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Finance Bill

My Lords, we have had a short but interesting debate and I thank all noble Lords who have contributed. As one would expect with such a wide-ranging Bill, a number of points have been raised. Perhaps I may start with those raised by the noble and learned Lord, Lord Mackay of Clashfern, who drew our attention to two issues: ISAs and the bank bonus tax. ISAs have proved to be an extremely popular investment method. There are now 19 million ISA account holders and £275 billion has been invested in tax-sheltered ISAs, with a maximum annual allowance of £10,200 per annum. This is a very effective way of saving in a tax-protected manner. However, there is always scope for improvement, and Consumer Focus—a statutory organisation campaigning for a fair deal for consumers in England, Wales and Scotland and for postal services in Northern Ireland, led by my noble friend Lord Whitty, who made an effective contribution to our debate on consumer issues last night—has submitted a super-complaint to the Office of Fair Trading about the ISA market. Consumer Focus has three main concerns: first, that providers’ processes make switching between cash ISAs difficult; secondly, that there is a lack of clarity on interest rates, particularly on older ISAs; and, thirdly, so-called bait pricing, where a high level of interest is paid initially but is followed by a lower one after a few weeks or months. The super-complaint is being made under the terms of the Enterprise Act 2002 and obliges the OFT to respond within 90 days with a decision on what action, if any, it plans to take. We look forward with interest to the OFT’s deliberation on that matter. The noble and learned Lord, Lord Mackay of Clashfern, also raised the question of the bank payroll tax. It was never going to be easy to estimate the proceeds because, importantly, that depended on the decisions taken by the banks. The observation made by both the noble and learned Lord, Lord Mackay, and the noble Lord, Lord Oakeshott of Seagrove Bay—that the banks chose to pay the bonuses and the tax rather than avoid the tax and conserve the capital—is, to a certain extent, true, although there is evidence from banks such as Deutsche Bank, Credit Suisse and Goldman Sachs that the bank payroll tax had an impact on their bonus decisions. However, it continues to be a matter of considerable regret that the owners of banks are not taking a sufficient interest in the levels of remuneration at the very top of these organisations. As we have seen in more recent reports from other companies, this problem is not limited to banks alone; excessive remuneration for a small managerial elite at the tops of our companies is now spreading across all sectors. This can be addressed only if the ultimate beneficial owners—pension fund trustees, insurance companies and those saving through mutuals—take an active and effective interest in challenging what strikes me as being a profound economic anomaly. This enormous growth in high-level remuneration, dealt with admirably in so many ways by Sir David Walker’s report, cannot be explained by simple supply and demand. It is not as though there is now a more limited supply of extraordinarily talented men and women to lead companies or that the demand has in some way increased. I think that it speaks to a profound failure of agency responsibility by those who stand in prime position for the beneficial owners. To avoid any doubt, I do not put the primary responsibility on institutional fund managers; I think that it lies with the clients of institutional fund managers who are not giving those fund managers appropriate direction. In a moment, we will come to another issue concerning packages raised by the noble Lord, Lord Oakeshott, but not bankers’ packages. The support that the Government have provided in the face of a global recession has worked. The economy has returned to growth and the effects of recession on both households and businesses have been less severe than many feared. The noble Lord, Lord Oakeshott, picked me up for suggesting that families and businesses had weathered the storm well. I do not for one moment wish to minimise the impact of this global recession on those who have lost their jobs or those whose businesses have had to close because of the global recession brought upon us by the bankers. However, at the same time, I pay tribute to those who have, through their energy, diligence and sheer commitment, proved that they can weather the storm and carry us through. We must not be seduced into the habit which is so often seen from the opposition Benches of talking Britain down. We need to celebrate the fact that, in an extraordinarily difficult time, so many British families and businesses have, through their sheer energy, drive and determination, proved that they can work their way through, supported by government policies, until we now look forward to much better economic prospects for the future. We know there are still uncertainties and we set out the actions that we will need to take as we confront the challenges that lie ahead. Support for businesses and families is absolutely vital in those circumstances. I pointed to the programmes that we have taken to support more than 200,000 businesses, which have been given time to pay and which have had their cash flows eased. Under the vehicle scrappage scheme, more than 388,000 orders for new cars and vans have been received and the enterprise finance guarantee has provided support to 9,000 SMEs since January 2009. It is right that we continue to support business and ensure that that support is not withdrawn too soon. This Bill builds on that support, helping businesses to continue to invest and grow. We are doubling both the annual investment allowance limit in Clause 5 and the lifetime limit on entrepreneurs’ relief in Clause 4. We are also further deferring the increase in the small profits rate of corporation tax, maintaining the current rate at 21 per cent, which is highly competitive on a global basis. Let me be absolutely clear: we must reduce borrowing but we must do it at the right time and not damage the economy through a lust for overly rapid correction in public expenditure. As the economy recovers, the Government will halve the level of borrowing and it is right that those with the highest incomes make the greatest contribution. Only the top 1 per cent of taxpayers will pay the 50 per cent rate of income tax; only the top 2 per cent of pension savers will be affected by the restrictions on pensions tax relief; and only the top 4 per cent of estates will be expected to be liable for inheritance tax by 2014-15. A fair tax system will support sustainable growth and public finances in the future. This Bill also continues to strengthen our ability to tackle avoidance, non-compliance and offshore evasion. The length of the Bill is driven, more than anything else, by the creativity of the accounting profession, from which the noble Baroness comes, and which, through its wish to protect the interests of its clients, has been ever more imaginative in coming up with schemes to avoid the intentions of Parliament. That is why we have a long tax Bill. If the accounting profession showed a willingness to be more restrained in that respect, it is probable that we would need less legislation. I hope the noble Baroness will bear that in mind in her future contributions from the opposition Front Bench when we discuss matters relating to tax and finance Bills. There was much discussion about NIC. I remind noble Lords that when the right honourable Kenneth Clarke was Chancellor of the Exchequer, he raised national insurance by 3 per cent and employment grew and unemployment fell. There is no logical connection which mandates that an increase in NIC will lead to a reduction in employment. Indeed, one of the reasons why my right honourable friend the Chancellor of the Exchequer has delayed the increase in NIC until next year is precisely because it will come into effect in an increasingly strengthening economy and, as I reminded noble Lords earlier today, an economy which the OECD forecasts will be the strongest growing economy in Europe in 2010.