---

Finance Bill

My Lords, the noble Baroness, Lady O’Cathain, was quite right in pointing out the way in which the Government have tried to simplify the pension scheme. It is very difficult to do. It is such a complicated area and there are so many ways in which people earn their money and put their money in. I am afraid that this is one of those things that we will have to live with for many years to come and look at these points again and again. My noble friend Lord Myners pointed out the situation in the other G7 countries—3.8 per cent in Germany, 2.2 per cent in Italy and 1.4 per cent in the United States—and the unexpected decline in the United Kingdom. Of course we have had it even worse in some ways. So this will be a problem that we will live with for a very long time. In the Second Reading debate on the Finance Bill in the House of Commons, there was a defence of the Government’s measures for guiding Britain out of the recession. It was said that a failure to act would cost us more in the long run and that these were vital measures to help the economy now and to support Britain’s long-term prosperity. It was also said that the world’s economy was shrinking for the first time in peacetime since 1932. This is one of the great changes that we have seen. It was a financial change and nobody could expect that the decline in the world’s economy would go in that kind of way. It is the first time that five major banks were, as we saw in some astonishment, rescued by their national Governments, demonstrating the scale of the international challenge that we are facing. We did not expect anything like that—to see such a decline in banks which had such a very high reputation but which went very rapidly into some decline. Investment in manufacturing industry has been waning, but we hope to see it increase. One important part of the Bill is the introduction of the new 50p rate. It will be introduced in 2010 as one of the measures in the Bill and will bring borrowing back down once the economy is growing again. I myself have been uneasy about the 40 per cent level for the extremely large capital and income coming from people with considerable wealth. Keeping 40 per cent over such a long period was quite unjustifiable. I hoped to see an increase. We had to wait a long time to see it and we will have to wait a little while yet. There is also a gradual reduction in the personal allowance for those earning more than £100,000 and a reduction in pension tax relief for those on more than £150,000. This is another thing that we will see. It will echo the kind of requirements that people feel are justifiable. It is right that those on the highest incomes should pay more because, over the past 10 years, we saw the earnings of those on the very highest incomes increase by an average of much more than we might have expected over the period. The detailed legislation on tax avoidance and evasion will bring in some valuable revenue. A number of comments have been made that dealing with tax avoidance and evasion takes an awful lot of legislation. Of course, it does not last all that long because things change, so you have to make changes and get further legislation, which is more complicated and less reliable. That is a consequence of how these things operate. It is right that those concerned must take these matters into account. The important point of our April Budget is that there has been a greater instability than at any time for generations. The real problem is that investors assumed that the considerable and long-term growth rate would continue indefinitely, as did the banks. In their efforts to win much of the business from investors, the banks provided loans at exceptionally low rates of interest. As a result, there were many who invested much more than they would otherwise have undertaken. The big rise in unemployment meant that those who had invested at the top of the market lost a substantial amount. A major consequence has been a strong downturn in the housing market. What is not clear is how long the downturn is going to last. One important Minister said that the downturn will not conclude until 2017. That may be the kind of result to expect, but it is much worse than we had ever anticipated. The Bill deals with evasion and avoidance in great detail and we have heard the consequences of, and some of the problems that arise from, that. My noble friend Lord Myners pointed out that the £11 billion VAT cut would be over at the end of this year. That is a substantial amount. There has been too much criticism of it. I think that it is going to be rather valuable by the end of the year. The introduction of 15 per cent VAT for the current year was an important step in countering the economic downturn. The advantage of this move was its quick injection into spending by consumers. It may not have been seen as an important step but it was a change in the economic situation that would be difficult to effect quite so rapidly in other ways. Other methods can be introduced, but the delay in their effect on the economy means that there would be little consequence on the situation. At the end of the year, we will see a big spending increase as we approach Christmas. I expect that a combination of Christmas, the end of the year and the expectation that prices will rise in 2010 will see a considerable increase in expenditure. That will have some effects on the markets as well. In the Times, my noble friend Lord Myners has said that banks and their "grossly over-rewarded" executives are partly to blame for causing the economic recession. He has said that the, ""golden days of huge bonuses"," are over. Executives had, ""no sense of the broader society around them"." He said that the bank system came close to collapse last October, before the rescue package: ""There were two or three hours when things felt very bad, nervous and fragile"." We have now seen a move to a more stable situation, but it is not a very happy one. The United Kingdom is now in recession, which has had a considerable effect on the economy. The widely accepted definition of a recession—two consecutive quarters of negative economic growth—was met last year and it was something that we had not expected or seen for nearly 20 years. The worse-than-expected contraction sent sterling to a 24-year low, with the pound buying $1.355. Meanwhile, the FTSE index fell almost 2 per cent to below 4,000 points. We hope that, by the end of 2009, we will have introduced some hopeful expectation. It will not be rapid, but at least it will be an improvement on what we have seen this year.