Finance Bill

Lord Davies of Oldham Excerpts

Monday 16th July 2012 Lords Chamber

[Lord Davies of Oldham]

My Lords, the noble Baroness, Lady Kramer, probably expressed what we are all likely to feel about this debate. We have had in the House a series of economic debates and questions and many opportunities to consider the Budget and its ramifications over quite a considerable period. That may just account for tonight’s fairly limited attendance in consideration of the Finance Bill. Of course, we all recognise the limitations of this House in considering the Bill, but there is no doubt that in the context of the developing economic situation and the Government’s actions over the past few months, it feels as though it has been with us for a very long time indeed. This is not, however, the Bill which the Chancellor introduced. The outstanding feature of this Finance Bill is that it was trailed from the Treasury before the speech was made; the kind of approach which back in 1946 caused a Chancellor to be dismissed for speaking out of turn. These days, of course, trailing things is looked upon as a high political art form, though a great deal of what was trailed then did not turn out to be reality.

We had not been very long into discussions on the Finance Bill before the Government began to exercise a dizzying series of U-turns, whether it was on hot food, static caravans, improvements to listed buildings or charitable donations. All were changes which the Government then dressed up as the result of consultation, when in fact the proposals in the Budget were repudiated by a Chancellor who was fast losing confidence in his own decision taking. The result is that we will have from the Minister a paean of praise to the wisdom of the Government for the way they have handled the economy, with ne’er a mention in his speech of where the resources are meant to come from to fill the gaps which these subsequent concessions have caused in the revenue. We thought many of these original measures were misconceived; the Government have merely spread consternation by their rethinking of the position. The other characteristic of all Treasury Ministers—and the noble Lord, Lord Sassoon, enjoys his part in that role—is that they appear to address everything to deal with the nation in terms of the Finance Bill being concerned with business, taxation and how the country pays its way.

Those are important considerations. They ought to be a substantial part, and inevitably are, of every Budget. But where is the concern about the society that the Bill will impact upon? Where is the concern about social justice? Apart from the phrases about us being “all in this together”, where is the evidence? The Minister indicates that giving a substantial tax concession to millionaires—not mentioning, of course, that the Cabinet consists largely of millionaires—is merely a reflection of the fact that the tax does not raise too much. Of course, there is no consideration at all of the impact upon the nation of a Government asking it to take the deprivations that occur in this Budget: the loss of benefits and the onslaught on vulnerable people in our society. There is no consideration at all that giving a concession to millionaires creates a symbol of a totally unfair approach to government. Is it therefore not surprising that the Government are losing their credibility among the nation, as is clearly evidenced every time the Prime Minister loses control of his arguments at Question Time in the other place?

I understand what the noble Baroness, Lady Kramer, says about taking low-paid people out of income tax. Of course that is to be welcomed. However, she must also recognise that the major priority enjoined by all those who are concerned about the state of British society—and a number of other western societies as well—is that some tackling was necessary during the years when we were in Government of the excessive degree of child poverty, which was a stain upon our society and measure of the unfairnesses which our society metes out. Children, after all, are not responsible for the state they are in, but everybody recognises the crippling disadvantages of being born and trapped in poverty. The Government, of course, are ensuring that that trap becomes even more vicelike in its control through the significant reductions in benefits. We know what that means for children in poverty.

Of course, it may be that some concession was made to lower-paid workers, but it certainly was not made to pensioners. The Government have abandoned their commitment to the age-related allowance for pensioners in line with inflation, and introduced their granny tax.

We have argued that this Budget is so manifestly unfair and inappropriate that the unfairness is being felt throughout society. It is also utterly and totally ineffective. I do not have detailed questions to ask the noble Lord; that is just as well, as I hope that he would be able to restrain his winding-up speech to reasonable limits and he has a great deal to respond to from the noble Lord, Lord Flight—and, indeed, from the noble Lord, Lord Browne of Belmont.

