Finance Bill

HL Deb 28 July 2000 vol 616 cc725-61

Lord McIntosh of Haringey

My Lords, I beg to move that this Bill now be read a second time. This is a Finance Bill which continues to deliver on Labour's promises, enacting Budget decisions to deliver opportunity and security for the hard-working families of Britain.

In the Finance Bill there are new measures to encourage work, improve productivity and protect the environment. The March Budget also set the spending envelope for the spending review, consistent with a continuing commitment to fiscal prudence and stability. With the March Budget and now the outcome of the spending review announced by the Chancellor last week, the country can be in no doubt that we are working hard for a stronger and fairer Britain, where there is opportunity and security for all, releasing substantial new resources for health and education, tackling child poverty, supporting pensioners, improving transport and tackling crime. But this is only possible because we have delivered a platform of stability and sustainable public finances.

Inflation is now at 2.2 per cent—close to our inflation target of 2.5 per cent, which was confirmed in the March Budget. Inflation outturns have been close to target over the whole of the past year. More people are in work than ever before. Employment is up by over 1 million since the election. With the assistance of the New Deal, long-term unemployment is at its lowest level for 20 years and youth unemployment at its lowest for a generation.

Real take-home pay is up by between 8 and 25 per cent, and when spending on areas we are targeting such as children and pensions is taken out, welfare spending is falling for the first time in decades. Based on clear fiscal rules—a current budget in surplus and borrowing only to invest within prudent and cautious limits—this sustained and sustainable improvement in our public finances has made possible a sustained and sustainable improvement in our public services.

Budget 2000 locked in the fiscal tightening over the next two years to an even greater extent than projected in Budget 1999. Last week, the Chancellor announced that the budgetary outturn for 1999–2000, published since March, has shown a larger surplus than expected at the time of the Budget, allowing the Government to make a greater than expected debt repayment. The current surplus is not £17.1 billion but £20.4 billion. Debt as a share of GDP has been reduced even more, from 37.1 to 36.8 per cent. Taking account of the Spending Review outcome and recent developments on government receipts, fiscal policy will be at least as tight as set out in Budget 2000. The Government's fiscal prudence has allowed it to free resources for Britain's public services while continuing to ensure that we meet our tough fiscal rules and maintain our platform of economic stability.

Working families are seeing the benefit of our fiscal discipline. We have been able to cut taxes for working families, not only bringing in the working families tax credit and the new 10p rate, but now, in Clause 31, cutting the basic rate of income tax to 22p—its lowest level for nearly 70 years. By April next year, personal tax and benefit changes in this and previous Budgets will mean that households on average will be £460 a year better off and families with children on average will be £850 a year better off. The tax burden on a single earner family on average earnings with two children will be the lowest since 1972. Coupled with low inflation and economic growth, this adds up to a substantial increase in living standards.

For a single earner family with two children on average earnings—£25,000—living standards will have risen by over 10 per cent over the Parliament. For a single earner family on half average earnings, living standards will rise by 30 per cent this year, the biggest annual rise for 25 years. A single earner family on half average earnings will be £2,600 a year better off over the Parliament.

Our measures will help to achieve our goal that every child should have the best possible start in life. As the Prime Minister has said, child poverty is a scar on the soul of Britain. That is why we set out in the Budget our ambition to halve child poverty by 2010 and end it altogether by 2020. Measures introduced so far in this Parliament will lift 1.2 million of Britain's children out of poverty. By next year, the Government will be spending an extra £7 billion a year on support for children. By April 2001, personal tax and benefit changes alone in this year's Budget and previous Budgets will mean that a single earner family with two children on average earnings will be £370 a year better off.

This Finance Bill takes further steps to increase support for children. An additional 50p a week will be added to the children's tax credit when it is introduced in April 2001, so that it is worth up to £442 a year, more than twice the value of the married couple's allowance it replaces. We have brought in a £4.35 a week increase in the child credit in the working families' tax credit from June this year, with the same increase in child allowances in income support from October.

Rising living standards and tackling child poverty will be reinforced by further improvements to public services thanks to our commitment in the Budget to average real growth for health of over 6 per cent a year over the next four years, the longest period of sustained high growth in the history of the NHS. The immediate boost for health in the Budget of £2 billion this year is partly funded by the real increase in tobacco duties in Clauses 12 to 15 of the Bill.

The 5.4 per cent average real increase in funding for UK education over the next three years announced last week, together with the extra boost for education in 1999–2000 announced in the Budget represents an average growth rate in education spending of 6.6 per cent over four years—the highest growth rate over a four-year period for at least 20 years.

The boost in the Budget was accompanied in this Bill by the introduction in Clause 57 of a new training relief for employees. It will make employer contributions to education or training undertaken by holders of individual learning accounts exempt from tax and national insurance where they qualify for grant or discount and are available to all employees on similar terms.

Businesses and jobs will benefit from our commitment to enterprise in this Bill. We have already cut main and small business rates of corporation tax to their lowest ever levels and the lowest of any major industrialised country.

The Bill contains a number of measures to promote enterprise and help business: the cuts in capital gains tax in Clause 37; the research and development tax credit in Clauses 67 and 68; the permanent 40 per cent capital allowances for SMEs in Clause 69, helping especially manufacturing businesses; the new all-employee share ownership plan in Clause 47; the enterprise management incentives in Clause 61, helping high-risk companies to recruit key personnel; and the corporate venturing provisions of Clause 62.

These measures have been widely welcomed by business. Along with the introduction in the Budget of three-year 100 per cent capital allowances for investment in ICT equipment; and an extra £100 million for the new £1 billion target umbrella fund for enterprise growth across the regions, this is a huge commitment to business success from a government who believe that enterprise and economic prosperity can and must go hand-in-hand with fairness.

In addition, Clause 81 introduces the optional ring-fenced regime—the so-called tonnage tax—whereby shipping companies can opt to work out taxable credits on the basis of tonnage of ships operated. This innovation, which follows the inquiry of the noble Lord, Lord Alexander, is part of the Government's commitment to encouraging the British shipping industry.

The Bill introduces changes to the corporation tax rules, limiting the use of so-called "mixer companies" to shelter low-taxed foreign profits from UK tax. These cap the relief on dividends at 30 per cent and ensure that there is no UK tax benefit from mixing in an offshore holding company.

The Bill also introduces onshore mixing in non-abusive situations. This measure addresses the concerns that have been expressed about international competitiveness. It will allow tax over 30 per cent in an offshore mixer to be creditable against other dividends in the UK, subject to the same restrictions to confine the relief to non-abusive situations.

Following these changes, there will be no UK tax benefit from mixing foreign dividends in an offshore company as opposed to receiving the dividends directly into the UK. The incentive in the old double taxation relief rules to hold foreign shareholdings through an offshore holding company will go. This will remove a major tax distortion and compliance cost from commercial decision-making and planning. So far as international competitiveness is concerned, it will place the UK in a similar position to the United States, the difference being that the UK rules will be less complex to apply.

The Bill also helps us meet our international commitments to the environment. Following last year's Budget, the Bill is an important part of the largest ever package of environmental tax measures to be introduced in the UK: Clause 30 brings in the climate change levy; Clauses 20 to 23 reform vehicle excise duty for cars; Clause 58 fundamentally reforms the company car taxation system, incentivising low CO₂ emissions and removing the perverse incentive for people to clock up business mileage to get to more generous thresholds; Clauses 136 and 137 increase landfill tax rate and clarify liability.

The changes to the affordable warmth programme in Clause 78, and the reduced rate of VAT on the installation of energy-saving materials and on grant-funded installation of heating systems in Clause 131 will help to ensure that pensioners feel the benefit of warmer homes and cheaper fuel bills, as well as the £150 winter allowance. This programme carries forward the Government's commitment to combat fuel poverty by supporting the installation of energy-efficient central heating systems and insulation in up to 1 million low-income homes.

The affordable warmth programme will be funded through a public-private partnership with commercial lessors. Capital allowances will bring down the cost of leasing and allow the scheme to reach many more households than would otherwise be possible.

Taken together with the Budget announcements of an incentive for ultra low sulphur petrol, the aggregates levy, and the consultation on stamp duty relief for brownfield developments, these measures make this a Finance Bill for the environment as well as one for working families and enterprise.

Greenhouse gas emissions will be further reduced following the spending plans announced yesterday, with increased funding for renewable energy; a carbon trust to give energy advice to business and encourage low-carbon technologies; and new incentives for businesses to join a domestic emissions trading scheme.

The Bill also supports charitable giving—helping communities to become more democratic, more open and socially inclusive.

Clauses 38 to 46 carry into effect our radical package of measures to boost donations to charities and to improve the operation of the tax system for charities themselves. Clause 39 abolishes altogether the minimum limit on tax relief for donations. The Bill boosts payroll giving (in Clause 38) with the three-year 10 per cent government supplement and abolishes the maximum limit on donations. Clause 40 cuts red tape on corporate donations. Clause 43 brings in new income tax relief on gifts of shares and securities. The Bill frees charities from the need to set up subsidiaries for small trading and fundraising ventures and broadens the VAT zero rate for the sale or hire of donated goods. This package has been widely welcomed by the charities themselves.

In conclusion, this Finance Bill demonstrates that the Government are working hard for a purpose—to build a Britain that is strong, modern and fair. At long last, economic prosperity and fairness are no longer seen as opponents—they are seen as partners in the process of building the Britain of the future.

The Bill shows the Government keeping our promises, as we deliver sound public finances, low inflation, higher living standards, help for working families and pensioners and employment opportunity for all.

The Bill means more enterprise, more opportunity and more fairness. I commend it to the House.

Moved, That the Bill be now read a second time.— (Lord McIntosh of Haringey.)

11.20 a.m.

Lord Saatchi

My Lords, I am grateful to the Minister for explaining the Finance Bill so clearly, as he always does. I hope that the noble Lord will forgive me if I do not respond on a line-by-line basis to the clauses in the Bill to which he referred but concentrate instead on one particular aspect of the Bill before us.

