Finance Bill

My Lords, I thank the Minister for introducing the Finance Bill and I congratulate my noble friend Lord Wakeham on yet another significant report on the Bill from his economic affairs sub-committee. At 309 pages, this year’s Finance Bill is long but relatively modest compared with those of recent years. Nevertheless, it helps the UK to retain its title of the longest tax code in the world, having overtaken India a couple of months ago. My noble friend Lord Northbrook referred to this. Our tax code is not only long but it is so complex that the World Bank has said that it now threatens our international competitiveness. The committee chaired by my noble friend Lord Wakeham specifically looked at the extent to which this Finance Bill created any move towards simplification and concluded, rightly, that it did not do so. What little simplification there was in the Bill was outweighed by yet more complexity. I simply do not recognise the Minister’s description in his opening remarks of the Bill as ““a simplifying package.”” The Treasury’s usual mantra is that complexity is necessary in order to combat tax avoidance and thereby achieve fairness. The Treasury does not grasp that simplification requires a radically new approach to tax legislation, which does not rely on micromanagement by way of reliefs and allowances, in turn buttressed by reams of anti-avoidance legislation. I share the approach of my noble friend Lord Forsyth to simplification: it can be achieved if there is the will. The Treasury’s approach to simplification is much the same as its approach to lower rates of tax. I am pleased that my noble friend Lord Forsyth spoke today about the example of Ireland. His tax commission report last year was a valuable analysis of the benefits of both lower rates of tax and simplification. The Treasury really does not believe in either of those things. As has been pointed out, the Budget this year had some lower rates of tax, both corporate and personal, but it was not a Budget that reduced taxes. At best it merely redistributed them, but there were some significant categories of loser. Most of the media spotted that it was, to use the phrase coined by my honourable friend George Osborne, a ““tax con budget.”” This Finance Bill is the only opportunity your Lordships’ House has to debate the Budget from which it derives, since we do not customarily ask for the Chancellor’s Budget Statement to be repeated in your Lordships’ House. We may well wish to revisit this in future because it is not satisfactory that your Lordships’ House has no timely opportunity to debate the economic and fiscal judgments in the Budget. The Budget was the last to be delivered before the Chancellor finally succeeded in his takeover bid for Number 10. It is right that we pause to examine his 10 years of economic stewardship. The noble Lord, Lord Barnett, loves to predict what I am going to say in my speeches; I am not going to disappoint him. But let me disappoint him in another regard: I am not going to talk about either tax credits or the Barnett formula. The good thing about the Chancellor’s stewardship is that he has continued the period of unbroken growth which we started in 1992. I say to the noble Lord, Lord Sheldon, that it started in 1992 and not in 1997. But the UK’s growth rate is now among the worst in the EU and there are other downsides. In 1997, RPI inflation was 3.1 per cent. This morning’s news had it at 4.4 per cent. Since 1997, the trade deficit in manufactured goods has increased more than eightfold to £59 billion and industrial production has stagnated. In 1997, the savings ratio was around 10 per cent. In the first quarter of this year, it had collapsed to 2.1 per cent. If one strips out the effect of employer pension contributions, the savings ratio is currently negative. In 1997, the Government inherited one of the best occupational pension schemes in the world. It is now one of the worst. That is not my judgment, but that of Mr Frank Field. The ACT raid was a big part of that. Unemployment overall may not be that bad, but the number of young people not in employment, education or training—the so-called NEET—has risen by 27 per cent in 10 years, which is not satisfactory. The past 10 years have been characterised by a combination of rising taxes and borrowing. Taxes as a percentage of GDP are now at levels not seen since the early 1980s. Borrowing is perilously close to the Chancellor’s 40 per cent rule. We and the British public might not have minded all the extra tax and borrowing if our money had been spent wisely, but public expenditure has been accompanied by no public service reform and no amount of statistical ingenuity can mask the fact that for the past eight years public sector efficiency has been negative. The Budget also announced corporation tax and income tax changes that will be included in next year’s Finance Bill. The Prime Minister has left his successor in the Treasury with very little room for manoeuvre on the tax front in the next couple of years, a point to which the noble Lord, Lord Barnett, has already referred. In turn, this will no doubt give the new Chancellor a problem on spending when he announces his Comprehensive