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Finance Bill

My Lords, the Economist this week described what has happened as, ""the biggest economic calamity in 80 years"—" and so it is. At such a time, it is obvious that our country needs real leadership; that is, leadership with strength, competence, integrity and vision. Sadly, since Mr Brown moved into Downing Street, there has been remarkably little of any of those. The Prime Minister needs strength to face the facts. He spent months denying that there was a problem. Fuelled by high-octane hubris, he then claimed that Britain was leading the world. Shortly afterwards, he repeatedly claimed that Britain was saving the world. Until very recently, he insisted that public spending is continuing to rise. It is not; it cannot and it should not. Funding public spending is one of the great problems that we face. Our present levels of spending are based on massive borrowing, which will amount to more than 100 per cent of GDP over the next four years. Several of my noble friends have mentioned the VAT cuts. What the Government failed to realise when they made their decision to spend £12 billion on cutting VAT was the opportunity cost. You can do different things with the same money. If I had wished to spend the equivalent of that tax reduction, I would have spent the extra money on defence and on the National Health Service. That would have given a much greater stimulus to the economy than merely putting it in the hands of domestic shopkeepers who are selling VAT-taxable goods that are largely imported, particularly in the sectors of electronics, white goods and motor cars, nearly all of which are imported—and, of course, food is not subject to VAT. Now we are faced, on the latest estimate, with a fall in GDP this year of 4.5 per cent. The noble Lord, Lord Myners, who I am sorry to see is not in his place at the moment, indicated that he thinks that the recession may be coming to an end. My worry is that we may have got to the bottom but we may well spend a long time bumping along the bottom, which is a very uncomfortable place to be. Unemployment has already reached 2.4 million and is rising, and we have to remember that it is the direction rather than the level of unemployment that has an impact on economic activity. When the level of unemployment rises, those without work feel little prospect of getting jobs, and those still in jobs are worried about joining the dole queue. When unemployment starts to fall, hope is restored and anxiety is diminished, but consumer demand is likely to be very fragile until unemployment turns. Let us look at employment. The great boom in jobs has been in the public sector, which now employs no less than 5.8 million to 6 million people, or about one in five of the working population. That is not entirely surprising because, with the help of Brussels, over the past 12 years we have seen a deluge of new rules and regulations, many of which have been gold-plated by our Civil Service, and the creation of endless new quangos and inspectorates. Of course, several people have referred to the Finance Bill as the sort of thing that causes extra unemployment. I hope that when my honourable friend Mr George Osborne becomes Chancellor, his target will be to cut as many pages out of the financial legislation as this Government have put into it. By contrast, I remind the Minister that manufacturing in the United Kingdom now accounts for only 13 per cent of GDP. Mr Ed Miliband is trying to reduce it more by insisting that a significant proportion of our energy should be generated from wind power, which is no greener than nuclear power but less reliable and twice the cost. That is the way, as the Prime Minister might put it, to price British workers out of British jobs. We were challenged a few moments ago by a most distinguished former Minister about the scope for spending cuts. Perhaps I may give an example which I mentioned last week. Now that the new Home Secretary has announced that ID cards should be voluntary, there is no possible excuse for setting up a new ID card system with its own database. We have a perfectly good voluntary passport system with its own database, so we could abandon ID cards in favour of passports and that would save hundreds of millions of pounds. There are plenty more ideas where that came from but I do not have time to give them now. Finally, we come to the top tax rate of 40 per cent, which has survived for 20 years and, I believe, has played a real role in giving the City of London the opportunity to become one of the world’s great financial centres. The noble Lord, Lord Sheldon, particularly singled out this rate of tax but I am reminded that the House of Commons, for the only time ever, had to be suspended in disorder during a Budget speech, such was the rage of the Labour Party when my noble friend Lord Lawson, then Nigel Lawson MP, introduced that rate in 1988. Interestingly, the Labour Party subsequently felt that it had to give an undertaking in three successive election manifestos that it would not raise the top rate above 40 per cent. Of course, it has now