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Lord Desai: My Lords, I have never quite understood the technicalities of the Consolidated Fund Bill. But I have been in your Lordships' House for only four years and if I am given a few more years, I may be able to grasp it. I wish that we could have a debate on the Wednesday that follows the Budget on the Tuesday. We should have a general discussion on the economy and when the Consolidated Fund Bill is before the House, we could have another discussion on the economy. There should be a way to do that because I agree that, once the other place has sent the Bill to us, there is never enough time for us to look at it and the pressure is such that we have only one debate.
There are two ways in which to discuss the Finance Bill. One can either go into the details of taxation, as did my noble friend Lord Eatwell and the noble Lord, Lord Boyd-Carpenter, or one can follow the path of the noble Baroness, Lady Seear, and discuss the generalities. I am going to stick to the general economic debate rather than talk about taxation in any great detail.
Having said that, perhaps I may just say something about the tax on wine and beers which the noble Lord, Lord Boyd-Carpenter, mentioned. We must think systematically about harmonisation and Europe. It will not go away. It is time we thought more about that. I do not agree with the noble Lord that the tax on wine and beer is a tax on British brewers because, after all, you can buy British beer in Calais and bring it back. It is really the retailers who are suffering more than the manufacturers. But we must find a way to equalise the disadvantage which the domestic shopper has vis-o-vis someone who can go across to the Continent on the ferry.
Perhaps I may extend the objection which the noble Lord, Lord Boyd-Carpenter, takes in relation to air travel. I too do not understand why only air travel is taxed. I believe that the ferries should be also taxed. But then again, I like taxation and have a weakness for it. If ferry travel were to be taxed, that would cancel the disadvantage for the domestic shopper and would not single out the air traveller for taxation. That would be one way in which to equalise the disadvantages.
Perhaps I may say to the noble Lord, Lord Clark, that what he said about above and below the line is beginning to happen in the Budget. If the noble Lord looks at Table 4.2 in the Red Book, he will see that there is a clear demarcation between current and capital expenditure. The Red Book is not very consistent and in earlier parts of it, privatisation receipts are treated as negative expenditure, which is extremely mystifying. There has never been a proper separation. When Mr. Lamont was Chancellor he promised to separate capital and current expenditure, and that is beginning to take place, although it is not yet fully transparent. We should have a clear separation between current and capital expenditure and treat privatisation receipts as any proper business would do and not have them appear as a negative expenditure.
Perhaps I may move on to the state of the economy. If we look at the longer term needs of the British economy, we all agree that we need more investment. But as some noble Lords have already said, we need to have more savings. We must somehow bring down the consumption from the very high levels that it reached in the mid-1980s so that it is at a level at which we can generate domestic savings.
There is a hidden movement to convert income tax into an expenditure tax. I would very much welcome it if they explicitly made income tax into expenditure tax, whereby all the savings made by individuals could be taken out of tax. TESSA and other schemes are rather arcane ways of doing it. Some noble Lords will remember the Royal Commission on taxation in the 1950s which advocated an expenditure tax. Given the pace at which things happen in the Treasury, 40 years should be a long enough period in which to implement the Royal Commission proposal.
There is another problem related to the structure of taxation. Despite the short-run fall, we have the problem of structural unemployment not only in this country but all over Europe. We tax labour far too much. When one thinks about it, the national insurance contribution is an outrageous tax. It is a tax on earned income, and it is a regressive tax because of the ceiling. I believe that we ought to rethink the national insurance contribution in a way that encourages employment rather than taxes it,
I turn to the immediate short run. I know that the Finance Bill is not concerned entirely with the immediate short run. The point that I am about to raise I mentioned in a recent debate introduced by the noble Lord, Lord Prior. The Chancellor still has a credibility problem as far as financial markets are concerned. That is demonstrated by the fact that the interest rate that the United Kingdom Government pay on medium gilts is about 1 per cent. above what the German or American Treasury pays. That shows that the market does not yet trust the United Kingdom Chancellor, whoever it happens to be. That arises because there is a great temptation to politicise certain items in the Budget, especially what I may term the dangerous talk of tax cuts. I find it astonishing that the party opposite should behave like the US Republicans. They do not mind what the deficit is as long as they can give tax cuts to their rich friends.
I believe that unless and until the Budget has been brought into a healthy state and we are following the Maastricht conditions and rulesI am referring to a balanced budget over the cycle and a deficit of no more than 3 per cent. of GDP; conditions that have not prevailed for the past few yearsall forms of tax cuts should be treated as frivolous and dangerous. If by any chance the Chancellor is tempted to follow that advice I predict that the markets will punish him for it. We will have to pay a much higher interest rate. We are already paying £25 billion in interest charges on a debt of approximately £300 billion. I believe that it will do us no good whatsoever in the medium run if we fall for tax cuts. I would say the same if we had a Labour Chancellor. Given the need for investment, to establish credibility and to bring down long-term interest rates, I believe it is very important that a proper, stable fiscal framework is established and that we do not go for short-run political decisions.
