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Finance Bill

My Lords, I, too, congratulate the noble Lord, Lord Hamilton of Epsom, on his maiden speech. As secretary of the Yorkshire and Humber All-Party Group of Peers, for a moment I was looking forward to welcoming him to our group, believing that perhaps he was a closet Yorkshireman. However, in view of his wearing the white rose, we may perhaps make him an honorary member, if not a member by birth. I welcomed the noble Lord’s comments on the need to simplify taxation. It is a pity that he was not in your Lordships’ House when we had the debate on a flat tax, which the noble Lord, Lord Patten, recently initiated. No doubt we will discuss that issue on a number of future occasions and that debate was a good introduction to it. I say to the noble Lord, Lord Northbrook, although not to answer the question he posed to the Minister, that the challenge to everybody who is in favour of a flat tax, if it is to be revenue-neutral and at a level which is deemed acceptable is to explain which allowances you are going to abolish. The kind of allowances that one might logically abolish, such as those on ISAs, pensions or grant aid, are generally thought to be desirable, either to promote savings or for other public policy purposes. So, while the flat tax has some attractions, it does pose some intellectual and practical challenges, to which no doubt we shall return. I suspect that this debate will represent the end of an era. It is the last major economic debate before the Government have to admit that they have not met their economic forecast. When I hear the Minister say, as he and his predecessors have said over the years, that growth is ““in line with government forecasts””, I think that he should savour that phrase as it may be a while before he can use it again. The evidence for the slow down in the economy is accumulating inexorably. The consensus forecast a few weeks ago was that growth this year would be about 2.4 per cent. This week the British Chamber of Commerce is going to suggest that it will be about 2   to 2.1 per cent. Certainly all the figures suggest that. Wherever you look at the components of growth, the situation is poor. On manufacturing, output in the   three months to May was 1.9 per cent below the previous three months. For the first time since 1980 all 13 manufacturing sectors fell. On services, the BCC survey on 14 July showed weakening across the board. On jobs, the claimant count has risen for five months. On housing, Bovis claims that its prices were down 10 per cent in the first half of 2005. On any view, at best, house prices have stalled and are probably falling generally. Retail sales, as everyone knows, are very flat. Looking forward, what prospects are there of these trends being reversed in the short to medium term? Consumption over the past four years has constituted over 80 per cent of the cumulative increase in demand. All the evidence is that that is likely to remain subdued. Household savings are already at a historically low level at 6 per cent of disposable income; the ratio of house prices to earnings is at an all-time high; and household debt, about which we have spoken on many occasions, is now 155 per cent of disposable income—up from 117 per cent in 2001. It is the highest in the G7. Common sense suggests that this level of debt in uncertain times is likely to fall rather than to increase as people adjust their expectation and consumption patterns. If personal consumption is likely to remain subdued, it is pretty clear that government consumption will certainly not be able to increase further to take up the slack. Over the past four years, government consumption has risen at a compound rate of 3.5 per cent. While one can argue whether that is too high or low, it surely is not going to rise. How serious will be the downturn? Needless to say the economists are falling out about it. One is either a pessimist and thinks that it will be very serious or an optimist and thinks that it will be serious but not that serious. One person who thinks that it will be serious is the Chancellor of the Exchequer. He is already preparing his exit clauses. His announcement today that he has arbitrarily moved back the start of the economic cycle by a couple of years purely for the purpose of calculating the golden rule absolutely demonstrates that. It makes a mockery of the golden rule. It will, I suspect, dissipate the small amount of credibility that the Chancellor established when he created the rule. The move shows the need for independent scrutiny of fiscal policy, as mentioned by the noble Baroness, Lady Noakes, and a matter which we have discussed on a number of occasions in your Lordships’ House. For far too long the Chancellor has set his own tests and then taken credit for having passed them. He should admit this time that he has made a mistake. Although the NAO will be allowed to audit the Chancellor’s decision, we do not believe that that is enough. We think that the