Previous Section Back to Table of Contents Lords Hansard Home Page

Baroness Blatch: My Lords, this is the House at its best--doing its job, revising legislation. It has strengthened the Bill. The Bill returns to another place in a better form. I hope that we do not see too many of the amendments back in this place. I thank the Minister, noble Lords on the Liberal Democrat Benches, noble Lords on the Cross Benches and my colleagues behind me who worked assiduously and took the whole matter very seriously indeed. I wish the Bill well as it returns to another place.

Lord Dholakia: My Lords, I thank the Minister and his colleagues, the noble Lord, Lord Bach, and the noble and learned Lord, Lord Williams, for their considerable help in trying to improve the Bill. I am grateful to the noble Baroness, Lady Blatch, for the way she has handled some of the issues. The Bill is very much better as it returns to the other place. I noted the Minister's earlier comment that there are certain principles which the Government are not prepared to accept. I hope that the Government will take careful note of what your Lordships' House had to say about some of those matters. There are certain principles in the Bill, particularly regarding the central employment of chief officers of probation, which they seem to

8 Nov 2000 : Column 1559

favour and we do not. The noble Lord can take it from us that when those issues come up again there will be opposition from this side of the House.

I thank the Minister for giving us the opportunity to meet him and his staff to discuss some of the issues that were of concern. Much of the Bill has been improved as a result of the private discussion that has taken place. I thank the noble Lord and wish him success.

On Question, Bill passed, and returned to the Commons with amendments.

Pre-Budget Report

4.15 p.m.

Lord McIntosh of Haringey: My Lords, with the leave of the House, I shall now repeat a Statement on the Pre-Budget Report which has been made in another place by the Chancellor of the Exchequer. The Statement is as follows:

    "In 1997 Britain had rising inflation, a deficit of £28 billion, a national debt that had doubled and was at risk of repeating the old familiar stop-go cycle. So, in this Pre-Budget Report, which will address specific and immediate concerns, we will do nothing to put at risk the economic stability that has given us the lowest unemployment for 20 years, the lowest inflation for 30 years, mortgages at 4 per cent--£1,000--below the average of the previous 20 years, and a Budget discipline that has enabled us to cut borrowing and now invest more every year in hospitals, schools and public services.

    "And this hard-won and newly-won stability now gives Britain an opportunity we can either seize or squander--the opportunity to achieve high and sustained levels of productivity growth, and so ensure long-term prosperity not just for some but for all.

    "Yet every time the British economy has started to grow, as in the 1980s, governments have taken short-term decisions on tax and spending which have put inflation, interest rates and economic stability at risk. So, Britain has a choice--the choice that underlies this Pre-Budget Report.

    "The risk for Britain is to repeat the 1980s' mistake of taking economic strength for granted even when we still have a large productivity gap with our competitors and trying to run the economy at a capacity not yet achieved. Our choice--the choice of the Pre-Budget Report--is that we build economic strength by investing and through tax incentives encouraging a new generation of entrepreneurs.

    "The risk for Britain is a repeat of the late 1980s' mistake--claiming a surplus one year could fund tax cuts for every year and, by committing in tax what was yet to be earned, stoking up an unsustainable consumer boom, forcing interest and mortgage rates to rise. We will take no risks with stability. Our choice--the choice of the Pre-Budget Report--is to

8 Nov 2000 : Column 1560

    lock in stability by, as I shall announce today, prudently cutting debt and debt interest payments to keep inflation and interest rates low.

    "The risk for Britain would be to cut investment in education and our infrastructure and perpetuate decades of neglect and undermine our economy. This Pre-Budget Report makes a different choice: to move forward with our three-year spending plans that will double public investment--from education and health, to transport, policing, and the environment--and by continuing to cut both debt interest and unemployment, combining public spending with targeted tax cuts to do more for pensioners and, as I shall show, give families the lowest direct tax burden for 30 years.

    "So, this Pre-Budget Statement sets out a balanced approach: first, stability and prudence to keep interest rates low; secondly, tackling under-investment and then, when it is affordable to do so, targeted tax cuts for the nation's priorities. Let me turn, first, to the forecasts for the economy.

    "Since 1997 our first and most fundamental economic choice has been, through Bank of England independence, tough controls on public spending and difficult decisions on tax, to build economic stability. There were those in this House who predicted that our policies would bring recession. I can report to the House that this year inflation is meeting its 2.5 per cent target and long-term interest rates are around the lowest for 30 years, the same as those in Germany and lower than in America.

    "I can also report that the economy is forecast to grow by 3 per cent this year: manufacturing, despite its difficulties, by 1.25 per cent and exports growing by 8 per cent; consumer demand growing by 3.5 per cent with living standards rising; and business investment which has grown by 1.5 per cent as we lock in a higher level of investment as a share of our economy, 14.5 per cent, than at any time in 40 years, a bigger share of our economy than of the American economy; and in total, fixed investment has this year grown by 2.5 per cent. With 1.1 million more men and women in work than in 1997, Britain now has the lowest unemployment since 1979, the lowest long-term unemployment since 1978, the lowest youth unemployment since 1975; and the highest employment ever among women. Unemployment is now lower in every region, with today 1 million vacancies spread across the country. And this month we plan to reach our promised target: 250,000 young people moved from welfare to work.

    "And it is precisely because we have taken the trouble to build the long-term foundation for success, and precisely because we have resisted short-termism that would threaten stability in interest rates that I can report that, even in times of uncertainty for the world economy over oil prices and exchange rates, the Treasury forecast for next year is that: inflation will meet its target of 2.5 per cent; manufacturing will grow by between 2 and 2.25 per cent; exports will grow by between 7 and

8 Nov 2000 : Column 1561

    7.5 per cent; growth will range from 2.25 to 2.75 per cent; consumer demand will grow by 2.25 to 2.5 per cent; business investment by 1.5 to 2 per cent; and total investment by 4.25 to 4.5 per cent.

