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Schedule 17


Amendments made : No. 49, in page 258, line 18, column 3, at end insert

and, in Group 8A, Note (5)'.

No. 50, in page 258, line 30, leave out first in' and insert of Group 6 of Schedule 5 to'.

No. 69, in page 263, line 38, column 3, after 4', insert in paragraph 1(2) the words "at the rate of 50 per cent.,".'. No. 70, in page 263, line 41, column 3, after property)' ", insert

in paragraph 3(2) the words "at the rate of 50 per cent.,".'. No. 71, in page 263, line 46, column 3, at end insert

Section 96(3)(e) and (4)'.-- [Mr. Lilley.]

Order for Third Reading read.

9.28 pm

Mr. Norman Lamont : I beg to move, That the Bill be now read the Third time.

There have been some notable features of this year's Finance Bill and of the debates that we have had, both upstairs and on the Floor of the House. One of these has been the extent to which the Opposition have been able to

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agree with some of the purposes of the Bill. Certain provisions, such as that relating to unleaded petrol, have received the support of the Opposition and in other sectors they have shown their broad general approval. For that, I am grateful.

The other feature of the Bill is its length. It is the longest on record. Originally, it was 180 clauses and since then it has been lengthened. Some have criticised the length of the Bill, but I do not think that that criticism is valid. There is a good reason why it is a long Bill and that is that it contains many important and worthwhile measures. In particular, it demonstrates the Government's continuing commitment to tax reform.

The Bill contains important measures affecting pensions, savings and life assurance and some important simplification measures. An important part of the Bill, some 10 per cent., is occupied by measures to encourage employee participation schemes and wider share ownership. I think that these have commanded wide support on both sides of the House. The measure that I would single out for special mention is the new relief for employee share ownership trusts, or ESOPS, in which my hon. Friends the Members for Esher (Mr. Taylor) and for Carshalton and Wallington (Mr. Forman) have taken a special interest. The hon. Member for Newcastle upon Tyne, East (Mr. Brown) expressed his support and enthusiasm for the concept. This tax relief breaks new ground and we still want to see how it works in practice before considering whether any changes or improvements are needed. Already, there are 9 million shareholders, and I believe that the measures in the Bill will add to them.

Another major part of the Bill makes changes to pensions. A group of these changes has been designed to redress the balance between personal pensions and occupational pensions. Personal pensions are particularly suitable for younger people who are likely to move jobs, and they are the only form of pension savings available to the self-employed. For too long the tax system has put such people at a disadvantage, with the late starter not being able to make sufficient contributions to match the pension offered by final salary schemes. I am particularly pleased that we were able to accept the amendment moved by my hon. Friend the Member for Wyre Forest (Mr. Coombs), which raises the contribution limit for those aged over 60 to 40 per cent. This will go some way to improving the position of late entrants. Over 3 million personal pensions have been taken out, increasing private sector savings and putting the country's long-term finances on a firm footing. The measures in the Bill will ensure that personal pensions continue to flourish.

The ceiling on tax relief for pension saving has been debated thoroughly both inside and outside Parliament. I received many representations about this, and the more that I received, the more convinced I became that our approach is correct. The quid pro quo for getting marginal tax rates down has always been a reduction in tax rates. Generous reliefs were necessary when marginal rates were as high as 98 per cent., but with the generous and large cuts in the top rate of tax, this justification no longer holds. Other savings reliefs are subject to monetary limits. If we are not to create an unwarranted distortion in favour of institutional savings, a similar limit must be applied to pensions.

The cap of £60,000 was deliberately pitched at a level that would minimise disruption to pensions. As few as 50,000 employees have earnings in excess of the limit, and

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few of them will be affected immediately because of the transitional provisions. We have heard in recent weeks a number of apocalyptic visions from interest groups that should know better. I would merely point out the example of the United States, where they have an earnings cap of $98,000, slightly over £60,000. Curiously, it, too, is indexed to prices.

I have been following with interest the extravagant claims made about the effect of the decision to adopt prices indexation. If earnings grow faster than inflation, it is true that over time the cap will gradually apply to an increasing number of people, but this needs to be kept in perspective. At present only a very few people earn more than £60,000 and, because of the very generous transitional arrangements, the initial impact of the cap will be small. It is worrying to see experts in the pensions industry-- whom I would expect to be good at arithmetic--making the claim that the cap will be eroded in a few years' time to £25,000 or so. This really is a strange claim. The fact is that the real value of the limit will be maintained at £60,000. It will not erode. That £60,000 is a large sum, and it will always be worth £60,000, at least in today's terms. In fact, because of the rounding formula it will move slightly ahead of straight prices indexation. I can conclude only that the National Association of Pension Funds and others have confused themselves with the logic of their attempts to bolster their case which, in any event, is unsustainable.

