§ 7.32 p.m.
§ Lord Saatchi
My Lords, I beg to move that this Bill be now read a second time.
First, I should like to say what a privilege it is to have the opportunity to introduce this Bill into your Lordships' House. I express my gratitude to noble Lords for attending the debate. I should also like to thank the usual channels for giving time for this Second Reading debate.
I thank also many noble Lords on all sides of the House who have given my noble friend Lord Kingsland and I the benefit of their experience and wise counsel during our deliberations on the Bill. Although it is presented from the Opposition Front Bench, my noble friend and I have sought above all a cross-party approach, not a party political one.
The Bill's objective is simple. It seeks to improve the quality of financial legislation by applying greater parliamentary scrutiny to it, so that tax is simpler and more transparent. It seeks to do this by bringing about a redefinition of a money Bill for the purposes of the 1911 Parliament Act so that the present blanket disqualification on House of Lords involvement in public finance is partly lifted.
It may be helpful if I begin by explaining the need for the Bill and then describe the cure that it might provide. The Treasury Select Committee in another place explains in its latest report, published in January, that the passage of Finance Bills through Parliament affords insufficient opportunities for scrutiny of complex measures. The noble Lord, Lord Barnett, a former Chief Secretary to the Treasury, told the Commons committee:The Finance Bill and the way it is examined by Parliament is totally inadequate, so you get very bad legislation on the statute book and there is no opportunity for the House of Lords or any Select Committee to look at it from a purely technical point of view".The Select Committee concluded:We are dissatisfied with procedure on the Finance Bill, which lets badly drafted and insufficiently tested tax legislation onto the statute book every year".The difficulty of giving a detailed Finance Bill proper scrutiny in Parliament is reflected in widespread concern about the complexity of the resulting tax system. The Institute of Chartered Accountants states:The Finance Act 2000 ran to a staggering 624 pages. Much of this legislation was barely debated in its progress through Parliament. Many of the provisions became law without either a thorough review or the time for second thoughts or worthwhile amendments".1499 The ICA summed up with the statement:The tax system has spun out of democratic control".No citizen, however intelligent, can match the massed ranks of No. 10, No. 11 and the Treasury: one man against the legions of Rome.
That is the need, but what is the cure? Someone needs to carry the torch for transparency, simplicity and openness in the tax system—but who? It should, of course, be Parliament, but one part of Parliament is disabled in this area; namely, your Lordships' House. As a result, the Bill that should receive the greatest parliamentary scrutiny actually receives the least. Let us consider the Finance Bill 2000, which has the official status of being the longest-ever Finance Bill. The length of debate in the House of Commons was 101 hours and 39 minutes over 93 days. Now let us consider the Finance Bill 2000 in this House. The length of debate was two hours and 29 minutes, on a Friday morning in July on the last day of the parliamentary Session.
Why is that the case? It stems from a decision by this House from which much of our political history takes its origin. If noble Lords will forgive me, perhaps I may briefly revisit the events of November 1909 when this House rejected Lloyd George's "People's Budget". The Government then secured the passage of the Parliament Act, the terms of which enabled the House of Commons to enact a money Bill within a month of its passage, notwithstanding any objections raised in this House.
Notable aspects of this history were recently addressed in this House in a splendid duet of speeches by two of the country's most distinguished Law Lords, the former Solicitor-General, the noble and learned Lord, Lord Simon of Glaisdale—whom I am delighted to see in his place—and the former Master of the Rolls, the noble and learned Lord, Lord Donaldson. They reminded us, first, that examination of the recitals to the 1911 Act show that it was intended only as an interim step. The Preamble states:Whereas it is intended to substitute for the House of Lords, as it at present exists, a second chamber constituted on a popular instead of a hereditary basis, but such substitution cannot be immediately brought into operation … It is expedient to make such provision as in this Act appears for restricting the existing powers of the House of Lords".The noble and learned Lord, Lord Donaldson, said that these recitals showed that the Parliament Act was,an interim measure … pending a constitutional change".The 1911 Act, he says, contained,the agreed terms of an armistice".The second relevant aspect of the history of the Parliament Act 1911 was the motivation behind it. The record seems to show that its raison d'être was the hereditary nature of the upper House. Commending the Parliament Bill to the House of Commons on its Second Reading, the then Liberal Prime Minister, Mr Asquith, 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".1500 Winston Churchill, campaigning for the Parliament Bill around the country, asked:Why should their children govern our children? Why should the sons and the grandsons and the great grandsons have legislative functions?".He hoped that the Bill would be,fatal to the hereditary House of Lords".But let us consider how much has changed since then. The House of Lords Act 1999 removed the hereditary Peers. The noble Baroness, Lady Jay, the Leader of the House, said that this reformed House is now,more democratic, more legitimate. more authoritative".Speaking during the passage of the House of Lords Bill, the noble and learned Lord, Lord Williams of Mostyn, the Attorney-General, said that the reformed House of Lords would be,more democratic, more legitimate…and better equipped to do its proper job of scrutinising legislation and holding the executive to account".—[Official Report, 20/4/99; col. 1078.]Membership of your Lordships' House now includes seven former Chancellors of the Exchequer, seven former Paymasters General and nine former Chief Secretaries to the Treasury, as well as many professors of economics, academics and men of business. Soon they may be joined by a number of elected Peers under the Royal Commission's recent proposals.
In its report Strengthening Parliament the Norton Commission, headed by my noble friend Lord Norton of Louth, said: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 Bill before the House this evening provides a simple mechanism to enable that to happen. It does so by making a distinction between the principles of taxation—properly the preserve of the House of Commons alone—and the mechanics of administration, on which the House of Lords would be allowed to express a view, subject always to the veto of the House of Commons. That is described in a memorandum on proposed parliamentary procedure, which I hope all speakers in tonight's debate have received from both my noble friend Lord Kingsland and myself.
It is important to say that the distinction described in the clauses of this short Bill is one that has been recommended by the Institute of Chartered Accountants, by two Select Committees of the House of Commons, and by my noble and learned friend Lord Howe of Aberavon. Therefore, nothing in the Bill challenges the supremacy of the House of Commons. Nothing in it denies, as the noble and learned Lord, Lord Simon of Glaisdale, says,that the vouchsafing of fiscal authority to the other place is a necessary conclusion".Nothing in the Bill will delay by one day the process of revenue raising by the government of the day. However, it would allow Parliament—all of 1501 Parliament—to provide a much needed disincentive to tax complexity. and act as a spur to a simpler and more transparent tax system.
