Finance Bill

My Lords, it is like Gilbert and Sullivan when the Minister introduces a debate on the Finance Bill, which runs to 309 pages, as a simplification of the tax system. Included in those 309 pages, is Schedule 26 on ““Meaning of ‘recognised stock exchange’””. I have do not have a clue what it means, but the noble Lord, Lord Barnett, will. On my reading of that section of the Bill, it appears to give HM Revenue and Customs the power to decide what is a recognised stock exchange, so the bad news for the noble Lord is that his AIM shares may very well no longer qualify under the powers contained in the Bill. He was clearly not aware of that; I became aware of it only because I happened to be looking at the index when he made the point about recognised stock exchanges. The idea that former Chancellor, now the Prime Minister, is some kind of high priest of simplification is a joke beyond measure. This Prime Minister, as Chancellor, doubled the size of the tax code, added hugely to the complexity of the tax system and, as the noble Lord, Lord Vallance, indicated, has taken us from having a comparative tax advantage into lagging behind our competitors who learnt the lessons that Britain taught the rest of the world under the leadership of the noble Baroness, Lady Thatcher, and Sir John Major. At one time, we were well ahead of other countries in Europe and the OECD, but as they have cut their rates of tax and simplified their systems, they have made their economies more competitive than ours, as my noble friend Lord Wakeham stated in the introduction to his committee’s excellent report. I am bit disappointed that this debate is not better attended and that there are not more contributions to it because the work done by my noble friend Lord Wakeham and his colleagues is of fundamental importance. Parliament is about voting means of supply. As the noble Lord, Lord Barnett, said, the involvement of Parliament in the control of those means of supply becomes less and less. I think it was the chairman of the Chartered Institute of Taxation, John Whiting, who worked out that every line of the average Finance Bill is considered for 10 seconds, taking into account moving, consideration, debate and voting, and, as the noble Lord indicated, what tends to happen in the other place is that focus is put on the politically contentious issues of the day, rather than the detail, which is not considered. As my noble friend Lord Wakeham pointed out, and as we saw, for example, on inheritance tax and the changes in the treatment of trusts, all kinds of difficulties that could be avoided are not avoided because there is no time for consultation or proper scrutiny. I do not share the pessimism of the noble Lord, Lord Barnett, about the ability to remove complexity and bring simplicity to the tax system. I do not understand why it should be that because he owns shares in an AIM-listed company, he is able to pass them on free of inheritance tax, whereas if he owned shares listed on the London Stock Exchange, that would not apply. It is deeply unfair because poorer people who do not have savings or shares, whose only asset is their home, have to pay inheritance tax at 40 per cent. That introduces complexity into the system because different classes of assets are or are not subject to capital gains depending on whether they are traded on a certain exchange, and if an AIM company changes to being quoted on the main exchange, there has to be a valuation so there is further complexity in the system. The answer to this is not to invent more rules but to deal with the fundamental problem, which is the burden of tax. The system has become increasingly complex because the previous Chancellor tried—and no doubt his successor will do so—to find ways of taking more in tax; clever accountants tried to find better ways of getting around that; and the Chancellor responded by bringing in more measures to deal with the loopholes created by the complexities that he introduced. And so we go on in a continuous cycle. As the Economic Affairs Committee pointed out in its excellent report, this Finance Bill set out with a brief to improve competitiveness and to simplify. The proposal to reduce corporation tax by 2 per cent is welcome but, as has already been pointed out, the problem with simplification is that one man’s simplification is another man’s loss of privilege. Let us accept that there is no politically way to simplify the tax system on a revenue-neutral basis. If you are going to simplify the tax system, you need to reduce the overall burden so that you can compensate the losers and bring in a more effective system as a result. Why do we have a Finance Bill every year? It is because Parliament is required to renew income tax on an annual basis. In the spirit of co-operation that was evidenced a few moments ago by someone on the Government Benches who looked like a former leader of the CBI, in which apparently we all now believe the same things, I offer the new Chancellor of the Exchequer this idea: that we get rid of the notion that income tax has to be renewed annually. We would not then need an annual Finance Bill and the Finance Minister would not be tempted to tinker with the tax system every year. That might help to bring about a degree of stability. When the Prime Minister was Chancellor, the Finance Bill proved a tinkerer’s charter. He messed about with every aspect of our taxation system. The noble Lord, Lord Barnett, mentioned the current row about private equity. It is a scandal that people who are paid the minimum wage and move from part-time to full-time work now pay an effective