Finance Bill

My Lords, of course I am not going to tell the noble Lord such a thing because we are not in government. We have said consistently that we cannot say what we will do when in government—I hope that that day is not far away—until we see how bad the economy is. At the moment only those with privileged access to the Treasury know exactly how bad things are. I can tell the noble Lord, Lord Peston, that we have shown, by what my noble and learned friend Lord Howe of Aberavon did when we were first back in power in 1979, that we can take hard decisions. We expect that we will have to take hard decisions and we will not be afraid of them, but it would be wholly inappropriate for us today hypothetically to say what we would do if we were sitting on the Benches opposite. The noble Lord, Lord Peston, does not expect any other answer. Unfortunately this House cannot alter the Finance Bill, so by tradition, as has been the case today, our debate ranges over much wider issues, starting with the Budget from which the Bill emanates. Our debate is not timely in relation to the Budget but we do have the benefit of being able to judge it at a distance. There has been no good economic news since March. Governments are tested and judged not in the good times but on how well they cope with the bad. The prevailing view—not just from these Benches—is that they are failing. The Prime Minister, when he was Chancellor, used regularly to boast that he had eliminated boom and bust. The last time that the current Chancellor used the words ““boom and bust”” was last June, just before he took office. Once he got the keys to No. 11. he had to confront the fact that Mr Brown had bequeathed his Chancellor the very circumstances that he used to claim he had vanquished. The truth is that the Government have failed to prepare the economy for a downturn and they blame global pressures as it has nothing whatever to do with them. They failed to fix the roof while the sun was shining. In the Budget the Chancellor had to downgrade his growth forecast for this year, but he said that it would bounce back in 2009. Most commentators disagree. Consensus is around 1.7 per cent for growth this year, which is already below the bottom end of the Government’s range. The median for next year is only 1.4 per cent, which is way below the Government’s figure. Will the Minister say whether the Government are sticking to their forecasts? Is it not time to come clean with Parliament and not hide behind the formula that we must wait for the Pre-Budget Report some time this autumn? Household finances are under extreme stress. The inflation genie is out of the bottle with RPI currently at 4.6 per cent. CPI is way outside its target range at 3.8 per cent and more than double the rate when the Government came to power. The Chancellor’s response is of the ““let them eat cake”” variety by insisting that wage settlements track the 2 per cent CPI target to keep inflation down. What he really means is that people in this country must suffer a real fall in their standard of living—a point that the Governor of the Bank of England starkly made in his annual Mansion House speech last month. It is deeply depressing, though hardly surprising, that the healthy savings ratio that this Government inherited has been decimated and is now down to 1959 levels. Consumers have been borrowing and spending the Government out of economic trouble for some time, but they are now running on empty. In 1997, the Government invented some fiscal rules, and the Prime Minister then immediately started playing fast and loose with them. Not for him the independent assessment that my party will introduce, which my right honourable friend Mr David Cameron spoke about yesterday. We have known for some time that nobody outside the Treasury takes the golden rule seriously, and in the news that has emerged in the past 24 hours we hear that the Treasury is going to rewrite the sustainable investment rule, to which a number of noble Lords referred. We know that it has run out of devices, such as ignoring the nationalised Northern Rock debt, in some vain attempt to avoid admitting that the 40 per cent of GDP rule will be bust. Since the Budget, the Chancellor has been handing out electoral sweeteners whenever a bye-election comes along. We had £2.7 billion for the 10p rate and earlier this week there was £550 million for fuel duty with an eye to Glasgow. That will all end up in extra borrowing. This morning’s statistics on public finance contain more evidence of borrowing and of the deficit in the economy being fundamentally out of control. In relation to the sustainable investment rule, will the Minister today confirm what the Treasury plans to do? We have heard the leaks that have been coming from the Treasury, but we believe that the Government should today make plain what they intend. We have warned for years that building the UK’s finances on the foundation of a structural deficit is unwise. Noble Lords will know that I am not a fan of the EU, and am even less so if the EU interferes in our economy, but when we are faced with incompetence of a high order, even I welcome the EU’s Economic and Monetary Affairs Commissioner telling the Government to take steps to correct our excessive deficit by 2009-10. Will the Minister say how the Government intend to respond to the EU? Let me now turn to the Finance Bill itself. It is not as long as some earlier ones but, as my noble friend Lord Forsyth pointed out, it is a two-volume monster and, as was also pointed out, we have the longest tax code in the world and almost certainly the most complex one. The Government have shown almost no interest in tax simplification. The only example they can come up with is the simplification of capital gains tax but, as other noble Lords pointed out, that too is surrounded by its own complexities. My noble and learned friend Lord Howe of Aberavon, who has been referred to by a number of noble Lords, has recently published his report Making Taxes Simpler. It is in line with the recommendations of my noble friend Lord Forsyth’s earlier report on tax. We will create an office of tax simplification and will publish Finance Bill proposals no later than the Pre-Budget Report. The noble Lord, Lord Newby, said that our concept of an office of tax simplification needed to be broader, but I refer him to my noble and learned friend’s report. At paragraph 3.2, it states: "““The OTS would have a much wider remit””—" This is much wider than the proposals put forward by the Chartered Institute of Taxation and the CBI— "““to examine such areas of fiscal law as seemed to it appropriate and to put forward proposals for tax law reform and simplification””." I believe that our proposals are fully in line with what the noble Lord, Lord Newby, referred to. I hope that my noble and learned friend’s other proposal, which is for a standing Select Committee of both Houses, will also come to fruition. That will line up with some of the points that my noble friend Lord Higgins made earlier. The Treasury dismissed my noble and learned friend’s report without even reading it, which speaks volumes for its approach to our fiscal code. We have heard a lot today about the Finance Bill giving effect to proposals in the 2007 Budget, which included the infamous removal of the 10p tax rate, and then the subsequent U-turns to try to put that right. I am sure that it came as a surprise to many in the Labour Party to find that their leader had engineered the package of changes in the full knowledge that they would hurt 5.3 million poor people. My noble friend Lord Stewartby charitably said that the consequences had not been analysed, but I have to correct him: the Government have admitted that they were fully analysed and the Chancellor, as he then was, knew exactly what he was doing. The U-turn is said to be for one year only—