§ 1.27 p.m.
§ Brought from the Commons endorsed with the certificate of the Speaker that the Bill is a Money Bill, and read a first time.
§ Then, Standing Order 46 having been suspended (pursuant to Resolution of 9th May):
§ Lord McIntosh of Haringey
My Lords, I beg to move that this Bill be now read a second time.
It is good to be able to speak to this Bill at a time when the fundamentals of our economy are stronger than they have been for a generation. As a result of our reformed monetary framework, tough fiscal rules and prudent choices, we now have inflation at its lowest for 30 years and the lowest in the European Union; long-term interest rates at their lowest level for 35 years; the highest business investment for 40 years, at more than 14 per cent of GDP; and the lowest unemployment since 1975, with more people in work than ever before—over 1.1 million more than in 1997.
We have sound public finances, having cut free of the millstone of debt run up by the Conservatives. Where this Government inherited a £28 billion deficit and debt at an unsustainable 44 per cent of national income, we have made the biggest ever net cash debt repayment in one year by a British Government, at £34 billion, and we have reduced the net debt to below 32 per cent of national income.
As we have cut debt, cut unemployment and achieved higher growth and earnings, we are freeing up resources for priority areas in a sustainable way. The fall in debt charges alone has freed up £7 billion for next year compared with four years ago. The fall in spending on unemployment benefit has freed up another £4 billion. We can plan ahead, investing for the long term in the nation's priorities—education, health, fighting crime and investing in transport and science. Those are priorities on which our future prosperity depends.
The Bill builds on that strength and continues to deliver on our promises. The Chancellor's Budget makes a clear choice about Britain's future. It sets out a platform on which to build opportunity and prosperity for all. Like the Budget, the Bill takes a balanced approach, with stability as its foundation.
Our hard-won economic stability enables us to start to deal with decades of under-investment in public services, skills and infrastructure. That stability is the basis for the success of Britain's businesses and a better deal for pensioners, children and families. Maintaining and locking in that stability for the long term is at the heart of the Bill. This is a Bill for families, a Bill for children and a Bill to tackle poverty.
1101 We have made a clear choice to take account of the costs of children through the tax and benefits system, to help every child make the best start in life. It is a matter of choice that we have increased child benefit to £15.50—a rise in real terms of 26 per cent.
Clause 52 introduces the children's tax credit of up to £l0 a week, equivalent to a cut of 2.5p in income tax for those families. From next year, in the year of a child's birth, families will receive £20 a week. Families which received just £11.05 a week under the last government will receive £25.50 per week. We are increasing maternity pay to £100 by 2003 and will increase the payment period from 18 to 26 weeks, as well as introducing two weeks' paternity leave for new fathers.
The Bill also takes further steps to make work pay for all. Twenty-five million taxpayers will gain from the widening of the lower 10p tax rate in Clause 51, at a cost of £1 billion. Now, more of their income will be taxed at that lower rate rather than at 22p.
We have put up the working families tax credit by £5 and announced an increase in the minimum wage. The two together mean that the guaranteed minimum income for families with children and someone in full-time work will rise to £225 per week. That will make a real difference to families on modest incomes.
To make sure pensioners share in the rising prosperity of the nation, we are increasing pensions above inflation and above earnings by £5 per week to £72.50 for single pensioners and £8 per week to £115.90 for couples, with a further rise of £3 and £4.80 next year.
As a result of the measures that we are introducing this year alone, households will, on average, be £240 a year better off. Families with children will, on average, be £420 a year better off and 2 million of the poorest pensioners at least £800 a year better off. Living standards for a typical family have risen 10 per cent since the general election, with particular help to the poorest and those who need it most. That is the measure of our commitment to building not only a strong economy, but a fair society—one that is making every one better off.
To create long-term rising prosperity in Britain we must build the best possible environment for business to flourish and productivity to rise. Our ambition is to achieve a faster rise in productivity than our main competitors over the next decade. We want successful companies in all sectors to invest and expand. We have already created a more favourable company tax environment with the lowest corporation tax rate ever in Britain and overall the lowest rate of any major industrialised country. We have reduced the long-term capital gains tax rate on business assets to 10 per cent.