    "There were those who predicted that our public spending plans would lead to higher inflation and that the economy would run out of control. Between 1979 and 1997, inflation averaged 6.2 per cent. Since 1997, it has been less than half as much--2.4 per cent. Interest rates from 1979 averaged 10 per cent; since 1997, 6 per cent. Mortgage rates from 1979--11 per cent; since 1997, mortgage rates an average of 7 per cent. Growth from 1979 averaged 2 per cent; since 1997, it has been 2.7 per cent.

    "We have steered a course of stability, but we are not satisfied. Long-term prosperity for all is our objective, achieving, in this decade, full employment, higher education for the majority of young people, sustained improvements in our public services and, with an end to child and pensioner poverty, not just some, but all citizens sharing in rising prosperity.

    "Long-term prosperity for all depends upon us reaching American levels of productivity growth--and on removing the barriers--by tackling under-investment, skill deficiencies, resistance to new technology and restrictive practices wherever they arise; building a stronger enterprise culture open to all. Today, as part of the Government's contribution to a new and necessary drive for higher productivity, I am proposing to encourage entrepreneurship and expand investment.

    "To make Britain the best place in the world for multinationals to locate, we will build upon our cut in corporation tax from 33p to 30p--the lowest of all major countries and the lowest in our history--by consulting on three major changes: to abolish from April 2001 the withholding tax, not only on international bonds, but normally on payments of interest and royalties between companies in the UK; to relieve tax on sales of subsequent substantial shareholdings by companies; and, in line with the needs of the new economy, tax relief for intellectual property and goodwill as we create the best modern environment for business in the world. I can tell the House that this year corporation tax revenues are £2.5 billion lower than forecast.

    "While it has been put to me that North Sea oil companies, earning higher profits from higher oil prices should be subject to special taxes, I can tell the House that I am determined not to make short-term decisions based on short-term factors. The key issue is the level of long-term investment in the North Sea and this will be the approach that will guide budget decisions in the future.

    "My second set of proposals help small businesses whose numbers have grown already by 150,000 since 1997. Last year we cut small company corporation tax, once 23p to 20p, and introduced a new 10p rate--an overall cut in small company tax bills of nearly 25 per cent. Today I am publishing for

8 Nov 2000 : Column 1562

    consultation with small businesses a set of proposals that simplify small business VAT and are of direct help to half a million small businesses.

    "Capital allowances and tax credits to encourage investment have already saved over £800 million to business since 1997; £0.3 billion to manufacturing. Because I understand the importance of manufacturing, I shall now examine for the Budget further incentives that help manufacturing, in particular the proposals from the CBI and the Engineering Employers Federation to extend the research and development tax credit.

    "To help smaller high-risk and e-commerce companies recruit and retain the staff they need, we propose to expand tax relief for share options and make Britain the most attractive environment for e-commerce. In future, all employees can benefit from our enterprise management incentive scheme--up to a company limit of £2.5 million-worth of share options. For the period to May 2000, I propose to make provision for companies to limit and settle their liability for national insurance contributions on share options.

    "Having cut capital gains tax from 40p to 10p for long-term investment, I now propose an even further widening of the scope for the 10p rate--to non-trading companies and to venture capital companies so that employees from all types of companies will benefit. To enhance the contribution of institutional investors, we will consult on the Myners Review proposals to reform the minimum funding requirement and to remove regulatory barriers to investing in venture capital.

    "To expand savings generally and especially to double the number of low-income families who save, we will review all capital limits that deter savings. Already, 9 million ISA accounts have been opened and £3 billion more is being saved by low-income savers. The tax-free limit for ISA savers has been set for next year at £5,000. I propose once more to set it at £7,000, a figure I shall set for the next five years.

    "To build enterprise and balanced economic development across all the regions, public investment, including public/private partnerships, we are proposing today that regional development agencies have greater freedom to decide locally how money is invested to meet local needs. The rate of small business creation in high unemployment communities is still one-sixth of the more prosperous areas and unemployment is still twice as high. Future jobs and long-term prosperity will come, not from benefit cheques or the old subsidies, but by a radically new approach, encouraging economic activity and business development along the lines proposed by the Rogers and Cohen reports.

    "I now propose a radical reform of tax incentives designed to raise business investment in high unemployment areas by £1 billion. I propose to introduce stamp duty exemption for all properties in our most disadvantaged communities; accelerated tax relief for cleaning up contaminated land; VAT

8 Nov 2000 : Column 1563

    cuts to reduce the cost of residential property conversions; and tax relief to bring empty flats over shops back into use. I propose to consult on further business rate relief for small businesses in assisted areas; a new generous tax credit for community investment; and the creation of the first community development venture fund.

    "To assist the upgrading of listed buildings central to community life in all parts of the country, I can also announce that we are today asking the European Commission to reduce VAT from 17.5 per cent to 5 per cent on repairs to churches.

    "I have one further proposal for a special tax relief. We will not only continue to work for cuts in third world debt, but now plan to do more to meet the international targets of cutting world poverty by half and cut by two-thirds infant mortality, which, through preventable diseases, carries off one in seven of the world's children before the age of five. As one of a number of proposals that the International Development Secretary and I are working on to tackle child poverty, the Government will investigate a new tax incentive and spending measures to develop, cut the costs for and ensure the supply of anti-TB, anti-malaria and anti-AIDS drugs--drugs which could save lives, tragically still unavailable in the poorest countries, but with the potential that must now be realised to reduce avoidable suffering and unacceptable deaths.