However, I add one caveat to the noble Lord, Lord Browne: we have got to be somewhat judicious in this House when we are commenting on and playing our part in making laws which apply to those who are a generation or two behind us. Their mores are different. That is not to say that we do not recognise that so many value marriage; that is why weddings take place with great panache all the time. I imagine that many noble Lords in this House enjoy, as I do myself, a situation where my marriage is reaching almost 50 years; so I am certainly not going to be against marriage. But I am counselling against giving advice to a generation which has got a different approach to the way in which it expresses its commitments between man and woman. We would all recognise that a decade or so ago expression particularly on the Conservative Benches of this House on issues of equality for homosexuals was totally different from the perspective with which the Conservative Party responds today. I am not so sure about its entire membership in this House but certainly its agreed policy as regards its Members of Parliament. I have slight anxiety about dictating to a younger generation what the incentives should be with regard to their social relationships.

I have one question for the Minister: what is his response to the International Monetary Fund’s announcement today that growth will be 0.6% lower than the Government and the OBR have forecast for this year and will be 0.6% lower next year? The Government are left with the prospect of 0.2% growth this year. What an emergence from a double-dip recession that represents. Even the following year, only 1.6% growth is forecast. Therefore, both years will be manifestly below the average for advanced countries of 1.9% growth.

We are falling further behind in terms of growth and there will be a reduction in our resources. That is why the Government are in such difficulty with regard to their Budget, and why there are such privations on the least well off in our society. Ordinary people are feeling the pinch. There was not a word from the Minister or a single word in this Finance Bill about anything to do with unemployment and scarcely anything to do with employment. One million young people are unemployed. Is the Minister suggesting that they are responsible for that? Have the Government not got some responsibility for tackling those issues? I ask: what in this Bill relates to those issues? There is nothing. After all, if there had been anything, I am sure that the noble Lord would have referred to the issue but, of course, he did not.

We have a Finance Bill which partially reflects the total incompetence of this Government and their dizzying U-turns over the Budget proposals. The Budget is inherently and manifestly unfair, which leads to the nation rejecting and being critical of those who introduced it.

This recession was made in Downing Street. If the Chancellor concentrated rather less on his main bête noir—the Shadow Chancellor, Ed Balls—and a little more on the real economy, we might see a rather better approach to the crisis that this nation is in. It is absolutely clear that part of this is driven by the fundamental beliefs of the Chancellor and those who support him. They are using what is undoubtedly a crisis with regard to public finances to indulge in their commitment to create the smaller state—to reduce welfare and care for those in need. They did it in the 1930s and they are doing it in the second decade of the 21st century. It did not get us out of recession in the 1930s and will not now. The proof is already there. Meanwhile, it is the ordinary citizen of this country who pays the price.

[Lord Sassoon]

My Lords, as I respond to this debate on the Finance Bill, I thank the dedicated band of noble Lords for contributing to this short and, what was until the last intervention, rather focused debate, before the noble Lord, Lord Davies of Oldham, went off in many different directions. This year’s Finance Bill follows an unprecedented degree of consultation and engagement, and implements many of the changes announced at the Budget. I say to the noble Lord, Lord Davies of Oldham, that there were some 200 measures in the Budget and on three of them, after consultation, we made appropriate changes. Therefore, I think that his characterisation of the Budget-making process, and the changes since, is way off the mark.

First, I will address one or two of the specific points raised before returning to the bigger picture. I start by thanking my noble friend Lady Kramer for pointing out what the noble Lord, Lord Davies of Oldham, seems not to recognise—that we are now engaged in the most progressive tax strategy of any Government in recent years. I completely agree with her. Not only is that the case but it is demonstrably the case. No previous Government have put distributional tables into the Budget document so that it is completely clear where the majority of the pain is falling, which is on those with the broadest shoulders in the top percentiles of the income distribution. I can assure my noble friend that as we carry on the progress on these many issues, we will make sure that we are very alive to loopholes. On stamp duty, for example, there are clearly questions, with possible ways of doing sub-sales avoidance and so on.

My noble friend mentions one offshore financial centre. I think that the agreement with Switzerland, which I referred to in my opening speech, shows that we will work tirelessly to take all appropriate action on that front. The noble Lord, Lord Browne of Belmont, makes a powerful case in relation to marriage. I would not go as far as the noble Lord, Lord Davies of Oldham, in rebutting that case. The coalition agreement commitment remains in place. We keep that commitment, as we do all taxes, under review. The noble Lord would not expect me to say any more this evening, but he has put on the record very clearly his feelings on this matter.

