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Rob Marris: The right hon. Gentleman has just suggested that the Government forgo a considerable source of revenue. He and his colleagues have suggested that the Government do not have enough revenue, so will he say how much the abolition of inheritance tax would cost in the next financial year?
Mr. Jack: I apologise for not having declared my business interests as a company director at the outset—the omission was a discourtesy, but I now correct it on the record.
In response to the hon. Gentleman's question, I have the luxury of being able to say what I would like to see. If I had access to the data that I used to have as a Treasury Minister, I might well be able to give him chapter and verse on how the missing billions could be made up, but there comes a time when we have to look at taxes in principle and see whether they are still doing the job that they were designed to do. Inheritance tax was brought in when we did not have the current range of taxes on income, investments and other resources. I would not dispute that the £4.5 billion involved is a significant sum, but it is not so significant that it could not be recovered by some other mechanism. That is my personal view. It does not bind my party, which has its own views.
Rob Marris: I believe that the figure for the forgone taxation for next year would be £2.8 billion, which is a considerable sum. It is no good the right hon. Gentleman just saying, "Well, I'm in opposition, so I needn't make any positive proposals." That does not help public debate.
Mr. Jack: With great respect, that is not what I said. I said that I had the luxury of being able to give a personal view. [Interruption.] My right hon. Friend the Member for Charnwood (Mr. Dorrell) informs me that inheritance tax amounted to £2.5 billion, which is less than I had thought. Given the resources that I formerly had, I am sure that I could find ways of recovering some of that money.
The Chancellor, who was seduced by the film luvvies, has now realised what a waste of money it was to plough resources into film finance, and he is now having to change and restrict the mechanisms. He probably blew far more on one year's profligacy on the film industry than my modest change, which would be of great benefit to so many people with modest means, would cost. He tried to make a virtue of those changes, but it was he who created the problem in the first place.
The Chancellor said that he hoped to recover some of the missing tax billions through new anti-avoidance procedures. But with due respect to him and the Paymaster General—she is in her place on the Front Bench—part of the reason why people have such fun with the tax system devising complex avoidance schemes is that the tax law itself has not been written well enough, or with sufficient perceptiveness in terms of what the real world would make of such proposals.
It is all right asking people to self-report to the Treasury any new tax avoidance scheme, so that the Inland Revenue can immediately leap into action and close tax loopholes, but the Revenue and the Treasury would be better advised to use some resources to carry on with the tax law rewrite exercise and expand its scope and scale. Plain English could thus be employed as rapidly as possible on the rest of the tax code so that people could with greater clarity understand the vulnerabilities of the tax system and rules that in many cases were devised for a world different from today's financial and accounting regime. Avoidance exists only because people look at the wording of the tax statute and take a view of its applicability that differs from that of the original authors, whose words we enshrine into law yearly through the Finance Bill.
One intriguing thing about the process of closing tax loopholes, as described in the Inland Revenue's press notice 5, is that there is absolutely no prediction or measurement of effectiveness. No target is set and we have no idea what the successes will be. Having listened to the Inland Revenue when I was in the Treasury, I know that its major company inspection exercises reveal threats to the tax system. Very large sums of money are presented to the Minister with responsibility for the tax system with a view to protecting it, and measures are introduced. But if the Chancellor is investing a great deal in avoidance, he will already know what kind of avoidance schemes have been discovered. There is no mention of how much money has been identified by the work to date, and there is no target for the future. I am beginning to think that this is a last-ditch pre-Budget effort to say, "I am shoring up tax revenues, but I am not quite certain what kind of fishing expedition I am on."
Mr. David Laws (Yeovil) (LD): In fact, the right hon. Gentleman is being kind to the Chancellor. The largest item of tax avoidance that the Chancellor has identified is the loophole that he himself opened two years ago when he introduced a 0 per cent. corporation tax rate, which caused so many businesses to incorporate. By closing that loophole, he will take £850 million of yield over the next three years.
