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The Earl of Dartmouth: My Lords, I thank the noble Lord for giving way, but how would he feel about our interest rates being determined by a central bank in Frankfurt?

Lord Bruce of Donington: My Lords, I believe that my feelings on that are already known--

Noble Lords: Hear, hear!

The Earl of Dartmouth: My Lords, I do not know them.

Noble Lords: Oh!

Lord Bruce of Donington: My Lords, my feelings on that are already well known, but the answer is in the negative. I would most certainly not approve. My noble friend Lord Barnett made the observation in his recent report on the single European currency--he is bound to regret it sooner or later--that some, if not all, economists were in agreement with having the single currency. I venture to think that that is a slight exaggeration.

Let us have vitality of argument. Let us not assume always that our opponents are wrong and that we are always right. Let us have a real examination of the real facts. We shall then be able to find the solutions, by discussion, as we have always done in this democracy of ours. I am most reluctant to suggest to the House that the Chancellor of the Exchequer could not make his own decisions--

The Earl of Dartmouth: In the case of Europe?

Lord Bruce of Donington: My Lords, I am coming to that, fear not.

I am most reluctant to suggest that the Chancellor is eventually coming round to agree. In his latest speech, to the News International Conference on 17th July last, he concluded with these remarks:

That is probably good news not just for those who believe that to be the case, but for a global media which I hope will continue to be interested in what we say. I repeat that the Chancellor referred to:

    "Great causes to argue and fight for".

Let us do just that.

6.14 p.m.

Lord Lucas: My Lords, the noble Lord, Lord Bruce of Donington, hymns the vitality of the new Labour

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Government. Should they ever reach the level of the old vitality displayed by the noble Lord and perhaps even combine that with his command of, and attention to, detail, the Government will have made real progress.

I share the noble Lord's concern about the accuracy of the figures on which the Government are operating. On a previous occasion, I treated the noble Lord, Lord McIntosh of Haringey, to a long diatribe on why I feel that the inflation rate, for technical reasons, is overestimated by perhaps 2 per cent. The noble Lord, Lord Bruce, has today questioned the unemployment figures on which the Government are operating.

The noble Lord also addressed the question which interests me almost as much, which is: how is the level of wage inflation estimated? Wage inflation is inflation only if it means that increased wages are being paid for the same output for the same job. I believe that we are in danger of creating in people's minds the impression that wage inflation is running at 6 per cent., although that is a long way from the truth of the actual level of wage inflation.

As is usually my custom on these occasions, I do not wish to engage in a long and general speech. I should like to address one particular aspect of this Finance Bill--with any luck an aspect on which the noble Lord, Lord McIntosh, will find that he has not been briefed. On this occasion, however, I am not seeking an answer, although I would be grateful for a gentle smile of approval. What I would really appreciate is a considered and complete letter at some stage over the next couple of months addressing the points that I raise.

Clause 155 sets out the basis for the code of fiscal stability. It includes the words:

    "The key principles are transparency, stability, responsibility, fairness and efficiency".

Under Clause 156, provisions are made for annual reports to be made to Parliament under the code. That is an interesting and worthwhile approach to economic management. What I want to do today is to urge the Government to expand those principles and practices to the ordinary taxpayer and to commit themselves to making the ordinary taxpayer's life simpler and easier. More and more, the ordinary taxpayer is being asked to take on responsibility for his own tax affairs. Self-assessment is but the most recent aspect of that.

More and more lower paid and unsophisticated people are coming within the tax net. Someone can be a taxpayer if they are paid only £2 an hour, let alone the minimum wage. There are almost 4 million self-employed people, about half of them with profits of less than £7,500 a year. The Government are encouraging self-employment as a way out of unemployment for people who are otherwise unable to make use of their present skills. Many people have a couple of part-time jobs going at any one time. People may move from one job to another in rapid succession. For ordinary people, the existing tax system is ill adapted to both of those practices.

Those who have complicated financial affairs are generally wealthy enough to employ accountants. As part of the great union of accountants in this House, I applaud the Government for introducing capital gains

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tax legislation which is so complicated as to increase their earnings! That seems to me to be a very worthy part of what the Government are doing! My concern is for the ordinary taxpayer, for someone who is certainly not rich enough to employ an accountant and whose basic affairs are simple. However, as the Chartered Institute of Taxation's low income action group pointed out, the taxation arrangements that are applied to that income can be fiendishly complicated.

