§ Mr. Chris Smith (Islington, South and Finsbury)
I beg to move,That the Personal Equity Plan Regulations 1989 (S.I., 1989, No. 469), dated 14th March 1989, a copy of which was laid before this House on 14th March, be revoked.The statutory instrument consolidates the position in relation to personal equity plans. It also enshrines within the consolidation changes announced by the Chancellor in his Budget in March. The changes formed a major part of the Chancellor's Budget speech, yet they are not formally part of the Finance Bill, because personal equity plans are covered by regulation rather than by primary legislation. However, the House should debate PEPs and, in particular, the changes which the Chancellor has brought in, in order, if nothing else, to expose just how generous the Government are in their provisions for equity portfolios, to a certain extent to the disadvantage of other forms of saving.
Let me for a moment chart the history of personal equity plans. The Chancellor announced the introduction of the plans in his Budget on 18 March 1986. They were brought in as a tax incentive to encourage savings through the purchase of shares. Anyone over 18 could invest at that stage up to £2,400 a year in a PEP. Provided the shares were held for a minimum period of between 12 months and two years, any capital gains and reinvested dividends were to be free of tax. The scheme started on 1 January 1987.
In his Budget speech three months later, the Chancellor reported on the progress of PEP schemes:In the first month of the scheme, more than 2,000 people a day took out personal equity plans, many of them first-time investors, as I had hoped."—[Official Report, 17 March 1987; Vol. 112, c. 824.]A year later, in his 1988 Budget speech, the Chancellor again reviewed progress on PEPs:Over a quarter of a million people took out PEPs in 1987". —[Official Report, 15 March 1988;, Vol. 129, c. 1004.]One can tell immediately from the figures that the take-up of PEPs had fallen off in the later months of 1987 compared with the early months.
The annual limit was raised in the 1988 Budget from £2,400 to £3,000, and the amount which could be invested in a unit trust or an investment trust in Scotland was increased from £420 to £540. A number of other changes took place in August 1988 and January 1989, but despite the changes that were made in the Budget last year, and despite the changes that have subsequently occurred, the take-up of PEPs has noticeably flagged in recent years.
In that respect, let me quote from a note on personal equity plans supplied to my hon. Friend the Member for Edinburgh, South (Mr. Griffiths) by the Library:Despite the Chancellor's optimism over the introduction of PEPs, other commentators view them as less successful. The Independent described 1987 as the year PEPs 'fell flat', and the Times headed its article 'Birthday blues for unpopular PEPs'. Figures for 1988 given by the Inland Revenue are that 100,000 schemes were taken out and £150 million invested in such schemes. No effort is made to distinguish first-time investors but according to a number of financial journalists, the general feeling of the institutions involved in PEPs is that very few are first-time investors. On the whole the main attraction of PEPs is to the richer investors who find PEPs a useful way of repackaging existing portfolios.
§ Mr. Ian Taylor (Esher)
I am not sure whether the hon. Gentleman is pleased or displeased by the fact that there 950 has been a less than dramatic take-up of PEPs, but does he accept that one reason for the relatively low figures is simply the administrative problems that many City firms have had in introducing them? Therefore, does he accept that the proposals in the Finance Bill are to be more than welcomed and should lead to a dramatic increase in their acceptability?
§ Mr. Smith
There are, as the hon. Gentleman will know, no proposals in the Finance Bill this year, because it does not cover PEPs. There are proposals in the regulations that we are debating which, to a certain extent, ease the administration of the PEP schemes. On some of those I have little quarrel with the Government, but on some of them I do, and I shall deal with those in a moment.
One reason for the relatively low take-up of PEPs by first-time investors is that the capital gains tax advantages which apply to PEPs are only of any use to investors who have already used up their £5,000 capital gains tax-free allowance. For many small savers, certainly virtually all first-time perchasers of equities, such a proviso does not exist.
The Chancellor announced a number of changes in his Budget this year which are enshrined in the regulations. Let me briefly outline those changes. First, the annual contribution limit goes up by a substantial amount, from £3,000 to £4,800. Secondly, the allocation to unit trusts or to investment trusts goes up by an even more substantial percentage from within that overall total—£.540 before to £2,400 now.
Thirdly, the form of contribution changes. Before, all contributions to PEPs had to be in cash. Now, under these regulations, they can be either in cash or in new issue shares.
Fourthly, the minimum holding period which was, under the previous regulations, one year, is now abolished. Fifthly, the cash holding rules which used to provide for a figure of £300 after the first year, has also been abolished.
Those changes represented an attempt on the part of the Chancellor to revive a scheme that was flagging before the Budget, and a number of commentators in the immediate aftermath of the Budget noted precisely that. The Financial Times on 18 March headed its article:PEPs are given the kiss of life.The Times on the same day headed its article:Personal equity plans pepped up thanks to Chancellor's tinkering.Before coming to the criticisms that my hon. Friends and I have of a number of aspects of the regulations, I have two questions for the Financial Secretary. The first relates to the fifth report of the Select Committee on Statutory Instruments. That Committee found that the wording of regulation 5(1) was unclear. It requested a memorandum from the Department on the subject. That memorandum was forthcoming, after which the Select Committee concluded:The Committee feels that although the intention of the Regulations is sensible, the drafting is not and that the provision can certainly be read as requiring a plan manager to carry out all transactions at the price he could obtain for the investments, namely the bid price.Will the Government amend regulation 5(1) to clarify the meaning, in accordance with the advice of that Committee?
My second question relates to the press release issued by the Inland Revenue on 3 May, in which it announced that it would be relaxing the 75 per cent. United Kingdom 951 equity requirement for unit trusts and investment trusts. This issue has been causing concern to many in the equities industry, especially in Scotland, in relation to investment trusts. My attention had already been drawn to the subject by my hon. Friend the Member for Edinburgh, Central (Mr. Darling). Will the Government introduce the further regulations in due course, and, if so, when? When we see the contents of those regulations we will know whether to express doubts about the proposed relaxation.
We have three main criticisms of the regulations. The first concerns the inclusion of new privatisation shares in PEP portfolios. The Financial Secretary wrote on 26 April to my hon. Friend the Member for Cardiff, West (Mr. Morgan) and I fear that his letter was somewhat disingenuous on the subject. He said that it had always been possible in theory within personal equity plans to include privatised issues of shares. But under the processes of privatization—the need to bid for shares and the uncertainty over the allocation that one will receive—the inclusion of such portfolios of shares within PEPs was difficult to arrange.
The regulations before us make it easier to include privatised issues within a portfolio. They enable an application to be made, and however great the allocation turns out to be—provided the overall ceiling is not exceeded—that can then be included within the PEP portfolio. That is unacceptable to us. Tax relief will effectively be given both on dividend income and on capital gains income, especially if the £5,000 threshold has already been exceeded, when purchasing privatisation shares. It is nothing more than a bribe to encourage a greater take-up of privatisation issues.
A scrutiny of the performance of privatisation shares in the period since their original issue can be instructive. I put aside the oil and gas industries, which have performed particularly badly because of the impact of the world fuel market, and also British Petroleum, which was affected equally dramatically by the rather gauche timing of the flotation. However, the price of Rolls-Royce shares in April 1987 was 170p but six months later was 136p. The Trustee Savings bank share price on its flotation in September 1986 was 100p, but six months later was 86½p. When the British Airports Authority was floated in July 1987, its share price was 100p, but six months later was 109p. None of them could be described as performing particularly well.
