Previous Section Back to Table of Contents Lords Hansard Home Page

Lord Simon of Glaisdale: My Lords, is there not a distinction to be made between the Budget resolutions, where we are up against the collection of taxes date, and the scrutiny of the Finance Bill otherwise?

Lord Barnett: My Lords, yes, of course there is. But I have made the point before in your Lordships' House that scrutiny of the Finance Bill in another place is almost non-existent. All oppositions go in for major

28 Jul 2000 : Column 746

soundbites rather than a serious debate on clauses in the Bill. That just does not happen. For more than five years, I put a lot of badly drafted Finance Bills on the statute book and in the following years they have had to be amended and amended. That happens. That is a fact of life.

I am not sure that I finished reporting what the noble Lord, Lord Norton, said. He said:

    "The main estimates should be referred automatically to the relevant Select Committee".

That must be worth considering. I hope that the Minister will do so. I am sure that the Government would like to see better Bills on the statute book, especially when there are Members of your Lordships' House who are capable of giving the kind of scrutiny which is required. I hope that that will be done but I cannot say that I am madly optimistic about it.

Governments and the authorities of the House introduce more and more Select Committees, which is not something that comes naturally. Noble Lords will have to press for such matters; we did a little of that yesterday with some success. I know my noble friend will not agree, but I hope we do that often. It is no use him looking at me like that, either!

I want to speak about public expenditure because we can do nothing about the Finance Bill. Some of your Lordships have referred to what the Treasury will say when they read this debate. I doubt whether anything has changed, but I would be quite astonished if a single Treasury Minister reads a word of what is said in this debate. I regret that my noble friend who will reply to the debate is not a Treasury Minister, but the Deputy Chief Whip; I believe that he should be a Treasury Minister, but then we would need three or four additional Ministers to carry out his other work.

We must be aware that Treasury Ministers will not look at the debate, so I shall leave the Finance Bill on one side and recognise that it pays for public expenditure on which I want to say a word or two. I welcome the Comprehensive Spending Review. I believed that I had read that the word "comprehensive" was to be deleted, but it has not been deleted from the document.

I strongly support the spending review and I congratulate the Chancellor on it. It does what I personally came into politics to see done: it improves our public services. I have always regretted that, in my five and a quarter years as Chief Secretary, because of the economic conditions, I had the unfortunate task of doing nothing other than cut public expenditure. I did not enter politics to do that, but I am happy to congratulate the Chancellor.

However, I have some hesitation. The talk is of a three-year review. To forecast the economy is a little like forecasting the weather. It is not easy to say what the weather will be this afternoon or tomorrow, let alone next week. I wish I could forecast that because on Saturday I am going hiking. I believe it is likely to rain. But forecasting the economy three years ahead and saying how we shall spend the resources is

28 Jul 2000 : Column 747

something that we may not be able to achieve. That is the other main reservation that I want to make on that point.

I have two other concerns. First, will the money be spent wisely and, secondly, why should we keep the Barnett formula? I say that with some little knowledge of the formula, to which I shall turn in a moment. It has some connection with whether the money in the public expenditure review will be spent wisely. Will it really help those depressed areas of the United Kingdom? The honest answer has to be that I do not know, although sticking with the Barnett formula will not help that.

Throwing money at a problem will not necessarily help. Indeed, sometimes that could be positively damaging because one may not necessarily spend the money in the right area. So some waste is almost inevitable. When spending an additional £43 billion--we do not talk of millions any more--I would be astonished if there were not some waste. That is perfectly understandable. We shall not know about it in any detail until the Public Accounts Committee and the National Audit Office have checked and by that time we shall be well into the three-year period. We know only that there will be waste, although how and where is not clear, but sticking with the Barnett formula will certainly not help.

I am happy to have something named after me, but when I invented that particular method of allocating expenditure to Scotland, Wales and Northern Ireland, I did not know that it would be a formula. It was a short-term expedient to help me in difficult times, which I thought might last a year. Is my noble friend asking me to give way?

