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Baroness Carnegy of Lour: My Lords, will the Minister tell us what information the public is to receive on that subject? I think we were told that a summary of the White Paper will go to every household. Will that summary include all the paragraphs which relate to this matter so that the people know what the ballot paper means? Will there be an explanation and, if there is an explanation, will it explain to people what the Minister has just explained to us? This is quite a complicated matter. If people are to answer a specific question, they must know what it is that the Government are saying.
Lord Sewel: My Lords, the summary will be a summary. It will not contain all the paragraphs in the White Paper by any means. We shall make available to the people of Scotland and Wales a summary in simple, straightforward, plain English of what are the powers of the Scottish parliament and Welsh assembly, including the tax varying powers for Scotland.
On Question, Motion agreed to.
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Clause 1, page 2, line 3, at end insert--
Because the amendment is unnecessary, as a consequence of the amendment in lieu of Lords Amendment No. 1 proposed by the Commons.
Lord Sewel: My Lords, I beg to move that the House do not insist on their Amendment No. 5 to which the Commons have disagreed for their reason numbered 5A, to which I have already spoken.
Moved, That the House do not insist on their Amendment No. 5 to which the Commons have disagreed for their reason numbered 5A.--(Lord Sewel.)
On Question, Motion agreed to.
("( ) An order under this section shall be made by statutory instrument.")
The Commons disagreed to this amendment for the following reason--
5A
6
Clause 2, page 2, line 4, leave out ("Her Majesty may by Order in Council") and insert ("the Secretary of State may by order")
Page 2, line 4, leave out ("such day as Her Majesty may by Order in Council appoint") and insert ("18th September 1997").
Lord Sewel: My Lords, I beg to move that the House do not insist on their Amendment No. 6 to which the Commons have disagreed for their reason numbered 6A.
Moved, That the House do not insist on their Amendment No. 6 to which the Commons have disagreed for their reason numbered 6A.--(Lord Sewel.)
On Question, Motion agreed to.
The Commons disagreed to this amendment but propose the following amendment in lieu--
6A
7
Clause 2, page 2, line 4, at end insert ("under section 1(1)")
Because it is not desirable that the referendums in Scotland and Wales should be held on the same day.
Page 2, line 26, at end insert--
Because the amendment is unnecessary, as a consequence of the amendment in lieu of Lords Amendment No 6 proposed by the Commons.
Schedule 1, page 4, line 19, after ("HAVE") insert ("INCOME").
Because it is desirable to keep the questions to be asked in the referendums as simple as possible.
Page 4, line 22, after ("HAVE") insert ("INCOME")
Because it is desirable to keep the questions to be asked in the referendums as simple as possible.
Lord Sewel: My Lords, I beg to move that the House do not insist on their Amendments Nos. 7, 10, 15 and 16 to which the Commons have disagreed for their reasons numbered 7A, 10A, 15A and 16A. There is nothing more for me to say.
Moved, That the House do not insist on their Amendments Nos. 7, 10, 15 and 16 to which the Commons have disagreed for their reasons numbered 7A, 10A, 15A and 16A.--(Lord Sewel.)
On Question, Motion agreed to.
Lord McIntosh of Haringey: My Lords, I beg to move that this Bill be now read a second time. This is the first Finance Bill of the new Government that your Lordships' House has considered. It implements the major part of the Budget. That Budget was a Budget for the long term. We are not interested in short-term expediencies that are popular for a day but in the end are damaging to the economy. We will pursue policies whose goal is to ensure stability, long-term growth and sound public finances. And we seem to have made a good start, according to the IMF.
After its annual mission to review the economy, it said:
As I have said, we are not interested in measures that will be popular for a day. We have taken some tough decisions which some people have found uncomfortable. But I am sure they are the right decisions which are in the long-run interests of the whole country.
Perhaps I may now turn to the contents of the Bill. The prerequisite to improved long-term economic performance is ensuring economic stability. Giving the Bank of England operational responsibility for setting interest rates was the earliest earnest of that aim. However, my right honourable friend's Budget and Finance Bill contribute powerfully to stability.
First, Clause 15 provides for the reduction in the rate of mortgage interest relief. The housing market in the past 10 years has experienced an unsustainable boom in the late 1980s and we are only recently emerging from the inevitable slump that followed it. Stability is essential to home owners. Negative equity has been the curse of many home owners. The situation is improving, but no one wants to see another period of hardship and frustration for home-owners like that. But, equally, we do not want to return to the days when house prices were rising out of control. That is why the Budget was the right moment to announce a further reduction in the rate of mortgage interest relief from 15 per cent. to 10 per cent. taking effect from next April.
For the same reason, Clause 49 implements an increase in stamp duty, which took effect earlier this month. Property sales over £250,000 are now subject to stamp duty at 1.5 per cent. and sales over £½ million are charged at 2 per cent.
As I said, the Budget is aimed at the long term. Investment is essential to the long-term health of the economy, and the Finance Bill contains a number of measures designed to encourage it. Clause 18 cuts the main rate of corporation tax to 31 per cent., the lowest it has ever stood at, and lower than in any major industrialised country. It also cuts the small companies' rate to 21 per cent. These cuts will make it more worth while for firms to invest, as more of the profits that they earn will remain with them and not be passed to the Exchequer.
