Finance Bill

No, my Lords, I do not think so, because a lot of this work, with all due respect to your Lordships, is immensely technical and there needs to be a body of tax practitioners who can grapple with the detail. It would not be the best use of your Lordships’ time to try to examine that detail. Frankly, I do not think that your Lordships have the up-to-date or relevant technical expertise that such a committee would need. However, I was about to say that I agree with the noble Lord, Lord Higgins, about the need for a tax management Bill that Members of this House and another place could look at. Until now I have talked about second-order tax changes on which the Government have made a mess, but the real howler has been the abolition of the 10 pence tax rate. This change was introduced to assuage middle-class concerns about the rising general level of taxation. When it came in, it was opposed only by Frank Field and my colleagues in another place. With all due respect to the Conservatives, the righteous indignation that we have heard from them on this measure in recent months was not heard at the time. This measure, and the way that the Government have had to retreat on it, has already cost £2.7 billion. One million people are still losing out and the Government will probably have to make further concessions later in the year. It is a real horror story. In a normal year, I am sure that these issues would have dominated our debate, but this is not a normal year. As a number of noble Lords have said, we are facing a perfect economic storm with the near collapse of the banking sector and the unprecedentedly swift collapse of the housing market and housebuilding, combined with soaring oil and food prices. Obviously, those are not all the Government’s fault but, unfortunately for the Government, largely because they took credit for benign economic circumstances, which were not their doing either, they can hardly be surprised if they now find themselves taking the blame for some of these broader global issues. However, in my view, in a number of respects their response has been too slow in view of the size of the problem. I shall quickly refer to just three examples. First, as we have pointed out before, we were promised a banking Bill before the summer in order to reassure depositors that their deposits were safe. At a time when there are clearly ongoing problems in the banking sector, not least with foreign banks that have a lot of UK depositors, it seems to me completely inadequate that it is likely to be well into next year before we have a revised depositor protection scheme on the statute book. That should have been done with a greater sense of urgency. Secondly, the collapse of the housing market should, in our view, have led to a stronger response from the Government. They should have allowed registered social landlords to borrow against their assets to buy up complete but unsold or half-complete buildings so that the construction sector did not come to an almost total stop. Finally—this touches on what the noble Lord, Lord Ryder, said—we have been arguing for some time that the definition of inflation used by the Bank of England should take into account house values. The problem is that, in times of house price rises, the signals given to the Bank of England lead to too loose a position and, in times of house price falls, they lead to one that is arguably too tight. Incidentally, I completely agree with the noble Lord, Lord Ryder, about bringing the statistics produced by the Bank of England under the Statistics Board. When he asked Ministers about that omission, answer came there none. However, the major consequence for the Government of the economic circumstances in which we now find ourselves is the fact that, as a number of noble Lords have said, the reduction in revenue and the increase in expenditure caused by rising unemployment will drive a coach and horses through the public finances. That raises two questions. First, what will happen regarding the fiscal rules? Secondly—this reflects what the noble Lord, Lord Peston, said—never mind the rules, what will be done about the substance of tax and expenditure? The Government’s argument for dispensing with the rules—namely, that a new economic cycle began in March—is pathetic. They should accept, as we all do, that the rules of the game have changed to a considerable extent in that, arguably, we are facing the biggest economic downturn that we have seen since the 1930s. In those circumstances, to paraphrase Keynes, circumstances have changed and the rules should change, too. The Government should just admit that. However, if they are to change the rules, it is important that they put in place some structure that enables any new rules to have more credibility than the current ones. We have argued for some time for the establishment of a fiscal policy committee, not to set fiscal policy but to review how the Government are performing against their own rules and to make recommendations accordingly. I hope that the Minister will take that proposal back to his Treasury colleagues. I turn to the rules themselves and what we might do. So far as concerns the golden rule, we believe that we should be working on the assumption of a small surplus over the cycle and that medium-term fiscal planning should include a commitment to an annual surplus of, say, £5 billion over the cycle. The public debt rule will undoubtedly be breached. We are looking forward very much to hearing the Government’s response. Yesterday at Question Time, we rehearsed the options, to which the noble Lord, Lord Peston, referred—that is, public expenditure, cuts or tax rises. I absolutely agree with him that there will have to be some movement in those areas. I do not think that we can just throw the rules out and do nothing. Much as I would like to be able to give my standard half-hour speech on Liberal Democrat tax policy, I shall just say that, when we talk of cutting public expenditure, we plan to do it not via efficiency savings but via specific identified programmes, of which ID cards are an obvious example. The Government have sailed into this perfect economic storm by promoting the captain to admiral, with the admiral unable to take his hands off the wheel, and, having lost their way, they are now planning to tear up the charts. We have little confidence that they have the faintest clue as to how to steer us into a safer economic haven.