---

In any event, it points out about the level of increase in the money supply that:

"Broad money growth is now the lowest it has been on a sustained basis since modern statistics were first compiled in their present form in 1963".

Since 1963, we have not had such a low level of monetary growth. Whether you are a Keynesian, a Friedmanite or whatever, it cannot be the case that if money supply is falling over a sustained period, we find ourselves getting economic growth. We must consider very strongly indeed the case for further increases in the money supply-for quantitative easing, which was rightly introduced at that time by the noble Lord opposite-against the background of such low interest

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rates that are failing to stimulate the economy. I fear that there is a lack of overall comprehension of policy because of the way that things have been divided between the OBR, the Bank of England and the Treasury and because of the Chancellor not taking an overall view of the picture.

8.31 pm

Lord McFall of Alcluith: My Lords, I was privileged to be a member of the Finance Bill Sub-committee under the excellent chairmanship of the noble Lord, Lord MacGregor of Pulham Market. It is good to have the opportunity this evening to debate a number of those issues and put them in to a wider context.

I want to look first of all at corporation tax. One aspect examined by the committee was the road map for corporation tax. There has been a focus on whether this would make the UK economy more or less competitive. The context for this is that the Chancellor in his Budget in March announced that he would cut corporation tax by an additional 1 per cent over and above the cuts previously announced. This was a flagship measure, but to fund it, this year's Finance Bill will bring in a reduction in allowances available to firms which make significant investments.

The Government's The Plan for Growth states:

"Growth was concentrated in a few sectors of the economy and in a few regions of the country".

I welcome that sentiment. A specific aim of the plan is,

"to encourage investment and exports as a route to a more balanced economy".

This change to corporation tax would appear to run contrary to that aim. As the Institute for Fiscal Studies said earlier this year:

"The largest beneficiaries from the package of measures will be high-profit, low-investment firms",

which would include, for example, financial services. Meanwhile the IFS says that cuts to capital allowance will,

"have the largest impact on those firms with capital-intensive operations",

which include manufacturers. Major investors who are considering the UK as a site for investment are not so easily swayed by a cut in the headline rate when allowances are also being cut. This change could drive investment away from the UK and help the economy to become more focused on the financial sector by raising the effective tax rate for manufacturers.

There are also issues regarding the carbon-floor price system for energy-intensive industries. It has been suggested that this has been implemented in such a way that, according to a report by Thomson Reuters earlier this year, it will place additional costs on businesses amounting to £9.3 billion. Given that these businesses are major employers and, in many cases, major exporters, it goes against the Government's proposals in The Plan for Growth. There has to be further scrutiny of the impact of these changes. It is important that the whole context of taxation on businesses is taken into account, not just the headline rate of corporate tax.

Oil taxation has been mentioned. This was nothing other than a hasty, politically motivated initiative with no consultation, and we have seen this before: we have seen it with Labour Governments. What happens is

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that when these proposals are implemented they do have long-term adverse consequences for these industries. As the Chartered Institute of Taxation has said,

"the last minute and precipitate change in Oil tax rates for an industry that is particularly dependent on long-term planning seems wrong",

and it goes against the Government's proposals for stable tax planning. The Government should take that issue into consideration. The sub-committee did note that the Government need to retain the flexibility to deal with immediate issues, but informal consultation should still have been possible and witnesses to the sub-committee said that this would have enabled better policy-making, so I hope the Government take that issue on board.

An issue has been mentioned regarding HMRC, which the sub-committee discussed, particularly the skills and resources available and whether it was able to carry out the Government's new approach to tax legislation. Perhaps more importantly, the committee also heard concerns over whether HMRC was fully able to implement the legislation once it was made, given its staffing problems. By some estimates, tax evasion costs up to £1 out of every £8 that should be collected in taxation, and therefore we need a good staff. This is particularly important given the sheer complexity of legislation being proposed in this Bill-and particularly the proposals on anti-avoidance, which the sub-committee scrutinised at some length.

I welcomed the £900 million the Government have pledged to invest in HMRC to tackle tax evasion. The principle behind this is right: investing more in HMRC staff will save the taxpayer money by helping to close the tax gap. But I am concerned it is insufficient, particularly at a time when cuts have been made to HMRC's budget; when HMRC is still attempting to absorb the loss of over 20,000 staff since 2004; and when tax legislation is becoming more complex. In the evidence sessions of the Finance Bill sub-committee one tax specialist said of HMRC that:

"a lot of very skilled people have left, that morale is very low, that people are given work that they are not being trained properly to do".

There is both a short-term and a long-term problem here for the Government. I have raised this issue before in another place when I was Chairman of the Treasury Committee. We said then, even six years after the merger of the Inland Revenue and HM Customs and Excise took place, that the merger,

"had a knock-on effect on performance",

and we were,

"deeply concerned about employee engagement at HMRC".

There still exists today the danger that the Government may focus too much on creating complex anti-avoidance legislation, rather than addressing the more fundamental issue of ensuring HMRC is fully resourced to implement that.

Lastly, I turn to something that the committee did not look at: the impact on ordinary people. The flagship policy for ordinary people in this Finance Bill is the significant increase in the tax-free personal allowance for income tax and national insurance-a welcome move, as it will benefit lower income households. However, this is also an area where we need to see the changes made in a wider context, rather than focusing

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on a single change. For example, the rise in VAT at the beginning of this year is reported to cost the average family with two children £450 a year. That is more than 10 times the benefit that is gained by low-income families from the rise in the personal allowance. That rise in VAT also added nearly 3p to the cost of a litre of fuel-or nearly three times the amount of the reduction in fuel duty that the Government bring in with this Bill. There is a need here to ensure that we take the full context of tax changes into account, and I hope the Government will realise that.

Looking to the future, there are inauspicious signals. Next winter the Chancellor cannot blame the snow. The cuts are coming, and the pressure on wages will not abate until 2015-and that is the Governor of the Bank of England talking when he appeared before the Treasury Committee in another place. I suggest to the Government that they need to be cautious, and I leave them with this important message, given these cuts. Economic prosperity is built on a platform of social stability. If the Government forget that rule they are going to get themselves into more problems. Let us hope they heed it.

8.39 pm

Lord Magan of Castletown: My Lords, it is an honour to rise to speak in your Lordships' House for the first time. My journey here has, I suspect, been a slightly less conventional one than most. I left school, aged 17, with only one rather poor A-level, and then, at the age of 18, I started work as a clerk in the City of London. Since that time I have had a career of nearly 50 years in the financial services industry. Therefore, I believe that I have a contribution to make in this evening's debate on the Finance Bill. At the outset, I should like to express my gratitude to my two noble friends, the noble Lords, Lord Northbrook and Lord Howard of Rising, who acted as my supporters when I was introduced into this House. I should like in addition to thank all those who work here in your Lordships' House for their highly professional and courteous assistance.

I was born in New Delhi in November 1945 when the sun was beginning to set on the British Raj. My father, Brigadier WMT Magan, was born in 1908 in County Westmeath in the south of Ireland, and sprang from an ancient Irish landed family. He was an officer in Hodson's Horse, a famous cavalry regiment in the Indian Army. Rather unusually for a cavalry officer, he ended up as a director of MI5 and was regarded as one of the leading figures in post-war intelligence. My father died last year at the distinguished old age of 101 and a half. My mother, who is now aged nearly 95, was born in Rawalpindi. Her father, Sir Kenneth Grant Mitchell, was a distinguished servant of the Indian Government. Her uncle was a distinguished Governor of Kenya and her great-uncle was a famous admiral who founded the Royal Australian Navy.

While the empire is thus very much in my blood, Ireland, where we have a family home, continues to be of absorbing interest. The noble Lord, Lord Myners, has already referred to this. The Ireland of today is completely transformed from the Ireland I knew as a boy. The large subvention payments Ireland received from the original EEC, extremely well strategically

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invested under the aegis of the Irish Development Agency, coupled with significant taxation advantages, have resulted in the complete modernisation of the economy. The European headquarters for so many cutting-edge multinationals now located there have established Ireland's very strong export base. This radical modernisation, coupled with the transformed relationships between the Governments in Dublin and Westminster, is wonderful progress. The recent courageous and hugely successful visit to Ireland by Her Majesty the Queen indeed marks a watershed moment in the relationships between our countries.

However, following what was clearly an uncontrolled nationwide overindulgence in real estate activity, and its consequent devastation of large parts of the Irish banking sector, we can now see what the current constraints are for Ireland in its membership of the euro. Look at this straitjacket: Ireland cannot manage her own currency; she cannot set her own interest rates; she cannot through fiscal stimulus give a much needed boost to her domestic economy; she cannot through credit stimulus, which is particularly necessary after the deflationary effects of the credit crunch, increase money in circulation; and she is largely beholden to a single creditor, the European Central Bank. Ireland is very significantly driven back into the most uninviting prospect of all-that of slashing, and then slashing again, the national budget in an environment where growth has very significantly deteriorated.

Our decision in this country not to join the euro was a most judicious one. We may have been overdosing on Keynesianism but we have at least remained unfettered in the management of our own financial affairs-and while we are riding through a great storm, which could get worse, we are still at the helm of our own ship. However, we cannot hope to re-achieve real national greatness until we put the nation's house in order. That means, in particular, putting the nation's long-term finances in order.

Let me now make certain comments on the Finance Bill which I hope-as I know is customary on these occasions-to lift above tendentious hyperbole and rhetoric. It is clearly necessary to fully recognise also that the current Administration have been in office for just over one year. When we look at this year's Budget, we see that the combined spend on welfare, health and education is just under £450 billion-getting on for two-thirds of the total budget of £710 billion. One might also note that the payment of debt interest will be £50 billion, which will comfortably exceed the defence budget of £40 billion. Incidentally, this year's defence budget for the United States is set at the equivalent of some £500 billion, which is more than 12 times our commitment, and yet its population is only five times the size of ours.