Recent evidence has been encouraging. In the past year the economy has grown at 3 per cent and manufacturing productivity by 5.6 per cent. Business investment grew by 2.4 per cent last year and we are now investing at over 14 per cent of GDP, the highest level in 40 years. But we still have some way to go. So we have proposed further reforms to promote competition, investment, innovation and entrepreneurship.
1102 We will promote long-term investment and protect investors by taking forward Paul Myners' recommendations in his Review of Institutional Investment, including abolishing the minimum funding requirement, and we will make it easier for institutions to invest in venture capital through tax and regulatory reform. We are building a competitive and modern tax system for large firms, with changes to double taxation relief in Clause 79, and the abolition of tax on most payments between companies within the UK in Clauses 83 to 85.
We are consulting in detail on relieving tax when companies sell substantial shareholdings. Since 1997 enhanced capital allowances and new tax credits to encourage research and innovation have already saved business over £1 billion. Increasing research and development by large companies can have a big impact on the UK's long-term productivity, so we are consulting on how best to extend the R&D tax credit to larger firms.
This Bill will also improve the environment for small and medium sized enterprises. Clause 62 doubles the value of share options which can benefit from tax relief through enterprise management incentives to £3 million. Clause 61 extends the right to benefit from this relief to all employees.
Alongside the measures introduced in this Bill, we are reducing the burden of tax and regulation on small firms, with a package of measures to cut the VAT administration burden—of which I have often spoken to your Lordships from bitter experience. We are simplifying small business corporation tax by making companies' annual accounts the basis for calculating tax, cutting at a stroke the need for a whole parallel paper-chase.
This Bill will make the tax system more responsive to specific needs to benefit businesses, communities, and people throughout Britain. In particular it will help to ensure that those areas of Britain which have been left behind by rising prosperity are able to catch up, with a package of six tax cuts totalling £ l over five years, targeted on enterprise in our poorest areas.
We are giving a boost to the British film industry by extending tax relief for British films for a further three years in Clause 72.
We are reforming betting duty.
In recognition of the importance of our national heritage, we are bringing in a scheme to help with the cost of repairs to listed churches and places of worship and making available refunds to national museums and galleries which allow the public free admission. We are initiating consultation on tax relief for community sports clubs.
On skills, we recognise that today's economy demands more workers with higher skills and qualifications to fit new jobs. But up to 30 per cent of all employees do not have basic level 2 qualifications. So as well as the extensions of New Deal and the provision of the training people on benefits need to move into work, we want to encourage companies and employees to upgrade their skills. So to back up the tax 1103 relief we already offer to employee training, we will consider a new tax credit to support training. And we are launching an independent study to enhance the supply of highly-skilled scientists and engineers.
Britain is already one of the best business environments in the world. The reforms we are making in this Bill will make the environment for all businesses better still, and we will continue to look at new ways to help Britain's companies raise their productivity.
Following on previous Budgets and the steps we have taken to tackle climate change, improve air quality, promote lower emission fuels and renewable energy and to regenerate run-down areas, this Finance Bill carries forward the Government's commitment to a sustainable environment.
Clauses 1 to 3 give effect to our cuts in fuel duties for ultra-low sulphur petrol and ultra-low sulphur diesel, and enable the Government to provide reliefs for pilot projects developing more environmentally friendly fuels.
Clauses 8 to 14 increase to 1549cc the engine size below which the lower rate of car vehicle excise duty is paid, reforms VED for goods vehicles and implements the new exemption for tractors and agricultural machinery. Altogether, those are worth £1.6 billion a year to motorists—equivalent to a 4p per litre cut in fuel duty for motorists—and £660 million a year to the haulage industry—equivalent to a 7p per litre cut in fuel duty for hauliers, as well as promoting less environmentally damaging fuels and vehicles.
The introduction of the aggregates levy in Clauses 16 to 49 seeks to promote the use of recycled aggregates and other alternatives to primary aggregates, in a revenue neutral way, in order to reduce the adverse environmental impacts of quarrying such as damage to biodiversity, visual intrusion and nuisance to nearby communities. The money the levy raises will be returned to business and to local communities through a 0.1 percentage point cut in employers' national insurance and through the new Sustainability Fund, which will come into operation in April next year. As announced in the pre-Budget report, £35 million a year will be allocated to the fund and we shall consult further on the details of its operation.
