My Lords, I congratulate the right reverend Prelate the Bishop of Chester on his speech, much of which I agree with.
I think that the Chancellor is a good and decent man, and when I read his Budget it all sounded pretty reasonable on a first read, if a little dull, but in no time there had been a political explosion. We all know what the issue was—class 4 NI—but, stepping back, what then struck me was that, over the past two years, there has been a whole chain of tax attacks on SMEs and the self-employed, and that was one of the reasons why the media got so excited this time around.
I imagine that there is within the Treasury—whether it is Matthew Taylor’s review or a body in HMRC—a body that, because there is such pressure to develop tax revenues, is looking for areas that it thinks could take some more taxation. The problem is that this is very much in conflict with the whole Thatcherite philosophy of the self-employed getting fewer benefits, no sick pay, no holiday pay and no minimum wage but equally paying much less tax—the whole idea of a more self-reliant people. You cannot have that and then start taxing them on the same basis as employed people.
As I said, it has not just been the class 4 NICs this year; we have got digital tax returns coming up, with the most extraordinary requirement for the self-employed that they do their accounts four times a year and submit different tax returns four times a year. There will be extra costs for them and for the Revenue. That will hit 5 million people in total. To my mind, I cannot see the point of it, and there will be a lot of ill feeling about it.
We have heard a lot about business rates. Although there has been help this year and last year, in London, where property values have gone up so much, local stores are typically finding an increase in rates of some £20,000 per annum. There is also the issue of dividends. A lot of self-employed people with companies could take some of their remuneration from the company in the form of a tax-free dividend rather than taxable pay, so I can see the sharp-eyed Treasury saying, “We’d better tighten up on that one”. Last year, there was the big tax attack on small buy-to-let landlords, which reduced the interest charge they could levy against their revenue, and stamp duty was put up by 3%. To my mind, that was unwise. In fact, the country should be grateful for small buy-to-let landlords for making available premises for people to rent, which have otherwise been in short supply.
We have also had something that has not attracted much attention, which is the abolition of the lower VAT system for small businesses. They could pay a reduced rate of VAT provided they did not claim expenses. This actually benefited the Revenue. That is now being forced out, if you like, rather than phased out.
As regards sourcing equity finance for SMEs, as a result of EU requirements we have had a great tightening up of the availability of EIS-qualifying finance—here I declare my interest as chairman of the EIS Association. In essence, the pre-clearance mechanism is now taking a lot longer because it has all become hugely more complicated and some areas no longer qualify. For small amounts of money, it is pretty impractical.
The big issue is that the Revenue sees the danger of many more people transferring to a self-employed basis. It is already generally cheaper for companies to take on self-employed people for particular tasks rather than to hire full-time employees, and that will increase with the increase in the minimum wage. The Revenue does not much like the self-employed—it views them as tax avoiders—and it certainly does not understand the political situation, where they are very much seen as the bedrock of Thatcherite Conservative support.
As we all know, the reason behind this is that the public finances have not been put in order. While this year and next year are much the same as forecast, I cannot understand why, as the noble Lord, Lord Shipley, pointed out, between now and 2020 the forecast deficit rises from the £38 billion that was forecast last year to £141 billion this year—an increase of more than £100 billion. What on earth is happening? What is causing this? Did the previous Chancellor somehow get his sums wrong when he was forecasting £38 billion? I would be extremely grateful if the Minister could explain the reason for that extraordinary £100 billion increase.
I believe that we have to come to terms with the fact that the scope to increase taxes is sorely limited, in terms of both whether it will deliver more revenue and whether we have the political ability to do it. Indeed, Chancellor Merkel, of all people, has warned that the trajectory for welfare spending is not sustainable and we need to change the way that we finance quite a lot of our benefits.