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8.47 p.m.

Viscount Hood: My Lords, investment has been an ingredient to which almost all speakers have referred. I should like to touch upon a circumstance which affects investment; namely, the capital gains tax.

Before 1962, there was no capital gains tax. There was a tax on dealing short-term, but long-term capital gains were tax free. The capital gains tax was imposed by Selwyn-Lloyd in the 1962 Budget and lasted for the next 20 years, usually at a rate of 30 per cent. The system was then materially changed by my noble friend Lord Lawson in 1982. Here, important changes were made. As many noble Lords will recall, income tax and capital gains tax were joined or equalled, the capital gains tax being superimposed upon income so that, even with a relatively small capital transaction, the 40 per cent. top rate applies.

The March 31st 1982 market price was allowed as an option to cost in calculating the liability for tax. Indexation on retail price index was applied, whether on the March 31st market value or cost; and an annual exemption of £5,800 applies. The problem arises from the fact that the markets of the world have risen a good deal more than indexation. It follows from that that the great mass of investment capital is greatly in excess of the index value.

I take as an example the figures for four companies which would be included in a small or large investment programme: Shell, the Pru, BATs and Unilever. In the case of Shell and the Pru, to sell an investment and invest in new industry or whatever would cost more than a quarter of the value of one's holding. In the case of BATs and Unilever, that figure rises to nearly one third. It follows that there is a hold-up of capital wishing to invest--and we all agree that investment is necessary. One would have to recover the loss of capital of those very large proportions in the tax paid before any benefit could arise on the new investment. The effect is clearly to freeze great masses of capital. I hear continually of investments that are "frozen in". That is a very common term now.

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That situation cannot be good. Quite apart from the effect on new investment, it means that in effect great masses of capital are not managed at all. I refer particularly to our very large foreign investment portfolio, where no doubt the capital gains are as great as they would be in the companies that I have mentioned. Surely it would be for the good of this country if they were properly managed. The level of tax, which is high, probably leads to export of capital, tax shelters and such. Those things are legal. They follow the financial need.

I believe that it would be wise to return to something in the nature of what existed before 1962. For instance, there should certainly be a tax on short-term profits, which could be taxed, as they were at that time, as a part of income at whatever rates apply. Beyond a certain date--perhaps five years--the capital gain should be free. I have no doubt that that would release vast amounts of capital. It would lead to better management. I hazard saying that there would be a significant repatriation of funds which are legally held abroad. Apart from any other reason, a tax shelter is very expensive to operate and it would be advantageous to repatriate funds here.

I do not expect my noble friend the Minister to comment on my tax suggestions at this delicate time. I should like to hope that in time the Government will give consideration to those factors.

8.54 p.m.

Lord Monkswell: My Lords, this evening's debate has been fascinating. It is interesting to note that only about three or four of the 20 speakers so far have been supportive of the Government. Even they were critical in some respects. I wonder whether that is because of the remarks which the noble Earl, Lord Ferrers, made at the beginning of the debate, when he described privatisation as a success.

I wonder whether we are entitled to ask: a success for whom? Looking at the privatisation of British Telecom, what happened there? Thousands upon thousands of British Telecom workers have been made redundant. Looking at the privatisation of the water industry, what happened there? The bills for water for everyone in the country have escalated since privatisation. Looking at the privatisation of the electricity industry, what happened there? We have seen the destruction of our coal mining industry. Looking at the privatisation of the gas industry, what do we see there? We see that British Gas are to institute a charging regime which will penalise the poorest domestic users of gas.

Lord Cochrane of Cults: My Lords, perhaps I may ask the noble Lord whether he believes that those reductions in employment have resulted in higher prices and a worse service to the consumers. If he does, perhaps he could explain why.

