of amendments on the Government's reform of pensions taxation, which detained us for a few Committee sittings. The Government call it simplification, but with 151 pages of primary legislation, well over 100 pages of secondary legislation, and 350 page of guidance notes, that is something of a euphemism.
    The Government say that they are sweeping away eight pension regimes, and replacing them with one. However, Price water house Coopers say:
    "The Bill reveals that the Government's original intention to reduce eight tax regimes to one has actually resulted in the creation of six separate regimes."
    Nevertheless, at the beginning of the Committee, I welcomed the overall package of reform. Our amendments in Committee were designed to remedy mistakes that we thought we had identified, and that the industry had asked us to remedy, to highlight issues for debate, and to tackle what we thought were major injustices. Sadly, none of our amendments were accepted in Committee, which was a great shame, not least because I had voted for the Financial Secretary to be Minister of the year in The House Magazine awards, which are taking place this evening. I hope that our proceedings do not go on so long that she is unable to attend the awards ceremony, as that would be a great shame. We will see how we get on.
    As I said, the amendments that we tabled in Committee were probing, technical and so on. The amendments that we have tabled on Report focus by and large on what we regard as the major injustices that remain in the package and the big issues of principle.
    Let me start with an issue that we did not discuss in Committee. Amendment No. 34 is to clause 186, which says that the maximum tax relief on contributions to which a person is entitled in a tax year is equal to their taxable earnings for that year or £3,600, whichever is higher, although, of course, there is an annual limit of £215,000. The Institute of Chartered Accountants contacted us to raise its fear that

    909
    "these proposals will put the self-employed at a serious disadvantage as compared to the employed and…this will undermine the Government's overall objective in relation to pension reform".
    The reason is that most self-employed people will not know their taxable earnings until after the end of the tax year, so they will be unaware of the maximum tax relief on contributions to which they would have been entitled. That makes financial planning extremely difficult for them. There will even be those whose UK earnings are zero in a particular year: for example, because they have made a loss in that year.
    The current pensions taxation regime accommodates those fluctuations by allowing individuals to nominate that any single year's earnings can count not just for that year but for the five subsequent years, and a payment to a pension scheme made by 31 January in the following tax year, or, if earlier, the date that a tax return is filed, can be treated as if it is paid in the previous year of assessment.
    Again, the Institute of Chartered Accountants tells us:
    "We believe that both these existing measures provide considerable flexibility and certainty to the self-employed and think that the rules in the Finance Bill should be amended."
    It goes on to say:
    "We recognise that the new limit of contributions of an amount equal to a person's relevant earnings rather than a percentage of new relevant earnings is more generous than the current rules and that the Government may not wish to allow net earnings for a year to be nominated for the next five years. Our suggestion is that the rules should be amended so that taxpayers can elect to treat a payment made by 31 January in the following tax year as made in the previous tax year."
    That is what amendment No. 34 does. It is not an issue that we discussed in Committee, but it is relevant. There is a large number of self-employed people. The Institute of Chartered Accountants is an extremely reputable organisation. If it has identified the problem, I am sure it has a point.
    I should be interested to hear what the Minister says. If she cannot accept our amendment—given the track
    record so far, I would be optimistic if I thought she was about to accept it—I ask her at least to consider the matter. We have another Finance Bill next year, before the reforms come into place. I hope we will get an assurance from her that she will examine the problem that we have brought to the attention of the House.
    I turn to two issues that were discussed in Committee—first, that to which amendments Nos. 18 and 19 apply: the strange requirement, which appears in paragraph 2 of schedule 28, that a pension scheme with fewer than 50 members secures scheme pensions through an insurance company, for example, by buying an annuity. I say that that is a strange requirement, first, because it did not appear in any of the consultation documents and the industry was not consulted on it. It was one of the big surprises when the Bill was published.
    Secondly, the requirement is strange because, of all the debates that we had in Committee, I feel that this is the one on which the Minister was least sure of her arguments. She said that it was all to do with protection—that small schemes ran the risk of not providing a pension for life because they were not large enough to pool the mortality risk of members. But she produced no evidence to back up that assertion. She
    910
    provided no facts about the number of small schemes that were unable to honour their scheme pensions. Then she conceded that the issue of member protection was really a matter for the Department for Work and Pensions.
    In Committee the Minister said:
    "I also recognise that the DWP is in the process of making changes to its rules on scheme funding requirements and that, together with the pension protection fund, it should protect the pension funds of some small schemes. However, we are not yet in a position to know exactly what those protections should be.
    I will, however, give a commitment to the Committee that once that has been fully decided and those rules are in the public domain, we will examine this again to see whether there is any overlap of regulation, and whether this is the appropriate way to ensure that members of smaller schemes are protected against longevity risk. In the meantime, I suggest that the provision remains in the Bill."—[Official Report, Standing Committee A, 8 June 2004; c. 498.]
    That hardly reflects the confidence and assurance that one expects from a Treasury Minister seeking to change the law. To paraphrase, she said, "I know that the Department for Work and Pensions is working on this. I am not sure exactly what it will come up with, but in the meantime let's put the provision in the Finance Act and if we don't need it, I suppose we can take it out."
    I believe we should approach the matter in a different manner. Let us see what the Department of Work and Pensions comes up with, see whether the provision is necessary, and if it is necessary, put it in the Finance Bill next year. It is a stand-alone provision, in the sense that it does not affect the rest of the new pensions taxation regime.
    The Minister also conceded in Committee that the number 50 was "a relatively arbitrary figure". She guessed, using a Government Actuary survey, that between 86,000 and 98,000 schemes could fall into that category, but she was not sure. She revealed that the 50-member cut-off would not apply where a scheme originally had more than 50 members, which we did not know until then.
    4.45 pm
    As I said, the Financial Secretary did not advance her strongest arguments at that point. The requirement could impose a considerable cost on smaller schemes. Buying annuities can be expensive and it may not be appropriate for a scheme to buy a large number of annuities at a particular time. Annuities include upfront administration costs; they are built into the price of the annuity and will fall on the member, whereas in many schemes they are paid by the employer. Members in such schemes could be at a disadvantage. The cost of the annuity also includes the profit margin of the provider. No detailed work has been published on those issues and there has been no consultation with the industry about the possible costs for smaller schemes, nor, as far as I am aware, has there been a detailed regulatory impact assessment.
    In Committee, we proposed scrapping the whole requirement by simply removing it from the Bill. We suggested to the Financial Secretary that she reconsider it and that if the provision really were needed, she could include it in next year's Finance Bill. However, we were required to come up with something different on Report so that our amendment would be selected and discussed;

    911
    our amendment proposes, therefore, to replace the threshold of 50 members with a threshold of 20. That is because there is a much greater risk of a large proportion of members living longer than expected when there are only 20 members. Relatively, a 50-member scheme is not small, and many medium-sized schemes could be affected, whereas a 20-member scheme is, by a distance, smaller.
    The amendment includes provision for the Financial Secretary to change that number by regulation. She may discover that the provision is not needed so the requirement could be eliminated, or she could increase the number from 20 to 50 or 100. We have given the hon. Lady some flexibility. She is not even sure whether the original provision is required and is awaiting developments from another Department, so the figure of 50 gives her no flexibility.
    The best reason for changing the figure from 50 to 20 is that I have heard from people in the Inland Revenue that they are considering that reduction. I thought that I would help the Government with their discussions by tabling the amendment, so that the Financial Secretary does not have to do what she may already be considering—she can simply accept my amendment.
    Finally, I turn to the proposals on alternatively secured income. We had a good, wide-ranging debate on that new concept in Committee. According to the Government, it is designed to tackle the well-established objections of some religious groups, such as the Christian Brethren, to annuities, which they correctly believe are a speculation on the length of a person's life. They heed Corinthians, which tells us
    "ye are not your own…For ye are bought with a price",
    so they decided that it would be wrong for them to purchase annuities. That is a long-established belief of the Brethren, stretching back to the 19th century.
    There are 14,000 Brethren in the United Kingdom and until now the Government have steadfastly refused to help them. The issue has been debated many times and has been brought to the attention of the House by Conservative Members. I praise in particular my right hon. Friend the Member for Skipton and Ripon (Mr. Curry) and my hon. Friends the Members for Tiverton and Honiton (Mrs. Browning) and for Arundel and South Downs (Mr. Flight), who in a succession of private Member's Bills and so on have come up with more and more ingenious devices to help the Brethren; for example, they came up with the concept of a retirement fail-safe fund.
    Suddenly, however, the Government swept away all their previous objections and came up with a fairly straightforward answer. They said, "Fine, you can draw down up to 70 per cent. of the annuity that you could have bought at the age of 75, provided we assess it each year. We'll call it an alternatively secured pension." In fact, "alternatively secured pension" is a bit of a misnomer, because the pension is not secured against anything in any real sense, but if it makes the Government feel better to call it that, we do not object.
    We should pay tribute to the Brethren for their long and, ultimately, pretty successful campaign. We should also pay tribute—as I already have—to my hon. Friends
    912
    who have advanced their cause here. In a letter to my hon. Friend the Member for Arundel and South Downs, a representative wrote:
    "We would like to thank you, on behalf of the Brethren, for your constant support in our appeal to Ministers to obtain a pension provision that would accord with our beliefs … thank you for your kind and consistent support that has helped to obtain this provision."
    The Brethren also wanted us to thank the Minister for listening to our arguments, which I am happy to do.
    The solution that the Government have come up with is, however, marred by a great injustice, which my amendments Nos. 27 to 33 seek to remedy. The Government say that a scheme member using an ASP can draw only 70 per cent. of the amount that could be generated by an annuity for someone aged 75. In Committee we tabled amendments to turn the 70 per cent. into 100 per cent., but the Government rejected them. What we have tried to do here is get rid of the requirement always to apply the funds to an annuity, which someone could buy at the age of 75.
    The ASP will become increasingly unfair as a member gets older. According to the Association of Consulting Actuaries, by the time that 75-year-old is 80 he or she will be drawing just 55 per cent. of the annuity that could be purchased in the market, and at 80 the amount will be just 43 per cent. The ACA says:
    "Clearly the government is keen to ensure that people using ASI do not erode their pension savings too quickly and hence have recourse to social security but the basis proposed is far too penal and discriminates unfairly against those who do not wish to buy an annuity on religious grounds."
    The ACA believes, and we believe, that even if we accept the Government's argument that they want to protect the Exchequer and are not prepared to get rid of the annuity rule in general, the combination of the annual review of someone's fund and the 70 per cent. rule is more than enough protection for the Exchequer. Indeed, I would argue that there is a danger that if people are forced on to such potentially low incomes, they may fall back on means-tested benefits.
    Our amendments seek to achieve two things. First, they would allow someone with an ASP to draw 70 per cent. of the annuity that can actually be bought with the pension pot available—rather than the amount that could be bought by a 75-year-old—while retaining the annual review, which is the best check that funds will not run out. Secondly, they would allow someone to catch up. A member who had not drawn the full 70 per cent. in the previous year could do so in a subsequent year. There could be a number of years in which their income needs were not particularly great; then suddenly, they might want to go on holiday or to carry out home improvements. In such a situation, they ought to be able to make up the difference through the money that they had not drawn down in previous years. The ability to do so would give them some flexibility.
    We had a debate on how attractive the alternatively secured pension will be to the wider public. Many in the industry think that a relatively large number of people might take up that option in order to pass on their pension pot to their children. The Financial Secretary was pretty sure that that would not happen; time will tell. But there is no doubt that that option will be used by religious groups—including the Brethren, one

    913
    hopes—to provide them with an income in retirement. I have no problem in saying that the Government have taken a major step forward, but they are still in danger of denying such people a decent income in retirement.
    The Financial Secretary is likely, to rehearse many of the arguments that we heard in Committee, and to say exactly the same as she said when I made these points then. Perhaps she can at least give a commitment to considering this issue, and to listening to representations from the Brethren. One of the people from that organisation who wrote the original letter phoned me yesterday to discuss this issue, so it is clear that they are still concerned about it. I hope that the Financial Secretary will listen to such views in the course of the next year, and if necessary introduce changes in the next Finance Bill. If she is not prepared to do so, she could just as easily accept my amendment today and solve the problem here and now.
    Mr. Quentin Davies: I rise to speak to my own amendment in this group—No. 15—but I shall not be seeking your consent to press it to a vote, Mr. Deputy Speaker The issue that I am about to discuss was brought to my attention by the Low Incomes Tax Reform Group and Tax Volunteers, and in that regard I am very grateful to Mr. John Andrews and Mr. Robin Williamson. I was for many years an advisor to the Chartered Institute of Taxation, which supports, but in no sense has a financial interest in, those two bodies. Indeed, nobody has a financial interest in them because they are pro bono bodies; in fact, Tax Volunteers is a registered charity.
    The intention behind my amendment is to add to the list of forms of income that can be paid through the pay-as-you-earn system, where tax is deductible at source, payments under retirement annuity contracts. The object is that the tax treatment of retirement annuities should be exactly the same as i hat of occupational pensions or employment earnings. The big advantage is that, if tax is deducted at source and the tax code is correct—one assumes that it is; if not, it can rapidly be modified—the taxpayer receives the exact amount of money that they ought to receive net of tax, and no tax is withheld by the Revenue. Such a withholding involves a very considerable cash-flow loss to the taxpayer.
    At the moment, tax is deducted at source from retirement annuity contracts, as with some other forms of savings income, at the standard rate of 22 per cent. The rather sad problem is that many people who have retirement annuities have small annuities and are very poor. The average retirement annuity premium—the capital sum paid to purchase a stream of annuities—is some £22,000. When I first saw that figure, I could not believe it; I thought that it was the average annuity in payment, although I admit that such a figure would be rather high. The fact is that that is the average premium in the country. Labour Members often mention in debates that there are a lot of so-called fat cats earning a large amount of money. Of course there are, but the average must reflect the fact that there are many people whose total accumulated capital, with which they can purchase an annuity contract, is very substantially below £22,000.
    914
    5 pm
    It is a tragic position. We are dealing with many poor people here, and I wish I knew exactly how many. I tabled a question the other day asking how many recipients of retirement annuity contracts in this country were entitled to tax rebates from the Inland Revenue, their marginal tax rate being either zero, when income falls below the required level of the personal allowance, or 10 per cent. In either case, people would be entitled to a repayment by the Revenue, but the Government response to my question was that they did not know the answer either. There are clearly many people who fall into this category—certainly at least tens of
    thousands—and some of them are in a rather cruel position.
    The Government will probably tell me that when people's income is below the personal allowance threshold and they are not liable for any tax, there is the R89 procedure, which enables them to apply to the Revenue to have their retirement annuity paid gross, without deduction. However, that does not work for people whose income is taxable at the marginal rate of 10 per cent.
    If we are talking about people whose income falls below the personal income limit—only about £5,000 or £6,000, or perhaps a little more with the age limit—we are talking about people who are, frankly, pretty poor. Let us face it, such people may be unsophisticated in financial matters and perhaps completely foxed by the administrative problems of securing the repayment. They will certainly not be able to afford professional advice. A few hours of professional advice might consume their entire income for the year, so it is wholly unreasonable to assume that they should take such advice to secure the refund. There may be some pathetic, very sad cases—one fears they must exist—where people have their tax deducted quite wrongly by the Revenue and they never claim it back at all. Furthermore, some people who manage to work out the right administrative procedures to reclaim the tax may have to wait a long time. They cannot use the R89 procedure if they are in the 10 per cent. tax bracket. They may have to wait many months—perhaps the Paymaster General can tell us exactly how many. It certainly takes a long time to get money back from the Inland Revenue, as we know.
    I would like to cite one or two cases put to me by the Low Incomes Tax Reform Group. One case was that of "Ron", a pensioner aged 76 who lives alone. His income for 2004—05 is his state retirement pension of —4,140 and his retirement annuity of £2,950—a total income of £7,090. This is a man on a very modest income and it is right for the House to pay attention to the position of people in such circumstances. His income tax liability will be £14 for the whole year, yet basic rate tax of £649 is deducted from his retirement annuity at source, leaving him to claim back from the Revenue the £635 that he does not owe. That is a cruel situation—a theoretical example, but it could exist.
    Let us consider another case of someone with a total income of £6,831. That figure was chosen in order to make a point, but again there could well be many real people with exactly that income or very close to it. It was chosen because it happens to be £1 above the personal allowance limit. The tax liability in that case is 10p for the year in question. However, the individual has a

    915
    retirement annuity of £3,000, so £660 tax is deducted before he gets it. In that way, people on very low incomes regularly lend the Inland Revenue over £600, which is a colossal amount of money for them.
    I know that the Government understand this, as the problem has been raised with them many times. I should be delighted if I were the first person to bring this matter to the Government's attention, but I am not. The Government have been lobbied on this matter by many people, including the Low Incomes Tax Reform Group, for many years. The Paymaster General is not in her place just now, but she told the House four years ago that the Government were investigating ways of making progress on the matter. She said that they were in discussions with the industry about simplifying the system to make it much more responsive to pensioners.
    I asked a parliamentary question on this matter recently in an attempt to keep up the pressure, and I got an answer on 1 July. It was signed by the Paymaster General, and I am sure that the Financial Secretary is aware of what it contained.
    The Financial Secretary to the Treasury (Ruth Kelly)The Financial Secretary to the Treasury (Ruth Kelly) indicated assent.
    Mr. Davies: The answer stated:
    "The Inland Revenue are setting up a joint working group, including representatives from both RAC"—
    that is, retirement annuity contract—
    "providers and those who represent the pensioners interests such as the Low Incomes Tax Reform Group, to carry out an assessment of the scale of the problem and to explore options for resolving this issue by April 2007. The group will also look at practical solutions in the short term to help those pensioners who may be suffering a cash flow disadvantage under the current system."—[Official Report, 1 July 2004; Vol. 423, c. 381W.]
    By their own admission, the Government have known about this problem for three or four years. The answer states that the Inland Revenue "are setting up" a working group. The continuous present tense is sometimes used to indicate the immediate future, so that may mean that the working group will be established in August, September or October, with a view to doing something about the problem by April 2007.
    The examples that I gave are genuine enough. One may be a typified example, but they offer authentic instances of the impact of the present regime. They show that people in their late 70s—and there will be some in their 80s and 90s—are having hundreds of pounds abstracted from their very low incomes in a way that is very unjust and unfair. I do not believe that the Government can make a case for the present system on the grounds of morality or of economic rationality, or in any other reasonable way.
    Many of the people who are suffering from this problem are elderly, and some may be dead by the time the Government resolve the matter in 2007. In bringing forward this matter again, I do not claim credit or originality: it is not as though no one had identified the problem before. I simply beg the Government to show the requisite urgency in dealing with the injustice that I have described.
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    The people who are suffering from the problem are very vulnerable. This afternoon, the House has spent a lot of time talking about people with millions of pounds who are able to perform complicated tax planning about their estates. That is fine, and it is right to pay attention to such things. We need to look at the matter objectively, and ensure that the principles of justice, clarity and transparency in our tax system are applied; but how much greater is our obligation to do that for poor retired people who receive only £5,000, £6,000 or £7,000 a year? They cannot afford professional advice, or paid advocacy.
    I find it hard to believe that the Financial Secretary can refute either the substantive or the normative points that I have made. I hope that she will say that the Government will adopt some urgency in the matter, and all she has to do is give the requisite instructions to her officials. However, we need to get this sorted out a lot quicker than the Government appeared to envisage in their reply to me of 1 July.
    Ruth Kelly: We have had a good debate so far on this important subject. The debate has touched on pension scheme benefits and contribution rules. In the interests of being precise and concise, I shall deal with the points that have been raised. rather than elaborate on some of the grander themes.
    The hon. Member for Tatton (Mr. Osborne) mentioned amendment No. 34. As he well knows, we have introduced a simplified system with generous limits, in which contributions can be made to a pension fund of up to 100 per cent. of an individual's earnings in any given year. He asked especially about the self-employed and how the limits would affect a self-employed person whose earnings are not known until the end of the financial year. He asks how such a person would know what represented 100 per cent. of their earnings, and he has tabled an amendment to try to address the problem. I agree that some self-employed people will not know their final earnings until after year-end, but as the hon. Gentleman acknowledged, the new limits of 100 per cent. of relevant earnings chargeable to tax in the UK are extremely generous compared with existing levels of relief. The self-employed will, over a period, be able to plan pension contributions on a relatively safe basis, by basing contributions on known levels of earnings.
    Very few people contribute the maximum under the current rules, which only allow up to 40 per cent. of earnings, depending on age and the type of scheme, and are much more restrictive than the new rules. The new limit of two and half times that figure will provide more than adequate leeway for the vast majority of people. If someone were to inadvertently exceed the 100 per cent. limit, the scheme will have provision to refund the excess without any tax charge on the sum refunded. Those comments more or less deal with the hon. Gentleman's point.
    Very few people raised the issue in representations to the Government or to the Inland Revenue. It did not come up in consultation. Only three out of 209 responses referred to it at all, and only one representation on the issue was received following the publication of the Finance Bill. It was probably the same representation as the hon. Gentleman mentioned. Of course, we keep all such provisions under review, but

    917
    in the interests of simplicity I urge him to accept that the system that we will introduce is not only more generous, but simpler than the one it replaces.
    The hon. Gentleman also mentioned the 50-member limit. We had a long and constructive debate in Committee about that and the requirement to buy an annuity for pension funds with fewer than 50 members. I urge him and other members of the Committee to consider that the Government have a responsibility when providing tax relief for pension savings. It is important to ensure that the relief is used for its intended purpose, which is to provide members with a pension for life. The annuity requirement is designed to ensure that it is possible for a fund to provide a pension for life. The hon. Gentleman may dispute the appropriate number of members—whether it should be 20 or 50, or perhaps 60 would be better. We could talk for hours about the appropriate number, but it is not possible to say precisely what size of scheme would provide a large enough pool so that funds would be protected if, for example, all the members lived longer than expected. That could depend on a range of factors, such as the gender of the members or the type of occupation. However, we can say that it is unlikely that a scheme with fewer than 50 members would be of sufficient size adequately to pool the mortality risk.
    Mr. George Osborne: Can the Financial Secretary give us some evidence of the problem that she has identified of the small schemes being unable to pool mortality risk? How many such small schemes have run into difficulties, and why does she think that it is the Inland Revenue's job through th e tax rules to offer member protection, when we have just had a Pensions Bill from the Department for Work and Pensions that contained many member protection features?
    Ruth Kelly: I was about to deal with some of those points when the hon. Gentleman intervened. There is a tax rationale, because we provide tax relief to assist people in achieving a secure income in retirement. It is only right that we try to ensure th it the funds are used for the appropriate purpose. There is also a member protection rationale that will rightly be considered by the Department for Work and Pensions in regulations. Those regulations will be produced in the usual way and considered over the coming months. In order to ensure that there is no overlap between the provisions and the Bill, I have given a commitment to look closely at the regulations to ensure that that does not happen. If there is an overlap, we will of course review the requirement. In any event, there is a clear tax rationale for the requirement to take out an annuity.
    Mr. Flight: Have the Government had any thoughts about transitional arrangements? A final salary pension scheme with, for example, 50 members that has been operating on the basis of an ongoing portfolio is likely to encounter very substantial additional costs in suddenly paying annuities for all its members. With pension funds substantially under water already, that could result in a lot of final salary pension schemes going to the wall.
    5.15 pm
    Ruth Kelly: I should like to make a couple of points about that. First, we have not received representations about that issue, which in itself suggests that it is not
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    likely to be a significant problem. Secondly, it is not at all clear that an additional cost will be imposed on small schemes. That is completely dependent on the nature of the scheme. When an insurance company provides the scheme pension, it will be necessary for the entire purchase price to be paid from the scheme to the insurance company as either a one-off lump sum or in a series of payments. However, where the scheme itself pays the pension, cash injections from the employer may be required to ensure that the pension is payable for the member's lifetime. So in the long run, the insurance company route may cost no more and might, in fact, even be cheaper than the in-house pension route. So I do not foresee the situation that the hon. Gentleman envisages arising in many cases.
    I now turn to the alternatively secured pension debate that, again, we had in Committee. The hon. Member for Tatton has referred to the Government's decision to set the rate at 70 per cent. of the relevant annuity rate. The reason for that decision is to ensure that an income can be provided for life, thus providing security of income for the members. Indeed, that can be rightly described as a secured pension. He asked why we chose 70 per cent. With a maximum income of 70 per cent., for example, if a group of people all take their fund into alternatively secure pensions at the age of 75, only 5 per cent. of them could expect their maximum income to fall to a third of its initial value if they grew 70 per cent. of a comparable annuity each year. If the maximum income were to increase to 100 per cent., the incomes of 30 per cent. of that group would drop to a third. That is therefore an incredibly important part of our provisions which will ensure a decent and secure income for life. The hon. Gentleman argued that the Brethren have been lobbying him to increase the limit from 70 per cent., but that is not my experience of the Brethren's position, although we always listen to them and will continue to do so.
    Mr. George Osborne: The thrust of my speech when I mentioned the Brethren was to peg things to the annuity that can be bought at the age of 75. Even when people are 85 or 90-years-old, they must still be measured against the annuity that can be bought at the age of 75. The Financial Secretary is knocking down the arguments that I advanced in Committee, not on Report.
    Ruth Kelly: I have explained that the rules exist precisely to ensure that the funds are not depleted too quickly. The hon. Gentleman's amendments would create a significant risk in each case that the funds would be depleted too quickly. Clearly, if people are not members of the Brethren, they always have the option of annuitising if they find that the conditions do not suit them and they want to maximise their potential income. I understand that the Brethren fully welcome the Government's proposals and do not argue that any different provision need be made.
    I shall not rerun the debate about whether people other than the Christian Brethren will use alternatively secured pensions—other than the hon. Member for Arundel and South Downs (Mr. Flight)—apart from issuing the warning that, if we find that people intend to use the alternatively secured pensions to bequeath any unused funds to their dependants, we will of course

    919
    review the provisions, and we could consider ways to tighten up the proposals to make that a very unattractive option.
    The hon. Member for Grantham and Stamford (Mr. Davies) was absolutely right to table amendment No. 15 and I enjoyed his contribution to the debate. He explained well that in the new regime, all pension incomes from registered pension schemes will be subject to the operation of pay-as-you-earn by the person who pays the pension. That includes income paid from retirement annuity contracts—RACs, as they are commonly referred to—because from 6 April 2006, they will come under the umbrella of registered pension schemes.
    During the preparation of our simplification proposals, the industry made strong representations that annuities paid under RACs should not be subject to PAYE for a temporary period. I agree with the hon. Gentleman that we must ensure that pensioners in receipt of RACs do not suffer as a result of the current arrangements, and I stand by the Government's previous commitments to protect their positions as far as possible, to which he drew attention.
    We need to ensure that the change is carried out effectively and efficiently. The task will not be achieved without difficulty, because bringing those pensioners under PAYE will take up the time and resources of not only the Inland Revenue, but the industry. For example, all pensioners will have to be contacted to get the necessary information to operate PAYE. Unfortunately, as I am sure that the hon. Gentleman will agree, some pensioners are often reluctant to respond to Inland Revenue requests for such information, so it is an unfortunate fact of life that despite the best will in the world, the task will be resource intensive and its completion will take time. That is why I have asked officials in the Inland Revenue to form a joint working party, including representatives of RAC providers and bodies that represent pensioners' interests, such as the Low Incomes Tax Reform Group to which he referred, to carry out a feasibility study to take account of the scale of the problem with the aim of resolving the matter by 2007, and to examine short-term measures that might help to alleviate the problem to which he referred so that people are not penalised unfairly by the current system. We intend to resolve the matter as quickly as possible.
    Mr. Quentin Davies: I am grateful to the hon. Lady for her response to my points; she is saying all the right things. However, she will agree that the Government have known about the problem for many years and that they have been promising to take action for the past four years—since 2000. There must be a sense of urgency now. I was grateful that she referred to short-term measures that could be introduced before the deadline in 2007. Will she give us an indication of what those measures might be and the time scale in which they could be implemented? I am grateful for the general response that I have received, which will also have been noted by many people in the country with enormous pleasure and relief.
    Ruth Kelly: I thank the hon. Gentleman for his comments and assure him that officials in the Inland
    920
    Revenue are already in touch with the Low Incomes Tax Reform Group and industry representatives to try to sort out the problem. We are especially determined, as are they, to try to solve the short-term cash-flow difficulties experienced by pensioners who are disadvantaged by the current system. I believe that one measure under consideration is giving pensioners the ability to claim back tax from the Inland Revenue within year, which should alleviate some of the cash-flow disadvantages to which he referred. We hope to resolve the problem by 2007, and he will agree that if we can both take short-term measures to alleviate problems, and look towards a deadline for resolving longer-term issues, that will represent progress. The Government are intent on solving the problem.
    Government amendments Nos. 112 and 113 will clarify and make minor changes to the lump sum rules in schedule 29. They will ensure simply that the definitions of winding up lump sums and winding up lump sum death benefits apply to the whole of part 4 of the Bill, rather than only schedule 29. I urge the House to accept those amendments, and hope that the hon. Member for Tatton and other hon. Members have been reassured by my comments.
    Mr. George Osborne: I join my hon. Friend the Member for Grantham and Stamford (Mr. Davies) in welcoming what the Minister had to say about his amendment. As he said, we have had previous assurances from the Government—perhaps not as full as the one given by the Financial Secretary—and we shall hold the hon. Lady to what she does rather than to what she says. I am sure that she means to implement these measures and, particularly, to provide short-term measures that she has talked about.
    Amendment No. 34 is about the self-employed. The hon. Lady said that the regime was generous in terms of the amount of money that people could put in and that there was more than adequate leeway for the self-employed. She is right that the regime is generous, and I think that I said that. She said that any overpayments would be refunded. but she did not say that the self-employed would be able to make up any underpayments. The system does not help those who are not sure of their income from year to year. They may have zero income some years. They are not helped with their financial planning. However, the hon. Lady said that she would keep the matter under review. Just because she has received one representation on the issue, that does not mean that it was a bad representation.
    Amendments Nos. 18 and 19 are' about the limit of 50 scheme members. The Minister has not produced any evidence of a problem. She has asserted that there is a problem and has asserted also a general proposition about mortality risk for schemes with fewer than 50 members, but I have not seen any data, any evidence or any consultation paper. It seems that there is only a general view that perhaps this would be a good moment to introduce the provision. Although the Minister tried bravely to draw a distinction between the tax rationale and the protection rationale for so proceeding, it is basically a protection rationale.
    The hon. Lady repeated what she said in Committee, which was that the Department for Work and Pensions is working on the matter and she will see what it comes up with and then reconsider the position. I would argue,

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    as I did previously, that that is putting the cart before the horse. Let us see what the Department with primary responsibility for pension protection comes up with, and then see whether the Inland Revenue needs to do anything. The Inland Revenue is gold plating. It is putting in a requirement when it is not sure that it will be necessary. Who knows, in a year's time, with the next Finance Bill, we could find th it the provision is removed, never having been law in terms of applying to schemes in practice. We shall see. At least the hon. Lady will take another look at what another Department does, which will be a first for a Treasury Minister.
    I move on to the remaining amendments. I did not say that the Brethren were not happy with what the Government have done. I went to some lengths to say how pleased they were, and read out that they praised the Financial Secretary, my hon. Friend the Member for Arundel and South Downs (Mr. Flight) and other of my hon. Friends who, over a number of years, have advanced their arguments. I made it clear also that I was not trying to reopen the debate about whether it should be 70 per cent. of an annuity or 100 per cent. I had the feeling that the Minister's speech had been written before she listened to my speech, which was about a different point. It was about the age of 75, and about the fact that 70 per cent. applies to an annuity even by 75, notwithstanding the fact that the person may be 80, 85 or 90. I remind the hon. Lady that the Association of Consulting Actuaries felt that the provision was far too penal and would unfairly discriminate against religious groups. It felt also that the protection provided by both the 70 per cent. requirement and the annual review was more than adequate to protect the interests of the Exchequer. I felt that the hon. Lady did not deal with the substance of my argument, but there we go. Such is life.
    I beg to ask leave to withdraw the amendment.
    Amendment, by leave, withdrawn.

    DEFERRED DIVISION
    Mr. Deputy Speaker Mr. Deputy Speaker (Sir Alan Haselhurst): I must announce the result of the deferred Division on the Question of civil aviation. The Ayes were 248, the Noes were 138, so the Ayes have it.
    [The Division List is published at the end of today's debates.

    Finance Bill
    Question again proposed.
    5.30 pm

  Schedule 29

    REGISTERED PENSION SCHEMES: AUTHORISED PENSIONS— SUPPLEMENTARY
    Amendments made: No. 112, in page 455, line 41, at beginning insert
    'For the purposes of this Part'.
    No. 113, in page 461, line 18, at beginning insert
    'For the purposes of this Part'.—[Dawn Primarolo.]

  Clause 166

    RECOGNISED TRANSFERS
    Amendments made: No. 114, in page 153, line 33, leave out
    'recognised overseas pension scheme which is not a registered'
    and insert 'qualifying recognised overseas'.
    No. 115, in page 153, line 35, at end insert—
    '(2) For the purposes of this Part a recognised overseas pension scheme is a qualifying recognised overseas pension scheme if—

    the scheme manager has given to the Inland Revenue notification that it is a recognised overseas pension scheme and has provided any such evidence that it is a recognised overseas pension scheme as the Inland Revenue may require,

    the scheme manager has undertaken to the Inland Revenue to inform the Inland Revenue if it ceases to be a recognised overseas pension scheme,

    the scheme manager has undertaken to the Inland Revenue to comply with any prescribed information requirements imposed on the scheme manager, and

    the recognised overseas pension scheme is not excluded from being a qualifying recognised overseas pension scheme by subsection (5).

    (3) In this Part "scheme manager", in relation to a pension scheme, means the person or persons administering, or responsible for the management of, the pension scheme.
    (4) In this section "prescribed information requirements" means—

    requirements imposed by or under regulations made by the Board of Inland Revenue to provide to the Inland Revenue any information of a description prescribed by regulations so made, and

    requirements specified by regulations so made to provide information to an authority so specified in circumstances so specified.

    (5) A recognised overseas pension scheme is excluded from being a qualifying recognised overseas pension scheme by this subsection if the Inland Revenue has decided that—

    there has been a failure to comply with any prescribed information requirements imposed on the scheme manager and the failure is significant, and

    by reason of the failure it is not appropriate that transfers of sums or assets held for the purposes of, or representing accrued rights under, registered pension schemes so as to become held for the purposes of, or to represent rights under, the recognised overseas pension scheme should be recognised transfers,

    923
    and has notified the person or persons appearing to be the scheme manager of that decision (but subject to subsection (7) and section (Appeal against decision to exclude recognised overseas pension scheme)).
    (6) A failure to comply with prescribed information requirements imposed on the scheme manager is significant if—

    the amount of the information which has not been provided is substantial, or

    the failure to provide the information is likely to result in serious prejudice to the assessment or collection of tax.

    (7) The Inland Revenue—

    may at any time after a recognised overseas pension scheme becomes excluded from being a qualifying recognised overseas pension scheme decide that the pension scheme is to cease to be so excluded, and

    must notify the scheme manager of the decision.'.—[Dawn Primarolo.]

  Clause 184

    RELIEF FOR CONTRIBUTORS
    Amendment made: No. 116, in page 163, line 32, after first 'contributions"' insert
    ',in relation to an individual and a pension scheme,'.—[Dawn Primarolo.]

  Clause 212

    BENEFIT CRYSTALLISATION EVENTS AND AMOUNTS CRYSTALLISED
    Ruth Kelly: I beg to move amendment No. 117, in page 184, line 16, leave out from 'an' to end of line 19 and insert
    'increased annual rate which exceeds by more than the permitted margin the rate at which it was payable on the day on which the individual became entitled to it'.
    Mr. Deputy Speaker: With this it will be convenient to discuss the following:
    Amendment No. 23, in page 184, line 20, leave out
    'The aggregate of the amount of such of the sums, and the market value of such of the assets, representing the individual's rights under the arrangement as are applied to purchase the lifetime annuity'
    and insert
    'The lesser of:

    the aggregate of the amount of such of the sums, and the market value of such of the assets, representing the individual's rights under the arrangement as are applied to purchase the lifetime annuity; and

    AAF x A'.

    Government amendment No. 119
    Amendment No. 22, in schedule 32, page 472, line 27, leave out '50 pensioner members' and insert
    '20 members or such other number of members as may be prescribed from time to time'.
    Government amendments Nos. 120 to 124.
    Amendment No. 24, in schedule 32, page 473, line 41, at end insert—
    'Benefit crystallisation event 4: meaning of "AAF"
    14A For the purpose of benefit crystallisation event 4 "AAF" is:

    in the case of a lifetime annuity which is not a level annuity, the relevant valuation factor (see section 263); and

    in the case of a lifetime annuity which is a level annuity, the factor certified from time to time by the Government Actuary to be appropriate.

    Benefit crystallisation event 4: meaning of "A"

    14B For the purpose of benefit crystallisation event 4 "A" is the annual amount of the lifetime annuity which will be payable to the individual in the period of 12 months beginning with the day on which the individual becomes entitled to it (assuming that it remains payable throughout that period at the rate at which it is payable on that day).'.
    Government amendments Nos. 125 and 132.
    Ruth Kelly: We turn now to a group of amendments on the lifetime allowance rules. I hope that Opposition Members will welcome Government amendments Nos. 117, 119 and 120 to 124 because they concern a matter that they raised in Committee with which I sympathised in principle and agreed to look at further. I have now done so, and am pleased to introduce our amendments, which have the effect that they sought.
    When a scheme pension is increased, there may be a benefit crystallisation event, which we have discussed at length. There will be no such event, however, if the increase is within the "permitted margin". The amendments ensure that the permitted margin is applied to the overall increase in the pension from the time that it commences, putting someone who receives a one-off discretionary catch-up increase in the same position as someone who receives steady annual increases in their pension. Government amendment No. 125 adds to the existing rules that prevent a benefit crystallisation event from occurring twice on the same funds. It applies when an individual has a crystallised pension in payment, then transfers their pension fund to an overseas scheme.
    Government amendment No. 132 merely clarifies the valuation rules that apply where an individual's uncrystallised rights need to be valued. It ensures that the valuation will be made in relation to someone's benefits at a specific date. I commend the Government amendments to the House. The remaining amendments on clause 212 and schedule 32 touch on points raised by Opposition Members in Committee.
    Amendment No. 22 is another attempt to dilute the 50-member rule. To recap, that rule allows schemes to increase the value of pensions in payment above the permitted margin without creating a benefit crystallisation event, but only if the scheme has at least 50 members, all of whom benefit from that increase. That anti-avoidance rule acts as a curb on small schemes, giving generous pension increases to a small number of retired members without being caught by the lifetime allowance. Reducing the threshold to 20, as suggested by Opposition Members, would weaken the rule. I admit that no threshold is obviously right, and one could go round in circles arguing about whether 50, 30 or 60 is the appropriate number. We could spend hours on that, but we believe that 50 is about the right level to prevent circumvention of the lifetime allowance

    925
    test. Hon. Members may be reassured to learn that that was announced in the second consultation document and has elicited very little comment.
    Amendments Nos. 23 and 24 to clause 212 and schedule 32 deal with the rules on quantifying the value of an individual's pension fund at each benefit crystallisation event, particularly the rule for valuing a lifetime annuity. They seek to change the way in which lifetime annuities are valued at benefit crystallisation events and use the lower purchase price of the annuity and the amount given by applying a factor of 20 to the first year's annuity payments, or a different factor if the annuity does not increase year on year. The aim of the amendments is for people with large money purchase funds to receive a pension income equal to the maximum that a final salary scheme could provide without triggering the lifetime allowance charge. We discussed that at length in Committee, when I explained that the facility would be available if a scheme pension was used instead.
    The amendments miss the point of the relevant valuation factor. We are not introducing the factor as a means of favouring defined benefit schemes, nor do we believe that that would be the effect. We are using it as a simple valuation mechanism where there is no identifiable capital amount to use. Where such an identifiable capital amount exists, it is right to use it as the most accurate, simple and straightforward way to value the pension fund and the actuarial profession, which contributed to the consultation process, supports that approach.
    Moreover—hon. Members may find this argument more persuasive—the amendments would open up a huge avoidance loophole. They allow a non-level annuity to be valued at 20:1 based on the first year's annuity payments. That would allow an individual to set up an annuity that paid an artificially low income for the first year, keeping the amount crystallised below the lifetime allowance. Later years' payments could then be boosted to an unlimited extent without being tested against the lifetime allowance, which is a hugely attractive tax loophole. I trust that the hon. Member for Tatton (Mr. Osborne) agrees that we cannot afford to open up such avoidance routes and, even if he does not accept the principled arguments will not press his amendments.
    Mr. George Osborne: May I say how sorry I am about the deferred Division, because it affects your constituency, Mr. Deputy Speaker? Perhaps that is not in order.
    I welcome the Government amendments, because the Government have adopted our proposal in Committee. I have been in Committees since the beginning of the year—such is the life that I have led for the past six months. Occasionally, one tables an amendment and the Government say, "Yes, great idea", but they deny one the chance to change the law there and then by going away to rewrite the amendment. Nevertheless, I am delighted that they listened to us and are changing the Bill accordingly.
    926
    The Financial Secretary took a leaf from the Prime Minister's book and launched a pre-emptive strike on my amendments. Like the Government amendments, amendment No. 22 applies to schedule 32 and the crystallisation of benefits. Schedule 32 is important because the amount crystallised is tested against the lifetime allowance. Again, the Financial Secretary did not advance strong arguments why a special rule should apply to schemes with fewer than 50 pensioner members—she turned that point round by referring to the exception for schemes with more than 50 pensioner members. She did not give us a clear idea why the figure should be 50 and admitted that it is, at best, a guess.
    The Financial Secretary's main argument, which she advanced today and has advanced previously, concerns the potential for tax avoidance or a scam. The example that she gave in Committee was based on a scheme with only two members. We believe that it is more than adequate to require the scheme to have at least 20 members, as my amendment proposes, and to give the Inland Revenue some flexibility by incorporating a device by which it can change that figure if it senses that it will become a vehicle for tax abuse. The amendment makes provision for it to close that loophole.
    Amendments Nos. 23 and 24 attempt to tackle what remains the greatest flaw in these pensions tax proposals—the unequal treatment of defined benefit and defined contribution schemes. The Financial Secretary repeatedly denied that in Committee, but the facts speak for themselves. She cannot get around the basic fact that, under these proposals, a person with a defined benefit pension can have a substantially larger pension income than a person with a defined contribution pension. The Financial Secretary shakes her head. I therefore suggest that after tonight's awards ceremony she should log on to the Financial Services Authority's website. That is what I did last night to check out what a 60-year-old man who is a nonsmoker—I am sorry to disappoint my hon. Friend the Member for Arundel and South Downs (Mr. Flight), but he gets a much better annuity than the rest of us has a spouse three years younger, and is looking for a 50 per cent. survivor's spouse pension that rises with inflation and has a five-year guarantee, could buy with £1.5 million. In other words, I tried to devise what many defined benefit schemes offer, putting some pretty generous things into the package as I did so. When I carried out a similar exercise in Committee, the hon. Member for Wolverhampton, South-West (Rob Marris) picked me up on putting in a two-thirds survivor's pension, which he said was too generous, so I reduced it to 50 per cent. to satisfy him, should he be here.
    In calculating those figures on the website, which is quite easy to do, I used the best—not the worst—annuity rate on offer from a major provider, which was the Prudential. I found that the 60-year-old could buy a pension that pays him £60,264 a year. If he was 55, which would be the minimum retirement age, he could get a pension of £53,496 for his £1.5 million defined contribution pension pot. However, if he was in a defined benefit scheme he could draw £75,000 or more—in other words, almost 50 per cent. higher than what was available to the 55-year-old with a defined contribution scheme. That is a simple fact that the Financial

    927
    Secretary cannot deny and which exposes the truth—that there is one regime for defined contribution schemes and another for defined benefit schemes.
    The Financial Secretary said in Committee, and has said here, "Well, of course people can always, in effect, go off and buy a defined benefit scheme, because they can convert their defined contribution scheme to a defined benefit scheme." I am not sure why the Government should rely on the market to address deficiencies in their legislation: they should ensure in the first place that it does not discriminate between defined benefit and defined contribution pensions.
    In Committee, we tried to value defined contribution and defined benefit pensions in exactly the same way by multiplying the actual pension available; after all, most people will not go into the detail as we have, but focus on the pension income that is actually available to them. We suggested multiplying that actual pension income available to the individual, whether on a defined contribution scheme or a defined benefit scheme, by 20 and testing it against the lifetime allowance. That meant that an individual could have had a pension income of £75,000 a year from a defined contribution annuity purchased via a defined contribution pension, as well as from a defined benefit scheme.
    5.45 pm
    The Government rejected those amendments in Committee and we have therefore tried a new approach of offering an underpin so that people with a defined contribution pension can have the pension pot valued in the way in which the Bill currently sets out or by multiplying the available annuity—A in my equation—by an appropriate actuarial factor, which is represented by AAF. Conservative Members can devise equations, too. That factor would be 20 for a lifetime annuity that increases, for example, with inflation or through being related to an asset value such as risk profits annuity, and less than 20 for a flat lifetime annuity, as defined by the Government Actuary. The latter would be initially higher than an increasing annuity.
    The Financial Secretary claims that there is a great flaw in our scheme in that it creates a tax avoidance loophole that would enable someone to have an artificially low pension and subsequently increase it. If that is the case—I am happy to take that on advice—she is more than welcome to go away and consider my amendments, which could easily be tweaked to get around the problem, for example, through different definitions of types of annuity and their treatment. I should be more than happy for her to do that and table relevant amendments to next year's Finance Bill.
    If the Financial Secretary is right that the Bill does not treat defined benefit schemes unfairly, she should not mind placing an underpin in the measure because, she would argue, it is not required. However, if the Government turn out to be wrong—I suspect that they
    will—the underpin will act as a guarantee.
    Only a relatively small number of people will have £1.5 million. The pension incomes that we are considering£55,000, £65,000 or £75,000 a year—are
    928
    much greater than the pension incomes of almost everyone in the country and most of the people whom we represent. However, the Government are conveying a signal that they will treat defined contribution schemes differently from defined benefit schemes. Many people in the country believe that we in the public sector—there is an MPs' final salary scheme—feather our nests with those generous schemes while the final salary schemes of those in the private sector have closed and been replaced with money purchase arrangements.
    A survey by JPM organ Fleming showed that 61 per cent. of the top 350 pension schemes have closed or restricted availability to defined benefit schemes and 60 per cent. offer defined contribution schemes. They are almost exclusively ire the private sector. The Bill will confirm a suspicion that there is one rule for us and another rule for the rest of the country. That is the wrong message to send when there is a general perception that pensions are in crisis and people are not saving enough for their retirement. There is a general view that the public sector is insulating itself against the changes and problems.
    We should be scrupulous in our legislation in emphasising that defined contribution schemes are not discriminated against but treated equally by the Government, the state and the Inland Revenue. That is not the case in the Bill as it stands and it should be changed.
    Mr. Flight rose—Mr. Flight rose—
    Mr. Deputy Speaker: Order. It is somewhat unusual for two Front-Bench spokesmen of the same party to speak on the same group when we have had no intervening debate that needs winding up. It would be inappropriate.
    Ruth Kelly: I look forward to responding to the points that the hon. Member for Tatton (Mr. Osborne) made. First, I shall deal with the 50-member rule. As he made clear, he knows that the 50-member rule for providing an annuity to ensure that tax relief is used to grant a secure income for life is altogether different from what he referred to. I do not accept that there will be confusion. The measure is clear: the rules have different purposes.
    I do not accept that the 20:1 valuation factor gives a more generous result to defined benefit schemes. The factor has been agreed, with consensus from the pensions industry, as providing a broadly accurate result for valuing defined benefit pensions. With defined contribution schemes, there is an identifiable amount available for the provision of benefits to the member, so it is possible to value pension rights accurately using that amount. With defined benefit schemes, that is simply not possible because there is no identifiable amount, so it has been agreed that the valuation factor of 20:1 provides a broadly accurate equivalent.
    I accept that using two different valuation methods will inevitably produce slight tax differences. Whether they favour one individual over another in any

    929
    particular year will depend on a variety of factors. If the hon. Gentleman had proposed a different age—perhaps 65, instead of 55 or 60, for example—he might have come up with a different result. If investment growth rates or annuity rates were to differ, that too would produce different results.
    The valuation factor is a broadly accurate method of valuing defined benefit pension. However, if any defined contribution schemes feel that the 20:1 valuation would give them an advantage, they may offer scheme members a scheme pension valued at 20:1 as an alternative. Indeed, any individual who wishes to access the 20:1 valuation factor can move his pension product to the product of his choice.
    The representatives of the pension industry who were involved in designing the new simplification rules were not, at the outset, in favour of lifetime annuities being paid at 20:1, and they are still not in favour of their being valued in that way. They accept that. because there is no pot in a defined benefit arrangement, some sort of approximation must be used to value its capital worth, and the single factor is indeed an approximation, but it achieves that end. Those people are highly experienced representatives of the pension industry and they are firmly of the view that, when there is an identifiable pot—as in the case of a lifetime annuity—it is that pot that should be taken as the capital value to be tested against the lifetime allowance. Th it is the simplest and most accurate method. It does not seem sensible to us, or to them, to turn a real capital amount into a notional one.
    Mr. Flight: Will the Minister tell us what is the difference between a member of a pension scheme with fewer than 50 members who gets annuity when they retire and someone with a money purchase pension who buys an annuity when they retire? Is she aware of any insurance company that offers some kind of magic formula that puts a defined benefit label on to a defined contribution scheme? I think that she will find that no such product exists. There is no difference between a bought annuity and a defined contribution pension.
    Ruth Kelly: I agree that such products may not exist yet, because there is no demand for them. However, as I said in Committee, I firmly believe that there is a market for this kind of financial product. It is not for me to tell the market what to do, but if there is a market for such a product, I am sure that the market will supply it. If not, presumably it will not. The Revenue's contacts in the pensions industry have confirmed that this is also their expectation.
    We could continue to debate this matter at length, but we will not know the answer unless someone identifies a demand and proceeds to provide such a product. I would expect that any such demand will be met, and I am sure that the hon. Gentleman would accept that that is likely to be the case, given his feelings on the matter. In that case, the unfairness that he supposes to exist, and which I refute, will not exist at all. On that basis, perhaps he will acknowledge that his amendments are unnecessary.
    Amendment agreed to.

  Clause 212
    BENEFIT CRYSTALLISATION EVENTS AND AMOUNTS CRYSTALLISED
    Amendment made: No. 118, in page 184, line 44, at end insert 'qualifying'.—[Dawn Primarolo]
  Schedule 32

    REGISTERED PENSION SCHEMES: BENEFIT CRYSTALLISATION EVENTS—SUPPLEMENTARY
    Amendments made: No. 119, in page 472, line 27, leave out from 'that' to end of line 38 and insert
    'at the time when the annual rate of the individual's pension is increased there are at least 50 pensioner members of the pension scheme, and

    (b) all the scheme pensions being paid under the pension scheme to all the pensioner members of the pension scheme are at that time increased at the same rate.'.

    No. 120, in page 473, line 2, leave out 'its previous rate' and insert
    'the rate at which it was payable on the day on which the individual became entitled to it'.
    No. 121, in page 473, line 6, leave out
    'pension was first payable at the previous rate'
    and insert
    'individual became entitled to the pension'.
    No. 122, in page 473, line 20, leave out
    'first month in which the pension was payable at the previous rate'
    and insert
    'month in which the individual became entitled to the pension'.
    No. 123, in page 473, line 30, leave out 'its previous rate' and insert
    'the rate at which it was payable on the day on which the individual became entitled to it'.
    No. 124, in page 473, line 38, leave out from 'is' to end of line 40 and insert
    '(subject to sub-paragraph (2)) the amount by which—

    the increased annual rate of the pension, exceeds

    the rate at which it was payable on the day on which the individual became entitled to it, as increased by the permitted margin.

    (2) But if one or more benefit crystallisation events has or have previously occurred by reason of the individual having become entitled to payment of the pension at an increased rate, XP does not include the amount crystallised by that event or the aggregate of the amounts crystallised by those events.'.
    No. 125, in page 474, line 15, at end insert—
    'Benefit crystallisation event 8: prevention of overlap with other events

    18 (1) This paragraph applies for the purposes of benefit crystallisation event 8.

    (2) Where any of the sums or assets transferred represent the whole or part of the individual's unsecured pension fund, the amount crystallised by the event is to be reduced by the amount (or the appropriate proportion of the amount) previously crystallised on the designation of the sums or assets as available for the payment of unsecured pension.

    931

    (3) Where after the transfer a scheme pension to which the individual has become entitled before the transfer is to be payable out of sums or assets transferred, the amount crystallised by the event is to be reduced by the amount (or the appropriate proportion of the amount) previously crystallised in relation to the scheme pension.'.—[Dawn Primarolo.]

  Clause 220

    TRANSFERS FROM RECOGNISED OVERSEAS PENSION SCHEME: GENERAL
    Amendment made: No. 126, in page 191, line 19, leave out
    'that is not a registered pension scheme'.—[Dawn Primarolo.]

    Clause 228
      CASH BALANCE ARRANGEMENTS: ADJUSTMENTS OF CLOSING VALUE
      Amendment made: No. 127, in page 196, line 41, after 'a' insert 'qualifying'.—[Dawn Primarolo.]
  Clause 232
    DEFINED BENEFITS ARRANGEMENTS: ADJUSTMENTS OF CLOSING VALUE
    Amendment made: No. 128, in page 199, line 11, after 'a' insert 'qualifying'.—[Dawn Primarolo.]
  Clause 239

    RESTRICTION OF DEDUCTION FOR CONTRIBUTIONS BY EMPLOYER
    Amendments made: No. 129, in page 203, line 19, at end insert—
    '(c) in respect of contributions under a qualifying overseas pension scheme in respect of an individual who is a relevant migrant member of the pension scheme in relation to the contributions,".'.
    No. 130, in page 203, leave out lines 27 to 29 and insert—
    "qualifying overseas pension scheme" has the same meaning as in Schedule (Overseas pension schemes: migrant member relief) to the Finance Act 2004 (see paragraphs 5 and 6 of that Schedule);
    "registered pension scheme" has the same meaning as in Part 4 of that Act (see section 147 of that Act);
    "relevant migrant member" has the same meaning as in Schedule (Overseas pension schemes: migrant member relief) to that Act (see paragraph 4 of that Schedule);'.—[Dawn Primarolo.]

  Clause 243

    TAXATION OF NON-PENSION BENEFITS
    Amendment made: No. 131, in page 205, line 34, after 'income)' insert—
    '(b) benefits chargeable to tax by virtue of Schedule (Non-UK schemes: application of certain charges) to FA 2004 (which applies certain charges under Part 4 of that Act in relation to non-UK schemes),'.—[Dawn Primarolo.]

  Clause 271
    VALUATION ASSUMPTIONS
    Amendment made: No. 132, in page 226, line 28, leave out 'and any benefits' and insert benefits and a date'.—[Dawn Primarolo.]
  Clause 274

    ABBREVIATIONS AND GENERAL INDEX
    Amendments made: No. 133, in page 230, line 33, at end insert—
    'overseas pension scheme section 147(7)'.
    No. 134, in page 231, line 18, at end insert—
    'qualifying recognised overseas section 166(2)'. pension scheme
    No. 135, in page 231 line 19, leave out '147(7)' and insert '147(8)'.
    No. 136, in page 231, line 32, at end insert—
    'scheme manager—section 166(3)'.
    No. 137, in page 232, line 4, at end insert—
    'short service refund lump sum section 201(1) charge
    special lump sum death section 202(1) benefits charge —[Dawn Primarolo

  Schedule 34

    PENSION SCHEMES ETC: TRANSITIONAL PROVISIONS AND SAVINGS
    Mr. Flight: I beg to move amendment No. 25, in page 489, line 20, leave out '25 x ARP' and insert
    'the aggregate of—

    the amount of any lump sum paid to the individual, increased from the date of payment to 5th April 2006 by the lesser of 5% per annum and the increase in the retail prices index over that period; and

    20 x ARP'.

    Mr. Deputy Speaker: With this it will be convenient to discuss the following:
    Amendment No. 26, in page 496, line 22, leave out '25 x ARP' and insert 'the aggregate of—

    the amount of any lump sum paid to the individual, increased from the date of payment to 5th April 2006 by the lesser of 5% per annum and the increase in the retail prices index over that period; and

    20 x ARP'.

    Government amendments Nos. 138 to 148.
    Mr. Flight: In Committee, the Minister argued that a rough justice approach was needed and justifiable in taking a 25:1 ratio for pre-commencement pension valuations.
    The effect of that is virtually to force everybody to take the maximum lump sums, in order not to suffer a tax penalty. Someone who has prudently not taken a cash lump sum under one pension arrangement, when

    933
    waiting to know what another pension arrangement may deliver on retirement, will suffer a major pension tax penalty for being cautious.
    The Government's thinking was that it would be too complicated to address the issue en any other basis. I put it to the Financial Secretary that it is not complicated at all. Our proposed alternative, set out in amendments Nos. 25 and 26, is both fair and simple. In essence, they replace the 25:1 ratio with a standard 20:1 computation, but add whatever is the value of any cash lump sum that has been taken, increased by the lesser of 5 per cent. per annum and the actual increase in the retail prices index over the period. That is not a difficult calculation. It means that the Government do not send potentially wrong tax messages to people, effectively insisting that they take their maximum lump sums, and nor does it discriminate unfairly against those who have not done so. We can see no logical reason why the Government should not follow that much fairer and more rational way of approaching this issue.
    Ruth Kelly: I understand the purpose behind the hon. Gentleman's amendment. He seeks to introduce an accurate approach to valuing pensions that came into payment before 6 April 2006, but I would argue that it is both complex and completely unrealistic. Requiring members to obtain or retain the values and dates of all lump sum payments, over a period that may be five, 10 or even more years before April 2006, would be costly and time-consuming.
    I hope that the hon. Gentleman does not mind, but we took the liberty of asking the Association of British Insurers and the National Association of Pension Funds for their comments on his amendments. Perhaps that shows the seriousness with which we treated them. The NAPF explained to the Inland Revenue that it was content with the 25:1 factor and that extending the valuation process in the way envisaged would be difficult for scheme administrators.
    I could quote various insurance companies and their reactions to the hon. Gentleman's amendments, but I shall quote just one very large insurance company:
    "We do not believe this is a practical option. We have no need for records of amounts paid out, other than to meet accounting requirements, which only affect records for the past six years. We would have to depend on the members' records, or their memories, to operate this for a cash sum, which was paid out more than six years ago. Overall, the present proposal of using a fixed factor of 25 is consistent with simplification and also consistent with the use of 20 for crystallising other pensions. The proposed change adds complexity without adding value, and is unworkable for cash sums paid more than six years ago."
    Some of the other comments are even stronger, and the general view in the pensions industry is that the suggestion is completely unworkable, although I recognise that the hon. Gentleman has put it forward in good faith as representing an accurate way of valuing pensions.
    Government amendments Nos. 138 to 148 were promised in Standing Committee, during the debate on Opposition amendment No. 396. They allow rights to transitionally protected low retirement ages to be preserved in the case of a bulk transfer of rights under a
    934
    scheme in which a member has a low normal retirement age that is transitionally protected. I commend the Government amendments to the House.
    Mr. Flight: Indeed, we welcome the Government amendments. I was grateful that the Minister acknowledged that our proposals for calculation are the correct proposals.
    The NAPF made one or two other important suggestions, which the Government have chosen not to accept. The Government should use their own conclusions, and not follow the trade bodies of the pension providers. The Minister commented that she had spoken to those trade bodies and individual pension providers. The issue is what is in the interests of the public at large, not the interests of the industry. I entirely disagree with the comments that she quoted. Taxpayers need to know the sums they have paid or received in all sorts of circumstances. It is ludicrous to pretend that people would not know what tax-free lump sum they have taken. In terms of personal capital, it is one of the biggest events of their lifetime.
    There may be people who have more than one, two or three pension funds, but the majority have a limited number of pension funds, so knowing what tax-free lump sums they have taken is not difficult. The Minister is saying, effectively, that the industry cannot be bothered and the existing system is an easy rough and ready. I submit that it is rough justice, which is unfair to the prudent individual and unnecessary.
    This is not a matter that we intend to press to a vote, but I ask the Government to continue to think about it in the next year. They are responding, wrongly, to the interests of the industry, rather than to the interests of citizens. I beg to ask leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    6 pm
    Amendments made: No. 138, in page 497, line 4, leave out from beginning to end of line 8 and insert—

    the pension scheme is a protected pension scheme, and

    the retirement condition is met in relation to the member and the pension scheme.

    (1A) A pension scheme is a protected pension scheme if condition A or condition B is met.
    (1B) Condition A is met if—

    the pension scheme was within any of paragraphs (a) to (e) of paragraph 1(1), and

    the entitlement condition is met in relation to the member and the pension scheme if—

    (1C) The entitlement condition is met in relation to the member and the pension scheme if—
    No. 139, in page 497, line 16, leave out from beginning to 'and' in line 18 and insert—
    '(3) Condition B is met if the member is a member of the pension scheme as a result of a block transfer to it from a pension scheme ("the original pension scheme") in relation to which condition A is met.
    (3A) A transfer is a block transfer if—

    it involves the transfer in a single transaction of all the sums and assets held for the purposes of, or representing accrued rights under, the arrangements under the pension scheme from which the transfer is made which relate to the member and at least one other member of that pension scheme, and

    935

    before the transfer the member was not a member of the pension scheme to which the transfer is made.

    (3B) The retirement condition is met in relation to the member and the pension scheme if—

    the member becomes entitled to all the pensions payable to the member under arrangements under the pension scheme (to which the member did not have an actual entitlement on or before 5th April 2006) on the same date,'.

    No. 140, in page 497, line 22, leave out 'pension scheme' and insert
    'protected pension scheme on 5th April 2006 (or, where condition B is met, under the original pension scheme on that date).'.
    No. 141, in page 497, line 27, leave out from beginning to end of line 34 and insert—

    the pension scheme is a protected pension scheme, and

    the retirement condition is met in relation to the member and the pension scheme.

    (1A) A pension scheme is a protected pension scheme if condition A or condition B is met.
    (1B) Condition A is met if—

    the pension scheme was within paragraph (f) or (g) of paragraph 1(1), and

    the entitlement condition is met in relation to the member and the pension scheme.

    (1C) The entitlement condition is met in relation to the member and the pension scheme if—'.
    No. 142, in page 497, line 40, leave out sub-paragraph (3) and insert—
    '(3) Condition B is met if the member is a member of the pension scheme as a result of a block transfer to it from a pension scheme ("the original pension scheme") in relation to which condition A is met.
    (3A) "Block transfer" has the same meaning as in paragraph 22(3A).
    (3B) The retirement condition is met in relation to the member and the pension scheme if the member becomes entitled to all the pensions payable to the member under arrangements under the pension scheme (to which the member did not have an actual entitlement on or before 5th April 2006) on the same date.'.
    No. 143, in page 497, line 43, leave out 'pension scheme' and insert
    'protected pension scheme on 5th April 2006 (or, where condition B is met, under the original pension scheme on that date).'.
    No. 144, in page 502, line 20, leave out from beginning to end of line 26 and insert—

    '(1) If the pension condition is met in relation to an individual and a registered pension scheme which is a protected pension scheme, the provisions of Schedule 29 relating to pension commencement lump sums apply in relation to the individual and the pension scheme with the modifications specified in paragraph 35 (but subject to sub-paragraph (2)).

    (2) Those provisions do not apply with those modifications if the lump sum condition and registration condition in paragraph 24 are met.

    (3) The pension condition is that the individual becomes entitled to all the pensions payable to the individual under arrangements under the pension scheme (to which the individual did not have an actual entitlement on or before 5th April 2006) on the same date.

    (3A) A registered pension scheme is a protected pension scheme if condition A or condition B is met.
    (3B) Condition A is met if—

    the pension scheme was within any of paragraphs (a) to (e) of paragraph 1(1), and

    on 5th April 2006 the lump sum percentage of the individual's uncrystallised rights under the pension scheme exceeded 25%.'.

    No. 145, in page 502, line 28, leave out `relevant pension scheme' and insert
    'pension scheme on 5th April 2006'.
    No. 146, in page 502, line 36, at end insert—
    '(4A) Condition B is met if the individual is a member of the pension scheme as a result of a block transfer to it from a pension scheme ("the original pension scheme") in relation to which condition A is met.
    (4B) "Block transfer' has the same meaning as in paragraph 22(3A), but treating the references there to the member as references to the individual.
    (4C) Where a pension scheme is a protected pension scheme because condition B is met, Schedule 29 as modified by paragraph 35 applies as if the protected pension scheme were the same pension scheme as the original pension scheme.'.
    No. 147, in page 51)4, line 42, leave out paragraph 34.
    No. 148, in page 506, line 3, leave out paragraph 36.
    No. 149, in page 510, line 43, at end insert—
    'Individuals with pre-commencement entitlement to corresponding relief
    52A (1) This paragraph applies where the Board of Inland Revenue allow contributions made by an individual under a pension scheme as deductions under Chapter 2 of Part 5 of ITEPA 2003 for the tax year 2005–06 in accordance with section 355 of that Act (deductions for corresponding payments by non-domiciled employees with foreign employers).
    (2) Where the individual makes contributions under the pension scheme for any subsequent tax year, the Board of Inland Revenue may allow the contributions as deductions under Chapter 2 of Part 5 of that Act if, as well as the Board of Inland Revenue being satisfied that the conditions in section 355 of that Act are met, the scheme manager complies with any prescribed benefit crystallisation information requirements imposed on the scheme manager.
    (3) Schedule (Non-UK schemes: application of certain charges) applies in relation to the pension scheme and the individual as if allowing the contributions as deductions under Chapter 2 of Part 5 of ITEPA 2003 by virtue of sub-paragraph (2) were the giving of relief by virtue of Schedule (Overseas pension schemes: migrant member relief).
    (4) "Prescribed benefit crystallisation information requirements" means requirements imposed by or under regulations made by the Board of Inland Revenue to provide to the Inland Revenue any information relating to events that are benefit crystallisation events in relation to the individual.
    (5) The references in sub-paragraphs (2) and (3) to the pension scheme include a pension scheme to which there has been a block transfer from the pension scheme on or after 6th April 2006.
    (6) "Block transfer" has the same meaning as in paragraph 22(3A), but treating the references there to the member as references to the individual:.—[Dawn Primarolo]

  Schedule 36

    SCHEDULE TO BE INSERTED AS SCHEDULE 19B TO THE TAXES ACT 1988
    Mr. Salmond: I beg to move amendment No. 13, in page 522, line 9, leave out '6%' and insert '12%'.
    Mr. Deputy Speaker: With this it will be convenient to discuss amendment No. 14, in page 523, line 33, leave out '6%' and insert '12%'.
    Mr. Salmond: I understand that the Economic Secretary will reply to the debate on behalf of the Government. I am interested to note that on amendments relating to oil taxation, the Government seem to abandon their area-marking role and adopt a man-to-man approach, so the Economic Secretary finds himself replying. I welcome that, as it has been productive in a number of discussions in the past and I hope it will be productive this evening. Some people may find this last debate of the Finance Bill detailed, but it is of huge importance to the oil industry and those who work in it.
    Schedule 36 contains a measure to give tax relief of 6 per cent. on capital investment to encourage exploration and appraisal drilling in the North sea. That is to be variable by Treasury order. The amendment seeks to raise that initially to 12 per cent., which we think is a much more realistic rate, allowing the welcome tax change to have the impact that everybody wants.
    The oil and gas industry is still a vital natural resource industry for Scotland and for the whole country. Only half of the available resources—perhaps much less than half—have thus far been extracted. It is recognised across the industry that the oil and gas industry will need to change to meet the challenge of extracting the other 50 per cent. or more that is available, but for a number of years oil and gas exploration has been slowing down. Unless exploration and appraisal drilling is done today, it is highly unlikely that the enhanced extraction of resources will occur tomorrow.
    It is worth looking at the figures for exploration and appraisal drilling. In the last full calendar year, about 40 exploration and appraisal wells were drilled in the North sea. Unfortunately, that is the lowest number since 1999; in contrast, as recently as 1996, 112 such exploration and appraisal wells were drilled. Paradoxically, despite the decline in the number of wells drilled, the exploration success rate has increased substantially. In 2002, it went up to 31 per cent., which, compared with oil provinces internationally, is an encouraging strike rate.
    Recently, some significant finds have greatly encouraged us in the belief that large discoveries can still be made in the waters around Scotland. In June 2002, it was estimated that the Buzzard field would produce 1.1 billion barrels—the biggest such discovery for 25 years. More recently, a small independent oil company, Oilexco, said that tests showed that its new Brenda field in the Moray firth could give 150 million barrels or more.
    The exploration and appraisal drilling that has been carried out shows some encouraging trends, but the amount of such drilling is far from satisfactory. That greatly concerns me and, I am sure, the Government, as well as the 300,000 people directly or indirectly employed in the industry and the 6,000 companies that work in or produce for it. The oil industry provides about 6 per cent. of total employment in Scotland.
    938
    This much is agreed: there is a huge reservoir of oil and gas still to be extracted from the waters around Scotland; the present rate of exploration and appraisal is unsatisfactory; and one of the challenges is to persuade some of the larger companies to relinquish acreage to some of the smaller ones, which are keen to pursue an aggressive drilling and exploration programme—a point discussed last week when the all-party offshore oil and gas industry group met the Minister for Energy, E-Commerce and Postal Services.
    I am delighted that some of the most aggressive explorers, Talisman and Apache, have found facilities at Peterhead bay in my constituency, where they want to centre much of their operation. I hope, too, that some of the other small independent companies whose representatives I have shown around Peterhead bay will locate themselves at that excellent facility, which has the strategic advantage of being the nearest to most of the oil and gas fields, so there would be substantial cost advantages for independent companies that want to be based there.
    The future offers an exciting perspective. The question for us this evening, however, is whether the Government's initial moves will be substantial enough to bring about the change that we all want to see. My contention is that they will not.
    The current taxation system is inherently disadvantageous for new companies and the corporation tax changes in 2002 have compounded that situation. Existing operators share with the Government the risks of exploration, because they can offset those risks against current liabilities, but new players have to cover the full cost without tax relief until the field is on stream. The Government's proposals would counter that, but the question is whether the allowance, which covers both capital expenditure and the losses incurred in the initial phases of exploration and appraisal before the field comes on stream, is adequate to deal with the disadvantages that would be experienced by smaller, new companies coming into the sector without tax shelter.
    The 6 per cent. that the Government propose is a risk-free rate, but for new players the average cost of capital for exploration and appraisal is about 17 per cent. and can be as much as 20 to 30 per cent. The increase suggested in our amendment of an initial 12 per cent. against the likely cost of capital to new players is modest and realistic.
    Mr. Tyrie: The hon. Gentleman has made several interesting allusions to the state of the industry and I do not disagree with those points, but I am not sure how connected they are to the measure that he proposes. As I understand it, the 6 per cent. rate that he wants to alter is a proxy for interest; it is a measure intended to preserve the real value of the tax losses, but he appears to be converting it into some form of tax allowance, which I do not think was ever the intention. Perhaps I have misunderstood his proposal. Could he explain?
    Mr. Salmond: I am not certain that the hon. Gentleman is as much in command of the subject as he thinks he is. All I am doing is changing the initial allowance, because I think that 12 per cent. is a much

    939
    more realistic assessment of the cost of capital expenditure to bring about the increase in exploration and appraisal that we want to see.
    Mr. Tyrie rose—
    Mr. Salmond: I have explained that my intention is simply to double the initial allowance to 12 per cent. The hon. Gentleman will have to take me at my word, because I now want to make some international comparisons.
    Mr. Tyrie rose—
    Mr. Salmond: No, the hon. Gentleman must sit down.
    The issue of the interest rate is important. It is arguable—indeed, I think it is beyond argument—that it should reflect the relevant cost of capital. That will involve a risk premium, given that exploration is a particularly risky activity. The conceptual basis of my argument is recognised in countries that have moved to resource rent taxes. Typically, an interest rate used for compounding forward tax loss will involve a risk premium and a risk-free element.
    I think the Economic Secretary should pay close attention to recent experience in Australia, where the conceptual framework is highly developed. It has a petroleum resource rent tax, a cash-flow tax levelled on pre-corporation tax cash flows at a rate of 40 per cent. Allowances for all expenditures are 100 per cent. on a first-year basis. There is generally a ring fence for the tax, but the compound interest rates for expenditure vary substantially between exploration and appraisal and development.
    For exploration and appraisal, which is inherently risky, the rate is 15 per cent. real plus a long-term Government bond rate. For development expenditures, which are inherently less risky, the rate is 5 per cent. real plus long-term Government bond rate. The difference reflects the extra risk, and the higher cost of capital for exploration and appraisal. A further feature is the breach available in the ring fence for exploration and appraisal expenditures. These can be relieved against any—that is, company-wide—PRRT income. The compound interest factor of 15 per cent. plus thus represents the effective compensation to the new player, compared to an established one for exploration and appraisal activities.
    I find the Australian example interesting. The Australians have made a concerted and developed attempt to devise an allowance that matches the difference in experience of a new player in the sector, compared with the tax shelters available to an existing player. Notwithstanding Tory-Front Bench scepticism, that is what the amendments are designed to do. I could talk about the Norwegians, who have also made provision for the tax disadvantages experienced by new players, but as I do not think the Norwegian system is as established or as thought through as the Australian one, I shall submit the latter to the Economic Secretary's undoubted interest in these matters.
    Last year's Finance Act looked favourably on an argument advanced during the passage of the previous year's Bill, when the issue arose of whether it was
    940
    possible to ensure more equitable treatment of existing infrastructure and pipelines in the North sea in order to allow new developments, particularly of gas, with the use of that infrastructure. I do not know whether the Treasury has yet had an opportunity to make a proper assessment, but early indications from the tax change are that we may well have achieved the magic bullet of taxation changes: that is, a tax reduction may well be about to increase Government revenue in the medium term. For instance, the entry of the major Statfjord field into St. Fergus strikes me as a direct and early result of that sensible tax change, with other fields perhaps very much in the pipeline.
    I hope that the Government will also look favourably on my attempt to suggest that the welcome 6 per cent. on offer is not enough to bring about the change that is desired—that is, to match the real risk to new players with a tax allowance to equalise their position in relation to established players
    6.15 pm
    It is not enough to persuade the existing major companies to relinquish the vast acreage and the many fallow fields that lie an-drilled or undeveloped in the North sea, although that certainly needs to be done. Given that there is a generation of new companies willing, able and anxious to come into the environment, it is also necessary to give them the opportunity to do so. For that to happen, we must make sure that the tax incentive matches the risk that they will have to bear. Given that we want high-risk activity in the North sea and in the waters around Scotland, that tax incentive, which would not cost the Government a great deal in global terms, could provide a tremendous payout by way of increased revenues in the medium term, and increased jobs and activity in the short term. The Government achieved that virtuous circle through last year's sensible taxation change; hopefully, they are prepared to consider a further such sensible change in future.
    John Healey: I am very pleased to respond to the hon. Member for Banff and Buchan (Mr. Salmond). He is right: although this is the last, it is certainly not the least of the debates on this Finance Bill. The issue that he raises is indeed important, relating as it does to an industry that is of great importance to the UK economy. I pay tribute to him fir championing its interests and consistently coming up with fresh proposals. I am particularly grateful to him for his welcome for the change that we are making through clause 280 and schedule 36.
    The Government share the hon. Gentleman's desire to encourage new entrants into the UK continental shelf, so that the recovery of our national oil and gas resources can be maximised wherever doing so is economically viable. The introduction of the exploration expenditure supplement complements the action being taken on other regulatory matters, and it reinforces the Government's aim to encourage new firms to enter the North sea. That policy is showing some signs of success. The response to the Department of Trade and Industry's recent 22nd licensing round has been very encouraging. Twenty of the 68 companies applying for a licence are potential new entrants, which shows that the North sea is still attracting worldwide interest.

    941
    As the hon. Gentleman said, the purpose of the EES is to deal with a tax disadvantage that might impact on new entrants wanting to undertake exploration. The tax disadvantage arises because companies new to the North sea might not have the taxable income against which to set their 100 per cent. exploration and appraisal allowances—a point made by the hon. Member for Chichester (Mr. Tyrie). The full economic value of those allowances could be significantly eroded over time if there is no stream of profits against which they can be used in year one. The purpose of the EES is to deal with that tax disadvantage. It compensates for this loss in value by providing an annual uplift of 6 per cent. compound on the pool of unused allowances.
    The hon. Gentleman posed the question: why 6 per cent.? Six per cent. is currently judged to be the right rate to compensate for the loss in value of the allowances over time. The rationale is that the rate is consistent with current medium-term high-grade commercial borrowing rates, and with the Government's social time preference rate—in other words, the discount rate applied in evaluating the use of public funds, with an allowance for inflation. The hon. Gentleman argues for a doubling of the rate, but to do so is not currently justified. according to those comparators, without going beyond the purpose of the EES, which is to deal specifically with the tax disadvantage faced by new entrants. A higher rate risks giving new entrant companies an advantage over existing North sea companies with a taxable income.
    Mr. Tyrie: So far, I agree with everything that the Economic Secretary has said, but will he confirm that the purpose of the existing 6 per cent. rate is to create a level playing field between new entrants and existing operators, and that coming to some other figure—removing the 6 per cent. or doubling it—would create a bias in favour of the new entrants?
    John Healey: I thought that I had already made that clear. The purpose of the special provision is to compensate for the loss in value of allowances and to put new entrants on a par with ether companies that may have year one profits against which to use those allowances. To go further than 6 per cent. would be wrong in principle in relation to the purpose of the clause and would distort the market in favour of new entrants. As I said, that is not the purpose of the measure. However, we have taken the opportunity to ensure that we have the power to amend the rate quickly if the economic factors change, making it right to do so.
    Mr. Salmond: I do not think that there is any disagreement between the Economic Secretary and me that a 12 per cent. increase would substantially increase the advantage for new entrants, but I am not certain that that view is shared by the Tory Front Benchers. My problem is with the justification for the 6 per cent. rate, so will the Economic Secretary tell us more? It is effectively a risk-free rate, but the average capital cost for new players in respect of exploration and appraisal is at least 17 per cent.—and it can be much higher. Will the Economic Secretary run over again the justification for the 6 per cent. rate, given flat informed views—certainly more informed than the views of Tory Front Benchers—would suggest that it is too low?
    John Healey: As I explained to the House, the 6 per cent. rate is consistent both with medium-term, high-grade commercial borrowing rates and with the Government's own social time preference rate—the discount rate that we use for evaluating the use of public funds, with an allowance for inflation. Just to be absolutely clear, the purpose of the special relief is to compensate for the loss in the value of the capital allowance for companies that do not have profits against which to use it. It is not to compensate for additional risk or to cover the varying capital costs that different companies may have.
    The hon. Gentleman made some interesting points about policy changes in Australia. I should be grateful if he would send me the details and I will certainly look into them further. I am aware that a tax incentive for exploration was recently announced in Australia, but the country has a corporation tax rate that does not allow this sector of the industry to have 100 per cent. cover in capital allowances. In reaching an assessment, it is important to take account of the total tax system that applies to the oil and gas industry in Australia.
    Mr. Salmond: Can the Economic Secretary help me further by explaining what factors the Treasury will take into account, given that the provision is variable by Treasury order? In deciding whether 6 per cent. is the right rate now and whether it should be changed in the future, what factors will influence the Treasury? Unless we show some appreciation of the fact that, because it carries a very high-risk premium, oil exploration is not similar to other forms of capital investment, it seems to me that any future assessment will not be up to the job.
    John Healey: Our point of difference here is that the hon. Gentleman wants to make this particular relief more generous for wider purposes. His case for doing so, however, goes beyond the purpose of the relief. As I said, it is designed to compensate for the loss of value of the available allowances. The factors that we will take into account are precisely the financial market factors that, as I have already explained, underlie our judgment that 6 per cent. is the right rate now. Those factors do not take account of the economics of the oil industry and its work in the North sea, nor the risks that it faces. I understand why the hon. Gentleman wants me to take them into account, but they fall outside the purpose of the relief in clause 280.
    Rob Marris: My hon. Friend the Economic Secretary puts forward the proposition that the relief is somewhat akin to an indexation measure, such as would apply under the RPI or RPIX. However, the hon. Member for Banff and Buchan (Mr. Salmond) wants it to be related to risk. Is not that the point of dispute?
    John Healey: That may be one way to put it, but one could also explain that the operation of the relief, at 6 per cent. compound interest over six non-consecutive years, means that it could be worth 41 per cent. In other words, £100 of expenditure on investment could become £141 worth of allowable tax relief.
    To summarise, the EES rectifies a specific disadvantage due to the way the tax system works in the special situation of the offshore oil and gas companies.

    943
    By dealing with this issue in this way, we hope to encourage more new entrants into the North sea. This measure will ensure that such companies invest in the UK continental shelf.
    We have had a useful debate on this matter, and the hon. Member for Banff and Buchan and I are likely to have more discussions about the Australian experience. Therefore, I hope that he will be prepared to withdraw the amendment.
    Mr. Salmond: Yes, I look forward to that continuing dialogue. There may be conceptual differences between me and the Economic Secretary on this matter, but I am one of those who represents a constituency with a huge investment of jobs in this sector. The waters around Scotland display some of the welcome trends that the hon. Gentleman has identified, but the vast majority of development remains in the hands of a very few companies. That might be no bad thing if those companies were the best way to develop smaller accumulations. However, there is plenty of evidence that, although smaller companies want to develop accumulations in the North sea, they are unable to get the acreage or potential out of the larger companies' hands.
    To be fair, some of the larger companies have made substantial moves in that direction recently, but there remains untapped potential. Many companies want to develop the acreage but are not given the opportunity to do so. I suspect that there is no economic incentive to ensure that that acreage is developed.
    One of the difficulties of developing the North sea taxation like Topsy—that is, manipulating and changing it over time—is that that gives a big advantage to companies that have tax shelters and established production in the area. I hope that the measure proposed in the Bill will be enough to redress the balance.
    The Government and the Treasury have received vast revenue from the North sea over the past 25 years, and they may well expect a windfall this year. I hope that they will be sufficiently open minded to ensure that the show is kept on the road, so that future revenue streams are guaranteed.
    I welcome the suggestion from the Economic Secretary that he and I will continue to talk about Australia and other matters. I hope that I can persuade him that more needs to be done, and that he will keep the matter under review to see how entrants match their hopes to their economic position.
    I beg to ask leave to withdraw the amendment.
    Amendment, by leave, withdrawn.