Lord Randall of St Budeaux: My Lords, I am grateful to my noble friend for giving way in such a courteous fashion. To overcome wastage, would it not be a good idea to fire this bloke called Barnett?

Lord Barnett: My Lords, no, is the straight answer to that! That method has become a formula; it has lasted for 22 years and now it is forecast to last another three. If money is allocated in that way, it will not necessarily go to the areas where it is most required. Looking at the expenditure allocations, the plain fact is that it certainly is not spent in the right way. We are told in the spending review that the Barnett formula ensures that Scotland receives a population-based share of changes in comparable spending in England. That has nothing whatever to do with whether it is sensible for an area to receive that proportion. The plain fact is that in Scotland the level of expenditure per head is more, for example, than in the North East, which has a much lower GDP per head, and in parts of the North West. Surely it is wrong to allocate expenditure in that way.

I know that the formula lasted for 18 years because the government of those days, under Margaret Thatcher and John Major, were frightened about the damage that it would do politically if they removed it. It did a fair amount of damage anyway; they lost every

28 Jul 2000 : Column 748

single seat at the end of the 18 years. In my view it is sensible to change the Barnett formula. I hope it will be changed. If the Government want a different kind of formula with my name attached to it because they have grown fond of it, I would have no objection.

No doubt in the London area the Mayor will ask for more expenditure in line with some Livingstone formula. London already receives 125 per cent of the English levels of expenditure, so in practice I hope that the Government--maybe for other reasons--will resist any requests for more money for London and move it to the North West, the North East and areas where it is really needed. I have no doubt that in parts of Scotland it is needed, but the overall levels of expenditure given to Scotland as compared with the rest of the United Kingdom are quite wrong. I had better leave it at that.

On the three-year expenditure review, the question is often asked whether it will mean an increase in interest rates. We do not know; it is too early to say. It will not start until next April. I assume that it will start rather slowly. If one is talking about the genuine independence of the Monetary Policy Committee, fiscal policy may be required to deal with an excessive level of consumption. I hope not, but at this stage we do not know. For the moment we can say that it should not and does not need an increase in interest rates because the expenditure will not start until next year.

We are not discussing the Finance Bill; we shall pass that on the nod. This is not even a serious economic debate; no one is seriously listening.

Lord Tomlinson: My Lords, I am listening.

Lord Barnett: My Lords, I listened to my noble friend Lord Tomlinson, with whom I agree substantially. Indeed, the noble Lord, Lord Marlesford, made an excellent speech, much of which I agreed with. The fact is that all we can say at the moment, in the brief time available to us, is that the economy--my noble friend gave us the figures--is in good shape. Nobody can dispute that. That may be one of the reasons why the noble Lord, Lord Saatchi, chose to talk about something else. I can only assume that my right honourable friend the Chancellor has had little to do with the fact that the economy is now in such an excellent shape. Part of that has happened without any action by him but he has not destroyed it and he has done it no damage, so we can give him some credit. For now, I am prepared to congratulate him on the expenditure review.

12.40 p.m.

Lord Northbrook: My Lords, I endorse the comments of my noble friend Lord Saatchi and all noble Lords who suggest that we need a greater role for this House in scrutinising finance Bills and I support the six sensible proposals of my noble friend for the new Joint Committee to consider.

Initially, I make the point that, sadly, due to the House of Lords Act 1999, we are deprived of several notable speakers who supplied much wisdom on the Finance Bill of that year and whose absence today renders the debate the poorer.

28 Jul 2000 : Column 749

Since May 1997, through stealth taxes, the Government have effectively increased the tax burden by 8p. Figures from the House of Commons Library show that the average family will pay a net £670 more in tax next year following tax changes coming into effect. That is in direct contrast to the Chancellor's claim that he has cut the tax burden on the average family. Indeed, almost half the figure of £670 is due to the abolition of the married couple's allowance--not a very family-friendly measure from a government in theory committed to the family.

