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Lord Eatwell: My Lords, I am sure that the whole House is grateful to the noble Lord, Lord Henley, for providing such a clear and concise, if somewhat leaden, summary of a large and complex Bill. Of course, in dealing with the second largest Finance Bill of all time—he ably summarised the largest Finance Bill of all time last year—it is not surprising that he could not cover everything. However, there are some important elements in the Bill which he failed to bring to your Lordships' attention which led to an overall picture of the Bill and of the state of the British economy which is, I am afraid, more than a little misleading.

Although the noble Lord talked about tax simplification, he failed to draw your Lordships' attention to the historic significance of Clause 160 of the Bill. This is the first clause in living memory which has been introduced into a Finance Bill against government opposition. The noble Lord's omission was all the more extraordinary because Clause 160 is about tax simplification. One might think that the Government would be in favour of that, but in fact Clause 160 was opposed by the Government in Committee. Clause 160 requires that the Government prepare a report on tax simplification, lay that report before Parliament and publish it before 31st December 1995.

I shall not embarrass the Minister by asking him to explain why the Government are opposed to that clause which encourages simplification of the tax system. One might think, uncharitably, that they are afraid that their voracious appetite for higher and higher taxes would be exposed if the tax system were easier to understand. However, I shall ask him to give an assurance that adequate time will be provided in your Lordships' House for consideration of that important report. Can the Minister also assure the House that the report will include a comprehensive consideration of the whole structure of personal and corporate taxation with concrete proposals for reform and simplification?

The noble Lord also passed somewhat rapidly over the significance of Clause 21. That is the clause which fixes the rate of VAT charged on domestic fuel at 8 per cent., not the 17.5 per cent. which the Government wanted so desperately to impose on the British people and over which they were defeated in another place. Will the Minister give an unequivocal undertaking that there will be no more attempts, in the short time which this Government have left, to increase the tax on domestic fuel, given the terrible damage that such a tax does to the living standards of some of the poorest people in this country?

The Minister failed to mention Schedule 17. Perhaps that was a matter of both political and personal embarrassment. Noble Lords will remember that Schedule 17 was discussed in your Lordships' House on 2nd February this year. At that time the schedule proposed, among other things, the taxation of the non-existent interest on interest-free loans. On 2nd February the noble Lord, Lord Henley, announced that the Government were withdrawing that provision as it applied to charities. Noble Lords will be glad to know that, perhaps as a result of their interventions on that day,

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and despite the protestations of the noble Lord, Lord Henley, at that time, the provision to tax a wide variety of interest-free loans has now disappeared altogether.

That is an interesting example of how your Lordships' House can, if given the opportunity, make valuable and constructive suggestions about the contents of the Finance Bill. It reinforces the point often made by the noble Lord, Lord Boyd-Carpenter, that there should be a procedure whereby this House could examine the Finance Bill at greater length and at a time when arguments made here could be taken into account. If that were possible, the very considerable expertise available in your Lordships' House could be deployed to the ultimate benefit of government and taxpayers.

Finally on taxation, as everyone knows, this Finance Bill is the culmination of a series of tax-raising Finance Bills initiated two years ago by Mr. Lamont and pursued with messianic zeal by Mr. Clarke. The persistent increases in personal taxation since the last general election have resulted in two new Tory records: a record number of taxpayers paying record levels of tax. The noble Lord failed to mention that.

He did mention, however, that buried in this tax-increasing Finance Bill is a remarkable tax-cutting clause—Clause 155. That clause is likely to eliminate an entire category of tax revenue. Clause 155 will provide 100 per cent. relief from inheritance tax on agricultural land which is let to tenants on or after 1st September this year. That is an almost perfect device for avoiding inheritance tax for anyone with sufficient capital, whether or not they are involved in farming. There is no need actually to farm the land; no need to hand over assets seven years before death, with all the risks that that involves; just put your capital into land early and lease it out.

It may be that that measure will increase the amount of land available to let. But is it not clear that it is a perfect avoidance device which will push up the demand for agricultural land by passive holders and thereby increase the price of agricultural land, to the detriment of prospective small farmers? That clause is damaging to the integrity of the tax system. What is the Treasury estimate of the fall in inheritance tax revenue which will be precipitated by Clause 155? If it is less than 80 per cent. I do not believe it. Clause 155 is a device for tax avoidance—not pure, but certainly simple.

Those are some of the detailed and important clauses of the Bill which the noble Lord treated rather lightly in his précis. What he did tell us was that the economy was performing well. It would be not only churlish but downright inaccurate not to agree with him—at least in part. Growth is at 3 per cent.; inflation is rising, it is true, but at a low level; unemployment is falling; and the growth of the economy is being driven primarily by exports.