  Schedule 37

    STAMP DUTY LAND TAX AND STAMP DUTY
    Amendments made: No. 160, in page 555, line 9, at end insert
    ',but disregard paragraph 9(2) (deemed reduction of rent for overlap period in case of grant of further lease)'.
    No. 161, in page 556, line 42, leave out from 'executed,' to end of line 46 and insert—
    '(c) on termination of a lease ("the head lease") a subtenant is granted a lease ("the new lease") of the same or substantially the same premises as those comprised in his original lease ("the old lease")—

    (i) in pursuance of an order of a court on a claim for relief against re-entry or forfeiture, or

    (ii) in pursuance of a contractual entitlement arising in the event of the head lease being terminated,

    or
    (d) a person who has guaranteed the obligations of a lessee under a lease that has been terminated ("the old lease") is granted a lease of the same or substantially the same premises ("the new lease") in pursuance of the guarantee.'.
    No. 162, in page 557, line 33, leave out from beginning to 'The' in line 38 and insert—
    '11 (1) This paragraph applies where

    the grant of a lease is exempt from charge by virtue of any of the provisions specified in sub-paragraph (3), or

    a lease is granted to a person as bare trustee of the grantor, with the result that the lease is treated as vested in the grantor by virtue of paragraph 3 of Schedule 16.

    (2) The first assignment of the lease that is not exempt from charge by virtue of any of the provisions specified in subparagraph (3), and in relation to which the assignee does not acquire the lease as a bare trustee of the assignor, is treated for the purposes of this Part as if it were the grant of a lease by the assignor—

    for a term equal to the unexpired term of the lease referred to in sub-paragraph (1), and

    on the same terms as those on which the assignee holds that lease after the assignment.

    (3)'. No. 163, in page 558, leave out lines 1 to 5.
    No. 164, in page 558, line 21, after '2(3)' insert 'or 3(2)'.
    No. 165, in page 562, line 25, at end insert—

  'Reduction of rent or term
  15A (1) Where a lease is varied so as to reduce the amount of the rent, the variation is treated for the purposes of this Part as an acquisition of a chargeable interest by the lessee.
  (2) Where a lease is varied so as to reduce the term, the variation is treated for the purposes of this Part as an acquisition of a chargeable interest by the lessor.'.—[Dawn Primarolo]

Clause 292

  CLAIMS NOT INCLUDED IN RETURNS
  Amendments made: No. 150, in page 251, line 27, leave out 'against the' and insert 'for relief against any'.
  No. 151, in page 251, line 31 1eave out 'against the double' and insert
  'for relief against any excessive'.—[Dawn Primarolo]

Clause 293

  ASSENTS AND APPROPRIATIONS BY PERSONAL REPRESENTATIVES
  Amendments made: No. 152, in page 252, line 4, after '(3)' insert—
  'Where sub-paragraph (1) does not apply because of subparagraph (2), the chargeable consideration for the transaction is determined in accordance with paragraph 8A(1) of Schedule 4.
  (4)'.
  No. 153, in page 252, leave out lines 10 to 18.
  No. 154, in page 252, line 19, leave out
  'amendments made by this section are
  and insert
  'amendment made by this section is'.—[Dawn Primarolo]

Clause 294

  CHARITABLE TRUSTS
  Amendments made: No. 155, in page 252, line 22, at end insert—
  "Cases where first condition not fully met
  3 (1) This paragraph applies where—

  a land transaction is not exempt from charge under paragraph 1 because the first condition in that paragraph is not met, but

  the purchaser ("C") intends to hold the greater part of the subject-matter of the transaction for qualifying charitable purposes.

  (2) In such a case—

  the transaction is exempt from charge, but

  for the purposes of paragraph 2 (withdrawal of charities relief) "disqualifying event" includes—

  (i) any transfer by C of a major interest in the whole or any part of the subject-matter of the transaction, or

  (ii) any grant by C at a premium of a low-rental lease of the whole or any part of that subject-matter,

  that is not made in furtherance of the charitable purposes of C.
  (3) For the purposes of sub-paragraph (2)(b)(ii)—

  a lease is granted "at a premium" if there is consideration other than rent, and

  a lease is a "low-rental" lease if the annual rent (if any) does not exceed £600 a year.

  (4) In relation to a transaction that, by virtue of this paragraph, is a disqualifying event for the purposes of paragraph 2—

  the date of the event for those purposes is the effective date of the transaction;

  paragraph 2 has effect as if—

  (i) in sub-paragraph (1)(b), for "at the time of" there were substituted "immediately before",

  (ii) in sub-paragraph (4)(a), for "at the time of" there were substituted "immediately before and immediately after", and

  (iii) sub-paragraph (4)(b) were omitted.

  (5) In this paragraph—
  "qualifying charitable purposes" has the same meaning as in paragraph 1;
  "rent" has the same meaning as in Schedule 5 (amount of tax chargeable: rent) and "annual rent" his the same meaning as in paragraph 9(2) of that Schedule.".'.
  No. 156, in page 252, line 22, at end insert—
  '() After paragraph 3 of that Schedule (inserted by subsection (1) above) insert—
  No. 157, in page 252, line 24, leave out '3' and insert '4'.
  No. 158, in page 252, line 35, at end insert—
  '(c) the reference in paragraph 3(2)(b) to the charitable purposes of C is to those of the beneficiaries or unit holders, or any of them.'.
  No. 159, in page 252, line 35, at end insert—
  '() In paragraph 1(1) of that Schedule, for "this paragraph" substitute "this Schedule".
  () In paragraph 2(1) of that Schedule, for "paragraph 1 (charities relief)" substitute "this Schedule".
  () In section 81 (further return where relief withdrawn), in paragraph (c) of subsection (4) (meaning of "the disqualifying event"), after "paragraph 2(3)" insert "or 3(2)".
  () In section 87 (interest on unpaid tax), in paragraph (c) of subsection (4) (meaning of "the disqualifying event"), after "paragraph 2(3)" insert "or 3(2)".'.—[Dawn Primarolo.]

Schedule 39

  STAMP DUTY AND LAND TAX: APPLICATION TO CERTAIN PARTNERSHIP TRANSACTIONS
  Amendments made: No. 166, in page 572, line 25, leave out 'an interest in land' and insert 'a chargeable interest'.
  No. 167, in page 572, line 29, leave out 'an interest in land' and insert 'a chargeable interest'.
  No. 168, in page 572, line 31, leave out 'an interest in land' and insert 'a chargeable interest'.
  No. 169, in page 572, line 33, leave out 'an interest in land' and insert 'a chargeable interest'.
  No. 170, in page 572, line 34, leave out 'an interest in land' and insert 'a chargeable interest'.
  No. 171, in page 572, line 35, leave out 'an interest in land' and insert 'a chargeable interest'.
  No. 172, in page 572, line 38, leave out 'an interest in land' and insert 'a chargeable interest'.
  No. 173, in page 572, line 39, leave out 'an interest in land' and insert 'a chargeable interest'.
  No. 174, in page 573, line 5, leave out 'an interest in land' and insert 'a chargeable interest'.
  No. 175, in page 573, line 8, leave out from 'shall' to end of line 12 and insert—
  '(subject to paragraph 11B) be taken to be equal to—
  (RCP x MV)+ (RCP x AC)
  where—
  RCP is the relevant chargeable proportion,
  MV is the market value of the interest transferred, and
  AC is the actual consideration for the transaction.
  (2A) The relevant chargeable proportion in relation to the market value of the interest transferred is—
  (100-SLP)%
  where SLP is the sum of the lower proportions.
  (2B) The relevant chargeable proportion in relation to the actual consideration for the transaction is—
  SLP%
  where SLP is the sum of the lower proportions.
  (2C) Paragraph 11A provides for determining the sum of the lower proportions.'.
  No. 176, in page 573, line 13, leave out 'and (3)' and insert 'to (2C)'.
  No. 177, in page 573, line 33, after second 'the' insert 'relevant'.
  No. 178, in page 573, line 37, after second 'the' insert 'relevant'.
  No. 179, in page 573, line 41, leave out from second 'to' to end of line 43 and insert—
  (RCP x MV) + (RCP x AC)
  where—
  RCP is the relevant chargeable proportion,
  MV is the market value of the interest transferred, and
  AC is the actual chargeable consideration other than rent.'.
  No. 180, in page 574, leave out lines 2 to 5 and insert—
  RCP x MV
  where—
  RCP is the relevant chargeable proportion, and
  MV is the market value of the interest transferred.'.
  No. 181, in page 574, line 5, at end insert—
  '(7) The relevant chargeable proportion in relation to—

  the net present value of the rent payable over the term of a lease, or

  the market value of the interest transferred, is—

  (100—SLP)%
  where SLP is the sum of the lower proportions.
  (8) The relevant chargeable proportion in relation to the actual consideration other than rent is—
  SLP%
  where SLP is the sum of the lower proportions.
  (9) Paragraph 11A provides for determining the sum of the lower proportions.
  (10) This paragraph is subject to paragraph 11B.'.
  No. 182, in page 574, line 5, at end insert—
  'Transfer of chargeable interest to a partnership: sum of the lower proportions
  11A (1) The sum of the lower proportions in relation to a transaction to which paragraph 10 applies is determined as follows:—
  Step One
  Identify the relevant owner or owners.
  A person is a relevant owner if—

  (a) immediately before the transaction, he was entitled to a proportion of the chargeable interest, and

  (b) immediately after the transaction, he is a partner or connected with a partner.

  Step Two
  For each relevant owner, identify the corresponding partner or partners.
  A person is a corresponding partner in relation to a relevant owner if, immediately after the transaction—

  he is a partner, and

  he is the relevant owner or is connected with the relevant owner.

  Step Three
  For each relevant owner, find the proportion of the chargeable interest to which he was entitled immediately before the transaction.
  Apportion that proportion between any one or more of the relevant owner's corresponding partners.
  Step Four
  Find the lower proportion for each person who is a corresponding partner in relation to one or more relevant owners.
  The lower proportion is—

  the proportion of the chargeable interest attributable to the partner, or

  if lower, the partner's partnership share immediately after the transaction.

  The proportion of the chargeable interest attributable to the partner is—

  if he is a corresponding partner in relation to only one relevant owner, the proportion (if any) of the chargeable interest apportioned to him (at Step Three) in respect of that owner;

  if he is a corresponding partner in relation to more than one relevant owner, the sum of the proportions (if any) of the chargeable interest apportioned to him (at Step Three) in respect of each of those owners.

  Step Five
  Add together the lower proportions of each person who is a corresponding partner in relation to one or more relevant owners.
  The result is the sum of the lower proportions.
  (2) For the purposes of this paragraph persons who are entitled to a chargeable interest as beneficial joint tenants (or, in Scotland, as joint owners) shall be taken to be entitled to the chargeable interest as beneficial tenants in common (or, in Scotland, as owners in common) in equal shares.
  Transfer of chargeable interest to a partnership consisting wholly of bodies corporate
  11 B (1) This paragraph applies where—

  there is a transaction to which paragraph 10 applies;

  immediately after the transaction all the partners are bodies corporate;

  the sum of the lower proportions is 75 or more.

  (2) Paragraphs 10 and 11 have effect with these modifications.
  (3) In paragraph 10, for sub-paragraphs (2) to (2C) substitute—
  "(2) The chargeable consideration for the transaction shall be taken to be equal to the market value of the interest transferred.".
  (4) In paragraph 10(4), for "sub-paragraphs (2) to (2C)" substitute "sub-paragraph (2)".
  (5) In paragraph 11, omit sub-paragraphs (3) and (7) to (9).
  (6) In paragraph 11, for sub-paragraph (4) substitute—
  "(4) If there is chargeable consideration other than rent, that chargeable consideration shall be taken to be equal to the market value of the interest transferred.".
  (7) In paragraph 11, for sub-paragraph (5)(b) substitute
  "(b) that chargeable consideration shall be taken to be equal to the market value of the interest transferred.".
  (8) Paragraph 11A provides for determining the sum of the lower proportions.'.
  No. 183, in page 574, leave out lines 7 to 11 and insert—
  '12 (1) This paragraph applies where—

  there is a transfer of an interest in a partnership;

  consideration is given for the transfer;

  the relevant partnership property includes a chargeable interest.

  (1A) The transfer—

  shall be taken for the purposes of this Part to be a land transaction;

  is a chargeable transaction.

  (1B)'.
  No. 184, in page 574, line 23, leave out 'interest in land' and insert 'chargeable interest'.
  No. 185, in page 574, line 41, leave out 'three' and insert 'four'.
  No. 186, in page 574, line 44, after 'no' insert 'chargeable'.
  No. 187, in page 575, line 2, after 'any' insert 'chargeable'.
  No. 188, in page 575, leave out lines 6 to 16 and insert—
  '(4) The third condition is that—

  the term of the lease is 5 years or less, or

  if the term of the lease is more than 5 years—

  (i) the lease provides for the rent payable under it to be reviewed at least Once in every 5 years of the term, and

  (ii) the rent payable under the lease as a result of a review is required to be a market rent at the review date.

  (4A) The fourth condition is that there has been no change to the lease since it was granted which is such that, immediately after the change has effect, the rent payable under the lease is less than a market rent.'.
  No. 189, in page 575, line 36, have out 'an interest in land' and insert 'a chargeable interest'.
  No. 190, in page 576, line 5, after 'transfer' insert '—

  shall be taken for the purposes of this Part to be a land transaction;

  '.

  No. 191, in page 576, line 27, leave out 'an interest in land' and insert 'a chargeable interest'.
  No. 192, in page 576, leave out lines 32 to 37.
  No. 193, in page 576, line 38, leave out from 'shall' to end of line 41 and insert—
  '(subject to paragraph 17E) be taken to be equal to—
  (RCP x MV) + (RCP x AC)
  where—
  RCP is the relevant chargeable proportion,
  MV is the market value of the interest transferred, and
  AC is the actual consideration for the transaction.
  (3A) The relevant chargeable proportion in relation to the market value of the interest transferred is—
  (100-SLP)%
  where SLP is the sum of the lower proportions.
  (3B) The relevant chargeable proportion in relation to the actual consideration for the transaction is—
  SLP%
  where SLP is the sum of the lower proportions.
  (3C) Paragraph 17A provides for determining the sum of the lower proportions.'.
  No. 194, in page 576, line 42, leave out 'subparagraph (3)' and insert 'sub-paragraphs (3) to (3C)'.
  No. 195, in page 577, line 12, after second 'the' insert 'relevant'.
  No. 196, in page 577, line 16, after second 'the' insert 'relevant'.
  No. 197, in page 577, line 20, leave out from second 'to' to end of line 22 and insert—
  '—
  (RCP x MV)+ (RCP x AC)
  where—
  RCP is the relevant chargeable proportion,
  MV is the market value of the interest transferred, and
  AC is the actual chargeable consideration other than rent.'.
  No. 198, in page 577, leave out lines 28 to 30 and insert—
  '—
  RCP x MV
  where—
  RCP is the relevant chargeable proportion, and
  MV is the market value of the interest transferred.'.
  No. 199, in page 577, line 30, at end insert—
  '(7) The relevant chargeable proportion in relation to—

  the net present value of the rent payable over the term of a lease, or

  the market value of the interest transferred, is—

  (100-SLP)%
  where SLP is the sum of the lower proportions.
  (8) The relevant chargeable proportion in relation to the actual consideration other than rent is—
  SLP%
  where SLP is the sum of the lower proportions.
  (9) Paragraph 17A provides for determining the sum of the lower proportions.
  (10) This paragraph is subject to paragraph 17E.'.
  No. 200, in page 577, line 30, at end insert—
  'Transfer of chargeable interest from a partnership: sum of the
  lower proportions
  17A (1) The sum of the lower proportions in relation to a transaction to which paragraph 16 applies is determined as follows:—
  Step One
  Identify the relevant owner or owners.
  A person is a relevant owner if—

  (a) immediately after the transaction, he is entitled to a proportion of the chargeable interest, and

  (b) immediately before the transaction, he was a partner or connected with a partner.

  Step Two
  For each relevant owner, identify the corresponding partner or partners.
  A person is a corresponding partner in relation to a relevant owner if, immediately before the transaction—

  he was a partner, and

  he was the relevant owner or was connected with the relevant owner.

  Step Three
  For each relevant owner, find the proportion of the chargeable interest to which he is entitled immediately after the transaction.
  Apportion that proportion between any one or more of the relevant owner's corresponding partners.
  Step Four
  Find the lower proportion for each person who is a corresponding partner in relation to one or more relevant owners.
  The lower proportion is—

  the proportion of the chargeable interest attributable to the partner, or

  if lower, the partnership share attributable to the partner.

  The proportion of the chargeable interest attributable to the partner is—

  if he is a corresponding partner in relation to only one relevant owner, the proportion (if any) of the chargeable interest apportioned to him (at Step Three) in respect of that owner;

  if he is a corresponding partner in relation to more than one relevant owner, the sum of the proportions (if any) of the chargeable interest apportioned to him (at Step Three) in respect of each of those owners.

  Paragraph 17B provides for determining the partnership share attributable to the partner.
  Step Five
  Add together the lower proportions of each person who is a corresponding partner in relation to one or more relevant owners.
  The result is the sum of the lower proportions.
  (2) For the purposes of this paragraph persons who are entitled to a chargeable interest as beneficial joint tenants (or, in Scotland, as joint owners) shall be taken to be entitled to the chargeable interest as beneficial tenants in common (or, in Scotland, as owners in common) in equal shares.
  Transfer of chargeable interest from a partnership: partnership
  share attributable to partner
  17B (1) This paragraph provides for determining the partnership share attributable to a partner for the purposes of paragraph 17A(1) (see Step Four).
  (2) Paragraph 17C applies for determining the partnership share attributable to a partner where—

  the effective date of the transfer of the relevant chargeable interest to the partnership was before 20th October 2003, or

  the effective date of the transfer of the relevant chargeable interest to the partnership was on or after that date and—

  (i) the instrument by which the transfer was effected has been duly stamped with ad valorem stamp duty, or

  (ii) any tax payable in respect of the transfer has been duly paid under this Part.

  (3) Where the effective date of the transfer of the relevant chargeable interest to the partnership was on or after 20th October 2003 but neither of the conditions in sub-paragraphs (i) and (ii) of sub-paragraph (2)(b) is met, the partnership share attributable to the partner is zero.
  (4) The relevant chargeable interest is—

  the chargeable interest which ceases to be partnership property as a result of the transaction to which paragraph 16 applies, or

  where the transaction to which paragraph 16 applies is the grant or creation of a chargeable interest, the chargeable interest out of which that interest is granted or created.

  17C (1) Where this paragraph applies, the partnership share attributable to the partner is determined as follows:—
  Step One
  Find the partner's actual partnership share on the relevant date.
  In a case falling within paragraph 17B(2)(a), the relevant date—

  if the partner was a partner on 19th October 2003, is that date;

  if the partner became a partner after that date, is the date on which he became a partner.

  In a case falling within paragraph 17B(2)(b), the relevant date—

  if the partner was a partner on the effective date of the transfer of the relevant chargeable interest to the partnership, is that date;

  if the partner became a partner after that date, is the date on which he became a partner.

  Step Two
  Add to that partnership share any increases in the partner's partnership share which—

  occur in the period starting on the day after the relevant date and ending immediately before the transaction to which paragraph 16 applies, and

  count for this purpose.

  The result is the increased partnership share.
  An increase counts for the purpose of paragraph (b) only if—

  (i) where the transfer which resulted in the increase took place on or before the date on which the Finance Act 2004 was passed, the instrument by which the transfer was effected has been duly stamped with ad valorem stamp duty under the enactments relating to stamp duty;

  (b) where the transfer which resulted in the increase took place after that date, any tax payable in respect of the transfer has been duly paid under this Part.

  Step Three
  Deduct from the increased partnership share any decreases in the partner's partnership share which occur in the period starting on the day after the relevant date and ending immediately before the transaction to which paragraph 16 applies.
  The result is the partnership share attributable to the partner.
  (2) If the effect of applying Step Three would be to reduce the partnership share attributable to the partner below zero, the partnership share attributable to the partner is zero.
  (3) In a case falling within paragraph 17B(2)(a), if the partner ceased to be a partner before 19th October 2003, the partnership share attributable to the partner is zero.
  (4) In a case falling within paragraph 17B(2)(b), if the partner ceased to be a partner before the effective date of the transfer of the relevant chargeable interest to the partnership, the partnership share attributable to the partner is zero.
  (5) Paragraph 17B(4) (relevant chargeable interest) applies for the purposes of this paragraph.
  Transfer of chargeable interest from a partnership to a partnership
  17D (1) This paragraph applies where—

  there is a tram fer of a chargeable interest from a partnership to a partnership, and

  the transfer is both—

  (i) a transaction to which paragraph 10 applies, and

  (ii) a transaction to which paragraph 16 applies.

  (2) Where none of the chargeable consideration for the transaction is rent—

  paragraphs 10(2) to (2C) a ad 16(3) to (3C) do not apply;

  the chargeable consideration for the transaction shall
  be taken to be what it would have been if paragraph 10(2) to (2C) had applied or, if greater, what it would have been if paragraph 16(3) to (3C) had applied.

  (3) Where the whole or part of the chargeable consideration for the transaction is rent—

  paragraphs 11 and 17 do no: apply;

  the chargeable consideration for the transaction shall be taken to be what it would have been if paragraph 11 had applied or, if greater, what it would have been if paragraph 17 had applied.

  Transfer of chargeable interest from a partnership consisting wholly of bodies corporate
  17E (1) This paragraph applies where—

  there is a transaction to which paragraph 16 applies;

  immediately before the transaction all the partners are bodies corporate;

  the sum of the lower proportions is 75 or more.

  (2) Paragraphs 16, 17 and 17D have effect with these modifications.
  (3) In paragraph 16, for sub-paragraphs (3) to (3C) substitute—
  "(3) The chargeable consideration for the transaction shall be taken to be equal to the market value of the interest transferred.".
  (4) In paragraph 16(4), for "sub-paragraphs (3) to (3C)" substitute "sub-paragraph (3)".
  (5) In paragraph 17, omit sub-paragraphs (3) and (7) to (9).
  (6) In paragraph 17, for sub-paragraph (4) substitute—
  "(4) If there is chargeable consideration other than rent, that chargeable consideration shall be taken to be equal to the market value of the interest transferred.".
  (7) In paragraph 17, for sub-paragraph (5)(b) substitute—
  "(b) that chargeable consideration shall be taken to be equal to the market value of the interest transferred.".
  (8) In paragraph 17D(2)—

  for "paragraphs 10(2) to (2C) and 16(3) to (3C)" substitute "paragraphs 10(2) and 16(3)";

  for "paragraph 10(2) to (2C)" substitute "paragraph 10(2)";

  for "paragraph 16(3) to (3C)" substitute "paragraph 16(3)".

  (9) Paragraph 17A provides for determining the sum of the lower proportions.'.
  No. 201, in page 577, line 31, leave out from beginning to end of line 21 on page 579.
  No. 202, in page 579. line 26, after 'But' insert
  '(subject to paragraphs 20A to 20C)'.
  No. 203, in page 579, line 27,.it end insert–
  'Application of disadvantaged areas relief
  20A (1) Schedule 6 (disadvantaged areas relief) applies to the transfer of an interest in a partnership that is a chargeable transaction by virtue of paragraph 12 or 15 with these modifications.
  (2) For paragraph 3 substitute—
  "3 (1) This Part of this Schedule applies to a transfer of an interest in a partnership that is a chargeable transaction by virtue of paragraph 12 of Schedule 15 if every chargeable interest comprising the relevant partnership property is a chargeable interest in relation to land that is wholly situated in a disadvantaged area.
  (2) This Part of this Schedule applies to a transfer of an interest in a partnership that is a chargeable transaction by virtue of paragraph 15 of Schedule 15 if the subject matter of the land transfer is a chargeable interest in relation to land that is wholly situated in a disadvantaged area.".
  (3) In paragraph 5, for sub-paragraphs (2) to (4) substitute—
  "(2) If the relevant consideration does not exceed £150,000 the transaction is exempt from charge.".
  (4) For paragraph 6 substitute—
  "6 (1) This paragraph applies where the land is partly non-residential property and partly residential property.
  (2) The non-residential proportion of the chargeable consideration for the transaction does not count as chargeable consideration.
  (3) The non-residential proportion is the proportion of the market value of the relevant property that, on a just and reasonable apportionment, is attributable to land that is nonresidential property.
  (4) If the relevant consideration does not exceed £150,000, none of the residential proportion of the chargeable consideration counts as chargeable consideration.
  (5) The residential proportion is the proportion of the market value of the relevant property that, on a just and reasonable apportionment, is attributable to land that is residential property.".
  (5) For paragraph 7 substitute—
  "7 (1) This Part of this Schedule applies to a transfer of an interest in a partnership that is a chargeable transaction by virtue of paragraph 12 of Schedule 15 if—

  some (but not all) of the chargeable interests comprising the relevant partnership property are chargeable interests in relation to land that is wholly situated in a disadvantaged area, or

  any chargeable interest comprised in the relevant partnership property is a chargeable interest in relation to land that is partly situated in a disadvantaged area and partly situated outside such an area.

  (2) This Part of this Schedule applies to a transfer of an interest in a partnership that is a chargeable transaction by virtue of paragraph 15 of Schedule 15 if the subject matter of the land transfer is a chargeable interest in relation to land that is partly situated in a disadvantaged area and partly situated outside such an area.
  (3) In this Part—

  references to the disadvantaged-area proportion are to the proportion of the market value of the relevant property that, on a just and reasonable apportionment, is attributable to land situated in a disadvantaged area;

  references to the advantaged-area proportion are to the proportion of the market value of the relevant property that, on a just and reasonable apportionment, is attributable to land that is situated outside a disadvantaged area.".

  (6) In paragraph 8, for "consideration attributable to the land situated in the disadvantaged area" substitute "disadvantaged-area proportion of the chargeable consideration".
  (7) In paragraph 9, for sub-paragraphs (2) to (4) substitute—
  "(2) If the relevant consideration does not exceed £150,000 none of the disadvantaged-area proportion of the chargeable consideration counts as chargeable consideration.".
  (8) For paragraph 10 substitute—
  "10 (1) This paragraph applies where the land situated in a disadvantaged area is partly non-residential property and partly residential property.
  (2) The non-residential proportion of the disadvantaged-area proportion of the chargeable consideration for the transaction does not count as chargeable consideration.
  (3) The non-residential proportion is the proportion of the disadvantaged-area proportion of the market value of the relevant property that, on a just and reasonable apportionment, is attributable to land that is not residential property.
  (4) If the relevant consideration does not exceed £150,000, none of the residential proportion of the disadvantaged-area proportion of the chargeable consideration counts as chargeable consideration.
  (5) The residential proportion is the proportion of the disadvantaged-area proportion of the market value of the relevant property that, on a just and reasonable apportionment, is attributable to land that is residential property.".
  (9) After paragraph 11(1) insert—
  "(1A) In this Schedule—
  "the land transfer" means the transaction that is the land transfer for the purposes of paragraph 15 of Schedule 15;
  "the relevant partnership property" has the meaning given by paragraph 12(3) of Schedule 15;
  "the relevant property"—

  in the case of a transfer of an interest in a partnership that is a chargeable transaction by virtue of paragraph 12 of Schedule 15, means the relevant partnership property;

  in the case of a transfer of an interest in a partnership that is a chargeable transaction by virtue of paragraph 15 of Schedule 15, means the subject matter of the land transfer.

  (1B) There is a transfer of an interest in a partnership for the purposes of this Schedule if there is such a transfer for the purposes of Part 3 of Schedule 15 (see paragraph 27 of that Schedule).".
  (10) Omit paragraphs 11(2) and 12.

  Application of group relief
  20B (1) Part 1 of Schedule 7 (group relief) applies to—

  a transaction to which paragraph 10 applies, and

  a transaction that is a chargeable transaction by virtue of paragraph 15,

  with these modifications.
  (2) In paragraph 3(1)(a), for "the purchaser" substitute "a partner who was a partner at the effective date of the relevant transaction ("the relevant partner")".
  (3) In paragraph 3(1), for paragraph (b) substitute—

  "(b) at the time the relevant partner ceases to be a member of the same group as the vendor ("the relevant time"), a chargeable interest is held by or on behalf of the members of the partnership and that chargeable interest—

  (i) was acquired by or on behalf of the partnership under the relevant transaction, or

  (ii) is derived from a chargeable interest so acquired,

  and has not subsequently been acquired at market value under a chargeable transaction for which group relief was available but was not claimed,".
  (4) In paragraph 3(3), for the words from "the transferee company" to the end substitute "or on behalf of the partnership and to the proportion in which the relevant partner is entitled at the relevant time to share in the income profits of the partnership.".
  (5) In paragraph 3(4), omit the definition of "relevant associated company".
  (6) In paragraphs 4 to 6, for "the purchaser" (wherever appearing) substitute "the relevant partner".

  Application of charities relief
  20C (1) Schedule 8 (charities relief) applies to the transfer of an interest in a partnership that is a chargeable transaction by virtue of paragraph 12 or 15 with these modifications.
  (2) In paragraph 1(1), 'or "A land transaction is exempt from charge if the purchaser is a charity" substitute "A transfer of an interest in a partnership that is a chargeable transaction by virtue of paragraph 12 or 15 of Schedule 15 is exempt from charge if the transferee is a charity".
  (3) In paragraph 1(2)—

  for "the purchaser must intend to hold the subject-matter of the transaction" substitute "every chargeable interest held as partnership property immediately after the transfer must be held";

  in paragraphs (a) and (b) for "the purchaser" substitute "the transferee".

  (4) In paragraph 1(3) for "the purchaser" substitute "the transferee".
  (5) In paragraph 2(1), for paragraph (b) substitute—

  "(b) at the time of the disqualifying event the partnership property includes a chargeable interest—

  (i) that was held as partnership property immediately after the relevant transaction, or

  (ii) that is derived from an interest held as partnership property at that time,".

  (6) In paragraph 2(3)(a), for "the purchaser" substitute "the transferee".
  (7) In paragraph 2(3), for paragraph (b) substitute—
  "(b) any chargeable interest held as partnership property immediately after the relevant transaction, or any interest or right derived from it, being used or held otherwise than for qualifying charitable purposes.".
  (8) For paragraph 2(4) substitute—
  "(4) In sub-paragraphs (1) and (2) an "appropriate proportion" means an appropriate proportion having regard to—

  the chargeable interests held as partnership property immediately after the relevant transaction and the chargeable interests held as partnership property at the time of the disqualifying event, and

  the extent to which any chargeable interest held as partnership property at that time becomes used or held for purposes other than qualifying charitable purposes.".

  (9) After paragraph 2 insert—

  Interpretation
  3 (1) There is a transfer of an interest in a partnership for the purposes of this Schedule if there is such a transfer for the purposes of Part 3 of Schedule 15 (see paragraph 27 of that Schedule).
  (2) Paragraph 25(1) of Schedule 15 (meaning of references to partnership property) applies for the purposes of this Schedule as it applies for the purposes of Part 3 of that Schedule.".'.
  No. 204, in page 579, line 30, leave out 'interest in land' and insert 'chargeable interest'.
  No. 205, in page 579, line 33, leave out 'interest in land' and insert 'chargeable interest'.
  No. 206, in page 579, line 41, leave out
  'not a notifiable transaction unless'
  and insert
  'a notifiable transaction if (but only if)'.
  No. 207, in page 580, line 20, leave out 'paragraph 24' and insert 'paragraphs 24 and 24A'.
  No. 208, in page 580, line 26, leave out 'an interest in land' and insert 'a chargeable interest'.
  No. 209, in page 580, line 29, leave out 'interest in land' and insert 'chargeable interest'.
  No. 210, in page 580, line 44, leave out 'an interest in land' and insert 'a chargeable interest'.
  No. 211, in page 581, line 1, leave out 'interest in land' and insert 'chargeable interest'.
  No. 212, in page 581, line 4, leave out 'interest in land' and insert 'chargeable interest'.
  No. 213, in page 581, line 5, leave out 'an interest in land' and insert 'a chargeable interest'.
  No. 214, in page 581, line 6, leave out 'interest in land' and insert 'chargeable interest'.
  No. 215, in page 581, line 12, at end insert—
  '24A (1) This paragraph applies where—

  stamp duty under Part 1 of Schedule 13 to the Finance Act 1999 (transfer on sale) is chargeable on an instrument effecting a transfer of an interest in a partnership, and

  the relevant partnership property includes stock or marketable securities.

  (2) The relevant partnership property, in relation to a transfer of an interest in a partnership, is he partnership property immediately after the transfer, other than any partnership property that was transferred to the partnership in connection with the transfer.
  (3) The stamp duty chargeable on the instrument shall not exceed the stamp duty that would be chargeable if—

  the instrument were an instrument effecting a transfer of the stock and marketable securities comprised in the relevant partnership property, and

  the consideration for the transfer were equal to the net market value of that stock and those securities immediately after the transfer, less the excluded amount.

  (4) The excluded amount is a proportion of the net market value of that stock and those securities immediately after the transfer.
  (5) That proportion is—

  if the person acquiring the interest in the partnership was not a partner before the transfer, his partnership share immediately after the transfer;

  if he was a partner before the transfer, the difference between his partnership share before and after the transfer.

  (6) The net market value of stock or securities at a particular date is—

  MV — SL
  where—
  MV is the market value of the stock or securities at that date, and
  SL is the amount outstanding at that date on any loan secured solely on the stock or securities.
  (7) If, in relation to any stock or securities, SL is greater than MV, the net market value of the stock or securities shall be taken to be nil.
  (8) Where this paragraph applies in relation to an instrument, the instrument shall not be regarded as, duly stamped unless it has been stamped in accordance with section 12 of the Stamp Act 1891.
  (9) This paragraph shall be construed as one with the Stamp Act 1891.'.
  No. 216, in page 581, line 24, leave out first 'an interest in land' and insert 'a chargeable interest'.
  No. 217, in page 581, line 24, leave out second 'an interest in land' and insert 'a chargeable interest'.
  No. 218, in page 581, line 35, at end insert—
  Interpretation: transfer of chargeable interest from a partnership
  27A For the purposes of this Part of this Schedule, there is a transfer of a chargeable interest from a partnership in any case where—

  a chargeable interest that was partnership property ceases to be partnership property, or

  a chargeable interest is granted or created out of partnership property and the interest is not partnership property.

  Interpretation: market value of leases
  27B (1) This paragraph applies in relation to a lease for the purposes of this Part of this Schedule if—

  the grant of the lease is or was a transaction to which paragraph 10 applies or applied (or a transaction to which paragraph 10 would have applied if that paragraph had been in force at the time of the grant), or

  the grant of the lease is a transaction to which paragraph 16 applies.

  (2) In determining the market value of the lease, an obligation of the tenant under the lease is to be taken into account if (but only if)—

  it is an obligation such as is mentioned in paragraph 10(1) of Schedule 17A, or

  (b) it is an obligation to make a payment to a person.'.

  No. 219, in page 581, line 38, at end insert—
  '(2) As applied by sub-paragraph (1), that section has effect with the omission of subsection (4) (partners connected with each other).'.
  No. 220, in page 582, line 14, leave out
  'partnership transactions the effective date of which'
  and insert
  'any partnership transaction of which the effective date (within the meaning of Part 4 of the Finance Act 2003 (c. 14))'.
  No. 221, in page 582, line 19, leave out sub-paragraph (3).—[Dawn Primarolo.]

Clause 299
  MEANING OF "PROMOTER"
  Amendment made: No. 222, in page 254, line 39, leave out from 'of' to end of line 40.—[Dawn Primarolo.]
New Schedule 1
  OVERSEAS PENSION SCHEMES: MIGRANT MEMBER RELIEF

    Relief for members' etc.contributions
    1 (1) An individual who is a relevant migrant member of a qualifying overseas pension scheme is entitled to relief under section 184 (relief for contributions by or on behalf of members of registered pension schemes) in respect of relievable pension contributions paid during a tax year if the individual—

    has relevant UK earnings chargeable to income tax for that year,

    is resident in the United Kingdom when the contributions are paid, and

    has notified the scheme manager of an intention to claim relief under that section.

    (2) Section 186 (annual limit for relief under section 184) applies in relation to the aggregate of the amount of relief to which an individual is entitled under section 184 by virtue of subparagraph (1) and any to which the individual is so entitled apart from that sub-paragraph.
    (3) Relief to which an individual is entitled under section 184 by virtue of sub-paragraph (1) is to be given in accordance with section 190 (relief on making of claim) (so that nothing in sections 187 to 189 applies in relation to such relief).
    (4) Section 191 (transfer of certain shares to be treated as payment of contribution) has effect as if the references to sections 184 to 190 included sections 184 to 186 and 190 as they apply by virtue of this paragraph.
    (5) No deduction may be allowed under Chapter 2 of Part 5 of ITEPA 2003 in accordance with section 355 of that Act (deductions for corresponding payments by non-domiciled employees with foreign employers) in respect of contributions under a pension scheme (but subject to Part 4 of Schedule 34).

    Relief for employers' contributions
    2 (1) Subsections (2) to (5) of section 192 (relief for contributions by employer) apply in relation to relevant migrant member contributions paid by an employer as in relation to contributions paid by an employer under a registered pension scheme in respect of an individual.
    (2) Section 196 (no other relief for employers in connection with contributions) applies as if the reference to contributions under a registered pension scheme included relevant migrant member contributions.
    (3) "Relevant migrant member contributions" means contributions paid under a qualifying overseas pension scheme in respect of an individual who is a relevant migrant member of the pension scheme in relation to the contributions.
    3 In ITEPA 2003. after section 308 insert—
    "308A Exemption of contributions to overseas pension scheme
    (1) No liability to income tax arises in respect of earnings where an employer makes contributions under a qualifying overseas pension scheme in respect of an employee who is a relevant migrant member of the pension scheme.
    (2) In subsection (1)—
    "qualifying overseas pension scheme", and
    "relevant migrant member",
    have the same meaning as in Schedule (Overseas pension schemes: migrant member relief) to FA 2004 (overseas pension schemes: migrant member relief)."

    Meaning of "relevant migrant member"
    4 For the purposes of this Schedule an individual who is a member of an overseas pension scheme is a relevant migrant member of the pension scheme, in relation to any contributions, if the individual—

    was not resident in the United Kingdom when first a member of the pension scheme,

    was member of the pension scheme at the beginning of the period of residence in the United Kingdom which includes the time when the contributions are paid,

    was, immediately before the beginning of that period of residence, entitled to tax relief in respect of contributions paid under the pension scheme under the law of the country or territory in which the individual was then resident, and

    has been notified by the scheme manager that information concerning events that are benefit crystallisation events in relation to the individual and the pension scheme will be given to the Inland Revenue.

    Meaning of "qualifying" overseas pension scheme
    5 (1) For the purposes of this Schedule an overseas pension scheme is a qualifying overseas pension scheme if—

    the scheme manager has given to the Inland Revenue notification that it is an overseas pension scheme and has provided any such evidence that it is an overseas pension scheme as the Inland Revenue may require,

    the scheme manager has undertaken to the Inland Revenue to inform the Inland Revenue if it ceases to be an overseas pension scheme,

    the scheme manager has undertaken to the Inland Revenue to comply with any prescribed benefit crystallisation information requirements imposed on the scheme manager, and

    the overseas pension scheme is not excluded from being a qualifying overseas pension scheme by subparagraph (3).

    (2) In sub-paragraph (1)(c) "prescribed benefit crystallisation information requirements" means requirements imposed by or under regulations made by the Board of Inland Revenue to provide to the Inland Revenue any information relating to events that are benefit crystallisation events in relation to members of the pension scheme who have at any time been relevant migrant members of the pension scheme.
    (3) An overseas pension scheme is excluded from being a qualifying overseas pension scheme if the Inland Revenue has decided that—

    there has been a failure to comply with any prescribed benefit crystallisation information requirements imposed on the scheme manager and the failure is significant, and

    by reason of the failure it is not appropriate that relief from tax should be given in respect of contributions under the pension scheme,

    and has notified the person or persons appearing to be the scheme manager of that decision but subject to sub-paragraph (5) and paragraph 6).
    (4) A failure to comply with prescribed benefit crystallisation information requirements s significant if—

    the amount of information which has not been provided is substantial, or

    the failure to provide the information is likely to result in serious prejudice to the assessment or collection of tax.

    (5) The Inland Revenue—

    may at any time after an overseas pension scheme becomes excluded from being a qualifying overseas pension scheme decide that the pension scheme is to cease to be so excluded, and

    must notify the scheme manager of the decision.

    6 (1) This paragraph applies where an overseas pension scheme is excluded from being a qualifying overseas pension scheme by a decision of the Inland Revenue under paragraph 5(3).
    (2) The scheme manager may appeal against the decision.
    (3) The appeal is to the General Commissioners, except that the scheme manager may elect (in accordance with section 46(1) of TMA 1970) to bring the appeal before the Special Commissioners instead of the General Commissioners.
    (4) Paragraphs 1, 2, 8 and 9 of Schedule 3 to TMA 1970 (rules for assigning proceedings to General Commissioners) have effect to identify the General Commissioners before whom an appeal under this paragraph is to be brought, but subject to modifications specified in an order made by the Board of Inland Revenue.
    (5) An appeal under this paragraph against a decision must be brought within the period of 30 days beginning with the day on which the notification of the decision was given.
    (6) The Commissioners before whom an appeal under this paragraph is brought must consider whether the overseas pension scheme ought to have been excluded from being a qualifying overseas pension scheme.
    (7) If they decide that the overseas pension scheme ought to have been excluded from being a qualifying overseas pension scheme, they must dismiss the appeal.
    (8) If they decide that the overseas Pension scheme ought not to have been excluded from being a qualifying overseas pension scheme, the pension scheme is to be treated as having remained a qualifying overseas pension scheme (but subject to any further appeal or any determination on, or in consequence of, a case stated).—[Dawn Primarolo.]
    Brought up, read the First and Second time, and added to the Bill.

  New Schedule 2
    NON-UK SCHEMES: APPLICATION OF CERTAIN CHARGES

      Member payment charges
      1 (1) For the purposes of the member payment charges the member payment provisions apply in relation to payments made (or treated by this Part as made) to or in respect of—

      a relieved member of a relevant non-UK scheme, or

      a transfer member of such a scheme,

      as in relation to payments made (or treated by this Part as made) to or in respect of a member of a registered pension scheme.
      (2) Sub-paragraph (1) has effect subject to the provision made by and under paragraphs 2 to 7.
      (3) "The member payment charges" are—

      the unauthorised payments charge,

      the unauthorised payments surcharge,

      the short service refund lump sum charge,

      the special lump sum death benefits charge, and

      the charges under sections 636B and 636C of ITEPA 2003 (trivial commutation and winding-up lump sums and lump sum death benefits) (inserted by Schedule 31).

      (4) "The member payment provisions" are the provisions of this Part relating to payments made (or treated by this Part as made) to or in respect of a member of a registered pension scheme.
      (5) A scheme is a relevant non-UK scheme if—

      relief from tax has been given in respect of contributions paid under the scheme by virtue of Schedule (Overseas pension schemes: migrant member relief) (overseas pension schemes: migrant member relief),

      relief from tax has been so given at any time after 5th April 2006 under double tax arrangements,

      a member of the scheme has been, or members of the scheme have been, exempt from liability to tax by virtue of section 307 of ITEPA 2003 (exemption for provision made by employer for retirement or death benefit) in respect of provison made under the scheme at any time after 5th April 2006 when the scheme was an overseas pension scheme, or

      there has been a relevant transfer at any time after 5th April 2006 when the scheme was a qualifying recognised overseas pension scheme.

      (6) "A relevant transfer" means a (direct or indirect) transfer of sums or assets held for the purposes of, or representing accrued rights under, an arrangement made under—

      a registered pension scheme, or

      another scheme which is a relevant non-UK scheme,

      962
      in relation to a member so as to become held for the purposes of, or to represent rights under, an arrangement under the scheme relating to the member; but also includes a transfer lump sum death benefit paid so as to become held for the purposes of, or to represent rights under, such an arrangement.
      (7) A member of a relevant non-UK scheme is a relieved member of the scheme if—

      any of the contributions in respect of which relief has been given as mentioned in sub-paragraph (5)(a) or (b) were contributions paid by or on behalf of, or in respect of, the member, or

      the member is the member, or one of the members, who has been exempt from liability to tax as mentioned in sub-paragraph (5)(c).

      (8) A member of a relevant non-UK scheme is a transfer member of the scheme if a relevant transfer related to the member.
      2 The member payment provisions do not apply in relation to a payment made (or treated by this Part as made) to or in respect of a relieved member or transfer member of a relevant non-UK scheme unless the member—

      is resident in the United Kingdom when the payment is made (or treated as made), or

      although not resident in the United Kingdom at that time, has been resident in the United Kingdom earlier in the tax year in which the payment is made (or treated as made) or in any of the five tax years immediately preceding that tax year.

      3 (1) The member payment provisions do not apply in relation to a payment made (or treated by this Part as made) to or in respect of a relieved member of a relevant non-UK scheme unless the payment is referable to the member's UK tax-relieved fund under the scheme.
      (2) A member's UK tax-relieved fund under a relevant non-UK scheme is so much of—

      the sums or assets held for the purposes of, or representing accrued rights under, the scheme as, in accordance with regulations made by the Board of Inland Revenue, represents

      any tax-relieved contributions made under the scheme by or on behalf of, or in respect of, the member and any tax-exempt provision made under the scheme in relation to the member.

      (3) "Tax-relieved contributions" means contributions in respect of which relief from tax—

      has been given by virtue of Schedule (Overseas pension schemes: migrant member relief) (overseas pension schemes: migrant member relief), or

      has been given at any time after 5th April 2006 under double tax arrangements.

      (4) "Tax-exempt provision" means provision in respect of which exemption from tax has been given by virtue of section 307 of ITEPA 2003 (exemption for provision made by employer for retirement or death benefit) at any time after 5th April 2006 when the scheme was an overseas pension scheme.
      (5) Regulations under sub-paragraph (2) may (in particular) provide that the sums or assets which represent any tax-relieved contributions or tax-exempt provision are to be determined otherwise than by reference to the actual amount of the contributions or the amount or value of the provision (for instance by reference to the increase in the value of the member's rights under the scheme during a period for which relief or exemption in respect of such contributions or provision was given).
      (6) Regulations made by the Board of Inland Revenue may make provision for determining whether or not payments made (or treated as made) by a relevant non-UK scheme are to be treated as referable to a member's UK tax-relieved fund under the scheme (and so whether or not they reduce the fund).
      4 (1) The member payment provisions do not apply in relation to a payment made (or treated by this Part as made) to or in respect of a transfer member of a relevant non-UK scheme unless it is referable to the member's relevant transfer fund under the scheme.
      (2) A member's relevant transfer fund under a relevant non-UK scheme is so much of—

      the sums or assets held for the purposes of, or representing accrued rights under, the scheme as, in accordance with regulations made by the Board of Inland Revenue, represents

      relevant transferred sums or assets.

      (3) "Relevant transferred sums or assets" means sums or assets held for the purposes of, or representing accrued rights under, an arrangement under—

      a registered pension scheme, or

      another scheme which is a relevant non-UK scheme,

      which at any time after 5th April 2006 when the scheme was an overseas pension scheme have been transferred (directly or indirectly) so as to become held for the purposes of, or to represent rights under, an arrangement under the scheme relating to the member; but also includes a transfer lump sum death benefit which at any such time was paid so as to become held for the purposes of, or to represent rights under, such an arrangement.
      (4) Regulations made by the Board of Inland Revenue may make provision for determining whether payments or transfers made (or treated as made) by a relevant non-UK scheme are to be treated as referable to a member's relevant transfer fund under the scheme (and so whether or not they reduce the fund).
      5 Sections 201 and 202 (short service refund lump sum charge and special lump sum death benefits charge) apply with respect to a lump sum or lump sum death benefit paid to or in respect of—

      a relieved member of a relevant non-UK scheme, or

      a transfer member of such a scheme,

      so as to make the person to whom the lump sum or lump sum death benefit is paid (rather than the scheme administrator) liable to any charge imposed by either of those sections.
      6 (1) The amount of any liability to tax imposed on any individual in relation to a payment by virtue of the operation of the member payment charges in consequence of paragraph 1 is to be reduced by the amount of any tax paid in respect of the payment under the law of any country or territory outside the United Kingdom.
      (2) Where, after any tax which an individual is liable to pay in respect of a payment in consequence of paragraph 1 has been paid, tax is paid in respect of the payment under the law of any country or territory outside the United Kingdom, an appropriate adjustment is to be made in the individual's liability to tax (by way of discharge or repayment of tax).
      7 (1) The member payment provisions apply with respect to a payment made (or treated by this Part as made) to or in respect of—

      a relieved member of a relevant non-UK scheme, or

      a transfer member of such a scheme,

      subject to any omissions, additions and other modifications contained in regulations made by the Board of Inland Revenue.
      (2) Regulations under sub-paragraph (1) may—

      include provision having effect in relation to times before they are made,

      confer discretion on the Board of Inland Revenue or the Inland Revenue (subject to a right of appeal against any decision taken in exercise of the discretion),

      make different provision in relation to payments treated (in accordance with regulations under paragraph 3(6) or 4(4)) as being referable to a member's UK tax-relieved fund, or to a member's relevant transfer fund, under a relevant non-UK scheme, and

      otherwise make different provision for different cases.

      Annual allowance charge
      8 (1) The provisions of this Part relating to the annual allowance charge ("the annual allowance provisions") apply in relation to an individual who is a currently-relieved member of a currently-relieved non-UK pension scheme as if the currently-relieved non-UK pension scheme were a registered pension scheme.
      (2) Sub-paragraph (1) has effect subject to the provision made by and under paragraphs 9 to 12.
      (3) A pension scheme is a currently-relieved non-UK pension scheme in relation to a tax year if—

      relief from tax is given in respect of contributions paid during the tax year under the pension scheme by virtue of Schedule (Overseas pension schemes: migrant member relief) (overseas pension schemes: migrant member relief) or double tax arrangements, or

      a member of tie pension scheme is, or members of the pension scheme are, exempt from liability to tax by virtue of section 307 of ITEPA 2003 (exemption for provision made by employer for retirement or death benefit) in respect of provision made under the pension scheme at am time during the tax year when the pension scheme is an overseas pension scheme.

      (4) An individual is a currently-relieved member of a currently-relieved non-UK pension scheme in relation to a tax year if—

      any of the contributions in respect of which relief is given as mentioned in sub-paragraph (3)(a) are contributions paid by or on behalf of, or in respect of, the individual, or

      the individual is the member, or one of the members, who is exempt from liability to tax as mentioned in sub-paragraph (3)(b).

      9 The annual allowance provisions apply by virtue of paragraph 8 in relation to an individual who is a currently-relieved member of a currently-relieved non-UK pension scheme as if references to the pension input period of an arrangement under the pension scheme that ends in a tax year were to the tax year.
      10 (1) Sections 226(1) and 230(1) (cash balance and defined benefits arrangements) apply by virtue of paragraph 8 in relation to an individual who is a currently-relieved member of a currently-relieved non-UK pension scheme in relation to a tax year as if the increase in the value of the individual's rights under an arrangement under the pension scheme relating to the individual during the tax year were the greater of—

      the appropriate fraction of what it otherwise would be, and

      the amount of any contributions paid under the arrangement during the tax year by or on behalf of the individual (otherwise than by an employer) in respect of which relief from tax is given by virtue of Schedule (Overseas pension schemes: migrant member relief) (overseas pension schemes: migrant member relief) or double tax arrangements;

      and section 233 (hybrid arrangements) applies accordingly.
      (2) The appropriate fraction is—
      TE EI
      where—
      EI is the total amount of employment income of the individual from any relevant employment or employments for the tax year, and
      TE is so much of EI as constitutes taxable earnings from any such employment (within the meaning of section 10(2) of ITEPA 2003).
      (3) An employment is a relevant employment if it is an employment with an employer who is a sponsoring employer in relation to the currently-relieved non-UK pension scheme.
      11 (1) Section 229(1) (other money purchase arrangements) applies by virtue of paragraph 8 in relation to an individual who is a currently-relieved member of a currently-relieved non-UK pension scheme in relation to a tax year as if—

      965

      the reference in paragraph (a) to relievable pension contributions paid by or on behalf of the individual under an arrangement under the pension scheme relating to the individual were to those in respect of which relief from tax is given by virtue of Schedule (Overseas pension schemes migrant member relief) (overseas pension schemes: migrant member relief) or double tax arrangements, and

      the reference in paragraph (b) to contributions paid in respect of the individual under such an arrangement by an employer of the individual were to the appropriate fraction of contributions so paid;

      and section 233 applies accordingly.
      (2) The appropriate fraction is—
      TE EI
      where—
      EI is the total amount of employment income of the individual from any employment or employments with the employer for the tax year, and
      TE is so much of EI as constitutes taxable earnings from any such employment (within the meaning of section 10(2) of ITEPA 2003).
      12 (1) The annual allowance provisions apply by virtue of paragraph 8 in relation to an individual who is a currently-relieved member of a currently-relieved non-UK pension scheme subject to any omissions, additions and other modifications contained in regulations made by the Board of Inland Revenue.
      (2) Regulations under sub-paragraph (1) may—

      include provision having effect in relation to times before they are made,

      confer discretion on the Board of Inland Revenue or the Inland Revenue (subject to a right of appeal against any decision taken in exercise of the discretion), and

      make different provision for different cases.

      Lifetime allowance charge
      13 (1) The provisions of this Part relating to the lifetime allowance charge ("the lifetime allowance provisions") apply in relation to an individual who is a relieved member of a relieved non-UK pension scheme as if the relieved non-UK pension scheme were a registered pension scheme.
      (2) Sub-paragraph (1) has effect subject to the provision made by and under paragraphs 14 to 19.
      (3) A pension scheme is a relieved non-UK pension scheme if—

      relief from tax has been given in respect of contributions paid under the pension scheme by virtue of Schedule (Overseas pension schemes: migrant member relief) (overseas pension schemes: migrant member relief),

      relief from tax has been so given at any time after 5th April 2006 under double tax arrangements, or

      a member of the pension scheme has been, or members of the pension scheme have been, exempt from liability to tax by virtue of section 307 of ITEPA 2003 (exemption for provision made by employer for retirement or death benefit) in respect of provision made under the pension scheme at any time after 5th April 2006 when the pension scheme was an overseas pension scheme.

      (4) An individual is a relieved member of a relieved non-UK pension scheme if—

      any of the contributions in respect of which relief has been given as mentioned in sub-paragraph (3)(a) or (b) were contributions paid by or on behalf of, or in respect of, the individual, or

      the individual is the member, or one of the members, who has been exempt from liability to tax as mentioned in sub-paragraph (3)(c).

      14 (1) This paragraph applies in relation to the amount crystallised on the occurrence of an event that is a benefit crystallisation event by virtue of this Schedule in relation to an individual who is a relieved member of a relieved non-UK pension scheme.
      (2) What would otherwise be the amount crystallised by the event is reduced by so much (if any) of it as exceeds the amount of the untested portion of the relevant relieved amount immediately before the benefit crystallisation event (so that if that amount is nil, there is no amount crystallised).
      (3) For the purposes of this paragraph and paragraph 15 the relevant relieved amount is the aggregate of—

      the amounts which for each tax year before that in which the benefit crystallisation event occurs would have been arrived at in relation to arrangements under the relieved non-UK pension scheme relating to the individual as pension input amounts under sections 226 to 233 (annual allowance) as they apply by virtue of this Schedule, and

      the amount which would be so arrived at if the period beginning with the tax year in which the benefit crystallisation event occurs and ending immediately before the benefit crystallisation event were a tax year,

      assuming that section 225(3) did not apply.
      (4) For the purposes of this paragraph and paragraph 15 the untested portion of the relevant relieved amount is so much of the relevant relieved amount as exceeds the aggregate of the amount which (in accordance with sub-paragraph (2)) is the amount crystallised by each previous event that was a benefit crystallisation event by virtue of this Schedule in relation to the individual and the relieved non-UK pension scheme (so that if there has been no such previous event the untested portion of the relevant relieved amount is the whole of that amount).
      15 (1) An individual who is a relieved member of a relieved non-UK pension scheme may at any time elect by giving notice to the Inland Revenue in a form specified by the Board of Inland Revenue that a benefit crystallisation event is to be treated as occurring on the date specified in the notice in relation to the individual and the relieved non-UK pension scheme.
      (2) The amount crystallised on the occurrence of an event that is a benefit crystallisation event by virtue of sub-paragraph (1) is the untested portion of the relevant relieved amount.
      16 (1) This paragraph applies on the occurrence of a transfer of sums or assets held for the purposes of, or representing accrued rights under, a relieved non-UK pension scheme which (apart from sub-paragraph (2)) would by virtue of paragraph 13 be a benefit crystallisation event in relation to an individual who is a relieved member of the relieved non-UK pension scheme.
      (2) The event is not a benefit crystallisation event if the transfer is a block transfer.
      (3) A transfer is a block transfer if it involves the transfer in a single transaction of all the sums and assets held for the purposes of, or representing accrued rights under, the arrangements under the relieved non-UK pension scheme which relate to—

      the individual, and

      at least one other member of the relieved non-UK pension scheme (whether or not that member is a relieved member).

      17 Section 213 (persons liable to charge) applies with respect to a liability to the lifetime allowance charge arising by reason of the occurrence of an event that is a benefit crystallisation event by virtue of this Schedule in relation to an individual who is a relieved member of a relieved non-UK pension scheme with the omission of references to the scheme administrator.
      18 (1) This paragraph applies where sums and assets held for the purposes of, or representing accrued rights under, a relieved non-UK pension scheme are transferred so as to become held for the purposes of, or to represent rights under, another pension scheme ("the transferee pension scheme") in circumstances in which, by virtue of paragraph 16, the transfer does not constitute a benefit crystallisation event.
      (2) Paragraphs 13 to 17 and sub-paragraph (1) have effect after the transfer as if—

      references to a relieved non-UK pension scheme included the transferee pension scheme (if not a relieved non-UK pension scheme),

      references to an individual who is a relieved member of a relieved non-UK pension scheme included the individual to whom the transfer related (if not a relieved member of a relieved non-UK pension scheme), and

      the relevant relieved amount consisted of, or (if there is a relevant relieved amount in relation to the individual and the transferee pension scheme apart from this paragraph) included, the amount which would have been the amount crystallised had the transfer constituted a benefit crystallisation event.

      19 (1) The provisions of this Part of this Act relating to the lifetime allowance charge apply in relation to an individual who is a relieved member of a relieved non-UK pension scheme subject to any omissions, additions and other modifications contained in regulations made by the Board of Inland Revenue.
      (2) Regulations under sub-paragraph (1) may—

      include provision having effect in relation to times before they are made,

      confer discretion on the Board of Inland Revenue or the Inland Revenue (subject to a right of appeal against any decision taken in exercise of the discretion), and

      make different provision for different cases.

      Meaning of "double tax arrangements"
      20 In this Schedule "double tax arrangements" means arrangements having effect by virtue of section 788 of ICTA (relief by agreement with other territories).'.—[Dawn Primarolo.]
      Brought up, read the First and Second time, and added to the Bill.

  Schedule 40

    REPEALS
    Amendment made: No. 223, in page 586, line 15, leave out from beginning to '94' in line 16 and insert 'Sections 92 to'.—[Dawn Primarolo.]
    Order for Third Reading read.—[Queen's Consent, on behalf of the Crown, and Prince of Wales's consent, on behalf of the Duchy of Cornwall, signified.]
    6.30 pm
    Dawn Primarolo: I beg to move, That the Bill be now read the Third time.
    I wish to thank all the right hon. and hon. Members who participated in the Committee of the whole House and the Standing Committee, and whose contributions produced lively exchanges, constructive debate and some improvement in the content of the Bill.
    In March, the Budget set out the Government's determination to take the right steps to meet the challenges and pressures that face the nation now and in the future. This Finance Bill introduces the measures through which we shall take these steps by strengthening stability, supporting enterprise and ensuring fairness. In doing so, modernising the tax system and the protection of tax revenues go hand in hand with greater investment in public services and improvements in efficiency.
    968
    Promoting enterprise and productivity have long been key aspects of our economic policymaking, alongside introducing measures that will create a platform of stability for business, and ensuring that the UK keeps pace with the global economy. The Bill takes those objectives forward through some specific measures.
    In the past, we have cut corporation tax. The Bill freezes corporation tax rates at their current level, and clauses 38 to 46 will take forward our continuing reform of the corporation tax system. To provide enterprise incentives, clauses 93 and 94 will amend the enterprise investment schemes and the venture capital trust schemes. The Bill confirms the Government's commitment to allow 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.
    Clauses 138 to 139 provide particular reliefs to business. To increase the incentive to invest in research and development, a new definition of research and development tax credits came into effect on 1 April 2004. To assist small business cash flow and enhance funding for new investment, the Bill will increase the first year capital allowance for small business investment in plant and machinery from 40 per cent. to 50 per cent. That increased allowance will be available for 12 months from April 2004.
    Promoting enterprise and competition is important, but it must be underpinned by fairness. Our objectives for stable public finances and world-class public services require a tax system that is fair—one in which everyone pays or claims what is due. To protect the revenue for investment in the public services that, this country wants, we are determined to tackle tax avoidance and evasion. To do that, we have brought in a number of legislative changes to close loopholes that have been exploited for avoiding tax. Most importantly, through clauses 298 to 311, we have introduced disclosure rules to ensure that we find out about new loopholes earlier and can announce changes in the law to protect the Exchequer and the generality of taxpayers.
    Throughout consideration of those proposals, concerns have been raised—they were raised again yesterday, especially by the hon. Member for Arundel and South Downs (Mr. Flight)—about the possible impact of the rules on normal, bespoke tax advice. I repeat my assurances that those rules will not target straightforward tax planning, such as the advice that companies necessarily seek when planning a takeover or merger. The revised draft regulations will ensure that the rules target arrangements that present a significant risk to the Exchequer. Having carefully reconsidered the points made by the hon. Member for Arundel and South Downs, I shall go further by saying that a number of points will be taken forward.
    The Revenue has been working with tax advisers and industry representatives during the consultation to refine the rules in two key areas. First, the definition of a promoter will be restricted to ensure that only those at the heart of a scheme are required to disclose. Broadly, that will exclude anyone who is not directly responsible for designing those parts of the scheme that give rise to the tax advantage. Secondly, the final published regulations will contain more narrowly targeted rules that should be relatively easy to apply. In particular, the financial products test will be limited to arrangements

    969
    where it would be possible for the promoter to obtain a fee attributable to the tax advantage achieved by the scheme, where the tax advantage arises from elements of the arrangements that a promoter might wish to keep confidential or where a promoter is party to a financial product on terms that are significantly different from open market terms.
    In explaining that approach to the House, I stress to the hon. Member for Arundel and South Downs and other hon. Members that we are in absolute agreement on the questions that they have asked about filtering out ordinary, ongoing and bespoke tax advice and bespoke planning advice on commercial transactions where the tax arrangements are unremarkable. We will continue to watch such things closely and consider the views of the House on them.
    Under clause 19, we will also introduce new requirements to disclose the use of VAT avoidance schemes. The Bill confirms our commitment to tackle complex tax avoidance schemes using trusts. Clause 84 will introduce an income tax charge on pre-owned assets to ensure that people use trusts for legitimate transactions, not to achieve unfair tax avoidance. Together, those and other measures are intended to seek to safeguard fairness in the tax system to ensure that everyone pays their way and that as little as possible is wasted through avoidance and fraud.
    The Bill takes forward some of the key steps that we are taking to ensure that the country has the means to meet the challenges of the future. It is however important that individuals can do that as well. That will be delivered and driven by our pension simplification measures, which are the most radical changes to pension tax for a generation and are encompassed in clauses 146 to 278. Simplifying the taxation of pensions is the cornerstone to making pensions easy for everyone to understand, thus enabling everyone to prepare for their future. By replacing the previous rules with a single regime for tax-privileged pension saving, the Government will reduce complexity, cut regulation and introduce more flexibility for those who save or wish to save for retirement. We are introducing a simple system that enables people to plan and save for their retirement. In that way, the Bill renews and reaffirms the Government's role in the UK's pensions partnership.
    The Government aim to maintain the UK as a low-tax environment. The Bill enshrines that ambition. It will build on and develop the macro-economic stability that is essential for our future productivity, growth and prosperity. It will support business, while ensuring fairness. It will enable this country to match its newfound economic stability with the confidence to excel in the future. The Budget laid down the measures that will enable the UK to respond to and meet the challenges of the global economy, and the Bill will set them in statute. I commend it to the House.
    6.39 pm
    Mr. Flight: We have not had last year's problem of having a timetable for our proceedings, which resulted in a lack of time for adequate scrutiny, but such was the lack of consultation on some key areas of the Bill and the Government's failure to understand the knock-on effects of their major changes, that we have considered a deluge of amendments and new clauses on Report. The
    970
    Government's failure to get to grips with several complex aspects of the Bill and their unfair—and, I trust, unintended—effects needs to be addressed, so I was pleased to hear the Paymaster General commenting on their willingness to do so. That will inevitably mean that the Inland Revenue will have to sort out the problems through Revenue guidance later on, but it is wrong and undemocratic for our system to be governed increasingly by Inland Revenue fiat.
    The Bill will create more than 600 pages of complex legislation with which businesses and citizens must cope. I described it as "dull" on Second Reading, but perhaps "depressing" would be a better word. It contains nothing positive for the productive economy, and it will do nothing to relieve citizens and businesses from the burdens of big spending, big borrowing, big taxes and the inefficient big government that is failing to deliver promised improvements to public services. It will add to the command and control culture that is inevitably expensive and bears down on our economy's competitiveness. The impact of the Bill will go well beyond the Government's estimates on Revenue staffing and cost, yet the resultant additional tax-take is unlikely to be significant.
    At the present stage in the economic cycle, with zero slack capacity, any prudent Chancellor would have tried to increase the savings rate, but the Bill contains no incentives for savers. Contrived outside the Bill itself, individual savings accounts are becoming less attractive to the 15 million ISA savers.
    Although there is common support for the measures that will require the reporting of marketed tax avoidance schemes, and notwithstanding the Government's climbdown in response to some of the criticisms from the legal profession, the reporting requirements in the Bill extend well beyond such schemes. The failure to draw a line is likely to result in the Inland Revenue being snowed under by the reporting of regular corporate tax planning arrangements. I repeat that I welcome the Paymaster General's intention, but I am not sure how she will achieve her aim.
    The Government have similarly committed overkill with their retrospective charge to income tax on pre-owned assets. They promoted those measures as an attack on past aggressive inheritance tax planning to avoid the gifts with reservations rules. However, as they have chosen to adopt an entirely new catch-all tax with only a limited number of exemptions, the new system goes much further. The new income tax will apply to situations accepted previously by the Revenue as being outside the gifts with reservations rules, and within the statutory gifts with reservations exemptions that the Government introduced. A greater concern is that while the new income tax is technically retroactive, it is in principle retrospective. It changes the tax rules that are applicable to transactions entered into as far back as 18 years ago, which were legal at that time. The Government are effectively introducing a major and unacceptable new doctrine that retrospective legislation is legitimate if there has been tax avoidance.
    The Bill also includes the new and complicated 19 per cent. non-corporate distribution tax on small incorporated businesses. The problem that exists is wholly of the Government's making, as we warned at the outset. Those measures, together with clause 86 and

    971
    the Jones section 660 case, on which the ruling of the special commissioners is awaited, constitute an attack on small manager-owned businesses that will burden them with unnecessary complexities. Clause 86 undermines the basis of independent taxation as set out by the Chancellor at the time of its introduction. It meant that husbands and wives were free to organise their tax affairs to benefit from the new independent taxation rules.
    The new simplified tax regime for pension saving turns out not to be so simple after all. Although many of the reforms have been generally welcomed and the increased flexibility was badly needed, the changes were supposed to reduce eight regimes into one, but as we pointed out, in reality there will be six sub-regimes. The transitional arrangements will be highly complicated and retrospective for those who were specifically grandfathered when the original pension cap was introduced in 1989. The most unfair aspect is that the 20:1 pension formula for valuing a final salary scheme pension is significantly more generous than the fixed £1.5 million limit for money purchase pensions.
    The Government have remained deaf to the probability that clause 20, which tightens up on VAT group relief, will be a major incentive to banks and other large service organisations to subcontract their back offices overseas.
    The Government have failed to convince anyone that the costly and complex strip stamping regime for spirits will work, or that the cost to the industry will be proportionate to the benefit of the strip stamp.
    This is a bad Finance Bill with ever more complexity and costs, adding nothing to the productive part of the economy. The overkill on anti-avoidance and the retrospective nature of the pre-owned assets legislation alone are sufficient grounds to vote against it. The once prudent Chancellor has contrived to seek to create a pre-election boom by massive increases in public expenditure and borrowing, at the cost of creating a large structural deficit and an unsustainable increase in personal borrowing, to more than a trillion.
    In the forthcoming spending review the Chancellor will not tell us by how much he will increase taxation if Labour were to win another election. He will not be telling us either that when he knows that he should be putting the brakes on out-of-control public expenditure, he cannot do so because he has refused to backtrack on the overbearing and inefficient micro-management big state that he has created. The Government have not only been wasting taxpayers' money by mistake, but they have on purpose developed a command-and-control regime that has bloated the cost of government itself.
    The Chancellor knows that he has already lost the confidence of much of the business community. As the recent elections showed, Labour is losing the confidence of the voters.
    6.46 pm
    Mr. David Laws: As the hon. Member for Arundel and South Downs (Mr. Flight) hinted at the beginning of his comments, we have at least this year
    972
    had a good opportunity to debate all the elements of the Finance Bill, notwithstanding one or two late amendments. That is by contrast with last year. I think that last year we had one extended day for the last stages of the Finance Bill. It is to be welcomed that this year the Government listened to some of the concerns and criticisms that were expressed about the amount of time that we have.
    The hon. Member for Arundel and South Downs is also correct to say that this is perhaps one of the less memorable Finance Bills of recent years. When we examine the costings of all the different measures that the Government have put forward in the Bill, we can see nothing of any great size. I leave it to others to decide whether the Chancellor has run out of money to give away this year, or whether he has run out of ideas for new policies.
    We have had a good opportunity to debate in detail many of the issues that arise from the Bill, so I want only to pick out some of the salient points in summary, both those where the Government seem to have made some progress and those areas where we have continuing concerns about the Government's policy.
    On the simplification of the pensions tax regime, we largely agree that it is an improvement on the previous situation, and we welcome that. We have continuing concerns about duty stamps for spirits, not least because we question whether there is evidence to justify the measure that the Government are bringing forward in terms of its potential cost for the industry. However, we accept that the Economic Secretary has made some important progress in recent weeks behind the scenes with the industry in considering how the Government's policy can be introduced in a way that will reduce the burden on the industry. We hope that those discussions will continue so that a more workable scheme can be developed that will not have the bad effects and the high cost burdens on the industry that the initial proposals in the Bill were to have.
    We welcome many of the proposals in the Bill on the issue of tax avoidance. The Paymaster General is right to say that it would b2 of concern to any Government given the potential leakage of revenue. We have heard not only of large tax avoidance schemes that have taken effect over the past couple of years, but about how effective the industry is in developing new tax avoidance schemes even during consideration of the new Finance Bill. We therefore welcome many of the measures in the Bill, and the Government are sensible to introduce more general anti-avoidance legislation, including the pre-notification requirements for artificial schemes.
    We have only two concerns about the Government's proposals on tax avoidance, and they relate to bespoke advice and de minimis limits. The Paymaster General was slightly more constructive about those issues on Third Reading than she was on Report, and I hope that behind the scenes the Revenue will work with the industry to make sure that the proposals are workable and reduce the burden on business and the tax industry if the Government insist on notification of everything that moves. I am pleased, however, that the Paymaster General has softened her position a little. If we are to get to grips with tax avoidance, the Government should not only close loopholes but resist the opportunity to open

    973
    others that can be exploited. When we discussed charity taxation reliefs, we saw how easy it is, even when there is well meaning and apparently well thought-out Government legislation, to develop artificial schemes and contrivances that can be immensely expensive.
    The Government have a responsibility not to introduce complicated new schemes that can be open to abuse. As the hon. Member for Arundel and South Downs said, the Government were warned at the time that their proposals on the zero per cent. rate of corporation tax would open a huge tax loophole, leading to a loss of revenue, which is exactly what has happened. The contrivance of the 19 per cent. rate on non-corporate distributions will impose a big burden on small businesses that lack a sophisticated appreciation of taxation matters, not least because they will find it hard to understand how it affects them. They will have to purchase more complex and costly tax advice, but they should not be put in such a position. I very much hope that after the further review of the corporate tax system which, the Government say, will take place in the next couple of years, a more settle I tax regime for small businesses will replace the system of four or five different rates that has been in operation over the past few years.
    The Finance Bill is disappointing not so much because of its provisions, some of which are sensible and deal with matters that require reform, but because it is detached from the concerns of ordinary taxpayers around the country, in middle Britain and in middle England. Our debates on issues such as pension tax reform demonstrate, as the hon. Member for Grantham and Stamford (Mr. Davies) said, how far removed we are from the concerns of the average taxpayer on an average income. We discussed how people would be affected by a £1.5 million or £1.8 million pension pot—sums which are way beyond the income of the average taxpayer, who is concerned about the increasingly aggressive nature of the tax system, not least the huge 80 per cent. increase in council tax since 1987; the way in which more and more people are being pulled into the tax net following the failure to index the personal allowance in line with earnings; and the fact that stamp duty on residential property catches most first-time buyers, although it caught only 18 per cent. of them 10 years ago, since when it has not been indexed. The Bill's biggest weakness is its detachment from the tax concerns of average taxpayers, who want a fairer, simpler tax system. Instead, they have had more fiddling and unfairness, so we hope that the Government will learn that lesson when they introduce Finance Bills in future.
    Question put, That the Bill be now read the Third time—:
    The House divided: Ayes 249, Noes 136.

    Division No. 220]

    [6:54 pm

    AYES

    Adams, Irene (Paisley N)

    Banks, Tony

    Ainsworth, Bob (Cov'try NE)

    Barnes Harry

    Alexander, Douglas

    Barron rh Kevin

    Allen, Graham

    Battle, John

    Anderson, rh Donald (Swansea E)

    Beard, Nigel

    Anderson, Janet (Rossendale &

    Becket, rh Margaret

    Darwen)

    Begg, Miss Anne

    Atkins, Charlotte

    Bennett, Andrew

    Austin, John

    Bentor, Joe (Bootle)

    Baird, Vera

    Berry, Roger

    974

    Best, Harold

    Gerrard, Neil

    Blackman, Liz

    Gibson, Dr. Ian

    Blears, Ms Hazel

    Godsiff, Roger

    Blizzard, Bob

    Goggins, Paul

    Blunkett, rh David

    Griffiths, Jane (Reading E)

    Borrow, David

    Griffiths, Nigel (Edinburgh S)

    Bradley, rh Keith (Withington)

    Grogan, John

    Bradley, Peter (The Wrekin)

    Hain, rh Peter

    Brennan, Kevin

    Hall, Mike (Weaver Vale)

    Brown, rh Nicholas (Newcastle E

    Hamilton, David (Midlothian)

    Wallsend)

    Hamilton, Fabian (Leeds NE)

    Browne, Desmond

    Hanson, David

    Buck, Ms Karen

    Havard, Dai (Merthyr Tydfil &

    Burden, Richard

    Rhymney)

    Burgon, Colin

    Healey, John

    Burnham, Andy

    Henderson, Doug (Newcastle N)

    Byers, rh Stephen

    Hendrick, Mark

    Cairns, David

    Hesford, Stephen

    Campbell, Mrs Anne (C'bridge)

    Heyes, David

    Casale, Roger

    Hill, Keith (Streatham)

    Chapman, Ben (Wirral S)

    Hood, Jimmy (Clydesdale)

    Chaytor, David

    Hoon, rh Geoffrey

    Clapham, Michael

    Hopkins, Kelvin

    Clark, Mrs Helen (Peterborough)

    Howarth, rh Alan (Newport E)

    Clark, Dr. Lynda (Edinburgh

    Howarth, George (Knowsley N &

    Pentlands)

    Sefton E)

    Clarke, rh Tom (Coatbridge &

    Howells, Dr. Kim

    Chryston)

    Hughes, Kevin (Doncaster N)

    Clelland, David

    Hurst, Alan (Braintree)

    Coaker, Vernon

    Hutton, rh John

    Coffey, Ms Ann

    Iddon, Dr. Brian

    Cohen, Harry

    Illsley, Eric

    Colman, Tony

    Johnson, Alan (Hull W)

    Connarty, Michael

    Jones, Jon Owen (Cardiff C)

    Corston, Jean

    Jones, Kevan (N Durham)

    Cousins, Jim

    Jones, Lynne (Selly Oak)

    Cranston, Ross

    Jowell, rh Tessa

    Crausby, David

    Kaufman, rh Sir Gerald

    Cryer, Ann (Keighley)

    Keeble, Ms Sally

    Cryer, John (Hornchurch)

    Keen, Alan (Feltham)

    Cunningham, Jim (Coventry S)

    Keen, Ann (Brentford)

    Cunningham, Tony (Workington)

    Kelly, Ruth (Bolton W)

    Curtis-Thomas, Mrs Claire

    Kennedy, Jane (Wavertree)

    Dalyell, Tam

    Khabra, Piara S.

    Darling, rh Alistair

    Kidney, David

    Davey, Valerie (Bristol W)

    Kilfoyle, Peter

    Davies, rh Denzil (Llanelli)

    Kumar, Dr. Ashok

    Davies, Geraint (Croydon C)

    Ladyman, Dr. Stephen

    Dean, Mrs Janet

    Lammy, David

    Denham, rh John

    Lepper, David

    Dhanda, Parmjit

    Leslie, Christopher

    Dismore, Andrew

    Levitt, Tom (High Peak)

    Dobbin, Jim (Heywood)

    Linton, Martin

    Dobson, rh Frank

    Lloyd, Tony (Manchester C)

    Doran, Frank

    Love, Andrew

    Dowd, Jim (Lewisham W)

    Lucas, Ian (Wrexham)

    Dunwoody, Mrs Gwyneth

    Luke, lain (Dundee E)

    Eagle, Angela (Wallasey)

    Lyons, John (Strathkelvin)

    Eagle, Maria (L'pool Garston)

    McAvoy, Thomas

    Edwards, Huw

    McCabe, Stephen

    Efford, Clive

    McCafferty, Chris

    Ennis, Jeff (Barnsley E)

    McDonagh, Siobhain

    Etherington, Bill

    McDonnell, John

    Farrelly, Paul

    MacDougall, John

    Field, rh Frank (Birkenhead)

    Mclsaac, Shona

    Fisher, Mark

    McKechin, Ann

    Fitzpatrick, Jim

    McNamara, Kevin

    Fitzsimons, Mrs Lorna

    McWalter, Tony

    Flint, Caroline

    Mahon, Mrs Alice

    Flynn, Paul (Newport W)

    Mandelson, rh Peter

    Follett, Barbara

    Marris, Rob (Wolverh'ton SW)

    Foster, rh Derek

    Marsden, Gordon (Blackpool S)

    Foster, Michael Jabez (Hastings

    Marshall-Andrews, Robert

    & Rye)

    Martlew, Eric

    Foulkes, rh George

    Meale, Alan (Mansfield)

    Gapes, Mike (Ilford S)

    Merron, Gillian

    975

    Michael, rh Alun

    Skinner, Dennis

    Milburn, rh Alan

    Smith, Geraldine (Morecambe &

    Miliband, David

    Lunesdale)

    Miller, Andrew

    Smith, Jacqui (Redditch)

    Moffatt, Laura

    Smith, Llew (Blaenau Gwent)

    Moran, Margaret

    Soley, Clive

    Morgan, Julie

    Southworth, Helen

    Morley, Elliot

    Starkey, Dr. Phyllis

    Mountford, Kali

    Stewart, David (Inverness E &

    Mudie, George

    Lochaber)

    Murphy, Jim (Eastwood)

    Stewart, Ian (Eccles)

    O'Hara, Edward

    Stinchcombe, Paul

    Olner, Bill

    Stoate, Dr. Howard

    O'Neill, Martin

    Strang, rh Dr. Gavin

    Osborne, Sandra (Ayr)

    Straw, rh Jack

    Owen, Albert

    Stringer, Graham

    Perham, Linda

    Stuart, Ms Gisela

    Picking, Anne

    Taylor, Dan (Stockton S)

    Pickthall, Colin

    Thomas, Gareth (Clwyd W)

    Pike, Peter (Burnley)

    Touhig, Don (Islwyn)

    Trickett, Jon

    Pollard, Kerry

    Pope, Greg (Hyndburn)

    Truswell, Paul

    Stephen

    Turner, Dennis (Wolverh'ton SE)

    Prentice, Ms Bridget (Lewisham

    Turner, Dr. Desmond (Brighton

    E)

    Kemptown)

    Prentice, Gordon (Pendle)

    Turner, Neil (Wigan)

    Primarolo, rh Dawn

    Twigg, Derek (Halton)

    Primarolo, rh Dawn

    Twigg, Stephen (Enfield)

    Purchase, Ken

    Tynan, Bill (Hamilton S)

    Purnell, James

    Walley, Ms Joan

    Rammell, Bill

    Ward, Claire

    Wareing, Robert N.

    Robertson, John (Glasgow

    White, Brian

    Anniesland)

    Whitehead, Dr. Alan

    Ruane, Chris

    Wicks, Malcolm

    Ruddock, Joan

    Williams, Betty (Conwy)

    Russell, Ms Christine (City of

    Wills, Michael

    Chester)

    Winnick, David

    Ryan, Joan (Enfield N)

    Wood, Mike (Batley)

    Salter, Martin

    Woodward, Shaun

    Sarwar, Mohammad

    Worthington, Tony

    Savidge, Malcolm

    Wright, Anthony D. (Gt

    Sawford, Phil

    Yarmouth)

    Sedgemore, Brian

    Wright, Tony (Cannock)

    Sheerman, Barry

    Sheridan, Jim

    Tellers for the Ayes:

    Shipley, Ms Debra

    Mr. Nick Ainger and

    Short, rh Clare

    Paul Clark

    NOES

    Ainsworth, Peter (E Surrey)

    Chapman, Sir Sydney (Chipping

    Amess, David

    Barnet)

    Ancram, rh Michael

    Chidgey, David

    Arbuthnot, rh James

    Chope, Christopher

    Atkinson, David (Bour'mth E)

    Clappison, James

    Atkinson, Peter (Hexham)

    Clarke, rh Kenneth (Rushcliffe)

    Bacon, Richard

    Cotter, Brian

    Baldry, Tony

    Cran, James (Beverley)

    Baron, John (Billericay)

    Curry, rh David

    Beggs, Roy (E Antrim)

    Davies, Quentin (Grantham &

    Beresford, Sir Paul

    Stamford)

    Blunt, Crispin

    Djanogly, Jonathan

    Bottomley, Peter (Worthing W)

    Duncan, Peter (Galloway)

    Bottomley, rh Virginia (SW

    Evans, Nigel

    Surrey)

    Ewing, Annabelle

    Brady, Graham

    Fallon, Michael

    Brazier, Julian

    Field, Mark (Cities of London &

    Brooke, Mrs Annette L.