Lord Monkswell: My Lords, I was endeavouring to identify who had benefited from privatisation and for whom privatisation had been a success. Having gone through a range of aspects of privatisation, I have come to the conclusion that the only element of success that is common throughout the whole privatisation scene is

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the situation of senior management and boards of directors. The common theme is that, for those people, privatisation has been a personal financial success. All the senior members of those privatised companies have seen their personal pay packets rocket. The latest example is the managing director of British Gas who has received a 75 per cent. pay increase.

Surely we are entitled to know the Government's criterion of success. It would seem to me to be totally at variance with the perception of the British people of the criterion of success. It is interesting that, as I said, out of 18 contributors so far only four have spoken in support of the Government, and three of those had some reservations about government policy. I believe that that is a reflection of the Government's criterion of success.

I was tempted to make those remarks by the opening speech of the noble Earl, Lord Ferrers. In hoping for a positive future for the industrial and economic life of our country, I wonder whether we might take a different view and consider a different way of doing things. Perhaps I may take as my theme that taken by the right honourable Tony Blair in his speech to the Labour Party Conference this year; namely, co-operation. It is interesting to reflect that the British workers who are the best organised are also the best educated and trained. Let me give the examples of the medical profession, the legal profession and teachers. Those British workers are very effectively organised, some in professional associations, some in learned bodies and some in trade unions. But the common element is that they are well organised.

As a result of that organisation and working together they have ensured that they are well educated and trained. Maybe the rest of British industry can learn from that. I would not say that where we allow our workers to organise, but rather that where we encourage them to be organised we see benefit for our economy because such organisation encourages personal and community investment in education and training.

It sometimes annoys me to hear nationalisation being pilloried. One noble Lord in this debate today actually revelled in the fact that, having been a Member of Parliament when the railway industry was first nationalised, he is now seeing its denationalisation. But we tend to forget that in every case of nationalisation a massive transformation has taken place by public investment in those industries, which has been for the benefit of the country as a whole. There have been massive changes in working conditions that were welcomed, agreed and accommodated by trade unions and the workforce generally.

In the railway industry we saw the transformation from steam to diesel electric and now electric. In the coal industry we saw a transformation from where the pick and shovel were the tools of the trade to where sophisticated, intensive mining machinery is employed. We forget that in the process of change the workers in those industries had to be retrained and re-educated. They accepted, welcomed and encouraged that because they saw that it was to their advantage. I hope that before too long those that hold responsible positions in

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government and in industry will recognise that this country will benefit far more by co-operation than by insisting on conflict, which is debilitating to us all.

9.2 p.m.

Lord Pearson of Rannoch: My Lords, I shall address my brief remarks and questions to two passages in the gracious Speech. The first is that the Government,

    "will seek to ensure that the principle of subsidiarity is applied to European legislation".


    "Legislation will be introduced to give force to the changes in the European Community's system of own resources, following the agreement at the Edinburgh European Council".

Noble Lords will remember that throughout our debates last year on the Maastricht Treaty, those of us who had read the treaty and who therefore opposed its ratification were constantly assured by the Government that its Article 3b, or the "subsidiarity" clause, was to be our glowing shield against any further loss of our sovereignty to Brussels. Many of us doubted the Government's assurances because, on reading the treaty, we had discovered that some 110 new areas of our national life were to be ceded by it to qualified majority vote in Brussels. In the context of this debate, therefore, we feared that we would be outvoted on directives which would damage our industrial and economic prospects. Indeed, of the 110 new areas to which I referred, most can be said to be potentially damaging to our industrial or economic well being.

I was interested to hear the remarks of my noble friend at the start of the debate and I do not wish to detract from anything he said when I remind him that it is upon the small businesses that red tape and regulation fall most heavily.

During our debate on the Maastricht Treaty we were of course given two further assurances; first, that with the completion of the single market the flood of directives coming our way was about to dry up into a mere trickle, and, secondly, that our opt-out from the social chapter would avoid the more economically damaging directives. Perhaps, therefore, I may take the opportunity to touch base on those issues with my noble friends on the Front Bench by asking a few questions.