Further, we can also see that UK government receipts for this year are budgeted at only £589 billion, compared to a total spend of £710 billion. Therefore, the deficit for this current year will still be a whopping £121 billion, even though it is substantially reduced from £146 billion and £156 billion in the two previous years.

The spend on welfare of £232 billion is the largest single element of the Budget, and of this, getting on for £100 billion will be disbursed on dependency payments.

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There are some 40 million people of working age in this country. Some 2.5 million people who are looking for employment are categorised as unemployed, and there are a further 3.4 million people who are receiving out-of-work benefit payments; these people are primarily long-term unemployed and have no intention-or, through incapacity, are unable-to seek work. A total, therefore, of some 5.9 million people will claim some sort of support from the state; in other words, 15 per cent of the working age population. Yet, as we are constantly being made aware, several million new jobs in this country have been created in recent years, the vast majority of which, however, have been taken by immigrant workers.

Looking further, you have to search the Budget Red Book in considerable detail before you eventually find, in the small print on page 95, the figures for the public sector debt. Only then can one see its remorseless and alarming historic and continuing increase. We have to be brutally frank: the nation's long-term financial condition needs radical overhaul.

Twenty years ago, our national debt was £150 billion; today, it is closer to £900 billion. Even if the Budget is brought into near-balance by 2015-16 in line with the objectives of the current Administration, the national debt will by then have risen to more than £1,350 billion, getting on for a tenfold increase in our national debt over a 20-year period. Even allowing for inflation and for the considerable growth in the economy, this remains a staggering increase in the nation's indebtedness. Twenty years ago our indebtedness was around 25 per cent of national income; this now looks set to increase to some 70 per cent of national income. Even by this more conservative measure, the level of our nation's indebtedness will have nearly tripled.

We also have to recognise that the state has additional massive contingent financial obligations, particularly in connection with unfunded public sector pensions and PFI obligations. It is estimated that these additional contingent liabilities will amount to a further £1,100 billion. As Shakespeare, the immortal bard, reminds us,

"borrowing dulls the edge of husbandry".

I will tell your Lordships something else that dulls the edge of husbandry: the liberal spending of other people's money.

Let us be absolutely clear: our total national debt, including contingent liabilities, is heading towards £2,500 billion, a number so large that the figures are almost impossible to comprehend. What is more comprehensible is that this total level of national debt will be roughly the equivalent of some £100,000 of additional indebtedness for every household in this country.

The Office for Budget Responsibility must be only too well aware of this developing financial horror story. There is a suggestion that the unacceptable widening of what in economics-speak is referred to as the "fiscal gap" could be brought back into line by, say, an increase of 13p in the basic rate of income tax, from 20p to 33p, or by an increase of 13 percentage points on VAT-that is, a VAT rate of 33 per cent. This is the scale of the financial challenge that we as a nation are facing, but surely such grotesque rises in

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either direct or indirect taxation would be completely unacceptable to the British people. I suggest that there is an alternative, and much more palatable, remedy to get the country back into financial good health. But it is time to wake up, and wake up fast.

What is clearly beyond any doubt is that the world has moved on with tremendous panache in what is now the post-communist age. We have witnessed on a global basis the collapse of faith in communism-the dismantling of the Berlin Wall just 20 years ago was one clear manifestation of this. Yes, the Long March is well and truly over. We have as a consequence seen extraordinary vigour and growth from so many emerging countries. There has truly been a Great Leap Forward.

Let us look specifically at China. Sixty years ago, China was in a chaotic condition. It was only some 30 years ago that it started to reform and modernise its economy, embracing the markets and encouraging private enterprise, albeit within a totalitarian framework. It is really only within the past 20 years that we have witnessed the truly dynamic surge in growth from China, as well as, of course, more recently, from India and Brazil. China's economy is now 90 times larger than it was 30 years ago. Growth has lifted 300 million people out of poverty. Only five years ago, China's economy was half the size of Japan's; but because of its continuing phenomenal growth since then, China has recently passed Japan and has been propelled to the world's second largest economy, with $5.5 trillion GDP, second only to the USA's $14 trillion GDP. If present trends continue, China will pass the USA as the world's largest economy by 2030.

There are some real lessons here for us. The keys to our recovery are very clear to see. We must as a nation unequivocally take every conceivable initiative to unleash the forces of enterprise. We must remember that wealth is not finite; there is infinite opportunity to create additional wealth. We must continue with real vigour the fundamental overhaul of our bureaucratic and regulatory constraints on enterprise. We must undertake a fundamental overhaul of our taxation regime, which clearly in so many ways at present stifles enterprise and growth. We must be clearly aware, particularly at HM Treasury, that lower rates of tax do not inevitably translate into lower revenue flows for the Exchequer-in fact, the empirical evidence is frequently quite to the contrary. We must understand that government of itself does not create wealth. The Government cannot do it all. The Government's job is to distribute fairly the wealth they receive and to manage the nation's finances prudently.

We must appreciate that while we are physically a small island, this of itself should not be a bar to achieving and sustaining high rates of growth and prosperity. Singapore is even smaller, and look what has been achieved there. Look at our regions that are crying out for development and growth. We must not forget that we as a nation have a long and hugely successful history as traders in global markets. Over and above that, many of the world's major financial and other markets are made here in London. There is tremendous opportunity from our own existing strengths and skills sets to give a huge boost to the country's trade in goods and services, as well as to commerce and industry.

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We are one of the most talented and creative peoples of the world. Over the centuries we have absorbed millions of additional diverse, highly-talented, enterprising people, many of whom have sought refuge here. We have to face up to reality. We, too, in this country could, if we really had the collective mindset to do so, completely transform our economy and the prosperity of our people in a relatively short timescale. China has achieved a stunning economic revolution in 20 years. We in this country have to ask whether we can move from being a major debtor nation with relatively low rates of growth and whose relative competitiveness continues to deteriorate-in reality, this has been our condition for far too much of the post-war period-or whether we can transform our economy, sustain very high rates of growth, create opportunity and prosperity for all and become, once again, a major creditor nation.

This is the big issue. This is where we should be having the big debate, and we in this House should be at the forefront of stimulating and leading this big debate.

8.53 pm

Lord Anderson of Swansea: My Lords, I shall not add to the justified praise of the report prepared by the noble Lord, Lord MacGregor, and his committee, nor shall I contribute to the macroeconomic other debate which is taking place. First, it is with sincerity that I congratulate the noble Lord, Lord Magan, on his felicitous maiden speech. He clearly comes from a good stable, as he has said, from Ireland and from India. He has had over 50 years' experience in the financial services industry and it clearly shows. I hope that that experience will be seen again in this House. It was a well-delivered, felicitous speech and I am sure that he will make a number of excellent contributions in that vein.

I shall not speak on the macroeconomic level but I shall deal with one corner of the canvas and ask the Government a number of questions on a matter which was raised in the course of the Bill's progress through the other place. The Government responded with some positive noises but gave no firm conclusions on the timetable. I recall that in the other place much of the Finance Bill was consigned to Committee, where often it appeared to be accountants talking to accountants. However, beneath those dry as dust phrases, often there were real values. One such is the recognition of marriage in the tax system. Many commitments have been made by the Government-by the Prime Minister himself over a number of years in opposition and indeed in government-but there has been no actual result as yet. I hope that when the Minister replies-he is already sharpening his pencil-he will give a firm and clear commitment on how the Government will implement the many promises that have been made. I need not take him down the road in great detail, but I can quote seriatim a number of commitments made by the Prime Minister over the years. He said, for example,

"we will give a tax break for marriage and end the couple penalty".

He said on another occasion:

"A Conservative Government will support marriage, through the tax and benefit system and remove the 'couple penalty' from the benefits system which will lift 300 000 children in two parent families out of poverty".

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Similar sentiments were expressed by Mr David Willetts and a number of other Members. Before the 2010 general election, there was great support for the measure. It was even made official Conservative Party policy and was put into the 2010 Conservative general election manifesto. A number of statements have been made by the Prime Minister since the general election, but action there has been none.

I think that it is generally accepted that marriage is of fundamental importance to a stable society; but, equally, marriage rates are at an all-time low in this country. Family breakdown is a major social and financial problem. One knows from surgery experience in the other place that most single parents do a great job in very difficult circumstances, but stability-or lack of it-does matter. On average, children brought up in married families do better than those in single-parent families by every significant measure-of educational achievement, health and propensity to commit crime. Even after discounting certain socioeconomic factors such as age, income, education and race, the fact remains that the poorest 20 per cent of married couples are more stable than all but the richest 20 per cent of cohabiting couples. It is therefore surely in the interests of society that, by the tax system and other mechanisms, any Government should do their best to encourage the institution of marriage and should in no way discourage marriage. It is then hardly surprising that, apart from Britain, only 18 per cent of people living in OECD countries are subject to a tax jurisdiction that does not recognise marriage in the taxation system; and the great majority of those thus excluded live in Turkey and Mexico.

Furthermore, the latest international tax comparisons show that the tax burden on one-earner married couples with children in the UK is nearly 40 per cent greater than the OECD average. What is worse is that, if all the tax and benefit changes in the Finance (No. 3) Bill and those proposed for 2012-13 are introduced, the burden is projected to increase to over 50 per cent of the OECD average. Therefore the indices are moving against the pledges made by the Government and are hardly consistent with the Government's manifesto commitment. By contrast, the tax burden on single persons on the same wage is actually falling and is now below the OECD average. Clearly the UK is mightily out of step with the OECD majority.

I fully recognise that there are a number of mechanisms for encouraging marriage by tax incentives, including some relating to property. However, a transferable allowance is the main device debated, as in the UK the unused tax allowances cannot be currently transferred from a non-earning spouse to an earning spouse. Thus, depending on how it was introduced, it would be the whole allowance or part of it; whether it was limited to couples with children under a certain age or limited to tax at the basic rate, it is clearly important that this be considered seriously by the Government. Therefore, with one moving in the wrong direction from the OECD average, surely it means that the issue is both important and urgent. Unless action is taken, the easy slogans of the Government about making the UK the most family-friendly country in Europe will appear ridiculous.