As to the IT systems of HMRC for transferable allowances, again it is an area of questioning that has been raised in another place. There is nothing I can usefully add. We do not tend to give a running commentary on HMRC operational matters. If there is anything more I can do to shed light on the specific questions that the noble Lord, Lord Browne, raises, of course I will write. However, my strong feeling is—as I suspect he realises—that I will not be able to give him anything more on that, but he makes his points very clearly.

My noble friend Lord Flight made some very technical but important points around EIS and VCT schemes in particular. He made the important point that some £12 billion of equity has been raised. These schemes have been extremely successful. As I outlined in my opening speech, we want to expand them. At one point my noble friend characterised them as giving with one hand and taking with the other. We do not see it like that. We have consulted extensively on detailed rules. Many industry groups contributed to the consultation and strongly supported the complete package of changes. However, my noble friend made his point very clearly. We keep these matters under continual review and if there are ways of making the guidance clearer and more helpful, I am sure that his thoughts will be taken on board. I will draw them to the attention of relevant officials. I also take the general point about clearer English, which is something of which we need to be reminded on a regular basis.

The noble Lord, Lord Davies of Oldham, launched a quite extraordinary attack—with which I agreed on a number of matters. My principal point of agreement was with the statement at the end of his speech that this is a recession made in Downing Street. I completely agree. The structural deficit that caused the recession to be as deep and severe as it is came from the overspending in the six years up to the financial crisis of 2008, when the previous Government diverted from the plans they had been left by my right honourable friend the previous Chancellor but three, Kenneth Clarke, who left the nation’s finances in a fine state. If the previous Government had carried on with his plans for a few years more, things would not be in the state that they are.

[Lord Davies of Oldham]

Would the noble Lord extend the same criticism to all the other advanced countries that face exactly the same issues?

[Lord Sassoon]

My Lords, we were left with the largest structural deficit in the G20. We have brought it down from more than 11% to 8%, so we are making good progress—but the size of the task was bigger than in any other major economy.

Without rebutting the full litany and charge sheet—noble Lords would not thank me for keeping them much longer tonight—I absolutely rebut suggestions that we are insensitive to the societal and distributional effects of our measures. I explained the transparency with which we set out the effects of the Budget. It is those on the highest incomes who will pay most. The real results of what we are doing are the 800,000 new jobs that the private sector has created in the past two years. It is only by the private sector creating new jobs that we will be able to afford the better public services that the country needs and the lower taxes that we deserve. New jobs, falling unemployment and falling inflation are the things that the Government are concentrating on, and which the Budget continues to underpin.

Finally, the noble Lord, Lord Davies of Oldham, referred to today’s announcement by the IMF that downgraded global growth prospects. He was right to draw attention to it. The IMF forecast minus 0.3% growth for the eurozone this year. It forecast that the Italian economy will contract by 1.9% and the Spanish economy by 1.5%. It forecast that US growth would be only 2%, and it downgraded forecasts for emerging economy growth. It is in the face of those very strong headwinds that we have to carry on with our deficit reduction programme of tight fiscal discipline and loose money. I am very happy to talk about the 1930s. We do not have time to do it in detail, but tight fiscal discipline and loose money is precisely the prescription that caused a significant increase in growth through the 1930s.

In conclusion, this Government have taken difficult decisions to eliminate our structural current deficit over the coming four years and stimulate a private sector recovery. This strategy has been endorsed by the IMF, the OECD, the European Commission, ratings agencies and UK business organisations. We have always said that recovery would be choppy and our plans would necessarily incorporate a degree of flexibility. This Bill further delivers our commitment to improve our competitiveness, encourage investment and support our businesses, large and small. At the same time, it removes hundreds of thousands of individuals from income tax and helps reduce the cost of living for families across the country, and makes these changes in a way that is fairer and more consultative than any Finance Bill before. I commend this Bill to the House.