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A number of themes have run through every report the sub-committee has produced; the question of consultation has been one of them. It is fair to say that over the seven years since the sub-committee was established, the track record of the Treasury has improved in that there has become a realisation, I suspect, that you cannot get away with no consultation on changes without at least there being public criticism of it, which was not the norm even seven years ago, or at least not to the same extent. We have heard today and can see from the report that there are some areas where there has been a lack of consultation this year for no apparent reason; the clause relating to accounting officers and the naming and shaming clauses have been mentioned. But the number of areas on which there has been no consultation appears to be reducing year on year, and it is an important function of the sub-committee to keep the pressure on in that area.

The other issue of contention which the sub-committee has discussed is that of the taxation of pensions and the reduction of the high-rate relief for income earners of more than £150,000 a year. There has been much discussion of whether this is the thin end of the wedge. As noble Lords will know, we on these Benches represent the wedge. We have been advocating an end to higher-rate tax relief on pensions tout court for some considerable time and one of our main objections to the Government's proposals is that they do not go far enough. Of course, being this Government, they have introduced the measure in the most complicated way and with the maximum amount of legislation, which, in most respects, will serve little purpose.

On the Finance Bill itself, we obviously cannot amend it and it is not usual to discuss minor aspects of it. However, I would like to raise one aspect, very briefly, because it is unfinished business from the Commons end. This relates to the slightly arcane issue of the air passenger duty and the way that it affects different territories. Noble Lords may be aware that the Government have introduced a banding system for the air passenger duty. The costs incurred by passengers depend on the distance that they travel from London. Unfortunately, the calculations are based on the situation of capital cities, and a major anomaly has arisen with regard to the Caribbean, which is in a band that incurs a higher charge than flights to the US even though, if you are travelling to Alaska or Hawaii, you are travelling considerably further than to the Caribbean.

That is a major concern in the Caribbean, where people feel that they are at a disadvantage with this tax on travel compared with the US at a time when the tourist trade is in severe difficulties and when some of their existing and traditional industries, particularly agricultural ones such as bananas and sugar, have

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already largely disappeared. These small countries, with which we have close links, have increasingly become a source of drugs as a result of previous economic failures. There is a fear that this change will exacerbate that problem as well as causing significant hardship for visiting friends and relatives travelling to the Caribbean.

On Report in another place, the Exchequer Secretary said that the matter was not closed and that she had,

Has any further such consideration yet been given? When might we expect to hear the outcome of those deliberations?

At the time of the Budget we were preoccupied in large measure by the costs that the Government were incurring in propping up the banks, and indeed by the situation in the banking sector as a whole. It has been striking today that that has not been a major feature of the debate. Rereading the Financial Statement and Budget Report, though, one is reminded of the sheer scale of government investment in the banks, whether through improving liquidity or through recapitalising the two now largely nationalised banks. I have a couple of questions for the Minister about the quid pro quo for that recapitalisation.

Shortly before the Budget, both RBS and the Lloyds Banking Group signed a lending commitment agreement with the Government. The agreement has been published on the Treasury website only within the past couple of days, so I have not had the chance before today to ask the Minister about it. There are two specific questions, one of which we have already partially discussed. At the time of the banking White Paper Statement, I asked why the Government were requiring the banks to lend at 90 per cent loan-to-value ratios. The noble Lord, Lord Myners, said that,

However, the lending agreement, which is now available on the Treasury website, says that:

In February, why did the Government think that it was appropriate for the nationalised banks to be lending at more than 90 per cent loan to value at a time when property prices were falling and, indeed, may continue to fall? Is that not exactly the kind of risk that we were trying to avoid?

My second question is this. The agreement explains the amount of additional lending that the bank has to undertake but, in respect of the specific components of lending to SMEs, mid-corporates and large corporates, the phrase,

has asterisks in it. Why have the Government redacted-to use that horrible word-the subtotals of the additional lending that the nationalised banks are required to give to SMEs and others? Surely it is in the public interest that we should know.

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The dominant issue, which the Budget began to address but which has become more prominent since then, if that is possible, is the dismal state of the public finances. The record levels of borrowing which the Government are now undertaking have increasingly been seen to be structural and not cyclical-or indeed the famine following the feast over which the Chancellor presided-even to such an extent that we were running up significant deficits even when growth was strong and tax receipts were buoyant.

It is generally believed that the Budget's claims for growth for next year and the Government's plans more generally for the public finances are too optimistic. It is now clear that there will need to be a tight squeeze on public expenditure over many years and, in all probability, increases in taxation as well. We on these Benches agreed with the noble Lord, Lord Barnett-and the Government have done it-that we needed a fiscal stimulus this year but that, in coming years, that stimulus could not be maintained. We did not agree that the temporary VAT reduction was the most appropriate way to do it, because it leads to a short-term increase in consumption, whereas an equivalent amount spent on investment could have led to long-term benefits to the economy.

