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Finance Bill

My Lords, I add my congratulations to the noble Lord, Lord Vallance, and the sub-committee Although I serve on the Economic Affairs Committee, I escaped being on the sub-committee because I had been drafted by the noble Lord, Lord Barnett, on to the Barnett Select Committee, which produced an excellent report last week. So here we go again, with another Finance Bill in two volumes—500 pages of stuff. Despite the Government’s commitment to simplify the tax code, having doubled that code, and with us now having the longest tax code in the world—longer even than India’s—we get another 500 pages of stuff. It has come to this House having not been scrutinised properly by the other place and, judging by the Minister’s speech, has not even been fully understood by those who are responsible for the implementation of the legislation. And what are we doing? We are debating the Bill at a late hour on the eve of the time when Members of the House of Commons will disappear with their buckets and spades until October. Given the seriousness of the economic crisis, which my noble friend Lord Lang set out in his excellent speech, it is shameful that we should be reduced to doing this at this hour. Given the hour, though, the Minister will no doubt be relieved to hear that I will resist the temptation to use this as an opportunity to critique the Government’s economic policy. I shall focus on the committee’s report and some aspects of the Bill. The Minister is beginning to get a bit of reputation for not being completely straightforward in taking criticism. In his speech he was keen to point out the parts of the report that praised the Government’s record on consultation, but he neglected to mention the criticism of the consultation process on the shaming of defaulters and on the duties of accounting officers at large corporates. If he is going to raise what the committee had to say about consultation, he should not just pick out the cherries that show the Government in a good light; the point of these debates is to address the criticisms and inform the House what he is going to do to ensure that it does not happen again. The Minister drew attention to the anti-forestalling measures. I do not know if he has had a chance to read the evidence that was given to the sub-committee. I was particularly struck by the evidence from the Association of Taxation Technicians—not a particularly exciting organisation, I would have thought, nor a particularly partisan one, but the criticisms that my noble friend Lord MacGregor has pointed out are searing and scathing, such as those on anti-forestalling. Had the Government not had these anti-forestalling measures, we would have saved no fewer than 13 pages of legislation and 52 pages of guidance. That is what the anti-forestalling legislation that the Minister referred to adds to the tax code. In the evidence, the memorandum from the Association of Taxation Technicians says about the Government’s anti-forestalling measures: ""The Government’s position here is entirely without logic. If they wish to restrict relief to 20 per cent only from 2011, why introduce provisions which in effect apply that restriction immediately? If they truly wish to restrict relief with immediate effect, why not simplify the legislative process by eliminating both the deferral to 2011 and the ‘anti forestalling’ rules? On grounds of simplification alone, surely the post-A Day pensions regime has already suffered enough from needlessly over-complex legislation?"." What are this Government doing if they are not listening to representations of this kind? We heard nothing—perhaps the Minister will deal with this in his wind-up—that dealt with the considerable concerns that have been expressed. I should perhaps declare an interest, as I may well be affected by the changes to the pension regime that are contained in the Bill. Does the Minister have any idea how much this has undermined confidence in our pension system throughout business in this country? In every boardroom now, senior executives, particularly if they are still hanging on to a final-salary pension scheme, are considering how they are going to remunerate their senior staff because it no longer makes any sense for them to make a contribution to the pension scheme if this regime goes ahead after 2011. Does he recognise how creating this uncertainty means that people no longer have faith in the system, and will look for other ways where they will have more control over saving their capital? I noticed that in his speech the Minister said that the measures were aimed at the wealthiest. Are the people who are immediately about to retire, the unemployed, the self-employed and entrepreneurs the wealthiest? All of them, according to the evidence that was given to the committee, will be seriously damaged by these changes. The most important thing here is the breach of principles. I thought that it was an established and agreed principle across the parties that you did not pay tax when you made a contribution to a pension fund but that you paid the tax when it came out. The Government are breaching that principle. As my noble friend Lord MacGregor pointed out, it has gone almost unnoticed that a new principle is being established, which is to treat employers’ contributions as an emolument for the first time. That creates a new seam from which this profligate Government will be able to mine further revenues. The Minister might say that it affects only the very wealthiest, but he has breached principles, which will enable the Government to continue taxation of people on lower incomes, just as they have done with national insurance. I agree with my noble friend that it is just extraordinary that we could have had a simplification of pensions, for which I praised the Government at the time: I think that eight or nine different schemes were brought together, and we had A-day. I do not know whether the Minister was able to escape the City in time, but, for the rest of us, a cap was put on the amount that we could put into our pension