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I noted in the Centre for Social Justice report card published in May that the Government were given two out of 10 for their efforts to tackle family breakdown. Clearly, on the current projections, that will get even worse. So I am bound to ask, in conclusion, when in the circumstances the Government are planning to introduce the necessary budget resolution. Even if the Government, understandably perhaps, are reluctant to give a firm date for implementation, can the Minister in replying give your Lordships' House at the very least the assurance that preparatory work is already under way in the Treasury and HMRC? How long is this work likely to take? One hopes it is under way.

Surely, if there are no positive replies to these questions, in spite of the repeated assurances and grave commitments made by government spokesmen, both in opposition and in government, one is likely to conclude that they were empty words-and, as is often said by wags about US politics, electoral platforms are platforms to run on and not to stand on. Certainly the Government ran on this particular platform; it remains to be seen whether, over the next year or two, they will in fact stand on it.

9.02 pm

Lord Browne of Belmont: My Lords, following on from the noble Lord, Lord Anderson, I, too, would like to express my concern that the Government are taking so long to honour their very important commitment to recognise marriage in the tax system. It was not that long ago that the Conservative Party, when in opposition, talked regularly about the problem of broken Britain, and they were absolutely right to do so. Of course, we do not hear that phrase on their lips very much now that they are in office. The truth is that no Government could sort out broken Britain in just over a year, and the problems of social breakdown remain as real today as ever.

One of the principal sources of that social breakdown is family breakdown, which has such devastating implications for child development. As a Minister said in a speech in February:

"The Centre for Social Justice has found that those not growing up in a two-parent family are 75 per cent more likely to fail at school, 70 per cent more likely to become addicted to drugs and 50 per cent more likely to have an alcohol problem. The Joseph Rowntree Foundation has found that children from separated families have a higher probability of living in poor housing and developing behavioural problems".-[Official Report, 10/2/11; col. 389.]

They also suffer from a host of other damaging outcomes whose effects spill over to the rest of society.

What promotes couple stability? In engaging with this question, we must look at many factors, one of the most important of which, unsurprisingly, is the nature of the relationship between partners. In this regard, the research findings are very striking. If children are born to cohabiting parents, they have a nearly one in two chance of finding themselves in a one-parent family by the time they reach their fifth birthday, whereas those born to married parents have only a one in 12 chance of finding themselves in this situation.

I know that some will respond to this by saying that those who marry also tend to be wealthier, and that this is the real reason for their greater stability. Given

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that material need generates added pressure on relationships, it would be very strange if wealth were not a relevant consideration. The notion that it is the only relevant consideration, however, is rather odd. Mindful of this, it is no surprise to me that research demonstrates that the poorest 20 per cent who make a public "till death do us part" commitment in front of their families and friends are more stable than all but the 20 per cent richest cohabiting couples.

The truth is that marriage sealed by a public "till death do us part" pledge, rather than a "let's move in together and see how it goes" commitment, is, unsurprisingly, an independent promoter of stability. In this context it is clear that, at the very least, the Government should do everything they can to develop public policy that does not make it more difficult for couples to marry in this country than in comparable countries. This is where our failure to recognise marriage in the tax system is so important.

In introducing the subject of marriage and tax, let me be clear from the outset that I do not believe that people fall in love, and then decide they want to be together for fiscal reasons. When they fall in love and decide that they want to be together, however, they face a choice: will they marry or will they cohabit? This is a very important decision, for the reasons we have considered, and it will inevitably be informed by all relevant considerations, including financial ones.

Britain used to recognise marriage in its tax system, but it has not done so since 1999-2000-unless those concerned were born before 1935, or one or both are blind. As CARE's latest international tax comparison-The Taxation of Families 2009/10-reveals, apart from Britain, just 18 per cent of citizens of OECD states live in countries that do not recognise marriage in their tax systems. The majority of these people live in just two states: Turkey and Mexico. We are completely out of line with the developed countries with which we are usually compared-for example, France, Germany, Japan, and the USA-in not recognising marriage. This inevitably makes it more difficult financially for couples in this country to choose to marry than in other developed countries. Indeed, if we look at the tax burden that they bear, it is a staggering 39 per cent greater than the OECD average. What really is concerning, however, is the fact that the latest projections suggest that the tax burden on such families will be more than 50 per cent greater than the OECD average by 2012-13-unless, of course, there is an offsetting measure such as recognition of marriage in the tax system.

One of the statistics that fascinates me is that, in the midst of all this, 90 per cent of young people say that they aspire to marry; and yet our marriage rates tell a very different story. Given that we make choosing to marry fiscally more difficult than in other OECD countries on average, the disconnection between the aspiration to marry and marriage is of no great surprise. Happily, the coalition agreement commitment provides us with the opportunity to change this and to ensure that it is no more difficult to marry in this country than in other developed countries such as France, Germany and America.

I am of course aware that recognising marriage in the tax system has cost implications, but these were considered at the time the commitment was

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made last year. Moreover, the very real costs associated with not recognising marriage are of great importance. The £550 million cost of the very modest partially transferable allowance proposed at the general election represents just 1.3 per cent of the direct costs of family breakdown, as calculated by the Relationships Foundation, and just 2.3 per cent of the costs of family breakdown, as calculated by the Centre for Social Justice. Moreover, it would cost just 4.4 per cent of what we are in the midst of paying to raise individual allowances to £10,000-the overall cost is estimated at approximately £12.5 billion. This is a policy that greatly benefits single people, and certainly does not benefit one-earner married families.

The Government were absolutely right to make provision for the commitment to recognise marriage in the tax system in the coalition agreement. We owe both the next generation, which would benefit from an increased chance of a two-parent home experience, and our young people who aspire to marry the opportunity to live in a country that does not make it more difficult than in comparable developed countries. In May, the Government were given a score of just two out of 10 in the Centre for Social Justice's report card for their efforts to combat family breakdown-an extraordinarily poor result given the great emphasis the Conservatives placed on fixing the broken society before the election. I very much hope that the Minister will be able to assure us that things will be very different in the coming year, and that recognising marriage in the tax system will be a high priority.

9.11 pm

Lord Mackay of Clashfern: My Lords, I congratulate my noble friend's committee on its excellent report. I am also extremely glad to notice the development of a consultation system on detailed tax provisions. When I was at the Bar, I spent quite a lot of my time trying to understand the tax provisions that were then extant in order to try to advise people as to how they might conduct their affairs. It was not easy then but, looking at the tax legislation that has come along in the quite long time since, the problems are no easier now than when I was looking at them. I hope that this system will indeed make it easier for advisers reliably to tell people what their tax liabilities will be if they pursue a particular course of action.

My principal point is not on what is in the Finance Bill but, rather, on what I would have liked to see in it in relation to marriage being recognised. The noble Lords who preceded me have shown that this Government agreed in their coalition, as I understand it, to recognise marriage in the tax system. I am in the happy position of having been born before 1935, so I may have the benefit of the provision to which the noble Lord who immediately preceded me spoke. I am therefore not talking about anything affecting me personally. However, I believe that this is a very important and fundamental part of dealing with the situation in our society. Those of your Lordships who were in the House then will remember that, towards the end of the previous Conservative Government, I spent quite a lot of time trying to put through a Bill to ameliorate the situation when marriages broke up. I am glad to say that the Bill

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was passed and is still on the statute book but, so far, it has not been implemented. I hope that may some day be rectified.

What is apparent is that if nothing is done soon on this matter, the projections are that the tax burden on one-earner married couples with two children on average wages will rise so that it is more than 50 per cent above the OECD average by 2012-13. If your Lordships look at that as against the burden in the OECD on a single person, it will increase to an incredible 80 per cent while the comparable burden in the OECD is just 52 per cent. It is obvious that this is going to get considerably worse. The primary reason for that is that when tax goes up on the individual, unless the marriage is recognised it becomes worse from the point of view of comparing a married couple with two children and a single person with no dependents.

It would perhaps take some development of the Inland Revenue computer system to recognise marriage easily in the tax system. I believe that it is important to make the necessary preparations. Apparently they are able to do it for older people without too much difficulty, as far as I can judge. I hope that they may be able to do it for the younger people as well, but I believe that that may require some preparation.

The commitment given by the coalition could wait until towards the end of the coalition period which, as we know, in the first instance will be in May, at the end of the five-year Parliament that has been provided for. That five-year period is the timetable within which this ought to be done if it is to be implemented. From my point of view, the system is so damaging to the institution of marriage that the sooner it is done, the better. Therefore, rather than leave it to the very end of their commitment, it would be extremely wise and beneficial for the Government to do it soon. I hope that my noble friend can give us some encouragement that the Government intend to do just that.

9.16 pm

Lord Desai: My Lords, I welcome the debate. I have nothing particular to add to what other noble Lords have said about the interesting report of the noble Lord, Lord MacGregor, which I welcome. I especially welcome the transparency and the consultation that the Government have introduced in deciding their tax legislation.

I want to concentrate on why the recovery is so slow and faltering. That is an important question that we all ought to take up. The general proposition in many quarters is that somehow the Government have gone wrong and they need a plan B-or C or D, I do not know. I think that we face a very different kind of crisis from those we are normally used to. Recessions normally happen because of a lack of effective demand, and we know the standard games and policies that we have to follow. We got into this crisis not because of a lack of effective demand but because of overspending and overborrowing. When you have to carry an economy through a crisis in which the major consideration is deleveraging by both households and Governments, you need a very different kind of strategy from the one you normally encounter in a standard recession.

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That said, we do not have a road map for such crises. Normally all economic theory is about the other kind of crisis. There is a paradoxical conclusion that we might follow. If the task is to deleverage, we ought to hurry that up. That leads to the idea that we should not have low interest rates at all; we should have proper high interest rates so that households that falsely think they can afford their mortgages should be told that they have negative equity and cannot afford them. That is a cruel thing to say, but right now we are postponing deleveraging rather than assisting it. That is a choice that the Government can make.