The climate change levy and the landfill tax dealt with in Clauses 104 and 105 demonstrate our readiness to incentivise environmentally sustainable use of scarce resources. By bringing actual market costs more in line with real economic costs, economic instruments allow those involved in environmentally damaging activities to respond according to their own circumstances. Attaching a price to environmental detriment creates a permanent incentive for innovation and investment in less polluting methods of production, and encourages the consumption of "cleaner" products. And revenues from new environmental taxes are being used to cut the rate of national insurance, rather than to boost the income of the Exchequer. That is not only economically rational, but it is also environmentally responsible.
1104 The Bill sets out a clear choice for Britain's future. The platform of economic stability that this Government have built is the foundation for Britain's future prosperity. We have chosen to build on that stability. We have chosen more investment in our public services, not less, with schools and hospitals coming first, and we have chosen sensible tax cuts for hardworking families, and not a return to boom and bust.
As I said, this is a Finance Bill for families and children and one that tackles poverty and unemployment in our poorest communities. It is a Bill to help Britain's businesses grow; a Bill to carry forward stability as the basis for a strong economy and a strong society; and a way to deliver opportunity and prosperity for all. I commend the Bill to the House.
§ Moved, That the Bill be now read a second time.—(Lord McIntosh of Haringey.)
§ Lord Goodhart
My Lords, in the absence of my noble friend Lord Newby, perhaps I may be allowed to take his place. I intend to speak briefly. The main problem demonstrated by this Budget is a refusal to face the fact that the tax changes introduced by the Government over their term of office have, to a large extent, been regressive rather than progressive. That has been due largely to the Government's refusal to recognise that income tax could and should be used effectively when taxes are needed. Undoubtedly income tax is the fairest of taxes. It is a simple tax, and it is understood by all. But the Government have stuck to their promises not to raise taxes at any level, which is entirely wrong.
The highest rate of tax in this country is 40 per cent. That rate affects people with earnings in the middle £30,000s and includes people who are in no sense rich. It includes people who are at senior levels in the teaching profession and, in some cases, at senior levels in the nursing profession. Once that level has been reached there is no further increase whatever in the rate of tax for those who have much larger incomes and who could afford to pay much more.
We propose that there should be a higher rate of tax at 50 per cent for those with incomes over £100,000. I believe that anyone would recognise that someone with an income of £100,000 is clearly well off and well into the higher levels of income. People in that category—many Members of your Lordships' House, including myself are among them—could afford to pay more in so far as their incomes exceed £100,000.
At the other end of the scale, we have always pointed out that a greater benefit to those with lower levels of income would be achieved by removing the 10 per cent rate and replacing it with a zero rate. Increasing the personal allowance would take more people out of the tax system altogether and would be more effective in helping those at the lower levels of the income scale than having a lower introductory rate. We believe that the Government's commitment at the previous election that they would not raise the rates of income tax was a serious error that has prevented them from using a most effective tool in making taxes more 1105 progressive. We hope, although we fear that it will not be the case, that the Government, in their manifesto, will not make a similar commitment in relation to what will happen if they are re-elected.
The second main criticism of the Budget is quite different. Once again we are faced with a Budget—this year containing exactly 300 pages—that achieves very little. As someone whose legal practice has included a certain amount of tax work, it has always seemed to me that broad simplicity is desirable, rather than fiddling with taxes—a little bit here and a little bit there—to achieve minor improvements.
It is clear that many matters like venture capital allowances or extra allowances for share options and so on are ineffective in economic terms. If something is worth doing, it is worth doing under a neutral tax scheme. If tax concessions are needed, it is doubtful whether that is an effective economic use of the money. We have far too many fiddly little bits and pieces when we should look for something a great deal simpler. Consider, for example, the tax avoidance schemes created by the business enterprise scheme introduced by the previous government. I believe that some of the schemes introduced by the present Government also lead, perhaps on a smaller scale, to that kind of problem.