The change in the tax burden over this Parliament is worth examining in more detail. The November 1999 pre-Budget report showed net taxes and social security contributions as a percentage of GDP rising over the course of this Parliament. In 1996-97 the figure stood at 35.3 per cent. In 2000-01 it has risen to 36.8 per cent and is forecast to be 37.2 per cent by 2001-02. Adding in the working families' tax credit, which has been treated as a tax cut rather than a spending increase, those figures are increased by 0.5 per cent.

The Government refused, until March 2000, to admit that taxes were rising. Instead, they made claims that,

    "Next year the tax burden on a typical family will be at its lowest since 1972".--[Official Report, Commons, 9/3/00; col. 1179.]

That was repeated by the Minister today. The Prime Minister himself said in November 1999 that,

    "It is clear, as the figures show, that the tax burden is falling".--[Official Report, Commons, 24/11/99; col. 609.]

In March 2000 the Government finally admitted that the burden of taxation had increased. The Prime Minister's official spokesman, Alastair Campbell, stated that, for the first two years of Labour government, taxes had increased. Figures published in May 1999 by the OECD showed Britain with the fastest rising tax burden--taking taxes as a percentage of GDP--in Europe, and its people paying more tax than those in Germany for the first time in a generation.

What taxes are we talking about? In the first three Budgets of this Government the tax burden was increased by £40.7 billion over the course of this Parliament, the ultimate stealth tax being the abolition of ACT, which brought £5 billion revenue to the Government. In this Budget, first, there is stamp duty. That tax on more expensive properties has quadrupled since the general election. The Chancellor is fond of pretending that the increase is borne entirely by the private householder. In fact, the majority of stamp duty is paid by businesses. The Government's refusal to even contemplate removing stamp duty from share transactions is again threatening to cause an erosion of business, indeed a migration of business, from this jurisdiction to the Continent.

Another stealth tax has not yet been introduced, but has been announced: it is the energy tax or climate change levy. The Government now seek to put that into law in the Bill and it will come into effect in April 2001. It will be particularly damaging for the manufacturing sector, especially those companies struggling to make a living and return in international

28 Jul 2000 : Column 750

markets. What is particularly unfortunate is that the tax, although in the Bill and supposedly in its final form, is still undergoing an evolution.

The CBI let it be known that certain companies will be eligible for rebates of up to 80 per cent. But many companies in the intensive energy sector will not. For instance, a large company like BOC will not qualify for technical reasons and will have to pay the full tax. That is an example of how unfriendly the Government can be to big business. Another example is the saga of the mixer company tax changes. By way of an aside, the mixer company tax regime is one of the few areas of tax left alone by the last Labour government--of which the noble Lord, Lord Barnett, was a member--and for good reason; there was nothing wrong with it.

In a Starred Question to the Minister on 23rd May I asked why the Treasury believed that those changes would have so little effect on multinational companies as opposed to the companies and advisers themselves who believed they would have a much greater financial effect. The Minister replied,

    "Unless those who seek to attack the Treasury get their act together I do not believe that we should take them too seriously".--[Official Report, 23/5/00; col. 636.]

I know that the noble Lord, Lord McIntosh, has been under great pressure of work and may not have realised the seriousness of those proposals. I always believed the problem was more serious than the Minister realised, especially when no less than three major firms of accountants were up in arms about it.

The senior partner of PricewaterhouseCoopers was attacked in the other place, even on the Floor of the House, for daring to suggest that it was a tax change deeply unfriendly to multinational companies. It was only after intense lobbying by the City companies themselves and their advisers and excellent and dogged work by Members in another place that the Government finally compromised and published measures, at the last minute on 15th July, which would allow companies to continue the practice of pooling earnings from high tax regimes with income from low tax territories to minimise British tax liabilities provided all the tax rates involved were 45 per cent or less.