Like, I suspect, many Members of your Lordships' House, I do not understand how the Inland Revenue arrives at my PAYE coding. It is an obscure system. The figure just arrives from the Inland Revenue and I suspect that few among us question how the Revenue arrived at it. It sets out to reconcile a system of deductions and a system of credits--and they do not match particularly well. That is complicated by the Revenue's commitment to trying to deal with any past under or over-recovery of tax rather than adopting an end-year position. All of that makes PAYE coding extremely complicated for people who are changing jobs or have a succession of part-time jobs. That can result in people being substantially over taxed. That can be a great inconvenience to people who do not earn a great deal of money, although they may get it back in the end.

The taxation system that is applied to the married couple's allowance combines odd rates, odd rules and frequent changes and is difficult to comprehend. The additional personal allowance for children is horrendously convoluted. It has difficult forms and it is difficult to understand how to take advantage of it. Even before the recent changes in dividend tax there were considerable difficulties in relation to pensioners' savings.

I understand how these complications arise. When the Chancellor is putting together a Budget the underlying legislation cannot be written because the civil servants do not know exactly what is in the Budget. The process of getting a finance Bill through so that the Government can be financed does not allow for complications and the smoothing out of the system to be addressed in the way that it might be. I also understand why finance Bills do not seek to redress past inconveniences and difficulties. One always has winners and losers and one is merely creating unhappy people without achieving any great benefit at the time.

I urge the Government to recognise that there is a difficulty here. A good number of people are being asked to take responsibility for their tax affairs while being faced with an unnecessarily complicated situation. I urge them to follow their own principle in Clauses 155 and 156 and make a declaration that tax laws shall follow the same five principles: transparency, stability, responsibility, fairness and efficiency. I add to that simplicity and comprehensibility so that the ordinary taxpayer has some hope of improvement over the years. I also ask the Government to commit themselves to making an annual report on progress. The Government have put in place a system to ensure that they improve the whole economic management of the nation and it is one in which clearly they believe. What works for the nation may well work for the tax system. There is no

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particular imposition or anything that binds them to any particular course of action, but over time the interaction between the ordinary citizen and the tax system should improve.

I have some immediate and practical suggestions to the same end. First, from time to time various people have urged that there should be two separate finance Bills: one dealing with the immediate matters emerging from the year's Budget and one dealing with technical matters. That would perhaps allow the technical Bill to be published in advance and certainly to be discussed over a longer period, because it would not incorporate matters of fiscal urgency for the Government. If the Government pursued that policy I believe that it would be a good vehicle for rules and regulations to be simplified. They could be exposed and considered at length and comments could be received from the public. The whole process of simplifying the tax laws could be taken out of the mad rush in getting through the Finance Bill.

Secondly, one of the final acts of the right honourable Harriet Harman was to initiate the setting up of a team to provide benefits advice to the elderly. I believe that that would be a perfect vehicle to provide taxation advice to the elderly. The Inland Revenue estimates that over 1 million old people get taxation wrong and lose out every year. The Chartered Institute of Taxation points out that the elderly have particular problems with their tax. Many of them deal with more than one tax office and most of them are reliant on hard-to-follow Inland Revenue literature. The various bits and pieces of the Inland Revenue have an inconsistent strategy for dealing with elderly people. The Inland Revenue has settled on the telephone as the means of communication, whereas old people need to be communicated with in writing so that they can consult others and take time in reaching their decisions. The taskforce that is to be set up by the Department of Social Security appears to be a perfect vehicle for the Treasury to make use of to alleviate some of the admitted Treasury iniquities which older people suffer in dealing with their tax affairs.

Thirdly, I suggest to the Government that they follow the US and Australian examples and support voluntary groups that give free tax advice to those on low incomes. The Inland Revenue is notably friendly to the small taxpayer. Generally, the Inland Revenue is helpful, courteous and does its best, but staff numbers have been falling. A voluntary group staffed by experts who give their time freely is likely to be more efficient and cost-effective than if the Inland Revenue takes on the job itself. In addition, a voluntary group would be seen by the individual taxpayer as being independent of the Government. That must be an advantage. The Inland Revenue cannot completely escape suspicion. However nice it may wish to be on the surface, there is always the element of the "traffic warden" about it. There is already in existence an excellent small charity that provides that service. I refer to Tax Aid, which is a charity of which the noble Lord, Lord Barnett, is a patron. In its own small way it does an excellent job and provides a nucleus upon which the Government may consider building to make advice available to the low paid on how to sort out their tax affairs.

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As I said at the beginning of my speech, I do not expect a detailed reply from the noble Lord today. However, I should be grateful to receive a detailed letter.