However, the cuts in the corporation tax rates are only part of the story. The tax system at present contains a significant distortion. When a company retains its profit for reinvestment, it is taxed at 33 per cent., but when it pays out to a pension fund that profit is taxed at 16 per cent. As so much of the stock market is in the hands of pension funds, there is a powerful incentive for them to press companies to pay too much out in dividends. That
The latter has not been a popular reform with everyone, as debates in another place confirmed. People naturally have concerns about how pension funds will manage in a different environment. They also have concerns about the withdrawal of the foreign income dividend scheme, where we have promised further consideration. But it was the right reform to encourage the sort of long-term investment that we desperately need in this country. The improvement in economic performance will in the long run be good for everyone, including pension funds. Now was also the right time to change the system. Many pension funds are sitting on substantial surpluses which will give them time to adjust to the new system.
There are other changes to encourage investment. At this stage of the business cycle businesses need to be investing strongly. That is why we have introduced, in Clauses 42 and 43, a temporary doubling of allowances for investment in the next 12 months, targeted on small and medium-size businesses. The change is a timing one only; but businesses will pay £230 million less tax next year which will encourage them to bring forward investment so they do not run into capacity constraints at a crucial stage of the cycle.
On top of this general investment incentive, we are proposing, in Clause 48, a special regime for British films. There is great talent and potential in the British film industry and considerable scope for increased investment and employment. We are proposing a relief which will allow 100 per cent. write-off for production and acquisition expenditure for British qualifying films costing £15 million or less to make. But this is not an open-ended relief. It is set to last for three years, after which we will review the position to see how well film makers have responded to the incentives that we are offering.
The centrepiece of the Budget was the windfall tax. Part I of the Finance Bill, together with the associated schedules, sets out the details of how it will work. The purpose of the windfall tax is of course to fund the Government's welfare-to-work programme, which truly represents a new deal for the young unemployed. But the windfall tax is more than just a way of raising the £5.2 billion that we will be spending over the years of this Parliament. It is right in principle to correct the failures of the past.
The privatised utilities were sold too cheaply and have been subject to early price regulation which gave customers a bad deal. The windfall tax addresses both those failures and recycles the money for the benefit of those in our society--that is, the young and the long-term unemployed--who have been victims of the unbalanced economic recovery that we have experienced over the past five years. We have always made it clear that we are pursuing tax policies which are fair and are seen to be fair. Little that the last government did could have been more unfair than their decision to increase VAT on domestic fuel and power to 8 per cent.; indeed, they wanted to raise it to 17.5 per cent.
The easiest decision we took in the Budget was, therefore, the one to lower the rate to 5 per cent. which is effected by Clause 6 of the Bill. Of course, we would have liked to have abolished VAT on fuel and power altogether, but we are prevented from doing so by European law. Thanks to Clause 6 all households will be better off from September by an average of £18 a year. But crucially the poorest households, many of them pensioners, will benefit most in proportion to their income because they spend a disproportionate amount of their income on heating their homes, which is what made the imposition of VAT in the first place so unfair.
Cutting VAT will cost about £½ billion a year, which must be made up from somewhere. We have chosen tax increases which further our aim of fairness. Part of the money comes from the removal of the income tax relief for private medical insurance in Clause 17. That relief benefits the few at the expense of the many. There is no evidence to show that that has led to any significant increase in the number of policies taken out by people over the age of 60. In opposition we made no secret of our intention to remove that relief and we have now done so in a way which is fair by allowing existing contracts to run their course with the benefit of tax relief.
The rest of the money that we need to cut VAT on fuel and power--indeed, a good deal more than we need--comes from a powerful package of anti-avoidance measures. I want to make it clear that the Government are serious about attacking tax avoidance schemes wherever we see them. A number of the schemes that were identified relating to VAT and insurance premium tax are being closed down by regulation. Others will have to wait for the next Finance Bill. A scheme whereby employers avoid PAYE and national insurance contributions by paying highly paid employees in the form of money owed by the company's debtors falls into that category.
However, in Clause 26 of this Bill we have been able to tackle a leakage of tax through arrangements to lend preference shares and for share dealers to buy dividends and thus create an artificial tax loss at the expense of everyone else. In Clauses 44 to 47 we have also countered two avoidance devices involving finance leases. In one, finance lessors routinely have a number of subsidiaries with different accounting dates whose sole purpose is to maximise the timing advantage of the capital allowances that they have bought off their lessees. In the other, we are blocking the sale of unused past capital allowances which are transferred to the lessor through the use of sale and leaseback schemes. In addition, as my right honourable friend the Chancellor of the Exchequer announced in his Budget, the Inland Revenue will be carrying out a wide-ranging review of areas of tax avoidance with a view to legislation in future Bills.