    "I turn to pre-Budget measures to meet our goal of full employment. In addition to making work pay through the 10p income tax rate, the new working families' tax credit and the New Deal which some would abolish but which, as independent research shows, has cut youth unemployment by 40 per cent more than would have happened without it, the Secretary of State for Education and Employment and I will intensify coaching help for the 50,000 young people still out of work; consult on introducing a new service that will help redundant workers move quickly into new jobs; investigate how, with tax free and in some cases free adult learning, we can help to upgrade fast-changing workforce skills; extend the New Deal for lone parents with our nationwide programme of choices, starting next April, and extend to a further 150,000 lone parents not on income support the opportunity to get back to work; agree a new partnership with the voluntary sector to help those with disabilities who want work to get it, while with a £200 million a year additional package that the Secretary of State for Social Security will announce tomorrow, improving the living standards of those unable to work and carers; and, for each area, drawing up local full employment plans addressing all barriers to full employment in their local areas.

    "Higher productivity and rising unemployment depends not just on ending decades of under-investment and targeting tax incentives on our priorities, but on entrenching a low inflation culture that prudently keeps interest rates and mortgage rates as low as possible. It is because we have learnt

8 Nov 2000 : Column 1564

    from the mistakes of the 1980s and before that I can tell the House that, in spite of the demands made to me, I have decided, in the interests of keeping interest rates and mortgage rates as low as possible, to lock-in over the coming years a fiscal stance that is the same or is tighter than we said at the time of the Budget.

    "Let me give the House the background and the full financial figures. Our first fiscal rule--the golden rule: the first rule necessary to keep interest rates and mortgage rates as low as possible--is that over the cycle there must be a current surplus. So, however tempting it may be for some to identify large temporary surpluses as an excuse for permanent injections of resources into the economy, our golden rule demands constant prudence.

    "In the Budget I forecast this year's current surplus at £14 billion. I now forecast this surplus to be £16.6 billion, and in the years from 2001-02 the current surpluses are forecast to be £16 billion, £14 billion, £8 billion and £8 billion--figures that ensure we remain on course to balance the current budget over the economic cycle, even on the most cautious of cases.

    "Our second fiscal rule--the sustainable investment rule; a bulwark against short-termism that again helps keeps interest rates and mortgage rates as low as possible--is that while over the cycle we will borrow for investment, we do not borrow for consumption and we keep debt at a prudent and sustainable level below 40 per cent of national income.

    "After a doubling of the national debt in the early 1990s, the ratio of debt to national income had by 1997 risen to 44 per cent. Having made the necessary difficult tax and spending decisions, we have in the three years since 1997 reduced the ratio of debt to national income from 44 per cent to 41.9 per cent, to 39.6 per cent, and to 36.8 per cent this April.

    "I can report to the House that two decisions--first, the decision to use the proceeds from the spectrum auction to reduce our debt; and, second, to use this year's surplus to repay debt--now make possible a further and even more substantial reduction in debt that will keep interest payments low. Because we are, in total, cutting the stock of debt by as much as one-third, I can report to the House that the public sector net debt as a share of GDP will now fall from 36.8 per cent last year, to 32.3 per cent this year, to 30.9 per cent in 2001-02, and from what was a debt to GDP ratio as high as 44 per cent in 1997, I can report that this ratio is forecast to fall to 30 per cent and remain there in future years. With long-term interest rates lower and debt well within the 40 per cent ceiling, we are not only well placed to deal with the ups and downs of the economic cycle but have the best platform for years for sustained long-term growth.

    "Our Budget forecast for net borrowing was a surplus of £6.5 billion this year. We now forecast the surplus to be £10 billion this year and £6 billion next. In future years the deficits will be £1 billion,

8 Nov 2000 : Column 1565

    £10 billion, £12 billion and £13 billion as we borrow to invest. In every one of the next five years, adjusting for the cycle a fiscal stance that is the same or is tighter than at the time of the Budget. And this year, with the spectrum proceeds, the net cash debt repayment will be £28 billion.

    "So our approach is to reject the old vicious cycle of the 1980s--rising debt, higher long-term interest rates, higher debt repayment costs, lower growth, higher unemployment and enforced cuts in public spending--the old boom and bust. Instead, as we promised, we have by our decisions created a virtuous circle of falling debt, lower long-term interest rates, lower unemployment, lower debt payments and a stronger economy releasing more resources for public spending.

    "I can report to the House that, because of this virtuous circle, lower unemployment has brought savings in social security which, compared with the Budget, provide an additional £1.5 billion next year and £2 billion and £2.5 billion in future years.

    "In addition to higher government revenues this year from higher employment, higher earnings growth and steady growth, debt interest payments are now lower than we forecast at the time of the Budget, by £2.5 billion next year and £2 billion in the next two years.

    "When we came into government we were paying out more in debt interest payments than we were spending on our schools. Soon, as a result of cutting debt payments, we will be able to spend 50 per cent more on our schools than we do on our debt interest.

    "Over the past 20 years, 42 pence of every additional pound spent went to debt interest and social security. In the early 1990s it was 50 per cent of every pound. Debt and social security will now require only 17 pence of every pound, leaving more than 80 pence in every pound of additional spending for hospitals, schools and vital services, enabling us to tackle the long-term under-investment in Britain.

    "It is therefore because we have cut the cost of debt and unemployment--now costing £5 billion less than in 1997--and because we have also secured sustainable growth, that we are able to lock-in a fiscal tightening, meet all our fiscal rules and, within this prudent framework, we are in an even stronger position than in July to tackle under-investment and target tax cuts on our nation's priorities.

    "Since July I have received representations from people in this House about public spending, including representations which propose spending growth only in line with 2 per cent GDP growth per year. I have studied this proposal in detail. It would mean by year three, cuts in spending of £16 billion and after taking into account the measures that I will announce on pensions today, more than £16 billion.

    "I have rejected these representations and, because the economy both needs and can afford--and cannot afford not to--to tackle the long-term under-investment, the Education Secretary will tomorrow, as part of allocating his annual 5 per cent

8 Nov 2000 : Column 1566

    real-term increase in education every year, announce resources for the new learning and skills council.

    "And because investment is needed in our infrastructure, not just for social reasons but to build economic strength, the Minister for Transport will announce how every region, city and town will benefit from the new investment in roads; and, with new funds from the spending review allocated to each region for economic regeneration, the Deputy Prime Minister will shortly publish his rural and urban White Papers.