Let us consider the Finance Bill 2000 in the House of Commons: 572 pages, two volumes; official status, the longest Finance Bill ever; length of debate in the House of Commons: First Reading, one minute; Second Reading, six hours; Committee stage on the Floor of the House, seven hours; Standing Committee, 24 sittings, 70 hours; Report stage, six hours; Third Reading, six hours; total sittings in another place, 101 hours 39 minutes over 93 days. Now 1et us consider the Finance Bill 2000 in the House of Lords: length of debate: First Reading, one minute; Second Reading, say, two hours; Committee stage, nil; Standing Committee, nil; Report stage, nil; Third Reading, nil; total in your Lordships' House, two hours—all on a Friday morning in July on the last day of the parliamentary Session.

On Wednesday, Madam Speaker said in her retirement address in another place: The objective [of Parliament] must be improved scrutiny leading to better legislation".—[Official Report, Commons, 26/7/00; col. 1114.] Perhaps it is fair to ask ourselves to what extent we consider that today's proceedings meet that brief. The need for greater parliamentary scrutiny is, I believe, appreciated not only by Madam Speaker but on all sides in your Lordships' House; and it may even be evident to the Government. Exactly a year after we last debated a Finance Bill in your Lordships' House, 57 per cent of the public believe that the Government have not kept their promises, and 62 per cent believe that they have not kept down taxes, even though they say they have. Apparently, the opposition party enjoys greater trust on tax than the Government.

Research shows that one of the main reasons for all the cynicism to which Madam Speaker referred in her speech is that by these Finance Bills the Government take full advantage of the complexity of the tax system to implement their brilliant strategy to cut visible taxes on voters while raising invisible taxes elsewhere. Unfortunately, since the previous Finance Bill that strategy has begun to lose its charm. In the Budget the Government said, for example, that they would uprate certain items by the rate of inflation. However, people found out only later that the Government used the historic rate of inflation for pensions, which was 1.1 per cent. But the forecast rate for taxes—fuel and alcohol duties—is up by 3.4 per cent. Tax allowances in this Bill are also indexed at the lower rate of 1.1 per cent.

This Finance Bill increases government spending faster than the growth in the economy and opens up a dangerous gap between government expenditure and national income. But people found out only later that to fill the gap taxes will rise by the equivalent of 5.3p on the basic rate of income tax. But it was not the Government who told people about that. The Government rely on invisible fiscal drag, a delightful aspect of our complex tax system, from the point of view of the Treasury, in which tax allowances rise more slowly than earnings. Therefore, the Government's tax receipts rise faster than the growth in GDP. This year, as last year, the Government's tax receipts are rising by 9 per cent, more than three times faster than the growth in GDP and more than double the growth of earnings. That is how the miracle of what the Minister described as the Government's "sound finance" is being achieved.

It was precisely such practices in Finance Bills that led the Treasury Select Committee in the House of Commons to ask the Government to display greater transparency in their tax policies and for more disclosure so that the Government could riot hide from the political consequences of their tax actions. The Institute of Chartered Accountants said: This is out of all proportion to anything we have ever seen before. I do not know how ordinary people have a hope of understanding their tax affairs. Even accountants are struggling". The chief adviser on financial reporting to the Chief Secretary to the Treasury, Professor Likierman, said in a report: Those who wish to find out what is going on are faced with major hurdles". The Institute of Chartered Accountants summed it up by saying that the tax system had, spun out of democratic control". That is the background to my main point today. Our approach is that there are resources in your Lordships' House which could be harnessed to improve the quality of Finance Bills without in any way threatening the right of the House of Commons to raise taxes. At the moment those resources simply cannot be put to use, and we believe that they should be in order to enhance the quality of legislation. Your Lordships' House is one of the bodies in our constitution and integrated Parliament that is best equipped to deal with the details of financial matters, but it is not called upon to do so. One is told that membership of your Lordships' House includes seven former Chancellors of the Exchequer, seven former Paymasters General and nine former Chief Secretaries to the Treasury—before one even mentions the many professors of economics, academics and men of business in your Lordships' House, several of whom are present this morning.

Concerns have been raised on all sides of your Lordships' House about the present difficulty in giving such a detailed Finance Bill proper scrutiny in Parliament. For example, my noble friend Lord Norton of Louth, the distinguished professor of government at the University of Hull, says: This is increasingly recognised as a very serious issue. The longer [the Finance Bill] is, the greater the problem for Parliament". In its excellent report Strengthening Parliament, the commission chaired by my noble friend comments: We see no reason why the House of Lords, given the expertise of some of its Members, should not monitor the impact of Bills falling in the economic sector". The report went on: We … believe the House of Lords has a role to play in scrutinising cross-cutting subjects such as … macro-economic policy". Why does this not happen? Your Lordships will recall that it was a decision by your Lordships' House, from which much of our political history, and certainly the debate today, takes its origin. When the Peers of 1909 threw out Lloyd George's Budget, the Parliament Act 1911 followed and governed our affairs for the rest of the 20th century. That Act provides in Section 1(1): If a Money bill, having been passed by the House of Commons, and sent up to the House of Lords at least one month before the end of the session, is not passed by the House of Lords without amendment within one month after it is so sent up to that House, the Bill shall, unless the House of Commons direct to the contrary, be presented to His Majesty and become an Act of Parliament on the Royal Assent being signified, notwithstanding that the House of Lords have not consented to the Bill". So it was that the role of your Lordships' House on money Bills became different from its role on all other Bills. But what was the motivation behind that Act? Commending the Parliament Bill to the House of Commons on Second Reading, the then Liberal Prime Minister, Mr Asquith, said: 'Take the hereditary principle. What can we get out of it?' Hon Gentlemen opposite have got a great deal out of it … a practical working instrument for securing the absolute supremacy of this House when there is a Tory majority [in the House of Commons], but a working instrument to frustrate and nullify the functions of this House when there is a Liberal Government in power … That is what the right hon Gentleman [Mr Balfour, leader of the Opposition] gets out of it".—[Official Report, Commons, 2/3/11; col. 584.] Then the Prime Minster said of the hereditary principle: 'Let it not be our master'. So say we. It is because it has been our master … because it enslaves and fetters the free action of this House—that we have put these proposals before the House and we mean to carry them into law". It is clear from that passage that the Parliament Act 1911 was fuelled overwhelmingly by the hostility of the government of the day towards the power of hereditary Peers. But has that position not now changed? Did not the House of Lords Act 1999 remove the hereditary Peers from your Lordships' House? Does not the noble Baroness the Leader of the House now say that your Lordships' House is more democratic, more legitimate and more authoritative?

Earl Ferrers

My Lords, perhaps I may intervene. Would my noble friend also like to add that the hereditary Peers who are here are the only Members of this House who are elected?

Lord Saatchi

My Lords, I am pleased to confirm the truth of that.

Is it not also the case that the Royal Commission chaired by my noble friend Lord Wakeham has suggested an elected element in your Lordships' House—increasing the number already here—and that the Official Opposition have indicated that it may consider an even higher elected proportion in your Lordships' House?

In the light of all those changes, is it perhaps appropriate to look afresh at the levels of scrutiny given to Finance Bills in your Lordships' House? There are many ways in which this can be addressed without jeopardising the primacy of the House of Commons. It is perhaps worth mentioning in passing that the constitution of the United States of America (Article 1, Section 7) gives the Senate of that country the right, to propose or concur with amendments as on other Bills". I have not noticed the American economy grinding to a halt as a consequence. I hope that there may be cross-party support in your Lordships' House for asking the new Joint Committee to review some of the possibilities for better holding the executive to account in the field of finance.

Lord Renton

My Lords, will the noble Lord give way? Would not his argument be reinforced if he were to point out that this House now consists of a classless nobility which is in many ways more representative than are the Members of another place?

Lord Saatchi

My Lords, it is true that many commentators have referred to the crucial role that the new House of Lords plays in the constitution. It has been widely discussed in recent months.

I should like to suggest some possibilities for how the executive could be better held to account in the field of finance, in the way that Madam Speaker referred to yesterday. For example, first, could we establish the Select Committee on the Monetary Policy Committee of the Bank of England on a lasting basis from next Session, and, once that was done, could we encourage it or a sub-committee to conduct an inquiry into the implications of the Finance Bill? Secondly, could we send the Budget proposals, or the Bill as published, to a special ad hoc committee for examination in a process of pre-legislative scrutiny? Thirdly, could we use additional time given for Unstarred Questions to probe specific details of the Finance Bill? Fourthly, could we have a debate in government time shortly after the publication of the Bill rather than now? Fifthly, could we have, say, two days' debate on the Finance Bill during its passage in another place before such debate is too late to have any impact?

Finance Bills are highly complex, as noble Lords well know. But in its consideration of the e-commerce Bill, the Government Resources and Accounts Bill, and the Financial Services and Markets Bill, the House showed how undaunted it is by details of technical legislation in the financial area. It is a good revising Chamber, sometimes asking the Government to think again and often getting better legislation as a result. Why deny that contribution in one area of public life that affects every citizen in the country—our financial health and well-being?

11.33 a.m.

Lord Jacobs

My Lords, there can be few noble Lords here today who are not aware of the fact that this debate on the Finance Bill is something of a charade. That is not to say that some of us do not have useful ideas and comments to make upon the Bill but, as we all know, at the end of our debate the Bill will be passed even before what we say has appeared in Hansard. It follows, therefore, that unless members of the Treasury team are actually sitting in the Chamber listening to the debate they would not have even a moment to consider what we suggest. Again, as I am sure your Lordships are aware, the situation goes back to the Parliament Act 1911 which ensures that Budget resolutions cannot be dealt with in this House. The reason is that your Lordships' predecessors so mauled a finance Bill that the Commons were determined to prevent it happening again.

Certainly, the abolition of the right of most hereditary Peers to sit in this House, in my opinion, increases the legitimacy of the opinions given in this House. No doubt the second stage of reform of this House will further enhance that. Not for a moment do I suggest that it is necessary for this House to have the power to amend money Bills. But surely we have some valuable ideas, not to mention immense expertise among some noble Lords, that could improve the Bill.