However, criticisms remain with experts arguing that multinational companies with subsidiaries, say in New York, will be penalised because the 45 per cent rate applies to all taxes suffered, including withholding and state taxes. Also, multinationals with Japanese subsidiaries will be much worse off. In both cases the local tax rates are higher than 45 per cent. Can the Minister confirm how much worse off than before companies with off-shore pooling and subsidiaries in, say, New York or Japan, will be?

Turning to other aspects of the Budget, the Chancellor claimed he was raising income tax allowances in line with the rate of inflation. He also said that he was increasing excise duties on road fuels, beers and wine in line with inflation. However, as has already been stated, an examination of the Budget Red Book shows that different inflation rates have been

28 Jul 2000 : Column 751

used. What that means is that those excise duties go up three times higher than personal allowances--the ultimate stealth tax.

Next, I should like to comment on the further tax increase on fuel in the Budget. The AA commented that,

    "For every £10 spent on petrol £8 is now handed over to the Chancellor. UK taxes on petrol and diesel remain the highest in Europe as does the price motorists pay at the pumps".

After looking at several areas of the Finance Bill, I now want to turn my attention to the Comprehensive Spending Review. As is known, the headline figure--the biggest increase in spending by government for a quarter of a century--is an extra £51 billion over the next three years. The Economist writes as follows:

    "Three big doubts hang over Labour's plans: the first concerns the abruptness of the Government's change of course. New Labour makes much of its determination to avoid boom and bust in the economy. But its approach to public finances is hardly one of steady as she goes. For its first three years in Government, the Government followed the Conservative spending plans".

That may have lulled the financial markets into believing it was not just another spendthrift Labour Government. The Economist states that the problem now is that there is a danger that money will be wasted, and we on these Benches share that concern.

The second big doubt is that the Government, in projecting big spending increases over the next three years, assume that the good times will continue rolling. The noble Lord, Lord Tomlinson, says that the UK and US economies are near the peak of a boom. But the Economist says that it is unwise to assume a 12-year economic expansion continuing. If the economy slows, the Government will discover that financial market credibility is never to be granted to any government in perpetuity.

The third doubt is the most fundamental. The Prime Minister believes that Britain's deepest economic problem is under-investment and that the remedy is more money, combined with a complicated and demanding regime of public sector targets. That is too narrow a conception of the problem and its solution. As decades of experience show, the public sector is a bottomless pit. More money does not guarantee better services. Performance targets may be better than no controls at all, but it should be remembered that if central planning and targets worked the Soviet economy would have left the US far behind. Structural innovation matters as much as the cash. The keys to better quality are competition wherever possible and private money alongside public money.

To sum up on the Budget and the Comprehensive Spending Review, the Finance Bill is the longest ever and continues the trend of stealth taxes. As usual, many of the measures are different to the spin put on them. The CSR makes big assumptions on a continuing rate of economic growth. There could be big problems if the growth cycle slows or comes to an end.

28 Jul 2000 : Column 752

12.51 p.m.

Lord Newby: My Lords, I begin by joining most noble Lords in mentioning the rather ludicrous nature of this debate. It has to be said that this week is a particularly good one in which to be talking about the ludicrous nature of activities in your Lordships' House, as we have seen many such examples in the past few days. Indeed, there has been a growing and increasingly vociferous agreement among noble Lords on all sides of the House that to debate a Finance Bill at a point when it has gone through the House of Commons and cannot be amended is an exercise in futility that we could better do without.

Therefore, I support the proposal put forward by the noble Lord, Lord Saatchi, and other noble Lords, that we need to do better in this area. My own preferred solution would be to split the Finance Bill with a separate taxes management Bill that could be considered seriously by your Lordships. However, in the short term, I propose that from next year we have a one-day debate within a week of the Finance Bill being published, on the tabling of a Motion in government time.