We have, of course, decided to deleverage public debt at a rate that is now known, and the task of eliminating the deficit within five years has been adopted. The problem of deleveraging is not just a problem of the recession. We are observing from the crises of both pensions and elderly care that we, not just in the UK but in western economies, are suffering from a serious undersaving problem. We have been undersaving for far too long and we will completely have to change our habits of thinking, living, taxes, and so on. The task of the tax system should be as far as possible to tax consumption and not income, to tax pollution but not work. I do not know at what stage we will get into those kinds of discussion. I welcome the proposal to merge income tax and national insurance contributions. I have never understood national insurance contributions because they are a tax on earned income, while unearned income gets taxed less, which is a very peculiar thing that successive Governments have tolerated.

If we are to face up to the challenge of saving seriously, we will have to adopt something like what Lord Kaldor talked about in his expenditure tax proposal. We may have to move to an expenditure tax proposal as that would reward savings much more than we have done so far. We have been led to think that expenditure leads to income. I am sorry that the noble Lord, Lord Skidelsky, is not in his place as we have had long arguments about this. If you think that expenditure leads to income and income then leads to output that leads to inward gain, we have a certain trajectory. Our problem is that we cannot go through the politics of income growth if there is consumption expenditure.

The gap is in investment. The Government face the challenge that despite the quantitative easing that they have been practising for a couple of years, the money is there but no one is investing. That is very much the reason why the money supply is not expanding, as the noble Lord, Lord Higgins, said. People are not borrowing the money that is available. Therefore, there is a lack of investment by the private sector despite the fact that interest rates are low and people should be encouraged to invest. This is a difficult thing to do. I do not believe that it is necessarily within the Government's control to encourage investment if they can no longer pick winners or horses that will start a race. However, the Government ought to concentrate on how they can give a certain boost to new investment proposals, perhaps in green technology. Unless they get an investment programme going, they will find that even if people decide to save they will be frustrated.

Whichever way the Government go-I welcome some of the taxation proposals-they should be aware that in the short term and in the long run the crisis

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arises from undersaving. We have to try to correct our overborrowing and then provide for a proper level of saving to finance the problems created by longer life expectancy and people needing elderly care. If these two challenges are properly thought through and met, we may yet have a prosperous future.

9.23 pm

Lord Watson of Invergowrie: My Lords, when introducing the Budget, the Chancellor told us that it was about reforming the nation's economy so that we have enduring growth and jobs for the future and about doing what the Government could to help families with the cost of living and the high price of oil. Four months later and after 14 months of the coalition Government, that is not how it feels for many people. As the cuts begin to bite, the popular perception is that it is hurting but it is not working. Inflation remains high, the recent small drop in unemployment is not expected to be repeated when the next figures appear, and the economy is clearly not "in recovery", as the Chancellor claimed.

That is also the view of the independent National Institute of Economic and Social Research, which has as its president the noble Lord, Lord Burns. That organisation dismissed the Chancellor's claim that cutting the deficit more slowly would cause a collapse in market confidence as "fundamentally flawed", adding,

"The real hit to credibility comes from sticking to unsustainable policies. If Mr Osborne really wants a budget for growth he should amend his plans".

It is basic economics that deficit reduction will slow growth. I echo the national institute's calls for a major house-building programme, and measures to boost youth employment, to restore the education maintenance allowance that keeps poor students in school, and to reverse the cutting of student visas, because universities are a dynamic export industry.

None the less, I concede that the Budget contained measures that are to be welcomed. Next year the personal tax allowance will be increased to more than £8,000. Temporary tax relief for small businesses is to be extended to October next year. The Chancellor deferred for a year the proposed rise in fuel duty, until April 2012, and cancelled the fuel duty escalator for the remainder of Parliament. He increased the supplementary charge levied at North Sea oil and gas companies to 32 per cent, generating a possible £2 billion, although he has since handed back around a quarter of that in exploration allowances.

Public spending measures that included an extra 40,000 apprenticeships for young people out of work, and 100,000 new work experience placements, are also to be welcomed, although I fear they will be less worth while than the genuine jobs of the future jobs fund that the coalition has axed, which paid the minimum wage. There are also doubts as to whether employers will offer the extra apprenticeships and work placements unless they are forced to do so. There is to be a consultation on long-term plans to merge income tax and national insurance, and I echo the comments of my noble friend Lord Desai that this is long overdue. This is planned with a view to simplifying the tax system, although I am disappointed that the review will not go as far as a full merger with income tax.

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I will now focus on a narrow but crucial casualty of the Government's restructuring of the economy, and one that the Chancellor failed to address properly in his Budget speech in March. In fact, it relates to an issue highlighted by the Chancellor in last year's Budget of a commitment that the Government made then and have since failed to honour. I hope the Minister will be able to offer an explanation as to why the Government have let down low-paid workers in the public sector across the United Kingdom, to whom they made promises before the general election and in the Budget of June 2010. At that time the Chancellor of the Exchequer announced to Parliament that:

"the Government are asking the public sector to accept a two-year pay freeze, but we will protect the lowest paid ... They will each receive a flat pay rise worth £250".-[Official Report, Commons, 22/6/10; col. 171.]

He said that the earnings level at which people would qualify would be £21,000 a year, and he estimated that 1.7 million people would benefit from that pay increase. In the Budget Statement this year, the Chancellor had a different message for low-paid public sector workers, when he said:

"I can confirm today that in the coming year all workers in the armed forces, the prison service and the NHS, and teachers and civil servants, earning £21,000 a year or less will receive a pay uplift of £250".-[Official Report, Commons, 23/3/11; col. 963.]

That is considerably less than the promise delivered nine months earlier, and it means that only about one-third of those originally earmarked will be guaranteed to receive the £250 payment. What the Chancellor meant in effect was that only those working under ministerial control, and those whose pay and conditions are subject to pay review bodies, would be guaranteed to receive the payment. Between one Budget and the next, goalposts have been shifted with a vengeance. Research commissioned by Frank Field MP from the House of Commons Library shows that the Chancellor, in his 2010 Budget Statement, could not have been referring only to workers under ministerial control and those with pay review bodies. The Chancellor's figure of 1.7 million workers was precisely the total number of public sector workers earning less than £21,000 in 2009, which at the time of the Chancellor's Statement were the most recent available figures.

The Commons Library further calculated that the most reliable current estimate for the number of public sector workers under ministerial control or covered by pay review bodies is 715,000. That equates to just one-third of the 1.7 million figure, and when the most recent official statistic for 2010-that is, 2.2 million-is introduced, it leaves up to 1.5 million public sector workers denied the promised pay rise, and the victims of a deception.

Two weeks ago in another place, Frank Field introduced an amendment to the Finance (No. 3) Bill with the aim of securing justice for these low-paid public sector workers. Mr Field's amendment, which he did not press to a vote, sought to reduce the tax liability of all public sector workers whose earned income does not exceed £21,000 in this tax year, by £250. That would have had the effect of ensuring that around 1.5 million public sector workers who are currently being denied that promised pay rise of £250 would have received it, as the Government had

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led them to believe. The total cost to the Treasury has been costed at around £500 million. To government Ministers, or indeed to your Lordships, £250 does not mean a great deal-indeed, it is less than our daily allowance-but for many people, £250 means a great deal.

In that debate on the Bill in another place, the Government's reasoning for abandoning their commitment was based on the unconvincing grounds that this protection will now be extended only to those workforces directly under ministerial control or whose pay and conditions are decided by pay review bodies. Not only was this not made clear at the time of the Statement, the figures the Chancellor quoted in his 2010 Budget speech made it clear that this was not what he intended.

David Gauke, the Exchequer Secretary to the Treasury, said in another place that civil servants, nurses, prison officers and the Armed Forces had already received the £250 increase and were to receive it again next year, but whether other public sector work forces, mainly in local government, received that payment was not a matter for the Minister. In most cases they will not receive that because, as Mr Gauke told the other place on 4 July:

"Decisions on the pay of local government work forces are for local government employers, rather than central Government, to negotiate. Provision was made in the local government settlement for local authorities to pay the £250 increase".

So the Government have handed them that money. He continued:

"We gave them the opportunity to pursue the policy that we are pursuing at national level, but it is ultimately for them to decide how to pay their employees".-[Official Report, Commons, 4/7/11; col. 1335.]

However, it has emerged that many local authorities have allocated the money to other budgets and have not given it to their low-paid workers. Despite that, the Government have said that they have no plans either to compel local authorities to spend the money in the way that was intended or to recall the money. Is that not a shocking example of the Government promising with one hand but taking away with the other?

I urge the Minister to take this matter on board for further discussion within the relevant departments and to reconsider this approach. The Government need to act to ensure that those promised the additional £250, those expecting it and those desperately needing it receive the payment that the Chancellor, less than a year ago, told them they would receive.

9.31 pm

Lord Ryder of Wensum: My Lords, I applaud the general direction of the Chancellor's attack on public spending, yet I nurse concerns about the Government's economic coherence. The Government's growth strategy is deficient. Growth requires stronger supply-side measures, starting with deregulation. I tabled a Written Question when the Government had been in office for almost a year, inviting Ministers to set out the number of regulations revoked since the general election. The answer was none. It appears that despite languishing in Opposition for 13 years, the Conservatives were unprepared for Government, otherwise action would have been taken by now.

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Is not the Chancellor at least willing to remove reams of onerous employment laws, bearing in mind that expensive regulations to meet environmental targets lurk in the pipeline? The ligature of red tape stays tight around our businesses and their growth is further hampered by high tax rates. The Institute of Directors has just gauged that taking all taxes into account, the overall tax burden for a medium-sized firm is no less than 43 per cent.