NAO should be handed the responsibility of deciding the start and end dates of the   economic cycle and that it should have access to the Treasury’s economic data in order to do so properly. It is important that the NAO should have this power unfettered. I thought that the speech by the noble Lord, Lord MacGregor of Pulham Market, in which he talked about the pressure brought to bear on ONS in respect of Railtrack, exemplified the point that we on these Benches and the Conservatives have been making for a number of years. On bodies such as the ONS, if the senior people are appointed by the Chancellor, they are beholden to him at every turn, and under pressure will bow to his will. Frankly, that is not an acceptable way of doing things. The Chancellor has also announced that he is going to delay the spending review for a year. A number of completely ridiculous suggestions have been made about why he is doing that. I think that he may be making a rod for his own back. What he is saying is that the current planned increases in expenditure, which are considerable, will be allowed to run to 2007–08. So, if he does find himself, in difficulty under the golden rule—he is likely to do so, despite having moved the goalposts—he could keep it only by raising taxes. By pushing the point at which he can have flexibility on the expenditure front, it seems that he may have boxed himself in. Incidentally, I do not think that either he, or we, should adopt the new Barnett formula, which is: ““When under pressure, relax the golden rule””. I suspect that if that suggestion had come from these Benches we would have been accused of being profligates. On the Finance Bill itself, the leitmotif, if you like, is the question of tax avoidance. I very much agree with what the noble Lord, Lord Rosser, said about one dog which does not bark in the Finance Bill; namely, the situation in respect of self-invested personal pensions. There is growing evidence that the way in which people are being encouraged to include buy-to-let housing, vintage cars and wine collections in SIPPs will lead to a significant—I was going to say ““drain”” but noble Lords will know what I mean—on the tax revenues. It seems to us that SIPPs should include more exotic assets and that regulations should postpone the inclusion of residential property until properly constituted and regulated real estate investment are available. The rest of the anti-avoidance provisions are dealt with largely in the report of the Select Committee on Economic Affairs. Having sat on the committee for the two years previous to this one, I read the report with considerable interest. I congratulate the committee on providing and producing a report in such a timetable. The report shows both the strengths and the weaknesses in the way that we currently deal with the Finance Bill in your Lordships’ House. The strengths are obvious. It is a thoughtful and considered report and it makes measured suggestions which any sensible Chancellor and revenue department will take up. Its weakness is that in the time available it is able to look at only one aspect of the Finance Bill. Again I paraphrase the noble Lord, Lord Barnett: ““Is anybody listening?””. The idea of the noble Lord, Lord Wakeham, writing to the Chancellor saying, ““Would you please like to invite us round for tea?”” is charmingly English. Perhaps the Chancellor might do so. But the idea that the Chancellor is going to respond positively to the suggestions of your Lordships’ committee, given his track record, is, I fear, fanciful. I have a suggestion as to how we can improve your Lordships’ consideration of the Finance Bill, which would get around this problem. For a number of years I have been advocating the idea of splitting out the main tax measures in the Budget—that is, the rates and scope measures—from the tax administration measures, and having a taxes management Act. This Act could be consulted on in advance, and could be considered, both here and in another place, for longer. The normal Treasury response to this suggestion is that it is impossible to split the Finance Bill between the two types of measure. However, that is exactly what has happened this year. The Finance Bill produced before the election had all the rates in it, while the Finance Bill being considered at the moment has virtually none of that—it is all tax administration. Unwittingly, the Treasury has proved the point that it is possible to divide tax matters into revenue-raising and the way in which the system works. If we did that, this House would then be able, under the conventions and the Parliament Act 1911, to scrutinise and amend the provisions for the management of taxation, just as it was able to amend the way in which Her Majesty’s Revenue and Customs will collect taxes. I put that forward as a modest suggestion for the Government for the future. We wish the Finance Bill on its way today, and we look forward to coming back to more robust debates on the state of the public finances in the autumn.