As I have argued in your Lordships' House on previous occasions, the policy mix which has brought about that desirable set of circumstances comprises: first, the devaluation of the pound; secondly, a sharp increase in personal taxation, needed to tackle the folly of that reckless consumption-driven boom of the late 1980s; thirdly, insecurity, negative equity and general gloom in the housing market which has been an important factor in

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keeping consumption down; and, fourthly, falling world commodity prices, which drew the inflationary sting from devaluation.

That has been the policy mix which has brought about the "success". The question which the Minister has persistently failed to answer on previous occasions, and the question to which your Lordships deserve an answer, is this: are the Government going to continue with that policy mix? Are the Government going to devalue further? Are taxes to go up further? Is insecurity to be maintained in the housing market; or is further devaluation to be resisted, taxes cut, and a new boom launched in the housing market?

While the noble Lord, Lord Henley, totally failed to answer those questions—he did not even bother to address them—some were confronted, at least indirectly, by the President of the Board of Trade in his speech to the Institute of Directors on Wednesday of this week. Ever since the World Trade Organisation revealed just before Easter that, despite the devaluation, Britain's exports have grown little faster than world trade as a whole, we have all—with the exception of the noble Lord opposite—become somewhat less euphoric about Britain's trade performance.

Wednesday's speech revealed Mr. Heseltine in a distinctly downbeat mood. There was no economic success story in Mr. Heseltine's speech. Instead he argued that the UK has a "fundamental problem" of carrying too many weak firms. He told us that Britain is facing growing competition from high cost, well paid competitor countries like Germany and Japan. He stated:

    "The best of our companies are the equal of anything to be found in Germany. But too many of our companies are not".

We are "outcompeted" by Germany. We are outcompeted by the country whose currency has been sharply revalued—the country which rejoices in its adherence to the social chapter, which has absorbed the derelict East Germany, and whose exports last year grew in real terms as fast as ours did. No wonder Mr. Heseltine is worried. Devaluation does not seem to be enough. With manufacturing investment still stagnant, at levels which, as a share of GDP, place us at the bottom of the G7 league table, it is not surprising that he is worried. No wonder Mr. Howard Davies—by the way, we congratulate him on his appointment as Deputy Governor of the Bank of England—has argued this week that UK companies' ability to penetrate growing export markets is,

    "beginning to be seriously constrained by a serious lack of capacity".

It was not only Mr. Heseltine who revealed some of the truth about Britain's economy last week. The IMF provided some insights too. Perhaps when he winds up the noble Lord will tell us why, if the British economy is so strong and doing so well, at the first sign of currency turbulence international investors sell pounds. Be that as it may, the IMF argued in its latest World Economic Outlook that the weakness of the pound,

    "argues for earlier steps to raise interest rates further than would have been required otherwise".

Do the Government agree with the IMF's analysis? If so, what will be the implications for the investment which is so desperately needed?

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The IMF did not confine itself to the question of exchange rates and interest rates. Its spokesman addressed the problem of British taxes too. Professor Michael Mussa, the chief economist of the IMF, argued that it is important that the British Government carry through the tax increases and public spending plans that they have already announced, and keep to their aim of balancing the budget by the end of the decade. In other words, there is no room for tax cuts.

In Washington, the Chancellor of the Exchequer seemed to agree. He announced that any tax cuts must be earned by further spending reductions. Mr. Clarke's position is understandable given the fact that we now know that government borrowing is running above forecast rates. But will the noble Lord tell us exactly what the Chancellor had in mind? What further spending reductions are there? Already public spending is set to rise at only 1.5 per cent. in real terms over the next two years and therefore will fall as a share of GDP. So what is to be cut? Education? Health? Social security? Defence? If not those, what? Perhaps the noble Lord will give us a clue.

While we are considering further cuts in public expenditure, will the noble Lord tell us the Treasury estimate of the increase in public expenditure which will necessarily derive from the impact of the sharp falls of the dollar on our subscription to the European Union budget? As noble Lords will be aware, a falling dollar automatically leads to higher CAP expenditure on agriculture export subsidies. Someone has to pay for that higher spending on the CAP. How much extra will the British taxpayer have to pay?

The European Union Budget Commissioner made a most interesting statement about that on Wednesday. He said:

    "it is possible ... that we will have to go to EU governments to raise the revenue ceiling under arrangements agreed at the Edinburgh Summit in 1993".

Will the noble Lord tell us what Mr. Liikanen meant? What arrangements were made at Edinburgh to raise the revenue ceiling above that already agreed? Have the Government agreed in advance to further payments to the European Union budget should spending be forced upwards "automatically" by such phenomenon as the falling dollar?

The noble Lord, Lord Henley, told us nothing of those problems. Yet they are the problems that must be faced if the current performance of the economy is to be sustained. What we want to hear from the Government are not empty slogans about tax cuts, or empty rhetoric about the imaginary dangers of the social chapter. Instead, we need to know how the growth of exports is to be sustained, how investment is to be encouraged, and how we are to avoid the uniquely destructive power of one of those old-fashioned, Tory, tax-cutting, inflationary consumer booms.