    Westminster)

    Browning, Mrs Angela

    Flight, Howard

    Burns, Simon

    Flook, Adrian

    Burnside, David

    Forth, rh Eric

    Cable, Dr. Vincent

    Foster, Don (Bath)

    Cameron, David

    Francois, Mark

    Campbell, rh Sir Menzies (NE

    Garnier, Edward

    Fife)

    Gibb, Nick (Bognor Regis)

    Cash, William

    Gillan, Mrs Cheryl

    976

    Goodman, Paul

    Robathan, Andrew

    Grayling, Chris

    Robertson, Angus (Moray)

    Green, Damian (Ashford)

    Robertson, Hugh (Faversham &

    Grieve, Dominic

    M-Kent)

    Gummer, rh John

    Robertson, Laurence (Tewk'b'ry)

    Hammond, Philip

    Ruffley, David

    Hancock, Mike

    Russell, Bob (Colchester)

    Harris, Dr. Evan (Oxford W&

    Salmond, Alex

    Abingdon)

    Sanders, Adrian

    Harvey, Nick

    Sayeed, Jonathan

    Hawkins, Nick

    Selous, Andrew

    Heald, Oliver

    Shephard, rh Mrs Gillian

    Heathcoat-Amory, rh David

    Shepherd, Richard

    Hendry, Charles

    Simmonds, Mark

    Hermon, Lady

    Simpson, Keith (M-Norfolk)

    Hoban, Mark (Fareham)

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

    Hogg, rh Douglas

    Kincardine)

    Holmes, Paul

    Smyth, Rev. Martin (Belfast S)

    Horam, John (Orpington)

    Soames, Nicholas

    Howarth, Gerald (Aldershot)

    Spelman, Mrs Caroline

    Jenkin, Bernard

    Spicer, Sir Michael

    Johnson, Boris (Henley)

    Spink, Bob (Castle Point)

    Key, Robert (Salisbury)

    Spring, Richard

    Knight, rh Greg (E Yorkshire)

    Stanley, rh Sir John

    Lait, Mrs Jacqui

    Swire, Hugo (E Devon)

    Lansley, Andrew

    Syms, Robert

    Laws, David (Yeovil)

    Taylor, Ian (Esher)

    Leigh, Edward

    Taylor, Matthew (Truro)

    Liddell-Grainger, Ian

    Taylor, Sir Teddy

    Lidington, David

    Thurso, John

    Lilley, rh Peter

    Tredinnick, David

    McIntosh, Miss Anne

    Trimble, rh David

    Mackay, rh Andrew

    Tyler, Paul (N Cornwall)

    McLoughlin, Patrick

    Tyrie, Andrew

    Malins, Humfrey

    Walter, Robert

    Mates, Michael

    Waterson, Nigel

    Mercer, Patrick

    Watkinson, Angela

    Mitchell, Andrew (Sutton

    Webb, Steve (Northavon)

    Coldfield)

    Whittingdale, John

    Moore, Michael

    Wiggin, Bill

    Moss, Malcolm

    Wilkinson, John

    Murrison, Dr. Andrew

    Winterton, Sir Nicholas

    Osborne, George (Tatton)

    (Macclesfield)

    Page, Richard

    Wishart, Pete

    Paice, James

    Young, rh Sir George

    Paterson, Owen

    Prisk, Mark (Hertford)

    Tellers for the Noes:

    Pugh, Dr. John

    Mr. David Wilshire and

    Randall, John

    Gregory Barker

    Question accordingly agreed to
    Bill read the Third time, and passed.

    DELEGATED LEGISLATION
    Mr. Deputy SpeakerI propose to put together the Questions on motion 3 and 4.
    Motion made, and Question put forthwith, pursuant to Standing Order No. 118(6) (Standing Committees on Delegated Legislation),

    ENVIRONMENTAL PROTECTION
    That the draft Landfill (Scheme Year and Maximum Landfill Amount) Regulations, 2004, which were laid before this House on 22nd June, be approved.

    NORTHERN IRELAND
    That the draft Dangerous Wild Animals (Northern Ireland) Order 2004, which was laid before this House on 22nd June, be approved. —[Derek Twigg.]
    Question agreed to.
    Motion made, and Question put forthwith, pursuant to Standing Order No. 18 (1) (a) (Standing Committees on Delegated Legislation).

    REGULATORY REFORM
    That the draft Regulatory Reform (Museum of London) (Location of Premises) Order 2004, which was laid before this House on 6th May, be approved.— [Derek Twigg.]
    Question agreed to.

  PETITION

    Gypsies
    7.8 pm
    Mr. Harry Barnes: The petition that I shall present is from genuine Gypsies, who are more than pleased to be called Gypsies. It has been organised by Derbyshire Gypsy Liaison Group and is signed by members of 14 organisations, including the National Association of Gypsy Women and the United Kingdom Romani Gypsy Council. It has 2,517 signatures and seeks non-discrimination against Gypsies, especially on planning matters. It is signed by Siobhan Spencer of the Ernest Bailey community centre on New street in Matlock, Derbyshire as well as the other signatories.
    The petition states:
    To the House of Commons
    The Petition of the Derbyshire Gypsy Liaison Group and supporters declares
    That Gypsy people have for centuries been in the United Kingdom, and that we are a distinct group, sharing common ancestors, a distinct language, cultural beliefs and a common oral history.
    The Petitioners therefore request the House of Commons to urge the Secretary of State at the Office of the Deputy Prime Minister to introduce amendments to the 1/94 guidelines on planning and settlement applications to align them with the Mandla criteria of 1988 in order to prevent racial discrimination against Romani and other ethnic Traveller peoples, the Irish Traveller community having received ethnic status in 2000.
    And your Petitioners remain, etc.
    To lie upon the Table.

    Medical Manslaughter
    Motion made, and Question proposed, That this House do now adjourn.—[Mr. Ainger.]
    7.10 pm
    Mr. John Denham: I am very grateful for the opportunity to have this Adjournment debate this evening. The question that I would like my hon. Friend the Minister to consider is this: how is it possible for two doctors to be convicted of manslaughter as a result of medical negligence or incompetence, yet still be allowed to practise medicine in this country without any action whatever being taken by the General Medical Council? I have great respect for my hon. Friend, and I suspect that if I had put that question to him hypothetically before he had been briefed for tonight's debate, his initial reaction might have been, "That could not possibly happen." Yet, as I shall set out, that is precisely what has happened.
    Having been an MP for 14 years, I sometimes think that constituency cases that come into surgeries are losing the power to shock, but the case that was brought to me by my constituent, Annabel Grant, on behalf of herself and her six-year-old son Mitchell, genuinely shocked me. Annabel Grant's partner, Sean Phillips—Mitchell's father—died in 2000. An apparently routine knee operation in June 2000 was followed by infection. His condition was not properly identified by the doctors concerned, Dr. Amit Misra and Dr. Rajeev Srivastava, and, tragically, Mr. Phillips died a few days later.
    Following the death, Southampton University Hospitals NHS Trust contacted the General Medical Council in August 2000. A professional advisory panel at the hospital had concluded about Dr. Misra:
    "On the basis of your involvement in the case of Sean Phillips there are serious questions about your competence to look after the general medical needs of sick patients. Your involvement in other cases"—
    I have no knowledge of those other cases, but there clearly were some—
    "suggests that your note keeping is poor and that you require remedial training and assessment."
    I am not clear as to what information was provided about Dr. Srivastava, although the GMC tells me that it received information about him at the same time.
    In October 2000, Hampshire police became aware that the hospital had sent papers to the GMC regarding Dr. Misra, and they began their own investigation. More than a year later, in January 2002, both doctors were arrested and charged with the manslaughter of Sean Phillips. Their case was heard in April 2003. At the trial, an expert for the prosecution, Dr. Wilcox, gave evidence. I am relying on a letter that I have received from the Crown Prosecution Service for this summary of the evidence that he gave. In that evidence, I am told that he made it clear that he would have expected a third or fourth year medical student to have appreciated the fundamental importance of the basic vital signs of life, in terms of pulse, temperature and blood pressure, and to have realised that Sean Phillips was suffering from a serious sepsis from about 12 noon on Saturday 24 June 2000.
    In his summing up, the judge referred to Dr. Wilcox's remarks, saying that if, in an oral examination, Dr. Wilcox had given a third or fourth year medical student

    979
    only the observations on Sean Phillips, and the fact that he had had an operation on his left knee, and the student had failed to answer that the diagnosis was an infection, Dr. Wilcox would have thought of failing the student on that basis alone. Dr. Wilcox also made the point in the expert evidence that every mother knew what a high temperature meant, and that if a high pulse and low blood pressure were added, basic aspects of medical care should tell a doctor—whatever his training—that the patient was seriously ill.
    Obviously, I cannot rehearse here every point made in the trial, but that gives a flavour of the evidence. At sentencing, the trial judge, Mr. Justice Langley, stated that manslaughter was a very serious crime, and that it was for the jury to determine whether the defendants' conduct in relation to Sean Phillips was so exceptionally bad that it should be characterised in that way. The jury decided that it should. The judge passed a sentence of 18 months, suspended for two years. In doing so, he said:
    "you are both men with young families and your future in the medical profession is now in doubt and that is a real loss to both of you".
    The implication, and what the judge expected, was clear. It was what Mr. Phillips's family expected, and it appears to be what Dr. Srivastava seems to have expected, as his barrister told the court:
    "His career in this country, which only a short time ago showed so much promise, is now bound to come to an end."
    Yet, today, both doctors enjoy full registration, without restriction, with the General Medical Council. I understand from press reports, at least, that both are still working for the national health service, one in the Newcastle upon Tyne area and the other in Dundee.
    Let me turn to the history of the General Medical Council's handling of the cases of those two doctors. The GMC was first alerted to the case in August 2000. As I have said, irrespective of any police investigation, it had been told that a professional advisory panel in Southampton had concluded that Dr. Misra required remedial training and assessment. It seems, however, that no action was taken or considered for a further 16 months, despite the fact that from November 2000, the GMC was aware that the police were investigating.
    In February 2001, the General Medical Council met Hampshire police in Southampton, where it was handed papers including a summary of the investigation, a chronology of events, the police witness and exhibit lists, the trust internal review, an external review of the trust action plan, a medical report by the director of orthopaedics, and a copy of the statement of Professor Robert Forrest, which had been produced at the request of the police regarding Sean Phillips's treatment.
    At some point in that period, although no action was being considered by the General Medical Council against the doctors, the GMC decided to extend Dr. Srivastava's time-limited registration from July 2001 to July 2002. I do not know exactly when that happened, but certainly, it was after the GMC was aware of the police investigation, and probably after it received those documents. The GMC told me that the chair of registration extended registration because of
    "the lack of evidence from the police".
    980
    I will come back to that.
    Not until the doctors were arrested—in 2002—does the GMC seem to have considered any action. However, the medical screener at the GMC
    "felt that despite their being charged by the police, he was unable to refer Dr. Misra or Dr. Srivastava to the IOC without at least having had sight of the police expert report."
    I am familiar with the IOC—the interim orders committee—because, as a Health Minister, I took through the House the order that gave the General Medical Council the power to issue interim orders. When I introduced the debate on those new regulations, on 6 July 2000, I told the Committee:
    "Urgent action is needed to widen the powers of the GMC, so that it can deal quickly and more effectively with doctors whose fitness to practise comes into question. This action is the first step in repairing the damage to the bond of trust between doctors and their patients".—[Official Report, Standing Committee 2DL, 6 July 2000; c. 1–2.]
    Obviously, I was far too optimistic. Despite the arrests, the case and the available information were not even referred to the interim orders committee of the GMC.
    Again, in correspondence with me, the General Medical Council seems to suggest that it was the failure of the police or the Crown Prosecution Service to supply information that was the problem. I want to say to my hon. Friend the Minister that that is an absolutely unacceptable attitude, and I hope that if that case is put to him, he will reject it. Let me explain why.
    First, the General Medical Council clearly had a substantial body of information, including the initial report from the hospital, on which it could have taken action. There were a whole series of meetings between the police and the GMC at which the case was discussed and information shared. Secondly, as the Crown Prosecution Service has pointed out in a letter to me, although it might have been debarred from releasing a witness report at a time that could have prejudiced a prosecution, the GMC could have sought a court order to obtain it.
    I agree with what the CPS told me—that
    "the integrity of the prosecution must take priority and …the supplying of further statements or reports might be argued by the defence to have caused them prejudice and hence render any future trial unfair. It was considered that the GMC could apply to the High Court for an order seeking disclosure if it saw fit and the High Court would then be in a position to impose appropriate restrictions on the use of the evidence".
    In other words, I believe that, had the GMC taken the initiative, it could have obtained the evidence when it wanted it, in a way that would not have prejudiced the trial, but the GMC chose not to do so. It is worth saying, though, that by the summer of 2002 a number of pieces of evidence had been provided to the GMC.
    Let me make a third and equally fundamental point about the GMC's attitude to CPS information. It undermines the principle of self-regulation of the General Medical Council if the GMC is not willing to take responsibility for investigating the conduct of doctors. Here we had two doctors, both arrested for manslaughter, and the GMC position seems to be that it was under no obligation to take action if it did not get information on the investigation provided by the police. That is not acceptable. In any case, by August 2002, the GMC had been provided with the report that I

    981
    mentioned earlier from Professor Forrest, as well as the further detailed conclusions of another prosecution expert, Professor Healy.
    When that information came through, the GMC finally referred both doctors' cases to the interim orders committee. It met in the autumn of 2002 in the case of both doctors, in private. The interim orders committee concluded that no action was necessary. This is the rub: tonight we do not know what was said at those meetings. We can reasonably assume, however, that it was the same evidence that a few months later would lead a jury to convict both doctors of manslaughter.
    I spoke earlier of the bond of faith that needs to exist between doctors and patients. The gap between what the jury thought was appropriate when the case came to trial and what a group of the GMC in private thought was appropriate could not be wider. That is deeply worrying.
    Let me make it clear that the interim orders committee does not have to strike doctors off. It can take lesser actions. It can suspend a doctor. It can restrict a doctor's ability to practise without supervision, for example. I believe that it could have required the retraining that the Southampton NHS trust thought was necessary. But the interim orders committee did nothing.
    Finally, the trial was held and both doctors, having been convicted, were referred back to the interim orders committee. I assume that when the cases came to the interim orders committee a second time, the GMC had available to it all the necessary information. I know that the Crown Prosecution Service provided the prosecution case summary, a bundle of witness statements, the medical records, further prosecution expert medical reports and defence expert reports. What I do not know is whether the GMC had transcripts of the trial—the judge's remarks and so on.
    I know that advice on how to obtain the information was passed to the GMC after the trial, but no one from the GMC attended the trial. After the trial the GMC did not ask the police for any material in respect of either doctor. The GMC did not take up the offer made by Hampshire police that after the trial the case officer would supply any or all relevant information. So I can only assume that the GMC had all that information when it decided to take no action, as it finally did. If not, it was grossly negligent. Both doctors went back to the interim orders committee, having been convicted of manslaughter, and the GMC again decided on no action at all.
    It is important to put on record that both doctors have the right to appeal against their conviction for manslaughter and that the GMC will not complete its consideration of either doctor's case until that appeal has been heard. I accept that. There may be the possibility of further action and it is possible that the Appeal Court decision will be different from that of the original trial judge, but the whole point of the interim orders committee was to allow the GMC to act quickly, in the public interest, in cases that by their very nature usually take years to conclude. It was the fact that, in previous years, the GMC said that it could do nothing until the legal process was completed that led me, when a Minister, to introduce interim orders—but they have not been used.
    982
    As far as I can tell, only two things have happened since the trial. First, a Dr. Gaangophadhyay, who appeared as a witness in the case, was reprimanded by the GMC. The witness is the only doctor to have suffered action at the hands of the GMC. Secondly, Dr. Srivastava's registration was upgraded to full registration. The GMC tells me that because of the conviction a question arose as to Dr Srivastava's "good character". Many members of the public might have taken a different view from the one that the GMC seems to have taken—that being convicted of manslaughter as the result of medical poor practice did not mean that someone was not of good character and was thus no bar to full registration.
    My constituent, Annabel Grant, is appalled at the way that she has been let down by the system. Not surprisingly, she feels that neither doctor should ever practise again. I need to be consistent, however. When I occupied my hon. Friend's position as a Health Minister, I accepted that one mistake need not always cost a doctor their career and that we should have a system that offered individuals the chance to retrain, to work under supervision and to learn from their mistakes. But manslaughter is a very serious offence. The gravest thought must be given before allowing doctors convicted of manslaughter to practise and if they are allowed to do so, it can be only under the tightest possible controls. Instead, in this case, no action was taken, despite the jury's decision and despite the clear implication in the judge's words, when he passed sentence, that the doctors' careers were in doubt.
    I want to make some final points. The GMC tells me that its procedures will change later this year with the introduction of its fitness to practise review. I asked the Library for advice about that and I agree with it that
    "Even if we did have the final outcome of the current reforms, it would be hard to comment on how these would affect the specifics of the two cases with which you are concerned. For example, I understand that where there has been a serious conviction, the case would, under the new procedures, go directly to the 'fitness to practise' panel but that by itself would not necessarily alter what they decide."
    That is the key point. We can have as many procedures as we like, but if we are not prepared to use them they mean nothing.
    The crux of the matter is that, on the same evidence, a jury convicts yet the GMC decides there is no problem. That is the challenge that faces my hon. Friend the Minister. I have been impressed by Annabel Grant's determination to pursue injustice but depressed by her story. When I took through the House the new regulations that established the interim orders and gave the GMC new powers in 2000, I genuinely believed that it had at long last recognised that the power of self-regulation carried with it the responsibility to do so effectively. It seems from this case that less progress has been made than I hoped.
    If I am right and the GMC had the power to act but failed to do so, will my hon. Friend the Minister take up this tragic case with the GMC and ask why it did not use the power Parliament gave it? If I am wrong and there were legal obstacles to effective action, he must bring in changes, as I tried to do four years ago, but this time we must make the system work.
    7.29 pm
    The Parliamentary Under-Secretary of State for Health (Dr. Stephen Ladyman): I congratulate my right hon. Friend the Member for Southampton, Itchen (Mr. Denham) on securing a debate on this important subject. I congratulate him, too, on the measured and thoughtful way in which he put his case. I freely confess that he has given me much to think about. In case I do not get a chance to make this point at the end, I assure him that everything he has said will be considered by all those dealing with the case and I shall ensure that we all reflect on the points that he has made. I will also ensure that all his points are brought to the attention of my right hon. Friend the Minister of State, who normally deals with issues such as this.
    It will hardly surprise my right hon. Friend—who, as he said, was a distinguished health Minister himself—that I begin by paying tribute to the vast majority of doctors and other health-care professionals who give a first-class service to the huge majority of patients and the million people who are treated safely and successfully every day in the national health service. Yet experience tells us that no matter how dedicated and professional staff are, things do go wrong in complex health-care systems, with serious repercussions for patients and their families. Although small in proportion to the volume of good health care delivered daily, such events can, as my right hon. Friend said, erode public confidence.
    Patients deserve high-quality health care and must have the utmost confidence in the services that are provided—and, crucially, in the health-care professionals involved in their delivery. In situations involving life and death, when they are vulnerable, patients want and are entitled to expect doctors on whom they can rely. I understand how the tragic events that occurred at Southampton General hospital and afterwards may have combined to undermine that confidence. I also understand why the family of Mr. Phillips feel let down, both by individuals and by the system. At this point, let me add my condolences, albeit belatedly, on their loss.
    As the General Medical Council's case against Dr. Misra is still going on, my right hon. Friend will understand that it would not be appropriate for me to comment on these events in detail. He will be aware that the GMC's professional conduct committee is unable to proceed further until Dr. Misra's appeal against his conviction has been heard. The GMC's interim orders committee has considered whether it was necessary for the protection of the public, or in the public interest or Dr. Misra's own interest, to impose restrictions on his registration pending the PCC's hearing. The committee decided, in the light of all the evidence before it, that interim action was not necessary in this case. Dr. Misra therefore remains fully registered with the GMC.
    As for Dr. Misra's appeal against his conviction for manslaughter, I am informed that at a directions hearing on 15 June, the Court of Appeal decided that preliminary legal arguments relating to the legality of the offence of gross negligence manslaughter— particularly in relation to the field of medicine—and its compatibility with the European convention on human
    984
    rights would be determined at a hearing on 20 and 21 July. Following that decision and any subsequent appeal to the House of Lords, and should the convictions stand, further issues will be determined at a court hearing, which will be listed not before September this year.
    Mr. Deputy Speaker: Order. I am reluctant to stop the Minister in mid-flow, but I am a little concerned about the sub judice rule. Can the Minister tell me that the matter has been thought through, and that nothing he says this evening will prejudice either the GMC or, more particularly, court cases that may arise in future?
    Dr. Ladyman: You are absolutely right, Mr. Deputy Speaker. That is why I am being more circumspect than I am sure my right hon. Friend would want me to be. I have said all that I am going to say about the specific case; now I am simply putting on record the timing of the case, and when decisions relating to it will be made. I shall describe the generality of the position and justify the way in which we have reached it, rather than talking about the specifics. I am sure that that will disappoint my right hon. Friend and his constituent, but I hope they will understand.
    Let me return to the theme of confidence. A key strand of the NHS quality agenda is assuring patient safety. Patients need to be confident that the NHS is doing all it can to prevent and detect errors early, before tragic consequences occur. They also need to be confident that the NHS can learn from such incidents and prevent them from re-occurring, and to have confidence in the professional regulatory framework that is responsible for ensuring that health-care professionals are competent, up to date and trustworthy. As we have seen from other high-profile incidents and investigations, public confidence in the NHS is almost synonymous with confidence in the medical profession.
    I am sure that the House will agree that however effective systems are in reacting to an incident, it is clearly preferable that measures be put in place to help detect such incidents, and to prevent them from occurring in the first place. Concerns about a doctor's performance could emerge from a number of sources even before a serious error or incident occurs. It is essential, therefore, to have systems in place to recognise these problems early on and to deal with them effectively, so that the risks to patients are minimised and doctors in difficulty can be helped and supported.
    The Government established the National Clinical Assessment Authority in April 2001 as part of a package of measures aimed at underpinning and improving the quality of clinical care in the NHS. The NCAA aims to improve public confidence in the performance of doctors and dentists by helping local organisations to manage performance problems swiftly, effectively and sensitively; by promoting the development of excellent local and national procedures for preventing, identifying and resolving performance problems; and by assessing individual doctors and dentists and recommending practical ways in which their performance can be Unproved.
    Such efforts involve striking a balance between the central importance of protecting patient safety by addressing performance problems, and not needlessly

    985
    "writing off" doctors and dentists who could be returned to safe and valued practice. The NCAA has shown that it can help the NHS to strike that balance; indeed, my right hon. Friend acknowledged the importance of doing so. In 2003–04, the NCAA received 524 referrals, of which 93 per cent. reflected specific performance concerns. In terms of advice, assessment and support, its approach is unique among health care systems.
    Sadly, as experience has shown, no system can be entirely error-free. However, evidence has also shown that when things go wrong, the causes can often be traced back to a systems error, rather than to the fault of an individual. As the case of Dr. Misra sadly demonstrates, some groups—particularly junior doctors—may, through inexperience or lack of training, make errors that other, more experienced colleagues would usually avoid. $The consequences for the patients concerned can be severe—that is clearly the most important issue—but the consequences for the doctor involved can also be serious, as we have seen. That highlights the critical importance of establishing robust systems for supervision and training, and the need for those who supervise students and junior doctors to take those responsibilities seriously, as the GMC's document "Good Medical Practice" clearly points out. An automatic decision to blame and punish staff makes it more likely that errors will be covered up, and that the right lessons will not be learned. The evidence shows that if an organisation's culture is open and fair and people are encouraged to speak up about patient safety incidents, patient safety is improved, as those organisations learn about what has gone wrong and are able to put things right in the future.
    In July 2001, the Government established the National Patient Safety Agency. The role of the NPSA is to improve the safety of NHS patients by promoting a culture of learning from, and reporting, patient safety incidents, and to manage the national reporting system that supports that function. Again, the NHS is leading the world by introducing the first truly national reporting system for adverse incidents. The NPSA has already begun to have an impact on patient safety, and it is working on a range of practical solutions to help make care safer for NHS patients.
    One such solution is the "incident decision tree", which was launched recently as a web-based toolkit. It has been designed to assist managers in dealing openly and fairly with staff who have been involved in patient safety incidents. As I have said, a culture based on
    986
    individual blame and punishment makes it more likely that problems will be driven underground and the root cause not tackled. However, there will clearly be times when individual clinical performance must be addressed and staff held accountable for their actions; this toolkit aims to help managers to pose the right questions in order to establish whether that might be the case. It provides a clear path through which to identify cases where deliberate harm, reckless behaviour or criminal act has been involved, to ensure that the right action is taken.
    If such behaviour is found to be the root cause of an incident, the regulatory body must then consider whether the individual concerned is fit to remain on the professional register. Patients and professionals alike need to be confident that the procedures for making those decisions are effective and fair. We are therefore in the process of modernising and strengthening professionally led regulation, particularly in respect of the GMC. The GMC exists to protect patients and the public interest by regulating and guiding the medical profession. In response to pressure from both the Government and the public, and in consultation with patients, the GMC has developed the most far-reaching reform package in its history. The foundations for change were laid when Parliament approved the Medical Act 1983 (Amendment) Order in December 2002.
    Patients and the public will benefit from simpler GMC proceedings and rules, speedier and more efficient processes and greater openness than before—
    The motion having been made after Seven o'clock, and the debate having continued for half an hour.
    MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
    Adjourned at twenty minutes to Eight o'clock.

    CORRECTION
    Official Report, 6 July 2004: In Col. 685, after Mr. Dismore's supplementary question, insert:
    Mr. Hutton: I will certainly look into the matter that my hon. Friend has raised.

  Deferred Division

    CIVIL AVIATION
    That the draft Stansted Airport Aircraft Movement Limit (Revocation) Order 2004, which was laid before this House on 8th June, be approved.
    The House divided: Ayes 248, Noes 138.

    Division No. 217]

    AYES

    Adams, Irene (Paisley N)

    Cunningham, Tony (Workington)

    Ainger, Nick

    Curtis-Thomas, Mrs Claire

    Ainsworth, Bob (Cov'try NE)

    Dalyell, Tam

    Alexander, Douglas

    Darling, rh Alistair

    Allen, Graham

    Davey, Valerie (Bristol W)

    Anderson, rh Donald (Swansea E)

    Davies, rh Denzil (Llanelli)

    Anderson, Janet (Rossendale &

    Davies, Geraint (Croydon C)

    Darwen)

    Dawson, Hilton

    Armstrong, rh Ms Hilary

    Dean, Mrs Janet

    Atherton, Ms Candy

    Denham, rh John

    Atkins, Charlotte

    Dhanda, Parmjit

    Baird, Vera

    Dismore, Andrew

    Barnes, Harry

    Dobbin, Jim (Heywood)

    Battle, John

    Dobson, rh Frank

    Beard, Nigel

    Donaldson, Jeffrey M.

    Beckett, rh Margaret

    Doran, Frank

    Begg, Miss Anne

    Dowd, Jim (Lewisham W)

    Benn, rh Hilary

    Drown, Ms Julia

    Bennett, Andrew

    Eagle, Angela (Wallasey)

    Benton, Joe (Bootle)

    Eagle, Maria (L'pool Garston)

    Berry, Roger

    Edwards, Huw

    Blackman, Liz

    Efford, Clive

    Blair, rh Tony

    Ellman, Mrs Louise

    Blears, Ms Hazel

    Ennis, Jeff (Barnsley E)

    Blizzard, Bob

    Etherington, Bill

    Boateng, rh Paul

    Farrelly, Paul

    Borrow, David

    Field, rh Frank (Birkenhead)

    Bradley, rh Keith (Withington)

    Fitzpatrick, Jim

    Bradley, Peter (The Wrekin)

    Fitzsimons, Mrs Lorna

    Brennan, Kevin

    Flint, Caroline

    Browne, Desmond

    Flynn, Paul (Newport W)

    Bryant, Chris

    Follett, Barbara

    Buck, Ms Karen

    Foster, Michael Jabez (Hastings

    Burnham, Andy

    & Rye)

    Byers, rh Stephen

    Foulkes, rh George

    Cairns, David

    Gapes, Mike (Ilford S)

    Campbell, Mrs Anne (C'bridge)

    Gerrard, Neil

    Campbell, Ronnie (Blyth V)

    Gibson, Dr. Ian

    Caplin, Ivor

    Goggins, Paul

    Casale, Roger

    Griffiths, Jane (Reading E)

    Challen, Colin

    Grogan, John

    Chapman, Ben (Wirral S)

    Hain, rh Peter

    Chaytor, David

    Hall, Mike (Weaver Vale)

    Clapham, Michael

    Hamilton, David (Midlothian)

    Clark, Dr. Lynda (Edinburgh

    Hanson, David

    Pentlands)

    Harman, rh Ms Harriet

    Clark, Paul (Gillingham)

    Havard, Dai (Merthyr Tydfil &

    Clarke, rh Charles (Norwich S)

    Rhymney)

    Clarke, rh Tom (Coatbridge &

    Healey, John

    Chryston)

    Henderson, Doug (Newcastle N)

    Clarke, Tony (Northampton S)

    Hendrick, Mark

    Clelland, David

    Hesford, Stephen

    Clwyd, Ann (Cynon V)

    Hewitt, rh Ms Patricia

    Coaker, Vernon

    Heyes, David

    Coffey, Ms Ann

    Hinchliffe, David

    Colman, Tony

    Hoey, Kate (Vauxhall)

    Corston, Jean

    Hood, Jimmy (Clydesdale)

    Cousins, Jim

    Noon, rh Geoffrey

    Cranston, Ross

    Hope, Phil (Corby)

    Crausby, David

    Hopkins, Kelvin

    Cryer, Ann (Keighley)

    Howarth, rh Alan (Newport E)

    Cryer, John (Hornchurch)

    Howarth, George (Knowsley N &

    Cummings, John

    Sefton E)

    Cunningham, Jim (Coventry S)

    Hughes, Kevin (Doncaster N)

    988

    Hutton, rh John

    Plaskitt, James

    Iddon, Dr. Brian

    Pollard, Kerry

    Illsley, Eric

    Pond, Chris (Gravesham)

    Jackson, Helen (Hillsborough)

    Pope, Greg (Hyndburn)

    Johnson, Miss Melanie (Welwyn

    Pound, Stephen

    Hatfield)

    Prentice, Ms Bridget (Lewisham

    Jones, Jon Owen (Cardiff C)

    E)

    Jones, Kevan (N Durham)

    Prentice, Gordon (Pendle)

    Jones, Lynne (Selly Oak)

    Primarolo, rh Dawn

    Jones, Martyn (Clwyd S)

    Purchase, Ken

    Kaufman, rh Sir Gerald

    Purnell, James

    Keeble, Ms Sally

    Quinn, Lawrie

    Keen, Alan (Feltham)

    Rammell, Bill

    Kelly, Ruth (Bolton W)

    Reid, rh Dr. John (Hamilton N &

    Kennedy, Jane (Wavertree)

    Bellshill)

    Khabra, Piara S.

    Robertson, John (Glasgow

    Kidney, David

    Anniesland)

    King, Andy (Rugby)

    Ruane, Chris

    Kumar, Dr. Ashok

    Russell, Ms Christine (City of

    Ladyman, Dr. Stephen

    Chester)

    Lawrence, Mrs Jackie

    Ryan, Joan (Enfield N)

    Lepper, David

    Savidge, Malcolm

    Leslie, Christopher

    Sewford, Phil

    Levitt, Tom (High Peak)

    Sedgemore, Brian

    Linton, Martin

    Sheridan, Jim

    Lloyd, Tony (Manchester C)

    Skinner, Dennis

    Love, Andrew

    Smith, rh Andrew (Oxford E)

    Lucas, Ian (Wrexham)

    Smith, Geraldine (Morecambe &

    Luke, lain (Dundee E)

    Lunesdale)

    Lyons, John (Strathkelvin)

    Smith, Jacqui (Redditch)

    McCafferty, Chris

    Smith, Llew (Blaenau Gwent)

    MacDougall, John

    Soley, Clive

    McFall, rh John

    Southworth, Helen

    McGuire, Mrs Anne

    Starkey, Dr. Phyllis

    Mclsaac, Shona

    Stewart, David (Inverness E &

    McKechin, Ann

    Lochaber)

    McKenna, Rosemary

    Stewart, Ian (Eccles)

    McNamara, Kevin

    Stoate, Dr. Howard

    Mactaggart, Fiona

    Strang, rh Dr. Gavin

    McWalter, Tony

    Stuart, Ms Gisela

    Mahon, Mrs Alice

    Sutcliffe, Gerry

    Marris, Rob (Wolverh'ton SW)

    Taylor, Dari (Stockton S)

    Marsden, Gordon (Blackpool S)

    Thomas, Gareth (Clwyd W)

    Marshall-Andrews, Robert

    Todd, Mark (S Derbyshire)

    Martlew, Eric

    Touhig, Don (IsIwyn)

    Merron, Gillian

    Trckett, Jon

    Michael, rh Alun

    Truswell, Paul

    Miliband, David

    Turner, Dennis (Wolverh'ton SE)

    Miller, Andrew

    Turner, Dr. Desmond (Brighton

    Moffatt, Laura

    Kemptown)

    Mole, Chris

    Turner, Neil (Wigan)

    Moran, Margaret

    Twigg, Derek (Halton)

    Morgan, Julie

    Twigg, Stephen (Enfield)

    Mountford, Kali

    Tynan, Bill (Hamilton S)

    Munn, Ms Meg

    Vaz, Keith (Leicester E)

    Murphy, Jim (Eastwood)

    Walley, Ms Joan

    Naysmith, Dr. Doug

    Ward, Claire

    O'Brien, Bill (Normanton)

    Wareing, Robert N.

    O'Hara, Edward

    White, Brian

    Olner, Bill

    Whitehead, Dr. Alan

    O'Neill, Martin

    Wicks, Malcolm

    Osborne, Sandra (Ayr)

    Williams, rh Alan (Swansea W)

    Owen, Albert

    Williams, Betty (Conwy)

    Perham, Linda

    Wills, Michael

    Picking, Anne

    Woodward, Shaun

    Pickthall, Colin

    Wright, Tony (Cannock)

    Pike, Peter (Burnley)

    Wyatt, Derek

    NOES

    Ainsworth, Peter (E Surrey)

    Barker, Gregory

    Allan, Richard

    Baron, John (Billericay)

    Amess, David

    Barrett, John

    Ancram, rh Michael

    Beggs, Roy (E Antrim)

    Arbuthnot, rh James

    Bottomley, Peter (Worthing W)

    Atkinson, David (Bour'mth E)

    Bottomley, rh Virginia (SW

    Atkinson, Peter (Hexham)

    Surrey)

    989

    Brady, Graham

    Gidley, Sandra

    Brake, Tom (Carshalton)

    Gillan, Mrs Cheryl

    Brazier, Julian

    Goodman, Paul

    Breed, Colin

    Grayling, Chris

    Brooke, Mrs Annette L.

    Green, Damian (Ashford)

    Burns, Simon

    Greenaway, John

    Cable, Dr. Vincent

    Grieve, Dominic

    Cameron, David

    Gummer, rh John

    Campbell, rh Sir Menzies (NE

    Hague, rh William

    Fife)

    Hammond, Philip

    Carmichael, Alistair

    Hancock, Mike

    Cash, William

    Harvey, Nick

    Chapman, Sir Sydney (Chipping

    Hawkins, Nick

    Barnet)

    Hayes, John (S Holland)

    Chidgey, David

    Heald, Oliver

    Clappison, James

    Heathcoat-Amory, rh David

    Clarke, rh Kenneth (Rushcliffe)

    Hendry, Charles

    Collins, Tim

    Hermon, Lady

    Conway, Derek

    Holmes Paul

    Cormack, Sir Patrick

    Horarn, John (Orpington)

    Cotter, Brian

    Howard, rh Michael

    Curry, rh David

    Kennedy, rh Charles (Ross Skye &

    Doughty, Sue

    Inveniess)

    Duncan, Alan (Rutland)

    Key, Robert (Salisbury)

    Duncan, Peter (Galloway)

    Kirkbride, Miss Julie

    Evans, Nigel

    Kirkwood, Sir Archy

    Fallon, Michael

    Knight, rh Greg (E Yorkshire)

    Field, Mark (Cities of London &

    Laing, Mrs Eleanor

    Westminster)

    Lait, Mrs Jacqui

    Flight, Howard

    Laws, David (Yeovil)

    Flook, Adrian

    Lewis, Terry (Worsley)

    Foster, Don (Bath)

    Liddell-Grainger, Ian

    George, Andrew (St. Ives)

    Lidington, David

    Gibb, Nick (Bognor Regis)

    Lilley, rh Peter

    990

    Llwyd, Elfyn

    Shepherd, Richard

    Loughton, Tim

    Simpson, Keith (M-Norfolk)

    McDonnell, John

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

    McIntosh, Miss Anne

    Kincardine)

    Mackay, rh Andrew

    Smyth, Rev. Martin (Belfast S)

    McLoughlin, Patrick

    Spicer, Sir Michael

    Malins, Humfrey

    Spink, Bob (Castle Point)

    Mawhinney, rh Sir Brian

    Spring, Richard

    May, Mrs Theresa

    Streeter, Gary

    Mercer, Patrick

    Swayne, Desmond

    Mitchell, Andrew (Sutton

    Swire, Hugo (E Devon)

    Coldfield)

    Tapsell, Sir Peter

    Moore, Michael

    Taylor, John (Solihull)

    Moss, Malcolm

    Taylor, Matthew (Truro)

    Murrison, Dr. Andrew

    Taylor, Sir Teddy

    O'Brien, Stephen (Eddisbury)

    Teather, Sarah

    Osborne, George (Tatton)

    Thomas, Simon (Ceredigion)

    Ottaway, Richard

    Tonge, Dr. Jenny

    Paice, James

    Trimble, rh David

    Paterson Owen

    Turner, Andrew (Isle of Wight)

    Price, Adam (E Carmarthen &

    Tyler, Paul (N Cornwall)

    Dinefwr)

    Tyrie, Andrew

    Waterson, Nigel

    Prisk, Mark (Hertford)

    Webb, Steve (Northavon)

    Pugh, Dr. John

    Whittingdale, John

    Randall, John

    Wiggin, Bill

    Robathan, Andrew

    Willetts, David

    Ruffley, David

    Williams, Hywel (Caernarfon)

    Russell, Bob (Colchester)

    Williams, Roger (Brecon)

    Sanders, Adrian

    Wilshire, David

    Sayeed, Jonathan

    Winterton, Sir Nicholas

    Selous, Andrew

    (Macclesfield)

    Shepherd, rh Mrs Gillian

    Young, rh Sir George

    Question accordingly agreed to.

Preamble
[MR. BILL OLNER in the Chair]

Bosnia and Herzegovina
Motion made, and Question proposed, That the sitting be now adjourned.—[Joan Ryan.]
9.30 am
Bob Spink: I am grateful for the opportunity to debate Bosnia and Herzegovina because it is at an historic crossroads. That is a much overused phrase but it is justified in this case, as I hope the debate will show. Bosnia and Herzegovina could emerge as a post-conflict model of success and rebuild its economic, political and social structures. Alternatively, it could settle into ethnic strife and continued poverty, with consequences for its neighbours and greater political instability in the region.
Key to this turning point in the history of Bosnia and Herzegovina is very simply co-operation with the International Criminal Tribunal for the Former Yugoslavia. That would demonstrate the willingness of Bosnia and Herzegovina's political establishment and its people to face the truth and to adopt a stable and civilised approach to economics, to politics and to the rebuilding of its society. Co-operation with the ICTY will resolve issues such as membership of the European Union and NATO, as I am sure we will hear several times this morning. It will also make inward investment flow into Bosnia and Herzegovina, which will have an impact on its economy and poverty and bring more stability, leading to inter-ethnic tolerance.
I am not a Bosnia and Herzegovina expert, so I start by thanking everyone who has helped me to prepare for today's debate, particularly Professor Tom Selwyn and Jonathan Karkut of the European Commission's Tempus programme. The hon. Member for Putney (Mr. Colman), who is a remarkably able and courteous Member of Parliament, cannot be here today as he has a pressing pre-arranged constituency engagement. I speak for him in much of what I say.
The Speaker chose the hon. Gentleman and me to represent the United Kingdom Parliament on the first Inter-Parliamentary Union delegation to Bosnia and Herzegovina since the 1990s war. We had to work hard. The hon. Gentleman said:
"Overall the visit was jam-packed will' no time between one meeting and the next with a start at 8 am"—
I recall some starts at 6 am
"and finish at 10pm for 4½ days. But it w is special to be there. In Sarajevo we saw a plaque in an alleyway to commemorate the shooting of the Arch Duke Ferdinand in 1914 generally seen as triggering World War I."
We met parliamentarian after parliamentarian and had bilateral contact. As we all know, the IPU's mission is to achieve peace and co-operation among peoples, international and internal stability and democratic government. The IPU runs three care programmes: the fight to improve human rights; help in developing democratic government by pragmatically supporting
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the day-to-day mechanisms of Parliament; and the commitment to improving the representation of women in Parliament.
The collapse of Yugoslavia and the war left physical, social, economic and political structures deeply damaged and destroyed much of the cultural heritage. The economy was decimated and the creation of ethnically based entities left the country divided. Such a legacy requires a thriving economy, and a unified society needs to be built. The good news is that it can be built, given the right conditions, and despite the difficulties that Bosnia and Herzegovina has at the moment. However, it needs a lot of help and support from the international community. Given that support, it has the potential to be one of the success stories of post-war economic and political reconstruction.
Mr. John Randall: I am delighted that my hon. Friend has secured the debate, because the subject is very important. Does he agree that one of the problems is that the world's attention moves on so quickly that countries such as Bosnia and Herzegovina, which need as much help as possible from the international community, are in danger of being forgotten from time to time? If we are not careful, we will find ourselves returning to the bad old days.
Bob Spink: My hon. Friend speaks wisely. It would be easy to take one's eye off the ball. I shall say a few words on that when I come to speak about the stabilisation force, which feels forgotten because the focus is now on areas such as Iraq and Palestine. However, we must stay focused on establishing a bulkhead of peace and stability for the region by continuing the good progress that has been achieved. I am grateful for that intervention.
Bosnia and Herzegovina lags behind its neighbours in making sustainable economic and political progress and in making real progress towards entering the international community's various institutions, at a time of widespread anxiety about war and civil strife in other parts of the world, including Iraq, Palestine, parts of Africa and Burma. We need to review Bosnia and Herzegovina's post-conflict reconstruction and economic development and to ensure that it continues in the right direction.
Bosnia and Herzegovina's potential owes a considerable amount to British influence and intervention. British soldiers have played a widely admired role in the NATO stabilisation force. SFOR originally had 60,000 troops; I believe that that number is now down to about 7,000. The force includes a large contingent of British troops, who are serving with great professionalism and courage, as one always expects from British troops abroad. They can be forgiven for feeling a little forgotten, as the attention of the international media is focused on other areas.
We visited the British forces in Bosnia and Herzegovina. The multinational taskforce north-west at Banja Luka is based at an establishment called the Metal Factory, where the forces have their barracks. We were made very welcome. The SFOR mission is to conduct NATO-led military operations across the area of responsibility, to contribute to the maintenance of sustained peace and stability and to deter a major return

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to violence. That will support the international community's continuing progress towards achieving a self-sustaining peace, and establish the conditions for further Euro-Atlantic integration.
Peacekeeping operations are fiendishly difficult and British troops do a superb job, especially because of their decades of experience in Northern Ireland. They are finding the right balance in Bosnia and Herzegovina. They have the lightness of touch to engage the civilian population positively, but when necessary they can and will act toughly to protect themselves and others and to achieve their objectives.
We met the troops and spent time listening to their views and their problems. We brought back many messages and questions for Ministers, particularly those in the Ministry of Defence. We wish our troops a safe time in Bosnia and Herzegovina and a quick return. We commend their command structure, headed by General Crispian Beattie, the SFOR commander. They are doing a great job.
Let us move on to NATO. The Istanbul communiqué of 28 June stated:
"As the security situation in Bosnia and Herzegovina has evolved positively, we have decided to conclude the Alliance's successful SFOR operation by the end of this year. We welcome the readiness of the European Union to deploy a new and distinct UN-mandated robust Chapter VII mission in the country, based on the Berlin + arrangements…NATO's long-term political commitment to Bosnia and Herzegovina remains unchanged and the establishment of a NATO headquarters will constitute NATO's residual military presence in the country. NATO HQ Sarajevo, which has the principal task of providing advice on defence reform, will also undertake certain operational supporting tasks, such as counter-terrorism whilst ensuring force protection; supporting the ICTY, within means and capabilities, with regard to the detention of persons indicted for war crimes; and intelligence sharing with the EU. The Dayton/Paris Accords remain in force as the basis for peace and stability in Bosnia and Herzegovina."
The capture and bringing to justice of Radovan Karadzic, Ratko Mladic and Ante Gotovina, in accordance with United Nations Security Council resolutions 1503 and 1534, remain the key to progress in Bosnia and Herzegovina.
In its communiqué, NATO explained why it decided not to invite Bosnia and Herzegovina to join its partnership for peace. That was particularly because of the lack of ICTY co-operation, especially on the part of the Republika Srpska entity within Bosnia and Herzegovina. NATO's communiqué states:
"We are concerned that BIH, particularly obstructionist elements in the RS entity, has failed to live up to its obligation to cooperate fully with ICTY, including the arrest and transfer to the jurisdiction of the Tribunal of war crimes indictees, a fundamental requirement for the country to join PfP. We also look for systematic changes necessary to develop effective security and law enforcement structures."
Lord Ashdown, the international community's high representative, is doing a great job, on balance. Every side grumbles but he commands respect. That is the mark of a good referee. Unfortunately, not all referees in the 2004 European championships were as good, but I congratulate Paddy Ashdown on the job that he is doing. On 30 June, he announced a series of measures to prevent obstructionist elements in the RS entity of
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Bosnia and Herzegovina from frustrating efforts to ensure that Bosnia And Herzegovina co-operates fully with the ICTY. Those measures include the dismissal of more than 60 individuals from public and party positions, financial sanctions and proposals to reform police structures in Bosnia.
Lord Ashdown also announced an extension to the EU travel ban on individuals suspected of aiding and abetting fugitive ICTY indictees. Will the Minister, who is listening carefully, confirm that the Government fully support that package of measures, and that failure to cooperate with the ICTY will remain a fundamental barrier to Bosnia and Herzegovina's integration with EU and NATO structures and, by extension, to its becoming a stable, peaceful and prosperous European democracy? Will the Minister confirm that the EU stabilisation and association agreement will be maintained as far as Bosnia and Herzegovina is concerned, and that the country will be welcomed into Europe once the various criteria have been met? Does the UK fully support Bosnia and Herzegovina's EU aspirations?
We welcome the fact that the EU has made it clear that Bosnia and Herzegovina and all other countries in the region are potential candidates for EU membership. However, the pace of integration is in each country's hands. It depends on willingness to implement the necessary reforms. The politicians and others who asked us during our IPU visit to Bosnia and Herzegovina a few weeks ago to press for positive responses on EU and NATO membership and for more inward investment were being a little disingenuous. It is up to them to cooperate with the ICTY, but if they do, the rest will follow quite naturally.
Progress on the feasibility study recommendations will be assessed again in autumn 2004. As we know, progress to date has been mixed. The Bosnia and Herzegovina authorities need to increase the pace and depth of reform if stabilisation and association agreement negotiations are to be opened by the end of the year. We all hope and pray that the necessary reforms will be achieved, but, as I say, that is in the hands of the people and the politicians of Bosnia and Herzegovina.
The economic development and inward investment that would flow from co-operation with the ICTY would transform the country, enabling it to realise its considerable potential. The emerging Bosnia and Herzegovina economy will be based on agriculture, timber and hydro-electricity. While we were there, we heard that lignite production and sales were forecast to rise strongly in 2004. Some €25 million will be invested in iron ore production, which will employ 600 miners and produce 1 million tonnes this year and 1.5 million next year. The privatisation of the steel industry is well advanced, while sales of cement from one company will increase by 20 per cent. this year.
Those are all good, specific economic developments, but, as Bosnia and Herzegovina authorities at all levels and influential voices in the international community agree, tourism and the cultural industries will play the most significant role in Bosnia and Herzegovina's development. As hon. Members will be aware, the high representative last month presented Bosnia and Herzegovina as a significant tourist destination, and I shall dedicate part of my speech to the potential for

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development in that sector and to the fact that the UK is in a leading position to help bring that development about.
As I said, Bosnia and Herzegovina's economy will need to overcome the physical, economic, social and cultural damage caused by the war and the division of the country into separate entities, which followed the 1995 Dayton-Paris agreement. If it to do so, however, the international community must co everything it can to support the progressive voices in the country.
It matters that we succeed in supporting Bosnia and Herzegovina, because it is a political and geographic bridge between the Christian west and the Muslim east, if I may characterise it that way. Success in Bosnia can help to reframe the political and economic terms of engagement between the wider Christian, Islamic and Jewish communities not only in Bosnia. but across the Balkans, the Mediterranean, the middle east and beyond.
Tourism is the key industry in Bosnia and Herzegovina: indeed, it employs more people than any industry in the world. It adds great growth potential, and Bosnia and Herzegovina needs a slice of that action, not least to reduce its high unemployment, tackle poverty and create more ethnic equality in the jobs market.
There is a groundswell of opinion in Bosnia and Herzegovina that the country's remarkable cultural heritage should be protected and conserved to form the basis of the new tourism industry. Tourism depends on good environmental practice, which necessarily involves the whole community and is, in itself, good for the economy and employment. As economic sectors, tourism and the cultural industries have a substantial multiplier effect and involve co-ordination with other branches of the economy, such as building, transport and agriculture. They also provide a much needed opportunity to change the international image of Bosnia and Herzegovina, and they are, by definition, regional and outward looking. The UK is a leading player in planning and training people for a revival in tourism and the cultural industries in Bosnia and Herzegovina.
Within the framework of the European Commission's Tempus programme, a group of specialists has worked to train tourism professionals in Bosnia and Herzegovina to bring them up to European standards and to design a tourism and culture strategy for the country. The group is now working with UK Trade and Investment to stimulate UK investment in Bosnian tourism and cultural industries. The professionals trained by the group adopted the idea of Bosnia and Herzegovina as a bridge between east and west, linking Christianity in its Orthodox and Catholic forms, Islam and Judaism.
The destruction during the war of mosques in Banja Luka was destruction of part of Bosnia and Herzegovina's heritage. Indeed, the reconstruction of the national library in Sarajevo, which was badly damaged during the war, has been adopted as a symbol of cultural reconciliation in the country and as a beacon for the emergence of a new tourism and cultural industry sector in Bosnia and Herzegovina.
There are natural tourist routes in the region, of course, such as the route from Dubrovnik in Croatia through southern Republika Srpska to Mostar, other
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parts of Herzegovina and Sarajevo. They could bring new co-operation, which would be welcome. A European village has been set up in Rudo, near Visegrad, with financial support from the British embassy. It is a multi-ethnic initiative based on the principle of the de-ghettoisation—if there is such a word—of communities in Bosnia and Herzegovina and beyond, and it is a worthy initiative. I congratulate the embassy on that.
The work of the multi-ethnic, multicultural Tempus group is an example of the potential for professional cooperation in Bosnia and Herzegovina. The work of its Muslim, Orthodox and Catholic members points to the future cosmopolitan development of Bosnia and Herzegovina, and it needs support from this House and wider afield.
The Minister, who is a very good man, is listening carefully, as he always does. I ask him to demonstrate Government support for tourism and cultural industries in Bosnia and Herzegovina, and to support the British-Bosnia tourist group, the EC Tempus programme on tourism and culture in Bosnia and Herzegovina, and the initiatives on tourism and cultural industries of the Government's UK Trade and Investment. He is nodding—I fully expected that—and I am grateful for that early indication of support. I ask him also to support multilateral economic, financial and diplomatic efforts to secure the future of the Bosnian economy over the next five to 10 years as the country moves towards self-sufficiency.
Many other issues could and perhaps should be raised, and other hon. Members will have an opportunity to deal with them. For instance, there is the important and positive role of the Organisation for Security and Cooperation in Europe in education reform. In such reforms across Bosnia and Herzegovina lies another key to the country's future development. The country will not get it right until it gets education right. It must stop segregation in education and start teaching all children from all three communities the same history and the same social and civic responsibilities.
Of the current population, just under 4 million—almost one half—were displaced or became refugees during the war. So far, about 1 million have returned to their place of origin, but there are still many displaced persons. That issue must be addressed, and education and co-operation with the ICTY will be factors in encouraging people to return to their place of origin and to remake their lives.
We met Croatian and Serbian families who have returned—the so-called returnees. Both groups came up against serious problems and ethnic discrimination on their return. particularly in getting basic services such as water and electricity connected to their homes and in getting employment. There is still ethnic discrimination in the employment market. Those problems will take time, patient effort, political integrity and good will to overcome, but a rising economy with a strong tourism sector, facilitated by co-operation with the ICTY, should help to solve those problems.
The hon. Member for Putney summed up the situation in Bosnia and Herzegovina by saying:
"Bosnia-Herzegovina is at a crossroads: to go back to chaos and despair or to go forward to the EU, NATO and a better life for every citizen. These are the real challenges and I hope that the IPU UK will be able to help Bosnia-Herzegovina to achieve its goals."

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We must inspire the three main communities—the Bosnians, Croats and Serbs—to raise their eyes above the horizon. For Bosnia and Herzegovina to succeed in becoming a member of Europe and NATO, which we all want, it must rid itself of the legacy of conflict. Individuals in Bosnia still protect indicted war criminals. The EU visa ban to prevent some of the supporters of war criminals is welcome, and an EU assets freeze on those characters to prevent them from providing money and resources to war criminals would also be welcomed. I am sure that the Front Benchers will deal with those important points, and I thank you, Mr. Olner, for your tolerance of me this morning.
9.56 am
Mr. Michael Moore: It is a pleasure to follow the hon. Member for Castle Point (Bob Spink), and I congratulate him on securing this important debate. I also congratulate him and the hon. Member for Putney (Mr. Colman) on what has clearly been a significant and worthwhile IPU visit to Bosnia and Herzegovina. The Chamber has learned a great deal this morning from the work that they have both undertaken, and we are much better informed as a result. My enthusiasm for the well-crafted speech of the hon. Member for Castle Point is not based simply on the fact that I intend to echo a few of his points; he has set the scene in an important way.
For hundreds of years, conflict has raged over Bosnia and Herzegovina and within it. The roots of the internecine difficulties are deep and complex. In modern times, the memories of the terrible war from 1992 to 1995 linger in everyone's mind. If we thought that those issues were behind us, the continuing unrest elsewhere in the Balkans is a warning to all of us in Europe never to take peace for granted. All democrats hope for a future in Bosnia and Herzegovina that will allow the different communities to co-exist in peace with full democracy and a healthy economy. Although progress has clearly been made since 1995, only the most myopic optimist could argue that we are close to achieving those ambitions. The UK and its European Union partners will have ongoing responsibilities to the country for many years to come.
Since the Dayton-Paris accords, the security situation in Bosnia has been the paramount objective, for without peace and stability there can be little prospect of securing democracy and future prosperity. We must acknowledge that significant progress has been made. NATO's original implementation force of 60,000 troops reduced rapidly to the much smaller stabilisation force, which currently comprises somewhere between 7,000 and 10,000 personnel.
Perhaps the most significant recent development has been the decision agreed at the NATO summit in Istanbul just over a week ago to finish SFOR's mission by the end of this year and transfer the responsibilities to a newly constituted EU force. We have been told that there is to be a new chapter 7 UN mandate, that the EU will take advantage of the Berlin-plus arrangements and that NATO will retain headquarters in Sarajevo. We welcome that development. It will build on the EU's
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policing role in Bosnia and Herzegovina, which began 18 months ago, but it will clearly be on a different level all together. Perhaps the Minister will be able to explain in his response what difference the new set-up will make to the UK's commitment of military resources in the country.
Although the developments mark progress for the EU and Bosnia, there is a parallel and bleaker picture that we cannot ignore. The Istanbul summit urged the entities in Bosnia to continue the welcome process of reform in the armed forces, but rejected the involvement of the country in the partnership for peace programme because of the continued failure of its leaders in the Republika Srpska entity to comply with obligations to co-operate with the International Criminal Tribunal for the Former Yugoslavia.
That was an important position for NATO to take, and the seriousness of the international community's intent was underscored last week by Lord Ashdown, the UN high representative, when he sacked 60 officials in the Bosnian-Serb leadership. In case it was not clear enough, the strong international message to Bosnia was repeated in the address to the UN Security Council by the chief prosecutor at the tribunal, Carla Del Ponte.
The ongoing freedom of Radovan Karadzic, Ratko Mladic and other indicted war criminals is an offence to the people of Bosnia. On more than a dozen documented occasions, the former Bosnian-Serb leaders have evaded NATO and other attempts to arrest them. Indeed, it appears that nobody has been arrested since July 2002. Repeated warnings to the Serbian Democratic party, the SDS, have been ignored, and the collusion of its senior figures in the financing and protection of Karadzic and others is finally being tackled. Surely, Bosnia and Herzegovina cannot possibly hope to take its place on equal terms among the family of democratic European nations while senior politicians in the country harbour those criminals.
In echoing the spirit of the high representative's remarks and the comments of the chief prosecutor, I want to highlight some of the points made by Carla Del Ponte to the Security Council. Three challenges that face the tribunal were listed. Apart from the need to arrest the fugitives, it was pointed out that there are serious problems with the finances of the court. They have become so serious that contracts for investigative support cannot be extended beyond the end of December.
The cash-flow crisis is so serious that in spring this year there had to be a recruitment freeze even on the replacement of essential staff. I hope that the Minister will be able to clarify the United Kingdom Government's position on that problem. I hope that he agrees that any financial crisis that undermines the working of the tribunal can only play into the hands of the war criminals who seek to evade its jurisdiction.
The chief prosecutor also drew attention to the failure of Serbia and Montenegro to fulfil their obligations to co-operate in bringing Bosnian indictees to justice. She stated that 15 accused, including Mladic, are believed to spend most of their time in Serbia. Apart from that, there is virtually no co-operation by the Serbian authorities in support of witnesses for the tribunal. The picture painted by the chief prosecutor is damning and depressing. Almost 10 years after the awful events in

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Srebrenica, the most wanted men remain free, the tribunal is in financial crisis and the end of the mandate for the court is fast approaching.
I hope that the Minister will explain what possibility there is of extending the court's mandate, if not indefinitely then at least for a period that will allow justice to be done. While the process of holding war criminals to account grinds on, the economy is making painfully slow progress, as the hon. Member for Castle Point stated. There are some optimistic signs and, as the hon. Gentleman pointed out, there have been some attempts to boost tourism in the country. There is the promise of a stabilisation and association agreement with the European Union if Bosnia arid Herzegovina can satisfy the necessary conditions. Quite apart from the issue of war crimes, there are many reforms to carry out. With 20 per cent. of the population below the poverty line and about half the people of the country perilously close to it, the economy clearly needs support. Perhaps there will be a realisation of what needs to be done before the situation gets even worse.
The past few weeks have seen international initiatives that must generate some hope that the faltering progress in Bosnia and Herzegovina will not stall or crunch into reverse, but the challenges to the United Kingdom Government and to the international community remain severe. They are second only to the heavy responsibilities that lie on the leaders in Bosnia and Herzegovina.
10.6 am
Mr. Richard Spring: May I say, Mr. Olner, what a personal pleasure it is to see you in the Chair this morning? I thank ins' hon. Friend the Member for Castle Point (Bob Spink) for an extraordinarily comprehensive, balanced and sensible presentation of the situation in Bosnia and Herzegovina. I am also grateful to the hon. Member for Tweeddale, Ettrick and Lauderdale (Mr. Moore) for a measured speech. He shares my sentiments about my hon. Friend's very good speech.
Bosnia and Herzegovina remains powerfully in the minds of many British people because of the terrible bloody civil war there between 1992 and the Dayton accords of 1995. It has had a turbulent history. It is fair to say that although Tito, a remarkable political figure, succeeded in building an ethnically diverse composite state called Yugoslavia and managed to spare the people of Yugoslavia the worst ravages of old-style Soviet communism, he prepared inadequately for the post-Tito, post-cold war world into which Yugoslavia moved.
It would be wrong to say that the multi-ethnic patchwork of peoples and religions that make up Bosnia and Herzegovina made civil war and the atrocities that happened in that civil war, such as in Srebrenica, inevitable. Bosnia and Herzegovina has been, for many years of its history, a successful blend of peoples and cultures. I went to the winter Olympics in Sarajevo 20 years ago and saw that for myself.
The Minister for Europe: Were you running?
Mr. Spring: The Minister asks what I think is a rhetorical question.
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The civil war would undoubtedly not have occurred had Bosnia and Herzegovina not been located where it is, with the strange mix that it possesses, but the conflict of 1992 to 1995 grew from a combination of factors other than the peculiar political and economic circumstances in the country. Those included the consequences flowing from the end of the cold war, the actions and ambitions of neighbouring countries and a willingness to exploit the dangerous political power of nationalism.
Today it appears unclear how, or even whether, the trial of Slobodan Milosevic will progress in The Hague. I hope that the Minister will share the Government's views on that matter. Mr. Milosevic undoubtedly played a significant role in stoking up the tensions that exploded in that terrible full-blown conflict.
The declaration of independence in 1992 led to three years of vicious war and united the Serb population with Serbs in Serbia, who ethnically cleansed areas of the country of Croat or Bosnian enclaves. It would, however, be only half the story to talk exclusively of Serb ethnic cleansing. Once the fighting began, no group—whether Serb, Bosnian or Croat—emerged from the civil war guilt-free and with an unblemished reputation. The violence in Bosnia, beamed into our living rooms on the TV each night, generated a groundswell of support for military action to halt the bloodshed. I pay tribute, as I am sure all hon. Members would wish to, to the professionalism of the NATO forces in Bosnia, of whatever nationality, and particularly to the work of our troops who served or continue to serve in IFOR and SFOR.
The NATO-led military response in Bosnia led to the December 1995 Dayton agreement, which fixed the internal borders along lines that still exist today and served to establish the peace and stability that have generally remained since, although echoes of the violence continue to reverberate in Kosovo. It created a new constitution and two new entities: the Federation of Bosnia and Herzegovina and the Republika Srpska. Those entities and those elected to run them deal with domestic matters while a federal presidency representing all three groups deals primarily with foreign and defence and national economic matters. Lord Ashdown, a person of considerable experience, continues to serve as high representative. There has been considerable progress in Bosnia and Herzegovina since the dark days of the early 1990s, with peace and stability being the most important and cherished achievements.
Stability in the wider Balkans region, especially in Serbia and Croatia, is a vital prerequisite of stability and progress in Bosnia and Herzegovina, but the presence of NATO troops has also been central to the provision of security and an environment conducive to development and effective state building. As we have heard, NATO has been highly successful, but at the Istanbul summit it was announced that SFOR will be replaced by an EU-led peacekeeping force by the end of 2004. While we all look forward to the day—hopefully soon—when Bosnia and Herzegovina requires no international forces to ensure its stability, the truth is that such forces are still needed. It is concerning that a successful NATO operation is to be replaced in that highly sensitive country with an untried EU-led operation, which may have more to do with a pan-European vision than with

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the policing effort. I just hope that it will be successful in securing what NATO has managed to secure thus far, and will build on that.
What discussions did the Minister have with the Bosnia and Herzegovina Government prior to that decision being taken? Although the security challenges have changed from peacemaking and peacekeeping to checking on weapons smuggling, pursuing suspected war criminals and dealing with extremist groups and border security, such challenges still require a good knowledge on the ground and a clear chain of command. Is the Minister confident that those criteria will be met by the EU force?
The Office of the High Representative and the Bosnian polity have set out a reform agenda that has seen the dismissal of some officials for corruption and for obstructing the reconciliation process. The reconciliation process remains fragile, and the elections of 5 October 2002, while free of violence, saw a low turnout of 54 per cent. People in Bosnia and Herzegovina are disillusioned at the slow pace of reform, both political and economic.
The Government who are now in office are a three-way coalition made up of nationalist parties from each of the three ethnic groups: the Bosniak SDA, the Bosnian-Serb SDS and HDZ, representing Bosnian Croats. Although gloomy predictions from the time of their election have not come to fruition, a reversion to nationalist parties should be interpreted as a due warning of the frustrations still felt in the country.
The problem, despite much that is positive, is that progress towards turning words into actions is slow. Public expenditure remains high while revenue collection remains inefficient. If the economy is to thrive, privatisation and economic liberalisation require speeding up, and red tape and bureaucracy—barriers to external investment the world over—need to be cut. However, Bosnia and Herzegovina, not yet 10 years from the end of the war that tore it apart, cannot do that alone.
According to the Foreign and Commonwealth Office website, United Kingdom aid to Bosnia and Herzegovina has been about £82 million since 1996. Our focus is on efforts to create a viable and sustainable private sector; enhanced trading ability; effective, accountable government; improved social policy and health policy; and the better administration of justice. The figures for 2003–04 are also on the website and they show that the funds allocated amount to £6 million, in addition to which the United Kingdom contributes to multilateral aid via the EU. What is the extent of our aid funnelled through the EU to Bosnia and Herzegovina? Does the Minister think that the £6 million of bilateral aid is proving successful in achieving our aspirations for Bosnia and Herzegovina's much needed development?
There are economic success stories. Trade is growing, with exports of £16 million from the United Kingdom in 2002, which is an 8.8 per cent. increase on 2001. Imports from Bosnia and Herzegovina to the United Kingdom are also up.
Our policy framework for the region is the stabilisation and association process. It offers the prospect of EU membership, provided that conditions
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on human rights, democracy, regional co-operation and economic reform are met. The contract was launched in Zagreb in 2000 and on 21 June 2003 an EU-western Balkans summit was held in Thessaloniki in Greece. It affirmed Bosnia and Herzegovina's eligibility for EU membership, if it meets the criteria.
That is a most important point. Of the former Yugoslav republics, Slovenia is already a member of the European Union. Croatia has been formally accepted into the EU process. The possibility, somewhere down the line, of accession into the EU is a powerful incentive to people to focus positively on the future and to carry out the reforms that are necessary for their development. The prospect of EU membership will be a powerful spur to reform and progress. It is certainly an aspiration that the Conservative party supports.
As I saw, Bosnia and Herzegovina is a beautiful country with a landscape that varies dramatically from the high altitudes of the central mountains to arable land in the north and Mediterranean vineyards in the south. Most of its major towns nestle in beautiful and picturesque valleys. The breathtaking scenery, coupled with the friendly welcome that is extended to all visitors, makes the country an appealing holiday destination, as my hon. Friend the Member for Castle Point said. What steps are the Government taking to advise and to assist the Bosnians in developing their tourist industry, given the fact that the UK travel industry is focusing so much on the undoubted attractions of the Dalmatian coastline in particular?
I hope that the Bosnia and Herzegovina Government, assisted by the international community, will push forward the reforms, both economic and political, that are required for it to develop into a functional, modern, multi-ethnic state. I look forward to seeing such a state as a member of NATO and the EU. I am confident that that aspiration is shared throughout the House of Commons and among, the British public.
10.18 am
The Minister for Europe: It is a great pleasure to see you in the Chair, Mr. Olner. I look forward to many debates under your chairmanship. This has been an exemplary one on international affairs. I thank the hon. Member for Castle Point (Bob Spink) for a powerful and effective speech, reporting on a visit that he made with my hon. Friend the Member for Putney (Mr. Colman) to Bosnia and Herzegovina under the auspices of the Inter-Parliamentary Union. It is a reminder of the great service that the IPU provides the House and the Government in maintaining such links.
I shall deal with the points that the hon. Member for Castle Point made and other questions; I prefer to answer, if I can, points that were made in the debate. I did not fully comprehend the speech of the hon. Member for West Suffolk (Mr. Spring), speaking for the main Opposition party. The middle of his speech seemed to drift into generalised anti-Europeanism, but at the end of it he extolled the virtues of Bosnia and Herzegovina aiming for membership of the EU under the new constitutional treaty. It is really time for the Conservative party to decide where it stands on Europe. It cannot be Dr. Jekyll and Mr. Hyde at the same time.
The hon. Gentleman's remarks about SFOR and EUFOR and the negative tone of his obiter dictum, which Hansard will record, about the European Union's

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great service to Bosnia and Herzegovina and to the new forces that will come into play there, are not worthy of this debate. I have here the shield given to me by the European Union police mission, in which serving British police officers proudly wear the European flash on their shoulder, as they help to achieve stability through an effective campaign against criminality in Bosnia and Herzegovina. I wish that Conservative Members would stop injecting into their speeches scorn, derision and hostility towards the EU's work in that part of the western Balkans. In Sarajevo and the rest of Bosnia and Herzegovina, the EU is warmly welcomed.
Mr. Spring: I know that the Minister is capable of being eccentric on occasions, but I have never heard such complete drivel in my life. I am absolutely entitled, as an Opposition spokesman, to ask what the relationship is between the new EU force and NATO. That has nothing to do with our view of the EU, so will the Minister just answer the question that I legitimately posed and not distract this important debate with such nonsense?
Mr. MacShane: I see that some spots are tender even at this early time of the day. I will, of course, come to those points, but it is nice to clarify our positions. The fact that our main Opposition party has no locus in any other part of Europe and has no links with other conservative and centre-right parties, because it is perceived as permanently hostile to our membership of the EU and the need to win support across Europe for the new constitutional treaty, does a continuing disservice to the cause of peace and European unity.
I am happy to tell the hon. Gentleman that we have absolute confidence in the EU force. For one reason, professional, British soldiers will be leading it. British officials have played a key role in the negotiation of the force's mandate, learning the lessons of the 1990s. That confidence is shared by NATO as a whole, as the Istanbul summit communiqué made clear. The EU force will have, as SFOR has, a UN chapter 7 mandate, with the authority to use force to protect itself and its mission. The force will deploy initially with the same level of forces—around 7,000—as SFOR has now.
Before becoming a Minister, I spent time with British soldiers. I slept in a corrie back in an SFOR unit. I saw how professional their contribution is. They will be proud to show the people of Bosnia and Herzegovina that EUFOR is making a direct contribution to stability and security in the region.
I share the concerns about the ICTY in The Hague that the hon. Member for Castle Point expressed. The hon. Member for Tweeddale, Ettrick and Lauderdale (Mr. Moore) also raised important questions about that. I regret deeply that the obstructionists in Bosnia and Herzegovina, particularly in Republika Srpska, prevented Bosnia from achieving partnership for peace membership at NATO's Istanbul summit. I regret that it was therefore necessary for Lord Ashdown to remove some 60 obstructionists, mainly from the SDS, the party of Karadzic. I sent my personal congratulations to Paddy Ashdown earlier this week on his decisive action, which again showed the quality of leadership that Britain brings to bear in finding a European solution to the western Balkans.
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I assure the hon. Member for Castle Point that SFOR has not been forgotten. It has done a superb job since 1995 and I welcome his kind words about our troops' efforts. British troops have detained more war criminals than any other force—24 to date. The hon. Member for Tweeddale, Ettrick and Lauderdale said that nobody had been detained since 2002, but, if he checks the records, he will see that one war criminal, Mr. Oric, has been sent to The Hague.
On all my visits to the region and whenever I discuss the issue with visitors—my door at the Foreign and Commonwealth Office is always open, and I think that I have received more Government representatives from Bosnia and Herzegovina and from other countries from the former Yugoslavia than almost any other part of Europe—I say again and again that the road to Europe lies through The Hague, that the detention of Radovan Karadzic, Ratko Mladic and Ante Gotovina is a priority, and that more must be done. There have been clear statements from Government figures in Sarajevo and Banja Luka about Karadzic, but the Orthodox Church needs to move decisively, as do the communities that support him. People must understand that the terrible crimes of which Mr. Mladic and Mr. Karadzic are accused are in connection with the genocidal slaughter of 7,500 European Muslim citizens of Srebrenica in 1995—the worst killings in cold blood on European soil since 1945. With one year to go until the 10th anniversary of that massacre, it is time to make decisive efforts to invite those gentlemen, who claim to be innocent, to report to The Hague, where they will get a fair hearing.
The election of Boris Tadic as the president of Serbia, thus defeating, as the hon. Member for Tweeddale, Ettrick and Lauderdale will know, the candidate of the reactionary anti-European nationalist right, who was close to Mr. Milosevic, is good news, and I hope that it will be seen as such. It shows that we are generally getting positive and welcome signs from the region, as does the welcome decision of the European Council, which agreed the historic constitutional treaty that Britain will soon want to ratify, to set a starting date for negotiations for Croatia's EU membership.
Bosnia and Herzegovina has come a long way since 1995. I agree with the point that the hon. Member for Castle Point made about supporting the economy. I have visited Sarajevo regularly since I took ministerial responsibility for that part of Europe, and I can say that it is getting better. I strongly agree that the beautiful national library, which is being rebuilt, should become a shining cultural monument to the traditions, history and culture of that part of Europe.
The hon. Member for West Suffolk recalls visiting the winter Olympics in Sarajevo some 20 years ago. I invite him—a great sportsman among Members of Parliament—to join Lord Ashdown and me on a skiing trip on the mountains around Sarajevo, which I propose should be early next year when the snow conditions are good. As I lead him off piste, down dangerous gullies and across avalanche slopes, I may persuade him of the virtues of a more positive approach to Europe. Whatever happens, I promise to get him safely to the bottom. He will be in my safe hands.
I hosted the excellent Lancaster House conference to promote the tourist industry in Bosnia and Herzegovina. An excellent new guide has been

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published, and British tourists can go there. Despite our concerns about the problems with Karadzic and criminality, no British soldier has lost his life as a result of violence, although there have been some dreadful accidents. I believe that all British citizens will be given a very warm welcome there, whether as historical tourists—the hon. Member for Castle Point referred to Sarajevo as the place where 20th century history took its disastrous wrong turn—or eco-tourists. I believe that there is a lot of good hunting, shooting and fishing, so the sports and tourist desires of many different members of the community in Britain are catered for.
Hon. Members asked me about the continuation of the ICTY. The ICTY mandate will continue. United Nations Security Council resolution 1503 of last August made it clear that the ICTY will try Karadzic. Mladic and Gotovina, even if the trials fall outside the usual period granted to the ICTY. It is scheduled to come to a close in 2008, but we are determined that those three gentlemen will be brought to The Hague. Again, I make it clear that they can become old or go to their graves, but the British Government and other Governments will insist that they accept responsibility for answering to the very serious charges against them. We believe that there should be a completion strategy for the ICTY, and that it should be met.
The hon. Member for Tweeddale, Ettrick and Lauderdale asked about finances. Some large and significant UN member states seem to be backward in paying their dues to the ICTY, and we are pressing them hard to rectify that. We do not have a particular view about Milosevic's trial and the recent reports about his health problems. It will be a matter for the tribunal to decide, but we have every confidence that it will find a fair and satisfactory solution to allow the completion of the trial with minimum delay.
I was asked about financial support for Bosnia and Herzegovina. The Department for International Development has provided £82 million in bilateral assistance to Bosnia and Herzegovina since the signing of the Dayton peace agreement. In addition, according to the last available records that we have, which cover 2001, the UK's share of Commission expenditure in Bosnia and Herzegovina amounted to £18 million, which we estimate to be some €12 million, for 2003. Britain is putting its money where its mouth is by supporting Bosnia and Herzegovina.
We welcome the creation of stronger state institutions. We believe that the politicians of the federation that represents Bosnians, Croats and Republika Srpska accept that there will be no future other than the building of a sovereign independent republic, a European state, called Bosnia and
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Herzegovina. There will be no repartition or reattachment to Serbia or Croatia. I am pleased to see the much better co-operation between Belgrade and Zagreb, and I make it clear that both the Serbs and the Croats fully accept that Bosnia and Herzegovina will be a republic with a strong and clear future. It will, we hope, soon be a member of the EU and NATO.
Bob Spink: Before the Minister finishes, will he return to the question of the Office of the High Representative? The post will end for Lord Ashdown next year. Will the Minister give the Government's view as to how matters should proceed following that?
Mr. MacShane: Lord Ashdown kindly accepted our invitation and the invitation of the people of Bosnia and Herzegovina and the entire international community to continue in office for one more year. We will take this one stage at a time. He said clearly that he wants to be the last man in that office, and that is everyone's wish, even further south in Kosovo, where a new UN special representative has just been named. It is our wish that all the countries, republics and different component elements of what was Yugoslavia should operate as self-governing entities. I cannot comment in advance on where we will be next year, on any replacement or on the future of the post.
On Monday, I was at the OSCE parliamentary assembly meeting in Edinburgh, at which the Chairman-in-Office, Dr. Solomon Passy, the Bulgarian Foreign Minister, made clear his belief that, other than in Kosovo, the OSCE should wind down its operations in the western Balkans and start looking further east to the Caucasus region. Broadly speaking, he is right.
I want to put on record again that I have seen a gradual growth of normality during my visits to the area. I do not want to raise any more European hackles this morning, but I had the pleasure of travelling through Sarajevo on a tram that was decorated on an entente cordiale theme. It was nice to see the Union flag and the tricolour painted on the tram. Very nice, young Bosnian university and school students were learning French and English and being told that their future would be much better if France and Britain co-operated. Their future will be much better if we in the European Union can co-operate under the new treaty.
Bit by bit, a new spirit is rising in Bosnia and Herzegovina. I thank all hon. Members for participating in the debate. If I have not answered all the questions—I may have answered questions that hon. Members did not ask—I will be happy to write to them in detail on those matters.
10.37 am
Sitting suspended.