However, there will undoubtedly have to be reductions in public expenditure, about which the Government seem largely to be in denial. The Prime Minister explained in a recent interview with Nick Robinson on a train that public expenditure cuts could be adequately dealt with by asset sales and efficiency savings, which is clearly ridiculous. While he is saying that about expenditure on the one hand, Cabinet Ministers are, on the other, almost lining up to say that, whatever happens, their areas will not be affected-we have had that in education; we have had it in health; and now the noble Lord, Lord Mandelson, who I had not realised until today was Defence Secretary along with his many other titles, has said that defence, too, will be ring-fenced. We therefore find ourselves with a Government who are increasingly out of touch with reality on public expenditure. Similar pressures are on the Conservative Opposition, where an increasing number of areas are already being ring-fenced. We all know that that is not realistic.

We have said that we need to begin to identify areas where there will have to be real cuts of whole programmes. We have identified a number of them, from small ones such as the child trust funds to larger ones such as a major review of the cost of public sector pensions.

I am sure that whichever incoming Government we find ourselves with will have to face the question of how to make better use of the level of public expenditure that we can afford, whatever it is. One of the annoying aspects of the huge increase in public expenditure in recent years is that it has been accompanied by a fall in productivity in the public sector. This area will simply have to be addressed. There are major problems in doing this, of course, of which culture within the Civil Service is possibly the most significant. There is no culture of looking to adopt best practice from elsewhere; there is no culture of continuous change; and, indeed, during this period of falling productivity, increasing levels of bonuses have been paid almost across the

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board to senior civil servants. That will have to change. We on these Benches welcome the initiative being taken by the noble Lord, Lord Sainsbury, and Sir Michael Bichard in this area, and we are particularly pleased that they are doing it on a non-partisan basis.

This will be the last normal Finance Bill of this Government which we will consider in your Lordships' House. It represents the end of an era in many ways. It will almost certainly be the last Finance Bill for many years to show a fiscal stimulus rather than a fiscal tightening and will, in that respect at least, represent a watershed. As the noble Lord, Lord Forsyth, mentioned, at the end of his sojourn on the government Benches the Minister is considering becoming a student of comparative religion. He has some advantages in this respect in that he already knows something about the subject. He embodies the principle that the Labour Party owes more to Methodism than it does to Marx. As he contemplates his future, I hope that he does not behave like a sheep and follow the other goats out of the Government. The current trend is doing nothing for the reputation of goats.

9.56 pm

Baroness Noakes: My Lords, several weeks ago we provisionally scheduled this debate on the Finance Bill for a quiet afternoon on the day before the House rises for the Recess. As it turns out, we have been overtaken by other business and find ourselves concluding our debate at nearly 10 o'clock in the evening. This is partly because the Government have devoted much of today to discussion on one of the most ill conceived Bills of recent times. The only purpose of the Parliamentary Standards Bill is to allow the Prime Minister to boast about reforming Parliament. However, I predict that the history books will not record this Administration as a reforming one. Rather, they will record a period of government characterised by disastrous economic policies, an inability to carry through any meaningful public service reform and, of course, the most disastrous loss of trust in politics of any Government in the modern age.

The Finance Bill is emblematic of this Government. It arises from a Budget that revealed in gory detail what 12 years of Labour Party rule does to our economy. The Bill tinkers with various bits of the tax system, achieves little and in some places does actual harm, but it does nothing to deal with the problems that people face in their everyday lives.

I am delighted that so many of my noble friends have chosen to speak today and have stayed into the evening. Led by the comprehensive critique of my noble friend Lord Lang, my noble friends have delivered a damning verdict on this Government's economic policies and on this Finance Bill. I endorse what they have said.

I pay tribute to the work of the Economic Affairs Committee on the Finance Bill, led by the noble Lord, Lord Vallance. I remind the Minister that this is one report from a committee of your Lordships' House to which the only response that the Government make is in the related debate, such as the one that we are having this evening. I am not sure that the Minister has so far given a comprehensive response. I hope that

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he will reflect further on that before he winds up this evening. My noble friend Lord Forsyth and the noble Lord, Lord Barnett, gave him a couple of steers on areas where one or two outstanding points remain.