It was for that reason that on Tuesday, 7th December, last year, in a Starred Question, I asked the Leader of the House what measures the Government were taking to improve the procedures for debating the Budget and the Finance Bill in this House. I was most encouraged that the idea was supported by the noble Lords, Lord Strathclyde and Lord Barnett, my noble friend Lord Taverne and the noble Baroness, Lady Hogg. I think it is fair to say that the noble Baroness, Lady Jay, responded encouragingly by saying, If there is a feeling around the House that the issue should be addressed … there are appropriate ways of doing it".—[Official Report, 7/12/99; col. 1146.] Accordingly I followed up the matter with the noble Lord, Lord Carter, the Government Chief Whip, and I must thank him for his helpful co-operation. However, a number of difficulties arose because we were invited to agree that in exchange for a day of debate, let us say just before the Committee stage of the Finance Bill, we would give up today's debate. It was recognised by some of your Lordships who know rather more about these matters than I do, that it would not be a good precedent to allow a major Bill such as the Finance Bill to go through on the nod, even though we all recognise that very little can be done about it.

I can say that representatives from all the parties will be considering a number of proposals, and one hopes that some agreed ideas can be put before the Government Chief Whip so that at least next year we are able to make a useful contribution to the Finance Bill at an early enough stage to allow the Treasury team and the Chancellor of the Exchequer to consider our representations.

There are two issues relating to the Finance Bill which I would have wished to mention if the debate had been held in May rather than at the end of July. The first is a matter on which I would not expect the Chancellor of the Exchequer to make any change; nevertheless, it is a matter with which I believe many members of the Government and certainly those on our Benches would be in agreement.

We now have a minimum wage, currently £3.70 an hour. I am sure your Lordships agree that this is the lowest level of earnings which anyone can legally have in this country. A person working 40 hours a week would earn £7,696 a year. That is not a large wage. Yet surprisingly, on that minimum income, an employee would pay £374 a year in national insurance contributions and no less than £546 a year income tax—a total deduction of £920 a year, which is no less than 12 per cent of an employee's income. Surely it is morally wrong that we tax severely someone earning less than £150 a week. After deductions, therefore, by earning £3.70 an hour, working a full week, one would be left with just £3.26 an hour to live on. Now that is a minimum wage.

I, for one, always welcomed the introduction of the new low rate of income tax of 10p in the £ but this surely can be no substitute for insisting that those on a very modest income should not have to pay income tax. Of course there are arguments for lower rates of income tax and higher starting points for income tax at all levels of income. For example, the number of taxpayers now paying higher rate income tax has increased dramatically. But when all is said and done, one would have thought that a Labour Government, above all, would find it possible to free people on minimum wage from paying any income tax whatever.

The second and final issue I want to raise relates to charitable donations. This Government have introduced in this Finance Bill what can only be described as generous support for those who give to charity.

Today, so many people invest in the stock market that it is most encouraging that the Government have brought in new tax relief for gifts of listed shares and securities to charities by individuals or companies. This enables donors to secure not only freedom from capital gains tax on the gift but also personal tax relief. This certainly improves yet further the climate for charitable giving and encourages the better-off members of society to give more.

However, there is one area of giving which the Chancellor has shied away from; namely, donations to museums of works of art and similar valuable objects. At present, the only way to give a valuable painting tax effectively to a national museum is to die first, which I am sure your Lordships will agree is not a great encouragement. If a work of art were to be given to a British museum by an American citizen, he would receive full personal tax relief on the value of his donation. However, in the United Kingdom, that is not possible. The Revenue is concerned that valuations may occasionally be inflated, although evidence of auction prices would usually be sufficient to give a fair value for any major work of art.

I urge the Government next year to consider an initial trial of donations of works of art and other objects to a limited number of important national museums to test the efficacy of what I propose and, it is to be hoped, satisfy themselves that this method of giving cannot be abused.

Finally, even if that last idea were to be taken up by the Government, it is too late, for soon we shall be passing the Finance Bill. I sincerely hope that next year's debate on the Bill takes place in May but this inevitably depends very much on the generosity and fairness of the Government in recognising that your Lordships' expertise on financial matters is a valuable asset which should not be wasted. I remain hopeful.

Lord Campbell of Alloway

My Lords, many of your Lordships will remember year after year on this occasion my noble friend Lord Boyd-Carpenter—

Lord McIntosh of Haringey

My Lords, this is a Second Reading debate with a speakers' list.

Lord Campbell of Alloway

My Lords, I apologise to the House.

11.43 a.m.

Lord Marlesford

My Lords, I am much in agreement with the points made by my noble friend Lord Saatchi and was surprised to hear a similar theme from the noble Lord, Lord Jacobs. He is not speaking from the Front Bench of the Liberal Democrat Party but I assume he represents his party in this respect and therefore, presumably, it is as a result of collaboration through the usual channels, to which I am not a party. The points made were good ones and perhaps the new commission on the House of Lords or your Lordships' Procedure Committee should consider them. We should all endorse them.

I am afraid that I shall stick to the slightly more traditional approach to the debate. I shall talk about the economy and what part budgetary policy has to play in the Finance Bill. My comments will be rather frank and perhaps are not those which a politician would make from the party platform. But I was an apolitical lobby correspondent for so long that I should never make a good party politician. Furthermore, I shall confidently take advantage of the privacy of your Lordships' Chamber in what I have to say. What I may say will not be of particular pleasure to the Government or indeed to my own party and certainly not to the Liberal Democrat Party which has a different approach to taxation and economic management.

First, I believe that on balance the Government have so far run the economy rather well. That is what I see as the heart of the political miracle which is new Labour. That is why it is so totally different from old Labour. I see the Government as having attempted to stick to and build on the essence of economic Thatcherism. First, I endorse the two golden rules which are frequently set out. They are, first, borrow only to invest and not to fund current spending; and, secondly, the sustainable investment rule that the public sector net debt as a percentage of GDP should be kept at a stable and prudent level. To date, I believe that the Government have stuck to those rules effectively.

Secondly, the delegation of monetary policy to the Bank of England has been an undoubted success. I believe that some Tory Chancellors would have liked to have done that but, unfortunately, it never matured. It is a good practice and I hope that it will continue.

Thirdly, we have experienced huge structural changes in employment in this country, with the disappearance of a great deal of the old manufacturing industry. The economy is none the worse for that. I am delighted that there is no real sign that the Government are going in for the traditional company bail-outs as did previous governments including, I am afraid, Conservative governments. That is because the constraints of the European Union would prevent it. At any rate, it is good.

Fourthly, the Government have stuck rather well to the initiative of joint public and private financing. That is a huge advantage over the old days when we had total separation under the old PSBR rules and all the constraints they produced. The course has been made possible by privatisation and so forth.

I want in that connection to comment on the reform of the health service. The idea that it should in future make use of spare capacity in the private sector is sound. I still believe that the Conservative policy of allowing private expenditure on health insurance to be tax deductible is also desirable because it will bring in more resources for health.

We now have proposals for big increases in public spending which raise two obvious concerns. First, what if the economy overheats? The national rate of unemployment is low at 3.7 per cent, which is close to the Beveridge 3 per cent figure. Do the Government reckon that that figure, which Beveridge gave for full employment, is still the correct one to use? It was intended to cover transitional and frictional unemployment. I should have thought that with the more modern methods of finding jobs a lower percentage figure could represent full employment. I should be interested to hear the Treasury's view.

The most useful unemployment figures are those produced by constituency. Those for June were published a couple of weeks ago. They include various lists, one of which shows the 25 constituencies with the highest unemployment rates and the 25 with the lowest. Of the 25 highest, only 14 are over 10 per cent—and what a change that is from the recession—and the 25 lowest are all under 1 per cent. I am afraid that that shows a considerable potential for economic overheating.

No less than 254 (about 48 per cent) of England's 529 constituencies have unemployment of below 3 per cent; in other words, full employment. In Wales, five out of 40 are below 3 per cent and none is over 7 per cent. In Scotland, unemployment in 14 of the 72 constituencies is under 3 per cent and in no Scottish constituency does unemployment reach 10 per cent. Therefore, one must be worried about overheating.

Furthermore, although the inflation rate is within the guidelines—the Minister quoted the consumer price index excluding mortgage rates but the other index is higher at about 3.6 per cent—one of the factors in the rising rate of inflation is fuel prices. I salute the Chancellor for not being prepared to contemplate cutting fuel tax. He is right not to do so. Therefore, with the risk of overheating, we should consider that there may be a need for interest rates to increase further.

The second risk is that the economy may underperform. That is the main worry of this week's Economist, which states that, history suggests that it is unwise to bet on a 12-year economic expansion. If the economy slows, Mr Blair will discover that financial-market credibility is never granted to any government in perpetuity". If the economy underperforms, the choices are: cut spending, increase taxation, or increase borrowing.

I believe that the Government are in a reasonably good position to increase borrowing. Interest rates on government securities undoubtedly are too low. I always take War Loan as being a good example of the equivalent of the American 30-year bond. Given the rate of inflation, the current 4.8 per cent yield on War Loan is absurdly low. I believe that in general the market is very short of gilts. That applies particularly to pension and other funds. Therefore, there is scope to increase the supply of gilts and, thus, there is a potential opportunity to allow expenditure to remain higher through more public borrowing.

I should like to talk about tax policy, which, in a sense, is what the Budget is all about. One of the most remarkable changes made by the Conservative government was the policy on direct taxation. I probably do not need to remind your Lordships that in the last year of the previous Labour government, the top rate of personal tax was 98 per cent. That applied to all incomes over £24,000. If that income figure were updated for inflation, it would be only £77,000. Therefore, if old Labour were in power today, it is likely that anyone with an income of £77,000 or more would be paying a marginal rate of 98 per cent in tax, instead of which the top rate is 40 per cent. What a huge difference.

The top tax rate was reduced immediately in 1979 to 75 per cent by my noble and learned friend Lord Howe; then, in 1984–85, to 60 per cent by my noble friend Lord Lawson; and, finally, to 40 per cent in 1988–89. Therefore, we are now in the 13th year of a highly competitive rate of tax. In that respect, we are the envy of much of the world and, particularly, of many of our European neighbours. I congratulate the Chancellor on resisting the temptation to increase rates of direct taxation.

Indeed, in order to illustrate how competitive we are and the scale of what the temptation to raise tax might have been, I quote from a helpful Answer given to me in February by the noble Lord, Lord McIntosh. When I postulated a range of direct taxation approximately equal to that of the higher rate of our European neighbours, he told me that it would have produced over £3 billion of extra revenue. However, to increase taxes to those levels would have been catastrophic in terms of British industry and business. Not only would the brain drain have started once again, but the UK would no longer have been a place of favour for world investors.