Mr. Jack: I am most grateful to the hon. Gentleman for reinforcing my argument. Perhaps this lack of awareness of what is going on in the real world of tax accounts for the figures in table C of the Red Book, which is entitled, "Changes in current receipts by tax since Budget 2003 and the 2003 Pre-Budget Report". The table shows that net taxes and social security contributions for 2003–04 are down by £4.7 billion, and down by £5.5 billion for 2004–05. There is a haemorrhaging of tax receipts, which, for the reasons that I gave earlier, brings into question the validity of the receipts line in today's Red Book. By definition, that also brings into question the amount of borrowing that the Government have put before the House today.
My right hon. Friend the Member for Charnwood challenged the Chief Secretary to the Treasury by saying that "productivity", like "prudence" and "savings", was a word that seemed to be absent from the Chancellor's speech. I do not know which table the Chief Secretary subsequently waved at my right hon. Friend, but I draw his attention to box 3.1, on page 49 of the Red Book, which points out the historical problem of productivity in the United Kingdom. It confirms that
- "workers in the US are still just under 30 per cent more productive than UK workers."
Mr. Plaskitt: The right hon. Gentleman cites box 3.1 in the Red Book, so why does he not quote what is stated above the table—that the new data show
- "that since 1997, UK productivity has grown faster than its main competitors."?
I shall now move on to environmental taxes. I must say how disappointed I am that in this Budget the Chancellor has sustained the duty reduction on biodiesel at 20p per litre. I suggested after last year's Budget—and, indeed, in debates over the Finance Bill and during the course of the Environment, Food and Rural Affairs Committee inquiry into biofuels—a wholly cost-free method whereby the Treasury could have its cake and eat it. Users could pay the increased costs of the biofuels and the Treasury would not be troubled to increase the dispensation on duty to the 30p currently required by the industry. If we simply applied the principles of the renewables obligation from the field of electricity to biofuels, we could have our incorporation at between 2 and 5 per cent. and meet the European target with no cost to the Treasury—yet the way of achieving that has not even been acknowledged. If we are serious about CO2 reductions, that matter must be attended to.
The Chancellor made great play in the Budget speech of his efforts to reduce the size of the civil service. In due course, I hope that more details will be published, particularly regarding parts of the world outside London, where there is also a high dependency on civil service work. In that context, I think particularly of my part of the north-west of England. We are now well into the second term of a Labour Government, who have to employ outside people to identify the waste that sheer profligacy and expenditure on public services actually causes. That shows the lack of careful monitoring of how public moneys have been used. The public will view what the Chancellor said with a degree of scepticism. They know that, since the Government came to power, the average household has had to pay an additional £5,000 in tax burden. Some of that money has simply been squandered in additional waste by Departments, which now have to be cleaned up by the so-called Gershon inquiry.
I want to conclude my remarks with two points: one about expenditure, the other about savings. On expenditure, I was pleased to hear the Chancellor say that the defence budget would not be the subject of cuts. If he really wants to contribute to manufacturing industry in the north-west of England, will he ensure that his defence colleagues come to a conclusion quickly on the second tranche of the Eurofighter Typhoon? About 40,000 aerospace jobs depend on that order being concluded. The Government say that they want the aircraft and that they remain committed to the 232 Eurofighter Typhoons, so will they kindly make their minds up, sign up and get on with buying them?
I conclude with some observations on savings. The Chancellor did not touch on that area of economic policy. As has been mentioned, the savings ratio has effectively halved, having from fallen from 10 to roughly 5 per cent. under this Government. Personal savings have been bashed as a result of the failure of endowment policies, the ending of tax credits and personal equity plans and the cuts in benefits from individual savings accounts that will soon come in. What on earth is the Government's savings policy?
The new children's tax fund announced by the Chancellor may be a gain, but it does not address the need to help and encourage people to save in the way that the Government believe to be necessary. For example, endowment policies have failed to deliver the funds needed to pay off mortgages. So far, in the wake of the Penrose report, the Government have turned their face against compensation. Surely, the Government should have used the tax system to encourage people to save for all the contingencies that they face? Instead, they have done nothing. That is a dereliction of duty by the Chancellor, who has missed a Budget opportunity.
Opposition Members have pointed out the good bits and the bad bits in the Budget. The Chancellor has much to do to make credible the numbers that he has put forward today. One certainty is that new and increased tax revenues will have to be found somewhere if the Chancellor is to meet his spending obligations.
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