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House of Lords

Friday, 28th July 2000.

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

Prayers--Read by the Lord Bishop of Manchester.

Finance Bill

Lord McIntosh of Haringey: My Lords, I beg to move that this Bill now be read a second time. This is a Finance Bill which continues to deliver on Labour's promises, enacting Budget decisions to deliver opportunity and security for the hard-working families of Britain.

In the Finance Bill there are new measures to encourage work, improve productivity and protect the environment. The March Budget also set the spending envelope for the spending review, consistent with a continuing commitment to fiscal prudence and stability. With the March Budget and now the outcome of the spending review announced by the Chancellor last week, the country can be in no doubt that we are working hard for a stronger and fairer Britain, where there is opportunity and security for all, releasing substantial new resources for health and education, tackling child poverty, supporting pensioners, improving transport and tackling crime. But this is only possible because we have delivered a platform of stability and sustainable public finances.

Inflation is now at 2.2 per cent--close to our inflation target of 2.5 per cent, which was confirmed in the March Budget. Inflation outturns have been close to target over the whole of the past year. More people are in work than ever before. Employment is up by over 1 million since the election. With the assistance of the New Deal, long-term unemployment is at its lowest level for 20 years and youth unemployment at its lowest for a generation.

Real take-home pay is up by between 8 and 25 per cent, and when spending on areas we are targeting such as children and pensions is taken out, welfare spending is falling for the first time in decades. Based on clear fiscal rules--a current budget in surplus and borrowing only to invest within prudent and cautious limits--this sustained and sustainable improvement in our public finances has made possible a sustained and sustainable improvement in our public services.

Budget 2000 locked in the fiscal tightening over the next two years to an even greater extent than projected in Budget 1999. Last week, the Chancellor announced that the budgetary outturn for 1999-2000, published since March, has shown a larger surplus than expected at the time of the Budget, allowing the Government to make a greater than expected debt repayment. The current surplus is not £17.1 billion but £20.4 billion. Debt as a share of GDP has been reduced even more, from 37.1 to 36.8 per cent. Taking account of the Spending Review outcome and recent developments

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on government receipts, fiscal policy will be at least as tight as set out in Budget 2000. The Government's fiscal prudence has allowed it to free resources for Britain's public services while continuing to ensure that we meet our tough fiscal rules and maintain our platform of economic stability.

Working families are seeing the benefit of our fiscal discipline. We have been able to cut taxes for working families, not only bringing in the working families tax credit and the new 10p rate, but now, in Clause 31, cutting the basic rate of income tax to 22p--its lowest level for nearly 70 years. By April next year, personal tax and benefit changes in this and previous Budgets will mean that households on average will be £460 a year better off and families with children on average will be £850 a year better off. The tax burden on a single earner family on average earnings with two children will be the lowest since 1972. Coupled with low inflation and economic growth, this adds up to a substantial increase in living standards.

For a single earner family with two children on average earnings--£25,000--living standards will have risen by over 10 per cent over the Parliament. For a single earner family on half average earnings, living standards will rise by 30 per cent this year, the biggest annual rise for 25 years. A single earner family on half average earnings will be £2,600 a year better off over the Parliament.

Our measures will help to achieve our goal that every child should have the best possible start in life. As the Prime Minister has said, child poverty is a scar on the soul of Britain. That is why we set out in the Budget our ambition to halve child poverty by 2010 and end it altogether by 2020. Measures introduced so far in this Parliament will lift 1.2 million of Britain's children out of poverty. By next year, the Government will be spending an extra £7 billion a year on support for children. By April 2001, personal tax and benefit changes alone in this year's Budget and previous Budgets will mean that a single earner family with two children on average earnings will be £370 a year better off.

This Finance Bill takes further steps to increase support for children. An additional 50p a week will be added to the children's tax credit when it is introduced in April 2001, so that it is worth up to £442 a year, more than twice the value of the married couple's allowance it replaces. We have brought in a £4.35 a week increase in the child credit in the working families' tax credit from June this year, with the same increase in child allowances in income support from October.

Rising living standards and tackling child poverty will be reinforced by further improvements to public services thanks to our commitment in the Budget to average real growth for health of over 6 per cent a year over the next four years, the longest period of sustained high growth in the history of the NHS. The immediate boost for health in the Budget of £2 billion this year is partly funded by the real increase in tobacco duties in Clauses 12 to 15 of the Bill.

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The 5.4 per cent average real increase in funding for UK education over the next three years announced last week, together with the extra boost for education in 1999-2000 announced in the Budget represents an average growth rate in education spending of 6.6 per cent over four years--the highest growth rate over a four-year period for at least 20 years.

The boost in the Budget was accompanied in this Bill by the introduction in Clause 57 of a new training relief for employees. It will make employer contributions to education or training undertaken by holders of individual learning accounts exempt from tax and national insurance where they qualify for grant or discount and are available to all employees on similar terms.

