Finance Bill

My Lords, I, too, thank the Minister for introducing the debate. I agree that he sounded very complacent about the country’s economic problems. I am also most grateful to the noble Lord, Lord Vallance of Tummel, for his outstanding report. I again agree that the Minister failed to answer any of the major questions asked. I am always anxious to give praise where it is due for positive aspects of the Finance Bill. I welcome the cut in the basic rate of income tax from 22 per cent to 20 per cent; the lowering of the mainstream corporation tax rate from 30 per cent to 28 per cent; and the enhancements to the enterprise initiative scheme and inheritance tax measures, although those were introduced only in response to our proposed measures. However, most other positive measures are fairly few and far between and do not deserve special mention. This may be reflected in the lack of Labour speakers today, but their lack of quantity was certainly made up for by the quality of the speech of the noble Lord, Lord Peston, who we hope will be with us for many years to come. The Minister blamed the UK’s problems on the international downturn, but what he failed to say was much more significant. I shall focus on the economy as a whole, comment on individual tax measures and examine management issues at the Treasury and Inland Revenue. I accept the international economic problems mentioned by the Minister. What is much less impressive, as many other speakers have said, is the state of the UK Government’s finances. In simple terms, the Government failed to put aside money when the weather was good to prepare for a rainy day. They have embarked on a huge spending spree, but the results and benefits are often not clear. The Chancellor now finds that there is not enough room for fiscal manoeuvre to cope adequately with an economic downturn. I emphasise that it is not just the Opposition that is saying this, but respected independent institutions. For example, the OECD stated in its June outlook for the UK that the slowing economy is likely to limit tax revenues, and that the government deficit now seems likely to move above 3 per cent of GDP, putting the fiscal rules at risk. The well-respected Institute for Fiscal Studies stated, following its analysis of the public finance figures for May: "““The forecasts for Budget 2008, combined with Mr Darling’s May 13th mini-budget announcement of a £2.7 billion give-away to basic rate taxpayers this year, suggest he has virtually no room for manoeuvre against the sustainable investment rule over the next few years””." Indeed, the 2008 Budget projections show the rule coming within a whisker of being broken, with debt reaching 39.8 per cent of GDP in 2010-11, just under the 40 per cent ceiling. Also, I believe that tax revenues will come considerably lower than anticipated due to the weakness of the financial sector, on which the UK is so reliant these days. No wonder we read in the Financial Times and other newspapers about the rewrite of the Treasury economic rules. Maybe it should follow the advice of the noble Lord, Lord Peston, and tighten fiscal policy. It seems to me that it is doing the complete opposite. What level might the Equitable Life compensation situation come out at? What is the estimate of the PFI liabilities, which I understand must be declared from next March in the Government’s accounts? That may also put strain on the finances. My next key area of economic concern is inflation. I am only an amateur economist, but cognoscenti of my speeches will know that I have been concerned about this since December 2006; although economic experts such as the noble Lord, Lord Peston, have told me that I may be incorrect. All that I can do is quote the figures most recently produced for May to back up my continuing worries over the issue. Rising fuel and food costs pushed the CPI in June up no less than 0.5 per cent to 3.8 per cent, which is the highest level for 15 years and well above the Government’s 2 per cent target. As important is the retail prices index measure, which is used as a benchmark in pay negotiations, and which rose to 4.6 per in June from 4.3 per cent in May. A further inflationary portent was seen in the June factory gate inflation price figures published this Monday, which show factory gate inflation rising by double figures for the first time in more than 20 years. According to the FT, the danger of this development is that it could feed through to consumer inflation in due course. Having expressed my general concerns about the UK economy, I shall now move on to examine four specific measures. First, I will look at the abolition of the 10p rate of income tax. As other noble Lords have stated, that rightly caused such a furore when originally proposed that a £2.7 billion rescue package had to be produced. Even after that, nearly 1 million people are still worse off by more than £1 a week. The Treasury Select Committee estimated in its report of 27 June that there were still 1.1 million losing households and that, as Chancellor, Gordon Brown acted for the, "““perceived benefit of seeming to pull rabbits from the hat””," when he cut 2p from that basic rate of income tax and paid for it by