Finance Bill

My Lords, all I can say after that is that I hope that the whole Cabinet reads every word of what my noble friend has just said. Indeed, they should read some of the other speeches that we have heard and, I suspect, some of those that will come after mine. My main purpose today is to say a few words on the macroeconomic situation. Before I do so, however, I want to say something about the Finance Bill and the Select Committee’s report. It is a good report. It emphasises the need for proper preparation for tax changes and the role of full consultation before they are introduced. It concludes that, if those changes cannot be got right before they are introduced, either they should not be introduced or the introduction should be postponed. That is well illustrated by the farce of the non-dom tax, which has ended up quite unnecessarily scaring off many of those who have formed a crucial component of the growth of the City of London as the world’s leading financial centre. By many measures, that is what the City is: it is ahead of New York, Hong Kong and Tokyo—that is probably the order of financial centres today. But what a condemnation when the noble Lord, Lord Vallance, said that this tax is essentially unworkable. That must be taken back to the Treasury, to HMRC and most of all to Downing Street. Consultation as a means of avoiding mistakes is nothing new. I remember that when I was lobby correspondent for the Economist I had to follow Mr Denis Healey’s attempts in the middle 1970s to introduce an annual wealth tax. That was prevented by a timely report of a House of Commons Select Committee, which pointed out the catastrophic consequences. The French still suffer from a wealth tax and, although Mr Sarkozy has expressed a great desire to get rid of it, it is almost certain that he will fail to do so. As others have said, the fact that this two-volume Bill is 452 pages long is a demonstration of the incompetence of this Government. Could there be a simpler and more obvious example? Actually, I have one. When Mr Brown abolished his own 10 per cent tax rate there was, as we all know, a great row in the House of Commons and he had to try to cancel the effects. On 13 May, Mr Darling announced the changes. At a cost of £2.7 billion he raised the individual personal tax allowance by £600. He said: "““However, as the £600 increased personal allowance applies not just to basic rate taxpayers but also to those paying tax at a higher rate, I am reducing the threshold at which an individual starts to pay tax at the higher rate by £600. The net effect of these changes is that the tax liability of everyone who currently pays tax at 40 per cent will be unaffected by the increase in the personal allowance””.—[Official Report, Commons, 13/5/08; col. 1202.]" I detect that your Lordships have already spotted the nonsense. It contains an elementary arithmetical howler. To raise the personal allowance threshold by £600 on its own would save higher taxpayers £240; that is, 40 per cent of £600. Four times six equals 24—pretty simple stuff. But to lower the 40 per cent threshold by £600 would cost the higher taxpayers only £120, because they would have been paying 20 per cent anyway. He should have lowered the threshold by £1,200 to recoup the full £240. As Sherlock Holmes once said, the calculation is a simple one. When the Treasury was asked why he had made this mistake, the press were told that they had misunderstood what the Chancellor had said. It is a small point, but it illustrates where we have got to. It is not surprising that the Select Committee concluded: "““Our overall impression from the evidence we received was that … the tax system is no longer sustainable or predictable””." An accountant friend of mine sent me the current issue of a magazine called Taxation containing an article by Mr Mark Lee, the founder of the Tax Advice Network, who I gather is a highly respected tax practitioner. He writes: "““When permitted to do so, HMRC are far better at effective consultations these days than in the past. Sadly, however, it often seems that they (and therefore we) are just going through the motions, especially when deadlines are too short, changes are introduced within days or multiple issues overlap. This is so ""frustrating, but within the professional bodies we keep trying, even though it often feels like we are bashing our heads against a brick wall””." What a sad comment. On one thing I would congratulate the Government: keeping for 20 years the 40 per cent top tax rate introduced by my noble friend Lord Lawson in his 1988 Budget. I remind noble Lords that, when my noble friend Lady Thatcher took office in 1979, she inherited from the noble Lord, Lord Healey, a top tax rate of 98 per cent, which in today’s money—I am grateful to the Minister, who recently gave me a Written Answer with the correct figure—would apply at a taxable income threshold of £98,000. In other words, if we still had the noble Lord, Lord Healey, at the Treasury, and had he not changed his policy, anyone on £98,000 a year could be paying a marginal rate of 98 per cent.