The truth is that anything about the economy that is working well today is not because of the policies that the Government espoused at the last general election, but in spite of them. The British people know that. They know that this Government cannot be trusted on taxation; they cannot be trusted on education, and they cannot be trusted

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with the health service. They know that this Government cannot be trusted with the economy. The sooner they go, the better for all concerned.

11.37 a.m.

Baroness Seear: My Lords, despite the illuminating, most interesting and enviably well informed speech of the noble Lord, Lord Eatwell, it is the custom of your Lordships' House not to discuss the Finance Bill in great detail—given the weight of it, that must be a matter of great relief to many of us —but to talk more about general economic policy, of which the Budget, and the Finance Bill as its instrument, is a most important element.

However, I intend to talk in rather more general terms than the noble Lord, Lord Eatwell, not least because I do not have the research facilities or the expertise that he displays so admirably. If we were discussing the Bill in detail, I should start by saying that what is required in taxation is a much greater degree of simplification. The noble Lord, Lord Henley, paid lip service to the idea of simplification of tax; but does this enormous document suggest that in reality any real simplification is taking place?

The noble Lord reminded us that a high percentage of the people employed in industry are employed in small firms. The complexity of the tax system for the small and medium-sized firms to which the noble Lord paid tribute—and rightly so—and whose importance he rightly recognised must surely be a considerable problem. How can such firms be expected to cope with the complexities that the present tax system presents? I do not blame the noble Lord for not listening to what I am saying—it is not particularly interesting—but it is rather depressing to see him reading papers at the same time, if I may say so. Surely we must press for greater simplification. Some small steps need to be taken in that direction; a great many more are needed.

However, the Budget is, first and foremost, an instrument of economic policy. Shades of Mr. Gladstone, my Lords! What would he have thought of these detailed elements in the Finance Bill, in which there is very little to indicate that the Government have a grip on the vast economic problems of this country, which will not get better without drastic measures? There is little in the Bill to indicate that the Government have a long-term strategy for maintaining economic recovery. Nor had previous governments. But I do not propose to go into party politics in great detail this morning. As I listened to the noble Lord, Lord Eatwell, accusing the Government of not saying where the money will come from to do all the things we need, I longed to ask him what his party would do and to explain to us where all the money would come from, if and when his party gets into power, to do all the admirable things he wishes. We would all like to do them if we could find the wherewithal.

The primary point I wish to make is that we are up against competition. Here I agree with the noble Lord, Lord Eatwell. The competition we will be up against increasingly in the future, which will become not easier but more difficult to deal with, requires policies. Those policies must, above all, maintain stability and will need to be continued year in and year out to meet the problems we face.

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We have been into the subject in a great many previous debates, but with what is happening in the eastern countries, the Pacific Rim, Japan and America, we shall find it extraordinarily difficult to hold our own. As the noble Lord, Lord Eatwell, pointed out, there are signs that some members of the present Government are well aware that that is the position.

It will mean hard decisions. What do the manufacturers, the wealth creators in the country, really require? Will they get it from the Finance Bill and the Budget? They require stability in the economic scene so that they can make their forecasts for investment with some idea of what the future is likely to contain. One recognises that in the present world, with the volatility of finance and all the rapid changes in modern communications, stability and the ability to forecast with confidence what the future will be like are extremely difficult to produce. However, that must be one of the major objectives.

The sudden fall in the value of the pound must create considerable difficulties. It helps manufacturers to sell, but what does it do for the import crisis? To date we have been lucky not to be affected by the changes in import prices, as many of us reasonably expected would happen with devaluation. The recent devaluation and fall must have a drastic effect on import prices, and we cannot go on expecting that we shall avoid the consequences.

Stability is one of the first requirements if we are to be able to meet the competition as we should. However, it has often been said, but bears repeating, that we need far greater encouragement to invest than we have had up till now. There are points in the Finance Bill which give encouragement to investment. It is true that industry is investing more now than in the past. There is some slight improvement in recent years in industrial investment.

However, that investment is nothing like enough. Because of modern technology and the rapidity of technological advances, with new opportunities appearing, much more investment is required to back up the advances than in the past when the change in technology was nothing like as great. That raises the whole level of problems of investment and companies' needs in order to meet the problems.

Another side of investment is the requirement to encourage savings. In this country we are not adequate savers. Almost certainly we pay out too much in dividends. We ought to put the money earned into investment in industry rather than dividends. What is being done about that? I believe that there have been occasions when the CBI—and I have heard Mr. Howard Davies say this—has said that we need to have much more restraint over dividends, as our competitors do, in order to build up a much greater degree of investment than in the past. The Government need to give greater attention to that.