Lord Haskel: My Lords, the Minister's speech may have uplifted the spirits of noble Lords opposite, but I do not believe that the business community will agree with it. Apart from the major problems of small companies, it did not deal with the important problems faced by industry.
The noble Lord, Lord Clark, said that we should speak about our achievements. I agree. However, we should do so in a balanced way. Let us take as an example our export achievements. The satisfaction with our export performance must be balanced by the determination to continue the effort. Although the Minister cited the improvements that have been achieved in selected markets, we have not maintained our share of total world trade. As the President of the Board of Trade told us at the Institute of Directors, we are not losing out to low-cost
Another example is the prices charged by the privatised utilities. Yes, there have been price reductions, but many believe that the price reductions, particularly for electricity and gas, should have been greater. There is a suspicion that the increase in electricity prices before privatisation facilitated the price cuts after privatisation. Today, any businessman worth his salt who is engaged in manufacturing industry knows that he will be out of business in five years' time unless he achieves unit cost reductions each year. Of course, we welcome the price reductions in gas and electricity, but in today's business environment they are only to be expected. The real question is whether they are enough and whether they will be continued.
The same argument applies to the transitional relief for business rates. That point was picked up by the noble Lord, Lord Clark. Business welcomes the relief, but at the same time questions the need for an increase in business rates at a time when unit costs have to come down in order to remain competitive. The reduction in employers' national insurance of some £2 a week per employee is welcome, but that has to be balanced with the costs of the additional sick pay to be borne by many employers.
The Government need look no further than the gulf between the rhetoric and the reality for the reasons for their loss of credibility. In doing that, they fall into the very trap of which they were warned by the Engineering Employers' Federation. In its Budget submission last autumn that body said:
That warning still applies as we are currently near the bottom of the OECD investment leagueto be precise, 22nd out of 24based on the share of national income devoted to investment. Certainly, the Finance Bill contains welcome measures to encourage investment, but so have all previous Finance Bills. Perhaps the Minister can tell us what is different about the present Bill.
At this point I make a special appeal to the Minister in regard to the venture capital trusts and enterprise investment schemes that are mentioned in the Bill. They are obviously intended to encourage investment in higher risk and higher tech areas of business. As those schemes proceed, can the Minister ensure that they do not attract savings into property-backed, low-risk investments as has happened all too frequently in the past?
What is missing from the Finance Bill are steps towards a more positive engagement between the private sector and government. That co-operation is needed both for economic regeneration, and to defend the victims of the ruthless market conditions in which we now find ourselves. A confident Finance Bill would be trying to promote that relationship. A confident Finance Bill would
I turn to the Bill itself, and knowing how generous and even-handed the Minister is, I am surprised that he did not give a word of thanks to the Opposition for the changes they forced on the Government during the debates on the Bill. This is not a good Bill, but without those changes it would have been even worse. Noble Lords opposite should be grateful to the Opposition for forcing the Government to cut VAT on fuel to 8 per cent. Without that cut the Government would be yet more unpopular. I am surprised that there was no word of gratitude to the Opposition for forcing the withdrawal of the government proposal to extend tax breaks on executive share options to part-time directors. This matter of share options and the privatised utilities illustrates the poor judgment of the Government on business matters, and extending those privileges to part-time directors would have only compounded that poor judgment. Perhaps a little generosity of spirit would have been in order.
Fortunately, the Government listened to public opinion (both directly and also channelled through the Opposition) so that there has been a whole string of other changes during the debate on the Bill. There is the change mentioned by my noble friend Lord Eatwell, but public opinion also prevented the imposition of further vehicle excise duties on carriers in the Scottish Isles and the Scilly Isles. We also stopped increases in vehicle excise duty for farming vehicles and forced a cut in vehicle excise duty on recovery vehicles.
Tax concessions were secured to assist housing associations, universities, and accident and injury victims. The Minister mentioned the concessions on accessories for disabled drivers of company cars, but he did not mention the source of those concessions. The concession which may have the most long-lasting effect is the one mentioned by my noble friend Lord Eatwell. It is the agreement to examine the simplification of the tax system. Why the Government should be opposed to that baffles everyone except, perhaps, the accountancy profession. Yet, the Government call themselves a government of deregulation!
Of course the main reason why business people have become increasingly disillusioned with the Government is their broken promises over tax. As my noble friend Lord Eatwell said, we were promised tax cuts in 1992, but instead we had tax increases. A typical family is paying now £800 per year more in tax since the tax cuts were promised, as a result of some 20 different tax increases.