broken that promise. I wonder whether, in its next manifesto, it will guarantee not to raise income tax above 50 per cent. It was very interesting to hear the noble Lord, Lord Sheldon, because I remembered that he and the noble Lord, Lord Barnett, were the two acolytes of one of our most distinguished—in some respects, at any rate—former Chancellors, the noble Lord, Lord Healey. The noble Lord, Lord Sheldon, was Financial Secretary from 1975 to 1979; the noble Lord, Lord Barnett, was Chief Secretary from 1974 to 1979 and the noble Lord, Lord Healey, was Chancellor from 1974 to 1979. When the noble Lord, Lord Sheldon, was speaking, I almost wondered whether I could hear the noble Lord, Lord Healey, squeezing his orange juice. When I last spoke—in our economic debate on 7 May—I raised points on credit card debt. I pointed out that in the UK alone, the debt on which interest was being paid was well over £40 billion. As the interest rates on credit card debt are very high indeed, I suggested that much of that debt could prove to be toxic. I then made some suggestions about what the Government should do to prevent excessive exuberance in the use of credit cards. It is perhaps no coincidence that, last Wednesday, American Express announced that it had stopped its pension contributions to its 60,000 worldwide employees, which includes its 6,000 UK staff. Frankly, stopping paying your staff is hardly an indicator of financial viability. I suspect that the toxicity lurking in the unpaid credit card debt, which is therefore subject to interest, could explode into a fresh drama in the financial world. Is the Minister able to say whether HMG are more relaxed than I am at this prospect? Today I received the Minister’s letter dated 14 July, for which I thank him, in which he referred to the consumer White Paper published on 2 July which set out proposals to improve protections for credit card borrowers. Although I am grateful for his letter, I wish I had not had to wait 10 weeks for it and indeed that I had received it earlier than the day of our debate. It would seem from the White Paper, which I welcome, that the Government are now minded to move along some of the lines I suggested. Perhaps I should congratulate the Government on reading Hansard for 7 May. However, the White Paper does not deal with all my points, especially two crucial ones. I would therefore very briefly like to refer to my original proposals. First, credit card companies should be required to do due diligence before issuing a card. That would include checking on what other cards an applicant has, which means a central record of credit card systems, as implied in the White Paper. Perhaps that will come. Secondly, young people should not be allowed more than one credit card. I do not know the Government’s view of that. Thirdly, the balances on all credit cards should be cleared at regular intervals, and failure to do so should result in suspension of further credit. That appears to be signposted in the White Paper. Fourthly—and most importantly because it would avoid the Government getting involved in supervision of any of this—a credit card debtor who could show that his credit card company had failed to follow the rules would not have to repay the debt. That fourth proposal would be a real incentive for the credit card companies to, as the jargon has it, put their house in order. Perhaps the Minister would comment on that. I have one final point. If the Prime Minister were prepared to face reality, he would tell the British people that under his watch he allowed a huge and unsustainable level of consumer credit. The figure in the White Paper is £1.4 trillion, the vast majority of which is mortgages but there is £230 billion of non-mortgage debt of which the credit card debt is put at £53 billion in the White Paper. The Prime Minister should also emphasise that to prevent total collapse he has had to mutualise much of the debt; that is transfer it to all to UK taxpayers. That is £493 billion just for the four banks that would otherwise have gone bust. In addition, Mr Brown has allowed a rapid growth of public spending to raise the need for public borrowing well above what may be possible to finance at anything like present interest rates. A number of my noble friends have referred to the potential crisis in funding the national debt. The British people face years of austerity under whichever party is in power. The financial competence of my honourable friend George Osborne is well illustrated by his decision and the detailed plans in his policy White Paper on sound banking, which was published today, to transfer ultimate control over prudential supervision of the financial sector from the FSA to the Bank of England. I wonder how long it will be before Mr Brown has the confidence to ask the British electorate whether it feels that his experience—in other words, his track record—fits him to be the best steward of this situation or whether it might prefer a young and vigorous Conservative Government to pick up the pieces. It would at least start with a clean sheet, as have the Obama Administration in the United States.