The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, this year we have faced quite exceptional circumstances. The general election and necessary emergency Budget have resulted in a plethora of finance Bills. The Bill introduced by the previous Government before the election was considered as part of the wash-up process. The second Bill of the year was understandably short as this Government looked to enact fiscal changes to reassure the markets and the British people. This has left a number of more minor, technical measures that need to be legislated this year but for which there was no space in the other finance Bills. They are the measures before us today.
There is little controversy in this Bill. I am sure that noble Lords on the Benches opposite are well aware that all but one of the measures were announced or agreed by the previous Government. That exception is a minor measure to ensure consistency of treatment of capital allowances. This is not to say that the Bill before us is unimportant. The Bill improves the treatment for carers in Clauses 1, 2, 3 and 16. The vital and under-recognised role that they play in society is one that I know is championed by many on all Benches in this House. The changes introduced in these clauses simplify and align tax rules in small but important ways.
Businesses are supported by 10 clauses. Clauses 5 and 6 assure the future of the venture capital schemes that have supported over £10 billion of investment since their introduction. Clause 9 clarifies the rules on company distributions and Clause 11 fixes glitches in the debt cap rules introduced in 2009. Clause 10 assists real estate investment trusts in complying with their distribution rules.
The changes introduced to HMRC powers follow similar changes made last year. These align the penalty and interest rules across the taxes administered by HMRC to ensure consistency and predictability. The changes will also allow HMRC to be more efficient in its application of penalties and interest. Furthermore, the change in Clause 23 to the duty on long cigarettes will allow HMRC to tackle avoidance of tobacco duty—a cause widely supported.
While many of the changes in this Bill are technical and rather sterile there is a softer side. The encouragement of low emission goods vehicles, through changes in Clause 18, will help support a move to a low-carbon economy. Clause 30 allows the national employment savings trust to be established, which will help approximately 3.6 million people save for their retirement. Clause 31 exempts from tax trusts established to help those exposed to asbestos. This change will help to ensure the viability of such trusts—a matter of real importance.
This Bill has also allowed the Government to demonstrate how tax policy making will be improved. The clauses of the Bill were published in draft in line with commitments set out in the June Budget. This allowed eight weeks for consultation, during which over 60 comments were received. Changes were made to nine clauses as a result of these comments. This different approach will ensure greater predictability, fewer changes and better consultation. We have already made a good start on the first of these. My right honourable friend the Chancellor of the Exchequer has announced that the Budget will be on 23 March next year, giving four and a half months’ notice. My honourable friend the Exchequer Secretary has announced that draft clauses for the 2011 Finance Bill will be published on 9 December so that they may be consulted on.
This is a simple, straightforward Bill that eases burdens on individuals, businesses and HMRC. It is one that the previous Government all but proposed themselves. It is brief but important, and I commend it for consideration by the House.
Lord Sassoon
My Lords, the debate on the Bill this afternoon has been interesting and wide-ranging, even though it has been between relatively few of us. It has covered a fair amount of ground. I normally respond thematically to points made in debates, but I am trying to get to grips with the number of them. They cover a wide area and I will try to group one or two together. It is interesting that no noble Lord who has spoken has touched on the details of the measures in the Bill, as opposed to the process by which the new Government are going about making tax policy. I stuck my neck out in my introduction and said that the measures were uncontroversial, and I welcome the fact that they appear to be. I am grateful to have that confirmed.
I will start with one or two comments on growth and the broader strategy. First, it is important to remind noble Lords that we have been rolling out a very considerable suite of growth-enhancing policies, right from the start of the new Government. First, we sent a very strong signal to the markets that we had the deficit gripped and that we had indeed come back from the brink of bankruptcy. That is what has convinced the markets that interest rates can remain low, which underpins what business needs in order to invest.
Lord Myners
My Lords, I come back to a point made in an earlier debate when I asked the Minister whether the differential between UK and US bond rates has widened or narrowed since 11 May. At the time, he shook his head, indicating that they had narrowed. In fact, as he has now been obliged to cover in a Written Answer, they have actually widened. The Government can claim no credit for the reduction in interest rates. It is a global phenomenon and, if anything, the risk to the UK economy is deemed by financial investors to have increased since 11 May, rather than decreased.
