Second Reading (and remaining stages)
My Lords, as my right honourable friend the Chancellor of the Exchequer said when he delivered his Budget Statement, the past few years have been a difficult time for people, not just in the UK but globally. It has required difficult choices, with Governments around the world taking unprecedented steps to rescue the global financial system and support the economy, business and families. The record shows that the Government have made the right calls, and the effect on the wider economy, families, households and businesses has been much less severe than it would have been had we let the recession run its course. Despite the latest data showing that we are now emerging from the deepest global recession in more than 60 years, uncertainties remain, and there will be risks to confront. It will not be plain sailing from here on.
My right honourable friend set out a Budget which mapped out the next steps in the Government’s plan to secure the recovery and build strong, sustainable, growth. The Budget therefore announced: continued targeted and temporary support through the recovery; a package of measures, worth £2.5 billion, to support small businesses and promote innovation; and how the Government will deliver on their obligation to halve the deficit in four years.
These measures are at the centre of the Bill before noble Lords today, and I propose to address each area. The Government are determined to carry all of the tax measures announced in the Budget into law. However, recognising that there was limited time before dissolution of Parliament, we have published a much more limited Finance Bill than in a normal year. As my right honourable friend the Financial Secretary told the other place yesterday, following discussions with the Opposition we moved amendments removing provisions relating to landline duty; the requirement of securities for PAYE; and abolition of furnished holiday lettings from the Bill. We will include these in a Finance Bill to be introduced as soon as possible in the next Parliament.
In addition to these amendments, and following discussions with the Opposition, we have also amended Clause 9 to align the rise in cider duty rates with that for other alcohol rates, limiting the increase to 2 per cent above inflation with effect from 30 June.
It is clear that the support provided to households and businesses over the past two years has worked. The temporary cut in VAT was worth an average of £20 per month for every household, and 200,000 businesses which collectively employ 1.4 million people have been given extra time to pay their tax bills. However, withdrawing support too soon could jeopardise the recovery. While uncertainties remain, we will continue to build on the support that has limited the impact of the recession for families and households. Clause 6 therefore increases the stamp duty threshold for first-time buyers from £125,000 to £250,000, ensuring that nine in 10 first-time buyers will pay no stamp duty at all. To ensure that this does not add to the burden on the public finances, Clause 7 announces an increase in the stamp duty to 5 per cent for residential property over £l million to fund this.
The Government’s support for business has meant that the rate of insolvencies is half what it was during the early 1990s recession. Around 850,000 companies have benefited from our decision to defer the rise in the small companies’ rate. Clause 3 maintains the rate of corporation tax for small companies at 21 per cent for 2010-11, as announced in the Pre-Budget Report. Similarly, as the Chancellor announced, although the rate of fuel duty will increase over the next year, we are sensitive to the impact that a large rise would have on families and businesses at this time. We are therefore providing for a staged increase spread over the course of the year. Under Clause 12, fuel duty will rise by only a penny in April, less than inflation. Clause 13 provides for further rises of a penny in October and the remainder in January.
We make no apologies for extending this support to families and businesses. To do otherwise would involve taking a huge risk with people’s jobs, incomes and the future growth of the economy. However, in the medium term, the Government must live within their means. As the Chancellor said on 24 March, we intend to achieve this goal by a combination of public spending cuts, growth in the economy and tax rises.
This Finance Bill provides for a number of measures to underpin strong, sustainable growth. Clause 5 doubles the annual investment allowance to £100,000 for expenditure incurred from April 2010, ensuring that 99 per cent of businesses will be able to deduct all qualifying investment from their taxable profits. Clause 4 doubles the limit for entrepreneurs’ relief for capital gains tax from £l million to the first £2 million of gains made over a lifetime. This extends the effective 10 per cent rate, increasing incentives for business growth and those investing in businesses with growth potential.
These are important measures through which we are providing support for small and growing businesses. Together with the rest of the growth package announced at Budget, these will be funded by excess revenue generated by the 50 per cent levy on excessive bonuses of bankers, which was announced at the Pre-Budget Report and provided for at Clause 22, and by switching spending from within existing allocations. I should add that Clause 2 also maintains corporation tax at 28 per cent, ensuring that we continue to have the lowest rate in the G7, and that the UK is still one of the best places to do business in the world.
Finally, the Finance Bill provides the key tax measures at the heart of our plan to halve the deficit over four years. Clause 1 provides for the new 50 per cent rate of income tax for those earning more than £150,000 per annum, which together with the gradual removal of the personal allowance for those earning more than £100,000 provided for in last year’s Finance Act, implements our plans from Budget last year.
