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Lord Simon of Glaisdale: My Lords, will the noble Lord explain what is meant by "looking at each case on its merits"?

Lord McIntosh of Haringey: My Lords, there are funds other than the Consolidated Fund; for example,

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the National Insurance Fund, but the general principle must be that, unless it is proven to the contrary, there is no hypothecation of the public finances.

Lord Simon of Glaisdale: My Lords, I myself mentioned national insurance. What about the crucial question announced in the transport White Paper? That is much more tricky.

Lord McIntosh of Haringey: My Lords, I thought that in his speech the noble and learned Lord was referring to congestion charges. If that is what he is referring to now, it is perfectly possible to have hypothecation of local authority charges; indeed, it is the norm. A local authority raises a charge in whatever way it chooses, and it uses it for its own purposes. That does not affect the principle of hypothecation in relation to central government. The case to which he refers does not affect the general issue.

The noble and learned Lord was also concerned about the general anti-avoidance rule. We consulted business on it to see whether it could be introduced without creating uncertainty. We have decided instead to introduce a series of specifically targeted anti-avoidance measures rather than a general rule. But the noble and learned Lord's expertise in this matter is well appreciated, and I am sure that his words will be taken seriously. He spoke also about the need for relief for works of art by inheritance tax and capital allowances. He referred to that as a "fiscal racket", and I believe that he is right. We provide inheritance tax relief for works of art which are of exceptional quality when they are available for public viewing. That seems to me to be a perfectly acceptable alternative to the American system that the noble and learned Lord described.

The noble Viscount, Lord Trenchard, made many detailed points, and I shall try to deal with them. As to the effect of the 20p rate, the marginal rate goes up for about 4 million people with taxable incomes of between £1,500 and £4,500, but they are the ones who also gain most from the 10p rate; namely, between £1.15 and £2.88 a week. As to VED refunds for small cars, I believe that we are doing what the noble Viscount seeks, in that we are changing to a CO 2 basis. It takes a bit longer, but that will apply to new cars from the autumn of next year.

As to the whole issue of the haulage industry, which was referred to also by the noble Lords, Lord Northbrook and Lord Kingsland, we must remember that vehicle excise duty rates have been frozen for six to eight years, and that they have been frozen in this Budget for far more than 90 per cent of lorries. The only large increase is for those few new heavy lorry types with 11.5-tonne axles. That is for a specific reason: those vehicles cause more than a third more damage to the roads. I do not apologise for discriminating against those vehicles in that way when we have to pay so much to put right the damage that they cause. As for fuel duty, we have continued the escalator introduced by the previous government.

I do not have time to go into the detail of payable tax credits, which I always regard as double relief. The fact of the matter is that when they were debated two years

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ago it was quite clear that that relief was being provided for costs which were not incurred. We had to get rid of it. Once we get rid of it, it will not be heard of again.

My noble clansman (if I may so describe him) Lord Mackintosh referred to works buses. It has been pointed out that the qualifying figure was amended to 12, not 17 seats. Reference was made to Clause 3(1) and expenditure on preparations for joining the euro before a referendum. I do not believe that I can add to what I said. It would be ludicrous if, having reached the stage of a referendum and having achieved agreement in government and Parliament, we were not in a position to provide a realistic choice. Most of the expenditure so far has not related to preparations for British entry into the single currency but has been in recognition of the fact that the single currency already exists in the other 11 countries.

I understand why my noble friend Lord Shore has had to leave: he has a hospital appointment. He has apologised to me for that. But it is necessary that I place on record my response. Clause 78 is there because the Commission has taken a view, not on tax harmonisation, but on the quite different issue of state aid. The control of state aid has been an objective not just of the Commission but of this Government and governments of all persuasions since the very beginning. Conservative governments have been most keen to clamp down on state aid in other member states. That is exactly the situation in which we find ourselves. Last year we introduced the enabling legislation to signal our support for investment in Northern Ireland. We knew that we had to clear it with the Commission before it could be brought into effect. There was no point in restricting the scope first. We bid high knowing that we might have to compromise and settle for less at the end of the day; and that is what happened.

Perhaps the noble Lord, Lord Northbrook, will forgive me if I do not deal with the issue of smokers. It is a long-running issue.

I sympathise with all noble Lords who have talked about the need for simplifying tax. I do not think that it can be said that the Budget is outstanding in terms of tax simplification, but neither can it be said to make things worse. We have retained the straightforward three-rate income tax structure for most incomes: the 10, 23 and 40 per cent levels this year, which will be 10, 22 and 40 per cent from April 2000. There has been no change in rates of tax on savings income; and the reason the new low rate does not apply to savings income is that we intend taxation to be an incentive to work.