Animal Rights Extremists
11 am
Mrs. Jacqui Lait: I am grateful to you, Mr. Olner, for the opportunity to raise this subject, because it is a matter of increasing concern to me. I have had a long involvement with this issue, because almost 25 years ago I worked in the chemical industry and I saw then the difficulties faced by staff and companies.
We are now seeing increased levels of animal rights activity. Most of us are familiar with the saga of Huntingdon Life Sciences, the way in which City shareholders were targeted and the damage that that has done to the company. I pay tribute to Brian Cass and his staff for managing to refinance themselves and continue their valuable work.
There have been many instances of animal rights extremism since then. In the most recent quarter, from April to June this year, there have been what are euphemistically called "home visits"—22 to employees and 32 to company directors. The director of the building company Montpellier, which is involved in the construction of the Oxford animal research laboratory, resigned from the business. There have been 24 instances of phone, fax or e-mail blockade, which are immensely threatening to employees and, more worryingly, to their families, including children. I have seen the effect on senior research scientists when their families have been targeted. It has led to divorce, mental breakdowns and distressed children who have been unable to benefit from their childhood.
There have been 46 instances of damage to property, 94 publicly advertised demonstrations and 164 demonstrations that were unadvertised. Almost 3,000 people have been involved in protests. My office overlooks Portcullis House, and I remember one evening when people demonstrated outside about Yamanouchi for about two hours, disrupting not only the business that I was trying to conduct, but that of many other Members and members of the public.
There have been 80 arrests at demonstrations and 43 occasions when vehicles have been damaged. In many cases, corrosive fluid has been used, and in 33 cases tyres were cut or pierced. When corrosive fluid is used, tyres have to be changed anyway in case there has been some damage, and it is estimated that the costs of those attacks in one quarter alone are £250,000. We know that Cambridge university has had to scrap plans for its primate research laboratory and that Oxford is facing real trouble with its research facility as senior staff receive "home visits". Huntingdon Life Sciences and Hall farm, which breeds guinea pigs for the research industry, have also been targeted.
I recognise the fact that a small number of people are involved in the terror tactics; the vast majority of people who take a strong stand against the use of animals behave legally. The Home Secretary reportedly supports the Humane Research Trust, which is a legal organisation. The problem is, however, that those extremists are causing immense damage to our scientific and research base, and the Government do not appear to have the resolve to address the issue effectively. In the US and Japan, which are our main competitors in many of the research, pharmaceutical and bioscience
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industries, the perception is that the UK does not treat the issue seriously enough and will not take substantive action.
A new group called Victims of Animal Rights Extremism was launched in the House of Commons in April to try to help resolve the problem. It is a coalition that includes Amicus, the Bioindustry Association, the Association of Medical Research Charities, the Research Defence Society and Huntingdon Life Sciences. A Bill has been drafted to deal with the situation faced by people involved in this area, but the Government have still not made their position clear. I want the Minister to clarify whether they want that Bill, and if not, what way forward they propose to deal with the issues. It is the right of people working in those industries to have that clarification.
Lord Sainsbury, in his recent evidence to the Select Committee on Science and Technology, of which I used to be a member, pledged to introduce legislation, but rejected a single Bill, saying that he preferred to amend other legislation. The implication was that that would be a quicker route to deal with the problem. Specific legislation already exists in the United States, and seven members of SHAC—stop Huntingdon animal cruelty, the group targeting HLS—USA were recently arrested and charged under that legislation. It is therefore clear that such legislation does work.
For a while, I thought that the Government's preferred method, which is Lord Sainsbury's option of piecemeal legislation, might come to pass. There was a rumour that the Government were planning to amend section 14 of the Criminal Justice and Public Order Act 1994 to deal with "home visits" by amending—this seems slightly ludicrous—the Domestic Violence, Crime and Victims Bill, which has recently been in Committee. That rumour appears not to be coming true, but I hope that the Minister will tell us whether there is any substance to it. If not, what proposals does she have to deal with the issue of "home visits"?
If the Home Office is planning to amend that Bill in a piecemeal fashion, will the Minister also outline which legislation will be amended and how it will be done? For instance, is the Home Office planning to amend the Protection from Harassment Act 1997 in order to protect companies? There is currently no protection for companies, and nor is there any requirement for companies to protect employees, even though they have an overriding duty of care to take appropriate steps to do so.
Is the Minister planning to deal with "home visits" not by amending section 14 of the Criminal Justice and Public Order Act 1994, but by clarifying the Human Rights Act 1998, so that article 8 of the European convention on human rights, which deals with the right to respect for private and family life, takes precedence over article 10, which provides for freedom of expression? Is she planning to change the law so that companies do not need to spend significant amounts to secure injunctions, in addition to extra security costs that run to millions of pounds and reduce the UK's competitiveness as a location for biomedical research? It cannot be right that the onus is so heavily placed on the victims to protect themselves from the extremists.
Will the Government address the issue of consistency in relation to convictions in the courts and encourage the Crown Prosecution Service and the courts to

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consider not only the one incidence of terrorism that has led to a person being in court, but the overall pattern of intimidation or terrorism, when they sentence someone charged with such offences? Could restraining orders such as antisocial behaviour orders be used?
The Parliamentary Under-Secretary of State for the Home Department (Caroline Flint): They are being used.
Mrs. Lait: I am delighted to hear that ASBOs have been used. The Minister now has the perfect opportunity to advertise that fact and to ensure that more courts and the CPS are aware of it. We still have to see what force ASBOs will have in the long run. They are taking out some of the young toerags for a while, but I am not certain how long that will last.
Given the draconian powers and lengthy sentences that have been introduced to deal with the war against terror, I ask the Minister what makes animal terrorists different. Should they not also be charged under that legislation, making their sentences longer?
The Government's argument may be that specific legislation takes too long to introduce. I am sure that the Minister will agree that any postponement would mean waiting at least two years, because it is doubtful whether legislation could be passed before what is generally understood to be a proposed general election next May. It would take two years whoever won. Will she explain what the Government plan to do in the interim? If they do not wish to amend the legislation that I have mentioned, which legislation are they planning to amend? What ideas did Lord Sainsbury have? Which ones will the Minister advance? Will the Home Office or the Department of Trade and Industry take them forward?
What co-operation is there across Government to ensure that different Departments act in a concerted way so that a coherent body of law is produced instead of one specific measure? Does she plan to amend the legislation and—this may be a bit of a nerdy point—will that be done by statutory instrument or by amending Bills? Perhaps the Domestic Violence, Crime and Victims Bill could be amended as it goes through the House. Will the Government amend proposed legislation?
Who is gripping the issue to ensure that it is covered across Government and what time scale is envisaged to get a reform in place? Will the issue be dealt with before we prorogue in the autumn or before we rise for any general election next year? The previous Home Secretary—now the Foreign Secretary—was clear about the issue:
"We will not tolerate a small number of criminals trying to threaten research organisations and companies."
This is an opportunity for the current Home Secretary to send out an equally clear and authoritative statement that he will not tolerate such activity.
At the most basic level, that would help to protect the Government's own investment and the development of new medicines and research funding for life sciences. If we look closely at the pharmaceutical research base in the UK, we find that it has shrunk during the last two decades. Jobs and companies have moved quietly away. The decision to move is a complex one, but one factor
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in the equation is undoubtedly the unpleasant environment created by animal extremists. The irony is that the countries to which the companies move often have less animal-friendly protection laws than we have in the UK. We need a strong skills base to take advantage of our innovation abilities. That means that the issue of animal extremism needs to be gripped and clear remedies proposed.
This is the opportunity for the Minister to come forward with clear proposals about what the Government plan to do to ensure that people who work in science, who are our lifeblood in this country, no longer need suffer the terror of phone calls in the middle of the night, attacks on their cars, being attacked with baseball bats, as Brian Cass of HLS was, or being terrorised, as a pensioner in my constituency was. That man's pension came from a company which, following a complicated series of takeovers, acquired shares in HLS. That elderly gentleman and his elderly wife received phone calls right through the night. Posters were stuck on their garden gates. Posters were put on the streetlights down their road, saying, "This murderer lives at…" and featuring their photo.
In this day and age, it is not acceptable that people who carry out a service to this country in any way, shape or form should face horror and terror from a small number who take extremism to its extremes and terrify, hurt and maim people physically and mentally. The Minister has the opportunity to set the record straight about what the Government wish to do to ensure that those people are not affected.
11.13 am
The Parliamentary Under-Secretary of State for the Home Department (Caroline Flint): I congratulate the hon. Member for Beckenham (Mrs. Lait) on securing this debate, because it gives me an opportunity to say once again in a public forum that I, colleagues across Government and the Government as a whole recognise how important the area is, and to say how seriously we take it. In this public forum, it is also important to send to all members of the British public who care about animals a strong message that some people, often in their name, are using illegal activities to pursue those who are doing nothing illegal and are the victims of the sort of activities of which the hon. Lady gave examples.
We also need to send out a strong message that, although we need to do more, we need accurately to report what happens to people. I understand that the attack on Mr. Cass resulted in a 10-year sentence for the person who carried it out. That person was caught, arrested, charged and convicted, and it is important that the media report that as well, for the benefit of people who think that they are going to get involved in the sort of activities that might result in violence, but whose more common features are criminal damage, phone calls, letters and abuse.
It is worth reminding ourselves that the UK has the toughest regulations in the world on the use of animals in scientific procedures. UK scientists have to satisfy strict criteria before they are allowed to experiment on animals—a fact that, I am afraid, does not seem to carry much weight with animal rights extremists, although it is absolutely true. Whatever the extremists say, most people in the United Kingdom—a recent survey gave

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the figure of 90 per cent.—believe that the use of animals for medical research is justified so long as it is done without causing unnecessary suffering to the animals. Research using animals has contributed to almost every medical advance in health care in the past century, including all current medicines and vaccines, medical devices such as replacement heart valves and surgical procedures including organ transplants.
That situation will not change in the short or medium term. The development of new drugs and medical and veterinary technologies will continue to depend on the responsible use of animals. As the hon. Lady said, we therefore need to ensure that scientists can continue to do that important work on behalf of us all without harassment or intimidation. It is not only the scientists who are actively involved in that work. Particularly in the past few months, we have seen a move by the animal rights extremists to attacking the people who supply companies. Such people have no direct involvement in the work of the institutes and organisations, and by the very nature of the attacks on them, extremists are trying to create a climate of fear and to undermine the existence of companies such as Huntingdon Life Sciences.
We have already had an insight today into the activities of the extremists, which include publication of the names, addresses and phone numbers of target companies' employees on an extremist website, with an accompanying innuendo in that if their names are featured on that website, activities will follow. We know only too well what form those activities might take. There have been threatening letters, harassing telephone calls, floods of e-mails, attacks on cars and graffiti on people's homes. Anonymous letters have been sent to the neighbours of targeted directors making false allegations. In the case of one individual, the allegation was that they were a paedophile. Packages have been sent to the homes of target persons containing offensive material such as used toilet paper and razor blades. There have been late-night home visits involving masked extremists vandalising cars, smashing windows and spraying graffiti.
Since becoming the Minister with responsibility for this area, I have had several meetings with representatives from the bioscience industry and other companies. I have met victims of such activity and heard about their experiences at first hand. My colleagues and I are in regular contact across Government, and Lord Sainsbury and I meet regularly. We are not only responding to the general issue, but have responded strongly to the individual targeting of particular companies. We also have regular contact with senior police officers to discuss policing and enforcement at national, regional and local force levels.
The hon. Lady will understand, as we do, the complexity of dealing with the individuals involved in such activities. The fact is that the leaders behind them do not show their hand. There are midnight visits and people carry out the activities anonymously, so piecing things together and taking effective action against them is not easy, but we are trying to address that challenge. We have ensured that animal rights extremism features in the 2004–07 national policing plan, which means that police forces should take account of it. Every police force should be aware of what powers are available, and we have recently established a unit in Cambridge that exists primarily to improve performance at force level
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and to act as a support and a service. Where things are not happening at force level, that unit can be contacted for additional action. In recent weeks, particular companies have been targeted, and the unit has played a big role in working with us to address particular concerns.
The Association of Chief Police Officers recently appointed an assistant chief constable to the new role of national co-ordinator with responsibility for developing regional and national responses to animal rights extremists. As I said, we have also used Home Office funding to create a national extremism tactical coordinating unit, which is based in Cambridge. It will provide police forces and others throughout the country with tactical guidance, information and advice.
We also need to work with industry. Understandably, companies often do not want to take a proactive approach—for example, by warning their suppliers. Nevertheless, we must be able to share information for the good of all. We must be able proactively to help people to protect themselves and to know what to do when their switchboards—
Mr. Bill Olner (in the Chair): Order. The hon. Member for Oxford, West and Abingdon (Dr. Harris) should not be playing with his mobile phone while the Minister is speaking.
Caroline Flint: Companies must know what to do when there is a campaign of phone calls to their switchboards and where to go with information about suspicious activities. We need not only greatly to improve our relationships with the main companies, but to identify what we can do to reassure people elsewhere in the supply chain who work with them.
There were at least 138 arrests of animal rights activists during the first six months of this year, compared with 37 during the same period in 2003. We are working with the police, other agencies and companies to improve the availability of information on arrests. We are looking carefully at where arrests are made, what charges are laid and when cases come to court. That will help us to work better with other sectors of the criminal justice system to ensure that, as the hon. Lady suggested, cases that come to court are not seen in isolation, but connected to the wider campaign of animal rights extremism, which seeks to undermine the legitimate practices of business in this country.
Mrs. Lait: I am very pleased to hear what the Minister says about the courts, but will she address the principal issue that I raised: the legislative changes that, as Lord Sainsbury acknowledged, must be implemented? What plans does she have in that regard?
Caroline Flint: I will come to that. I have eight minutes left, and I intend to use them all.
The Government are looking at better enforcement throughout the criminal justice system. Of course, penalties are important in that respect, and they must reflect the circumstances in which a person is brought before the court. One ASBO has already been used on someone who committed an offence linked to animal rights extremism, and more ASBOs are in the pipeline. As with other areas of antisocial behaviour, we intend to

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ensure that police forces and the criminal justice system are aware that tools already exist to contain and curtail people's activities.
Over the past few months, we have been debating how to improve law enforcement, and one way is to ensure that the powers that are available in the criminal justice system are actually used. Recently, we made two changes to the Anti-social Behaviour Act 2003. We amended the definition of a public assembly in the Criminal Justice and Public Order Act 1994 from one consisting of 20 people to one consisting of two or more persons. We also extended the offence of aggravated trespass in that Act to cover trespass in buildings. Both changes came into effect on 20 January, and we have endeavoured to ensure that the relevant powers are used effectively. Indeed, they have already been used on several occasions to control intimidatory protests and office occupations, although that does not mean that they should not be used more widely. We have tried to ensure that companies and other organisations are aware of them, so that they do not think that there are no laws or powers to deal with this issue. A lot of the time, however, the issue is effective enforcement.
In 2001, we made several changes to legislation specifically to tighten up the law to deal with the problem of animal rights extremism. One of the most significant changes gave polices officers a new power to issue directions to protestors to move away from homes where protests may cause harassment, alarm or distress. That power is being used to minimise the impact of protests by animal rights activists outside the homes of targets, but we are looking further into the issue of home visits. For example, the police have directed the removal of offensive banners and prevented the use of sound systems and musical instruments. The legislation is being tested by animal rights extremists. They generally comply with directions before the need to arrest arises, but we need to engage with law enforcement agencies to make sure that they are being used to the fullest power of the law.
As I said, we are considering what more can be done to protect people who are targeted in their homes and to ensure that activists cannot exploit gaps in the law. We have introduced new provisions in other legislation. Section 1 of the Police and Criminal Evidence Act 1984 has been amended so that, since 20 January, the police have had the power to stop and search for articles that could be used to commit criminal damage. That could apply to an animal rights activist carrying a spray gun with intent to spray graffiti or to someone with a brick who intended to smash a window.
Since 1 January 2004, the courts in England and Wales have had the power to ban from driving persons convicted of any offence. Again, that measure could be used by the courts when sentencing persons convicted for criminal damage, public order offences or harassment. Taking away an activist's car for a few months is likely to cause a lot of inconvenience. That is part of our effort to disrupt the activities in question and not make things easy for the people concerned.
On 1 July, we announced the outcome of our review of section 24 of the Animals (Scientific Procedures) Act 1986 in the context of the Government's commitment to freedom of information. Section 24 of the 1986 Act
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prevents the unauthorised disclosure of confidential information by Home Office Ministers, officials and others with functions under the Act. It does not waive or vary the provisions of the Freedom of Information Act 2000, but creates an additional criminal offence, should there be unauthorised disclosure of confidential information.
The decision that has been taken follows consultation with stakeholder groups, and reflects the significant misgivings about the potential impact of repealing section 24 that continue to be expressed by scientific stakeholders in the lace of violence and intimidation from the criminal activities of a small section opposed to animal research. We have decided not to repeal it at this stage. In the meantime, we are considering ways to inform the public better about the law and to provide more information about why and how animals are used and the related regulations. We want a better dialogue and do not want to allow those who propagandise to get away with issuing their false and distorted pieces of information.
We are open to considering further legislation to address the criminal activities of animal rights extremists. The hon Lady mentioned the United States of America. Views on the success of its legislation are mixed. At the moment, there is discussion about that legislation having left some parties, such as suppliers to companies and organisations involved in the use of animals, out of the relevant scenario. The USA has found the matter difficult as well.
I am pleased to hear about the seven recent arrests, but considering the time for which the legislation has been in force in America, it has been used pretty rarely. We have good relationships with the FBI and work internationally on tackling some of the issues, as well as with the people behind the organisations and their activities in our communities.
We are open to the idea of more legislation. Our concern has been about passing quickly the legislation that we need. We recognise that the activities undertaken by the people in question could easily be undertaken by another group that felt that it had a particular concern about something. For example, there have been attacks in America on facilities that provide for women to have terminations. The activities could be harassment of employees. We are considering legislation that can respond to such illegal attacks on individuals who are not breaking the law. That is why we are not considering a narrow measure purely about animal rights extremism.
That does not mean that we do not need more legislation. We are looking at that possibility, but we also want to make better sense of what we have and to consider how to improve enforcement. To do that, we have established a national forum of officials in the past few months. We have now decided that it will be ministerially led, so that we can better assess how it can act as a delivery group to achieve outcomes and implementation on the ground, and deal better and more quickly with issues that arise. We shall have to plan for some issues in the medium and long term, but we shall have to deal up front with events affecting people today.
11.30 am
Sitting suspended until Two o'clock.

British Indian Ocean Territory
2 pm
Jeremy Corbyn: I welcome the opportunity to debate what I consider to be a very serious issue. It touches on honesty in politics and in government, and it touches on issues of constitution and law and the way in which a group of people have been grievously treated by this country and, to some extent, the United States for more than 40 years.
The people who lived for hundreds of years on the Chagos Islands were descendents of its first inhabitants who had been dropped off there as slaves and traders or had settled there. They lived a settled existence, fishing and producing copra, and they inhabited an idyllic and pristine environment. Their problem was their location—the Indian ocean. The United States was eyeing it up in the 1950s and 1960s as a potential base, and subsequently decided to build what they euphemistically called a "communications facility" on the island of Diego Garcia. The communications facility turned out to be two of the longest runways that the world had seen and a base from which 4,000 US troops could operate. The base is now routinely used for the bombing of Afghanistan and Iraq, and the United States 'considers it to be a crucial communications facility.
Prime Minister Wilson and President Johnson discussed the matter in the 1960s and decided to do a deal and evacuate the population of Diego Garcia to make way for the American communications facility. The Americans insisted on the evacuation of not only Diego Garcia, but the entire archipelago, despite the fact that its other islands were some distance from the putative communications facility.
The language used by the then Colonial Office was outrageous beyond belief. Simon Winchester wrote a wonderful piece on the subject in Granta magazine in which he quoted the then permanent secretary in the Colonial Office who described the population inhabiting the islands as a group of "Man Fridays" and stated that it would be simple and easy enough to move them out of the way. The deal subsequently went through and, to make ready for the American base, the British authorities proceeded to remove people from the islands. However, it was never done openly.
Only two days ago outside the Foreign Office, I met a man who was part of a demonstration there. He told me that he had left the islands in 1966 and that he was not allowed to go back, as many others were not. When they went to Mauritius or the Seychelles—mainly Mauritius—for medical treatment or education, they suddenly found that they could not go back.
When the time came for the British to remove the population in earnest, they did so —putting them on a ship, taking them to Port Louis in Mauritius and simply dumping them on the quayside. When my hon. Friend the Member for Linlithgow (Mr. Dalyell) speaks, I am sure that he will describe the conditions that he saw when he went to Mauritius at the time. The people were dumped there in terrible destitution. To ensure that nothing was left on the islands, the British commissioner had the problem of what to do with the islanders' domestic animals and pets. The dogs were rounded up
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and gassed, all the animals were killed and the islands were left empty and uninhabited to make way for the American base.
The poor islanders were forced to eke out an existence in terrible poverty in Mauritius and the Seychelles. Ignored by everybody, they managed to survive and they never gave up two things: first, the hope, determination and desperation for the right of return; and secondly, the hope that one day, somebody, somewhere would recognise the fundamental injustice of their treatment.
Time has moved on and it is 48 years since the original and disgraceful deal was done between Wilson and Johnson, but the injustice has not gone away. I visited Mauritius a couple of years ago to meet the Chagos islanders and to see the conditions in which they live. They are very poor indeed. We have to remember, and we should remember, that the compensation that they finally won, some 15 years after the original removal from the islands had begun, was mainly eaten up by debt collectors and land agents. No one was given sufficient compensation and no one was made rich or wealthy by the process. This has been the subject of a court case that is still going on, so I cannot comment on anything more than the original facts of the case. However, it seems that the islanders were cajoled into signing what they did not believe to be a full and final settlement, and were told to accept it as such. The injustice and the poverty go on.
When I was in Mauritius, I spent a week visiting as many Chagossian families as I could. I talked to them about their lives on the Chagos Islands, when they lived there, and their lives now. They described their sustainable form of living, the type of community, religion and schools that they had and their lives in general. It was fascinating to talk to them, but one could see the hurt in their eyes at the way that they were taken from the islands and dumped on the quayside at Port Louis. Many of those families still live in desperate poverty in metal huts with outside toilets and little furniture. Although the current Mauritius Government have been kinder to them than previous ones, they are still very poor people.
Those people, however, were always going to campaign for their hope of a right of return; they would never give up. Eventually, a case was lodged in the British legal system and, in a court order of 2000, they were granted the right to return under British immigration law. It was ruled that they had the right of return. The following year, a further step forward was taken when the British Overseas Territories Bill was introduced in Parliament. My hon. Friend the Member for Linlithgow and I raised the question of the eligibility of the Chagos islanders for British citizenship, on the basis that they would be entitled to British citizenship like everyone else in overseas territories had they not been removed from the British Indian Ocean Territory. To their credit, the Government accepted the thrust of our argument, and a Government amendment was tabled and accepted in Committee. Therefore, the islanders were given the right to British citizenship. There is, unfortunately, a grey area in which I hope ministerial discretion will be used to deal with the small number of those who have fallen outside the provisions of that law.

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Things looked quite good in 2000 and 2001, and a compensation claim was lodged to re-open the issue. In meetings we had at the Foreign Office with the Minister's predecessor, Baroness Amos, on the right of return and the possibility of a visit, we thought that things were going very well. Indeed, in the Commons, Ministers have asserted two things. One is that there is a right to return, and the second is that there was no impediment to anyone going back at any time. Things were looking good, and we had hope, as did the islanders.
On 10 June this year, which everyone will remember as election day, staff at the Foreign Office were not out ensuring that people were voting. Instead, they were at the palace asking the Queen to sign an Order in Council. When I was told that an Order in Council had been signed, I misheard or misunderstood. I thought that it was a statutory instrument that I would be able to pray against, as I assumed other hon. Members would, so that decisions made by Ministers would be subject to some form of democratic accountability. I had to reconsider, and I spoke to Sheridans' Richard Gifford, the excellent solicitor who has represented the Chagossians for many years. He calmly explained to me that I had misunderstood, and that an Order in Council signed by her Majesty was law. It overrides everything in which we believe about the democratic accountability of the Government.
There are two orders: one is the British Indian Ocean Territory (Constitution) Order and the second is the British Indian Ocean Territory (Immigration) Order. I shall just quote a little of one, to give the Chamber a flavour of it:
"Subject to the provisions of this Order, the Commissioner"
appointed under the constitution order—
"may make laws for the peace, order and good government of the Territory".
The order then goes on to declare,
"without prejudice to the generality of subsection (1)",
that the commissioner in effect becomes the supreme Governor of everything in the territory. The order says:
"All laws made by the Commissioner in exercise of the powers conferred by subsection (1) shall be published in the Gazette in such manner as the Commissioner may direct. Every law made by the Commissioner under subsection (1) shall come into force on the date on which it is published".
We have handed power over to a commissioner. Never mind the fact that there were islanders living there and that several thousand people until that point had every right to live there; apparently, they now have no rights whatever. So much for the constitution order.
The immigration order was the second one passed, and I shall quote just two of its sections. Article 7 says:
"An immigration officer, acting in his entire discretion, may issue or renew a permit or may cancel a permit before the expiration, subject to the right of appeal provided in section 10."
That is for people who wish to visit the Chagos Islands. Article 10 says:
"A person aggrieved by any decision of an immigration officer may appeal to the Commissioner, whose decision shall be final and conclusive."
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So the only person to whom one can appeal if one does not agree with a decision to prevent Chagos islanders going to their own islands is a commissioner appointed specifically to control the Chagos Islands in every way for evermore.
The Minister made a written statement to the House on 10 June, although frankly it should have been an oral statement and made at a time when he could have been cross-questioned about it. At least, however, we are debating the subject here in Westminster Hall today. His statement said:
"Following the departure of the Chagossians in the late 60s and early 70s, the economic conditions and infrastructure that had supported the community of plantation workers ceased to exist. While the judicial review proceedings were still pending, the Government therefore commissioned a feasibility study by independent experts to examine and report on the prospects for re-establishing a viable community".—[Official Report, 10 June 2004; Vol. 422, c. 33WS.]
I have some comments to make on that. The Chagossians did not depart from the islands in the 1960s and 1970s; they were rounded up, taken away and thrown off the islands. Let us not beat about the bush: that was a disgraceful, immoral act. It is time that a Minister stood up and apologised for that act committed by the Government of the time and for the treatment of the Chagos islanders by succeeding Governments.
I was kindly given the three volumes of the feasibility study by the Foreign Office when it came out in November 2000, and it said that there were problems with water supply, periodic flooding, storms, seismic activity and so on, as the Minister points out. However, it did not say that no one could live there or that life was impossible on the islands. When pressed on the matter, the Foreign Office retreats into arguments about the potential cost of resettling the Chagos islanders. I have two points on that. First, they have a moral right to return. Secondly, would any Minister stand up in the House and say that the cost of keeping the population on Pitcairn, St. Helena, Tristan da Cunha or the Falkland Islands was such that we were going to withdraw the entire population? They would not dare.
Mr. Kelvin Hopkins: My hon. Friend mentioned the Falkland Islands. Has he made any comparisons between the costs that he is talking about and the amount of money spent on defending the Falkland islanders when the Argentines invaded?
Jeremy Corbyn: Indeed, the costs are on two completely different scales. The costs involved in administering the Chagos Islands are very small. At the current time, all the income from fishing licences—about £50,000 a year—is taken up by administration, and other money is paid to continue that administration. Were the islands to be resettled, however, and were there to be serious discussions with the islanders about resettling them, there would be an economy on the islands. There is fishing there, and the possibility of ecotourism or copra. Quite a lot of activities could take place on the islands. However, I do not get the feeling that there is any wish, desire, hope or intention of going down that road. The whole desire is to put the issue to one side and forget about it. That is because of an American base on Diego Garcia, for

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which I suspect nothing is paid, and because the Americans have said that they do not want anyone anywhere near their base owing to security concerns.
I think that we have every right to ensure the settlement of the outer islands—at least—and that we have a right to know exactly what is happening on Diego Garcia, which is, under the terms of the colonial order, sovereign British territory. Are there any prisoners on Diego Garcia? Is it being used for the sort of vortex of American justice such as occurs in Guantanamo Bay? I am assured that it is not. I want to hear that assurance again today and it would be much better if there were an independent inspection of what is going on.
I will make only a couple more points because I want to make sure that other Members get a chance to speak. On Tuesday, a group of Chagos islanders went to the Foreign Office to demonstrate. They handed in a petition signed by a substantial number of Chagos islanders who are living in this country legally. The petition demands:

"1. Restoration of our right of abode in the outer islands of the territory.

2. Restoration of our fundamental rights as British Overseas Territories Citizens.

3. The immediate payment of compensation.

4. The setting up of a pilot resettlement in the outer islands.

5. The setting up of a social survey in Mauritius and the Seychelles with recommendations to support the vulnerable group of our community.

6. The organising of a visit to the ancestral sites in the British Indian Ocean Territory for the Chagossians living in Mauritius, Seychelles and the UK"

—and, presumably, anywhere else in the world. It seems to me that that is a minimal demand. I had a response from the Minister today and I hope that he will be able to give us further positive news on the possibility of a visit and a return to it.
What are the options open at present? There is the option of return, but the Prime Minister, when questioned on the subject by the hon. Member for Banff and Buchan (Mr. Salmond) and myself in the House last week, did not give us any positive answers. I wrote to the Prime Minister straight after that, pointing out:
"The Chagossians' removal was the result of a particularly awful secretive deal done by the 1966–70"
Labour Government and that
"one had high hopes that this government would have improved upon their actions."
I go on to complain about the timing of the orders and point out that the early-day motion that I tabled, which has been signed by more than 60 Members, asks the Government to withdraw—in other words, rescind—both the orders. The effect of that would be that the Chagos islanders would be allowed to return to their homes.
The letter from the Minister, which I received today—7 July—promises to continue discussions about the possibility of a visit. I welcome that and I hope that it can be arranged quickly. Last time a visit was arranged, a ship was chartered, but then it was mysteriously not available. That followed a lengthy discussion about the need to visit Diego Garcia as well as the other islands. I am sure that that was a coincidence and that I should
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read nothing else into it, but the islanders ought, at least, to have every right to visit all the islands, including the grave sites and so on in Diego Garcia.
It is very hard for us, as Members of Parliament in the comfort of Westminster, to understand what it is like to be taken from one's home for no reason—other than that some foreign power, of whom one is barely aware, wants to build a base there—and not to be allowed to visit the graves of parents, family or anybody else.
A letter has been sent to the Foreign Office by Sheridans law firm on behalf of the Chagos islanders. Richard Gifford wrote to me today and outlined a number of points. He asks the Prime Minister to speak to President Bush desperately quickly about the need to proceed with
"the resettlement…for the 'outer islands'",
to negotiate "civilian landing rights" on the outer islands and the
"revision of the employment practices of the employment agency acting for the US",
because—by some mysterious process—Chagossians seem to be denied the right not just to visit the islands but to work as civilians on the US base on Diego Garcia. That is of immense hurt to the Chagos islanders.
I feel frustrated about the process. I am sure that my friend, the hon. Member for Linlithgow feels even more frustrated because he has been a Member much longer than I have. An injustice, a wrong, a hurt was done in the 1960s and 1970s. It has not yet been righted. An apology has not been given. The right of return has not been granted. Surely the Government could rescind both orders and have proper talks with the properly elected representatives of the Chagos islanders on how we can carry out the law of this country—the court order of 2000—allowing that right of return. That seems to be the very least that we owe those people. They have suffered enough and they should suffer no more.
2.20 pm
Mr. Alex Salmond: I warmly congratulate my hon. Friend the Member for Islington, North (Jeremy Corbyn) on securing this debate and endorse everything that he said in his excellent contribution.
I shall speak briefly because I know that other hon. Members also want to speak. I want to draw on two points that were raised by my hon. Friend and to give them a little more emphasis. I want to return to the origins of the scandal and to look particularly at what we now know, under the 30-year rule, was said in the Foreign Office about Diego Garcia and the other islands of the archipelago. Every Foreign Office Minister, up to and including current Ministers, and every Foreign Office staffer who has been involved in the story over the past 40 years should hang their heads in shame at what has been done to these defenceless people.
The 30-year rule information that we now know refers to the "problem" of Diego Garcia. It was not a problem until the realpolitik of the relationship between the United States and the United Kingdom made it a problem to get rid the islanders out of their homes—to clear them, as we would say in Scotland—for the

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convenience of an arrangement made between this country and America. Foreign Office documents show that one Foreign Office diplomat said that
"unfortunately along with the birds go some few Tarzans or Man Fridays whose origins are obscure, and who are hopefully being wished on to Mauritius."
The same documents show that Foreign Office officials were worried that they might be open to "charges of dishonesty" and referred to "old-fashioned" concerns about "whopping fibs" that Ministers were being asked to tell about Foreign Office policy. I am glad that at least one old-fashioned Member of Parliament, the hon. Member for Linlithgow (Mr. Dalyell), has pursued the matter and championed the cause of the islanders over the past 40 years. The rest of us, perhaps with the honourable exception of the hon. Member who raised this debate, should be ashamed that we have not done more to support that campaign. The more we discover about the matter, the more disgraceful, underhand and thoroughly disreputable the long-term treatment of those few thousand people is shown to have been.
They were cleared from their island for the convenience of the United States and the United Kingdom, and most were abandoned in Mauritius. We know not just from assessments from friends of the islanders but from the High Court judgment that the conditions in which they have been living are disgraceful. They have been living in abject poverty, left to cope with an urban lifestyle when they have been used to a subsistence rural lifestyle. They were totally abandoned with pitiful and insulting compensation being offered over the years. That has been the fate of those few thousand people who were charged under the Crown to the protection of successive Governments but were abandoned disgracefully to their fate.
Mr. Hopkins: It strikes me that there is something of a parallel between what has happened to the Chagos islanders and the highland clearances in Scotland, when the rich and powerful drove the poor and weak from the land. That has scarred and informed Scottish politics ever since. Is it not significant that two of the three speakers here today are Scots?
Mr. Salmond: I am glad that the hon. Gentleman raised that point, because I was about to come to it. One of the first and better acts of the Scottish Parliament when it came back into existence on the mound was in a debate such as this when it apologised collectively for the historic injustice of the highland clearances. They were not the responsibility of any Scottish Parliament, but it was felt none the less by all parties in that Parliament that such an apology should be offered, and that was done by representatives of all the parties. I very much hope that the Minister will do exactly what the hon. Gentleman suggested and proffer some sort of apology to the few thousand Chagos islanders who deserve not just an apology but some sign that future action and policy will be different from that in the past.
The islanders won the High Court judgment in 2000, which was in the days of ethical foreign policy. I shared the hopes that were expressed earlier that at last something would be done to rectify the historical
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grievance and injustice. I accepted, as I think did many islanders, that there was an American base of long standing on Diego Garcia and that it might not be possible for all the islands to be reinhabited. However, basic rights—such as the right to visit the graves of ancestors, to occupy the outer islands and to receive reasonable compensation, and the right of the duty of care that any Government and the Crown should have over these people—should have been respected as de minimis compensation for the wrongs and injustices of the past. In fact, none of that occurred, and instead the Government, in a sneaky, underhand way, passed two Orders in Council on European election day to prohibit debate, to remove what little rights had been won and to rectify loopholes in legislation that allowed the assertion of the human rights of the islanders and their descendants.
The analysis that the islands are no longer capable of sustaining occupation because of global warming must be pretty bad news for the American military base—perhaps the runway is about to disappear under water. I have an overwhelming feeling that if Mauritius could be persuaded to send just one gunboat to the outer islands to establish the Mauritian flag again in what is arguably its territory anyway, we would decide that the islands were worth reclaiming on behalf of the Crown and dispatch a taskforce to the Indian ocean.
Global warming is an interesting concept, because it conflicts rather dramatically with what is on the US navy website. In a welcoming introduction to "The Footprint of Freedom" and Camp Justice, Diego Garcia is described as a paradise on earth and it is said that one of the best stationings that any US serviceman can have is on Diego Garcia. The website states:
"Although it is a British Territory, there are fewer than 50 British personnel (or Brits as they are commonly known) on the island."
The Minister had better explain how the Government claim to know better than many respectable outlets of the US press. The Washington Post, for example, claims that prisoners are held on Diego Garcia for "rendering" before being transferred to Camp X-Ray. How confident is the Foreign Office in the information that the US authorities have offered it on what is happening on Diego Garcia, given that the Prime Minister seems to be revising his previous confidence in judgments that he has made about the international situation? Ultimately, the Minister should accept the collective responsibility of this and previous Governments for what has been done to the islanders. An apology should be proffered, but above all there should be a change of approach and of policy by the Government, who should offer some justice and some compensation to the islanders.
It may be thought that because of indolence or lack of concern among most Members of Parliament—there are a few honourable exceptions, who are here today such an issue is of no great moment, but it is precisely such issues that are of great political moment, because no member of the public could hear and understand what has happened to the islanders without having an overwhelming sense of injustice. If the Government cannot rectify the wrongs of the past for these few thousand people, what hope is there for their having any moral compass on the great issues of the day? Unless the Government are prepared to act and rectify the wrongs of the past, they are, in a moral sense, every bit as homeless as the islanders of Diego Garcia.
2.29 pm
Mr. Tam Dalyell: Let none of us suppose that there is a complete lack of interest in this country on this issue. When the hon. Member for Banff and Buchan (Mr. Salmond) had the opportunity to put a question to my right hon. Friend the Prime Minister, I was in company in Scotland. However, I subsequently heard, not only in university circles but more widely, that it was an important question. Indeed, some people went so far as to observe that it was the most sensible question asked of the Prime Minister for some weeks.
My hon. Friend the Member for Islington, North (Jeremy Corbyn) has inspired an important debate, but perhaps it comes 40 years too late. It was in 1964 that the Government began misdescribing the long-settled population as transitory workers in order to mislead the world into thinking that they had no obligations to that population. My clear recollection is that I raised the subject with the then Foreign Secretary, Patrick Gordon Walker. Frankly, having been defeated at Smethwick and about to be defeated at Leyton, his mind was on other things. A later Foreign Secretary was George Brown. When the general problem of the British Indian Ocean Territory was raised with him, he told me, in colourful language, to mind my own business. Perhaps I was not as tough then as subsequently, but George Brown was a formidable operator in his heyday. I raised the subject on the prompting of the late Sir Ashley Miles, the biological secretary of the Royal Society. It was his concern about the Indian ocean that first raised my acute interest.
Article 73 of the United Nations casts a "sacred trust" on a sovereign power to promote the welfare and advancement of the people, but the Government surreptitiously deported the islanders and misled the world about their status. At the United Nations on 16 November 1965, the British representative Mr. F.D.W. Brown, acting on the instructions of the Foreign Office, misdescribed the islands as
"uninhabited when my government first acquired them",
misdescribed the population as
"labourers from Mauritius and Seychelles"
and misled the UN into stating that the new administrative arrangements had been
"freely worked out with the…elected representatives of the people concerned".
Instead, they bought the plantations, closed them down, forced the people to leave on boats, which incidentally were horribly overcrowded, and led them to exile, where they still remain. Their lives have been a tragedy of misery, poverty and despair, the only alleviation of which has been the heartfelt desire to return to their homeland, where their villages and ancestors lie.
In 1969, on my return from Australia, I stopped in Mauritius to stay the night with the former general secretary of the Labour party, Len Williams. Harold Wilson had wanted him out of Transport house and made him Governor-General of Mauritius. His wife Margaret Williams was a very intelligent and nice lady, and she decided that I should spend a morning with some Ilois people. It made a strong impression on me.
What is remarkable is that in the same speech by Mr. Brown representing the Foreign Office, he described the wishes of the Falkland islanders, whose
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representatives were consulted. Here we return to a previous intervention and a proper comparison with the Falkland islanders, of whom Mr. Brown said:
"It has been suggested that this population is somehow irrelevant and that it has no claim to have its wishes taken into account …it would surely be fantastic to maintain that only indigenous inhabitants have any rights in the Country".
He then quoted Woodrow Wilson from 1918:
"Peoples and Provinces are not to be bartered about from sovereignty to sovereignty as if they were chattels or pawns in a game".
Within months, the Chagos Islands had been given to the United States and the destruction of the islanders' homes and lives was soon to follow.
These days, we are all too familiar with conducting foreign policy on the basis of false or misleading facts. The historical record now revealed by the islanders' legal struggle has after 30 years shown that a small and vulnerable population of British subjects can safely be written out of the history book on the pretext that they are not really a population at all. There is nothing new in deceiving the world while acting in breach of civilised standards of international and constitutional law. That point was made by my hon. Friend the Member for Islington, North in his powerful speech.
When the islanders finally won their struggle to return in the High Court in November 2000, Lord Justice Laws stated:
"The people are to be governed, not removed."
He also stated that the Immigration Ordinance 1971 was an "abject legal failure", which had
"no colour of lawful authority."
That is not my view but that of a distinguished Law Lord.
We are supposed to have an ethical foreign policy. The then Foreign Secretary, my right hon. Friend the Member for Livingston (Mr. Cook), accepted the Court's judgment and said:
"I have decided to accept the Court's ruling and the Government will not be appealing.
The work we are doing on the feasibility of resettlement of Ilois now takes on a new importance. We started feasibility work a year ago and are now well under way with phase two of the study.
Furthermore, we will put in place a new immigration ordinance which allows Ilois to return to the outer islands while observing our treaty obligations.
The Government has not defended what was done or said 30 years ago. As Lord Justice Laws recognised, we made no attempt to conceal the gravity of what happened".
History is repeating itself with the same moral turpitude. This time, given that the islanders had already been promised that the Government's policy was to move towards their resettlement on the islands, the new banishment is a cruel change to what has already been offered. Moreover, the reasons given are again based on inaccurate and misleading information.
The Foreign Office press statement claimed that it was the feasibility study that prevented resettlement. I am glad that this Minister is replying to the debate, and I thank him for his personal courtesy in seeing my hon. Friend the Member for Islington, North and me in the Foreign Office. He cited a conclusion, supposedly made by the consultants in their executive summary, that the costs of maintaining long-term inhabitation are likely to

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be prohibitive. However, that was not based on any work of the consultants, whose terms of reference precluded any consideration of cost. Even if he had read only the executive summary, he would know from page 3 that the consultants reported:
"This report has not been tasked with investigating the financial costs and benefits of resettlements".
I feel entitled to ask where the conclusion came from. It was certainly not from the consultants.
The Minister further stated that
"human interference within the Atolls…is likely to exacerbate the stress on the marine and terrestrial environment and will accelerate the effect of global warming."
However, other things might accelerate global warming.
"Thus",
he continued,
"resettlement is likely to become less feasible over time".
Again, that judgment was not based on the work of the consultants, who stated in volume 3, paragraph 8.3:
"At the present time it is not possible to quantify the risk associated with climate change for the Chagos Islands."
The Minister's conclusion had crept in from somewhere else.
Finally, it is impossible to take seriously the suggestion that only a resettled population will face difficulties. Are we really to believe that the 64 islands offered back to the islanders by the then Foreign Secretary, my right hon. Friend the Member for Livingston, are going to sink under the waves, while the one island occupied by the Americans is to provide defence facilities for generations to come? It is the biggest military base outside the continental United States.
Only yesterday, in the Court of Appeal, Lord Justice Sedley referred to the shameful treatment to which the islanders were subjected:
"The deliberate misinterpretation of Ilois history and status, designed to deflect any investigation by the United Nations, the use of legal powers designed for the governance of the islands for the illicit purpose of depopulating them, the consequent uprooting of scores of families from the only way of life and means of subsistence that they knew, the failure to make anything like adequate provision for their resettlement, all of this and more is now part of the historical record."
Moreover, he went so far as to compare those removals with the highland clearances of the second quarter of the 19th century. He stated:
"Defence may have replaced agricultural improvement as the reason, but the pauperisation and the expulsion of the weak in the interests of the powerful is the same. It gives little to be proud of."
Now there has been a cruel new blow to this mistreated population. Their hopes, which were raised by this Government, have been dashed. Nothing in this game of cat and mouse is any less culpable than the lies and inhumanity that characterised the removal of the population.
It is not, however, too late to render justice. The right of the islanders to return to their homeland should now be recognised, and proper scientific studies should be undertaken, with proper, independent input from respected scientists whose conclusions ought to be binding on the Government.
2.43 pm
Mr. John Grogan: I am pleased to be able to make a brief contribution to the debate. I am relatively new to this subject, but when I read the press reports a few weeks ago I could not believe that the Government, whom I so strongly support, are taking this action. I know the Minister to be a good man, and I cannot believe that his sleep is not a little troubled due to these problems.
The test of any Government, or any man or woman, is how they deal wit h injustices felt by powerless people. I urge the Minister to make a stand on this issue; if there are forces beyond his office, outside or within the Foreign Office, that are urging this course of action, I urge him to take a stand. I have looked at the press release—that is all we can go on as to the reasons why we are taking this action. I could see four: the risk of flooding; the precarious nature of life for any people who return; the effect on the delicate marine and terrestrial life caused by people who return; and the cost.
With regard to the risk of flooding, I have consulted one or two experts on the level of the land there, and a lot of it is higher than that in East Anglia. We know about flooding in my constituency of Selby, and if we accepted the argument on flooding that the Government are using, half of my constituency would be depopulated. Some outlying islands were inhabited in the past, and some were based on banks that were shifting in storms. There were tall copra trees on the islands and the inhabitants had worked out a mode of living—growing copra successfully, and in some cases raising huts on stills. The argument does not seem overwhelming to me.
We have talked about the precarious nature of the life that would face any islanders who returned to the outer islands. The hon. Member for Banff and Buchan (Mr. Salmond) was rather restrained and understated in quoting the American publicity about the islands. I shall detain the Chamber for a moment to give a little more flavour of what the US navy says about Diego Garcia in its message to its recruits. It says that Diego Garcia boasts
"unbelievable recreational facilities and exquisite natural beauty"
as well as "outstanding" living conditions. There is no mention of the threat of imminent demise from flooding. In fact, I understand that the US is seeking to extend the lease on its base, which would expire in 2016, so it is thinking long term. There is a windsurfers club, a yacht club, an annual Miss Diego Garcia competition, regular picnics to what the US describes as some of the best unspoiled beaches in the world, fishing, snorkelling and a beauty parlour. It does not sound that precarious to me.
As for the delicate marine and terrestrial life, the impact of the 1,500 US personnel, the British personnel, the 2,000 civilian contractors and the various military equipment must be at least as worrying, if it is the major concern, as the effect of some islanders returning to the outer islands.
The cost of returning is obviously a serious matter. From a preliminary scan of the literature, it is very difficult to work out whether any payment has ever been made by the US Government for the use of the island.
Mr. Hopkins: It occurs to me that with all the wonderful facilities at Diego Garcia, the American

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forces must have first-class health provision. Would it not be a generous offer if the Americans provided health services for the returning islanders in return for occupying part of their islands?
Mr. Grogan: That would be a very generous gesture, shoulder to shoulder. Perhaps it could be the first gesture of President Kerry in November or December.
I would be interested to hear the Minister comment on whether any payment by the L S Government has ever been made. Officially, the Foreign Office denies it, but time and again the suggestion in the literature is that the British Government at the got a $14 million reduction in the cost of the PolLris nuclear missile system. I do not know whether that is true.
Clearly, with all the magnificent leisure, tourism and health facilities, it would not be bey and the wit of man or woman to develop a tourism strategy for the islands—perhaps the North York shire tourist office could give some advice. I have a marginal seat, so perhaps there will be a job for me there. In any case, we do not seem to be dealing with a basket case of an economy, and I think the Minister knows that in his heart. It would be a great sadness for me and for other Members—present and not present—if a Labour Government did not bring justice to these islanders who have very little power. I appeal to the Minister to think again.
2.49 pm
Tom Brake: I congratulate the hon. Member for Islington, North (Jeremy Corbyn) on securing the debate and on setting out in stark terms a dark chapter in our history and the impact it has had on the Chagos islanders. Other Members have dwelt at length on the history of what has happened, but I want to focus on the immediate past, the present and the future.
On resettlement, the Government statement of 15 June, which banned all rights of return of the Chagos people to their homeland, relied in part for its justification on the findings of the June 2002 feasibility study on the resettlement of the islands. Several hon. Members have referred to that and I want to highlight a couple of points.
That report concluded that the resettlement of the islanders would be prohibitively expensive and precarious to their safety. The Minister will be aware that Jonathan Jenness, who is a resettlement expert, carried out an independent review of that study. He examined the claims that the Government-inspired report made and it is clear that the Government's consultants were not given the task of assessing the financial costs and benefits of resettlement. The Department for International Development has not carried out, or received, any estimate of costs of the resettlement of the islands. I would be interested to know whether any Department has such figures.
On the safety of the environment, the review conducted by Mr. Jenness found that the Chagos Islands have a "benign environment" and that no available material can assess the possible consequences of global warming. As several hon. Members have pointed out, the Minister must explain why a micro
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climate exists in Diego Garcia, which ensures that it is safe from global warming, whereas the rest of the islands are under threat.
On resettlement in general, the review of the study—undertaken by Mr. Jenness—says that
"it is fatuous to imagine that the islands cannot be resettled…they were settled, successfully for several generations".
Of course, Diego Garcia is successfully settled by the Americans and the BIOT administration. What assessment have the Government conducted of the review by Jonathan Jenness? Can they make any such assessment public, so that we can see how they responded to the valid points he made? I hope the Minister can say whether any discussions took place between the UK and the US Governments on these matters in the run-up to the decision that was taken on 15 June?
On compensation, to which other hon. Members have referred, it is clear that the level provided was insufficient and that when the Chagos islanders entered into the arrangement that we are discussing it was not made clear to them precisely what they were signing up to.
On visitation rights, the Minister must say why the security concerns are so great that people are not, for instance, allowed to return to visit graves. Before I turn to the issue of Camp Justice, I will discuss the report in today's papers that Mauritius may sue for Diego Garcia. Perhaps he can say also what discussions have taken place with the Mauritian Prime Minister on that subject. How many times has the UK been taken to the International Court of Justice—that is what is being proposed? Has the Prime Minister replied to Mr. Berenger's letter? I understand that he is very angry not to have received a response. Can we have assurances from the Minister that the Government will not retaliate and perhaps take it out on the Mauritian Government in relation to subsidies that they receive for sugar?
Mr. Salmond: On that point, a report in The Guardian today suggests exactly that. It is incumbent on the Minister to deny that pressure will be placed on the Mauritian Government not to pursue the case, which is their absolute right under international law.
Tom Brake: I agree, and I am sure that the Minister will use this opportunity to put that on the record.
I will briefly touch on the issue of Camp Justice, to which other hon. Members have referred. For those who are not familiar with it, I have a satellite picture of what it looks like. It is difficult to see individuals, but this is clearly an extensive camp.
Mr. Salmond: Are there any weapons of mass destruction?
Tom Brake: It is not possible to see any weapons of mass destruction, but I here are some very large hangars.
Hon. Members have referred to reports in the Washington Post and Time magazine of claims that prisoners are being held in the camp by the Americans for so-called rendering—which others have described as torturing—or at least for questioning before being transferred to Camp X-Ray. Similar claims are being made by Mauritius-based campaigners; I understand that no journalist has been able to visit the camp.

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I hope, therefore, that the Minister can say how long he expects the camp to be operational. Is it designed to hold prisoners? Does the UK have control of any sort over the operations within the camp? Is there any dialogue with the US over what goes on in the camp? I understand that the US would need permission from the British Government to hold prisoners there. When a question was last raised about the matter—in January 2003—no such request from the US Government had been forthcoming. Have the US Government made any request to keep prisoners there more recently than that?
It would be extremely useful to clear up any misunderstanding by the Washington Post and Time magazine of the purpose of the camp if the Minister were to arrange for a visit—possibly a parliamentary visit—so that hon. Members could see precisely what is happening and deal with any concerns we may have about prisoners being held there. I hope he can give us that assurance.
The issue is a sorry chapter in our past and it is poisoning our present. The Minister can start to repair the damage today; the Chagos islanders deserve an apology, compensation, assistance where they are based currently and a right of return. The Government's claim to be the champions of freedom will sound very hollow unless he can deliver on these promises today.
2.57 pm
Mr. Gary Streeter: This is probably the most important of all the debates in Westminster Hall in which I have participated since taking on the foreign affairs portfolio in November. I want to put three points on the record. First, I pay tribute to the hon. Member for Islington, North (Jeremy Corbyn) and to the Father of the House the hon. Member for Linlithgow (Mr. Dalyell) not only for speaking so powerfully, but for campaigning on the issue over so many years. Sometimes, we grapple with the legitimacy of this place when there is a powerful Government and a large majority on one side of the Chamber, but it is a legitimate and proper use of the House to raise injustices, national or international, on behalf of a host of people or of a relatively small number. I congratulate the hon. Gentlemen on how they have fought the corner for these people.
Secondly, a grave injustice took place in the 1960s and 1970s, and that is not widely known. It was a stain on our history and there is now an opportunity to do better. I confess that, in preparing for the debate, I found that my knowledge of the issue was extremely limited. I have learned a lot in the past few days in trying to grapple with the matter.
Thirdly, although the original decisions were taken by a Government led by Harold Wilson, a Labour Prime Minister, this is not a party political issue. Conservative Governments in the interim could have done more to put matters right and did not do so. I am interested not in apportioning blame, but in trying to see where we go from here.
Mr. Dalyell: I think I have his permission to say that Lord Balneil, who is now the 29th Earl of Crawford and Balcarres, was the very capable Foreign Office Minister
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in charge. He said that the only time during his career as a senior Conservative Minister in the Foreign Office when he was really unhappy about brief was on this issue.
Mr. Streeter: I am grateful to the Father of the House, and I look forward o reading his memoirs, because his knowledge of the senior figures of the past 30 or 40 years is impressive.
I would like to think that what happened to the Chagos islanders in the 1960s could never happen again, given the way the media are today and our attitude towards human rights and transparency. However, when I think about the unlawful incarceration of so many people in Guantanamo Bay, which I have spoken about two or three times in this Chamber and in the House. that undermines my confidence in today's commitment to human rights as well as common sense.
We cannot undo the events of the 1960s, but we can do better in righting some of those wrongs. I intend to give the Minister 20 minutes for his winding-up speech, because many questions have been asked. Regardless of where I am in my remarks, I intend to sit down—probably abruptly—at 3.10 pm.
Many hon. Members have talked about comments that have come to light that were made by Foreign Office officials—and, sometimes, politicians —during the abject episode in the 1960s. One of them sticks in my mind. It was made by Sir Paul Gore-Booth, the senior Foreign Office official—the Father of the House probably knew him well. In 1966, he wrote to a diplomat:
"We must surely be very tough about this. The object of the exercise is to get some rocks which will remain ours… There will be no indigenous population except seagulls".
The Tarzan and Man Friday comment was made in response to that telegram. It was a classic "Yes Minister" moment. Irrespective of the facts, a story needed to be promoted, so they promoted that story.
I appreciate that it is difficult for the Minister to respond to debates such as this—it seems 1,000 years ago that I was in his position. However, I ask him to go as far as he can in accepting that a major injustice took place. If he feels Omit an official apology is called for, everyone in this Chamber will welcome that.
It was sensible for the Government to carry out a feasibility study. We welcomed that. and we appreciated that it was made public and placed in the Library. I do not want to go into the details; others have successfully done that today. However, some of the reasons given for not coming down in favour of allowing people to go at least to the outer islands simply did not make sense. Others have powerfully made the point about global warming and flooding. Some of those reasons do not ring true. They are not credible, and I ask the Minister to answer some of the specific questions that have been asked.
In the Minister's statement of 15 June, he seemed to be saying two things at the same time. I am reminded of a famous statement: "If you are trying to sell shampoo, you can say that it makes your hair look shiny or you can say that it gets rid of dandruff, but you can't say both." The Minister appeared to be saying that the reason for the decision is global warming and the precariousness of living there, and that it is essential for

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security reasons, but he cannot sa3 both. What is the real reason that the Government have taken this uncharacteristically robust—and. I think, unfair—position?
To follow up on the comments of the Liberal Democrat spokesman about the Americans, I would like to know the extent to which they were involved in the recent decision to file the Orders in Council and to make the written statement. I recognise the importance of the US air base. It has been used to good effect in the recent wars in Afghanistan and the Gulf. B-52s have flown from there. I strongly support our alliance with the Americans and their commitment to global security. However, this Government need to grapple in their mind and conscience with the question of when an alliance becomes a relationship of subservience.
The Minister needs to deal with that point today. I was not in the House last Wednesday when the hon. Member for Banff and Buchan (Mr. Salmond) asked the Prime Minister a sensible question about this issue. Although the hon. Gentleman went over the top, as he sometimes does, the answer from the Prime Minister was a rant—a total, blind commitment to the Americans. Can that commitment really be at any price, even at the cost of a major injustice to the people we are talking about today?
Mr. Salmond: I think the Prime Minister has some difficulty in distinguishing between a country called America, which has a constitution, and the personality of a President, George W. Bush, who has an Administration. The Prime Minister's inability to distinguish between the two is one of his major weaknesses.
Mr. Streeter: I am grateful to the hon. Gentleman for putting that on the record.
Why on earth was it necessary fur the Government to deal with this issue in the past few weeks in the way they have? Why was it necessary to execute Orders in Council, with no prior discussion, no consultation, no debate and no warning? It came as such a bolt out of the blue that, I freely confess, the Opposition—for whom I take responsibility for the issue— missed it completely for a number of days. Perhaps we were focusing on the tremendous local election results that we received on 10 June and the fantastic European election results that we received on the following Sunday. What on earth was that all about? I understand that one of the officials in the Foreign Office publicity department, when pressed about the timing of the announcement, said:
"Obviously this was discussed at length within the Foreign Office".
Within the Foreign Office—that is great, isn't it? It did not let anyone else in on those discussions. However,
"it was decided through our legal adviser; that this was the most appropriate way."
I speak as a lawyer—never let lawyers make decisions such as that. He went on:
"To do it any other way would have taken an inordinate amount of time."
Well, excuse me for being in a Parliament. We are here to scrutinise such decisions and to debate them. I am so sorry if today's debate is taking
"an inordinate amount of time".
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It is what this place exists for.
Jeremy Corbyn: Can the hon. Gentleman confirm whether he, as Opposition spokesperson on the matter, was informed of those announcements being made?
Mr. Streeter: I am glad that the hon. Gentleman asked that question, because I checked this morning with the shadow Foreign Secretary, my right hon. and learned Friend the Member for Devizes (Mr. Ancram), whether discussions were held at a higher level. There were no such discussions and no approach was made. There was no indication, no Chinese whispers—nothing.
I say to the Minister that that is simply no way to introduce a major decision of this kind. It represents a major reversal in Government policy to slam-dunk and to prevent the islanders from returning. The order does not just say that we are not going to take them back; it actually says that we are not going to permit them to return. That is another point. Why is that so difficult? If the islanders want to take that upon themselves—I agree with those who say that we are supporting relatively uneconomic communities in other parts of our territories— why is it wrong?
I believe that it is possible for the Chagos islanders to return, at least to the outer islands. I understand the American sensitivity in terms of security and defence, but I do not know why they want every island cleared. The Americans tend to go over the top in such situations. We must have our own robust view on the matter. I believe that it is possible for the islanders to return to the outer islands, while still maintaining our treaty obligations to the Americans over the base at Diego Garcia. The Chagos islanders have been very badly treated.
I accept that difficult decisions must sometimes be taken for legitimate security and defence reasons. Tough decisions have to be taken by all Governments, but where they affect an innocent people, as in this case, the compensation should be generous. Decisions should be implemented in an honest and transparent way that does not compound the injustice. That clearly has not happened in this case, and the Minister has some explaining to do.
3.8 pm
The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Bill Rammell): I should like to start by genuinely congratulating—these are not idle words—my hon. Friend the Member for Islington, North (Jeremy Corbyn) on securing this Adjournment debate. I do not always agree with him, but I admire and respect the commitment and passion with which he pursues the causes in which he believes. Similarly, I would direct those remarks at the Father of the House, who has pursued this issue diligently and persistently over a matter of decades, which is enormously to his credit. I know that concern for the Chagossians and interest in BIOT is genuine and long standing on the part of many hon. Members, so I think the opportunity of today's debate is important. From my perspective and that of the Government, it gives us a welcome opportunity to put on the record our position on BIOT and the reasoning behind our recent decisions, which I believe were justified.

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I shall start by acknowledging that, in my view, the decisions taken by successive Governments in the 1960s and 1970s to depopulate the islands do not, to say the least, constitute the finest hour of UK foreign policy. In no sense am I seeking to justify the decisions that were made in the 1960s and 1970s. Those decisions may be seen as regrettable, but the Government must deal with the current situation. The responsibility of the UK Government for the decisions taken in the 1960s and 1970s has been acknowledged by successive Governments since then, as is demonstrated by the substantial compensation that has already been paid to the Chagossians.
Having said that, the Government must deal with the situation that we face today, some 33 years after the depopulation. We have had to judge whether it is realistic, feasible or appropriate for the islands to be repopulated today. We do not have to judge whether what happened in the past was right or wrong, but whether it is appropriate, justifiable and sustainable to repopulate today. We have had to focus on that decision in recent weeks.
I believe that it would have been wrong for our decision to have been influenced by concerns about Government actions in the past rather than by the realities of today. Nevertheless, as I said earlier, successive UK Governments have acknowledged our moral responsibility; that was why compensation was paid.
I shall set out some of the history behind the creation of the British Indian Ocean Territory, and the chain of events that has led to hon. Members raising concerns on behalf of the Chagossian community today.
The islands of the Chagos archipelago, in the middle of the Indian ocean, were originally uninhabited and remained so until the French assumed sovereignty in the 1700s, and began to exploit them for copra in the 1780s. The islands became British when ceded, together with Mauritius and the Seychelles, by France to Britain in 1814. The islands continued to be administered from Mauritius.
During French rule, and for a short period thereafter, the copra plantation was run with slave labour. However, when slavery was abolished in all British possessions in the 1830s, the work force became contract labourers. That continued to be the basis of employment for as long as the copra plantations remained in operation.
Prior to Mauritius achieving independence, and with the agreement of the Mauritius Council of Ministers, the islands were detached in 1965— several hon. Members referred to that—to form part of the British Indian Ocean Territory. The territory was created to provide for the defence needs of the USA and Britain. At that time, Britain gave Mauritius an undertaking to cede the islands to Mauritius when they were no longer required for defence purposes. Again, let me be clear that I do not seek to justify the decisions that were taken in the 1960s and 1970s.
Some time after the islands had been set aside for defence needs in 1965, it was decided that the islanders should be relocated to Mauritius and the Seychelles, and arrangements for that to be done were made in the late
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1960s and early 1970s. The vast majority of the islanders—some 1,200—were relocated to Mauritius. At that time—I believe appropriately—Britain made£650,000 available to the Mauritius Government for the express purpose of assisting resettlement. At today's prices, that is equivalent to almost £5.5 million.
It is worth mentioning that the majority of Chagossians automatically acquired Mauritian or Seychelles citizenship when those countries achieved independence. In addition, the British Overseas Territories Act 2002 gave the majority British citizenship. Such citizenship carries with it the right of abode in the UK, which some have already taken up, and freedom of access to other EU countries. That change, which was referred to by my hon. Friend the Member for Islington, North, was widely welcomed by the Chagossians, and indicated the Government's commitment to our responsibilities.
At the time of the detachment of the islands from Mauritius, the population consisted solely of the employees of the copra plantations and their dependants. Some of those employees were transient contract labourers, but others had more settled roots in the islands—in some eases their families had lived there as plantation workers for several generations —and regarded the islands as their home. The people who had that sort of connect-on with the islands were known as the "Ilois", which is the Creole word for islanders, or as "Chagossians." The whole population was dependent on employment in the copra plantations for its livelihood and basic services.
In 1982, Britain made an ex gratia payment of £4 million in return for withdrawal of legal proceedings brought by a member of the Chagossian community in Mauritius, in addition to the previous £650,000 for the Chagossian community in Mauritius. Everyone who was registered as a Chagossian—approximately 1,350 people—benefited from the fund. At today's prices, that sum is the equivalent of £9 million. At that stage, it was agreed by all concerned, including the Chagossians and their representatives, that that payment by the British Government was a full and final settlement against all the claims against the Government arising from the relocation of the Chagossians to Mauritius, their resettlement there and their preclusion from returning to the Chagos Islands.
Nevertheless, in 1998, another member of the Chagossian community instituted judicial review proceedings challenging the validity of a provision of the BLOT immigration ordinance 1971, which prohibited the entry of any person into any part of the territory, unless they obtained permission to do so. The judgment, which was given in November 2000, held that the provision of the 1971 ordinance was invalid to the extent that it excluded the Chagossians from the whole territory. At that stage, the Government decided to accept that finding and not appeal, and the 1971 ordinance was replaced by a new one, which allowed the Chagossians to return and reside in any part of the territory, except. for defence reasons, Diego Garcia. A reasonable question at that juncture would have been, "What has changed between now and then?" That is a legitimate question to which I will try to respond.
At the same time is that judgment, the Government had also commissioned a study in 2000 into the feasibility of resettling the Chagossians on the islands

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other than Diego Garcia. I stress that that was done by independent experts. The report on the final phase of that study was made public in July 2002, at which stage a copy was rightly deposited in the Library of the House. I know that there has been much mockery of those conclusions this afternoon, but I am directly quoting from that study, which was drawn up independently. It concluded that
"whilst it may be feasible to resettle the islands in the short term, the costs of maintaining long-term inhabitation are likely to be prohibitive."
That was not dreamed up by a Foreign Office official or a Minister; it was the conclusion of the independent experts. I ask hon. Members, whatever they feel about past decisions, to consider whether it is realistic and sensible, having been presented with that advice, to move towards repopulation.
Tom Brake: Will the Minister set out for the benefit of other hon. Members what studies have been carried out to consider whether the costs are prohibitive?
Mr. Rammell: I will come on to answer that key point.
Jeremy Corbyn: Before the orders were made—if that was the basis of making them— why was there no discussion with anybody, such as the islanders, who has knowledge or interest in the matter, or a real desire to see the Chagos Islands reinhabited? Why was this done by Ministers and officials in secret in the Foreign Office?
Mr. Rammell: There was always going to be an opportunity for these issues to be debated, but it was right, given the imminence of the intention to repopulate, that we took considered action, and I believe that we did so.
The report says:
"Even in the short term, natural events such as periodic flooding from storms and seismic activity are likely to make life difficult for a resettled population."
It also says:
"Human interference within the atolls, however well managed, is likely to exacerbate stress on the marine and terrestrial environment and will accelerate the effects of global warming. Thus resettlement is likely to become less feasible over time."
The report advised specifically, with respect to climate change, that
"the main issue facing a resettled population on the low-lying islands will be flooding events, which are likely to increase in periodicity and intensity and will not only threaten infrastructure, but also the freshwater aquifers and agricultural production. Severe events may even threaten life."
It also highlighted the implications for resettlement on such low-lying islands of the predicted increase in global sea levels as a result of climate change. That is where the facts, as my hon. Friend the Member for Selby (Mr. Grogan) said, need to be taken into account.
It is worth highlighting that the highest points on the islands are only about 2 metres above sea level and, in most areas, are just a couple of feet above sea level. We have to make a judgment, but not on whether we already have an existing, settled population who we need to protect and support. We are talking about islands where there is no settled population at the moment. That is the factor that we must take into account. In effect,
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therefore, as I said in my statement to the House on 15 June, anything other than short-term resettlement on a purely subsistence basis would be highly precarious and would involve expensive underwriting by the UK Government for an open-ended period, and probably permanently.
We made an assessment based upon comparative costings with other overseas territories with which we have significant experience, and we believe that the initial resettlement costs would be of the order of £5 million in start-up costs and £3 million to £5 million annually thereafter. The Department for International Development thinks that those estimates are overly optimistic and that the costs may well be higher. We are not talking about minimal costs.
Tom Brake: Will the Minister give way?
Mr. Rammell: I will not give way.
If one is prepared to sign a blank cheque for resettlement, one can repopulate, but we have a responsibility and significant contingent liabilities with the overseas territories and we must take accounts of costs.
Mr. Salmond: The sums that the Minister mentions are very small compared with the enormity of the issue and the blot on the moral conscience. Does the European convention on human rights apply to the British Indian Ocean Territory, and does the International Criminal Court have jurisdiction over Diego Garcia under the terms of the American lease?
Mr. Rammell: As I understand it, the ECHR does not apply, as there is no settled population. With regard to the hon. Gentleman's other question, I will respond later because I do not want to give a response that is not entirely accurate.
Due to the fact that settlement is not feasible, the Government decided after long and careful consideration—that was genuinely the case—to legislate to prevent it. Equally, however, legislation to restore full immigration control over the entire territory is also necessary, and I do not absolve ourselves from responsibility for this so as to ensure and maintain the availability and effective use of the territory for defence purposes for which it was constituted and set aside in accordance with the UK's treaty obligations entered into almost 40 years ago.
On that basis, two prerogative Orders in Council were made on 10 June restoring full immigration control over the islands of the British Indian Ocean Territory. Those controls extended to all persons, including members of the Chagossian community. This point has been made on several occasions, but a prerogative Order in Council is the normal way in which the UK Government legislate for an overseas territory. Indeed, legislation in that form on BIOT has been entered into in the past.
Jeremy Corbyn: All the other British overseas territories have some form of resident population and some form of representative local administration who are consulted before an Order in Council is made, which

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is, in effect, a decision made by the local population. Why was there no discussion whatever with any representative of the Chagossian community?
Mr. Rammell: That is the very point that we are debating. There is no settled population within BIOT and that is why we have to make the decisions that we have to make.
Several Members have raised questions about the manner in which we reached that conclusion and asked whether there was any pressure from the United States of America. Let me be abundantly clear: we made our decision based on our own assessment of the situation and not as the result of any pressure or lobbying from other parties. I have certainly received no representations from the United States and I do not believe that the Foreign Secretary has had any representations on the issue for a significant number of years.
I understand the concerns that hon. Members have for the Chagossians following the two Orders in Council, and I do not seek to justify or defend actions that were taken in the past. but the decision not to allow any form of resettlement on the islands was taken only after long and careful consideration of the current circumstances.
Tom Brake: Will the Minister give way?
Mr. Rammell: No.
Tom Brake: On a point of order, Mr. Olner. The Minister said a few moments ago that DFID reckoned that the costs of resettlement were understated.
Bill Olner (in the Chair): Order. That is a point of debate, not a point of order.
Tom Brake: It is a point of order.
Bill Olner (in the Chair): Order. No, it is a point of debate, not a point of order.
Mr. Rammell: I am genuinely trying to respond to the legitimate questions that Members have put, and I ask for the opportunity to do that.
As far as compensation for the Chagossians is concerned, the High Court judgment established that we have no legal obligation to pay any further compensation beyond what has already been provided. The Chagossians have sought to lodge an appeal against that judgment but, as the compensation payments that have already been made are equivalent to £14.5 million at today's prices, I can make no promises about further payments. If hon. Members want to make further representations on that issue, however, we will listen to them as is our proper constitutional duty.
I understand—this was raised by my hon. Friend the Member for Islington, North—the wishes of many Chagossians to visit the islands to see the graves of their ancestors. We have twice put in hand preparations for such a visit, but those fell through on both occasions for reasons that were absolutely and categorically beyond
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our control. I heard what my hon. Friend said on that, but the boat that was bringing the Chagossians to the islands was not owned by the British Government, who had no influence over it. At that stage, we were happy for the visit to take place and, as I have written today to my hon. Friend, we remain genuinely prepared to organise and finance a visit to the outer islands in cooperation with the representatives of the Chagossian communities in Mauritius and the Seychelles.
The current position on Diego Garcia is that the Americans have made it clear that, on security grounds, they cannot, at present, agree to a visit that includes the cemeteries there. Under our treaty with the Americans, access to Diego Garcia cannot be permitted without the agreement of both Governments. None the less, if the Chagossians confirm that they would like an organised visit to include Diego Garcia, I am prepared to make representations to the Government of the United States of America.
Another issue that I should mention concerns not the problems of the Chagossians but the claim that the Government of Mauritius have made to sovereignty over the BIOT territories. As the House will have seen from the written statement made yesterday, the Government have amended the UK's declaration accepting the jurisdiction of the International Court of Justice under article 36(2) of the court's statute. A copy of the revised declaration, set out in a letter to the United Nations Secretary-General dated 5 July 2004, has been placed in the Library of the House. As my written statement yesterday explained, the revised declaration makes changes to the former declaration put forward on 1 January 1969.
That former arrangement confirms a Commonwealth exception that excludes jurisdiction in respect of any dispute with the Government of any other country that is a member of the Commonwealth. That Commonwealth exception is of long standing, and is retained by a number of Commonwealth countries. The change that we have made broadens the scope of the exception so that it now covers a dispute with a Government of another country who have been a member of the Commonwealth. Although those changes are of general application, their immediate significance is that they prevent any Commonwealth country from circumventing the present limitations by withdrawing from the Commonwealth and then instituting proceedings against the UK Government in respect of an existing dispute. We have acted in that way to prevent such a move because we believe that that would be against the spirit of the existing Commonwealth exception, which is a view and a practice adopted not only by us but by many Commonwealth Governments.
As I have said on several occasions, we are not seeking to defend actions that were taken in the 1960s and 1970s, but we have to deal with the situation as it is today, some 33 years on, when there is genuinely no settled population in the BIOT territories. Previous Governments have introduced substantial compensation for past actions, which I think is right and proper. Clear and genuine evidence has been put before the Government on the longer-term viability—or non-viability—of repopulation of the islands. We have received a report based on independent advice from independent experts, which, at the very least,

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significantly questions the sustainability and viability of repopulation of the islands. In those circumstances, and given the overall context of an ongoing set of contingent liabilities to the overseas territories running into hundreds of millions of pounds, for Is cavalierly to have gone ahead and said that we would allow repopulation to take place would not have been the right decision. I do not believe that it would have been a sustainable decision, and that was a significant imperative behind the reasoned position that we took.
I congratulate my hon. Friend the Member for Islington, North on having secured this Adjournment debate. I recognise the strength of feeling on this issue, and that what I have said will not be agreed with, or welcomed, by everyone. However, the debate has enabled us to have a significant airing of the issues.

Sex Offenders
3.30 pm
Jane Griffiths: I am pleased to have this chance to raise the important issue of involving the community in the treatment of sex offenders.
What is the point of raising this subject today? When people have questioned me on what I am about to discuss, I have been asked whether I am interested in supporting the sex offender only, and not the victims. In other words, is this just a woolly liberal desire and do I care only about the sex offender? I want to make it clear at the start that, like most people, my motivation and interest in raising this matter comes from a desire to prevent people from suffering sexual abuse. The point is to consider what can be done in practical terms to protect people from such abuse. It is important to be clear about that from the outset.
What happens when a convicted sex offender is released into the community? Normally, when an offender is released, police and social services are aware of where they live. There will be systems in place to protect the public. The offender will get visits from the police public protection officer, and the number of times that they are visited will depend on the perceived risk from the offender to the community at large. Usually, family and friends will shun them, leaving them feeling isolated. Often, they will not be where their home was. They might suddenly have to move a few times if people living nearby find out about the offence that they have committed. That is just the sort of situation that is believed to be most likely to encourage the sex offender to reoffend, and that is not good news for people in the community.
How does a community respond to the release of a sex offender into its midst? It is understandable that there will be fear and concern for the safety of those in the community. In an extreme, that can lead to what happened to Arnold Hartley, a convicted sex offender who was murdered in his home in Redear, Cleveland, last November, similarly, we all remember the scenes in Paulsgrove, Portsmouth. That is not the kind of community involvement in the treatment of sex offenders that I am seeking through this debate. That would just reinforce the feelings of isolation and otherness that play a key part in offenders repeating their behaviour, and would not reduce sexual abuse, In fact, such involvement risks increasing it.
Can something be done to change the situation? One solution put forward by the media, particularly the News of the World, is Sarah's law, named after Sarah Payne. That aims to involve the community by informing it of where sex offenders live. The view is that the community could then protect itself from the sex offender, monitor his behaviour and hold him accountable.
Among those dealing with the management of sex offenders living in the community, general community notification is thought likely to cause more problems than it would solve. Fear in the community would be exacerbated. The offender might be made to feel more isolated, and there would then be more examples of the sort of behaviour that arose in Paulsgrove, and what happened to Arnold Hartley might be repeated. For anyone who wants a reduction in sexual abuse, that is

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not a good prospect. Such action would not reduce the amount of sexual abuse, and a reduction in such abuse was, as I said, my motivation for seeking the debate.
In the mid-1990s, a scheme known as circles of support and accountability started in Canada. It was the coming together of two groups. There was recognition in the criminal justice system that most offenders were released from prison on a licence before the end of their sentence, and were provided with support to resettle into society. The licence also provided a mechanism for ensuring the accountability of the actions of the offender, and the ability to recall them if they offended again or were at risk of reoffending. However, prisoners too dangerous to be released early had no support or accountability when they left prison at the end of their sentence. There was also a feeling of powerlessness within the community when a potentially dangerous individual was released into its midst. That is the kind of feeling that led to calls for Sarah's law in the UK a few years later.
In Canada, the response was for groups of people, primarily churchgoers, spontaneously to group together around one or two offenders. From this experience, a project grew, funded by the people who ran the prisons and probation service in Canada and administered by the Mennonite church. The police in the part of Canada where circles have been operating for some time have become convinced that the scheme works and cooperate with it.
In fact, in those parts of Canada where circles have operated, recidivism among sex offenders has been cut by more than 50 per cent. to just 10 per cent. Of the 30 offenders who had taken part in the pilot in Ontario, just three had reoffended, whereas the statistical expectation would have been for seven to have done so. Let us think of the people who have been saved thereby from the trauma of sexual abuse.
In fact, in those parts of Canada where circles have operated, recidivism among sex offenders has been cut by more than 50 per cent. to just 10 per cent. Of the 30 offenders who had taken part in the pilot in Ontario, just three had reoffended, whereas the statistical expectation would have been for seven to have done so. Let us think of the people who have been saved thereby from the trauma of sexual abuse.
Present at the meeting was the manager at the Wolvercote clinic, which focuses on reducing abuse by assessing and treating sex offenders. He was aware of the situation of men who leave prison or the clinic to be met by nobody. Inspired by the meeting, he set up a circle for an offender leaving the clinic, and that has now grown into a full-blown pilot managed by the Lucy Faithfull Foundation. A third pilot has been established in the Thames valley, managed by Quaker Peace and Social Witness.
What is a circle of support and accountability? An offender is identified anything up to a year before release. He will be a high-risk sex offender with high levels of need and little or no support from family or friends in the community. The offender is referred to as the core member of the circle, and he could have offended against children or adults. Typically, four to
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six volunteers join a circle. They have to be prepared to commit a substantial amount of time over one year in the first instance. They need to be responsible, to have their feet on the ground and to be mature about their own sexuality. The project screens volunteers, and if they are not suitable, they are not taken further. Only after that are checks taken up. In the Thames valley project, which I will focus on, the police provide the references. That means that as well as any record of criminal convictions, the scheme also receives any intelligence that the police have on the volunteer.
Volunteers receive 16 hours of training and will have met as a group for at least three weeks before meeting the core member. One session will involve a visit from the sex offender registration officer. The aims of the sessions are: introduction exercises and team building; practical issues; group boundaries, guidelines and individual contact; circle contact; essential information about the core member; discussion of the introduction of the core member; and any fears or concerns. The aim is that the circle will have a robust diversity in age, gender, interests and so on and that it will generally meet the core member bet ore their release. Initially, the circle meets once a week with the core member. In between, at least one circle member will be in touch with the core member each day, with contact ranging from a phone call to going out for breakfast or to a cinema or other social event.
As its name suggests, the circle's aim is to provide support and accountability in stages such as moving from a hostel into other accommodation, finding work or starting to establish a social life. The circle provides support when things go wrong, such as when there are rejections from work or promises of accommodation that do not materialise, and in managing working relations with other inmates of the hostel. Basically, the circle is there for when things go wrong—things that might otherwise dishearten the core member and tip them back into patterns of behaviour that lead them to reoffending. Studies show that although it can take 28 months for an offender to be caught, it can be one month before they reoffend.
The core member has to apply for the circle before release. As a rule, they must be motivated to change and not to reoffend, although one offender in Oxford is an entrenched paedophile who still believes what he did was not wrong, but is motivated to make the circle work because he does not want to go to prison. Clearly, that is a telling motivation for anyone.
Let me quote the words of core members from a study conducted as part of a placement with the Thames valley project by Sarah Bell, a social work student at Oxford Brookes university. One said:
"When I am advises or told something which does not necessarily make me feel comfortable, I do listen because I know that it is honesty in order to benefit me."
Another said:
"Coming out of prisor, was an emotional period for me. If I had not had the Circle, it could have led to re-offending when feeling emotionally down. They have helped me focus in on the way I think so that I do not get into a situation of re-offending."
According to another member:
"Without the circle's support I think I could have re-offended, they offered me support and advice at one of my lowest points and were there to help and support me."

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The other side of the project is accountability. The circle challenges the core member and monitors their behaviour. For example, one offender in the Thames valley scheme was taken back into custody as a result of information he gave to his circle. The circle is in a position to monitor things that it is otherwise difficult to monitor in such detail and on such a regular basis. To quote another core member:
"My relapse programme, with the support from volunteers, has real meaning. I feel that I can continue with my main aim of not re-offending."
The circle seeks not to replace probation or public protection services, but to assist them in their work, to protect the public and to help the offender rebuild their life as a productive member of society.
In the Thames valley scheme, there are 10 circles, and 51 people have been through the training. About 50 per cent. of the volunteers ate from faith-based communities, and about 20 per cent. are survivors of sexual abuse. There are no hard and fast rules about whether volunteers should be survivors of sexual abuse or whether that should be raised in the circle. However, people who have suffered abuse a ad who seem to be using the circle as part of their therapy will not be accepted as volunteers.
The benefits of the circle will not necessarily all be in one direction. To quote one British volunteer:
"I suffered from abuse as a child. I was attracted to the project because I hoped that it would help me lay some ghosts … My gut feeling is that working in this circle has substantially reduced the likelihood of our Core Member re-offending. I may be wrong, but I just can't see him doing it again. To me, as a survivor, that is the greatest reward I can imagine—that other little girls are spared. To my complete surprise, I have also come to really like our Core Member. It makes me happy to feel that he, too, will be able to live a better life now. It has helped me to see th; it whatever awful things someone might have done, they still have a human heart beating in their chest."
In Berkshire, there are four circles, three managed by the Thames valley pilot and one managed by the Lucy Faithfull Foundation. I am grateful to the programme manager of the Thames valley project, Chris Wilson, for his assistance in providing me with the information for my speech today. I would also commend to hon. Members the interim report about the project from November 2003. Reading that report inspired me to seek to have this debate.
I will finish by citing two parts of the report. The first is details of what has been learned from the project, and the second is the introduction of the report by Tim Newell, which for me sums up the project. Before doing so, I commend the project to the Minister. I know that he was at a national conference this morning on circles of support and accountability. I hope that this success will spread out around the country.
First, those involved have learned that it is important to consider the mix of volunteers. Five volunteers can be an intimidating number, so there should be flexibility. Attention must be given to team building. Supervision and support is essential, but a balance must be achieved. Volunteers are part of the team and should be included in all decisions.
The introduction to the report states:
"The experience of commitment from courageous volunteers and dedicated staff has demonstrated that the concept of Circles works within our setting of statutory supervision and controls. We
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are still at an early stage of development and evaluation but the experience has been that working towards emotional health and active citizenship within a group of supporters provides powerful and safe opportunities for growth.
The work achieved so far has major implications for the management of risk in the criminal system. The signs are that serious offenders respond to the opportunity of being held accountable by their fellow citizens. The signs are that there are people willing to volunteer to become involved in this demanding involvement on our behalf. The signs are that there is a wider acceptance that this is the right way to restore dangerous, damaging and damaged people into full community."
3.45 pm
The Parliamentary Under-Secretary of State for the Home Department (Paul Goggins): I begin by congratulating my hon. Friend the Member for Reading, East (Jane Griffiths) on securing the debate. I am sure that everyone is grateful to her for her clear explanation of the development of circles of support and accountability. A little later, I shall refer to some of the work undertaken by circles.
How to engage the community in helping offenders to rehabilitate and break the pattern of offending and reoffending is a key question that arouses considerable public interest and debate. That interest and debate are significantly heightened when the offender in question has committed a serious sexual offence.
The most unwelcome and unhelpful public responses have been those thankfully rare occasions when members of a local community have decided to take vigilante action against particular individuals. My hon. Friend referred to one or two such incidents. I welcome the opportunity to respond to her and present some of the positive ways in which the community is increasingly involving itself in this important work. She was entirely right when she said that it is not soft-headedness or misdirected compassion but hard-headed, practical action that will ultimately reduce reoffending rates.
As the Minister responsible for the correctional services, I am keenly aware, as is my right hon. Friend the Home Secretary, that one of the first duties of Government is to ensure the effective protection of the public. Since 1997, we have introduced a number of important measures to give our criminal justice agencies the powers and tools they need to address the risks and dangers caused by sexual offending.
The Sexual Offences Act 2003 was the culmination of the most comprehensive review of sexual offence legislation since the mid-1950s. Through measures such as creating a new offence of "grooming", we will put in place increased protection for children and other vulnerable people and make sure that the perpetrators of such offences are dealt with appropriately.
The Criminal Justice Act 2003 provides additional powers to ensure that the most dangerous offenders, including dangerous sex offenders, are not released until it is safe for them to be so. We have established the taskforce for child protection on the internet, and the national high-tech crime unit will also provide a powerful enforcement tool to combat child pornography on the internet.
These measures should not be seen in isolation but as a range of complementary initiatives aimed at improving public protection. However, it is the multi-

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agency public protection arrangements—the MAPPA, as they are known—which provide the essential framework in which the criminal justice agencies work together to assess and manage the risks posed by sexual and violent offenders.
I reported in an earlier Adjournment debate on sexual offending—a debate I know my hon. Friend attended. The early indications are that the MAPPA are helping to reduce serious violent and sexual crime. For example, in 2002–03 only 2 per cent. of highest risk MAPPA offenders were charged with a further serious sexual or violent offence.
It is important to mention at this stage the recent statutory changes we have introduced to create a new role for lay advisers to the MAPPA. We have successfully piloted this arrangement in eight areas and are now appointing lay advisers in all 42 probation areas.
Lay advisers are not directly involved in the management of offenders, but they can attend case conferences to observe how risk management is carried out and they will be part of each area's MAPPA strategic management board. I would like to share with my hon. Friend the comments made by the chief constable for Dyfed-Powys on the role of lay advisers. He said:
"They represent a community interest in public protection and bring a different perspective from that of the professional interests in the MAPPA. This gives a freshness of view, a disinterested opinion which can, as the pilot arrangements showed, provide a 'reality check'."
The concept of a reality check is important and reflects the balance that we need to strike between the rehabilitative treatment of offending behaviour and the monitoring and management of the risks posed by sex offenders in the community. My hon. Friend was right to point out that there is no contradiction between the roles of statutory agencies and those of community volunteers. Those complementary roles give added protection when people work effectively together.
The Government recognise that long-term protection of the public requires sex offenders to address their offending behaviour. That starts with structured and effective assessment. In the offender assessment system, known as OASys, the Prison Service and the probation service have developed a highly effective tool to assess risk and work out how offending behaviour can be addressed. OASys provides the objective basis on which those services can build effective supervision and intervention programmes to manage risk and make offenders face their unacceptable behaviour. The services are developing a comprehensive range of sex offender treatment programmes to challenge unacceptable behaviour. Programmes are based on carefully evidenced research into what is effective in addressing sexual offending.
The managers of voluntary sector-managed approved premises and other residential facilities have also developed a mature understanding of the challenges of managing sex offenders in a community setting. That allows them to complement and add value to the work of statutory agencies, which reinforces my hon. Friend's point.
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The activities of the Prison Service and the probation service to help sex offenders to be rehabilitated through a combination of careful assessment and targeted interventions are making a difference, but treatment in the community must go hand in glove with effective monitoring. The introduction of sex offender registration in 1997 and the strengthening of the notification requirements that we undertook in the Sexual Offences Act 2003 are proving effective in that regard.
It is important that statutory agencies are organised and equipped to meet the challenges posed by sex offenders, but my hon. Friend rightly highlighted the role that the community can play. I assure her that the Government are keenly aware of the wealth of imagination and energy that local communities and voluntary sector organisations can bring to understanding how sexual offending occurs and, even more importantly, how it can be prevented. The correctional services, for which I have direct responsibility, work closely at a number of levels with a wide range of voluntary sector agencies in this sphere. Indeed, when I became the Minister with responsibility for prisons and probation, I was heartened, if not a little surprised, by the level of involvement by voluntary organisations in prisons, the probation service and communities. An impressive array of organisations work in that way.
My hon. Friend spoke eloquently about the role of circles of support and accountability, which is an impressive example of a community-based initiative. She was right to say that I spoke this morning at its first national conference. Fourteen circles are running, including those in her constituency, which she mentioned. A circle of support is precisely as she described: a group of volunteer members of the public who come together, with the help of a central organiser, to provide a network of personal relationships with a sex offender. I was grateful to her for highlighting the emphasis that is placed on appropriate screening, training and support for such volunteers. They are not left to do the job without support; they are given appropriate help.
Through such a network, a circle can provide social and practical support. Circles build on the good work undertaken in sex offender treatment programmes and the MAPPA. As well as supporting offenders, volunteers act as the eyes and ears of local agencies by passing vital information to the multi-agency public protection panel.
I am pleased with the initial feedback that I have received from the earliest circles, which includes a range of evidence on such matters as offenders being supported in a way that enables them to live more independently, by getting a job, for example, or moving to their own accommodation, thereby helping them to overcome personal crises that are, perhaps, inevitable after a long period in prison. They are also helped to develop their own social networks, as my hon. Friend described, which can be difficult.
I believe that the circles' working in partnership with the police and probation service in monitoring the high-risk behaviour of one particular offender, who may have been quite close to my hon. Friend's constituency, led to that offender's recall. That shows that there is effective

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support and also the right kind of feedback to the statutory agencies, so where there is a real risk, an offender can be removed.
I am particularly impressed by the way in which circles can engage people from across the community. It is interesting to look at the backgrounds of the scheme volunteers. They form a diverse group that includes a retired farmer, a university professor, a journalist, a secretary, a computer software engineer, a member of the clergy, a solicitor, a nurse arid a warehouse worker. That is indeed a rich, varied group.
Mr. Bill Olner (in the Chair): No politicians.
Paul Goggins: Indeed, but perhaps in the future, Mr. Olner.
One volunteer in the Thames Valley project, who was quoted in the report to which my hon. Friend referred, captures the essence of the participation in active citizenship that this Government are keen to encourage. They said:
"It has affirmed my belief in citizenship and collective responsibility. No one knows what challenges lie ahead, but so far, only good has come out of this: for me, for the offender and for the children who need adults who will not turn away."
Everybody wins: the offender is supported, the community is protected, and the volunteer gains a sense of citizenship and pride in what they do.
The Home Office provides £173,000 to fund three separate three-year pilot projects with circles of support and accountability, of which just under half—some £82,000—is for the Thames Valley project. The three pilots involve three different: voluntary sector organisations, all of which bring different skills, experience and approaches to their projects. Our funding is guaranteed until the end of the current financial year. I will be receiving a detailed end-of-year evaluation of the projects, but I have asked for an interim report to be made available to me in September.
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The evaluation will examine the experience of offenders taking part in a circle and explore whether involvement leads to improved psychological wellbeing, through increased self-esteem, for example. It will also assess other benefits, such as better access to work, education and accommodation. In the longer term, that information will be linked to reconviction outcomes for the offenders on a case-by-case basis to develop a firm evidence base for circles in England and Wales, in the same way that we have developed treatment programmes under the "what works" principles. It is too early to say whether we shall then be in a position to maintain the projects on the present basis or roll them out more widely. However, I will be meeting representatives from the Thames Valley circles project on 12 July to discuss the issues concerning the future of the project that is linked to my hon. Friend's constituency.
Support circles is an important programme, but there are other initiatives with which the Home Office agencies are working to deliver community engagement with sex offenders. The "Stop it now!" campaign is a public health education campaign aimed at preventing child sexual abuse by increasing public awareness of how abusers operate. My hon. Friend will be aware that one project is based in the Thames valley area, and the freephone helpline is available for members of the community to contact the project for advice and information.
The Leisurewatch scheme is another example of community involvement. It trains leisure staff to identify suspicious behaviour on the part of potential child abusers. The voluntary community sector makes a significant contribution to the education, employment and resettlement of offenders. I gratefully acknowledge that community groups are beginning to make a real contribution to the way that sex offenders are managed.