    "As part of the 5.6 per cent real-terms rise in NHS spending each year for the next three years, the Secretary of State for Health will announce for each of the next three years his allocations to health authorities up to 2004.

    "In addition to the Statement on pensions from my right honourable friend the Secretary of State for Social Security tomorrow, and the extra allocation we have made to improve flood defences, my right honourable friend the Secretary of State for Education and Employment is announcing today additional allocations to our schools.

    "The windfall tax is money raised from the utilities specifically for the purpose of extending employment opportunity through the New Deal and educational opportunity, renovating so far 17,000 schools. Such has been the success of the New Deal in getting people back to work that the windfall levy account is underspent by £200 million. So the Secretary of State for Education and Employment and I have decided that, in addition to the rise in education spending this year, lower unemployment means that we can allocate new money for every school in every constituency in the country--money to be available this year for repairs and improvements; money to be paid direct to the school. The head teacher of every primary school will receive a cheque for between £4,000 and £7,000. The head teacher of each secondary school will receive, for the smaller schools, £10,000; for the larger schools, £30,000. Prudence once again for a purpose, enabling us to target resources to our priorities and in a sustainable way.

    "This prudence also allows us now to match public spending increases by tax cuts targeted on the country's priorities, including making reforms in the tax treatment of transport and the environment, to which I now turn.

    "Between 1997 and 1999, retaining the fuel escalator introduced in 1993 helped to cut borrowing by £30 billion, helping to deliver lower interest rates and enabling us to begin the long-overdue investment in transport, the NHS and schools. And it will have brought about a cut in carbon dioxide pollution by an estimated 1 million to 2.5 million tonnes a year by 2010.

    "But today, like all countries, we are having to deal with the rise in world oil prices from 11 dollars to 31 dollars. Because OPEC itself accepts that the

8 Nov 2000 : Column 1567

    world price is unacceptably high, our international efforts are geared to ensuring that production is raised and prices fall.

    "So I recognise and understand the very genuine concerns that motorists and hauliers have, and it is because here in Britain we have already cut the deficit, already set aside £180 billion for the 10-year transport plan and already shown how we are meeting the Kyoto targets, that in the last Budget I removed the fuel escalator and made environmentally-based cuts in car and lorry licences and gave new incentives for environmentally efficient fuels.

    "In line with the principles we have set down, I am now able today to show how we can complete these reforms and do more to meet people's concerns--without putting at risk either our economic stability, necessary investment in public services, or our environmental gains. Indeed, the reforms I now propose are tailor-made to meet our environmental obligations.

    "The annual rise in the price of fuel that would automatically be introduced on Budget day would raise £560 million, putting petrol and diesel up by around 1½ pence a litre. I propose, at a cost of £560 million, a freeze in excise duties--an across-the-board duty freeze on all fuels that would initially last until April 2002--and, if the oil price remains at a high price between now and then, I can tell the House that there would be a duty freeze for a further year.

    "I intend to go further in three vital respects. On top of the duty freeze--budgeted for in our fiscal arithmetic--the first of the proposals I will consult on would itself involve additional expenditure of as much as £1,000 million and help to promote substantial benefit to the environment.

    "Yesterday, we published a report showing the environmental benefits from the introduction of ultra low sulphur diesel in reducing local air pollution. As a result of cuts we made in excise duty on ultra low sulphur diesel, usage in Britain has risen from 20 per cent in 1997 to 40 per cent in 1998, to 100 per cent in 2000. It requires no change to be made in lorry and van engines and it now accounts for virtually 100 per cent of the market for diesel in Britain today. Britain is now leading in this cleaner diesel.

    "We now need to build on that environmental achievement. The widespread use of ultra low sulphur petrol would further and significantly improve local air quality. Crucially, it would require no change to existing car engines.

    "It is now time to make this cleaner fuel available in every petrol station of the United Kingdom and to make the use of this fuel, which requires no change in any car, cheaper for everyone.

    "To do so, I propose to cut the excise duty for ultra low sulphur petrol so that it replaces unleaded petrol in every petrol station in Britain, and at a lower excise duty. On 1st October, we reduced the

8 Nov 2000 : Column 1568

    duty on ultra low sulphur petrol by 1p a litre. I propose, from Budget 2001, a further reduction of 2p a litre, making a cut of 3p in total on all ultra low sulphur petrol.

    "And because it is right to maintain the proper balance between petrol and diesel, I propose also from Budget day to match the cut in low sulphur petrol with a 3p cut in excise duties on ultra low sulphur diesel which will go to all diesel users. I expect ultra low sulphur diesel and petrol to account for 100 per cent of the market next year and, when the excise duty cut is introduced at Budget time, motorists using any petrol station in Britain to be able to benefit from this duty cut.

    "It is by giving this incentive for cleaner fuels that we can both advance our environmental principles and ensure, with a 3p cut per litre in all ultra low sulphur duty, a cheaper, cleaner fuel available in every garage--a better deal for drivers and cleaner air across Britain.

    "I can also announce that for all cars which still use lead replacement petrol--where there is no longer an environmental case for a higher duty rate--I propose from Budget day to end the differential and cut the excise duty by 2p per litre.

    "I now intend to go further to help the haulage industry that is undergoing restructuring. I propose support for scrapping or converting older lorries with a £100 million investment fund, including help for buying the new lorries that meet the highest technological and environmental standards, and support for the introduction of logistics and computerisation. The Deputy Prime Minister will also announce help for an industry-wide training and retraining scheme.

    "But we can do more. So that foreign lorries pay their share of the costs of using our roads, we intend to introduce in Britain a vignette system--a British disc, under which non-British companies and lorries pay their share to Britain for using British roads.

    "The Government have considered an essential user rebate or blue diesel scheme for lorry diesel. Such a scheme would be administratively cumbersome, could be levied only on future purchases of diesel, and would have to be opened to foreign lorries using British roads. It would not help hauliers where their fuel prices are directly passed on to customers. It would have no environmental benefits.