I believe that an important question that we should ask is to what extent we need uniform taxes in Europe. I believe that rates of taxation, both direct and indirect, are for national governments to decide. I hope that the Minister will endorse that view. The French have a different view. I was talking to a senior official at the French Ministry of Finance who complained about the lack of a level playing field with regard to tax in Britain and about the many Frenchmen who choose to live in Kent so as not to pay French tax. We can imagine what the French mean by "a level playing field".

Rates of tax in Europe are immensely relevant to British economic and budgetary policy. I want to give a slight raspberry, but in the friendliest manner, to the Minister. I know how grossly over-worked he is. But I want to point out that when I asked him in June to state the current top rate of tax on personal incomes in each country of the European Union and the threshold of income at which they applied, he answered: This information can be found in the OECD publication Taxing Wages"— and so on; it was a long title— a copy of which is being placed in the Library".—[Official Report, 22/6/00; WA 38.] Frankly, that was not the sort of answer that I wanted. First, the object of a parliamentary Question is to share the Answer with everyone and to put on the record ex cathedra crucial data. Secondly, in preparation for this debate, this morning I had a chat with a helpful official in the Treasury. I said, "Tell me, where is the top rate for Germany, referred to by the Minister, shown?". He replied, "If you look at page 228, you will see a rather complicated formula in which T = 0.53X-22 843 for 120 042≤X". Apparently, the key figure is 0.53, which is the top rate of tax in Germany—I believe that an additional tax is on the way.

I do not criticise the Minister but I propose to table that Question again and I hope that he will give an Answer about which we can all be clearer.

Lord McIntosh of Haringey

My Lords, before the noble Lord moves on from that point, I would, of course, refer to the matter in my closing speech but I believe that I had better not do so. I should apologise to him now. I did not check the OECD publication myself before signing the Answer. I should have done so and, if I had checked it, I should have realised that the information was not available in a sufficiently appropriate form to answer the noble Lord's Question properly. If he puts the Question again, he will receive a proper answer in public.

Lord Marlesford

My Lords, I thank the noble Lord very much for that generous apology. I do not believe that he needed to apologise because, as I said, he has been grossly over-worked. He is probably one of the most over-worked Ministers in this Government and I believe that he performs amazingly well in answering all our questions.

In deciding on direct and indirect taxation vis-á-vis Europe, indirect tax presents a particular problem, but one which, in a sense, is self-solving. We hear a great deal about the differences in the excise duty on alcohol. The simple answer is that the Treasury must seek to maximise the revenue from alcohol taxation. If it decides that to maximise revenue, it is in general better to keep the rate of excise duty as it is, that is fine by me. Thus in a free trade area, there is a natural self-adjustment in indirect tax rates.

I believe that I have almost exceeded my time and I apologise to the House. However, I want to say what a long way we have moved from the days when JK Galbraith produced The Affluent Society, the objects of which we agreed with so much. To some extent, the Government are trying to achieve some of those objects. However, Galbraith believed in a very different tax regime.

Perhaps I may take a moment longer of your Lordships' time. An interesting book, Between Friends, was published to celebrate the 90th birthday of John Kenneth Galbraith. It contains various essays. Perhaps I may quote from one by Will Hutton: I recall once proposing that we write a joint article, setting out the case for progressive taxation. He"— that is, Galbraith— replied that he would agree only if I accepted that any just system of taxation had to be calibrated by the protests of the rich: the more just, the more they would complain. It was only when their protests became really shrill that you could know you had pitched your tax rates high enough". We have moved a long way from those days.

11.58 a.m.

Lord Tomlinson

My Lords, I believe that it is clear that the procedure for debating a Finance Bill in your Lordships' House is somewhat unusual and, like other noble Lords, I find it rather unsatisfactory. Therefore, I hope that, as we proceed to look at our future structures, with or without the benefit of a management consultant, we examine explicitly how we better exercise our role in relation to Finance Bills. I hope that that can be considered of their remit.

Even the most superficial examination of the Government's Annual Report and the Comprehensive Spending Review shows that the economy of our country is safe in the hands of my right honourable friend the Chancellor of the Exchequer, Gordon Brown, and the Government. The Government's Annual Report shows clearly that our sustained low inflation rate of 2 per cent is comparable with anywhere in the European Union, that unemployment is at its lowest level for 20 years, that tax and benefit changes will have lifted 1.2 million children out of poverty by 2001 and that business conditions are well served by the platform of economic stability that has been created. We have the best business conditions for a generation, with economic growth at 2.75 to 3.25 per cent and forecast to continue in the range of 2.25 to 2.75 per cent. We have done that with sustained increases in productivity.

Against that background of low inflation and sustained economic growth, there have been remarkable economic transformations. Debt has been repaid and unemployment reduced to such an extent that one statistic bears constant repetition. Between 1979 and 1997, debt interest, unemployment and the cost of social security benefits accounted for 43 per cent of all public expenditure. In the coming three years, the Comprehensive Spending Review foresees that figure falling to 17 per cent. That release of 26p in the pound of public expenditure from the wasteful uses of failure to make positive investment in the social and economic fabric of our society is very important. The budget deficit of £28 billion that was inherited from the previous government has been eliminated. This year, £18 billion of debt has been repaid. By 2003–04, the annual cost of debt servicing will be £5 billion less than it was in the last year of the previous government.

Those remarkable achievements form a background to the Comprehensive Spending Review—a review that everybody who loves our country and its people should welcome. I shall not go through the details of the spending review, because they have been well rehearsed, but there have been increases in spending on essential services such as education, health, transport, the fight against crime and developing the New Deal, which has done so much to rescue young people from the scourge of continual long-term unemployment. There are benefits to the regions and to the wider world through the increase in the budget of the Department for International Development, which was so regularly and shamefully savaged by the previous government. All those benefits flow from the Government's stable economic management, of which we can be proud.

However, there are two worrying aspects of our economic position: the long-term effects of the sustained strength of sterling and the higher interest rates that we bear in comparison with our competitor countries, particularly those in euroland. In the long run, those issues must be addressed. I hope that, in the fullness of time, the Government will be able to decide that the Chancellor's five economic tests have been satisfied and that they will conclude that there is a successful single currency in operation in euroland and that it is in our economic interests to join it.

That is a decision that only the Government are in a position to make first. It will then have to be confirmed in a referendum, when the case will need to be clearly put and cogently argued. If my noble friend the Minister uses the same skills in that campaign that he deployed in speaking to the Bill this morning, it will be of singular benefit to public understanding.

It is axiomatic that we must enter the single currency at the right exchange rate. If we do, the disadvantages that British industry and commerce suffer from a floating pound will disappear. We have no other choice: either we continue with a floating pound or we enter a full currency union.

We are all aware of the benefits of a large single market, but for those benefits to be fully achieved the single market requires a single currency. That will increase trade and reduce investment risk by increasing price transparency and eliminating exchange rate fluctuations.

Globalisation and the free movement of capital increase exchange rate fluctuations and the transactional costs of business. As capital flows more rapidly around the world, medium-sized countries such as Britain are highly exposed, with potentially highly damaging effects. With a euroland of 12, Britain's position is seriously exposed. Manufacturing is beginning to shift to the EU areas of currency stability. I disagree profoundly with the noble Lord, Lord Marlesford, who thinks that we can ignore manufacturing and somehow manage quite well as a country without it. Small as it now is, our manufacturing base is of fundamental importance, particularly to the regions that have suffered most from historically high unemployment.

Lord Marlesford

My Lords, I certainly did not say that we could ignore our manufacturing base. I said that there has been massive restructuring in which many manufacturing jobs have gone, but we are still in a sound economic position. That does not mean that we should ignore our new and different manufacturing base.

Lord Tomlinson

My Lords, I am pleased to hear that and I withdraw what I said. I had understood the noble Lord to have at least implied that the economy could manage quite well without our manufacturing industry. I look forward to reading his speech in detail next week, when I have an opportunity to look at Hansard.

Manufacturing is clearly beginning to shift to the EU areas of currency stability. Were we to remain outside in the long term, British predominance in wholesale financial services would also be prejudiced. It is evident that our influence will increase if we are in the euro and will wane if we are outside it.

Britain within the euro will sign up to the growth and stability pact. Those who see it as a threat are living in an unreal world. The conditions in the pact are the simple, normal, prudent mechanisms that my right honourable friend the Chancellor of the Exchequer uses to control our public expenditure, regardless of whether we are in the euro. Euro-sceptics told us that the euro would never be agreed; it was. They said that it would fail; it has not. They argued that it would break up. That is the same sort of unfounded Euro-sceptic optimism that led some to believe that people would vote to leave the European Community in the 1975 referendum.

Of course, the euro is currently weak, but it is a weakness relative to the United States dollar and to the pound sterling. The United States and Britain are near the peak of a boom, while many euroland economies are just emerging from recession. That has made our interest rates higher, has raised demand for sterling and the dollar, and has been the main influence of the value of the euro.

The British economy is strong and well managed, on which I congratulate the Government. However, sterling is too high to sustain long-term, and interest rates are too high for our long-term competitiveness. These problems must be addressed. Joining the single currency when it is the right conjuncture of circumstances to do so will address these problems and will form the basis of our economic well-being to continue in future inside a successful single market. It is on that basis that I again congratulate the Government and look forward to the continuing economic progress that will lead them to come to the necessary conclusion that I believe they have to make, so that we can get on with winning the case in a referendum.

12.10 p.m.

Lord Simon of Glaisdale

My Lords, when I intervened in a debate on last year's Finance Bill, when, like today, so many experts spoke, I felt it incumbent upon me to apologise for the fact that I had been so long divorced from public finance. Obviously the passage of a year has not improved my recommendation. In those circumstances, I do not propose to comment in detail on this doorstop of a Bill; nor do I intend to follow by way of comment the powerful speech of the noble Lord, Lord Tomlinson, save perhaps to comment that once he had left the party polemics, I found myself in profound agreement with what he said.

Today I should like mainly to follow up one or two points that I made last year, to which recent events have given a new immediacy. But first I should like to ask the Minister a fundamental question which really guides our judgment in these matters. In the Government's view, where are we in the economic cycle? The Government have a view on that. Last year, in answer to a question that I asked, the Minister said that the Government take the view that borrowing for revenue purposes should be neutral over the period of the economic cycle. That was very welcome news. It shows that the Government consider the economic cycle.