The potential purchaser of a water or electricity share will enjoy not just a knockdown price—we can be certain that the Government will ensure that—but tax bonuses as well.
§ Mr. Ian Taylor
I find it increasingly difficult to follow the hon. Gentleman's line of argument. If the Treasury offered those shares at such a knockdown price, why is it that their prices have fallen further? Is it not the case rather than the Treasury negotiated an extremely good deal, in a variety of market conditions, that was also good for the British taxpayer?
§ The Financial Secretary to the Treasury (Mr. Norman Lamont)
If those shares were consistently under-valued, 952 how can the hon. Gentleman maintain his argument that the public get a very bad deal when they invest in privatisation issues?
§ Mr. Smith
The pattern has been one of initial gains, but in the longer term a number of privatisation issues —not all, because British Telecom, for example, has done very nicely for the people who originally purchased its shares—have not presented such a good picture.
It must also be remembered that the tax relief available under PEPs will be given at the expense of all other taxpayers. The public, who own water and electricity at present, will themselves pay for stripping their own assets; the owners will pay for the disposal of what they now own. It is like paying a burglar a subsidy to raid one's own home. I am sure that there will be some aggressive marketing of PEP packages as part of the forthcoming privatisation issues. The inclusion of those shares within personal equity plans, with all the tax advantages that go with them, is something that we cannot possibly accept.
§ Mr. James Paice (Cambridgeshire, South-East)
If the hon. Gentleman is so anxious that privatisation shares should not be part of PEPs, can he explain why such shares should be considered to be in a separate class from any other investment? If an investor wants to buy shares, he must take the rough with the smooth, and we are giving him tax relief through PEPs on that basis. Why should he be disadvantaged through buying a particular set of shares?
§ Mr. Smith
Privatisation shares should be regarded differently precisely beause they are public assets being sold to private investors. I do not believe that the public, through their taxes, should subsidise that disposal.
We are very concerned about two further issues. The first is the removal of the one-year rule. The concept of the mature portfolio, which was part of the original thinking behind PEPs, has gone with this change, which could mean a substantial immediate tax-free capital gain from a new share issue, whether privatised or not. Management fees will, of course, place a limit on the benefit to be gained, but the removal of the one-year rule nevertheless offers scope for large-scale wheeling and dealing in shares, to the detriment of the Exchequer and hence of all taxpayers.
§ Mr. Smith
I will not give way to the hon. Gentleman. Time is limited, and I know that a number of hon. Members want to speak.
Our other worry is that preferential treatment will be given to equities as compared to other forms of saving. We were told in advance that the Budget would be one for the saver, but the only action that the Chancellor took was to make generous provision in the regulations for equity purchase. Of course we must encourage saving: the Government ought to be all too well aware that personal savings appear to be at an all-time low. But where were the measures in the Budget to stimulate building society investment and sort out some of the inequitable rules relating to building society interest? Where were the provisions to establish regionally based schemes for the more effective financing of industry? Where were the provisions to assist the friendly societies? The preference for equities that the regulations are building into the tax system is, in our view, neither sensible nor just.
953 For all those reasons, we believe that the Government must go back to the drawing board. The economy as a whole, and ordinary people wanting to save and invest, deserve better than these regulations.
§ The Financial Secretary to the Treasury (Mr. Norman Lamont)
I welcome the opportunity of a debate on the changes announced in personal equity plans. I must say that I marvel at the boldness of the Opposition's promise to vote against the regulations, and I am delighted that they are going to do so.
As the hon. Member for Islington, South and Finsbury (Mr. Smith) has said, PEPs were first introduced in the 1986 Budget, and despite some pessimistic articles in the financial press, they have played a successful part in achieving our objective of reversing the long-term decline in individual shareholding. Whereas, 10 years ago, only 7 per cent. of the adult population held shares, the figure is now 20 per cent.—one in five of the population—pushing hard to reach a level similar to that in the United States. We regard that as a tremendous achievement, on which we want to build.
In the first year of the scheme, 270,000 schemes were started. As the hon. Gentleman said, in 1988, only 120,000 schemes were taken out. That was a setback, but considering that there had been the biggest correction to the stock market since 1929, it was not all that surprising or disappointing.
I take issue with the Opposition's conviction that we are providing tax relief only for wealthy existing shareholders. The hon. Gentleman chose to quote a stockbroker. I quote a plan manager not from the City of London but from the Bradford and Bingley building society, who found that most investors had never owned shares before, that a majority were women, that semi-skilled and unskilled workers bought more PEPs than managers and professionals, and that most invested well below the maximum possible.
Nevertheless, it was clear from discussions at the end of last year that a number of managers wanted changes in the administration of the scheme and felt that some requirements were unnecessary and added to the cost of administration. Unit trust groups keen to market the idea found that it was uneconomical to offer unit trust—only PEPs with a limit of £540 a year. That is why we introduced changes increasing the overall limit to £4,800 and substantially increasing the annual limit on a unit or investment trust to £2,400. The philosophy behind those changes was that we had increased the overall limit for direct investment in shares, that unit and investment trusts were a good way to get into the market and that we wanted a total limit that was economic for plan managers.
At the same time, we thought it only right to require that unit and investment trusts should invest mostly in United Kingdom equities. I know that that has created disappointment in some quarters, but that was the original requirement of the scheme for direct investment, and it would have been inconsistent not to apply it to unit trusts and investment trusts.
As the hon. Member for Islington, South and Finsbury said, in future, investors may subscribe to a new public issue of shares, and then transfer them into a PEP. As my 954 hon. Friend the Member for Cambridgeshire, South-East (Mr. Paice) asked in an intervention, why not? We want to help not only privatisation new issues but all new issues, and it is right that they should be allowed in PEPs. Finally, we simplified the administration in a number of ways, so that it will no longer be necessary to take out a new plan each year. I believe that the administrative changes that we have introduced, in addition to the changes in the aggregate amounts that may be invested, will do a tremendous amount to boost the popularity of the scheme.
§ Mr. Tony Worthington (Clydebank and Milngavie)
The Minister will recall that in the Budget debate in 1986, the Chancellor said that PEPs werespecially designed to encourage smaller savers, and particularly those who may never previously have invested in equities in their lives."—[Official Report, 18 March 1986; Vol. 94, c. 178.]Will the Minister contradict the findings of the Institute of Fiscal Studies that only one third of those investing in PEPs were first-time investors in equities?
§ Mr. Lamont
Learned though the Institute of Fiscal Studies is on tax matters, I am not quite sure that its opinion should be considered better than that of PEP managers at the Bradford and Bingley building society who are actually promoting the scheme, know who their customers are and have stated that in their part of the market many investors are new, first-time investors.
Although the hon. Member for Islington, South and Finsbury tried to assert the contrary, I stress that the tax relief does benefit small investors. The income tax relief can certainly benefit those paying the basic rate of tax. For example, someone with £4,800 invested and paying the basic rate of income tax would save about £60 a year, based on a return of 5 per cent. producing dividends of £240 a year.
We notice that a number of plan managers are marketing high-income plans and investing PEPs in shares offering high yields. That will be of special importance and attraction to the small investor. As regulations now make it possible for investment trusts to offer capital and income shares in a PEP, the attraction to small investors will increase further.