As the Minister is aware, your Lordships' House is not able to amend the Finance Bill. When a Finance Bill contains things that we think are foolish or wrong, we can do little but express our regret. If my party forms the next Government, it remains a clear part of our policy that we will implement reforms developed by my noble friend Lord Forsyth and my noble and learned friend Lord Howe of Aberavon. First, we will publish draft tax clauses after the Pre-Budget Report and subject them to proper scrutiny by way of a committee that would, importantly, include Members of your Lordships' House. Secondly, we will create an office of tax simplification, which will be tasked with the creation and maintenance of a system of tax that eschews complexity.

This is not the longest Finance Bill that we have considered in the past 12 years, but it is full of complexity. There are 67 pages of clauses that cover 380 pages of schedules-over 80 per cent-which is where all the complex stuff is hidden. We can see a wearisome pattern of tax incentives surrounded by complex legislation to prevent incentives from becoming a tool of tax avoidance, followed by amending legislation to counter more deemed avoidance. The habit of complexity is toxic. It damages our competitiveness. That is the clear view of the Confederation of British Industry, the Institute of Chartered Accountants and many others. A major shift in attitude and approach is needed if we are to break out of this soul- and value-destroying process of tax law.

The Finance Bill lays the ground for the 50 per cent rate of income tax. Few outside the Treasury believe that it will raise the £2.4 billion of revenue that the Treasury projects. It creates top rates that are about as bad as they get on a global comparison. It might have temporarily raised the spirits of those dejected souls on the Back Benches of the Labour Party in another place, but even they must see that it is bad for Britain's competitiveness and deadly for the motivation of individuals. The Bill does not include the 0.5 per cent increase in national insurance contributions from next year as announced in the Pre-Budget Report. That is a tax on jobs and a tax on the many and it will not help our economy to climb out of the recession that the Government's own policies have exacerbated. There is probably a small cheer from business over the decision not to raise the small company tax rate, as was threatened, and not to tax foreign dividends, but the debt cap proposals, as has been pointed out this evening, leave a major uncertainty overhanging the attractiveness of the UK as a location for business groups.

My noble friends Lord MacGregor, Lord Forsyth and Lady O'Cathain concentrated their speeches on the pension provisions of the Finance Bill. The changes betray the certainty promised by the pension simplification of a couple of years ago. The changes are unfair for the reasons given by my noble friends. They will contribute to the decline in private sector pension provision and discourage savings. My noble friend Lord Naseby also referred to the lack of incentives for

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savings. The epitaph of this Government could well be that they completely destroyed the pension aspirations of a generation.

The Bill has other follies. I agree with my noble friends Lord Higgins and Lord Marlesford that the VAT reduction was not a sensible policy, but it is stupid to ignore the clear advice from the retail sector that absolutely the worst time to increase the VAT rate back again is 1 January, which is what this Finance Bill contains. There are ill conceived revisions about finance directors signing for tax accounting. Those will add considerable cost and yield little. There is an extraordinary attack on the bingo industry, which will likely be taxed out of existence. None of that adds up to a coherent set of policies, but we long ago gave up on searching for coherence in this Government.

I shall now address some remarks to the economy. This Finance Bill is derived from the Budget in which the Chancellor was forced to own up to the scale of the problems facing our economy. Many believe that he is still hiding behind unrealistic assumptions. Principal among those are the growth assumptions. As my noble friend Lord Higgins reminded us, the Budget said that this year's growth would be a negative figure of 3.5 per cent but that there would be a bounce back to 1.5 per cent positive next year followed by a 3.5 per cent positive in 2011. Since the Budget, data and forecasts have cast doubt on those figures. The ONS said that the first quarter decline was the highest ever recorded, at 2.4 per cent. The IMF's recent forecast for this year is negative 4.2 per cent and this morning's ITEM Club forecast is even worse at 4.5 per cent. The independent forecasters summarised in the Treasury's own booklet are almost all more negative than the Chancellor in the figures for both this year and next and, as my noble friend Lord Marlesford said, the timing of a recovery is far from certain. Back in 1991, the current Prime Minister said of the then Prime Minister:

"He is seeing things that we know aren't there and living his whole life as if they were there-a textbook case of an otherwise sane man hallucinating a whole economic recovery".

Well, the boot is on the other foot now.

The danger is that the Prime Minister and the Chancellor are so set on their own forecasts-which themselves produce unprecedented levels of deficit, borrowing and debt-that they have no understanding of the possibility that they are understating the scale of the problem. My noble friend Lord Northbrook reminded us that if, as seems likely, the Government's trampoline growth assumptions prove to be optimistic, the deficit, borrowing and debt figures will be even worse, which will make all the more urgent the need for a credible plan to restore the public finances. The Governor of the Bank of England and the IMF, inter alios, have backed our call for a proper exit strategy. Blind optimism is not good enough.