6.26 p.m.

The Earl of Dartmouth: My Lords, I humbly apologise to the noble Lord, Lord Bruce of Donington, for my ignorance of his views about the desirability or otherwise of Britain joining the single currency. By way of extenuation, he may well be ignorant of my views on the same subject.

I am very grateful to have this opportunity to speak on the Finance (No. 2) Bill because this is an area in which I have some small knowledge. Monetary policy has been very ably addressed by the noble Lord, Lord Barnett, and by my noble friend Lord Boardman. My noble friend Lord Marlesford has been more than eloquent in outlining the golden economic legacy of which this Government are the inheritors. I intend to restrict my remarks to drawing the attention of the House to three specific taxation measures in the Bill and their constitutional aspects. From these I shall draw some general and, I hope, interesting conclusions.

First, I address the abolition of retirement relief for small businessmen. This has been a long established relief whereby the proprietor of a small business can sell up, retire and pay no capital gains tax on the first £250,000 of proceeds. The Bill proposes to phase out that relief completely within four years. In four years' time the proprietor of a business in this category will be liable to capital gains tax at the full rate. People make rational decisions especially when encouraged to do so by the tax system. The inevitable effect of this abolition will be to encourage many proprietors of businesses in this category to sell up immediately before the tax relief begins to be phased out.

This clause in the Bill enables me to make a very important general point about the economy. The government party has been tremendously successful in getting some chairmen of big corporations to support them, or at least to acquiesce in what they are doing. However, when one looks at the pattern of employment over the past 15 years the fact of the matter is that big corporations have been reducing their activities and contracting out--they call it down-sizing--and therefore they have substantially reduced the number people they employ.

The maiden speech yesterday of the noble Lord, Lord Alli--he is not in his place today--who is a principal in a substantial independent television production company, enables me to give a graphic illustration of the point. Only 10 years ago Yorkshire Television and Tyne Tees Television employed, as independent companies, over 2,000 people. Today both companies have been merged and are owned by Granada. A good estimate of the numbers that Yorkshire Television and Tyne Tees Television together employ today is fewer than 300. The government party and the Chancellor are right to be concerned about unemployment and jobs. But they will not be getting the new jobs in television that they want from their new

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friend, Gerry Robinson, Chairman of Granada. On the other hand, they may just get some of these jobs from the noble Lord, Lord Alli, and his other colleagues in the independent television production sector. Likewise, in other industries and in other sectors it is not the Government's new friends who are chairmen of big corporations who will be providing jobs. The jobs for the millennium will come from small businesses and small businessmen, some of whom will be the big businesses of tomorrow. I submit, therefore, that it is extraordinarily ill-judged for the Government to put forward this measure in the Finance (No. 2) Bill, phasing out retirement relief. This simply gives a built-in incentive for proprietors of small businesses to sell up forthwith.

The next area I want to address is the proposals for capital gains tax. I very much to want to be constructive in what I say, and I must credit the Chancellor for re-establishing the distinction between short-term and long-term capital gains for taxation purposes. However, his proposals abolish the indexation of capital gains for the purpose of establishing the tax liability. There is a very important principle at stake here. Since indexation was introduced it has meant that the taxpayer has had to pay tax only on the real gain made after taking into account inflation. The effect of the abolition of indexation means that the taxpayer is now potentially liable to have to pay tax on artificial gains. This means that, should the Government make a mess of managing the economy so that once again we get roaring inflation, perhaps because of excessive Government expenditure, it is the Government who would then benefit from their own mismanagement. The taxpayer will be paying tax on the illusory gains created by the very inflation for which the Government would have been responsible. This is a very serious point which I suspect will give great concern to many taxpayers in the future.

The further aspect of the Bill's proposals for taxing capital gains is, as ably described by my noble friend Lord Northbrook and my noble friend Lord Lucas, their breathtaking intricacy. I, too, am a Fellow of the Institute of Chartered Accountants and I should declare what might be termed a reverse interest. Many of my fellow accountants will in future years be kept in a style to which they have hitherto not been accustomed because of the sheer complexity and difficulty of the Government's proposed rules on capital gains tax. I would therefore characterise the entire section on capital gains tax as ill-thought out.

The next aspect of the Bill which I propose to address--and this will be the last specific measure I shall cover--is the Government's new plans for taxing the corporate sector. The headline rate of corporation tax remains mercifully low. However, the Government are requiring corporations to bring forward tax payments so that tax payments will now be made on a quarterly basis. There is nothing particularly wrong with this in principle and it is indeed a practice in other countries. However, the immediate effect is the cost to the corporate sector of an additional £2 billion per year based on the principles of net present value and discounted cash flow.

