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Rowe, Andrew

Ryder, Richard

Sackville, Hon Tom

Sainsbury, Hon Tim

Scott, Rt Hon Nicholas

Shaw, David (Dover)

Shaw, Sir Giles (Pudsey)

Shelton, Sir William

Shephard, Mrs G. (Norfolk SW)

Smith, Tim (Beaconsfield)

Speller, Tony

Spicer, Sir Jim (Dorset W)

Spicer, Michael (S Worcs)

Stanley, Rt Hon Sir John

Steen, Anthony

Stern, Michael

Stewart, Allan (Eastwood)

Stewart, Andy (Sherwood)

Stewart, Rt Hon Ian (Herts N)

Stradling Thomas, Sir John

Taylor, Ian (Esher)

Taylor, John M (Solihull)

Taylor, Teddy (S'end E)

Temple-Morris, Peter

Thompson, Patrick (Norwich N)

Thorne, Neil

Thornton, Malcolm

Thurnham, Peter

Townend, John (Bridlington)

Twinn, Dr Ian

Waddington, Rt Hon David

Waldegrave, Rt Hon William

Walden, George

Walker, Bill (T'side North)

Waller, Gary

Wardle, Charles (Bexhill)

Watts, John

Wells, Bowen

Whitney, Ray

Widdecombe, Ann

Wilkinson, John

Wilshire, David

Winterton, Mrs Ann

Wolfson, Mark

Wood, Timothy

Woodcock, Dr. Mike

Yeo, Tim

Younger, Rt Hon George

Tellers for the Noes :

Mr. David Lightbown and

Mr. Sydney Chapman.

Question accordingly negatived.

Clause 20 ordered to stand part of the Bill.

Mr. Boateng : On a point of order, Mr. Walker. Hon. Members will be aware that late this afternoon there occurred in Wembley, in my constituency, a cowardly and murderous attack on an army installation in a quiet suburban street. One person was killed and at least eight were seriously injured. Wembley town centre was shaken by the blast. As this is the second such attack in London in a very short period, there would clearly seem to be a pattern to these events and it appears to be the start of a major terrorist campaign. In view of that, would it not be in order for a member of Her Majesty's Government to come to the House and make a statement about the steps that are to be taken to counter that campaign?

Clearly, difficulties are always involved in such incidents. Those responsible for these murderous attacks are likely to strike at random. They have no care for the civilian population and do not mind the hardship, suffering and agony that they cause to communities. They are beneath contempt. But some action has to be taken to alert the civilian population and such installations to the danger that exists. We must step up our vigilance and our support for the police and emergency services, which must have the resources at their disposal to deal with this menace, and have them now. I hope that a Minister will come to the Despatch Box and make just such a statement because one is urgently needed.

The Minister of State for Defence Procurement (Mr. Alan Clark) : Further to that point of order, Mr. Walker. I express my appreciation of the exceedingly wise and temperate manner in which the hon. Member for Brent, South (Mr. Boateng) made his points. As for a statement by one of my hon. Friends or myself, that matter is under urgent and immediate consideration.

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Clause 23

Tax-exempt special savings accounts

Mr. John McFall (Dumbarton) : I beg to move amendment No. 31, in page 14, line 26, after society', insert

or an industrial and provident society'.

7.45 pm

The Chairman : With this it will be convenient to take amendment No. 32, in page 14, line 26, after society', insert

or an industrial and provident society covered by a loan deposit protection scheme approved by Her Majesty's Treasury'.

Mr. McFall : I am speaking on behalf of the co-operative movement, which has been largely ignored by the Government in the Bill. We welcome the inclusion of building societies in the TESSA--tax-exempt special savings account--scheme because they are part of the mutual sector. Co-operative societies have a long tradition of being savings institutions in addition to their role as retailers. We should welcome the inclusion of co- operatives within the scheme. Since 1844, co-ops have encouraged their members to follow a policy of self-help and thrift, in line with the present Government's view on wider share ownership. The co-operative movement was built on the policy of savings. The surpluses arising on trading were allocated to members pro rata to their trading with the co- operatives. Those amounts were credited to the members' share accounts and formed the working capital of the co-ops, on which a limited rate of interest was payable.