There is another way in which the Government clearly have to consider the economic cycle. One of the reasons for caution about joining the single currency, to which the noble Lord so cogently referred, is that the economic cycle in this country is out of phase with that of Europe. The Government therefore have a view on where we are in the economic cycle.

The Chancellor of the Exchequer sometimes seems to take as his motto, "I am Sir Oracle, and when I speak let no dog bark". That may be sufficient for his Cabinet colleagues, but the general electorate cannot be expected to put up with it. We must be let into the secret. There are two reasons for that: one is external; the other internal. The external one, to which I have already referred, is that we must know whether we are converging on Europe cyclically. I take the view that recent policies have placed us in the opposite direction. The second reason arises out of the present day splurge, to which the noble Lord, Lord Tomlinson referred, although, I hasten to add, not in those terms. The Chancellor is obviously running a risk by plainly increasing such expenditure at a faster rate than that of the estimated growth of the economy. We may get away with it. He has had a great deal of luck and, with luck, we may manage that. However, if we have a downturn in the economy, there is not a chance. We shall be in serious trouble. Therefore, I again urge the Minister to let us into the secret.

The second general point to which I want to refer is the North/South divide, which was referred to in passing by the noble Lord, Lord Tomlinson, although he postulated the issue in terms of a manufacturing view. In so far as there was a difference of view—and I think there was—between the noble Lord, Lord Marlesford, and the noble Lord, Lord Tomlinson, I very much prefer the view of the noble Lord, Lord Tomlinson. An economic society cannot exist merely by taking in each other's e-mail. We also need to produce, if only to export and, if only to export further, to import.

Unfortunately, the run-down of manufacture has disproportionately hit our old, northern manufacturing centres. To that have been added the misfortunes of the hill farmers in the North. I therefore hope that the Minister will offer some words of comfort and recognition that the North of England faces some grave problems, whereas the South of England, with its prosperous service industry, is very well off. But, as I suggested, we cannot live purely on service industries.

I turn to a point that I raised last year concerning the general anti-avoidance rule. The traditional way of dealing with tax avoidance is to try to hit each individual case specifically. This Bill is full of anti-evasion provisions—provisions against fraudulent evasion—and that is serious. However, that is not the problem. The problem is legal avoidance. Again, that has become more immediate with the recent divulgence of the tax affairs of the noble Lord, Lord Levy. Perhaps I may say that it seems to me that the inviolability of a taxpayer's affairs is not simply a matter between the individual taxpayer and the Inland Revenue. It is of general interest that every taxpayer's affairs should be regarded as inviolable. Perhaps I may add that anyone who infringes that rule must know that he is acquiring information dishonestly.

Instead of trying to trace through every avoidance provision, inevitably late, after long loss of revenue, there is an alternative; namely, a general anti-avoidance rule. That exists in Australia and America. It is a rule somewhat on the lines that where a transaction, in whole or in part, has as its paramount object the avoidance of tax, it shall be void for that purpose, although valid for any other.

The Government saw the advantage of that and set up a body in the Inland Revenue to consider a general anti-avoidance rule for this country. It got as far, even further, as sending out a consultation document. But then, mysteriously, that body was wound up. I hope that I am not a conspiracy theorist, but I fail to see any creditable reason for that. The Minister, one of the ablest occupants of a Dispatch Box, failed to explain that last year. If he failed to explain it, there is probably, almost certainly, no creditable explanation. But I hope that he will have another try at soothing our minds.

The last matter that I raise is the question of a local income tax. Nothing could more restore the health of local government than each body of local government having its own funds and not having to look to the Exchequer.

I have received advice from two great experts on local government finance, one on the Conservative side and one on the Labour side. I cannot say their names because one of them gave me his information in the Bishops' Bar, which should be at least one place in Westminster which does not leak. But I am led to believe, on authoritative advice, that although the Layfield Committee was attracted by a local income tax, it held at the time that it was administratively impossible, or at any rate difficult. But I am led to believe that with modern technology, that can now be encompassed. I do not ask the noble Lord to go further than to say that the matter should be considered. I hope that the noble Lord, Lord Kingsland, will also give it a fair wind.

I gave the noble Lord notice that I was going to raise some other matters, but I have already exceeded the time that I am justified in intruding on this debate.

12.24 p.m.

Lord Barnett

My Lords, I hope that the noble and learned Lord will forgive me if I do not follow, except to say that I am not madly in favour of a local income tax and I did not speak to him in the Bishops' Bar. That was not me and I plead not guilty.

The noble Lord, Lord Saatchi, opened the debate from the Opposition side on the question of scrutiny of the Finance Bill. That is an issue for which I have great sympathy and, as he knows, I have considerable concern about how we do not scrutinise Finance Bills.

I want to congratulate the noble Lord on the extent of his research assistant's research. The depth of it was astonishing. We were told how many hours are spent in the other place on Finance Bill committees. I did that for many years and I compelled others to do it when I was Chief Secretary. I found it astonishing that he had carried out that research and I congratulate him on that.

How do we better scrutinise Finance Bills, especially huge ones like this, and they are getting bigger and bigger? They need to be scrutinised. We have Members of your Lordships' House who are capable of giving those Bills serious scrutiny.

I am sorry to tell the noble Lord—and I know that I have told him this before—that it is not just the present Government but all governments, Conservative or Labour, are not very happy about giving greater power to your Lordships in relation to the scrutiny of Finance Bills. I plead guilty. I was not happy about that idea then. But that is not to say either that I was right or the noble Lord is right now in the depth to which he suggests we should go in subjecting the Bill to that kind of scrutiny.

He referred to the noble Lord, Lord Norton of Louth, whom I am glad to see in his place. I read with enormous interest the report of the noble Lord, Lord Norton, which included a paragraph on financial scrutiny. He put forward a couple of excellent suggestions. He said: The Government's financial proposals each year should be split between a Taxes and Management Bill or Bills and a Finance Bill". The Commons completed its consideration of the Finance Bill only a couple of days ago. So we cannot have those powers after the Bill has been passed in the other place. We need to look at them before the Bill comes before us in its final state.

Lord Simon of Glaisdale

My Lords, is there not a distinction to be made between the Budget resolutions, where we are up against the collection of taxes date, and the scrutiny of the Finance Bill otherwise?

Lord Barnett

My Lords, yes, of course there is. But I have made the point before in your Lordships' House that scrutiny of the Finance Bill in another place is almost non-existent. All oppositions go in for major soundbites rather than a serious debate on clauses in the Bill. That just does not happen. For more than five years, I put a lot of badly drafted Finance Bills on the statute book and in the following years they have had to be amended and amended. That happens. That is a fact of life.

I am not sure that I finished reporting what the noble Lord, Lord Norton, said. He said: The main estimates should be referred automatically to the relevant Select Committee". That must be worth considering. I hope that the Minister will do so. I am sure that the Government would like to see better Bills on the statute book, especially when there are Members of your Lordships' House who are capable of giving the kind of scrutiny which is required. I hope that that will be done but I cannot say that I am madly optimistic about it.

Governments and the authorities of the House introduce more and more Select Committees, which is not something that comes naturally. Noble Lords will have to press for such matters; we did a little of that yesterday with some success. I know my noble friend will not agree, but I hope we do that often. It is no use him looking at me like that, either!

I want to speak about public expenditure because we can do nothing about the Finance Bill. Some of your Lordships have referred to what the Treasury will say when they read this debate. I doubt whether anything has changed, but I would be quite astonished if a single Treasury Minister reads a word of what is said in this debate. I regret that my noble friend who will reply to the debate is not a Treasury Minister, but the Deputy Chief Whip; I believe that he should be a Treasury Minister, but then we would need three or four additional Ministers to carry out his other work.

We must be aware that Treasury Ministers will not look at the debate, so I shall leave the Finance Bill on one side and recognise that it pays for public expenditure on which I want to say a word or two. I welcome the Comprehensive Spending Review. I believed that I had read that the word "comprehensive" was to be deleted, but it has not been deleted from the document.

I strongly support the spending review and I congratulate the Chancellor on it. It does what I personally came into politics to see done: it improves our public services. I have always regretted that, in my five and a quarter years as Chief Secretary, because of the economic conditions, I had the unfortunate task of doing nothing other than cut public expenditure. I did not enter politics to do that, but I am happy to congratulate the Chancellor.

However, I have some hesitation. The talk is of a three-year review. To forecast the economy is a little like forecasting the weather. It is not easy to say what the weather will be this afternoon or tomorrow, let alone next week. I wish I could forecast that because on Saturday I am going hiking. I believe it is likely to rain. But forecasting the economy three years ahead and saying how we shall spend the resources is something that we may not be able to achieve. That is the other main reservation that I want to make on that point.

I have two other concerns. First, will the money be spent wisely and, secondly, why should we keep the Barnett formula? I say that with some little knowledge of the formula, to which I shall turn in a moment. It has some connection with whether the money in the public expenditure review will be spent wisely. Will it really help those depressed areas of the United Kingdom? The honest answer has to be that I do not know, although sticking with the Barnett formula will not help that.

Throwing money at a problem will not necessarily help. Indeed, sometimes that could be positively damaging because one may not necessarily spend the money in the right area. So some waste is almost inevitable. When spending an additional £43 billion— we do not talk of millions any more—I would be astonished if there were not some waste. That is perfectly understandable. We shall not know about it in any detail until the Public Accounts Committee and the National Audit Office have checked and by that time we shall be well into the three-year period. We know only that there will be waste, although how and where is not clear, but sticking with the Barnett formula will certainly not help.

I am happy to have something named after me, but when I invented that particular method of allocating expenditure to Scotland, Wales and Northern Ireland, I did not know that it would be a formula. It was a short-term expedient to help me in difficult times, which I thought might last a year. Is my noble friend asking me to give way?

Lord Randall of St Budeaux

My Lords, I am grateful to my noble friend for giving way in such a courteous fashion. To overcome wastage, would it not be a good idea to fire this bloke called Barnett?