funds, which was accepted. The capped benefit was the Government’s attempt to deal with high earners and to ensure that there was balance in the system. Everyone accepted that, and then, three years on, here is the Minister tearing up the plant and changing it. That is deeply disturbing, and would be even if we had a scheme which was workable and not destructive, as this Bill makes it. The Minister’s response to my earlier intervention was completely unsatisfactory. He said that there was never any intention to give people who were making a final contribution in their year of retirement a kind of blank cheque for the future. Why did the 2004 Act make provision to remove the limit entirely for people who were crystallising their benefits in their year of retirement if it was not the Government’s intention to encourage it? That legislation was implemented in April 2006. People who were planning their retirement and planning how they would build up that fund—not wealthy people who get big bonuses in the City—now find themselves completely undermined by the Government who brought in the legislation. What are we to make of the thinking that is going on? As the proposals stood, someone who was made redundant and wanted to invest their £30,000 redundancy cheque in their pension fund could find themselves having to pay tax on it because of the anti-forestalling measures. I do not know whether the change to the £30,000 limit that has been made in the other place would affect that. Perhaps the Minister could reassure me in his reply. Then there are the self-employed, who have good years and bad years and put money aside as and when they can. How on earth are they supposed to average their contributions, and why is it necessary? The splendid people from the Association of Taxation Technicians set out very clearly in their document—I hope that the Minister might find time to read it; I shall not detain the House—why the anti-forestalling measures are entirely unnecessary and counterproductive in their effect. People who find themselves made redundant and unemployed—they may have been on a high salary and then get a job—will find that, because they had no income in the previous year, the averaging scheme discriminates against them. What an extraordinary thing, to penalise people who have lost their jobs by preventing them making up to their pension scheme what they were unable to contribute because they had been without employment and income. I have not seen the Minister’s answer to which the noble Lord, Lord Barnett, referred—that was remiss of me—but he suggested that it was not entirely clear. The CBI states on page 39 of the evidence that, ""the total tax rate levied on pension saving by the new system, taking into account reduced tax relief, lifetime allowance charges and tax paid in retirement, will be in the region of 70-80 %"." It rightly concludes: ""This figure, when combined with a significant tax charge on the employer contribution, will make it sensible for most senior managers in firms with defined benefit schemes to leave the pension schemes, or to seek shorter time working arrangements to avoid triggering a punitive tax regime"." What a terrible condemnation of the Government. What drives this vendetta? People who do not buy annuities at the age of 75 are already subject to an 82 per cent take in tax. The silly regime which the Government are introducing will see people facing tax rates of more than 100 per cent. I do not know how the Minister can assume that is not the case, because on page 65 of the committee’s evidence he will see some worked-up examples which show how people end up with a marginal rate of tax of 100 per cent and more. So what will happen? What will these wealthy people about whom the Minister is concerned do? They will go out and buy buy-to-let properties and their gains will be taxed at 18 per cent and not at high rates of tax because of the stupid capital gains tax regime that the Government have brought in which has created such a huge differential between tax on income and now tax on moneys which are put into savings. All of this is occurring at a time when, according to Deloitte, the FTSE 100 companies have deficits on their pension funds which have doubled to £300 billion since January. This is the last of these Bills before the Government need to face the judgment of the electorate, and for that we must be thankful. I was quite struck by the front page headline of the Sunday Times this Sunday. It stated: ""Lord Myners attacks bankers’ greed and finds God"." It said that the noble Lord, ""was increasingly exercised and concerned with the fact that we have compromised our lives. This is very evident in the financial community—that money has become everything. People have lost their sense of purpose"." I have to say to him that people want stability; they do not want uncertainty and they want the Government off their back. If the noble Lord is concerned about the Gospel, he might turn to Matthew on the subject of Judgment Day where it is said that Jesus tells us that the sheep will be separated from the goats. The goats are deserting this Government in droves. I suggest to the Minister that this might be time for a sharp exit. Presiding over legislation like this does no end of harm to his reputation. At least some members of the Government will be able to plead that they did not understand what they were doing. He has no such excuse. He says that we must live within our means and yet in a reply to me on 17 June at Question Time he assured me that now that he was in charge of the Government debt office there was no need to worry about raising the £900 billion extra in debt without there being a substantial increase in interest rates. I am with my noble friend; I think there is considerable cause for concern. Last week the IMF said: ""The United Kingdom has been getting the benefit of the doubt both in the government bond market and also the foreign exchange market. The benefit of the doubt is not going to last for ever"." The United Kingdom may have the benefit of the doubt but the Minister has lost it.