Finance Bill

Part of the debate – in the House of Lords at 11:42 am on 12 July 2002.

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Photo of Lord Saatchi Lord Saatchi Conservative 11:42, 12 July 2002

My Lords, these days, politicians receive little praise. Usually, they get off-hand and uninformed criticism from people who wonder about their motives and their behaviour. So I must say, first of all, that the Hansard reports of the well mannered and illuminating debates on the Finance Bill in another place bear witness to the fact that the House of Commons is overwhelmingly occupied by intelligent and responsible people honestly striving to pursue, by their own best lights, the ideals for which the place stands. It is odd that these days a statement of something that we all know to be true comes almost as a surprise.

Secondly, I must thank the noble and learned Lord the Leader of the House. As the noble Lord, Lord Newby, said, this is, perhaps, the last occasion on which your Lordships' House will be confined to such belated and cursory consideration of the Finance Bill. From next year—if the House adopts the proposals put to the Procedure Committee by the noble and learned Lord following his group's review of working practices—we will have new procedures allowing noble Lords far greater opportunity to comment on the Bill.

That reflects ideas put forward by several noble Lords, including the noble Lords, Lord Peston and Lord Barnett, and the noble Lords, Lord Newby and Lord Jacobs, from, respectively, the Labour and Liberal Democrat Benches, as well as well as several noble Lords who sit on these Benches. They drew attention to the financial expertise in your Lordships' House and the value that it could add to the Budget process. It was, surely, an act of disinterested statesmanship by the noble and learned Lord the Leader of the House to open doors that had been closed for a century and, on behalf of the Government, to invite your Lordships' House to consider the Finance Bill at a much earlier stage. I am sure that everyone with an interest in the effective administration of the national finances will join me in thanking him.

We look forward to the establishment, as envisaged by the noble and learned Lord the Leader of the House, of a sub-committee of the Select Committee on Economic Affairs to review next year's Finance Bill and make comments and recommendations on it. The sub-committee will not, as the noble Lord, Lord Newby, said, consider the incidence or rates of tax; it will none the less have much of value to say. It will need to take evidence. I hope that the noble Lord, Lord McIntosh of Haringey, with his normal courtesy to the House, will confirm that Treasury Ministers and officials are to give evidence to it. It is a historic step and a clear sign that, as the House is reformed, it can fairly and legitimately claim to exercise functions and roles that the previous—mainly hereditary—House, so despised by the Government, could not. I cannot put it better than the noble Lord, Lord Oakeshott of Seagrove Bay, who dared to hope that the Treasury would take,

"some notice of the improvements and amendments that our committee will propose. We will not roar; we will not have teeth; but we will speak with authority and relevant practical experience, and we will be heard".—[Official Report, 4/7/02; col. 427.]

That said, are we mad to want the extra role or is there method in what we are doing? I think that there is. My noble friend Lord Northbrook touched on the matter. On Monday, the two volumes of the Finance Bill arrived majestically in your Lordships' House. The Bill's 1,092 pages of clauses and notes—there are 494 pages of the Bill itself and 604 pages of what are laughably known as Explanatory Notes—arrived neatly tied in green ribbon. As the Bill approached the Table, its weight drew gasps from the assembled Peers. I was reminded of Hilaire Belloc's poetic puff:

"No person, says he,

Will be truly content without purchasing three.

While a parent will send for a dozen or more

And strew them about on the nursery floor".

In fact, the magnificent scale of the Bill is only a continuation of a trend we have witnessed over the past five years. It is worth remembering that the first Finance Bill of my noble friend Lady Thatcher's government, which was commended to the House of Commons by my noble and learned friend Lord Howe of Aberavon, ran to just 22 pages. The Bill now before us assures the Chancellor of his place on the Olympic weightlifting podium. He holds gold, silver and bronze medals for raising the three heaviest Finance Bills of all time.

As the noble Lord, Lord Newby, said, the trend towards ever more complex and lengthier Finance Bills is serious. When the Minister talked about modernising tax, he was referring to the fact that, to accommodate that so-called modernisation, Tolley's three standard tax manuals—I gather that they are the bible of tax accountants—now include 855 new pages to explain the Government's new thoughts. The guides, which run to 3,414 pages, are longer than London's residential and business telephone directories put together. Apparently, Tolley's has even had to reduce the print size to cram in more.

So far—I hope that things will be different in a moment or two, but I doubt it—the Government are oblivious to the general clamour about its addiction to meddling, tinkering and over-regulation. Those are the principal complaints of individual and corporate taxpayers alike, for whom the editor of the Financial Times speaks when he complains of a regime of "paralysing complexity". Somebody must hold a torch for simplicity in the system, and it may as well be your Lordships' House. It is true that we will not have the legal power to change anything, but we may, as the noble Lord, Lord Oakeshott of Seagrove Bay, said, have the power to embarrass governments into a better performance.

