Of course, I am telling my noble friend nothing new, but I would like to ask him how closely he has followed the project bond debate and what conclusions he draws. Does he agree that such a mechanism will not occur without the Treasury willing it to happen? I think I may be right in saying that the Treasury has experience of and a track record with similar financial mechanisms. The proposal would in effect entail the Government launching and licensing an entirely new capital market. Can my noble friend say whether the Government stand ready to do such a thing? Combined with the incomparable existing skills in the City, that makes for a hugely exciting prospect—and a huge problem removed from the Government. If an increasing number of proponents are right about the potential of project bonds, then why wait? Above all, why wait until Wall Street or some other financial centre steals a march on us?

Returning to Barrow-in-Furness, my personal view is that the beautiful area in which I live is ill-prepared for the large investments I have talked about coming its way. By any measurement, our infrastructure is in a shocking state of disrepair. I have grounds for thinking that our local government representatives are in touch with Ministers and seek ways to remedy these problems. I wish them well. When I was in local government, I remember being tremendously impressed by the skill and ingenuity of our financial officers. I dare say it is a different skill set from the one my noble friend finds at the Treasury, but it is nevertheless completely appropriate to a rural county with a few dominant tier 1 companies and myriad SMEs, among which my family businesses are included. I look forward to a time when devolved government will once again allow this reservoir of skill to be deployed for the benefit of local people, jobs and services.

Finally, I repeat a plea I have made in other debates. It will not be lost on my noble friend that much of the investment I talked about stems from government procurement of one kind or another. Like the Government, tier 1 companies have cultural problems when it comes to engaging with SMEs. A more sinister problem is when tier 1 companies collude to keep SMEs out. There is often much comforting talk about benefits to the local supply chain, but again and again they fail to materialise. Is it possible to compel large companies to report on what proportion of their business benefits local companies? Also, could the Government be rather more forceful in changing this culture, especially given that they are ultimately the customer?

It is a pleasure to speak about the problems of success. My noble friend the Minister is an economist of great distinction and I have no doubt he will make a great contribution to Britain’s economic recovery. I live in a rather different world from him—among people who make things, grow things and do things, and market their wares at home and overseas. Our whole existence is about judging risk and living with the

10 Nov 2015 : Column 1971

consequences. We seldom make a headline, nor do we seek to do so. However, I remind my noble friend that we represent 95% of this nation’s economy. I hope that, as he surveys his huge brief, he will keep in mind that the sector’s interests also need his concern and protection.

5.41 pm

Lord Haskel (Lab): My Lords, even though we cannot do much about it, I welcome this opportunity to debate the Finance Bill because it is a chance to expose a mismatch between what the Government promise and what is actually in the Bill. We are promised a fairer and more equal society, a more prosperous economy based on higher skills, higher-paid jobs and a greener and more pleasant land. The Finance Bill says otherwise.

The most glaring example of inequality is of course the mismatch between the rising minimum wage and reducing benefits, which leaves millions of poorer people worse off. The IFS distributional analysis says it all but there are other examples. I agree with my noble friend Lord Lennie that raising the inheritance tax threshold at a time of austerity must contribute towards inequality. Surely the time to raise inheritance tax thresholds is when our current account is in balance or even surplus. What the Chancellor is doing now is just giving the better-off a tax break, especially as the IFS tells us that the percentage of the population liable for inheritance tax is in single digits. As other noble Lords said, this comes at a time when 3 million working families are at risk of being worse off next year. We still do not know how the social care sector will manage. It really is a bit of a shambles.

The Minister spoke of anti-avoidance measures for corporations and individuals. Yes, those are welcome but how robust are these measures? According to the Institute of Chartered Accountants, corporation and income tax revenues are decreasing. Is this because they are not being collected by an efficient and motivated staff, as suggested by the noble Baroness, Lady Kramer? Is this yet another example of this Government alienating their public servants? Nurses and doctors, teachers and carers, police and firefighters: do we now add Revenue and Customs staff? The Public Accounts Committee in another place seems to think so. These measures will not be effective if the Government are not an effective employer.

We are also promised a more prosperous economy, hopefully through productivity and rising skills. However, skills are changing all the time in our digital economy and it is good practice for people in work to upskill through part-time study. In 2012 tuition fee loans were extended to part-time students, but they were hedged about with so many restrictions that few took them up. As a result, we have seen a sharp decline in the number of part-time students and the courses available to them. This is confirmed by this morning’s news about FE colleges. Despite much debate and frequent presentation of the facts, the Bill does not recognise this. Nor is there any mention of part-time education in the Green Paper published on 6 November. Consequently, we are losing a huge opportunity to raise the skills of our workforce, although that is

10 Nov 2015 : Column 1972

industry’s most frequent complaint. This is despite the good intentions in the Minister’s recent productivity paper.