School Places (Sefton)
4 pm
Dr. John Pugh: Adjournment debates such as this often come too late, as they are either a reaction to something that has already happened or a demand to address a problem in which either resources or political will are lacking—or both. I do not think that this is one of those occasions. It is a chance for us in Westminster and the Minister in particular to influence a process that has barely begun, in which Government advice could be a significant directive help.
What instigates the debate is that Sefton metropolitan borough council—the Sefton LEA—has announced a primary school rationalisation/closure programme. It is a major exercise. It features the closure within a year of 11 schools and the review of the cases of a further 16. As we stand here, the proposals are out for what is referred to as "informal consultation".
I think that everybody recognises that, particularly when it comes to school closures and rationalisation of provision of any kind by any local authority at any time, tough decisions always have to be made, and in some cases, they should be made. We all understand that councils have to make tough decisions and that good politics is not the same thing as cheap populism. In this case, the LEA expects to encounter a fair number of howls of protest and many choruses of opposition. It has steeled itself to an adverse public reaction.
However, there is a distinct difference between making a tough decision and making the right one. If one is going to make a tough decision, one must make sure that it is the right decision and a fair and rational one that can be publicly defended by a public body. What is sad about the Sefton proposals, which are in a large document that I have in front of me, is that they are a response to a surplus place problem, and the solutions that they advocate for that problem are, I think, taxing—if not severely stressing—relationships between the LEA, schools, communities, parents and the children concerned.
That is a great shame, because Sefton has traditionally had a good relationship with its schools. Throughout the period for which the previous Government were in office, there was never a school that succeeded in opting out of local authority or that seriously wanted to do so. Funds were maintained in Sefton in good years and in bad, often to the cost of other services. Sefton was one of the first LEAs to give schools control over their own budget, long before the Government mandated it to do so.
Sefton had that sort of record to fall back on, but the proposals have blemished it to some extent. As a result of that good and positive relationship, attainment is high, Sefton has a fair number of beacon schools, its standard assessment test results are good in primary schools and its schools are generally well resourced both in terms of equipment and staff. The Minister will accept that that has something to do with the efforts of the Government to ensure that funding goes in that direction. I give credit to the Government for that, and I hope that the work load agreement will do nothing to impair it. Sefton schools, particularly primary schools, seem to be relatively well resourced by historic standards.
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MPs in Sefton have had a similarly constructive relationship with the local authority. At least two of them had a very close relationship with it, having at one time been members of it. The dissolution of those satisfactory relationships is obviously based on the problem of surplus places and how it can be tackled. To be fair, that has been emphasised repeatedly to the authority by Ofsted, the Audit Commission and the district auditor in management letters. The Government have also not been slow to alert Sefton to the fact that there is a problem. At one time, the removal of surplus places was intimately linked to the Sefton capital programme, so Sefton could not help but be mindful of it.
Sefton does have problem. It is estimated that it has about 3,762 surplus places in the primary sector alone, although total primary school places number up to 23,000. There is no expectation that the problem will vanish overnight. The birth rate and census figures do not suggest that things will change for the better. With the phenomenon of young people being burdened with debt and unable to buy houses, I suspect that the age of child rearing will rise and that the patter of tiny feet will not be heard with greater frequency throughout Sefton. Additionally, the deserved expansion of some popular schools has aggravated Sefton's initial problem.
The problem of underused surplus places is further complicated by a separate problem that the Minister will understand and wish to respond to. He and I discussed the Sefton formula when considering the 4 per cent. guarantee on the increase for pupil places that the Government have recently instigated. During the debate on the statutory instrument, I said that, worthy though the initiative is, it will have a complicating effect on the Sefton formula.
The Sefton formula compensates schools in Sefton as the rolls fall and distributes money in a particular way. There are many complications, such as the square metreage rule and so on, which I need not go into now, but the formula endeavours to compensate schools for a decline in rolls. The Government's recent statutory instrument, which contains the good news that all schools will receive 4 per cent. more, also contains provision to do the same thing. That has resulted in one Sefton school that is on the closure list receiving £4,218 per pupil, and another primary school, which is similar in structure but not in terms of its pupils, receiving £1,998 per pupil.
There have been genuine difficulties and unhappiness in Sefton with the formula, which has been an added pressure on the problem of surplus places, although it is a separate problem and should not be wilfully or inadvertently confused and confounded. I am sorry to say that, in the local authority's document, the two problems are confounded to some extent. There is wholesale agreement however, that something must be done and wide acceptance throughout the Sefton education community that the problem must be addressed sensitively but effectively.
The problem is that, looking at the first rush of proposals, what Sefton is choosing to do is partly perverse. I would fault many things in the document. One page features the word "logic" in bold letters, presumably with the expectation that we might find some logic there, but there is not a great deal of fair argument. I could ignore the fact that Sefton's decision

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makers have been told, ludicrously, that there are savings in the package of £5.7 million. That is not the case, because £5.7 million can be saved only if schools are obliterated, the children go somewhere else and Sefton does not accept the responsibility for educating them. I could ignore the fact that the document presented by Sefton misrepresents the cost of running schools. Figures are quoted for the average cost per pupil—I assume that they are quoted accurately—but it is not explained that some pupils have a higher weighting because of deprivation, because they have free school meals, because they are infants and so on. When comparing school with school, the decision makers did not get the full information.
I shall also ignore that fact that, to my certain knowledge, some of the people who composed the document do not appear to have taken the elementary precaution of visiting all the schools that they intend to close, and consequently have produced some suggestions that closer inspection might have identified as physically unrealisable. I shall ignore the fact that it appears to me that the early years partnership, which is an important consultee in this affair was left entirely out of the loop during the composition of the proposals. Furthermore, I shall ignore the fact that in the evidence presented to decision makers, there is an astonishing ignorance about what facilities arc available in which school. In some cases, the document fails to identify the important facilities in schools nominated for closure.
If I ignore all those things, I can turn to what might be called the logic in the Sefton plan. It has a kind of central thread as to why some schools arc chosen for closure rather than others. The thread appears to be that the authority believes that it could manage without the schools on the closure list. That is what all the schools have in common. Some are undoubtedly failing and some are the walking wounded of the primary school world. The performance of some is acknowledged to be excellent, and some are in new buildings and are temporarily under-subscribed. Most strangely of all—this is what exercises me most and exercises many parents to an even greater extent—some are excellent schools that are performing well and are, by any standards, full.
The common strand uniting all the schools is that they are relatively small, and it is self-evident that it is easier to close a popular, successful, small, full school and to accommodate the pupils in a less fall large school than vice versa. That is the logic, if I can put it like that, that drives and seems to influence the Sefton proposals most.
The Minister does not need me to point out that the tack that is being taken, or the thrust of the plan, has nothing to do with raising standards, rewarding success, the wider community agendas that schools are supposed to embrace or school transport issues. To any reasonable parent, that appears transparently unfair.
I should like to cite two real cases, so that I am not talking pure theory. St. Teresa's infant school is a one-form entry school with a nursery attached. Ofsted regards it as in the top 5 per cent. The governors are supportive, the head teacher is excellent and the staff are committed. Pupils, parents and teachers are incensed at any suggestion that their school, full to the legal maximum as it is, should be on a closure list.
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I would like to read out a comment from the report of the last inspection of the school, carried out by Her Majesty's inspectorate of schools. It is addressed to the head teacher, and it says:
"You must be very proud not only of your staff and pupils, but also members of your governing body and the parents and parishioners who give of their time cheerfully and unstintingly. Under your leadership and direction, you have ensured that all have a part to play in the school's splendid achievement."
Mr. Tobin, the inspector, goes on to say:
"(All the more puzzling, therefore, that the school's success has not been recognised in terms of Beacon status!)"
According to pupil performance indicators, the school is in the top 5 per cent. of the national aggregate point score for reading and writing and in the top 10 per cent. of the national aggregate score for maths. What touched me most about the school were not those statistics, but a letter from a parent whose son was afflicted with autism, who described what their child personally got out of a school that performs so well.
That is not an isolated case. I could cite the case of Kings Meadow in Ainsdale, which is in the heart of an ex-council estate and has about two surplus places. The bizarre thing about proposing to close Kings Meadow is that, although at one time it was a school in trouble, it now subscribes to more or less all the positive forward-looking agendas that the Government support. The school is located in a pocket of deprivation where parents will have difficulty in getting their children to another school. It is very much part and parcel of the community, it has a nursery where numbers are increasing and it has now been given New Opportunities funding for wrap-around care on a three-year basis. It is well supported by the Sefton early years partnership and it has had £110,000 invested in it to provide better child care provision. It also provides all the necessary and desirable services that a school can offer to an area of relative deprivation.
It is perverse for that school to be closed. According to Sefton's plan, mums—many of whom do not have a car—will be forced to make a daily journey across a major road and over a railway line, and they will be targeted to go to a school, Shoreside, which does not have the capacity to take them.
Mr. Bill Olner (in the Chair): Order. I am sure that the hon. Gentleman wants the Minister to give a responsible reply, so I remind him that we only have until 4.30 pm.
Dr. Pugh: I am aware of that, and I am three quarters of the way through what I have to say.
Mr. Bill Olner (in the Chair): I would think that that is very discourteous to the Minister, quite frankly, if the hon. Gentleman wants him to respond adequately.
Dr. Pugh: I will bring my remarks to a close, but there are certain key things that I need to say.
Rationalisation in Sefton is always going to be hard. The situation is complicated by geography and by the fact that Sefton has a large denominational sector. However, the decisions presented and argued for by the local authority are explicable only as prejudice against smaller schools. As it stands, the agenda does not give sufficient weight to issues of choice and standards.

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I recognise that the diocese and the archdiocese will have an input when the final decision is made by the school organisation committee and possibly the adjudicator. However, key factors in the process will be the ministerial guidance, which all these bodies must attend to, and the interpretation of that guidance.
I conclude by asking the Minister to test how far what is currently outlined is in the spirit of that guidance. It seems to me that it is biased against small schools, rewards successful schools with closure and does not give primacy to raising standards. Is that a rational interpretation of where the Government guidelines should take us? I argue that it is not. I ask the Minister to look into the matter, and I would welcome it if he could find time to visit Sefton and some of the schools there to explore the plan further. If he cannot do that—I understand that he has to keep to many pressing engagements—could he meet a delegation of head teachers?
At the end of the day, this issue is about standards. I understand from some recent comments of the Prime Minister that standards are in the forefront of his mind, but surplus places may be a little less so.
4.19 pm
The Minister for School Standards (Mr. David Miliband): It is nice to serve under your chairmanship again, Mr. Diner, and I look forward to responding to the points made by the hon. Member for Southport (Dr. Pugh). He deserves the congratulations of the watching hundreds or even thousands—on television, if not in the Room itself—on securing a debate about this important issue. Early in his remarks, he said that he wants to engage in good politics rather than cheap populism. In my experience, good policy makes good politics, and I hope we can find some common ground on that basis.
The hon. Gentleman raises an important issue involving how to deliver a primary school strategy designed to raise standards, not just in literacy and numeracy, but across the curriculum. I am sure that he would agree with me that an enriched curriculum is an important part of primary school experience.
I want to set out some ground rules for the decisions that local government has to take on school places and surplus places. First, there may be some confusion among those watching or reading this debate about whether there is a rule relating to surplus places.
4.20 pm
Sitting suspended _for a Division in the House.
4.30 pm
On resuming—
Mr. Miliband: I was explaining that, contrary to popular opinion or allegation, there is a no surplus places rule. The responsibility for managing the supply of school places rests with the local education authority. I know that the hon. Gentleman and his party will join us in standing up for the constitutional role of local government in making such decisions. At local level,
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people are best placed to ensure that schools meet the needs of parents. In managing the supply of places, LEAs must first elsure that schools provide good quality education and serve the needs of the local community.
The hon. Gentleman is concerned about the survival of small schools. I am sure he agrees that it is important that policies are designed to raise standards in all schools, irrespective of size, because the quality of education matters most to parents. I have no hesitation in saying that small schools have an important place in our education system. One of the strengths of English education is its roots in the community.
However, I would point out something rather interesting to the hon. Gentleman: there are, I think, 89 primary schools in Sefton. Obviously, I would not have thought that they are all in his constituency. Only one has fewer than 100 pupils and 27 have fewer than 200. That is striking for a couple of reasons. First, Sefton does not have too many of the very small schools of fewer than 75, 50 or 40 pupils that are a significant issue in many parts of the country. Secondly, I guess that it has an above average number of schools above the national average size, which is about 200.
That shows that it is right that local people are able to take account of local diversity in reaching their decisions. I understand that Sefton is consulting on the proposed reorganisation programme about which the hon. Gentleman spoke. It is projecting a 10 per cent. fall in the demand for school places between 2003 and 2006. That projection is against a background of—I think I am right in saying—5,000 children being lost to the system over the past 10 years and a 13 per cent. surplus in primary school places in 2003.
It is important that I set out what the framework is for local government to make its decisions. There are five stages to the process: consultation; publication of a proposal; the six-week representation period; the decision making; and, finally, the implementation. Sefton LEA is very much at the first stage of the process and is consulting widely on it with the Churches and other bodies.
I think that the hon. Gentleman will know that Ministers no longer make decisions on closing schools. Given my generous nature, he might bemoan that loss of central power. The decisions are devolved to local level—to school organisation committees, whose members represent all aspects of the local community. He mentioned in passing that if there is no agreement, the independent adjudicator takes a decision. They would take into account the effect on educational standards of the decision, the availability of alternative provision and travel Implications, as well as the view of local parents. I hope that gives him some idea of the criteria we set.
I do not wish to underestimate the challenge that falling school rolls present to local authorities. I do not think that the hon. Gentleman tried to hide those difficulties in the least bit. There were 500,000 surplus places in primary schools in England last year, which is almost 12 per cent. of capacity. On the basis of the current forecasts, we estimate that primary schools will lose about 50,000 youngsters a year for the next couple of years. That adds up to a 4 per cent. fall by 2007. I am

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sure he agrees that 12 per cent. surplus places represents a significant number of local decisions on the allocation of resources.
That has implications for how much can be spent in the rest of the system. When examining the small schools issue it is important to look at funding, which the hon. Gentleman mentioned. All schools receive funding in the form of a delegated budget share via a locally agreed formula set by the LEA in consultation with schools. The budget share is primarily based on pupil numbers along with other factors, including a recognition not just of school need, but of pupil need. Small schools cannot rely solely on the number of pupils on roll, or, in technical jargon, the age-weighted pupil units, to deliver sufficient resources for schools to function satisfactorily.
To deal with the diseconomy of scale in small schools, LEAs invariably have other factors built into their formulae to protect smaller schools. It is an open question how one defines a small school, which in some county areas would be fewer than 50 pupils, rather than the Government's definition of fewer than 100, or fewer than 200 nationwide. In most cases, a small school would be a primary school in a rural setting, but there are some in urban areas, too.
It is important to mention the per-pupil funding guarantee that the hon. Gentleman referred to. In 2004–05, a minimum increase is 4 per cent. per pupil, where pupil numbers are not changing. However, there are special arrangements for very small schools with 75 or fewer pupils in terms of the guarantee. We are soon to publish our proposals for 2005–06, the second year of the stability pact that we have agreed with local government. Those announcements learn from the lessons of this year, which has been more successful for the operation of the school funding system than 2003– 04. The decisions will have to take account of the work force reform to which the hon. Gentleman referred, which has an impact on primary schools.
Falling school rolls do not automatically need to lead to closing schools. The hon. Gentleman will be pleased to know that officials from the Department are working with LEAs and the Audit Commission to develop a range of approaches that LEAs can use in addressing surplus school places. Although the number of surplus places is increasing with the decline in primary school pupil numbers, the provision being offered to the under-fives as well as to school children out of school hours is rising. Small schools can become extended schools and use their spare capacity for other purposes. One of the
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great strengths of small schools is their sense of community, on which they can capitalise, and extended schools can help.
Services delivered from school sites are accessible to the community. They can offer a wide range of services such as child care, parenting and family learning classes, and health and social care opportunities, and can be of great benefit to the wider community. Children can see specialists, parents can engage with the education system, adults can access important training opportunities and the whole community can benefit from a wide range of activities from sports to the arts. We will be supporting LEAs in developing options to utilise the schooling estate in a way that promotes standards and increases the range of services.
Small schools can make resources go further by collaborating or, ultimately, forming a federation, with other schools. Federations can deliver the curriculum through collaborative approaches that enable the sharing of facilities, staff and expertise. For example, shared heads, teachers, administrative staff and information and communications technology coordinators are an increasing part of the education scene.
I do not want to understate the importance of the issues raised by the hon. Gentleman on behalf of his constituents—
Dr. Pugh: In the Government's guidance, in respect of rural schools there is a presumption against closure. It may not be stated in the document, but is there a presumption in the Department against the closure of schools that are full and successful?
Mr. Miliband: As I said, our guidance, which relates to local education authorities and to the role of the adjudicator, is to take educational standards seriously and to recognise also that other factors come into play. The hon. Gentleman is right: the technical position is that there is a presumption against the closure of rural schools, for obvious reasons, which he will recognise as there are rural areas in his constituency and in his borough. We suggest that school standards issues are taken into account, but the presumption is as he described.
I am sure the debate will carry on. Many hon. Members have similar issues to raise and I look forward to engaging with them as the discussion proceeds.
Question put and agreed to.
Adjourned accordingly at twenty-one minutes to Five o'clock.

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Coventry.

Baroness Prosser
Margaret Theresa Prosser, OBE, having been created Baroness Prosser, of Battersea in the London Borough of Wandsworth, for life—Was, in her robes, introduced between the Lord Lea of Crondall and the Baroness Gibson of Market Rasen.
Lord Maxton
John Alston Maxton, Esquire, having been created Baron Maxton, of Blackwaterfoot in Ayrshire and Arran, for life—Was, in his robes, introduced between the Baroness Ramsay of Cartvale and the Lord Clark of Windermere, and made the solemn affirmation.

Home-Made Produce
2.49 p.m.
Baroness Gardner of Parkesasked Her Majesty's Government:
Whether any restrictions or conditions apply to the sale of home-made cakes, jams and similar products at local events, such as church fetes.
Baroness Andrews:My Lords, the sale of such foods in the way described is not restricted, although the Food Safety Act 1990, which exists to protect public health, requires that they should not be unfit or unsafe for human consumption.
Baroness Gardner of Parkes:My Lords, I am delighted by that Answer. I have not heard an Answer that has pleased me so much, as the continuing tradition of home-made cakes is something that I want to see. Does the Minister believe that there is a certain merit in a purely voluntary labelling of cakes? I cite my recent visit to Australia. Often the vendor is not the person who made the cake. In Australia, people may say whether butter or margarine has been used, although they do not have to do so—and, in particular, whether the cake contains any nuts. Does the Minister believe that a voluntary scheme of that type might be useful in this country?
Baroness Andrews:My Lords, I am delighted that the noble Baroness is so pleased with the Answer, and I am entirely in agreement with her on the merits of home-made cakes. I have experience of going to fetes over the years. One knows a lot about the cakes and their makers—the Women's Institute is particularly good in that regard—although we have not yet got to
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the situation in Australia. However, the Food Safety Act, which governs the general provision, means that the descriptions should never be misleading. One should never label something as having been made with butter when it was made with margarine, for example.
In terms of nuts, we are extending labelling on pre-packed foods, so that from next January we will have labels for allergens. In fact, there is some voluntary labelling already, so we are making good progress.
Baroness Sharples:My Lords, 22 years ago, I introduced a brief Bill into your Lordships' House about the Women's Institute and the fact that its kitchens were at that time being inspected. I gather that they are no longer inspected—I presume that that remains the case.
Baroness Andrews:My Lords, the noble Baroness has had a very long and distinguished history in terms of jam yesterday—and, I sincerely hope, jam tomorrow as well.
Noble Lords:Oh!
Baroness Andrews:My Lords, I had to say that before somebody else did.
Yes, I can assure the noble Baroness that those regulations have stood the test of time and that nothing has changed as regards the kitchens of the Women's Institute. They are still exempt from the key regulations.
Lord Addington:My Lords, effectively, is the Minister reassuring us that unless jams and/or preserves start killing people in large quantities, we shall not have any more restrictions, and that that is the position for the foreseeable future?
Baroness Andrews:My Lords, indeed, that is the position. Jam is not normally lethal, and our regulations are quite appropriate. What the Government aim to do with their food safety legislation is just that—ensure that public health is protected, but that the burdens on producers are not onerous or over-bureaucratic.
Baroness Trumpington:My Lords, nuts.
Noble Lords:Oh!
Baroness Trumpington:My Lords, when I was buying things from the Women's Institute many years ago, the subject of nuts being dangerous never arose. Has there been an increase in allergies to foods containing nuts?
Baroness Andrews:My Lords, I am no expert on the incidence of allergies. However, it is my impression that we have become much more aware of allergies, and they do indeed seem to be multiplying. Nut allergies are very serious for some people, and parents are very alert to what their children are eating, especially in terms of nuts. At the moment, the Food Standards Agency is conducting a consultation with

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stakeholders—as we call them—as to whether we should extend the requirement for allergen labelling to non-pre-packed food to ensure that there is an even greater degree of safety.
Lord Davies of Coity:My Lords, I wonder whether my noble friend is aware that my youngest granddaughter is five years of age tomorrow. My wife has been spending all morning making a considerable number of cakes for the party. Does the Minister feel that there is any danger in that?
Baroness Andrews:My Lords, I am sure that every grandparent in the House will rejoice at the news that we have just heard. Home-made cakes are by and large extremely safe, although kitchens can be dangerous and one has to watch for cross-contamination. I am absolutely certain that the cakes that will be served tomorrow will be as safe as they can possibly be.
Lord Livsey of Talgarth:My Lords, I am the son of what used to be called a domestic science teacher who trained young people to cook. There is a decline in the number of home-made cakes at these events and it is necessary that they be healthy and the people well trained. Why have the Government not made enough effort to put domestic science on to the national curriculum to ensure that in future there will be a supply of healthy cakes to eat?
Baroness Andrews:My Lords, I can assure the noble Lord that food technology taught at key stage 3 includes a range of simple cooking. He is right that we would all like to see young people cooking more. One of the elements of the Food in Schools programme that is now in place is to develop cookery clubs and to encourage young people to explore and enjoy cooking.
Earl Ferrers:My Lords, does the Minister agree that it is slightly pointless putting on a jar a list of what it contains when one cannot get into the jar? Does she agree that many jars are now impossible even for tough men to get into? Little old ladies must find it very difficult.
Baroness Andrews:My Lords, I am told by colleagues that children can open any jar. But there is a serious point here because many people who have slight disabilities in their hands need extra help. Such help is available. Another issue is that of understanding the list of contents when one has got into the jar because the labelling is illegible.
Lord Skelmersdale:My Lords, there have been two recent cases where county councils have taken steps to ban home-made cakes from summer fêtes and school assemblies. Will the Minister decry with me the statement by a spokesman for Wiltshire County Council that schools should avoid selling home-made products as they cannot be completely sure about the conditions in which the food items were prepared or stored?
Baroness Andrews:My Lords, the county council in question did not ban cakes. What actually happened
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was that the school sought the advice of the county council and was advised that some products were riskier than others. These products included cream in cakes. That is proper and proportionate advice supported by the Food Standards Agency. Every school in the country is free to use its discretion about how it follows that advice.

HIV/AIDS
2.57 p.m.
Viscount Craigavonasked Her Majesty's Government:
What contribution the position paper by the Department for International Development on sexual and reproductive health and rights will make in combating HIV/AIDS.
The Lord President of the Council (Baroness Amos):My Lords, the Department for International Development position paper provides the basis for continuing action and investment to promote reproductive health and rights. It highlights the crucial links between sexual and reproductive health and rights and efforts to prevent HIV and AIDS. This will also be reflected in the forthcoming HIV and AIDS strategy.
Viscount Craigavon:My Lords, I am grateful for that helpful Answer. Does the Minister accept that when her colleague the Secretary of State launched the document yesterday the language he used, and the language of the document, was extremely welcome and showed DfID's renewed emphasis on this subject? Does she accept that if most of the millennium development goals are to be reached we need a significant input from reproductive health? Does she agree that, where appropriate, reproductive health services should be integrated with HIV/AIDS services?
Baroness Amos:My Lords, the noble Viscount is quite right. My right honourable friend the Secretary of State for International Development talked about the importance of the link and made the point that by taking action on sexual and reproductive health we know that we are also helping to tackle HIV/AIDS. This is the continuing emphasis of the work of the department.
With respect to the issue of the millennium development goals, sexual and reproductive health contributes to progress on those goals relating to maternal mortality, child mortality, HIV/AIDS, gender equality and poverty reduction.
Baroness Whitaker:My Lords, does my noble friend agree that one of the serious obstacles to achieving sexual and reproductive health, and even more to combating AIDS, is the lack of ability in women and girls to insist on safe sex or even, if they want, no sex? How can DfID help their societies to foster that power?
Baroness Amos:My Lords, my noble friend is quite right. We need to ensure that women and girls are

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informed. We also need to ensure that the governments in those countries take this issue seriously and that there is leadership from the top. Research by the World Health Organization shows the importance of informing girls and women. Sex education often delays the age at which young people start having sex and increases safer sexual practices.
Lord Fowler:My Lords, I strongly welcome the efforts that the Government are making on HIV/AIDS, particularly in Africa. Does the Minister recognise that to have full authority to lead they need to be doing their utmost at home as well? Is she aware that at the moment many health workers in this country feel that the efforts being made in the UK to combat HIV/AIDS and sexual health problems generally are seriously inadequate?
Baroness Amos:My Lords, I agree with the noble Lord, Lord Fowler, that we need to take action on the domestic agenda as well. We have seen that the number of individuals infected through heterosexual sex has been increasing steadily although gay and bisexual men remain the group most at risk. The noble Lord will know that since 1996–97 the Department of Health has funded the Terence Higgins Trust for national HIV health promotion for gay men delivered through the community. We are also looking at the implications for those groups coming into the country. The noble Lord will know that the size of the group of those people coming into the country already infected with HIV/AIDS is larger than that of those infected here in the UK. We need to look at both, which is precisely what the Government are doing.
Lord Chan:My Lords, does the Minister agree that the group most affected by lack of reproductive health services is newborn babies? Three million newborn babies die every year. Will the Minister inform us of what is being done to improve clinical services in developing countries for mothers in childbirth and newborn babies in order for them to have better survival? Better survival of babies would mean that parents are more likely to reduce the size of their families.
Baroness Amos:My Lords, the noble Lord, Lord Chan, raises a very important issue. Of course we are looking at the issue of mother-to-child transmission. However, we also need to look at building the health systems and structures in the developing countries themselves. There has been a great deal of focus on prevention and treatment. However, in addition to that, if we do not have adequate health structures in the developing countries to enable treatment to work or our prevention strategies to be understood, we will face a much greater problem.
Baroness Northover:My Lords, will the noble Baroness please congratulate the authors of this excellent report on, among other issues, tackling head on the problem of unsafe abortions? I hope that the Government will be as brave in international fora on that. Following the question of the noble Baroness,
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Lady Whitaker, I wonder whether DfID is going to produce a paper on how best to take forward the promotion of the rights of women and girls. If we are to combat high maternal mortality and the higher incidence of AIDS among women, surely that is the key.
Baroness Amos:My Lords, the noble Baroness may be aware that this report complements other reports. We will be doing another report on HIV/AIDS which will come out in July, and we have already done reports on health and on maternal mortality. So the papers will complement each other. I thank the noble Baroness for the points that she makes on the link that the report makes to unsafe abortions. The Government are absolutely clear: we do not want to see women having to go down that road. But where women do opt for abortion, they need to be safe.
Baroness Masham of Ilton:My Lords, what can be done about the traditional medicine men's advice to men with HIV that they should have intercourse with a young virgin in order to cure themselves?
Baroness Amos:My Lords, we have to ensure that there is proper information sharing. We need to look at countries such as Uganda where they have managed to reduce the prevalence by leadership not only from the top, from the president, but throughout communities, where people do not feel afraid to talk about these issues. That is the only way in which we can deal with the myths and stereotypes that abound around HIV/AIDS.
Baroness Rawlings:My Lords, following the remarks of the noble Baroness, Lady Northover, on the very good report which the Secretary of State has produced, and which I support, the current number of AIDS orphans in the world is 14 million and growing. Future projections claim that this number could reach 40 million. What resources are Her Majesty's Government setting aside to help to provide these orphans with the resources and support that they will need?
Baroness Amos:My Lords, the noble Baroness may be aware that we have been incorporating our concerns about orphans and vulnerable children into our country programmes. In Malawi, for example, we have been working to ensure that social protection measures for families affected by HIV/AIDS are integrated into the poverty reduction strategy. We will address this issue also in the forthcoming AIDS strategy.
Baroness Lockwood:My Lords—
Lord Patel:My Lords—
Noble Lords:This side!
Lord Grocott:My Lords, I think the simplest way to resolve this is to say, "We are now in the 18th minute. Next Question!".

The Euro
3.6 p.m.
Lord Hunt of Chestertonasked Her Majesty's Government:
Whether it is their policy to encourage the use of the euro; and, if so, when euros will be accepted by government offices and at the Palace of Westminster.
The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord McIntosh of Haringey):My Lords, it is a commercial decision for UK organisations to determine whether they wish to accept the euro or any other foreign currency. The Inland Revenue and Customs and Excise have since 1999 accepted euros in payment of tax, converting the payments to sterling at no charge to the payee. The Government have no control over financial transactions in the Palace of Westminster.
Lord Hunt of Chesterton:My Lords, I am grateful for the Minister's positive reply. As the Government's overall philosophy is now to enhance choice when that is in the general interest, should they not be applying that principle by providing the option to British citizens and foreign visitors to use the euro in the UK for public and private business? Do the Government agree that, once that becomes routine—including in the Palace of Westminster—there should soon be a smooth entry of the UK into the euro-zone, much as Ireland smoothly entered the euro-zone after its experiences of using two currencies, the punt and the pound, over many years? I declare an interest as a visiting professor in Delft, and sometimes I have some euros in my pocket.
Lord McIntosh of Haringey:Yes, of course, my Lords; encouragement is what we can provide and encourage is what we do—every six months, we publish a new report on euro preparations—but I do not think, as far as commercial organisations are concerned, that we ought to go further than encouragement. I am glad to be able to tell my noble friend that the position he described in Ireland is still the case, in the sense that about 30 per cent of trade in Newry in Northern Ireland, which is close to the border, is conducted in the euro. One city-centre cash machine has over 5,000 euro-note transactions a week.
Lord Lawson of Blaby:My Lords, is the Minister aware—there is no reason why he should be—that the man who runs the local furniture stall at the market in Vic-Fézensac, in Gascony, still insists on quoting his prices in francs? That aside, can he inform us when the Government's long awaited and indeed long overdue next assessment of whether the celebrated five tests have been met will be announced? We are all agog.
Lord McIntosh of Haringey:My Lords, my builder in France still quotes in old francs, which have been
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gone for 50 years. The second question of the noble Lord, Lord Lawson, is wide of the Question on the Order Paper.
Lord Taverne:My Lords, the use of the euro by members of the public will largely be decided by the market. But the euro is becoming an increasingly important reserve currency. What is the Treasury's policy towards the relative holding of dollars and euros?
Lord McIntosh of Haringey:My Lords, the Treasury does not have policies for other institutions, individuals or commercial organisations on which currency they should hold their reserves in.
Lord Harrison:My Lords, will my noble friend encourage major visitor attractions to use the euro thereby providing a service to foreign visitors as well as making more money because, as I understood the position when I last asked, the National Trust and the British Museum, both of which, I believe, are supported by government money, were failing to do so?
Lord McIntosh of Haringey:My Lords, the National Trust is not supported by government funds. I take the point that tourist attractions should be encouraged to take euros. I have too short a list of those who do. It comprises: Historic Scotland, CADW (the Welsh historic environment agency), and Dover District Council, which, I suppose, is closest to the euro-zone. Dover District Council accepts euros in its museum, tourist information centre and area offices. As I say, it is too short a list.
Baroness Noakes:My Lords, does the Minister recall that in 1998 the Economic Secretary to the Treasury predicted that once people went on holiday in the euro-zone they would come home and demand to know what the Government were doing to prepare for euro entry? Does he accept that that was one prediction which the Government got 100 per cent wrong?
Lord McIntosh of Haringey:No, my Lords. People demand to use the euro and many organisations do so, not particularly, I have to say, government organisations, but you can certainly shop with the euro in Marks & Spencer. The telephone box outside my department in Cockspur Street takes euros.
Lord Peston:My Lords—
Lord Thomas of Gresford:My Lords—
Baroness Amos:My Lords, perhaps we can hear from the Liberal Democrat Benches and then these Benches.
Lord Thomas of Gresford:My Lords, will the Minister congratulate the traders and shopkeepers of the town of Llangollen who take euros during the international eisteddfod, which is taking place this week?
Lord McIntosh of Haringey:My Lords, I am delighted to hear it. The same is true in England at

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Cheltenham during Gold Cup week when bookies and businesses take euros but they do not necessarily give euros back.
Lord Peston:My Lords, as someone who would certainly have joined the European monetary system much earlier and would sign on the dotted line today, I ask whether there is not one problem. No firm in its right mind would reject ready money, although our country seems to have quite a few firms that are not in their right mind. Is not the problem the behaviour of our banks who still charge excessive sums for converting euros into sterling when the shopkeeper brings them in? That is something on which the Government could at least say a word or two in public, is it not?
Lord McIntosh of Haringey:My Lords, it is not just a case of excessive sums but also, in my view, excessive delays. The Government and the Bank of England have expressed their disapproval of that behaviour on many occasions.
Lord Renton:My Lords, will the Government bear in mind that if we joined the euro our Government would no longer be free to cure inflation or deflation in our own country simply by adjusting the value of our own currency, as has been done a number of times—three or four times—in the past 70 years?
Lord McIntosh of Haringey:My Lords, I am sorely tempted to answer that question but it is wide of the Question on the Order Paper.
Lord Carter:My Lords, does my noble friend agree that for all the countries in the euro-zone the euro is a single currency, but that for all the countries outside the euro-zone, each of which has its own exchange rate against the euro, it is a common currency? Does he also agree that so far as the UK is concerned the euro has all the flexibility of a common currency but not the rigidity of a single currency? Have we got the best of both worlds?
Lord McIntosh of Haringey:My Lords, I am defeated by my noble friend's semantics. I shall have to think about the question that he raises.

Scottish Regiments
3.12 p.m.
Lord Monro of Langholmasked Her Majesty's Government:
Whether they intend to reduce the number of Scottish regiments.
The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Bach):My Lords, the defence White Paper published last December established the policy context for shaping the future structure of our Armed Forces. For the Army, it
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outlined the vision of a more balanced force that is flexible, rapidly deployable and sustainable for the variety of missions that we envisage it undertaking.
Against this policy guidance, we have been working through the detailed implications for the Army's force structure. We anticipate being in a position to make announcements about the conclusions of this work shortly.
Lord Monro of Langholm:My Lords, in thanking the Minister for his reply, is he aware of the fury that would be aroused if the UK regiments were disbanded? Is he also aware that for our overstretched soldiers serving abroad and doing wonderfully well it would be a disgraceful reward to be disbanded when they come home? Finally, is he aware that most Scottish regiments, particularly the Highlanders, will be up to strength in the autumn despite the cancellation of recruiting by the Government?
Lord Bach:My Lords, there has been no cancellation of recruiting by the Government. There is no ban, no freeze and no cap on Army recruitment. The Army has an enlistment figure of 11,318 for the current financial year and since 1 April more than 1,500 recruits have enlisted. Of course, I know the strong feelings that are held on this matter. As I say, I am not in a position to make any announcement today. I can say, though, that the history of our Armed Forces is, of course, one of evolution. Our priority has to be to ensure continued and future operational success by responding to the changed strategic environment. Therefore, we have to modify and adapt our Armed Forces to be relevant, flexible and usable in this changed environment.
Lord Redesdale:My Lords, will the Minister confirm or deny that the Army Board ordered Lieutenant General Sir Alistair Irwin to bring down the numbers in the Army to 102,000 men to meet financial constraints because the Army cannot afford any more than 102,000 men even though the nominal figure at the moment is 107,000 men—5,000 undermanned? Will he confirm that that constraint rather than any other factor is preventing the Scottish regiments recruiting and coming up to strength?
Lord Bach:My Lords, the Liberal Democrats have it completely wrong. As a result of the Army's recruiting and retention success in recent years it has been necessary to take steps to manage strength within agreed targets and agreed budgets, as any large organisation would do. We have to do that in order to maintain balance in Army manpower numbers. As I said, the Army is progressing well towards its enlistment target of 11,318 for this year, and since April more than 1,500 have joined up. Recruitment has never been better.
Lord Bramall:My Lords, does the Minister not at least agree that with the Army so manifestly overstretched and the future so utterly unpredictable it would be absolute madness and highly irresponsible to

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reduce the number of infantrymen and units available for sustained operational deployment now and in the future?
Lord Bach:My Lords, I take great note of what the noble and gallant Lord says but I have to say to him that experience demonstrates that our current light forces cannot provide the combat power required by some of the more demanding types of operation where rapid deployment is needed. At the same time our world-class heavy forces are comparatively slow to deploy and demanding to sustain. That means we have to shift from the current mix of light and heavy forces to a more graduated and balanced structure of light, medium and heavy forces together with a greater emphasis on enabling capabilities such as engineers, logistics and intelligence. We have to evolve.
Lord Garden:My Lords, does the Minister agree that conflict prevention and post-conflict reconstruction stabilisation operations are the way that we are going forward—we are going to have more of them—and that the British forces are unparalleled in their ability to carry them out? If the noble Lord agrees with that, does he not see that there is a need for numbers as well as equipment, and will he assure us that he will try to get the establishment of the Army up to where it should be, and should have been for some years?
Lord Bach:My Lords, I largely agree with what the noble Lord says. That is one of the prime roles of the British Armed Forces at the present time and will continue to be so. As I said, Army recruitment has never been higher.
Lord Campbell of Croy:My Lords, does the noble Lord recall the successful Save the Argylls Campaign in the 1960s and 1970s in which I admit to having played a part? That campaign assisted other regiments to survive or merge which were threatened at the time. Would it not be unwise to repeat such threats?
Lord Bach:My Lords, I remember the campaign and I know the strength of feeling that there is now. The noble Lord, Lord Monro, expressed that very clearly. However, I shall quote the words of the Chief of Defence Staff to the House of Commons Defence Committee in April this year. He said:
"What I think both of us, and I think most of our senior generals … believe is that regimental fighting spirit is what makes the British Army what it is. Now the way by which you achieve that has many different courses of action which you could follow. It does not have … to be exactly as it is today for the future, nor is it today what it was 15 years ago. You have to modernise the regimental structure that we have to make sure that it is relevant to what we are doing, that it meets what defence policy requires of us and it does provide the regimental fighting spirit. I see no difficulty or tensions between those things".
I commend what he said to the House.
Baroness Park of Monmouth:My Lords, where does provision come from for necessary home defence—but hardly normal defence—such as covering for the
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firemen? Will there be a special unit for that, or will we have to redeploy people who are already fully committed in other ways to do that from time to time, whenever the fancy takes the firemen?
Lord Bach:My Lords, I hope very much that there will be no need for the Armed Forces to come again to the aid of the country in the way in which they had to last year—but if they have to, they will.

Burma: ASEAN Communiqué
3.21 p.m.
Lord Wallace of Saltaireasked Her Majesty's Government:
Whether they consider the statements by the Association of Southeast Asian Nations' foreign ministers on developments in Burma, made during preparations for the Asia-Europe summit meeting in September, to be sufficiently robust.
The Minister of State, Foreign and Commonwealth Office (Baroness Symons of Vernham Dean):My Lords, the communiqué issued after the ASEAN ministerial meeting in Jakarta underlined the need for all strata of Burmese society to be involved in the continuing national convention, and encouraged all parties in Burma to continue their efforts to effect a smooth transition to democracy. It also emphasised the continuing relevance of last year's ASEAN communiqué, which called for the release of Aung San Suu Kyi. Those are all essential steps for the progress to democracy in Burma that the EU supports.
Lord Wallace of Saltaire:My Lords, I thank the Minister for that reply. Does she accept that, at a point where relations between the United States and its major allies are going through a very difficult patch, it is important that there be an Asia-Europe summit this year? Could she specifically rebut what I have heard from officials in some continental foreign ministries—that the British are not enormously bothered about whether ASEAN takes place? Does she nevertheless recognise that the participation of Burma in the ASEAN summit raises real difficulties for us all, and that we have to press the ASEAN governments to increase the pressure on Burma to introduce conditions under which it will move towards being a less authoritarian society?
Baroness Symons of Vernham Dean:My Lords, I appreciate the importance of the ASEAN summit, at which the United Kingdom will be represented by my right honourable friends the Deputy Prime Minister and the Foreign Secretary. However, the noble Lord has put his finger on the problem that the summit will have to face, which is whether the ASEAN countries will stick with all three of their candidates to join ASEAN, including Burma. They have put the point to us that if that is not acceptable to the EU, it is not acceptable to them to accept all 10 new members of the European Union. That is the dilemma that we face. We

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shall of course continue to press the ASEAN countries on the points about democracy, Aung San Suu Kyi, and full participation in the convention.
Lord Faulkner of Worcester:My Lords, is my noble friend aware that the communiqué that foreign ministers published at the end of the ASEAN conference last week contained a declaration which said that they were in favour of the elimination of violence against women, and in favour of women having an important and highly respected place in south-east Asian societies? Does she not find it extraordinary that the communiqué failed to make any reference whatever to the continued detention of Aung San Suu Kyi or the involvement of the National League for Democracy in the future of Burma's democracy?
Baroness Symons of Vernham Dean:My Lords, in my Answer I was perhaps very diplomatic, but I think that the paragraphs that deal with Burma in the statement are not written in the forthright terms that British Ministers use in relation to Burma. However, the crucial point is that that paragraph is there. Do not let us forget that, only last year, that paragraph was inserted for the first time in the communiqué. I welcome the fact that there is such a paragraph again this year, but we would have expressed that paragraph more robustly.
Lord Avebury:My Lords, does the noble Baroness agree with the reply that was given by Mr Xavier Solana, the EU high representative for foreign and security policy, to a question about the ASEAN summit, which was that to have the summit we must have some movement? Would she therefore not think it necessary that we should spell out exactly what movement is required for the summit to take place? For instance, does it include the release of Aung San Suu Kyi and the revision of the constitutional process so as to allow all political parties and ethnic groups to participate?
Baroness Symons of Vernham Dean:My Lords, the question is not about those specific points in relation to holding the summit, but about those points in relation to Burma being part of the ASEAN delegation to the summit. We have been very clear in setting out three developments that we want: first, the permanent release of Aung San Suu Kyi; secondly, a genuinely open and representative national convention; and thirdly, the NLD and other opposition parties being allowed to participate in it. If those conditions are fulfilled, there is no problem about Burma; if they are not, I suggest that there will be a great deal of hard arguing about it.
Lord Howell of Guildford:My Lords, is the EU official pronouncement, which is posted on the Internet, correct that if Burma attends the forthcoming meeting the EU will not do so? Is it also correct that Cambodia has said that if Burma does not attend the meeting, it and Laos, which are attending for the first time, will not attend? Is there not a danger that, if those positions are taken up,
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we will end up breaking off the dialogue between Europe and the ASEAN countries? As they are the growth countries in the global economic system, it would not be a very brilliant idea to do that.
Baroness Symons of Vernham Dean:Indeed, my Lords, it would not be a very brilliant idea, which is why I tried to couch my answers in fairly conditional terms about what is likely to happen. That is why I said to the noble Lord, Lord Wallace of Saltaire, that there was a real dilemma. If we are being threatened and have to give way on the questions of the release of Aung San Suu Kyi and of democratic representation in Burma and allow Burma to join anyway, there would be a great deal of unrest and unhappiness about our taking such a position. However, if we jeopardise the whole of the summit process—the noble Lord, Lord Wallace of Saltaire, rightly reminded us that it was enormously important in today's highly volatile international situation—that is a difficulty, too. I suggest that we are patient, continue with what we have set our hand to do in arguing for Burma to fulfil those conditions, and do our best to argue for the best possible position before the summit.

Companies (Audit, Investigations and Community Enterprise) Bill [H.L.]
3.29 p.m.
Report received.
Clause 2 [Arrangements to which additional requirements for recognition relate]:
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville)moved Amendment No. 1:
Page 3, line 35, leave out "Part 4" and insert "Part 6"
The noble Lord said: My Lords, I hope that this group of amendments will not detain us long. Its purpose is to tidy up some drafting points and make a couple of changes that we agreed to consider in Committee.
The amendment to Clause 2 corrects an inaccurate reference to the Financial Services and Markets Act 2000. The amendment to proposed new Section 389A(5) in Clause 8 fulfils our commitment to spell out more clearly to whom "the person concerned" is intended to refer. The amendment to Clause 11 tidies up a minor inconsistency by amending the reference to "statute", to be consistent with a reference to "statutory provision" at line 24 on page 14 of the Bill.
During Committee stage we agreed to give further consideration to an amendment tabled to Clause 13 by the noble Lord, Lord Hodgson, to remove the Secretary of State's ability to make supplementary and incidental provisions in the order specifying a body to prepare reporting standards principally for the proposed operating and financial review. We have

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found no convincing examples of when such a power might be needed and have therefore brought forward an amendment to remove that provision.
The amendment to Clause 41 is modelled on that tabled by the noble Lord, Lord Phillips, at Committee, which we agreed to consider. The amendment will ensure, in those cases where it is not already apparent, that the remedy the regulator is seeking when bringing legal proceedings on behalf of a community interest company is made clear.
The amendment to Clause 57 also tidies up the drafting of the Bill. We have noticed that Clause 57 is slightly inconsistent with Clauses 58 and 59, which refer to "this Part" without adding "of this Act". Therefore we have made a small correction in this respect. I beg to move.
Lord Hodgson of Astley Abbotts:My Lords, as we begin the Report stage, I am tempted to burst into song, if that is not unparliamentary. The Minister might recall the song called "American Pie" by Don McLean. which begins:
"A long, long time ago
I can still remember how"
it used to be.
It is now six months minus one day since Second Reading and since that time much water has passed under many bridges, although the Government do not quite seem to have grasped the issue of limited liability. I see that it has been floated again in the Times today in an article by Patience Wheatcroft entitled, "If the auditor's cap fits … "—but in the end it never arrived. We welcome these amendments, particularly the two that we were keen to insert in Grand Committee, which made the words "those concerned" more explicit and removing surplus verbiage—supplementary and incidental words in the later clause. We are content with the amendments.
On Question, amendment agreed to.
Clause 2 [Arrangements to which additional requirements relate]:
Lord Hodgson of Astley Abbottsmoved Amendment No. 2:
Page 3, leave out lines 37 and 38.
The noble Lord said: My Lords, there has been some confusion over this amendment. With the leave of the House, I shall also speak to Amendment No. 3A, which has not been grouped. Both amendments deal with precisely the same issue. We grouped them in Committee and I am sorry that we have not managed to have them grouped together on this occasion.
We are returning to these amendments to Clause 2 to seek further clarification over the definition of a phrase within the Bill. We believe that there is still a need for further clarification of the meaning of "public interest" cases under proposed new paragraph 19(2)(b) to Schedule 11 to the Companies Act 1989. There is a similar issue regarding new paragraph 20, which is concerned with independent
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monitoring and investigation. We sought to raise those issues in Committee and we wish to probe the meaning of the two adjectives in the proposed new paragraphs.
The amendment seeks further explanation of the details of the definition of "major audit" in proposed new paragraph 19(2)(b) to Schedule 11 to the 1989 Act. It defines "major" as a,
"company in whose financial condition there is a major public interest".
Amendment No. 3A seeks further explanation of what "important" means in the context of the definition of "public interest cases" that are defined in proposed new paragraph 20(2) to the schedule.
We are grateful to the Minister for explaining in Committee that the definition of "public interest cases" in proposed new paragraph 20 is relevant only to that new provision and not to proposed new paragraph 19. However, as that failed to define "major public interest", we are none the wiser about its meaning.
We recognise that the Minister did try to explain that in Grand Committee, when he said:
"We expect that public interest disciplinary cases would cover cases about the conduct or quality of audit work in respect of listed companies and other major companies. These are the most likely to raise important issues affecting the public interest".—[Official Report, 16/3/04; col. GC 29.]
The words "important" and "major" appeared without further qualification or explanation. Furthermore, the explanation provokes more questions. As there has been time for reflection, I hope that the Minister, having consulted with his officials, can answer with greater precision. For example, who will decide if a particular case has significant "public interest"? How will that be done and how will the importance of the issues raised be measured? What right to appeal against any decision will there be?
The Minister tried to answer some of those questions in Committee when he said that,
"whether particular cases fall within the scope of the arrangements will be a matter for the arrangements to determine, having regard to all the circumstances".—[Official Report, 16/3/04; col. GC 39.]
That hardly clarifies matters. What does that verbiage really mean? Will the Minister give a fuller explanation, or. better still, some examples of which companies will be considered to be of major public interest and what are considered to be important issues that affect the public interest? I beg to move.
Lord Sainsbury of Turville:My Lords, in bringing forward new requirements about audit monitoring in Clauses 1 and 2, our intention was that the independent arrangements should focus their attention on those audits where an audit failure would be likely to have the most significant adverse impact. As the review of the regulatory regime of the accountancy profession recognised, this is an important element in maintaining confidence in financial information and so supporting effective markets.
I do not consider that the sole determinant of whether an audit is a "major audit" should be whether a company is listed. There are other companies which

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are not listed but whose importance is such that their audits must also be considered as major. I believe that it would be wrong to exclude companies with large-scale operations just because they are not listed. A company, although not listed, could be of significant public interest for a number of reasons—for example, the volume of its turnover or its impact in a particular area, such as charities or pension funds.
The amendment would mean that the audit of, for example, Equitable Life could not be considered as major audit and, accordingly, would not be included in the minimum scope of audits covered by independent monitoring arrangements. I do not believe that that would be right.
I should emphasise that the purpose of the new arrangements for independent monitoring is to support the credibility of the monitoring process by increasing its independence from the profession. The new requirements would not impose additional burdens on either companies or auditors. Therefore, I do not believe that it is appropriate to limit the minimum scope of the arrangements in the way proposed by the amendment.
Lord Hodgson of Astley Abbotts:My Lords, I am grateful to the Minister, but we have not made much progress. We obtained one example from him, which was helpful, but we have probably obtained all of the juice out of this particular orange. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Hodgson of Astley Abbotts
Page 4, line 15, at end insert ",and
() for ensuring that all defendants are properly represented"
In Grand Committee the Minister said:
"The requirement for open hearings is consistent with the requirement of Article 6(1) of ECHR, that a person is entitled to a 'fair and public hearing' in the determination of his or her 'civil
806
rights and obligations'. I take on board the basic point of the amendment that there should be consideration that everyone is properly represented. I do not believe that such a provision needs to be put into the Bill as it has been taken account of already in the disciplinary scheme that I have mentioned".—[Official Report, 16/3/04; GC 34.]
Apart from the last sentence, I am in complete agreement. Article 6 of the ECHR does, indeed, require the fair representation of a defendant in a public hearing, and that should be put into the Bill in any case. It may have been "taken account of" by the AIDB, but "taken account of" is not good enough.
The Minister continued and said that the representation of all defendants is too "detailed" and is,
"best left to the arrangements themselves rather than being prescribed in legislation".—[Official Report, 16/3/04; col. GC 33.]
I am afraid that we disagree with that. Instead, we believe that representation of all defendants is a crucial issue. It should be made explicit in the Bill rather than devolved to a body that has no statutory value. I beg to move.
Lord Evans of Temple Guiting:My Lords, as we have heard, this amendment was previously debated in Grand Committee, when we clearly failed to convince the noble Lord, Lord Hodgson, that such a provision was not necessary. I now propose to try again.
The person who exercises the recognition function will need to consider all aspects of disciplinary arrangements in order to come to a view on whether or not they are "appropriate" arrangements for the purposes of new paragraph 20.
One issue that will have to be considered is the representation of defendants. It is of course entirely right that defendants should have the opportunity to be represented. As we said in Grand Committee, if the disciplinary arrangements did not make any provision in respect of representation and that caused procedural unfairness, it could call into question whether the disciplinary arrangements were "appropriate". Therefore, it would not be open to the disciplinary arrangements just to ignore this issue altogether.
A number of the recognised supervisory bodies have already signed up to the disciplinary scheme of the Accountancy Investigation and Discipline Board of the FRC. The disciplinary scheme and supporting regulations, which are publicly available on the FRC's website, provide a framework for the operation of disciplinary hearings held under the scheme. The framework includes the right to representation throughout disciplinary hearings and prior investigations. The scheme also provides that a disciplinary tribunal can require the AIDB to pay a defendant's legal costs where he is unable to do so himself.
In Grand Committee, the noble Lord, Lord Hodgson, expressed concern about the lack of statutory certainty that the AIDB's arrangements for carrying out cases would necessarily continue into the future. He has repeated that concern today. I note that any changes to the AIDB's scheme would also need to be agreed by the participating accountancy bodies—the AIDB could not make unilateral changes to the scheme.

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As I mentioned, the person exercising the recognition function will have to look at all relevant matters relating to the functioning of the disciplinary arrangements in deciding whether or not they are "appropriate". That will include matters such as the right to representation and the right of appeal. I consider it unlikely that the supervisory bodies would agree to any watering down of the AIDB's disciplinary scheme that would risk a decision that the scheme was no longer appropriate and that the supervisory bodies no longer fulfilled the statutory requirements for recognition. The same considerations would apply if the disciplinary arrangements under consideration were not those of the AIDB.
Therefore, we consider that sufficient safeguards are already in place to ensure that supervisory bodies can satisfy the requirements for recognition only by participating in appropriate disciplinary arrangements. The question of the circumstances in which representation should be provided to defendants, along with the myriad of other details concerning the functioning of the arrangements, is best left to be determined under the disciplinary arrangements themselves, rather than being prescribed in legislation. I hope that the noble Lord, Lord Hodgson, will accept the explanation that I have given.
Lord Hodgson of Astley Abbotts:My Lords, I am grateful to the noble Lord, Lord Evans, for his explanation, and I think that he does persuade me. If I heard aright, he said that Article 6(1) of the ECHR will be an implicit requirement for recognition, without which the disciplinary procedures will not meet the requirements for the recognition of the body concerned. If that is the case—I notice the noble Lord nodding—I am satisfied with that reply and am happy to beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 3A not moved.]
3.45 p.m.
Lord Evans of Temple Guitingmoved Amendment No. 4:
Page 4, line 30, leave out from "body" to end of line 33 and insert—
"(a) will have no involvement in the appointment or selection of any of the persons who are to be responsible for doing the thing or things in question, and
(b) will not otherwise be involved in the doing of that thing or those things."
The noble Lord said: My Lords, during Grand Committee a number of noble Lords stressed the importance of the regulator continuing to work in partnership with the accountancy profession in order to ensure effective and well informed regulation. I entirely agree. The partnership approach is a fundamental aspect of a regulatory regime that works well. That is why the Review of the Regulatory Regime of the Accountancy Profession recommended strengthening the independence of aspects of the regime and not tearing it up and starting with a different model.
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One concrete sign of this partnership approach is that the chairman of the Consultative Committee of Accountancy Bodies is a member of the Financial Reporting Council and sits on the board of directors, along with the president of the CBI, a senior member of the investment community and the independent chair and deputy chair. The purpose of the amendment is to ensure that the definition of "independence" at new paragraph 21 does not preclude this arrangement.
The amendment makes clear that an audit supervisory body must not be involved in appointing the people who do the things mentioned at paragraphs 17(b), 18(b), 19(1)(b) or 20(1)(e) or in the actual doing of those things. In other words, the body must not be involved in appointing the people who determine technical standards or standards relating to professional integrity and independence, or who carry out monitoring and inspection of audits of listed or other major companies, or who carry out investigations, hold disciplinary hearings or take disciplinary decisions; nor must the body be involved in doing any of those things.
The FRC and the board of directors have a role in setting the overall strategy of the FRC and in setting budgets and managing performance for the boards. That role is separate from the doing of the things that I described, and it is not intended that paragraph 21(2) should preclude the chairman of the CCAB from participating in that role. The amendment seeks to make that clear. I beg to move.
Lord Hodgson of Astley Abbotts:My Lords, we are grateful that the Government have taken on board the concerns expressed in Grand Committee and, indeed, that the noble Lord, Lord Evans, has emphasised the importance of a collaborative regime going forward. I hope that he will not think me unreasonable if I raise a slight reservation about subsection (b) of the amendment, which reads that the accountancy bodies,
"will not otherwise be involved in the doing of that thing or those things".
I believe that the intention here is to allow consultation between the bodies and the Audit Inspection Unit, while the bodies are restricted from any involvement in the carrying out of the RU's functions. But the fact that that consultation is permitted is not absolutely clear. I should be grateful if the Minister could confirm that the amendment permits consultation between the accountancy bodies and the RU.
Can he also confirm that the restrictions on the involvement in the doing of that thing or those things should not prevent: first, the exchange of information and risk assessment from desktop monitoring; secondly, the provision of specialist expertise by QAD staff to assist the AIU in the course of AIU inspections; or, thirdly, liaison between the RU and the QAD in the preparation of their respective reports to the audit regulatory committee to ensure that the combined coverage is comprehensive and meets the committee's needs? If the amendment does, indeed, permit consultation, as we argued in Grand Committee, it would be entirely sensible and balanced.

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We should be grateful if the Minister could give that further explanation before we wave the matter goodbye.
Lord Evans of Temple Guiting:My Lords, I am sure that the noble Lord, Lord Hodgson, will be delighted to hear that the answer to every question that he asked is "yes".
On Question, amendment agreed to.
Clause 8 [Auditors' rights to information]:
Lord Hodgson of Astley Abbottsmoved Amendment No. 5:
Page 10, line 22, at end insert "who is working in Great Britain"
The noble Lord said: My Lords, in Committee we proposed an amendment that would remove from the Bill the want of symmetry in the Bill between overseas and UK subsidiaries of UK parent companies—that is, overseas incorporated and UK incorporated subsidiaries of UK parent companies. That involved various changes to proposed Section 389A about auditors' rights to information. We sought to bring within the regulatory ring-fence all subsidiaries of UK incorporated parent companies, no matter where they had been incorporated.
The noble Lord, Lord Sainsbury, gave two reasons for rejecting the amendment. The first was, in his words, that:
"In practice, it would be very difficult to enforce the obligations that could arise as a result of the amendment".
The second was, again in his words, that,
"to claim jurisdiction … risks undermining our position in resisting claims by foreign states to exercise jurisdiction in the UK".—[Official Report, 17/3/04; col. GC 86.]
Having consulted expert outsiders about the Minister's view, we find difficulty with both of those reasons. On the first reason, that,
"it would be very difficult to enforce the obligations that could arise as a result of the amendment",
the alleged difficulty is no different from a case in which the subsidiary is a UK subsidiary that carries on business overseas. In such a case, the individuals or persons sought to be made criminally liable would not necessarily be present within the UK or amenable to the UK criminal process. Conversely, imposing a duty on a person, and making that person criminally liable for non-performance of the duty by reason of a connection with a non-UK incorporated subsidiary of a UK company does not involve any practical difficulty, where the relevant subsidiary was carrying on business in the UK and the person concerned was present in the UK. In truth, the place of incorporation of the subsidiary, as we have said several times, is immaterial. What matters is the place where the person concerned is to be found.
As to the second reason—that it would become difficult to resist other foreign states exercising jurisdiction in UK—the Bill in its present form will seek to operate extraterritorially. A non-UK resident who has a relevant connection with a UK incorporated subsidiary, wherever that company is carrying on business, is subject to the duty and liability to be imposed by the Bill, whether or not he is a UK citizen.
810
To include persons connected with non-UK incorporated subsidiaries will hardly be a large extension to that, given that by necessity the subsidiary has to be a subsidiary of a company which is subject to Part XI, Chapter V, of the Companies Act 1985.
I hope that these reasons will explain why the Minister's response in Committee failed to convince me that establishing a level playing field between UK and overseas subsidiaries is undesirable. We believe that a level playing field will be best achieved if the problems concerning extraterritoriality are dismissed by restricting auditors' direct rights to information to employees solely working in the UK for UK incorporated companies. That is achieved by Amendments Nos. 5 and 6.
Amendment No. 5 limits auditors' rights to information to employees of UK incorporated companies who are working in the UK. Amendment No. 6 ensures that where a parent company has a subsidiary company that is UK incorporated, with officers or employees located outside the country, the auditor will have to require the parent company to obtain the necessary information. This will place such officers and employees on a level playing field with those covered in Clause 8(3) of the Bill; for example, those who work for a subsidiary company that is not UK incorporated. Therefore, the auditor would not have any direct rights to information from employees of parent or subsidiary companies which are not UK incorporated.
These amendments would achieve the level playing field that the Bill lacks at present; for example, consider a person who works physically in the offices of a French incorporated subsidiary of a UK incorporated parent company, but who is actually employed by another UK incorporated subsidiary. He could be a French citizen and he could be arrested and brought back to the UK for trial, while his fellow workers, who work for the French incorporated subsidiary, cannot be touched. The individual in question might well be quite unaware of the additional risks he runs by the chance of the country of incorporation of his employer. I beg to move.
Lord Sharman:My Lords, on the notion that this provision should apply extraterritorially and across a level playing field, we do not have to be ashamed, in any way, or worried about extraterritoriality. To those of us in business who face up to the wonderful Sarbanes-Oxley Act every day, this is the greatest piece of extraterritoriality ever seen. Why on earth should UK public companies have their chief executives and chief financial officers subject to fairly draconian criminal penalties in the US, merely because they have a listing there? They do not even have to trade there. We have to have a level playing field.
I have to confess that I was a little confused by the amendments of the noble Lord, Lord Hodgson, because I am not sure where they get us. We must have the ability to compel—I hesitate to use that word—

811
every element of a global company to provide necessary information to auditors and that must be on a level playing field.
Lord Sainsbury of Turville:My Lords, I appreciate the concern expressed by the noble Lord in Committee and again today about Clause 8 and the different legal position that may apply to two people operating out of the same overseas office, one of whom works for a British subsidiary of a British parent and the other who works for a foreign subsidiary of the same British parent. It is an interesting issue. We recognise the need to strike the right balance between the rights of auditors and the burdens placed on employees. However, we do not believe that the way to do this is to restrict auditors' rights to information in the manner proposed by the amendments.
Clause 8 already provides important protections for those who will be required to provide information to auditors. A person does not commit an offence by innocently giving information that turns out to be false, or by failing to give information when it was not practicable to do so. That is not what happens and that is not our intention. We do, however, wish to catch those who deliberately choose to mislead.
In order for an offence of giving false information to be committed, the information must be false in a material particular, and the person must have either known that the statement was false or been reckless as to whether it was false. It is a defence for a person charged with an offence under Section 389B of not providing information to show that it was not reasonably practicable to provide it. An overseas employee of a British subsidiary would, in any event, not commit an offence if what he or she either did, or failed to do, was outside territorial jurisdiction, although there may be enforceable civil obligations on him.
We do not consider that the scope of an auditor's rights to information should be determined by where a person works, despite what the noble Lord, Lord Hodgson, says. It is right that where a person is an officer, employee or auditor of a British company, then he should be required to provide information directly to the auditor regardless of where he happens to work. Where a person is an officer, employee or auditor of an overseas company, the situation is different. We take account of that in the way that we have drafted the clause and we believe that it is right to do so.
Lord Hodgson of Astley Abbotts:My Lords, I am grateful to the Minister for having returned to the issues that we raised in Committee and for kindly discussing them with us during a briefing.
I understand the argument about deliberately choosing to move overseas to try to escape the provisions of this legislation. I accept that argument. However, we are trying to achieve a level playing field. The Government have not accepted that argument. We need to find a way to ensure that in each case employees, who may not know the place of
812
incorporation of their employer, are treated in a fair way. I do not believe that the Government have managed to achieve that and I do not believe that they have shown sufficient readiness to meet the objective that we are seeking, as expressed by the noble Lord, Lord Sharman. I would like to test the opinion of the House.
3.59 p.m.
On Question, Whether the said amendment (No. 5) shall be agreed to?
Their Lordships divided: Contents, 71; Not-Contents, 125.

Division No. 1

CONTENTS

Arran, E.

Lang of Monkton, L.

Astor of Hever, L.

Lucas, L.

Blatch, B.

Lyell, L.

Bowness, L.

Marsh, L.

Buscombe, B.

Masham of Ilton, B.

Byford, B.

Miller of Hendon, B.

Campbell of Alloway, L.

Molyneaux of Killead, L.

Carlisle of Bucklow, L.

Monro of Langholm, L.

Carnegy of Lour, B.

Monson, L.

Chan, L.

Montagu of Beaulieu, L.

Colwyn, L.

Montrose, D.

Cope of Berkeley, L. [Teller]

Murton of Lindisfarne, L.

Craig of Radley, L.

Naseby, L.

Cumberlege, B.

Noakes, B. [Teller]

Dean of Harptree, L.

Norton of Louth, L.

Denham, L.

O'Cathain, B.

Dixon-Smith,L.

Park of Monmouth. B.

Dundee, E.

Peyton of Yeovil, L.

Elles, B.

Plumb, L.

Elliott of Morpeth, L.

Rawlings, B.

Elton, L.

Rees, L.

Flather, B.

Rogan, L.

Fookes, B.

Rotherwick, L.

Glentoran,L.

Saltoun of Abernethy, Ly.

Hayhoe, L.

Selkirk of Douglas, L.

Higgins, L.

Selsdon, L.

Hodgson of Astley Abbotts,

Sharples, B.

Howe of Aberavon, L.

Shaw of Northstead, L.

Howell of Guildford, L.

Soulsby of Swaffham Prior, L.

Jellicoe, E.

Strathclyde, L.

Jenkin of Roding, L.

Trenchard, V.

Jopling, L.

Waddington, L.

Kingsland, L.

Wakeham, L.

Laidlaw, L.

Weatherill, L.

Laird. L.

Wilcox, B.

Windlesham, L.

NOT-CONTENTS

Acton, L.

Brooks of Tremorfa, L.

Ahmed, L.

Burlison, L.

Amos, B. (Lord President of the

Campbell-Savours, L.

Council)

Carter, L.

Ampthill, L.

Christopher, L.

Andrews. B.

Clark of Windermere, L.

Archer of Sandwell, L.

Clarke of Hampstead, L.

Ashton of Upholland, B.

Clinton-Davis, L.

Bach, L.

Condon, L.

Bassam of Brighton, L.

Corbett of Castle Vale, L.

Berkeley, L.

Crawley, B.

Blackstone, B.

David, B.

Blood, B.

Davies of Coity, L.

Boothroyd, B.

Davies of Oldham, L. [Teller]

Borrie, L.

Dean of Thornton-le-Fylde, B.

Brookman, L.

Dixon, L.

813

Drayson, L.

MacKenzie of Culkein, L.

Dubs, L.

Mackenzie of Framwellgate, L.

Elder, L.

Mallalieu, B.

Evans of Parkside, L.

Massey of Darwen, B.

Evans of Temple Guiting, L.

Maxton, L.

Falconer of Thoroton, L. (Lord

Merlyn-Rees, L.

Chancellor)

Mishcon, L.

Falkender, B.

Morgan of Drefelin, B.

Farrington of Ribbleton, B.

Morris of Aberavon, L.

Faulkner of Worcester, L.

Patel, L.

Filkin, L.

Patel of Blackburn, L.

Finlay of Llandaff, B.

Pendry, L.

Fyfe of Fairfield, L.

Peston, L.

Gale, B.

Pitkeathley, B.

Gavron, L.

Plant of Highfield, L.

Gibson of Market Rasen, B.

Ponsonby of Shulbrede, L.

Giddens, L.

Prosser, B.

Goldsmith, L.

Prys-Davies, L.

Gordon of Strathblane, L.

Ramsay of Cartvale, B.

Gould of Potternewton, B.

Rea, L.

Grenfell, L.

Rendell of Babergh, B.

Grocott, L. [Teller]

Richard, L.

Harris of Haringey, L.

Sainsbury of Turville, L.

Harrison, L.

Sawyer, L.

Hart of Chilton, L.

Sheldon, L.

Haskel, L.

Simon, V.

Haskins, L.

Slynn of Hadley, L.

Hayman, B.

Stoddart of Swindon, L.

Hogg of Cumbernauld, L.

Strabolgi, L.

Hollis of Heigham, B.

Symons of Vernham Dean, B.

Howarth of Breckland, B.

Temple-Morris, L.

Howie of Troon, L.

Thornton, B.

Hughes of Woodside, L.

Tomlinson, L.

Hunt of Kings Heath, L.

Triesman, L.

Irvine of Lairg, L.

Trnscott, L.

Jay of Paddington, B.

Tunnicliffe, L.

Jones, L.

Turnberg, L.

Judd, L.

Turner of Camden, B.

King of West Bromwich, L.

Uddin, B.

Kirkhill, L.

Wall of New Barnet, B.

Lea of Crondall, L.

Warner, L.

Lipsey, L.

Watson of Invergowrie, L.

Lockwood, B.

Whitaker, B.

Lofthouse of Pontefract, L.

Wilkins, B.

McCarthy, L.

Williams of Elvel, L.

Macdonald of Tradeston, L.

Williamson of Horton, L.

McIntosh of Haringey, L.

Woolmer of Leeds, L.

McIntosh of Hudnall, B.

Resolved in the negative, and amendment disagreed to accordingly.
4.10 p.m.
[Amendment No. 6 not moved.]
Lord Sainsbury of Turvillemoved Amendment No. 7:
Page 10, leave out line 40 and insert "person within subsection (4) from whom the auditor has required the company to obtain the information or explanations."
On Question, amendment agreed to.
Lord Hodgson of Astley Abbottsmoved Amendment No. 8:
Page 11, leave out lines 1 to 4.
The noble Lord said: My Lords, this is a new amendment, which comes about because of conversations that we have had with the Institute of Chartered Accountants in England and Wales. The fear is that if this clause is not amended as proposed there may be unintended consequences. It is argued that it may
814
upset the status quo under which auditors currently obtain the information that they need to perform their audit. It is something that I doubt the Government would intend at a time when the whole thrust of the Bill is to strengthen the quality of audit so as to underpin the operation of markets in the public interest. As I understand it, there is an established way by which relations between lawyers and auditors are managed at present in order to ensure that shareholders receive sufficient information about a company's financial affairs.
This relationship has been developed over a number of years and works well. It is based on an agreed statement of guidance, statement 903, between the Council of the Law Society and the Institute of Chartered Accountants, which was supplemented by Audit 2/95 issued by the Audit Faculty of the Institute of Chartered Accountants, and more recently developed in international standards for audit, ISA 501. The purpose of these instruments is to ensure that, taking account of legal professional privilege, auditors and lawyers can have conversations about matters that are material to an audit, such as pending litigation. Those discussions can result in an agreed file note, which the auditor would then consider as sufficient file evidence to support the related disclosures in the financial statements. There is now a concern that Section 389A(7) could upset this balance.
Clearly, the directors have the primary responsibility to ensure that the accounts present a true and fair view, and the Act rightly provides no exception to that regarding legal privilege. However, the auditor may then need further information about the underlying circumstances in order to judge whether the amounts and disclosures in the accounts give a true and fair view. If this exclusion for privileged information is introduced, lawyers will no longer be able to co-operate without expressly receiving a waiver of privilege from the directors, who may instead decide to protect their own position. Auditors would then be left to make a judgment on the disclosures without having access to the necessary information, which in turn is likely to increase the likelihood of auditors needing to qualify the scope of their reports or the reports themselves, and result in shareholders not receiving a true and fair view of the company's affairs.
There is also a concern that this exclusion would create a loophole that would allow an unscrupulous management to hide its dealings from auditors and therefore, ultimately, from shareholders. Indeed, in Europe's largest accounting scandal, the Parmalat scandal, a "legal factory" firm of New York lawyers with only one client is alleged to have been one of the main tools used to mislead the auditors.
We understand and agree that there is a need for privilege. We suggest that the best way forward is to rely on existing instruments that govern the relations between lawyers and accountants on these matters. That would mean deleting Section 389A(7) from Clause 8 to continue to allow privileged information to be made available to auditors under existing arrangements. Alternatively, the legislation could be amended to make clear that such privileged

815
information should not be passed any further by the auditors. This is an important issue that needs to be clarified. I beg to move.
Lord Sainsbury of Turville:My Lords, as I said in the debate that we had on this issue in Committee, it was not our intention that Clause 8 should change the position in respect of legal professional privilege. However, Clause 8 makes a number of other changes to the existing position, most notably by inserting a new criminal offence of failing to provide information or explanations to an auditor when required to do so. We therefore considered that in order to avoid any uncertainty the Bill should make the position in respect to legal professional privilege absolutely clear.
Disclosure to the auditors could involve an infringement of legal professional privilege. For example, in circumstances where privileged information calls into question the truth and fairness of the accounts, I consider that disclosure to the auditors might lead to disclosure to the public in the auditors' opinion. It is therefore unlikely that auditors would currently have the power to require the production of such information. Subsection (7) therefore reflects that position.
As I said in Committee, I consider that directors would rather waive their right to legal professional privilege and disclose the information to the auditor than protect the privileged information and risk the adverse consequence of qualified accounts. Even if the qualification is framed in terms of the auditors not being able to form an opinion on the accounts, that would send a strong message about the accounts to those outside the company.
I also draw noble Lords' attention to the 10th Report of the 2003–04 Session of the Joint Committee on Human Rights. In considering the Bill, the Committee looked at Clause 8. They recognised that it would allow auditors access to a wide range of material and would require many people to provide information to the auditors. However, the committee considered that the protection of information that is subject to legal professional privilege,
"seems to us to provide adequate protection to meet the requirements of ECHR Article 8/".
For those reasons, I cannot agree to this amendment.
Lord Hodgson of Astley Abbotts:My Lords, I think that I am reassured by what the Minister said. He said that there was no plan to change the existing position. I accept the argument that qualification of the accounts will be a discipline to the directors. The complexity of the issues of professional privilege is such that I will not delve any further into it at this stage. I am grateful to the Minister for the explanation and for making those points. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 9 [Statement in directors' report as to information disclosed to auditors]:
Lord Sainsbury of Turville Lord Sainsbury of Turville moved Amendment No. 9:
Leave out Clause 9 and insert the following new Clause—
"STATEMENT IN DIRECTORS' REPORT AS TO DISCLOSURE OF INFORMATION TO AUDITORS
(1)Part 7 of the Companies Act 1985 (c. 6) (accounts and audit) is amended as follows.
(2)In section 234 (duty to prepare directors' report), after subsection (2) insert—
"(2A)If section 234ZA applies to the report, it shall contain the statement required by subsection (2) of that section."
(3)After section 234 insert—
"234ZA STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITORS

This section applies to a directors' report unless the directors have taken advantage of the exemption conferred by section 249A(1) or 249AA(1)

The report must contain a statement to the effect that, in the case of each of the persons who are directors at the time when the report is approved under section 234A, the following applies—

so far as the director is aware, there is no relevant audit information of which the company's auditors are unaware, and

he has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the company's auditors are aware of that information.

In subsection (2) "relevant audit information" means information needed by the company's auditors in connection with preparing their report.

For the purposes of subsection (2) a director has taken all the steps that he ought to have taken as a director in order to do the things mentioned in paragraph (b) of that subsection if he has—

made such enquiries of his fellow directors and of the company's auditors for that purpose, and

taken such other steps (if any) for that purpose, as were required by his duty as a director of the company to exercise due care, skill and diligence.

In determining for the purposes of subsection (2) the extent of that duty in the case of a particular director, the following considerations (in particular) are relevant—

the knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by the director in relation to the company, and

so far as they exceed what may reasonably be so expected) the knowledge, skill and experience that the director in fact has.