    "The scheme I am proposing is far better. Subject to consultation and legal clearance, I now propose to bring forward a much-needed reform begun last year in vehicle excise duty for lorries that will radically cut rates for larger lorries with traditionally high licence fees. The scheme will be implemented in Budget 2001--to sweep aside the 100 separate rates, consolidate them into only seven rate bands, linked to environmental standards, and cutting the rates to match the lowest in Europe.

    "Lorries in the most competitive sector will save over £2,000. Over 250,000 lorries will each pay lower licence fees as a result of a £300 million annual cut

8 Nov 2000 : Column 1569

    in licence fees; 100,000 lorries will save over £1,000; the average saving per lorry will be £715 a year; and the cuts are the equivalent in value to a cut of 3p in the price of diesel for the haulage industry--and again, with environmental incentives built in.

    "Our proposals for the detailed new scheme, and licence rates, are published today, and the Government are able to start the transitional arrangements to this new licence scheme immediately. I have allocated £265 million for this financial year--half of the annual revenue raised from lorry vehicle excise duty--to be spent before March for a refund scheme that can repay lorry owners up to half of this year's licence fee; 250,000 lorries, and all large lorries, will benefit from the refunds. They will be worth, for some of the largest lorries paying the highest fees, £1,000 and up to £4,000 this year. Refunds will be paid from next month, payments to be completed by the end of January--the detailed arrangements to be announced by the Minister for Transport.

    "To help restructuring and investment in farming, the Minister of Agriculture, Fisheries and Food announced last week, in addition to this year's £220 million package of measures, agri-money compensation for arable producers. In addition to freezing duty on red diesel at its current rate of 3p a litre, I also intend in Budget 2001 to abolish vehicle excise duty on tractors and agricultural vehicles completely.

    "I now have a similar proposal for car licence fees. Consistent with our environmental principle that we tax vehicle ownership less, I want now to complete our environmentally based reform of vehicle excise duty for cars. The new licence fee we are introducing for new cars registered from March 2001 is linked to environmental efficiency. For all cars under 1200cc there is also now a lower rate licence fee with a £55 deduction on the standard licence. While this change has been welcomed, many, especially those in rural areas, have put it to me that greater choice would be available to rural motorists and motorists generally if the £55 deduction could be accessible for, not just cars under 1200cc but cars up to 1500cc, including, for example, the Focus, Golf, Astra, Escort and the Rover 214.

    "So I propose to extend the lower rate licence fee, the £55 discount, to cars up to 1500cc, to be paid from July but to be backdated from today. So all those who have a car from 1200cc to 1500cc--an extra 5.4 million cars--will be entitled to £55 off their annual licence fee from today. So in total, over 8.5 million existing cars, one in every three, will now pay £55 below the standard fee.

    "So for motorists as a whole, with the duty freeze and new reduced licence fee and the cut for ultra low sulphur diesel, the proposed Budget package makes changes worth the equivalent of a 4p a litre cut while meeting our environmental objectives.

    "And by next year, for the haulage industry, changes that are worth the equivalent of a cut of 8p on a litre: in each case meeting our environmental

8 Nov 2000 : Column 1570

    obligations, not putting at risk public investment in vital services, nor the stability of the economy. Measures upon which Ministers are now inviting discussion in the pre-Budget consultation which will take place as Ministers visit every region of the country.

    "I turn now to specific measures of benefit to families and to pensioners.

    "Our aim is that not just some, but every child has the best start in life and that we halve child poverty in the coming decade.

    "Families need help most at the time when parents are bringing up their children. As we extend our new integrated system of child support--from £15 a week child benefit for every child to a maximum of £50--our priority in the coming Budget is the new children's tax credit, a tax cut for families. This family tax cut, which replaces married couples' allowance, will be paid on top of child benefit to around 5 million families at £8.50 a week, and is worth £442 a year.

    "On current figures, the proposals on which we are consulting would, if implemented, mean that overall the tax burden would not rise next year and I would achieve my aim of next year cutting the direct tax burden on the typical family below 20 per cent. It will fall from 20.3 per cent to 18.6 per cent, the lowest level since 1972.

    "But I believe that in the coming Budget we can offer a larger tax cut for families. My aim is to increase the family tax cut to £10 a week, in total a £520-a-year tax cut, increasing families' income. And just as we are introducing a new system of child support based on the foundation of child benefit--but at the heart of which is the new working families' tax credit--so, too, it is now time, based on the same principle, to raise pensioner incomes by a tax and benefit reform that will have as its foundation the basic state pension, and will have as an essential building block, like the working families' tax credit, a new and generous pension credit.

    "Our aim for pensions reform is both to end pensioner poverty and to ensure that all pensioners share in the rising prosperity of the nation. But in a new world of rapidly diverging pensioners' incomes--already 17 per cent of couples are retiring on more than £20,000 a year, and that percentage grows year on year--and where, as a result, inequalities between pensioner incomes are as great as inequalities within the population as a whole, we shall best meet our obligations to pensioners by a new approach.

    "To plan for the future based on a flat rate earnings-linked rise paid to all, which would give exactly the same to those with incomes above £20,000 as to those on middle incomes and, because the income support system would do absolutely nothing for the poorest, would mean that by the time today's 45-year olds were retiring, for every £6 billion extra spent on an earnings link, £2 billion went to pensioners with incomes above £20,000 at

8 Nov 2000 : Column 1571

    today's prices. Thus less would be available for the middle and lower income pensioners, who are our first priority.

    "So we need a policy that does most for those who need most and, at the same time, ensures that all pensioners--the very poor, those on modest incomes and the relatively comfortable--share in the rising prosperity of the nation.

    "Perhaps I may tell the House what the new system, which will integrate tax and benefits and build upon the basic pension a new pension credit will look like in 2003. I shall then set out the transitional arrangements.