The Chancellor has asked HMRC to examine likely tax revenues from different rates of personal taxation. I had half hoped that Mr Osborne's apparent belief in the enterprise culture would have informed his opinions without this digression. The noble Lord, Lord Myners, quoted John Maynard Keynes in 1933. I am sure that he knows even better than I do that this was the year in which Keynes advised the then Government to cut taxes. Now, even the IMF has urged our Government to slice tax rates. So there is no deregulation, no lower taxes, except corporation tax, and to compound these defects the Government also harm our economic recovery and competitiveness and fuel inflation at the same time with so-called green measures. Last year, the Government raised £40 billion from green taxes with householders paying an extra £200 in hidden charges on gas and electricity bills. The Global Warming Policy Foundation has shown that one-fifth of our soaring energy bills are accounted for by the hidden subsidies and other costs to decarbonise our electricity industry. This injures our recovery. The cost of the low-carbon economy will be £13 billion a year, soon rising to £18 billion. China, India, and to a lesser extent the USA, have rejected constraints on carbon-based energy. Investment and jobs will be forced overseas by the Government's actions. The director-general of the CBI has wryly observed that green taxes on cement, steel and lubricants will mean that even windmills will soon be too expensive to manufacture in this country.

We cannot afford such follies. Last year our trade deficit was £50 billion, despite the 25 per cent devaluation. The benefits of devaluation in terms of exports have been so marginal that I query whether they are worth the manifest inflationary costs condoned by the Monetary Policy Committee.

Lord Spicer: My noble friend is making a very important speech, and I am particularly struck by what he is saying about inflation. Will he accept that the problem with inflation is that it can get out of control so that it becomes cumulative? I wonder whether he had in mind any figure of inflation at which that might occur. My own view is that it is between 5 and 7 per cent, but I wonder what his view is.

Lord Ryder of Wensum: My noble friend has consistently warned about the dangers of inflation over the past 30 to 40 years. As I recall, in his maiden speech last year he highlighted this threat. I agreed with him then, and I agree with him now, because inflation, as he knows, has been above target for more than four of the past five years. We can feel very thankful that the MPC members are not paid performance bonuses. The Business Secretary gently chided me for complaining about inflation in a debate a year ago, implying that it had little to do with the Treasury. Up to a point, Lord Copper, only up to a point. I confess

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to acting as a foot soldier, like my noble friend Lord Spicer, in the battles against inflation during the 1970s and 1980, sharing Milton Friedman's belief that,

"inflation is one form of taxation that can be imposed without legislation".

I wager that inflation is built into every economic calculation made by the Treasury. The suppression of inflation may not be the Treasury's responsibility but it is, I say to the Minister, its lasting burden.

A week after the general election, the Prime Minister, eager to encourage economic growth, implored the Foreign Office to play a livelier role in helping our export drive, though it later took him seven months to put a trade Minister in post. How can the Prime Minister's wishes be achieved when the Foreign Office budget has been slashed with severity? DfID's budget will soon exceed that of the Foreign Office by a factor of five. We donate in this country twice as much as Japan and nearly twice as much as Germany. Our Government raise the equivalent of £300 per household for overseas aid. Surely a segment of that figure would be better deployed in the Foreign Office to promote British exports?

The late Lord Bauer, who I know worked closely over many years with the noble Lord, Lord Desai, at the London School of Economics, argued about overseas aid transfers cash from poor people in rich countries to rich people in poor countries. Indeed, the DfID Permanent Secretary admitted earlier this month that the department had no idea how much British aid is being lost to fraud and corruption, thus underlining a recent World Bank investigation unearthing massive corruption in the aid field. Rumours still persist about the Karzai clan's links with new blocks of flats in Dubai, partly through the collapsed Kabul Bank. Yet we continue to pour aid into Afghanistan. Parents of dead soldiers must rue the extravagance of the aid budget when compared with the lack of military equipment given to their sons and daughters. I would prefer my donations to be voluntary. In other words, I opt, even if the Prime Minister does not, for the free-will offerings of the big society over the compulsion of big government.

I am pleased that the Prime Minister went to Africa to preach the gospel of free trade. I hope that on his journey he found time to read Dambisa Moyo's book, Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa, in which the leading Zambian economist argues that aid fosters poor government, dependency, corruption and poverty. To paraphrase Bill Clinton, economic success is not a matter of chance but of choice. Let chance be the road not taken and choice of the economic road taken, with belief and without fear.

9.41 pm

Lord Sheldon: My Lords, in a debate on the Finance (No. 3) Bill in the House of Commons on 26 April this year, the Labour Party set out how the fundamental policy of the Government was putting jobs and growth at risk. There was a risk there. One important result of the Government's actions was that bank lending to small businesses fell in the first quarter of the year. The problem was that lending to small businesses was important to the economy and was not succeeding at all.

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A major problem facing the Government was that one in five young people was not employed. The Budget produced by the Government forecast higher levels of unemployment. This was serious, and it was the consequence of the Government's decision. In the Finance (No. 3) Bill debate, Malcolm Wicks, the member for Croydon North, speaking on the Department for Work and Pensions, said that 11 million people alive today can expect to live to 100. Democracy is becoming much advanced.

When Members of Parliament retire, they leave the labour market and draw the state and occupational pension at a later stage. The problem here is class variations, and variations in life expectancy depending on geography, constituency, north or south residence or work undertaken. There is considerable inequality. One-fifth of men have routine occupations. There is a class of workers in these routine occupations such as cleaners, packers, van drivers and unskilled labourers, many of whom started work at the age of 15 or 16. Many of them are dead before the age of 65 and so do not draw the state pension. Women undertake similar work but there are not similar problems.

The problem with increasing the state pension age is that one category does not cover everyone. If the pension age is raised to 67 or 68, this will be considered by many to be a serious change. However, there will be a considerable difference for poorer men and women, who will receive a further pension penalty. Many of the poorest men and women have shorter lives. What we see now is what should be the basis of the increase in the state pension age, which may be raised to 70.

Those who are in major businesses and other highly paid undertakings can undertake working extensive practices by consulting, writing articles, considering other matters and other aspects of their work. However, others undertake basic works, as Malcolm Wicks set out. He stated:

"These people might be able to continue their work, but what about the van driver, the bus driver, the woman who cleans offices, the steel workers, the people with creaking backs and aching limbs who come their 60s need to retire in a very old-fashioned sense?".-[Official Report, Commons, 26/4/11; col. 103.]

That refers not to the higher social classes-they commence work in their mid-20s-but to those hard workers who frequently start at the age of 15 and 16 and who need to retire much earlier and have a reasonable rest.

Malcolm Wicks pointed out that those who start basic work at an earlier age should draw their state pension four years earlier than most; that is, those who undertake routine employment just might be considered by their employers as candidates for taking a state pension at an earlier stage. The major issue is that given the age of the state pension, many people start work at the age of 25 and have 40 years of work, and then have 30 more years in retirement with considerable pay.

As people live longer, longer retirement has to be paid for. There is the possibility that a state-pension age of 66 to 70 may not be an acceptable arrangement. Such an arrangement may need to be changed as factors in medical work and in people's backgrounds

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increase life expectancy; and life expectancy will increase over many years to come. Those who are in work must be aware of such a charge.

9.46 pm

Lord Tugendhat: My Lords, this debate has ranged very widely but I shall confine my remarks to the sub-committee's report. As I am a member of the Select Committee but not of the sub-committee, I can say with a clear conscience how very good the report is.

We are debating the report against the background of a number of far-reaching constitutional changes, some actual and some prospective. Often, the most far-reaching changes are those which are least noticed when they are introduced and appear to be the least spectacular. That may very well prove to be the case on this occasion with the Government's new approach to tax policy. It represents an interesting new direction and will, I think, have a considerable impact on the formation of policy in the future. I congratulate the Government as did the noble Lord, Lord MacGregor, on its implementation.

I should like to make a few I hope helpful suggestions. My first hope is that that the Treasury and future Chancellors will not be afraid of being boring. The temptation inherent in producing an annual draft Finance Bill will be to cut a dash and to make an impact. There will be some years when that will be the right thing to do, when it will be appropriate to serve up a delectable menu of substantial changes. That will not be the case every year and quite likely it will not be the case in most years. I hope that the new approach will lead not only to a more consultative approach to tax policy, but also to one that is more measured and selective, and that Chancellors will not be judged by how far-reaching or how dramatic the changes are from one year to another.

My second hope is that the Treasury and future Chancellors will not be afraid of disregarding occasionally the constraints imposed by the new approach. I noted what the Minister had to say on that point when he opened this debate. I agree with the sub-committee's strictures on the disguised remuneration measure and the supplementary charge on oil and gas profits. However, there will be occasions when it will be right for the Government of the day to act quickly in response to a difficult or crisis situation. The banking crisis of 2008 and its aftermath provide a case in point. There is a good general rule that should normally be observed, but there will be occasions when Chancellors will be right to take more immediate action.

My third hope is that the draft Finance Bill will spark off what might be termed an iterative process with a set of proposals for action in one area sparking suggestions for action in another. We see an example of this already in the way that taking evidence on tax avoidance has prompted the committee's request for the Government to follow up their anti-avoidance strategy with one for tackling evasion. Given that HMRC calculates that the loss from all forms of evasion and default is £22.6 billion versus £7.5 billion for avoidance, this seems highly desirable.

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Finally, I turn to the role of the Economic Affairs Committee, or rather its sub-committee. I strongly agree that the new system provides an admirable opportunity to make better use of the experience and expertise of Members of the House of Lords. This is exactly the sort of role that the present House of Lords is well qualified to perform. The report puts forward two possible options in paragraph 122. I suggest that consideration should also be given-as the noble Lord, Lord MacGregor, pointed out, this is a matter for the whole House-to establishing the sub-committee on a permanent or semi-permanent basis. I am not committed to that formula, but I want to ensure that a variety of possible options is explored in order to ensure that the experience and expertise in the House of Lords is harnessed in the most effective way, whatever that may be.