Where a directors' report containing the statement required by subsection (2) is approved under section 234A but the statement is false, every director of the company who—

knew that the statement was false, or was reckless as to whether it was false, and

failed to take reasonable steps to prevent the report from being approved,

is guilty of an offence and liable to imprisonment or a fine, or both.""
The noble Lord said: My Lords, I will speak first to Amendment No. 9. Noble Lords will recall the long and valuable debate that we had on Clause 9 during the Committee stage of this Bill. I reflected long and hard on the concerns expressed during that debate, and I agree that the clause was not as clear as it should have been about what was required of directors. This amendment is designed to clarify the position. Our

817
policy remains the same; we want to ensure that directors think hard about whether there is anything that they know that the auditor needs to know in order to do his job properly.
Noble Lords were concerned that under the original Clause 9 an individual director would be signed up to a position on disclosure that related not only to himself but to other directors. He would therefore have to concern himself with the position of the other directors in relation to disclosure. That is not our aim. Subsection (2) of the new Section 234ZA makes it clear that while the statement in the directors' report is a collective statement, it relates to the case of each individual director.
We remain concerned that in making the statement a director should consider not only what relevant audit information he knows, but what relevant audit information can be ascertained by him and whether the auditors are aware of it. Subsection (2)(b) therefore requires that each individual director confirms that,
"he has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the company's auditors are aware of that information".
Subsection (4) expands on that to make clear that those steps are the steps required of him by his existing common-law duty to exercise due care, skill and diligence.
Subsection (5) reflects the common-law position that under some circumstances—that is, where the director's particular function in the company or his personal expertise makes it appropriate—the duty as a director to exercise due care, skill and diligence may be extended. Again, that reflects the common-law position and addresses the concern expressed by noble Lords that the obligation on a part-time non-executive director should not be the same as that on a full-time finance director. Subsection (6) makes clear that the criminal penalty applies only to directors who know that the statement is false, or are reckless as to its falsehood, and fail to take reasonable steps to stop the directors' report being approved.
Noble Lords were also concerned about the inquiries that directors would have to undertake in order to be able to make the statement, and what they "ought to know". I consider that the revised statement makes it clear that we are only expecting directors to comply with their existing common-law duty to exercise care, skill and diligence as far as concerns the steps which the statement indicates have been taken to ascertain relevant audit information.
I turn now to Amendments Nos. 10 and 11. As I have said, we have reflected long and hard about the concerns that were expressed in Committee. We have sought to clarify what will be required of directors and to allay the concerns that were expressed. Subsection (3) of new Section 234ZA defines "relevant audit information" for the purposes of the statement as information that is needed by the company's auditors in connection with preparing their report. That definition captures the concept of materiality, since information that is not material to the auditor's report would not be needed by the auditor in connection with preparing the report.
818
It is not clear how the addition of the word "material" would further clarify the position for directors. Indeed, it seems to complicate matters by suggesting that there exists a category of information that is relevant—that is, information that is needed by the auditors in connection with preparing their report—but that is not material. If information is needed by the company's auditors in connection with preparing their report, it is difficult to see how it would not be material. If information is needed by the company's auditors, it should be information covered by the statement. I consider that the changes to Clause 9, which I have outlined, address the concerns that were expressed in Committee and that the addition of a materiality test would lead to confusion.
In conclusion, I hope noble Lords will agree that the Government's amendments go a long way towards addressing the concerns raised in Committee and that Amendments Nos. 10 and 11 are not necessary. I am grateful to noble Lords for their help in improving this important provision. I beg to move.
Lord Hodgson of Astley Abbottsmoved, as an amendment to Amendment No. 9, Amendment No. 10:
Line 17, after "no" insert "material"
The noble Lord said: My Lords, we are extremely grateful to the Minister for the redrafting of this clause. The obligations of the directors are now much better focused and defined. The issue concerning the directors' relationship with the auditor and what the auditor does not know, but that the directors ought to know he does not know, has been grasped. The "joint and several" issue has also been addressed. That is all very worthwhile.
I took careful note of the Minister's pre-emptive barrage about Amendment No. 10, but I should still like to have a go at persuading him to go a step further. In Committee, we said that we wanted to,
"reassure directors, executive or non-executive, that they cannot be hung on … a small event".—[Official Report, 17/3/04; col. GC 122.]
I am not sure that subsection (3), to which the Minister referred, meets that. Therefore, we continue to stick to the line of inserting the word "material". The Minister has come a long way to meeting our requirements, but inserting the word "material" would be helpful.
As we have discussed, there is now a qualification to the importance of the audit information that the directors must disclose. When the Bill is amended, it will read that the director has to be aware that,
"there is no relevant audit information of which the company's auditors are unaware".
But that qualification refers to "relevant" information rather than "material" information.
Confusingly, the importance of the word material has been consistently endorsed by the Government in the DTI's consultative document, entitled, Draft Regulations on the Operating and Financial Review and Directors' Report of May 2004, for example. That document contains the Government's proposals to make operating and financial reviews for quoted companies compulsory through statutory provisions as an addition to the directors' report.

819
Paragraph 3.24 of the document states:
"The Company Law Review envisaged that certain topics should always be covered in an OFR because they will always be 'material', while others should be included whenever directors consider them 'material' to an understanding of the business. The Government supports this approach".
While I understand that the OFR and directors' report are quite different, there are clearly similarities in that both involve disclosure from directors on financial and other such matters concerning their companies.
The Government have tried to square the circle in paragraphs 3.25 and 3.26 of that document where explanations are given about why the Government see it unnecessary to use the term "material". It goes little further than to divulge that information being included
"to the extent necessary for an understanding of the business"
is a more desirable phrase from the point of view of the Modernisation Directive—a European Parliament directive dated 18 June 2003—than the word "material", which, apparently, the Government believe can be confusing in this context.
Indeed, "materiality" is a word that is used in the Institute of Chartered Accountants in England and Wales handbook to give guidance to accountants about the levels of information that they should receive from directors. The ICAEW handbook, issued in August 1970—34 years ago—states:
"In connection with the preparation and audit of our accounts for the year ended … the directors have made estimates to the amounts of the ultimate liabilities (including costs) which might be incurred, and are regarded as material, in relation to the following matters on which you have been consulted. We should be obliged if you would confirm that in your opinion these estimates are reasonable".
In those circumstances—this has been the case for more than 34 years—"material" is and has been the qualification against which the auditors themselves measure the significance of the information provided by the directors. It is now slightly mystifying that since this is the prerequisite for information from the viewpoint of the auditors, it is not mirrored as the prerequisite for information from the viewpoint of the directors.
"Material" also appears frequently in previous Companies Acts and it is prevalent throughout the Sarbanes-Oxley Act, of which we heard a great deal in Committee. Rule 203, Section 303–5, is headed, "Representations and conduct in connection with the preparation of required reports and documents". That is a very similar section to new Section 234ZA in this Bill. The section begins:
"No director or officer of an issuer shall, directly or indirectly:

(1) Make or cause to be made a materially false or misleading statement to an accountant in connection with; or

(2) Omit to state, or cause another person to omit to state any material fact necessary in order to make statements made, in light of the circumstances under which such statements were made, not misleading".

820
"Material" is one of the most frequently recurring words in this section. I need not remind noble Lords that the Government have frequently said that the strategic purpose behind this Bill is as a step—mirroring the Sarbanes-Oxley Act—to help to restore investor confidence in companies and financial markets following recent major corporate failures.
"Materiality" is clearly a much valued word in the American legal system and up to now has fitted comfortably within the British legal system. Its ubiquity among consultative documents, Acts, directors, auditors' handbooks and the Sarbanes-Oxley Act itself vouches for its importance. I believe that the Government should consider again inserting it into this Bill. I beg to move.
Lord Sharman:My Lords, earlier in these discussions, the noble Lord, Lord Hodgson, made reference to the song, "American Pie". I am bound to say that when I read this amendment, I was moved to quote the "Halleluja Chorus" because the Government have done a remarkably good job of responding to our concerns. Having responded to the concerns expressed in Committee so well, is this also an appropriate time for the Minister to respond to the other commitments made at the time, to provide a statement on directors' and auditors' liability? That is my first question.
Amendments Nos. 10 and 11, up are amendments to Amendment No. 9. We really are struggling with definitions here. Subsection (3) refers to the substance of an amendment I proposed in Committee, using the phrase,
"information needed by the company's auditors in connection with preparing their report".
A number of defined terms and phrases are bandied about. As the noble Lord, Lord Hodgson, pointed out, "materiality" is one of them, while "significant" is another. The term "trivial" is a new one that has been introduced into accounting parlance of late.
The issue here is that, in general, "materiality" in the context of an audit is expressed as a financial amount. Audit committees these days will discuss with their auditors the concept of "materiality" which, in broad terms, means the degree of accuracy in auditing that is applied to a set of financial statements. Therefore, although I understand why the noble Lord, Lord Hodgson, is anxious to define this matter better, it would be wrong to include "materiality" at this stage. We need a term that encompasses more than "materiality" because, to be frank, in some circumstances the word "materiality" could result in information that is significant or relevant not being made available to the auditors. For that reason, the term "relevant" is probably better. We need to look at this matter carefully so as to ensure that the auditor gets what he needs. That, I think, is the substance of the matter.
I have a problem with the word "materiality". "Significant" might be better, while something that is clearly not "trivial" might be even better than that.
4.30 p.m.
Lord Sainsbury of Turville:My Lords, I apologise to the noble Lord, Lord Hodgson, for pre-empting his comments. I do not have much to add to what I said before except to reiterate the point that subsection (3) of new Section 234ZA defines relevant audit information for the purpose of the statement as,
"information needed by the company's auditors in connection with preparing their report".
That definition quite clearly captures the concept of materiality since information that is not material to the auditor's report would not be needed by the auditors in connection with preparing the report. The noble Lord, Lord Sharman, asked the question clearly and sensibly: does the auditor get what he needs? We believe that our definition ensures that he would.
I turn to the question of directors' and auditors' liability. I am not totally surprised that the issue was raised during this debate. There was considerable interest in the consultation on directors' and auditors' liability. The responses reflected a wide range of views, many of which were vigorously expressed and noble Lords will have seen from today's press that divergent views continue to be put forward on these issues. I do not think that the Government are in any doubt about the importance business attaches to these matters. We want high quality candidates from all backgrounds to come forward to serve as directors, and we want as wide a range of auditors as possible. We also want companies to hold to account negligent or badly performing directors and auditors.
At Second Reading I indicated that the Government would want to consider all the responses carefully, and that is what we are doing. Because of the importance of ensuring competition in the audit market, we have recently sought the advice of the OFT on whether reforms of the law on auditors' liability to be limited by means of a negotiated cap would significantly enhance competition in the GB audit market and, if so, how. I should make it clear to noble Lords that this does not mean we have taken a decision to introduce such a measure. We are considering all the options and the implications that will arise from each. That, of course, may also include the option of doing nothing.
Lord Hodgson of Astley Abbotts:My Lords, we have considered this hard enough and for long enough. I accept the arguments about the word "significant" and that there are better terms. I accept also that the amendment provides a hugely improved framework for the clause, for which we are grateful. I think that I had better take 90 per cent of the cake and forget about the last 10 per cent. I beg leave to withdraw the amendment.
Amendment No. 10, as an amendment to Amendment No. 9, by leave, withdrawn.
[Amendment No. 11, as an amendment to Amendment No. 9, not moved.]
On Question, Amendment No. 9 agreed to.
Clause 11 [Disclosure of tax information by Inland Revenue to facilitate application for declaration that accounts are defective]:
Lord Sainsbury of Turvillemoved Amendment No. 12:
Page 13, line 18, leave out "statute" and insert "any statutory provision"
On Question, amendment agreed to.
Clause 13 [Power to specify bodies who may issue reporting standards]:
Lord Sainsbury of Turvillemoved Amendment No. 13:
Page 17, line 38, leave out "and other supplementary and incidental"
On Question, amendment agreed to.
Clause 14 [Supervision of periodic accounts and reports of issuers of listed securities]:
Lord Hodgson of Astley Abbottsmoved Amendment No. 14:
Page 18, line 39, leave out "is to" and insert "may"
The noble Lord said: My Lords, subsection (7) of Clause 14, with which this amendment is concerned, enables the FSA forcibly, so to speak, to refer certain cases that do not fall within its remit to the Financial Reporting Review Panel. We understand that the Government want to build on the success of the FRRP by expanding its remit into new areas, but the question I want to put to the Minister is whether it is sensible to do that so inflexibly and without limit.
The provisions in the Bill will add to an already dramatic increase in the workload of the FRRP, an issue we discussed during our debates in Grand Committee. The expansion of the workload began in the early part of 2003 when, as part of a review of accountancy regulations, the DTI demanded that the FRRP should adopt a proactive approach to its scrutiny of annual reports. As I have said, it is understandable that the Government wish to further the success of the FRRP by expanding its remit and, in general terms, we support that expansion.
At present the panel must look only at annual reports of Companies Act companies following a complaint or press report. However, this Bill will enable the panel to review interim statements and the accounts of other issuers such as overseas groups with primary listings in London as well as other companies such as UK building societies. As we discussed, the Bill will also allow the Inland Revenue to pass information about suspect accounts to the FRRP and permit the panel to apply for a court order to release documents relating to a company's accounts.
All this adds up to a significant increase in the potential workload of the FRRP. Under the clause, there is the potential for the FSA to require the FRRP to investigate cases even if the panel does not believe them to be justifiable. Given the additional complications of cost, we believe that there is a strong argument for an amendment which enables the FRRP to refuse a referral from the FSA if the panel believes the case to be unjustified, if it is overburdened with work or if cost sharing cannot be agreed. The amendment would change "is to" to "may", thus

823
enabling the FRRP to maintain a degree of flexibility while not preventing it from using its expertise to help with cases referred by the FSA. I beg to move.
Lord Sainsbury of Turville:My Lords, as the noble Lord said, this is our second time around this particular track. The effect of the amendment would be to allow the panel to choose whether to take a case referred to it by the FSA in the particular and exceptional circumstances provided for in subsection (7) of the clause.
I think it would be helpful to refresh our memories as to why we need subsection (7) in the first place. It may be that the noble Lord's concern is misplaced and I hope that if I set out exactly how we envisage this close working relationship between the FSA and the FRRP is to operate in practice, he will be reassured on the points he has mentioned.
Clause 14 allows the Secretary of State to appoint the panel to review the interim and annual accounts of some or all of the total population of issuers and to report back to the FSA on them. The FRRP already reviews the annual accounts of Companies Act companies. The point of the clause is to enable the Secretary of State also to give it a role in reviewing two new classes of document which are closely related to its existing work: first, interim accounts as well as annual accounts and, secondly, accounts of entities which list their securities but are not Companies Act companies.
We have left open the precise scope of the new FRRP remit. This is because there are a significant number of fairly obscure or exotic issuers on the list which it would not make sense for the FRRP to get involved in. I am referring to overseas companies with specialist debt, such as Eurobonds. Keeping their accounts under review will remain solely the function of the FSA. But overseas companies with primary listings in London, for example, would fall within the new FRRP remit. They are clearly of greater interest to the general public and that is where the resource of the FRRP should focus in taking forward its proactive work.
We recognise that it is never going to be an exact science to determine which types of entity might be found to have some accounting problem. If the FSA thinks it has detected such a problem, we want it to be able to call on the expertise of the FRRP, notwithstanding the fact that the entity is not in the FRRP's core remit. It is of course the FRRP itself which, in its report to the co-ordinating group on audit and accounting issues at the end of 2002, proposed both the move to proactivity and the extension of its remit.
Noble Lords will agree that it is important to ensure that there are no gaps, not least in order to provide market reassurance. That is why subsection (7) makes provision for unexpected or exceptional cases to none the less be referred to the FRRP. It does not hinder flexibility—quite the opposite; it ensures that all bases are covered. I hope therefore that the noble Lord can agree that there is no need to change the wording.
Lord Hodgson of Astley Abbotts:My Lords, as the Minister said, this is the second time round on this
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issue. I think I am reassured by his words. One of the issues we have to consider is that of cost and how the FSA and FRRP will sort out what might be the considerable costs involved in an investigation. Presumably the issue will be left for them to fight over in due course. I understand that we do not want gaps in the regulatory cover through which issues may fall. Given that, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 16 [Grants to bodies concerned with accounting standards etc.]:
Lord Sainsbury of Turvillemoved Amendment No. 15:
Page 20, line 14, after "with" insert "any of the"
The noble Lord said: My Lords, this group of amendments is long but I shall try to summarise them briefly.
A strong and effective regulator is critical to the success of the new independent regulatory regime that we are putting in place through the Bill and through other non-legislative measures. It is important that the regulator can act decisively and courageously without being threatened with legal action. Not only must it act courageously, it must be seen to be able to do so if it is to be credible with those it regulates and with the markets and regulators in the United States and elsewhere. It must be able to attract and retain top quality people who are credible with business, the profession and the investment community.
We do not want the regulator to be afraid of legal action so that it collects more information than it would otherwise need, or takes longer to make decisions than would otherwise be the case. Over-regulation and excessive caution benefit no one.
For those reasons, after very careful consideration, we have concluded that it would be right to provide an exemption from liability for the regulator and its people, provided that they act in good faith and do not breach Section 6(1) of the Human Rights Act. We are mindful of the fact that, in the very unlikely event of the regulator getting things wrong, an injured party would be deprived of the right to claim damages. But we consider that the public interest in effective and robust regulation outweighs this consideration. The decisions of the regulator will, of course, remain open to judicial review.
The exemption is to apply only to the regulatory activities of the regulator; it will not apply to any other activities that the regulator might undertake. In practice, as noble Lords are aware, we expect that the regulator will be the FRC and its subsidiary boards. Most of the regulatory activities that we think it right to cover are listed at Clause 16(2), the grant-making power. It is necessary, however, to add four activities to the list, and this is the purpose of Amendment No. 19.
The first three activities relate to the work of the Accountancy Investigation and Discipline Board in investigating and disciplining accountants who are not auditors. The AIDB's activities in relation to auditors are already covered under Clause 16(2)(f). The last activity relates to the work of the Professional

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Oversight Board for Accountancy in overseeing the self-regulatory activities of the major accountancy bodies. The POBA's other activities are covered under Clause 16(2)(f) and (g). Thus the exemption will cover the regulatory activities of the FRC, its subsidiaries, its various boards and disciplinary tribunals, as well as the individuals involved in carrying out those activities.
The exemption itself is contained in the new clause which we are proposing should be introduced into the Bill. This new clause provides that when a body is funded under the grant-making power in Clause 16, then for a period of 12 months following the most recent payment of grant, the body, its subsidiaries and their people are not liable in damages for anything done or not done in connection with any of the activities listed in Clause 16(2). I beg to move.
4.45 p.m.
Lord Hodgson of Astley Abbotts:My Lords, we are in general agreement with these numerous amendments which, as the Minister explained, extend the role of the FRC and, among other things, deal with protection against liability for damages for a period of 12 months, beginning on the date on which the grant is paid. Our Amendments Nos. 29 and 30 seek to increase the exemption period from 12 months to 36 months. I should emphasise that we have tabled the amendments in order to probe the Government on why a 12 month period has been chosen and why it is not a permanent exemption.
Surely the central reason for the Government's amendments, as explained by the noble Lord, Lord Sainsbury, is to protect the FRC from the consequences of litigation at all times. If annual grants are to be given to the FRC, the logic in the chosen timeframe of 12 months is understandable but ill-founded. As it currently stands, the government amendment achieves the aim of exempting the FRC from liability but gives very little room for manoeuvre.
In an earlier life, I was a member of the disciplinary panel of the Securities and Futures Authority, a recognised supervisory body under the Securities and Investments Board. We had the same statutory immunity as is proposed here, given under the Financial Services Act 1986. As the Minister has made clear, without it none of us would have been prepared to serve on such a panel.
But two practical issues are relevant to our discussions on this proposal and need to be answered. In the SFA—as I am sure will be the case under these proposals—a good many disciplinary cases went on for more than a year. So, if immunity is withdrawn, what will be the position in regard to cases in progress? Obviously determination will not have been reached; will people find that the immunity has died away?
I was involved in the investigation of the Barings case, which was highly contested. It went on for a very long time—certainly for more than 12 months—and it would have been very difficult had the members of the disciplinary committee lost their statutory immunity in midstream.
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Secondly, what will happen in the future if it is decided, for whatever reason, that the tripartite approach envisaged in the Explanatory Notes—but not written into the Bill—should be brought to an end? Inter alia, linking statutory indemnity to the payment of a government grant effectively hands the Government an enormously powerful, if at present hidden, control mechanism. An exemption period of 36 months—although, admittedly, an arbitrary figure—would leave room to breathe; it would give time for negotiations and adjustments, if needed.
Lord Sainsbury of Turville:My Lords, the amendments have been tabled to extend the exemption period from 12 months to 36 months. I understand the reasons for the amendments, but I do not think that they are necessary.
If an action is performed within the exemption period, it will be covered by the exemption in perpetuity. Let me explain why. The new clause provides that there will be exemption from liability to pay damages in respect of acts or omissions arising during the 12 months beginning with the payment of grant. It does not say that the exemption from liability will last for only those 12 months.
The purpose of the 12-month exemption period is to ensure that if the Secretary of State decides to stop paying grant to a body, perhaps because she considers another body to be better placed to carry out the functions or she is concerned about the way in which the body is performing its functions, then the exemption does not continue indefinitely. The body will continue to be exempt for a period of 12 months from the most recent grant payment, so covering it for activities that it may need to carry out in order to withdraw from the grant-funded activities. I do not believe that it is necessary or desirable to extend this winding-up period to three years.
Under the clause, a body or individual enjoying exemption for a thing that it does or fails to do during the exemption period remains exempt in perpetuity. There is no retrospective liability; it cannot be held liable for damages for that action simply because the exemption period has expired. That is why I do not believe that these amendments are appropriate.
On Question, amendment agreed to.
Lord Sainsbury of Turvillemoved Amendments Nos. 16 to 19:
Page 20, line 18, after "by" insert "auditors or"
Page 20, line 20, at end insert "or any requirements of directly applicable Community legislation relating to company accounts"
Page 20, line 25, leave out "and maintaining" and insert ", maintaining or carrying out"
Page 20, line 27, at end insert—

carrying out investigations into public interest cases arising in connection with the performance of accountancy functions by members of professional accountancy bodies;

holding disciplinary hearings relating to members of such bodies following the conclusion of such investigations;

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(gc) deciding whether (and, if so, what) disciplinary action should be taken against members of such bodies to whom such hearings related;

(gd) supervising the exercise by such bodies of regulatory functions in relation to their members;"

On Question, amendments agreed to.
Lord Hodgson of Astley Abbottsmoved Amendment No. 20:
Page 20, line 30, at end insert—
"() Any body to which the Secretary of State makes a grant under this section shall produce an annual report which shall be laid before both Houses of Parliament."
The noble Lord said: My Lords, Clause 16 allows the Secretary of State to make grants to all the bodies concerned with the making and enforcing of accounting standards. It is not clear to us, from the face of the Bill, how these grants are to be recorded and reported. It would therefore seem appropriate for the Financial Reporting Council to prepare an annual report and lay it before Parliament, detailing the grants received and the work carried out. Since the FRC supervises all the relevant bodies and it is a reporting council, the omission seems conspicuous. Why should the FRC not be required to lay an annual report before Parliament?
When the Minister replies, perhaps he could answer one other question, which I probably should have raised before. I took the trouble to print off the latest FRC annual report from its website—85 pages long, and very thorough it is, too—but nowhere can I find any mention of to whom it is responsible. Where does the FRC sit in the chain of command? Perhaps the Minister could give further details of how the Financial Reporting Council is to fulfil its task of reporting and to whom it is technically responsible. I beg to move.
Lord Evans of Temple Guiting:My Lords, Section 729 of the Companies Act 1985 requires the Secretary of State to prepare and lay before Parliament a general annual report of matters within the Companies Acts. In addition, Schedule 13 to the Companies Act 1989 requires a body that is exercising the Secretary of State's delegated statutory functions in respect of auditors to make a report to the Secretary of State which is then laid before Parliament. Once the statutory functions are delegated to the Professional Oversight Board for Accountancy of the FRC, the POBA's report to the Secretary of State will be laid before Parliament.
However, I do not believe that it would be appropriate to make all the activities of the FRC the subject of a statutory reporting requirement. In the first place, the majority of the activities undertaken by the FRC and its boards are not statutory ones. Examples include the POBA's oversight of the regulatory activities of the major professional accountancy bodies and the AIDB's role in respect of disciplinary cases for accountants.
Similarly, the FRC is not obliged under statute to provide independent arrangements for audit standard setting, monitoring of audits or the investigation and
828
discipline of auditors. The Bill requires the supervisory bodies for auditing to participate in independent arrangements in order to meet the new recognition criteria. It does not require the bodies to participate in particular named arrangements, although in practice we anticipate that they will comply with the Bill's requirements by following the FRC's standard setting, monitoring and disciplinary arrangements. In these circumstances, I believe it is right that the supervisory bodies, rather than the FRC, should be obliged to report on the arrangements in which they are participating.
It is right that a body that receives public funding should be publicly accountable. The FRC publishes an annual report on the exercise of its functions, and it will continue to do so. Indeed, it is required by its Articles of Association to publish an annual report,
"for the purposes of assessing and reviewing the contribution of persons concerned with"
the regulatory functions of the FRC. The FRC's annual report will, of course, continue to be publicly available on its website.
As I have explained, there are already provisions for reports on Companies Acts matters to be laid before Parliament. I do not believe that there should be yet another. The Secretary of State will—in her own report under Section 729 of the 1985 Act—make reference, where appropriate, to the FRC report. In the unlikely event that there was a matter falling within Clause 16 which should be reported on but was not covered in the FRC's report, this would be covered in the Section 729 report.
The noble Lord, Lord Hodgson, asked two questions which I hope I can answer. He asked how the FRC is accountable if it is not required to report. That was not exactly his question, but it was the intent behind it. As I have said, the FRC publishes an annual report in the exercise of its functions, and will continue to do so. Indeed, it is required by its Articles of Association to publish an annual report,
"for the purposes of assessing and reviewing the contribution of persons concerned with"
the regulatory functions of the FRC. The FRC's annual report will, as I have said, continue to be publicly available on its website. The POBA will be required to report to the Secretary of State on the exercise of any delegated statutory functions, and this report will be laid before Parliament.
The FRC and its boards have developed aims and objectives, and the boards have also developed detailed work programmes. These are published documents, against which the performance of the FRC and its boards can be assessed. In addition, the FRC will be holding annual open meetings for stakeholders. The FRC is also considering publishing in advance agendas of meetings, and notes of discussions at Council meetings, and the meetings of its individual boards, where this is appropriate. For some boards—such as the Accountancy Investigation and Discipline Board and the POBA—confidentiality considerations will, of course, preclude making notes of meetings public.

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The noble Lord, Lord Hodgson, also asked to whom the FRC is accountable. As I have said, the Secretary of State is responsible for matters contained in the Companies Acts. In particular, the POBA will be required to report to her on the exercise of any delegated statutory functions, and this report will be laid before Parliament.
I hope that I have managed to answer the noble Lord's questions and that he will feel able to withdraw his amendment.
5 p.m.
Lord Hodgson of Astley Abbotts:My Lords, once again, I am grateful to the Minister for his barrage of information. I certainly would not wish to create a duplication of arrangements that already exist. The Minister covered the points that I was trying to make and there will be opportunities for both Houses to consider the matters of relevance in this important area. So far as responsibility for the FRC is concerned, it is split several ways: in part, it lies with the Secretary of State; in part, it lies elsewhere. I am not sure how satisfactory that is, but it has nothing to do with the annual report which my amendment concerned. I therefore beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Sainsbury of Turvillemoved Amendments Nos. 21 to 24:
Page 20, line 35, after "established" insert "under its constitution or"
Page 20, line 37, at end insert—
""accountancy functions" means functions performed as an accountant, whether in the capacity of auditor or otherwise;
"company" means a company within the meaning of the Companies Act 1985 (c. 6);"
Page 20, line 40, at end insert—
""professional accountancy body" means—

(a) a supervisory body which is recognised for the purposes of Part 2 of the Companies Act 1989 (c. 40), or

(b) a qualifying body, as defined by section 32 of that Act, which enforces rules as to the performance of accountancy functions by its members,

and references to the members of professional accountancy bodies include persons who, although not members of such bodies, are subject to their rules in performing accountancy functions;"
"public interest cases" means matters which raise or appear to raise important issues affecting the public interest;
"regulatory functions", in relation to professional accountancy bodies, means any of the following functions—

(a) investigatory or disciplinary functions exercised by such bodies in relation to the performance by their members of accountancy functions,

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(b)the setting by such bodies of standards in relation to the performance by their members of accountancy functions, and

(c) the determining by such bodies of requirements in relation to the education and training of their members;"

Page 20, line 42, at end insert—
"(5A) In their application to Scotland—

(a) subsection (2)(a) is to be read as referring only to accounting standards applying in relation to the accounts of companies or bodies (other than companies) established for the purpose of carrying on any kind of business, whether or not for profit;

(b) subsection (2)(ga) to (gc) are to be read as referring only to accountancy functions performed in relation to companies or such bodies, and

(c) subsection (2)(gd) is to be read as referring only to regulatory functions exercised in relation to the performance of such accountancy functions;

and in paragraph (a) above "business" includes the provision of benefits to members of the body concerned."
On Question, amendments agreed to.
Clause 17 [Levy to pay expenses of bodies concerned with accounting standards etc.]:
Lord Hodgson of Astley Abbottsmoved Amendment No. 25:
Page 21, line 34, leave out "accounts" and insert "records"
The noble Lord said: My Lords, Amendments Nos. 25, 26 and 27 are new and controversial. Clause 17 gives the Secretary of State the power to impose a levy on listed companies and members of the consultative committee of accountancy bodies to ensure that the FRC has security of funding. The Institute of Chartered Accountants has brought to our attention the potentially confusing terminology in subsections (7) and (8). They specify that the recipients must keep accounts of the amounts of levy received and prepare statements of such amounts, which must be certified by the persons appointed by the Secretary of State. The institute is concerned about the use of the word "accounts" in this context. It feels that it could be construed too narrowly and be understood to imply that proper recording in some kind of levy receipt ledger is necessary, whereas the Bill seems really to require a report that the body has kept proper records of the levy received and that a statement has been accurately extracted from those records in a way that complies with the regulations. The institute argues that the term "records" might better reflect the objectives of Clause 17(7) and (8). I beg to move.
Lord Sainsbury of Turville:My Lords, as the House will know, I share the desire for transparency and accountability on the part of the regulator. I am not persuaded, however, that the amendments are necessary to achieve that aim.
The purpose of Clause 17(7) and (8) is to ensure that the recipient of the levy, if we have to impose one—noble Lords will recall that we very much hope that this will not be necessary—must account openly for the sums received and the use to which those sums are put. That seems right and proper. The precise form and content of this information will be set out in the regulations imposing the levy and the House will have an opportunity to debate the content of those regulations.

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The amendments would alter the scope of the information that the specified recipient of the levy is obliged to provide. They would remove the requirement for the recipient to keep and prepare proper accounts in relation to the levy. Instead, the recipient would be required to keep proper records and prepare a statement, but not a statement of account. I do not consider that to be necessary or desirable. It is important that the recipient keeps and prepares accounts in relation to any sum received through the levy.
My noble friend Lord Evans has already described the extensive arrangements that the FRC is putting in place to report publicly on its activities. I shall not repeat that now, but I remind noble Lords that the FRC will need to report through the Secretary of State to Parliament on the exercise of statutory functions in relation to the recognition of audit supervisory bodies. The FRC's annual report will be available on its website. Those arrangements, together with the requirements set out in Clause 17(7) and (8), are sufficient to ensure that there is transparency about the use to which any levy is put and the value for money that that represents. I should be very reluctant to impose additional reporting requirements on the regulator. After all, we want it to spend its time regulating, not writing endless similar reports.
Lord Hodgson of Astley Abbotts:My Lords, as I said when I was moving the amendment, the matter was raised with us by the Institute of Chartered Accountants. Far be it from me, as a non-accountant, to try to argue the difference between accounts and records. I thank the Minister for his reply and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 26 and 27 not moved.]
Lord Sainsbury of Turvillemoved Amendment No. 28:
After Clause 17, insert the following new clause—
EXEMPTION FROM LIABILITY

(1)Where a grant has been paid by the Secretary of State to a body under section 16, this section prevents any liability in damages arising in respect of certain acts or omissions occurring during the period of 12 months beginning with the date on which the grant was paid.

(2)In this section—

the exemption period" means the period of 12 months mentioned in subsection (1);

"a relevant body" means the body mentioned in that subsection or a body carrying on any subsidiary activities of that body (within the meaning of section 16);

"section 16(2) activities" means activities concerned with any of the matters set out in section 16(2).

(3)Neither a relevant body, nor any person who is (or is acting as) a member, officer or member of staff of a relevant body, is to be liable in damages for anything done, or omitted to be done, during the exemption period for the purposes of or in connection with—

(a)the carrying on of any section 16(2) activities of the body, or

(b)the purported carrying on of any such activities.

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(4)Subsection (3) does not apply—

(a)if the act or omission is shown to have been in bad faith; or

(b)so as to prevent an award of damages in respect of the act or omission on the grounds that it was unlawful as a result of section 6(1) of the Human Rights Act 1998 (c. 42) (acts of public authorities incompatible with Convention rights)."

[Amendments Nos. 29 and 30, as amendments to Amendment No. 28, not moved.]
On Question, Amendment No. 28 agreed to.
Clause 18 [Power to require documents and information]:
Lord Hodgson of Astley Abbottsmoved Amendment No. 31:
Page 22, line 24, at end insert—
"() Any information or documents under subsection (3) must relate to the company specified by the Secretary of State under subsection (1)."
The noble Lord said: My Lords, we now come to investigation powers. The reply that was given by the noble Lord, Lord Sainsbury, to our earlier Amendment No. 91 in Grand Committee was unsatisfactory. He said that as a result of the Secretary of State's power to appoint investigators having to be "in relation to a company",
"any information or documents requested by the investigators will need to be relevant to the concern which prompted the Secretary of State to appoint investigators".
Our expert evidence suggests that the problem with that supposed limit is that no one in practice will ever know whether the information or documents being requested from him fall within the permitted scope. That is because the Secretary of State is not required to publish, and, in actual cases, does not publish, the concerns which have prompted the appointment of the investigators, but the reality is that the language of proposed Section 447 contains no limit or control over the information or documents which investigators, once appointed, may request.
The noble Lord, Lord Sainsbury, gave two examples of cases in which he believed that the proposed amendment would unduly limit the power to obtain information and documents. He said:
"For example, it might be necessary to investigate a company operating a franchise arrangement which has made false claims about the franchises that it has sold. The investigator will want to be able to require documents and information from franchisees, to discover whether the company's sale forecast or the claims that it is making are correct. We doubt that such information could be said to relate to the company under investigation, though it would clearly be highly relevant to the investigation of the company.
"Another example might be business plans or objections drawn up before a company was formed, identifying the thinking of the company's promoters. In examples such as these, we were not convinced that a test such as that proposed would be wide enough to give investigators access to all the relevant information".—[Official Report, 22/3/04; GC 251–52.]
Our legal advice is that each of those cases would fall within the power as information would relate to the relevant company. It seems entirely balanced and justified that, when requiring documents and information from a

833
person, the Secretary of State's power should be limited to information that relates to the company in question. It is otherwise unjustifiably open-ended. I look forward to hearing from the Minister on why the Government believe that the Secretary of State's power should be so unrestricted in those circumstances, given the practical examples of the way in which the system currently operates. I beg to move.
Lord Sainsbury of Turville:My Lords, as we have now moved to the investigations section of the Bill, I think it might be helpful if I briefly set the debate in context.
Every year, the DTI's Companies Investigation Branch carries out around 350 investigations. The number of companies affected represents less than 0.04 per cent of registered companies, but investigations have uncovered some pretty deplorable practices, as well as some that are simply inept or fall below statutory requirements. The consequences of these practices can have a damaging effect on those who come into contact with them, often inflicting real hardship.
The restrictions on disclosure of information prevent me from giving noble Lords details of specific investigations, but the categories of misconduct uncovered can include fraudulent trading and illegal pyramid-selling schemes. Noble Lords will be familiar with the kind of thing from descriptions given on the letters pages and in consumer columns in newspapers. It is probably illustrative enough for me to say that in 2002–03, following DTI investigations, 80 companies were wound up by the courts, 17 directors were disqualified, and seven individuals were convicted of offences, receiving penalties including custodial sentences, community punishment orders and fines. That does not include cases reported by DTI to the Serious Fraud Office, the police and other prosecuting authorities.
Noble Lords will appreciate from those figures that the activities of some companies fall well below the standards that one would expect. It is those companies which will be the prime focus for the DTI's attention—not the 99.9 per cent of companies which are carrying on business in a well run fashion. I am sure the noble Lord will agree with me that it is crucial that we have investigators who can effectively target the more deplorable practices and protect consumers and legitimate businesses.
The noble Lord's amendment is concerned with the range of documents and information that an investigator will be able to require under new Section 447. As I explained in Grand Committee, new Section 447(1) already ensures that any information or documents requested by investigators will need to be relevant to the concern which prompted the Secretary of State to appoint them. It seems right to us to set the parameters of what may be required by reference to the parameters of the investigation itself. However, the noble Lord, Lord Hodgson, wants to restrict the investigator to being able to require only information or documents which
834
"relate to the company". That leaves considerable room for argument about what that might cover and offers potential for delay by companies and others who are determined to be unco-operative. In addition, we do not believe that this phrase would be wide enough to capture everything that is relevant to an investigation.
In the modern business environment, few companies operate in isolation and it can be the case that complex trading relationships between different types of organisation are used as a deliberate smokescreen to disguise misconduct. It is vital, therefore, that the investigator can examine the company's relationships with others and we are unconvinced that some of the information sought could always be said to "relate to the company". For example, we can envisage circumstances in which it might be necessary to require information about the functions performed by agents marketing a company's products, or by bodies carrying out administration and banking functions for those agents.
It may also sometimes be the case that relevant information includes papers that are internal to firms of auditors or lawyers and that are not covered by legal professional privilege. However, I do not see why this should be regarded as unreasonable. Legally privileged material will continue to be protected from disclosure, so I struggle to see why auditors or lawyers should find it difficult to provide information which may assist in uncovering misconduct. I therefore ask the noble Lord to withdraw this amendment.
Lord Hodgson of Astley Abbotts:My Lords, I am disappointed with the Minister's response. Of course, we understand about the deplorable behaviour of certain companies, but that is not the objective behind the amendment, which would narrow the Secretary of State's powers.
After the examples that the Minister gave in Grand Committee of why the provision was needed, we have now produced arguments and evidence as to why his arguments were not right. I hasten to add that those arguments and evidence have come from legal experts, not from me. It would have been possible to collect all the documentary evidence required to catch the malefactors, even with our amendment included in the Bill.
I am not at all sure that we are not allowing the Secretary of State to have a shotgun approach. I understand the principle of the rifle, and am quite keen on it. But the provisions give the Secretary of State the potential to spray the bullets around and hope that a target is hit somewhere.
I should like to read again what the Minister says, but the provision seems to give too much power to investigators. I am not in any way saying that we should not get after the villains and the consumer press to which he referred. I accept all those arguments. I am not sure that we have got the balance quite right but, in the mean time, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
5.15 p.m.
Clause 19 [Protection in relation to certain disclosures]:
Lord Sainsbury of Turvillemoved Amendment No. 32:
Page 23, line 21, leave out ",(4)"
The noble Lord said: My Lords, it will be remembered that in Grand Committee the noble Lord, Lord Hodgson, raised the question of treatment of documents or information covered by legal professional privilege. I assured him that, although we are replacing Section 447 of the Act, our intention is to preserve, and indeed to expand, the existing principle. This is that neither the Secretary of State nor investigators can use the powers in that section to compel the disclosure of documents which could be withheld in civil proceedings on grounds of legal professional privilege.
I assure him again now that we are not changing that principle with this technical amendment to Clause 19. We have simply reached the conclusion that new Section 448A(4) has no effect and is technically redundant because of new Section 448A(2)(b). Clause 19 provides immunity from liability for breach of confidence for anyone who, in breach of a contractual or other duty of confidence, provides relevant information to the Secretary of State in specific circumstances. New Section 448A(2)(b) has the effect that this immunity is not conferred where a person discloses information which he or she would be entitled to withhold in an investigation.
As a person would, in an investigation, be entitled to withhold legally privileged information under new Section 452(1) or (2), it follows that no immunity would be conferred in any event if a person disclosed legally privileged information to the Secretary of State under new Section 448A. In other words, legal professional privilege is already fully protected under new Section 448A(2)(b), and subsection (4) achieves nothing. Subsection (4) should therefore be deleted, as should the reference to it in subsection (2)(e). It is a barnacle that we are removing. I beg to move.
On Question, amendment agreed to.
Lord Sainsbury of Turvillemoved Amendment No. 33:
Page 23, leave out lines 24 to 30.
On Question, amendment agreed to.
Clause 20 [Power to enter and remain on premises]:
Lord Hodgson of Astley Abbottsmoved Amendment No. 34:
Page 24, line 7, leave out "thinks" and insert "reasonably believes"
The noble Lord said: My Lords, the amendment takes us back to the exercise of power by investigators. It relates to the power to enter and remain on premises, which is quite draconian. Amendments Nos. 34 and 37 would replace the expression "thinks" with "reasonably believes". That is to say, an inspector or investigator may act if,
"he thinks that to do so will materially assist him".
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He may also remain on premises if he thinks it necessary. We want to replace the word "thinks" with "reasonably believes".
In Grand Committee, the Minister commented that the power to require access would not be available if,
"no reasonable person in the inspector's or investigator's position could think that to require access to the premises in question will advance the investigation".—[Official Report, 22/03/04; col. GC 258.]
He seemed to be suggesting, very politely, that the amendment would be pointless, as "thinks" means the same as "reasonably believes".
Our legal advice is, with the greatest possible respect, that the Minister is wrong in that conclusion. It can be doubted whether the two expressions have the same meaning. It is one thing to show that no reasonable person could believe access to be necessary; it is a different thing to show that any reasonable person would believe access to be necessary.
The existing formulation of words using the expression "thinks" would permit access provided that some reasonable person could think access to be necessary, possibly even that one person could think access to be necessary. The amended formulation that we would like to see inserted in the Bill would permit the court to test the requirement for access by a higher test, considering not only whether it was wholly unreasonable to require access but of positively having to consider whether the requirement was reasonable. We believe that this further test is necessary, as the power to enter and remain on an individual's premises is sufficiently intrusive to merit the need for a fuller test to gain access. I beg to move.
Lord Sainsbury of Turville:My Lords, these amendments concern the power to enter and remain on premises and the basis on which an inspector or investigator may choose to use the power. We have used the word "thinks" so that an inspector or investigator may act if he thinks that to do so will materially assist him in the exercise of his functions. The noble Lord, Lord Hodgson, prefers the phrase "reasonably believes".
We see no difference in substance between "thinks" and "reasonably believes" and see no advantage to the phrase "reasonably believes". Using the word "thinks" does not give an investigator or inspector carte blanche in using the power. He will be able to act only if a reasonable person would share his view that it would materially assist the investigation. He must have reasonable grounds for what he thinks. Moreover, he will have to have been specifically authorised to use the power by the Secretary of State. Having exercised the power to enter premises, the investigator or inspector will be able to remain there only for as long as a reasonable person would consider necessary. He must have reasonable grounds for his view about how long the necessary period is. In this context, I do not see what additional protection would be afforded to the occupier by using the phrase "reasonably believes" as opposed to "thinks".

837
I hope noble Lords will agree that we should prefer drafting which uses plain language and avoids unnecessary words. We are being consistent on this, we are using one word instead of two throughout and noble Lords will have to live with that. In my view, the use of the word "thinks" is very much to be preferred to the use of "reasonably believes". There are a number of potential variations on the latter; for example, "believes on reasonable grounds", "has reasonable grounds to believe" or "reasonably considers". Effectively they all mean the same thing and "thinks" encapsulates them all. I ask the noble Lord to withdraw the amendment.
Lord Hodgson of Astley Abbotts:My Lords, I think that I am right in saying that the previous formulation of words in the Companies Act used "reasonably believes" in respect of these matters. We have shifted from what was "reasonably believes" to "thinks". I do not have the sections of the Act in front of me, but I think that that is the case. I believe that the phrase "reasonably believes" is hallowed by past use.
I think that this is a serious matter. It is all very well us calmly standing here on a late afternoon in July but we are talking about the power to enter and remain on premises. This is not an issue to be passed over lightly. The external advice that we have received is that we ought to test the requirement for access by a higher test—a test not only of whether it is wholly unreasonable to require access but positively of having to consider whether the requirement was reasonable. We have had one crack at this part of the Bill in the earlier set of amendments that we withdrew. We shall come in a minute to another set of amendments about hours. I wish to test the opinion of the House on this issue.
5.24 p.m.
On Question, Whether the said amendment (No. 34) shall be agreed to?
Their Lordships divided: Contents, 77; Not-Contents, 160.

Division No. 2

CONTENTS

Astor, V.

Fookes, B.

Astor of Hever, L.

Fowler, L.

Baker of Dorking, L.

Gardner of Parkes, B.

Biffen, L.

Glentoran, L.

Bowness, L.

Hayhoe, L.

Brooke of Sutton Mandeville, L.

Higgins, L.

Brougham and Vaux, L.

Hodgson of Astley Abbotts, L.

Byford, B.

[Teller]

Campbell of Alloway, L.

Howe, E.

Carlisle of Bucklow, L.

Howe of Aberavon, L.

Colwyn, L.

Howe of Idlicote, B.

Cope of Berkeley, L. [Teller]

Howell of Guildford, L.

Craigavon, V.

Jenkin of Roding, L.

Crathome, L.

Jopling, L.

Crickhowell, L.

King of Bridgwater, L.

Dean of Harptree, L.

Knight of Collingtree, B.

Denham, L.

Laidlaw, L.

Dixon-Smith, L.

Lamont of Lerwick, L.

Elliott of Morpeth, L.

Lang of Monkton, L.

Elton, L.

Liverpool, E.

Feldman, L.

Lucas, L.

838

Lyell, L.

Rogan, L.

MacLaurin of Knebworth, L.

Rotherwick, L.

Mancroft, L.

Saltoun of Abernethy, Ly.

Marlesford, L.

Selborne, E.

Monro of Langholm, L.

Selkirk of Douglas, L.

Monson, L.

Selsdon, L.

Montrose, D.

Simon of Glaisdale, L.

Noakes, B.

Skelmersdale, L.

Norton of Louth, L.

Stewartby, L.

O'Cathain, B.

Stoddart of Swindon, L.

Onslow, E.

Strathclyde, L.

Park of Monmouth, B.

Taylor of Warwick, L.

Patten, L.

Thomas of Swynnerton, L.

Peyton of Yeovil, L.

Ullswater, V.

Platt of Writtle, B.

Waddington. L.

Plumb, L.

Wakeham, L.

Rees, L.

Weatherill, L.

Renton, L.

Windlesham, L.

NOT-CONTENTS

Acton, L.

Garden, L.

Addington, L.

Gibson of Market Rasen, B.

Ahmed, L.

Giddens, L.

Alderdice, L.

Goldsmith, L.

Alli, L.

Goodhart, L.

Alton of Liverpool, L.

Gordon of Strathblane, L.

Amos, B. (Lord President of the

Gould of Potternewton, B.

Council)

Graham of Edmonton, L.

Ampthill, L.

Greenway, L.

Andrews, B.

Grocott, L. [Teller]

Archer of Sandwell, L.

Hamwee, B.

Ashton of Upholland, B.

Harris of Haringey, L.

Avebury, L.

Harris of Richmond, B.

Bach, L.

Harrison, L.

Bassam of Brighton, L.

Hart of Chilton, L.

Beaumont of Whitley, L.

Haskins, L.

Berkeley, L.

Hayman, B.

Blackstone, B.

Henig, B.

Blood, B.

Hogg of Cumbernauld, L.

Borrie, L.

Hollis of Heigham, B.

Brooke of Alverthorpe, L.

Howarth of Breckland, B.

Brookman, L.

Howells of St. Davids, B.

Burlison, L.

Howie of Troon, L.

Campbell-Savours, L.

Hoyle, L.

Carter, L.

Hughes of Woodside, L.

Chan, L.

Hunt of Chesterton, L.

Christopher, L.

Hunt of Kings Heath, L.

Clark of Windermere, L.

Irvine of Lairg, L.

Clarke of Hampstead, L.

Joffe, L.

Clement-Jones, L.

Jones, L.

Clinton-Davis, L.

Judd, L.

Corbett of Castle Vale, L.

Kilclooney, L.

Craig of Radley, L.

King of West Bromwich, L.

Crawley, B.

Kirkhill, L.

Dahrendorf, L.

Lea of Crondall, L.

David, B.

Lester of Herne Hill, L.

Davies of Coity, L.

Levy, L.

Davies of Oldham, L. [Teller]

Lipsey, L.

Dean of Thornton-le-Fylde, B.

Lockwood, B.

Dholakia, L.

Lofthouse of Pontefract, L.

Dixon, L.

McCarthy, L.

Donoughue, L.

Macdonald of Tradeston, L.

Drayson, L.

McIntosh of Haringey, L.

Dubs, L.

McIntosh of Hudnall, B.

Elder, L.

MacKenzie of Culkein, L.

Evans of Parkside, L.

Mackenzie of Framwellgate, L.

Evans of Temple Guiting, L.

McNally, L.

Falconer of Thoroton, L. (Lord)

Maddock, B.

Chancellor)

Mallalieu, B.

Falkland, V.

Marsh, L.

Farrington of Ribbleton, B.

Merlyn-Rees, L.

Faulkner of Worcester, L.

Michie of Gallanach, B.

Filkin, L.

Miller of Chilthorne Domer, B.

Finlay of Llandaff, B.

Mitchell, L.

Fyfe of Fairfield, L.

Morgan of Drefelin, B.

839

Morris of Aberavon, L.

Simon, V.

Newby, L.

Slynn of Hadley, L.

Northbourne, L.

Smith of Clifton, L.

Northover, B.

Smith of Gilmorehill, B.

Oakeshott of Seagrove Bay, L.

Symons of Vernham Dean, B.

Patel of Blackburn, L.

Temple-Morris, L.

Pendry, L.

Thomas of Gresford, L.

Peston, L.

Thomas of Walliswood, B.

Phillips of Sudbury, L.

Thornton, B.

Pitkeathley, B.

Tomlinson, L.

Plant of Highfield, L.

Tordoff, L.

Prosser, B.

Triesman, L.

Prys-Davies, L.

Truscott, L.

Ramsay of Cartvale, B.

Tunnicliffe, L.

Redesdale, L.

Turnberg, L.

Rendell of Babergh, B.

Turner of Camden, B.

Richard, L.

Wall of New Barnet, B.

Roberts of Llandudno, L.

Wallace of Saltaire, L.

Rooker, L.

Warner, L.

Roper, L.

Watson of Invergowrie, L.

Sainsbury of Turville, L.

Watson of Richmond, L.

Sawyer, L.

Whitaker, B.

Scotland of Asthal, B.

Wilkins, B.

Sharman, L.

Williams of Crosby, B.

Sheldon, L.

Williams of Elvel, L.

Shutt of Greetland, L.

Woolmer of Leeds, L.

Resolved in the negative, and amendment disagreed to accordingly.
5.36 p.m.
Lord Hodgson of Astley Abbottsmoved Amendment No. 35:
Page 24, line 10, after "premises" insert "during normal office hours"
The noble Lord said: My Lords, in this group of amendments—Amendments Nos. 35, 36, 38 and 39—we seek further to restrict the investigators' powers. We wish to provide defined limits on the power to enter and remain on premises that is given to inspectors and investigators. It is plain that the Government wish any limits on power to remain as vague as possible, which will doubtless have the effect that in practice there are no limits and any challenge to the exercise of the power will be difficult and uncertain.
In Committee, that was indeed the thrust of the argument of the noble Lord, Lord Sainsbury—that the limits were likely to restrict the effectiveness of the provisions. Curiously, it was also said that to impose a limit could be taken to show that it could be perfectly reasonable for the power to be exercised to the full extent of the limit, even when that was not really necessary.
The limits that we propose are intended to do exactly what limits are designed to do: to put a cap on the hours spent by an inspector or an investigator on an individual's premises. The limits are not intended to encourage inspectors or investigators to use the maximum time given in the amendments. I would argue that some measure of certainty should be introduced and that the proposed limits are reasonable and not likely to render or undermine the power of the investigator.
The noble Lord, Lord Sainsbury, asserted in Committee that Clause 20(2) makes redundant our amendments—Amendments Nos. 35 and 36—which
840
are aimed to limit investigative powers to within "normal office hours" as this subsection provides that an inspector or investigator may gain access but only at "reasonable times". Our amendments limit this to "during normal office hours". The Minister questioned who would define "normal office hours" and suggested that certain individuals might change their office hours to frustrate an investigation. If the Minister is correct, surely the same individuals could also question the definition of what is a reasonable time.
I believe that both the present drafting and possibly our amendments are susceptible to further refinement, but our amendment offers an alternative that is more focused in giving more definable boundaries.
On Amendment No. 38, if the Minister believes that it is unlikely that there will be a need to gain access for more than a few hours or days—let alone weeks or months, as he said in Committee on 22 March, at col. GC 261 of the Official Report—we do not see how he can object to the inclusion of a precautionary limit of one month, particularly since it can be extended with the permission of the Secretary of State if it is felt to be desirable.
The objective of Amendment No. 39 is to prevent the power being exercisable in relation to domestic premises. No doubt it is a matter of policy whether it is appropriate to empower investigators to enter into and remain within someone's home without their having had to obtain a warrant or to justify to any authority the need to exercise such a power. However, the proposed provision is to be contrasted with the existing Section 448 of the Companies Act, which permits the justice of the peace to issue a search warrant when satisfied on oath about certain matters. It has not really been explained why it is appropriate for such a safeguard to be dispensed with at this point.
To conclude, we see the introduction of limits as entirely justifiable in this context and fail to see how they could obstruct or frustrate an investigation. They merely draw realistic boundaries around an area that is otherwise ill-defined and could lead to an abuse and an infringement on a person's liberty. I beg to move.
Lord Sainsbury of Turville:My Lords, this group contains a number of amendments which in different ways seek to limit the scope of the powers in new Section 453A and, I would argue, restrict the likely effectiveness of the provisions.
Amendments Nos. 35 and 36 seek to limit the powers in new Section 453A so that they can be exercised only during "normal office hours". This form of words would introduce uncertainty into the new section. Whose normal office hours are we talking about? The usual demands of a company's trading will determine its hours of business. While many companies may trade within the hours of 9 a.m. and 5.30 p.m., a corner shop might be open from 7 a.m. until 10 p.m. or a wine investment company—which seeks to reach people at home—might trade during weekday evenings and even at weekends. If the phrase "normal office hours" is interpreted as

841
meaning, say, 9 to 5, it will not be of much assistance to the investigator or inspector if the company under investigation does not trade during those hours.
If the noble Lord had in mind that the powers should be exercisable only during the normal business hours of the company under investigation, then I do not think that that would work either. Some companies which are the subject of DTI investigations do not have a regular pattern of trading which identifies "normal office hours". In addition, if a company does have normal office hours, how are the investigators to know what they are? Do they have to take what the company tells them on trust? In any event, it is the company itself which determines what its normal hours of business are, and some companies might vary their hours precisely in order to frustrate an investigation. So it is highly undesirable to attempt to limit the powers in this way.
I know from the debate in Grand Committee that the noble Lord is concerned that inspectors or investigators may be tempted to use this new power to make dawn raids on business premises, or to demand access at night. However, I can reassure him that the reasonableness test contained in new Section 453A(2) will not make it possible for investigators or inspectors to require access to premises at any time which is not reasonable.
Amendment No. 38 seeks to control the amount of time that an inspector or investigator can spend on premises to which he or she has gained entry under new Section 453A. If I understand it correctly, the intention is to provide that—when taken in conjunction with Amendment No. 36—an inspector or investigator has only one month during which he may use the power unless the Secretary of State authorises an extension.
We believe that this amendment would undesirably fetter the actions of the inspector or investigator. Inspectors or investigators may not be in active contact with the company for a period of days and weeks as they gather information from others. It is unreasonable to suppose that they will be able to complete all aspects of the investigation which need access to premises inside one month.
In addition, we see no reason to doubt the professionalism of the inspector and investigator to carry out their statutory functions observing the safeguards within new Section 453A. So, an inspector or investigator may need to visit business premises on several occasions during the course of an investigation. However, in most circumstances the duration of each visit will be a matter of hours. The company is protected because the inspector or investigator will need to have the necessary grounds to require entry on each occasion.
In addition, I have already spoken about the reasonable times test. This safeguard also qualifies the length of time spent on business premises. The first line of subsection (2)—line 9 on page 21—qualifies both paragraphs (a) and (b). So, just as an inspector or an investigator can seek to gain access only at a reasonable time, the time spent on business premises can continue only while it is reasonable for the
842
company or other occupier to have him or her there. The reasonable times test is a real safeguard, but it also allows each case to be judged on its particular circumstances.
I turn finally to Amendment No. 39. This seeks to exclude people's homes from the definition of "relevant premises" in new Section 453A. I can understand your Lordships' natural concern about the level of privacy that should be enjoyed by an individual in their home. However, anyone who conducts a company's business from premises that are also, in whole or in part, used as living accommodation has already decided to forfeit a degree of that privacy. I should stress that a director's home address is not automatically "relevant premises" and will be only if it appears to be used for company business.
A director must expect that many individuals have an interest in visiting a company at the premises used for the purposes of the company's business. Such visitors might include customers, creditors, bailiffs, Inland Revenue and Customs and Excise officers and, much more unusually, DTI investigators or inspectors. I say "unusually" because, of course, the number of companies investigated by DTI is a tiny proportion of the total registered at Companies House. However, some of the company-based scams that the DTI investigates will inevitably be carried out from domestic premises. If the noble Lord is not aware that that is a feature of our society, he is living a very cocooned life. Some of the worst scams take place on domestic premises.
As the new provisions stand, an inspector or investigator will be able to require access to any premises that he believes are used for the business of the company under investigation. He will not be able to use force to enter such premises, but they may include premises that are used both for business and residential purposes. It is important for an inspector or an investigator to have access to premises used for the company's business. It speeds up the process of acquiring relevant documents and information, helps to avoid obstruction and enables the inspectors or investigators to get a clear and balanced picture of the company's activities. This clearly helps the effective uncovering of fraud and malpractice and just as importantly accelerates the process of discontinuing inquiries, where appropriate.
In the light of what I have said, I ask the noble Lord not to press Amendments Nos. 35, 36, 38 and 39.
5.45 p.m.
Lord Hodgson of Astley Abbotts:My Lords, I assure the Minister that I do not live in a cocoon. I am under no illusions regarding what human ingenuity can achieve in pursuit of all kinds of devious schemes. We seek not to offer shelter to those who have malice aforethought or malice afoot, but to ensure that we get the balance right; namely, that the position of someone in their home or office should be protected to some extent. We do not consider that the Bill has the balance right; we believe that it pushes it too far towards the investigator. We debated this matter at length in Grand Committee. We have just divided the House on

843
another aspect of the matter and I do not propose to do so again. I do not think that the Government have the balance right. I am disappointed that they have not introduced a further safeguard to improve the balance. However, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 36 to 39 not moved.]
Lord Hodgson of Astley Abbottsmoved Amendment No. 40:
After Clause 22, insert the following new clause—
""ASSISTING TRANSACTIONS EFFECTED BY COMPANIES WITH POSITIVE DISTRIBUTABLE RESERVES"
In section 263 of the Companies Act 1985 (c. 6) (certain distributions prohibited), after subsection (5) insert—
"(6) Where—

(a)a company has any profits out of which it could lawfully make a distribution (within the meaning of section 263(2)), and

(b)the company makes a distribution which involves the sale, transfer or other disposition of a non-cash asset,

then, for the purpose of determining the amount of such distribution no account is to be taken of any amount in excess of the amount at which that asset is stated in the accounts relevant for the purposes of the distribution in accordance with sections 270 to 275.
(7)Subsection (6) of this section shall be deemed always to have had effect.""
The noble Lord said: My Lords, with this amendment we seek to insert a new clause. It has relevance to what we have been discussing: auditing, directors' duties, protection of shareholders—all these matters are the central thrust of the Government's strategy.
The amendment was brought to our attention by the Law Society which I believe lobbied for its statutory consideration over a number of years, with support from the CBI and the Institute of Chartered Accountants.
The amendment was initially brought forward in light of the difficulties caused by the Aveling Barford Limited v Perion Limited and Others case in 1989. The case determined that where a company had no distributable reserves and sold an asset at an undervalue, the sale was ultra vires and void, being an unlawful reduction of capital. Furthermore, it was incapable of ratification or approval by shareholders. However, the case did not decide anything on the situation where a company selling an asset at an undervalue has positive distributable reserves. As a result a significant body of legal opinion now considers that, in certain circumstances, such a sale is a distribution for the purposes of Section 263 of the Companies Act 1985 even where the asset concerned is sold for an amount equal to its book value where this is less than its market value.
Companies in a group will often transfer assets intragroup for a variety of business, administrative or tax reasons. Again, for a variety of business, administrative or tax reasons, these transactions are often done by reference to book value, rather than by reference to actual market value, which the directors may not know
844
or may not easily be able to calculate. The result of Aveling Barford and the debate that it has engendered have cast doubt on the validity of those transactions.
It is accepted that where the company has no distributable reserves, such transfers must be made at market value. However, in the vast majority of cases the transferor has positive distributable reserves. and even in those cases there is now considerable uncertainty as to transactions which, while not questionable as to propriety as appears to have been the case in Aveling Barford, may none the less have some element of undervalue.
Legal opinion is believed to favour the view that the case should have no relevance to a company with positive distributable reserves—as in Aveling Barford—but that Companies Act dividend restrictions ought to require one to look at book value rather than at market value where an asset is transferred by a company, resulting in a nil distribution where a sale is made at no less than book value. Because of the uncertainty caused by Aveling Barford and the subsequent debate, transactions of that nature are commonly carried out in a more complicated way than previously—often involving revaluation of the asset concerned and then its sale or distribution, relying on Section 276—or have not proceeded at all. In some cases, the auditors have raised questions in the course of their annual audit about intra-group transactions which leave the companies concerned in a difficult position.
A very simple legislative amendment to Section 263 of the Companies Act 1985 would largely remove the uncertainty in relation to transactions effected by companies with positive distributable reserves. However, creditors and minority shareholders would continue to be protected against improper transactions. Our amendment seeks to amend Section 263 to the effect that, where a company has positive distributable reserves, the amount of any distribution comprised in the sale, transfer or other disposition of a non-cash asset is to be determined solely by reference to the amount at which the asset is stated in the company's books. That would mean that a sale at book value amounted to a nil distribution. The amendment would be consistent with the intention of Part VIII of the Act.
It is believed that, at least until Aveling Barford prompted more detailed analysis of undervalue sales, companies with positive distributable reserves making intra-group transfers almost invariably did so at book value. Transactions have taken place involving billions of pounds on that basis. Until Aveling Barford, there was no suggestion that such a transaction was improper, always provided that the directors were acting in good faith and not for any improper purpose.
The proposed clarification would assist transactions to take place without time-consuming and costly debate and, on some occasions, the possibility of transactions being abandoned due to the uncertainties. One example is that, on acquisitions of assets, trades or companies, purchasers will often consider it desirable to review past transactions to ensure that no void Aveling Barford-type transfers have been made. To the extent that they can ignore considerations of market value on past transfers in companies with

845
positive distributable reserves, that would be a substantial simplification. Another example is that, where doubts exist at present, complex, costly and time-consuming negotiations take place concerning, inter alia, indemnification against possible contingent liabilities.
The amendment does no more than recognise what is implicit in the statutory scheme for distribution in Part VIII of the Companies Act—that all calculations should be done by reference to the company's accounts. Any suggestion that amounts in excess of book value should be taken into account when applying the statutory distribution rules appears to be confusing, and not intended by the legislation. The common-law rule relied on in Aveling Barford should apply only to a company with no distributable reserves. Such a company could not, in any event, make a distribution without breaching Part VIII.
No attempt has been made, nor should be sought to be made, to change the Aveling Barford case—where a company does not have positive distributable reserves. The amendment is drafted in such a way as to not affect the common-law rules. Those rules, including the rules on what constitutes a distribution, will continue to be covered by Section 281 of the Companies Act 1985. The amendment would also avoid triggering concerns over disadvantaged creditors. Where a company has positive distributable reserves, it would be open to it to make a sale at market value, followed by a distribution of the profit generated. That would leave the company in the same position, so far as creditors were concerned, as it would be were the amendment to be made.
In any event, the Insolvency Act 1986 has protections for creditors covering undervalue transactions and preferences. In all cases, the Aveling Barford case will remain the law where companies have negative distributable reserves. Nor are shareholders disadvantaged, because where a company has negative distributable reserves the amendment has no effect. Where a company has positive distributable reserves the directors will, of course, continue to be subject to their normal duty to act in good faith in the company's interests.
This is a simple standalone amendment which I hope the noble Lord, Lord Sainsbury, is not about to reject on the basis that the matter is being considered in the wider context of the Company Law Review. The point has significant cost and time implications for companies and for British business, and the amendment has been long overdue. Business should not be kept waiting any longer for the Company Law Review, for which we still do not have a date. I beg to move.
Lord Evans of Temple Guiting:My Lords, my noble friend Lord Sainsbury will not reject this amendment, but I will on his behalf. This new clause takes us into one of the most arid and complex areas of company law—what are known as capital maintenance and distribution rules.
The noble Lord, Lord Hodgson, has eloquently described the need for this amendment. I can reassure him that the Government fully accept the desirability—
846
I choose my words carefully"—of clarifying the law in this area. We agree that companies which are in a position to pay a dividend should also be able to transfer a non-cash asset—for example, a building at its value in the company's accounts—without needing to have that asset revalued. In taking that view, we are following the recommendations of the Company Law Review.
As my noble friend made clear in the debate at Second Reading, we are working hard on a Bill to implement the recommendations with the aim of removing unnecessary regulation—what the noble Lord has referred to previously as barnacles—and simplifying and making the law more flexible for present and future use. That is a large and complex exercise, which involves putting together all the pieces of the jigsaw—to borrow another metaphor that noble Lords have previously used.
The Government's view is that this reform should be part of that main companies Bill. It belongs alongside other envisaged reforms on capital maintenance and distributions, including abolition of the restrictions on financial assistance by private companies. We are determined to take forward this work, which can be quite detailed and technical, on a collaborative basis. I offer my thanks to all those, including from the legal and accountancy professions, who are continuing to help in taking forward the ideas of the Company Law Review in this area.
I appreciate that not legislating now may cause some disappointment. But equally, we are talking about an amendment to make clear what many believe the law already to be. We are not therefore persuaded of the case for legislating now rather than later, in the more appropriate context. We have sought to keep this Bill tightly focused, as its title suggests.
Noble Lords:Oh!
Lord Evans of Temple Guiting:My Lords, as that got two laughs, I will say that again. We have sought to keep this Bill tightly focused, as its title suggests. It is designed chiefly to implement recommendations from the post-Enron reviews and the Strategy Unit review, Private Action, Public Benefit, regarding community interest companies, along with some closely related measures, such as improving the company investigations regime. Wider reforms to company law, such as this one, need to be taken forward together and the Government are committed to doing that as soon as possible in a comprehensive Bill.
I hope that I have assuaged some of the concerns of the noble Lord and that he will feel able to withdraw his amendment.
6 p.m.
Lord Hodgson of Astley Abbotts:My Lords, at least the Minister was able to read his brief more or less with a straight face. I understand that the matter is complex. However, he began by saying that clarity was desirable and talking about removing a barnacle, with which we agree, but then fell back on the company law review, for which we have no date. It is disappointing

847

that the Government expressed desirable principles about clarity and removing the regulatory burden but then fell back on something that could, as I understand it, be three years away.
I accept that this is a stand-alone amendment and I am not going to push it any further tonight, but there will be great disappointment in industry and in the professions that the Government are not able to deal with the issue of A veling Barford. I hear what the Minister said, but I am disappointed. He has not assuaged me on this occasion and to call the Bill "focused" is the final slap across the face. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Schedule 2 [Minor and consequential amendments relating to Part 1]:
Lord Evans of Temple Guitingmoved Amendment No. 41:
Page 51, line 9, leave out ", 47(3)(c) and 48(3)" and insert "and 47(3)(c)"
On Question, amendment agreed to.
Lord Evans of Temple Guitingmoved Amendment No. 42:
Page 51, line 11, at end insert—
"Companies (Northern Ireland) Order 1990 (S.I. 1990/593( N. I. 5))
3A In the Companies (Northern Ireland) Order 1990, omit Article 49 and Schedule 14 (supervisory and qualifying bodies: restrictive practices)."
The noble Lord said: My Lords, in moving this amendment I shall also speak to Amendments Nos. 90, 91 and 92. This group of amendments deals with the competition-related provisions in the Companies (Northern Ireland) Order 1990 relating to statutory audit. It achieves for Northern Ireland an amendment already made in relation to company law elsewhere in the United Kingdom. Currently, the order excludes the application of the Chapter 1 prohibition in the Competition Act 1998 to certain agreements relating to the constitution and rules of recognised, supervisory or qualifying accountancy bodies, but requires the Secretary of State to seek competition advice from the Office of Fair Trading when recognising professional accountancy auditors.
EC regulation 1/2003, covering modernisation of EC competition law, came into force on 1 May. It gives Article 81 of the EC treaty direct effect in the UK and the relevant provisions to make that work were put in place by SI 2004/1261, which was discussed in this House on 28 April. Given the potential application of Article 81, to avoid inconsistency between EC and domestic competition law arising as a result, it is sensible to repeal the special provisions, leaving general principles of competition law to apply in such cases.
The statutory instrument that I mentioned has therefore repealed the previous exclusion and special scrutiny regime in relation to Great Britain using powers in Section 209 of the Enterprise Act 2002. However, owing to an omission in the enabling powers
848
for that instrument, we did not have sufficient vires to make the equivalent change to northern Irish law by secondary legislation, which is why we propose to make this change in the Bill. I beg to move.
On Question, amendment agreed to.
Lord Evans of Temple Guitingmoved Amendments Nos. 43 and 44:
Page 51, line 29, leave out "234(7)" and insert "234ZA(6)"
Page 51, line 32, leave out "234(2A)" and insert "234ZA(2)"
On Question, amendments agreed to.
Clause 23 [Community interest companies]:
The Deputy Speaker (Baroness Pitkeathley):My Lords, I should tell your Lordships that if Amendment No. 45 is agreed to I cannot call Amendment No. 46 by reason of pre-emption.
Lord Phillips of Sudburymoved Amendment No. 45:
Page 27, line 3, leave out from "company" to end of line 7 and insert "may also be a charity"
The noble Lord said: My Lords, the amendment is also tabled in the name of my noble friend Lord Sharman and the noble Lord, Lord Glentoran. I offer no apology for returning to this issue because there is a continuing belief on this side of the House that the amendment will improve the Bill, not make it worse. We have discussed these points at previous stages and I do not propose to speak at length tonight, although I must go over the ground to some extent.
The law of charity has been distinguished by being a function of purpose and not form or format. Although there is an exception which the noble Lord, Lord Sainsbury, mentioned at the previous stage of the Bill, to do with quasi-governmental bodies, this would be the first move away from that excellent principle. We should not go down that slippery slope.
The simple fact is that the law of charity has always given charities maximum choice as to the form in which they want to carry on their good works. Most of the objections that the Minister erected against the amendment hitherto boil down to his view that it will not be of much use to charities. All I can say to that is that since this became an issue a great many charities have made representations that they would like the opportunity to register as a community interest company, as well as a charity. The argument has been made that that will mean more regulation for them, but that is for them to decide. It may well be that not a great many charities will avail themselves of the CIC form, but, I repeat, that is for them to decide.
The Minister made the point that we are going to have the charitable incorporated organisation under the draft charities Bill, which is likely to be enacted, and I am sure that we will get the new corporate form, which will be useful. However, it is designed specifically for small charities that want a simple framework. Although many will avail themselves of the form, other charities that are engaged in larger activities will want to utilise it above all others.

849
The Government talked about confusion, but I have to say that the confusion argument runs the other way. What could be more confusing than for the Bill to say:
"A community interest company established for charitable purposes … is to be treated as not being a charity"?
That is bizarre, especially given that a CIC that is established for charitable purposes can say publicly that it has been established for charitable purposes, but then it will not be able to be a charity. We see no point in that, or need for it.
Although, as I emphasise, I do not expect a great many charities to want to use the CIC form, a few will. They might be quite high-profile charities and we believe that they will add strength, substance and purpose to this part of the Bill, which is a useful addition to the whole social enterprise sector. I reject wholly the notion that it will cause problems within the sector because any charity that avails itself of CIC status will be a social enterprise charity. I know that the Social Enterprise Coalition is split on the issue and I have received a communication from it recently that says that it has mixed views and does not actively favour amending the Bill as I am now proposing. None the less, as I emphasised, I do not believe that there is any likelihood of confusion. It was not one of the highlighted consultation questions to which the Government sought specific answers.
The Minister said previously that the CIC is not designed for use by charities, but virtually no other specific form is designed for charities. The company limited by guarantee is not designed for charities, nor is the company limited by share. In fact they were designed more for commercial private enterprise organisations, but they serve charities extremely well and there is no confusion.
Similarly, it will be up to charities to make up their own minds about the question of overlapping the regulation. However, it is certainly the case that, if the amendment is accepted, a whole chunk of the Bill will fall away and all the amazingly complicated regulations in it which allow a CIC to convert to a charity, and vice versa, will also drop away. Therefore, I repeat that the confusion lies in the other direction.
On 25 March, the noble Lord, Lord Sainsbury, said that allowing charities to be CICs,
"could adversely affect the value of the CIC to [the social enterprise sector]".—[Official Report, 25/3/04; col. GC 322.]
I do not see that there is a case for saying that, and I have to disagree. I believe that charitable CICs will enhance the standing and utility of this new animal—the CIC.
I want to add to what the noble Lord, Lord Glentoran, said at the previous stage of the Bill about confusion, and I emphasise the point about the bizarre position under Clause 23(3). As I said, Amendment No. 45 would mean that large parts of the Bill fall away, and that must be welcomed by all. Therefore, for all those reasons, I urge the Government to allow the amendment through. I beg to move.
Baroness Thornton:My Lords, I declare my interests as the unpaid chair of the Coalition of Social
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Enterprise and a Labour member of the Co-op. I hate to take a different view from that of the noble Lord, Lord Phillips of Sudbury, because he has such a huge reputation and knowledge of and standing in the legal and charitable sectors, but I disagree with him about the amendment.
I do so partly because I am concerned that we are in danger of creating exactly the situation that we sought to avoid throughout the consultation that took place before the Bill was presented to Parliament—that is, we did not want to make the CIC complicated. The original intention of the Bill was to create a simple legal entity with light-touch regulation. At present, I cannot see how the amendment does anything other than turn that objective on its head. Speaking as chair of the Coalition of Social Enterprise and having been involved in the discussions, I can say that such an objective has been absolutely at the heart of what we have been seeking to do.
I apologise to the noble Lord, Lord Phillips, if I gave the impression that the Coalition of Social Enterprise was in favour of this proposal. As he accurately said, we have a very broad membership and, when we conducted the consultation on the Bill among those in the coalition, it transpired that one or two organisations felt strongly at either end of the debate. On balance, they were probably driven by the need for the legal entity to be as simple and uncomplicated as possible, and that probably led the majority to believe that it was not a good idea. In our evidence to government we were silent on the coalition's point of view because we did not want to give an erroneous account of it.
Perhaps I may now express my own views on this matter. I do not believe that it would be helpful if the amendment were passed. Indeed, I fear that we would throw the whole future of the branding of the community interest company into question. A secondary reason for having this new entity, which stands between the IPS as a full legal entity and a charitable company, is that it would provide a firm, clear brand for a social enterprise which would make it a more coherent entity when it went to the bank manager or funding organisation or whatever. I should be reluctant to do anything which jeopardised that.
I was struck by the letter from the Charity Commission about this part of the Bill. I found its thinking on it very helpful. It spoke at length about the regulatory regime to which the CIC would be subject. As I said, I fear that, were charitable CICs to exist, one would find that the regulatory regime which we shall be addressing would be—
Lord Phillips of Sudbury:My Lords, I am most grateful to the noble Baroness for giving way. Wearing her hat as chair of the coalition, does she not think that it is extremely hard on a social enterprise organisation which satisfies the community interest test not to be allowed to use the CIC label simply because it is also a charity?
Baroness Thornton:My Lords, I shall come to that point. When we were discussing this matter, we knew

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that the charities Bill was coming down the track and that it would address issues concerning charities that trade. That is a very valid point. We have been very focused. It is absolutely true that the community interest company should be simple and pure and that it should stick to this somewhat limited area. That should not mean that charities which want to trade should not have their issues addressed; it should mean that we create something new and fresh with light-touch regulation, and that is what this proposal would achieve.
In conclusion, I understand that the noble Lord, Lord Phillips, is seeking a permissive regime but I do not believe that the amendment would achieve that. I ask him not to proceed along these lines—at least without having further discussions with the sector. I hope that that is what he will do.
Lord Glentoran:My Lords, I have followed this issue with the noble Lord, Lord Phillips, since the commencement of the Bill. I rise again to support his amendment. Before I begin my remarks, perhaps I may take up one or two of the noble Baroness's points which concern me.
The charities Bill is down the track, but it has been there for a very long time. I made the point very strongly to the Government that they had all their orders in the wrong place and their priorities the wrong way round, as usual. I pointed out that the wrong Bill was coming through first. If they had passed the charities Bill first and we all knew where we were on a matter of significant and serious importance—I am not saying that CICs are not important but the subject of that Bill is more so—we probably would not be having this debate now. Having said that, I do not agree with the noble Baroness that this Bill is a simple and legal entity. It is not. We worked terribly hard throughout the whole Grand Committee stage, and we worked together with the Minister and his officials. I think that the Bill is simpler than it was, but, as I have said previously, it is still a long way from being a simple document that you can pick off the shelf and know where you are.
From what the noble Baroness said, I sense that once again she and, indeed, the Government want to remove freedom of choice from the people of this nation. The Government do not wish people to have a choice. If I am running a charity and I choose to turn my charitable company into a CIC, why should I not do so? If those running a CIC in the community interest wish to turn it into a charity, why should they not do so? Why do we have to legislate against that? I do not see the sense or the benefits in that. I think that a CIC should be given the opportunity to register as a charity.
In Grand Committee, the noble Lord, Lord Sainsbury, claimed that it was highly unlikely that a company would want to double the amount of regulation with which it had to deal as a CIC and a charity. It is not up to us in Parliament to decide that; it is up to those who run the company. It is a matter of choice. Yet we return again and again to the fact that a company set up for charitable
852
purposes is to be denied the opportunity of having charitable status if it wishes to become a CIC. Government Amendment No. 46 shows the farcical nature of the point. The Bill would read that a CIC set up for charitable purposes is to be treated as not being so established and is not a charity. Where is the sense in that? I suggest there is none.
On the other hand, I have read the letter sent by the Charity Commission and I appreciate that we should take its arguments for retaining a clear-cut separation between CICs and charities into account. I found one of its arguments, in particular, quite persuasive. The Charity Commission commented in a letter:
"It is not always clear-cut whether a particular form of object is charitable or not. That is, perhaps, particularly so in the area of social enterprise, where many CICs are likely to operate, and where ideas as to what should, and what should not, be regarded as charitable are evolving. Our understanding is that there is a demand for a form of company where the promoters can be certain that, notwithstanding the public interest element, the company will not fall within the framework of charity regulation".
To some extent I sympathise with those comments, but I still argue that those CICs that are sure of the charitable nature of their objectives should be given the option of charitable status, even though they know that should those charitable purposes change and become what might appear, objectively, to be non-charitable, they would have the administrative complication of relinquishing their charitable status.
On re-reading the debate in Committee in Hansard and listening to the concerns of the Charity Commission, I still come down on the side of the noble Lord, Lord Phillips. This is a complex issue and to some extent we are taking a leap in the dark with the new CIC form. I do not believe that anyone knows quite where it will go, who will operate it and in what areas it will operate. I certainly do not. Yet for precisely that reason, I believe that we should leave the matter as open to choice and as variable as possible. That includes allowing an option of charitable status for those who wish it.
We do not need to nanny companies that are well managed in the charitable sector or the social sector. They have managements that should be allowed, and given, the choice. They are grown up people who know what their businesses are about and they should be free to choose under what regulations they wish to operate and how they wish to do that. I support the amendment.
Lord Graham of Edmonton:My Lords, I rise late in the debate on the Bill, but I have followed it with interest. I declare an interest as a consultant of the Co-operative Group, in a general co-operative sense. What I shall say is based upon conversations that I have had with my very good friend Lady Thornton, who has demonstrated today, as previously, her deep grasp of the social enterprise sector. That is acknowledged. I am grateful to her for what she has said.
When I looked at the raison d'être for the Bill—I am prepared to be advised or instructed—I was struck that before the Bill was drafted and presented there was wide consultation on what one might call the

853
stakeholders, arising out of which the precise nature of the clauses—the import and the effect of the clauses—was broadly agreed. The last thing I want to say is that it is not possible for a Member of this House to conclude that a Bill can be improved; that is the idea of this amendment. But when I look at the effect of the amendment, I am not at all certain that it will achieve the objective.
I believe that there is no one in the House who would not subscribe to the view that charities, large and small, are good organisations. I do not believe that there is any noble Lord in the Chamber—perhaps a dozen or 15 Members—who is not associated with a charity of some kind. Members give time and money to charities. However, I consider that the impact of the amendment and the administrative burden would fall on the shoulders of officers who are not full professionals. They would be subject to the regulatory advice and oversight, not only of the regulator, but also of the Charity Commission and the Friendly and Industrial and Provident Societies Act. As a co-operator, I am well aware of the import of that Act and the amendments that we have made to it. These matters will emerge after proper discussion and consultation.
Considering why the Government have brought forward the Bill, no one in the debate disagrees with the objective but, besides tidying up and improving, we are concerned about having due regard to the impact and the consequences of the amendments that we move.
I was interested to hear what the noble Lord, Lord Phillips, said—I always respect his views on these matters—about receiving a number of representations from individual charities saying that they would like the option of the amendment that he proposes. Of course, there are thousands of charities and he will have received representations from some people who have picked up the point. But we should come to a conclusion on a proper basis about whether this is right or wrong.
My noble friend referred to a charities Bill—I can remember the previous one as I have been here long enough and I have a very good memory. There is no doubt that it will receive major scrutiny, not only by this House, but by everyone outside. In my view, the House is better equipped now than it was when the first Charities Bill went through, as we have people in the House who understand the mores of charities.
I believe that the amendment is unnecessary and unwise. It will have an effect on the comparison between the CICs that are registered as charities and those that are not. If people decide to go down the route of registering an organisation as a charity and there are advantages to it, ipso facto there will be disadvantages to others. I am concerned—I am not confused—that we must be sure that when we pass legislation it has the best chance of achieving its
854
objectives. Quite frankly, I am not persuaded. I very much hope that the noble Lord, Lord Phillips, will recognise that we have had a good debate, that he has made a good case, but that there are other opportunities to pursue this point. Therefore, I hope that he will not press the amendment.
Lord Sainsbury of Turville:My Lords, when the noble Lord, Lord Phillips, originally made this point to me I started off being very sympathetic to his viewpoint. A failing of not being a lawyer is that when people talk about "legal purity" I am attracted to the argument. The more the debate has gone on, the more unreal I believe it is and quite unnecessary. There is bound to be some confusion. If one starts to say that there are two organisational forms, and one can have a third form that combines the two, confusion will be caused.
The second argument quite simply is that the amendment is unnecessary. I know that the noble Lord, Lord Phillips, feels that it would be of great benefit to charities; but it is difficult to see what benefit would be derived from it. His words on the matter deviate between saying it is a great boon and saying that no one will use it. In Committee he said, first, that,
"If the CIC was the third option within the Companies Act framework, we would advise our clients—I have talked to many solicitors and to the Charity Law Association, which has the same view—to use the CIC format".
Subsequently, he said,
"I accept that the number of charities wanting to adopt the CIC status may well be relatively small".—[Official Report, 25/3/04; cols. GC 318 and GC 324.]
There is only one possible conclusion from that, that the noble Lord does not have many customers who come to him for advice.
Lord Phillips of Sudbury:My Lords, I thank the Minister for giving way. There speaks a retailer. I was not thinking of my customers. I am gratified that the Minister has studied my pronouncements so carefully. In the second quote, I was saying that the number of charities that will satisfy the community interest test will be limited. That is the point. Those who do will choose the CIC format rather than the company limited by guarantee or the company limited by shares. The CIC format is specifically for community enterprise and it has the sort of ethos that is consistent with that, whereas the company limited by shares or guarantee does not.
6.30 p.m.
Lord Sainsbury of Turville:My Lords, I still think that the argument that this confers any benefit is remote. Against that, one will have to set the question of confusion. The only argument for it is the argument of legal purity—that this is the way that we have always done it—and even that is slightly tarnished by the fact that it has not always been true.
There are many areas of Part 2 of the Bill where we have been able and happy to table amendments in response to concerns that have been raised in Committee. However, we strongly believe in this case that the

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amendment would have negative consequences for both CICs and charities. Our policy is that CICs should not have charitable status. The CIC has been developed as a new option for organisations seeking a flexible company form, not subject to the restrictions of charitable status but with an asset lock policed by an independent CIC regulator.
That forms a clear and separate brand that has instantly recognisable attributes and will be easily understood by the social enterprise sector, the community, and most importantly by banks and other businesses dealing with CICs. That is the basis on which the CIC has been designed and on which we consulted last year. The CIC form is not intended for use by charities and is not designed for them. Charities already have a wide range of forms of incorporation available to them, including existing company forms. The draft Charities Bill published in May offers an additional form specially designed for charities, the charitable incorporated organisation, or CIO.
As I said in Committee, we are not depriving charitable organisations of a useful choice. The CIC offers nothing that cannot already be obtained using existing company forms. The key features of the CIC form are a regulated asset lock and a clear identity. Charities already have both those features because of their regulation by the Charity Commission. If a charity was also a CIC, it would simply take on additional and overlapping regulation from the CIC regulator. Therefore, an organisation that wanted to be a charitable company would be far better advised to use an existing company form, such as the company limited by guarantee, than to disadvantage itself by using the CIC form.

