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Finance Bill

My Lords, I thank my noble friend Lord Vallance and his colleagues on the Economic Affairs Select Committee sub-committee for their report on the Finance Bill. I had the dubious pleasure of serving on the sub-committee in the first two years of its existence at a time when the then Chancellor did everything he could to starve it of information and to try to kill it off. I am pleased to see that it is now such a robust and thorough plant, if a plant can be thorough. A number of themes have run through every report the sub-committee has produced; the question of consultation has been one of them. It is fair to say that over the seven years since the sub-committee was established, the track record of the Treasury has improved in that there has become a realisation, I suspect, that you cannot get away with no consultation on changes without at least there being public criticism of it, which was not the norm even seven years ago, or at least not to the same extent. We have heard today and can see from the report that there are some areas where there has been a lack of consultation this year for no apparent reason; the clause relating to accounting officers and the naming and shaming clauses have been mentioned. But the number of areas on which there has been no consultation appears to be reducing year and year, and it is an important function of the sub-committee to keep the pressure on in that area. The other issue of contention which the sub-committee has discussed is that of the taxation of pensions and the reduction of the high-rate relief for income earners of more than £150,000 a year. There has been much discussion of whether this is the thin end of the wedge. As noble Lords will know, we on these Benches represent the wedge. We have been advocating an end to higher-rate tax relief on pensions tout court for some considerable time and one of our main objections to the Government’s proposals is that they do not go far enough. Of course, being this Government, they have introduced the measure in the most complicated way and with the maximum amount of legislation, which, in most respects, will serve little purpose. On the Finance Bill itself, we cannot obviously amend it and it is not usual to discuss minor aspects of it. However, I would like to raise one aspect, very briefly, because it is unfinished business from the Commons end. This relates to the slightly arcane issue of the air passenger duty and the way that it affects different territories. Noble Lords may be aware that the Government have introduced a banding system for the air passenger duty. The costs incurred by passengers depend on the distance that they travel from London. Unfortunately, the calculations are based on the situation of capital cities, and a major anomaly has arisen with regard to the Caribbean, which is in a band that incurs a higher charge than flights to the US even though, if you are travelling to Alaska or Hawaii, you are travelling considerably further than to the Caribbean. That is a major concern in the Caribbean, where people feel that they are at a disadvantage with this tax on travel compared with the US at a time when the tourist trade is in severe difficulties and when some of their existing and traditional industries, particularly agricultural ones such as bananas and sugar, have already largely disappeared. These small countries, with which we have close links, have increasingly become a source of drugs as a result of previous economic failures. There is a fear that this change will exacerbate that problem as well as causing significant hardship for visiting friends and relatives travelling to the Caribbean. On Report in another place, the Exchequer Secretary said that the matter was not closed and that she had, ""asked my officials to consider the matter further".—[Official Report, Commons, 8/7/09; col. 1016.]" Has any further such consideration yet been given? When might we expect to hear the outcome of those deliberations? At the time of the Budget we were preoccupied in large measure by the costs that the Government were incurring in propping up the banks, and indeed by the situation in the banking sector as a whole. It has been striking today that that has not been a major feature of the debate. Rereading the Financial Statement and Budget Report, though, one is reminded of the sheer scale of government investment in the banks, whether through improving liquidity or through recapitalising the two now largely nationalised banks. I have a couple of questions for the Minister about the quid pro quo for that recapitalisation. Shortly before the Budget, both RBS and the Lloyds Banking Group signed a lending commitment agreement with the Government. The agreement has been published on the Treasury website only within the past couple of days, so I have not had the chance before today to ask the Minister about it. There are two specific questions, one of which we have already partially discussed. At the time of the banking White Paper Statement, I asked why the Government were requiring the banks to lend at 90 per cent loan-to-value ratios. The noble Lord, Lord Myners, said that, ""we have not given any instruction to the RBS about making loans in respect of 90 per cent of loan to value. We leave that matter in the hands of those at the Royal Bank of Scotland".