I shall add only that taxation is part of the contract between the governed and the Government. Once that contract is broken, there is no credibility left. It cannot be put right by desperate attempts to promise tax cuts in the future. The Chancellor needs flexibility. These matters cannot be decided years in advance. Judgments have to be made at the time, and it must be wrong to limit the Chancellor in any way. The reversal of the decision on domestic fuel illustrated that. No, once this contract has been broken, the only solution is for the party that broke the contract to go.
Lord Henley: My Lords, as always, we have had a well-informed and well-balanced debate. I agree with the noble Lord, Lord Eatwell, my noble friend Lord Boyd-Carpenter and others that debates in this House on the Finance Bill and the economy serve a useful purpose, despite the rather strange gloss that the noble Lord, Lord Eatwell, put on what I said when responding some weeks ago to his Question on interest-free loans. I said that I believed that these debates served a useful purpose and that we had had a good debate, and I am sure that those points were noted by the usual channels and by my noble friends the Lord Privy Seal and the Chief Whip. I am sure that they will take account of those points when deciding what time can be found for appropriate debates in the future.
I had considerable sympathy with much of what the noble Lord, Lord Desai, said, and I shall be interested to know in due course whether his party has the same sympathy with his views. No doubt that can await some elucidation on another occasion.
The purpose of any Budget is to ensure that the economy continues to strengthen. Since the Chancellor's statement, much has been said about the increasing tax burden that has been placed on individuals. Make no mistake, no Conservative Government ever like to increase the tax burden but, as I said in my opening remarks, tough decisions on taxes and spending were needed to restore the public finances and sustain the recovery. We have been acutely aware of the need to share that burden equally. The whole programme of tax changes since 1993, not just this year's, was shared fairly across income groups, with those who could afford to pay most making the biggest contribution. The better off now pay a higher share of the income tax yield.
My noble friend Lord Clark was right to stress that the figures are up from 35 per cent. in 1979 to 44 per cent. now for the top 10 per cent. of taxpayers. In that context it is also worth noting that the real incomes of the vulnerable groups have increased since 1979. Again, my noble friend Lord Clark of Kempston was right to stress the figures that he gave to the House.
This year's tax changes have also attracted a degree of comment from the Opposition. When one looks at the actual figures involved, the picture is very different from that painted by dissenting voices. In fact, all of the direct and indirect tax changes since last November have cost households on average just £2.30 a week. And with personal disposable income expected to rise by 1.5 per cent. this year, households are expected to be about £5 a
I was rather amused by the picture that the noble Lord, Lord Haskel, tried to paint of the Labour Party being, I suppose, the taxpayer's friend. We remember that under Labour the highest rate of tax on some incomes was 98 per cent; now it is just 40 per cent. Married couples on average earnings are better off by £80 a week after inflation and tax. That demonstrates the Government's commitment not to return to the Labour Party's punitive high tax rates which so stifled enterprise and initiative in the past and to which it will have to return if it wants to spend as much as it sometimes seems to suggest.
I should like to deal with a number of the more technical questions on various aspects of the Bill put to me by noble Lords. Perhaps I may start with Clause 155 which relates to agricultural tenancies and which the noble Lord, Lord Eatwell, claimed was an avoidance device. I can assure him that it is not that. It is there to support the Government's proposals to reform agricultural tenancy law and create new tenancies. It is not designed as an avoidance device and, like all reliefs, we will keep it very much under review. We estimate that its cost will be less than £5 million per annum.
The noble Lord, Lord Eatwell, asked why we opposed Clause 160, which commits us to producing a report on simplifying tax law. As the noble Lord knows, we are committed to simplifying tax law, despite the length of this year's Act. On 16th February, my right honourable friend the Financial Secretary announced that he had asked the Inland Revenue to focus on that work. We opposed Clause 160 precisely because we felt that it was unnecessary as work was already in hand. The Government are perfectly happy to accept the thrust of Clause 160 and I am sure that the noble Lord looks forward to reading the report. As I am sure that he appreciates, the question of whether there will be time to debate it will be a matter for the usual channels, but I am sure that the usual channels will note what the noble Lord said about the matter.
The issue of cross-border shopping was addressed by my noble friends Lord Boyd-Carpenter and Lord Clark, and by the noble Lord, Lord Desai, from a slightly different point of view. The annual loss of both duty and VAT to additional legitimate cross-border shopping is estimated at £200 million in respect of both alcohol and tobacco. The total loss due to smuggling is estimated at £65 million per annum. That must be set against total duty receipts of some £6.5 billion in respect of tobacco and more than £5 billion in respect of alcohol.
I stress those figures purely to keep the problem in proportion. Cross-border shopping resulting from the single market amounts to approximately 2.5 per cent. of the United Kingdom drinks market and to even less of the tobacco market approximately 1 per cent. We believe that some of the cross-border shopping for alcohol is additional consumption. I do not know whether my noble friend believes that that is good or bad but, in terms of
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