That paper also referred to the housing crisis. In spite of what the Minister said, the Bill does nothing to hold back ever higher rents, higher deposits, falling home ownership and the lowest rate of housebuilding that any of us can remember. All this is with a rising housing benefit bill and less secure tenancies. Despite what the Minister said, the Bill does nothing to encourage a culture of productivity; the kind of culture you immediately sense when you walk into a highly productive business or service. We have a financial strategy reflected in the Bill, but no industrial strategy. This is why our economy remains unbalanced, with growth still depending on low wages, rising house prices and rising consumer credit.

With the Paris meeting due soon, perhaps my greatest disappointment with the Bill is that it reduces our commitment to combating climate change. The Minister told us of the exemption of renewables from the climate change levy which is, incidentally, back-dated. The levy was designed both to promote energy efficiency and reduce CO2 emissions. Since then, subsidies for onshore wind have been virtually removed with a single cut. At least these changes could have been tapered.

Another example of diminishing commitment to climate change in the Bill is the vehicle excise duty for passenger cars, which the Minister spoke about. Levels of excise duty used to deter high-polluting cars and encourage low- polluting ones. The new, rather complicated, rules seem to have abandoned this. Instead, under the new proposals, cars in band A, which paid no road tax, will pay much the same tax in years two and beyond as cars in band M, the highest-polluting band. Setting aside the public scepticism about car emission figures, what is the purpose of penalising polluting cars only in the first year? Is it just to maintain revenue from cars, irrespective of emissions; is it just to invest in roads? There were three items of news this morning about climate change. The Bill really ought to recognise it.

These are just a few examples of the way this Bill does not reflect the rhetoric of the Government. It certainly does not move us towards the greener, more prosperous and more equal society that we have been promised.

5.49 pm

Lord Flight (Con): My Lords, it seems a long time since the second Budget was announced. This second Finance Bill has had rather limited media coverage. I agree wholeheartedly with the comments of my noble friend Lord Cavendish about the need for infrastructure investment and about the success, going back into our history, of financing models that have involved both public and private sector. Crossrail has been, in our time, a brilliant example of that, and is on time and on cost.

Credit must go to the Chancellor for having got things dramatically right and having got this economy recovering better than any other in the world. All those clever left-wing economists told him he had got it wrong, and the IMF rapped his knuckles and so

10 Nov 2015 : Column 1973

forth. He in essence followed a sensible, balanced path. He was substantially Keynesian and did not overdo trying to cut the deficit. However, he also took measures that helped the real economy to expand.

As I have said before, there has been a wonderful entrepreneurial explosion in the past five years. We have 5 million new companies, we are leading the world in a lot of tech areas, and it has been an age of greater entrepreneurial activity than I can remember ever in my lifetime. As we all know, it is producing more than 13 million jobs in the economy.

I also think that, although things are not all resolved, the balance of putting the public finances right is about right over the next five years. I was rereading a book on Disraeli the other day, noting that, as late as 1868, debt service on the borrowings that had financed the Peninsular Wars at the beginning of the 19th century were still the biggest item of public expenditure. If you overborrow, you end up burdening future generations with too much debt to service.

If people stand back and look at the whole area of welfare spending, they will see that something is very clearly wrong. Alistair Darling has been the most honest politician to point out what is wrong. Total welfare spending now is running at close to £300 billion a year because you have the basic of £231 billion, to which you have to add personal social spending of £30 billion. Housing claims benefit is now approximately another £30 billion. I am not even clear whether working tax credits, now up from their original £2 billion to £30 billion per annum, are still treated as a net-off from income tax revenues, which was the accounting fix that Gordon Brown put in, or whether they are within the total.

At least a third of public expenditure now goes on different forms of welfare spending. The point Alistair Darling had the honesty to make was that, with income tax credits, what was intended to boost incomes was simply serving to drive down and hold down wages. We have a system similar to that which we had in the early 19th century, when what was called outdoor relief was paid. It led to overemployment, poor productivity and underinvestment. When it ended, there was a great burst in wages, the new industries came up and people moved to the new areas.

Now we have a ridiculous system in which someone is better off working 16 hours a week on low pay, with the top-up tax credits, than working 40 hours a week on average pay. The whole formula in these areas needs addressing radically. I would go even further: the German model of dealing with welfare, which is assessed individually, ends up being much more sensible than our arrangements, which often help those who would be much better off if they worked a full, normal working week, and often do not help those who do need more help.

I repeat: it is well overdue for politicians of all parties to realise that income tax credits have been an economic disaster for this country, with exactly the same unsatisfactory effects as the system had 200 years ago. Of course, you must have a relatively high minimum wage if you are to have income tax credits, or employers tend to exploit it by not paying people sufficiently. Now, it is all well and good; £7.20 will go up to £9 by 2020, but that is particularly damaging in parts of the

10 Nov 2015 : Column 1974

country where the cost of living is much lower, especially the housing costs. Those parts are landed with too high a minimum wage, so losing the economic advantage that they would otherwise have in getting businesses to move towards them. Then you say that perhaps you should have different minimum wages for different parts of the country, but imagine the complexity of trying to administer that. We have yet to see how measures will be worked out. I am certain that the Conservative Government wish to be fair to people, but it is a mistake for people not to perceive that income tax credits have caused a lot of the problems of our times.