Lord Barnett

My Lords, no, is the straight answer to that! That method has become a formula; it has lasted for 22 years and now it is forecast to last another three. If money is allocated in that way, it will not necessarily go to the areas where it is most required. Looking at the expenditure allocations, the plain fact is that it certainly is not spent in the right way. We are told in the spending review that the Barnett formula ensures that Scotland receives a population-based share of changes in comparable spending in England. That has nothing whatever to do with whether it is sensible for an area to receive that proportion. The plain fact is that in Scotland the level of expenditure per head is more, for example, than in the North East, which has a much lower GDP per head, and in parts of the North West. Surely it is wrong to allocate expenditure in that way.

I know that the formula lasted for 18 years because the government of those days, under Margaret Thatcher and John Major, were frightened about the damage that it would do politically if they removed it. It did a fair amount of damage anyway; they lost every single seat at the end of the 18 years. In my view it is sensible to change the Barnett formula. I hope it will be changed. If the Government want a different kind of formula with my name attached to it because they have grown fond of it, I would have no objection.

No doubt in the London area the Mayor will ask for more expenditure in line with some Livingstone formula. London already receives 125 per cent of the English levels of expenditure, so in practice I hope that the Government—maybe for other reasons—will resist any requests for more money for London and move it to the North West, the North East and areas where it is really needed. I have no doubt that in parts of Scotland it is needed, but the overall levels of expenditure given to Scotland as compared with the rest of the United Kingdom are quite wrong. I had better leave it at that.

On the three-year expenditure review, the question is often asked whether it will mean an increase in interest rates. We do not know; it is too early to say. It will not start until next April. I assume that it will start rather slowly. If one is talking about the genuine independence of the Monetary Policy Committee, fiscal policy may be required to deal with an excessive level of consumption. I hope not, but at this stage we do not know. For the moment we can say that it should not and does not need an increase in interest rates because the expenditure will not start until next year.

We are not discussing the Finance Bill; we shall pass that on the nod. This is not even a serious economic debate; no one is seriously listening.

Lord Tomlinson

My Lords, I am listening.

Lord Barnett

My Lords, I listened to my noble friend Lord Tomlinson, with whom I agree substantially. Indeed, the noble Lord, Lord Marlesford, made an excellent speech, much of which I agreed with. The fact is that all we can say at the moment, in the brief time available to us, is that the economy—my noble friend gave us the figures—is in good shape. Nobody can dispute that. That may be one of the reasons why the noble Lord, Lord Saatchi, chose to talk about something else. I can only assume that my right honourable friend the Chancellor has had little to do with the fact that the economy is now in such an excellent shape. Part of that has happened without any action by him but he has not destroyed it and he has done it no damage, so we can give him some credit. For now, I am prepared to congratulate him on the expenditure review.

12.40 p.m.

Lord Northbrook

My Lords, I endorse the comments of my noble friend Lord Saatchi and all noble Lords who suggest that we need a greater role for this House in scrutinising finance Bills and I support the six sensible proposals of my noble friend for the new Joint Committee to consider.

Initially, I make the point that, sadly, due to the House of Lords Act 1999, we are deprived of several notable speakers who supplied much wisdom on the Finance Bill of that year and whose absence today renders the debate the poorer.

Since May 1997, through stealth taxes, the Government have effectively increased the tax burden by 8p. Figures from the House of Commons Library show that the average family will pay a net £670 more in tax next year following tax changes coming into effect. That is in direct contrast to the Chancellor's claim that he has cut the tax burden on the average family. Indeed, almost half the figure of £670 is due to the abolition of the married couple's allowance—not a very family-friendly measure from a government in theory committed to the family.

The change in the tax burden over this Parliament is worth examining in more detail. The November 1999 pre-Budget report showed net taxes and social security contributions as a percentage of GDP rising over the course of this Parliament. In 1996–97 the figure stood at 35.3 per cent. In 2000–01 it has risen to 36.8 per cent and is forecast to be 37.2 per cent by 2001–02. Adding in the working families' tax credit, which has been treated as a tax cut rather than a spending increase, those figures are increased by 0.5 per cent.

The Government refused, until March 2000, to admit that taxes were rising. Instead, they made claims that, Next year the tax burden on a typical family will be at its lowest since 1972".—[Official Report, Commons, 9/3/00; col. 1179.] That was repeated by the Minister today. The Prime Minister himself said in November 1999 that, It is clear, as the figures show, that the tax burden is falling".—[Official Report, Commons, 24/11/99; col. 609.] In March 2000 the Government finally admitted that the burden of taxation had increased. The Prime Minister's official spokesman, Alastair Campbell, stated that, for the first two years of Labour government, taxes had increased. Figures published in May 1999 by the OECD showed Britain with the fastest rising tax burden—taking taxes as a percentage of GDP— in Europe, and its people paying more tax than those in Germany for the first time in a generation.

What taxes are we talking about? In the first three Budgets of this Government the tax burden was increased by £40.7 billion over the course of this Parliament, the ultimate stealth tax being the abolition of ACT, which brought £5 billion revenue to the Government. In this Budget, first, there is stamp duty. That tax on more expensive properties has quadrupled since the general election. The Chancellor is fond of pretending that the increase is borne entirely by the private householder. In fact, the majority of stamp duty is paid by businesses. The Government's refusal to even contemplate removing stamp duty from share transactions is again threatening to cause an erosion of business, indeed a migration of business, from this jurisdiction to the Continent.

Another stealth tax has not yet been introduced, but has been announced: it is the energy tax or climate change levy. The Government now seek to put that into law in the Bill and it will come into effect in April 2001. It will be particularly damaging for the manufacturing sector, especially those companies struggling to make a living and return in international markets. What is particularly unfortunate is that the tax, although in the Bill and supposedly in its final form, is still undergoing an evolution.

The CBI let it be known that certain companies will be eligible for rebates of up to 80 per cent. But many companies in the intensive energy sector will not. For instance, a large company like BOC will not qualify for technical reasons and will have to pay the full tax. That is an example of how unfriendly the Government can be to big business. Another example is the saga of the mixer company tax changes. By way of an aside, the mixer company tax regime is one of the few areas of tax left alone by the last Labour government—of which the noble Lord, Lord Barnett, was a member—and for good reason; there was nothing wrong with it.

In a Starred Question to the Minister on 23rd May I asked why the Treasury believed that those changes would have so little effect on multinational companies as opposed to the companies and advisers themselves who believed they would have a much greater financial effect. The Minister replied, Unless those who seek to attack the Treasury get their act together I do not believe that we should take them too seriously".—[Official Report, 23/5/00; col. 636.] I know that the noble Lord, Lord McIntosh, has been under great pressure of work and may not have realised the seriousness of those proposals. I always believed the problem was more serious than the Minister realised, especially when no less than three major firms of accountants were up in arms about it.

The senior partner of PricewaterhouseCoopers was attacked in the other place, even on the Floor of the House, for daring to suggest that it was a tax change deeply unfriendly to multinational companies. It was only after intense lobbying by the City companies themselves and their advisers and excellent and dogged work by Members in another place that the Government finally compromised and published measures, at the last minute on 15th July, which would allow companies to continue the practice of pooling earnings from high tax regimes with income front low tax territories to minimise British tax liabilities provided all the tax rates involved were 45 per cent or less.

However, criticisms remain with experts arguing that multinational companies with subsidiaries, say in New York, will be penalised because the 45 per cent rate applies to all taxes suffered, including withholding and state taxes. Also, multinationals with Japanese subsidiaries will be much worse off. In both cases the local tax rates are higher than 45 per cent. Can the Minister confirm how much worse off than before companies with off-shore pooling and subsidiaries in, say, New York or Japan, will be?

Turning to other aspects of the Budget, the Chancellor claimed he was raising income tax allowances in line with the rate of inflation. He also said that he was increasing excise duties on road fuels, beers and wine in line with inflation. However, as has already been stated, an examination of the Budget Red Book shows that different inflation rates have been used. What that means is that those excise duties go up three times higher than personal allowances—the ultimate stealth tax.

Next, I should like to comment on the further tax increase on fuel in the Budget. The AA commented that, For every £10 spent on petrol £8 is now handed over to the Chancellor. UK taxes on petrol and diesel remain the highest in Europe as does the price motorists pay at the pumps". After looking at several areas of the Finance Bill, I now want to turn my attention to the Comprehensive Spending Review. As is known, the headline figure—the biggest increase in spending by government for a quarter of a century—is an extra £51 billion over the next three years. The Economist writes as follows: Three big doubts hang over Labour's plans: the first concerns the abruptness of the Government's change of course. New Labour makes much of its determination to avoid boom and bust in the economy. But its approach to public finances is hardly one of steady as she goes. For its first three years in Government, the Government followed the Conservative spending plans". That may have lulled the financial markets into believing it was not just another spendthrift Labour Government. The Economist states that the problem now is that there is a danger that money will be wasted, and we on these Benches share that concern.

The second big doubt is that the Government, in projecting big spending increases over the next three years, assume that the good times will continue rolling. The noble Lord, Lord Tomlinson, says that the UK and US economies are near the peak of a boom. But the Economist says that it is unwise to assume a 12-year economic expansion continuing. If the economy slows, the Government will discover that financial market credibility is never to be granted to any government in perpetuity.

The third doubt is the most fundamental. The Prime Minister believes that Britain's deepest economic problem is under-investment and that the remedy is more money, combined with a complicated and demanding regime of public sector targets. That is too narrow a conception of the problem and its solution. As decades of experience show, the public sector is a bottomless pit. More money does not guarantee better services. Performance targets may be better than no controls at all, but it should be remembered that if central planning and targets worked the Soviet economy would have left the US far behind. Structural innovation matters as much as the cash. The keys to better quality are competition wherever possible and private money alongside public money.

To sum up on the Budget and the Comprehensive Spending Review, the Finance Bill is the longest ever and continues the trend of stealth taxes. As usual, many of the measures are different to the spin put on them. The CSR makes big assumptions on a continuing rate of economic growth. There could be big problems if the growth cycle slows or comes to an end.

12.51 p.m.

Lord Newby

My Lords, I begin by joining most noble Lords in mentioning the rather ludicrous nature of this debate. It has to be said that this week is a particularly good one in which to be talking about the ludicrous nature of activities in your Lordships' House, as we have seen many such examples in the past few days. Indeed, there has been a growing and increasingly vociferous agreement among noble Lords on all sides of the House that to debate a Finance Bill at a point when it has gone through the House of Commons and cannot be amended is an exercise in futility that we could better do without.

