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Lord Mackay of Ardbrecknish: My Lords, I am grateful to the noble Lord for giving way. I know that he has not taken part in previous debates on Finance Bills. The tradition has been that they range a good deal wider than the Bill; they have the double function of being a general economic debate and the debate on the Bill. I believe that if the noble Lord checks he will discover that his noble friends took that view when they sat on the Opposition Benches.
Lord McIntosh of Haringey: My Lords, I hope that I have recognised that it is entirely proper that the debate should be about the wider economic issues. I believed that in referring to my noble friends I was acknowledging that. But some contributions have gone somewhat beyond even that proper wider definition.
We have been told that there was inadequate consultation on the Budget. On 1st May we had the largest consultation on the economic policies of this country that has taken place for five years. The result was overwhelmingly clear that the previous government did not sustain the confidence of the people of this country in their economic, social or other policies. During that consultation period--that long election campaign--all the issues of taxation, redistribution, equity, economic growth, employment and investment were aired at great length. Such consultation will continue as far as the Government can encourage it. We believe that there should be public debate on these issues and that the Government should take a lead in--I will not say "guidance"--ensuring that the debate is well-informed and constructive.
What we did not do during the two months between the election and the Budget was to consult on specific issues such as advance corporation tax and pension funds. I refer to the noble Lord, Lord Cockfield. Two aspects are involved. First, as the noble Lord well knows, once one starts consulting on an issue of that kind the pension funds will take forestalling action and will see to it that the large companies in which they invest anticipate any change in taxation by increasing their dividend payments.
The noble Lord referred to the experience of Mr. Norman Lamont in 1993. I think he will find that Mr. Lamont did not consult on the reduction of advance corporation tax for pension funds and that, even if he did, the effect of his reduction in advance corporation tax was quite different from ours because it was not accompanied by a reduction in corporation tax. That makes the whole package that we are now presenting rather different from his package.
We have been told that the process of the passage of the Bill was inadequate because of the use of the Guillotine in another place. The noble Lord, Lord Clark, referred to that. This Bill, with only half the number of
I turn now to the product rather than the process--the more interesting aspect of what the Bill contains. First, I address the issue of whether we needed a Budget which was raised by the noble Lord, Lord Mackay, in his opening speech. I find it remarkable that it should be suggested, on the one hand, that we did not need a Budget at all and it was perfectly all right to carry on without any adjustment to fiscal policy; and, on the other hand, we should be criticised, as we have been from all sides of the House, for an inadequate constraint of consumer spending. That was the perfectly legitimate point made by the noble Lord, Lord Ezra. I do not agree with it. The IMF does not agree with it. But a number of noble Lords have said that we have failed adequately to constrain consumer spending, which has damaging effects on exchange rates and inflation.
The fact is that the PSBR is planned to reduce by £7 billion in this year and there will be a further reduction next year. That requires that there should be a readjustment of fiscal policy of the kind which is being put forward in this Budget. I cannot accept that it would have been possible, even if it had not been required by our election manifesto and victory, not to proceed with a Budget this summer rather than waiting for a whole year.
We turn then to the issue which has concerned most noble Lords; that is, pensions. On that we have had what can only be described as hustings speeches. Noble Lords have drawn much larger conclusions from the relatively modest changes in advance corporation tax for pension funds than is justified by the extent of what is actually taking place in this Finance Bill.
For example, the noble Lord, Lord Cockfield, from his great expertise, gave us a considerable discourse on the history of the corporation tax system. But without in any way being qualified to disagree with what he said about the history of double taxation, the changes proposed in the Budget do not result in the reimposition of double taxation. The changes are related specifically to pension funds and they amount to the removal of double relief. Those who are not liable for taxation--pension funds and charities--will no longer be able to claim that from the dividends which they receive from companies. Therefore, they are being put in the same position as everyone else. There is no attack in this Budget on the single taxation of dividends for the noble Lord, Lord Cockfield, himself or for any other individual. We are not abolishing tax credits. Indeed, they will still remain and the companies tax will still be imputed to the shareholders.