The membership of co-ops in the United Kingdom today is about 8 million and the retail turnover is slightly less than £6 billion. That shows that it is still a fine example of self-help and a force in the retail market.

Up to 1984 it was accepted that co-ops were different from other organisations because they were liable to corporation tax at a special 40 per cent. rate, when other companies paid 52 per cent. on taxable profits. It was then decided to make changes in the structure of taxation : relief was withdrawn for the increases in trading stock, and first-year allowances and the special rates for co-ops were withdrawn. To compensate for those withdrawals, the rate of corporation tax was reduced to 35 per cent. The co -operative movement and I felt that that change benefited companies more than co-operatives.

Along with those changes, tax incentives were introduced to assist various categories of taxpayer, for example the business expansion scheme, profit sharing and personal equity plans. In all those cases, co-ops could not take advantage of any of the tax incentives. All those factors have disadvantaged co-ops in relation to their competitors. Therefore, if the proposed TESSA savings scheme is introduced, and co-ops are once again excluded, there is a considerable danger that that will result in money being withdrawn from co-operatives and invested in TESSAs with banks and building societies. That would undoubtedly place co-ops in considerable difficulties.

Therefore, we request that co-ops should have the same opportunities to participate in the operation of the new TESSAs as banks and building societies. We emphasise

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that we are asking not for special treatment but merely for parity of treatment with those concerns, which we see as competitors in obtaining capital.

Amendments Nos. 31 and 32 are intended as alternatives. The first would bring all industrial and provident societies, including co-operatives and friendly societies, into the net. If the Government feel that that is too wide, the second amendment would bring in societies whose depositors are already protected under a scheme drawn up under the Banking Act 1987. Those schemes give our savers protection comparable with that enjoyed by depositors with banks and building societies.

We believe that either amendment would assist the Chancellor's objective of encouraging savings, because they would widen the social range of people taking advantage of the new concessions on TESSAs. I commend the amendments to the House.

Mr. Lilley : One of the key features of TESSA is that we have taken great care to keep the rules and regulations and general red tape to an absolute minimum. We can do that for a scheme that is confined to banks and building societies because for each of those types of institution there is already a proper statutory framework in the Banking Act 1987 or Building Societies Act 1986 providing for authorisation, regulation and investor protection, so we did not need to add that to clause 23.

Once we tried, however, to go wider than the two main groups of deposit takers, it would be necessary to complicate the Finance Bill provisions to take account of the different circumstances of the bodies concerned. I should be very reluctant to do that, and in the absence of a proper regulatory framework, the Inland Revenue would need to get more involved in checking that institutions were operating the new TESSA scheme properly.

The two amendments would appear to bring in all industrial and provident societies, many of which do not typically take deposits at all. It is true that it would be theoretically possible to limit the scope of the clause to co-ops, which I imagine is the intention of the hon. Member for Dumbarton (Mr. McFall).

It is true that co-ops have historically undertaken small-scale deposit taking. The hon. Members who sponsored the amendments were obviously well aware of that, and I recognise that the co-ops' depositors are covered by an investor protection scheme, as the hon. Gentleman mentioned. But the point is that co-ops benefit from total exemption from the Banking Act and are not subject to the detailed authorisation or prudential supervision applied to banks and building societies. I do not therefore think it appropriate that they should be allowed to offer TESSAs.

Moreover, co-ops' exemptions under the Banking Act exist largely because their deposit taking is on a small scale and incidental to their main trading activity. If societies wanted to expand their deposit-taking activities significantly or to enter the mainstream of retail banking with products such as TESSAs, those exemptions would no longer be appropriate.

