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My Lords, I declare an interest that my wife is a senior construction lawyer working on large infrastructure projects and my three children are, amazingly, involved in financial engineering, especially SME work; that may have an impact on this debate.
I thank the noble Baroness, Lady Neville-Rolfe, for securing this interesting debate. I agree with her that it is refreshing to have an opportunity to stand back from the day-to-day cut and thrust—or, at least, it should be—and talk about deeper policies and issues in principle, but somehow we have missed the opportunity of the slacker time we have in Parliament at the moment to do that. She has stepped up to the plate and I respect her for that. I also echo what the noble Baroness, Lady Fairhead, said about her contribution to British business and the way in which it has informed her debate and the discussion today.
It has been a high-quality debate but it has done more to reveal the complexity of the issues that we are trying to address—the interrelation between growth, productivity, investment and taxation, on the one hand, and, on the other, the unsatisfactory position in which we find ourselves in approaching, taxing and regulating the new digital economy and the fourth industrial revolution. It would take more than just a two-hour debate to get us further down this track, but we should start somewhere. We always need to take a first step in every journey, and we have covered a lot of ground here, which could provide some information for further work.
The context we should deal with was raised by the noble Baroness, Lady Kramer, in relation to the economy. Although it may, on a superficial level, look good, with lots of people in employment and a lot of the indicators going up, that was from a very low base and the reality is that at the lower end of the income spectrum many people are struggling to make ends meet and are not doing well out of the growth in the economy that there is.
Like my noble friends Lord Haskel and Lord Chandos, both of whose speeches opened up new light on these issues, I want to press the Minister on matters which are currently under consideration, and I hope to get some responses from him. I shall make five points. First, there should be no doubt that my party supports a market economy. We were the party that brought in the strong competition environment in the early 2000s which was the basis of much of the growth in the economy that we enjoy today. The Government have a duty to act in the stewardship role referred to by my noble friend Lord Haskel, and where there are asymmetries of information, monopolies, oligopolies or public interest concern—whether that is defence, security or the media—there is a need to create fair markets. For example, payday lenders is an area where the Government had to act because of pressure by politicians.
We need to see the Government take a position which is based on principle and reflects forward what we are trying to achieve as a country. We have before us two good opportunities for this. There is a proposal from the noble Lord, Lord Tyrie, to reform the CMA in favour of a stronger balance towards consumer interest. His recent letter to the Secretary of State was interesting as it posed this not simply as a consumer interest matter but as a way in which the CMA could modernise its activities, sharpen its approach to the imbalances and injustices it sees in the market and work forward in a way which would allow it to pack a much bigger punch in terms of the penalties it could apply. I am a little unclear about where that has got to in government circles and I would be grateful if the Minister could give us some information about that when he responds.
It seems to me that a lot of the issues we have raised today need a strong regulatory component. I am not arguing that regulation is good in itself. Indeed, rather like the noble Lord, Lord Cavendish, I am not in favour of a bonfire of regulations but of good regulation and better regulation—a phrase often used by the noble Baroness when she was a Minister. It is that regulation that has to be enforced, or it is worth nothing. The CMA is a key element of that. A shift away from a fair market model to a consumer interest model should set in train considerable changes to the way in which we operate. I would be grateful if the Minister could bring some information to us on this.
The second piece of work that is also the subject of discussions and debate between the reviewer—in this case, Sir John Kingman—and the Government is how we might reform statutory audits, particularly for public interest entities, or PIEs. That may not seem entirely relevant, but stronger identification of for whom audits are carried out and the responsibilities that will fall from a new regulator, which is likely to have higher standards and enforce bigger changes in the regulatory environment, will have an impact on business and the future of our economy. I would be grateful if the Minister could confirm where we are on that.
