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Lord McIntosh of Haringey: My Lords, before the noble Lord moves on from that point, I would, of course, refer to the matter in my closing speech but I believe that I had better not do so. I should apologise to him now. I did not check the OECD publication myself before signing the Answer. I should have done so and, if I had checked it, I should have realised that the information was not available in a sufficiently appropriate form to answer the noble Lord's Question properly. If he puts the Question again, he will receive a proper answer in public.
Lord Marlesford: My Lords, I thank the noble Lord very much for that generous apology. I do not believe that he needed to apologise because, as I said, he has been grossly over-worked. He is probably one of the most over-worked Ministers in this Government and I believe that he performs amazingly well in answering all our questions.
In deciding on direct and indirect taxation vis-a-vis Europe, indirect tax presents a particular problem, but one which, in a sense, is self-solving. We hear a great deal about the differences in the excise duty on alcohol. The simple answer is that the Treasury must seek to maximise the revenue from alcohol taxation. If it decides that to maximise revenue, it is in general better to keep the rate of excise duty as it is, that is fine by me. Thus in a free trade area, there is a natural self-adjustment in indirect tax rates.
I believe that I have almost exceeded my time and I apologise to the House. However, I want to say what a long way we have moved from the days when JK Galbraith produced The Affluent Society, the objects of which we agreed with so much. To some extent, the Government are trying to achieve some of those objects. However, Galbraith believed in a very different tax regime.
Perhaps I may take a moment longer of your Lordships' time. An interesting book, Between Friends, was published to celebrate the 90th birthday of John Kenneth Galbraith. It contains various essays. Perhaps I may quote from one by Will Hutton:
Lord Tomlinson: My Lords, I believe that it is clear that the procedure for debating a Finance Bill in your Lordships' House is somewhat unusual and, like other noble Lords, I find it rather unsatisfactory. Therefore, I hope that, as we proceed to look at our future structures, with or without the benefit of a management consultant, we examine explicitly how we better exercise our role in relation to Finance Bills. I hope that that can be considered of their remit.
Even the most superficial examination of the Government's Annual Report and the Comprehensive Spending Review shows that the economy of our country is safe in the hands of my right honourable friend the Chancellor of the Exchequer, Gordon Brown, and the Government. The Government's Annual Report shows clearly that our sustained low inflation rate of 2 per cent is comparable with anywhere in the European Union, that unemployment is at its lowest level for 20 years, that tax and benefit changes will have lifted 1.2 million children out of poverty by 2001 and that business conditions are well served by the platform of economic stability that has been created. We have the best business conditions for a generation, with economic growth at 2.75 to 3.25 per cent and forecast to continue in the range of 2.25 to 2.75 per cent. We have done that with sustained increases in productivity.
Against that background of low inflation and sustained economic growth, there have been remarkable economic transformations. Debt has been repaid and unemployment reduced to such an extent that one statistic bears constant repetition. Between 1979 and 1997, debt interest, unemployment and the cost of social security benefits accounted for 43 per cent of all public expenditure. In the coming three years, the Comprehensive Spending Review foresees that figure falling to 17 per cent. That release of 26p in the pound of public expenditure from the wasteful uses of failure to make positive investment in the social and economic fabric of our society is very important. The budget deficit of £28 billion that was inherited from the previous government has been eliminated. This year, £18 billion of debt has been repaid. By 2003-04, the annual cost of debt servicing will be £5 billion less than it was in the last year of the previous government.
Those remarkable achievements form a background to the Comprehensive Spending Review--a review that everybody who loves our country and its people should welcome. I shall not go through the details of the spending review, because they have been well rehearsed, but there have been increases in spending on essential services such as education, health, transport, the fight against crime and developing the New Deal, which has done so much to rescue young
However, there are two worrying aspects of our economic position: the long-term effects of the sustained strength of sterling and the higher interest rates that we bear in comparison with our competitor countries, particularly those in euroland. In the long run, those issues must be addressed. I hope that, in the fullness of time, the Government will be able to decide that the Chancellor's five economic tests have been satisfied and that they will conclude that there is a successful single currency in operation in euroland and that it is in our economic interests to join it.
That is a decision that only the Government are in a position to make first. It will then have to be confirmed in a referendum, when the case will need to be clearly put and cogently argued. If my noble friend the Minister uses the same skills in that campaign that he deployed in speaking to the Bill this morning, it will be of singular benefit to public understanding.