Co-ops also have a certain tax advantage ; they can pay interest gross on their deposits to taxpayers and non-taxpayers alike. So they do not get a bad deal overall under the present arrangements. The co-operative movement is not excluded from TESSA altogether, since I understand that the Co-op bank is authorised under the Banking Act. I must advise the

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House not to accept the amendments, which go further than is necessary or desirable and which complicate unduly what is now a very simple scheme.

Mr. McFall : The Minister correctly said that the Co-op bank is included, but there are many other aspects to the co-operative movement and it was to highlight them that I moved the amendment. I have no intention of pressing it to a Division but I should like the Minister to consider incorporating co-ops in future. As I said earlier, we have a membership of 8 million and a turnover of £6 billion, a not inconsiderable element in the economy. Perhaps if the Minister cannot give me an answer today, he will do so at some time in the future.

Mr. Lilley : I shall certainly do that, and I welcome the co- operative spirit in which the hon. Gentleman moved the amendment. We recognise the valuable contribution that the co-operative movement makes, both to its members and to the economy, and I shall look into the matter in that spirit.

Mr. Harry Ewing (Falkirk, East) : I have not previously attended the debates on the Finance Bill, but the Minister's agreement to consider what my hon. Friend the Member for Dumbarton (Mr. McFall) has proposed was helpful. I look forward to the outcome of his consideration.

To help the Minister's consideration, may I say a word or two as the former chairman of a co-operative society, the former chairman of the Scottish co- operative wages board and salaries committee and as a member of the national wages board? In my younger days I was deeply involved in the co- operative movement, so I am well aware of the integral part that that movement has played in various localities, especially in the industrial areas of Great Britain.

It is certainly true, as my hon. Friend would concede, that much of the co- operative movement has disappeared from industrial Britain for the very reasons that my hon. Friend adduced--the co-operative movement, through no fault of Governments, has gradually been placed at a disadvantage vis-a-vis its competitors. If the movement were placed at an even greater disadvantage, that could be serious. The problem is that the capital that shareholders invest in the movement is not in shares in the sense in which they are quoted on the stock exchange ; nor are they shares in the sense that they must be sold to someone else before a person can redeem his investment. This is a banking system from which people can withdraw share capital at seven days' notice. When more attractive avenues for savings open up, there can be a run on share capital, and co-operative societies throughout the country face severe difficulties when such runs occur because they can have a grave impact on a society's trading position.

I am glad that my hon. Friend the Member for Dumbarton has taken this opportunity to speak about his amendments, and he is right not to push them to the vote. He has given the House a chance to hear about the continuing importance of the co-operative movement in many places throughout the country. Indeed, I notice that co-operative organisations are springing up again in deprived areas where groups are getting together to form them. In many ways that takes us back to the days of the

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Rochdale pioneers and even to the founder of the co-operative movement himself--Owen. History has come full circle, so I am glad that the Minister is keeping an open mind. I hope that he will consider the amendments as seriously as he spoke about them. Amendment negatived.

Question proposed, That the clause stand part of the Bill.

Mr. John Battle (Leeds, West) : This was a Budget of small measures, and TESSAs are another small measure. One of the Government's claimed highlights in an otherwise lacklustre Bill is the introduction of the tax- exempt special savings accounts, now running under the acronym TESSAs. They constitute the Government's attempt to make savings more attractive.

This seems to me a backhanded attempt to acknowledge that a great economic error was made in the 1988 Budget--the tax cuts of the right hon. Member for Blaby (Mr. Lawson), which were much heralded at the time but which have since been shown to have fuelled a massive increase in consumer spending and to have generated a spending boom. By handing out deep tax cuts, the Government merely fuelled a massive trade deficit.

The tax-cutting Budget of 1988 also resulted in a massive redistribution of wealth from the poorest to the richest. In the 11 years during which the Government have been in office, £6.7 billion has been taken from the bottom 50 per cent. of the population and £5.6 billion of that has gone to the richest 10 per cent. Of that sum, £4.8 billion has gone to the top 5 per cent.