We and the Home Office also believe that the amendment would damage both the charity and CIC brands. Charity at present is a clear and valued brand. Regulation by the Charity Commission means that there are tight restrictions on charities, in particular charities are distinct both in the public mind and in reality from profit-making companies. Companies pay their directors and trade freely in a way that charities cannot. Furthermore, the charity brand is synonymous with a tremendous amount of goodwill and public confidence. CICs are companies, and while they have an asset lock they will trade more freely and in a manner of their choosing, may pay directors, and in some cases may distribute limited dividends to shareholders. If CICs were able to be treated as charitable, there would be a fundamental blur in that distinction, as other CICs would then trade with non-charitable purposes. That would lead to a complex knot of issues between the Charity Commission—
Lord Glentoran:My Lords, I thank the noble Lord for giving way. As I understand it, CICs can issue debentures and raise funds in that way. Is that so with
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charitable companies? Can a limited company that is a charity issue debentures and raise funds in the same way?
Lord Sainsbury of Turville:My Lords, I think not, but I would need to ask. Perhaps the noble Lord, Lord Phillips, will rise to his feet to give some legal advice.
Lord Phillips of Sudbury:My Lords, for a small fee! Without question, the charity can raise funds by issuing debentures if its constitution so allows; or by a mortgage if its constitution so allows.
Lord Sainsbury of Turville:My Lords, I hope that answer gave the information required. That was certainly the simplest way to get the advice.
I am not certain of the relevance to the argument. The fact is that we are going to get this knot of issues between the Charity Commission and the CIC regulator. It is clear that it would be necessary to remove so many of the new and flexible features of what a CIC is in order to make it fully compliant with the requirements of charity law that in fact the CIC would cease to be a CIC in all but name. It has been suggested that the CIC "brand" might be of benefit to a charity, but we have seen absolutely no evidence of that. As I have said, the CIC is not intended for charities. The noble Lord, Lord Phillips, said that he had received many representations. We have received no representations on the issue, so I do not think that there is an enormous number of people who want this.
Even if the argument that the CIC brand might be of benefit to a charity were true, which I doubt, it would not outweigh the very real dangers of confusing two separate vehicles that are both intended for public benefit, but in their own distinctive ways. Additionally, we would not want the CIC to develop into a brand for social enterprise in general. As I have said, the CIC is designed to be a new and useful option, but one that sits within a wider choice of organisational forms. Consultation responses on the issue of branding strongly supported this approach, half of the respondents specifically cautioning against the CIC becoming the brand for social enterprise.
In closing, I repeat that the Government have carefully considered the arguments advanced by the Opposition both inside and outside Parliament. We have also consulted widely, including with the Charity Commission, which has written to us supporting the Government's position. I have placed a copy of that letter in the Library of the House. We remain convinced that the policy of not allowing CICs to be treated as charities is right, for the reasons that I have given. That is why we are strongly opposed to this amendment.
Lord Phillips of Sudbury:My Lords, I am most grateful to the Minister for his usual courteous and detailed reply. I am also grateful to the other Members of the House who contributed to the debate so helpfully. At this time of night, having had a full debate, I will not labour the argument. This is the third

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time that we have been round the mulberry bush in detail. The noble Lord, Lord Graham, said that there were other opportunities to pursue the point. I am not sure what they are, except the one that I am now going to adopt, which is to test the opinion of the House.
6.37 p.m.
On Question, Whether the said amendment (No. 45) shall be agreed to?
Their Lordships divided: Contents, 94; Not-Contents, 105.

Division No. 3

CONTENTS

Addington, L.

McNally, L.

Alderdice, L.

Maddock, B.

Alton of Liverpool, L.

Mancroft, L.

Astor, V.

Mar and Kellie, E.

Astor of Hever, L.

Marlesford, L.

Avebury, L.

Masham of Ilton, B.

Baker of Dorking, L.

Michie of Gallanach, B.

Beaumont of Whitley, L.

Miller of Chilthorne Domer, B.

Bhatia, L.

Monro of Langholm, L.

Bowness, L.

Moynihan, L.

Brooke of Sutton Mandeville, L.

Newby, L.

Carlisle of Bucklow, L.

Noakes, B.

Carnegy of Lour, B.

Northover, B.

Cope of Berkeley, L.

Norton of Louth, L.

Crickhowell, L.

Oakeshott of Seagrove Bay, L.

Cumberlege, B.

O'Cathain, B.

Dean of Harptree, L.

Onslow, E.

Denham, L.

Park of Monmouth, B.

Dholakia, L.

Peyton of Yeovil, L.

Dixon-Smith, L.

Phillips of Sudbury, L.

Eccles of Moulton, B.

Rawlings, B.

Elton, L.

Razzall, L.

Falkland, V.

Reay, L.

Falkner of Margravine, B.

Redesdale, L.

Feldman, L.

Rees, L.

Ferrers, E.

Rennard, L.

Finlay of Llandaff, B.

Renton, L.

Fookes, B.

Roberts of Llandudno, L.

Fowler, L.

Roper, L. [Teller]

Garden, L.

Selkirk of Douglas, L.

Glentoran, L.

Selsdon, L.

Goodhart, L.

Sharman, L.

Gray of Contin, L.

Shutt of Greetland, L.

Hamwee, B.

Skelmersdale, L. [Teller]

Harris of Richmond, B.

Smith of Clifton, L.

Higgins, L.

Stoddart of Swindon, L.

Hodgson of Astley Abbotts, L.

Taylor of Warwick, L.

Howe, E.

Thomas of Walliswood, B.

Jenkin of Roding, L.

Tope, L.

Jopling, L.

Tordoff, L.

King of Bridgwater, L.

Waddington, L.

Kingsland, L.

Wakeham, L.

Knight of Collingtree, B.

Wallace of Saltaire, L.

Lamont of Lerwick, L.

Watson of Richmond, L.

Lester of Herne Hill, L.

Weatherill, L.

Liverpool, E.

Williams of Crosby, B.

Lyell, L.

Windlesham, L.

NOT-CONTENTS

Acton, L.

Bassam of Brighton, L.

Alli, L.

Blackstone, B.

Amos, B. (Lord President of the Council)

Borrie, L.

Brooke of Alverthorpe, L.

Andrews, B.

Brookman, L.

Archer of Sandwell, L.

Burlison, L.

Bach, L.

Carter, L.

858

Chandos, V.

King of West Bromwich, L.

Christopher, L.

Kirkhill, L.

Clarke of Hampstead, L.

Layard, L.

Clinton-Davis, L.

Lea of Crondall, L.

Corbett of Castle Vale, L.

Lockwood, B.

Crawley, B.

Lofthouse of Pontefract, L.

David, B.

McCarthy, L.

Davies of Oldham, L. [Teller]

Macdonald of Tradeston, L.

Dean of Thornton-le-Fylde, B.

McIntosh of Haringey, L.

Dixon, L.

McIntosh of Hudnall, B.

Donoughue, L.

MacKenzie of Culkein, L.

Drayson, L.

Mackenzie of Framwellgate, L.

Dubs, L.

Mallalieu, B.

Elder, L.

Mitchell, L.

Evans of Parkside, L.

Monson, L.

Evans of Temple Guiting, L.

Morgan of Drefelin, B.

Falconer of Thoroton, L. (Lord Chancellor)

Morris of Aberavon, L.

Patel, L.

Farrington of Ribbleton, B.

Patel of Blackburn, L.

Faulkner of Worcester, L.

Pendry, L.

Fyfe of Fairfield, L.

Pitkeathley, B.

Gale, B.

Plant of Highfield, L.

Gavron, L.

Prosser, B.

Gibson of Market Rasen, B.

Rendell of Babergh, B.

Giddens, L.

Richard, L.

Goldsmith, L.

Rooker, L.

Gordon of Strathblane, L.

Rosser, L.

Gould of Potternewton, B.

Sainsbury of Turville, L.

Graham of Edmonton, L.

Scotland of Asthal, B.

Greenway, L.

Simon, V.

Grocott, L. [Teller]

Stone of Blackheath, L.

Harris of Haringey, L.

Symons of Vernham Dean, B.

Harrison

Temple-Morris, L.

Hart of Chilton, L.

Thornton, B.

Haskins, L.

Triesman, L.

Hayman, B.

Truscott, L.

Henig, B.

Tunnicliffe, L.

Hogg of Cumbernauld, L.

Turner of Camden, B.

Hollis of Heigham, B.

Wall of New Barnet, B.

Howells of St. Davids, B.

Walton of Detchant, L.

Hoyle, L.

Warner, L.

Hughes of Woodside, L.

L.Watson of Invergowrie, L.

Hunt of Kings Heath, L.

Whitaker, B.

Irvine of Lairg, L.

Whitty, L.

Janner of Braunstone, L.

Williams of Elvel, L.

Judd, L.

Woolmer of Leeds, L.

Kilclooney, L.

Resolved in the negative, and amendment disagreed to accordingly.
6.47 p.m.
Lord Sainsbury of Turvillemoved Amendment No. 46:
Page 27, line 3, leave out from "purposes" to "a" in line 4 and insert "is to be treated as not being so established, and accordingly—
(a) is not"
The noble Lord said: My Lords, we have debated the Government's policy that CICs should not be treated as charities and should not have either the benefits or the obligations of charitable status. This amendment does not affect that policy. Part of the intention of Clause 23(3) is that a CIC, in its capacity as a company, should be excluded from tax reliefs for charities. It has been drawn to our attention that the relevant provisions of tax law, such as Section 506(1) of the Income and Corporation Taxes Act 1988, use a definition of "charity" that is very similar to, but not identical to, the definition used in our Bill, which is that used in the Charities Act 1993.

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That could in principle lead to uncertainty as to whether CICs with wholly charitable purposes may be considered to be charities for tax purposes. The amendment should remove any doubt that CICs are not to be treated as charities under the 1988 Act or for any other tax purposes.
In turn, CICs and outright gifts or bequests to them will not be eligible for any tax reliefs or exemptions which are available only to charities or for charitable giving. A donation to a CIC for its own purposes will not attract relief, since this legislation makes it clear that a CIC is not to be treated as established for charitable purposes. However, a donation to a charitable trust of which a CIC is trustee will be eligible for relief. The charitable status of a trust is unaffected by the status of the trustee. I beg to move.
On Question, amendment agreed to.
Clause 24 [Regulator]:
Lord Sainsbury of Turvillemoved Amendment No. 47:
Page 27, line 19, after "with" insert ", and with organisations representing,"
The noble Lord said: My Lords, this group of government amendments deals with a number of changes to the Bill regarding the regulator in Clause 24 and Schedule 3. It also contains two amendments on the reporting and accounting procedures for the regulator and the official property holder in Schedules 3 and 5.
In Grand Committee an amendment to Clause 24 was tabled by my noble friends Lord Fyfe of Fairfield and Lady Thornton which proposed making it a formal requirement for the regulator to establish and consult a practitioner panel. As I said during the debate, we fully intend that the regulator should carry out a wide range of consultation and expect this to include consultation with practitioners and experts from the sector. However, we did not believe an amendment to the Bill formalising how the regulator should consult with a panel or panels was necessary.
We have subsequently held discussions with the Social Enterprise Coalition and have reached the conclusion that it would be helpful to have an amendment requiring the regulator to have regard to the outcome of consultations with all appropriate organisations, including representative bodies. The amendment to Clause 24(4)(b) therefore directs the regulator to have regard to the outcome of consultations with organisations representing CICs and others with relevant experience. This would include any relevant panels of experts. We believe that the regulator is also likely to want to enter into a memorandum of understanding with the Social Enterprise Coalition, and perhaps other organisations, about how consultation of this sort would work in practice.
Clause 24(4)(c) directs the regulator to have regard to the desirability of using resources in the most efficient and economic way. It is our view that the duty applies only to the use by the regulator of his or her own resources. However, during debate in Committee it became apparent that others had interpreted it as
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referring to the use of resources by CICs. As a result, and in accordance with the request made in Grand Committee by the noble Lord, Lord Phillips, we are happy to amend the duty in subsection (4)(c) so that it explicitly refers to the use of the regulator's resources.
We have tabled an amendment to Schedule 3 in response to the request made by the noble Lord, Lord Glentoran, for details of the maximum length of appointment and reappointment to appear in the Bill. The amendment puts certain restrictions on the period of appointment for the regulator into Schedule 3. As my noble friend Lord Evans said in Grand Committee, the regulator's appointment will follow the code of practice for ministerial appointments to public bodies published by the Commissioner for Public Appointments. Therefore the amendment follows the provisions of that code.
The final two amendments deal with the reporting and accounting requirements for the regulator and the official property holder in Schedules 3 and 5. This fulfils the commitments given by my noble friend Lord Evans and me during Grand Committee to amend Schedule 3 to give the Secretary of State the power to require the regulator to produce separate accounts, and to amend Schedule 5 to require the official property holder to produce a yearly report of his or her activities.
In the short term we do not expect that it will be necessary to require the regulator to produce separate accounts. At least initially the regulator's office will be very small and will be wholly funded by the DTI. Therefore the regulator will be accounted for within the DTI's accounts. However, in the future it is intended that the regulator will move towards being self-financing through fee income. It is also possible that the CIC regulator may expand in size if necessary to cover increased demand for CICs.
These amendments have been brought forward following discussions with the National Audit Office. Schedule 3 already gives the Secretary of State the power to require the regulator to provide such reports and information relating to the performance of the regulator's functions as she might specify. The regulator is also already under an obligation to provide an annual report on the exercise of his functions.
The amendments reflect our policy that it should be possible to require the regulator to produce separate accounts and that those accounts should be subject to appropriate scrutiny. It became apparent that the power of the Secretary of State to require reports and information was not sufficient in this regard.
Amendment No. 64 to Schedule 5 requires the official property holder to produce a yearly report on the exercise of the functions carried out by him or her. This amendment was also developed following discussions with the National Audit Office. The official property holder must send the report to the regulator and the regulator must forward it on to the Secretary of State, who must lay it before each House of Parliament. These amendments to Schedules

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3 and 5 will improve the transparency and scrutiny of the regulator and the official property holder. I beg to move.
Lord Glentoran:My Lords, I thank the Minister for bringing forward these amendments and going through them so clearly. Between us all—Ministers, government officials, Members from the Liberal Democrat Benches and ourselves—the meetings we have had between Grand Committee and today indicate that we have moved a long way forward in improving this part of the Bill.
I believe that these amendments are the result of lobbying on the part of the Social Enterprise Coalition. They mark a step forward in ensuring that the co-operation and consultation of the regulator with the body representing CICs is made explicit on the face of the Bill. We also welcome the clarification provided by Amendment No. 48, which will ensure that the regulator must have regard, when discharging his duties, to the desirability of using his own resources rather than those of the companies under his regulation,
"in the most efficient and economic way".
Turning to the amendments to Schedule 3, Amendment No. 52 goes a considerable way to meeting the requirements we sought in Grand Committee. We argued that the terms of office and appointment of the regulator should be put on to the face of the Bill rather than it being assumed that they would be covered by the codes of practice governing ministerial appointments to public bodies. Our original amendment suggested three-year terms, but we have no problem with the provision for no more than five years proposed by this amendment. We thank the Government for listening to our concerns and making the terms of office explicit on the face of the Bill.
Amendments Nos. 53 and 54 would expand the reporting requirements on the regulator and the official property holder. The Minister has mentioned that these amendments were developed after discussions with the National Audit Office and the Treasury. I have to say that I was slightly surprised to learn that the Government did not consult the NAO and the Treasury before bringing the Bill forward in Parliament. One would have hoped that such discussions might have taken place earlier. However, we have no substantial problem with the new requirements on reporting introduced by these amendments, and we welcome the accountability they introduce for the regulator and the official property holder. We support the amendments.
Lord Phillips of Sudbury:My Lords, I associate myself with the comments of the noble Lord, Lord Glentoran, and I am obliged for the particular amendment brought forward by the Minister pursuant to remarks I made at the previous stage.
Baroness Thornton:My Lords, I thank my noble friend on the Front Bench.
On Question, amendment agreed to.
Lord Sainsbury of Turvillemoved Amendment No. 48:
Page 27, line 21, after "using" insert "the Regulator's"
On Question, amendment agreed to.
Lord Evans of Temple Guitingmoved Amendment No. 49:
Page 27, line 23, leave out from first "The" to end of line 27 and insert "Regulator may issue guidance, or otherwise provide assistance, about any matter relating to community interest companies.
( ) The Secretary of State may require the Regulator to issue guidance or otherwise provide assistance about any matter relating to community interest companies which is specified by the Secretary of State."
The noble Lord said: My Lords, in moving Amendment No. 49, I shall speak also to Amendments Nos. 50, 51 and 84. The Government have prepared these amendments in the light of the debate on Clause 24 in Grand Committee. The noble Lord, Lord Phillips of Sudbury, wondered whether the regulator had discretion to refuse to offer guidance and assistance even where the Secretary of State had instructed such help to be provided. The noble Lords, Lord Glentoran and Lord Hodgson, had similar concerns.
Clause 24(5) currently contains two linked but separate provisions about advice and information. The regulator has the power to issue guidance or otherwise give assistance on any matters relating to CICs. This may include advice on the permissibility of actions if the regulator believes that to be appropriate. In addition the Secretary of State can require the regulator to provide guidance or assistance.
These amendments to Clause 24 are intended to make this clearer by splitting subsection (5) into two subsections covering the powers of the regulator and the Secretary of State. This should make it clear that the regulator cannot refuse to provide any guidance or assistance on CICs that the Secretary of State has required him or her to provide.
The amendment to Clause 54 is in response to the debate in Grand Committee about how far the regulator should be obliged to provide information free of charge. During that debate, I said that we expected that the regulator would provide guidance on a number of areas and that the core guidance, of general interest to CICs and others. would be made freely available. The noble Lord, Lord Phillips of Sudbury, suggested that the Bill should make it clear that general guidance would be available for free. This amendment seeks to do that and I am grateful to the noble Lord for his suggestion.
The amendment prevents the regulator using his powers to charge fees under Clause 54(3) for information that he considers to be of general interest. As I have said, if the regulator fails to provide advice or guidance, the Secretary of State can exercise her powers under Clause 24 to insist that he does. Where the regulator issues general guidance as a result of a requirement from the Secretary of State, he will not be able to exercise his powers under Clause 54(3) to charge a fee for such guidance. I beg to move.
7 p. m.
Lord Glentoran:My Lords, for clarification, I assume that the Minister was speaking to all the amendments in the group—that is, Amendments Nos. 54 to 60 and 86.
Lord Evans of Temple Guiting:My Lords, I apologise for not making that clear.
Lord Glentoran:My Lords, the amendments focus on the guidance which we believe is a fundamental and key issue, especially as CICs are new kinds of companies. I thank the Government for listening to our concerns voiced during the Committee stage. We were certainly perturbed that the regulator's right to provide advice was fettered by the Bill. I am now happy to see that the regulator has the power to issue guidance and provide assistance free of charge at his own behest or on the direction of the Secretary of State. For all those companies which opt for CIC status but are unfamiliar with the requirements that they will have to follow, this is a vital provision. I hope that this helps to ensure that the take up of CIC as a company form is both successful and widespread.
Amendment No. 84, in particular, is welcome. This ensures that the provision of guidance by the regulator will not be seen as one of the non-statutory services for which the regulator may charge an additional fee under Clause 54(3). At Committee stage we were very concerned about what additional services the regulator could provide at his discretion and charge for. Having received some clarification from the Minister, at this stage we are content with Clause 54(3), with the proviso in Amendment No. 84 which ensures that the provision of guidance is not classed as an additional discretionary service.
As to Amendment No. 60, we are concerned that there are still no regulations; we have not seen any regulations in relation to the procedure to be followed by the appeal officer.
Lord Sainsbury of Turville:My Lords, there are regulations. I think they have been placed in the Library of the House.
Lord Glentoran:My Lords, I thank the Minister for that information. I apologise if I have not kept up to date.
In relation to Amendment No. 86, we fully support the changes made to Clause 25 and the process of appeal to the appeal officer against a decision of the regulator. I am heartened to see that the Minister has listened to the concerns voiced at Committee stage by both the noble Lord, Lord Phillips, and myself.
My name is attached to Amendment No. 56, which would allow an appeal on the ground that the regulator made a material error of law or circumstance. I can see the point that the Minister has made—
Lord Phillips of Sudbury:My Lords, I hate to interrupt the noble Lord—I nearly said "my noble
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friend"—but is he not speaking to the next group of amendments? Are we discussing both groups? I am getting lost.
Lord Evans of Temple Guiting:My Lords, with all due respect, I think the noble Lord, Lord Glentoran, has mentioned Amendment No. 86 on two occasions; I believe the last amendment in the group that we are discussing is Amendment No. 84.
Lord Glentoran:My Lords, I apologise. The groupings list I have may be out of date. The one I am reading from refers to Amendments Nos. 54 to 60 and 86.
Lord Phillips of Sudbury:My Lords, we have not got there yet; we are on the previous group.
Lord Glentoran:My Lords, are we discussing Amendments Nos. 49, 50, 51 and 84?
Lord Phillips of Sudbury:Yes.
Lord Glentoran:My Lords, I apologise.
Lord Phillips of Sudbury:My Lords, the amendments are extremely helpful. I am obliged for their content.
On Question, amendment agreed to.
Lord Evans of Temple Guitingmoved Amendments Nos. 50 and 51:
Page 27, line 28, leave out "subsection (5)" and insert "this section"
Page 27, line 30, leave out "that subsection" and insert "this section"
On Question, amendments agreed to.
Schedule 3 [Regulator of Community Interest Companies]:
Lord Evans of Temple Guitingmoved Amendments Nos. 52 and 53:
Page 62, line 8, leave out from beginning to first "the" in line 13 and insert—
"( ) The period for which a person is appointed as Regulator must not exceed five years.
( )A person who has held office as Regulator may be reappointed, once only, for a further period not exceeding five years.
( )The Regulator may at any time resign the office by giving notice in writing to the Secretary of State.
( )"
Page 63, line 10, leave out sub-paragraphs (1) and (2) and insert—

"The Regulator must, in respect of each financial year, prepare a report on the exercise of the Regulator's functions during the financial year.

The Regulator must prepare accounts in respect of a financial year if the Secretary of State so directs.

The Regulator must send a copy of the accounts to the Comptroller and Auditor General.

The Comptroller and Auditor General must examine, certify and report on the accounts and send a copy of the report to the Regulator.

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The Regulator must include the accounts and the Comptroller and Auditor General's report on them in the report prepared by the Regulator in respect of the financial year to which the accounts relate.

The Regulator must prepare that report as soon as possible after the end of the financial year to which it relates.

The Regulator must send to the Secretary of State a copy of—

each report prepared by the Regulator under subparagraph (1), and

each report prepared by the Official Property Holder under paragraph 6 of Schedule 5.

The Secretary of State must lay before each House of Parliament a copy of each of those reports."

On Question, amendments agreed to.
Clause 25 [Appeal Officer]:
Lord Sainsbury of Turville moved Amendment No. 54:
Page 27, line 42, leave out "only"
The noble Lord said: My Lords, in moving Amendment No. 54, I shall speak also to government Amendments Nos. 55, 57, 58, 59 and 86, and to opposition Amendments Nos. 56 and 60.
The Government have tabled the amendments to Clause 25 following the debate on the clause in Grand Committee and further discussions with noble Lords opposite. On reflection, we believe that widening the remit of the appeal officer to enable him to consider appeals on matters of law as well as on issues of fact is reasonable and will be helpful to CICs. We believe that the government amendments achieve the intended effect of the opposition amendments to the clause.
It is not necessary to create an additional ground of appeal that the regulator made a material error as to the circumstances. This is because any such error on the part of the regulator will either be an error as to the facts or an error as to the law. In either case, a ground of appeal will already be available. The reference to circumstances would create confusion by implying that circumstances were somehow different from matters of fact or law.
Additionally, during our debate at the Committee stage on the right of appeal to the new appeal officer, the noble Lord, Lord Phillips of Sudbury, raised a question about the effectiveness of the rights of appeal to the appeal officer in Clauses 33 and 42 of the Bill. I wrote to the noble Lord, Lord Phillips, on that point on 30 April 2004 and copied the letter to the noble Lord, Lord Glentoran. A copy has been placed in the Library of the House. The letter confirmed that the provisions of Clause 25 applied to all appeals to the appeal officer made under this part of the Bill.
One of the particular points raised by the noble Lord, Lord Phillips, was whether the regulator is obliged to give reasons for his decision. As I said in my letter to the noble Lord, the Government's view is that the regulator is likely to be under an implied duty to give his reasons whenever he takes a decision or makes an order in respect of which Part 2 of the Bill provides a right of appeal. However, we have concluded that it would be helpful to make it clear on the face of the Bill that the regulator should always give reasons for every decision or order for which the Bill provides a right of
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appeal. This will remove any room for doubt on the matter. It will reassure and inform CICs of their rights and should guide the regulator towards developing his procedures accordingly.
Briefly, to address Amendment No. 60, I should like to explain again the Government's position on provisions to be made under the powers in Schedule 4. The absence of draft provisions in the dummy regulations on the practice and procedure of the appeal officer reflects our view that this is one of the simpler delegated powers in this part of the Bill. In our memorandum to the Delegated Powers and Regulatory Reform Committee, we said that we believed that the procedures that will be set under the power will be technical and non-contentious. These will include provisions for time limits for appeals and setting the practice and procedures within which the appeal officer may operate.
The regulations, including any time limits, will of course be based on what is regarded as good practice with regard to the precedents under other appeal procedures. To this end we are in contact with the Council on Tribunals and we intend to consult it on the preparation of draft regulations under this power. We will also be fully involving the social enterprise sector in their development. There will be an opportunity for the sector and others to comment formally, as well as informally, on them before they are finalised. I therefore ask the opposition parties to withdraw their amendments. I beg to move.
Lord Phillips of Sudbury:My Lords, I am not entirely sure that I understand the impact of Amendment No. 60, which seeks to remove paragraph 4 of Schedule 4 on page 64. The Minister referred to discussions with the Council on Tribunals and so on, but Amendment No. 60 would leave out altogether paragraph 4 of Schedule 4, the paragraph which deals with procedures. Under what power will procedures be brought forward hereafter if paragraph 4 is removed in its entirety and nothing put in its place?
Lord Evans of Temple Guiting:My Lords, in an attempt to clarify the position, I think that the noble Lord is talking to an opposition amendment that has not yet been moved.
Lord Phillips of Sudbury:My Lords, the Minister is absolutely right—the amendment does not have "g" in front of it. That makes the whole matter infinitely more understandable. I am obliged.
As I am on my feet, I hope that the noble Lord, Lord Glentoran, will not mind me responding generally to the amendments. They are both generous and extremely helpful. I pick out Amendments Nos. 55 and 86 in particular. Needless to say, I shall be more than delighted not to move my Amendment No. 56, which is in the group, because Amendment No. 55 does more or less the same thing. I am grateful that the Minister has listened, and I believe that the Bill is better for these amendments.
Lord Glentoran:My Lords, for clarification, first I apologise to the House and to Hansard for getting confused and trying to get us to dinner too quickly.

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To repeat what I said before, Amendment No. 60 is a probing amendment concerning regulations. The Minister has responded by saying that they are now in the Library. With regard to the remainder of the amendments, we fully support all the changes to Clause 25, in particular, and the process of appeal to the appeal officer against a decision of the regulator. We are heartened to see that the Minister has listened to concerns voiced in Committee by the noble Lord, Lord Phillips, and myself. I have put my name to Amendment No. 56, which would allow an appeal on the ground that the regulator made a material error "of law or circumstances". The noble Lord, Lord Phillips, has said that he will not be moving that amendment. In general, we welcome all the amendments.
On Question, amendment agreed to.
Lord Sainsbury of Turvillemoved Amendment No. 55:
Page 27, leave out line 43 and insert "of law or fact"
On Question, amendment agreed to.
[Amendment No. 56 not moved.]
Lord Sainsbury of Turvillemoved Amendment No. 57:
Page 28, line 1. leave out "find the facts and either"
On Question, amendment agreed to.
Lord Sainsbury of Turvillemoved Amendments Nos. 58 and 59:
Page 28, line 2, after "appeal," insert—
"( ) allow the appeal,"
Page 28, leave out line 5 and insert "any rulings of law and findings of fact made by the Appeal Officer"
On Question, amendments agreed to.
Schedule 4 [Appeal Officer fir Community Interest Companies]:
[Amendment No. 60 not moved.]
Schedule 5 [Official Property Holder for Community Interest Companies]:
Lord Evans of Temple Guitingmoved Amendment No. 61:
Page 65, line 4, leave out sub-paragraph (1).
The noble Lord said: My Lords, these amendments address several areas of concern that have been raised about the official property holder. Amendment No. 62 has been tabled to ensure that the official property holder will hold property on trust for whoever is the rightful owner of that property. Currently, the Bill provides that the official property holder holds property on trust for a CIC, but this will not always be correct, because the CIC may not be the true owner of the property. By making the official property holder a trustee, the provisions of trust law will apply so that the official property holder holds the property on trust for its rightful owner.
Where the official property holder ends up holding property which does not actually belong to the CIC, it is important that the owners of that property can get it back. Therefore, Amendment No. 63 enables the official property holder to release the property in this
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situation. In fact, the amendment goes much further than that, and ensures that the official property holder is able to release or deal with the property in order to give effect to any right or interest that any person, other than the CIC, has in the property. This ensures that the vesting of property in the official property holder will not affect any third party rights in the property.
As the official property holder is a trustee, he or she will have a duty under the general provisions of trust law to preserve the trust property and to pay it to those who are entitled to it. This will mean that the official property holder should give effect to any third party rights or interests in the property, provided he or she is satisfied that they are legitimate.
7.15 p.m.
Amendment No. 63 also fulfils the commitment that my noble friend Lord Sainsbury gave in Grand Committee to clarify the relationship between the official property holder and the insolvency regime. We are grateful to the Charity Law Association and others for raising this issue. The Bill, as amended, will ensure that the official property holder is able to follow the instructions of an administrative receiver, administrator or liquidator of the CIC. This amendment reflects our policy intention, which my noble friend Lord Sainsbury set out in Committee, that the assets which the official property holder holds on trust for a CIC should, on insolvency, be available to satisfy the liabilities of the CIC concerned.
Amendment No. 61 removes the requirements on the official property holder to comply with any general or special directions given by the regulator. This will ensure that the regulator cannot prevent the official property holder giving effect to the interests of third parties in the property or complying with the requests of an administrator, administrative receiver or liquidator of the CIC. I beg to move.
Lord Glentoran:My Lords, again, I thank the Minister for his explanation of these new government amendments. He warned us in Committee that some additional amendments might be necessary to deal with insolvency practitioners. I also thank him and the Government for the letter that we received when the amendments were sent out for publication. It was extremely helpful, and we are very grateful.
While I appreciate the need for the amendments as described by the Minister, I still find having a separate position of official property holder somewhat unnecessary. The Minister gave some reasons why the regulator could not hold property as a trustee. He is not a corporation sole, as the official property holder is. But I still believe that it significantly increases the administrative burden, expense and bureaucracy of the new system to have an official property holder as well as a regulator and appeal officer. I just feel that too many people in separate posts and small empires can or may spring up.
Lord Evans of Temple Guiting:My Lords, I shall briefly say why the official property holder is

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necessary. The regulator will use his various supervisory powers where appropriate. The power to vest property in the official property holder allows the regulator to take immediate action to secure assets. This enables the regulator to take quicker action to safeguard the property for the community interest than would be possible by removing directors or appointing a manager. This is vital to maintain public confidence in CICs where there is a risk of abuse of assets. That is why, in our view, there has to be an official property holder. I hope that the noble Lord is satisfied with that explanation.
On Question, amendment agreed to.
Lord Sainsbury of Turvillemoved Amendments Nos. 62 and 63:
Page 65, leave out lines 17 and 18 and insert "as a trustee."
Page 65, line 19, leave out "But he" and insert "The Official Property Holder may release or deal with the property—

to give effect to any interest in or right over the property of any person (other than the community interest company by which, or in trust for which, the property was held before it was vested or transferred), or

at the request of a person appointed to act as administrative receiver, administrator, provisional liquidator or liquidator of the company.

( ) Subject to sub-paragraph (2), the Official Property Holder"
On Question, amendments agreed to.
Lord Sainsbury of Turville Lord Sainsbury of Turville moved Amendment No. 64:
Page 65, line 27, at end insert—
"Reports

As soon as possible after the end of each financial year, the Official Property Holder must prepare a report on the exercise of the Official Property Holder's functions during the financial year.

The Official Property Holder must send a copy of the report to the Regulator.

"Financial year" means—

the period beginning with the date on which a person is first appointed as the Official Property Holder and ending with the next 31st March, and

each successive period of 12 months beginning with 1st April."

On Question, amendment agreed to.
Clause 27 [Cap on distribution and interest]:
Lord Evans of Temple Guitingmoved Amendment No. 65:
Page 28, line 18, at beginning insert—
"( ) Community interest companies must not distribute assets to their members unless regulations make provision authorising them to do so.
( ) If regulations authorise community interest companies to distribute assets to their members, the regulations may impose limits on the extent to which they may do so."
The noble Lord said: My Lords, in moving Amendment No. 65, I shall also speak to Amendments Nos. 66 and 67.
In Committee, the noble Lord, Lord Glentoran, argued that Clause 27 should be revised so that regulations would be required, rather than permitted, to prohibit or set limits on distributions and interest payments. I responded that such a change was not desirable, since it would have the effect of requiring
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limits to be placed on all distributions to members and interest payments, including conventional debt interest payments by CICs, which we do not wish to limit.
However, on reflection, we agree that the restriction on asset distributions to members is such an important feature of the CIC that it should be reflected in the Bill. The amendment we have proposed to Clause 27(1) will, I hope, address the concerns raised in Committee. We are grateful to the noble Lord, Lord Glentoran, for the pressure that he has put on us.
The amendments turn around the structure of Clause 27(1)(a). All asset distributions to members will now be prohibited unless regulations provide otherwise. This structure replaces current Clause 27(1)(a), which simply allows regulations to impose prohibitions or limits.
The Government of course intend to make regulations under this clause, as amended, in order to allow CICs to pay dividends on certain classes of share, subject to a cap on the level of dividends that will be set by the regulator. Therefore, our policy on asset distributions by CICs has not changed, but the amendment will ensure that distributions can be made only if regulations specifically authorise them.
My noble friend Lord Sainsbury has sent to Members of the Opposition and placed in the Library of the House an illustrative draft of how we intend the regulations on distribution to work. As with the other regulation-making powers contained in Part 2 of the Bill, the Government have given an assurance that they will seek the views of interested parties before laying a final version of the regulations before Parliament.
Amendment No. 68 would clarify the policy intention that underlies Clause 27(3)(b), which concerns the setting of different limits on asset distributions and interest payments by CICs. As I said in Committee, we intend that that would be used in respect of CICs which carry out activities in particular business sectors, or perhaps geographical areas, where a different limit seems appropriate. In considering how to set limits, and whether different limits are appropriate, the regulator will always be bound by the requirement, set out in Clause 27, to undertake appropriate consultation and to consider the impact which the limits that he sets will have on CICs.
It became apparent in Committee that the Government and Members of the Opposition agreed that such flexibility was desirable, but that the provision as worded might enable the regulator to specify a limit for an individual CIC. The noble Lord, Lord Phillips of Sudbury, suggested that it might be helpful to amend the phrase "different limits for different cases" in order to remove that possibility. That is what our amendment would do.
Amendment No. 69 also reflects debate in Committee. As I said then, the Government do not intend the power of the Secretary of State in Clause 27(5) to be used to require the regulator to change limits which he has set. Its purpose is simply to enable the Secretary of State to require the

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regulator to review the limits for particular groups or categories of CICs. For instance, if it seemed to the Secretary of State that there was a case for reviewing a particular limit, or indeed for setting a new limit for a particular description of CIC, she could require a review. In each case, the decision on what to do after the review had been carried out would lie with the regulator, who would of course be required by Clause 27(4) to consult before making any change to the limits.
In the light of points made in Committee, we have accepted the suggestion of the noble Lord, Lord Phillips, that we delete the final words of Clause 27(5). That should make it clear that the Secretary of State's power extends only to requiring the regulator to carry out a review, while leaving it to the regulator to decide how the review should be carried out. In using this power, it would be quite reasonable for the Secretary of State to say why it was thought that a review was desirable. The regulator should, of course, have regard to any such explanation, but he will be under no obligation to follow it. It will be the responsibility of the regulator to decide what the outcome of the review will be, and the regulator must undertake appropriate consultation before setting any limit. I beg to move.
Lord Glentoran:My Lords, again, I thank the Minister for the amendments, which I support. I was certainly unhappy and I am a great deal happier now as a result of the amendments. They were brought about by detailed discussions that we had with the Government and officials. It is always encouraging when discussions and debates of that kind bear fruit.
I spent some time thinking about how best to cap the distribution of assets and how the interest payments should work. In response to the amendment that we are discussing, I am particularly pleased that the provision which would allow the regulator to set different caps for "different cases" has now been changed to "different descriptions of community interest companies". That is a much more satisfactory situation.
Amendment No. 70 would allow the regulator more freedom without having to abide by the Secretary of State's specifications in terms of how limits should be reviewed. We welcome that very much.
With regard to the more technical rewording of the clause which Amendments Nos. 65 and 66 affect, I agree with the Minister that it is more sensible to have a default position where no distribution of assets is allowed, with regulations providing for exceptions to that situation. That is a preferable way to draft the clause on limits on distribution for the easy reason that most CICs will not be set up in such a manner as to be able or want to distribute any assets. We thank the Minister once again for listening to and debating with us outside the Chamber and for amending and drafting this complicated legislation in this way.
Lord Phillips of Sudbury:My Lords, I largely echo the comments of the noble Lord, Lord Glentoran, and
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I am grateful particularly for government amendments that respond to amendments that I moved at earlier stages.
On Question, amendment agreed to.
Lord Sainsbury of Turvillemoved Amendments Nos. 66 to 70:
Page 28, line 19, leave out paragraph (a).
Page 28, line 23, leave out "The regulations" and insert "Regulations under this section"
Page 28, line 27, leave out "cases" and insert "descriptions of community interest companies"
Page 28, line 32, leave out "The regulations" and insert "Regulations under this section"
Page 28, line 33, leave out from "limits" to end of line 34.
On Question, amendments agreed to.
Clause 28 [Distribution of assets on winding up]:
Lord Glentoranmoved Amendment No. 71:
Page 28, line 39, at end insert—
"( ) Regulations must provide that the distribution of residual assets by the Regulator must follow any recommendations specified by the community interest company in its memorandum and articles regarding which charity or other community interest company such assets should be distributed to."
The noble Lord said: My Lords, Amendment No. 71 focuses on a point which we raised in Committee and which we felt it was important to return to again; that is, the regulator should be allowed to distribute any residual assets to any charity or CIC which is specified in the memorandum and articles of the CIC.
It is vital that the CIC in question has discretion about where its residual assets end up. Although the Minister implied in Committee that the regulator would discuss that with the CIC, he would not be obliged to follow its specifications. Our amendment would make sure that the regulator acted in relation to the residual assets in accordance with the wishes of the CIC.
Having tabled the amendment some time ago, I have now received a letter from the Minister which states that draft Regulation 21 has been redrafted to reflect our wishes. His letter states:
"It is now explicit that the Regulator is required to direct the distribution of surplus assets among those charities or CICS that are named in the memorandum or articles of the CIC being wound up … unless a query by a member or director of the CIC leads him to conclude that a distribution to that CIC or charity is not appropriate … In deciding the proportions in which any surplus assets are distributed among the CICs or charities named in the memorandum or articles, the Regulator is required to have regard to any relevant provisions in the memorandum and articles".
We warmly welcome the fact that the Government have taken on board our concerns and we are entirely satisfied with the changes which have been made to the draft regulations. I beg to move.
Lord Phillips of Sudbury:My Lords, I am in the strange position of not being as satisfied with what the Government are proposing in draft regulations as the mover of the amendment. The regulator should have no right to decide the destination of the net assets of a CIC on winding up where the CIC has specified a charity or charities, charitable purposes, or another

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CIC or CICs. As I understood it from the noble Lord, Lord Glentoran, there would be a residual right on the part of the regulator to override distributions made within those classes. I will read with care and interest what the noble Lord, Lord Glentoran, said and indeed what the Minister says in reply. I see no reason at all why the regulator should have any more powers in that regard than has the Charity Commission in regard to charitable companies in distribution of assets.
7.30 p.m.
Lord Sainsbury of Turville:My Lords, perhaps I could just correct a statement that I made earlier. The noble Lord, Lord Glentoran, asked whether the draft regulations had been published and I said that they had. I was referring to the regulations published in February this year. For the avoidance of doubt, I should say that the regulations do not cover the appeal officer's procedures.
We do not accept the amendment because we believe that the issues it raises are best dealt with in regulations, rather than in the Bill. However, we agree with the aim underlying the amendment, that a CIC should be able to influence the regulator's decisions about the distribution of residual assets. That is what we intend to happen, and we have recently revised the draft regulations dealing with this, to clarify the position. I sent a new version of the relevant draft regulations to the Opposition, and placed a copy in the Library of the House on 30 June, the day when this amendment was tabled.
The reason we prefer to deal with this issue in regulations is that it is a quite technical and detailed matter. In summary, we have revised the regulation so that residual assets will usually be distributed to any charity or other CIC named for that purpose in the memorandum and articles of the CIC that is being wound up. That is what this amendment also seeks to do. However, it fails to deal with the complex variety of situations that may arise on a winding-up of a CIC. For example, the amendment would require the assets to be distributed to the charity or CIC specified in the memorandum or articles, even if that CIC or charity was now wholly inappropriate, and even if the members or directors of the CIC no longer wanted the assets to be distributed to that CIC or charity. The amendment does not allow for the members or directors to be consulted on their views.
Another concern is that the amendment does not allow for the possibility that the recommendations in the memorandum and articles are unclear or conflicting. It would therefore be likely to lead to more litigation than our approach. If a CIC or charity mentioned in the memorandum or articles was itself in the process of being wound up, the amendment would still require assets to be transferred to it, although that would often be inappropriate.
All those issues are dealt with in the draft regulations, but could not be dealt with if this amendment is passed. Instead, our revised draft regulations require the surplus assets to be distributed to the CICs or charities specified in the memorandum
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or articles of the CIC. The regulator can depart from that only if the proposed beneficiary is being wound up or if a member or director of the CIC asks him to intervene and the regulator agrees that the instructions in the CIC's constitution are inappropriate. That is intended to deal with a situation in which the activities of the wound-up CIC or of a potential beneficiary CIC have changed over time, so that the provisions in the memorandum and articles are no longer a fair reflection of the uses to which residual assets should be put. It will also be relevant if the proposed beneficiary no longer exists.
In all cases, the regulator is required to consult the members and directors of the CIC, unless it is impracticable or inappropriate to do so. Examples might be where the members cannot be found or where the surplus assets are so small that the costs of consultation would exceed their value. Those provisions strike the right balance between giving the CIC a strong influence over the use of its residual assets, and allowing the regulator to deal with well founded concerns that distributions are inappropriate. That regulatory protection is needed because CICs, unlike charities, will be able to change their activities relatively easily, and the provisions in their memorandum and articles about who should benefit on a winding-up may not always be updated accordingly.
I am sure that the noble Lord, Lord Glentoran, would like to see some of this reflected in the Bill. But as I have said, we think that regulations are the right place for these provisions, because of the fine detail they involve. The regulations will be subject to the affirmative procedure in both Houses. Time will tell if we have got the balance between the CIC and the regulator exactly right; if we have not, the advantage of the method is that regulations can be adjusted accordingly.
Lord Phillips of Sudbury:My Lords, could I ask for clarification? In the constitution of charities, it is conventional these days to stipulate that the destination of net assets on winding up should be as the members of the charity or as the governing body of the charity decide, making it clear that the decision is limited to another charity—or, in this case, another charity or another CIC. As I understand the Minister, he has laid draft regulations that do not allow that and which talk only in terms of the charity or CIC already named in the constitution of the CIC. I would be most grateful to hear him say that, if I am right, the Government will reconsider the point. It seems wholly unnecessary to tie the body's hands in advance, provided that the members or governing body in the event choose another charity.
Lord Sainsbury of Turville:My Lords, charity law requires that the residual assets of a wound-up charity must be applied to purposes similar to those of the donor charity. CICs are not subject to those restrictions; provided that a CIC satisfies the community interest, it can change its activities within the scope of the objects,

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which can simply be general trading objects. That is why we believe that it is helpful to give the CIC regulator a role in the process of distributing residual assets of CICs.
The noble Lord was asking specifically whether the regulations could allow for the possibility that a CIC might decide to leave it to the current members of the CIC to make the decision about what would happen in a winding-up. As I understand the matter, I believe that it could be allowed for, but I shall look into the matter in detail and let the noble Lord know.
Lord Glentoran:My Lords, I thank the Minister for that response. I am not sure that I am altogether happy with the situation. It is complicated and detailed. I accept that there is a role for regulations, but I am not totally satisfied. I shall go away and read what the Minister has said, and I may bring an amendment back at Third Reading. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 29 [Memorandum and articles]:
Lord Phillips of Sudburymoved Amendment No. 72:
Page 29, line 5, at end insert "and has a community interest object"
The noble Lord said: My Lords, I freely admit that the point of this amendment did not occur to me until I heard the responses of the Ministers at Committee stage with regard to other amendments. That was the first time that we on these Benches realised that it will be possible under the Bill as it stands for a community interest company not to have any community interest objects. I do not know whether that was a conscious intention on the Government's part in framing the legislation. However, it seems very odd indeed and wholly counter-intuitive that this very special animal, a community interest company, can have any objects at all and none of them community interest objects, as defined in the Bill.
Clause 32(3) states:
An object stated in the memorandum of a company is a community interest object of the company if a reasonable person might consider that the carrying on of activities by the company in furtherance of the object is for the benefit of the community.
It is not actually required that a CIC should have any community interest objects—but why not? There seems to be a real lacuna there.
The provisions could lead to a situation in which some individuals, institutions or other CICs could put money, whether by way of share capital or loans, into a CIC on the basis of the director saying that the CIC's activities would be such and such, and there would be nothing at all—unless there were some contractual provision—to prevent the same directors a year or two later abandoning that area of CIC activity and carrying on other activities. I am blowed if I can see the justification in that. The point about having CIC objects that are described in terms that an investor or lender can understand is that they will have some assurance that the CIC will be carried on in that sector. One also has the assistance that if the board of
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directors goes completely bananas and tries to operate in a different field altogether one then has the ultra vires protection.
I appreciate that one must have community interest activities if one has no community interest objects. But I do not think that that answers my case. This amendment is designed to be helpful and to improve the Bill. I shall be fascinated to know whether there is a coherent argument against the amendment. I beg to move.
The Deputy Speaker (Baroness Turner of Camden):My Lords, there is a misprint on the Marshalled List. The amendment should read "and have a community interest object".
Lord Phillips of Sudbury:My Lords, I am most grateful to the Deputy Speaker. I should have said that there is a misprint. The amendment should read "and have a community interest object", not "and has a community interest object".
Lord Glentoran:My Lords, I support the amendment of the noble Lord, Lord Phillips. He has made it very clear and it is pretty self-explanatory. We also feel strongly that the memorandum and articles of a CIC should state that it has a community interest. After all, this is the basis for a company to claim CIC status. I see no problem with including this in memorandum and articles. It must be in the interests of transparency and clarity.
Lord Sainsbury of Turville:My Lords, I am sorry I rushed to my feet earlier but I was so keen to be helpful to the noble Lord in return for his help that I moved too quickly.
This amendment is apparently intended to require all CICs to have community interest objects, thereby preventing them from having wider, more general trading objects. Our public consultation last year demonstrated that flexibility over the choice of objects is seen as very important to CICs. We made it clear in our report on the consultation that we intend CICs to have a choice between using general trading objects, if they want maximum freedom of operation, or choosing more narrowly defined community interest objects, if they wish to do so.
The legal structure that we have developed will ensure that CICs will work for the community benefit, whether or not their objects commit them to do so. Every CIC will have to make a statement of its intent to pursue the community interest when it applies to become a CIC and it will be subject to an ongoing requirement that its activities must satisfy the community interest test.
CICs will be able to choose to limit themselves to narrow community interest objects. In that case, if they want to change their activities, they will often need to change their objects, which will require the regulator's consent. The regulator will also be able to take supervisory action if they fail to carry on any activities in pursuit of their community interest

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objects. This provides reassurance to those dealing with the CIC about the activities it is carrying on, but it also imposes additional regulation on the CIC.
Alternatively, we believe the CIC should be free to choose wider objects. Where it does so, it is less likely to need to change its objects when it changes its activities, so the need to obtain the regulator's consent to change its objects does not arise. Also, the regulator will not be concerned about the particular activities being carried on by the CIC, as long as they satisfy the community interest test. This option provides greater freedom and less regulation for a CIC than the use of community interest objects. We think it is useful for CICs to have the freedom to choose between the two options.
The social enterprise sector has made it clear that it is happy with the flexibility that this approach gives. This amendment would remove that choice and we cannot accept it. In very simple terms, we have drafted the Bill in such a way as to give maximum flexibility and maximum choice and we hope that, on reflection, the noble Lord will be able to accept it on that basis.
7.45 p.m.
Lord Phillips of Sudbury:My Lords, this is getting ever more metaphysical. Here we have an explanation from the Minister, who is indeed a metaphysical Minister, suggesting that one can have community interest objects that are not in pursuit of community interest objects. I cannot get my head round that. I do not want to prolong this debate so I suggest that the Minister and I have a cup of tea later and, if I persuade him of the error of his metaphysical ways, then we can deal with this at the next stage and if he persuades me, then I shall drop it. At the moment, I do not follow the argument. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Phillips of Sudburymoved Amendment No. 73:
Page 29, line 27, at end insert ", and
( ) provision about payment of remuneration and other benefits to members and directors of the company."
The noble Lord said: My Lords, this amendment is grouped with a government amendment, Amendment No. 74. I am grateful that the Government have brought forward this modest concession that requires community interest company reports to include information about the remuneration of directors. I am not sure that that takes us much further than the Companies Acts already require—the Minister may tell us—as the government amendment does not say what information.
I am trying to be helpful in moving this amendment. Throughout the debates we have had about the nature of the CIC and the purposes of this exercise, there has been a leitmotif of anxiety about uncontrolled remuneration representing a lacuna in the framework of CICs, which is designed to prevent those who run them creaming off profits in the way in which members of a private company can. As we all know, these days many companies use remuneration levels as a means of withdrawing surplus profits.
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The amendment that I am suggesting is a safety valve. It does not say that there must be regulations to this effect; it merely gives the Secretary of State the power under regulations to make provision about payment of remuneration. If it proves to be the case that there is a real problem about this and that it is undermining the efficacy and standing of the CIC sector as a whole, and if it proves that the other remedies to which the Minister has referred—including the right of the regulator to intervene in gross cases—are ineffectual, as I believe they would be, then at least there is power for the Secretary of State to bring in regulations that can be considered against the realities as they have unwound. It is a sensible defence against future eventualities. It is on that basis that I move the amendment, not expecting the Secretary of State necessarily to use this regulation-making power at the outset but as a stopgap if my fears are proved well founded. I beg to move.
Lord Glentoran:My Lords, we fully support the principle that the Bill should provide some way of ensuring that the cap on the distribution of assets is not bypassed by redirecting profit into the pockets of the directors. Essentially, there is a need in the Bill for transparency and accountability in terms of the remuneration paid to the directors.
However, with all due respect to the noble Lord, Lord Phillips, I am more in favour of the provision in the Government's Amendment No. 74 than in his Amendment No. 73. Government Amendment No. 74 makes clear that regulations should prescribe what should be contained in the annual reports of CICs and that this must cover remuneration and may cover other information. As far as we are concerned, this is a welcome amendment and we are wholly in favour it. I believe that the publication of directors' salaries and so on in some detail in the annual report should be a sufficient deterrent against overpaying.
Lord Sainsbury of Turville:My Lords, I am delighted that the noble Lord withdrew Amendment No. 72. I should be very happy to talk to him at any time about the metaphysics of community interest objects. However, if he will allow me, I will require something stronger than a cup of tea to do so.
I turn to Amendment No. 73 and government Amendment No. 74. We have discussed the topic of directors' remuneration at some length on Second Reading and in Committee. That discussion highlighted the importance of this matter, and in particular the need for a high level of transparency in the rewards paid to the directors of CICs. As I have previously said during the passage of the Bill, we believe that the correct place for this information is in the annual community interest company report. That is the most appropriate way of making this information available to stakeholders and other interested parties. The draft regulations that we published in February therefore require this information to be provided.
Having considered the points made by the noble Lord, Lord Glentoran, in Grand Committee, we have tabled Amendment No. 74 in order to enshrine this

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transparency on the face of the Bill. The amendment is to Clause 31(3), and provides that the regulations must always require the community interest company report to include information about the remuneration of directors. This will ensure that stakeholders have information about the level of directors' remuneration in a CIC, which they can use if necessary to bring concerns about the level of remuneration to the regulator's attention.
The noble Lord, Lord Phillips, has argued in Committee and since that the Bill does not provide adequate assurance that the regulator will be able to deal with excessive remuneration. I can assure him that we have looked again carefully at this, in the light of his comments. Having done so, we still believe that the current approach is the right one. The powers available to the regulator under Clauses 38 and 41 of the Bill should enable him to take action, not only where excessive pay amounts to misconduct or mismanagement of the CIC, but in other cases where levels of remuneration are significantly above the market rate, without justification. Although the regulator may not be able to act in every case that a given person might regard as "excessive", we believe that enforcement powers already in the Bill, together with the transparency provided by mandatory reporting on levels of CIC directors' pay, offer sufficient safeguards.
As I explained in Committee, the Government do not wish to adopt an approach to this issue which would lead towards Parliament, or the CIC regulator, setting limits on what CICs can pay to their directors. That is because we get into very difficult territory if the Government or independent regulators start to dictate what private companies can pay their directors. Clearly, CICs are not just normal companies, which is why we have an additional layer of regulation and protection, to maintain public confidence that they are working for the community interest. But that extra regulation must be no greater than is required for the purpose. Otherwise, the resulting bureaucracy and regulatory uncertainty will be likely to make CICs a white elephant.
That is why the Government resist Amendment No. 73, as we did in Committee. The amendment would create a climate where the Government were able, and perhaps expected, to impose limits on directors' pay. We do not think that that is necessary or desirable for the reasons I have given. I therefore commend Amendment No. 74 to the House.
Lord Phillips of Sudbury:My Lords, I am grateful to the Minister. I should, if I may, like to raise one quick point with him; the point has usefully and helpfully been advanced by the noble Lord, Lord Hodgson of Astley Abbotts. My amendment talked about "remuneration and other benefits". The regulations can deal only with information about remuneration. I am afraid that it is notorious that some of the chicanery that goes on today is with regard to benefits that some will say are not part of remuneration. In seeking to withdraw the amendment, as I shall do, I should be grateful if the Minister would consider, at
880
the next stage, adding the words "and other benefits" after "remuneration" in his Amendment No. 74. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 31 [Community interest company reports]:
Lord Sainsbury of Turvillemoved Amendment No. 74:
Page 30, line 24, leave out from "Regulations" to "apply" in line 27 and insert—
"( ) must make provision requiring community interest company reports to include information about the remuneration of directors,
( ) may make provision as to the form of, and other information to be included in, community interest company reports, and
( ) may"
On Question, amendment agreed to.
Clause 32 [Community interest test and excluded companies]:
[Amendments Nos. 75 and 76 not moved.]
Clause 38 [Conditions for exercise of supervisory powers]:
The Deputy Speaker:My Lords, if Amendment No. 77 is carried, I cannot call Amendment No. 78 by reason of pre-emption.
Lord Phillips of Sudburymoved Amendment No. 77:
Page 35, line 5, leave out "only to the extent necessary" and insert "proportionately and so as"
The noble Lord said: My Lords, I shall move Amendment No. 77 briefly. I think that it is quite clear what the amendment will do to Clause 38(1).
My concern has been all along that the basis upon which the regulator must proceed, as it puts it here, is to,
"adopt an approach which is based on the principle".
Then, it goes on to say that,
"those powers should be exercised only to the extent necessary to maintain confidence in",
the community.
We have previously made the point, or endeavoured to make the point, that "confidence in community interest companies" is a strange and difficult test for the regulators to assess in all cases. The point has also been made—we come now to the point of my amendment—that to say that he can act only "to the extent necessary" to do that is rather damaging to the efficacy of the regulator. This amendment, by saying that he must act "proportionately and so as" to maintain confidence, is a slightly less high hurdle than "to the extent necessary", and thus gives the regulator more scope. However, it provides a moderating factor by saying that he must always exercise his powers proportionately. That is the basis of the amendment. I beg to move.
Lord Glentoran:My Lords, I rise to comment on the amendment tabled by the noble Lord, Lord Phillips, and on my own amendment, Amendment No. 78, which is grouped with it. We discussed this at length in Committee. The central question is at what point and under what circumstances should the regulator be able

881
to step in and take action in the case of a CIC? We have a new company model which, due to the nature of its public benefit objectives, necessarily has restrictions on it and must abide by a regulatory system. We have spent some time discussing whether the powers of the regulator go too far in interfering, or lack the teeth to be able to allow him to act effectively in the case of a failing CIC. What we are all essentially searching for is the right balance between these two.
In this spirit, I have tabled Amendment No. 78 to query Clause 38(1)—the clause is entitled "Conditions for exercise of supervisory powers"—which says that the regulator's approach should be,
"based on the principle that those powers",
set out in Sections 39 to 48,
"should be exercised only to the extent necessary to maintain confidence in community interest companies".
I am at a loss to know what that really means. My gut instinct is that it allows the regulator too much leeway to interfere. The powers of the regulator are extensive under Sections 39 to 48. They include civil proceedings, appointing and dismissing directors and managers, transferring property to the official property holder and even dissolving or winding up a CIC. That can all be justified by the vague title of "maintaining confidence" in the CIC in question.
I feel that the balance is wrong here. I support the call for proportionality which the noble Lord, Lord Phillips, advocates in his Amendment No. 77. I sense that the Minister might be slightly more amenable to his more subtle approach than my rather sledgehammer one. Our rather more bold amendment would remove the words,
"to the extent necessary to maintain confidence in CICs",
and insert the words,
"in circumstances where a community interest company has contravened regulations or is at risk of failing".
That is drawing the lines of intervention much more narrowly, perhaps too narrowly in the Minister's view.
However, this is a vital section of the Bill and we need to ensure that it is drafted to allow the balance which I mentioned earlier. I ask the Minister once again, if he cannot agree or disagree with me now, or with the noble Lord, Lord Phillips— he may well disagree— to take the measure away and reconsider it to try to adjust the balance before Third Reading.
8 p.m.
Lord Sainsbury of Turville:My Lords, we believe that both of the amendments in this group are unnecessary and may change the nature of the directions in subsection (1) as to how the regulator should act.
As I said in Committee, Clause 38 provides the framework for the credible but light touch regulation of CICs. We believe that subsection (1) achieves this balance by placing a restriction on the regulator to exercise his powers under Clauses 39 to 48 only to the extent necessary to maintain confidence in CICs.
882
Amendment No. 77 in part replaces this with a requirement that the regulator should use his powers proportionately. Common law already provides for powers to be exercised in a manner which is procedurally fair and not unreasonable or irrational. The requirement for decisions not to be excessively onerous, harsh or oppressive when less restrictive measures are available is part of the general requirement for reasonableness in decision-making.
We consider that the common law, together with the other restrictions in the Bill on the exercise of the regulator's powers, should provide sufficient reassurance that the regulator's actions should be proportionate. The main element of this is the requirement that the regulator should exercise his supervisory powers only to the extent necessary. Therefore, we do not feel that it is necessary to include a reference to "proportionality" in this clause.
The amendment also changes the way that subsection (1) directs the regulator to act. The Bill at present restricts the regulator so that he can use his powers only to the extent necessary to maintain confidence in CICs. The amendment imposes instead a duty on the regulator to exercise his powers so as to maintain confidence in CICs. This is a complete change of emphasis, that will enable, and even encourage, the regulator to be much more active in the use of his powers. It will also make it easier for the regulator to defend the use of his powers where challenged on the grounds that he was doing so in order to maintain confidence in CICs. The requirement for the powers to be used only where necessary to maintain confidence in CICs will have gone. This increases uncertainty for CICs as to the extent the regulator can act and what constraints there are on his use of the powers available to the regulator. This is not consistent with the light touch regulator that the public consultation asked for.
Amendment No. 78 greatly restricts the circumstances in which the regulator could act except in cases where the CIC is failing, where instead the amendment appears to increase the regulator's power to act. In those circumstances where the regulator is able to act, the amendment has the effect of removing the requirement that subsection (1) places on him to take a light touch approach.
The amendment would allow the regulator to use his supervisory powers only where a CIC has contravened regulations or is at risk of failing. The effect of the amendment would be to prevent the regulator using his powers when the CIC was in default but had not contravened a regulation under the Bill. It is entirely possible for this to happen in a situation where the CIC could not be considered to be failing. For instance, the regulator might have credible information that a thriving CIC was about to misuse its property by disposing of it improperly. In those circumstances the amendment would prevent the regulator acting even where it was apparent he should. This would fatally undermine the reputation of the CIC form.
Turning to a situation where a CIC is failing, the first question the amendment raises is what is meant by failure in this context. This part of the amendment

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could allow the regulator to intervene in a very wide and unclear range of circumstances. For instance, would it allow the regulator to intervene in a CIC which is fully compliant with its legal requirements, but which is failing economically? If so, that would clearly be unwelcome.
For these reasons the Government oppose the amendments to Clause 38.
Lord Phillips of Sudbury:My Lords, the Minister talks about a light touch being the principle behind Clause 38. A moment ago in response to the amendment that I put forward vis-à-vis excess remuneration, the Minister's response was that I should not worry as Clause 38 comes to my aid because the regulator can step in if there is excess remuneration. I do not see that his argument then and his argument now are consistent, particularly as the wording of subsection (1) of Clause 38 states,
"to the extent necessary to maintain confidence in community interest companies".
In the case of an individual company where gerrymandering of remuneration is going on, I do not see that the regulator would, on the wording in Clause 38(1), be able to do anything at all.
Lord Sainsbury of Turville:My Lords, I do not think that there is anything which is incompatible with having a light touch and being effective. The notion of "light touch" restricts the area, but that does not mean that it is not effective within that area.
Lord Phillips of Sudbury:My Lords, I do not think that the Minister addressed my point but I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 78 not moved.]
Clause 41 [Civil proceedings]:
Lord Sainsbury of Turvillemoved Amendment No. 79:
Page 36, line 18, after "action," insert—
"( ) the remedy sought,"
On Question, amendment agreed to.
Clause 42 [Appointment of director]:
[Amendment No. 80 not moved.]
Clause 44 [Appointment of manager]:
[Amendment No. 80A not moved.]
Lord Evans of Temple Guiting Lord Evans of Temple Guiting moved Amendment No. 81:
Page 39, line 12, at end insert—
"( ) The appointment of the manager does not affect—

any right of any person to appoint a receiver or manager of the company's property (including any right under section 51 of the Insolvency Act 1986 (c. 45)), or

the rights of a receiver or manager appointed by a person other than the Regulator."

The noble Lordsaid: My Lords, in moving Amendment No. 81, I wish to speak also to government Amendments Nos. 82 and 87.
In Committee I said that the Government would bring forward amendments to clarify the relationship between the company insolvency regime and the regulator's power, under Clause 44, to appoint a manager to a CIC. These are those amendments.
It is an important aspect of our policy that the requirements of being a community interest company should not come into conflict with the contractual rights of third parties who deal with CICs, or with the protection which the insolvency law regime affords to the creditors of companies. As we said in Committee, we are grateful to the Charity Law Association for suggesting that we clarify this in certain areas of the Bill. We have already discussed government amendments to Schedule 5 to the Bill which address similar issues in respect of the official property holder.
The issue which the amendments are intended to clarify is what happens if, following the appointment of a manager under this clause, the CIC becomes insolvent, or a lender with a right to appoint a receiver or manager of their own uses that right. Our policy is that the appointment of a manager by the regulator should not prejudice the rights of a lender, or anyone else, to appoint a receiver or manager. Furthermore, the rights and powers of a receiver or manager appointed by a third party should not themselves be prejudiced if the regulator appoints a manager. The first of our two amendments to Clause 44 spells out that position. It is also our policy that, where the regulator has appointed a manager under Clause 44, that appointment should terminate if a person is appointed to act as the administrative receiver, administrator, liquidator or provisional liquidator of the CIC.
Our second amendment to Clause 44 would ensure that there was no risk of conflict or confusion between the role or powers of the regulator's appointed manager and the role of the various office holders under the Insolvency Act 1986. A manager appointed by the regulator should play no part in the insolvency of a CIC, as the officer holders provided for by the Insolvency Act are the proper persons to deal with such situations.
Finally, we propose a consequential amendment to Clause 60 that defines what is meant by an administrative receiver in the context. I beg to move.
Lord Glentoran:My Lords, we welcome the explanation from the Minister and agree that it is entirely sensible to ensure that the regulator's power to appoint does not affect any right that a third party may have to appoint any receiver, liquidator or manager. We support the amendment.
Lord Phillips of Sudbury:My Lords, the Minister has ended on a crescendo.
On Question, amendment agreed to.
Lord Evans of Temple Guitingmoved Amendment No. 82:
Page 39, line 16, at end insert—
"( ) In particular, the Regulator must discharge the order on the appointment of a person to act as administrative receiver, administrator, provisional liquidator or liquidator of the company."
On Question, amendment agreed to.
Clause 54 [Fees]:
[Amendment No. 83 had been re-tabled as Amendment No. 80A.]
Lord Evans of Temple Guitingmoved Amendment No. 84:
Page 45, line 4, at end insert ", other than the provision of guidance which the Regulator considers to be of general interest."
On Question, amendment agreed to.
Clause 57 [Offences]:
Lord Evans of Temple Guitingmoved Amendment No. 85:
Page 46, line 16, leave out "of this Act"
On Question, amendment agreed to.
Clause 58 [Orders made by Regulator]:
Lord Evans of Temple Guitingmoved Amendment No. 86:
Page 47, line 4, at end insert—
"( ) Where the Regulator makes an order or decision against which an appeal lies under or by virtue of this Part, the Regulator must give reasons for the order or decision to the persons entitled to appeal against it."
On Question, amendment agreed to.
Clause 60 [Interpretation]:
Lord Evans of Temple Guitingmoved Amendment No. 87:
Page 47, line 32, at end insert—
""administrative receiver" has the meaning given by section 251 of the Insolvency Act 1986 (c. 45),".
On Question, amendment agreed to.
Schedule 8 [Repeals]:
Lord Evans of Temple Guitingmoved Amendments Nos. 88 to 92:
Page 69, line 34, column 2, at end insert—
"Section 245C(6)."
Page 70, line 4, column 2, at beginning insert—
"Section 48(3)."
Page 70, line 8, at end insert—

"Companies (Northern Ireland) Order 1990 (S.I. 1990/593 (N.I. 5))

Article 48(2)(a).

Article 49. In Article 56, the entry relating to "Director (in Schedule 14)". Schedule 14."

Page 70, line 12, at end insert—
"Competition Act 1998 (c. 41) In Schedule 2, paragraph 3."
Page 70, line 14, at end insert—

"Competition Act 1998 (Competition Commission) Transitional, Consequential and Supplemental Provisions Order 1999 (S.I. 1999/506)

Article 41.

Enterprise Act 2002 (c. 40)

In Schedule 25, paragraph 22."

On Question, amendments agreed to.

Horse Passports (England) Regulations 2004
8.10 p.m.
Viscount Astorrose to move, That an humble Address be presented to Her Majesty praying that the regulations, laid before the House on 20 May, be annulled (S.I. 2004/1397) [10th and 13th Reports from the Merits Committee].
The noble Viscount said: My Lords, I beg to move the Motion standing in my name. It is rare in this House to pray against regulations, and even rarer to pray with a fatal Motion, but I believe that the regulations should be annulled for four important reasons. First, they are unnecessary. Secondly, they are not supported by the industry. Thirdly, they are defective. Fourthly, they will lead to an increase in live exports of horses.
The regulations are unnecessary for the simple reason that there is an alternative. It is not my alternative, but one put forward by the Government in their original consultation paper. When we debated horse passports last year on 2 June, I pointed out that the Government's proposal to make every horse and donkey have a passport—nearly 800,000 of them— would cost, by Defra's own admission, £ 17.5 million.
European decision 2000/68/EC— it is a decision rather than a directive—requires passports only for horses or donkeys that will go into the food chain. It is based on the reasonable assumption that we do not want people eating horse meat if the animal has previously been treated with possible harmful drugs. It does not require passports for all equines. Interestingly, no passports are required for pigs, sheep, ducks or chickens. Cattle have passports, but only for traceability and subsidy reasons. The passport has no record of what drugs may have been administered to that animal. According to the Public Accounts Committee, however, one in five—1.2 million cattle—is officially missing. "Chaos" is the word that it uses to describe the current system.
What was Defra's own alternative with regard to horse passports? It was a simple solution, requiring passports for only those horses to be slaughtered for human consumption. The Government's regulatory impact assessment published on 27 March last year stated that such a scheme would cost only about £300,000 a year. We do not eat many, if any, horses in this country. Under the proposal, horse, pony and donkey owners will have to state in the passport whether their animal can enter the food chain when they come to dispose of it. About 179,000 horse

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passports have already been issued by 73 different organisations. For those horse passports already issued, 95 per cent of owners have already stated that their animals are not destined for human consumption.
In our debate last year, the Minister failed to explain adequately why his own alternative second proposal should not be implemented. Its first offence was that it was not favoured by the industry, but that claim does not stand up to scrutiny. Defra received 47 responses to its consultation, and only four respondents agreed on "passports for all".
The British Horse Society agreed to that because it thought that it would be the only organisation handing out passports—it had a financial incentive—and that the Government would contribute to the cost of the scheme. The British Horse Society was misled. Although it feels that some of its concerns have been met, that organisation is entitled to its views. However, most other representative bodies do not agree.
Under the scheme, 73 organisations will be able to hand out horse passports, so there will be 73 separate registers. That is a recipe for total chaos. It will not improve breeding, as those who need stud books already have them. Racehorses already have passports because their owners can afford them. Thousands of people who can only just afford a horse or a pony will be hit by unnecessary cost—the riding schools, the horse charities and such people. Nor will passports discourage theft, as the Minister for Rural Affairs, Alun Michael, has claimed. All that will happen is that more horses will be found abandoned. Micro-chipping every horse might make a difference to the Government's scheme.
Theoretically, vets will be able to treat horses without passports if it is lost, mislaid or left at home. But the vet will have to give to the keeper of the horse a note to put in the passport at a later date. Will the Minister confirm how that will operate? Is this not certain to lead to abuse? Will the Minister confirm that there will be no restrictions on the medicines that are currently used for horses which are not to be slaughtered for human consumption?
8.15 p.m.
The report on the regulations by the House of Lords Merits of Statutory Instruments Committee concluded:
"The Regulations are drawn to the special attention of the House on the grounds that they give rise to issues of public policy likely to be of interest to the House; and that they may inappropriately implement European legislation".
I have never read a steer which was clearer than that.
The Minister's second line of defence was that he did not agree with the report. Indeed, he wrote to me and the committee on 29 June, quoting directive after directive which his officials had, seemingly, just discovered. I have to say that his letter contradicted his department's earlier advice.
If the regulations are passed many more horses, ponies and donkeys will be transported over long distances, often in unacceptable conditions for many
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hours, with little food, no water or rest, finally to be slaughtered on the Continent for their meat. The British minimum values legislation has protected thousands of horses and ponies from leaving our shores for slaughter abroad. That protection is now under threat from the European Commission by the proposed animal transport regulations.
Since the Minister first introduced the concept of passports, the change he made to allow owners to decide at a later date whether or not the animal should enter the food chain does not make any difference to the problem of the live export slaughter trade. The Minister, Alun Michael, claimed that there was no connection between horse exports and horse passports. For many horses that will mean, "Have passport, will travel".
So what have our European neighbours done so far? Only France and Germany have implemented national passport schemes, but France has already had problems with unregistered horses and the Germans have experienced a new phenomenon—the forged horse passport. In Greece, passports are compulsory only for horses that compete in show jumping. There are no plans to extend the scheme to the thousands of donkeys spread across the country and the many islands. Could anyone imagine the Greeks putting their citizens in jail for up to two years for not having a donkey passport?
When the Minister introduced the original regulations last autumn, they had to be withdrawn because they were defective. These are a little better, but not much. They still not only gold plate EU rules, but gold plate them with diamond studs attached. The regulations are unnecessary, wrong and expensive. There is an alternative. It is not my alternative, but the Minister's own alternative—only horses with passports should be presented at slaughterhouses for consumption. I urge the Government to think again.
Moved, That an humble Address be presented to Her Majesty praying that the regulations, laid before the House on 20 May, be annulled. (S.I. 2004/1397 [10th and 13th Reports from the Merits Committee]—(Viscount Astor.)
Viscount Falkland:My Lords, these Benches have a difficulty with the Motion proposed by the noble Viscount, Lord Astor. Although the matter has been put fully by the noble Viscount, a passport is simply a document that states whether a horse may be eaten—whether it will enter into the human food chain. That seems a reasonable requirement on the face of it.
I have to say that I do not know why I am a spokesman on matters regarding horses. It must be because my party knows that I have had a bet or two on horses a few years ago and I have been put up to bat. I am interested in horses and I am interested in this debate. But the presentation on this matter seemed rather strange when it first emerged in Parliament.
My first point is that calling the document a "passport" raised some questions in people's minds. There is always an emotional response in this country to the eating of horses. We do not really like it. We

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recognise that others do it but we rather despise them for it. However, as a part of Europe, it is something that we shall have to get over. Many different views and cultural attitudes are to be found in Europe towards food, among other things. Personally, I do not eat horses—at least, not knowingly. It is possible that my cat eats horses but I certainly do not.
I do not carry my Benches with me on this, but I believe that a certain scepticism of draft legislation that comes from Europe is rather healthy, even if, like me, one is a strong European. Nevertheless, so far as we can see, Defra has done a great deal of work in tidying up these regulations. It has worked with many bodies and associations, some of whom still do not agree with the legislation, as the noble Viscount told us.
We do not believe that requiring documentary proof of the existence, or indeed of the breeding and other necessary details, of horses is unreasonable. That is quite apart from the major question of the danger of drugs given to horses entering the food chain. I should be very interested to hear the Minister's response to the noble Viscount's denial of the effectiveness of passports in combating, for example, theft. Proper documentary proof of other animate or inanimate objects which can be stolen is a useful weapon against theft. That is the case whether we are talking about bicycles, cars, cats or dogs, which nowadays are registered voluntarily through micro-chipping. I believe that it is also a useful weapon against maltreatment and abandonment, particularly where animals are concerned.
As I understand it, the guarantee of vital medicines is threatened by the absence of certainty in relation to whether horses are destined to enter the human food chain. Therefore, it appears to us that there is a real need for documentation in this area, and there does not seem to be any real alternative to what has now been put forward, and tidied up, by Defra and argued with the various bodies.
I turn to the subject of the Pony Club and individual owners, who are worried about the cost and bureaucracy involved in complying with this legislation. I understand that the Pony Club has now been reassured that the expense need not be as great as was first envisaged. Perhaps the Minister can reassure us on that point. I do not know what the noble Viscount intends to do with his Motion, but at present it is not our intention to follow him into the Lobby unless, in the mean time, the Minister is not able to satisfy any important concerns that the noble Viscount raised.
Perhaps the Minister can tell us why electronic tags or inserts have not been considered at this stage. I am very familiar with the kind of protection given to motorcycles. They carry a tag, which is put on to a computer database. The database is very easy to add to or subtract from and it gives a full and variable record.
A further matter that puzzles me is why, when a passport is issued, the declaration of whether the horse is destined for the human food chain is delayed. I do not understand that and I do not believe that the noble Viscount mentioned that.
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Perhaps we, on these Benches, can be assured that this is not to be a complicated, bureaucratic and expensive process. We want to be assured that, by and large, there is consensus within the horse world that the fundamentals are sound and that the benefits will be, as I have indicated in the area of medicines, available without problems. I think they are described in many documents nowadays as equidae in Latin, which presumably includes donkeys. I have not heard of people eating donkeys, but there may be countries in Europe where people eat them. I see the noble Earl nodding.
The Earl of Onslow:My Lords, Italian donkey salami is rather a popular dish.
Viscount Falkland:My Lords, that is not a delicacy that I have had the pleasure of eating and I do not intend to seek it out. Perhaps I may leave the matter there. Generally, we are disposed to support the drift of these regulations. If the Minister can satisfy us on some of the points that I have raised and those raised by the noble Viscount, we would not be moved to join the noble Viscount in the Lobby, should he choose to divide the House.
Baroness Mallalieu:My Lords, I declare a personal and keenly felt interest in that I have 14 horses, eight of whom have passports and the remaining six have had forms of application submitted by the due date—last week—but only just.
First, I ask the Minister how many horses, ponies and donkeys do the Government estimate are at present in this country. Secondly, how many have either had applications for passports submitted or hold passports? I suspect that there will be an enormous discrepancy. My impression, talking to fellow horse owners, is that this measure is widely regarded, on the ground—I leave aside the high flown bodies who represent horses in various areas—as an expensive and an unnecessary exercise and one with which a considerable number of otherwise law-abiding people are at present saying that they have absolutely no intention of complying.
The explanatory notes from Defra—I totally accept them as being entirely accurate—say:
"This measure is not expected to have any significant resource implications for Defra".
They have had very considerable resource implications for me and for others like me.
If one wants to apply for a passport, one can apply for a blue-chip, Weatherbys type passport, which racing thoroughbreds must have. For the youngest foal it will cost a minimum of £75 plus the cost of a vet's visit, plus the cost of blood-typing and micro-chipping. If one later wants to add a name to a passport, that will cost even more, taking the price to well over £100.
Alternatively, one can go for one of the breed societies such as the Coloured Horse and Pony Society, where the passport is likely to cost about £20 or £40, but one will still have to pay for the vet's visit. I do not know how other Members of the House find their vets' charges, but

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mine are rather high; £50 a visit is fairly standard. That visit will be necessary to draw the profile needed for the passport.
Alternatively, one can try, as I did with my last four horses—including Jubilee, aged 26, who I very much doubt will see out the rest of the summer, but for whom I have to send in a form—one of the cheaper horse passport agencies that say that they will provide one for £14. However, the vet still has to be paid £40 or £50 for the visit and the drawing of the profile. The poor girl who came to us the other day took an hour and a half and I have not yet had the bill, which I expect will be very substantial.
The requirements have changed as the saga has progressed. It has not been well handled. At one stage, we were told that we could do our own profiles; we were told to get a clipboard, to mark—not on a windy day—all the whorls and rosettes on the horse, and that that would be acceptable.
Then that changed, and the requirement became that we had to have a vet performing the profile and certification. The dates and deadlines have changed; the requirements have changed. Perhaps I may just tell your Lordships about the difficulty of getting hold of the relevant forms. I received some forms from my local tack shop and I rang Defra to ask if they were acceptable. I was told, "No, those forms have now been superseded. You need some new ones. We will send them to you". That was nearly two months ago, and I am still waiting.
8.30 p.m.
I then went to my vet, whose receptionist told me, "Well, I think that we have some forms; we will send the vet out to do the job". The vet arrived, saying, "Where are the forms? We do not carry them. You must get them yourself". That was a wasted visit, for which I shall be billed on my large veterinary bill. I managed to get some new forms, this time from a pet shop. The vet eventually managed to complete them and I sent them off, complete with the now substantial cheque. I do not know where are the reassured members of the pony club to whom the noble Viscount, Lord Falkland, referred, but if they can find a way of doing that any more cheaply than I have, I should very much like to meet them. I can quite see that there is a benefit to the horse population of having a national horse database. It should have every horse in the country on it, and then it would of course be enormously beneficial in a number of different ways—not least for horses that are lost, stolen or strayed. But I would like to know from the Minister whether it is intended that the national horse database should carry each of those profiles that people up and down the country have been doing either themselves or, more recently, with their vets, and whether it would therefore be possible to check out a horse on the profile database. I suspect not. I suspect that the profiles will be held by each of the 75 different organisations and that the chances of the lost horse being returned to its owner through the use of any national database is slender indeed.
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Indeed, such a database could really work only if each horse was obliged to be either microchipped or freeze-branded, but that is not proposed—it may not be proposed for reasons of expense. I must say that the figures in the Explanatory Memorandum, which I collected from the Printed Paper Office today, for the cost of microchipping horses, must have been created in fairyland. They bear no resemblance to my knowledge of the procedure. Nor, I must say, is the procedure as easy as the noble Viscount, Lord Falkland, suggested. As he has had to wrestle with even quite a young foal to carry out that operation, and, sometimes, has been unable to lay a hand on it afterwards for a considerable time, he will appreciate that microchipping a horse is far more difficult than carrying out such a procedure on a small dog.
It could have been valuable if each horse were on that database and had some means of being traced. We are told that the passport system is necessary for breeding. Of course, it is now compulsory for thoroughbred horses. It is increasingly used by breed societies and for competitive horses. In those cases, people voluntarily get their passport because there is a financial benefit to them if they come to breed horses and sell them later. But what is the benefit, in terms of breeding, to six of my 14 horses, which are geldings? Their capacity to play any part in the national horse breeding programme has been severely compromised in a way that no passport can make good.
I readily accept that human consumption requires that there be some means of confirming whether animals have been treated with drugs and, if so, whether the withdrawal period for animals is either not established, or that it has been established but there is uncertainty about whether they were administered in the set time. In the absence of doing a proper job, which would have required the microchipping of everything and a comprehensive database, I can see a real argument for having passports for animals that are sent for slaughter for human consumption—the scheme that the Government considered but rejected. That is not the route that we have chosen to go down. Not by any means all people, but many people have already expended a great time of time and money in trying to comply with what the Government are now bent on.
If the matter is pressed to a vote, I shall not vote against the regulations, but it is a great pity that what could have been an opportunity for the horse world to see the introduction of this as something that would be of advantage to them, and also a means of advancing horse welfare, has been lost.
I raised this matter before when we dealt with horse passports. One of my greatest worries is what happens to old and unwanted horses after 28 February next year. From that date, no horse may be submitted for human consumption without a horse passport. If you have an old and unwanted horse and only limited funds, you have no other means of disposing of that horse if you cannot sell it for human consumption. You can pay a knacker, who will charge you, in my experience, something in the order of £150; or, if you are fortunate, hunt kennels will charge something in

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the order of £50. I know of no other way in which such horses can be disposed of, and no way in which they could be disposed of without cost to the owner.
Like the noble Viscount, Lord Astor, I fear that a large number of unwanted horses will be abandoned. What contingency plan are the Government putting in place to deal with the consequences of this legislation? Will it simply be left to the equine charities? Are the Government making provision to deal with the consequences of the steps that they are taking?
The Earl of Onslow:My Lords, I declare an interest in horses. I have certainly bought more Mercedes for veterinary surgeons than practically anyone else on this Earth. I drive ponies, of which I am inordinately fond, because it allows me to show off in a completely harmless way, albeit sometimes making quite an idiot of myself.
We must have passports for our ponies, because that is the rule of the society in which I play. That is perfectly fair. There is a British Horse Driving Trials Association passport, and there is also a Fé dé ration Equestre Internationale passport, if one wishes to participate in any form of international event. No one objects to that— because I volunteer to do it, I know what is happening when I do it, and I know that that is one of the consequences of it.
The last time that this subject came up, I surmised that the whole of this performance was the fault of Napoleon's Army eating their horses during the retreat from Moscow. I have since read Adam Zamoyski's excellent book, which shows the incompetence of both the Russians and the French. It underlines exactly my theory that this whole business started in the retreat from Moscow in 1812.
I was slightly shocked last night when, having dinner at my club, a distinguished retired servant of the club asked whether, for a special dinner, he could have horse tartare in the Garrick club. The chef replied, "It is illegal to eat horses in England". The chef's knowledge of EC regulations is not exactly thorough, but I will gloss over that. We have arrived at the position where there is horse-eating about.
Is it not odd that we do not have to keep a record of drugs in cows, pigs, or sheep before they go to slaughter, but for some reason we do have to for horses? Does anyone imagine that every single Gypsy horse at the Appleby horse fair will have a passport? Does anyone think that the horses running around in some of the grottier parts of Dublin will all have passports if the Irish Government introduce them? I concede, of course, that the Act of Union has been repealed.
The noble Baroness, Lady Mallalieu, also asked very valid questions. How many horses are there? How many passports have been issued? I was informed that the Swedes have produced a survey on the number of horses and they say that there are 700,000. I believe that we say that there are 400,000 horses. So who is right? Why the Swedes should want to do a survey on English horse numbers, I do not know. But it appears that they have, and they are a thorough people.
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This is all bureaucracy, regulation and red tape. Surely, we must start saying "No" to these measures. They are unnecessary. The noble Baroness, Lady Mallalieu, perfectly reasonably and accurately produced the costings. The idea that it will cost just £17 or whatever is ridiculous. As she said, vets have to come out and it will cost a great deal more than that.
My noble friend Lord Astor mentioned the idea that all the Greek donkeys will get passports. That is ridiculous. Why do we have to do this? Why do we have to go on imposing regulatory burden after regulatory burden when others do not?
It also strikes me that it is nothing to do with the Government whether the breed societies get their acts together. That is up to the breed societies. It is nothing to do with the noble Lord, Lord Whitty, whether my driving ponies are inoculated. That is to do with the society. It is nothing to do with government. It is to do with us who want to play with our toys without interference from government. This Government have got an itch to do things. Mark you, I accept that their predecessor had mild dermatological problems too. But this Government are far worse. Regulatory passion ought to be resisted. I hope that we can throw this out. It is time that we called a halt to this regulatory passion for no possible or conceivable reason.
Lord Jopling:My Lords, I very much endorse the final words of my noble friend Lord Onslow, to which I shall turn later. I declare an interest of never having owned a horse in my life and—dare I say?—never having particularly wanted to because they bite at one end and kick at the other, which does not seem a good idea.
We have heard remarkable speeches from my noble friend Lord Astor and the noble Baroness opposite who put the case against all of this bureaucracy in the clearest possible way. But it is not from that position that I want to express my extreme depression at the Government's actions. I am depressed for different reasons.
Of course, the thought of donkey licences is a joke. There is an old story from the north country that says there are two things in life one never sees and one is a dead donkey. I do not know how many of my colleagues in your Lordships' House have ever seen a dead donkey. I certainly have not. The other thing that one never sees is, of course, a satisfied farmer, which I remember, to my cost, was very much the truth when I was Minister of Agriculture many years ago.
What depresses me so much about this measure relates to part of the 10th report of the Merits of Statutory Instruments Committee, of which my noble friend Lord Ullswater and I are members. Paragraph 2 explains that an Explanatory Memorandum accompanying the regulations states that there are two policy objectives. The second policy objective upsets me. It is,
"to protect and enhance the trade in pedigree horses: the identification of pedigree is one of a series of measures aimed at harmonising the registration of such horses in equine studbooks".