Your Lordships' House has often shown that it is a good, technical revising Chamber, sometimes asking the Government to think again and often getting better legislation as a result. Your Lordships' House has the expertise and the authority to help the House of Commons in the awesome task of holding governments to account on the public finances. What it lacks is the power—the power to help—which is what this Bill would provide.
Times have changed. So it is time to say, as the noble and learned Lord, Lord Simon of Glaisdale, said in the 1950s, "Change is our ally". I hope that the Minister will follow tonight the injunction expressed last week by the noble and learned Lord the Attorney-General:You are put in this life to question aren't you? You have to wonder why things should remain the same. Often there's no reason why they should".I commend the Bill to the House.
Moved, That the Bill be now read a second time. —(Lord Saatchi.)
§ 7.43 p.m.
§ Baroness Noakes
My Lords, I rise to support the Bill introduced by my noble friend Lord Saatchi. I should say, first, that I am no expert on the constitution and can offer no insights there. I speak as a chartered accountant and, indeed, declare an interest as a member of the council of the Institute of Chartered Accountants.
Chartered accountants have had major concerns about the quality of tax legislation for some time. As we heard from my noble friend Lord Saatchi, the Institute of Chartered Accountants issued a Tax Manifesto last year which claimed that our tax system had spun out of democratic control. That may seem fanciful language, but it reflected a genuine belief that the existing parliamentary scrutiny processes are simply not effective enough in the face of the increasing volume and complexity of tax legislation.
Chartered accountants fully support the involvement of the House of Lords in tax legislation because they see this as a way of getting better tax law. Some cynics may claim that accountants have an interest in complex tax legislation in order to increase their usefulness, and hence their fees. However, I can assure noble Lords that chartered accountants have no interest whatever in badly drafted legislation, ineffective legislation, or legislation that has perverse consequences. Good, workable and effective legislation is at the heart of what this Bill is seeking to achieve. If we can also achieve a simpler tax system, that would be an added bonus. I believe that the involvement of your Lordships' House would help to turn the tide of complexity that successive Finance Bills have introduced.
In the year that I qualified as a chartered accountant, 1973, the Finance Act ran to 59 sections, 22 schedules, and took up 116 pages. I thought then that that was pretty onerous, so I opted for the easy life 1502 and chose not to specialise in taxation. Subsequent volumes of tax legislation vindicated that decision; for example, 10 years ago, the relatively modest Finance Act 1990 had 133 sections, 19 schedules and ran to 191 pages. As we heard, last year's monster effort ran to 624 pages, encompassing 157 sections and 40 schedules.
I do not believe that the time available for scrutiny in another place has kept pace with that volume, if it has increased at all. Indeed, I understand that the poor quality of draft tax legislation has contributed to the problem of scrutiny, with an increasing volume of technical amendments needed to make sense of the Bill taking up the time of the Committee stage in another place.
Bodies such as the Institute of Chartered Accountants spend a lot of time commenting on tax proposals, including the provisions of Finance Bills. The vast majority of those comments are designed to improve the effectiveness of the legislation and to reflect the practical concerns of taxpayers. Other professional bodies, and many trade associations, do the same. It is a source of increasing frustration to those bodies that their voices are not heard. The Government can, and do, ignore representations. They do not even need to reply to them. With little available time in the other place, these carefully thought out contributions often seem to vanish into the ether.
Perhaps I may illustrate the frustrations of the current process and the benefits that would follow from this Bill. Schedule 12 to the Finance Act 2000 contains eight pages entitled, "Provision of Services Through an Intermediary". Noble Lords may be more familiar with this as the infamous IR35 proposals—the attack on self-employed contractors sneaked in at the bottom of a huge pile of Inland Revenue press releases issued with the 1999 Budget. It was clear to many from the language of the press release that this was not a subject on which a lot of listening would happen. 'The Inland Revenue issued a Summary of Issues paper after the Budget. Although this was not billed as a consultation document, it did, nevertheless, result in a large volume of submissions from the Institute of Chartered Accountants and many other professional bodies, including the lead trade body on the issue, the Professional Contractors Group. There were indeed some changes made when revised proposals were issued later in 1999, reflecting some, but far from all, of those submissions. Further representations were then made.
Then the Finance Bill was published last year, containing what is now Schedule 12. There were still many problems perceived by those commenting on the provisions, but very little change was made during the Bill's passage. Some of those concerns related to the consistency of the proposed provisions with European legislation, but those points were not taken into consideration. As noble Lords may be aware, the Professional Contractors Group has been forced to take the very extreme step of seeking a judicial review 1503 of this legislation in order to get its views heard. As I understand it, that case is before the High Court this week.
If this Bill becomes law, your Lordships' House will have a great opportunity to make a positive contribution; for example, a Select Committee of this House could take evidence from many sources, including the Government. At the very least, that would give a proper forum for the views of professional bodies and trade bodies—the taxpayers' concerns would be heard. I have every confidence that such a committee could handle the complex tax issues, as well as those relating to European law. Such a committee could have helped to ensure that the intent behind IR35 resulted in effective legislation.
IR35 is a relatively simple example of how controversial tax legislation is pushed through. There are many much more complex examples, such as the ongoing saga of the Government's attempts to change the way in which double tax relief is applied, but I shall not weary noble Lords this evening with a detailed explanation of that. Suffice to say that the skills of dispassionate scrutiny in your Lordships' House that are much admired could be deployed to great effect in such cases in the interests of simple and effective tax legislation.
I am sure that all who deal with tax legislation outside the Government will heartily support the Bill. I hope that the Government may also reflect that it is in their interests also to harness the undoubted skills of this House in the cause of better and simpler tax legislation.
§ 7.51 p.m.
§ Lord Simon of Glaisdale
My Lords, it is a privilege to follow the noble Baroness. I have only intermittently been concerned with the complexities and difficulties of our fiscal code and, intensively, only over a short time, whereas the noble Baroness has had to deal with it day in and day out.
I am glad to support the Bill which has been explained so clearly by the noble Lord, Lord Saatchi. Your Lordships will remember a famous inscription on the tomb of Sir Christopher Wren in St Paul's Cathedral. It is written in Latin but I know that your Lordships despise the way that lawyers pronounce Latin. Therefore, I shall translate it freely. It states, "If you seek my monument, look at what surrounds you".
