Finance Bill

My Lords, it is a great pleasure to follow the noble Lord, Lord Vallance of Tummel, and to congratulate him on the report his committee has produced. It is extremely valuable. For a moment it is worthwhile to put into context the whole role of the committee because the matter arose in the course of the deliberations of the Joint Committee on Conventions when the question of financial privilege came up, in particular the role of the Economic Affairs Committee of your Lordships’ House. Doubts were expressed by the Government about whether it was appropriate for us to have such a committee and for it to produce the kind of valuable report we are discussing today, which should surely be of value to the Government. It is noted that not only did the Government object, but Mr Jack Straw, the Leader of the House of Commons at that stage, suggested that it was incompatible with the conventions as a quite deliberate claim to additional powers. I am very glad indeed to say that that committee, a broadly based Joint Committee of both Houses with many distinguished members, robustly rejected the idea that it was not appropriate for the Economic Affairs Committee to deal with these matters and felt that it did not raise issues of financial privilege. On the other hand, one can well understand why the Government were not particularly happy about some of the comments made by the committee, such as: "““We are at a loss to explain the difference in views as to how open the consultation on capital gains tax was””," and that the review did not work appropriately. The report goes on to say, "““a review which starts with consultation, continues in a desultory way and appears to have petered out, only to be followed by the announcement of wide-ranging proposals which bear little relation to the matters previously under discussion, tends to devalue consultation””." In opening the debate, the Minister suggested that the Government did eventually take notice of it, but this report is evidence-based. I believe it is absolutely clear that on this occasion—perhaps partly for political reasons, particularly on capital gains tax, and the Government’s impromptu responses to proposals elsewhere, as well as on the question of being domiciled—the issue was not well handled and is of grave concern. The noble Lord has spelt out those concerns, and I hope that the Government will now respond more positively than they have done so far. It is also true that the extent of Finance Bills now in sheer weight has become completely unmanageable. As long ago as the early 1980s, the Select Committee on Procedure (Finance) said: "““We think it unsatisfactory for the House to have to consider in a single Bill rates of taxation, proposals for new types of taxation, and technical provisions to deal with the law and management of taxes””." The Select Committee felt that that the Finance Bill should be split into those three areas. If it were to be so divided, the way it is considered would be greatly improved and provide an opportunity for your Lordships’ Committee, without in any way impinging on financial privilege, to scrutinise these matters in depth in a way which, with the expertise we have in this House, would be of great benefit more generally. There is a case to be made for splitting discussion on the rate of tax, the tax management side and new taxes. They should be dealt with separately. What gives me great cause for concern is that the Government and particularly the Treasury are now seriously demoralised and in a state of considerable confusion. We are debating this Finance Bill against a background where HM Revenue and Customs has not even succeeded in producing accounts that are approved by the National Audit Office. We have before us a Finance Bill the administration of which is clearly in a state of confusion. I hope that the Minister can tell us, given that HMRC has to administer this Finance Bill, what the Government are going to do about the fact that the NAO has refused to approve HMRC’s own accounts. To have a financial institution whose accounts have not been approved is a quite remarkable situation. We are also discussing this Finance Bill in the context of the overall economic situation. It is apparent that since the time of the Budget, there have been massive changes both in revenue and expenditure: the 10p fiasco, the decision not to introduce the additional 2p on fuel duty and the dramatic fall in revenue from stamp duty to mention just a few. All this creates a situation where at this stage, a few months after the Budget, we have no idea what the borrowing requirement really is. We have multiple variables moving in different directions with no immediate response from the Government and no comprehensive statements except on the Equitable Life situation. Apparently the Chancellor is going on holiday until September and no further information will come forward on that or on the general economic situation. There is a serious concern that I expressed to some extent yesterday in an Oral Question about the relationship between fiscal and monetary policy. The Minister will know only too well that playing golf with just one club is a difficult thing to do; indeed, the expression has been used in similar circumstances in the past. The reality is that we simply have to have co-ordination between monetary and fiscal policy. To rely on the Bank of England armed only with short-term interest rates to cope with the kind of economic problems we face at the present time is absurd. The problem is that we now have an enormous increase in borrowing. As my noble friend Lord Forsyth said a moment or two ago, the headlines today are full of statements about this, along with leaks from the Treasury about what it is going to do about it, particularly on whether the Chancellor’s rules on 40 per cent will be changed. The argument is that it would change the cycle, but trouble arises when considering these things as part of the economic cycle if the person talking about them decides when the cycle begins and ends and, having decided on a particular position, then says, ““This is not working correctly. We’ll change the cycle””. But of course they do not change the cycle, they change their definition of the cycle. That is no way to manage the economy. I turn to another issue that worries me. The question is not simply the huge level of borrowing, but how that borrowing is funded. I put this to the Minister in my Question yesterday, who fortuitously is responding to the debate today as well, by asking whether it would be funded by the public or the banks. In reply he said: "““Well, my Lords, borrowing will of course be funded from the public””.—[Official Report, 17/7/08; col. 1319.]" It makes an enormous difference. If it is funded from the public, the effect on the money supply is mitigated to a greater or lesser extent depending on the extent of the funding, but if it is borrowed from the banks, there is an increase in the money supply. One cannot avoid a sense of déjà vu in these circumstances. The money supply, which was a matter of great concern in earlier periods in our economic history, has not been mentioned, but what worries me is that the enormous increase in borrowing, unmatched by funding from the public, will result in an increase in the money supply and greatly exacerbate the problem of controlling inflation. It is a matter of great concern. It is wrong to say that this Finance Bill is merely fiddling at the margin. It certainly does more than that—it adds immense confusion to our whole tax system—but in terms of economic management it is not what the whole issue is about, which is the larger macroeconomic variables. I said that we have a sense of déjà vu; it is also the case that on previous occasions, sooner or later, you ended up with the dreaded expression ““prices and incomes policy””. It is difficult to avoid the conclusion that that soon will become fashionable again. I am greatly concerned by the way this is being handled. The reports of the Select Committee, based on evidence, are a great aid to the Government. With so much expertise in your Lordships’ House, we ought through the committee to be of a great deal more use in the future than we are at the moment—despite the fact that we are as helpful as we can be—without in any way impinging on financial privilege.