Spending Review. So I join the noble Lord, Lord Newby, in asking the Minister to confirm that 17 October will be the date for the announcement of the CSR. I also ask the Minister to say whether that CSR statement will be combined with the Pre-Budget Report, as has been suggested in some parts of the media. The noble Lord, Lord Newby, has already referred to the swingeing increase in business taxes from the removal of empty property relief from business rates, which will cost the business sector another £1 billion or so each year. We have already debated that Bill, which I regret to say recently completed its passage through your Lordships' House without amendment. Like the Finance Bill, it was a money Bill and, hence, unamendable in your Lordships' House. I rather hope that the constitutional settlement referred to by the noble Lord, Lord Newby, will be revised, because this House has a lot to offer on tax legislation, as the committee chaired by my noble friend Lord Wakeham amply demonstrates each year. The corporation tax changes were presented as largely neutral, but, of course, life is not that simple and there certainly will be winners and losers. This timid reduction in the headline rate to 28 per cent hardly affects our position in the international tax league tables, to which the noble Lord, Lord Vallance, referred. The report from my noble friend Lord Wakeham showed that our tax competitiveness remains a very serious concern. As has been said, small companies are hit even harder with their headline rate rising to 22 per cent. This, too, is presented as revenue neutral due to new investment allowances, but not all small companies will invest enough to trigger the allowances; and who can blame them with interest rates now rising to the highest level for eight years? I can remember when the previous Paymaster General explicitly encouraged small businesses to incorporate. She actively sold the lower tax regime that applied to small companies. But the past few years have seen a progressive reversal of the advantages because the Government decided that when small businesses took advantage of them, as they were encouraged to do, it amounted to tax avoidance. The Government have a new seek-and-exterminate weapon in the managed service company provisions in this year’s Finance Bill. We are concerned that the new provisions will affect more companies than might reasonably be targeted and that there will be unintended consequences for the labour market. More importantly, my noble friend Lord Wakeham’s committee has highlighted that this is yet another piecemeal alteration to a system that has structural faults. I hope that the Minister will respond clearly to the recommendation made in the report that the issues of tax between the employed, the self-employed and those operating through a company need an overhaul. In his introductory remarks he referred to the recommendation but did not give a clear, unambiguous response to it. The Finance Bill includes a significant increase in HMRC’s powers, which we predicted when the Commissioners for Revenue and Customs Bill was debated in your Lordships' House. We completely support HMRC having the necessary powers to combat tax avoidance, but we fear that, armed with its new police-type powers, the culture of HMRC could change towards the vast majority of taxpayers who are compliant. One of the worst bits of the new powers—using the term ““HMRC think””—was modified in the other place, but we remain concerned about how this and the other powers will be used. I join my noble friend Lord Northbrook in supporting the recommendation of my noble friend Lord Wakeham’s committee that public reporting and parliamentary monitoring should focus on the use of these powers. Clause 98 contains a modest provision aimed at combating missing intra-Community trader fraud. Last year’s Finance Act contained the more substantial reverse-charge provisions, but these were not implemented until last month because we had to wait to get permission from the EU, which resulted in a considerable watering-down of our proposals. Noble Lords might find it extraordinary that we had to go cap in hand to Brussels in order to fight VAT fraudsters. They will doubtless find it even more extraordinary that we have had to concede another £7.2 billion of our rebate in the process. Will the Minister update the House on the net impact on the UK economy of the diminished reverse charge provisions less the cost of the rebate given away? Is there now any net benefit to the United Kingdom? There is much more in this Bill which is unattractive. There is a continuing attack on private pensions in the provisions on alternatively secured pensions and pension term assurance. The sideways loss relief provisions in Schedule 4 and the capital loss provisions of Clause 26 are so widely drawn that they require heavy intervention by HMRC to make the provisions half-way decent. The so-called environmental provisions are primarily a vehicle for raising taxes via air passenger duty. The Minister was loyal in his introduction of the Bill, but I do not believe that he can take pride in it. We have no option but to let the Bill pass, but we take no pride in so doing.