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Lord Renton: My Lords, will the noble Lord give way? Would not his argument be reinforced if he were to point out that this House now consists of a classless nobility which is in many ways more representative than are the Members of another place?
I should like to suggest some possibilities for how the executive could be better held to account in the field of finance, in the way that Madam Speaker referred to yesterday. For example, first, could we establish the Select Committee on the Monetary Policy Committee of the Bank of England on a lasting basis from next Session, and, once that was done, could we encourage it or a sub-committee to conduct an inquiry
Finance Bills are highly complex, as noble Lords well know. But in its consideration of the e-commerce Bill, the Government Resources and Accounts Bill, and the Financial Services and Markets Bill, the House showed how undaunted it is by details of technical legislation in the financial area. It is a good revising Chamber, sometimes asking the Government to think again and often getting better legislation as a result. Why deny that contribution in one area of public life that affects every citizen in the country--our financial health and well-being?
Lord Jacobs: My Lords, there can be few noble Lords here today who are not aware of the fact that this debate on the Finance Bill is something of a charade. That is not to say that some of us do not have useful ideas and comments to make upon the Bill but, as we all know, at the end of our debate the Bill will be passed even before what we say has appeared in Hansard. It follows, therefore, that unless members of the Treasury team are actually sitting in the Chamber listening to the debate they would not have even a moment to consider what we suggest. Again, as I am sure your Lordships are aware, the situation goes back to the Parliament Act 1911 which ensures that Budget resolutions cannot be dealt with in this House. The reason is that your Lordships' predecessors so mauled a finance Bill that the Commons were determined to prevent it happening again.
Certainly, the abolition of the right of most hereditary Peers to sit in this House, in my opinion, increases the legitimacy of the opinions given in this House. No doubt the second stage of reform of this House will further enhance that. Not for a moment do I suggest that it is necessary for this House to have the power to amend money Bills. But surely we have some valuable ideas, not to mention immense expertise among some noble Lords, that could improve the Bill.
It was for that reason that on Tuesday, 7th December, last year, in a Starred Question, I asked the Leader of the House what measures the Government were taking to improve the procedures for debating the Budget and the Finance Bill in this House. I was most encouraged that the idea was supported by the noble Lords, Lord Strathclyde and Lord Barnett, my noble friend Lord Taverne and the noble Baroness, Lady Hogg. I think it is fair to say that the noble Baroness, Lady Jay, responded encouragingly by saying,
I can say that representatives from all the parties will be considering a number of proposals, and one hopes that some agreed ideas can be put before the Government Chief Whip so that at least next year we are able to make a useful contribution to the Finance Bill at an early enough stage to allow the Treasury team and the Chancellor of the Exchequer to consider our representations.
There are two issues relating to the Finance Bill which I would have wished to mention if the debate had been held in May rather than at the end of July. The first is a matter on which I would not expect the Chancellor of the Exchequer to make any change; nevertheless, it is a matter with which I believe many members of the Government and certainly those on our Benches would be in agreement.
We now have a minimum wage, currently £3.70 an hour. I am sure your Lordships agree that this is the lowest level of earnings which anyone can legally have in this country. A person working 40 hours a week would earn £7,696 a year. That is not a large wage. Yet surprisingly, on that minimum income, an employee would pay £374 a year in national insurance contributions and no less than £546 a year income tax--a total deduction of £920 a year, which is no less than 12 per cent of an employee's income. Surely it is morally wrong that we tax severely someone earning less than £150 a week. After deductions, therefore, by earning £3.70 an hour, working a full week, one would be left with just £3.26 an hour to live on. Now that is a minimum wage.
I, for one, always welcomed the introduction of the new low rate of income tax of 10p in the £ but this surely can be no substitute for insisting that those on a very modest income should not have to pay income tax. Of course there are arguments for lower rates of income tax and higher starting points for income tax at all levels of income. For example, the number of taxpayers now paying higher rate income tax has increased dramatically. But when all is said and done, one would have thought that a Labour Government, above all, would find it possible to free people on minimum wage from paying any income tax whatever.
