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Lord McIntosh of Haringey: My Lords, I am grateful to all noble Lords who have taken part in this short and rather concentrated debate.
I begin with a matter of housekeeping. The noble Lord, Lord Northbrook, complained about the short notice of this debate. The rules of the House do not allow us to include in the Minutes of Proceedings or future Business any legislation that has not arrived from the House of Commons. This legislation was passed by the House of Commons only late on Thursday night. It therefore came to this House for First Reading on Monday, and the speakers' list could not be produced until that time. I appreciate the inconvenience that that must have caused.
The noble Lord, Lord Northbrook, also referred to the bad timing of the Finance Bill coming here before the comprehensive spending review, which will come before us, if the Opposition choose to have the Statement repeated, on Monday of next week. The timing of the Finance Bill has been known for some time and has been included in the forthcoming Business for all that time. The timing of the comprehensive spending review became apparent only during the middle of this week. Neither the House authorities nor anyone else could have done anything about that. It would have been preferable to debate them jointly—I am not sure in what order—on the same day.
All three noble Lords referred to the length and weight of the Bill. It is true that it is lengthy. However, 300 pages—60 per cent of the total—were published in draft, or consulted upon, substantially before the Budget. That is the benefit of a Pre-Budget Report in November, before a March or April Finance Bill and Budget Statement. Therefore, the opportunity for consultation has been much greater than it was in previous years, when there was no Pre-Budget Report. In addition, the Bill abolishes 200 pages of financial legislation. We therefore have to take the net figure, not the gross figure. In practice, it has worked well. In a press release produced at the end of May, the Chartered Institute of Taxation praised both the Finance Bill and the process of consultation. It felt that, where there has been consultation—it is not always appropriate—it had been carried out well.
I am grateful to the noble Lord, Lord Northbrook, for his welcome to a number of aspects of business taxation. He asked whether this meant that we favoured incorporated over unincorporated businesses. The answer to that is no. The difference between incorporation, non-incorporation and sole traders varies under different circumstances. For example, on occasion an unincorporated business can do better in terms of tax relief for losses or pension contributions than can an incorporated business. I have done that myself by using a partnership instead
of a limited company for exactly that purpose. The advantage for non-incorporation remains in place. In addition, some of the provisions in financial legislation, such as capital allowances, apply both to incorporated and unincorporated businesses.The noble Lord and other noble Lords referred to the rises in national insurance contributions. Some criticisms were expressed that those had been introduced in a separate Bill. They had to be introduced in separate legislation because, under the rules set by the House of Commons over many years, the Finance Bill does not deal with changes made to the National Insurance Fund. I should have thought that noble Lords would welcome the fact that the National Insurance Contributions Bill was so transparent and that it drew attention to the changes in national insurance contributions rather than their being buried within a long Finance Bill. We certainly have nothing to apologise for, either in the way that the rises in national insurance contributions have been implemented or, indeed in implementing them at all. They follow the Beveridge principle that those in work should contribute for the benefit of those not in work. If we had introduced, for example, increases in the tax on pensioners' incomes, I think that there would have been some justified complaint. We might have seen lobbies led by Jack Jones outside the Palace of Westminster.
Both the noble Lords, Lord Northbrook and Lord Saatchi, referred to the existence and the treatment of tax credits. Again we have nothing to apologise for in the existence of tax credits, the Tax Credits Bill which has recently passed through Parliament—it will make a major contribution to the reduction of poverty in this country—or for the way in which it has been done in terms of the treatment of tax credits in the national accounts. I do not know whether it is fully realised that because we have adopted generally accepted accounting practices in all of these matters—we are practically the only country in the developed world to have done so—tax credits in particular count as income tax only in very limited circumstances. Only 12 per cent of working families' tax credits count as negative income tax and therefore affect what the noble Lord, Lord Saatchi, calls the "tax burden", but what I call the "ratio between gross domestic product, taxes and social security payments".
Lord Saatchi: My Lords, I am most grateful to the Minister. I accept completely that the public accounts now conform with generally accepted accounting principles. Why did it take the Government five years to reach the position they are in today?
Lord McIntosh of Haringey: My Lords, with the Government Resource and Accounts Act 2000 we had to bring to a successful conclusion the process of the move towards resource accounting, started by the previous government and faithfully carried through by this Government. It is to be implemented this year. One can have generally accepted accounting principles only if one has proper resource accounting instead of cash accounting. I should have thought that by now that would have been a fairly non-party point.
Perhaps I may turn back to the points put to me by the noble Lord, Lord Northbrook. He thought that we have been optimistic in our forecasts of growth rate. I shall respond by saying that I do not think so. Our neutral estimate of trend growth for the 2002 Budget, medium-term projections, is 2.75 per cent, which falls within the range of forecasts made by respected external organisations such as the OECD and the International Monetary Fund. The IMF Article IV Consultation, published in 2001, stated that the UK economy would average potential growth of 2.8 per cent over 2001–05, up from an average potential growth of 2.5 per cent over the previous five years. Furthermore, our public finance assumption has been declared reasonable and cautious by the National Audit Office.
Of course we are alert to the risks of the recent fall in the stock market, as we were to the fall which took place after September 11th. We have been exceedingly cautious in our forecasts. We are aware of the potential effect on consumer spending, to which the noble Lord referred, although it must be said that that has not happened yet. We think that there are now clear signs that growth in the economy is strengthening, in particular for manufacturing industry, according to the most recent figures. Furthermore, we are not alone in those beliefs.
