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Finance Bill

My Lords, I too warmly congratulate my noble friend Lord Hamilton of Epsom on his maiden speech and on joining us here after a brief period away from Parliament. He was an excellent and splendid colleague in the other place and I am sure that he will be so here as well. I do not intend to talk about the tax avoidance details set out in the Finance Bill because my noble friend Lord Wakeham has already done that admirably in his speech, as indeed did the Minister. However, I have to tell the noble Lord, Lord Barnett, that I do intend to talk about the fiscal balance because it forms the very important fiscal background to all Finance Bills. I was a little surprised to hear the noble Lord observe that, in   his experience, Chancellors do not pay too much attention to the detail of Finance Bills. I agree with my noble and learned friend Lord Howe. It is my experience that they did pay attention—perhaps not at the parliamentary scrutiny stage, but in the framing of the Finance Bills. Perhaps Labour Chancellors did not do so, but I can assure the noble Lord that all the Chancellors I knew on our side certainly did. It is therefore a little unfair and sweeping to say that Finance Bill committees in the other place never pay attention to the detail. I suspect that he has forgotten the many hours in the mid-1970s that we spent together in consideration of capital transfer tax. He indicates that he has not forgotten and agrees that it was a pretty detailed scrutiny of the technical detail of a Bill. Where I do agree with the noble Lord is that, because of the pressures and time constraints put on the other place, as well as the lack of expertise, the detailed technical investigation and scrutiny of a Finance Bill often does not take place in the depth and at the length that I think the noble Lord would like to see. Therefore, I warmly welcome what has been said by my noble and learned friend Lord Howe about simplification, and his view that the expertise available in this House should be applied to the task. I hope that his message will be conveyed to the Chancellor. I intend to talk about the fiscal balance not because I think that it introduces party politics into the issue, but because it forms a very important economic background to any Finance Bill. I want to make only one political point. I have to say that beneath all the rhetoric we hear from the Chancellor, I think that we are seeing evidence of old-style Labour—a style best exemplified by the fact that this Government’s spending as a proportion of GDP has risen from its lowest recorded point, at 37 per cent, to a projected 42 per cent now. There are now clear signs that in order to maintain the appearance of prudence that the Chancellor demonstrated in the early years, and which I believe he has now discarded, he has given a number of examples of where he has blatantly changed how the golden fiscal rules are defined and measured. I have not had enough time to look into it, so I do not know what has been said about putting the cycle back by two years as well as what has been said about prolonging the period of the public expenditure cycle. But I suspect that beneath all that, there is considerable concern that the golden rule is now being breached. I want to give a clear example that emerged recently where in my view it is obvious that the golden rule and the way in which it is measured have been very substantially distorted, with pressure on the part of the Chancellor to bring that about. Incidentally, the noble Lord, Lord Barnett, said that he did not think that many people were putting clear proposals and figures on the forecast. As he will know, the Institute for Fiscal Studies has calculated that in order to keep within the golden rule—here I refer to the rule of borrowing only to invest and not to fund current spending—the Chancellor will need to raise taxes or cut spending by the very precise figure of £11 billion a year during the next economic cycle which was going to begin in April 2006. That figure does not take account of the worsening of the economy, to which my noble friend Lady Noakes referred. I entirely agree with the noble Lord’s comments, but I think that the point is more serious than that. I want to give an example of where I think the calculation has been completely altered. As a result of documents disclosed in   the High Court action brought by ex-Railtrack shareholders, some specific examples are emerging on the way that the golden rule is being measured. I want to refer to them because this is a very important point. According to the documents that have emerged in the High Court, David Rowlands, then the department’s director-general for railways, in a memo to Mr Byers at the end of September in the relevant year, wrote:"““The key issue outstanding here is whether we can be absolutely sure that our preferred model—" that is, the model that is now Network Rail, a company limited by guarantee—"““can be classified to the private sector. One way or another, I believe that we can secure private sector classification””." A special adviser to the Treasury, Ms Vadera, called the need to secure classification in the private sector by October 5—a key date—"““the joker in the pack””," and,"““a deal-killer for this weekend at least””." We know now that the Treasury and the Chancellor were putting very strong pressure on the Office for National Statistics to classify the model as being in the private sector so that the amount of money involved—to which I shall refer in a moment—did not count as public expenditure. The position is worse. Another document revealed that a Treasury official, Jeff Golland,"““sent an e-mail to Martin Kellaway, the ONS’ head of public sector accounts, on 17 September 2001, encouraging him to classify Renewco—" the proposal coming from the Strategic Rail Authority—"““as a public sector company. Such a classification would ensure Renewco was blocked by the Chancellor, who would never stand for its debts appearing on the public accounts.""