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As the noble Baroness says, an average is just that, but the YJB has retained the resource to spot-purchase provision, should that be necessary. I believe that a comprehensive piece of work has been done, but the DCSF is keeping a very close eye on this, because we are extremely concerned to ensure that there are proper, adequate welfare placements as well.

Finance: Offshore Centres


11.30 am

Asked By Lord Wallace of Saltaire

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The Financial Services Secretary to the Treasury (Lord Myners): My Lords, President Obama and Secretary Geithner have this week set out proposals to reform the US approach to international corporate taxation. All advanced economies face the challenge of protecting their tax bases. Like the US, we have acted and will continue to act to tackle avoidance and evasion activity, which puts our public finances at risk. British offshore financial centres know that they must engage constructively with the major economies. The Government have launched an independent review of British offshore financial centres which is being undertaken by Mr Michael Foot. It will assess the long-term sustainability of OFC business models and consider changes in the global economic and regulatory environment as part of its analysis.

Lord Wallace of Saltaire: My Lords, does the Minister accept that many of us on these Benches were puzzled by the Government’s happiness with the Bush Administration’s rather lax approach to the development of offshore financial centres which, as the Financial Times said yesterday, has clearly been part of the global financial boom? Now that the Obama Administration have shifted gear very sharply and specifically mentioned a number of offshore financial centres under British sovereignty in their measures, will the British Government take a much tougher approach to the need for sharper financial regulation, or will we continue as the Government have done over the past 12 years?

Lord Myners: My Lords, we certainly are taking a tough line. Tax evasion is pursued with great vigour by the authorities. In 2004, we introduced a pre-clearance requirement that requires those pursuing or marketing tax avoidance strategies to disclose the details to the Inland Revenue in order that it may consider the consequences. We believe that, as a consequence of action taken in the light of such information, some £11 billion of revenue has been protected. We are also about to announce a code, on which we will consult, relating to bank involvement in tax avoidance and aggressive tax management, which I think will throw further light on these issues. President Obama’s approach is primarily addressed at protecting onshore domestic US industry against offshoring.

Lord Barnett: My Lords, is my noble friend arguing that the question of tax avoidance through tax havens can be tackled only through international agreement? Is he saying that without it, we cannot act?

Lord Myners: My Lords, I am saying that tax avoidance can be tackled on a unilateral basis through tax and information exchange agreements that increase the flow of information. However, as one source through which tax avoidance can take place is blocked, if you are not careful, other sources arise. The G20 initiative recognising the importance of this issue marks a significant change in the attitude of the developed world towards centres that rely primarily on tax for their source of competitive advantage. Moreover, the scale of sign-up to tax and information exchange agreements since the period immediately before the G20 and now is indicative of a fundamental change in the relationship between the developed world and offshore financial centres.

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Lord Roberts of Conwy: My Lords, clearly I am right in thinking that there was a commitment in principle reached in the G20 to extend regulation to offshore centres. How is that commitment in principle being taken forward in practice?

Lord Myners: My Lords, there are two important aspects to this. I refer first to the work of Mr Michael Foot, who is looking at regulation and resolution procedures in Crown dependencies and offshore financial territories. I think that he will come up with some positive recommendations about improving regulation and the processes for dealing with regulatory failure. The OECD also has an important role to play in this. The Prime Minister has recently written to the OECD urging continued action to address its own co-ordinated programme towards transparency of transactional behaviours and the opening up and improvement of regulation. It is also worth noting in this respect that British Crown dependencies and offshore territories rank rather well by comparison with a number of other centres in terms of the quality of their regulation as judged by the OECD and the IMF.

Lord Newby: My Lords—

Lord Jones of Birmingham: My Lords—

Lord Davies of Oldham: My Lords, I think that it is the turn of the Liberal Democrat Party.

Lord McNally: Come more often, Digby.

Lord Newby: My Lords, the Minister has referred to the work of Michael Foot and will no doubt have read the interim report which he produced and which was helpfully published on Budget day. Does he share my concern that Mr Foot seems more concerned about the British offshore financial centres remaining successful economically than about ensuring that they no longer rank among the major centres in the world for tax avoidance and evasion? As Mr Foot moves towards his final report, will the Minister ask him to concentrate on that issue?

Lord Myners: My Lords, I shall certainly convey the noble Lord’s views to Mr Foot. He has comprehensive terms of reference, which include addressing tax issues as far as they relate to these centres. It is clear that these questions have become more elevated as a result of the agreement now within the G20 countries on the need to address tax evasion and wilful tax avoidance.

EU and Russia (EUC Report)

European Union Committee - Third Report

Motion to Refer to Grand Committee

11.36 am

Moved By Lord Davies of Oldham

Motion agreed.

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Business of the House

Timing of Debates

11.37 am

Moved By Lord Davies of Oldham

Lord Davies of Oldham: My Lords, I draw noble Lords’ attention to the fact that this debate is limited to five hours. We have 38 speakers to the debate of the noble Lord, Lord Forsyth. It means that Back-Bench speakers are restricted to seven minutes—and seven minutes means the moment that the digital clock shows seven.

