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Finance Bill

My Lords, reading the Evening Standard after lunch today, I came across a story which alleges that the Treasury’s accounts have been qualified for the first time in 350 years. I view that with some scepticism since I do not think that the National Audit Office has been in existence for that long, but in all events the error appears to be in the area for which the Minister is directly responsible, namely the banks and so on. Perhaps he could clarify the situation for us. In particular, why does some unnamed official say, "Don’t worry, it’s a technicality. We have"—I was going to say "written off"—I think he said "signed off the accounts"? Perhaps the Minister could clarify that. To try to find some guidance about what was in the Bill, I looked at the Second Reading debate in the other place. I found an extraordinary situation where the Chief Secretary did not so much make a speech as engage in a conversation. She seemed to have no idea whatever of how to control a debate. She was constantly interrupted and, at the end of the day, clearly had not made the speech that she intended to make. I was rather short on illumination as to what the Chief Secretary thought the important issue was. Be that as it may, the interruptions certainly concentrated very much on the 17.5 per cent rate of VAT. I am very sensitive about VAT. A long while ago, I had the job of steering the whole of the legislation through the other place. At that time we set a rate of 10 per cent, which was sufficient to make up the revenue that was lost from abolishing two very bad taxes—purchase tax and selective employment tax. Alas, successive Chancellors—including, I am bound to say, Conservative Chancellors— have put it up to 17.5 per cent, but I think the temporary reduction that the Government have introduced is a serious mistake. In his opening remarks the Minister quoted an organisation—I forget which one—which said that the temporary cut in the 17.5 per cent rate was "value for money for taxpayers". I have been trying to work out what on earth such an expression might mean. How is a temporary reduction in tax extraordinarily good value for taxpayers? It has meant something like £11 billion or so—mere chicken feed nowadays. None the less, it is completely offset by borrowing, on which the same taxpayers will have to pay interest in due course. More particular concern was expressed in the other place about timing and the fact that, apparently, the rate will go back up to 17.5 per cent at what is likely to be the busiest time of year for the retail trade. No information on this point was given in response to the numerous interruptions. Perhaps the Minister can tell us whether the Government have had any further thoughts on the exact timing. It will also have a curious effect on the CPI. The CPI has finally reduced to below the Bank of England’s target rate of 2 per cent. In his Budget Statement, the Chancellor said that he expected the rate to fall to 1 per cent by the end of the year. At that moment, there will be an increase in value added tax, which will of course increase the rate. Whether this is a conspiracy whereby the Bank of England can get back to its target rate, having finally reduced it far enough, is not entirely clear. However, it seems that this measure is misconceived and has been a mistake, which was recognised as such, particularly against the background of the overall borrowing side of the management of the economy and the Debt Management Office, which the Minister, I am pleased to say, is in charge of. At least, if we cannot give it back to the Bank of England, which we certainly should do, management of the debt is something that he can look after with some expertise. A number of my noble friends have commented on the size of the Bill. Its size is absolutely appalling. However, we should be glad that the sub-committee in the House of Lords is looking at detailed proposals and can be selective in what it studies. The Select Committee on the conventions between the two Houses came down strongly in favour of the House of Lords having a role in this respect. The fact that we are restrained on financial matters has gone beyond the stage where we should seriously think about it. It is right that we should engage ourselves more—not least because there is vastly more expertise on financial matters in this place than there is in another. I want to say a word or two about the report of the Joint Committee on Human Rights as regards retrospection. I have always been strongly of the view that one must distinguish between tax avoidance and tax evasion. We have had exchanges across the Floor on this matter. It is clear that tax avoidance is legal and that tax evasion is not; but as a result of sophisticated accountants working on various schemes, from time to time we find ourselves in a situation whereby the Revenue has to catch up with the schemes that have been devised. In that context, the report of the Joint Committee is very worrying. It may be felt, in extreme circumstances, that there should be retrospection, because the Revenue did not catch up immediately on particular schemes, even though the Revenue is now informed of them. However, the report points out that it is extraordinary that we are introducing retrospective legislation which involves going back seven years. There might be a case, if a cunning scheme is discovered, that the Revenue could say, "We can’t catch this immediately; it is a bad thing; and we will go back a year or so"; but to let a matter run for seven years and then clobber people is extraordinary. The Joint Committee points out that people are going bankrupt as a result of this, having operated for seven years on what they believed to be a perfectly legal basis. Perhaps the Minister can give his views on that. Finally, perhaps I may say a word or two about the general economic situation. One of the features of this year’s Budget was the extent to which people—indeed, people almost universally, if there is such a concept—regarded the Chancellor’s forecasts as overoptimistic. Noble Lords may recall that he said, ""I am forecasting growth of 1.25 per cent in 2010"." He went on to say: ""From 2011, I am forecasting that the economy will continue to recover, with growth of 3.5 per cent from then on"." He then used an odd expression. He said: ""To account for the impact of the global shock, I have further adjusted trend output—the productive potential of the economy. But in future years, the economy will recover towards a trend rate of growth of 2.75 per cent".—[Official Report, Commons, 22/4/09; cols. 239-240.]" Given that any Budget speech is crawled over in great detail by officials and Ministers, this strikes me a very odd passage that illustrates serious confusion between growth in aggregate demand and growth in productive potential. The forecast may turn out to be right as regards what happens to aggregate demand, not least because of all the measures that are being taken on quantitative easing. What will be difficult to deal with in managing the economy now and in the immediate future is what has happened to productive potential. The Government have said that it has been growing steadily at 2.75 per cent to 3 per cent. This is what the Treasury has said for the past 30 to 40 years. However, there has been a very serious, once-and-for-all drop in productive potential, not least of the City of London, on which we are far more dependent than is the case with other countries and their financial sectors. Perhaps the Minister will comment on this. The loss of productive potential as a result of the recession that we face makes it very difficult to balance what ought to be done about the level of aggregate demand in relation to productive potential, and reinforces my view that the action on monetary policy taken by the Government is likely to result in a sudden increase in inflation after a period when it is comparatively quiet. The situation is worrying; we will have to see how it works out. The overall situation seems to be recovering slightly. However, the difficulty of managing the economy in the next couple of years will be very great.