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House of Lords

Friday, 28th April 1995.

The House met at eleven of the clock: The LORD CHANCELLOR on the Woolsack.

Prayers—Read by the Lord Bishop of Lichfield.

Finance Bill

The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Henley): My Lords, I beg to move that the Bill be now read a second time.

It seems that a relatively short time has passed since we were discussing the 1994 Finance Bill. Today we are here to debate the 1995 Bill in full, following our earlier discussion of the Chancellor of the Exchequer's Statement on 10th December. The Bill contributes to the Government's overall economic policy of promoting sustained economic growth and rising prosperity, through structural policies to improve the long-term performance of the economy, by maintaining a stable macro-economic environment.

The key consideration underlying the 1994 Budget was the need to keep the economy on track to achieve sustainable and non-inflationary growth by maintaining firm control over public finances. Borrowing is set to fall rapidly. We are projecting a PSBR of £21½ billion in 1995-96, falling to £13 billion in 1996-97, returning to balance by the end of the decade. That reduced borrowing should provide an added stimulus to business confidence and further strengthen the economy.

The improvement in the public finances has been due in no small part to tight control of public spending. Spending will be almost £30 billion lower than previously projected over the survey period. We have introduced a wide range of policy measures designed to target resources to areas where they are most needed. We have launched a major crackdown on social security fraud which is set to save over £2 billion over the next three years. Reforms of housing benefit and income support for mortgage interest will keep costs under control while protecting those most in need. We are continuing with our tough drive for economy in administration. Central government running costs have been reduced by £300 million for 1995-96, compared with previous plans.

The Budget itself included a number of tax and other measures to help business, aimed at improving the prospect for jobs and strengthening the long-term performance of the economy. That included a package of measures worth £1.7 billion over the next three years, to help small businesses. We recognise the difficulties faced by such businesses and their crucial importance to the British economy. That is why we have taken a great many opportunities to provide help in the area since 1979.

The Budget included a cut in employers' national insurance contributions for the second consecutive year, transitional relief for business rates, tax reliefs for venture capital trusts and an enhanced enterprise investment scheme to stimulate investment in small firms, and numerous measures to ease the burdens on small

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businesses. That easing of burdens, particularly through deregulation, is a long-running theme of the Government's policy towards small business. Changes in the Budget include: allowing more firms to account quarterly for PAYE; consultation on a possible move to annual VAT returns, and on a simplified scheme of VAT accounting for small traders. The new venture capital trust scheme and the enterprise investment scheme will encourage the flow of investment into small and growing businesses, filling one of the gaps in the range of financing options available to growing companies. The measures that I have mentioned have been welcomed widely by many and will reinforce the Government's commitment towards ensuring that we have a healthy and vigorous small firms sector for the future economic well-being of the country and to achieve higher levels of employment. That theme is particularly important when one considers that 96 per cent. of the 2.7 million firms employ fewer than 20 people.

The Budget was intended to have a broadly neutral effect on the public finances compared with previous plans. But it followed, of course, two Budgets in which taxes have risen. We did not want to have to increase taxes, and we will reduce them as soon as it is prudent to do so; but we did it because it was economically necessary. It was a hard decision, but being in government is about making hard decisions. I should, however, point out at this time that, no matter how hard the decisions, the Government remain committed to ensuring that those more vulnerable members of our society are not neglected. With that in mind, I am sure that noble Lords will be pleased to note that from 6th April this year personal allowances for the over-65s were increased by £430—that was £330 more than was necessary by indexation—and that the lower 20 per cent. tax rate was widened by much more than was necessary for inflation.

My right honourable friend the Chancellor of the Exchequer said in the Budget Statement that the British economy is currently facing the most favourable set of economic circumstances it has seen for many years. The Budget was designed to create the right environment, strengthen British business, create jobs and keep the economy firmly on track for growth that can last.

I now turn to the Bill. Once again we have a long Bill before us and I accept there has been some concern about its complexity and its length. However, approximately 80 pages are devoted to self-assessment, a major reform of the tax system. Another 25 pages or so are dedicated to venture capital trusts, which I mentioned earlier. And about 30 pages result from a long overdue rationalisation and simplification of vehicle excise duty. The Bill also legislates for many of the Budget measures which give help to businesses and which provide further opportunities for savers.

The Government though are aware of how complicated tax legislation has become and remain committed to making it as simple as possible, consulting in advance wherever we can on our proposals. There has been extensive consultation with tax experts and with interested parties on almost two-thirds of this Bill. Over 60 clauses have been made available in draft to help the Government get the legislation right. And we will

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continue to consult wherever we can. Again, we have published explanatory Notes on Clauses. These have been welcomed as an aid to understanding the measures being proposed more fully.