Therefore, if we seek a reason for the Bill, we need not look far. Recently there have been two measures which throw great light on that. The first is the Capital Allowances Bill. That was the first measure of the rewrite of the fiscal code. It is massive and concerns only a small part of the income tax code. Indeed, the Explanatory Notes are barely susceptible of being lifted by someone of my age. We would not need the fiscal rewrite, which we owe primarily to the noble and learned Lord, Lord Howe of Aberavon, if there had been proper scrutiny of the measures that are now rewritten.
1504 The second monument, which is almost as massive—in fact, it is more massive—is the most recent Finance Act, the Finance Act 2000. It has 613 pages and 157 sections. One might note that capital allowances occupy only 11 of those 157 sections. It has 40 schedules. If your Lordships think that that is a bit meagre, I hasten to add that many of the schedules contain a number of parts. Schedule 6, for example, contains no fewer than 14 parts. Schedule 14 contains no fewer than nine parts. I say in passing, as I shall come back to it, that that was a money Bill, as most of the recent Finance Acts have been.
As I say, we would not need a rewrite if the measures had been properly scrutinised in the first place. That is not only the job of the House of Commons, which in fact performs it quite indifferently, but also of your Lordships' House which has no fewer than five former Chancellors—if I have counted correctly, but I rather think that the noble Lord calculated that there were more so I probably have not thought of them all— three former Chief Secretaries to the Treasury and a former Permanent Secretary. Above all, your Lordships' House, as is generally agreed, has at least this primary duty; namely, to scrutinise legislation. If ever there was a case for scrutiny, it concerns the fiscal code. The noble Lord's Bill has done that skilfully. He has distinguished between, on the one hand, the type and incidence of the taxation, which is entirely a matter for the other place, and, on the other hand, what may be loosely called tax management and the minutiae of the fiscal code.
The fact that those were amalgamated goes back to the "People's Budget" of 1909 which contained so much more than purely fiscal measures. In particular, it was designed to pave the way for the taxation of land values and, ultimately, the nationalisation of land. I am afraid that I am old enough to remember the Liberal land song, "God gave the land to the people". It was that that prompted the skilful manoeuvring and tactical adroitness of Lloyd George who carried out what was more than a fiscal measure and dared the House of Lords to reject it, which, very stupidly, it did.
So much for tax management. But even there the Bill ultimately surrenders the last word to the other place—I think quite rightly. Nowhere does the Bill do more than entitle your Lordships to scrutinise. Any amendment is subject to the discretion of the other place. We must ask why there is that distinction between the incidence of tax and the type of tax which is a matter for the House of elected representatives and not primarily—not except by way of scrutiny and suggestion—a matter for the House of elite representatives. The reason is that through their representatives the people can influence the way that the Government's proposals for taxation shall be implemented; in other words, how much of their own money shall be taken in providing services to themselves. The elected representatives being closer to the electorate, although not very close in the latter part of a Parliament, they are the people to be influenced. One should not exaggerate that because of the 1505 executive dominance in another place and the many restrictions on the fiscal initiatives of private Members of another place.
I said that I would return to the Finance Act 2000. I wish to draw attention to Schedule 39. That schedule amends the Taxes Management Act 1970. That Act was not a money Bill. It was given a Second Reading in your Lordships' House and then went to the Joint Select Committee on Consolidation Bills. But the amendment was to the Finance Act 2000; it was a money Bill. I ask the Minister who will reply to the debate this question: why should not amendment of the 1970 Act be scrutinised in the way that the 1970 Act was itself scrutinised by your Lordships' House and the Joint Select Committee? That provision is now hidden away towards the end of a money Bill.
I hope that the Minister will respond to the debate and will not show himself to be one of the forces of conservatism.
§ 8.3 p.m.
§ Lord Blackwell
My Lords, it gives me great pleasure to support my noble friend Lord Saatchi on this Second Reading, as on so many issues. I go further than my noble friend. The House would still have restricted powers with respect to some aspects of money Bills, rates and incidence of taxation on individuals. I see no reason to have any distinction or limitation.
My arguments come under two headings: practicalities; and constitutional issues. On the practicalities, the arguments have been expressed well by my noble friend Lord Saatchi and the noble and learned Lord, Lord Simon. This House contains a wealth of talent. I shall not compete with them in counting the number of former Chancellors and Permanent Secretaries in this House. My noble friend mentioned academics; and there are many noble Lords, such as my noble friend Lady Noakes, with experience in accountancy and financial services. Many noble Lords have practical experience in business. I shall return to that point. So much of the tax legislation falls on the business community rather than on individuals. It is where the complexities and the need for scrutiny are most intense.
The point has also been made that another place has insufficient time to undertake adequate scrutiny. If this House were to be so engaged the time available for such scrutiny would be increased. It would also add to the quality of the scrutiny not only because of the experience of noble Lords but also because it would be possible for this House to do what it does so well: to bring in points of view from experts; and to consider amendments in a less party political atmosphere than in another place. Therefore there is opportunity for considered views from the accounting professions, the business community and others to be debated in a rational way in this Chamber in a manner that might not occur in another place.
1506 I have had the privilege of serving recently on the Joint Committee on tax simplification. The Joint Committee of both Houses worked well, albeit in a limited way. It provides one option for further involvement of this House although it is clearly not the only way. This House has opportunities for debates and has its own Committee stages of Bills.
One of the practical issues is the need to avoid delay. On other occasions, my noble friend Lord Saatchi has argued that there are many ways to avoid delay: for example, by having Sessions in parallel. Given the need to ensure that legislation is passed quickly, if this House has in all other respects full powers over financial legislation, I see no reason why we should not be prepared to concede that legislation in this area should not ping-pong backwards and forwards or be delayed from one Session to another. It would be reasonable to concede that amendments passed by this House might be overturned by another place without recourse to this House. The benefit of having such amendments tabled and considered would make it a worthwhile process even if we had no power, for obvious reasons, to delay Budget matters. The practical arguments come down clearly in favour of the benefits of engaging the expertise and the time of this House in that process.
