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Finance Bill

We have had a salutary reminder from the hon. Member for Newcastle upon Tyne, North (Mr. Henderson) that the great thing about economics and finance is that everything affects everything else. I will try to be a little more focused on the Finance Bill itself but, since he has given us the invitation to talk about macro-economics, I should pay tribute to the Government, as there is no doubt that their track record on macro-economic stability is a very good one. We are all in favour of macro-economic stability, which has been the happy result of the Chancellor’s granting of independence to the Bank of England and of the framework for fiscal policy that has been pursued, including the golden rule. As for the economic record, it is worth pointing out, before Ministers allow hyperbole to get the better of them, that their record is good but not as stellar as is usually claimed. In fact, no fewer than six of the other old European Union countries have grown on average more rapidly since 1997. Embarrassingly for the Conservative party, perhaps, five of those countries are in the euro area—Finland, Ireland, Spain Greece and Luxembourg. Unemployment is far too high across the continent and particularly in the big three economies of Germany, France and Italy. However, unemployment is primarily the result of national labour market policies, which is why its pattern varies so much from one country to another. Those countries such as our own that have embarked on the process of structural reform and have made their economies more flexible have been rewarded with a good growth record and a good fall in unemployment; a third in the case of Spain, a quarter in the case of Finland and a half in the case of Ireland since 1997. If a little more modesty is in order on macro-economics, a good deal more modesty on micro-economics is in order. In the period since I started looking at the British economy, the boom and bust in the housing market has repeatedly been the ghost at the feast. Yet what have the Government done on the housing market? Ministers disparaged my hon. Friend the Member for Twickenham (Dr. Cable) when he first warned of the consequences of another house price ramp at the end of 2002. I hope that the unwinding of that boom will be less painful than the unwinding of the last one under the previous Conservative Administration, as it should be given the more stable macro-economic environment. However, our household liabilities are now exceptionally high both by our own standards and by those of other countries; we are a nation in hock to our homes. That is lovely and warming when house prices are rising, because the effect of making tax-free capital gains with other people’s money is highly gratifying. However, it is much less comforting when prices stagnate or fall, as they are now doing. That may be one explanation for the sluggishness of retail sales that has been widely reported and which may begin to have an impact on the underlying finances that we are addressing in this Bill. Perhaps concern about the end of the feel-good boom in house prices and on the high street is one reason why the Finance Bill signally fails to correct a taxation error that will come into effect on 6 April 2006 and on which the Paymaster General has provided a partial defence to criticisms. Under the provisions of self-invested personal pensions, anybody can invest their personal pension pot in a buy-to-let home and benefit from full tax relief on the money put in, up to a limit of £215,000 a year. Indeed, people can benefit from full tax relief on assets such as vintage cars, wine collections, flats purchased so that children may live in them while at university, and even what my noble Friend Lord Oakeshott of Seagrove Bay pithily described in another place as the occasional jet-to-let property in St. Jean Cap Ferrat. Let us take the example of a successful professional person who decides to buy a £215,000 flat as part of his or her SIPP for a child to live in while at university. No less than £86,000 of the purchase price will be paid by all other taxpayers. The purchasers will be able to sell the flat on in three or four years and pay no capital gains tax because the property is held within a tax-free fund. Those provisions are a serious and imminent threat to the public finances. We will argue in Committee that there must be an amendment if there is not to be an important loss of revenue. I hear what the Paymaster General said—indeed, we should bear in mind the invitation extended by the hon. Member for Normanton (Ed Balls)—that that will not necessarily happen because of other examples of capital gains tax taper relief not coming home to roost.