It is also important that appropriate investment should be made by the Government themselves. Much industrial development must come from the people who run industry. But the Government are also important investors in infrastructure and, as we have so often said, in education. I do not wish to turn this debate into a further discussion on education, but it must be underlined that the changes needed in education will be expensive. We are

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way behind others. That is probably the main reason for the difference between our performance and the performance in Germany, even though there are other reasons. The Germans and our competitors in Asia have educated and trained people so that the workforce can cope with modern technology as that technology becomes more complex and demanding.

I know that the changes and the money that has been put into education are an improvement on the past and that previous governments of both parties did all too little for education in this country. But it is a major issue if we hope to compete. We must face the fact that we shall not have a return—we will not get consumer booms—even if we do the things that are needed. Consumer booms are the last thing we want in this country, and the Government ought to have the courage to say so. If we are to have the kind of society we would like, we must find the social policies which make acceptable the economic changes that we face. The Government must ensure that money is available for the social as well as the educational policies that are required if we are to meet the challenges of the future.

If we want a decent, successful society, we must pay for it. I checked with my party that I would not be too unpopular for saying this, and it is not a popular point to make, but a decent society requires that we spend the money that is needed in order to achieve it. It is my belief that if the country really understood what we are up against, if the Government made clear what is needed, the sacrifices that are needed and the cost of getting things right, people could be persuaded to accept them. I do not want a headline: "Liberal Democrats want to put up taxation". In the past we have said that we would tax people more to improve the education system. Nevertheless, I believe that that policy can be sold to the public if an attempt is made to sell it in the right way. We all want a decent society; people would subscribe to that. Spell out what it means in terms of policies and costs and then sell it to the public. That is what we want in the Budgets of the future.

11.47 a.m.

Lord Boyd-Carpenter: My Lords, I was glad that in the course of a most interesting speech the noble Lord, Lord Eatwell, indicated that he thought that debates on the Finance Bill in this House served a valuable purpose. They did so in particular in mobilising the amount of expertise to be found in the House and in educating public opinion. I strongly share that view. The fact that we cannot amend this Finance Bill as it is a money Bill does not exclude our exercising great influence on opinion. I disagreed with a good deal of the speech of the noble Lord, Lord Eatwell, but I was glad that he began by saying that this was a valuable exercise.

I say to my noble friend Lord Henley that I do not think the Government have gone far enough in the arrangements which they have made. We are dealing with an enormous Bill, with 163 clauses and 29 schedules. One of the schedules has 12 parts. We all find it difficult to make a speech which is relevant to the Second Reading of an enormous Finance Bill such as this and at the same time deal individually with the important matters which arise

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on each clause. I say to the Minister that the Government have not gone far enough in the direction which was commended by the noble Lord, Lord Eatwell. We ought at least to have an opportunity for a general debate such as takes place on the Second Reading of the Bill in another place. We should then have something equivalent to the Committee stage in another place where one deals with individual clauses about which one is concerned. That is not all of them, of course; there are 163, many of which are of great importance.

I understand the unwillingness of the Government to let us debate these matters, and the unwillingness of the usual channels as manifested through the Procedure Committee, to allow proper and full debate. Nonetheless, I urge my noble friend that on future Bills we should have at least one debate such as the present one at Second Reading, and another equivalent to Committee or Report stage to deal with individual items. As it is, one has to insert general propositions, such as the noble Baroness just did, into a debate in which one also comments on extremely important and interesting individual items.

Perhaps I may now touch upon one or two such items which seem to me to be very important. First, Clauses 1 and 2, dealing with the duty on wine, and Clause 3, which deals with the duty on beer, are very important in the light of their relative weight and impact compared with similar taxes in Europe.

Since it has been possible, to go on a trip to Europe and bring back, duty free, wine or beer that one wishes to consume oneself, it has meant direct competition between wine merchants and brewers in this country and those in Europe. That is very unfair to British producers. In this country we produce some excellent wine and probably the best beer in the world. It is a great unfairness to producers here that any of us can go over to Calais and buy wine or beers, as the case may be, which carry a very much smaller tax than if we buy them at the shop or the pub round the corner. It really is not right, now that the free access provision is in place, to impose a higher rate of tax on wine or beer produced here than is imposed by our continental friends on the wine or beer that they produce in their own country.

I am also interested in Schedule 3, which deals with the amusement machine licence charge. I shall be interested to learn from my noble friend what is the yield of the tax in that respect. Is it to be increased by the present Bill; or will it just remain static, and if so, at what sort of figure?

I should also like to indicate an objection to Clause 15 of the Bill dealing with air passenger duty. It is quite wrong to impose a tax on people who travel by air when there is no similar tax for people who prefer to go by sea, train or bus. Why is there discrimination against the airlines? Why is it necessary to tax people who travel by air when it is not thought necessary to tax those who travel by other means? British civil aviation is of very great importance to this country. I speak with some feeling on this matter. Some noble Lords may recall that I was the first chairman of the Civil Aviation Authority. It seems to me to be an act of extraordinary discrimination to impose a tax just on airline passengers while travellers using other means of

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transport are not taxed at all. If there is an explanation or a justification for that, I shall be very grateful if my noble friend will be good enough to tell the House what it is.