I have some criticisms of this Bill. To me, there is too much stealth tax in it, and I feel that Gordon Brown would have been rather proud of it. Indeed, it rather smacks of quite a lot of the type of thing that he used to get up to. Hidden within it, the middle classes, whom I still stand up for, are having their tax bills increased by something approaching £20 billion, but in a way that the Government hope they will not realise, such as in the change on dividend income. No one really knows how dividends are taxed anyway—but that tax will add about £8 billion or £9 billion a year to the bills of ordinary people’s pension funds. I support corporation tax being reduced to 18% by 2020; I accept that to some extent it is a headline tax, but at least that attracts businesses to being based here. But the extra 8% tax on banks makes little sense, to my mind. Banks need another £355 billion of capital over the next few years to be safe against financial risk in future. They have been subject to fines of something like $300 billion, and now there are higher taxes. All that means, again, is that pension fund shareholders will end up having to put up more money; they are the people the Government are really taxing by the 8% profits tax.

The increase in insurance premiums from 6% to 9.5% will hit about 20 million home owners and car owners on their various insurance policies, with a cost in the order of another £2 billion per annum. I wonder why the Chancellor did not stick to the pledge that he gave—which was so popular and led Gordon Brown to put off having an election—when he said that he would simply raise the IHT threshold to £1 million. But no, we have some extremely complicated arrangement, whereby it works for some but, if your estate is worth above a certain level, you do not qualify. Would not it have been easier for him to have stuck to his promise, which was extremely popular?

On pensions, I think the lifetime limit is foolish. This country needs a higher level of saving and investment, which is a function of that; we need to stop having to sell the family silver the whole time because our current account deficit is so large, yet we are discouraging the better-off from saving. It is fair that people should all have the same 20% tax credit, but we are getting a pension law loaded to discourage those earning higher incomes from saving more in their pensions.

Then there is something that is not the fault of the Government but, I am afraid, that of the EU Trade Commissioner. I have spoken of the EIS system and the VCT arrangements before—and I declare my interests as chair of the EIS Association. EIS has raised more than £12 billion of high-risk equity investment for small companies, and in 2010 the Government agreed

10 Nov 2015 : Column 1975

arrangements with Europe that led to big increases in the amount of money that it raised. For reasons I cannot understand, complicated rules have now been forced on the UK by the EU Competition Commissioner that will limit the amount of money available, especially to SMEs that have cut their teeth, been going two or three years, and then need some more money to expand. I cannot see how the EU concept of state aid relates in any way to what the Government of this country choose to do in offering incentives to people to invest in local SMEs. Why does the EU have the right to stick its finger into this and—perhaps not make a mess of it, because there is still good scope—but damage what has worked extremely well?

Even on buy to let there is a misunderstanding. Before pensions, people used to buy one or two houses, if they could, and let them out. That was their source of income in old age. Those were the people who owned and financed a lot of the Victorian terraces all over south Wales, as well as London. The generation now in their 40s has often gone down the route of buying houses to let rather than using pension schemes—for rather good reasons, because as an asset, houses have performed better. The only tax incentive for that has been the ability to off-set interest. I am not sure how wise these measures will be. Without buy to let, lots of people would have had nowhere to live in the past few years. I certainly do not agree with retrospective taxation. We can change the tax laws for new purchases, but it is unwise to change tax arrangements retrospectively. I can just see what will happen: a time will come when inflation and interest rates rise, and the housing market goes down. Then there will be problems.

That touches on something I mentioned earlier. While the economy is expanding, it is crucial to get our savings rate up so that our investment rate can rise and our external finances come into balance. If anything, what is in the Finance Bill is not at all conducive to saving; in fact it is negative towards saving.

I congratulate the noble Lord, Lord O’Neill, on the discreet way in which he described this measure, but I think it is disgraceful to give HMRC the power to raid people’s bank accounts for sums of more than £1,000. Why should not the Government, like any citizen, have to rely on the power of the courts to go after money owing to them? To me, that is a totalitarian measure of the kind that we have fought against for almost 1,000 years. It shows the Government in a very poor light if they put that sort of thing on the statute book.

I am critical of a lot of the Finance Bill, speaking as capitalist and as representing, in a sense, the middle classes of this country. But I am full of praise for the Chancellor for the way he has so successfully managed the economy.

6.03 pm

Lord Palmer of Childs Hill (LD): My Lords, much has been said and debated in the past few days as to whether your Lordships’ House can amend a statutory instrument that relates to money. As the instrument was not a money Bill, such amendments, fatal or otherwise, were allowable. However there is no doubt

10 Nov 2015 : Column 1976

that the Finance Bill before us today both is a Bill and relates to money. Therefore, as other noble Lords have said, we cannot amend it.