It is axiomatic that we must enter the single currency at the right exchange rate. If we do, the disadvantages that British industry and commerce suffer from a floating pound will disappear. We have no other choice: either we continue with a floating pound or we enter a full currency union.
We are all aware of the benefits of a large single market, but for those benefits to be fully achieved the single market requires a single currency. That will increase trade and reduce investment risk by increasing price transparency and eliminating exchange rate fluctuations.
Globalisation and the free movement of capital increase exchange rate fluctuations and the transactional costs of business. As capital flows more rapidly around the world, medium-sized countries such as Britain are highly exposed, with potentially highly damaging effects. With a euroland of 12, Britain's position is seriously exposed. Manufacturing is beginning to shift to the EU areas of currency stability. I disagree profoundly with the noble Lord, Lord Marlesford, who thinks that we can ignore manufacturing and somehow manage quite well as a country without it. Small as it now is, our manufacturing base is of fundamental importance, particularly to the regions that have suffered most from historically high unemployment.
Lord Marlesford: My Lords, I certainly did not say that we could ignore our manufacturing base. I said that there has been massive restructuring in which many manufacturing jobs have gone, but we are still in
Lord Tomlinson: My Lords, I am pleased to hear that and I withdraw what I said. I had understood the noble Lord to have at least implied that the economy could manage quite well without our manufacturing industry. I look forward to reading his speech in detail next week, when I have an opportunity to look at Hansard.
Manufacturing is clearly beginning to shift to the EU areas of currency stability. Were we to remain outside in the long term, British predominance in wholesale financial services would also be prejudiced. It is evident that our influence will increase if we are in the euro and will wane if we are outside it.
Britain within the euro will sign up to the growth and stability pact. Those who see it as a threat are living in an unreal world. The conditions in the pact are the simple, normal, prudent mechanisms that my right honourable friend the Chancellor of the Exchequer uses to control our public expenditure, regardless of whether we are in the euro. Euro-sceptics told us that the euro would never be agreed; it was. They said that it would fail; it has not. They argued that it would break up. That is the same sort of unfounded Euro-sceptic optimism that led some to believe that people would vote to leave the European Community in the 1975 referendum.
Of course, the euro is currently weak, but it is a weakness relative to the United States dollar and to the pound sterling. The United States and Britain are near the peak of a boom, while many euroland economies are just emerging from recession. That has made our interest rates higher, has raised demand for sterling and the dollar, and has been the main influence of the value of the euro.
The British economy is strong and well managed, on which I congratulate the Government. However, sterling is too high to sustain long-term, and interest rates are too high for our long-term competitiveness. These problems must be addressed. Joining the single currency when it is the right conjuncture of circumstances to do so will address these problems and will form the basis of our economic well-being to continue in future inside a successful single market. It is on that basis that I again congratulate the Government and look forward to the continuing economic progress that will lead them to come to the necessary conclusion that I believe they have to make, so that we can get on with winning the case in a referendum.
Lord Simon of Glaisdale: My Lords, when I intervened in a debate on last year's Finance Bill, when, like today, so many experts spoke, I felt it incumbent upon me to apologise for the fact that I had been so long divorced from public finance. Obviously the passage of a year has not improved my recommendation. In those circumstances, I do not
There is another way in which the Government clearly have to consider the economic cycle. One of the reasons for caution about joining the single currency, to which the noble Lord so cogently referred, is that the economic cycle in this country is out of phase with that of Europe. The Government therefore have a view on where we are in the economic cycle.
The Chancellor of the Exchequer sometimes seems to take as his motto, "I am Sir Oracle, and when I speak let no dog bark". That may be sufficient for his Cabinet colleagues, but the general electorate cannot be expected to put up with it. We must be let into the secret. There are two reasons for that: one is external; the other internal. The external one, to which I have already referred, is that we must know whether we are converging on Europe cyclically. I take the view that recent policies have placed us in the opposite direction. The second reason arises out of the present day splurge, to which the noble Lord, Lord Tomlinson referred, although, I hasten to add, not in those terms. The Chancellor is obviously running a risk by plainly increasing such expenditure at a faster rate than that of the estimated growth of the economy. We may get away with it. He has had a great deal of luck and, with luck, we may manage that. However, if we have a downturn in the economy, there is not a chance. We shall be in serious trouble. Therefore, I again urge the Minister to let us into the secret.