I turn now to Clause 33, on VAT. VAT is a very bad tax. It is inflationary in its effect: it directly puts up prices. Although I am glad the Government recoiled from their earlier intention to impose a very high rate of VAT on domestic fuel, it still seems to me to be a mistake to impose this still very heavy tax on domestic fuel, which is necessary for all of us, rich and poor alike, if we are to stay healthy and warm in winter.

I am afraid that there are several bad taxes in this Bill, of which VAT is certainly one. Despite the heavy taxation that it involves, we shall still be involved in a deficit that is the result of excessive expenditure. I therefore ask my noble friend, when he replies, to deal with the question of expenditure. If we are to maintain taxes at this level and still have an overall deficit, we are obviously spending more than we should.

I know that that is an easy comment to make, and it is much more difficult to say what could be cut. But I stress one example rather strongly; namely, legal aid. The cost of legal aid is mounting rapidly. Over the past two or three years, despite the most gallant efforts on the part of the noble and learned Lord the Lord Chancellor to restrain legal aid, it has risen enormously. There is a question as to whether we can afford legal aid at all.

There is an alternative. We could adopt the American expedient of allowing lawyers to charge by results, and therefore not find it necessary to extract their fees from the taxpayer when they represent people of limited means. Legal aid is extremely expensive. It is a new addition to the charges that our country imposes on its people. I suggest that if, as seems to be the case, we are still spending too much, one of the targets for reduction, or indeed elimination, should be legal aid.

We have before us an enormous Bill; one which is extremely important. On its operation depends very largely the future of our economy and therefore the well-being of the whole of our people. As I ventured to say, it is right that noble Lords should discuss it very fully, and that we should discuss individual items particularly where new and additional taxes are imposed. I hope that my noble friend the Minister will indicate that the Government are prepared to listen to the views of this House. I hope that they will bear in mind the fact that it includes a very large number of people with experience both of public and private finance, and that we can make a big contribution to the good sense and judgment of public opinion on the finances of the country if we are allowed full opportunities to debate this matter.

Therefore, I hope that this debate today will be the predecessor of an enlarged and continuing process of discussion before your Lordships' House on finance Bills and indeed—dare I say to my noble friend?—consolidated fund Bills, too.

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12 noon

Lord Houghton of Sowerby: My Lords, perhaps I may be permitted to take up a short furnished tenancy of a place on the Cross-Benches to make myself more comfortable while I make my speech.

The first question that I put to the Minister is this: when are we going to bring the lottery into the Finance Bill? It is obvious that what is happening in the lottery is quite ridiculous and it is not too early to begin to take notice of it. At the present time, wherever I go I hear the same comment from the public about the jackpot: "It's ridiculous —£17 million; it's ridiculous!"

We are not taking into account the economic circumstances of that new feature in our financial affairs which generates £45 million a week and pushes it into the economy. What happens to it? What difference is that money making? Many charities will say that it is making a great deal of difference to them before any worthwhile money has been distributed for charitable purposes. We now find that a good slice of it is to be given away through our Heritage Fund for a purchase which has given rise to considerable criticism.

I shall not say any more on this matter, except that I believe that a national lottery justifies a special tax regime of its own. The provision of 12 per cent. allocation from lottery receipts to taxation is not enough. One way to ease the disappointment of those who win a £5 million jackpot (regretting that it is not £7 million, £9 million or £17 million) would be to have a threshold of 95 per cent. tax on all winnings over £1 million—or something quite moderate like that.

Your Lordships' imaginations are as good as mine, and probably better, as to what we might do with the lottery money to fortify the national revenue. It might stop Chancellors of the Exchequer sipping a glass of whisky, to fortify the Revenue, when introducing their Budgets. They might have something encouraging to say about the contribution of the lottery to the national revenue. That would help greatly and make them more popular.

I support in more than one way the comments made just now by the noble Lord, Lord Boyd-Carpenter. With him, I congratulate my noble friend Lord Eatwell, on making one of the most competent speeches on a finance Bill, relevant to the Finance Bill, that I have ever heard in your Lordships' House. Generally speaking, we go into the realms of the economy and the wider issues of the national condition; but we have deserted the terms of the Finance Bill itself. We ought to come nearer to the Finance Bill in these debates.

I regret that the Finance Bill is set down as a kind of secondary legislation to be discussed on Friday in this House. It ought to have a primary place in our order of business. Ever since I came to this Chamber, in conjunction with other noble Lords, I have tried to bring the Finance Bill to life in your Lordships' House and not pass it through all its stages—as I once saw happen—without a single word being said. I found that shocking. I attribute that to the state of mind created by the Parliament Act 1911, which seemed to strike the peerage a fatal blow in its pride and realisation of its functions. It is time for this timid House of Lords to reassert itself in the necessary quarters.