Perhaps I may give your Lordships an example, from my own experience, of the kind of expertise that I believe will be valuable in considering such matters. The current Finance Bill has a large section on employee share ownership. I am a director of a medium-sized company that has spent much time looking at the existing models of employee share ownership schemes. It is an area where I--this no doubt applies to many other noble Lords--have direct personal experience; indeed, probably to a greater extent than many of our colleagues in another place. In each section of the Finance Bill dealing with the management of taxes, I believe that similar considerations apply.

I turn from our internal matters to the economy. In terms of the general state of the economy, there is no doubt that, taken as a whole, it is in pretty good shape. Growth is buoyant, unemployment is low and inflation remains low. Any threat is always whether inflation will get out of hand; indeed, house prices have risen very quickly but now appear to be moderating. Wage pressure in the service sector in the South is certainly pretty considerable and very high levels of pay increase are being routinely awarded, especially in the sector in which I operate.

However, when we look at the rate of inflation in comparison with our European colleagues we find that by the measure that they use, but we do not--the harmonised index of consumer prices--the level of price increase in this country (at 0.7 per cent) is significantly lower than the European average. That raises the fascinating question, therefore, as to why we have significantly higher interest rates than our European colleagues if the rate of inflation, on a common measure, is lower. In my view, dealing with that kind of issue is but one of many advantages to be gained by being a member of a single currency in which we have a single understanding of inflation and a single

28 Jul 2000 : Column 753

interest rate. But, taking the HICP rate of 0.7 per cent, it also suggests that we do not have too much to fear in the short term as regards the level of inflation.

As a number of noble Lords have said, the major problem in the economy is that the prosperity that we are witnessing in this part of the country is not matched across all sectors and regions. The state of manufacturing is extremely worrying. Indeed, not only is it worrying now but the situation is, in my view, set to become worse. First, by staying out of the eurozone, manufacturing investment that might come into the UK will find its way elsewhere in the EU within the next two or three years, or until we join the single currency.

Secondly, indigenous manufacturers are currently cutting back on their plans for the future. The CBI report on manufacturing intentions that was published yesterday states that 21 per cent of all manufacturers are less optimistic about their outlook than they were four months ago; and that no less than 39 per cent were planning to invest less in plant and machinery in the period ahead. We all share the preoccupation of the Government and of the Chancellor of the Exchequer with productivity, but there can be no doubt that the way in which productivity in the manufacturing sector will more nearly match that of our European and US counterparts and competitors is by encouraging higher investment in plant and machinery. With current interest rates and the present uncertainty about whether we shall become members of the euro, that level of investment will simply not happen.

I move on to taxation. I believe that the overall tax regime for most individuals and companies is relatively benign. As the noble Lord, Lord Marlesford, pointed out, we do not have the excessively high levels of tax that applied 20 years ago. However, I believe that there are a number of areas where we could see some improvement. Perhaps I may say how much I share the views expressed by the noble and learned Lord, Lord Simon of Glaisdale, about a local income tax. When I was a civil servant 25 years ago, I served on an interdepartmental working group that looked at alternatives to domestic rates. A local income tax was one of the options under consideration, but it was ruled out because it was technically impossible to introduce it. These days, with modern computer technology, it is no longer impossible to do so. In my view, it would be a desirable innovation.

Further, I should like to say a few words about international tax competition and competitiveness. Very few people within euroland really believe that it is sensible to have harmonised levels of tax--that is, exact harmonisation across the European Union. We are, of course, very far from that situation at present. However, there are two areas where major disparities in tax levels can be disadvantageous. Although corporate tax levels in the UK turn on the tax rate alone, that could lead to a much higher corporate tax take here as a proportion of GDP than is the case in Germany and in many of our other European partner countries. That is something that companies looking to locate within the EU increasingly take into account.