—[Official Report, 9/7/09; col. 776.]" However, the lending agreement, which is now available on the Treasury website, says that: ""the Participating Institution will ensure that … a reasonably competitive range of residential mortgage products are available for residential mortgage applicants … up to at least 90 per cent loan-to-value"." In February, why did the Government think that it was appropriate for the nationalised banks to be lending at more than 90 per cent loan to value at a time when property prices were falling and, indeed, may continue to fall? Is that not exactly the kind of risk that we were trying to avoid? My second question is this. The agreement explains the amount of additional lending that the bank has to undertake but, in respect of the specific components of lending to SMEs, mid-corporates and large corporates, the phrase, ""its lending to Large Corporates will be at least *** above the amount shown in the baseline budget"," has asterisks in it. Why have the Government redacted—to use that horrible word—the subtotals of the additional lending that the nationalised banks are required to give to SMEs and others? Surely it is in the public interest that we should know. The dominant issue, which the Budget began to address but which has become more prominent since then, if that is possible, is the dismal state of the public finances. The record levels of borrowing which the Government are now undertaking have increasingly been seen to be structural and not cyclical—or indeed the famine following the feast over which the Chancellor presided—even to such an extent that we were running up significant deficits even when growth was strong and tax receipts were buoyant. It is generally believed that the Budget’s claims for growth for next year and the Government’s plans more generally for the public finances are too optimistic. It is now clear that there will need to be a tight squeeze on public expenditure over many years and, in all probability, increases in taxation as well. We on these Benches agreed with the noble Lord, Lord Barnett—and the Government have done it—that we needed a fiscal stimulus this year but that, in coming years, that stimulus could not be maintained. We did not agree that the temporary VAT reduction was the most appropriate way to do it, because it leads to a short-term increase in consumption, whereas an equivalent amount spent on investment could have led to long-term benefits to the economy. However, there will undoubtedly have to be reductions in public expenditure, about which the Government seem largely to be in denial. The Prime Minister explained in a recent interview with Nick Robinson on a train that public expenditure cuts could be adequately dealt with by asset sales and efficiency savings, which is clearly ridiculous. While he is saying that about expenditure on the one hand, Cabinet Ministers are, on the other, almost lining up to say that, whatever happens, their areas will not be affected—we have had that in education; we have had it in health; and now the noble Lord, Lord Mandelson, who I had not realised until today was Defence Secretary along with his many other titles, has said that defence, too, will be ring-fenced. We therefore find ourselves with a Government who are increasingly out of touch with reality on public expenditure. Similar pressures are on the Conservative Opposition, where an increasing number of areas are already being ring-fenced. We all know that that is not realistic. We have said that we need to begin to identify areas where there will have to be real cuts of whole programmes. We have identified a number of them, from small ones such as the child trust funds to larger ones such as a major review of the cost of public sector pensions. I am sure that whichever incoming Government we find ourselves with will have to face the question of how to make better use of the level of public expenditure that we can afford, whatever it is. One of the annoying aspects of the huge increase in public expenditure in recent years is that it has been accompanied by a fall in productivity in the public sector. This area will simply have to be addressed. There are major problems in doing this, of course, of which culture within the Civil Service is possibly the most significant. There is no culture of looking to adopt best practice from elsewhere; there is no culture of continuous change; and, indeed, during this period of falling productivity, increasing levels of bonuses have been paid almost across the board to senior civil servants. That will have to change. We on these Benches welcome the initiative being taken by the noble Lord, Lord Sainsbury, and Sir Michael Bichard in this area, and we are particularly pleased that they are doing it on a non-partisan basis. This will be the last normal Finance Bill of this Government which we will consider in your Lordships' House. It represents the end of an era in many ways. It will almost certainly be the last Finance Bill for many years to show a fiscal stimulus rather than a fiscal tightening and will, in that respect at least, represent a watershed. As the noble Lord, Lord Forsyth, mentioned, at the end of his sojourn on the government Benches the Minister is considering becoming a student of comparative religion. He has some advantages in this respect in that he already knows something about the subject. He embodies the principle that the Labour Party owes more to Methodism than it does to Marx. As he contemplates his future, I hope that he does not behave like a sheep and follow the other goats out of the Government. The current trend is doing nothing for the reputation of goats.