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Let us consider the Finance Bill as it is before us today. It has more than 20 clauses, from Clauses 103 to 123, to deal with the preparation for self-assessment. Clauses 103 to 118 wholly anticipate management changes. The last time that we had before us a taxes management Act was in 1970. That Bill was a very big one. It brought into a more modern perspective all the antique stuff in the Income Tax Act 1918. That Bill was open to debate in your Lordships' House and received a good deal of attention.

A few years ago, however, when we were discussing VAT, following the Keith report on enforcement—one of the most mischievous documents ever to come from an advisory committee on the subject—the Customs and Excise decided that they wanted to have powers to levy mandatory penalties taken from the courts and given to the bureaucracy. A whole schedule of mandatory penalties, which are as objectionable as the mandatory destruction orders for dogs (I must mention them), went through the other place but were considered to be outside the scope of debate in this House.

I tried to raise the question that, if there are to be mandatory penalties for failures of the VAT system under the Finance Bill, why should there not be some prizes, benefits and rewards for those taxpayers who perform their functions dutifully and accurately to date. After all, those who pay VAT to Customs and Excise are the agents of the public, who transfer the VAT paid by the public to the receiving department. Customs and Excise are merely a receiver-general of the taxes and products from VAT.

We must bear in mind the possibility that we may be asked—perhaps in the next finance Bill—to look at some more vital operative clauses on self-assessment. In this Bill there are 20 clauses anticipating the introduction of a system which we have not yet approved. That is the old dodge of the Government: to get as much done with the least amount of trouble in an area which is likely to be controversial.

Self-assessment is a revolution in tax affairs. The last one of its size was the introduction during the war of the tax deduction scheme which we call pay-as-you-earn. That was a real change. It needed an enormous amount of administrative attention and a great deal of care and public opinion to get it accepted and made workable, even in wartime, when the TUC was quiescent and the unions took it. Fancy allowing the hand of the Inland Revenue to go into the pockets of the workers, as they did under pay-as-you-earn, without those workers ever seeing the money or having any discretion as to when they paid it. It became a part of the system of pay-as-you-earn alongside all those assessed in Schedule D who had a tax called "pay-as-you-like". We must bear that danger in mind. Self-assessment will transform the whole tax system. It is time for us to give some attention to it. There should be some supervision of what is happening in the preparatory stages of such a revolutionary change in taxation. It may go so fast that the momentum cannot be stopped at the last post.

The Taxes Management Act, to which I referred earlier, should now become an issue. Your Lordships should protest against putting in the Finance Bill, year by year, under the protection of a money Bill, matters which are

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not matters of taxation but of criminal law. I refer to the penalties on the public, the fines. In the Customs and Excise scheme of VAT, the mandatory penalties are mandatory on the department and on its officials, just like the mandatory destruction of dogs. They say, "We are sorry, we have no discretion. The Act says we can do it. When we find that you have done this or that, the penalty is this. If it is repeated, it is twice as much. We are sorry, but that is the situation".

But there is a saving clause; the words "without reasonable excuse". What a beautiful let-out—"without reasonable excuse". The case law being built up in the Customs and Excise department at the present time in relation to the words "without reasonable excuse" will make history in fiscal circles later on. After all, unlike the Inland Revenue, Customs and Excise has not had over 100 years to build up its case law; it is having to make it up quickly as it goes along, otherwise it does not have the answer to many questions. For example, it did not have the answer to the question concerning biscuits. Are biscuits in tins subject to VAT? Are the biscuits food? What can be taxed? It was decided that if Customs and Excise could not tax the biscuits, at least it could tax the tins. It went to the Court of Appeal and I believe the verdict was that the court had no difficulty in coming to the view that biscuits in tins were biscuits and therefore exempt from VAT.

That is the kind of nonsense that goes on. Another case involved a plea of being late in making VAT returns. The man said that unfortunately he had left all his papers in another room at home and his little child, who was a tiresome little brat, had picked up a bundle, taken them to the lavatory and pulled the chain on them. He said that that meant he had to put fresh records together, which took time. Was that a reasonable excuse? The Customs and Excise said no and the court said yes. So, all right, you might give a tip on this matter to your grandchildren so that they know when to be mischievous and when not.

We are on the threshold of this great scheme of self-assessment. The public will be vitally interested in it. A pilot scheme was recently completed which involved 1,000 volunteers throughout the country. The aim was to see what they made of it. Nearly half of those involved made at least one mistake, though some of them were not serious. It was discovered, with some surprise, that a great many people in Britain today cannot transpose figures accurately and cannot add up at all. I fully understand those handicaps because I possess them both. But I have lived a long time to get into this condition and in many cases those people were much younger than I am. Another experiment which began a week or so ago is in a much more useful and sensible area —the City of Leicester. Just consider what the City of Leicester comprises today. That pilot scheme is in progress and it will be interesting to see what it makes of self-assessment.