On the issue of whether it is more difficult for people to do their tax returns themselves, I can say only that anyone who submits his tax return by 30th September will have it calculated, as before, by the Revenue and will not have necessarily to have professional advice.

As regards stamp duty, I thought that we had done rather well in the provisions in the Budget. In principle, we are sympathetic to bringing the stamp duty appeal system into line with the appeal system for other taxes, but we should have to take into account any likely changes to the tax appeal system which the Lord Chancellor has in mind.

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The noble and learned Lord, Lord Brightman, referred again to the capital gains tax problem which he raised in 1996. We have made a major change. We have moved from the complicated inflation-based index system which existed previously to a system based simply on the length of time between acquisition and disposal. It is true that indexation will remain a feature of capital gains computations for some taxpayers for a while, but it will gradually work its way out of the system. In the meantime, we have replaced one very complex calculation with two rather simpler ones. Frozen indexation up to April 1998 requires a single calculation, fixed for all time, rather than the changing calculation; and the second method applies a straightforward taper based on how many years the asset is held.

It is only fair if I write to noble Lords on points that I have not covered. I have spoken for rather longer than I would have wished to burden your Lordships with. I am proud of the Budget. I am proud of the way in which government economic policy over more than two years has resulted in a successful economy. I believe that the absence of criticism of that fundamental point is evidence of the fundamental rightness of our economic policies. I commend the Bill to the House.

On Question, Bill read a second time; Committee negatived.

Then, Standing Order No. 44 having been dispensed with (pursuant to Resolution of 20th July), Bill read a third time and passed.

Food Standards Bill

Brought from the Commons; read a first time, and to be printed.

Films (Modification of the Definition of "British Film") Order 1999

2.12 p.m.

Lord McIntosh of Haringey rose to move, That the draft order laid before the House on 8th July be approved [25th Report from the Joint Committee].

The noble Lord said: My Lords, the purpose of this order is to amend the criteria in Schedule 1 to the Films Act 1985 in order to make them fairer and more user friendly. The criteria are linked to eligibility for tax incentives and public support for production. The proposals in the order have been agreed with the Treasury, the European Union and industry representatives.

The key change is a move to criteria based on production expenditure rather than the playing time of the film. Currently films made almost entirely in the United Kingdom can be disqualified because, for example, a small amount of the playing time consists of music recorded abroad. The film "Little Voice", which is clearly intrinsically British, was recently barred from qualifying because of that. The industry has long objected to the constraints imposed by the playing time criteria.

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Against that background, it is all the more anomalous that the current criteria allow films made largely outside the UK to qualify as British if they were prepared and processed here, thus providing little benefit to our economy. The Government believe that it is necessary to modify aspects of the current criteria that are anomalous, unfair and out of touch with modern film-making methods.

The main new criterion is that 70 per cent of the production costs must be spent on film-making carried out in the UK. That strikes the right balance between allowing much greater flexibility for films such as "Little Voice" and ensuring that films benefiting from tax breaks or public funding are substantially made in the UK. British producers wishing to film abroad have the option of making their films under one of the UK's co-production treaties, which also confer eligibility for tax benefits and production funding.

The new system will still require film makers to spend the majority of their labour costs on European and Commonwealth citizens. We are proposing a figure of 70 per cent rather than the current 75 per cent, which is in line with the production cost figure and allows a little more flexibility.

The proposed redefinition stems from a recommendation by the joint industry-government Film Policy Review Group. We consulted very widely on the recommendation and received overwhelming support for the proposals. Every detail of the redefinition has been checked with industry experts. We have looked carefully at the compliance costs and concluded that they will be the same as under the current definition, so the benefits of greater flexibility and user-friendliness will be genuinely additional. We are also proposing a transitional period of 12 months during which film makers can opt to apply under either the existing or the new criteria.

The redefinition is in line with the key objective of the Government's film policy, which is to help create a commercially viable film industry that contributes fully to the national economy as well as our national culture. The soundings that we have taken suggest that the new film tax incentive introduced by the Government in 1997 has attracted substantial new investment in UK films. It is vital that the qualifying criteria for the tax relief are fair to film makers and effective in generating benefits for the UK economy.

The UK film industry has been going from strength to strength in recent years thanks to our wonderful array of acting and technical talent. We want to make it even more attractive to film in Britain. Our economy will undoubtedly benefit as a result. I commend the order to the House. I beg to move.

Moved, That the draft order laid before the House on 8th July be approved [25th Report from the Joint Committee].--(Lord McIntosh of Haringey.)

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