Lord Sassoon
My Lords, the noble Lord, Lord Myners, is a master at selective quoting of the evidence. There has been a marginal widening of the spread over the 10-year Treasury, and there has been a significant narrowing against the 10-year bond, which is a much better comparator, and against all the other comparators that I look at on a daily basis. I am very happy to go on answering the noble Lord's questions on this point for as long as he would like, but the predominant evidence suggests that not only have spreads narrowed against the comparators but the price of CDSs on UK gilts has fallen considerably as others have gone up. That is proof that people get the message that we have the growth policies in place. It extends to cutting the deficit, low interest rates, tax policy, the focus on investment in infrastructure in a very tight spending review, the attack on regulation, and I could go on. Whether we shall have White Papers, Green Papers or discussion documents, there has been a very full suite of growth policies and there is plenty more to come.
As to whether I should explain what I mean by the brink of bankruptcy, the noble Lord, Lord Barnett, has already stepped in to point out what I was going to point out: that he has already tabled a Question for oral answer. He has got to the front of the queue, and I do not want to be discourteous to him. He will receive a considered answer.
Lord Barnett
I have no objection whatever if the Minister has a better definition than he has given so far.
Lord Sassoon
For the time being, I refer the noble Lord to the first edition of the Oxford English Dictionary, volume 1, part 2, under “B”, which was printed some time in 1888. That is quite a good starting point. We shall return to that in answer to his Question in a few days’ time.
Lord Eatwell
We are having some fun, but this really is a very serious matter indeed. The Minister has used this expression time and time again as one of the key factors that justifies the economic stance taken by Her Majesty's Government. Is he saying that he cannot stand at the Dispatch Box right now and tell us what it means?
Lord Sassoon
My Lords, as I said, a Question has been tabled and I shall answer it then. I have already referred the House to the two meanings in the Oxford English Dictionary first edition of 1888, which I think explains it very well. We had a reference to PIMCO earlier in the debate from my noble friend Lord Ryder of Wensum. I refer the noble Lord to the comments of the founder of PIMCO a few months before the election when he talked about the toxic pile. He may or may not have been front-running a position, but when the largest bondholder in the world talks about UK debt in toxic terms, the point is well understood. The critical question that arises from all of this—
Lord Marlesford
My Lords, perhaps I may help my noble friend by giving an example of a very dangerous toxic situation that was certainly inherited from the previous Government and of which the noble Lord, Lord Myners, is extremely aware: that is, the level of credit card debt in this country on which interest is being paid—I am not talking about the ordinary stuff that we pay off each month. That has not decreased. According to the Bank of England’s September figures, the level of credit that has been overrun is currently at £58 billion and interest is being paid at more than 15 per cent, which is £9 billion of interest due each year. The noble Lord, Lord Myners, was kind enough to write to all the banks asking them for details of what value they had on their books. Only one answered, and that was Barclays Bank—and I felt that it prevaricated in its answer. Does my noble friend agree that that is an example of the reservoir of potential toxicity that can make people very apprehensive about the fundamentals of Britain's economic situation?
Lord Sassoon
I am grateful to my noble friend Lord Marlesford for pointing that out; I absolutely agree. Any country that has total debt—he is talking about wider debt—of 400 per cent of GDP, as this country has, is indeed skating on very thin ice.
Lord Myners
Surely it is a matter of the purpose for which that debt is used. If the Minister is criticising people for taking out mortgages to buy their homes, which is the largest single source of domestic debt, that is a novel and important statement from the government Benches. Surely, Minister, you need to have regard to both the assets and liabilities on both the public and the private sector balance sheets.
Lord Sassoon
I am grateful for the noble Lord’s attempts to put words into my mouth, but of course we want to see a steady and sustainable mortgage market.
I want to get back to the question of growth and getting the economy on track, which is where we got into this interesting debate but somewhat sidetracked from the main thrust of the debate this afternoon. The noble Lords, Lord Eatwell and Lord Desai, asked about growth, which is important. The question is whether the growth will be sustained and at what levels. I was just looking at the latest of the international forecasts issued: the OECD's November 2010 economic outlook from last week. It is now forecasting growth for 2010 to be 1.8 per cent, growth for 2011 to be 1.7 per cent, and growth for 2012 to be 2 per cent. Of course, we wait until next week to see what the OBR’s latest forecast will be.
On one point of detail from the question asked by the noble Lord, Lord Desai, I do not think it is correct to say that the quarter 2 growth numbers have been revised down. There has been some discussion about what was always seen as a surprisingly high number, but there has been no formal revision of those numbers. If there is, it will be on 22 December. Growth prospects remain robust in the view of most independent commentators, although, as I have said here before, of course the recovery is bound to be choppy.
