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Finance (No. 2) Bill

My Lords, I am most grateful to the noble Lord. I apologise. I had a guest and I had to leave the Chamber. I missed his speech but I look forward to reading it tomorrow. I have apologised to my noble friend Lady Noakes for the same thing. I am sorry, but that will simply not wash. In the 1980s, the Finance Bill was 157 pages; it is now nearly 600 pages. I do not know whether the noble Lord has looked at this Bill but, for example, there are pages and pages which are all about trying to close the loopholes on film partnerships. Part of the answer might be not to have special schemes for making films at all, but to broaden the tax base and lower the rates. Then we would not need all this complexity in the system and we would not have all these highly paid people in the City going around telling people that they really want to invest in the next issue of ““Coronation Street”” in order to avoid tax. The problem arises from the complexity of the system. We have a Chancellor who is a meddler; he is a controller who wishes to do everything from No. 11 Downing Street. Not only is he not content with interfering with the tax system but he has now decided to become part of the welfare system, so we have the Chancellor of the Exchequer and the Treasury now involved in disbursing benefits. That is something which the noble Lord, Lord Barnett, would never have countenanced; he would have had the Treasury there to police expenditure, not to be involved in the business of doling out the expenditure. The Chancellor has added to the complexity and that is why I very much welcome the establishment of the Select Committee on Economic Affairs and the excellent report produced by the noble Lord, Lord Wakeham. Far from saying this House should have less of a role in these matters, it needs to have more of a role because—although it is perhaps not evident to some Members of the House of Commons—there is a good deal of expertise in this House which could perhaps help to avoid some of the difficulties. I think the noble Lord, Lord Barnett, argued that the Bills are bigger now because there are more non-sexy bits, but Tolly’s tax manual has also doubled in size since 1997; it is now 9,000 pages as opposed to 4,500 pages. It is not only both Houses of Parliament which are struggling with this but also the Inland Revenue. The Inland Revenue’s administration costs have gone up from £1.6 billion in 1997 to £2.8 billion today. That is an increase of £1.2 billion. The total cost of administering all this is nearly one penny on income tax. Complexity matters because it adds to the compliance costs for business and individuals. Uncertainty also matters. When noble Lords make speeches such as the one made by the noble Lord, Lord Rosser, people start to wonder where the line lies. What is going to happen tomorrow? Can we rely on this Government not to use administrative means to extract tax which is not due? If people think that this country has become that kind of place to do business, they will go to Holland or other countries which have learnt the lessons. That is the real damage. It is vital to competitiveness that the tax burden is low and that the system is transparent, stable and has simplicity. A number of references have been made to the Chancellor removing rates and creating new ones and adding to the complexity. He has increased the burden of tax from 38.9 per cent of GDP in 1996 to 42.2 per cent in 2006. That is an extra £40 billion; that is £1,600 per household. This extra burden of taxation has to be paid for, and it is paid for in a reduction of growth in the economy. Every pound that the Chancellor takes costs more than a pound to obtain. Therefore, if a pound is not taken in tax, more than a pound’s value is added to the economy overall. Only the Chancellor thinks that he can pay the administrative costs of taking the money out of the pockets of people and then spend it more efficiently than they can in the market place. He should reread Gladstone on the benefits of allowing money to fructify in the pockets of the people. The sadness of all this is that other countries have learnt from our experience. When my noble friend Lord Wakeham was in the Treasury and my noble friend Lord Lawson was busily dismantling the high barriers to competitiveness and reducing taxation, other EU countries saw that it worked and they have reduced the burden of tax. My noble friend Lord Trenchard has explained what that has meant in terms of numbers and impact. In 2000, there were only two EU countries with lower tax rates than the UK; today there are seven. On corporate tax, there are 14 compared to seven in 2000. As my noble friend Lady Noakes said, according to the World Economic Forum we have slid down the table of world competitiveness. Does the noble Lord, Lord Prosser, realise that the top 5 per cent of earners account for 51 per cent of income tax receipts? Were we to reduce the top rate of tax—heigh-ho—the revenues would go up. How do I know that? Because it happens in every other country of the world where they do this, including ourselves in the 1980s. The lowest 50 per cent account for 11 per cent of receipts. The experience is clear: why is it that we have a Treasury which is so insistent on maintaining a fixed-model view of the economy? We need a dynamic model of the economy so that the Treasury can forecast the real impact of tax changes. If the Treasury is not prepared to do it, someone should follow the excellent advice from the TaxPayers’ Alliance and set up a unit so that we can have an analysis of the effects of tax in a dynamic way. People do not understand that reducing tax will increase revenues for the reasons I have indicated. So we have too much tax, too much law and too little scrutiny. We need reform. Someone said earlier in the debate that they were worried that this House was getting involved in matters which should be the exclusive preserve of the House of Commons—which only managed to look at 1 per cent of the Bill—but why should the Chancellor, uniquely, unlike any other Secretary of State, have the right to as much legislative time as he wishes? Why should the Finance Bill provide him with a free ride to run every scheme or eye-catching initiative or idea that he thought of in his bath that morning? The reduction in the small companies’ corporation tax to 0 per cent has been referred to already. It was followed by more complexity to deal with the avoidance problems that were created, and we have ended up back where we started. There has been a huge cost and huge uncertainty, and all because no one was able to stop the Chancellor introducing these measures without proper consideration. Why should he, uniquely, not be required to publish an economic impact statement of the effects of his proposed changes in taxation? For example, tax credits are heading towards a cost of £13 billion. We are not being told the extent of the fraud, but it is certainly more than £2 billion, and a large slice of that money goes to the top rate taxpayers about whom the noble Lord, Lord Rosser, is concerned. The Chancellor is dishing out money to people on £62,000 a year if they have a child under the age of one and taxing them at 41 per cent in the pound. Somewhere, a load of officials are responsible for churning this money. That cannot make sense. Should we not consider how scrutiny could be improved? Perhaps the committee we have already established could be given stronger powers. Perhaps we need a joint committee of both Houses to look at the simplification of our tax system and the hobby horses that the Chancellor rides. I entirely agree with the noble Lord that we should congratulate the Chancellor on the birth of a son. That is very good news. I hope that he takes a very long period of paternity leave; if he is not in 11 Downing Street, that is very good news for British business and the economy, because he will not be thinking up new schemes and tweaks to add to next year’s Finance Bill.