Time is running on and I shall not keep the House more than a few minutes. I want to refer to the consequences of self-assessment upon the members of staff of the Inland Revenue. I fear that this Government are destroying the whole ethos of British public administration which has been our standby throughout the centuries and is the envy of the world today. There is nothing to compare with the purity and integrity of the administration that we have in

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Britain. We see scandals taking place here and there among those who ought to know better and who are paid to be honest; they are all in the private sector or areas which come near to being private enterprise. It is a reflection of the times. We do not find inspectors or collectors of taxes being put in the dock. They possess a standard of honesty to which I pay personal tribute.

It will be 80 years in July since I first entered the Inland Revenue and I have lived with its affairs ever since. For 38 years I was secretary of the Inland Revenue Staff Federation and saw it through some very formative years with important reorganisation. Do not neglect its members. Do not mess them about and chop them up. Many of them feel that their jobs are up for sale or that they are being asked to teach people in the commercial sector how to do their jobs only in order that they may be given the sack themselves. That is shocking. It is a blot on our record if we in this House cannot give some attention to Her Majesty's Civil Service. It is evident from what we have heard recently that we need more than ever to keep track of what is happening in the public sector at the present time.

The Civil Service is up for sale and that is shameful. It is much better to have honesty and integrity than to have slick stuff that goes out to computers and members of staff specially recruited. Where do the part-time workers come from? Many firms are introducing a new regime of work—the part-time job. They involve two shifts and it is mostly to catch women. There are morning and afternoon shifts because it is felt that more work can be obtained from two shifts than from one in a single day. That is what they are watching; output and economy.

I have delivered my message and I shall take every opportunity over the next few months of bringing some of these matters to the attention of your Lordships' House. I am sure everybody will be interested in what is happening to Her Majesty's Civil Service and, more particularly from our point of view, the Board of the Inland Revenue and its thousands of members of staff who have rendered incalculable service to Parliament and the public. They have got us through every fiscal crisis that I remember since 1915. Now they are being treated as though they are disposable and can be replaced by commercially recruited staff employed by those who have an interest in the public; but it is questionable whether they have their minds on the public interest.

Perhaps I may now return to my customary seat.

12.19 p.m.

Lord Clark of Kempston: My Lords, I am sure that I echo the sentiments of all your Lordships in saying how delighted we always are to listen to the noble Lord, Lord Houghton, whether he speaks from the Labour Benches or indeed from the Cross-Benches. His speech, particularly the part about the National Lottery, was very intriguing. Unfortunately, it had nothing to do with the Finance Bill. Indeed, having spoken about the National Lottery, I thought that he might have brought in some dogs.

Today we should be looking at the overall economic picture. All economies depend on competitiveness. An economy cannot be successful unless it is competitive. I

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welcomed the Budget. My noble friend who opened the debate mentioned some of the points in it but there are other points in the Budget which I think are worthy of mention. One is transitional relief for business rates which will particularly affect small businesses. That is a concession of some £600 million and it helps nearly 1.5 million small companies. There is extra funding for the ECGD which will mean that the insurance premium for exporters can be cut by as much as 10 per cent. That is on top of the small business tax of 25 per cent., which is the lowest in the European Union. The top rate of corporation tax is only 33 per cent. We are extremely competitive compared with our European partners. The comparatively recent set-up of information centres up and down the country to advise small businesses on how they might market their products and conduct their business is another help.

My noble friend mentioned unemployment. We should talk about our achievements a little more often than we talk about gloom. Unemployment has fallen by 632,000 since 1992. It is falling at the rate of about 1,000 a day. We have the lowest rate of unemployment in the European Union. Vacancies are increasing. Those are both pointers in the right direction.

The noble Lord, Lord Eatwell, spoke about the social chapter. Business generally accepts the fact that if we adopt the social chapter there will be an increase in unemployment. That will also be the case if we adopt the minimum wage. The noble Lord, Lord Eatwell, avoided mentioning the minimum wage because, apparently, the Labour Party cannot make up its mind whether it will introduce a minimum wage. Even if it does, it does not know what the amount should be. There seems to be a difference of opinion. I can well understand why the noble Lord did not mention it.

We heard a lot of criticism from the noble Lord, but we did not hear about one aspect of future Labour policy if the party opposite ever became the Government. I agree with the noble Baroness that the party opposite should spell out to the general public how much all its schemes will cost and where the money will come from. That is crucial.