That leads into another, slightly smaller point, but one I shall inject into this debate. There is a focus in a lot of regulatory work in government on PIEs and less interest in how SMEs do. This point was raised by the noble Baroness, Lady Fairhead. We need to think very carefully about the role of SMEs in our economy, and I do not think overreliance on Stock Exchange rules and the way in which mergers and acquisitions and other forms of change of ownership take place through the Stock Exchange is of much benefit of SMEs. Indeed, it might be at the expense of SMEs. Much more work about the Small Business Commissioner and attempts to make sure that SMEs get a greater amount of procurement would do more in this area than any amount of regulatory activity. I hope the Government will have some plans for that that they can share with us.
The points made by noble Lords during the debate about the wider context of infrastructure work and the need for more focus on education and better educational standards, particularly in technical areas and apprenticeships, are vital to this, but the point made by noble Lord, Lord St John of Bletso, about visas and the need to make sure that we get a flow of good-quality people who can take forward investment opportunities and work in new companies is important, particularly in the context of Brexit.
We need to think again about the way tax impacts, particularly on the SME sector. This is a theme running through what I am saying. Business rates were mentioned by several noble Lords. I think the time has come for them to be an issue. The important point that has not been made is that it is interesting that the business rate element is now one of the biggest features of local government financing. That has a danger of steering the way in which we think about rates in relation to the original purpose, which was to make sure that businesses contributed to local services. If rates are being used because other money is not available, that may lead to a suboptimal solution. I would be grateful if the Minister could respond on this.
Stamp duty and VAT are also issues which need to be thought about more in the context of SMEs. I was particularly interested in the question about investment reliefs. I spent a lot of time in an earlier career trying to get EIS and VCT to work for the area I was working in, which was the film industry. I was constantly frustrated by the very narrow rules and the difficulty of trying to make anybody in the Inland Revenue realise that investment in film was not just a lovey-dovey thing but was a real thing with real returns, if you get it right, but they would not change the system, and I sympathise entirely with the points made there.
In the time we have left before Brexit, we should think a little more about the impact that tariffs and duties might have on our economy. They have virtually gone from discussions about tax-raising issues because they are no longer part of our everyday experience, but if we are to leave without a Brexit deal—or even with a deal that will involve, at some stage, responsibility for our own trade—we will have to raise the question of what tariffs and duties we will set. That is not to say that they will be good, because to a large extent they may involve extra costs for consumers who are already hard pressed, but they are a source of interesting revenue. Even on the Government’s current interim proposal, which would need to change after consultation, there are substantial tariffs in certain areas where the Government have seen fit to protect certain industries. If that is the model, it opens the door for further consideration. Will the Minister explain what work is being done on that?
This has been a good debate. I have resisted the temptation to do knockabout on politics, but I am happy to talk about that later outside the Chamber if the noble Lord wishes to do so. I have strong views on this. A lot of these issues are to do with what we as a society think about fair tax. What is a fair tax? That is a question I tried to raise when I was working in a think tank a few years ago. I got some interesting responses when I did some detailed work on this. Indeed, we summarised it in a pamphlet which was subsequently published. The first instinct is always to think about income tax, not the wider tax base. For those on the right, it is a relatively straightforward question. They broadly say that taxes should always be proportionate. There is no debate about that; that is what they come up with. Those on the left tend towards an acceptance that that is the right approach, but they would like to see redistribution as part of it. I wonder whether taxation needs a bit more thinking about in terms of that element. Redistributive taxation is always aggressively attacked by the right. That is not necessary if it is done properly and fairly. The most interesting response—I will end with this—was from the Inland Revenue. When asked a direct question, a senior official, who will not be named, said to me that a fair tax was two things at the same time. First, it was invisible—in other words, people paid it without knowing they were paying it—and, secondly, it was hugely proportionate in terms of bringing cash in. The two examples he gave were insurance premium tax—everybody has to have insurance and therefore if you charge them a little bit more on the top they do not really notice it and it brings in loads of money—and air passenger duty. Again, people who have to fly will pay it; it is a relatively small proportion but it brings in lots of money. Those are fair taxes. I leave noble Lords to think about that.