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6.45 pm

Mr. Letwin: Yes. We know that it would have been possible because the climate change levy, which my colleagues and I inveighed against at length, was none the less much better designed than this tax in just that respect: at least it was so constructed that it aimed to allow the arbitrary powers of the Department of the Environment, Transport and the Regions to be brought to bear on that part of industry that the Government wanted, as they put it, to reform its ways. I objected to that tax, and I object to this one. I object to that manner of proceeding, but at least it would have been a rational and coherent manner of proceeding--objectionable but rational. This tax is objectionable and irrational, because it has been wrongly introduced, just as the hon. Gentleman said.

I want to dwell on a feature of clause 17 that we will not have time to debate. The tax is amazingly complicated to enforce. The hon. Member for Somerton and Frome (Mr. Heath) referred to the problem with scalpings,

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and there are many similar problems, as exposed in the amendments tabled to clause 17. It is extraordinarily difficult to disentangle one item that is being extracted from a quarry from another.

It is not only a matter of Ministers having moved too fast. Even were they to have moved at a reasonable pace, they probably would not have been able to design an easily enforced version of the tax. One of the principles of taxation should be that it is so clear that it is easy to enforce. Many theoreticians thought that the selective employment tax was wonderful. Alas, it had disastrous consequences, because it was almost impossible to enforce in any rational way. This bears all the hallmarks of being another such tax.

At best, the tax will be highly intrusive, because the machinations required for the inspectors to enforce it properly will be horrible. Most businesses already resent the appearance of Her Majesty's Customs and Excise at their premises, partly for good reasons and partly for bad. One good reason is that they find it a distraction from their ordinary business. The distraction involved in a normal VAT inspection will be as nothing to the distraction involved in the heroic efforts of inspectors from Her Majesty's Customs and Excise to turn themselves into geological experts who can disentangle one extracted item from another, when none of the quarry operators involved find it easy to do so.

Far worse, this comedy of errors is in fact a tragicomedy, because the Government, for some unfathomable reason, have ignored--they cannot have forgotten it, because it has been pointed out to them so frequently--the fact that, as the hon. Member for East Londonderry (Mr. Ross) said, the way in which the tax has been designed, although an improvement on the climate change levy in the respect that it allows for credits against exports and taxes imports, means that it does not tax the form of import that has been incorporated in pre-cast concrete, for example. That will prove a disastrous blow for the aggregates industry in Northern Ireland and a significant blow for parts of the industry in southern England that will face severe and unsustainable price competition from Normandy and elsewhere in northern France.

I do not know why the Government have chosen needlessly to expose British industry in that way, putting at risk between 4,000 and 10,000 jobs, depending on which estimate one takes, but it is clear to me that it can be no part of a rational economic policy to design a tax with that effect. As the Bill is drafted, it has that effect ineluctably. Had the Government been willing to accept the exemptions proposed in amendment No. 4, some firms at least would have been able to avoid the effect, but as it is none can.

Mr. Timms: I should like to challenge the hon. Gentleman on his point about concrete blocks. As I understand it, the current proportion of consumption in the United Kingdom of concrete blocks supplied from abroad is 1 per cent. What does the hon. Gentleman think that it will be once the levy has been introduced? His point is entirely vacuous.

Mr. Letwin: I am surprised, because although I often disagree with the Financial Secretary, he almost always makes a powerful argument. As I understand the matter,

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having talked, as he must have done, to the Quarry Products Association and the British Aggregates Association--before I go any further, I should declare an interest, because I may have one that I am not aware of--there will be the ability to import a series of substances made up from aggregates from south of the border in Northern Ireland, and concrete blocks from Normandy and northern France by ship, to substitute for what are currently used as building materials because of a huge inbuilt price advantage. If I remember correctly, the equivalent tax in France is about 5p per tonne. If there is a price advantage of £1.55 per tonne we can expect to see a change in the structure of the industry and of demand in the UK. That point must have been made to the Financial Secretary.

Mr. Timms: The hon. Gentleman will recognise that significant transport costs must be set off against any tax differential that might exist. That is why I think that his suggestion that the introduction of the levy will result in large job losses is entirely unfounded.

Mr. Letwin: Industry experts have gone through the cost structure of transport with us, which was alluded to earlier, and have demonstrated to our satisfaction that where demand for these products is appropriately located, as in Northern Ireland and on the south coast, and where there is a readily available means of transport, whether it be by rail or road or ship, the transport costs are not prohibitive and there will remain a significant cost advantage. If the Financial Secretary has figures showing the contrary, surely he would have been able to persuade the industry of that fact by now. There is no reason for the industry to make this argument if it is not true, because the Financial Secretary has already taken the trouble to exempt exports and imports otherwise. Surely he could now do what the industry asks in relation to fabrication.