A Budget of this kind is yet another example of the justification for splitting the Finance Act into two Acts: one for setting the rates and what needs to be done year-by-year on a regular basis, and one for dealing with the more technical aspects. I believe that this is a missed opportunity to simplify the tax system, or at least to avoid complicating it, and a missed opportunity to make our tax system more progressive than it is now.
§ Lord Marlesford
My Lords, perhaps I can speak in the gap to raise a similar point to that of my old friend the noble Lord, Lord Goodhart, but from a different point of view.
We are in the fourteenth year of a top income tax rate of 40 per cent. I believe that that has been of inestimable value to this country. In European terms, it has made us a tax haven, something that is deeply resented by some other EU countries, particularly the socialist Government of France. I believe that this country owes a deep debt of gratitude to my noble friend Lady Thatcher, when she was Prime Minister, and particularly to my noble friend Lord Lawson for introducing that in his 1988 Budget.
New Labour was elected on a self-denying ordinance not to dim that jewel in the Tory inheritance and it has stuck to that ordinance. However, so far the Chancellor has failed to indicate whether he will renew such a pledge in the manifesto. It is not on the pledge sheet. We shall be interested to see whether the noble Lord, Lord Goodhart, has succeeded in making a late change to the manifesto, or perhaps the manifesto already says what he wants.
I remind your Lordships that the last time a Labour government were in power, they left with a 98 per cent top marginal rate tax and that rate of tax came into effect at a threshold in today's prices of slightly over £78,000 a year.
1106 The noble Lord, Lord Goodhart, explained that the Liberal Party would like a much higher rate of tax and went on to refer to the 50 per cent rate. His party may be aiming to try to attract some of those voters who have been disappointed that new Labour has to some extent proved to be new Labour. However. I do not know whether the electoral arithmetic will be particularly attractive.
§ Lord Lawson of Blaby
My Lords, I thank my noble friend for giving way. I am grateful for his remarks about me, but he pointed out that the pledge given at the previous general election has not so far been reiterated. I am sure that it will be. However, does he not agree that the doubt is highly undesirable and that until it is cleared up it is necessary that the Prime Minister and the Chancellor of the Exchequer are probed and pressed at every opportunity in order to make the position clear?
§ Lord Marlesford
My Lords, I totally agree with my noble friend. The Government may believe that the presence or absence of such a pledge will make relatively little difference to the result of this general election. However, perhaps I may point out to them that if they do not renew that self-denying ordinance, they may, if re-elected, be tempted to return to the bad old days of bad old Labour and the absence of that pledge will have a considerable effect on the next election.
§ The Earl of Northesk
My Lords, I begin by offering the apologies of my noble friend Lord Saatchi that he cannot be here today. I hope that your Lordships will not consider me too poor a substitute.
The Bill may not be as bulky as the Chancellor's efforts last year but none the less it is a very full Finance Bill. That is evident from the Minister's introduction. It runs to 300 pages in 111 clauses and 33 schedules. Despite that, like the noble Lord, Lord Goodhart, I do not propose to detain the House for long.
As the Minister pointed out, a large part of its content, the 34 clauses of Part II as well as seven schedules, is taken up with the aggregates levy. It seems to me that this is a classic example of the Chancellor's approach to taxation; an ill-formed proposition with generous dollops of tinkering, obfuscation and complication, all to no good effect. As my honourable friend Oliver Letwin commented in another place:It is a principle of taxation that it should be simple, cleat and transparent, but this measure is not simple, clear or transparent".Moreover, as my honourable friend also observed:this tax is irrational and is being introduced in the wrong way. It has the wrong powers of enforcement and it will cost jobs. Even more than all that, though, it is an empty box. Almost everything that will bring it into effect will come in a series of regulations that the House will never seriously debate".—[Official Report, Commons, 23/4/01; cols. 86 and 71.]1107 That should force us to contemplate how much more coherent the regime of the levy could have been had it been scrutinised in greater detail by your Lordships; that is to say, had my noble friend Lord Saatchi's House of Lords Financial Powers Bill been on the statute book.
That contention is all the more persuasive on the basis of some simple arithmetic. The Chancellor delivered his Budget speech on 7th March. Today is 10th May. The Government have had no difficulty in progressing the Finance Bill through another place within that timescale; within two months.