I find it curious that the pensions movement, which claims to represent several million scheme members, most of whom are on average earnings or below, should come out so strongly in favour of earnings indexation, bearing in mind that many of their member schemes do not even grant prices indexation to pensions, even where schemes have sizeable surpluses. I also recall the resistance of the pensions movement to improvements to such matters as early leavers' benefits, where the Government had to legislate to give ordinary scheme members a fair deal. I therefore find its criticism of the £60,000 cap very unappealing.

The really unsatisfactory feature of pensions provision is the millions of ordinary scheme members who do not receive a pension anywhere near the maximum allowable under the tax rules and those who retire on fixed pensions with no certainty of any cost of living increases and so see their living standards eroded. Moreover, some 10 million people are not covered by occupational schemes. I am forced to conclude that the pensions industry should concentrate its attention on those matters. I remain convinced that our measures are overwhelmingly justified.

The Bill is not just about those saving for retirement ; it will also benefit those who have already retired. There are generous increases in the different age allowances and also in the rate at which the age allowance is withdrawn for those with incomes above the incomes limit.

At the beginning of my speech I referred to significant tax reforming measures, one of which is life assurance. Although the details sound, and indeed are, complex, the general approach has been straightforward-- applying a lower rate of tax to a broader base, which is the general principle that we have applied to all our tax reforms.

A large part of the Bill--some 30 clauses--is concerned with the recommendations of the Keith report. This legislation brings us close to completing the total implementation of those recommendations. We have brought forward this measure only after the fullest

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consultation. All along we have stressed the importance of balancing the powers of the Revenue with adequate safeguards for the taxpayers. Because of the care taken to consult the representative bodies and because of the publication of clauses, I feel sure that the balance is right.

The Bill provides relief for private medical insurance, an issue that we again debated today. At times I felt that the 180-clause Bill contained only that one measure. I do not want to overstate its importance at a cost of £40 million, compared with a planned increase of £5 billion in spending on the NHS over this year and next year. The relief will serve a useful role in meeting the higher cost faced by the elderly in paying for medical insurance at the very time when their incomes may be falling.

I have already referred to some of the measures intended to simplify the tax system. One is the repeal of the complex apportionment rules applying to close companies. When we reduced the top rates of tax last year, I felt that it was important to look for areas where we could simplify tax registration legislation. In principle, the apportionment rules applied to several hundred thousand close companies, required 20 pages of legislation and more than 200 pages of guidance for Inland Revenue officials. They have been replaced by much shorter provisions--four pages--which basically deny the benefit of the small companies rate of corporation tax to about 25,000 close companies. It is a simpler approach than the one contained in the Bill as first published, and I feel no need to be apologetic about that. Our proposals achieve the desired objective and represent worthwhile simplification. The measures now in the Bill are better than those that it incorporated when first published. My hon. Friend the Member for Wanstead and Woodford (Mr. Arbuthnot) persuaded us to drop one measure relating to instruments of variation. His persuasive campaign convinced us that our proposals could be effectively avoided by people having good access to expert advice. However, we shall look to the possibility of introducing a better targeted measure next year.

There was cross-party agreement in Committee that the limits for exempt bingo, where duty is not payable, should be increased. We are grateful to the hon. Member for Wrexham (Dr. Marek) for raising that matter, and are pleased that we were able to produce measures that meet with the approval of both sides of the Committee.

Significant changes have also been made to the VAT measures, which my hon. Friend the Economic Secretary explained today. Right hon. and hon. Members in all parts of the House acknowledged the significance of those steps forward.

The Bill continues the programme of tax reform that has been very successful over the past decade--so successful that it has begun to influence even the Opposition's tax logic. However, as in so many other areas, the Opposition are proving to be somewhat slow and reluctant learners. Instead of accepting the logic of tax reform--that is, that if one rewards enterprise one gets more--they plan to stifle enterprise by restoring marginal rates of tax to levels which, if not confiscatory, would certainly be gratuitously penal.

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The Bill is part of our alternative tax strategy that will continue to be followed by this country and its economy. It is the path to increased prosperity and to continuing high living standards. I commend the Bill to the House.

