Finance Bill

My Lords, the noble Lord, Lord Peston, said that he was perhaps coming to the end of his time. Many of us in your Lordships’ House profoundly hope that that is not the case. His contributions to our debates are always worth listening to, and you cannot say that of everyone. The noble Lord has faced us yet again with some of the tough dilemmas that are inherent in our situation. I do not pretend that everything to do with the difficult economic situation is due to the Government: not only are large-scale international factors at work in the price of commodities, oil and food; there is disruption and dislocation of the proper functioning of the financial system both globally and in our own country. But one has to come back to the point that most of the profound difficulties faced by any Government in trying to introduce a Budget or a Finance Bill have been made worse due to the Government’s spending binge. One has to look back to 2002, when this process really began in earnest. Year after year, the Budget provided for increased borrowing requirements. The borrowing is cumulative, and in almost every year the actual outturn was worse than had been predicted at the time of the Budget. One cannot go on doing that indefinitely. It is not just the Opposition saying that the national finances are in a mess. Many independent commentators and international organisations, such as the IMF, the OECD, and the EU Finance Ministers, have pointed to the fact that the percentage of debt in this country has exceeded 3 per cent—the Maastricht agreed figure—but the Government have not appeared to take any steps to constrain it. Sooner or later, that has to happen. That is relevant to the Budget. It means that this year, as in previous years, the Government have had to conduct a desperate search for further sources of revenue. If that comes at a time when individuals are facing a serious squeeze on their personal finances as a result of food prices, energy costs and so on, it goes a long way to explaining why there is such unprecedented taxpayer fury at the impositions in the previous Budget. At the right time, one has to exercise a lot of discipline. As the noble Lord, Lord Peston, said, it may require tough decisions. I am sure that I am not the only Member of your Lordships’ House who has a clear memory of the 1981 Budget, which was an austere Budget formulated in very difficult circumstances. There had been oil shocks and heavy expenditure by a previous Labour Government. We had to bite the bullet. Doing that, and having the courage to do it, meant that the reaction was not particularly hostile. Many people accepted that it was necessary. We were told that that sort of Budget would be very unpopular and should hardly be contemplated at a time of recession, because it would make it worse. Three hundred and sixty four economists wrote a famous letter saying that the Budget would make things worse. Actually, all economists pretty much agree now that the economy began to recover almost simultaneously with that austere Budget. I expect that it will happen again if that is what takes place this time. Taxpayers’ sensitivity to changes now is very great. Some of the rows that have followed this year’s Budget and Finance Bill have been fiercer than I can remember on any other occasion. It is because they are being clobbered when they have already been clobbered year after year, and when they do not feel that the higher taxes they have been paying have produced revenue that was wisely spent and where the benefits could be seen to be coming through. That carries with it a lesson that any Government contemplating a Budget in difficult times have to bear in mind. I do not want to discuss the details of issues such as the 10p band, vehicle excise duty, capital gains tax, non-domiciles, fuel duty and so on, because they have had enormous coverage, including quite a bit this morning. Those issues are generally very well known. However, one has to look at some of the aspects of them because of what they tell us about the Government’s approach to the problems we face. I shall use the 10p case as an example. There is a vivid phrase used in the military, the ““flash-to-bang time””, which measures the time it takes after a detonation for the sound of the explosion to be heard. The flash-to-bang time is critical in military terms, but it is also critical in political terms. The flash on the 10p issue came last year with the announcement of the abolition of the rate, but the bang came only a year later when taxpayers found that their latest payslip was incorporating the results. And the lid blew off. It was an explosion that was much louder for having been introduced in that way, louder than it would have been had a more candid assessment been made at the time. The explosion also produced a very perverse consequence: the Crewe and Nantwich package, which will apparently cost £2.7 billion in revenue. I have read in several places that £2 billion of the £2.7 billion will go to people who did not lose out by removal of the 10p band. That is absolutely crazy, especially since, as the Minister has honestly conceded, it will leave about 1 million households still worse off. That is a terribly bad deal for the taxpayer. It is the sort of deal that, unsurprisingly, is resented. I can only wonder what assessments were made about winners and losers. What assessments were made a year ago when the whole proposal was first floated? What sort of assessment has the Treasury made of the consequences for borrowing—the subject of speeches by my noble friends—as a result of these significant changes? I am more than 20 years out of date on the inner workings of the Treasury and Finance Bills and so on. But we were always careful to measure the impact of specific tax changes on different types of households or individuals to ensure that they were not too severe in any particular case. Can such a process have been gone through here? I do not believe so; otherwise they would not have come up with the answer they found. I have lost track now—this is what mariners call dead reckoning, where you work out where you might be if certain assumptions are right, and hope that you have not gone aground in the mean time. However, if you add the extra debt that will arise from the £2.7 billion, it will affect public expenditure not only this year but year after year. Once you have borrowed £2.7 billion, you have an ongoing annual increase in public expenditure of well over £100 million merely to service the debt. You cannot go on doing that year after year. You certainly cannot do it after you have taken a judgment in the Budget, seeking to erode it by adjusting so many of the component parts that the original arithmetic is no longer valid. I do not know what the correct arithmetic is today. We would find it helpful if the Minister could enlighten us. This flash-to-bang time business is becoming a bit of a habit. The vehicle excise duty increase was first delayed for six months, and now I understand that the Glasgow announcement means that it will be deferred for even longer. We have these budgets where parts of the components are being suspended for different lengths of time. Getting any grasp of what it means for overall debt is becoming technically very difficult to do. The following is a very political remark, but I shall say it in a low key. The position has not been helped by the sort of duplicity with which the former Chancellor presented his Budget and his figures, and of which he was so fond. One found that all the dirt was in the Red Book, while the Budget speech itself was bland and full of presentational skills. That really does bounce back and explode in one’s face after a very short time once people realise that the measures they heard are no longer the whole truth. They resent it. The combination of all those factors has led to an unusual degree of disillusionment. It suggests that policy is often made on the hoof; that individual changes are not properly costed; that the costings are not explained; that the proposals are ill thought-out and require amendment, while the amendment process itself becomes increasingly foggy; and that decisions are too often seen to be taken as a result of political calculation rather than for the genuine financial and economic needs of the country. Unpicking these Budget measures one by one by varying revenue costs undoubtedly undermines the integrity of the Budget process itself. It encourages taxpayers to regard the overall Budget judgment as flexible and the individual measures as open to renegotiation. You cannot have these jelly-like, wobbly Budgets which significantly change their shape after the Budget is introduced. However you look at it, it is not the way to run our national finances.