The second general point to which I want to refer is the North/South divide, which was referred to in passing by the noble Lord, Lord Tomlinson, although he postulated the issue in terms of a manufacturing view. In so far as there was a difference of view--and I think there was--between the noble Lord, Lord Marlesford, and the noble Lord, Lord Tomlinson, I very much prefer the view of the noble Lord, Lord Tomlinson. An economic society cannot exist merely by taking in each other's e-mail. We also need to produce, if only to export and, if only to export further, to import.
I turn to a point that I raised last year concerning the general anti-avoidance rule. The traditional way of dealing with tax avoidance is to try to hit each individual case specifically. This Bill is full of anti-evasion provisions--provisions against fraudulent evasion--and that is serious. However, that is not the problem. The problem is legal avoidance. Again, that has become more immediate with the recent divulgence of the tax affairs of the noble Lord, Lord Levy. Perhaps I may say that it seems to me that the inviolability of a taxpayer's affairs is not simply a matter between the individual taxpayer and the Inland Revenue. It is of general interest that every taxpayer's affairs should be regarded as inviolable. Perhaps I may add that anyone who infringes that rule must know that he is acquiring information dishonestly.
Instead of trying to trace through every avoidance provision, inevitably late, after long loss of revenue, there is an alternative; namely, a general anti-avoidance rule. That exists in Australia and America. It is a rule somewhat on the lines that where a transaction, in whole or in part, has as its paramount object the avoidance of tax, it shall be void for that purpose, although valid for any other.
The Government saw the advantage of that and set up a body in the Inland Revenue to consider a general anti-avoidance rule for this country. It got as far, even further, as sending out a consultation document. But then, mysteriously, that body was wound up. I hope that I am not a conspiracy theorist, but I fail to see any creditable reason for that. The Minister, one of the ablest occupants of a Dispatch Box, failed to explain that last year. If he failed to explain it, there is probably, almost certainly, no creditable explanation. But I hope that he will have another try at soothing our minds.
The last matter that I raise is the question of a local income tax. Nothing could more restore the health of local government than each body of local government having its own funds and not having to look to the Exchequer.
I have received advice from two great experts on local government finance, one on the Conservative side and one on the Labour side. I cannot say their names because one of them gave me his information in the Bishops' Bar, which should be at least one place in Westminster which does not leak. But I am led to believe, on authoritative advice, that although the Layfield Committee was attracted by a local income tax, it held at the time that it was administratively impossible, or at any rate difficult. But I am led to believe that with modern technology, that can now be encompassed. I do not ask the noble Lord to go further than to say that the matter should be considered. I hope that the noble Lord, Lord Kingsland, will also give it a fair wind.
Lord Barnett: My Lords, I hope that the noble and learned Lord will forgive me if I do not follow, except to say that I am not madly in favour of a local income tax and I did not speak to him in the Bishops' Bar. That was not me and I plead not guilty.
The noble Lord, Lord Saatchi, opened the debate from the Opposition side on the question of scrutiny of the Finance Bill. That is an issue for which I have great sympathy and, as he knows, I have considerable concern about how we do not scrutinise Finance Bills.
I want to congratulate the noble Lord on the extent of his research assistant's research. The depth of it was astonishing. We were told how many hours are spent in the other place on Finance Bill committees. I did that for many years and I compelled others to do it when I was Chief Secretary. I found it astonishing that he had carried out that research and I congratulate him on that.
How do we better scrutinise Finance Bills, especially huge ones like this, and they are getting bigger and bigger? They need to be scrutinised. We have Members of your Lordships' House who are capable of giving those Bills serious scrutiny.
I am sorry to tell the noble Lord--and I know that I have told him this before--that it is not just the present Government but all governments, Conservative or Labour, are not very happy about giving greater power to your Lordships in relation to the scrutiny of Finance Bills. I plead guilty. I was not happy about that idea then. But that is not to say either that I was right or the noble Lord is right now in the depth to which he suggests we should go in subjecting the Bill to that kind of scrutiny.
He referred to the noble Lord, Lord Norton of Louth, whom I am glad to see in his place. I read with enormous interest the report of the noble Lord, Lord Norton, which included a paragraph on financial scrutiny. He put forward a couple of excellent suggestions. He said:
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