The noble Lord queried my comment that the UK has the lightest tax burden. I suppose that he was referring in the main to business tax, although I am not sure. However, it is not true: the UK business tax burden at 7.3 per cent is significantly lower than the European Union average of 10 per cent. That was the figure for 1999, which is the most recent figure published by the OECD. We are confident that our estimates are correct.
The noble Lord, Lord Northbrook, went on to ask me four specific questions. His first question concerned taxation of UK branches of foreign banks. We have made those changes because the OECD stated that we were out of line with international practice. We believe that it is right to be in line with such practice.
The noble Lords, Lord Northbrook and Lord Newby, both asked about oil company taxation. The answer to that question is that there have been two elements of change to oil company taxation. First, there has indeed been a 10 per cent rise, but that increase is justified by the profits being made by oil companies. Of course they are all doing so because they have licences from the UK Government. Secondly, neither the noble Lord, Lord Northbrook, nor the noble Lord, Lord Newby, appeared to recognise that at the same time we have been encouraging further exploration by offering the extension of 100 per cent first-year allowances. On balance, those are prudent policies.
The noble Lord, Lord Northbrook, also asked me about controlled foreign companies, in particular with regard to the Channel Islands and the Isle of Man. We have to provide protection against harmful tax
practices wherever we can, and that is what we have been trying to do. But these are reserve powers that will be brought into effect only if it is found to be necessary.The noble Lord asked me about the purpose of the review of the definitions of "residence" and "domicile". This has arisen as a direct response to complaints that have been made by tax planners. The existing rules are unclear. After extensive consultation, therefore, we would aim to make them clearer.
The noble Lord, Lord Newby, referred to a number of aspects of good macro-economic news—for which I am grateful—although he accused us of complacency. I hope that I answered that accusation in my response to the question of the noble Lord, Lord Northbrook, about growth rates. The noble Lord, Lord Newby, approved of our policies for longer term stability. I am grateful for that and for a number of his other comments.
As to the noble Lord's question in regard to royalties, we have been in consultation on this issue for a considerable time, even though a formal announcement was made only last week. He asked us to set a date for abolition. Several dates have been suggested but we believe that propriety dictates that we should set a date for abolition only after the formal consultation is complete. In other words, we should hear from everyone before making up our minds.
I am baffled by the noble Lord's reference to community amateur sports clubs and charitable status. I had no idea that the Charity Commission would behave as it has towards Banbury Cricket Club. I shall make inquiries into the matter and I shall write to him about that and the more general issue of whether it is appropriate for community amateur sports clubs to take on charitable status in order to benefit from the changes made in the Budget.
I am grateful for the comment of the noble Lord, Lord Saatchi, in regard to the Committee proceedings on the Bill in the House of Commons. It added greatly to the comity between the two Houses, which we are all keen to preserve. I do not have any comments to make on what either he or the noble Lord, Lord Newby, said about the report of the Leader's Group and the Procedure Committee. That is a matter for the House to consider on 24th July. Like others, the noble Lord queried the argument in regard to the low tax environment. I hope that I answered his query when I responded to the comment of the noble Lord, Lord Northbrook.
I am surprised that the noble Lord also queried whether we were tackling pensioner poverty. Yes, of course there was a period some years ago in which the rigid adherence to the formula gave rise to a 75 pence increase in the basic state pension. That created a great deal of anger. But, if we look at the policies as a whole, we can defend the way in which we are tackling pensioner poverty. We are offering extra financial support to the poorest pensioners through a minimum income guarantee; we are rewarding those who have saved for their retirement through the new pension credit, which will take effect from 2003; we are helping
all pensioners by guaranteeing a minimum increase in the annual basic state pension; we are providing additional help with the cost of winter fuel; and we are creating a sustainable system of support which will enable today's workforce, tomorrow's pensioners, to plan ahead and make decent provision for their retirement, protecting themselves against poverty in the future. I shall not stray into the debate on pension regimes, which started yesterday and which, no doubt, will continue.I have dealt with the criticisms made by the noble Lord about tax rises being in the National Insurance Contributions Bill rather than in this Bill.
The noble Lord made comments, as he has done on a number of occasions, about regulation on business and the number of statutory instruments. I should remind him that more than 90 per cent of statutory instruments have no impact on business and that many of the remainder—such as road traffic orders—have only a local or temporary effect. A better measure of the burdens imposed by regulation is the number of regulatory impact assessments produced by departments showing which proposals would have a significant impact on business. In 2001, only 3 per cent of all regulatory measures, including primary legislation, had a significant impact on business. This has been true for a number of years. I am not saying that we should aim only for stability; I am saying that we should aim for a real reduction.
Returning to the question of the noble Lord, Lord Newby, about charities, the issue of rates relief is for individual authorities. The Office of the Deputy Prime Minister has issued a consultation paper. I shall write to the noble Lord on this issue.
The contributions made in the debate have been, on the whole, helpful and realistic. I hope that the House will agree that they have not dented the claims that I made in my opening speech. This Finance Bill is in line with our reputation for stability and prudence and with our ambition for greater wealth, prosperity and justice in our society.
On Question, Bill read a second time; Committee negatived.
Then, Standing Order 46 having been dispensed with (pursuant to Resolution of 9th July), Bill read a third time and passed.
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