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Lord McKenzie of Luton: My Lords, it is a particular pleasure, now in accordance with established practice, to follow the noble Viscount, Lord Trenchard. I did not want to return extensively to imputation credits and rates of corporation tax and their reduction. But that must be looked at in the round with what happened in the earlier period of the Conservative government with the reduction of first-year allowances, accompanied by reductions in rates of corporation tax, to see the effective rate of tax that companies then bore.
I welcome the Pre-Budget Report, which is a robust account of the impressive economic record of the Government. It is a record that has underpinned the substantial improvement in our public services. I should
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like to concentrate my remarks on certain taxation issues, particularly bearing in mind the charge of "66 stealth tax rises", which was reiterated in another place by the Shadow Chancellor, Oliver Letwin. Curiously, it was referred to in the debate on the previous Bill about half an hour ago. In doing so, I am mindful that the setting of taxes is the prerogative of that other place, although the impact of taxation policy and the manner in which it is interpreted and portrayed is reasonably within our purview.
I have been bemused by this stealth taxes charge for a little while, so I sought out this list of 66 to better understand what is included. It can be found in a document that is promoted on behalf of the Conservative Party. It makes interesting reading. I shall comment on some of the items shortly.
We have heard before, and will doubtless hear today, the clamour for an independent review of Government projections, but sight of this list should cause us to call perhaps for the policy statements of opposition parties to be subject to impartial scrutiny to determine whether they are objective and fair.
If we are to have an objective discussion about taxation policy and the performance of the Government, we should look at those matters in the round. Surely that should recognise where taxes have been reduced as well as where the burden has been increased. It is not possible in the time available to chart all of the tax reductions introduced since 1997, but we might remind ourselves of some of them.
The legacy from the outgoing Conservative government was a corporation tax rate of 32 per cent, which is now 30 per cent; a small companies rate of 24 per cent, which is now 19 per cent; a basic rate of income tax of 24 per cent, which is now 22 per cent; and a lower rate of income tax of 20 per centthere is now a starting rate of 10 per cent.
We have seen under this Government the introduction of the child tax credit, the working tax credit and the pension credit. R&D tax credits have been introduced for a range of companies and expenditure, including R&D spend on drugs and vaccines. Tax relief by way of enhanced capital allowances has been introduced in a range of circumstances, including investment in environment-friendly technologies and low-emission cars.
VAT has been reduced on such items as children's clothing, vehicles adapted for people with disabilities, the clearing of contaminated sites and the installation of energy-saving measures. Stamp duty has been abolished on property transactions in enterprise zones and for certain intellectual property transactions. The introduction of the taper has significantly reduced the capital gains burdens, particularly for business assets. There is more, but none of this is acknowledged by opposition parties in juxtaposition to their list of alleged tax increases.
So what is on the list? A raft of the so-called stealth tax increases are in fact anti-avoidance measures. For exampleit is on the listthe denial of the opportunity for some, typically the wealthy, to escape UK capital gains tax by a temporary period of non-UK residence
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may well increase the tax burden for a few, but I doubt whether the voting public would consider this to be an imposition they would wish to see reversed. Perhaps the noble Baroness, Lady Noakes, will tell us whether this is a change of which she approves or disapproves.
Next the withdrawal of the ability of some professions to report profits on a cash rather than on an accruals basis shut down a major tax planning opportunity for some and created a level playing field, particularly for those carrying on a trade. Is it Conservative Party tax policy to reinstate this privilege for these professions?
Several references are made on the list to proposed tax increases arising from changes to controlled foreign companies legislation, but those changes are targeted at preventing UK companies sheltering profits in tax havens or low-tax territories. As these changes are clearly deprecated by members of the Opposition, do they propose to reverse them? And what about the measures aimed at stopping certain tax advantages from manufacturing dividends and the abuse of double tax relief provisions? Would they really say that these are fairly characterised as stealth taxes? Where do they stand on legislation enacted to prevent the avoidance of VAT and stamp duty? Would they challenge the Government, or do they see such provisions as measures of fairness which protect the boundaries of the tax system and which should be applauded?
The inclusion on the list as a stealth tax of provisions relating to landfill tax and the escalator is especially shoddy. These have been emphatically declared as a key part of the strategy to improve waste management. There has been no lack of transparency on the part of the Government on this matter.
Similarly, as a matter of public policy, in successive Budgets the Government have increased tobacco duties in real terms. This policy has been stated explicitly on numerous occasions. Why, therefore, does the Conservative Party claim that people are let down by Labour on this matter? Would a Conservative government, should there ever be one, continue with this approach, or not? Would they promote real increases in tobacco duty, or not? It is clear that, even on a cursory analysis of the list, this is a gross distortion of the Government's record on taxation.
The Pre-Budget Report sets out the data on tax, and in particular tabulates net taxes and national insurance contributions as a percentage of GDP. These are 35.6 per cent for last year, an estimated 36.2 per cent for the current year, and 37.1 per cent for next year. This puts the current year's projected outturn on this indicator better than half of the years of the previous Conservative government. But not only is it at least comparable, it is also a fairer system because this Government have been tough on anti-avoidance whereas their predecessors often looked the other way. It is fairer because some tax reductions and reliefs have been general and some targeted.
Changes to the tax and benefits system since 1997 have resulted in families with children being on average £1,300 per year better off, with the poorest
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one-fifth of the population being £3,000 per year better off. A single earner family on half average male earnings with two children is £3,700 per year better off. The latest available data for the EU shows the UK to levy taxes as a percentage of GDP that are significantly below the average, both for the enlarged EU and the predecessor 15 countries. All in all, this is a record of which the Government can be proud.
I should like to raise one further point. I applaud the announcements in the Pre-Budget Report relating to the settlement for local government, and in doing so should disclose an interest as a continuing member of Luton Borough Council. The settlement includes the additional £1 billion for which local government lobbied and builds on impressive levels of support in previous years. Since 1997 we have seen cumulative increases in revenue support grant of more than 30 per cent in real terms. I have no doubt that this year Labour-controlled councils will once again lead the way with the lowest council tax increases across the country.
We all acknowledge that reform of local taxation is necessary and no doubt we will have an opportunity next year to consider these matters further. It has always been the case that finding fault with successive local government tax systems has not been difficult, whether the rating system, the poll taxparticularly that taxand now the council tax. The challenge is to determine how the system should be supplemented or replaced.
Certainly any change should proceed only after careful deliberation and analysis, and it is in this regard that I register great concern about the simplistic notion of a local income tax based on the ability to pay. A comprehensive local income tax system would have huge practical ramifications and potential costs for employers both in the public and the private sector. A non-comprehensive, watered-down system has implications for equity. I note that the example of a system promulgated by CIPFA did not include investment income as part of the tax base. Such a system might well be practical, but certainly could not be said to relate properly to the ability to pay. It would favour the rich at the expense of the poor.
If the British people are shortly to be asked to make a judgment about these matters, we are entitled to inquire of those who promote the concept about its broad parameters. Perhaps we may hear today from the noble Lord, Lord Newby, whether the tax base for the Liberal Democrat local income tax will in principle include investment income and capital gains in the tax base. Simplistic slogans will not suffice at this juncture.
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