The Budget changes have caught the imagination and enthusiasm of plan managers and investors. The largest plan manager, Lloyd's, has taken £12 million of new investment since the Budget. A number of firms that had stopped offering PEPs have announced that they will return to the market—such as Framlington, Fidelity and Barclayshare. A number of new plan managers have entered the market offering a range of new products. I welcome the new mood of confidence, which shows that the changes have been welcomed and will be a considerable success.
We have received representations from the investment trusts about the new rule that from April 1990 unit or investment trusts must be 75 per cent. invested in shares that qualify for direct investment in a PEP. I gave the explanation for that change and believe that it is a reasonable requirement, given the greatly increased opportunities for trusts. We obviously do not wish to harm existing investment trusts within the original limit of £750, which used to be the alternative to a full plan. Some of those investment trusts did not meet the 75 per cent. 955 requirement. We did not wish to harm the investment trusts that marketed their product under the old regime by suddenly imposing a new rule on them.
We therefore announced that it will be possible to continue to invest £750 in a unit or investment trust that does not meet the 75 per cent. United Kingdom requirement. It will be an alternative to investing up to £2,400 with the 75 per cent. restriction. We announced that unquoted shares in a unit or investment trust portfolio may count towards the 75 per cent. requirement, which will especially help those who specialise in venture capital.
§ Mr. Alan Beith (Berwick-upon-Tweed)
Will not the Financial Secretary have increasing difficulties squaring the United Kingdom equity limitation with movement to free capital in Europe? Will it not increasingly be regarded as discriminatory for non-United Kingdom shares to be singled out in this way?
§ Mr. Lamont
We are not infringing any EC law. A number of countries that offer fiscal incentives for investment have imposed the same limits as we have.
The hon. Member for Islington, South and Finsbury referred to the comments by the Select Committee on Statutory Instruments about the drafting of the regulations, which of course I take seriously. It is a relatively minor point, but we shall consider making a drafting change.
The hon. Member for Islington, South and Finsbury asked whether we shall amend regulations to deal with the other changes that we have made. The answer is yes, and we shall be doing so well in advance of the April 1990 start date for the new 75 per cent. content and the other aspects of the regulations.
§ Mr. Roger Knapman (Stroud)
Will my right hon. Friend deal with the allegation that the Government are having to bribe investors on privatisation issues? I spent most of January and February on the Committee considering the Water Bill listening to the hon. Member for Copeland (Dr. Cunningham) suggesting that we are giving away assets. I therefore cannot follow why it is necessary to bribe investors.
§ Mr. Lamont
It is hardly worth considering that allegation, but as it has been raised I should deal with it.
The hon. Gentleman is living in something of a dream world. He claims that there are people making vast capital gains on the stock market and privatisation issues, yet in the next breath he says that all the privatisation issues have been an enormous flop. I was interested to note that his speech corresponded with the press release he distributed this afternoon. He regarded the fact that we were removing the one-year rule as an enormous gift to our friends in the City, and said that getting rid of the rule would allow substantial tax-free capital gains for all those whowheel and deal in shares".The hon. Gentleman is obviously not aware that it has always been possible to sell shares with a PEP either in the first year or subsequently. I assume that he objects to the fact that in future the proceeds need not be kept in the plan 956 for a full 12 months. That is true, but tax relief in a PEP continues to grow the longer people keep their investments in the plan. We got rid of the 12-month rule simply because it was a wholly unnecessary and bureaucratic imposition on plan managers. The average amount invested in a PEP is £1,700. If the hon. Gentleman believes that there are geniuses around who can invest £1,700 in any year, walk away with huge tax-free sums and live happily ever after, he is living in an unreal world. The hon. Gentleman has muttered many incantations from the book of common prejudice, but he has not given us a serious analysis of PEPs tonight.
The Opposition are terrified about ownership. A few weeks ago, in an article in The Independent, the hon. Member for Birkenhead (Mr. Field) described how, when he was canvassing, people came up to him in his constituency. As they owned a handful of British Telecom shares, they talked to him as though they were relatives of the Duke of Westminster. What a terrifying development!
The Labour party is terrified of ownership, because it will make people independent. Worse than that, ownership will make the Labour party's own policies utenable. What was it that forced Labour to change its policies on housing? It was ownership in housing. What forced it recently to change its industrial policy on social ownership and nationalisation? It is now committed only to taking back into public ownership British Telecom and water. What is the reason for that? Privatisation and wider share ownership have brought about that change. When water is privatised, Labour will have to retreat from its promise to renationalise it as well if it wishes to have a slight chance of being elected again. The trouble is that Labour Members are half-converted. They are not fully converted to the post-Socialist society, but they should become full converts and follow the logic of their own doubts and quandaries.
My hon. Friend the Member for Stroud (Mr. Knapman) asked about the tax reliefs being made available for privatisations and new issues. I have already said that tax relief is being made available for all new issues. It is not necessary for us to give tax relief to make privatisation issues a success, as our record in getting issues away in the companies we have privatised demonstrates clearly. If Opposition Members believe that the privatisation of water depends on tax relief, that shows how little they have learnt. I have not the slightest doubt that there will be tremendous interest in the privatisation of water. Our changes will enlarge the scope of PEPs. They are designed not specifically for privatisation, but to improve the product of PEPs.
The Opposition have the wrong idea about PEPs and they have a wholly wrong idea about how valuable the tax relief is. Some of them have shown that they do not even understand how the tax relief works; they are under the impression that one receives tax relief simply for investing. That is not true; there is no subsidy for investing and no front-end relief—which is a criticism that some of my hon. Friends have made in the past. In the short term, there is no saving for investors; they have to obtain the dividends and capital gains first. One has to be a long-term investor to benefit from the tax reliefs. The idea that the tax relief on dividends—on £1,700—is absolutely to the rich shows that, despite all their efforts to catch up with the changes in the world and to change their policies, Labour Members are still miles and miles away from reality.
957 Personal equity plans are playing an important part in widening and deepening individual share ownership. I 958 believe that the changes that we have made will give them a tremendous boost, and I am utterly confident of their success.
§ Mr. A. J. Beith (Berwick-upon-Tweed)
The Minister will know that I have been a critic of the PEP scheme from the start—but entirely from the standpoint of someone who thinks that it is the basis of a very good idea and that its essential purpose is right. I would argue that the Minister is only half converted to the objective of wider share ownership or he would develop the PEP scheme further.
Two excellent objectives form the basis of the PEP scheme. The first—increasing saving—is of immediate economic importance. There are overriding reasons why we should seek to attract more saving at present. It is one of the instruments that we could put into the Chancellor's golf bag to add to his one-club interest rate policy.
The second purpose of the PEP scheme is not merely to deepen but to widen share ownership. Although the widening of share ownership made significant progress with the privatisation issues, it seems to have stopped at around the 20 per cent. mark and at a point where most of the new shareholders hold only one or two stocks. A real widening of share ownership would result in a large proportion of the population having a direct stake in the ownership of individual British companies and a direct involvement in their success. That objective is still to be attained, and I hope that the Minister will address himself to it.
PEPs have not gone far enough to help in meeting that objective, for two reasons. One reason is dealt with to a large extent in the present proposals—to date, the high management costs of the scheme have been a disincentive even to offering and marketing PEPs and must have played a part in the very low take-up rate in the past year. I welcome the improvements that the Government are making, which remove a whole lot of unnecessary limitations on the way in which a PEP scheme is operated.