9.42 pm

Mr. Beith : As the Financial Secretary said, features of the Bill command wide support and are welcome. They include the differential on lead -free petrol and extension of personal equity plan schemes--although we did not enjoy the support of Labour Members on that issue, it was one on which the Government and ourselves reached agreement, at least in respect of the proposed changes. The provisions for employee share ownership schemes are also welcome, and we have contributed to public discussion and argument on that subject over the years.

The features of the Bill that we particularly deplore include tax relief for private medical insurance, to which the Finance Secretary has just referred. That represents the diversion of a substantial sum of money that the Health Service could use for direct health care largely for private insurance and to benefit people who already take out such insurance without any tax incentive. We deplore also retrospective features of detailed taxation matters, which at least excited some interest among Conservative Members. The hon. Member for Tatton (Mr. Hamilton) spoke eloquently on that subject, and we join forces with him in criticising the Government for their selective, retrospective legislation.

The Bill is notable for its omissions. It embodies no logical policy on alcohol and tobacco excise duties, despite inflation. Presumably it is Government policy to reduce the price of alcohol and tobacco, and the tax take, over the years. The Bill contains no provisions to deal with the tax anomaly relating to workplace nurseries and to nursery care. Nor is there any commitment, beyond that relating to PEPs, to encourage small savers.

Our most serious criticism is that the Bill is not really a serious piece of tax reform legislation. It does not address the fundamental problems of the relationship between income tax and national insurance. Nor does it resolve this country's capital taxation problems, whereby there is an almost voluntary inheritance tax for the well-advised. The Bill shirks, as the Government have shirked, the major issues of tax reform which, if addressed, could lead to a more just and fair society.

The Bill has been criticised for being overlong, but that is not a reasonable criticism to make of a Bill that deals with such a wide range of matters. However, criticism can be made of the way that the Bill deals with certain technical matters. I refer to the proposals from the Keith committee, which, because they were the subject of extensive discussion, passed very smoothly through the House and did not give rise to any difficulties in Committee.

That was a good way in which to proceed, but it became apparent during consideration of the Bill that the same care was not being taken over other parts. Amendments were tabled at a late stage ; a Ways and Means resolution brought us back to the Floor of the House to deal with changes in the Bill ; companies and others professionally involved in the legislation were having to make decisions related to the tax regime for the current tax year, while provisions for that regime were being amended daily.

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I do not criticise the Government for responding to

representations that they received--and, in some cases, dropping clauses from the Bill : for example, they abandoned their proposals on deeds of arrangement for wills. How much better it would be, however, to make such proposals in time to allow proper consultation, and, perhaps, to publish them in a separate technical Finance Bill. I have made that suggestion before : it is one of the ways in which the Government could ensure that structural changes in the tax system--which are bound to be complicated, and some of which the Government are bound to get wrong first time--could be addressed more carefully.

There is no sense in dealing with complex and expensive provisions involving large numbers of employees out in the real world in such a way that unsatisfactory last-minute revisions must be made. These were not proposals that had to be implemented at midnight on Budget day ; they could have been brought forward long before.

When I vote against the Government tonight I shall do so not only because I am critical of the Bill, but because the Government have presented it while its members are deeply at odds over the most fundamental issues of economic policy. The Bill is but the window dressing. The Government still do not know their attitude to the major European issues of economic policy. Let me tell them that, for most people, perfecting our relationship with the European Community and establishing our position on the exchange rate mechanism and European economic co-operation are far more important than the details of the Finance Bill. A Government who are so at sea over major economic issues are bound to get the minor details wrong as well.

9.47 pm

Mr. Tim Boswell (Daventry) : Apart from one area of significant disagreement, the Bill has been essentially one for the connoisseur, or alternatively the technician. It was a pleasure to serve on the Committee, and I am pleased to commend the Bill to the House. If I have any substantial criticism other than those already dealt with, it is that in Committee we heard rather too many cliches such as "level playing fields" and "ring fencing". My hon. Friend the Member for Corby (Mr. Powell) and I have suggested that they may provide a fruitful source of taxation for the Chancellor in future years if those who use them are mulcted for the pleasure of doing so.

The Bill has been marked by the number of concessions that the Government have made, some--like those on the variation of wills--achieved through the excision of whole clauses. Several are of staggering complexity : I believe that concessions have been made to interests that I represent, but I am unable to understand exactly what they are. Nevertheless, I am grateful for them.