Mr. Timms: I will be meeting industry representatives next week and will be discussing that with them. There is an issue to do with Northern Ireland that we will come to later. However, I do not think that the hon. Gentleman's point about supplies from France to southern England is a serious concern.

Mr. Letwin: I very much hope that the Financial Secretary is right and that he will be able to persuade the industry of that, although I am not persuaded. We will indeed come back to the question of Northern Ireland.

I turn now to an element of mythology, which the Financial Secretary has been assiduous in peddling, if I may use a derogatory term. He and his colleagues exposed the myth in the Budget. The hon. Gentleman maintains, as he did with the climate change levy--and I do not doubt his honesty in maintaining it, but it is a myth--that it is a fiscally neutral measure. Of course, he is right--on day one, it is a fiscally neutral measure. The landfill tax was also fiscally neutral when it was introduced. This Budget increased the landfill tax. Did it increase the rebate of national insurance contributions likewise? No.

Will we have an assurance from Ministers this evening that at no time during the lifetime of this Government, or of any Government for whom they are responsible, will there be an increase in this tax without a commensurate increase in the rebate on national insurance contributions? If we get that commitment, I will withdraw my assertion.

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However, I doubt that we will. The Government have shown through their actions on the landfill tax that they have no inhibitions about increasing such taxes and removing the day one fiscal neutrality.

If I made you the grand offer, Dr. Clark, to engage in a fiscally neutral transaction with you in which you gave me a pint of beer and I gave you an equivalent amount of whisky, but you promised me that you would give me as much beer in all the subsequent years of your life as I demanded, without my making an equivalent promise to you in terms of whisky, you would be a mug. That is what the British public will be if they are led to believe that this is a fiscally neutral measure. It is nothing of the kind. Naturally, you would not engage in such a transaction, Dr. Clark. There is no reason for anyone to believe that this is a fiscally neutral measure; it is a platform for engaging in tax raising.

The Government have gone to considerable public expense--I cannot recall the exact figure, but I suspect that it is about £100,000--to produce a magnificent report. The Financial Secretary referred to it--indeed, he waved it around a moment ago. This magnificent report purports to show that the figure of £1.60 a tonne--or, rather, a slightly higher figure, once we allow for some fancy manoeuvres--is justified as the tax in this case because of the optimality rule. That rule states that one must always tax at exactly the cost of the externalities--the cost of the damage done.

This is a really splendid thesis, and it is absolutely true. However, it relies on accumulating a group of human beings who are geniuses and are sufficiently talented to find out the cost of the damage. Alas, in the length and breadth of the United Kingdom, no such geniuses were to be found by Her Majesty's Government. Instead, they employed some ordinary human beings in the form of very intelligent, highly qualified consultants. You may not believe this, Dr. Clark, because it sounds as though I am making it up, but these consultants asked a large number of people who lived somewhere near quarries in various places how much they would pay, if they were given the option, to avoid having various things near them, including quarries and the trucks associated with them.

This is a marvellous idea. We can just imagine these earnest seekers after truth wandering around the highways and byways of the areas of outstanding natural beauty where quarries are to be found and asking Mrs. Jones and Mrs. Smith exactly, to the nearest 5p or so, how much they would be prepared to pay to avoid having a quarry 300 yd from their home. Mrs. Jones and Mrs. Smith gave them the answers; they added everything up and produced, for about £100,000, a huge report for the Financial Secretary and the Department of the Environment, Transport and the Regions, which has been taken very seriously. I do not know at which point "Yes, Minister" takes over from serious government, but it took over long before the report was produced. The fact is that optimality is as much a myth as fiscal neutrality.

We come now to the ghastly fact that this tax will be enforced by Her Majesty's Customs and Excise, notwithstanding its complexity and irrationality, and notwithstanding the fact that it will not achieve any serious environmental effect because there is no rebate scheme, which would have been necessary for it to have such an effect. There is already a serious problem about the arbitrary powers that have been allocated to Her Majesty's Customs and Excise. We spoke about that at

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tedious length during the previous Finance Bill. The Conservative party has put forward a 10-point plan, which is just the beginning--the tip of the iceberg--of an attempt to constrain those arbitrary powers. Yet clause 16 provides a huge extension of the arbitrary powers of Her Majesty's Customs and Excise.

I shall give just one example, which, again, we will not be allowed to debate. If someone appeals to the commissioners--and the system is designed so that one can appeal without having to go to court and needing lawyers--and they do not give an answer after a certain period, what does this magnificent Bill provide? One might think that the appeal would be won by the appellant if the commissioners did not reply. Not at all. Under the Bill, if the commissioners do not answer, the appeal is refused.


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