I would like to take this opportunity to raise what happens when the other place gets it wrong on a money Bill. That can be because too little time is spent in the other place, or because of hasty government amendments. The noble Lord, Lord Flight, took us back a couple of hundred years, but I only want to take us back to March this year. The March 2015 Finance Bill—not the Bill before us today—had a clause added to it without consultation, and was enacted two days after that addition was made. The Government did not notify the umbrella company sector that it would be making those changes at that late stage. In speaking today, I am seeking that the Government should think again with the current Bill and repeal the section in question.

The section will prevent contractors and freelancers claiming their legitimate tax relief at source as they have always been able to do. Instead, because of the hastily added section in the March Finance Act 2015, they will now only be able to claim via self-assessment, which at best will result in a significant delay during which time the individual will be out of pocket. I refer of course to Section 289A of the March 2015 Act relating to exemption for paid or reimbursed expenses. The addition of subsection (5)(b), which contains an innocuous, convoluted phrase, will affect about 400,000 contractors by delaying receipt of their properly incurred tax relief. Whereas at present the tax relief is given at source, it will now have to be claimed after the end of the tax year. Many contractors will fail to do so; many will need to employ an accountant to sort it out; and—just imagine—the overworked and understaffed HMRC will need to process an additional 400,000 tax returns.

I have had recent experience of trying to phone my inspector of taxes. On three occasions, I was told I was in the queue and should be answered in 35 minutes. On the first two occasions I gave up; on the third occasion I hung on for 45 minutes, when a charming, helpful but overworked inspector dealt with my query. My noble friend Lady Kramer and the noble Lord, Lord Haskel, referred to the pressures on HMRC, and the effect of this section in the March 2015 Act will exasperate that no end.

I have knowledge of this sector of the industry through having served in this House on the Select Committee on Personal Service Companies and as a now retired chartered accountant. Many companies do not employ contractors directly as employees: many use an umbrella company. This is not a brolly manufacturer but a company that acts as an employer to agency contractors who work under a fixed-term contract assignment, usually through a recruitment employment agency in the United Kingdom. The umbrella company receives the fee and pays it to the agency contractor after deducting full PAYE. However, the umbrella company can deduct at source relevant and valid expenses before calculating the PAYE. The expenses will be valid in calculating the tax but by this mysterious section, which suddenly appeared in the March Finance Act 2015 with two days’ notice, the tax relief on expenses

10 Nov 2015 : Column 1977

would have to wait until the end of the tax year and beyond and use up the valuable HMRC staff time—to which other noble Lords have referred—to achieve no material tax gain to the Exchequer.

This is not only a technical point. Umbrella companies are a critical element in supporting the UK’s flexible workforce. They offer workers the platform to work without the worry of running their own companies while offering employers, directly or through an agency, the flexible workforce they require. Umbrella employees will see significant drops in their monthly income because of the delays they will face when claiming for tax relief that they are legitimately entitled to. Many of those affected will also have the added administrative burden of filing a self-assessment tax return which they had previously not needed to complete.

However, the significant number of umbrella employees in the UK—estimated to be at least 300,000 and probably 400,000—means that this will have a significant impact on the economy, particularly in restricting the flexibility of the workforce. The opportunity to provide contractors with their entitled tax relief at source is a key benefit for individuals choosing an umbrella firm—a perfectly acceptable tax use—and the new law would effectively remove this key commercial advantage, putting the whole industry at risk. The Freelancer and Contractor Services Association calculates the impact of the section is financially greater for many families than the loss of tax credits. That demonstrates how important this is.

I ask the Government to consider in the current Finance Bill repealing Section 289A(5)(b) of the March 2015 Finance Act—I am sure the Minister has it close to his chest and remembers every word of it—or, at the very least, to insert a new clause to delay the implementation of Section 289A(5)(b) for 12 months to enable a full consultation to take place so that an impact assessment can be made. I hope that the Minister will take this suggestion—that is all we can do in a Finance Bill debate—back to the Government so as to remedy in this Bill what may have been the unintended consequences of a section added to the previous Finance Bill and enacted two days later.

Turning back briefly to today’s debate, given that the noble Lord, Lord Lennie, referred to the fact that the reduction in tax credits was a dreadful thing, I ought to put on record that the Liberal Democrat amendment failed by 11 votes, although the amendment to it was passed. I then went home and on the television I heard the Chancellor of the Exchequer saying that the Labour Party was fully against any reduction in tax credits, which was not what happened in the vote. What we voted for in the end was a deferment of tax credits.

The noble Lord, Lord Cavendish, talked about the tribute to the mayor for Crossrail. I pay tribute to him for giving the credit to the Labour mayor who introduced Crossrail, and for bringing this to this House in that manner.

I hope that the noble Lord will take into account the difficulties of this House giving advice on a Finance Bill—a money Bill—which will be listened to by the other place.

10 Nov 2015 : Column 1978

6.12 pm

Lord Howard of Rising (Con): My Lords, I shall comment briefly on just one aspect of the Finance Bill. Before doing so, I must say that it must have been a relief to the Chancellor not to have had to negotiate with the Liberal Democrats.