28 Jul 2000 : Column 754

On the indirect tax side, there has been much talk of smuggling in recent months as a result of the increasing disparity between the excise duties here and those in the EU. As a former employee of Customs and Excise, I was amazed and appalled to read in the spending review that one of the key tasks--indeed, one of only two such tasks--to which Customs and Excise is committed over the next period is to reverse the current trend in tobacco smuggling so that, by the year 2004-05, smuggled cigarettes will represent no more than 18 per cent of the market. Leaving aside the spurious accuracy of 18 per cent, as opposed to 16 per cent or 20 per cent, I should love to know how that figure was calculated! Is it a sensible situation to find ourselves in at the beginning of the 21st century when smuggling is reaching levels not seen since the 18th century? The only way that the matter can be dealt with in this country is by having a closer approximation of tax rates.

I move from taxation to expenditure. I agree with the noble Lords, Lord Tomlinson and Lord Barnett, that the Government's decision to invest much more significantly in public services is greatly to be welcomed. Our starting quibble, as it were, is that we should not be starting from that point. Last year, expenditure on public services was at its lowest level as a proportion of GDP for over 35 years. In the table I have in front of me the series of figures goes back to 1960. That is not a record of which the Government should be proud. Although I know that the Minister's heart sang as he read out the inordinately long Statement on expenditure a few days ago, the truth is that there needed to be such a big increase because there have been such big cuts in the past few years. Even in the year 2003-04, at the end of the current spending review, expenditure by the Government will still be at a lower level than in any but nine of the past 30 years. Therefore, I do not think that we need feel that public expenditure is about to crowd out private investment or cause any significant problems for the economy.

We also have a number of questions about the balance of public expenditure. We are concerned, for example, that the Government failed to implement the recommendations of the Royal Commission on Long-Term Care of the Elderly. We also share the concerns expressed by the noble Lord, Lord Barnett, as regards the way in which expenditure is divided between the nations and regions of the country and the effectiveness with which it is spent. I believe that there are now about 50 spending programmes which in theory benefit the most disadvantaged parts of the UK. But their complexity, the overlapping boundaries, and the different eligibility criteria, mean that they are virtually inaccessible and, as a result, underexpenditure in those programmes has now become the unacceptable norm. We hope that there will be a root-and-branch revision of the basis of the Barnett formula to direct public expenditure to the regions and nations on the basis of need and not on the basis of the historic need of the noble Lord, Lord Barnett, to deal with his colleagues in a tight spending year.

28 Jul 2000 : Column 755

In last year's debate I made two predictions about macro-economic circumstances: first, that we were unlikely to see a significant increase in inflation--which has proved right--and, secondly, that the pound was likely to rise against the dollar--which has proved wrong. That, incidentally, disproves the automatic "cyclicity"--if that is the right word--of the economies of the major industrial powers, which was discussed by the noble Lord, Lord Marlesford. I and most other people thought that the US economy would enter a possibly significant downturn. However, that has not happened and it does not look as if it will happen. Some of the rules under which we study economic forecasting may need to be changed.

I make two predictions for next year: first--this is the same as last year and is the prediction of which I feel most confident--inflation will not take off; and, secondly--this is both an aspiration and a belief--the pound is likely to fall against a rising euro. Last year I said that the key challenge that faced the Government was how to use the benefits of economic strength to improve public services. They have now at long last, thank goodness, grasped that nettle. The key question now for the Government is how effectively they can direct that expenditure.

1.4 p.m.

Lord Kingsland: My Lords, in the Minister's opening remarks--indeed, I believe, in his opening sentence--he said that this Budget continues to deliver on Labour's promises. In my submission, the one thing this Budget does not do is deliver on Labour's chief election promise, which was not to raise taxes.

On several occasions before the general election, the right honourable gentleman the Prime Minister stated, in terms, that the public expenditure programme envisaged by the Labour Party, if it won the election, would not imply any tax increases. Yet, as your Lordships are well aware, both from past debates in your Lordships' House and from many contributions from noble Lords today, the tax burden has risen.