That is why we have been calling for a debate on the need to rein in public spending and to search not only for things that can be done better but also for those that need not be done at all, while of course protecting front-line services. I am pleased that the noble Lord, Lord Barnett, is up for this debate. However, the Government still are in stubborn denial. They say that they will not cut public spending, despite the fact that

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their own figures as set out in the Budget book show that in real terms the Government already plan to cut total spending by 0.7 per cent over the period 2011-14. That translates to cuts in departmental limits of 7 per cent once debt interest and benefit payments are taken out. We suspect that the Comprehensive Spending Review was cancelled only because the Prime Minister will not face up to the fiscal facts of life. I agree with my noble friend Lord Naseby that we need a Comprehensive Spending Review now.

The Government have carried out one of the most wasteful periods of expenditure in history. The ONS has recently shown that in the decade to 2007 there was negative productivity growth of over 3 per cent in public spending. That compares with whole-economy productivity growth over the same period of around 20 per cent. The Government have no credibility when it comes to public spending.

The Prime Minister implemented his boom-and-bust policies and brooked no criticism. We warned of the imprudence of an economy built on debt, both governmental and personal. We highlighted the constant erosion of our international competitiveness and the accumulating trade deficit as well as the increasing decline of the manufacturing sector. Now we have the result of boom and bust in terms of real-life tragedies. Unemployment is 2.4 million and still rising and young people are bearing the brunt of this. The numbers of children living in poverty had been rising even before the recession, and the Government will miss their 2010 target of halving child poverty by a country mile. Their only response is a Child Poverty Bill which is full of targets and duties but no action.

This Finance Bill, and the Budget that preceded it, have no answers to the questions that need to be addressed. There is some marginal help for businesses but no sound foundation for a post-recession era. Pensions have been further damaged and Britain's competitiveness continues to slide. If this House had the power, we should refuse to give the Bill a Second Reading and tell the Government to come back with something better. If only.

As the noble Lord, Lord Newby, pointed out, this is likely to be the last Finance Bill taken through all its normal stages in Parliament before the next general election. Then there will be an opportunity for voters to pass their judgment on the economic competence of the Government. That cannot come soon enough for these Benches.

10.10 pm

Lord Myners: My Lords, this House has long respected the rights and privileges of our colleagues in another place in relation to financial matters. As a Bill of aids and supplies, it does not fall to us to debate the detail of individual clauses of the Finance Bill, or to propose amendments to it. But I am sure that your Lordships will all agree that this convention has in no way dampened today's debate, which has been fascinating, wide-ranging, well informed and spirited.

I would like to thank all noble Lords who have brought their experience and wisdom to these discussions-particularly the serried ranks of supporters who sit behind me, for whose unreserved support I express my deepest gratitude.

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Noble Lords: Oh!

Lord Myners: Of course, my Lords, in the time allotted to me for this short closing speech, it would not be possible to mention every contribution made to the debate, let alone to answer all the points that have been raised. In the event that I do not answer a technical point or a question which requires a factual answer, I will ensure that I study Hansard and reply to the noble Baroness or noble Lord as appropriate.

However, several specific issues that were raised seemed particularly pertinent and I will do my best to address them. First, the noble Lord, Lord Lang of Monkton, brought his great experience to bear in an excellent contribution to our debate. In addressing some of his points, I will refer to other Members of the House who touched on them. He reminded us of the preference for consultation. Indeed, the noble Lord, Lord Newby, noted that there had been a significant increase in the amount of consultation that was taking place, and that the number of areas on which consultation had not taken place but where it was believed that it would have been possible has been declining. I would encourage that trend and wish to see it continue. However, we have no intention at this stage of delaying the implementation of the debt cap, which was a particular point raised by the noble Lord, Lord Lang, under that heading.

The noble Lord, Lord Lang, also raised questions about REITs. It is quite difficult to reach a judgment on the experience of REITs after such a short period of time when the commercial real estate market has been going through such significant valuation change. I say that as a former chairman of the largest REIT in the UK-indeed, the second-largest quoted property company in Europe. However, we will take account of the representations that have been made. The noble Lord, Lord Best, asked that we remain open to representations from the British Property Federation and the Royal Institution of Chartered Surveyors, and my noble friend Lord Sheldon made similar points. We certainly do not regard the REITs story as being closed. I will revert to that in a moment when I deal with some of the comments made by my noble friend Lord Best.

Baroness O'Cathain: He is not your noble friend.

The Chancellor of the Duchy of Lancaster (Baroness Royall of Blaisdon): He is your friend the noble Lord.

Lord Myners: I do apologise, my Lords. He is a man of friendly disposition, and therefore easily described as a friend, but, by convention, the noble Lord. Ours is an open party; the noble Lord is always welcome.

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