The result of past Budgets under this Government has been the lowest inflation for 30 years. That is an achievement. In the second half of last year the balance of trade was in surplus and this year it is expected to be in complete surplus. Our exports are healthy. Just under half go to Europe but nearly 55 per cent. go to the rest of the world. We are competitive in that regard. Manufacturing output has increased by 3.9 per cent. Some may say that that is not much and that the figure should be higher. Of course it should be higher, but it is a step in the right direction. The car industry is very healthy and satisfactory. One point is seldom mentioned. Invisible earnings from the City amount to around £20 billion, which means a great deal of money for the Exchequer.

The accusation is sometimes levelled that the rich have many taxation advantages. Ten per cent. of the rich paid 44 per cent. of taxation last year. In 1979 the rich paid only 35 per cent. of the revenue. There is proof positive that lower taxation gives higher revenue to the Exchequer. In 1978-79 national insurance contributions and income tax accounted for 18.5 per cent. of GDP. In 1995-96 direct

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taxation has come down to 16.2 per cent. We should also remember that, while there have been increases in indirect taxes, welfare benefits have gone up to compensate those on the lowest incomes. More than 5 million taxpayers in this country now pay tax at the 20 per cent. rate. In the Finance Bill the limit was increased by more than inflation.

The reverse side of the coin for the Exchequer is the public sector borrowing requirement and the control of public expenditure. I sometimes wish that we could go back to the old system when we used to have above and below the line. Above the line was revenue; below the line was capital. That would give a far better balance sheet. If we are investing, we cannot charge it all to revenue. If the capital were deducted from this year's PSBR of £30 billion or £35 billion, the PSBR would probably be around £5 billion, which is containable. That is a much smaller figure than £30 billion or £35 billion.

Although direct plus indirect taxes have gone up, there is no question but that the standard of living in this country has increased tremendously. Since 1979 real take-home pay has gone up by some 40 per cent.—by £80 or so a week. We should be proud of that. Living standards have risen. Everyone's disposable income has increased tremendously. I am delighted that in his opening remarks my noble friend mentioned the pensioners. The age allowance for pensioners has been increased year after year, and in this Finance Bill it has again been increased. More than 3 million pensioners will benefit from that.

I agree with my noble friend Lord Boyd-Carpenter, the noble Lord, Lord Eatwell, and the noble Baroness, Lady Seear, that these Bills are becoming too technical. As the noble Lord, Lord Houghton, said, it is time to sit down and go through the Finance Acts to see whether we can consolidate and simplify. The noble Lord, Lord Houghton, mentioned self-assessment. That will be a burden not only on the taxpayer but also on employers because in order to fill in the self-assessment form, employees will be asking their employers for more and more information. The CBI is very keen on self-assessment, as it is in relation to flexibility for occupational pension schemes. The Budget provides flexibility for personal pension schemes but that does not apply to occupational pension schemes. That should be remedied.

With regard to the future, my right honourable friend the Chancellor of the Exchequer should take serious note of the loss of revenue caused by people on ferries bringing in cheap wine, beer and tobacco. The duty being lost is extremely high.

The other aspect which should be welcomed in relation to small businesses is the introduction of measures to ease the paying of PAYE. That is a nightmare for some small businesses, as is VAT. This Bill makes provision to alleviate the problems in relation to that.

Over the years, PEPs, TESSAs and venture capital have all helped investment. I agree that we want more and more investment. In many cases, that investment is not taking place because companies wish to pay good dividends to ward off predators. We must watch that in our economy. Of course, there is also help for the long-term unemployed.

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Again, I should like to say to my noble friend in relation to small businesses that we should look at seriously the imposition of mandatory interest for debts. Many small businesses are profitable but they do not have a positive cash flow because their customers are not paying.

As my noble friend Lord Boyd-Carpenter and the noble Lord, Lord Houghton of Sowerby, said, it would be good to hold more debates on the economy and the Finance Bill because, as they quite rightly said, there is a tremendous amount of expertise in this House. While constitutionally this House cannot change a Money Bill, it can give advice. That advice is given publicly. I was delighted to hear the noble Lord, Lord Houghton, defend the House of Lords and point out in very strong terms the advantages of keeping the House of Lords. I was delighted to hear that from a noble Lord of his stature.

In party politics we are always talking down and criticising. Let us stop that self-criticism. Let us talk about our achievements. We have many achievements. It should not be said that that is old hat. We have been pursuing those achievements year after year and we shall continue to do so.

12.34 p.m.

Lord Desai: My Lords, first, I join with those noble Lords who have said that we should find some device whereby this House can discuss the Budget before it becomes too late to do so. I understand that there are constitutional problems because the Bill must be passed by 5th May and, therefore, there is not much time available to us to discuss it. I wish that the usual channels could find a way to afford us a general discussion on the Budget soon after it has taken place. We cannot amend a Money Bill but that should not prevent us discussing the details of such Bills before it becomes too late. If we did that, we should be able to send a message across to another place that we have some ideas about the matter.

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