To conclude, I congratulate the Government above all on the introduction of the new approach to tax policy and on the way in which they have started the implementation of that policy. While one should, generally speaking, adhere to the rules, there will be occasions when it will be appropriate to go outside them.

9.52 pm

Lord Haskel:My Lords, I did not serve on your Lordships' Economic Affairs Committee, but I congratulate the noble Lord, Lord MacGregor, and his committee on the report. It was very sensible.

By tradition, the Second Reading debate on a Finance Bill in your Lordships' House is an occasion to consider the country's economic situation. As my noble friend Lord Myners explained, it is not going as well as we would like-that is an understatement. The accusation by the shadow Chancellor that the Government have recklessly been cutting too far and too fast is beginning to stick. The noble Lord, Lord Owen, put it rather well in last week's HouseMagazine. He said:

"There is a scratching air of general incompetence beginning to infiltrate this coalition Government".

Why? I think it is partly because this Government have fallen into the age-old trap which has pervaded economic life in this country over many years. It is the trap of separating the financial sector from the rest of the economy. Many business people complain of this. It is the kind of thing that JK Galbraith was referring to when he spoke of the belief that monetary policy is the highly professional preserve of the financial community and has to be protected from interference by the rest of us.

What has been the effect of the Government's handling of the debt crisis? What it seems to be doing is transferring the debt from the Government to the citizen. The Joseph Rowntree Foundation recently reported that if you have suffered the average cut in pay and require childcare, your standard of living will have gone down by 10 per cent. As the noble Lord, Lord Myners, said, we are told by the OBR that it expects families to go deeper into debt between now and 2015. The result of the Government's policy will be Government debt perhaps down, family debt certainly up-a typical financial solution which ignores the rest of society and incidentally discourages investment, as many other noble Lords have pointed out.

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The Government speak of balance in the economy, but balance in their sense is a compromise. You achieve real balance by working on the whole economy. The noble Lord, Lords Higgins, spoke of this, and he is right, because the line between financial and other services and manufacturing has now become so blurred that it is frequently difficult to tell on which side of the balance an activity lies and what impact it has on jobs. The Government's growth paper ignores this, and the "march of the makers" also ignores this. Selling IT services and software that challenge established businesses is an example of this. Earlier this year, President Sarkozy commissioned from McKinsey a report about this for the G8 summit in Paris. That report calculated that for each of the 500,000 jobs lost in France due to internet innovation over the past 15 years, 2.4 new jobs had been created. These services create manufacturing growth.

Another area where the real world and the financial world seem to be out of kilter is in the matter of enterprise zones. The Government want to encourage them through tax incentives, rate relief and other financial tricks. In the real world, business believes in clusters. The old ways of the supply chain, consisting of standard services or standard components, is giving way to much more complex systems. Advance manufacturing needs particular products and services, and this is why they all need to be together. They need each other's skills and services to stimulate and find new products. This is where the incentives are needed, but the Government have dismantled the mechanism to do this.

Another area where the balance has got out of kilter is in the taxing of overseas profits. It may have satisfied the financial sector, but some see the low tax on overseas profits as an incentive to export jobs overseas and bring back the profits at a low rate of tax.

The Government talk about being green. The noble Lord, Lord Ryder, does not like green taxes because they encourage carbon leakage. However, the green taxes which the Treasury has imposed are not what the Office for National Statistics calls green. The recent House of Commons report quite rightly says that they should be justified by finding a way of showing that taxing pollution goes towards green expenditure, such as less polluting vehicles or better public transport. This is just another example of financial considerations ignoring the rest of us.

Another area where the Government know that there is potential for growth, and about which they should be making many more encouraging noises, is the single market, particularly in services and the digital single market-and this in spite of what the noble Lord, Lord Newby, said about the euro crisis. The single points of contact are well established. Indeed, they are all in English, and if the Minister and other noble Lords would care to look at them, they would be quite impressed. So why have the Government not been giving their wholehearted enthusiasm and support for British business to grow through greater participation in the single market? Because they are afraid of ridicule in the press and criticism in the City. I hope that the new relationship between politics and the press, which

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seems to be emerging during these past few days, will extend to something as important as our membership of the European Union and that we will see enthusiastic encouragement for the business opportunities in the single market.

It has always seemed to me that there is a distinctively British way of doing business; that is, providing services and goods based on honesty and integrity. Encouraging the proper kind of balance has an important role to play in this, which is an important part of our economic success. In today's commercial world, people have to know what you stand for. Winston Churchill famously said that America will always do the right thing but only after having tried everything else. I have a terrible feeling that that is what is happening here.

10 pm

Lord Northbrook: My Lords, it is interesting how the noble Lord, Lord Myners, praised Alistair Darling in his opening speech but not the previous Chancellor's budget deficit expansion. I should like to remind the House that in an interview in August last year, he reflected that the Labour Government had abandoned fiscal responsibility; that Gordon Brown "grew to forget" the golden rule; that Labour ran large deficits in the middle part of the previous decade when the economy was clearly running at full capacity; that the party needed to come clean on what cuts it would make; and that it needed to prove once again that it is a credible party of economic management. The noble Lord criticised the current shadow Chancellor. He said:

"I don't agree with Ed Balls. I do think the Labour party has to wrestle with the fact that it tends to leave office with large deficits. And I think its licence to govern is ... weakened in the future-if it could not produce credible arguments ... that it is capable of sound economic management through the cycle".

The country is still recovering from the debt binge.

Once again, we are assembled here to debate the Finance (No. 3) Bill, the majority of which I support. We are also grateful to the noble Lord, Lord MacGregor of Pulham Market, and his committee for their excellent report, which again generally speaks favourably of the Finance (No. 3) Bill. His report applauds the introduction of a new approach to tax policy-making by the coalition Government with the aim of bringing about a clearer, more stable and more predictable tax system. This approach seeks to produce better tax legislation and more effective scrutiny of tax changes. I agree with the report's conclusion that this has produced a Bill, the content of which has generally reflected early and fuller consideration than in the past. The report quotes two good examples of this with which I fully concur-first, corporation tax reform and, secondly, the area of changes to pensions tax relief.

However, the report rightly is critical of two other areas where this new approach has not been adopted. There is disguised remuneration. The new provisions against tax avoidance in this area take up no fewer than 60 pages of new legislation. Surely this would not have been necessary had there been more consultation beforehand. Likewise came the change to the oil and gas tax regime by way of the supplementary charge. No consultation had been made with either industry. It was not until there was a great deal of criticism that exploration in these areas would be seriously affected

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that at the last minute the announcement was made of an extension to the ring-fence expenditure supplement, which has persuaded companies like Statoil to resume its drilling projects.

Before moving to considering the Finance (No. 3) Bill as a whole, I wish to congratulate the Chancellor on his vigorous approach in tackling the appalling legacy of the Budget deficit left to us by the Labour Government. This had to be the first economic priority after the election. His deficit reduction policies have been approved by a whole range of organisations, including the IMF, the European Commission, the OECD, the Fitch rating agency and Timothy Geithner, the US Treasury Secretary.

Looking at the Finance (No. 3) Bill in more detail, first, I shall focus on help for businesses. I welcome the reduction in corporation tax for large companies from April this year, the reforms to the foreign profits legislation, the announcement of new enterprise zones and the proposed low rate of corporation tax for offshore finance companies. That will all be good news for larger companies. Moreover, the Chancellor has dealt a very generous hand to VCTs and EIS investors, increasing the tax relief and the amount of investment while rightly warning against abuse of the rules. The slight improvement in the capital allowance regime for short-term assets is good news. Those positive aspects of the Budget far outweigh the negative ones for a few sectors of the economy. Terry Scuoler chief executive of the EEF, the manufacturers' association, while praising the Budget in the main, said that,

"the significant rise in energy bills threatened by the Carbon Price Floor is unwelcome".

For smaller unincorporated businesses, the news on the tax front is more mixed. They should benefit from easier planning laws. They should also be helped by the decision to support innovation and manufacturing, with an additional £100 million this year for new science facilities and an increase in the SME rate of research and development tax credit over the next few years. However, two areas are definitely not to their advantage. The 50p income tax rate needs to be reduced as soon as possible, and the Equalities Act could well cause problems in taking on staff.

Regulation is also a major area of difficulty which I shall examine in more detail. For those not familiar with it, a new Cabinet sub-committee called the Reducing Regulation Committee was established after the coalition came to power. The committee has to review the quality and robustness of regulatory proposals. Astonishingly, its second report, which covers the period between September and December 2010, concludes that more than 40 per cent of the regulatory proposals that it considered were not fit for purpose. The main failing was a failure to produce cost-benefit analyses of proposals. This all might sound rather esoteric but is very important. If regulations are being spewed out that do not make sense, it is a big hindrance, especially to smaller businesses which do not have the back-office ability to cope with them all.

Let me give another example of difficulties for a smaller business. A friend of mine who is involved in a growing smaller company has been given the opportunity

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to pay his tax in instalments. However, something has recently gone wrong with the Revenue's computer system which means that he has been asked to pay all his tax at once. He rang up the local Revenue office, which is a nightmare process, and took more than an hour to get through to anyone sensible. He was then told that this was an administrative mistake and that he need not worry. I fear that this may have happened to a lot of small businesses. Has the Minister come across any other cases in this area?

Overall, I welcome the Finance (No. 3) Bill 2011. The Chancellor has a difficult hand to play and progress may appear to be uneven at times. But his message is clear: Britain is open for business and it has produced major incentives to companies and individuals to create wealth, which I believe is the right approach for the economy.

Lord Myners: The noble Lord listed a number of organisations which endorsed the Chancellor's strategy. Can he remind the House whether any of those organisations were successful in forecasting the crisis that hit us in 2007, including the credit rating agencies to which he referred?

Lord Northbrook: I would have to refer back to the noble Lord on those matters.