The other main reason why the scheme is not fulfilling its purpose is that the reliefs available under it have been mainly advantageous to those who have sufficient capital gains tax opportunities to benefit from it—those who have exhausted their other sources of relief. It is not a real advantage to those who come nowhere near to using up their capital gains tax limit. No new investor is likely to need the extra capital gains tax relief. It is the investor who has used up his £5,000 worth of capital gains tax relief who is the primary beneficiary. Other investors have only the tax relief on their dividends which, in any stock market investment, must be only a small part of the investor's expectation of reward.
The Minister came right to the point when he said that he had been criticised—he has certainly been criticised by my party—for not considering the possibiity of a front-ended form of relief for the PEP scheme. The changes that the Government are making will lead to an increased take-up of PEPs—because of the reduction in management costs, the changes in the total investment limit and the time limit. The marketing of PEP mortgages will take off rapidly and they will be widely used by those who are aware of their tax advantages and likely to benefit from them. But the PEP scheme will still not be attracting the large numbers of people whom we want to induce to save and whom we want to own British industry. Although there are arguments in favour of the unit trust aspect of the proposal, that will also probably dilute the extent to which the scheme introduces people to ownership of shares in 960 individual companies. Therefore, we should examine the scheme again to see whether we can still fulfil that objective at the same time.
It remains my view that the most likely way of achieving that real widening is to offer a form of front-end relief as a supplement to the PEP scheme—perhaps a secondary scheme—a scheme alongside it, or an alternative scheme. Unless the Treasury does that, we will find from the PEP scheme, in the Chancellor's words, not a widening but a deepening of share ownership. That is a much more limited objective. The Minister should look at the original objectives.
§ Mr. John Redwood (Wokingham)
Given the hon. Gentleman's party's conviction about wider share ownership, does he agree that privatisation has been the main means of widening share ownership in this country? Therefore, his party should accept that as the most likely way of continuing the share ownership revolution.
§ Mr. Beith
It is a means of widening share ownership, but it has fundamental disadvantages, one of which is that it has transferred monopolies from the public sector to the private sector without changing their monopolistic character. We had that experience with British Gas. We are experiencing it with the electricity industry—a badly conceived privatisation, the details of which it would he out of order for me to go into now.
There are good arguments for taking some industries out of the public sector, particularly if the income generated by doing so is reinvested in other parts of the economy. One of the Government's failings is that they see the gains from privatisation as something out of which to make a Budget surplus to be used on current expenditure, rather than as a means of reinvesting in the economy.
There is no gainsaying that one of the consequences of privatisation has been the widening of share ownership. It would be ridiculous to deny that. But I want to see it go much further. I want to see wider ownership of shares in British manufacturing industry, which has never been in public ownership and which therefore cannot be reached by that means.
The advantages of front-end tax reliefs are that they would prove a more immediate attraction to people who have not previously contemplated saving at all or putting their savings into industry. They would apply directly to those who have no prospect of using up capital gains tax relief and, therefore, do not regard that relief as a particularly important incentive.
If the Government are serious about widening share ownership to a larger number of people and also making it a means of increasing savings, they must change or extend the character of the PEP scheme. For those reasons, I am critical of some of the things that the Government have not done. My criticisms are not because of hostility to the scheme's objectives; in its modified form it can at least play some part.
§ 11.2 pm
§ Sir John Stanley (Tonbridge and Malling)
I welcome the Opposition's decision to initiate this debate, if only to demonstrate that the Labour party has not changed one whit, judging by the speech of the hon. Member for Islington, South and Finsbury (Mr. Smith) about privatisation issues. I found his remarks quite extraordinary. Just as members of the Labour party were 961 conspicuous in queueing up for the benefits of privatisation when council houses were offered for sale, so I have every confidence that they will queue up to take advantage of privatisation issues to put them into the PEP mark 2. They will be surprised if Opposition Members vote against the regulations.
I welcome the PEP mark 2. As my right hon. Friend was frank enough to admit, the PEP mark I did not completely fulfil our expectations. I recognise that the stock market crash in 1987 certainly was a factor in that, but it was not the only factor, and the PEP mark I was undoubtedly too complex and restrictive. There was too great an element of Inland Revenue nannying. Certainly, several fund managers—probably the great majority—found that it simply was not an economic proposition for them to run PEP schemes because of the administrative costs involved compared with the relatively small volume. PEP mark 2 is certainly an improvement.
I ask my right hon. Friend to consider two further changes that would remove two restrictions.
My right hon. Friend announced on 3 May in an answer to my hon. Friend the Member for Newbury (Mr. McNair-Wilson) that PEP mark 3 is around the corner, and he has confirmed that tonight. That being so, I hope that he will give consideration to the matters to which I wish to draw attention, especially the two that came within regulation 6(3—the 50 per cent. and 75 per cent. rules. The 50 per cent. rule prevents an individual investor from investing more than half of his annual PEP investment in investment trusts and unit trusts. The rule is unnecessary, anomalous and pretty undesirable. If it is possible for someone to put 100 per cent. of his annual investment into ordinary shares, why should he be restricted to only 50 per cent. of his investment for unit trusts and investment trusts?
My right hon. Friend has made some welcome changes for investment trusts and he has referred to the benefits of widening the changes to embrace split level trusts and the attraction of high-income trusts for first-time investors. If unit and investment trusts are a good investment medium for first-time investors, and they are, surely we should not place a 50 per cent. limit on that form of investment. I think that my right hon. Friend will be the first to agree that many first-time investors who go to their independent financial advisers with only £1,000 or £2,000 to invest will be advised by those advisers to put their money into investment trusts or unit trusts so that they may enjoy a reasonable spread of investment without incurring high initial purchase changes, which is the result of putting penny packets of investment into ordinary shares.
As the regulations are drafted, I believe that they will run contrary to the advice that independent financial advisers will give to those who come to them, especially if they are first-time investors or those of relatively modest means.
I ask my right hon. Friend to consider again the 75 per cent. rule. I suggest that it, too, is highly anomalous. As I understand it, the intention behind the regulations is to produce some form of direct imperative to invest in the United Kingdom. As my right hon. Friend knows, however, the ordinary shares that can be part of any PEP portfolio can include a huge range of United Kingdom-quoted companies. Many of those companies, not least oil 962 companies, natural resource companies and internatonal conglomerates, have the majority of their assets and earnings outside the United Kingdom. As the regulations are drafted, it would be possible to construct a PEP where the entire investment was placed in United Kingdom quoted companies which had 75 per cent. or more of their assets and earnings outside the United Kingdom. However, when one came to invest in a unit trust or investment trust that had 74 per cent. of its investments inside the United Kingdom, the regulations would debar the investment. I suggest that that is anomalous.
I have some sympathy with the argument advanced by the hon. Member for Berwick-upon-Tweed (Mr. Beith) in an intervention. As the Government have, rightly, been radical enough to abolish exchange controls, and as they are on the brink of entering into a single capital market within the European Community, fiscal nationalism on a pretty small issue seems to be rather unecessary. I hope that my right hon. Friend will examine closely the 75 per cent. rule. The PEP scheme will be much improved if that and the 50 per cent. restriction on unit trusts and investment trusts are abolished.