I turn to the constitutional arguments. Many of those arguments—they relate to the 1911 Act—go back to the popular cry around the time of the American revolution of, "No tax without representation": that it was solely the people, through their representatives, who should levy taxes on themselves. But matters have moved on since those days. In recent years, the House of Lords has demonstrated that it can be the Chamber which defends minorities and minority interests against what some may say at times has become an elective dictatorship in another place. It is true that a government in another place has a mandate and its business must get through. However, one of the dangers of a large majority in another place is that the interests of minorities do not always receive proper attention. If they so choose, an autocratic government can use their majority to act in an autocratic fashion.
The notion of popular scrutiny by the representatives of the people which underlies the notion of no taxation without representation can no longer be applied to the way in which legislation often passes through the other place. The House of Lords can make the Government think again. In that sense, it can be a defender of minority interests, in particular with regard to financial matters—for example, when a government seek to impose taxes which appear to have no victims but which damage many individuals who are unaware of the impact of the laws and taxation. The legislation that imposed taxation on pensions is a good example of that and it has been cited many times in the House. Taxes have been imposed on many other occasions on groups that have not necessarily had a voice. As in so many other areas, this Chamber could act as a guardian to ensure that those minority interests were heard.
1507 I come back to the business community. Where is the representation for the business community, on which so much taxation falls? This House has more active representatives of the business community than the other place. They are aware of the implications of certain tax changes and can draw them to the attention of the House, the Government and the people at large. It is a valuable aspect of this House that, because it has more representatives of the business community, it can more properly hold the Government to account for the implications of some of the taxation levied on that community.
At the time that the slogan, "No taxation without representation" was coined, the idea of public companies or joint stock companies was still fairly vague and dim. Two hundred years ago, taxation on companies effectively meant taxation on individuals, because they were the holders of the shares. Now that the ownership of companies is dispersed, taxation on business does not fall so much on individuals, except indirectly on those who ultimately benefit through pensions. It is difficult to argue that the representatives of the people are the best qualified to understand the implications for wealth creation and employment of taxation on business. Even though the elected representatives must have the final say on tax policy, there is an increasing argument for allowing people who can bring to bear expertise from other areas to play a role in scrutiny and proposing amendments.
The House of Lords does not need to wait for a change in status before carrying out that role. Some may say that the proposals are all very well, but we should wait until we have a reconstituted House of Lords. As I have made clear in the past, I do not believe that the democratic legitimacy of a second Chamber depends on it being elected. Many of the benefits that this House brings stem from having the kind of representatives that we have now. The mix of skills brought in through the current system can be of most value on issues such as tax policy.
Finally, I do not understand why tax and money Bills should be distinguished from any other legislation on which this House plays a valuable role in scrutinising and proposing amendments. Why should a Bill to impose taxes be any more vital to the rights of individuals than legislation on many other issues: human rights, on which this House has an important role; criminal law; the large amount of legislation on benefits, which affects the pecuniary interests of individuals just as much as tax; or education, which is rightly a priority and a key element of the rights of individuals to access opportunities in society? Why is it right for this House to opine on those issues, but not on tax law, on which in many ways it has particular expertise? I do not see any practical or constitutional reasons why this House should have different powers or rights on tax or money legislation than on other legislation, except on the specific issue of ensuring that the timetable for the consideration of amendments is kept to a minimum so that legislation can be passed through both Houses in an appropriately short period.
§ 8.15 p.m.
§ Lord Norton of Louth
My Lords, it is a pleasure to follow my noble friend Lord Blackwell. Picking up on what he said, the underlying principle of the debate should be, "No taxation without proper scrutiny".
I welcome the Bill. In my brief comments I intend to focus on the intended consequences, as outlined by my noble friend Lord Saatchi. I have argued before that your Lordships' House should complement the first Chamber rather than compete with it. A complementary role ensures that the accountability of our present system, with the party in government being answerable to the electors, remains intact.
By virtue of its membership and its activity, this House fulfils a particularly valuable role in scrutinising legislation, policy proposals and the actions of the Government. The juxtaposition of membership and activity is important. This House enjoys legitimacy as a scrutinising Chamber, complementary to the first Chamber, but that legitimacy has to be earned. We cannot take it for granted. We have to work to prove our worth.
I believe that we have done so. Indeed, I believe that we presently do so more effectively than the other place. However, that fact constitutes no basis for complacency. As well as working hard to prove our worth, we have to find ways of reinforcing and extending the good work that we do. We need to build on what we have and what we do.
As my noble friend Lord Saatchi said, I had the honour to chair the Commission to Strengthen Parliament, set up by my party leader in 1999. The Commission reported in July last year. In our report, entitled Strengthening Parliament, we emphasised the valuable work done by this House and argued that it should play to its strengths. My noble friend has already touched on that. We stressed the committee work of your Lordships' House. We wanted more sessional committees. We noted that the House was especially well placed to address cross-cutting issues such as macro-economic policy. We also made the case for Bills to be referred for Select Committee scrutiny before their Committee stage on the Floor of the House.
I very much welcome the creation of the Joint Committee on Human Rights, the Economic Affairs Committee and the Constitution Committee, which I chair. I welcome the appointment of ad hoc committees on stem cell research and scientific experimentation on animals. I would like the House to build on those developments. The Bill is a means of achieving that. It moves in the direction signalled in Strengthening Parliament. It plays to the strengths of this House without challenging the supremacy of the first Chamber. Far from challenging the first Chamber, my noble friend's proposals should be of considerable benefit to the other place.
The Bill creates the conditions for subjecting a Bill—in this case the Finance Bill—to Select Committee scrutiny. I would like that to be a precedent for how we deal with other Bills. In this case, the scrutiny by Select Committee would be advisory and confined to the 1509 technical issues of tax administration. Any amendment made to the Finance Bill could be struck out by the Commons.
As various noble Lords have said, your Lordships' House has the expertise to make a Select Committee on the Finance Bill highly authoritative. Like the other place, your Lordships' House has some former Chancellors and Treasury Ministers among its members, as well as a number of economists. Unlike the other place, this House also has former governors and directors of the Bank of England, former Treasury mandarins and those who have served in positions in the International Monetary Fund and World Bank. The noble Lord, Lord Roll of Ipsden, has combined virtually all those positions.
This House has a wealth of talent—detached talent that is independent of party and talent that can be deployed to effect. One has only to look at the membership of the Economic Affairs Committee to see the expertise that is available. That committee by no means exhausts the expertise and experience available in this House.