10.08 pm

Viscount Hanworth: My Lords, the report of the Select Committee on Economic Affairs conveys one startling fact. We are told in paragraph 125 of the latest available estimate of the tax gap, which for the year 2008-09 was £42 billion. The gap is defined as the difference between tax collected and the tax that should have been collected.

This gap represents an enormous sum of money and one must look for ways of putting it in perspective. The comparison that comes to mind immediately is with the size of the budget deficit. Of course, this is a highly variable amount, but for the past two years it has been at roughly the same level. These deficits have been roughly four times as large as the tax gap and they were preceded by deficits that were virtually negligible.

The immediate cause of the rising deficit and the rising debt was the financial crisis. It was not, as some have suggested, the result of the profligacy of the then Government. The Government were constrained to buy a large proportion of the equity of the failing banks and to supply them with funds in other ways as well. To do so, they had to raise the money by selling bonds.

Following the crisis, there has been a savage fiscal retrenchment by the current Government, and one might have expected the debt and the deficit to have been reduced as a result. This has been a false expectation. In explaining the fallacy, one needs to make a firm distinction between the gross budgetary effect of a marginal reduction in the Government's expenditure and its net effect. The net effect of a reduction of £1 of expenditure is the value of £1 less the reductions in the tax receipts occasioned by the additional unemployment

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and the reduction in economic activity, and less the consequent expenditure on unemployment benefit. In the present circumstances, a reduction in the expenditure has barely any effect on the net level of the deficit.

Given that this is the case, one is bound to wonder why the coalition Government have placed such emphasis on their strategy for reducing the budgetary deficit by reducing the expenditure. The answer may be twofold. First, there may be a mistaken belief in the effectiveness of such fiscal stringency in reducing the deficit and the debt. Secondly, it fits well with the Government's political and economic philosophy to take steps to reduce the level of government economic activity.

The Government's economic strategy may have been influenced by the desire to obtain the approval of the risible credit rating agencies. These agencies have been passing judgments on the viability of various European economies and on the likelihood that they will default on their sovereign debts. Perhaps, therefore, we should compare our economy with the economies that have suffered from the adverse effects of the assessments of the credit rating agencies and wonder whether it might reasonably be subject to the same aspersions.

It should be remarked at the outset that whereas those economies that are currently subject to debt crises have a substantial proportion of their borrowings in short-term loans from the money markets, UK debt is, by contrast, preponderantly of the medium and long-term varieties that have a limited exposure to the whims of the markets. The UK's public debt as a proportion of GDP stands at 80 per cent. By comparison, Greece's debts are 142 per cent of GDP, Ireland's debts are 96 per cent, Portugal's 93 per cent and even Germany has greater public borrowings than the UK at 83 per cent of GDP.

One should also compare the size of the annual deficits of the various countries. Here, at present, Britain does not fare so well. As a proportion of GDP, its current deficit is the third largest in Europe. It must be conceded that the UK could and should do better in reducing the level of its budgetary deficit. Given that this cannot be achieved effectively by reducing government expenditures, one must ask by what other means it might be reduced. The means must be by securing the growth of the economy and by increasing the levels of personal taxation.

There is ample scope for obtaining significant revenues by increasing the top rate of taxation. The current British rates are below those of other northern European countries and they have been at low levels ever since their radical reduction in the early years of the Thatcher Administration. The basic UK rate is at 20 per cent; the higher rate, which becomes effective for incomes above £35,000, is 40 per cent; and an additional rate of 50 per cent-which is a recent provision-is operative only for incomes in excess of £150,000. At the level of income where the additional rate is chargeable, it becomes common for remunerations to take various forms that are aimed at the avoidance of tax. Disguised remunerations are widespread throughout the financial sector and at the higher reaches of corporate enterprise. These sidestep income tax through awards or incentive payments mediated by trusts, third parties or offshore pensions. Non-repayable tax-free loans are also common.

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If the additional rate were raised and tax avoidance tackled, we should go a long way towards eliminating the budget deficit.

The Government are well aware of the problems of tax avoidance and they have widespread backing for their aim of stamping it out. There is much to be done before tax avoidance in the upper echelons is successfully quashed. To defeat the cunning of the tax avoidance industry requires an ongoing and sustained commitment to the task. The problems will not be overcome until the level of capital gains tax is further increased. It should be graded according to income so as to become commensurate with the levels of income tax. This is because much of the higher remuneration is gathered in the guise of capital gains.

The importance of the task and the reward for undertaking it are increasing as the distribution of income in this country becomes more unequal and as the ranks of the middle-income earners are decimated. It should be noted that the UK records the highest value in northern Europe of the Gini coefficient, which measures the inequality of income distribution. It remains to say how the economy should be stimulated. It should be stimulated not from the demand side but from the supply side by the provision of capital to businesses and enterprises, both large and small. The banks should be called upon to provide this capital, and they should be subject to severe penalties if they fail to do so.

The Government have recently declared bold plans for investing in renewable energy and in nuclear power generation, but these will come to nothing if the necessary capital is not available. At present, the encouragement to banks to lend more is akin to pushing on a string. The Government need to be far more commanding in their approach to this problem.

10.15 pm

Lord Davies of Oldham: My Lords, I am conscious that the hour is moving on. Tempted though I am to summarise the contributions of all noble Lords to this debate, which has been absolutely fascinating, I will leave that particular joy to the Minister.

I will begin by emphasising those parts of the debate that I am sure will obtain the enthusiastic acceptance of the whole House. The debate was graced by the outstanding maiden speech of the noble Lord, Lord Magan of Castletown. We very much appreciated the forthrightness of his speech in the areas that he covered. It was a tour de force, and at times it was also somewhat of a tour d'horizon. The problem of a tour d'horizon in this House is that we do from time to time have to abide by certain time constraints. However, on his maiden speech he was able to deploy fully the arguments and we all very much appreciated what he had to say. We are also grateful to the Minister for introducing the Bill and for covering it in a very limited time, conscious of the fact that many dimensions of the Finance (No. 3) Bill would be covered in the debate, to which he would be expected to respond at the end.

There has been a great deal of approval on the speech and on the work of the noble Lord, Lord MacGregor of Pulham Market. We all appreciate the sterling work that he does for the committee. From the

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contributions to a debate of this kind we see the very constructive work that the committee does in discrete areas. I do not doubt that we all recognise the very serious recommendations about the degree of consultation that can go on with regard to taxation, encouraging the Government to go further than they have gone so far, although we recognise their good intentions. We also recognise the necessary work on anti-avoidance and in due course increased work on anti-evasion as far as taxation is concerned. In particular, I want to comment on his points about the Revenue staff. I understand fully why the committee reached its conclusions on anxieties regarding the competence of Revenue staff. We have only to compare the rates paid in the public sector against those paid to the adversaries in the private sector who seek to limit the taxation paid by companies to realise what an enormously difficult job the public sector has in those terms. That is to say nothing of the fact that it cannot help that part of the Government's deficit reduction plan is to reduce HMRC staff. Of course that produces strains in the department in the crucial areas where extra revenues can be obtained.

All sides in the debate appreciate that this Budget has been produced at a time of great economic difficulty. We all recognise that there has been a global financial crisis which has led every country that does not have the strongest of economies into very real difficulties. We all recognise that we need to get deficits down. That is why we do not doubt that the Government had to take tough decisions on spending cuts. Nevertheless, the best way of getting the deficit down is to employ the assets of the country as fully as possible. That means retaining people in constructive work as best we can. However, a great deal of the Government's strategy, particularly with regard to the public sector, is to reduce our productive units and the ability of people to work and to earn. People who do not earn do not, of course, pay taxes-nor do they consume or sustain demand. Therefore, it is of no great surprise, or it ought not to be, that this economy has staggered into a position of negative growth over recent quarters. It looks by all accounts, and all forecasts, as if it will be a very considerable time indeed before we see anything like significant positive growth, despite the fact that we can look at other countries-and Germany is the outstanding example-that have come through this crisis and have positive rates of growth as they tackle deficits. Of course, it is not the case, as it has been portrayed, that the United Kingdom alone ran into deficit. All these countries have had to wrestle with their budgetary plans. The problem is the extent to which they have savagely reduced demand, as this Government have-and the answer, on the whole, is that they have eschewed that.

I put it to this House that if the debate that is going on in the United States of America at present should be won by the kind of voices that we have heard from certain parts of the House on the government Benches today, by the right-wing Republicans and the Tea Party advocates, we will see a decline in the American economy that will render our capacity to recover extremely difficult indeed, if not impossible, by 2015. Therefore, we should recognise that when we are discussing this

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issue of global demand, we have our part to play in this, too. We have the greatest doubts about the particular strategy being followed by the Government. As the noble Lord, Lord Desai, said, it was a pity that the noble Lord, Lord Skidelsky, was not here in this debate, as he above all on these occasions has identified the strategy that a coalition Government pursued 90 years ago in the face of public crisis over finances. It took us almost to wartime and government expenditure in wartime to recover. We worry, and are critical of the fact, that the rate of deficit reduction that the Government are pursuing is one that may lead to similarly bleak prospects for this country over this period of time.

Of course, in the debate, there have been so many comments about the Bill itself, and it scarcely behoves me to seek to reply to all of them. But I hope that the Minister will pay some attention to those who have argued about particular aspects of the social impact of the Budget. I hope that he will respond to the arguments that my noble friend Lord Anderson and the noble Lord, Lord Browne, produced on the question of the extent to which the Government intend to pursue family-friendly policies, of which we have seen little at the present time. I hope that also he will appreciate those contributions of my noble friends Lord McFall and Lord Watson of Invergowrie, and several other noble friends. They emphasised the fact that the great danger is that we look once again as if we were concentrating overwhelmingly on the financial dimensions of the economy-a point that my noble friend Lord Haskell also brought late into the debate. The Government have said that it is their intention to rebalance the economy, but it is quite clear that the manufacturing industry is not getting the support, resources or opportunities from the banks to borrow in order to invest that would help to put our economy on a sounder footing.

