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6 pm

Mr. Martin O'Neill (Clackmannan): When we are dealing with a Government changing tack, there is always a tendency for us not to adopt the generosity of spirit implicit in the Bible when it says that there is rejoicing in Heaven over one sinner that repenteth.

Ministers always start their speeches in debates such as this by telling us that the Government have changed and that they have listened to what people have been saying. I would respond to that with the words that, as a schoolteacher, I used to write on essays, "Not good enough. Try harder." We are trying this evening to give the Minister the chance to do a little better.

The Government--inept as they may be--have recognised that for 20 months there has been a massive leakage of potential revenue. The ability of predatorial companies to make use of loopholes, and the impact of that on potential revenue, was recognised even by the Government as a matter on which they had to act.

We should all be grateful to my hon. Friend the Member for Dudley, West (Mr. Pearson), who has worked hard to highlight company excesses. We are entitled to claim credit for the Opposition's effectiveness in drawing attention to the shortcomings.

We must find out why the Revenue felt unable to use sections 703 to 709. If those provisions were not appropriate, that is a reasonable defence. It would not be unfair for the Government to accept that. The problem is that several tax experts are of a different mind: they say that the provisions could have been used and that, if the Revenue had applied its ingenuity to the problem, it could have had a go. Even if its attempts had failed, the fact that the Revenue was trying would have deterred some of those who were trying to take advantage of the loophole.

It is not good enough for the Government to claim that on the dawn of 8 October a new world was in prospect, another avoidance scandal was about to break and that, as a consequence, they had to act. Even this wretched Government probably recognised that they could not afford to ignore the issue any longer, so they drafted the measure. Unfortunately, they have botched it again. It is such a blunt instrument and is so widely drawn that it could pull into the provisions certain activities that are quite legitimate.

Amendment No. 9 is more explicit. It states:

"Paragraphs 4, 5, 6, and 10 above shall not apply to any distribution unless the transaction in securities is carried out for bona fide commercial reasons and does not form part of a scheme or arrangement of which the main purpose, or one of the main purposes, is the obtaining of a tax advantage."

A culture has developed over the past 17 years--it has assumed the proportions of an industry--that legislation should be framed in such a way that individuals can obtain

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tax advantages. Schemes are offered by the City to enable individuals to benefit as a consequence. That should not be the purpose of legislation. If there is to be distribution, it should be for bona fide commercial reasons.

The Minister cannot complain about our amendment. When the Opposition draft amendments, they are advised by skilled draftsmen, but those draftsmen do not have the authority of the Treasury or Inland Revenue solicitors. Amendments are often defective, but the wording of amendment No. 9 is clear and specific. The words are part of everyday parlance in the circles in which those matters are considered.

The Minister cannot say that he does not object to the amendment--he simply does not like the words. He could table a drafting amendment in Committee. That would be no problem. We all know that, from time to time, even the Treasury and the Inland Revenue are less than precise in their language. We are prepared to give them the benefit of the doubt. If the Minister wants to play around with our amendment once he has accepted it, we will be more than happy to let him do that.

We have witnessed 20 months of grief and failure. Various commentators have estimated the amount of revenue lost--£40 million in one deal alone, the Granada bid for Forte. That was a hostile bid which was hotly contested. The advantage gained by the predator in that case must have been critical in determining the price of the bid: if it appeared that assistance would be available, the bid could be framed in such a way that the company was, in effect, being subsidised to the tune of £40 million.

That example and others cited by my hon. Friends add weight to the argument that action must be taken. The Government have responded in part, but they have not got it right. We expect the Minister to claim that the Government have changed, have responded and should be given the benefit of the doubt. If we give the Government the benefit of the doubt, many people will either make a lot of money or lose a lot of money. We want to ensure that the legislation is as tightly and precisely drawn as possible. It must exclude bona fide transactions and a clearance procedure should decide what transactions would be affected. The rules should be mandatory so that the Inland Revenue has no discretion not to apply them. It must be required to do so; we must not see a return to the laissez-faire approach that existed before 8 October 1996.

The legislation must be clear; it is not enough to produce a memorandum of understanding or some form of statement of practice as guidance. The information should be in the core of the legislation. An abuse is being corrected and the issues must be clearly defined. If there is a case for moving on this matter--we accept that there is--there is an even greater case for ensuring clarity and precision.