The appointment of the Economic Affairs Committee and, earlier, that on the monetary policy of the Bank of England, also confirms that this House is qualified to undertake reviews of such matters. The principle underpinning committee scrutiny by this House in this sector has, in effect, been conceded. Therefore, we are discussing not so much a matter of principle but rather how to give effect to it.
My noble friend outlined how the provisions of the Bill would enable such scrutiny to be undertaken. I have no quarrels with how he described it. I believe that the measure before us is excellent. As I said, it plays to the strengths of this House, and I see no reason why it cannot be considered on its merits—that is, as a free-standing measure, independent of any wider debate about your Lordships' House.
At this stage was intending to anticipate, as I have done on previous occasions, what the response of the Minister might be. However, on this occasion I shall leave him to develop his speech and shall see whether he makes the point that I had in mind. If he does, I shall intervene then.
I conclude by saying that I consider this to be a constructive and highly desirable measure. It fits squarely with the proposals advanced by the Commission to Strengthen Parliament. During the debate at Second Reading of the Finance Bill last July, the Commission report not only attracted praise from my noble friend Lord Saatchi and the noble Lord, Lord Barnett; it was also described as excellent by the noble Lord, Lord McIntosh of Haringey. I hope that he will see this Bill in the same light.
§ 8.21 p.m.
§ Lord Newby
My Lords, together with all other noble Lords who have spoken, we are extremely grateful to the noble Lord, Lord Saatchi, for bringing forward the Bill at this stage and also for the cross-party approach that he has adopted. We agree with him that transparency, simplicity and openness should 1510 be hallmarks of the tax system and of the way in which it is amended. We agree that those are not hallmarks either of the current tax system or the current system for changing it.
However, I disagree with a number of noble Lords in relation to the degree of democracy and legitimacy of this House. I do not believe that we on these Benches are proposing to move away from the principle of no taxation without representation. We are not even suggesting that when, in the fullness of time, the House of Lords is a wholly elected body, it should necessarily have parity with the House of Commons in terms of taxation measures. I say that not least for the purely practical reason that, were anyone to make such a suggestion, it would guarantee that such a reform would never take place. No House of Commons would ever agree to it. If we are to make any change in this respect, I believe that we must accept that as a raw reality of politics.
However, as the Bill proposes, it should be possible to separate from the type and levels of taxation discussion on the detailed rules relating to its implementation. I am sure that the Treasury would argue that, finally, everything contained in a Finance Bill relates to the level and burden of taxation.. However, frankly, I do not consider that argument to be sustainable. I believe that in what currently forms the Finance Bill it is possible to separate the clauses which deal essentially with levels of taxation from the detailed clauses which deal with its implementation.
If there are problems at the margin in that respect, one should remember that the House of Commons can vote against any amendments passed in your Lordships' House and, thus, they retain the last word. Therefore, I hope that we shall not be invited to accept an argument that such a proposal is too intellectually complicated to achieve.
Obviously, we agree that expertise in this House could and should be brought to bear on taxation matters. I also believe that there is a willingness among at least some of those who have that expertise to spend time and effort examining the tax system. The two remaining questions are: how best can we do it and how can we move from the current situation to one in which Parliament has agreed that we can do it.
Two basic approaches can be adopted in relation to how we might carry out such a change. One option is to have a Finance Bill in which some parts but not others are debated by your Lordships' House. The other approach is to introduce separate taxes management Bills. I believe that, of the two, marginally I prefer the second, not least because it would allow the core of the Finance Bill to go through its Commons stages more quickly than it does at present.
I believe that it should be possible to introduce a Finance Bill in the Commons more quickly because one would not be worried about its drafting. Indeed, much of the drafting cycle could continue almost without reference to the Budget date. The point at which a taxes management Bill is introduced may vary somewhat from year to year. Therefore. on balance, I would prefer to see us follow that route.
1511 I believe that the key question which concerns the noble Lord, Lord Saatchi, and those of us who are keen to see change is how we persuade Parliament that such a change should take place. Even if this Bill were to pass all its stages in this House before an election were called, I find it difficult to believe that our colleagues in another place would agree to it. Therefore, I suggest that the only realistic way in which we shall succeed in getting the change implemented is in the context of a broader discussion of the powers of the House of Lords. We were promised such a discussion early in the next Parliament under the remit of the Joint Committee of both Houses. It has been promised that that committee will consider the powers of your Lordships' House.
I believe that that would give us a legitimate basis and a legitimate forum in which to raise these issues and in which to obtain agreement. If we were successful, it would be much more difficult for the Government or our colleagues in another place, if they were so minded, to push this matter to one side.
§ Lord Norton of Louth
My Lords, perhaps the noble Lord will give way. I want to put forward an idea that has been prompted by what he said. I believe that there is a way of meeting the problem without necessarily going fully down that route. The other place is used to separating out Finance Bills. They send the more technical details to a Standing Committee while the broader political issues are dealt with in the Chamber. One solution may be for this House to accept that it would look only at matters sent to the Standing Committee in the other place. That would leave the other place, in effect, to decide what would be considered here. Therefore, that might be acceptable and we may not necessarily have to go down the route suggested by the noble Lord.
§ Lord Newby
My Lords, that is an extremely interesting option. However, as this debate is taking place, we are having new ideas. That demonstrates the fact that the ideas are not completely formed and that there is no consensus. We must build a consensus within Parliament if the proposal is to take place.
As other noble Lords are aware, we on these Benches do not object to the overall level of taxation. That is not our problem. However, we despair about the complexity of tax legislation. In our view, letting the House of Lords loose on the detail of tax legislation offers an opportunity to simplify and clarify the tax system. It should be a high priority in the next Parliament.
§ 8.28 p.m.
§ Lord Kingsland
My Lords, I am sure that my noble friend Lord Saatchi, the noble Lord, Lord Newby, and, indeed, the noble Lord, Lord McIntosh of Haringey, will agree that, although we have had few speeches from the Back Benches, they have been of the highest quality.