marginal rate of tax of 90 per cent, and 95 per cent if they are married. Someone who has perhaps made £100 million by buying a company one year and selling it two years later will pay an effective marginal rate of 10 per cent. That is a scandal; it is indefensible. How can you defend a tax system like that? Who is the author of this change? It is the former Chancellor of the Exchequer, now the Prime Minister, who introduced the 10 per cent taper relief on capital gains. He introduced the tax credit system which has created the effective high marginal rates of tax. These two initiatives undertaken by the Prime Minister have created this anomaly. How much more sensible it would be to have a capital tax system, perhaps a short-term tax capital gains tax that tapered to zero, that applied to all capital gains; that does not distinguish between AIM shares, shares held by private equity companies, venture capital trusts or anything else on which anyone who makes a capital gain gets taxed. That kind of simplification would not only make it easier for people to understand our tax system but it would also remove the anomalies and unfairness which are created. I have been critical of the noble Lord, Lord Barnett. I am a great admirer of his. Many people in Scotland would like to raise a statue to him in honour of the Barnett formula. He is a typically modest politician, and the only one I know who spends his life trying to get abolished something that was named after him. He shows clarity of thought. His comments on non-domiciled taxpayers are an example of anomalies in the system which creates complexity. I ask noble Lords, how can it be right that a young couple buying their first home in London, or in any other part of the country, have to pay stamp duty at 1 per cent while someone living in London as a non-domiciled taxpayer can buy a house for £20 million and pay no stamp duty at all? What kind of nonsense is that? Again, the Government have said that they will review the system for non-domiciled taxpayers, but nothing has happened to bring about equity in the tax system. There is too much tax law and too little scrutiny. The work done by the Select Committee on Economic Affairs is excellent, but why can we not build on it? As the noble Lord, Lord Barnett, said, there is expertise here. I think that he did himself a great disservice. I was not in Parliament until 1983, but I have heard the tales that the Finance Committee used to sit until four o’clock in the morning with people of real substance arguing points of detail with knowledge and authority. That no longer takes place in the other place, much to the relief, no doubt, of the Members of Parliament. Perhaps there is a case for building on the excellent work done by the Economic Affairs Committee and creating a Joint Committee of both Houses to look at Finance Bills. I return to my idea of getting rid of the annual need to renew income tax. If that were done, a timetable requiring that means of supply must be concluded by the summer after the Budget would disappear. We could have a more leisurely pace for considering tax matters. Indeed, you could have a rule that the Chancellor was required to publish in the Pre-Budget Report in November. He would be required to pre-announce before the Budget any major tax changes in law, so that there could be proper consultation, unless of course there were revenue implications or a matter of particular urgency. A Joint Committee could take evidence and build on the kind of good work which has been done by the Economic Affairs Committee operating in a compressed timetable. I offer that idea to the Prime Minister because there is something very odd, is there not, about a former Chancellor who on becoming Prime Minister immediately says, ““I believe in more open, accountable, consultative government. Therefore, I am going to pre-announce the Queen’s Speech so that people can think about it””? Why did he not do that for the Finance Bill when he was Chancellor? If that treatment is good enough for the rest of the legislative programme now that he is Prime Minister, why is it not good enough for the Finance Bill? I know the answer. It is that it takes power away from the Treasury. It prevents the Treasury springing daft ideas on us, which we would have to spend time unscrambling in subsequent Bills. But it is an idea that would go a long way towards meeting the Government’s declared objective of having a fairer and simpler tax system. I have spoken for longer than I expected. I make one other suggestion to the Government. We get Bills with vast numbers of clauses written in incomprehensible language referring to previous Bills, written in equally incomprehensible language. Would it not be possible to have an economic impact assessment of a new proposal? The Government declare that their proposals will improve competitiveness without a shred of work being done to show that that is the case, and without any attempt to give an indication of the cost and impact that it will have on business as a whole. The noble Lord, Lord Vallance, rightly pointed to the importance of economic competitiveness and what had happened to our ability to attract companies from elsewhere. I never thought I would say it, but Ireland has become a beacon of what is achievable in increasing revenues, cutting taxes and simplifying the tax system. We can have fairer, flatter, simpler, lower taxes, prosperity and growth at the same time. That is the challenge. It is a challenge on which this Government have failed, and which I hope the next Government under David Cameron’s leadership will take up with gusto.