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Finance Bill

My Lords, I am delighted to follow the noble Lord, Lord Newby. We agree with much of what he said. I always seem to follow him in these debates, and he always seems to be standing there on his own, but he does so well. Let us hope I can do as well. It has been an interesting debate, with detailed contributions based on a wealth of experience, and enhanced by the maiden speech of my noble friend Lord Hamilton of Epsom. I congratulate him. He is well known to many of your Lordships, and his speech today has made us all hope that we will often hear him in our debates. I particularly appreciated his attitude to the Whips’ Office. I thank the noble Lord, Lord McKenzie, for introducing the Bill, and congratulate my noble friend Baroness Noakes on her response. She covered with her usual skill the web of interrelated issues that are causing concern both here and in the business world. The increasingly important and influential Economic Affairs Committee, now chaired by my noble friend Lord Wakeham, brought out its report in only 27 days, which is quite marvellous. We on these Benches welcome the report; it is a great contribution and this valuable work should continue. We congratulate him and his colleagues, despite the fact that the report almost got obscured today, as the noble Lord, Lord Barnett, seemed to wander off into the political thicket to attack my noble friend Lady Noakes, as she spoke about the Chancellor’s fiddling of his golden rule. I am sure that the many comments he has heard, including those from the noble Lord, Lord Newby, only reinforce the fact that she was right to do so and was not being ““ultra-political””, as I think he accused her of being. My noble and learned friend Lord Howe spoke of tax rewrite and simplification. I will listen with interest to the Minister’s reply to his question on behalf of the IFS about what happened to the promised legislation to integrate the tax appeals system now that the Revenue and Customs departments have been merged. My noble friend Lord MacGregor spoke chillingly, I thought, of Railtrack, the shareholders’ court action and all that that is revealing. He endorsed the call from   the Conservative Party for an independent fiscal projections committee, a call echoed by my noble friend Lord Trenchard—and, I think, by the noble Lord, Lord Newby. My noble friend Lord Northbrook gave an excellent summary of our problems with this Finance Bill, and so I will not, in the time available, take up too much time talking about everything in general. I shall stick to a couple of points and key issues. One theme has been mentioned in one form or another by many this afternoon. It can be recognised by those of us who take part in these debates as an old friend, and was also an issue of heated discussion in the   other place. That theme is particularly close to the heart of my noble and learned friend Lord Howe: the need for tax simplicity. We must all be thankful that the election has at least resulted in a split and slimmer Finance Bill than last year’s mammoth—indeed, record breaking—634-page Act. As my noble and learned friend pointed out, however, it is just as complicated as ever, and focuses predominantly on tax-avoidance provisions. The chartered accountants have described our tax law system as ““spiralling out of control””, while David Martin from the Centre for Policy Studies has called it ““obscure and ramshackle””. Where are the Government going with all of this? I can tell your Lordships one way. Only one sector will benefit if the Chancellor continues in this vein: the professional services market. Membership of the Chartered Institute of Taxation has risen from 9,000 to 13,000 in the last decade, while, in the last five years alone, the Inland Revenue’s budget has more than doubled in real terms. In effect, taxpayers are suffering a double hit. They are paying for professional services to advise them through the mire of paperwork needed to ensure they are paying the correct amount, while the public purse is spending increasingly more to manage the complex system and layers of regulation that have been put in place. Yet the Government still refuse to grasp the nettle of simplification. In another place, my honourable friend Mark Field proposed a new Clause 4, in the final stages of the Bill, that required the Treasury to prepare and present to Parliament a proposal for the establishment of a tax law commission to act in parallel and to complement the work of the Law Commission. This was not even a commitment to establish such a commission, merely to look into a proposal. The idea was founded in 1977 by   my noble and learned friend Lord Howe, and highlighted again in his Hardman lecture in 2000. As my noble and learned friend has explained this evening, he proposes a two-pronged approach to operate alongside the rewrite process: a reduction in the volume of new tax legislation, and a project to tackle simplification on a systematic and detailed basis. I think your Lordships will agree that we have seen neither from this Government. It was never the intention of the rewrite project itself to achieve simplification of the tax system. Indeed, Roger Kerridge, professor of law at Bristol University, has stated:"““the rewrite, by itself, reproduces existing law, however absurd, however illogical. It does not involve change””." I hope the Minister will agree that what the rewrite has demonstrated is the imperative need for simplification to rise up the agenda. Will he reinvestigate my noble and learned friend’s idea, which received strong support in the Budd committee’s report? One potential method of simplification raised by my noble friend Lord Patten, in an Unstarred Question last month, is the introduction of flat taxes. This has already been mentioned by my noble friend Lord Hamilton of Epsom in his maiden speech, and again by my noble friend Lord Northbrook. Flat-tax systems, as many of us know, have been successfully introduced in Estonia, Lithuania and Latvia. Russia, Serbia, Ukraine and Poland have all been quick to follow suit. A flat-tax system could be a great incentive to investment and the starting up of new enterprises. Arguably, it is simple, transparent and, in the words of my noble friend, ““makes self-certification child’s play””. Research by the Adam Smith Institute has highlighted the progressive role of such a tax system. It could lift a large number of low-income taxpayers straight out of the system, reducing dependency on the current complex means-tested income-related credit systems that is socially, economically and politically undesirable. What steps have the Government taken to investigate potential implementation and effect of flat taxes in this country? The heavyweight and much-respected reports from the Parliamentary Ombudsman and the citizens advice bureaux condemning the present tax credit system are the most recent examples of the dreadful mess that can result from a tax system that is too complicated for both the individual and Her Majesty’s Revenue and Customs to operate. We on these Benches know it is time to return to a system that is certain, efficient, competitive and fair; one that makes it harder to avoid tax and increases transparency and democratic scrutiny. This country needs better legislation which leaves the British people free in their day-to-day lives. We on these Benches believe that the only way to work towards this, as my noble friend Lady Noakes has so convincingly said, is to make simplicity the new foundation stone on which we build.