The Government have come to the issue late in the day. I am sure that the pushing and probing of my hon. Friend the Member for Dudley, West has played a large part in the Government's U-turn. The Government must tell us why they have decided to move. Is it because the legislation at their disposal is not appropriate and that sections 703 to 709 of the Income and Corporation Taxes Act 1988 are not relevant? If that is so, the Government should refute the claims of those individuals who have argued that the relevant powers exist. The Minister must not provide a bland assurance such as, "We have been

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advised that the legislation would not be appropriate to act in these cases." We want more than that: we want a clear statement from the Minister and precise legislation.

We believe that our amendment would afford such clarity: it would give Inland Revenue clear and explicit instructions about how to do its job. That would be far more effective than any side notes or advice to accountants and lawyers. We want to see clear instructions. The measure must come into effect only for bona fide commercial reasons. People must be protected and legitimate business operations should be encouraged. The Government must not introduce a catch-all provision, which we would have to change and improve in subsequent Finance Bills.

The Government deserve a little credit: the massive ship has turned around. However, it has not yet reached its destination, and we shall help it on its way. The amendment offers the Minister much-needed assistance in dealing with the matter properly once and for all. That would be a major step forward in our treatment of this anomaly.

Mr. Tipping: I support amendment No. 10, tabled by the hon. Members for South-East Cornwall (Sir R. Hicks) and for North Cornwall (Mr. Tyler). I do not know quite how to describe them. Earlier in the debate, the hon. Member for North Cornwall described the hon. Member for South-East Cornwall and himself as Cornish pasty and custard pie, and he invited us to adjudge which was which. That is a bit like being asked to separate the sheep from the goats, but I think that their amendment is right and just.

The hon. Members mentioned a case in Cornwall, the hon. Member for Beaconsfield (Mr. Smith) mentioned a case in Nottinghamshire, and my hon. Friend the Member for Dudley, West (Mr. Pearson)--to whom the Committee owes much recognition and praise for his work in this area--referred to yet another firm. I know of many other examples across the country. It is a straightforward matter: those firms acted in good faith. They were aware of the press release issued on 8 October and they believed that they were acting properly. A further press statement issued on 5 December changed the situation completely and, although the companies had acted properly with the benefit of the appropriate advice, they now stand to lose significantly. I hope that the Financial Secretary will look favourably on the amendment, and I look forward to his reply to the debate.

6.15 pm

The Committee has discussed a wider issue this evening: the significant loss of finance to the Exchequer over a considerable period. As the debate progressed, it became clear that the problem was identified 24 months ago; yet the Government have been slow to act. The Committee has disagreed on the extent of the loss to the Exchequer. For example, we are told that the Granada takeover of Forte involved a potential loss of £40 million. I think that it would be appropriate for the Minister to give us his best estimate of the loss. There is argument, first, about the length of time that it has taken Ministers to act and, secondly, about the cost to the Exchequer.

The Budget statement has featured prominently in the proceedings this afternoon, and I wish to contrast the Chancellor's words with the Government's actions. The Chancellor said:

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"As part of our continuing fight against tax and benefit fraud and tax loopholes, I am introducing a package of measures called 'spend to save'."

That is an important statement of the Government's intention to act. The Chancellor devoted considerable time to the subject in his Budget statement. I support his objective: it is vital to close tax loopholes such as this.

However, I shall contrast the determination and vigour of the Budget statement with the Government's tardiness in acting on the matter. I return the Financial Secretary to the Budget statement, when the Chancellor said:

"The 'spend to save' package will cost £800 million over the next three years to secure, in a well-planned and measured way, revenue and expenditure savings of well over eight times that amount--£6.7 billion. These measures are additional to the effective steps that we have taken previously".--[Official Report, 26 November 1996; Vol. 286, c. 162-63.]

I contrast that vigorous statement and the commitment of significant resources--£800 million that will result in a payback of £6.7 billion in three years--with the Government's actions in the circumstances described in schedule 7. It is clear that the Government have been tardy and that a significant amount of money has been lost. Their actions contrast markedly with the Chancellor's promises in the Budget.

That leads me to my final point. Commentators are sceptical about the effect of the "spend to save" package: £800 million spent to bring in £6.7 billion in three years' time. Ministers may not be here in three years' time. It is quite clear that we will have a different Government then. It is important that the Financial Secretary assures the Committee this evening that the rhetoric in the Chancellor's Budget statement will be put into practice. Certainly the example that we have discussed tonight belies what was in it. Unless the "spend to save" package is achieved, my hon. Friends on the Treasury Bench in a future Labour Government will face a real financing difficulty. We will have an inheritance of neglect.

I commend my hon. Friend the Member for Dudley, West on his long battle to get action on this issue. I believe that he has been successful. I wish that we had seen the same passion from the Government on it.

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