The noble Lord, Lord Marsh, in particular, made considerable oratorical reference to the latter as if it were some great immorality as well as a lack of wisdom. It is not simply a question of whether we need the
As someone who ran a small business for 30 years, I find it rather amusing that the Labour Party should be told that it has no business people. I believe that the phrase used was "business men". Indeed, when I look at my noble friend Lord Simon of Highbury and at the role played by Mr. Martin Taylor, and at the many distinguished business people who are gladly involving themselves in the project of this Government, it seems to me that some noble Lords on the Opposition Benches are a little less representative of business thinking than they believe themselves to be. I give way to the noble Lord.
Lord Mackay of Ardbrecknish: My Lords, I am much obliged. I am sorry to interrupt the Minister again, but he did mention his noble friend Lord Simon of Highbury as being a serious businessman; indeed, he is. Has the Minister any comment on the remarks that I quoted from a letter written by the noble Lord, Lord Simon, when he was the chairman of BP as regards ACT? It seems to me that he did not much approve of it.
Lord McIntosh of Haringey: My Lords, as the chairman of that company, my noble friend Lord Simon was producing a covering letter on the participation by his chief executive in a deposition from a large number of companies. It was in the form of a covering letter that my noble friend Lord Simon made his observations.
Following on from the pension issue, there is a valid point to be made about foreign income dividends. Indeed, it is a valid point to say that in certain circumstances it would be possible for surplus advance corporation tax to build up and for there to be no way to deal with it. However, I should emphasise that no changes will take place on foreign income dividends before April 1999. Even then, we have agreed that there will be special rules for international headquarter companies and that during that period there will be extensive consultation on the issue of what will happen about foreign income dividends.
I shall move on now from pensions and foreign income dividends to the question of the windfall tax, which again has aroused a great deal of antagonism. I rather think that today's debate has been held a month too late for those noble Lords who feel so strongly about it. It would have been legitimate to speculate at the time of the Budget that this might be enormously damaging to prices and to investment by the privatised utilities and
Four weeks after the Budget it is clear that we calculated the windfall tax correctly and that it is a proper reaction to the under-pricing of the privatised utilities at the time of sale and inadequate regulation in the immediate succeeding period. I make no apology for the basis on which the windfall tax has been calculated. I certainly do not acknowledge that the windfall tax will lead to any significant economic disadvantage.
As I said, I would love to follow my noble friends into some of the wider speculation on the economy. I, of course, acknowledge the damage that could occur from a high pound. I agree with the noble Lord, Lord Ezra, that what he described as a short-term problem could, if it were badly managed, become a longer-term problem and that would have a greatly damaging effect on our manufacturing industry because of a poor balance of payments position. The Government recognise that as well as anyone else. We recognise the limitations on options that are available to us. I notice that no one who said that we should not have a high pound has put forward any concrete suggestions as to what should be done about that.
I notice that no one who criticised the interest rate policy did anything other than observe that interest rates continue to rise, as they did in the final nine months or so of the Conservative Government. I do not question whether interest rates should rise by a large percentage or slowly by a quarter of a per cent. but whether interest rate changes should be made early rather than late. I suspect that some of the difficulty that we are now experiencing results from the fact that the previous government refrained, on I believe six occasions, from agreeing with the Bank of England on interest rates. The result is that interest rates may have moved further than would otherwise have been necessary if remedial action had been taken in time.
I wish to reply to the point made by my noble friend about the rich and the poor and the trickle-down effect. If he looks at the Budget he will find that rather than seeking redistribution through the taxation system we are seeking through the taxation system to increase the spending power and the self-respect of poorer people in our society by providing them with opportunities for work and for getting off welfare. In terms of the decent society that he and I care about, that is the most practical way to proceed at the present time. That is direct action on poverty of a sort which is simply not possible in fiscal terms.
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