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Finance (No. 2) Bill

I shall deal quickly with the points made by hon. Members. May I tell the hon. Member for Rayleigh (Mr. Francois) that the Government are confident that the European Commission will introduce a proposal in response to our request for a reverse charge? Discussion is under way—hence the amendments—but the proposal will be submitted to ECOFIN for a unanimous decision by the 25 member states. The Commission will not submit it before it is satisfied that there is a sensible working arrangement. That links to the point made by the hon. Member for South-West Hertfordshire (Mr. Gauke). We are confident that we will secure agreement, because this is a matter not just for the UK but for all European member states—indeed, Germany has been mentioned, and its preferred option is a general reverse charge. However, that would cause reporting problems for small businesses and people who are not involved in illegitimate activity, and would completely change the structure and orientation of VAT. The Commission is aware that the problem is urgent and that we need to find a solution. The UK and other member states understand why the Germans want a complete reverse charge, but have made it clear that that is not desirable. We are doing all that we can to ensure a speedy solution, but we must reach the right agreement with the Commission and, after discussions, we must be able to deliver it. May I remind the House of the nature of the powers that are being sought? The provision allows only amendments necessary for the implementation of the reverse charge, and it cannot be used to increase anything else, including the amount of tax payable. As I have said, it is subject to affirmative resolution. It is not an open-ended power—it is necessary purely for the implementation of the reverse charge—so it will lapse three years after Budget 2006. The Conservative Government introduced a similar power in 1993, but it lacked a sunset clause. I believe, however, that a time limit is necessary to ensure that we tackle the issue properly. I have dealt with the hon. Member for Rayleigh’s points about the extent of MTIC fraud. The latest estimates for 2004-05 cover a range of figures, and £1.9 billion is at the top end. However, that represents a 30 per cent. reduction in MTIC fraud since 2001-02 as a result of the Government’s strategy. We have to wait for the pre-Budget report, even in subsequent years, because we require data from European Union member states on the nature of such fraud, which take five or six months to be processed, hence the PBR is an appropriate point for an update.