I now turn to the detail of the Bill and I should like to begin with those clauses covering indirect taxation. As a result of the decision taken in another place on 6th December to leave the rate of VAT on fuel and power at 8 per cent., my right honourable friend the Chancellor of the Exchequer announced a number of measures on 8th December to ensure that the public sector borrowing requirement would continue to fall in line with the Budget strategy. I delivered this Statement concurrently to this House and, as a result, Clauses 3, 7, and 11 of the Bill we have before us today provide that the duty on alcoholic drinks be increased by around 4 per cent. and specific duties on most tobacco products increased by some 3.7 per cent. (on top of the increase of between 5 per cent. and 6.4 per cent. in Clause 10). There will be no further increase on hand-rolling tobacco but duties on road fuels (leaded and unleaded petrol and diesel) have also been increased by 1p a litre (including consequential VAT) equivalent to between 2.5 per cent. and 3 per cent. above the 8.3 per cent. in Clause 6.

Clause 12 reduces pool betting duty from 37.5 per cent. to 32.5 per cent. This reduction was implemented in response to the real concerns of the pools industries which have faced stiff competition and loss of turnover since the start of the National Lottery. Clause 13 increases the rates of duty on gaming machine licences by 20 per cent. This is the second increase since the March 1993 Budget but the two increases together do no more than restore the real value of the duty to 1987 levels. Clause 14 and Schedule 3 amend the Betting and Gaming Duties Act 1981 to widen the scope of gaming machine licence duty to include amusement machines and to allow payment by instalments for annual licences on all machines subject to the duty from 1st November this year. Clause 18 raises vehicle excise duties on cars by £5 to £135. Clause 19 and Schedule 4 contain amendments to the Vehicle Excise and Registration Act 1994. They are designed to simplify the vehicle taxation structure—reducing the number of concessionary clauses from 132 to 11—and to introduce other measures to combat evasion from excise duty, and to make minor changes in the administration of the duty. Clause 21 provides for an 8 per cent. rate of VAT to apply (with effect from 1st April this year) to fuel and power for domestic or charity use. This clause, through amendments to the VAT Act 1994, establishes the rate of tax and the scope of its application. Clause 25 is related to groups of companies and amends the registration provisions, and is designed primarily to counter a particular type of tax avoidance scheme.

Clause 30 increases the scales used for charging VAT on fuel used for private mileage in business cars in line with the Inland Revenue fuel scales with effect from 6th April this year and introduces a separate scale to be used by businesses on annual accounting periods. The scale charges to petrol cars are increased by 5 per cent. and for diesel cars by about 4 per cent.

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Turning now to direct taxation. Clauses 35 and 36 set the income tax rates and allowances for 1995-96. The rates of tax are unchanged from 1994-95. The lower 20 per cent. rate limit is set at £3,200 of taxable income, compared with £3,000 in 1994-95, an increase which is more than double that required by indexation. It is also worth noting that most allowances and thresholds were indexed in the last Budget. We also provided additional help for pensioners. The age related personal allowance has been increased by more than inflation and this will offset the effect of the restriction of the married couples allowance on the elderly. Likewise, the widening of the lower rate tax band overcompensates for inflation. This represents a tax cut for the less well off and we should not forget that over 5 million people—one in five taxpayers—now pay tax at only 20 pence in the pound.

Clause 44 exempts accessories for the disabled from an income tax charge when fitted to a company car. The exemption applies not only to special accessories designed solely for use by a disabled person but also to optional accessories, such as automatic transmission and power steering, where these are needed to enable a disabled employee to use the car, where the employee is an orange badge holder. These changes have been widely welcomed as ensuring fair treatment for disabled employees with company cars.

Clauses 70 to 73 and Schedules 14, 15 and 16 cover the measures in the Bill relating to venture capital trusts. Individuals will have relief from income tax on dividends from venture capital trusts for investments of up to £100,000 a year. Capital gains tax relief will also be available. Along with the enterprise investment scheme, the VCT proposals put in place an effective set of measures aimed at generating equity investment in growing companies.

The measures contained in Clauses 103 to 129 continue the work to introduce self-assessment. The new system aims to streamline the present complicated rules for assessing and collecting tax. A lot of consultation has already taken place in this area and the Government are determined to develop extensive education and publicity to help people to understand the new rules.

Clause 137 removed the existing restrictions on the inclusion of part-time workers in tax-relieved employee financial participation schemes. Clause 155 increases the rate of inheritance tax agricultural property relief for let farmland from 50 per cent. to 100 per cent. where the tenancy starts on or after 1st September 1995 for transfers made on or after that date.

Much of what I have said will not come as a surprise to those noble Lords who have followed the passage of the Bill closely. The Bill implements many of the measures announced by the Chancellor in the Budget last November. The Budget was designed to keep Britain firmly on track for growth that can and will last and which will strengthen British business, create more jobs and lay the foundations for sustained rises in prosperity.

The Bill implements many important parts of the Budget. I commend it to the House.

Moved, That the Bill be now read a second time.—(Lord Henley.)

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11.21 a.m.

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