I believe that the Bill has made out a case for increasingly advanced consultation, such as has been carried out on the taxation of life assurance. A case is also beginning to build up for a technical Finance Bill to be presented in the autumn, so that some of the more detailed matters can be taken out. One or two items remain for another day--such as the treatment of forestry--but I am content to rely on the right decision emerging in due

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course, rather than being rushed into. I am sure that my right hon. Friend will have noted the points that have been made during our debates.

Essentially, the Bill has been one of detail and of fine print. It exemplifies the progress of the Treasury as a stately galleon under more or less full sail, dropping a little in one place and putting on more sail in another.

If we are honest, those of us who participate in the annual voyage on the Standing Committee have enjoyed the process, as we always do. We look forward to further battles of this nature on a subsequent Bill. I have pleasure in commending this one to the House.

Mr. Nicholas Brown : At the beginning of the Committee stage of the Bill I heard a Conservative Member describe something as dull but worthy. At the time I thought that that was a harmless speculation about the future of the Paymaster General. It was not. It was Back-Bench opinion of the Bill --dull but worthy. At our first sitting on 11 May we discovered that that was the Front-Bench view of the Bill, too. The Economic Secretary asked the Committee, "Have I spoken?". When hon. Members said no, he said :

"My words are so unmemorable that I cannot remember what I said."--[ Official Report, Standing Committee G, 11 May 1989 ; c. 19.] The Committee stage proceeded at roughly that pitch of excitement, taking the same number of days to complete its Committee stage as did the more controversial Bill that was before us last year. The Bill has not been characterised by the same high degree of controversy, but it contains a much wider range of measures of varying degrees of importance and contentiousness. From the outset the Labour party had to judge how best the issues were to be approached in Committee. We decided that the principles underlying each Government proposal should be thoroughly explored in Committee and, where necessary, opposed. However, we deliberately did not turn the Committee into the parliamentary equivalent of the battle of the Somme. We wanted to ensure that the clauses were explored in detail and that detailed issues could be considered during the discussion on subsequent clauses.

The fact that the Government's oft-proclaimed radicalism does not leap from the pages of the Finance Bill can be explained more significantly than anywhere else if one looks at clause 28, which sets the rate of income tax. The rate remains unchanged, not because the Government do not believe that it should be reduced further--they are still ideologically committed to increasing indirect taxation and decreasing direct taxation--but because, as with so much else of their ideological Budget, it cannot practically be carried out in the face of the economic storms that currently beset the Chancellor of the Exchequer. This year's standstill is an admission of last year's mistakes. This year's standstill confirms the accuracy of the warnings that the Opposition gave last year. Top rate tax cuts, combined with the liberalisation of credit and substantial pay increases for high earners, way in excess of the national average for pay settlements, has produced a large balance of payments deficit and led to wage inflation.

Equally important, as my hon. Friend the Member for Clydebank and Milngavie (Mr. Worthington) said when we debated these matters in Committee, the Government's tax changes are socially unjust. They have widened the gap in wealth between the most affluent 10 per cent. of our population and the rest. As my hon. Friend pointed out,

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it is the poorest who have been hit the hardest, despite the Government's claim that they are targeting help on those who need it most. Perhaps that is what the Government are doing, but let nobody be in any doubt that, when the Government say that they are giving money to those who need it most, their definition of those who need it most is quite different from the one that is applied by the rest of us.

We condemn the economic policies and the social attitudes that form the background to the Bill. However, as the Financial Secretary perfectly fairly pointed out, there are aspects of the Bill that we support. The proposals relating to unleaded petrol, the concessions on the age allowance, and the change in the earnings rule for pensioners are all welcome. Nevertheless, as my hon. Friend the Member for Islington, South and Finsbury (Mr. Smith) said, the needs of our citizens of pensionable age should be addressed by the Government through mechanisms other than just the tax system. I see no sign that the Government intend to do anything of the sort. Similarly, the implementation of a large number of the recommendations of the Keith committee in the Finance Bill is welcome. What may become known as the Ron Plummer and Roy Tucker memorial clauses deal with the Keith committee's recommendations on tax avoidance. In Committee, there were times when I felt that the heart of the Conservative party was not wholly in the tax avoidance measures. When Conservative Members spoke of standing up for the little people, I had the impression that they were thinking more of the "diddymen" than of small business men in their constituencies. Later in the proceedings, Conservative Back-Bench Members so vigorously defended the democratic and apparently inalienable right of British citizens to have their wills rewritten for tax purposes after they had died that the clause suggesting that that should no longer be allowed was voted out of existence by the Conservative party, despite the fact that the Conservative party was committed to the clause on Second Reading.