§ 11.9 pm
§ Mr. Denzil Davies (Llanelli)
We are debating another example of what used to be called social engineering. Perhaps I should be sorry to revert to that phrase, but I see that the Financial Secretary is amused. Social engineering means the use of the tax system to further various political, economic and ideological ends for the purposes and aims of the Government of the day.
This is not a debate on the Finance Bill but it is closely allied to such legislation. Yesterday we debated the use of the tax system to encourage private health care and this afternoon we debated clause 44 of the Finance Bill and the use of the tax system both for the business expansion scheme and to try to encourage the provision of rented accommodation in the private sector. Again, the tax system is apparently to be used to iron out anomalies and to try to revive the private rented sector.
The tax system is now to be used to enable certain individuals to buy shares on the stock exchange and to get tax relief for doing so. Perhaps most Conservative Members were not Members of the House in those days, but some of us—[Interruption.] Of course it is tax relief—
§ Mr. Davies
If one gets tax relief on dividends from the shares, one is paying no tax—[Interruption.] Well, perhaps it is not tax relief; it is tax exemption. I am sorry, I had better be more precise in my language. We are talking about total tax exemption on dividends on the PEP scheme. If the hon. Member for Derbyshire, South (Mrs. Currie) wants to be pedantic, she can be. The policy is to grant tax reliefs.
The Conservative party used to tell us that tax reliefs, tax incentives or tax breaks, as the Americans call them, were justified only because of the high rates of taxation under Labour Governments. The Conservative party said that they were justified then because they ameliorated the harsh tax rates. We can all remember that what used to be called "unearned income" was taxed at 95 or 97 per cent. when the investment income surcharge was applied to it 963 —[Interruption]. I am advised that the rate was 98 per cent. It was argued that because of those rates we must have all these reliefs. However, we were told that once the tax rates came down to reasonable levels there would be no need for the reliefs. We were told that everything would be neutral and that incentives would not be given to either one group or another.
We have had those tax reductions. Unearned income became known as investment income and the tax on it was no longer any different from the tax on earnings. That is the position today, except that the top tax rate has gone down to 40 per cent. Yet we apparently still need the reliefs and the incentives. Indeed, under this scheme there is no tax at all on dividends—I am correct in that, am I not? —yet there are taxes on earnings at 25 and 40 per cent. We are moving in the opposite direction—we are taxing unearned income in certain categories at a level lower than that at which we tax earnings.
That is extraordinary coming from the Conservative party which has preached tax and fiscal neutrality. However, we know what this is really all about. Although a few people at the lower end of the scale will benefit from such schemes, the schemes will most benefit those whom the Prime Minister describes as "our own people". I notice that the hon. Member for Derbyshire, South is agreeing with that.
As I have said, no tax will be paid on dividends and no tax will be paid on capital gains. The Financial Secretary told us that that is to encourage savings. I thought that the function of the interest rate system was to encourage savings. I should have thought that interest rates at twice the rate of inflation and the highest in Europe—it is possible to get 13 per cent. today—would encourage savings. I do not see why it is necessary to try to get more. Why be more greedy? Why try to find more tax reliefs and more income from savings?
The scheme is, in fact, a confession that popular capitalism has failed to deliver savings. Popular capitalism —the free market, and no interference in the market whatsoever—has not delivered savings under this Government; it has delivered spend, spend, spend. That means that we now have to use the tax system and to pay money to institutional managers and to the fund managers in the City to try to ameliorate the failure of popular capitalism to encourage saving.
The right hon. Member for Tonbridge and Mailing (Sir J. Stanley) talked about the "nannying" of the Inland Revenue. There are 13 pages in these regulations which I read through earlier. They talk of plans, plan managers, plan investments, qualifying individuals, plans managed in accordance with the regulations, planned investors. There are 13 pages of gobbledegook from the Government who told us that the tax system would be simplified, not complicated. We are also debating this week the longest Finance Bill in history.
The Government talked about fiscal neutrality and tax simplicity, but we received neither. A Government who were, apparently, in favour of fiscal neutrality and tax simplicity, have given us less of both. The main reason for that is that the Government want to assist those they choose to help, and they will try to do so through the tax system.
I do not know whether the Government's policy will encourage savings. It will shift savings from one sector of the economy to another. I doubt whether it will generate extra savings, because that depends on the general 964 economy. Savings cannot be created overnight. As a result of this system, money will leave building societies and go into the new PEP scheme. I doubt whether it will encourage savings, but it will assist a number of people.
The reason for the scheme and for the Financial Secretary talking about savings is that, over the past few years, the Government have run a slack monetary and fiscal policy. If the Government had practised what they preached about monetary discipline, there would be no need for these schemes to try to encourage savings, because the economy would not be run on that basis. The scheme is a consequence of the Government's failure properly to manage their economy and of the Conservative party's desire to use the tax system to assist its own people. Conservative Members who troop into the Lobby tonight to support the regulations will do so because there is money in it for their own people.
§ Mrs. Edwina Currie (Derbyshire, South)
May I say how much Conservative Members welcome the various improvements to the PEP.
I originally intended to come merely to listen to the debate, but I heard so much guff from the hon. Member for Islington, South and Finsbury (Mr. Smith) and more guff from the hon. Member for Berwick-upon-Tweed (Mr. Beith), and then I heard my right hon. Friend the Financial Secretary speaking with such approbation about the unskilled women of the north of England who are now buying PEPs in such numbers. When I heard this I thought to myself, "My right hon. Friend is talking about me " I am an unskilled woman from the north of England arid I have never owned any shares in my life, and on 30 March this year I marched into Lloyds bank in Victoria street and bought a PEP.
I think that PEPs are wonderful, and I would like my right hon. Friend to know that he is absolutely right in what he says about the attractiveness of the PEP scheme to first-time buyers and investors, the person who knows nothing about the stock exchange, does not have a financial adviser, does not read the Financial Times, but wants to get into the stock exchange and the stock market to benefit from the tremendous improvement in the capitalist society over which the Government have presided.
In future, this will be the real value of the PEP. It will be one of the best ways into the system for the first-time buyer. On that basis, the changes that are being prayed against today are very important, much more important than the tax incentives that have been described and which are being derided by the Opposition. They are particularly important as privatisation issues gradually draw to a close. We shall reach the stage when we have privatised everything that stays still long enough. It will then be harder for the public, unless they have some easy access to the system, to buy shares. In any case, why should they be restricted to buying shares merely in old, nationalised industries? It is marvellous that, through the PEP system, they should be able to have access to shares in a much wider range of companies.
I share the view of my right hon. Friend the Member for Tonbridge and Mailing (Sir J. Stanley) that the old PEP rule on the proportion that goes into unit trusts is a 965 bureaucratic and undesirable element of restriction that my right hon. Friend the Financial Secretary should look at.
The old PEP was hampered by excessive bureaucracy and, perhaps, a half-hearted approach. Listening to the Opposition Members who have spoken, I wondered why they oppose the PEPs and have bothered with this prayer. They are wrong about them on one count—no doubt my right hon. Friend will tell them they are wrong on many others, too. They are wrong to think that PEPs are attractive only to people who have used up their existing £5,000 tax exemption on the capital gains tax. The person buying a PEP for the first time who does not own shares has a tremendous incentive to buy one the next year—and the next—and to stay in the system until he accumulates a substantial benefit. That is a major incentive.