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As my noble friend, Lord Howell, stated yesterday with his customary knowledge and eloquence, there are storm clouds brewing in the Far East about which we should all be very concerned. It looks very much as if a downturn in the British economy is imminent, not least because such a downturn is also imminent in the United States economy. As I showed yesterday in another debate, the cycle of the British economy mirrors that of the United States. It is not a question of whether this is a good or bad thing; the fact is that it does so already.

The Government are currently and quite rightly looking to the corporate sector to create, among other things, new jobs, to increase investment and increase productivity. There is almost never a good moment to heap another £2 billion in concealed taxation on the corporate sector, but I submit to the House that the fiscal year 1998 could hardly be more ill-timed to do that very thing.

Finally, there is in the Finance (No. 2) Bill a constitutional aspect which I feel will be of great interest to your Lordships. I made my maiden speech just over two months ago, although it seems much longer, in an important opposition debate which related to the impact of the Government's policies on the authority of Parliament. I certainly never suspected that it might be appropriate to return to this subject in the context of the Finance (No. 2) Bill. However, what is interesting about the Finance (No. 2) Bill is not so much what is in it but what is not in it. There is nothing in it, for example, about the Government's welfare-to-work programme, which is a centrepiece of their entire economic programme. There is nothing in it about expenditure, which is in any case now separate. Most worrying of all, there is nothing in it on large sections of the tax changes which are to be presented by means of statutory instruments and secondary legislation. These have not even seen the light of day, let alone been scrutinised by either House. The Government is bypassing Parliament yet again.

I would categorise that aspect of today's Finance (No. 2) Bill as being thoroughly evasive. This is important. Everybody is affected by tax, not least very low paid people, as ably stated by my noble friend Lord Lucas. There is enormous expertise on this subject in both Houses of Parliament. It would be highly desirable if the Government would take full advantage of that expertise; otherwise the taxpayer will be the loser.

In summary, therefore, and this is my closing statement, I believe that this very brief tour of a few specific areas of the Finance (No. 2) Bill enables the House to come to a conclusion about the whole Bill. As I have demonstrated in relation to certain of its specific parts, this Bill is ill-judged, ill-thought out, ill-timed and evasive.

6.37 p.m.

Lord Desai: My Lords, we customarily debate the Finance Bill after it is no longer relevant because circumstances have changed. I should like to urge the Government to adopt a practice which I believe I can claim to have started about four years ago so that we

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debate the Budget Statement, if not the Finance Bill, in the very week in which the Budget is presented. Since we cannot amend it, we might as well discuss it. What is the point of not allowing us to discuss the Finance Bill? I believe that it was possible until last year, but this year it was not possible. As I expect the present Government to be in power for a long time and that we shall get to some sensible management of parliamentary business, I believe it will be a good thing to have the Budget Statement debated early on. Then we would not need to bother about the technicalities of the Finance Bill.

Secondly, I also very much welcome the suggestion made by the noble Lord, Lord Lucas, about dividing the Bill into its more technical and less technical aspects. I am perhaps the only person to speak in the debate who is not an accountant. I am not an expert in taxation. I am much more interested in the economic messages that the Budget sends out. We should be able to discuss those after the Budget much more quickly and sensibly. The technical parts can be left to people who actually understand them and who can amend the Bill properly.

My right honourable friend the Chancellor has made a number of major statements. In this debate we have discussed the Budget and the Comprehensive Spending Review. We have also referred to the independence of the Bank of England and have looked forward to the single currency.

Change has rightly been made in the setting out of the economic framework of Her Majesty's Government. That change began under the previous government. We now have consensus about the economic framework to be set out. My right honourable friend has sharpened it by hiving off monetary policy to an independent Bank of England, leaving himself only the fiscal policy.

I wish to draw attention to another change. At the same time he has taken the view--he and I disagree on it--that fiscal policy is an instrument only for long term growth of the economy. Fiscal policy should not be used for short-term stabilisation purposes. Monetary policy should be used for short-term stabilisation purposes. I am not a great friend of an independent Bank of England, but I am not willing to go to the stake on the issue. I am not worried about the independence of other central banks but about their competence or otherwise. I have never been quite sure about the Bank of England; I have said this before. It is a competent body. However, once the Monetary Policy Committee is set the task of controlling inflation, it cannot be asked to do other things. Monetary policy has only one instrument--interest rates. A monetary authority can fix either the quantity of money or interest rates.

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