1512 I refer, of course, to my noble friend Lady Noakes, who has had such a distinguished career in her own profession in the City and whose observations on tax matters carry great weight in your Lordships' House; to the noble and learned Lord, Lord Simon of Glaisdale, whose characteristically invigorating and apposite remarks reminded us once again that he is simply the finest constitutional lawyer in your Lordships' House; to my noble friend Lord Blackwell, whose time in government brought him closer to the centre of power than many Cabinet Ministers; and, last but certainly not least, to the noble Lord, Lord Norton of Louth, whose speeches so frequently remind us of his masterly grasp of our political institutions. We have benefited enormously from hearing the views of all four today.
I echo the words of the noble and learned Lord, Lord Simon of Glaisdale. It is not the intention of this Bill to usurp the rightful powers of another place. If your Lordships would care to glance once more at the two clauses of the Bill, your Lordships will see that it is made perfectly plain that the type, rate and incidence of tax on a person's transactions or properties remain exclusively a matter for another place. It is only in those other areas of taxation that my noble friend Lord Saatchi seeks to enhance the powers of your Lordships' House.
That is not to say that your Lordships' improved ability to deal with tax management issues will not in the long term influence the way in which future governments shape the taxes that they bring forward. I would like to think that the work of simplifying and rationalising tax management matters will happily infect the way in which governments plan their political approach to taxation, so that its incidence will be easier for us all to understand.
Perhaps I should, briefly, refer to the second clause of the Bill. The first clause will be extremely familiar to your Lordships, because most debates on constitutional matters dealing with finance tend to be cast in terms of money Bills. But, as many of your Lordships will be aware, in recent years Finance Bills, more often than not, have not been certified as money Bills by the Speaker of another place. That is because they contain measures that do not fall exclusively within the definition of money Bills.
Finance Bills that are not money Bills are dealt with in the context of another place's privileges to aids and supply. Those privileges have always prevented your Lordships amending such Bills. However, ever since the privileges were first enunciated as constitutional conventions, your Lordships have retained the right to vote against tax Bills. That happened on more than one occasion at the end of the 19th century. Indeed, under those same aids and privileges, your Lordships today still retain the right to reject tax Bills, but not to amend them. In the early 20th century the Government got round this embarrassment by creating the Finance Bill, which accumulated a large number of tax Bills under its umbrella, thereby making it practically impossible for your Lordships to assert your Lordships' constitutional rights. Under Clause 2, 1513 the noble Lord, Lord Saatchi, seeks to reintroduce flexibility for your Lordships in those areas that are not politically sensitive or controversial.
A number of your Lordships have addressed the question of the appropriate procedures to be introduced once the Bill finds its way on to the statute book. The Opposition's proposal is that the Finance Bill should proceed through another place as usual; and that when it is published for consideration by another place, a new Select Committee of your Lordships' House, building on the successful Monetary Policy Committee, should be established to review the Bill.
That Select Committee would be a cross-party committee, empowered to take evidence. It would not consider the type, incidence or rate of tax, but would consider the technical issues of tax administration and whether the legislation could be clarified or simplified. It would publish a report on its findings and recommendations in time for the Second Reading of the Finance Bill in your Lordships' House.
Your Lordships' House would have power to amend the Finance Bill in order to incorporate any, or all, the recommendations of the Select Committee. After amendment, the Bill would return to another place, where your Lordships' amendments would be considered in the usual way. Should the other place disagree, we envisage that your Lordships would not insist on your amendments, and the Bill would progress to become law as another place had determined.
However, in the event of any disagreement over particular amendments, your Lordships' Select Committee would reconvene after the passage of the Finance Bill. Your Lordships' Select Committee would then prepare a supplementary report, again taking evidence as your Lordships saw fit, on matters that were unresolved by agreement and on which your Lordships believed that the Government should, none the less, think again. That supplementary report would be submitted to the right honourable gentleman the Chancellor of the Exchequer and be published, simultaneously, before the beginning of the next Budget cycle. The supplementary report would be the subject of debate in your Lordships' House. It would be expected that the right honourable gentleman the Chancellor of the Exchequer would publish a formal response to any supplementary report of the Select Committee.
That seems to us to be an appropriate response to the new powers of amendment that we seek. I see no reason at all why what is contained in this Bill should perturb, or, worse, frighten the Government. On the contrary, with their declared vision about the greater legitimacy of your Lordships' House, this Bill would represent an appropriate reflection of that admirable political philosophy.
§ 8.37 p.m.
§ Lord McIntosh of Haringey
My Lords, with his customary command of publicity, the noble Lord, Lord Saatchi, has been preparing for this moment for 1514 two years, ever since he took over the Treasury portfolio on the Opposition Front Bench. On a number of occasions he has warned us— sometimes in more anguished terms than others—that something is terribly wrong with the way in which we enact our taxes, and that the House of Lords has an answer to this problem. Now we have the answer to the problem.
It has been fascinating to hear the way in which the noble Lord, Lord Saatchi, has orchestrated the debate in your Lordships' House. Perhaps he has not. Perhaps it has all been entirely spontaneous, in the same way as a fascinating article previewing the provisions of the Bill appeared in The Times.
All those matters pay tribute to the noble Lord, Lord Saatchi's, command of his profession. I, too, join in paying tribute. Of course, it reached a peak most recently in the consideration of the Capital Allowances Bill on 26th February when many of the arguments that we have heard today were set out at some length. We therefore come to this matter not entirely unprepared.
I should make it clear, as is always my duty from this Dispatch Box, that the Government do not oppose Private Member's Bills in this House. We shall do nothing to impede the progress of the Bill through the House. However, I should also make it clear that if the Bill reaches the House of Commons, the Government will take such steps as are necessary to oppose it in the House of Commons. But is that needed? I really must ask the Opposition Front Bench whether this is official Opposition policy. I have been looking for evidence of support from the Conservative Front Bench in the House of Commons and all I find is silence. I may have missed the evidence of support but I have not seen it yet.
On the contrary, a number of ex-Conservative Front Benchers in the House of Commons have expressed themselves very firmly on the issue. I quoted some of them on the Capital Allowances Bill. Perhaps your Lordships will allow me to do so again. Mr Eric Forth said:When I see the words 'tax' and 'Lords' mentioned together in one motion, I become suspicious and wonder why we have all suffered from collective amnesia on the history of this place and the relative roles of the Commons and the Lords, especially in respect of tax matters".He went on to quote Erskine May in order to,illustrate the constancy and consistency of the attitude of the House of Commons over the centuries—that it is to this House alone that the raising of money and revenues, and the disposing of tax matters should rest".—[Official Report, Commons, 15/1/01; col. 54.]Mr John Redwood, discussing the Joint Committee which examined the Capital Allowances Bill, said that increasing the numbers of Members in the House of Commons required for the Joint Committee to he quorate would,reinforce the message, which I am sure the Paymaster General wants to send, that the House of Commons is in charge of taxation matters".—[Official Report, Commons, 15/1/01; col. 72.]