My right hon. Friend was undoubtedly right to say that the average tax benefit from the dividends will be about £60 a year. I agree that that is not exactly exciting for most people, including those on average earnings or below. But that is not the incentive; the incentive is to get into the stock exchange system and stay there until the day comes when a person has built up a large portfolio.
The hon. Member for Islington, South and Finsbury (Mr. Smith) must make up his mind. Perhaps the Labour party's policy review will help him to do so. Everything that he said about PEPs amounted to an advertisement for them and I should have thought that he would welcome them for that reason. The Opposition say that they believe in a share-owning democracy; if so, they should consider PEPs, and the changes to them, marvellous. Either they should make up their minds whether they favour share-owning, or they know what they really think about it and are not telling us, in which case they are lying through their teeth—[Interruption.] I said, "Either, or."
I must tell the hon. Member for Islington, South and Finsbury, who is a nice bloke—I like him—[Interruption.] that when it comes to the next election, and the hon. Gentleman and his hon. Friends start talking about share ownership and a share-owning democracy, he will have to make it absolutely clear whether he means to leave our shares with us or to take them off us by re-nationalisation and taking away all the rights that we are now acquiring. If he chooses the latter course, he will find it about as popular as taking away our nuclear deterrent, and the people will not vote for it.
I offer my right hon. Friend this thought: we have spent a lot of time considering incentives to the purchasers of PEPs, but we need to think about incentives for the banks, building societies and others who will take on the management of these funds on our behalf. I had to persuade the nice young ladies at the branch of Lloyds in Victoria street to sell me a PEP. They had never heard of it. Having heard my right hon. Friend's Budget speech, I decided that a PEP would be nice to have. A few days later Lloyds took full-page advertisements in the press, telling us that we must buy our PEPs immediately and sign our cheques by 4 pm on the last Friday in March. If not, we could not obtain the current plant.
I marched in, clutching my copy of the advertisement in one hand and cheque book in the other. No one at the branch of Lloyds knew anything about PEPs. They managed to find me a leaflet, and I read through the details 966 of the old scheme, which were all wrong. I told the staff that everything had changed; they said that it had not. The young lady brought her supervisor to see me—also, marvellous to relate, a woman—and she insisted also that the details had not changed. I said to the girl, "Here's my cheque. I want a receipt now, with the date-stamp on it." Three weeks later I received a stereotyped letter from a minion in Lloyds bank stating that I now possessed a PEP.
I have done the bank the honour of giving it my hard-earned £3,000, and I reckon that it should be keener to take our money off us. Somewhere along the line, if the PEP is to be what I hope—the easy way into the stock exchange for the first-time buyer and for people who have no experience of the stock exchange—the people who are managing and selling the schemes had better pull their socks up and do the selling. They should make it easier and more attractive for unskilled northern women like me to go into the banks and get PEPs.
I commend what my right hon. Friend is doing. I look forward to the PEP being an even greater success in future.
§ Mr. Tim Smith (Beaconsfield)
When my hon. Friend the Member for Derbyshire, South (Mrs. Currie) approached the sign of the black horse and got into the bank, she discovered that it was the listening bank and she was able to advise it on PEPs. I hope that it gets its act together soon.
The changes announced in the Budget offer an outstanding marketing opportunity for financial advisers of all kinds. When I listened to the Budget statement I concluded that this was one of the most exciting series of changes made for a long time. The changes in personal equity plans offer people for the first time a real opportunity to build up a tax-free equity portfolio.
The right hon. Member for Llanelli (Mr. Davies) talked about encouraging savings. I do not believe that that is the object of the scheme. It is to encourage investment in equities, which is a different proposition. There is plenty of encouragement for savings with interest rates at their present levels. Building societies do not have a problem, and savings are rising.
The purpose of the scheme is to encourage people to put their money into direct savings in equities, investment trusts and unit trusts. We can make a direct comparison between the tax advantages of putting money into an occupational pension scheme, where it is locked up for a long time but where all the dividends and capital gains are tax-free, and personal equity plans.
I agree with the hon. Member for Berwick-upon-Tweed (Mr. Beith) that there will be a big change in this area of the savings market. When people take out a mortgage, they will not go for an institutional way of paying it back through a life policy where the money is locked up. They will put their money into personal equity plans on a regular basis. Over a period of years, as anyone who looks at the tables for unit trusts will see, there will be a rapid accumulation in the value of their investment. They will find that they are in a position to pay off their mortgage much earlier than they might otherwise have been. They will have considerable flexibility which is not available under present arrangements.
That is why the scheme is so exciting. It is not for a month, for six months or even for a year, as the hon. Member for Islington, South and Finsbury (Mr. Smith) 967 thinks; it is for a long period to encourage long-term savings in the equity market. That is what it will do. With modest monthly payments, people can accumulate considerable capital. It is the next step to a property-owning democracy. The Government have been successful in achieving a high percentage of home ownership. The next stage in giving people more security and independence is to give them the opportunity to build up a reasonable amount of equity capital.
I welcome the changes, which will be significant in the long run. Opposition Members do not know how to react to all this, or whether to welcome it. We saw that in the speech of the hon. Member for Islington, South and Finsbury from the Front Bench. I think that they will see that there will be considerable benefits and that many new investors will come into this area of the savings market.
I have two detailed comments. First, on the vexed question of the 75 per cent. limit which will apply to unit trusts and investment trusts, I understand why the Treasury wants to introduce a limit. It is right that, primarily, people should be encouraged to invest in United Kingdom equities, but there is the difficulty to which my right hon. Friend the Member for Tonbridge and Mailing (Sir J. Stanley) drew attention—that many United Kingdom companies invest heavily overseas. For example, Hanson plc has about 50 per cent. investment in the United Kingdom and 50 per cent. in the United States. If I chose to invest all my PEP in Hanson shares, I would get full relief even though half the money is going to overseas investment. We can probably think of examples, such as BAT Industries plc, where the proportion of overseas investment is even higher. I could invest in plantation or other companies, where investment is completely overseas. My right hon. Friend might review the limit. A 50 per cent. limit might be more reasonable.
On my second point I am not too sure of my facts, but I want to ask whether, under the scheme, one is confined to investing in quoted shares. If so, is there any reason why the scheme should not be extended to unquoted shares? Is there any reason why all equity investment should not be eligible? 1 shall be grateful for an answer to that question. It may not be unreasonable to allow people to invest in unquoted investment, more risky though that may be.
At the end of the day, the changes encourage more people to put more of their money into equity investment. The Government have been successful in increasing share ownership. Literally millions of people are now investors, and with these changes, encouraging people to put their privatisation shares into the schemes, we shall see PEPs take off over the next 12 or 24 months.
§ Mr. Chris Smith
The hon. Member for Derbyshire, South (Mrs. Currie) has obviously spotted the fact that my reselection comes later this year and has decided to do me the greatest possible damage by being nice about me. However, I am grateful for her comments, if not for the general content of what she had to say about PEPs.
The hon. Member for Beaconsfield (Mr. Smith) said that there was plenty of encouragement for savings at the moment through the movement in interest rates. That is broadly true, but it is worth noting in passing that the rates generally available for savers through financial institutions such as building societies have gone up proportionately less than the rates that are charged to borrowers as a result 968 of the increase in the base rate. There are important questions to be asked about where the difference between those two movements in rates has gone, but that is for another debate.