That provokes two conclusions. First, despite the earnest efforts of my honourable friends so to do, some doubt must attach to how effectively it has been scrutinised. This argues fiercely in favour of your Lordships being afforded a proper bite at the cherry. Secondly, and possibly more importantly, there can no longer be any justification whatever in the future for offering up the Finance Bill for debate in this House in the moribund backwaters of parliamentary time.
As your Lordships will be only too well aware, both those ambitions lie at the heart of my noble friend's Bill. Indeed, I emphasise that we on these Benches intend to pursue this strenuously not on our own behalf but in the interests of strengthening Parliament and of giving taxpayers a fairer deal than the somewhat shabby offering of stealth taxes amounting to £36 billion over the life of this Parliament that they have at the moment.
No doubt we shall have the opportunity to put my noble friend's proposition on to the statute book in the future. In the meantime, I take this opportunity to hark back briefly to the historical approach of this House; that is, to make a few general observations about the state of the economy. The Government are adept at crowing about their management of the country's finances. The Minister waxed lyrical yet again today. Sound-bite mantras drip effortlessly from the tongue to explain the miracle of Labour's conversion to economic competence— no more boom and bust and the like.
A particular assertion—and the noble Lord made it again today—is the Chancellor's claim to have repaid £34 billion-worth of debt. And yet, according to the Treasury's own figures, no sooner has this debt been repaid than the Chancellor avers his intention to borrow exactly the same sum; £34 billion.
It seems to me that there is another curious coincidence here; namely, that the current debt of British Telecom all but matches that £34 billion. Why is that significant? Because of the £22.5 billion which the Chancellor raked in from the auction of 3G spectrum. In effect, a large proportion of the debt repaid, far from emanating from the fruits of sound economic policy, is derived from what, in terms albeit also with hindsight, was little more than an unwarranted windfall tax.
I do not gainsay the proposition that the UK economy is reasonably well placed to weather the storm of the current global slow-down, but it is not 1108 wholly insulated from it. And it is perhaps too easy to be cynical. None the less, the timing of the election is fortuitous. The kind of economic picture we could be looking at after the election—some of the signs are perhaps there in the shape of Llanwern and Bathgate and last month's figures for industrial production as a whole being 0.1 per cent lower than a year ago—puts the skids under the Chancellor's apparent confidence. After all, data emerging from the United States recently suggest that its economy is still running at a very real risk of recession.
I simply suggest therefore that a suitable epitaph for this Government's management of our economy is to be found in the words of my noble friend Lord Saatchi:No wonder he [the Chancellor] put VAT on spectacles: it was so nobody could see what was actually going on!"—[Official Report, 14/3/01; col. 913.]
§ Lord McIntosh of Haringey
My Lords, I listened with great interest to what noble Lords said. I congratulate the noble Lord, Lord Goodhart, on his impromptu assumption of the role of Treasury spokesman for the Liberal Democrat Party. By reminding us of his party's promises at the previous election he has laid himself open to rebuttals. It is true that his party said that there should be an increase in the rate of income tax for better-off people. But he may or may not remember that at the same time his party indicated that there would be increased expenditure on schools, hospitals and public investment generally using the benefit of those higher rates of income tax.
What he may not have recognised, although I am sure that the noble Lord, Lord Newby, has been keeping in touch on a day-to-day basis, is that our actual improvements in expenditure in public investment have been far higher than those promised by the Liberal Democrat Party in its manifesto at the previous election, despite the fact that we have not increased rates of income tax.
§ Lord Newby
My Lords, first, I apologise to the House for being slightly delayed. Had the Liberal Democrats been able to implement their policy after the previous election and raised the additional income from increased taxation during the first two years of the Parliament it would have been possible to increase expenditure on health and education in years one and two, which this Government found themselves unable to do, and we would still have had the benefits of growth to put more expenditure into those subjects in years three and four. I therefore believe that his example of our tax policy is at best partial.
§ Lord McIntosh of Haringey
My Lords, I am very interested to see how that works out in the manifesto of the Liberal Democrat Party. We shall see what kinds of promises it makes on taxation and spending.