This debate has been extremely valuable, and we recognise the very constructive comments on all sides. We hope, however, that the Minister will also appreciate that, as far as Her Majesty's Opposition are concerned, there is a real difference between our perspective on the strategy which ought to be pursued at this present time, and at the moment we are holding the Government to account where their case is remarkably thin.

10.25 pm

Lord Sassoon: My Lords, we have had an interesting debate this evening, and I thank all the noble Lords for their contributions. In particular, I congratulate my noble friend Lord Magan of Castletown on what was-to echo the words of the noble Lord, Lord Davies of Oldham-a masterly tour d'horizon of the economic scene. I have to say that it was about the one thing on which I agreed with the noble Lord, Lord Davies, but let me come back to that.

As I said in my opening remarks, the Government welcome the constructive comments of the Economic Affairs Committee, and we will take these into account as we entrench a more predictable, stable and simple tax system. This year's Finance Bill, the third of the current Session, has come through an unprecedented degree of consultation and engagement, and implements many of the changes announced at the Budget.

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As we said at the Budget, and as we said last year, we are committed to growth through investment, through private sector recovery, and not through unsustainable deficits. This Bill moves us forward on that path to stability and recovery. It promotes our international competitiveness by cutting corporation tax by a further 1 per cent and by reforming our controlled foreign company rules. These are key steps to creating the most competitive tax system in the G20.

The Bill encourages growth by supporting our entrepreneurs and SMEs, by doubling entrepreneurs' relief, increasing R&D tax credits and cutting the small profits tax rate. It embodies fairness by lifting hundreds of thousands of people out of income tax, and by ensuring that other sectors of society make a fair contribution to cutting the deficit and restoring sustainable growth. It provides for a better environment by incentivising investment in cleaner sources of energy. I am pleased to say that these points were picked up in different ways by a number of noble Lords in this debate.

Let me first take what I might call the pessimist tendency. The debate did not get off to a cracking start given the tone set by the noble Lord, Lord Myners, and followed up by the noble Lord, Lord Barnett, so let me talk to the pessimists for a moment. This is an economy in which the private sector has generated over 500,000 new jobs in the last year. Manufacturers are talking to me about shortages of skills; about the need for more engineers; about welcoming the Government's apprenticeship schemes; and all the noble Lord, Lord Myners, does is talk down the prospects for the economy. To be fair to him, he recognises that the economy is in the difficulty it is in because his Government did not deal with the structural deficit when they could have done. I certainly applaud his frankness, but it is a frightening challenge; and a legacy which the previous Government left.

I am, however, encouraged. On Friday, I was in Manchester, the old stamping ground of the noble Lord, Lord Barnett, an area where the rebalancing from the public to the private sector is as challenging as anywhere. The latest quarterly survey from the Greater Manchester chamber of commerce points out encouraging signs. I think that some noble Lords need to get out and about around the country more.

On the specific point which the noble Lord, Lord Barnett, raised about reserves, it is a little late at night to go into details about this. However, I know that it is a point that bothers the noble Lord considerably so I will write to him.

Lord Barnett: Don't bother.

Lord Sassoon: The noble Lord says "Don't bother" so I will not. I do not know whether other noble Lords heard; as he tells me not to write, I will not, but I have made the offer.

As to the extraordinary speech from the noble Lord, Lord Myners, which continually came back to praise the former Chancellor, Mr Darling, I can only think that he read in the Sunday newspapers, as I did, that Mr Darling is coming close to finalising his memoirs. I assume that this was a late play to make sure that Mr Darling looks favourably on the noble

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Lord, Lord Myners, and his part in the previous Government, but we shall see. We then got away from the pessimists but came back to one or two a bit towards the end. I am sorry that the noble Lord, Lord Haskel, joined in by talking about the Government transferring debt to the citizens. The trouble is that the government debt is the debt of the citizens and that attitude, I fear, underlay so much of what the previous Government did. They completely failed to recognise that it is the citizens who, at the end of the day, have to pick up the debt.

In terms of unrealistic ways to go about getting us out of the challenge we are in, I have to say to the noble Viscount, Lord Hanworth, that one way in which we will absolutely kill growth is if we raise further the top rate of income tax from a level which is not one that this Government wish to see in the medium term. We desperately need to encourage entrepreneurship and growth and the one thing we should not think of doing is further raising the top rate of tax. I am pleased to see the noble Lord, Lord Myners, nodding in approval.

I do not recognise the picture which the pessimists paint. However, I recognise that there are a lot of serious challenges out there, which noble Lords pointed to throughout the debate. I cannot deal with them in detail but my noble friend Lord Newby was the first-and virtually the last-speaker to refer to the European dimension, which is very difficult, while my noble friend Lord Higgins again pointed out the real challenges that there are in analysing the monetary situation and taking lessons from it.

The noble Lord, Lord Desai, raised the question of the savings rate and I completely agree with the challenge that that poses. I am delighted that the noble Lord appears to have lost none of his vigour even though it appears that Delilah may have got at Samson. It was a great reassurance that he is still on fine form. My noble friend Lord Ryder of Wensum was also on fine form. He raised a lot of points but, yes, regulation and employment are very challenging. I would point out to my noble friend that we are in the process of putting 21,000 regulations on the Red Tape Challenge website. We will indeed eliminate significant quantities of regulation while on employment law, another key area, we have already made moves on unfair dismissal to right the balance between employers and employees. My right honourable friend the Chancellor has identified five other areas where we are looking at employment regulation at the moment.

The noble Lord, Lord Watson of Invergowrie, talked about the protection that is important to lower-paid public sector workers. The Government have indeed made the £250 payment for all those within central government and are encouraging all other public sector bodies to abide by that.

Lord Watson of Invergowrie: On that point, the Minister mentions all other public bodies but I mentioned that local authorities have been allocated resources for this specific purpose, yet the Government appear to be allowing them to spend the money on whatever they see fit. Surely, that defeats the Government's purpose in regard to the £250 that the Minister mentioned.

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Lord Sassoon: My Lords, as I have said, and as the noble Lord recognises, the money is available and the Government are encouraging not just local authorities but all public sector bodies to stick to the rule that has been applied to central government employees.

The noble Lord, Lord Sheldon, drew attention to another important area; that of an ageing population and its complexities that cut both ways, as he explained. My noble friend Lord Northbrook brought us back to one of the key points, for which I am grateful to him, on the Budget that has pro-business tax changes as central to it.

In the middle of the debate, we had an interesting sub-debate around the importance of marriage and the family. Points were raised by the noble Lords, Lord Anderson of Swansea and Lord Browne of Belmont, and my noble and learned friend Lord Mackay of Clashfern. We are keen to send a clear message that family and marriage matter and that strong and healthy families help to create a strong and healthy society. In a little over a year, this Government have proved their determination to tackle the wider issues that can affect family stability. We have made great strides in improving outcomes for families, particularly those on low and middle incomes, through our work on welfare reform. Furthermore, the universal credit will ensure that people will generally keep more of their earnings for themselves and their families than is currently the case. However, we need to be realistic. It is not fiscally practical to introduce a transferable personal allowance for married couples at this stage. Having said that, our commitment remains clear.

We then had some interesting discussion referring specifically to the Economic Affairs Committee report, and I am grateful to my noble friend Lord, MacGregor of Pulham Market, not only for chairing the committee but for drawing out some of the critical points from the report. I am grateful to him and to my noble friend Lord Tugendhat for their general welcoming of the Government's new approach to policy-making. I shall respond to a couple of areas that were specifically raised, such as disguised remuneration. HMRC had indicated through its Spotlights publication, in particular, that these schemes were generally not effective. The Government decided to publish draft concert legislation for consultation at the same time as introducing proportionate anti-forestalling rules, with effect from 9 December 2010, because we saw that as the best way of combining the necessary tackling of an exceptional situation, to take the phrase of my noble friend Lord Tugendhat, with an ability to consult on the rules.

I am grateful to the various noble Lords who talked about the road map on corporation tax. The noble Lord, Lord McFall of Alcluith, drew attention to it, and I agree with him that corporation tax reform is

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not just about cutting the headline rate, which is why in the broader package we are looking at such critical things as the patent box, the treatment of intragroup dividends, and so on. Also in the report, the question of evasion came up a number of times from my noble friend Lord MacGregor of Pulham Market. The noble Lords, Lord Bilimoria and Lord McFall, welcomed the £900 million of additional resources. HMRC is taking this very seriously. The noble Lord, Lord Davies of Oldham, is incorrect in his understanding. HMRC is increasing staff to tackle avoidance, evasion and fraud by around 2,500 full-time equivalent staff by 2014-15. It will consider the benefits of publishing a more detailed document, setting out its approach to evasion later in the year. It is getting late and I should and will conclude.

As noble Lords are aware, this Government came to power inheriting the largest peacetime deficit in the nation's history and an economy on its knees. We have taken difficult decisions in our two Budgets to date to tackle this dire inheritance, eliminate our structural current deficit over the coming four years and stimulate a private sector recovery. This strategy has been endorsed by the IMF, the OECD, the European Commission and UK business organisations. Of course, we have always said that recovery would be choppy. Our plans necessarily incorporate a degree of flexibility through the automatic stabilisers to allow government spending to move up and down with the economic cycle.

This Bill further delivers our commitment to improve our competitiveness, encourage investment and support our businesses. At the same time it removes hundreds of thousands of individuals from income tax and helps reduce the cost of living for families across the country, and it makes these changes in a way that is fairer and more consultative than any previous Finance Bill. I commend the Bill to the House.

Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time and passed.

Finance Bill 2011: EAC Report

Copy of the Report

Motion to Take Note

10.41 pm

Moved by Lord MacGregor of Pulham Market

That this House takes note of the Report of the Economic Affairs Committee on The Finance Bill 2011. (6th Report, HL Paper 158)

Motion agreed.

House adjourned at 10.42 pm.

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