It is fundamental in this country that all are equal under the law; “all” includes the Government, in whatever guise—the Government, the state, the Administration. No one should be above the law. Schedule 8 to the Bill, briefly referred to by my noble friend Lord Flight, allows HMRC to take money directly from a person’s bank account without first seeking approval from a court of law. Yes, there are safeguards, but the principle behind Schedule 8 is wrong and it should not have been put forward. I imagine that is why the same idea was withdrawn after it was proposed in 2007. There is also some doubt about the security of the safeguards, as Clause 47(2) allows the Treasury to use secondary legislation to amend or alter at will.

It is right that HMRC should be able to collect taxes, but not that it should be above the law. It must be subject to the law in the same way as everybody else. One of the justifications given for enforcement by direct deduction from bank accounts is that more revenue will be raised than would be if HMRC first had to apply to the courts. This raises the question of whether some direct deductions might not have been approved in a court of law. If that were not the case, how could more money be collected?

If Schedule 8 is enacted, there are instances in the Bill where a decision is left to the discretion of HMRC, even if only by default, because of the lack of a time limit for a response or action by HMRC. This could create unreasonable delays, effectively freezing bank accounts. In particular, there is a time limit of 30 days for a response by HMRC in paragraph 11(1) of Schedule 8. Can the Minister clarify that the same time limit applies to paragraph 11(3)? It would appear that it does but that may not be the case.

The Explanatory Notes emphasise that there will be face-to-face interviews with taxpayers before these powers are used. It is too late for this to be in the Bill. We are all familiar with the need to make economies, forcing reductions in public services, but I would argue that ensuring every debtor receives a face-to-face meeting with HMRC officers is not something that should be put at risk when HMRC is looking at ways to reduce costs. I would be grateful if the Minister could clarify that face-to-face meetings will not be abandoned. After all it was a major selling point of getting Schedule 8 to the Bill through the House of Commons.

6.15 pm

Lord Davies of Oldham (Lab): My Lords, this has been a most interesting debate and the Minister will enjoy summing up these varied contributions. I hear what the noble Lord, Lord Howard of Rising, has just said, and what the noble Lord, Lord Flight, said earlier about tax inspectors. I cannot remember them raising the issue on how the bedroom tax would be enforced and whether people would in any shape or form suffer any derogation of liberty when investigations were done on that front. Of course, we accept that the

10 Nov 2015 : Column 1979

Inland Revenue has to work within the framework of the law and we are glad that that has been emphasised, so the two contributions were of some value.

I will begin by commenting on those parts of the Bill which my party finds acceptable, and on which we congratulate the Government. On the annual allowance on pensions, Clause 23 restricts tax relief on pensions for high-income individuals by introducing a tapered annual allowance with effect from 6 April. It restricts tax relief for pensions’ contributions for those who earn more than £150,000 a year. So there is a gesture of some recognition of fairness as far as pensions are concerned.

We also recognise the relief for finance costs related to residential property businesses in Clause 24. That will ensure that relief will be at only 20% for those landlords claiming on mortgage interest payments. Some of them in the past have claimed 45%, which approaches a level of being scandalous. We are glad that that loophole has been plugged.

We are also interested in the anti-avoidance provisions and congratulate the Government on making progress in that area. Clauses 40 and 41 ensure that investment fund managers who receive carried interest are taxed within capital gains rules. We would have liked to see those interest earnings treated as income rather than as a capital gain. The manager does not contribute a meaningful amount to buy the investment, so why he should be taxed at the lower rate in those circumstance is not clear. The OECD has produced a report calling for carried interest to be taxed as income, and I hope that we will subscribe to that position in due course.

We welcome certain other areas of the Bill which, as indicated by the noble Baroness, Lady Kramer, are also welcome to the Liberal Democrats. I see merit in the vehicle excise duty changes, which she praised highly, but not to the extent that she does. We all recognise that VED needed reform. Green or more carbon-efficient vehicles are becoming more common, which will undoubtedly have implications for vehicle excise duty as a future source of government revenue. The fact that zero-emission vehicles will continue to be exempt from road tax is, of course, welcome, but we are concerned that a flat rate of VED, as outlined in the Bill, will mean that low-emission vehicles will pay £800 or £1,000 more over a seven-year period while many high-emission vehicles are expected to pay up to £440 less. We have, therefore, some anxieties about the way in which that new system is being introduced. We also have concerns about the potential impact of the new VAT system on car manufacturing in this country. There certainly need to be changes, but we do not believe that what is included in relation to vehicle excise duty is the right change for the environment, the consumer or manufacturing industry. It is a good shot by the Government but they have not hit the target as we would have wished.

Furthermore, as my noble friend Lord Haskel emphasised—he was very critical of the Government and I endorse his criticism—the position of the Government on green issues in this Bill is lamentable. The Bill removes a climate change levy exemption for renewable source electricity generated after August 2015.

10 Nov 2015 : Column 1980

Can the Minister say whether there was any consultation with the industry about this issue, or any impact assessment produced? Or is it just another example of the Government undermining investment confidence in the renewable energy sector?