Therefore, I support the proposal put forward by the noble Lord, Lord Saatchi, and other noble Lords, that we need to do better in this area. My own preferred solution would be to split the Finance Bill with a separate taxes management Bill that could be considered seriously by your Lordships. However, in the short term, I propose that from next year we have a one-day debate within a week of the Finance Bill being published, on the tabling of a Motion in government time.

Perhaps I may give your Lordships an example, from my own experience, of the kind of expertise that I believe will be valuable in considering such matters. The current Finance Bill has a large section on employee share ownership. I am a director of a medium-sized company that has spent much time looking at the existing models of employee share ownership schemes. It is an area where I—this no doubt applies to many other noble Lords—have direct personal experience; indeed, probably to a greater extent than many of our colleagues in another place. In each section of the Finance Bill dealing with the management of taxes, I believe that similar considerations apply.

I turn from our internal matters to the economy. In terms of the general state of the economy, there is no doubt that, taken as a whole, it is in pretty good shape. Growth is buoyant, unemployment is low and inflation remains low. Any threat is always whether inflation will get out of hand; indeed, house prices have risen very quickly but now appear to be moderating. Wage pressure in the service sector in the South is certainly pretty considerable and very high levels of pay increase are being routinely awarded, especially in the sector in which I operate.

However, when we look at the rate of inflation in comparison with our European colleagues we find that by the measure that they use, but we do not—the harmonised index of consumer prices—the level of price increase in this country (at 0.7 per cent) is significantly lower than the European average. That raises the fascinating question, therefore, as to why we have significantly higher interest rates than our European colleagues if the rate of inflation, on a common measure, is lower. In my view, dealing with that kind of issue is but one of many advantages to be gained by being a member of a single currency in which we have a single understanding of inflation and a single interest rate. But, taking the HICP rate of 0.7 per cent, it also suggests that we do not have too much to fear in the short term as regards the level of inflation.

As a number of noble Lords have said, the major problem in the economy is that the prosperity that we are witnessing in this part of the country is not matched across all sectors and regions. The state of manufacturing is extremely worrying. Indeed, not only is it worrying now but the situation is, in my view, set to become worse. First, by staying out of the eurozone, manufacturing investment that might come into the UK will find its way elsewhere in the EU within the next two or three years, or until we join the single currency.

Secondly, indigenous manufacturers are currently cutting back on their plans for the future. The CBI report on manufacturing intentions that was published yesterday states that 21 per cent of all manufacturers are less optimistic about their outlook than they were tour months ago; and that no less than 39 per cent were planning to invest less in plant and machinery in the period ahead. We all share the preoccupation of the Government and of the Chancellor of the Exchequer with productivity, but there can be no doubt that the way in which productivity in the manufacturing sector will more nearly match that of our European and US counterparts and competitors is by encouraging higher investment in plant and machinery. With current interest rates and the present uncertainty about whether we shall become members of the euro, that level of investment will simply not happen.

I move on to taxation. I believe that the overall tax regime for most individuals and companies is relatively benign. As the noble Lord, Lord Marlesford, pointed out, we do not have the excessively high levels of tax that applied 20 years ago. However, I believe that there are a number of areas where we could see some improvement. Perhaps I may say how much I share the views expressed by the noble and learned Lord, Lord Simon of Glaisdale, about a local income tax. When I was a civil servant 25 years ago, I served on an interdepartmental working group that looked at alternatives to domestic rates. A local income tax was one of the options under consideration, but it was ruled out because it was technically impossible to introduce it. These days, with modern computer technology, it is no longer impossible to do so. In my view, it would be a desirable innovation.

Further, I should like to say a few words about international tax competition and competitiveness. Very few people within euroland really believe that it is sensible to have harmonised levels of tax—that is, exact harmonisation across the European Union. We are, of course, very far from that situation at present. However, there are two areas where major disparities in tax levels can be disadvantageous. Although corporate tax levels in the UK turn on the tax rate alone, that could lead to a much higher corporate tax take here as a proportion of GDP than is the case in Germany and in many of our other European partner countries. That is something that companies looking to locate within the EU increasingly take into account.

On the indirect tax side, there has been much talk of smuggling in recent months as a result of the increasing disparity between the excise duties here and those in the EU. As a former employee of Customs and Excise, I was amazed and appalled to read in the spending review that one of the key tasks—indeed, one of only two such tasks—to which Customs and Excise is committed over the next period is to reverse the current trend in tobacco smuggling so that, by the year 2004–05, smuggled cigarettes will represent no more than 18 per cent of the market. Leaving aside the spurious accuracy of 18 per cent, as opposed to 16 per cent or 20 per cent, I should love to know how that figure was calculated! Is it a sensible situation to find ourselves in at the beginning of the 21st century when smuggling is reaching levels not seen since the 18th century? The only way that the matter can be dealt with in this country is by having a closer approximation of tax rates.

I move from taxation to expenditure. I agree with the noble Lords, Lord Tomlinson and Lord Barnett, that the Government's decision to invest much more significantly in public services is greatly to be welcomed. Our starting quibble, as it were, is that we should not be starting from that point. Last year, expenditure on public services was at its lowest: level as a proportion of GDP for over 35 years. In the table I have in front of me the series of figures goes back to 1960. That is not a record of which the Government should be proud. Although I know that the Minister's heart sang as he read out the inordinately long Statement on expenditure a few days ago, the truth is that there needed to be such a big increase because there have been such big cuts in the past few years. Even in the year 2003–04, at the end of the current spending review, expenditure by the Government will still be at a lower level than in any but nine Of the past 30 years. Therefore, I do not think that we need feel that public expenditure is about to crowd out private investment or cause any significant problems for the economy.

We also have a number of questions about the balance of public expenditure. We are concerned, for example, that the Government failed to implement the recommendations of the Royal Commission on Long-Term Care of the Elderly. We also share the concerns expressed by the noble Lord, Lord Barnett, as regards the way in which expenditure is divided between the nations and regions of the country and the effectiveness with which it is spent. I believe that there are now about 50 spending programmes which in theory benefit the most disadvantaged parts of the UK. But their complexity, the overlapping boundaries, and the different eligibility criteria, mean that they are virtually inaccessible and, as a result, underexpenditure in those programmes has now become the unacceptable norm. We hope that there will be a root-and-branch revision of the basis of the Barnett formula to direct public expenditure to the regions and nations on the basis of need and not on the basis of the historic need of the noble Lord, Lord Barnett, to deal with his colleagues in a tight spending year.

In last year's debate I made two predictions about macro-economic circumstances: first, that we were unlikely to see a significant increase in inflation—which has proved right—and, secondly, that the pound was likely to rise against the dollar—which has proved wrong. That, incidentally, disproves the automatic "cyclicity"—if that is the right word—of the economies of the major industrial powers, which was discussed by the noble Lord, Lord Marlesford. I and most other people thought that the US economy would enter a possibly significant downturn. However, that has not happened and it does not look as if it will happen. Some of the rules under which we study economic forecasting may need to be changed.

I make two predictions for next year: first—this is the same as last year and is the prediction of which I feel most confident—inflation will not take off; and, secondly—this is both an aspiration and a belief—the pound is likely to fall against a rising euro. Last year I said that the key challenge that faced the Government was how to use the benefits of economic strength to improve public services. They have now at long last, thank goodness, grasped that nettle. The key question now for the Government is how effectively they can direct that expenditure.

1.4 p.m.

Lord Kingsland

My Lords, in the Minister's opening remarks—indeed, I believe, in his opening sentence—he said that this Budget continues to deliver on Labour's promises. In my submission, the one thing this Budget does not do is deliver on Labour's chief election promise, which was not to raise taxes.

On several occasions before the general election, the right honourable gentleman the Prime Minister stated, in terms, that the public expenditure programme envisaged by the Labour Party, if it won the election, would not imply any tax increases. Yet, as your Lordships are well aware, both from past debates in your Lordships' House and from many contributions from noble Lords today, the tax burden has risen.

In the second quarter of 1997, the tax burden was 35.6 per cent of GDP. In the second quarter of 1999, it was 37.7 per cent of GDP. Although direct taxes have dropped by £30 billion, indirect taxes have risen by no less than £70 billion. As the Minister is well aware, indirect taxes have the feature of discriminating against the poorer members of society—because indirect taxes are not progressive taxes.

The Minister made much of a figure he put to your Lordships today measuring the benefits that the average family derive from the Government's tax changes. I do not remember the exact figure; but I think that he mentioned an amount in the order of £800. The noble Lord the Minister will be well aware that the Opposition wholly reject that estimate. With the help of the Library in another place, we have undertaken our own analysis; and we have concluded that, far from improving the situation, the average family is £670 worse off as a result of the Government's fiscal measures.

Unlike the Minister, I am in a position to substantiate that figure. The analysis shows the impact in the year 2000–01 of post-election tax changes on a two-earner married couple with two children, assuming the couple to be on average income for their gender—that is, £24,800 for the husband and £18,150 for the wife. We assume they live in a Band D house, on which they have an outstanding mortgage of at least £30,000, that one of them smokes 20 cigarettes a day and the other is a non-smoker and that they drive 15,000 miles a year at 35 miles per gallon. All the figures have been calculated by the House of Commons Library staff, apart from the impact of the pension tax, which has been calculated by the accountancy firm, Chantrey Vellacott DFK.

The analysis shows that the average tax burden has gone up by £670. The Minister presented to noble Lords today a figure of £800. I invite him to tell us how he arrives at that figure; because it is clearly in total contrast to the analysis that the Opposition have carried out.

The noble and learned Lord, Lord Simon of Glaisdale, and many other noble Lords have emphasised the scale and complexity of this legislation. Schedule 6 alone, which deals with the impact of the energy tax and runs to no fewer than 80 pages, is an example of masterful occlusion. I cannot imagine anyone who is not qualified as a lawyer, indeed any lawyer who is not qualified as a tax lawyer, being remotely able to come to grips with the text. This is certainly not bringing the law-making process to the people.

But no amount of occlusion can disguise what is, in my submission, the most disingenuous act in this Budget, which is the indexing of tax allowances at the historic rate of inflation but indirect taxes at the expected rate of inflation⤔1.1 per cent to 3.4 per cent. That is an act which is clearly a fraud on the electorate. I invite the Minister to give a justification for it. There has been none in his statements so far. I can see no rational justification for having two different rates of inflation in a single Budget and a single tax law.