““Mr Golland told Mr Kellaway new data had come to light showing the lenders to Renewco ‘face virtually no risk’””." Mr Golland went on to state what was being requested of the ONS:"““A holding reply today would help. It is very urgent. Something along the lines that you want to reconsider the case in the light of this new information, and that it is possible/probable/likely that PSCC [Public Sector Classification Committee] would consider the borrowing to be on the balance sheet.""““Mr Rowley said: ‘Mr Golland made it very clear the sort of answer he would like to receive’””." If Renewco had to be reclassified as public expenditure, then very clearly that has to be applied to Network Rail, which is even more obviously public sector and public expenditure oriented. I was therefore not surprised to read that the Office for National Statistics, no doubt under pressure from others, was resisting attempts to force it to disclose key documents to the High Court inquiry. I draw attention to that because what many of us suspected is now obvious: huge pressure was brought to bear to reduce the correct classification of public expenditure by the £21 billion involved here. It is no wonder that the Chancellor would not agree to the Network Rail solution unless it was clearly classified as not public expenditure because that would have added another £21 billion. But it seems to me that, by all normal standards, it was precisely that. Through the revelation of the documents in the High Court, the truth has been revealed. The cover has been blown. We now learn that huge pressure was applied to the ONS to produce the solution that the Chancellor wanted. That is why I strongly support the Conservative policy proposal, referred to by my noble friend Lady Noakes, of an independent fiscal projection committee that would, among other things, independently assess the compliance with fiscal rules and would not be subjected to any pressure from government. However, the problem goes slightly wider than that. Let us consider the way in which the figures for PFI projects are building up. I was a strong supporter of the public finance initiative in the early stages, but I always worried about it reaching a huge proportion. It is now building up in a way that would be classified as off-balance sheet financing in the private sector, and the scale of it needs to be properly assessed. Following Enron, the off-balance sheet financing of the private sector has been considerably tightened up as per the accountancy rules. It seems that to some extent, one law applies to the private sector and another to the public sector if the classifications can be fiddled in the   way that has been done. I should like to hear the Minister’s response—he may not be able to give it today—to the documents that have been revealed which, to me, clearly show that public expenditure ought to be £21 billion higher than it is, which has a considerable effect on the fiscal deficit. I should like to spend a moment on another issue, on which I declare an interest as a director of Associated British Foods which owns British Sugar. I refer to bioethanol. Last year in his Budget, the Chancellor reduced road fuel duty by 20p a litre for bioethanol, with effect from 1 January this year. I strongly supported that move, although there is a widespread view that it is insufficient, and I hope that that can be reconsidered in a Finance Bill. Because it is insufficient, it is important to find other ways of encouraging bioethanol use in this country, not primarily because of global warming but to fulfil our target of a reduction in carbon emissions of 20 per cent on the 1990 baseline. We are a long way from achieving that. Transport is increasingly one of the key contributors to carbon emissions. Road transport emissions are projected to increase by nearly 16 per cent by 2010. Five per cent of bioethanol in a litre of petrol gives equivalent carbon savings of taking 1 million cars off the road. It is a very important contribution. Because of the concern that the reduction in fuel duty was insufficient, an amendment to the Energy Bill, which went through this House last year, was proposed by the noble Lords, Lord Carter, Lord Palmer, and myself. Thanks go to the noble Lord, Lord Whitty, who responded so positively to the amendment, which introduced the possibility of the Government being able to apply renewable road transport fuel obligations. That would oblige all sales of road transport to include a proportion of biofuels, something like 5 per cent, and would be similar to the renewable obligation in the energy sector, which is working well. That proposal was accepted by the Government and it is now a practical possibility. No further legislation is required. The problem is that nothing has actually happened. This is becoming urgent if we are to meet the requirements of our carbon emission targets. Worse than that, other countries are getting much further ahead than us. In Brazil, 24 per cent of the proportion of road fuel comes from bioethanol. In the United States, the figure is 12 per cent. Other European member states are moving way ahead of us. In Germany, France and Sweden, the use of a Ford Focus model which primarily uses bioethanol is growing. Spain and Austria are also ahead of us. We now face the sugar beet regime changes which will dramatically reduce the returns from sugar beet. Here is a very good opportunity not only for the sugar beet industry but for UK industry as a whole to contribute towards dealing with the carbon situation. I urge the Minister to make it clear to his colleagues that if the reduction in road fuel duty is insufficient, they should introduce these fuel obligations as early as possible. British Sugar has already placed a contract for the design of the UK’s first bioethanol production facility, which we hope to see in 2007. However, it will depend on getting the right climate for proper usage of bioethanol as a fuel, and I ask for a commitment regarding the date. My main point, however, is in relation to the fiscal balance. I should be grateful for a reply on that.