That brings me to a rather peculiar phenomenon. I am ashamed to tell the House that the Financial Secretary to the Treasury succeeded in defeating more clauses in the Bill than have the official parliamentary Opposition. It is not surprising that the Chancellor of the Exchequer came up to the Committee to check on the progress of the Bill. Clearly he was checking that the Chief Secretary was getting the Bill through before the Financial Secretary could get more of its contents defeated. I should not be unfair to the Financial Secretary, but I must be a little unfair to him because his craven surrender to the interests of property developers in his climbdown on the close company apportionment proposals was not one of his more heroic parliamentary performances. Nor did he win our admiration with his abject failure to protect the legitimate interests of the Inland Revenue in the argument about inheritance tax and whether dead people should be allowed to rewrite their wills. As with last year's Finance Bill, the greatest part of the Government's work load was carried by the Financial Secretary. As I said last year, discussing the Finance Bill without the Financial Secretary is like discussing Hamlet without the ham. This year, the Financial Secretary's robust impersonation of the late Tony Hancock

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impersonating a union leader was enjoyed by the entire Committee when we discussed employee share ownership trusts. His moving speech in favour of workers' control will be remembered by the Opposition for some time. He said :

"If the increasing awareness of and interest in ESOPs results in more worker-owned companies, I should not regret that."--[ Official Report, Standing Committee G ; 6 June 1989, c. 304.]

We all cheered him. However, later he let us down. How could the man described by Michael White in The Guardian as the perennial bridesmaid be so despondent about his chances of future preferment that yesterday he felt unable to accept our new clause about workplace nurseries?

In legislation often the smaller issues, not the big ones, give the game away. Will the Government be able to reduce the rate of inflation? There is a clue in the Finance Bill. The Bill deletes the phrase "higher paid" from a description of employees who earn £8,500 or more. That shows the direction of the Government's thinking. Finally, I shall deal with what the Government claim as their stated objective in taxation policy. They say that they have two main objectives : to cut allowances and to reduce the rate of direct taxation. The Bill introduces the much-denounced provision for a new tax relief--the new allowance for private medical insurance for pensioners. The Financial Secretary said that we did not like it and that we had roundly denounced it. He was certainly right about that. He also denounced the fact that the allowance was introduced with all the paraphernalia that it is claimed surround the present MIRAS scheme. That allowance is intended to be bedded into the taxation system, and that is wrong.

Last year the Financial Secretary said that the Finance Bill was a watershed. This year, with its unstated condemnation of last year's watershed, it is bound to be regarded as the Government's dull and worthy tombstone.

Question put, That the Bill be now read the Third time : The House divided : Ayes 266, Noes 204.

Division No. 296 at 9.59 pm


Adley, Robert

Aitken, Jonathan

Alexander, Richard

Alison, Rt Hon Michael

Allason, Rupert

Amery, Rt Hon Julian

Amess, David

Amos, Alan

Arnold, Jacques (Gravesham)

Ashby, David

Aspinwall, Jack

Atkins, Robert

Baker, Nicholas (Dorset N)

Baldry, Tony

Banks, Robert (Harrogate)

Batiste, Spencer

Beaumont-Dark, Anthony

Bellingham, Henry

Bendall, Vivian

Bennett, Nicholas (Pembroke)

Bevan, David Gilroy

Biffen, Rt Hon John

Blackburn, Dr John G.

Body, Sir Richard

Bonsor, Sir Nicholas

Boscawen, Hon Robert

Boswell, Tim

Bottomley, Peter

Bottomley, Mrs Virginia

Bowden, A (Brighton K'pto'n)

Bowden, Gerald (Dulwich)

Bowis, John

Boyson, Rt Hon Dr Sir Rhodes

Braine, Rt Hon Sir Bernard

Brandon-Bravo, Martin

Brazier, Julian

Brooke, Rt Hon Peter

Brown, Michael (Brigg & Cl't's)

Bruce, Ian (Dorset South)

Burns, Simon

Burt, Alistair

Butcher, John

Butler, Chris

Butterfill, John

Carlisle, John, (Luton N)

Carlisle, Kenneth (Lincoln)

Carrington, Matthew

Carttiss, Michael

Chapman, Sydney

Chope, Christopher

Clark, Dr Michael (Rochford)

Clark, Sir W. (Croydon S)

Clarke, Rt Hon K. (Rushcliffe)

Colvin, Michael

Conway, Derek

Coombs, Anthony (Wyre F'rest)

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