Motion agreed.



11.37 am

Moved By Lord Forsyth of Drumlean

Lord Forsyth of Drumlean: My Lords, I am most grateful for this opportunity to call attention to the economic prospects of the United Kingdom and somewhat overwhelmed by enormous list of speakers and their quality. Their experience in economic affairs makes me embark on this debate with a certain amount of trepidation. I very much look forward to hearing the maiden speech of the right reverend Prelate the Bishop of Bradford.

Every Labour Government are the same. They leave office with unemployment and debt higher than they when they started. This Government, it seems, will be no different from any of their predecessors. It gives me enormous pleasure to have here with us this morning my noble friends Lady Thatcher and Lord Lawson and my noble and learned friend Lord Howe, who had to deal with the consequences, 30 years ago almost to the day, of the mess left by a previous Labour Administration.

We recall the state of the country then. The anglophile American commentator Bill Safire described Britain then as a first-class example of how to ruin a first-class country. It seems that we have gone back to the future. Then, the Conservative Government had to deal with an enormous debt problem. We have never been allowed by the Benches opposite to forget the difficult decisions that we had to take in cutting public expenditure. My noble and learned friend Lord Howe had in 1981 to reduce the deficit from £13 billion to £11 billion. These days, the deficit goes up by £11 billion every month. We had a very high and rising level of unemployment, but my noble friends turned Britain around by insisting on sound money, insisting that we had to live within our means, by controlling public expenditure and by understanding that smaller government released resources for the enterprise of the British people to create growth and wealth again.

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They did so by cutting taxes—yes, by cutting taxes—in the midst of a recession and demonstrated how that could increase revenues.

To come back to the present and to the Administration led by Mr. Gordon Brown, he has squandered the legacy which he inherited from John Major. He inherited the strongest economy that we have had in 100 years and turned it into the weakest since the great depression. The legacy of this Government will be astronomical debt and more than 3 million unemployed. As the all-party Treasury Select Committee pointed out yesterday, some economists are even predicting that unemployment could reach a staggering 4 million. It turned out that the Prime Minister’s golden rule was iron pyrites—fool’s gold. It was a confidence trick, used to justify borrowing and spending beyond our means at the height of the boom, when the income from the Government was at its highest. Even on the Government’s own over-optimistic forecasts, even on their own plans, we can look forward to very substantial cuts in departmental spending—after the election, of course, not now, when a start should be made.

However much this Government may devalue the pound, however much they must cut interest rates to the lowest in 400 years, however quickly they turn on the printing presses, they cannot change the reality of our position. We have been spending about 10 per cent more than we earn and saving nothing. We need to save about 10 per cent and bring our spending in line with our income; and to do that, our living standards will inevitably fall, by perhaps 20 per cent, unless we can create growth. How do we create growth and employment? Certainly not by taxing jobs with higher national insurance charges.

Lord Lea of Crondall: My Lords, before the noble Lord continues, he has given us a litany of what has been happening without any reference to the world recession. Is that an oversight, or does he not agree that the world recession is causing minus GDP figures in many industrial countries around the world, minus 3 and minus 4 per cent, and that unemployment and rising public debt are a direct consequence of that? Is that not part of his analysis, or is he just making a political speech?

Lord Forsyth of Drumlean: My Lords, I know that the noble Lord has an opportunity to make his own speech and of course, he is perfectly right—this is against the background of the global financial crisis. I am simply pointing out how this Government have turned a global financial crisis into a British financial catastrophe.

We will not create growth and employment by taxing jobs with higher national insurance charges, which this Government are doing. Instead of spending the £12 billion on cutting VAT by 2.5 per cent, the Government should be cutting the cost of employment to keep people in jobs and help businesses to compete. They should not be raising the marginal rate of tax to 50 or 60 per cent for some people. We know that that will result in a reduction of revenues and a reduction in growth. It is significant that even the all-party Treasury Select Committee, dominated by the Labour Party, yesterday said:

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“We believe there are considerable uncertainties over the yield to be raised by the new 50 per cent top rate of income tax”.

It went on to say that,

I notice that the Minister, the noble Lord, Lord Myners, was on the radio this morning discussing a report on how we could make our country more competitive, a report produced by the Chancellor’s Financial Services Competitiveness Group. There was a report in the press earlier that it was a bit miffed because it was not allowed to refer to the impact on competitiveness of the Chancellor’s increase in the top rate of marginal tax. I tried to check what was said in the report, but we discover that his department is not going to release it until after I have sat down. I am sure that that is entirely coincidental. However, how can the Minister go on radio and talk about a report, which the rest of us have had no opportunity to see?

As to the 50p rate, I cannot put it better than the former Cabinet Minister Stephen Byers, speaking in the other place in last week’s Budget debate. He said:

“I believe that it should be opposed, because in the long run it will be damaging for both the Labour Party and the economy”.

He went on to say that we need a tax system,

He continued by saying that,

That is from a former Cabinet Minister. It says it all. What are we to make of a Government who make our wealth creators pay higher taxes, knowing that it will damage our economy, in order to play some political game? They are a Government who put their own interests before those of the country. They are a Government who are morally bankrupt. It is no wonder that another former Cabinet Minister, Charles Clarke, says that he is ashamed to be a Labour MP. I give way to the noble Lord.

