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Finance Bill

My Lords, as my right honourable friend the Chancellor of the Exchequer said when he delivered his Budget Statement, the past few years have been a difficult time for people, not just in the UK but globally. It has required difficult choices, with Governments around the world taking unprecedented steps to rescue the global financial system and support the economy, business and families. The record shows that the Government have made the right calls, and the effect on the wider economy, families, households and businesses has been much less severe than it would have been had we let the recession run its course. Despite the latest data showing that we are now emerging from the deepest global recession in more than 60 years, uncertainties remain, and there will be risks to confront. It will not be plain sailing from here on. My right honourable friend set out a Budget which mapped out the next steps in the Government’s plan to secure the recovery and build strong, sustainable, growth. The Budget therefore announced: continued targeted and temporary support through the recovery; a package of measures, worth £2.5 billion, to support small businesses and promote innovation; and how the Government will deliver on their obligation to halve the deficit in four years. These measures are at the centre of the Bill before noble Lords today, and I propose to address each area. The Government are determined to carry all of the tax measures announced in the Budget into law. However, recognising that there was limited time before dissolution of Parliament, we have published a much more limited Finance Bill than in a normal year. As my right honourable friend the Financial Secretary told the other place yesterday, following discussions with the Opposition we moved amendments removing provisions relating to landline duty; the requirement of securities for PAYE; and abolition of furnished holiday lettings from the Bill. We will include these in a Finance Bill to be introduced as soon as possible in the next Parliament. In addition to these amendments, and following discussions with the Opposition, we have also amended Clause 9 to align the rise in cider duty rates with that for other alcohol rates, limiting the increase to 2 per cent above inflation with effect from 30 June. It is clear that the support provided to households and businesses over the past two years has worked. The temporary cut in VAT was worth an average of £20 per month for every household, and 200,000 businesses which collectively employ 1.4 million people have been given extra time to pay their tax bills. However, withdrawing support too soon could jeopardise the recovery. While uncertainties remain, we will continue to build on the support that has limited the impact of the recession for families and households. Clause 6 therefore increases the stamp duty threshold for first-time buyers from £125,000 to £250,000, ensuring that nine in 10 first-time buyers will pay no stamp duty at all. To ensure that this does not add to the burden on the public finances, Clause 7 announces an increase in the stamp duty to 5 per cent for residential property over £l million to fund this. The Government’s support for business has meant that the rate of insolvencies is half what it was during the early 1990s recession. Around 850,000 companies have benefited from our decision to defer the rise in the small companies’ rate. Clause 3 maintains the rate of corporation tax for small companies at 21 per cent for 2010-11, as announced in the Pre-Budget Report. Similarly, as the Chancellor announced, although the rate of fuel duty will increase over the next year, we are sensitive to the impact that a large rise would have on families and businesses at this time. We are therefore providing for a staged increase spread over the course of the year. Under Clause 12, fuel duty will rise by only a penny in April, less than inflation. Clause 13 provides for further rises of a penny in October and the remainder in January. We make no apologies for extending this support to families and businesses. To do otherwise would involve taking a huge risk with people’s jobs, incomes and the future growth of the economy. However, in the medium term, the Government must live within their means. As the Chancellor said on 24 March, we intend to achieve this goal by a combination of public spending cuts, growth in the economy and tax rises. This Finance Bill provides for a number of measures to underpin strong, sustainable growth. Clause 5 doubles the annual investment allowance to £100,000 for expenditure incurred from April 2010, ensuring that 99 per cent of businesses will be able to deduct all qualifying investment from their taxable profits. Clause 4 doubles the limit for entrepreneurs’ relief for capital gains tax from £l million to the first £2 million of gains made over a lifetime. This extends the effective 10 per cent rate, increasing incentives for business growth and those investing in businesses with growth potential. These are important measures through which we are providing support for small and growing businesses. Together with the rest of the growth package announced at Budget, these will be funded by excess revenue generated by the 50 per cent levy on excessive bonuses of bankers, which was announced at the Pre-Budget Report and provided for at Clause 22, and by switching spending from within existing allocations. I should add that Clause 2 also maintains corporation tax at 28 per cent, ensuring that we continue to have the lowest rate in the G7, and that the UK is still one of the best places to do business in the world. Finally, the Finance Bill provides the key tax measures at the heart of our plan to halve the deficit over four years. Clause 1 provides for the new 50 per cent rate of income tax for those earning more than £150,000 per annum, which together with the gradual removal of the personal allowance for those earning more than £100,000 provided for in last year’s Finance Act, implements our plans from Budget last year. The Bill also implements the core aspects of our changes to the pensions tax regime at Clauses 24, 49, 50 and 71, restricting tax relief on pensions for those earning more than £130,000 as well as further anti-forestalling provisions. In providing these reforms now, we have had to balance the need to provide certainty and allow industry and individuals time to prepare with the need to consult further on some aspects of implementation. Clause 24 therefore provides a number of powers that allow the Government to return to aspects of the implementation. The reforms to income tax and pensions affect only the top 2 per cent of earners—those who have benefited the most from the strong growth in previous years. The Bill provides for further measures announced at Budget or before to support the public finances. Clause 9 confirms the planned increase in alcohol duty of 2 per cent above inflation announced at Budget 2008. Clause 69 provides powers to amend the duty definition of "cider" to ensure that particularly high-strength ciders are taxed more appropriately. The Government intend to make these changes in September. Clause 10 increases tobacco duty by 1 per cent above inflation. Increases of 2 per cent above inflation will be made in each of the next two years. Clause 8 provides for the freezing of the inheritance tax threshold for the duration of the next Parliament until 2015. As part of ensuring a fair and effective tax system, and to ensure that the Government remain on course to halve the deficit, this Finance Bill provides, at Clauses 25 to 59, for a significant package of measures to tackle tax avoidance, non-compliance and offshore evasion. The avoidance measures in this Finance Bill protect around £18 billion worth of yield and raise a further £1.5 billion of revenue by 2013. I believe the choices that we have made to date in dealing with one of the most turbulent economic periods in modern times have been the right ones. We have stabilised and begun to rebuild financial services. We have supported the economy, businesses and families and the outlook is continuing to improve. The economy is growing again, the labour market is easing and families and businesses have weathered the storm well. We have to continue to make the right choices, not just to secure the recovery but to reduce borrowing after the costs of the recession and to improve our outlook by investing in the long-term capabilities of the economy. The measures in this Finance Bill will help to support our economy, the public finances and Britain’s future, and I commend it to the House.