Businesses and jobs will benefit from our commitment to enterprise in this Bill. We have already cut main and small business rates of corporation tax to their lowest ever levels and the lowest of any major industrialised country.

The Bill contains a number of measures to promote enterprise and help business: the cuts in capital gains tax in Clause 37; the research and development tax credit in Clauses 67 and 68; the permanent 40 per cent capital allowances for SMEs in Clause 69, helping especially manufacturing businesses; the new all-employee share ownership plan in Clause 47; the enterprise management incentives in Clause 61, helping high-risk companies to recruit key personnel; and the corporate venturing provisions of Clause 62.

These measures have been widely welcomed by business. Along with the introduction in the Budget of three-year 100 per cent capital allowances for investment in ICT equipment; and an extra £100 million for the new £1 billion target umbrella fund for enterprise growth across the regions, this is a huge commitment to business success from a government who believe that enterprise and economic prosperity can and must go hand-in-hand with fairness.

In addition, Clause 81 introduces the optional ring-fenced regime--the so-called tonnage tax--whereby shipping companies can opt to work out taxable credits on the basis of tonnage of ships operated. This innovation, which follows the inquiry of the noble Lord, Lord Alexander, is part of the Government's commitment to encouraging the British shipping industry.

The Bill introduces changes to the corporation tax rules, limiting the use of so-called "mixer companies" to shelter low-taxed foreign profits from UK tax. These cap the relief on dividends at 30 per cent and ensure that there is no UK tax benefit from mixing in an offshore holding company.

The Bill also introduces onshore mixing in non-abusive situations. This measure addresses the concerns that have been expressed about international competitiveness. It will allow tax over 30 per cent in an offshore mixer to be creditable against other dividends in the UK, subject to the same restrictions to confine the relief to non-abusive situations.

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Following these changes, there will be no UK tax benefit from mixing foreign dividends in an offshore company as opposed to receiving the dividends directly into the UK. The incentive in the old double taxation relief rules to hold foreign shareholdings through an offshore holding company will go. This will remove a major tax distortion and compliance cost from commercial decision-making and planning. So far as international competitiveness is concerned, it will place the UK in a similar position to the United States, the difference being that the UK rules will be less complex to apply.

The Bill also helps us meet our international commitments to the environment. Following last year's Budget, the Bill is an important part of the largest ever package of environmental tax measures to be introduced in the UK: Clause 30 brings in the climate change levy; Clauses 20 to 23 reform vehicle excise duty for cars; Clause 58 fundamentally reforms the company car taxation system, incentivising low CO 2 emissions and removing the perverse incentive for people to clock up business mileage to get to more generous thresholds; Clauses 136 and 137 increase landfill tax rate and clarify liability.

The changes to the affordable warmth programme in Clause 78, and the reduced rate of VAT on the installation of energy-saving materials and on grant-funded installation of heating systems in Clause 131 will help to ensure that pensioners feel the benefit of warmer homes and cheaper fuel bills, as well as the £150 winter allowance. This programme carries forward the Government's commitment to combat fuel poverty by supporting the installation of energy-efficient central heating systems and insulation in up to 1 million low-income homes.

The affordable warmth programme will be funded through a public-private partnership with commercial lessors. Capital allowances will bring down the cost of leasing and allow the scheme to reach many more households than would otherwise be possible.

Taken together with the Budget announcements of an incentive for ultra low sulphur petrol, the aggregates levy, and the consultation on stamp duty relief for brownfield developments, these measures make this a Finance Bill for the environment as well as one for working families and enterprise.

Greenhouse gas emissions will be further reduced following the spending plans announced yesterday, with increased funding for renewable energy; a carbon trust to give energy advice to business and encourage low-carbon technologies; and new incentives for businesses to join a domestic emissions trading scheme.

The Bill also supports charitable giving--helping communities to become more democratic, more open and socially inclusive.

Clauses 38 to 46 carry into effect our radical package of measures to boost donations to charities and to improve the operation of the tax system for charities themselves. Clause 39 abolishes altogether the minimum limit on tax relief for donations. The Bill boosts payroll giving (in Clause 38) with the three-year

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10 per cent government supplement and abolishes the maximum limit on donations. Clause 40 cuts red tape on corporate donations. Clause 43 brings in new income tax relief on gifts of shares and securities. The Bill frees charities from the need to set up subsidiaries for small trading and fundraising ventures and broadens the VAT zero rate for the sale or hire of donated goods. This package has been widely welcomed by the charities themselves.

In conclusion, this Finance Bill demonstrates that the Government are working hard for a purpose--to build a Britain that is strong, modern and fair. At long last, economic prosperity and fairness are no longer seen as opponents--they are seen as partners in the process of building the Britain of the future.

The Bill shows the Government keeping our promises, as we deliver sound public finances, low inflation, higher living standards, help for working families and pensioners and employment opportunity for all.

The Bill means more enterprise, more opportunity and more fairness. I commend it to the House.

Moved, That the Bill be now read a second time.--(Lord McIntosh of Haringey.)

11.20 a.m.

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