We then had a couple of comments about child benefit policies. That links into the general state of the economy that we inherited. My right honourable friend the Chancellor announced the withdrawal of child benefit for families containing a higher rate taxpayer in order to make a contribution to addressing the deficit that we inherited from the previous Government. In current circumstances, it is simply wrong that the lower paid should be subsidising the better off. Times are very tough; this is a tough decision but a necessary one. There have been all sorts of suggestions as to how it could be implemented, but the Chancellor was explicit about the need to avoid a complex system of either means-testing or something that would require significant changes to the existing PAYE and self-assessment systems.
Lord Eatwell
On child benefit, I did not argue that it was not inappropriate for the burdens of deficit reduction to be widely shared; I argued that the Government’s policy will not work. It has not been thought through. It is incompatible with the structure of child benefit as it is paid today. Perhaps the Minister would like to take my example of a top-rate-paying taxpayer who, on the death of her husband, moves in with a daughter who is receiving child benefit. Is that grandmother going to be fined by the Chancellor or will her daughter lose her child benefit? I do not think that is very family friendly. Do you?
Lord Sassoon
I have explained the general and difficult principles within which we have had to operate. My right honourable friend has had to make difficult decisions on child benefit. The case study put forward by the noble Lord, Lord Eatwell, reminds me of the sort of things that were presented in a tax exam when I was struggling through my accountancy qualification. Of course there are complicated cases but, as I have explained, in the implementation of child benefit it has been important to avoid a complex system or one that required a fundamental rewrite of the existing PAYE and self-assessment systems.
I come back to the fundamental point underlying all this which is that growth prospects remain on track and, in answer to a related question from the noble Lord, Lord Desai, borrowing remains on track. I will give an update in parallel with the autumn forecast next week, in the normal course. However, in terms of the funding to date, the programme is ahead of the pro-rata schedule, so the Debt Management Office has raised £127.4 billion to date, which accounts for 77.2 per cent of the remit that it was given at the time of the Budget. That is slightly ahead of the pro-rata run rate. The DMO has carried out that mandate on very fine terms. If the remit needs to be changed in any way, that will come next week, in the normal course.
I thought there might be some points to address to my noble friend Lord Ryder of Wensum, but his advice was addressed to the Monetary Policy Committee. I listened with interest to what he had to say and note that in some of the things he has said in this area in the past he has proved prescient. I am sure that the Monetary Policy Committee is listening to his thoughts.
I turn to tax policy making. I was grateful to the noble Lord, Lord Eatwell, for welcoming the steps we have taken and to my noble friend Lord Newby. In answer to their questions, the Government welcome the contribution of the Economic Affairs Committee. If the new timetable gives the Select Committee time to look at the draft legislation, as it should, we would welcome any comments that it has on it. That will add the greater scrutiny and transparency that we wish to see. I take my noble friend’s point about fuller Explanatory Notes and will look to see whether there is any more that we can do on that.
On the question about whether it was right in around 2003 or 2004 to move responsibility for tax policy making wholly into the Treasury, from what I observe of how that operated then and now, there have been considerable gains from the physical collocation of a large part of HMRC’s headquarters and the Treasury. I certainly observe that HM Treasury’s tax policy making is absolutely informed, as it must be, by what HMRC brings to the table, even if the formal responsibility is not what it was originally.
On one final point, my noble friend Lord Trenchard talked about the number of European-related clauses. To get the record straight, in another place, the litany of such clauses was slightly erroneous because, on my list, Clause 14 on film tax relief has no European link, whereas Clause 4 on seafarers’ earnings has a European link. The list is a series of technical adjustments, whether it is the important question of the length of cigarettes to reflect an EU directive aiming at counteravoidance or technical adjustments related to VAT directives. These things are relatively technical and it is important to make sure that we align the details of our regime with what is changing in Europe.
I am afraid that I may have disappointed my noble friend Lord Newby, who commended me charitably for my brief opening, but I will not detain noble Lords any longer other than to say that we have had an interesting debate today. We have not talked in any detail about the clauses of the Bill, which I take to mean that the Bill—in the way that it removes some of the discrepancies that plague our tax system—is welcomed on all sides of the House. I commend this Bill to the House.