Two points that arose in this debate are worth highlighting. First, there appears to be a clash of opinion between the two sides of the Chamber about the overall profile of investors in PEPs. Opposition Members have the evidence from financial journalists, from the Institute of Fiscal Studies and from the general feeling among the financial institutions in the PEP market, the overwhelming impression from which is that relatively few first-time investors are now taking advantage of PEPs, that on the whole PEPs are taken out by richer investors and that much PEP investment is the repackaging of existing portfolios.
From Conversative Members we have the impressions of one branch of the Bradford and Bingley building society; or perhaps one region of it. I would tend to believe the Institute of Fiscal Studies and other financial institutions before I believe the impression that the Financial Secretary was trying to give.
The other point that is worth re-emphasising is a simple point of principle. For all the talk of popular capitalism, ownership and so on that we have had from Conservative Members tonight, the fact remains that the inclusion of privatised issues within PEPs in effect gives a tax relief which is ultimately expenditure by the Exchequer, because it is income forgone. It is giving Exchequer subsidies to those who purchase public assets.
Bitterly opposed as Labour Members are to the sale of those public assets, we cannot possibly accept that it is right, on top of the disposal of those public assets, to assist their disposal by means of a tax subsidy—expenditure from the Exchequer, which is paid for by the generality of taxpayers.
§ Mr. Norman Lamont
My right hon. Friend the Member for Tonbridge and Malling (Sir J. Stanley) raised two points. The first was about what he called the 50 per cent. rule. There is not actually a 50 per cent. rule. Somebody investing in unit trusts or investment trusts can invest all his portfolio in unit or investment trusts.
I think that my right hon. Friend was referring to the fact that the £2,400 is half the limit. Regulation 6(3) is concerned only with somebody who has first invested in shares and then wants to switch to unit trusts. There is also the point, which my right hon. Friend may have been making, that £2,400 is half the limit that may be invested in shares directly.
As I explained at the beginning of the debate, our original concept was designed to encourage direct ownership in individual shares, although we also allowed some investment in unit and investment trusts. We have increased that considerably, to a level that is more economic from the point of view of plan managers, but we still want to maintain the idea of direct investment in individual shares with the investor actually following the company. So we are trying to do both—to have a generous amount for unit and investment trusts and a higher amount for direct investment.
My right hon. Friend the Member for Tonbridge and Malling also referred to the 75 per cent. rule, as did my hon. Friend the Member for Beaconsfield (Mr. Smith). 969 The point was made—which, after many representations from the unit and investment trusts, has become a familiar one—that there are many British companies with assets throughout the world and that there is a degree of artificiality at the margin in saying that a company which is quoted and registered in London is necessarily a United Kingdom company, even if its activities are spread internationally.
Most hon. Members will agree that it would be odd if we gave a tax relief for people to invest largely overseas. It is difficult to distinguish one company from another and try to look at the underlying assets, whereas with a collective investment vehicle one can do that easily. But it would be odd to give tax relief for, say, M & G Japan.
§ Sir John Stanley
Will my right hon. Friend explain how it is meant to work in a situation where an individual plan holder invests in an investment trust that is just more than 75 per cent. invested in the United Kingdom? The board of directors of the investment trust is bound by the Companies Act to do its best by its shareholders. Let us assume that it is an international investment trust and it decides that it should switch a proportion of its investments out of the United Kingdom into companies overseas, and it falls below the 75 per cent. level. The plan holders will no longer be in a qualifying investment trust. What will happen to such plan holders?
§ Mr. Lamont
For an investment trust to qualify to be part of a PEP, it must satisfy the 75 per cent. requirement, and it will be able to be in a plan only if that is one of its investment objectives. The directors of the company will know that when they decide whether they wish to put their investment trust into a PEP.
My hon. Friend the Member for Beaconsfield asked whether PEPs are confined to quoted shares. They are, but my hon. Friend may have noticed that we extended that provision to include the USM as well. We regard the BES as being more suited to encouraging investment in unquoted shares.
The right hon. Member for Llanelli (Mr. Davies) made another engaging speech. He has become the spokesman and interpreter of the new Right on the Opposition Benches. After the Budget, the right hon. Gentleman gave the House a lecture on monetarism, saying that if we were true believers in monetarism we would not have been worried about the surplus but would have cut taxes and let monetary policy take the strain. The right hon. Gentleman has also been lecturing on fiscal neutrality, and has been reading publications by Milton Friedman and the Adam Smith Institute well into the night.
The right hon. Gentleman has become very learned on Right-wing theory. However, as my hon. Friend the Member for Derbyshire, South (Mrs. Currie) pointed out, despite all the right hon. Gentleman's education from the Right and the new Right, he does not understand how PEP tax relief works. My hon. Friend the Member for Derbyshire, South made it clear that one does not benefit from tax relief just by the act of investing. She emphasised, as did my hon. Friend the Member for Beaconsfield, that the advantage of PEP tax relief comes only to the person who invests consistently and holds shares for a period of time.
970 The right hon. Member for Llanelli stated that the regulations, the changes and the whole concept of PEPs simply complicate the tax system. Perhaps stemming from his misunderstanding of the relief, the right hon. Gentleman overlooks the fact that, because there is total exemption on dividends, one of the beauties of the system, and one of its greatest attractions, is that the investor does not need to have any contact with the Inland Revenue. That is a major advantage, and very different from the scheme proposed by the hon. Member for Berwick-upon-Tweed (Mr. Beith), who yet again suggested tax subsidy for investment; front-end relief on the Loi Monory model.
That would help the richer investor and be open to abuse on a considerable scale, because it would be possible for a person to recycle his investments each year, thus qualifying for relief. They would be able to put existing investments through a plan and qualify for relief just on the basis of their existing investments. That would be much more expensive than the existing form of relief, which is well targeted.
My hon. Friends the Members for Derbyshire, South and for Beaconsfield made the point that the strength of the scheme is that it rewards the long-term investor who sticks with his or her portfolio, and not—as Opposition Members seem to think—short-term speculators. The plan encourages investment in equity markets and encourages people to stay in them for the long term. That is its purpose, and our Budget changes strengthen the scheme and will prove to be very popular.