We sought to bring amendments to improve Clause 27 on Report in the other place, but were unsuccessful. Last week, more than 100 green energy groups wrote to the Chancellor asking him to think again and warning that the proposal to deny community energy investors access to both enterprise investment schemes and social investment tax relief is seen by many in the sector as a final nail in the coffin for future projects. This comes in a week when the wider world is emphasising the actions that need to be taken, particularly by the advanced world, to reduce the impact on the environment of global warming. The Government are stepping back from their commitments in these areas. The Government are hollowing out the renewable energy market from producer to consumer. Whether you are a large company looking to invest in a growing global market or a local community energy project seeking to inform and educate the local public, this Government are clearly not on your side.

Members on both sides of the House referred to the fact that the Bill provides for an inheritance tax threshold of £1 million for married couples and civil partners by the end of this Parliament. This was commended by the noble Lord, Lord Flight, and others on his side and criticised by my noble friends Lord Haskel and Lord Lennie. How can the Government continually emphasise that it is about encouraging those of the working population who deserve support but then happily say that it is also entirely right that people should inherit more than they can possibly earn in one year, in fact over 10 years, when property is transferred to them?

Surely there has to be some recognition by the Government, apart from pandering to the electorate in the search for votes, of equity in this area. We have sought, in the other place, to amend the inheritance tax scheme contained in Clause 9, but without success. We had a little more success when subsequently we tackled the tax credit cuts that the Chancellor sought to bring forward. Is it not extraordinary that the Government should think that the poorest in society, those on very modest incomes, should be hit at the rate of £1,300 a year while the better-off should gain from enhanced inheritance tax opportunities? The Government, and the Minister, have a lot to do to justify themselves on this issue.

Another issue has cropped up in the context of whether taxation in our society is fair. More than 30 years ago, when I first entered the House of Commons in 1974, we were just beginning to debate with some force whether levying VAT on sanitary products was biased against women and not fair to the consumer. Over that long period, we still have not levied the same taxation on sanitary products as is levied on chocolate-chip biscuits, Jaffa cakes and toffee apples, which are all exempt from the relevant taxation.

The Government could have done a great deal in the Budget but what was the overall position adopted in it? The Minister introduced the Bill with his usual

10 Nov 2015 : Column 1981

calm assurance and insight and took us through the clauses very effectively. He prefaced his remarks with a statement about the enormous success of the Chancellor’s management of the economy. However, he is best placed to recognise that aspects of the current economic scene are extremely worrying. Our productivity and investment record are still poor and our productivity rate is below that of our G7 competitors to a greater extent than at any point since 1991. Today, we heard the news that FE colleges are to be blitzed by this Government, thus impacting on those aged 16 to 19 and those who engage in part-time work and study who seek to increase their productivity through improving their skills. There is even the suggestion that 40% of them should close. How on earth can the Government justify that? In the last debate we had on productivity, the Minister made an extremely acceptable defence of the progress of his plans for improving productivity but referred to the role of the education system in improving productivity simply in terms of the universities. Now I know why he did that as he, or certainly his Government, intended to blitz the opportunities for those who do not go to university but who need the skills which our society now largely tends to import from abroad. The Government are doing devastating damage to a sector of the economy which is necessary to increase productivity.

We jolly well need to increase productivity because our balance of payments deficit is at its highest level since modern records began. If this Government were analysed on the basis of the big debates on the viability of the economy that took place in the 1970s, when even importing a few aircraft could cause a Government great balance of payments difficulties, the situation this Government are in at present would be deemed absolutely chronic and one that far outweighs the anxieties that obtained at that time.

The Chancellor told us that his 2010 Budget would ensure that borrowing would reach only £37 billion by 2014-15. Last year, it was more than £87 billion. He said that public sector net debt would be 69% in 2014-15. It was in fact 80.2%. He also promised that the deficit would be eliminated. He has failed on all those counts. Therefore, while I accept the points made in the Minister’s opening remarks, I hope that he will also address the other side of the picture, which is all too bleak.

6.29 pm

Lord O'Neill of Gatley: My Lords, yet again we have had an extremely interesting debate, and I thank all noble Lords for their excellent contributions. As has become my wont in previous debates, especially when not too many noble Lords have spoken, I will attempt to respond to most of what my modest brain could understand about what everybody said. I apologise in advance if I forget some of you, or if I misunderstood some parts.

Let me start with two overall points, especially concerning the comments of the noble Lord, Lord Davies, about the economy in general, because they link to a number of things that noble Lords touched on. Also—I will come back to this issue when I respond to the comments about welfare—it is very important when we debate government policy that we do not forget that it is presented in this Bill in the context of the mandate the Government sought and, importantly,

10 Nov 2015 : Column 1982

secured in the election that they won with a majority. In the election campaign, the Government made it pretty clear that they were committed to deficit reduction, debt reduction, as low tax as possible and a low welfare spending environment. By and large, that is the framework that has shaped this Budget.

On the economy, I will address the three points that the noble Lord, Lord Davies, touched on in his interesting closing comments. First, I said in my opening comments that we have had considerable discussions about productivity and, given its importance, I am sure we will have many more in this place in the future. I welcome many of the insightful comments that a number of noble Lords made about aspects of productivity. I hope we can learn as we go along, because this is a complex and huge challenge.

