§ 3.30 p.m.
§ Brought from the Commons, endorsed with the Certificate of the Speaker that the Bill is a Money Bill, and read a first time.
§ Then, Standing Order No.44 having been dispensed with (pursuant to Resolution of 12th May):
§ Lord Brabazon of Tara
My Lords, I beg to move that the Bill be now read a second time.
This Bill will implement most of the tax changes announced by my right honourable friend the Chancellor of the Exchequer in his Budget in March. That Budget was set against the background of a flourishing economy and was designed to enable that to continue. What we are experiencing today is not a sudden spurt of growth but the fruit of eight years' prudent management of the nation's finances—prudence which enabled us last year to reduce public sector borrowing as a proportion of national output to a level achieved on only two other occasions since 1950. This reduction in public sector borrowing was achieved at the same time as a significant reduction in taxation and followed the increase in public expenditure announced in the Autumn Statement—a unique hat-trick.
We are now entering our seventh year of steady growth, inflation is at levels we have not seen for almost 20 years and living standards have reached record heights. Unemployment is now firmly on a downward trend, as today's figures confirm, and the size of its fall over the last 12 months has not been matched since 1973. Industry is more profitable than at any time in the last two decades and the number of industrial disputes is around the lowest level for almost half a century; so it comes as no surprise to learn from the latest CBI Quarterly Survey that business optimism is rising rapidly.
But our performance has improved not only when measured against our past record but also when 727 measured against that of our international competitors. Since 1980, the UK has grown faster than all the other major EC countries. In 1986 we grew faster than the US and Japan too and the IMF is forecasting that this year we shall once again outpace all the other major industrialised countries. The story on productivity growth in manufacturing industry is similar. In fact on that count since 1980 we have grown faster than any other major industrial country, even the Japanese. The improvement in unemployment took a little longer to achieve but over the last year we have experienced the largest percentage fall of any major industrialised country apart from the United States, while we have created more jobs since the last election than the rest of the EC put together.
Our external position is secure too. Our net overseas assets had risen by the end of last year to around £110 billion, equivalent to 28 per cent. of GDP—the highest level since the war and second only to Japan. These assets now earn us over £4 billion a year in interest, profit and dividends and in 1987 our surplus in invisible exports is likely to be the largest in the world. Despite fears expressed in certain quarters of a looming balance of payments crisis, our visible exports are also performing well. Export volumes (excluding oil and erratics) rose by 11 per cent. over the last year—a faster rate of growth than that of any of the five major industrialised countries.
There is no reason to doubt that this encouraging performance will be sustained. We are forecasting that the economy will grow at 3 per cent. this year and that manufacturing output will grow faster still. This growth will be balanced, with exports, investment and consumer spending all forecast to rise at the same rate. Inflation at the end of this year should be around its current level and the strength of the economy means that there is every chance that unemployment will continue to fall. So that is the favourable economic background against which we can examine this year's Finance Bill.
Because of the shortened timetable, we have thought it right to drop certain measures from the original Bill to allow time for proper consideration. The Government have, however, still thought it right to retain those clauses which confirm measures already in effect or where a change at this stage would give rise to practical problems. Other measures have been included because of their significance. To assist your Lordships, I shall summarise the main provisions retained in the Bill. The clause numbers refer to the Bill as originally printed.
Clauses 1 to 5 enact the excise duty changes. Clauses 11 and 14 give effect to the VAT package which will be of particular help to small businesses. These measures were the subject of wide consultation and were warmly welcomed. Clauses 12, 13, 15, 17 and 18 form a package designed to block a significant VAT loophole.
Clause 20 and Clauses 23 to 29 give effect to the Government's income tax proposals. The increased personal allowances and reduced basic rate of 27p will be reflected in pay packets after 17th May. A married man on average earnings will be £3.87 a week better 728 off as a result; a married man on half average earnings will be £1.59 a week better off. The special increase in relief for those aged 80 or over, and in relief for the blind, have also been included as a matter of priority.
Companies have told us how much they welcome the certainty of having the rate of corporation tax set in advance for the financial year. That is why we have included Clause 21. Clause 22 gives effect to the 27p rate of corporation tax for small companies. Clause 37 will put all companies on a nine months' payment basis for corporation tax.
Clause 33 gives eflect to certain useful changes to the rules on tax relief for employee share schemes as they affect employees. The Government attach importance to the encouragement of training, and Clauses 35 and 36 therefore provide the new reliefs for employees seconded to educational bodies and for training not specifically connected to an employee's present job.
Clauses 45 and 46 make useful improvements to the business expansion scheme. Clause 67 will increase the limit for retirement relief from CGT. Clauses 138 to 146 are concerned with stamp duty and stamp duty reserve tax. Though almost wholly technical, these measures have been included because of the impossibility of back-dating stamp duty changes.
Another important feature retained in this Bill is all the reductions proposed for inheritance tax, as well as other useful measures which will help the heritage. These are contained in Clauses 147 and 149 to 151.
The Finance Bill also contains a balanced package of measures affecting the oil industry in Clauses 54 to 56 and 153 to 159. These were carefully designed to give oil companies and the offshore supply industry an opportunity to adjust to the oil price fall and to help mitigate its effect on development and research. Certain of the measures are already in effect.
Finally, we have retained Clause 160, which abolishes the Exchange Control Act. A number of minor but useful measures have also been included which I have not mentioned. There seemed no good reason to lose time by omitting these.
Of the measures which we have thought right to postpone because of lack of time for parliamentary consideration, the most important are the clauses on pensions and profit-related pay. Other measures that we are leaving on one side for now are those affecting dual resident companies, double taxation relief on interest on bank loans and members of Lloyd's syndicates. We also think that the proposals for a new system of assessing and collecting corporation tax—pay and file—need to be properly explained and debated: they are also being left on one side.
However, I should say that it is the Government's intention, if re-elected, to reintroduce all those provisions which have had to be left out of the shortened Finance Bill as early as possible in the next Parliament. For those measures which would have taken effect from Royal Assent to the original Bill, the operative date will be Royal Assent to the new legislation. In other cases it is intended to retain the operative date proposed in the original Bill. I commend this Bill to your Lordships on the basis proposed. I beg to move.
§ Moved, That the Bill be now read a second time.—(Lord Brabazon of Tara.)