To start with, so that we may form an opinion on the value of our opt-out from the social chapter, will my noble friend be so good as to tell us the directives which have been issued or are being considered by Brussels under the heading of health and safety at work and on which we could therefore be outvoted by a qualified majority? I am not suggesting that our opt-out is entirely without value. A number of other directives are being considered under the social chapter out of which we can, in theory, opt. Indeed, my right honourable friend Mr. Portillo has wisely declined to bestow the benefits of the parental leave directive upon us. We also technically opted out of the works councils directive, though many of our international companies who trade in Europe are being dragged into it.

Other choice morsels under the social chapter include directives to reverse the burden of proof in sex discrimination cases, and to interfere in employers' and employees' freedom to negotiate contractual terms for

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part-time and temporary workers. It remains to be seen whether the next inter-governmental conference in 1996 will allow us to continue to avoid such follies. Let us hope so.

Next, I should inform my noble friend that the flood of directives and regulations from Brussels appears to continue unabated, much of it in pursuit of the single market, which we were told was complete two years ago. For instance, in the three weeks between 1st November and today, 26 draft regulations and decisions and 11 proposals or communications have been deposited in your Lordships' House, which your Lordships' Select Committee does not propose to scrutinise. Assuming that this has been a fairly typical three weeks--and I believe that to be the case--it indicates that there are still annually some 442 draft regulations and decisions and 187 proposals and communications which we do not scrutinise. I admit that some of them are comparatively trivial, but no doubt there are many which we might like to look at if we had the machinery to do so. Of course, we do our best to scrutinise the more important initiatives. Indeed, there are 63 of those with our five sub-committees. If my noble friend or any other noble Lord thinks I am exaggerating, then I respectfully suggest they acquire a copy of our Progress of Scrutiny document from the Printed Paper Office and read it carefully for themselves.

As to how subsidiarity is working, can I ask my noble friend to give any concrete examples of how it has actually borne fruit since we ratified the Maastricht Treaty? I am aware that my right honourable friend the Prime Minister secured agreement at the Corfu Council some six months ago that 25 per cent. of all Community legislation was to be repealed. Can my noble friend say what progress is being made with this excellent initiative? Can he also say whether the Commission and our partners in Europe therefore regard the doctrine of the occupied field, whereby the Community never gives up any powers it has acquired, as dead? So much for my questions on subsidiarity.

There is much that I could say about the proposal to throw yet more millions of pounds down the fraudulent European sink. But, given the lateness of the hour and the delicacy of the matter in the other place, I shall refrain from doing so. Can I, however, ask my noble friend to understand that, for many of us, our deep distrust of the European monster grows considerably deeper when the Government do not even seem to know how many millions of pounds we are being asked to throw away, or when? It is the sort of incident which makes some of us more determined than ever that an objective cost benefit analysis of our membership of the European Union, as it now exists, should be carried out by reputable people before the 1996 intergovernmental conference.

The Government, of course, say that such a cost benefit analysis cannot be done; or so they said in answer to a Written Question from the noble Lord, Lord Stoddart of Swindon, on 10th October this year. On the same day they told me that data on the cost of our compliance with European water directives had not been collected. However, as I mentioned in our debate on

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fraud against the Community on 31st October, when pressed by your Lordships' Select Committee, the Government reluctantly revealed that we have so far spent some £9,000 million on the two European water directives, most of it, in my view, wasted. I would say to the noble Lord who preceded me, who alas is no longer in his place, that most of the extra cost of water of which he complained is perhaps more properly laid at the door of the European Community than at that, strictly, of Her Majesty's Government.

So can I ask my noble friend whether he really believes that a realistic cost benefit analysis of our membership of the European Union truly cannot be compiled; and if that is his position, why not? Or is it just that the Government would rather not know the answer? I look forward with interest to hearing his reply.

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