As I have pointed out, it is not only the UK economy that has experienced challenges in the past few years. If we can believe the reported data, even some of the supposedly highly productive economies seem to have struggled recently. In addition to the caveat that we will soon get early indications from the independent review which the Government authorised Charlie Bean to undertake—I hope it will include some indications of how productivity is measured—in the most recent quarter, we have some evidence that productivity has started to improve. It is far too dangerous to presume that that is the beginning of a sizeable and permanent improvement, but the latest data show the best improvement since 2011.

On an important and closely related aspect—in my experience, the two go hand in hand—over the past two quarters there have been more encouraging signs about the performance of investment spending. According to our GDP accounts, at least, investment spending has become a more important, positive contributor to GDP. However, I quickly add that, according to some recent business surveys, there has been some softening in the confidence of apparent business investment intentions, which is probably related to global events.

On the balance of payments issue, as I have touched on in previous debates but would like to re-emphasise, it is quite intriguing that our trade deficit, which is usually the subject of most people’s focus on our seemingly never-ending poor performance, has not deteriorated. In fact, it has actually shown some signs of improvement, especially in recent months. But in the main identifiable parts of the accounts, it is the so-called invisibles surplus that has deteriorated. That could be due to something substantial, but it could be something to do with valuation and accounting treatment that is not necessarily going to be permanent, and there may be some questions about the validity of some of the statistics. At the risk of my sounding like a bit of a nerd, the newly appointed governor of the Central Bank of Ireland is a known expert on international balance of payments issues, and it was very interesting to read his suggestion that some of the apparent deterioration in our invisibles account may relate to the behaviour and book-keeping of international companies, which is among the reasons why it is very important that we embolden HMRC to do the work it is tasked with doing. I will come back to this in a few minutes.

10 Nov 2015 : Column 1983

I turn now to the individual, very useful comments that noble Lords made. First, the noble Lord, Lord Lennie, spent some time talking about the environment for our tax policy with reference to the fragile economy. In addition to what I have just said, it is quite interesting that the very latest high-frequency indicators, specifically the purchasing managers’ indices for the most recent finishing month, showed in both the manufacturing and services sectors a notable—and to some degree, even for someone like me, surprisingly strong—acceleration. I am not so sure, other than being cognisant of the never-ending uncertainties that go hand in hand with life and the state of the world, quite where the fragilities that he referred to are. I would add in that regard that the tax policy path and the spending path this Government have chosen to pursue do not appear to be slowing the economic recovery, although of course the evidence varies from month to month, depending on the individual economic data.

On the second general point raised by the noble Lord, Lord Lennie, the so-called tampon tax—I apologise for reading the brief; I do not like to do that in my closing comments, as I am sure noble Lords appreciate—the UK does apply a 5% VAT rate to sanitary products, which is the lowest rate currently allowable under EU rules. During the debate in the other House on this issue on 26 October, my fellow Treasury Minister David Gauke said that he would raise the issue with the European Commission and other member states, setting out the Government’s view. I can advise the House that David has now written to the Commission and other member states setting out our strong position that member states should have full discretion over what rate of VAT they can apply to those products.

Turning to the considerable number of lengthy but, as always, very interesting comments made by the noble Baroness, Lady Kramer, again, I apologise that I will not be able to go through them all in the remaining time, but I want to touch on a number of points that relate to both the big picture and the specifics. On the overall nature of fiscal policy, the spending cuts and the figures to which she referred, let me repeat—even though everyone in this place, the other place and the country are aware of this—that one of the reasons why certain areas are being cut to the levels proposed is that the Government, in addition to emphasising their commitment to the lowest tax possible and to deficit and debt reduction, have consciously and deliberately, as part of the election campaign and since, promised to protect key areas which, in my own judgment, are vital to the long-term performance of our country. These are health, education, foreign aid and investment spending and, of course, spending linked to security challenges—following the latest Budget— and defence. It follows by definition that, if you are protecting those areas and are committed, as we are, to deficit and debt reduction, the other unprotected areas have to take the lion’s share of the work.

It is in that context that the interesting comments made by the noble Baroness, Lady Kramer, about welfare payments, and those of many others, should be considered. I am sure—following the rather emotive and intriguing debates we have had about that topic in this House, and what noble Lords have heard from the

10 Nov 2015 : Column 1984

Chancellor, when he said that he would listen and set out in the Autumn Statement what he would do to address the concerns raised about the transition from a high-welfare, low-wage economy to a lower-welfare, higher-wage economy—that we will have some of these debates again in the future.