§ Lord Rees-Mogg
My Lords, is the noble Lord putting to this House that Mr Eric Forth and Mr John Redwood are now the best representatives of government policy?
§ Lord McIntosh of Haringey
My Lords, indeed I am not. I am pointing to the fact that the silence from the present Conservative Front Bench in the other place is deafening on this subject. I should be fascinated to see—and in some ways, of course, selfishly politically delighted to see—Mr Portillo coming out in favour of this measure. That is the point that I want to make. It is clear that there would be formidable opponents from the Opposition Benches in the House of Commons if this Bill were to reach the House of Commons.
I appreciate the position of the noble Lord, Lord Norton of Louth, who was the chairman of his party's Commission on the constitution and who has given his support to the Bill this evening. But his report does not say anything which gives support to the Bill. What his report says—and he fairly quoted it—is that the House of Lords should have more say on macro-economic policy. Indeed, perhaps as a result of his report, I do not know, the House of Lords is setting up committees which have more say on macro-economic policy. But his report did not suggest amendments to the 1911 Parliament Act. Therefore, to that extent, I cannot be convinced that this Bill is official Conservative Opposition policy for the next election.
I turn now to the content of the Bill itself. It seems to me that there are three major fallacies which are inevitable in the Bill. The first is that the constitutional issues involved can be concentrated on the Parliament Act 1911. The second is the fallacy that in fiscal legislation it is possible to separate tax administration from the type and rate of tax and its incidence on persons, transactions or properties. The third is the fallacy that it is possible, using the procedures set down in this Bill, to have a reasonable and useful scrutiny within the inevitably restricted time period of the passage of a Finance Bill.
I start by dealing with the constitutional issues. I acknowledge, of course, that the Bill does not overturn the principal content of the Parliament Act 1911. It still leaves the one-month rule intact. But, of course, the Parliament Act 1911 is not the beginning of the story. The beginning of the story—and it may be even further back—certainly goes back to 1671 and 1678. In 1678, on 3rd July, the Commons resolved:That all aids and supplies, and aids to His Majesty in Parliament, are the sole gift of the Commons; and all bills for the granting of any such aids and supplies ought to begin with the Commons: and that it is the undoubted and sole right of the Commons to direct. limit and appoint in such bills the ends, purposes, considerations, conditions, limitations and qualifications of such grants which ought not to be changed or altered by the House of Lords".We are going a good deal further back even than 90 years. It is not as though that were the only part of the story. The noble Lord, Lord Kingsland, rightly said that the right to reject Bills still exists. But the right to reject Bills was only effectively used until 1860 when 1516 Finance Bills became the norm and when, I think it was, the Paper Duties Repeal Bill led the Commons—and I quote Erskine May from page 805,to adopt the practice of including all the fiscal changes of each year in a general or composite Bill … Since that time, although the Commons still acknowledge the right of the Lords to reject such a Bill, its composite nature renders the exercise of that right a practical impossibility".
§ Lord Kingsland
My Lords, I am grateful to the noble Lord for giving way. I think I have said all that.
§ Lord McIntosh of Haringey
My Lords, the noble Lord was claiming that there was still a right. I am saying that although there is still a right, it is a practical impossibility.
§ Lord Kingsland
My Lords, I am most grateful to the noble Lord for giving way again. I also accept that. Once the decision was made by another place to accumulate all the individual tax Bills into a compendium Finance Bill, it became practically impossible for your Lordships' House to reject it. I do not seek for that decision to be overturned.
§ Lord McIntosh of Haringey
My Lords, the Bill is seeking to provide for amendments to Finance Bills. That is what the Bill does. I will come onto the practicalities of the matter in a moment but the noble Lord, Lord Kingsland, has set out in detail the Select Committee procedure which he proposes would be adopted. I am grateful for having had an advance copy of that. But, of course, in the way he sets it out, it is a hybrid between the Select Committee procedure in this House and legislative consideration in this House. Some very serious issues are involved.
However, the point that I make is that what is at stake here is not simply Section 1(1) of the Parliament Act 1911 but over three centuries of relationships between this House and the House of Commons on financial matters. Those are not changed by the recent changes in the composition of the House, any more than they were by the much more significant introduction of life Peers in 1958 or, indeed, than they would be under the second phase of House of Lords reform.
I turn now to the second fallacy—the fallacy that there is such a thing as tax administration which can be distinguished from the type and rate of tax and its incidence on persons, transactions or properties. One only has to look at the Finance Act 2000 to realise that such a distinction cannot be made. I have looked at only a tiny part of it.
§ Lord Simon of Glaisdale
My Lords, surely it has already been made in 1970 by the Taxes Management Act which the most recent Finance Act itself amended.
§ Lord McIntosh of Haringey
My Lords, I shall come onto the Taxes Management Act 1970 and the point made by the noble and learned Lord, Lord Simon. But perhaps he will allow me to make the point about the bulk of the Bill rather than Schedule 39 at the moment.
1517 Sections 68 and 69 and Schedules 19, 20 and 21 are all concerned with research and development tax credits. If one looks at those sections, which take up 14 pages in all, there is not a single point which could be described as tax administration which does not involve those matters which the Bill acknowledges would have to remain the sole responsibility of the House of Commons.
I acknowledge that Schedule 39, which amends the Taxes Management Act 1970, did so without Lords scrutiny when the 1970 Act was subject to the scrutiny. But that is precisely why the Finance Act 2000 was not a money Bill; that is, because matters were introduced which did not merit the Speaker's certificate. It would not be appropriate for specific individual clauses alone to be scrutinised by the House of Lords. If the Commons object to the inclusion of a measure in a Finance Bill that prevents its certification as a money Bill—which is the answer to the point raised by the noble and learned Lord, Lord Simon—it can bring an amendment and attempt to have that measure removed. We do not do so because of the holistic nature of Finance Bills and the view which the Commons takes of such matters.