abolishing the 10p rate. The Minister has indicated what further assistance may be given, but can he give any more concrete details of what that may be in the autumn? I now move on to vehicle excise duty, which has been covered by some other speakers. Although it was not made clear in the Budget 2008, the Treasury has abolished the exemption from higher VED rates for cars that emit more than 186 grams of CO2 per kilometre and which were registered between March 2001 and March 2006. In a Written Answer on 9 July, Angela Eagle admitted that 44 per cent of drivers will pay more VED as a result of the changes. Not only has that been proved to be another stealth tax buried in the fine print of the Red Book, it involves retrospective legislation in a most pernicious way. If it applied to new cars only, I would be more prepared to accept it. However, by making it applicable to previous purchases, it is very unfair and unsurprisingly has caused great anger, even among Labour supporters. Will there be another U-turn on this plan after such general protests? If muddle and confusion have been features of the 10p tax abolition and the VED situation, the third issue, CGT reform, has seen just as bad problems. Once again, like the 0 per cent corporation tax rate for smaller companies, the Government have abolished a rate which they introduced. It was only after a great hue and cry from businesses that the entrepreneurs’ relief was introduced. The Lords Economic Affairs sub-committee on the Finance Bill made some very relevant comments on the CGT changes. The committee first stated: "““We see no reason why there could not have been earlier, better and more open consultation””," on CGT. The committee went on to say that, "““in the light of developments both here and in other countries, the overall impression being given today is of a less competitive tax environment. We also think that announcing unexpected tax changes adds to the perception of reduced competitiveness””." The committee also believed that the introduction of entrepreneurs’ relief added a measure of complication, as it was not framed as simply as might have been possible. I want to say a brief word on the non-dom situation. The UK economy will suffer from the introduction of the new £30,000 levy. Anecdotal evidence that I have received suggests that considerable numbers are considering leaving the UK to set up in principalities such as Monaco or in Switzerland. Any Government would be making a big mistake to tax such individuals, as they pay considerable amounts of PAYE tax on their employees and VAT on their expenditure. Legislative chaos seems to be matched by departmental problems. The Times in an article of 4 July stated that there is a collapse of morale in the Treasury, "““after a string of U-turns and interference by No. 10””." The article goes on to say that, in another blow to the Chancellor’s independence, Gordon Brown has asked him to carry out a review of green taxation to pave the way for further climbdowns on fuel duty—which has now happened—and VED this autumn. According to the article, there is another problem, this time with the National Audit Office. Apparently, as my noble friend Lord Higgins stated, the NAO is unhappy with the way in which the nationalisation of Northern Rock is being treated in the Treasury’s books. The Treasury’s annual report was published on 3 July, most unusually without the normal department resource accounts. Will the Minister confirm, as my noble friend Lord Higgins has asked, that the resource accounts will be published before the Summer Recess, as I understand is required? Will the accounts be qualified? Finally, in the Times article, a so-called ““senior Treasury figure”” spoke of a ““crisis of identity”” in what was once Whitehall’s most powerful department. He said that it was a depressing place to work. Problems persist in another government-related area; HMRC. Despite assurances that have been given to me and others that the issue was under control, it was disclosed on Tuesday that another £1.5 billion of taxpayers’ money was lost to fraud, so-called accidental over-claims and other areas in 2006-07 in the area of tax credits. That means that, according to the NAO, almost £14 billion has been lost in fraud and overpayment of tax claims since tax credits were introduced in 2003. What is being done to stem that continuous loss of money? The tax credit system is so complicated that it is easily abused by fraudsters, misunderstood by claimants and mismanaged by officials. It is well known that HMRC has also experienced major problems with the loss of the personal data of 25 million people. The Poynter report produced on this incident said that the loss was ““entirely avoidable””. It does not blame individual officials but highlights serious institutional deficiencies at HMRC, in direct contradiction to the claims at that time by the Prime Minister and the Chancellor. Can the Minister say what has been done to correct those deficiencies? As many other speakers have stated, one of the main planks of the Labour Government’s policy in 1997 was economic confidence. Unfortunately, that has been totally broken and we are all going to suffer for a very long time.