The second and final issue I want to raise relates to charitable donations. This Government have introduced in this Finance Bill what can only be described as generous support for those who give to charity.
Today, so many people invest in the stock market that it is most encouraging that the Government have brought in new tax relief for gifts of listed shares and securities to charities by individuals or companies. This enables donors to secure not only freedom from capital gains tax on the gift but also personal tax relief. This certainly improves yet further the climate for charitable giving and encourages the better-off members of society to give more.
However, there is one area of giving which the Chancellor has shied away from; namely, donations to museums of works of art and similar valuable objects. At present, the only way to give a valuable painting tax effectively to a national museum is to die first, which I am sure your Lordships will agree is not a great encouragement. If a work of art were to be given to a British museum by an American citizen, he would receive full personal tax relief on the value of his donation. However, in the United Kingdom, that is not possible. The Revenue is concerned that valuations may occasionally be inflated, although evidence of auction prices would usually be sufficient to give a fair value for any major work of art.
I urge the Government next year to consider an initial trial of donations of works of art and other objects to a limited number of important national museums to test the efficacy of what I propose and, it is to be hoped, satisfy themselves that this method of giving cannot be abused.
Finally, even if that last idea were to be taken up by the Government, it is too late, for soon we shall be passing the Finance Bill. I sincerely hope that next year's debate on the Bill takes place in May but this inevitably depends very much on the generosity and fairness of the Government in recognising that your Lordships' expertise on financial matters is a valuable asset which should not be wasted. I remain hopeful.
Lord Marlesford: My Lords, I am much in agreement with the points made by my noble friend Lord Saatchi and was surprised to hear a similar theme from the noble Lord, Lord Jacobs. He is not speaking from the Front Bench of the Liberal Democrat Party but I assume he represents his party in this respect and therefore, presumably, it is as a result of collaboration
I am afraid that I shall stick to the slightly more traditional approach to the debate. I shall talk about the economy and what part budgetary policy has to play in the Finance Bill. My comments will be rather frank and perhaps are not those which a politician would make from the party platform. But I was an apolitical lobby correspondent for so long that I should never make a good party politician. Furthermore, I shall confidently take advantage of the privacy of your Lordships' Chamber in what I have to say. What I may say will not be of particular pleasure to the Government or indeed to my own party and certainly not to the Liberal Democrat Party which has a different approach to taxation and economic management.
First, I believe that on balance the Government have so far run the economy rather well. That is what I see as the heart of the political miracle which is new Labour. That is why it is so totally different from old Labour. I see the Government as having attempted to stick to and build on the essence of economic Thatcherism. First, I endorse the two golden rules which are frequently set out. They are, first, borrow only to invest and not to fund current spending; and, secondly, the sustainable investment rule that the public sector net debt as a percentage of GDP should be kept at a stable and prudent level. To date, I believe that the Government have stuck to those rules effectively.
Secondly, the delegation of monetary policy to the Bank of England has been an undoubted success. I believe that some Tory Chancellors would have liked to have done that but, unfortunately, it never matured. It is a good practice and I hope that it will continue.
Thirdly, we have experienced huge structural changes in employment in this country, with the disappearance of a great deal of the old manufacturing industry. The economy is none the worse for that. I am delighted that there is no real sign that the Government are going in for the traditional company bail-outs as did previous governments including, I am afraid, Conservative governments. That is because the constraints of the European Union would prevent it. At any rate, it is good.
Fourthly, the Government have stuck rather well to the initiative of joint public and private financing. That is a huge advantage over the old days when we had total separation under the old PSBR rules and all the constraints they produced. The course has been made possible by privatisation and so forth.
I want in that connection to comment on the reform of the health service. The idea that it should in future make use of spare capacity in the private sector is sound. I still believe that the Conservative policy of allowing private expenditure on health insurance to be tax deductible is also desirable because it will bring in more resources for health.
We now have proposals for big increases in public spending which raise two obvious concerns. First, what if the economy overheats? The national rate of unemployment is low at 3.7 per cent, which is close to the Beveridge 3 per cent figure. Do the Government reckon that that figure, which Beveridge gave for full employment, is still the correct one to use? It was intended to cover transitional and frictional unemployment. I should have thought that with the more modern methods of finding jobs a lower percentage figure could represent full employment. I should be interested to hear the Treasury's view.