I listened to the suggestion made by the noble Lord, Lord Newby, of a separate taxes management Act. That was raised by a Commons Select Committee as recently as 1993. However, I have to say that that would not work. We simply cannot separate the headline parts of taxation, the rate, type and incidence as the Bill attempts to do, from the detail. If we tried to do that, what would we do with anti-avoidance measures, for example, which take up a large part of Finance Bills? They affect who pays tax; therefore, they would be excluded from the noble Lord's Bill. That cannot be done.
§ Lord Kingsland
My Lords, I am grateful to the Minister for giving way. If he thinks all these highly politically sensitive matters would be excluded from my noble friend's Bill, why is so concerned about them?
§ Lord McIntosh of Haringey
My Lords, I am concerned that we should not act. I not concerned about it; the House can do what it likes with it. That is not my personal concern. However, it would be absurd for the House to pass legislation under a misapprehension. That does not mean that there is not a sound point which has been made by a number of speakers tonight about tax simplification in particular and about consultation and scrutiny outside the Standing Committee in the House of Commons. Those are valid points. That is why we were considering the Capital Allowances Bill in February. As we all agreed, that is a valuable extension of improvement of tax legislation.
I am a great supporter of the tax manifesto of the Institute of Chartered Accountants. I have said so in this House, and have agreed with virtually all its points. Despite the comments of the noble Baroness, 1518 Lady Noakes, I do not think the institute states 'in its manifesto that there should be increased scrutiny by the House of Lords on taxation matters.
§ Baroness Noakes
My Lords, I thank the Minister for giving way. I believe that it states that tax matters should be considered by a Joint Committee of both Houses. It fully recognises that there is a role for the House of Lords in scrutiny.
§ Lord McIntosh of Haringey
My Lords, I believe that is a matter which could be put forward, but which is not put forward in the Bill. In addition to what is being done about tax simplification, perhaps I may suggest to the House that in the introduction of a Pre-Budget Report we have taken an enormous step forward in the possibility and, indeed, practice of scrutiny. The Pre-Budget Report is produced in the autumn. There is then a period of up to six months before the Budget. In that period, a huge amount of consultation takes place on those matters which are identified for consultation. Such consultation takes place with the Institute of Chartered Accountants; the Chartered Institute of Taxation, the CBI, the Institute of Directors and many others, who I do not think would be pleased to see themselves, pace the noble Lord, Lord Blackwell, as being replaced by business persons or ex-Treasury Ministers in this House. That is what they do. There is no reason why—it is not for me to say; it is for the House to say—the House of Lords should not set up a Select Committee to consider those matters which are out for consultation in the Pre-Budget Report and to report before the Budget. There is no reason why the House of Lords should not be involved in that way. To do that would not require legislation, and would not require the Bill.
Despite the comments of the noble and learned Lord, Lord Simon, I am certainly not part of the forces of conservatism. My mind is open to all sorts of ways in which we could make changes. However, the Bill does not do that because of the third fallacy, which I shall refer to briefly; the fallacy of process and timing.
The Finance Bill is published in the Commons after the Budget. The noble Lord, Lord Kingsland, set out the procedures he proposes. I refer to the proposed cross-party Select Committee. Presumably that would have to include all seven ex-Chancellors, seven ex-Chief Secretaries and six ex-Paymaster Generals, otherwise there is no point in making that argument. The committee would have to report to the House of Lords by July. But what would it report on? The Finance Bill is in Committee during that period. Amendments are being proposed by the Opposition; considered by the Government; and being made. By the time the committee came to report to this House it would be reporting on a different Bill from that which comes to this House. The differences between the Bill which is first introduced and the Bill that comes to this House are always great. That would be like shooting at a moving target and does not make sense.
Noble Lords have been good at keeping their remarks to a minimum; I have not. Frankly, the Bill does not work in any sense. It does not work because 1519 it does not respect the constitution of this country; it does not understand the nature of the legislative process on taxation, and does not understand the timescale and process in which tax legislation has to be considered. I wish it a happy process through this House and no further.
§ 8.57 p.m.
§ Lord Saatchi
My Lords, I am extremely grateful to all noble Lords who have taken part in the debate at this inconvenient hour, and to the Minister for his winding-up remarks. This debate follows a series of excellent debates in your Lordships' House about the changed nature of our constitutional arrangements, which were led by the noble and learned Lords, Lord Donaldson and Lord Simon of Glaisdale, and my noble friend Lord Norton of Louth, all of which I valued enormously and drew on greatly when working with my noble friend Lord Kingsland on the Bill.
Perhaps I may say how grateful I am to my noble friends Lady Noakes, Lord Norton and Lord Blackwell, for bringing their experience to bear on the Bill. I cannot think of three Members of your Lordships' House who know more about the theory and practice of government, the formulation of government policy, or finance and accounting.
I also give special thanks to the noble and learned Lord, Lord Simon of Glaisdale, for his support. As stated by the Leader of the Opposition, my noble friend Lord Strathclyde, he is a unique constitutional voice. I am grateful to him for his support. I also thank, in particular, the noble Lord, Lord Newby, for putting forward the Liberal Democrat support for the principles of the Bill and for the ideas he put forward this evening on how those principles could be achieved through Parliament.
Before sitting down, perhaps I may say that the only reason my name appears on the Bill and not that of my noble friend Lord Kingsland is because if he had a personal logo it would be, "A light under a bushel". I am grateful to him for creating this short Bill.
We have heard two views this evening. We have had the views of those I have just named, whose opinion can be summed up as "Something has changed; therefore it is time for a change". On the other hand, we had one different view which came from the Government. They take the view that we must deal with financial matters the way we always have because we have been doing it that way for centuries. The Minister went back to 1678 and was proud of the fact that the traditions of all those centuries were being upheld by his Government.
Is it not one of the ultimate ironies that this Government, who have so despised what the noble and learned Lord called the "forces of conservatism" should here tonight be enthralled to events of 100 years ago—or 300 years ago—to uphold history and tradition as the basis of their future policy?
I hope only that the debate has given the Government fresh food for thought. I also hope that I shall have the opportunity to respond to the views of 1520 your Lordships' House in Committee both on the definitions contained in the Bill and the procedure by which it might be put into practice. I am grateful for the time given and I commend the Bill to your Lordships' House.
On Question, Bill read a second time, and committed to a Committee of the Whole House.