    "First, for those in and at risk of poverty, we shall radically improve the minimum income guarantee. I can tell the House that the minimum income guarantee, which was £68.80 in 1997, is £78.45 today, and will be raised in April by £14 to £92.15. For thousands of our poorest pensioners, £700 extra a year.

    "I can also tell the House today that when the new system is introduced in April 2003, the minimum income guarantee will be set not at £92, but at £100 a week-- £22 a week more than today. For the first time a single pensioner will be guaranteed at least a £100 a week; and for couples, a rise from £106.60 in 1997 to £154. Every year after that I can tell the House that the minimum income guarantee will be raised in line with earnings.

    "With the winter allowance there will be a 32 per cent increase in income even after inflation, demonstrating our determination that no pensioner is left behind as this Government work to ensure that pensioner poverty is a thing of the past. More than 2 million will benefit. People will be able to claim by phone. They will do so at the point of retirement and whatever adjustments thereafter would need to be made only when circumstances change.

    "But we have a second obligation--to millions of pensioners who, after a lifetime of hard work, have modest occupational pensions and modest savings, but receive nothing from the system on top of their basic pension and have until now been penalised, not rewarded, for their savings; people whom we meet every week in our constituencies. This Government are determined that people who have worked hard and saved all their lives should now receive more.

    "Tomorrow the Secretary of State for Social Security's Statement will outline the new integrated tax and benefit system--both the pension credit and the new pensioner tax arrangements.

    "I said in the Budget that I wanted the beneficiaries of the new credit to be single pensioners with incomes up to £100 and pensioner couples with incomes up to £150. I can now tell the House that pensioner couples with incomes below £200, and single pensioners with incomes below £135--many millions of pensioners--will receive the new pension credit.

8 Nov 2000 : Column 1572

    "I can tell the House that while the pension will rise in line with inflation, the new pension credit will itself rise in line with earnings every year. In this way, we shall give recipients of the pension credit more than even the earnings link in the basic state pension would give them.

    "The pensioners tax allowance will be set at April 2003 at an even higher level--£6,560 for the single pensioner--and for the next Parliament we propose that the pensioners' tax allowance also rises in line with earnings. For the vast majority of pensioners, the middle and low income pensioners of Britain, the new system will provide extra cash on top of the basic pension: sums of between £1 and £23 a week.

    "Achieving all our aims: for millions of the neediest pensioners relief from poverty; for those on modest incomes a reward for their savings and occupational pensions more than an earning link could offer them; and ensuring that all pensioners can enjoy a share in the rising standards of living of the country.

    "As we move to this new and better system, the Social Security Secretary and I have decided that the transitional arrangements should ensure that over the next two years pensioner incomes should rise faster than inflation and indeed faster than earnings. So from April next year we propose that for the single pensioner there should be a cash increase of £5 a week and for a married couple a rise of £8 a week. I can tell the House that the following year we can also guarantee that the pension will rise well above prices. There will be a cash increase of £3 for single pensioners and £4.80 for married couples.

    "Over two years, a cash rise of £8 a week for single pensioners and £12.80 a week for couples. For pensions £2.6 billion more each year, on top of more for health, education, transport policing and public services.

    "Those who would spend this money on tax-cutting should now tell us which hospitals, which schools, which public services they would cut. We have made our choice--investment, targeted tax cuts, keeping mortgage rates low, and more for pensions and families: a stronger, fairer Britain.

    "I have one final announcement. I have had representations to abolish the winter fuel allowance and indeed abolish the free TV licence for the over- 75s. I have even received representations to abolish the Christmas bonus. I have rejected such options that would give with one hand and take with another.

    "I can confirm that now and in future years the free TV licences will remain for the over-75s, as we have promised. The Christmas bonus will continue and the winter allowance will be paid at £150. But the transitional arrangements to our new pension reform will not start next year, but can start this year; indeed, they will start this week. I can confirm that cheques are being sent out from Monday that will be paid to every pensioner household in Britain.

8 Nov 2000 : Column 1573

    "The winter allowance will not be paid at £150 this year; nor will it be abolished. For this year specially--the first year of the transitional arrangements--it will be paid not at £150, but at £200 to every pensioner household free of tax.

    "I commend this Statement to the House".

My Lords, that concludes the Statement.

4.59 p.m.

Lord Saatchi: My Lords, perhaps I may, first, thank the Minister for giving your Lordships' House the opportunity to hear the Statement today and to comment on it.

When students of political history are examining the dramatic fall from grace of this Government--the fastest in the history of polling by Gallup--they will conclude that they fell because they underestimated the intelligence of the public. Your Lordships will recall that in Plato's allegory of the cave the people were tied to chains in a dark cave able to see a passing parade of objects that they thought were real, but which were in fact only the shadows cast by the objects.

As today's Statement shows, this Government's entire tax and spend strategy is built on shadows, on keeping people in the dark. They worked out that they could not win elections by offering to raise tax so they decided explicitly and consciously to cut visible taxes on voters while raising invisible taxes elsewhere. How else can one explain the words at the beginning of the Statement; namely, that the Pre-Budget Report would give families the lowest direct tax burden for 30 years? That statement, failing as it does to draw the distinction between direct and indirect taxes, is an insult to the intelligence of the public. It treats the public like morons.

However, the Government have overlooked the fact that the public are highly sophisticated and aware. Let us take two of the groups that the Government are trying to appease in the Statement: pensioners and fuel tax protesters. Why have these two groups been chosen? It is because they were early victims of the Government's strategy. Early on the Chancellor said that he would uprate pensions and fuel tax by the rate of inflation. It sounds reasonable--does it not?--except that he then used two different definitions of inflation, so pensioners ended up with an increase of 1.1 per cent in their income from the Government and fuel users with a 3.4 per cent increase in their tax payments to the Government. That is brilliant, except that an intelligent and well informed public saw through it, which led directly to the Chancellor's humiliating U-turns of today on those two areas.