My honourable friends in another place voted against the Third Reading of the Bill, partly because of the unexpected and unwelcome appearance of the supplementary charge on the UK oil and gas extraction industry, something to which the noble Lord, Lord Newby, referred. On the other hand, the Government listened to some of the comments by our party in Committee, and I am happy to repeat the thanks that my noble friend Lord Northbrook gave for certain aspects of the Bill. However, that should be set against the £6 billion a year of extra taxation with which business has been burdened in the past five years, not to mention the additional £5 billion a year in extra regulatory costs, which were not mentioned in the Minister's speech. A new regulation affecting business has been introduced every 26 minutes of the working day since the Government came into office. That rate is exceeded only by government press releases, emission of which occurs every four minutes.

As a result of what the Minister called modernising the corporation tax regime, UK corporate taxation is now 13.2 per cent of GDP, versus 12.7 per cent in Germany and 9.5 per cent in America. This Bill will take the UK proportion even higher. Meanwhile, individual taxpayers will be poorer as a result of the Bill. The Inland Revenue apparently now projects an increase in the number of people paying the top 40 per cent tax rate from 2 million in the last year of Conservative administration to 3 million next year. Meanwhile, the freezing of basic personal allowances, the oldest stealth tax in the book, has prevented those allowances being where they should be, at roughly double their present level.

The total tax take will therefore rise by many billions of pounds as a result of this Bill. The Government claim that all that is for the benefit of public services. However, no one seems convinced. I gather that in word association tests, the word that people now choose to reflect their view of the Government is "disappointment". Presumably, that is because in the past five years taxes have gone up and public services have remained the same or deteriorated.

The fact is that when the Minister spoke of a low tax environment, which I think was his phrase—I know that he will not contradict it, although his words gave a completely different impression—he perhaps overlooked the fact that tax revenues have increased by £100 billion per year over the past five years. If allowances are made for the changes in accounting practices, the actual share of GDP taken in taxation, according to the Government's own Red Book figures, will have risen by 5 per cent between 1997 and 2006, from approximately 35 to 40 per cent.

Economists, doctors and the public alike are rightly sceptical that the increase in NHS spending without reform of the system will succeed in improving the delivery of healthcare. They are not wrong. The Government's own figures show that they expect wage and price inflation to eat up most of the extra cash. That is because since 1999 public sector wages have increased 4 per cent faster than those in the private sector.

I conclude by considering two omissions from the Bill, which your Lordships may consider striking. First, the Bill does not address the pensions crisis which perhaps has arisen as a direct result of the Finance Act 1997. The £5 billion per year tax on dividends introduced by that Act created a vicious circle. It directly reduced pension entitlements by the amount of tax and, by greatly reducing the attraction of equities relative to all other asset classes held by pension funds, reduced the demand for equities and therefore contributed directly to the price falls now seen in the stock market. The only reference to pensions in 1,000 pages appears in Clause 29, which provides for a measly £55 million-worth of allowances to be given to pensioners aged 65 to 74.

The other striking omission relates to national insurance and the increases that formed a key part of the Chancellor's Budget Statement. Those were not mentioned by the Minister in his opening remarks either. The charm for the Government of putting tax increases into a completely separate National Insurance Contributions Bill, rather than in this Finance Bill, is the public's complete lack of understanding of the working of the contributory system, which the noble Lord, Lord Newby, called "complex and opaque". As the right reverend Prelate the Bishop of Derby said in your Lordships' House the other day, putting tax rises in the National Insurance Contributions Bill, rather than in this Bill, is merely a device for exploiting public ignorance and raising money less visibly, because people dislike the idea of paying straightforward income tax.

By such errors of omission and commission, the Bill threatens all the theoretical economic foundations on which the Chancellor's framework is built, of which the Minister is so proud. The framework's main pillars—the independence of the Bank of England, the symmetrical inflation target and the code of fiscal stability—are all much less solid than the Minister may like to think. Incidentally, any idea that the European code may save us has been dashed by the new French finance Minister, Francis Mer, who said:

"Le code de stabilite european n'est pas inscrit dans le marbre".

That is probably just as well, because the reality of our economy is that the private sector, for the first time since 1992, has registered two consecutive quarters of negative real spending growth. The UK has recorded the slowest pace of economic growth of any G7 country in the first quarter of this year.

It is perhaps even more to the point that a more detailed output breakdown, for which I am indebted to my co-author, Dr Peter Warburton—I find this very worrying— reveals that the so-called hot private sector service sectors, that is, business, financial and telecommunications services, have delivered half of all the output growth in the UK economy in the past five years. The other 80 per cent of the economy has grown at 2 per cent per annum or less in every year since 1994. That over-reliance on the output growth of the hot sectors, which is now decelerating sharply, threatens to undermine the Government's objective of steady and stable growth, of which the Minister made so much.

New Labour was right to break away from the simple equation that higher tax rates equal better public services and greater social justice. With this Finance Bill, it has begun to slip back into the old ways of thinking. Only two things are needed to bring back to life the dead body of old Labour. This Bill provides the first—tax. In Monday's comprehensive spending review, we shall have the second—spend. By Monday night, the resurrection will be complete.