Finance Bill

My Lords, I start with an apology to the noble Lord, Lord Vallance. I shall not be speaking about the Finance Bill—at least, I have one comment on it and that is it. I did not understand the Finance Bill when I was the first chairman of the Finance Sub-Committee and I have made no progress since then. There was, however, one thing that I did understand about it in my day which comes up again today: the scale of the tax avoidance industry. I remind noble Lords that it was my right honourable friend the present Prime Minister who devoted his time as Chancellor to trying to do something about tax avoidance, but I am afraid that it was rather like the many-headed hydra: the more you cut off one scheme, two more sprang up. We got our Finance Sub-Committee because of the efforts of Lord Williams of Mostyn, our late lamented friend. As I listened to some of the stuff—I was going to use a even worse word—coming from the opposition Benches, I asked myself, ““Didn’t they have 18 years in power? What did they ever do of that sort?”” What did they do about tax avoidance? There were too many of their friends in the business, to be perfectly honest. I shall not make too many political points, but I think that they ought to recall that they were in power for quite a long period. When they make a fuss about the economy, we should ask: was it not their Government who raised the unemployment level to 3 million? Now they have the nerve to criticise the present Government because it is the fashionable thing to do. They ought to reflect on their record, to which I shall come on a rather more significant scale. I hope that the noble Baroness, Lady Noakes, when she speaks for the Opposition, will respond appropriately. My contribution to today’s debate will be confined to economics and macroeconomic policy. This is not to deny the significance of political aspects of policy. After all, those who enter political life do so because they believe that politics are important and I do not criticise them for making political points. Equally, I became an economist because I was convinced of the relevance of economics in elucidating and solving economic problems, not least those to do with economic policy. I still believe that; I still believe that our economic problems are solvable; and I shall go even further by boasting that I think that I know what we ought to do. My remarks will be dismal to the point of harshness. I expect to make few friends, if any, in your Lordships’ House. Certainly, I expect to make no friends on the Front Benches either on this side or opposite. I do not believe that the political leadership of any of the main parties will welcome what I have to say. I am coming near to the end of my time anyway, so I am not at all sure that I really care. There is no doubt that the rise in food prices is externally generated. There was a small movement in the period from 2001 to 2007 and then a surge in real food prices, but real food prices now are still well below those of the 1980s and have only recently passed those of the 1990s. The cause simply is that demand has risen and supply, as is normal in this area, has responded slowly. Therefore, the real price of food goes up. No one predicted—I certainly did not—the effect of biofuels, which was supposed to be so good, on food prices. Supply has responded slowly but, in the end, it always adjusts in the case of food. In my judgment it will adjust but we have to bear the consequences of what has happened until the adjustment takes place. In my view, in an obese society, it does no harm that we have to bear some of the consequences. Equally—and no one doubts it—the energy price rise is also externally generated, and is due to the monopoly power of the OPEC cartel and to additional speculation. Both those price rises are relative but, with other prices slow to fall, which is normal in our economy, the price level rises. On any understanding of the economics of this, the rise in the price level is not the same as inflation. Some noble Lords may never have had an economics lesson, but that is absolutely the case: it is not the same as inflation, in any technical economic sense. It becomes inflation only if firms and households respond by trying to raise other prices and wages and if the Treasury and the MPC facilitate their ability to do so. The Treasury has the main task of seeing that that does not happen. I have not read today’s papers but if what noble Lords have said is in them, the Treasury seems to be doing the opposite of what I am saying—but that is my bad luck. First, the Treasury must under no circumstances subsidise food or energy. It dawned on at least one commentator in the Financial Times a couple of weeks ago that that is the right thing, although not on most other commentators. On energy in particular, economic theory tells us that when confronted by a monopoly we must first all take the hit; when the real price of energy has gone up, our real standard has to go down. That was a lesson that we did not learn in the previous Labour Government, which is why we ended up with the IMF crisis; we thought that we did not have to take the real hit, but we did—and by ““we”” I mean all of us have to take it. The sooner that we take that real hit, the better, and the quicker we can get the economy right. Therefore, noble Lords will not be surprised to know—and the noble Lord, Lord Marlesford, is aware of my view—I would have increased the excise duties drastically rather than postpone their increase. But that is just me. The point is that it lowers the demand for oil, hits the profits of the oil cartel, which is the only thing it understands, and causes speculators in oil to start to worry whether their speculation is not suddenly going to reverse itself. They will panic and their speculation will shift the other way. We need to take a ruthless approach to this, but we cannot get away from the fact that we will have a real hit, at least in the immediate future. I go further—and the point was made following the Question put by the noble Lord, Lord Higgins, yesterday, which I purposely did not join in on, as I told him, because I wanted to say save my remarks for today. My noble friends Lord Barnett and Lord Sheldon also said that fiscal policy must be tightened, not loosened. That seems perfectly obvious. I know that my right honourable friend the Chancellor, out of the goodness of his heart, has been rather too kind to his honourable friends in the other place on these matters. The understanding of my honourable friends in the other place on fiscal issues is minimal at best, and for the most part non-existent. I certainly thought that getting rid of the 10 per cent tax band was a sensible idea. I am also aware that it is immensely difficult to make any change in public policy without hurting some people. I can cite a classic example of this. I thought that the noble Lord, Lord Forsyth, said that he did not agree with getting rid of the 10 per cent tax band but that he did agree with compensating—but I hope that he did not say that.