Then, after weeks of saying that the Government could not possibly cut fuel tax to help hauliers and farmers, because that would mean cruel and heartless cuts to our schools and hospitals, they have in the Statement cut vehicle excise duty instead. They just changed the names and saved the hospitals.

The Government say that they are presiding over "strong public finances". Those three words are repeated endlessly in government statements. The idea, I think, is that people then fall at the

8 Nov 2000 : Column 1574

Government's feet in gratitude. But where did these "strong finances" come from? I refer to the £46 billion surpluses in four years, to which the noble Lord referred. Is it perhaps because of the strong economy? No, it is not that, because trend growth of GDP is only two and a quarter per cent which is half as fast as that of America and even slower than that of Euroland.

But out of this modestly growing economy there is one item which is miraculously growing much more rapidly: government tax receipts which are growing by over 6 per cent a year. That is three times the rate of growth in the economy. There lies the true economic miracle of this Government: taxes growing three times faster than GDP. Even the great economic experts of the land are unsure how this innocently named "fiscal buoyancy" has come about.

How has it happened? I think that the Government have taken full advantage of the complexities of the tax system, many parts of which we heard about in the Statement. First, Britain's tax and benefits system under this Government transfers each year £30 billion--that is, between 9 and 12 per cent of all government spending--in and out of the very same households because of the overlap between taxpayers and recipients of state-administered benefits and pensions. For example, there are 14.2 million people whose income is less than £10,00 a year, half the average. They pay tax to the Government, and also receive means-tested benefits from the Government; and there is a bizarre range of methods by which those benefits are assessed for tax. There is plenty of scope there to hide various accounting methods.

Secondly, under this Government there has been a staggering proliferation of tax rates. According to the latest figures from the House of Commons Library, even the number of basic tax rates has more than doubled from 15 to 38 under the present Government. Tolley's Standard Tax Manual, which I am told is the Bible of tax accountants, has increased from 2,529 to 3,293 pages under this Government. The Finance Bill has famously grown to a record 570 pages in two volumes.

The Institute of Chartered Accountants recently warned that the tax system under this Government was now so complicated that it had,

    "spun out of democratic control".

The Institute for Fiscal Studies says that it is now "extremely difficult" for people to calculate how much tax they are due to pay.

There is now a mass of over 250 complex tax allowances, reliefs, exemptions, credits, indexations, tapers, disregards and so on which taxpayers have to navigate. Today the Government invited pensioners to navigate a new credit.

Through the gradual erosion of those allowances the Government could achieve EU average levels of taxation almost imperceptibly, which is exactly what they are doing. According to PricewaterhouseCoopers, your Lordships' House may as well stop debating the subject of tax harmonisation because the Government have already filled in two-thirds of the gap in the tax burden between the UK and

8 Nov 2000 : Column 1575

Euroland. When they took office, we had a 6 per cent advantage; it is now 2 per cent. No wonder that the noble Lord said that,"We should not overestimate the importance of the tax burden". I think that I quote him correctly.

The result of complexity is lack of transparency. The concept of stealth tax is well known--a new tax in a disguised form. But the current system has spawned an even more effective form of taxation hidden in the morass--economists call it "fiscal drag". Most people believe that the tax system now takes around 38 per cent of GDP--the record that the Government have achieved--but that is just the net effect of the system. The gross system collects a staggering 53 per cent of GDP. The citizen is then obliged to claim back 16 per cent of GDP--that is, £150 billion--in complex allowances, exemptions, credits etc.

The charm of such a large gross tax system--from the Government's point of view--is the scope it allows for hidden tax increases via reduced allowances. Under this structure the Chancellor can, and does, increase tax without ever announcing a tax rise. People just wake up one day and find that they are in a higher tax bracket, with the result that tax as a percentage of GDP creeps up invisibly. For example, the Government's recent Budget changes to income tax rates--the famous 10p starting rate and the 22p band--were dealt with in two lines in the Budget Statement, whereas another 42 lines were required to explain changes to allowances, reliefs and exemptions.

So despite the new 10p tax band the personal income tax burden increased due to the erosion of the real value of tax allowances; that is, allowances growing more slowly than earnings, leaving a rising share of personal income liable to tax. That is how the UK's so-called "strong public finances" have come about under this Government, not because of the "strong economy", but because this is the third year in a row in which government tax receipts have risen by more than double GDP.

The Statement illustrates why someone needs to carry the torch for transparency, simplicity and openness in the tax system. Your Lordships are well aware that the Parliament Act 1911 deprived your Lordships' House of any role in financial scrutiny. However, study of Hansard of the passage of the then Parliament Bill reveals that its raison d'etre was the hereditary nature of the House of Lords. However, as the Leader of the House, the noble Baroness, Lady Jay, said after the passage of the House of Lords Act 1999 and the removal of the hereditary Peers, Your Lordships' House has become more legitimate, more democratic, more authoritative.

Therefore, many of your Lordships on all sides of the House have asked whether it is time to reconsider the role of this House in the country's financial affairs. At the previous meeting of the Procedure Committee of your Lordships' House, the Leader of the House said that we have to deal with financial matters the way we always have because we have being doing it that

8 Nov 2000 : Column 1576

way for centuries. However, I doubt that the noble Baroness, of all people, wants to uphold the merit of tradition and precedent as a basis for future policy.

My reaction to the Statement is to look forward to the day when all sides of your Lordships' House can bring their formidable talents to bear to achieve greater openness and transparency in the country's finances and to lead the people out of the darkness of Plato's cave where this Government are so determined that they should stay.

5.10 p.m.

Lord Newby: My Lords, I start with an apology to the House. I cannot begin to match the references to Plato by the noble Lord, Lord Saatchi. Without denigrating the noble Lord too much, perhaps I may say that it would do many of us more good to read Plato assiduously than to listen to the noble Lord's speeches on economics.