Lord Morris of Handsworth: My Lords, the noble Lord has given us his version of the record of the Labour Government. Can he remind us which Government were in office when we had the three-day week; which Government said that unemployment was a price worth paying; which Government were in office when interest rates went up to 15 per cent and we were thrown out of the ERM; and of course which Government were in office when we turned our manufacturing sector in the north of England into a wasteland?

Lord Forsyth of Drumlean: My Lords, it was a Conservative Government who put right the disgrace that Governments were unable to govern in this country because the trade unions were out of control, and I note that the legislation that was brought in by my right honourable friends has never been reversed by a subsequent Labour Government for it was in the interests of our economy.

I return to today. This Government have doubled public spending from £320 billion to £623 billion. Where did all the money go? The services are certainly

7 May 2009 : Column 673

not twice as good. There is waste everywhere. Further, we have seen the Government embark on a spending binge from the proceeds of an artificial boom created by the Government and the revenues from stamp duty and City bonuses. The revenue has gone now. What we are witnessing is a Government filling the black hole with borrowed money. The interest that will need to be paid on that money will soon be more than the entire education and defence budgets. That is before the inevitable increase in rates. The Government are running a bureaucracy to give tax credits to people paid more than £60,000 per year. It is no wonder that the Treasury Select Committee—that all-party committee—was yesterday forced to warn of the lack of restraint and control of public expenditure.

What do we have to show for all this public expenditure? There are now more than 5 million people on out-of-work benefits. The number of youngsters not in education, employment or training is higher than when Labour took office. Can you believe that? In 2000, it was one in eight; it is now one in seven. People on low incomes are paying effective marginal rates of tax of 90 per cent. The private equity millionaires, thanks to the changes that Gordon Brown made, are paying tax at less than 18 per cent. Borrowing is out of control and Treasury forecasts have the credibility of Billy Bunter’s postal order.

In November, the Chancellor said that the economy would shrink by 1.5 per cent in 2009. Now he says that it will shrink by 3.5 per cent. The IMF says that it will shrink by 4.1 per cent. The Treasury Select Committee, to which I am extremely grateful this morning, has pointed out:

“Whilst it is possible that the Government will meet its growth forecasts, on the available evidence, this is an optimistic assumption”.

And so say all of us. The Government are now planning to borrow over the next five years £269 billion more than they were planning to borrow only six months ago. They are depending on being able to sell more than £900 billion of government bonds. Who is going to buy them? Sterling has fallen out of bed thanks to this Government’s incompetence. They will have doubled the national debt to £1.4 trillion, and that is before we take account of all the things that they have fiddled off the balance sheet. There is an urgent need for a plan to show how this debt will be paid back and how the public finances will be brought under control—another recommendation from the all-party Treasury Select Committee with which I very much agree.

Next year’s borrowing will be the highest since the Second World War. The yield curve for sterling—one of the steepest—indicates that that borrowing will not be cheap. Borrowing is just tax deferred. In this case, however, the scale of it is such that our children will pay the tax, or, in the case of your Lordships’ House, our grandchildren.

So there we have it. We have been reduced to stealing from our children by the Government. Gordon Brown has skipped on to the next generation. He started by stealing from the pensioners with his changes on the advance corporation tax for the pension funds, and now he is landing the children with the costs of his incompetence.

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The Budget is the most remarkable that I have ever seen, and certainly the most dishonest. The Government say in the Budget that they have identified savings and waste. Well, if they have identified savings and waste, why are they leaving it until after the general election to deal with them? If there is waste there, it should be eliminated now. Why is it being left until after the election? They make incredible predictions about how the economy will suddenly burst into life in the year after the general election. They are now promising to take us back from bust to boom in two years. “Spend, spend, spend” before the election, but after the election £9 billion will be cut from planned expenditure with capital cuts of £11 billion.

From 2011, on the Government’s own numbers, public spending grows by 0.7 per cent. I am sorry that he is not in his place, but the noble Lord, Lord Mandelson, with a Budget that proposes reducing the growth in public expenditure to 0.7 per cent, is going around the studios attacking the Conservatives for not saying where the cuts will be made in public services. It is for him to say where the cuts, which will be inevitable under the Government’s own plans, will be made. We need a grown-up discussion, not Peter in never-neverland, and not everything on the never-never. We need to know how we are going to plan for our future public services and get our expenditure into balance.

Gordon Brown has certainly had to deal with a global crisis, but the Prime Minister played a key role in the origins of the banking crisis. At its heart is a regulatory failure and a failure of monetary policy. He sat there and watched as house prices went up by 25 per cent a year and did nothing except, of course, to remove housing from the measure of inflation, which helped to keep interest rates down even lower. The Governor of the Bank of England told the Economic Affairs Committee that he thought that that was a mistake. What a mistake it has proved to be. The Government boasted that they had ended boom and bust, and they encouraged the debt culture as he led by example. They wrecked supervision of the banking system by removing the Bank of England from that role.

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