Finance Bill

My Lords, I shall think about that again later. We said in the committee—I agreed with it, as I eventually went along with everything that the committee agreed on—that it ““should be”” possible to simplify the tax system. I agree that it should be possible but I am somewhat pessimistic that any Government ever will provide a simple tax system, for a variety of reasons, as we well know. For example, we have referred to the question of capital allowances; the Government have made changes which they and I hope will help, but I am a bit doubtful. Equally, there are all kinds of other allowances that could be abolished, increased, reduced or whatever. They include, for example, allowances for families with children, allowances for being married—we are to get a new variable allowance for marriage, I gather, if ever the noble Lord, Lord Forsyth of Drumlean, runs the Treasury—no, he is shaking his head; I am glad to see that. We will also have lower rates, higher rates, we will encourage savings, we want to help pensioners, we want to help investment, we want fairness and we want to punish with so-called green taxes; all those things, I am afraid, will ensure that we never really get a simplified tax system. I see that our chairman, the noble Lord, Lord Wakeham, is, quite rightly, smiling; frankly, it would be almost impossible, as any of us who have been there know, to get a truly simple tax system to help, encourage or punish everyone. I want to say a few words about the Finance Bill and the current headlines about billionaires paying less tax. I hasten to add that I am not a billionaire, so I have no interest to declare in that sense. I have spent most of my life as an accountant and in my personal affairs I have, perfectly legitimately, tried to pay less tax. I am not surprised that billionaires and their advisers have been successful in avoiding tax. I refer again to private equity firms. One of the few journalists whom I admire in this area is Anatole Kaletsky, who is usually very sensible and very reliable and, invariably, I agree with him. On tax and private equity he said that, "““on closer inspection, … criticisms of private equity companies as taxpayers applied to all private companies””." I declare an interest, not in a private equity firm, but as a chairman and a major investor in a small AIM-listed company. If I ever sold the shares I would pay a very low level of capital gains tax—10 per cent. If I keep the shares and pass on to a better world, no one will pay any inheritance tax. My noble friend Lord Davies said that he wants to see people invest in companies for the right reasons. The Government have rightly encouraged people to invest in AIM-listed companies for the reasons that I have indicated: one pays substantially less tax. I hope I am not encouraging the Government to change that situation, at least not for a while, because it is doing a lot of good. Small AIM-listed companies, in the main, do a great job investing in new plant and in new companies—mine is a recycling company—and that is very sensible. I admire them for doing so. I am sure that the noble Lord, Lord Jones of Birmingham, whom I am delighted to welcome to the Front Bench, will agree with me. He is nodding in agreement, so I hope the Government, of which he is an important part, will nod with him. However, something can be done in the area of non-domiciled rules. I was interested to read something that the new Financial Secretary said on that subject at Question Time last Thursday in the other place. She said: "““Resident non-domiciled people remain a relatively small group who are liable to pay UK tax on their earnings””.—[Official Report, Commons, 12/7/07; col. 1605.]" They paid some £3 billion, but she did not say over how long a period. I am astonished that they paid £3 billion; one wonders how much they are not paying. I am concerned about the definition of ““non-domiciled””. We were also told by the Financial Secretary that the Government are mindful that any change to the current system would need to balance carefully the principle of ensuring fairness. She said that domicile rules are subject to an ongoing review. That started in 2002 so the ongoing review has lasted five years to date. I hope that my noble friend, or someone, will be able to tell me today, or in writing, what ““ongoing”” means. I am looking for a review on another matter, to which I shall briefly refer. I know ““non-domiciled for tax purposes”” is a complex area, but perhaps the Minister can give me a definition of ““non-domiciled for tax purposes”” and say why it has taken five years for an ongoing review to do nothing about it. I will leave that to one side, but another aspect of Finance Bills and criticism is the tax credits system. I shall leave the unfair criticism of it to the noble Baroness, Lady Noakes, who I am sure will help the Government with some constructive criticism of the errors in the tax credits system. However, most of them are errors, not fraud. I note that this happens because the system works over 12 months. We all know that when people’s income changes during the course of a 12-month period, they do not always automatically notify the Revenue, sometimes for perfectly reasonable reasons. That inevitably means that there are many errors in the tax credits system. For my part, I am happy to see the figures that the Government have announced of the amount of help being provided for poorer families by tax credits. I welcome that. I do not know whether the Government saw some words by Sam Brittan in the Financial Times about the US tax credit system. Both he and somebody who wrote in about it recently have indicated that they think that there are better ways. This is from somebody who one normally regards with some respect, Rupert Darwall from the Centre for Policy Studies. He said, "““The incentives in America’s earned income tax credit are superior in every respect and show the way tax credits in Britain should go””." Can my noble friend say whether the Government have looked at the American tax credits system to see whether it is indeed better and can offer us any hope for a better solution? My own view is that a committee like the House of Lords sub-committee would be a better committee to look at tax credits and many other parts of the tax system. Any of us who have been in the other place know that Oppositions pick the sexy bits of a Finance Bill and the rest virtually goes through on the nod. It happened to me when I was in opposition and to noble Lords opposite when they were in opposition. I well recall the first time, in 1975—a few years ago—when the noble Baroness, Lady Thatcher, was leading the Opposition. Again, they picked out tiny bits and the rest went through on the nod. We in this House can do a much better job than the other place. I hope that this Chancellor will recognise that and agree and support our sub-committee in doing much more work to help him, the Treasury and the Revenue to provide a better system than we have now. We can do it, so I hope that we will get that kind of encouragement. On the economy, the new Chancellor had a good economic inheritance. Again, I can rely on the noble Baroness, Lady Noakes, to tell us what a terrible 10 years we have gone through—the points of my noble friend Lord Davies were nonsense, of course: the economy was terrible for the past 10 years. But I leave that to one side. The new Chancellor has little room for manoeuvre. The Comprehensive Spending Review was virtually settled before he even took office. The amount of possible taxation reductions in variable tax systems are difficult to achieve. The Liberal Democrats’ proposed 4p off the rate of income tax would perhaps simplify the tax system, although maybe my noble friend Lord Davies can tell us how on earth the green tax payers are going to pay the balance. One or two changes could help. The Barnett formula could be changed, which would save quite a bit of money. My right honourable friend the new Chancellor is Scottish, so I know that he reads the Scottish papers. Tam Dalyell sends me them all, so I know that the formula is there almost every day. All I am asking for is a review, which would show that there is a case for substantial savings. There is also the problem of borrowing. In my view—and I speak as a Mancunian—the Government were not wrong to think again about a super-casino for Manchester, but if that area is to be helped without a super-casino, it will need a lot more investment in housing in the kind of area we know. So where is that money going to come from? The other point I wish to make to my noble friend is that he should ask the Chancellor to tell the Monetary Policy Committee of the Bank of England that its remit is not just inflation but is, in the famous three words, ““subject to that”” to look at the Government’s economic policy. I am assured by a former member of the MPC that it never looks at that. I ask the Chancellor to emphasise that it should look at it. In the past 10 years, the Bank of England has only once had to report inflation going over the 1 per cent margin, and that was no disaster. I hope the new Chancellor will look at that and also at the borrowing figure of 40 per cent of GDP. The trouble with that rule is that investment in current expenditure is sometimes better than investment in capital expenditure: better long-term and better value for money. The rule needs to be rather more flexible than it is at the moment, and I hope he will consider that. I look forward with great interest to hearing my noble friend’s answers to my specific questions because I know how knowledgeable he is on these matters, but if he does not have the details here and now, I am happy for him to write to me.