The most useful unemployment figures are those produced by constituency. Those for June were published a couple of weeks ago. They include various lists, one of which shows the 25 constituencies with the highest unemployment rates and the 25 with the lowest. Of the 25 highest, only 14 are over 10 per cent--and what a change that is from the recession--and the 25 lowest are all under 1 per cent. I am afraid that that shows a considerable potential for economic overheating.
No less than 254 (about 48 per cent) of England's 529 constituencies have unemployment of below 3 per cent; in other words, full employment. In Wales, five out of 40 are below 3 per cent and none is over 7 per cent. In Scotland, unemployment in 14 of the 72 constituencies is under 3 per cent and in no Scottish constituency does unemployment reach 10 per cent. Therefore, one must be worried about overheating.
Furthermore, although the inflation rate is within the guidelines--the Minister quoted the consumer price index excluding mortgage rates but the other index is higher at about 3.6 per cent--one of the factors in the rising rate of inflation is fuel prices. I salute the Chancellor for not being prepared to contemplate cutting fuel tax. He is right not to do so. Therefore, with the risk of overheating, we should consider that there may be a need for interest rates to increase further.
I believe that the Government are in a reasonably good position to increase borrowing. Interest rates on government securities undoubtedly are too low. I always take War Loan as being a good example of the equivalent of the American 30-year bond. Given the rate of inflation, the current 4.8 per cent yield on War Loan is absurdly low. I believe that in general the market is very short of gilts. That applies particularly to pension and other funds. Therefore, there is scope to increase the supply of gilts and, thus, there is a potential opportunity to allow expenditure to remain higher through more public borrowing.
I should like to talk about tax policy, which, in a sense, is what the Budget is all about. One of the most remarkable changes made by the Conservative government was the policy on direct taxation. I probably do not need to remind your Lordships that in the last year of the previous Labour government, the top rate of personal tax was 98 per cent. That applied to all incomes over £24,000. If that income figure were updated for inflation, it would be only £77,000. Therefore, if old Labour were in power today, it is likely that anyone with an income of £77,000 or more would be paying a marginal rate of 98 per cent in tax, instead of which the top rate is 40 per cent. What a huge difference.
The top tax rate was reduced immediately in 1979 to 75 per cent by my noble and learned friend Lord Howe; then, in 1984-85, to 60 per cent by my noble friend Lord Lawson; and, finally, to 40 per cent in 1988-89. Therefore, we are now in the 13th year of a highly competitive rate of tax. In that respect, we are the envy of much of the world and, particularly, of many of our European neighbours. I congratulate the Chancellor on resisting the temptation to increase rates of direct taxation.
Indeed, in order to illustrate how competitive we are and the scale of what the temptation to raise tax might have been, I quote from a helpful Answer given to me in February by the noble Lord, Lord McIntosh. When I postulated a range of direct taxation approximately equal to that of the higher rate of our European neighbours, he told me that it would have produced over £3 billion of extra revenue. However, to increase taxes to those levels would have been catastrophic in terms of British industry and business. Not only would the brain drain have started once again, but the UK would no longer have been a place of favour for world investors.
I believe that an important question that we should ask is to what extent we need uniform taxes in Europe. I believe that rates of taxation, both direct and indirect, are for national governments to decide. I hope that the Minister will endorse that view. The French have a different view. I was talking to a senior official at the French Ministry of Finance who complained about the lack of a level playing field with regard to tax in Britain and about the many Frenchmen who choose to live in Kent so as not to pay French tax. We can imagine what the French mean by "a level playing field".
Rates of tax in Europe are immensely relevant to British economic and budgetary policy. I want to give a slight raspberry, but in the friendliest manner, to the Minister. I know how grossly over-worked he is. But I want to point out that when I asked him in June to state the current top rate of tax on personal incomes in each country of the European Union and the threshold of income at which they applied, he answered:
I do not criticise the Minister but I propose to table that Question again and I hope that he will give an Answer about which we can all be clearer.
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