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Here I come to the final words of my noble friend Lord Onslow. I agree strongly with him that the Government should not become involved in the business of pedigree.
Of course the principal area of pedigree in the horse world is the closed shop which operates in the breeding of thoroughbreds. It is a totally restrictive practice. The breeders of thoroughbreds are not allowed to use modern breeding measures such as artificial insemination or embryo implants. Their restrictive practices forbid such measures. I do not know whether it is organised by the Jockey Club, Weatherby's or other bodies. While I draw attention to it, if that is the way people want to conduct the breeding of thoroughbreds, it is all very well.
What really depresses me is the continuing practice—something I thought we had got rid of—of government involving themselves in the cult of pedigree. In this noble company, surrounded as I am by a Duke, two Earls, a Viscount and two hereditary Barons, who I am to criticise the cult of pedigree? However, I say immediately that I am talking about horses rather than two-legged creatures. I hope that I shall not cause offence.
When I was a student, the great Professor Boutflower of the Royal Agricultural College was asked by one of his students about pedigree. He responded by saying contemptuously, "Pedigree, my boy, goes in at the mouth", meaning that it is how animals are managed and bred, rather than pedigree itself which is important.
When I was first elected in 1964 to work in this building, in another place, one of first things I recall doing with agricultural legislation then going through Parliament was to move amendments to a Bill in around 1967 to abolish bull and boar licensing. I remember the fury aimed at my head when I attempted to say that it was genetic nonsense to tell farmers that they could use only a bull or boar which some government inspector had come out and examined and said whether it was suitable for breeding. As I have said, that was genetic idiocy.
Much fury was aimed at me by a constituent of mine in the Lake District. He rang and threatened me with all sorts of savagery if I continued to threaten the then Hereford Herd Book Society by saying that bull licensing ought to be abolished, even though bull and boar licensing were restrictive practices. Despite that, I am glad to say that when my noble friend Lord Prior became Minister of Agriculture in 1970—I had the honour of being his Parliamentary Private Secretary—he took the first steps to abolish such licensing. I think I am right in saying that I finally completed that abolition when I was Minister of Agriculture between 1983 and 1987.
I do not object if pedigree societies want to continue to do their thing, but the enhancement of pedigrees and the cult of herd books and stud books is not a matter for government. They should have nothing to do with it at all. If people want to keep up their pedigree societies, then that is fine—let them do so. But, please, do not let the Government get themselves involved in something that is none of their business.
8.50 p.m.
Viscount Ullswater:My Lords, I am grateful to my noble friend Lord Astor for allowing us to debate these regulations today. I declare an interest in that I am a member of the Merits of Statutory Instruments Committee. However, I want to make it clear that I do not speak on behalf of the committee but entirely as a mere Member of your Lordships' House.
The committee's 10th report draws the special attention of the House to these regulations on the grounds that they give rise to issues of public policy likely to be of interest to the House, and that they may inappropriately implement European legislation. The fact that these regulations have been prayed against by my noble friend is a clear indication of the first ground, but I should like to concentrate my remarks on the second ground.
In the 13th report of the Merits Committee, a letter from the right honourable Alun Michael MP, the Minister of State at Defra, has been published refuting that the regulations may inappropriately implement European legislation—my noble friend Lord Astor has mentioned that he received a copy of that letter—quoting particularly directive 90/426/EEC of 26 June 1990 and the Commission decision 2000/68/EC.
Article 1 of the directive states that,
"this directive lays down animal health conditions for the movement between Member States and import from third countries of live equidae".
The letter from the Minister quotes Article 2 extensively and draws from it the conclusion that, effectively, all "equidae for breeding and production" are covered by the directive.
That may be so but, in my opinion, it does not cover horses that are not used for "breeding and production" and those that are not travelling between member states. The directive and the decision both qualify horses in some way—one for movement and the other for breeding and production.
As the noble Baroness, Lady Mallalieu, indicated, it is the huge number of horses, possibly some 800,000—the mean point taken from the Explanatory Memorandum of between 600,000 and 1 million—which are not used in competitions, shows, breeding or for production and will require passports at a cost of about £20 each that these regulations cover. I submit that this is not required by European legislation.
Is the elderly gelding living in his field in Yorkshire or Wiltshire, for example, used as an occasional hack, to be classed as an "equidae for breeding or production"? He is certainly no use for breeding, as the noble Baroness has indicated, and as he will not be travelling abroad or competing, he cannot be classed as "for production". The industry therefore is being forced to spend £16 million on this regulation, as my noble friend Lord Astor said, when it is not necessary. That is why I believe that these regulations may inappropriately implement European legislation.
I have examined the transposition notes for the decision 2000/68/EC, and they refer only to animals for "breeding and production". The regulatory impact assessment attached to these regulations canvasses two

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options, which, in my mind, indicates that the Government recognise that there could be a less expensive way forward but have not chosen to go down that route. They have decided that, because there could be a legal challenge from the European Commission for not implementing the measures fully, they must opt for blanket coverage.
As noble Lords have said, the 200,000 horses that are used for breeding or in competitions will need passports. The 2004 regulations, which are a great improvement on the current 2003 regulations, cover those requirements. There is ample evidence to show that many horse organisations have expressed their support for them, so I am not prepared to vote against them tonight.
This is a food safety measure, in essence. I agree that medicines given to horses should be entered into a passport, and that only horses with passports should be able to enter the human food chain. Nothing I have said this evening contradicts that in any way.
One final point—it is useful to know that the Government are to set up a central disease surveillance register for equines. But are they prepared to put any money forward to construct a national equine database, with information supplied by all the passport-issuing organisations? The information gathered by these organisations can be of great use to the breeding of competition horses, as the racing industry has already proved.
If we are to have all 1 million horses in this country issued with their unique lifetime number and a passport, let us at least put all that data to good effect.
The Earl of Onslow:My Lords, before my noble friend sits down, can he help me? If, as he says, half of the horses are outside the regulations, does it follow that the regulations are illegally made? Presumably, the European Communities Act 1972 says that Ministers shall, by order, implement directives. If they produce a regulation which is outside the directive, as my noble friend implied that part of this was, the directive must be illegal. Will he comment on that?
Viscount Ullswater:My Lords, I would very much like to hear what the Minister has to say about my assertion that the directive and the decision talk about only part of the horse population—those that are due for movement and those that are due for breeding and production. My noble friend Lord Astor said that he believed that the regulations were gold-plating European legislation. I believe they are too.
Lord Selsdon:My Lords, if I may, I shall approach this in a slightly different way. We are concerned about proof of identity and proof of good health. While I am a biped, and there are quadrupeds and others, I refer to what happened yesterday, when I went to see if I could prove who I was. I had an iris scan and a fingerprint test, and I got a new card. For some reason, the photograph did not recognise me and the iris scan would not work. It took 20 minutes, because I was
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fairly tired and I think I had hooded eyes. Two of my fingerprints did not work because I had been working in the vineyard and they were rather worn.
I wondered whether this Bill was a question of proof of identity or of conforming to other people's wishes and demands. I have spoken on this subject before. When I returned from the United States at the end of the war, I was put in charge of transport by my grandfather. Transport was a Welsh pony called Misty and a carthorse called Rose. We did not have any petrol, we had an elderly tractor, but I worked out fairly quickly that if we swapped eggs with American forces, we could get petrol for the tractor and I would not have to stand behind Rose all the time.
Years later—and I have declared this interest before—with some surprise and reluctance, I became a peasant farmer in France, with a small vineyard, where we have the same problems. Proof of identity becomes particularly important because often, in order to prove one's identity these days, one's passport, as a human being, is inadequate. One has to produce a bill, maybe a utility bill. One also has to produce a birth certificate. For those of us who suffer from an accident of birth and began our life with a different name—one's father was not, at that time, called a Lord—there is considerable difficulty.
If we are looking at proof of identity, we have to say why. In general, as your Lordships will know well, we do not eat horsemeat in this country, although we may eat bushmeat. Those on the continent of Europe, particularly in countries around the Mediterranean and the ancient world of Provincia, are very concerned about being able to eat horsemeat. I have to admit that, by mistake, over a long period of time, in a rather smart restaurant, I would like hamburger à cheval. I had no idea that it was horsemeat. I thought that it was a particular type of hamburger, designed by the French, which went with a particular type of sauce that gave it a slightly sweetened flavour.
9 p.m.
During that period, I learned other things. The noble Lord, Lord Whitty, will remember that I have asked about the number of horses in Britain before. My noble friend Lord Onslow got it slightly wrong. The original estimate was that we had had maybe 420,000 horses in the United Kingdom—exactly the same as Australia. I learnt that when I was chair of the Greater London and South East Council for Sport and Recreation and received a letter regarding 1,000 horses in Harrow.
Later studies, particularly Swedish studies, showed that we perhaps had as many as 900,000 horses, not 1 million as has been quoted this evening. Could the Minister determine exactly how many horses we believe we have in comparison with the population of the United Kingdom?
If it is the case that we have 900,000 horses, the reason for introducing a horse passport is to stop unacceptable edible food entering someone else's food chain. I digress briefly to point out that foot and

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mouth disease has been perhaps more rife on the continent of Europe than many of us had believed in the past.
I return briefly to one of my favourite subjects and one of the Government's successes—Passports for Pets. That has been extremely well received. Your Lordships will know that one may move dogs without let, hindrance or encumbrance across the Channel. Eurotunnel has a wonderful set-up, with a nice piece of grass where one's dog may go and lift its leg before it comes into the United Kingdom. However, when one's dog or dogs arrive in the United Kingdom, there is not a single place that is willing to receive it—hardly a hotel in London, hardly a restaurant; indeed, hardly a place.
Within the regulations that were devised to inoculate against rabies, little inconsistencies occurred. If one's dog is a continental dog, under continental law, it has to have a rabies injection every year. If it is a British dog, it has to have a rabies injection every two years. Therefore, one finds that the legislation that applies on the Continent to rabies can prevent one's dog coming into the United Kingdom because it conflicts with United Kingdom legislation.
Before discussing horses or any animal, I shall take a moment to explain what happens to donkeys. Those of us who produce vines and grapes will remind your Lordships that one of the greatest benefits to cultivation is a dead donkey. If one is producing table grapes, the best thing one can do is to bury a dead donkey around the root stock. The dry blood within it will produce excellent table grapes, preferably black rather than white. That is what is done throughout most of Spain.
However, we have not spoken about that other animal which I used to think meant slippers; namely, the mule. Is the mule covered by this legislation in any way? It is neither a gelding nor even neuter. It is a particular type of animal which is still in use in many parts of the world.
We should not support the concept of British horses being exported to be eaten by other people. That is an emotional issue that many of us would find hard to accept. I say that with a certain personal passion because one of my family names is McEacharn, which means "Lord of the horse"—the horse which came before the ships. I have always found that, although I have sea horses on part of my coat of arms, I have a great affection for the horse as a noble animal.
When, in preparation for earlier debates, I wanted to know why the continent of Europe was so keen on eating horses—my noble friend Lord Onslow referred to it briefly—I found that it is all to do with war. Troops who were underfed, not least those under Napoleon, would find that when their horses were shot from under them, although they may have been their noble steeds, they were often all that they had to eat. That happened during campaigns towards Russia and everywhere else. The original design was not to eat a noble animal, but to meet the necessity of food.
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I do not oppose the concept of identifying horses, but, in my capacity as Joint Secretary of the Parliamentary Space Committee, I have another method to suggest.
Within a relatively short space of time, when Galileo gets off the ground, it will be possible despite what the noble Baroness opposite has said, to microchip a horse or any animal, whose movements can then be identified from space. All that information can be retained on a small microchip. One of my Italian friends in Eutelsat was explaining that that situation was not so far away, and that one would know that wherever one had put a chip that person was. He did actually make a comment: he said that if your Lordships still had mistresses, it would be possible to know where they were because the chip would be in the diamond earrings. I asked him how we would know where the diamond earrings were, because they would normally be pawned. But my friend's point was that it was not very long, in relation to biometrics and other items of technology, before we would be able to identify on the face of this earth any creature, or any thing, without the necessity of having to have pieces of paper that could be forged, duplicated or copied in numerous ways.
Anything that encourages the export of live horses from this country to the continent for eating purposes should be opposed.
The Earl of Liverpool:My Lords, it was not my intention to contribute in this debate, but there are certain things that I have heard—not least the interesting and captivating comments of my noble friend Lord Selsdon. It is always a pleasure to follow him. Those remarks have moved me to get on my feet.
My noble friend Lord Astor said that 73 separate registers would be charged with maintaining the control in the regulations. As he said, that is an absolute guaranteed recipe for disaster. It always moves me to get on my feet when someone talks about regulations being gold-plated by this country. As my noble friend Lord Astor said, this is not gold-plating but diamond plating—or I believe that those were his words. That seems to me to be a grave error.
The noble Baroness, Lady Mallalieu, drew attention to the risk that some owners may abandon their horses to avoid the burden. Other noble Lords referred to that, too. I shall repeat one of the committee's concerns. It said:
"However, the Committee is aware of continuing concern that the Regulations may represent a significant additional cost and compliance burden for many horse-owners, and that there is a risk that some owners may abandon their horses to avoid this burden".
It is for those reasons that I strongly support my noble friend in his prayer.
The Duke of Montrose:My Lords, I can declare only a very dated interest in that I last had dealings with a horse when I sold the children's pony at an auction sometime back in 1980.

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My noble friend Lord Ullswater, as a member of the Merits of Statutory Instruments Committee, drew our attention to its 10th report. Noble Lords will be familiar with some of the words used in that report, which said that the regulations,
"may inappropriately implement EU legislation".
Since then the Minister, Alun Michael, has replied to the committee, and his letter is included in its 13th report. His letter appears to make it clear that directive 90/426/EEC divides horses into three categories for registration, the first two of which will certainly require to be registered. His letter said that horses for breeding and production are required to be identified during movement. Am I right in assuming that that provision, if strictly adhered to, would mean that they must be identified only during movement—or at least during the first occasion during which they are moved? To my mind, that is similar to the regulations that I am familiar with in respect of sheep movement, by which sheep are required to be identified only when first moved.
As noble Lords have heard tonight, the industry itself is very divided in its view between commercial and purely recreational interests. The noble Earl, Lord Onslow, gave us a very good description of the enjoyment to be found in recreational interest. However, the Government appear to favour an approach of total registration of all horses. The noble Baroness, Lady Mallalieu, gave us some detail of the cost to individuals of registration—not only the licence costs but the costs of getting a vet. One has heard of vets charging well above —40 a time. One has perhaps heard of some who charge a little less but it is still a very considerable cost for anybody with a handful of horses.
I would like to know whether the Government have figures on the cost of maintaining this information. As far as I understand the layout of the papers attached to the statutory instrument before us, these documents will have to be resubmitted every time there is any change in the details of ownership. I can see one or two difficulties. I may not be as fully up to date technically as my noble friend Lord Selsdon on the matter of microchips. I know that we have been weighing up the question of using them in cattle and I have been told that in order to read those presently used one has to get within six feet of the microchip in order get a reading on a sensor. The reason for that is that if the power of the microchip were any stronger it would tend to interfere with aircraft direction systems and that would create too many problems.
In the notes, and in the Government's animal health and welfare strategy, the creation of a horse database is mentioned. It seems to me that perhaps this statutory instruction is a precursor to any legislation that may be required. Can the Government tell us whether they envisage more regulations before the database is implemented?
It begins to look as though there will eventually be two levels of registration. One will be the level carried out by the breed societies that wish to have their own authority on the certificates that are prepared for
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pedigree horses and the other will be the Government's database. I wonder at the Government's appetite for registration and databases. My experience is largely based on dealings with the cattle database, which is presently costing £32 million per year, which is very generous of the Government. Noble Lords are probably familiar with some of the data that emerged from the Public Accounts Committee a couple of days ago. It produced a long list of the difficulties presently being experienced by the centre at Workington. Back in January, when I last looked into how it was doing, I was told that the office had to call back 10,000 applications a week that required correction or reregistration. The net effect was that there were 6,500 calves in suspense. That creates a problem when one is trying to follow up a policy of traceability.
As the noble Baroness, Lady Mallalieu, and other noble Lords mentioned, as far as the industry is concerned, it is surely only the breeding horses that require registration. By the law of averages, under half of the horses now kept are geldings and unlikely to breed, so the benefit to them is very limited. The question that arises much more is identifying those that can be eaten. It is probably more up to those who own horses to expound on the most satisfactory method of doing that.
I am puzzled about the question of controlling disease through the national database. Using the current data, all one will have is the name and address of the owner and no data on where the horse can be found or where it has been recently. In the first instance, one will have to find the owner, if he is not on holiday or has not put himself out of the way in some way. Are the data that are presently asked for in these passports the only data that will be used for the database? Will a raft of modifications not be brought in once the new scheme is up and running? Can the Minister say whether the Government have considered bringing this legislation in once they have got the answer to their whole animal health and welfare strategy?
9.15 p.m.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Whitty):My Lords, noble Lords and the Committee on Merits of Statutory Instruments had a lot to say about this lot of regulations, and not a lot of it favourable. 1 am not going to agree in principle with many of those comments. However, I do not think that we are in a particularly satisfactory position here. I certainly accept that we are not starting from where we would like to be.
We are dealing with an EU directive that, as noble Lords said, is driven primarily by food safety. Although consumption of horsemeat in this country is probably close to zero, British horses can be exported for horsemeat. The directive may be desirable from that point of view. Part of the Government's case is that the directive has other desirable features, but it is not driven by those. Therefore, the way in which people regard these regulations is somewhat distorted by the original purpose.

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We are dealing also with the fact that our first attempt to turn the directive into regulations proved to be flawed. We therefore have to correct that today. That is not particularly satisfactory, and I am not pretending that it or any of the other administrative problems referred to today are satisfactory. In an ideal world, if we were convinced that we needed to go down this road, we would probably look at something closer to microchips. Indeed, there may shortly be an EU proposal in exactly that direction. However, we are where we are. We have a European directive that we have to transpose. We have attempted to do so once and we have to put right what was wrong with the previous regulations. That is all we are doing tonight. I want to emphasise that.
If the prayer of the noble Viscount, Lord Astor, were carried, the effect would be that the existing regulations would stand. That would be an unsatisfactory position for many reasons. If you like, the Government stand guilty in relation to that position. Although it was not entirely clear in our previous debate, there was a lack of clarity in definitions for the passport itself and the issuing bodies and in identifying the enforcement authorities. In the light of the special arrangements that have subsequently been made in relation to the New Forest and Dartmoor ponies, the previous regulations would not have been appropriate. There is other defective wording relating to passport issuing organisations, the allocation of life numbers and so forth.
So there will be problems if we revert to the pre-existing regulations by deleting the ones before your Lordships' House tonight. There is also the problem of the 30 June closing date. Were we to revert to the pre-existing regulations, that would at least theoretically put people beyond the law. That would be the effect if this prayer were carried tonight. I do not believe that that would be in anyone's interest.
As for the other comments made this evening, I think that some of them were misplaced. I think that the noble Viscount, Lord Astor, was probably wrong on all four of his main counts against the regulations. He said that they did not have the support of industry. One of the benefits of the consultation and the two alternatives we put during that consultation was to clarify the industry's position.
The key operators within the industry—the British Equestrian Federation, the British Horse Society, which itself covers several other organisations, especially the British Equine Veterinary Association, the International League for the Protection of Horses, the RSPCA and other bodies and organisations representing the veterinary, sporting, owners' and breed interests—have all supported the principle of how the Government are legislating. Far more supported that principle than objected to it. Far fewer organisations, such as the Riding Schools Association and some charitable organisations, were opposed to the principle, although most of the passport issuing bodies have now made special arrangements for charitable organisations.
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There is also a question of implementation. There was an alternative that I shall come on to in a moment. However, the interpretation we have taken has been taken also by most of our colleague member states. France, Germany, Ireland, Sweden, Finland and Denmark have already implemented and have done so on the basis of a full passport system. It is true that some other countries have not yet done that or have taken the other alternative, but there are special reasons why—apart from the strong support of industry—we in the UK have taken the overall registration option. One of those is to ensure that there is continued availability of veterinary medicines for horses—something which has not been alluded to during the course of this debate and is perhaps tangential to the original purpose of the regulation.
The terms "gold plating" and, indeed, "diamond plating" have been banded about tonight. Given that the European Union presents us with two alternatives and we are taking one of those alternatives, I do not think that can generally be described as gold plating. Gold plating usually involves an excessive burden on industry. Given that the bulk of the industry is strongly supportive of these proposals, I do not think that they can legitimately be described as gold plating. We have implemented the measure building on the experience of the large number of private bodies that are already operating an identification or passport-type system. That has not involved an increase in state bureaucracy but has built on the experience of private organisations which have voluntarily started down that road.
I should like to say a few words about vital equine medicines.
The Duke of Montrose:My Lords, the Minister said that the EU had offered two alternatives. According to the letter that Alun Michael sent to the committee it seems to me that the directive offered three categories that require registration. It seems to me that the Government have chosen a blanket registration policy rather than the specific policies that were contained in Directive 90/427/EEC at Articles 2C, 2D and 2E.
Lord Whitty:My Lords, the directive itself provides for the blanket operation. We have chosen that option for reasons that I shall explain and which have the full support of the vast majority of the representative organisations within the industry. That was also the interpretation of the majority of those countries which I cited earlier. The measure is, therefore, not outwith and on top of the directive, which is the normal use of the term "gold plating".
Returning to the medicines point, the president of the British Equine Veterinary Association said:
"This legislation is a means to guarantee the continued availability of vital equine medicines in the UK".
I refer to another development at the European level; namely, that the Commission wrote to member states asking them to withdraw marketing authorisations of all veterinary medicine products licensed for use with

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horses containing substances not included in specific annexes to a further Council regulation, the details of which I shall not bore your Lordships with. Some 60 per cent of medicines currently authorised for horses would have fallen within that category. We opposed that measure in the European Council because the system of prescribing within the UK and Ireland is somewhat different from that in the rest of Europe but our views did not prevail. There have been amendments to that measure. One of the amendments would mean that the registration of horses would enable our present system of veterinary medicine prescribing to continue largely in its previous form. Therefore, the provisions that are before your Lordships tonight are directly linked to the veterinary issue. One of the reasons that we and the majority of the industry are in favour of a general registration is to ensure that the system of veterinary medicines continues.
The president of the association considers that,
"There is no credible alternative solution to the threats to the availability of medicines that were or are currently in sight apart from this registration proposition".
It has been suggested that if we required only horses going to slaughter for the human food chain to have a passport, that would not meet the veterinary point. However, it is also evident from reading Decision 2000/68 and from the way that it defines the terms "registered" and "for breeding and production purposes" that all equines are required to have a passport if they are to benefit from those provisions.
The industry sees other benefits, including opportunities to deter the indiscriminate breeding of horses. That is one long-term benefit, because it will reduce the degree to which there are abandoned horses and the welfare problems with that. I do not deny that there may be a short-term welfare issue, but that exists already. We and the welfare organisations need to monitor the situation to see whether there is any increase in abandonment of horses as a result of the measures.
The regulations will also discourage the trade in stolen horses and, as noble Lords have said, they give us the opportunity to move from the registration system that will arise from them into a national equine database. That would have great benefits for animal disease control, health and welfare, and is another reason why, by and large, the industry supports the proposals.
The noble Viscount, Lord Astor, and others referred to the export trade. The claims that the passport system will lead to an export trade in live horses for slaughter is, frankly, completely spurious. As noble Lords have acknowledged in previous debates, there has never been a formal ban on the export of horses. We have rules prohibiting the export of low-value ponies, and those regulations will remain until and unless robust welfare-based rules providing similar or improved protection are in place. That is one canard that ought to be refuted.
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My noble friend Lady Mallalieu and others made quite a lot of the costs, but only one passport is required for the horse during its lifetime, with perhaps further registration of it on transfer of owner. That cost is pretty low compared with what most horse owners claim is the expense of keeping horses and ponies. I am told that the price of a passport equates to approximately half a set of horseshoes. There are also veterinary expenses, but those can be incurred at any time during the horse's life, whereas replacement of shoes would take place every eight to 10 weeks or so. The prices that the passport-issuing organisations have announced have brought down the originally anticipated cost and made special provision for charitable organisations. The system is therefore being operated with a light touch, relatively low costs, and special provision for special cases.
My noble friend Lady Mallalieu, the noble Earl, Lord Onslow, and others referred to the total numbers of horses about which we are talking. It is true that we do not know exactly how many horses there are in the country. We can make a stab at it, and so can the Swedes; so, no doubt, can your Lordships. It is certainly more than 600,000. The number of applications as of mid-June was about 179,000, with another 40,000 in the pipeline, so more than 200,000 applications had been made. A further rush in recent weeks will increase that very substantially, but it is true that we are not near the 600,000 figure yet, and it will take time for the system to bed in. There will be special arrangements in some parts of the country, but there is a significant engagement in the process of application for and acquisition of passports already, in which not only many large commercial operations in the horse sector but many individuals have already engaged.
In the circumstances, the regulations are an improvement on those previously on the statute book, and implement fully the EU provisions. They use a provision in the EU directive and are therefore not gold-plating. They address some concerns expressed during the consultation and provide some very definite benefits for the horse sector as a whole, the welfare of animals, and the potential benefit of horse owners themselves.
I do not pretend that the start of the process was particularly welcome to the Government in the form in which it came. However, it is one where we have attempted to make the best of propositions from Europe—both on this directive and those relating to veterinary medicines. The proposals before the House address both of those problems and deliver for horse owners and the horse population a significant basis for improving their welfare and health and one which avoids aspects of the horse trade that are illegal and detrimental.
I hope that the noble Viscount, Lord Astor, will not pursue his prayer against the regulations and recognise that whether we wish to be here or not, these regulations represent the best position that we can be

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in, given all of the circumstances and the position taken by the vast majority of representative organisations within this sector.
The Earl of Onslow:My Lords, before the Minister sits down can he say why horses need to have a medical record before they go to slaughter. while pigs, cows and sheep do not?
Lord Whitty:My Lords, I think that the noble Earl is familiar with all of the regulations that apply to the breeding, sale, keeping and disease bio-security checking of all species of livestock that enter the food chain. Most of those regulations apply across Europe. We do not have parallel arrangements regarding horse meat. Some nation states do, but Europe does not. From the safety point of view, that is the origin of the regulations. Whatever the merits of the wider issues, one cannot refute that if one eats horse meat it should be subject to arrangements parallel to those that we have for other species.
The Duke of Montrose:My Lords, before the Minister sits down, can he say whether the data that is required for current passports will be the basis for these proposals? Have the Government given any thought to whether that information will be used for the horse database?
Lord Whitty:My Lords, it will certainly be the core information required for that database and there may be other requirements down the line—technologies such as microchips could be introduced at a later stage—but that core information will certainly go a long way to providing a comprehensive basis for a national equine database.
Viscount Astor:My Lords, I am grateful to all noble Lords who have spoken. The noble Viscount, Lord Falkland, and the noble Baroness, Lady Mallalieu, gave me general support. My noble friends Lord Jopling and Lord Onslow talked about pedigree. The passports will not help pedigree in any way. I have here a passport application form which is quite simple: for "name" I would put my horse "Ronald"; "species" would be "horse"; "sex" would be "gelding"; for "year of birth" I would have to put "22 to 24 years ago, I am not sure"; for "colour" I would put "bay"; and for "height", "16 hands"; for "any other noticeable features"—"no". I have to say that the horse might obtain a passport but that description could probably fit many thousands of horses around England. That is the failure of the system and that is why it will not make any difference to breeding—although a gelding would find it more difficult than others to breed.
My noble friend Lord Ullswater gave a considered and carefully crafted speech as a member of the committee that examined the regulations. He was clear that the committee's view was that the regulations implement EU legislation inappropriately. It is not necessary and he gave a detailed explanation of that— which the Minister did not address. My noble friend
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Lord Selsdon spoke about proof of identity and his unfortunate time eating horse meat in France. I shall make sure that when I go to a French restaurant with my noble friend I, not he, shall choose what we eat. My noble friend the Duke of Montrose spoke about breeding and production which, again, will not be helped by passports.
The Minister said that there were many other desirable features in the scheme, but he was at a loss to explain what they were. One of his main points was that the industry was in favour of the scheme. I questioned Defra and I received a clear reply. Out of the 47 responses only four agreed with the passports rule; 25 were in favour of passports only for horses entering the food chain; six had no views; three asked for clarification; four made other suggestions; and two questioned the efficiency of the scheme. That is not an overwhelming endorsement by the industry; it is something different.
I believe that the noble Lord finally lost his argument by giving us a list of the countries that are to issue passports for all. They are the minority in Europe, not the majority. There are many European countries.
Lord Whitty:My Lords, I should clarify this point before it goes on the record. The organisations which represent the majority of the industry were in favour of something like a full passport system, although some had some qualifications. Since then, some of the other organisations have become convinced of the need for such a system. I did not want that to go uncorrected.
Viscount Astor:My Lords, I am only telling the noble Lord what his department said. It is absolutely clear that only 25 respondents were in favour of passports only for horses entering the food chain.
The Minister mentioned a number of countries which are issuing passports for all, but they are in the minority in Europe. He then said—I think that it rather gave the game away—that other EU countries have taken up the other alternative. As the Minister admits, the other alternative is passports only for horses that enter the food chain.
The Minister then produced another argument put forward by vets concerning prescribed medicines. There is a plan that certain medicines should be given only to horses with passports. I accept that that is a valid point but the response to it is that if a horse or pony needed the medicine, the owner could instantly apply for a passport. Indeed, under the Government's current rules if someone does not have a passport for his horse, the vet can treat the horse and give the owner or keeper a certificate which is then put into the passport at a later date. Therefore, horses would not be prevented from being treated with the medicines that they have now.
The Minister also talked about the minimum value legislation. That is under threat from Europe and is likely to be declared illegal by the EU. It is stopping many more horses going abroad.

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The Minister said that if these regulations fall, we shall come back to the ones that we first introduced, which did not work. They did not work then and they will not work now. This is the opportunity for the Government to come forward with some workable regulations at a minimum cost to the industry.
I am afraid that I remain unconvinced by the Minister's argument. He has not satisfied me and I do not believe that he has satisfied the House. I wish to test the opinion of your Lordships.
9.37 p.m.
On Question, Whether the said Motion shall be agreed to?
Their Lordships divided: Contents, 13; Not-Contents, 40.

Division No. 4

CONTENTS

Astor, V. [Teller]

Jopling, L.

Brooke of Sutton Mandeville, L.

Lamont of Lerwick, L.

Colwyn, L.

Liverpool, E.

Dixon-Smith, L.

Lyell, L.

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Monson, L.

Selsdon, L. [Teller]

Onslow, E.

Skelmersdale, L.

Patten, L.

NOT-CONTENTS

Acton, L.

Hughes of Woodside, L.

Alderdice, L.

Jay of Paddington, B.

Andrews, B.

Lofthouse of Pontefract, L.

Bassam of Brighton, L.

Macdonald of Tradeston, L.

Bhatia, L.

McIntosh of Hudnall, B.

Chandos, V.

Mitchell, L.

David, B.

Phillips of Sudbury, L.

Davies of Oldham, L. [Teller]

Roper, L.

Dixon, L.

Rosser, L.

Elder, L.

Shutt of Greetland, L.

Evans of Temple Guiting, L.

Simon, V.

Falkland, V.

Stone of Blackheath, L.

Farrington of Ribbleton, B.

Thornton, B.

Gale, B.

Tope, L.

Giddens, L.

Triesman, L.

Gilbert, L.

Tunnicliffe, L.

Goldsmith, L.

Watson of Invergowrie, L.

Grocott, L. [Teller]

Whitty, L.

Hart of Chilton, L.

Williams of Crosby, B.

Hollis of Heigham, B.

Woolmer of Leeds, L.

Resolved in the negative, and Motion disagreed to accordingly.

Preamble
House adjourned at thirteen minutes before ten o'clock.

  Cross-Border Implementation Bodies
  Lord Laird asked Her Majesty's Government:
  Further to the Written Answer by the Lord President on 13 May (WA 47) concerning the grant scheme of the Irish Language Agency, which of the Cross-Border Implementation bodies which provide grants have had their grant schemes approved; when such approval was given; and which schemes have yet to be approved. [HL2891]
  The Lord President of the Council (Baroness Amos): Ministerial approval of grant schemes was signified, in the case of the Trade and Business Development Body, on 23 January 2002; and in relation to the SEUPB's PEACE and INTERREG programmes on 20 June 2001 and 9 October 2002 respectively. Proposals in respect of the grant schemes of the Irish Language and Ulster-Scots Agencies have not yet been submitted to the North/South Ministerial Council for approval.

  North/South Language Body
  Lord Laird
  asked Her Majesty's Government:

  Further to the Written Answer by the Lord President on 20 May (WA 95), whether they will provide minutes of the consultations held in preparation of the 2004 North/South Language Body budget. [HL3023]

  Baroness Amos:
  I refer the noble Lord to my Answer of 23 April 2004 (WA 63). I have nothing further to add to this.

  Ulster-Scots Agency
  Lord Laird
  asked Her Majesty's Government:

  Further to the Written Answer by the Lord President on 23 April (WA 63) concerning disclosure of information under part 2, paragraph 2 (mutual discussion and advice) of the Code of Practice on Access to Government Information, whether it is possible to disclose numbers of meetings to the chairman of the agency with whom the discussions were held. [HL3170]

  Baroness Amos:
  As the former chairman of the board of the Ulster-Scots Agency the noble Lord will already be aware of the number of meetings about the 2004 budget which took place between his agency and DCAL officials during his tenure of office. There were five.

  Lord Laird
  asked her Majesty's Government:

  Further to the Written Answer by the Lord President on 10 June (WA 42) concerning budgets
  WA80
  for cross-Border implementation bodies, why £600,000, which was to be used to continue a policy agreed by the North/South Ministerial Council, was removed from the budget for 2004 requested by the Ulster-Scots Agency. [HL3303]

  Baroness Amos:
  I have nothing further to add to my Answers on 17 June 2004 (WA 80) and on 26 May 2004 (WA 134).

  Lord Laird
  asked Her Majesty's Government:

  Whether the staff of the North/South Ministerial Executive have recently indicated dissatisfaction with the grants offered by the Ulster-Scots Agency. [HL3306]

  Baroness Amos:
  The issuing of grants by the Ulster-Scots Agency is not a matter in which the North/South Ministerial Council Joint Secretariat has any locus.

  Lord Laird asked Her Majesty's Government:

  What steps they are taking to ensure that the Ulster-Scots Agency is positively represented to the media by the staff of the North/South Ministerial Council in Armagh. [HL3405]

  Baroness Amos:
  It is not a function of the North/ South Ministerial Council Joint Secretariat to make any representations to the media in relation to the North/South Implementation Bodies.

  Northern Ireland: Equality Officers
  Lord Laird
  asked Her Majesty's Government:

  How many equality officers are employed in each of the 10 Northern Ireland departments and the Office of the First Minister and Deputy First Minister; when each post was created; and what are the duties of these officers. [HL 3237]

  Baroness Amos:
  Since 1999 one official in each of the 11 departments of the Northern Ireland administration has been nominated as equality officer for their department and as such the primary point of contact in relation to their department's equality scheme. This role is often undertaken alongside their other duties.

  The 11 nominated equality officers are supported in their range of duties by 43 officials in a variety of administrative grades.

  Lord Laird
  asked Her Majesty's Government:

  What is the cost of the equality officer posts in each of the 10 Northern Ireland departments and the Office of the First Minister and Deputy First Minister. [HL3238]
  WA81
  Baroness Amos:
  The total salary cost for the 11 equality officers in the departments of the Northern Ireland administration is currently £681,290.

  Departments of the Northern Ireland administration estimate that cost of the time spent in working on equality duties by the equality officers and the staff supporting them is £1,078,500.

  Lord Laird
  asked Her Majesty's Government:

  Whether they will state the gender, age, ethnic origins and community background of the equality officers employed in the 10 Northern Ireland departments and the Office of the First Minister and Deputy First Minister and the part of Northern Ireland (if any) with which they regard themselves as being most closely associated. [HL3239]

  Baroness Amos:
  In line with Part 11 Paragraph 12 (Privacy of an individual) of the Code of Practice on Access to Government Information, it would be inappropriate to disclose this information.

  Northern Ireland: Language Implementation Body
  Lord Laird
  asked Her Majesty's Government:

  Whether the two agencies in the Language Implementation Body are allowed to promote those items within their remits on an equal basis and with the equality and parity of esteem recognised in the Belfast Agreement of 1998. [HL3317]

  Baroness Amos:
  The two agencies of the Language Implementation Body are funded to carry out their functions as defined in the North/South Co-operation (Implementation Bodies) (Northern Ireland) Order 1999.

  Northern Ireland: Fair Employment Provisions in Schools
  Lord Laird
  asked Her Majesty's Government:

  Why they pressed for the exemptions in Article 15(2) of Council Directive 2000/78/EC; what representations they received on this matter from the Equality Commission of Northern Ireland; and whether they propose to continue to rely on this provision in respect of teachers and equality legislation. [HL3318]

  Baroness Amos:
  The Fair Employment and Treatment (Northern Ireland) Order 1998 (FETO) prohibits discrimination on the grounds of religious belief or political opinion. Fair employment legislation in Northern Ireland, since its inception in 1976, has not applied to the employment of teachers in schools. This was in recognition of the denominationally based nature of education in Northern Ireland and took account of the views of the Churches that children should be educated in a school which paid full regard to the child's religion and the attitude of parents that
  WA82
  their children should be educated in an environment which had full regard for the religion of the family.

  The proposed EC Directive 2000/78/EC would have meant that the exemption in FETO would have had to be removed without having regard to the issues and sensitivities of the local community in relation to the education of their children and the complexion of their schools.

  The exemption in FETO for the employment of teachers was much wider than that permitted under the religion or belief aspects of the directive but following negotiations with the European Commission special provision was made for Northern Ireland in relation to teachers. The directive provides that the exemption should relate only to the recruitment of teachers, rather than their terms of employment.

  The Fair Employment and Treatment Order (Amendment) Regulations (Northern Ireland) 2003, which came into operation on 10 December 2003, removed the blanket exemption for the employment of schoolteachers and restricted the exemption to the recruitment of teachers in schools.

  The Equality Commission for Northern Ireland in response to the OFMDFM consultation on Implementing EU Equality Obligations in Northern Ireland in April 2003 noted the draft regulations to amend FETO. The commission also stated it was of the view that the teachers' exemption should be removed in its entirety.

  Under Article 71(2) of FETO the commission is required to keep under review the exemption in relation to employment as a teacher in a school. In discharging this duty the commission is permitted under Article 71(3) of FETO to conduct investigations. Such an investigation was launched in October 2003 and it is anticipated that an investigation report will be published in the autumn 2004

  Whether or not there should continue to be an exemption in relation to the recruitment of teachers is a matter which will be considered in the context of the single equality Bill, taking into account advice from the Equality Commission and other interested parties.

  Lord Laird
  asked Her Majesty's Government:

  When the Equality Commission and its predecessor bodies since 1973 discharged the statutory duty of keeping under review the exclusion of teachers from equality protection in Northern Ireland; what consultations the commission has undertaken on this matter; and what reports have been published. [HL3305]

  Baroness Amos:
  The chief executive of the Equality Commission for Northern Ireland has been asked to write to the noble Lord. A copy of the letter will be placed in the Library.

  Northern Ireland: Single Equality Legislation
  Lord Ouseley
  asked Her Majesty's Government:

  Whether they will outline the benefits to the people of Northern Ireland likely to arise from the proposed introduction of single equality legislation. [HL3362]

  Baroness Amos:
  Single equality legislation will provide the people of Northern Ireland with clear, comprehensive and accessible anti-discrimination legislation in one single instrument.

  Northern Ireland: Funding of Newspaper Publishing Companies
  Lord Laird
  asked Her Majesty's Government:

  Further to the Written Answer by the Lord President on 17 June (WA 81), what were the amounts of the state funding for each newspaper in Northern Ireland in each applicable year. [HL3407]

  Baroness Amos:
  Further to the information provided in the answer to WA 81, set out below are details of funding made available by departments of the Northern Ireland administration during the period 1999–2004 for newspaper publishing companies in Belfast.

  Funding of Newspaper Publishing Companies 1999–2004

  Company

  Year Funded

  Funder

  Amount Funded

  Andersonstown News

  1999

  Department of Finance and Personnel

  £5,095

  Preas an Phobail Ltd

  2000

  1Department of Finance and Personnel/Office of the First Minister and Deputy First Minister

  £33,500

  Flagship Media Group Ltd

  2000

  Local Enterprise Development Unit

  £6,773

  The Mirror Group

  2000

  Department for Employment Learning

  £5,936

  Andersonstown News Group

  2000

  Department for Social Development

  £70,000

  Andersonstown News

  2000

  Local Enterprise Development

  £7,500

  Andersonstown News

  2000–01

  Department for Social Development

  £277,375

  WA84

  Funding of Newspaper Publishing Companies 1999-2004

  Company

  Year Funded

  Funder

  Amount Funded

  Preas an Phobail Ltd

  2000

  Local Enterprise Development Unit

  £15,000

  Preas an Phobail Ltd

  2001

  Local Enterprise Development Unit

  £15,026

  Flagship Media Group Ltd

  2001

  Local Enterprise Development Unit

  £4,500

  Shankill Community Media Ltd

  2002–04

  Department for Social Development

  £32,544

  Shankill Community Media Ltd

  2003

  Department of Finance and Personnel

  £95,429

  East Belfast Publishing Ltd

  2003

  Department of Finance and Personnel

  £250,464

  Shankill Community Media Ltd

  2004

  Invest NI

  £28,602

  1Department of Finance and Personnel had responsibility for funding until December 1999. This then transferred to the office of the First Minister and Deputy First Minister under devolution.
  Funding has been made available to Preas an Phobail by Foras na Gaeilge (the Irish Language Agency of the North/South Implementation Body). Foras na Gaeilge is funded jointly by the Department of Culture, Arts and Leisure (DCAL) in Northern Ireland and the Department of Community, Rural and Gaeltacht Affairs (DCGRA) in the Republic of Ireland. DCAL contributes 25 per cent and DCGRA contributes 75 per cent of funding. During the period 1999–2004 Foras na Gaeilge made available to Preas an Phobail £512,558 for the publication of Lá. DCAL's contribution in each year is provided below.

  Company

  Funding Year

  Funder

  Amount Funded

  Preas an Phobail Ltd

  2000

  Foras na Gaeilge

  £7,936

  Preas an Phobail Ltd

  2001

  Foras na Gaeilge

  £32,140

  Preas an Phobail Ltd

  2002

  Foras na Gaeilge

  £30,624

  Preas an Phobail Ltd

  2003

  Foras na Gaeilge

  £38,988

  Preas an Phobail Ltd

  2004(covers up to 30 June 2004)

  Foras na Gaeilge

  £18,451

  Northern Ireland: Meeting of Permanent Secretaries
  Lord Laird
  asked Her Majesty's Government:

  What was the purpose of the "Away Day" for Northern Ireland department permanent secretaries on 13 February; what was the cost of the exercise; how many staff participated; what venue was used; and how long the event lasted. [HL3459]

  Baroness Amos:
  Permanent secretaries of Northern Ireland departments meet weekly to consider key strategic and management issues facing the Northern Ireland Civil Service. The 13 February meeting began at 8.45 a.m., was held in an Annex of the Dunadry Hotel, involved 19 staff, who attended all day or for part of the day, concluded at 4.45 p.m. and cost £430.20 for food and facilities.

  Northern Ireland: Planning Applications
  Lord Kilclooney
  asked Her Majesty's Government:

  When the Planning Service received Application No. 0/2004/0239 from Gosford Housing Association for conversion of a flat at 1 Barrack Hill, Armagh City; when Armagh City Council will be consulted; when the planning determination is expected; and what are the reasons for the period of time being taken to make the determination. [HL3470]

  Baroness Amos:
  Planning application O/2004/0239/ F was received on 27 February 2004 from Gosford Housing Association. It is anticipated that Armagh City Council will be consulted at the council meeting in August and a decision notice will issue thereafter.

  The short delay in processing this application is due to the unprecedented increase in the number of planning applications in this area which in turn led to a substantial increase in the caseload of each planning officer.

  Tourism Ireland
  Lord Laird
  asked Her Majesty's Government:

  What were the targets set for Tourism Ireland to increase the number of tourists visiting Northern Ireland in each year since 2000; and how the targets compare to the results. [HL3499]

  Baroness Amos:
  Actual overseas visitor numbers in 2000 were 1,292,000 and in 2001 were 1,311,000. The 2001 figure represents Tourism Ireland's baseline figure.

  Tourism Ireland took over responsibility for overseas marketing in 2002.
  WA86
  The targets and actual overseas visitor numbers for Northern Ireland were:

  2002

  2003

  Target

  1,401,000

  1,515,000

  Actual

  1,411.000

  1,610,000

  Afghanistan: NATO Involvement
  Lord Avebury
  asked Her Majesty's Government:

  What response they are making to the letter addressed to members of the North Atlantic Treaty Organisation by 54 non-governmental organisations calling for the North Atlantic Treaty Organisation "to do more to address the deteriorating security situation in Afghanistan". [HL3417]

  The Minister of State, Foreign and Commonwealth Office, Baroness Symons of Vernham Dean:
  As announced at the NATO summit in Istanbul on 28–29 June, NATO will expand the International Security Assistance Force (ISAF) in stages across Afghanistan through the establishment of additional provincial reconstruction teams (PRTs). ISAF will also provide enhanced support to the Afghan authorities during the elections currently scheduled to take place in September. The UK fully supports NATO security efforts in Afghanistan and currently contributes around 400 troops to ISAF operations under NATO command. The two UK-led PRTs in Mazar-e Sharif and Meymana will transfer to NATO authority as soon as practicable.

  Lord Avebury
  asked Her Majesty's Government:

  What measures they will support at the North Atlantic Treaty Organisation summit to combat drug growers and traffickers, private militias and terrorist groups in Afghanistan. [HL3418]

  Baroness Symons of Vernham Dean:
  The UK fully supports the implementation of NATO's agreed plan for expansion of the International Security Assistance Force (ISAF) announced at the Istanbul summit on 28–29 June. This is based on the phased expansion of the network of provincial reconstruction teams (PRTs) across Afghanistan. The two UK-led PRTs in Mazar-e Sharif and Meymana will transfer to NATO authority as soon as practicable and the UK will also provide a forward support base for all PRTs in the north. PRTs aim to help to improve the security environment in the areas in which they operate and to extend the remit of the Afghan transitional administration. This underpins efforts to demobilise and disarm Afghan militia forces. The UK particularly welcomes NATO's commitment to provide appropriate support, within ISAF's mandate, to the Afghan authorities in taking resolute action against the production and trafficking of narcotics.

  Afghanistan: Security Situation
  Lord Avebury
  asked Her Majesty's Government:

  Whether they agree with M Jean Arnault, head of the United Nations Assistance Mission to Afghanistan, that "Afghanistan has become more volatile". [HL3419]

  Baroness Symons of Vernham Dean:
  Our assessment is that the security situation in Afghanistan remains fragile. But we would not assess the situation as significantly more volatile now. It is, sadly, not surprising that, in the period leading to the elections, those elements which are opposed to the Bonn process and a peaceful political transition will attempt to disrupt the election preparations through violent means.

  We and our international partners remain committed to working with the Afghan Government to improve security, both in the run-up to elections and in the longer term. NATO's recent agreement on the expansion of the International Security Assistance Force is evidence of that commitment.

  Afghanistan: Militia Forces
  Lord Avebury
  asked Her Majesty's Government:

  What proportion of Afghan irregular military forces they estimate will have been demobilised by 30 June; and how this compares with the target set at the Berlin conference. [HL3420]

  Baroness Symons of Vernham Dean:
  According to UN figures, a total of 9,719 officers and soldiers had been demobilised by 24 June. On this basis, around 20 per cent of the total number of Afghan militia forces will have been demobilised by 30 June. This clearly falls well below the ambitious target of 40 per cent demobilisation by 30 June set by President Karzai at the Berlin Conference. But it still represents solid progress within the difficult circumstances prevailing in Afghanistan.

  Home Detention Curfew Scheme
  Baroness Anelay of St Johns
  asked Her Majesty's Government:

  How many offences were committed by prisoners while released on the home detention curfew scheme since January 1999; what were the category of the offences committed by prisoners while released on the scheme; and how many offences were similar in character to those for which the prisoners had originally been sentenced. [HL2938]

  The Minister of State, Home Office (Baroness Scotland of Asthal):
  As of 30 April 2004, 92,280 prisoners have been placed on the home detention curfew scheme since the scheme was introduced in January 1999. To 30 April, 1,977 of those prisoners have been reported to the Home Office as having been
  WA88
  cautioned or convicted or awaiting prosecution for an offence committed while they were subject to the scheme. Table 1 gives a breakdown of those offences and table 2 gives a breakdown of offences that were similar in character to the index offence.

  Breakdown of all further offences

  Total

  28 January 1999 to 31 April 2004

  Total

  3,623

  Violent Against the Person

  462

  Sexual Offences

  9

  Burglary

  163

  Robbery

  47

  Theft and Handling

  866

  Fraud and Forgery

  119

  Drug Offences

  306

  Motoring Offences

  964

  Other

  687

  Breakdown of all further charges incurred on HDC which are similar to the most serious index offence

  Total

  28 January 1999 to 31 April 2004

  Total

  664

  Violent Against the Person

  56

  Sexual Offences

  0

  Burglary/Theft/Fraud/Forgery

  440

  Drug Offences

  49

  Motoring Offences

  103

  Other

  16

  Criminal Justice Act 2003: Removal of Foreign Prisoners
  Lord Hylton
  asked Her Majesty's Government:

  In how many cases in each of the past two years use was made of the provision for deporting foreign national prisoners four and a half months before the expiry of their sentence. [HL3064]

  Baroness Scotland of Asthal:
  The Criminal Justice Act 2003 introduces new provisions to enable certain foreign national prisoners who are liable to removal to be removed up to four and a half months before their normal release date. This power came into force on 14 June hence data relating to the number of times it has been used are unavailable.

  Yarl's Wood
  Lord Avebury
  asked Her Majesty's Government:

  Further to the Written Answer by the Baroness Scotland of Asthal on 24 June (WA 148), what plans they have for applying the recommendations to the rest of the immigration detention estate. [HL3446]

  Baroness Scotland of Asthal:
  Lessons learnt from the Prison and Probation Ombudsman's report into the allegations of racism, abuse and violence at the Yarl's Wood Immigration Removal Centre are, where necessary, being promulgated across the rest of the detention estate.

  Civil Servants: Politically Sensitive Information
  Lord Marlesford
  asked Her Majesty's Government:

  Whether senior civil servants and senior military officers are given general guidance or training on how to judge whether to bring to the attention of Ministers politically sensitive documents or information which they receive from officials of foreign governments; and [HL2770]

  Whether instructions have been given to the Civil Service and to military commands to ensure that Ministers are made aware of politically sensitive information which is received by officials or other employees of the Government. [HL2772]

  The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Bach):
  All civil servants are required to conduct themselves in accordance with the Civil Service Code, paragraph 5 of which requires civil servants to "… make all information relevant to a decision available to them" [Ministers]. Through the Civil Service Code civil servants are therefore expected to use their judgment and experience to bring any relevant information to a Minister's attention. The working relationships which exist in the Ministry of Defence ensure that military officers receive appropriate advice on matters which may require bringing to a Minister's attention from their civilian counterparts.

  Iraq: Red Cross Report
  Lord Marlesford
  asked Her Majesty's Government:

  Whether:

  the Permanent Secretary of the Ministry of Defence;

  the Chief of the Defence Staff;

  the Permanent Under-Secretary of State at the Foreign and Commonwealth Office; and

  the Secretary of the Cabinet were aware of, and if so approved, the initial decision that the International Committee of the Red Cross February interim report to Ambassador Bremer on coalition facilities in Iraq should not be shown to Ministers; and on what date it was shown to Ministers. [HL2769]

  Lord Bach:
  The International Committee of the Red Cross's (ICRC) report on the treatment by the coalition forces of prisoners of war and other protected persons by the Geneva Conventions in Iraq during arrest, internment and interrogation, dated 10 February 2004, was formally passed to Ambassador Bremer and Lieutenant General Sanchez on 26 February. An advance copy was passed to the senior British military representative in Iraq and to the Office of the United Kingdom Special Representative. The senior British military representative passed a copy of
  WA90
  the report to HQ MND(SE) on 13 February and to PJHQ on 16 February, and posted a copy to the Ministry of Defence that arrived on 27 February. The Office of the UK Special Representative was assured that allegations involving misconduct by UK forces were already under investigation as were investigations into allegations involving US forces.

  The report covered visits that had taken place between three and 11 months earlier. Arrangements had changed significantly since then and the report did not raise any specific cases for the UK which had not already been addressed. A separate report, specifically for the UK, was anticipated and MoD officials took the view that it would be prudent to wait for this report and then provide Ministers with an up-to-date picture and advice on how the UK should respond. Senior officials were not party to this decision.

  Defence Ministers were already aware of those issues in the ICRC interim report concerning UK Armed Forces some five months previously, and steps had already been taken to address the specific concerns raised. A copy of the report was sent to defence Ministers' offices on 7 May 2004 and the Foreign Secretary and FCO senior officials were made aware of the report on the weekend of 8–9 May 2004.

  Iraq: Treatment of Prisoners
  Lord Lamont of Lerwick
  asked Her Majesty's Government:

  Whether they have been kept informed of the conditions in which members of the previous Iraqi Government, including Mr Tariq Aziz, are held, and of how they are interrogated; whether these conditions are appropriate; and whether they accord with the Geneva Convention relating to prisoners of war. [HL2789]

  Lord Bach:
  Conditions in which Iraqis detained by US forces are held are a matter for them to comment on. However, the United States is a signatory to the Geneva Conventions and we are not aware of any allegations that members of the previous Iraqi Government have been mistreated.

  Armed Forces: Recruitment
  Lord Astor of Hever
  asked Her Majesty's Government:

  What quotas have been set for particular specialisms at individual Armed Forces' recruiting offices. [HL3312]

  Lord Bach:
  The information is not held centrally in the format requested. The Armed Forces do not set recruiting quotas for individual recruiting offices. They do, however, have recruiting targets, which are based on the current and future manning plans for each Service.

  Royal Fleet Auxiliary: DLH Launcher
  Lord Mackenzie of Culkein
  asked Her Majesty's Government:

  Whether the DLH launcher will be fitted to vessels of the Royal Fleet Auxiliary so that they may be equipped to use MK251 decoy rounds. [HL3533]

  Lord Bach:
  It is planned to fit the DLH launcher to three vessels of the current Royal Fleet Auxiliary fleet during 2006 and 2007. Whether these vessels will then subsequently carry the MK251 active decoy round will be dependent on the nature of operations in which they would be likely to be involved. Decisions on the future fit of the DLH launcher to other RFA vessels have yet to be made.

  Ministry of Defence Police: Officers Serving Abroad
  Lord Mackenzie of Culkein
  asked Her Majesty's Government:

  How many officers of the Ministry of Defence police are serving abroad; and how many are deployed in each overseas country. [HL3535]

  Lord Bach:
  Eighty-three Ministry of Defence police officers are currently serving overseas. Of these, 60 are in Kosovo, 18 in Iraq, three in Kenya and two are on Pitcairn Island.

  Atomic Weapons Establishment, Aldermaston: Laser Facility
  Lord Stoddart of Swindon
  asked Her Majesty's Government:

  What were the circumstances of the project to build a replacement laser facility at the Atomic Weapons Establishment, Aldermaston, which necessitated a 21-day public consultation. [HL3552]

  Lord Bach:
  Following the re-submission on 13 April to West Berkshire District Council of a notice of proposed development, and voluntary supporting environmental information relating to the proposed replacement laser facility at the Atomic Weapons Establishment, Aldermaston, public notices were posted outside the facility for a statutory period of 21 days from 30 April to 21 May. This is in accordance with the practice of treating notices of proposed development submitted to local planning authorities by Her Majesty's Government in the same way as planning applications submitted under the Town and Country Planning Acts.

  Lord Stoddart of Swindon
  asked Her Majesty's Government:

  Whether the Ministry of Defence in its planning application to build a replacement laser facility at the Atomic Weapons Establishment, Aldermaston, provided details of any possible increases of nuclear
  WA92
  discharges to air, soil or water arising from the new plant. [HL3553]

  Lord Bach:
  Although not required by statute, the MoD voluntarily supplied with its notice of proposed development an environmental assessment of the impact of the proposed replacement laser facility at the Atomic Weapons Establishment, Aldermaston. This included details of the possible discharges to air, soil or water arising from the replacement plant.

  Teletherapy Units
  Baroness Miller of Chilthorne Domer
  asked Her Majesty's Government:

  Whether all hospitals, research establishments and universities possessing linear accelerators, other accelerators or teletherapy units have the appropriate RSA93 registration. [HL3447]

  The Parliamentary Under-Secretary of State, Department of Health (Lord Warner):
  Registration to keep and use radioactive materials under the 1993 Radioactive Substances Act is applicable to linear accelerators and other teletherapy units only when those contain depleted uranium (DU) or other radioactive materials. Where this is the case the premises and materials must be registered.

  The uranium was used in the construction of head shields, which restrict the leakage of radiations from these machines and in collimators used to shape or limit the useful beam. However, the great majority of such machines in use within the National Health Service today are relatively new and do not carry DU as manufacturers have moved to the use of alternative high-density metals. Accordingly registration of these machines is not applicable.

  In addition to linear accelerators described above, a small number of cobalt 60 units remain in NHS hospitals. These require registration in respect of both the renewable cobalt 60 radioactive source used and any DU present.

  Taken together the NHS in recent times has about 12 machines to which RSA registration is applicable. Of these about half are in day-to-day use and the remainder are awaiting removal or are retained as part of contingency plans to ensure continued availability of treatment capacity. Several of these are scheduled for replacement under the current central procurement scheme, which is intended to modernise and expand the asset base in this area.

  All of the major teletherapy equipment suppliers are clearly aware of the need to assist the NHS by providing appropriate information on the use of DU and audit trails are in place. Each NHS trust has a local duty to register sources with the Environment Agency (England and Wales) and this work is carried out under the supervision of radiation protection advisers appointed under the Ionising Radiation Regulations 1999.
  WA93
  Baroness Miller of Chilthorne Domer
  asked Her Majesty's Government:

  Whether linear accelerators and teletherapy machines are clearly labelled to indicate the presence of depleted uranium. [HL3448]

  Lord Warner:
  The treatment room housing the teletherapy machine will be a controlled area under the 1999 Ionising Radiations Regulations and will carry notices at the entrance, complying with the Health and Safety (Safety Signs and Signals) Regulations 1996 and BS 5378.

  The medical and dental guidance notes "A good practice guide on all aspects of ionising radiation protection in the clinical environment"specifically asks that the presence of depleted uranium (DU) in a teletherapy machine be noted in the radiation safety local rules. These rules will also be reflected in maintenance protocols and documentation.

  The DU components themselves are stamped with an identification code in order to facilitate the individual tracking of items or components in the event that they are removed for service reasons. These stamps are also essential in audit trails, which are used to maintain records of the use and location of the material throughout its life. Internal radioactive materials labelling, within the head of the apparatus, is used where the manufacturer, service organisation or local radiation protection adviser considers that a hazard might arise.

  Local Exercise Action Pilot Programme
  Lord Moynihan
  asked Her Majesty's Government:

  Further to the Written Answer by the Lord Warner on 29 March (WA 139), which sports organisations are involved with the local exercise action pilot schemes. [HL3486]

  Lord Warner:
  At a national level the Department of Health is working in partnership and jointly funding the local exercise action pilot (LEAP) programme with Sport England, England's national sports development agency. The active involvement of local strategic partnerships, which include sport and leisure providers, is central to the LEAP model and there are examples across the 10 pilots of sport organisations working in partnership with the lead primary care trusts. For example, sports partnerships including national governing bodies, sport development teams, leisure services, private gyms and the voluntary sports sector are making a valuable contribution to the development of interventions such as National Health Service exercise referral schemes within a number of the pilots.

  In addition, the Amateur Swimming Association (ASA) has been closely involved in the development of the Plymouth free swimming pilot and the local ASA officer is supporting the work of Plymouth City Leisure Services and Plymouth PCT.

  Two of the 10 pilots are also based in sport action zones.

  Thiomersal
  Lord Mackenzie of Culkein
  asked Her Majesty's Goverment:

  Whether they will follow the examples of regulators in Europe and the United States in recommending the phasing out of the use of thiomersal in vaccines to reduce exposure to mercury as much as possible. [HL3530]

  Lord Warner:
  The European Medicines Agency (EMEA) updated its advice on use of thiomersal in vaccines in March 2004. It continues to advise that development of vaccines without thiomersal, or with the lowest possible levels of thiomersal and other mercury-containing preservatives, should continue to be promoted. However, it also acknowledges that during some manufacturing processes the use of organic mercury compounds is necessary and, in such cases, residual levels might be present in the final product. The Committee on Safety of Medicines (CSM) and the Joint Committee on Vaccination and Immunisation endorse the EMEA position. In line with this recommendation, a number of UK-licensed vaccines have recently had levels of thiomersal reduced or removed completely from the manufacture of the component antigens or from the final vaccine. The CSM continues to advise that the benefits of vaccination far outweigh the risks, if any, of exposure to thiomersal-containing vaccines.

  Squamous Cell Carcinoma
  Lord Henley
  asked Her Majesty's Government:

  What research they have commissioned into the incidence of squamous cell carcinoma in England. [HL3561]

  Lord Warner:
  The main agency through which the Government support medical and clinical research is the Medical Research Council (MRC). The MRC is an independent body funded by the Department of Trade and Industry via the Office of Science and Technology. The Department of Health contributes to the strategies and priorities of the MRC by meeting the National Health Service costs of the MRC's research (and of research funded by charities). The department also directly funds research to support policy development in health and social care, and to support effective practice in the NHS.

  The MRC has recently funded a study on the molecular pathogenesis of cutaneous squamous cell carcinoma and its relationship to human papillomavirus infection.

  Over 75 per cent of the department's total expenditure on health research, including on cancer, is devolved to and managed by NHS organisations. Details of individual projects, including some

  WA95
  concerned with squamous cell carcinoma of the skin, can be found on the national research register at www.dh.gov.uk/research

  Office of the Deputy Prime Minister: Sport Budget
  Lord Moynihan
  asked Her Majesty's Government:

  What is the departmental budget allocated to the promotion of sport and physical recreation by the Office of the Deputy Prime Minister and its associated agencies for each year since 2001–02. [HL3384]

  The Minister of State, Office of the Deputy Prime Minister (Lord Rooker):
  The Office of the Deputy Prime Minister recognises that sport can play an important role in neighbourhood renewal. It has recently published three documents relating to sport and neighbourhood renewal:

  Joint Working in Sport and Neighbourhood Renewal—a study into the nature of joint working between sport and neighbourhood renewal practitioners.

  Teaming Up—a guide to joint working between sport and neighbourhood renewal practitioners that makes the case for linking sport and regeneration activities and provides some practical advice on how to do it.

  Street Games—a report about the street games initiative to get young people involved in regular sporting activities through properly mentored community football games.

  The Office of the Deputy Prime Minister is also aware that some regeneration expenditure is spent on sport interventions. To minimise reporting burden, the Office of the Deputy Prime Minister does not require detailed breakdown of expenditure spent specifically on sport projects. However, the Association of London Government reports that 11 per cent of London's 2002–03 Neighbourhood Renewal Fund allocation was dedicated to culture, a category that encompasses sport.

  The Office of the Deputy Prime Minister has specific responsibility for the Fire Service College. The college operates a leisure centre which is available to students and local residents. This provides a swimming pool; multi-gym; sports hall; squash courts; tennis courts; and playing fields. The budgets for the leisure centre were:

  £

  Year

  Cost

  Income

  Net Cost

  2002–03

  225,000

  120,000

  105,000

  2003–04

  232,000

  120,000

  112,000

  The Office of the Deputy Prime Minister also has a departmental sports and recreation club, SPARTA, for which it provides administration resources to cover the managing of the club. The budget for this was £63,000 in 2002–03 and £63,000 in 2003–04.

  North-east: Physical Activity
  Lord Moynihan
  asked Her Majesty's Government:

  What was the level of participation in physical activity in the north-east region prior to the commencement of the Everyday Sport campaign; what is the budget for the campaign; and what targets have been set against which the campaign will be evaluated. [HL3483]

  The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord McIntosh of Haringey):
  Approximately 30 per cent of the population in the north-east region are considered to be reasonably active; Sport England has earmarked £250,000 from its budget this financial year for the campaign; the evaluation will measure awareness of the campaign, intention to increase physical activity levels and identify barriers to participation.

  British Waterways: Office Accommodation
  Lord Oakeshott of Seagrove Bay asked Her Majesty's Government:
  Whether the recent reported letting of office space at Paddington at over £40 per square foot to the British Waterways board either required or received approval from HM Treasury in accordance with paragraph 10.3 of the Lyons report. [HL3429]
  Lord McIntosh of Haringey:
  British Waterways was not required to consult HM Treasury on this matter since the office accommodation in question was required to provide local services.

  Benefit Claim Procedures: Rural Proofing
  Baroness Byford
  asked Her Majesty's Government:

  When they intend to apply rural proofing to benefit claim procedures within the Department for Work and Pensions. [HL3476]

  The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham):
  The department is modernising the services we provide to our customers. We are providing improved access to services and benefits through telephone centres and the Internet. Jobcentre Plus has new, dedicated caller offices. The Pension Service local service provides appointment-based surgeries in locations regularly visited by pensioners such as local community centres, Welfare Rights and Age Concern outlets.

  We are committed to ensuring that everyone is able to access our services, whether they live in urban or rural areas. Increased accessibility is one of our key objectives in modernising welfare delivery. This modernisation is helping us to deliver the commitment made in the rural White Paper to ensure access to "high quality public services—services often delivered in new ways, and through new outlets".
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  The decisions we make about where and how we deliver services are based upon consultation with our partners. These include local authorities and regional development agencies, and reflect local circumstances and most importantly, the needs of the local community. The consideration of rural issues is an integral part of the consultation process.

  The rural proofing checklist produced by the Countryside Agency forms part of the initial planning process and, where appropriate, the Countryside Agency itself is consulted as a stakeholder. We produce an internal annual rural proofing report for the Countryside Agency; this includes examples of how the department has addressed service delivery issues in rural areas. We also regularly discuss policy development and implementation with Defra (Department for Environment, Food and Rural Affairs) and the Countryside Agency.

  Horses: Slaughter for Human Consumption
  Lord Willoughby de Broke
  asked Her Majesty's Government:

  How many of the 6,000 to 10,000 horses slaughtered in the United Kingdom for human consumption are for consumption in the United Kingdom. [HL3175]

  The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Whitty):
  None are recorded as being for human consumption in the United Kingdom.

  Pesticides Safety Directorate
  Baroness Byford
  asked Her Majesty's Government:

  Further to the Written Statement in the House of Commons on 25 May (HC Deb. 75WS), what European Union legislation and regulation they anticipate in 2004–05 to which the Pesticides Safety Directorate will be expected to have an input. [HL3488]

  Lord Whitty:
  During this period the Government anticipate the following European Union legislation and regulation to which PSD will be expected to have an input:

  the revision of Council Directive 91/414/EEC concerning the authorisation of plant protection products;

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  a new regulation of the European Parliament and the Council concerning maximum residue levels for pesticides;

  a new thematic strategy on sustainable pesticide use under the Sixth Environmental Action Programme;

  decision on the authorisation of plant protection products under Directive 91/414/EEC;

  decisions to set new maximum residue levels and amend existing ones.

  Cormorants
  Lord Mason of Barnsley
  asked Her Majesty's Government:

  How many landowners and managers of fisheries have applied for a licence to shoot cormorants in each of the past five years. [HL3541]

  Lord Whitty:
  The numbers of applications received in the past five years is as follows. The annual figures are taken from 1 April each year to the following 31 March.

  Number of applications

  1999–2000

  106

  2000–01

  132

  2001–02

  136

  2002–03

  184

  2003–04

  165

  Eggs: Mercosur Negotiations
  Baroness Byford
  asked Her Majesty's Government:

  What action they are taking to support the United Kingdom egg industry in the trade negotiations between the European Union and the Mercosur countries. [HL3565]

  Lord Whitty:
  We have already made clear to the Commission our concerns regarding the inclusion of eggs and egg products on the list of goods from which tariffs will be removed in the EU's market access offer to Mercosur.

  The EU's offer, which has now been submitted, is an ambitious one, covering a wide range of products. However it is conditional and the Commission has suggested that it could be scaled back if we do not get a satisfactory response from Mercosur. In such circumstances there may be an opportunity to take account of these concerns.

  I have asked my officials to keep the British Egg Industry Council posted on developments.

  International Court of Justice
  The Minister of State, Foreign and Commonwealth Office (Baroness Symons of Vernham Dean):
  The Government have amended the United Kingdom's declaration accepting the jurisdiction of the International Court of Justice under Article 36(2) of the Statute of the Court. A copy of the revised declaration, set out in a letter dated 5 July 2004 to the United Nations Secretary-General, has been placed in the Library of the House.

  The revised declaration makes two main changes to the former declaration dated 1 January 1969. The first updates from 24 October 1945 to 1 January 1974, the cutoff date for the acceptance of the court's jurisdiction, thus excluding stale claims. The effect is that jurisdiction is not accepted in respect of disputes which arose before 1 January 1974. The second is to broaden the scope of the previous Commonwealth exception, so that jurisdiction is not accepted in respect of any dispute with the government of any other country who are or have been a member of the Commonwealth. The Commonwealth exception is of long standing and is retained by a number of Commonwealth countries.

  Though these changes are of general application, their immediate significance is that they prevent any Commonwealth country from circumventing the present limitations by withdrawing from the Commonwealth and then instituting proceedings against the United Kingdom in respect of an existing dispute. The Government have acted to prevent such a move as they believe it is against the spirit of the existing Commonwealth exception.

  Skills Strategy
  The Parliamentary Under-Secretary of State, Department for Education and Skills (Baroness Ashton of Upholland):
  My right honourable friend the Parliamentary Under-Secretary of State for Education and Skills (Mr Ivan Lewis) has made the following Written Ministerial Statement.

  In July 2003, the Government launched the National Skills Strategy, 21st Century Skills. The skills strategy is primarily a strategy for England, reflecting the devolution of responsibility for education and training to Scotland, Wales and Northern Ireland.

  The strategy's aim is to ensure that employers have the right skills to support the success of their businesses, and individuals have the skills they need to be both employable and personally fulfilled. Significant progress has been made in the first year of
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  the strategy, and today we are holding a key conference and the Skills Alliance is publishing a progress report to set out the successes to date and the challenges for the year ahead. There is now a real momentum for change and a strong sense of shared purpose and enthusiasm, and I would like to make you aware of the following achievements.

  The Skills Alliance has brought together key partners with an interest in skills and productivity—the Department for Education and Skills, the Department for Trade and Industry, the Department for Work and Pensions, the Treasury, the CBI, the TUC, the Small Business Council and the key delivery organisations led by the Learning and Skills Council. The Skills Alliance's role is to oversee effective implementation of the strategy and, today, has published its first annual report on progress.

  The skills strategy emphasised the need to move away from a supply-driven education and training system towards a demand-led approach. We are driving this forward by: improving our understanding of employers' skills needs and their contribution to raising productivity; working with employers to ensure that the skills of their employees are effectively deployed to support business development; and ensuring that skills demand drives the design of training programmes and qualifications.

  The Success for All reform strategy, launched in November 2002, has been a key factor in raising standards, improving quality, and ensuring that colleges and post-16 providers become more flexible and responsive to employers' needs. I am very pleased with the way in which the further education sector is embracing these reforms and that standards and responsiveness are improving.

  During the year, colleges and other training providers have successfully continued to expand the existing flow of people with skills, training and qualifications, thus meeting the needs so far of individuals and of employers, including: basic skills—200,000 learners achieved at least one skills-for-life qualification this year. Since 2001, 2.3 million learners have taken up 4.6 million skills-for-life learning opportunities. Level 2—260,000 more adults in the workforce achieved qualifications at least to full level 21 at the end of 2003 compared to autumn 2002. The proportion of adults in the workforce qualified to level 2 is now 71 per cent2. Apprenticeships—246,000 16–24 year-olds were enrolled by the end of March 2004. There have been over 1 million entrants to the programme so far.

  Foundation degrees—currently 24,500 students are enrolled on foundation degree courses, with employers involved in both the design and delivery. Overall flow of qualifications—nearly 3 million qualifications were achieved by adults in 2002–03.

  Other progress on the key areas within the strategy includes: for employers—there are over 60,000 employees on ETP through 10,000 employers, 18 sector skills councils, better business support, in particular for SMEs, and new apprenticeship family launched.
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  For individuals—over 2,200 low skilled individuals benefiting from financial help with adult learning grant pilots, we are about to begin phased introduction of new level 2 entitlement in package of support in NE and SE, fewer adults without a full level 2, better IAG all over the country with reformed service standards.

  On qualifications—the work on reform of qualification system for adults will be set out at the Skills Strategy One Year On event, the Tomlinson proposals for 14–19, and new qualifications to meet employer need. With colleges and training providers—we continue to build on Success for All reform, strategic area reviews underway, new LSC business cycle, plan led funding, upwards trend in college success rates, and we are about to consult on reform of fees and funding.

  Through partnerships—new Skills Alliance and regional skills partnerships, NEP report to drive welfare to workforce development agenda including through New Deal for skills, Government leading by example and addressing skills issues in all departments/bodies.

  These achievements represent significant progress during the year. We have been heartened by the widespread support that the strategy has received, the recognition that we have to get the implementation right if we are to achieve our national economic and social objectives, and the determination shown by organisations and individuals across the board to play their full part.

  However, there is much more to do, and it will require sustained commitment over a period of years to address the deep-seated barriers to skills investment, and so achieve our economic and social goals.

  Copies of the Skills Alliance: Skills Strategy Progress Report; Skills Strategy Progress Report Technical Supplement On Underlying Data and Evidence; Government Meeting Its Responsibilities; and the Skills for Life Annual Review 2003–2004 have been placed in the Library and are available in the Vote and Printed Paper Offices.
  1 A full level 2 refers to any qualification equivalent in standard and breadth to 5 GCSEs at A*—C or a national Vocational Qualification at level 2.2 Labour Force Survey, Winter 2003–04

  Legal Services Ombudsman: Annual Report 2003–04
  The Parliamentary Under-Secretary of State, Department for Constitutional Affairs (Lord Filkin):
  The Legal Services Ombudsman has today published the thirteenth annual report, and copies have been placed in the Libraries of both Houses.

  UK Inward Investment: 2003–04 Report
  The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville):
  My right honourable friend the Secretary of State for Trade and Industry (Ms Hewitt) has made the following Written Ministerial Statement.

  With my right honourable friend, the Secretary of State for Foreign and Commonwealth Affairs, I am pleased to inform the House that the UK remains number one in Europe for inward investment.

  UK Trade and Investment announced today, at its launch of the UK Inward Investment 2003–04 report, that there were 811 direct investments in the UK by foreign-owned companies between 1 April 2003 and 31 March 2004. This is an increase of 14 per cent on the year before and confirms the UK's position as the top investment location in Europe. Total jobs figures were up 8 per cent to 59,217 of which 25,463 were new jobs (down 26 per cent on the previous year) and 33,754 were safeguarded jobs (up 41 per cent on 2002–03).

  This performance reflects the confidence, which companies around the world continue to show in the business climate in the UK. The number of new projects has increased by 8 per cent from 314 in 2002–03 to 339 in 2003–04, while expansions by existing investors increased by 18 per cent from 234 in 2002–03 to 285 in 2003–04.

  The competition is fierce. But we will not allow our position as market leader in Europe to make us complacent. UKTI will further strengthen and sharpen its operations in priority markets and the Government will continue to ensure that the UK provides economic growth and stability and an innovative climate to attract investment.

  I am arranging for a copy of the UK Inward Investment 2003–04 report to be placed in the Library of the House.