I, too, join him in welcoming the Government's decision to repeat this Statement to the House. There are individual measures within the Statement which we on these Benches welcome. First, on the business tax side, we welcome the decision to extend tax relief for share option schemes. It has been an issue for which these Benches have argued over many years. We are pleased that the Government are responding to the change in the economy, in particular the e-economy, by extending share option benefits in that area.

Secondly, we welcome the proposals to simplify VAT provisions for small businesses. When VAT was first introduced, it was done in a typical Customs and Excise manner, with huge detail making an administrative burden on small businesses. If the earlier leaks to the papers--not of this Statement--are correct, the Government are moving more towards the system which obtains for small businesses in France and elsewhere. It greatly reduces the amount of paperwork which small businesses have to undertake in respect of VAT, without undermining the tax take.

I must also declare a personal welcome for one small measure in the VAT package; namely, the proposal to reduce VAT on repairs to churches. As a clergy's spouse, I see this as relieving me of a considerable number of fund-raising events to repair the church roof, and that is a hugely welcome personal prospect.

I express support for the proposals in respect of cutting world poverty. The proposals are relatively shadowy but I am sure that the Minister and the Chancellor are only too well aware that the one way in which the Government can spend some of their £28 billion tax or debt repayment without incurring inflationary pressures in this country is to spend the money overseas. We look forward to ensuring that that increase is not the odd £10 million or £15 million, but a substantial sum devoted to the improvement of healthcare and the provision of medicine in the developing world.

We welcome the environmental bias of the Chancellor's proposals on fuel. I believe that his motivation in respect of low sulphur petrol has more to do with shooting a Conservative fox--if that is not

8 Nov 2000 : Column 1577

a politically incorrect metaphor--than with environmental benefits. I have two questions in respect of fuel duty. First, I understand that to be compatible with EU law the vignette scheme must apply to all vehicles and not just to non-UK registered vehicles entering the UK. I am not clear from reading the Statement, but will the vignette scheme apply to all UK-based lorries? Will they pay it? If so, are the figures which the Minister gave in respect of the benefits accruing from the VED cuts net after the vignette has been paid or gross before the vignette kicks in?

Secondly, while welcoming the incentive to low sulphur petrol, as other and newer fuels are introduced which lead to lower levels of pollution--one thinks in particular of hydrogen to power non-polluting fuel cells--shall we have some commitment from the Chancellor that those new fuels will receive a substantial tax benefit compared with low sulphur petrol? That will kick-start those new technologies which are available and would make a huge difference to levels of pollution but which need further government support and incentives.

We on these Benches believe that before today the Government's policy on pensions was parsimony with no purpose. The 75p pension increase last year was an insult to pensioners. Although we are grateful that the Government are at long last beginning to redress the shortfall in pension payments that that represents, we believe that they are doing too little, too late. I did not have the benefit of seeing in printed form before the Minister's Statement the detail of the Chancellor's pension proposals. They are extremely complicated. I hope that the House will forgive me if I do not comment on them in greater detail.

Finally, the disappointment on this side of the House is that the big issue facing manufacturers and farmers--namely, the overvaluation of the pound--has not been mentioned by the Chancellor in this Statement. He has nothing to say on it and nothing to offer. Will the Minister accept that the incentives proposed for manufacturing are completely inadequate to counteract the effect on the bulk of manufacturing industry of the overvaluation of the pound?

After all the hype, and on his own figures, the Chancellor is still spending less of the national cake on schools and hospitals than did the Tories, because of implementing Conservative Budget cuts during his first three years. Bust for pensioners, schools and hospitals followed by an election boom is not a prudent way to run the country.

There is much that we welcome in the Statement, but there is still much more to be done to rebuild the public services on which the well-being of all our communities depend.

5.18 p.m.

Lord McIntosh of Haringey: My Lords, perhaps I may check that I have only two minutes in which to respond. I shall do my best. If I have to, I shall shut up.

8 Nov 2000 : Column 1578

I do not have anything to reply to from the noble Lord, Lord Saatchi. He did not challenge any of the figures in the Pre-Budget Report. He did not challenge the analysis or the results of the analysis. He said that the only growth in the economy is in government tax receipts. He did not seem to recognise that the reason that there is a growth in government tax receipts is because we are paying less on social security and receiving more in taxes from those who have been put back to work. If that is not a fundamental misunderstanding, I do not know what is.

The noble Lord complained about the complex tax structure; and of course he is right. As the noble and learned Lord, Lord Howe of Aberavon, recognises, from time to time we have to do something about it. But when the election comes I do not think that he will be going to the electorate with the banner, "Simpler tax". I think that there will be rather more important matters to refer to.

The noble Lord's final point was about the House of Lords, which he claims to be more legitimate, in order that it may have more time to deal with financial matters. If that is the case, why did the Opposition not wish to have this Statement repeated in this House. The fact that this debate is taking place was dependent on the Liberal Democrat Party.

I can treat rather more seriously the remarks of the noble Lord, Lord Newby, although perhaps he will forgive me if, because of limits of time, I do not thank him for the praise which he gave to large parts of the Statement. However, he made some specific points to which I wish to respond.

On the question of the "Eurodisc"--the charge on lorries from other parts of Europe--applying on our roads, the noble Lord is correct: it will have to apply to UK lorries as well. But it is our intention to reduce vehicle excuse duties for UK lorries in order that they do not have any net increase in their burdens.

The noble Lord asked about newer fuels than ultra low sulphur petrol. I do not think that there is an official policy on the subject, but I am sure that he and I agree that it would be extraordinary and out of character if, having given tax benefits for environmentally beneficial fuels, we did not carry that policy on as new fuels are developed, although neither he nor I knows what they will be.

The noble Lord's final point was about the strong pound--or, as I think that he would agree, the weak euro. That is not an appropriate subject for the Pre-Budget Report, which is concerned mainly with the public finances. The Government agree with the European Central Bank that the euro is undervalued in relation to the pound. I think that the noble Lord draws the same conclusions from that as we do.

Next Section Back to Table of Contents Lords Hansard Home Page