Finally, the Chancellor announced a number of measures designed to protect the environment and health. As the new Government's tax objectives that we set out in the Red Book acknowledge, the prime purpose of taxation is to raise sufficient money for the Government to pay for the services which their policies require. However, as the Red Book also makes clear,
The final measure that I should like to pick out from the Bill is the decision to increase the duty on tobacco. From 1st December, Clause 12 increases the duty by 5 per cent. a year on top of inflation. I make no apology for the size of those increases. They will deter young people from starting to smoke and reduce smoking overall to the benefit of everyone. I hope that in these brief remarks I have set the Finance Bill in context by showing how the tax measures we have taken, and are starting to enact today, fit in to the Government's objectives. I commend the Bill to your Lordships.
Moved, That the Bill be now read a second time.--(Lord McIntosh of Haringey.)
Lord Mackay of Ardbrecknish: My Lords, this is our annual debate on the Finance Bill. At least it has been annual up to now, but it will be interesting to see how many Budgets are introduced in one Session by the new Government. If the new Government follow the previous Labour government, I suspect that we shall discuss Finance Bills more than once in a Session. However, I suppose we are grateful that at this last gasp before the long Recess the Finance Bill is before us.
To an extent the Budget was long promised. It has been clear for some time this year that the Government were committed to a Budget to achieve two things: to introduce a windfall tax on the public utilities and to reduce VAT on heating fuel. However, I suspect that some of the other increases have hit fuel in another way. If one has oil-fired central heating, I suspect that on the one hand one has lost something, but gained something on the other hand. I am not sure what the net effect is.
What else were we told about the Budget earlier in the year before the election, apart from the proposed windfall tax and the reduction of VAT on fuel? Earlier in the year the Prime Minister told businessmen in Birmingham,
We know that we have had economic success. We have seen it. We have seen the unemployment figures fall month after month over the past four to five years. I used to recount that when I stood at the Dispatch Box opposite. At the same time as our unemployment has fallen, unemployment in most of our Continental neighbours has remorselessly risen. Unemployment among young people in particular has fallen by about 100,000 a year in each of the past four years. When Gordon Brown first proposed his windfall tax to help young people, unemployment for those young people stood at 280,000. It now stands at 180,000 and it is still falling. However, in France, Italy and Spain unemployment rates for young people are double ours or worse. I hope that the Government can continue our success in getting young people off the dole and into work. We introduced a number of schemes. Some of them were pilot schemes to try to identify the schemes that worked best and were most economic. If the Government follow that course, I shall welcome it.
The other thing that the Government inherited was an inflation target which had been hit bang on, as Kenneth Clarke predicted it would in the month of the election. The interesting thing to note is that the Budget adds 0.8 per cent. to the inflation rate. The Government have deliberately set out to increase the rate of inflation over
The Commons disagreed to this amendment for the following reason--
7A
10
("( ) An order under this section shall be made by statutory instrument.").
The Commons disagreed to this amendment for the following reason--
10A
15
The Commons disagreed to this amendment for the following reason--
15A
16
The Commons disagreed to this amendment for the following reason--
16A
12.17 p.m.
"The new Government has made an excellent start. It has set a high standard for its economic policies, aiming to maintain stability and foster long term growth while seeking fairness and developing human potential. And it has taken decisive steps towards these goals by making the Bank of England independent, introducing a Budget that makes rapid progress towards sound public finances, and initiating welfare to work and other programmes to enhance employability".
12.30 p.m.
"We have no plans to tax at all".
He told Daily Express readers,
"Our plans do not involve raising taxes at all".
He seems keen on the words "at all". He continued,
"If we have any such proposals we will make them clear before the election".
As I have said, there was one clear commitment as regards the windfall tax. I shall not discuss that in any great detail because I made my views known during the debate on the Queen's Speech. However, there was no mention of the other 16 taxes, making 17 taxes in all.
There was certainly no reason to have an emergency Budget. I believe I have mentioned my next quote before. I quote from the Economist of 12th April which states,
"Britain's economy is in its best shape for several decades. It has entered its sixth consecutive year of growth with GDP rising fast, unemployment falling, inflation low, exports growing and the balance of payments healthy. There is now plenty of evidence that Britain's century-long relative economic decline has been arrested and, indeed, that it is well placed to improve its relative performance over the next few years".
That passage appeared in the Economist on 12th April before the events of 1st May. I hope that the Minister and his friends in the Treasury will remember that and not try to pretend to us and to the world that somehow everything that happened to the economy before 1st May was a disaster but that since 1st May there has been a miracle. No doubt if they try to do that I, and even perhaps some economists on their Back Benches, will remind them of the long-term reality of the position. I mention another quotation to underline the point I am making about the strength of the British economy which this Government inherited. On 2nd July it was said,
"As we look at this and future Budgets produced by the Labour Administration, we must remember that rarely, if ever, have a Government had such cause to be grateful to their predecessors when it comes to the economy".
I must emphasise the last sentence,
"rarely, if ever, have a Government had such cause to be grateful to their predecessors when it comes to the economy".
That was not a quote from the noble Lord, Lord Desai. It came from the noble Lord, Lord Healey. I remind the Minister of that in case he tries to pretend that everything they inherited from the previous government was dreadful.
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