In the second quarter of 1997, the tax burden was 35.6 per cent of GDP. In the second quarter of 1999, it was 37.7 per cent of GDP. Although direct taxes have dropped by £30 billion, indirect taxes have risen by no less than £70 billion. As the Minister is well aware, indirect taxes have the feature of discriminating against the poorer members of society--because indirect taxes are not progressive taxes.

The Minister made much of a figure he put to your Lordships today measuring the benefits that the average family derive from the Government's tax changes. I do not remember the exact figure; but I think that he mentioned an amount in the order of £800. The noble Lord the Minister will be well aware that the Opposition wholly reject that estimate. With the help of the Library in another place, we have undertaken our own analysis; and we have concluded that, far from improving the situation, the average family is £670 worse off as a result of the Government's fiscal measures.

28 Jul 2000 : Column 756

Unlike the Minister, I am in a position to substantiate that figure. The analysis shows the impact in the year 2000-01 of post-election tax changes on a two-earner married couple with two children, assuming the couple to be on average income for their gender--that is, £24,800 for the husband and £18,150 for the wife. We assume they live in a Band D house, on which they have an outstanding mortgage of at least £30,000, that one of them smokes 20 cigarettes a day and the other is a non-smoker and that they drive 15,000 miles a year at 35 miles per gallon. All the figures have been calculated by the House of Commons Library staff, apart from the impact of the pension tax, which has been calculated by the accountancy firm, Chantrey Vellacott DFK.

The analysis shows that the average tax burden has gone up by £670. The Minister presented to noble Lords today a figure of £800. I invite him to tell us how he arrives at that figure; because it is clearly in total contrast to the analysis that the Opposition have carried out.

The noble and learned Lord, Lord Simon of Glaisdale, and many other noble Lords have emphasised the scale and complexity of this legislation. Schedule 6 alone, which deals with the impact of the energy tax and runs to no fewer than 80 pages, is an example of masterful occlusion. I cannot imagine anyone who is not qualified as a lawyer, indeed any lawyer who is not qualified as a tax lawyer, being remotely able to come to grips with the text. This is certainly not bringing the law-making process to the people.

But no amount of occlusion can disguise what is, in my submission, the most disingenuous act in this Budget, which is the indexing of tax allowances at the historic rate of inflation but indirect taxes at the expected rate of inflation--1.1 per cent to 3.4 per cent. That is an act which is clearly a fraud on the electorate. I invite the Minister to give a justification for it. There has been none in his statements so far. I can see no rational justification for having two different rates of inflation in a single Budget and a single tax law.

The tax burden has increased. But what improvements in the nation's lot have been engineered by the public expenditure that has flowed from these tax increases? The police force, far from increasing, has fallen from 127,000 to 124,000 in the past three years; there is no evidence that waiting lists are falling; and we know that crime, especially violent crime, is on the increase. So, despite the increase in tax revenues, the Government appear to have delivered no improvements whatever to the public sector.

Some of the tax increases at national level have failed to have the impact that the Government sought because they have not taken into account their international implications. I listened carefully to what the noble Lord, Lord Newby, said about taxes on cigarettes. The fact is that last year, as a result of taxation on cigarettes, revenues from this source dropped by £2.5 billion--and yet the Government are proposing an increase in real terms on cigarette taxation this year of 5 per cent.

28 Jul 2000 : Column 757

The levels of smuggling of cigarettes have been variously estimated, as the noble Lord, Lord Newby, suggested; but it is in the order of one-fifth of the total number of cigarettes consumed in this country. How can the noble Lord and Her Majesty's Government successfully pursue an excise duty policy without engaging in negotiations with other countries of the European Community to prevent such breaches of the law?

A number of noble Lords spoke about the impact of the Government's expenditure proposals on interest rates. Forecasts of any kind in this area have to be made cautiously if the forecaster is to be prudent; but it is clear, as my noble friend Lord Marlesford said, that the economy is now under considerable demand pressure. It is also clear, not only from evidence gleaned by the Opposition but also from recent IMF publications, that the proposals of the right honourable gentleman the Chancellor of the Exchequer for expenditure over the next few years exhibit the characteristics of fiscal loosening.