I am rather more interested in the comment of the noble Lord, Lord Goodhart, that our tax policy is regressive rather than progressive and that more of the improvements in the economy, which I believe he acknowledged, should have been based on income tax rather than other taxation. I believe that when the 1109 noble Lord looks at the outcomes of the past four years he should consider the changes which have taken place in the incomes of hard-working families. Living standards have risen by 10 per cent over the life of this Parliament. The measures taken this year alone will make the average household £240 a year better off, and the average household is nearly £600 a year better off as a result of the measures introduced in this Parliament. The point here, surely, is that this Bill and the policies of the Government over the past four years have given additional support to those who need it most.
Every child should have the best possible start in life and that is why we have concentrated on ending child poverty. The changes in the Budget, plus the children's tax credit and the extra £10 a week in the year in which a child is born, will help to lift 170,000 children out of poverty. During this Parliament the reforms we have made will lift a total of 1.2 million children out of poverty and will mean that the average household with children is £1,000 a year better off.
§ Lord Goodhart
My Lords, does the Minister accept that, while undoubtedly growth has had the effect of increasing the incomes of lower earners, as a group those on the lower deciles of the scale pay a higher proportion of the total tax burden than previously?
§ Lord McIntosh of Haringey
My Lords, we must take into account not only the tax system but the credit system and the net effect on those with lower incomes. I believe that the figures that I have given are incontrovertible. If one takes that wider view, there can be no doubt that the answer to the charge that taxation policy has been regressive is to be found in the figures that have given. If one looks at the net results of the Government's taxation and benefit policy over the past four years, there can be no doubt that those in our society who were worse off are now substantially better off. That deliberate policy has been successfully pursued by the Chancellor over the four-year period.
The noble Lord went on to make a point, which is always made on these occasions, about the complexity of the Finance Bill. I acknowledge that this is a complex Finance Bill. It is not as long as some others. The Bill has been produced rather more rapidly than some others, for reasons that are well known and are common to all governments that announce elections before the end of a full five-year term. In those circumstances, it has been necessary to programme the Bill in another place.
We have continued to rely on the constitutional conventions regarding the role of this House in taxation which go back much further than the Parliament Act 1911. Those conventions go back even further than the resolutions of the House of Commons in 1670s; they date virtually from a medieval division of powers, and long may that continue. It is entirely right that a largely unelected Chamber should have no power of taxation.
1110 The noble Lord, Lord Goodhart, raises a legitimate point about complexity, but unless he is prepared to say which parts of the complex Finance Bill he is willing to sacrifice it is not easy to support him in his aim. The most serious charge levelled against the Bill in another place this week was that it was intensely boring. If possible, all Finance Bills should be boring rather than threatening.
I was interested in the exchange between the noble Lords, Lord Marlesford and Lord Lawson. However, the noble Lord, Lord Lawson, would be the last person to expect me to anticipate the Labour Party's manifesto. Fortunately, the Conservative Party's manifesto became available this morning. But both noble Lords will have to consume their souls in patience until they see what commitments are made.
I was particularly interested in the observations of the noble Earl, Lord Northesk, about the aggregates levy in relation to scrutiny by the House of Lords. I am not quite sure how the House of Lords can exercise greater scrutiny, or show greater expertise, unless he believes that a very significant number of Members of your Lordships' House own quarries. I am not certain that that is a particularly good qualification for considering the aggregates levy. This is part of our multi-faceted approach to environmental sustainability, and it is proper that the elected Chamber should consider it and make decisions upon it.
I turn to the claim of the noble Earl about soundbite mantras. I referred earlier to the longest period of sustained low inflation since the 1960s; the stability of interest rates and their lowest level for 35 years; the highest level of business investment in 40 years; the lowest unemployment level since the 1970s, with youth unemployment cut by 80 per cent and more people in work than ever before. They might be soundbites, or even mantras, but they are a fairly effective justification for the economic policies of this Government. The final expression of those policies in this Parliament is the Finance Bill which I commend to the House.
§ On Question, Bill read a second time: Committee negatived.
§ Then, Standing Order 46 having been suspended (pursuant to Resolution of 9th May), Bill read a third time, and passed.