8 pm

We encourage savings, but we are entitled to ask whether that will encourage real savings or whether it will be another tax break for those who already have savings. TESSAs were welcomed by the Secretary of State for Wales and there was a tribute to that welcome in The Times on 21 March :

"A wry smile flashed across the relaxed face of Peter Walker, out-going Secretary of State for Wales, when John Major disclosed details of the new Tax-Exempt Special Savings Account--which he promptly abbreviated to Tessa'. For that is the name of Walker's wife. After the speech Walker admitted he had indeed been smiling for that reason. I was at the Cabinet meeting this morning when John Major told us the news and I told him that I was very grateful that, for my last Budget, there was something in it dedicated to my wife' ".

Perhaps the right hon. Gentleman and his wife are thinking of taking up a TESSA. They are in a good position to do so because TESSAs will not reach down to the small savers but will be geared to people in the middle and higher income brackets.

TESSAs were welcomed with caution by the City. There was not an immediate response, nor the view that they would result in an increase in savings throughout the population. A recent report from the Select Committee on the Treasury and Civil Service said : "We would not necessarily expect to see a very sharp increase in aggregate in savings in the short term as a result of the Budget measures."

A Mr. Olivier, of Hambros unit trusts business, was reported in the Financial Times as saying :

"TESSAs are more likely to reshuffle old money about."

If that is the case there may well be no real encouragement for new savings.

The key question is, who will be expected to save in the current economic climate? The Bill gives some tax

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concessions to companies and to the City but does nothing to help the poorest to meet higher costs in rents, mortgages and the poll tax. It does nothing for 7 million people on low pay. The Treasury figures show that, although 85 per cent. of couples who earn more than £35,000 a year will benefit, only 25 per cent. of those who earn between £5,000 and £10,000 will gain from the Budget.

The number of people caught in the poverty trap of taxes and means-tested benefits is estimated to increase to 410,000, compared with 290,000 in November 1985. Since the poll tax was introduced at the beginning of last month, a family on half average earnings will be about £1.80 a week worse off as a result of the Bill. That also results from the holding back of an increase in child benefit and the introduction of the poll tax. Many families will pay an extra 91p a week in spending taxes.

Let us look at those who would not benefit from taking up a TESSA because they have no liability to tax anyway. They include people on benefit or income support, the unemployed, pensioners without substantial occupational pensions, and single people earning less than £6,500 who are unlikely to have much spare cash to move into TESSAs. Couples earning less than £13,000 are also unlikely to have much spare cash to spend on them.

In the case of married couples where the wife does not work and there is not much in the way of savings, the interest income is already covered by the wife's tax allowance, so TESSAs will not benefit such couples. The same applies to couples where the wife is earning less than £3,000 and there are no large savings. Anyone with a mortgage of more than £30,000 is unlikely to take up a TESSA because it would be better for him to pay off his mortgage. The categories of people that I have mentioned make up the bulk of my constituents, and I am sure that they fit the constituents of many other hon. Members. The average wage is £269.50 a week, but on the whole people in my constituency do not earn as much as that. Although west Yorkshire is a low-wage area, it is at the top of the savings league ; the people there save 14.8 per cent. of their income. They are good savers, although they have very low incomes, but TESSAs will not help them. The real beneficiaries will be married couples who already have investment income of £3,300 or more on current interest rates and who have at least £25,000 in the bank or about £60,000 in shares. Couples where the wife earns over £3,300 but who do not have a mortgage of more than £30,000 will also benefit, as will single people earning more than £6,500.

There are two essential requirements for a TESSA to be of any advantage to a family. The first is that that family has the resources to be able to put money into a TESSA. The second is that there would otherwise have been a tax liability on the interest receivable. If the first requirement is not satisfied, in practice it is not possible to use a TESSA at all or no tax advantage can be obtained. If the second requirement is not satisfied, a TESSA can be operated, but it obviously offers the family no tax advantage. Before we can make a judgment about whether there are adequate resources to put money into TESSAs, we must bear in mind the requirement that the money cannot be withdrawn before the end of the five-year period. That means that only people who are able to save as a matter of course each year out of income are likely to be able to take up TESSAs.

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