§ Question put:
§ The House divided: Ayes 88, Noes 165.972
|Division No 195]||[11.43pm|
|Abbott, Ms Diane||Hughes, Robert (Aberdeen N)|
|Adams, Allen (Paisley N)||Illsley, Eric|
|Barnes, Harry (Derbyshire NE)||Ingram, Adam|
|Battle, John||Jones, Barry (Alyn & Deeside)|
|Beckett, Margaret||Jones, Martyn (Clwyd S W)|
|Boateng, Paul||Kinnock, Rt Hon Neil|
|Bradley, Keith||Lamond, James|
|Brown, Gordon (D'mline E)||Lewis, Terry|
|Brown, Nicholas (Newcastle E)||Lofthouse, Geoffrey|
|Buckley, George J.||Loyden, Eddie|
|Campbell-Savours, D. N.||McAllion, John|
|Clark, Dr David (S Shields)||McAvoy, Thomas|
|Clarke, Tom (Monklands W)||McFall, John|
|Clay, Bob||McKay, Allen (Barnsley West)|
|Clelland, David||McNamara, Kevin|
|Clwyd, Mrs Ann||Mahon, Mrs Alice|
|Cook, Robin (Livingston)||Marek, Dr John|
|Cousins, Jim||Marshall, Jim (Leicester S)|
|Cryer, Bob||Martin, Michael J. (Springburn)|
|Cunliffe, Lawrence||Meale, Alan|
|Darling, Alistair||Michael, Alun|
|Davies, Rt Hon Denzil (Llanelli)||Michie, Bill (Sheffield Heeley)|
|Davis, Terry (B'ham Hodge H'I)||Moonie, Dr Lewis|
|Dixon, Don||Morgan, Rhodri|
|Dunnachie, Jimmy||Mullin, Chris|
|Ewing, Mrs Margaret (Moray)||Orme, Rt Hon Stanley|
|Fisher, Mark||Pike, Peter L.|
|Foster, Derek||Powell, Ray (Ogmore)|
|Foulkes, George||Quin, Ms Joyce|
|Fyfe, Maria||Redmond, Martin|
|Godman, Dr Norman A.||Robertson, George|
|Golding, Mrs Llin||Ross, Ernie (Dundee W)|
|Gordon, Mildred||Rowlands, Ted|
|Graham, Thomas||Ruddock, Joan|
|Griffiths, Win (Bridgend)||Skinner, Dennis|
|Henderson, Doug||Smith, C. (Isl'ton & F'bury)|
|Hinchliffe, David||Smith, John P. (Vale of Glam)|
|Home Robertson, John||Soley, Clive|
|Hughes, John (Coventry NE)||Spearing, Nigel|
|Steinberg, Gerry||Welsh, Michael (Doncaster N)|
|Turner, Dennis||Worthington, Tony|
|Vaz, Keith||Wray, Jimmy|
|Walley, Joan||Tellers for the Ayes:|
|Warded, Gareth (Gower)||Mr. Robert N. Wareing and|
|Welsh, Andrew (Angus E)||Mr. Ken Eastham.|
|Aitken, Jonathan||Devlin, Tim|
|Alexander, Richard||Dorrell, Stephen|
|Alison, Rt Hon Michael||Dover, Den|
|Amess, David||Dunn, Bob|
|Amos, Alan||Durant, Tony|
|Arbuthnot, James||Evans, David (Welwyn Hatf'd)|
|Arnold, Tom (Hazel Grove)||Fallon, Michael|
|Ashby, David||Favell, Tony|
|Baker, Nicholas (Dorset N)||Fishburn, John Dudley|
|Batiste, Spencer||Forman, Nigel|
|Beith, A. J.||Forth, Eric|
|Bennett, Nicholas (Pembroke)||Fox, Sir Marcus|
|Biffen, Rt Hon John||Franks, Cecil|
|Blackburn, Dr John G.||Freeman, Roger|
|Bonsor, Sir Nicholas||French, Douglas|
|Boscawen, Hon Robert||Gardiner, George|
|Boswell, Tim||Garel-Jones, Tristan|
|Bottomley, Peter||Gill, Christopher|
|Bottomley, Mrs Virginia||Goodhart, Sir Philip|
|Bowis, John||Greenway, John (Ryedale)|
|Brandon-Bravo, Martin||Gregory, Conal|
|Brazier, Julian||Griffiths, Peter (Portsmouth N)|
|Brown, Michael (Brigg & Cl't's)||Grist, Ian|
|Burns, Simon||Ground, Patrick|
|Burt, Alistair||Gummer, Rt Hon John Selwyn|
|Butterfill, John||Hague, William|
|Campbell, Menzies (Fife NE)||Hamilton, Hon Archie (Epsom)|
|Carlile, Alex (Mont'g)||Hamilton, Neil (Tatton)|
|Carrington, Matthew||Hargreaves, A. (B'ham H'll Gr')|
|Chapman, Sydney||Harris, David|
|Chope, Christopher||Hayes, Jerry|
|Clarke, Rt Hon K. (Rushcliffe)||Heathcoat-Amory, David|
|Coombs, Anthony (Wyre F'rest)||Hind, Kenneth|
|Coombs, Simon (Swindon)||Howard, Michael|
|Cope, Rt Hon John||Howell, Rt Hon David (G'dford)|
|Couchman, James||Hughes, Robert G. (Harrow W)|
|Cran, James||Hughes, Simon (Southwark)|
|Currie, Mrs Edwina||Hunt, David (Wirral W)|
|Davis, David (Boothferry)||Hunter, Andrew|
|Irvine, Michael||Raison, Rt Hon Timothy|
|Jack, Michael||Redwood, John|
|Janman, Tim||Rhodes James, Robert|
|Jones, Gwilym (Cardiff N)||Riddick, Graham|
|Jones, Robert B (Herts W)||Ridley, Rt Hon Nicholas|
|Kennedy, Charles||Ridsdale, Sir Julian|
|Kilfedder, James||Roberts, Wyn (Conwy)|
|King, Roger (B'ham N'thfield)||Rost, Peter|
|Kirkhope, Timothy||Rumbold, Mrs Angela|
|Knapman, Roger||Ryder, Richard|
|Knight, Greg (Derby North)||Sackville, Hon Tom|
|Knowles, Michael||Sainsbury, Hon Tim|
|Lamont, Rt Hon Norman||Sayeed, Jonathan|
|Latham, Michael||Shaw, David (Dover)|
|Lawson, Rt Hon Nigel||Shephard, Mrs G. (Norfolk SW)|
|Lennox-Boyd, Hon Mark||Shepherd, Colin (Hereford)|
|Lester, Jim (Broxtowe)||Skeet, Sir Trevor|
|Lightbown, David||Smith, Tim (Beaconsfield)|
|Lilley, Peter||Speller, Tony|
|Livsey, Richard||Spicer, Michael (S Worcs)|
|Lloyd, Peter (Fareham)||Stanley, Rt Hon Sir John|
|Lyell, Sir Nicholas||Steen, Anthony|
|McCrindle, Robert||Stevens, Lewis|
|MacGregor, Rt Hon John||Stewart, Andy (Sherwood)|
|Maclean, David||Stradling Thomas, Sir John|
|McLoughlin, Patrick||Summerson, Hugo|
|McNair-Wilson, Sir Michael||Taylor, Ian (Esher)|
|McNair-Wilson, P. (New Forest)||Taylor, John M (Solihull)|
|Malins, Humfrey||Thompson, D. (Calder Vally)|
|Mans, Keith||Thorne, Neil|
|Martin, David (Portsmouth S)||Thurnham, Peter|
|Mates, Michael||Townend, John (Bridlington)|
|Miller, Sir Hal||Trippier, David|
|Mills, Iain||Trotter, Neville|
|Mitchell, Andrew (Gedling)||Waddington, Rt Hon Davic|
|Mitchell, Sir David||Wheeler, John|
|Montgomery, Sir Fergus||Whitney, Ray|
|Morrison, Sir Charles||Widdecombe, Ann|
|Neale, Gerrard||Wolfson, Mark|
|Neubert, Michael||Wood, Timothy|
|Nicholson, David (Taunton)||Yeo, Tim|
|Onslow, Rt Hon Cranley|
|Paice, James||Tellers for the Noes:|
|Pattie, Rt Hon Sir Geoffrey||Mr. Alan Howarth and|
|Porter, David (Waveney)||Mr. Kenneth Carlisle.|
|Powell, William (Corby)|
§ Question accordingly negatived.