The tax burden has increased. But what improvements in the nation's lot have been engineered by the public expenditure that has flowed from these tax increases? The police force, far from increasing, has fallen from 127,000 to 124,000 in the past three years; there is no evidence that waiting lists are falling; and we know that crime, especially violent crime, is on the increase. So, despite the increase in tax revenues, the Government appear to have delivered no improvements whatever to the public sector.

Some of the tax increases at national level have failed to have the impact that the Government sought because they have not taken into account their international implications. I listened carefully to what the noble Lord, Lord Newby, said about taxes on cigarettes. The fact is that last year, as a result of taxation on cigarettes, revenues from this source dropped by £2.5 billion—and yet the Government are proposing an increase in real terms on cigarette taxation this year of 5 per cent.

The levels of smuggling of cigarettes have been variously estimated, as the noble Lord, Lord Newby, suggested; but it is in the order of one-fifth of the total number of cigarettes consumed in this country. How can the noble Lord and Her Majesty's Government successfully pursue an excise duty policy without engaging in negotiations with other countries of the European Community to prevent such breaches of the law?

A number of noble Lords spoke about the impact of the Government's expenditure proposals on interest rates. Forecasts of any kind in this area have to be made cautiously if the forecaster is to be prudent; but it is clear, as my noble friend Lord Marlesford said, that the economy is now under considerable demand pressure. It is also clear, not only from evidence gleaned by the Opposition but also from recent IMF publications, that the proposals of the right honourable gentleman the Chancellor of the Exchequer for expenditure over the next few years exhibit the characteristics of fiscal loosening.

The Monetary Policy Committee of the Bank of England, which has shown great caution in pursuing interest rate policy, is more likely than not over the next two or three years to consider that the impact of this increased public expenditure will require increases rather than decreases in interest rates, with all that that entails for the level of the exchange rate. Can the Minister assure the House that the implications of this additional expenditure over the next few years will not further harm the international competitiveness of our industry? It has been harmed enough by a variety of government policies over the past few years.

1.14 p.m.

Lord McIntosh of Haringey

My Lords, I made a series of headings for my response to the debate, and the headings were all about the Budget and the state of the economy. It is entirely proper that the debate should be used to cover wider issues than the Budget and the Finance Bill. Perhaps if I rapidly read those headings, the House will see how far the debate has been from a debate about the Budget. I was going to talk about supporting families; about tackling child poverty; about fairness for pensioners; about employment opportunities and making work pay; and about building stronger businesses. I was going to talk about groups and international operations, but the noble Lord, Lord Northbrook, in an exceptionally well focused speech, if I may say so—because he did talk about the Budget—covered that issue. I was going to talk about protecting the environment; about vehicle excise duty, car tax; about charities; and about the spending review. I have to respond to almost nothing of that.

It is in that context that I respond, very rapidly, to the points made by the noble Lord, Lord Saatchi, which he also made last year. He said that the House of Lords should be considering the Finance Bill in a more serious way, and he quoted a rather impressive speech by Mr Asquith in 1911. What he did not do was quote the reason why Mr Asquith had to make that speech. Lloyd George's "People's Budget" of 1909 was subject to the most ferocious opposition on the Floor of the House of Commons. Throughout the months of August and September, the House of Commons sat all night, every night, Cabinet Ministers working on a rota system, while the Conservative Opposition sought to oppose, root and branch, one of the most progressive Budgets of our century. At the end of that process, the House of Lords turned it down flat. That is why we have a Parliament Act and that is why an unelected Chamber is not responsible for the finances of this country—nor will it be.

The noble Lord, Lord Saatchi, made some practical points. I acknowledge them, as I acknowledge the tributes that have been paid to the excellent report of the noble Lord, Lord Norton. Certainly it is worth considering the idea of a tax management Bill as a separate Bill. That has been considered, but it has not been thought that it would produce any improvement on the present arrangements. We do not think that it is necessarily true that it will produce more effective decision making. What we have done with what will be in a few minutes the Government Resources and Accounts Act will do far more to encourage the effective scrutiny of public expenditure.

The timing of business in this House is not a matter for me. When the question was raised a year ago, I said—I say it again—that when we were in opposition we used an opposition day soon after the Budget to debate these issues. I invite the Opposition to do the same thing rather than to suggest that it should be done in government time. The House knows that there is no such thing as government time; there certainly was not yesterday.

I shall try to respond to some of the points that have been made, although they were so unpredictable that it becomes very difficult. First, let me say something about the tax burden, a matter referred to by the noble Lords, Lord Kingsland and Lord Northbrook. We have been talking in parallel without meeting on the tax burden for a long time. The Opposition have been talking about an increase in the tax burden since May 1997 and we have been talking about the undoubted fact that the tax burden is falling at the moment. I do not want to overestimate the importance of the tax burden. It is, of course, a ratio between taxes and GDP—and GDP is rising faster than noble Lords opposite thought it would. The fact is that taxes are falling. Personal tax and benefits changes in this and previous Budgets will mean that households on average will be £460 a year better off, and families with children on average will be £850 a year better off.

The noble Lord, Lord Northbrook, accused us of introducing a stealth tax with the climate change levy—

Lord Kingsland

My Lords, I am grateful to the noble Lord for giving way. I do not expect the noble Lord to answer this question now—I hope that he can but I do not expect him to answer it now. Can he set out in a little more detail the basis on which those figures are arrived at?

Lord McIntosh of Haringey

Yes, my Lords. I shall do so in a considered letter which I shall send to all noble Lords who have taken part in the debate. I shall also place the letter in the Library of the House. It is not physically possible to answer the question now even with the extensive briefing on the Bench beside me.

The noble Lord, Lord Northbrook, raised a specific point. He criticised the climate change levy. That will be broadly revenue neutral across services and manufacturing. We recognise that there are difficulties for some heavy energy users which is why there are available discounts of up to 80 per cent for those who achieve energy-efficiency targets. That is a difficult area, but we have—as he knows—international obligations. The noble Lord asked about petrol prices. It is a fact that the recent increase in the price of petrol was not an increase in tax but an increase in the price of petrol itself. Given that the international price of petrol has gone down recently from 30 dollars a barrel to 27 dollars a barrel, let us hope that the petrol companies will do their duty and reduce prices at the pump. That seems to be a reasonable expectation.

The noble Lord, Lord Newby, was concerned about smuggling. In general terms, it is true that the higher the differential, the more temptation there is for smuggling. However, that is not always the case. Italy and Spain have very low duty rates on cigarettes and yet they still suffer from significant smuggling. So it is not as simple as that.

The noble Lord, Lord Northbrook, asked about double taxation relief. He asked specifically about some companies with subsidiaries in New York and Japan, and whether they would be worse off under the mixer company changes. I do not think that he has fully taken in the significance of the changes which we announced on 15th July. If a UK company has subsidiaries in New York and/or Japan directly from the United Kingdom, the current position is that relief for foreign tax cannot exceed 30 per cent, which is the UK tax payable on a dividend. It will be possible in future for companies to have relief for this foreign tax of up to 45 per cent. Again, it is a complicated issue. Rather than pursue it now, I should like to write to the noble Lord about it.

I am passing over the matters I wanted to talk about to refer to the points I have to talk about because noble Lords raised them. The noble Lord, Lord Jacobs, referred to the tax burden for those on the national minimum wage. He has ignored the fact that the combination of the working families' tax credit and the reform of national insurance contributions—in other words the imputed national insurance contributions up to £9,000 per year—together with the minimum income guarantee of £214 per week for a family with at least one person in full-time work answers very precisely the points he raised in the debate.

The noble Lord, Lord Newby, claimed that the corporate tax burden was higher in the UK than among its competitors. That is the reverse of the truth. Corporation tax rates are at their lowest level ever. The Chancellor has made a clear commitment to keep those rates at the current level. They are, taken as a whole, the lowest in industrialised countries.

I have specific points to make to the noble and learned Lord, Lord Simon of Glaisdale. He asked where we are in the economic cycle. We say where we are in the economic and fiscal strategy report. We did so at the end of last year; we shall do so at the end of this year. I do not think that it is appropriate for me to provide a running commentary.

We have looked very carefully at the question of a general anti-avoidance rule. The Chancellor of the Exchequer has recently considered this matter very carefully. In the light of concerns expressed by business, he has come to the conclusion that it would place greater uncertainty and greater burdens on business. That does not mean that he is not determined to combat avoidance.

Lord Simon of Glaisdale

My Lords, in saying that the committee was considering it, does it not reinforce the desirability of keeping that going? Merely to say that the Chancellor thinks that it should be wound up is unsatisfactory.

Lord McIntosh of Haringey

My Lords, I do not think that it matters very much whether it is a committee which considers it. The point is that the Chancellor has considered the matter. He has taken account of representations by business which say that it would be a burden to them because they would have to assess what it might mean with the Revenue, in effect, concealing its hand. That is the difficulty about a general anti-avoidance rule.

The noble and learned Lord asked about the North/ South divide. Noble Lords have asked also about the Barnett formula. The improvement shown in the economy has been across all regions of England, Scotland and Wales. If there are any differentials, those differentials are reducing rather than increasing. As to local income tax, that is a matter which the Liberal Democrat Party will continue to pursue, as the noble Lord, Lord Newby, has confirmed—and good luck to it!

Behind all that lies a view of our public finances and the state of our economy. I am grateful to all noble Lords—particularly the noble Lords, Lord Tomlinson, Lord Newby, and Lord Marlesford—who have congratulated the Chancellor on his wise management of the economy over the past three years. Of course, there are still problems. There are problems for the manufacturing industry. There is the high level of sterling in relation to the euro, and higher short-term interest rates, although of course long-term interest rates are much more convergent. All those problems need to be resolved as we come to consider the economic arguments of whether we would be recommending to the country entry into the euro. Everything said today has confirmed my view that the combination of the Budget which was announced in March this year, the Finance Bill which completed its progress through the House of Commons in the past few days, and the spending review which follows from our public expenditure and revenue commitments is the right solution for the country and will continue to take us into the new century in a spirit of confidence and growth.

On Question, Bill read a second time; Committee negatived.

Then, Standing Order No. 46 having been dispensed with (pursuant to Resolution of 25th July), Bill read a third time, and passed.