Finance Bill Debate

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Department: HM Treasury
Lord Desai Portrait Lord Desai (CB)
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My Lords, it is a pleasure to follow the noble Lord, although I cannot say anything technical like he has. The Bill is coming before us far too late to really matter. I know we cannot amend money Bills and so on, but it would have been better had it come after it originally appeared in the Commons.

I have two observations. First, there has been a lot of effort in the Finance Bill, and by the Government generally, to emphasise tax cuts, especially tax cuts on business corporations. As an economist, I know, and it is very easy to show, that tax cuts do not actually encourage investment in a country. Whatever the corporations do, they do not plough it back into investment. Investment depends not on that sort of consideration but on expectations about growth.

What has happened here for the last 15 years is that we have had a number of corporation tax cuts and so on, but the economy has not grown. We have had one of the lowest growth experiences in the last 15 years, roughly since 2008. The Government really ought to think seriously about that, because I know that more tax cuts are promised in the forthcoming Budget. Indeed, the Chancellor is always trying to reassure people that he will find money somewhere—I do not know where—to make tax cuts. Basically, the borrowing rates on government debt are high right now because again and again there have been promises of tax cuts that have alarmed the markets. When the Liz Truss tax cut in particular was announced, it spooked the markets very much and put a lot of pension funds in trouble.

My one piece of advice is: please be careful and do not get mixed up in the idea that tax cuts somehow bring growth. They have the opposite effect from what people think they do. The recession that we have recently experienced, while it was a mild one, shows that all the talk of tax cuts ought to stop. We ought to make quite sure that we reduce our borrowing and enhance other taxes that are not efficiently imposed.

Secondly, there is one major thing, which we have seen the proof of in the Prime Minister and the leader of the Opposition releasing news on their taxes. This showed one major defect in our tax system: that we tax capital gains at a much lower rate than we tax income. That is not healthy. All economists would tell us that we ought to treat income from earnings and from capital gains in a symmetrical way. If we did that, we would increase our tax revenue and reduce our deficit.