However, I will highlight, of the many statistics that are often quoted in debates in the other place and in here, one that I think that we cannot forget. We are about 4% of global GDP and about 1% of the world’s population. It is the case that today, we are spending about 7% if the world’s welfare payments. If we do not believe that we can do something about that, it is a pretty worrying state of affairs, particularly when our economy has improved as much as it has done; and, let me emphasise—in contrast to the tone that was adopted by a number of comments—when we have record levels of full-time employment that are showing continued signs of improving further. If we cannot tackle some of the welfare payment challenges during an economic environment like that, then it is a pretty concerning sign, even though the complexity of our welfare payment system in itself makes it pretty challenging to ensure that none of the policies being pursued has some unforeseen consequences that we did not wish to introduce.

The noble Baroness, Lady Kramer, and others made quite a few comments about skills. I cannot spend too much time on that other than to reiterate, as I said during both the last productivity debate and a previous one, that in my own personal judgment the challenge of skills, within all the factors relevant to the future performance of productivity, will perhaps be the highest one that we face.

It was very interesting and slightly distressing to hear the comments of the noble Lord, Lord Davies, towards the end of his speech, when he suggested that in my previous reference to this I gave the impression that the only thing that mattered was higher education. Let me emphasise right here that that is far from the case, which is why, in the productivity plan, and linked to it, we are very proud of the fact that we have introduced the apprenticeship levy to put more responsibility on the corporate sector, as is the case in some of our fellow developed economies, Germany being a particularly model example in this area. We are also proud that the corporate sector itself essentially picks up a lot bigger share of the indirect, and perhaps even direct, cost of education spending, certainly as it relates to skills. In highlighting further education in the productivity plan, we focused on improving the quality of the further educational attainments of our young adults rather than just their number—both of course are important. I cannot emphasise enough—on my own behalf and, I believe, that of the Government—that there is great awareness of the importance of this challenge and the importance of not just focusing on it in higher education.

The noble Baroness, Lady Kramer, and other noble Lords touched on the Government’s so-called lack of commitment to green policy. The Government remain committed to trying to improve the carbon performance of our economy but they are also trying to be even more focused on the value for money that goes along with a number of these individual policies from the past, especially in the circumstances of our desire to commit to a lower deficit and lower debt.

10 Nov 2015 : Column 1985

The noble Baroness, Lady Kramer, and a number of other noble Lords also touched on corporation tax, asking why we are continuing to lower it and, in some cases, why we were favouring large corporations relative to SMEs. I could spend a lot of time on this topic but will just highlight that in the past few weeks, the UK has been recognised positively by independent and globally recognised experts on such measures. I will name just two. In the World Bank’s review of the cost and ease of doing business, we have just overtaken the United States and are now ahead of them on that. Our stance on transparency and tax policy was also mentioned in that review, as it was by the Legatum Institute, which said that the UK’s leadership in Europe is accelerating relative to our European neighbours.

My noble friend Lord Cavendish made some very interesting comments about infrastructure. We are having discussions with many parts of the country about devolution and giving regions more responsibility for some big issues for their future. He touched on a couple of them, and may be aware that Barrow, in Cumbria, is one of the many we are having discussions with. I hope that at some stage those discussions will result in a fruitful outcome for Barrow.

More broadly, I emphasise to the House that I spend considerable time on the fascinating challenge of infrastructure. Whether it be project bonds or any other form of bonds, I am trying to challenge my own mind and my own past of many decades in finance, and the finance industry. At a time when we have such remarkably low bond yields all over the world, rising equity valuations and considerable amounts of cash, along with a massive infrastructure challenge here and elsewhere in the world, somebody in the future weeks, months or years will help us come up with a smart way of doing this that is not just some artificial way of putting it back on the Government’s balance sheets. Many of the suggestions that have been put to me typically end up doing that.

In that regard, I also highlight the very successful role played by the UK government guarantee scheme, which so far is showing signs of helping us boost the scale of our national infrastructure ambition. I cannot

10 Nov 2015 : Column 1986

finish on that topic without highlighting the fact that since I last spoke in this House, we have announced an independent National Infrastructure Commission, which will pressurise this Government and future Governments over how we rise to these very complex and ambitious infrastructure challenges with our beautiful and complex democracy. Part of the purpose and why I believe that that is such an important thing for us to do is to put us under more pressure to meet those challenges.

I realise that I have taken up 20 minutes of your Lordships’ valuable time, and I now apologise to several noble Lords that I have not had the chance to speak to their individual comments. At the risk of going beyond 20 minutes, I would like to touch quickly on the issue of HMRC, which several noble Lords mentioned.

To meet our fiscal and debt reduction commitments, the Government are committed to trying to tackle tax avoidance. Although it will remain a challenge, given the ambitions that we have set, we are committing the right resources to enable HMRC to ask the right questions and pursue those who are not meeting their obligations. Perhaps I may write to the noble Lords, Lord Flight and Lord Howard, but I can say with some confidence on their specific question that we think there is plenty of protection for people’s individual rights.

I draw to a close. I thank all noble Lords again for their valuable comments, and 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.

Consolidation etc. Bills Committee

Message from the Commons

A message was bought from the Commons that they have appointed a Select Committee of twelve members to join with the Committee appointed by the Lords as the Joint Committee on Consolidation etc. Bills.

House adjourned at 6.53 pm.