The Monetary Policy Committee of the Bank of England, which has shown great caution in pursuing interest rate policy, is more likely than not over the next two or three years to consider that the impact of this increased public expenditure will require increases rather than decreases in interest rates, with all that that entails for the level of the exchange rate. Can the Minister assure the House that the implications of this additional expenditure over the next few years will not further harm the international competitiveness of our industry? It has been harmed enough by a variety of government policies over the past few years.

1.14 p.m.

Lord McIntosh of Haringey: My Lords, I made a series of headings for my response to the debate, and the headings were all about the Budget and the state of the economy. It is entirely proper that the debate should be used to cover wider issues than the Budget and the Finance Bill. Perhaps if I rapidly read those headings, the House will see how far the debate has been from a debate about the Budget. I was going to talk about supporting families; about tackling child poverty; about fairness for pensioners; about employment opportunities and making work pay; and about building stronger businesses. I was going to talk about groups and international operations, but the noble Lord, Lord Northbrook, in an exceptionally well focused speech, if I may say so--because he did talk about the Budget--covered that issue. I was going to talk about protecting the environment; about vehicle excise duty, car tax; about charities; and about the spending review. I have to respond to almost nothing of that.

It is in that context that I respond, very rapidly, to the points made by the noble Lord, Lord Saatchi, which he also made last year. He said that the House of Lords should be considering the Finance Bill in a more serious way, and he quoted a rather impressive speech by Mr Asquith in 1911. What he did not do was quote the reason why Mr Asquith had to make that speech. Lloyd George's "People's Budget" of 1909 was subject

28 Jul 2000 : Column 758

to the most ferocious opposition on the Floor of the House of Commons. Throughout the months of August and September, the House of Commons sat all night, every night, Cabinet Ministers working on a rota system, while the Conservative Opposition sought to oppose, root and branch, one of the most progressive Budgets of our century. At the end of that process, the House of Lords turned it down flat. That is why we have a Parliament Act and that is why an unelected Chamber is not responsible for the finances of this country--nor will it be.

The noble Lord, Lord Saatchi, made some practical points. I acknowledge them, as I acknowledge the tributes that have been paid to the excellent report of the noble Lord, Lord Norton. Certainly it is worth considering the idea of a tax management Bill as a separate Bill. That has been considered, but it has not been thought that it would produce any improvement on the present arrangements. We do not think that it is necessarily true that it will produce more effective decision making. What we have done with what will be in a few minutes the Government Resources and Accounts Act will do far more to encourage the effective scrutiny of public expenditure.

The timing of business in this House is not a matter for me. When the question was raised a year ago, I said--I say it again--that when we were in opposition we used an opposition day soon after the Budget to debate these issues. I invite the Opposition to do the same thing rather than to suggest that it should be done in government time. The House knows that there is no such thing as government time; there certainly was not yesterday.

I shall try to respond to some of the points that have been made, although they were so unpredictable that it becomes very difficult. First, let me say something about the tax burden, a matter referred to by the noble Lords, Lord Kingsland and Lord Northbrook. We have been talking in parallel without meeting on the tax burden for a long time. The Opposition have been talking about an increase in the tax burden since May 1997 and we have been talking about the undoubted fact that the tax burden is falling at the moment. I do not want to overestimate the importance of the tax burden. It is, of course, a ratio between taxes and GDP--and GDP is rising faster than noble Lords opposite thought it would. The fact is that taxes are falling. Personal tax and benefits changes in this and previous Budgets will mean that households on average will be £460 a year better off, and families with children on average will be £850 a year better off.

The noble Lord, Lord Northbrook, accused us of introducing a stealth tax with the climate change levy--

Next Section Back to Table of Contents Lords Hansard Home Page