The Bill also implements the core aspects of our changes to the pensions tax regime at Clauses 24, 49, 50 and 71, restricting tax relief on pensions for those earning more than £130,000 as well as further anti-forestalling provisions. In providing these reforms now, we have had to balance the need to provide certainty and allow industry and individuals time to prepare with the need to consult further on some aspects of implementation. Clause 24 therefore provides a number of powers that allow the Government to return to aspects of the implementation.
The reforms to income tax and pensions affect only the top 2 per cent of earners—those who have benefited the most from the strong growth in previous years. The Bill provides for further measures announced at Budget or before to support the public finances.
Clause 9 confirms the planned increase in alcohol duty of 2 per cent above inflation announced at Budget 2008. Clause 69 provides powers to amend the duty definition of “cider” to ensure that particularly high-strength ciders are taxed more appropriately. The Government intend to make these changes in September. Clause 10 increases tobacco duty by 1 per cent above inflation. Increases of 2 per cent above inflation will be made in each of the next two years. Clause 8 provides for the freezing of the inheritance tax threshold for the duration of the next Parliament until 2015.
As part of ensuring a fair and effective tax system, and to ensure that the Government remain on course to halve the deficit, this Finance Bill provides, at Clauses 25 to 59, for a significant package of measures to tackle tax avoidance, non-compliance and offshore evasion. The avoidance measures in this Finance Bill protect around £18 billion worth of yield and raise a further £1.5 billion of revenue by 2013. I believe the choices that we have made to date in dealing with one of the most turbulent economic periods in modern times have been the right ones. We have stabilised and begun to rebuild financial services. We have supported the economy, businesses and families and the outlook is continuing to improve. The economy is growing again, the labour market is easing and families and businesses have weathered the storm well.
We have to continue to make the right choices, not just to secure the recovery but to reduce borrowing after the costs of the recession and to improve our outlook by investing in the long-term capabilities of the economy. The measures in this Finance Bill will help to support our economy, the public finances and Britain’s future, and I commend it to the House.
My Lords, I want to take this opportunity in the gap to raise two matters. The first relates to the provisions on the very popular and useful ISAs which are continuing and for which allowances have been raised. This was referred to by the noble Lord, Lord Myners, in his Answer this morning in relation to how savers are being helped.
I was disturbed to read in the press not long ago—although one always has to be careful about what one takes from the press; and that is why I want to raise this issue—that these ISAs provided by the banks are sometimes used in such a way as to deprive the people who invest in them from receiving the full interest on the money that they invest. I believe that globally this amounts to a large sum. A lot of people have taken up these ISAs and it is rather serious if they are in effect being short-changed by the banks. I hope that the Minister can help me on that.
My second point is that the Chancellor mentioned that proceeds from the bonus tax that was introduced are much greater than was anticipated. That shows that the banks have determined to go for the bonuses, notwithstanding the tax. In other words, that particular method has not significantly reduced the amount of money that is going out in these bonuses.
I am grateful to the noble Lord, Lord Oakeshott, for allowing me to speak before him.
My Lords, I am delighted to do so; the noble and learned Lord, Lord Mackay, made a very good point. Like many of the Government’s policies, the bank bonus tax has been totally ineffective in practice, despite the strictures of the noble Lord, Lord Myners, which have often been very well argued and I often sympathise with them.
It has been a long hard slog on the economy over the past year or two—both for Ministers and for opposition spokespeople. Perhaps I may be allowed a brief personal word—it is relevant to this debate and to tax: some of us were here until a very late hour this morning to ensure that non-resident Peers, if they want to sit in this House, should pay full British taxes. The Bill that I first introduced six years ago and have introduced four times was incorporated en bloc in the Constitutional Reform and Governance Bill this morning, apart from a slight change regarding the position of the Bishops. I thank the Government for finally accepting it; but why oh why did they wait until the last minute of extra time?
Let us be fair: the Government initially did what was right and necessary to save the banks in the crisis in late 2007 and to stop our economy from collapse. But they have frittered away the opportunity to rebuild the economy properly after that emergency surgery. I could hardly believe my ears and was amazed—the Minister is verging on complacency—to hear him say that families and businesses have weathered the storm well. That will be pretty bitter news to the many people who, if they are not unemployed, are on compulsory short time. This includes not just, as in previous recessions, factory workers, but many people including solicitors and those in the service sector. There is a great deal of hidden unemployment in our country and there have been many pay cuts.
The housing market is still in a very difficult situation. There has been something of a false dawn over the past few months in terms of house prices stabilising. That has happened mainly in the south of England; there has been no recovery across much of the country. The market remains flat and stagnant in many areas. House prices have been artificially supported by very low interest rates; as interest rates start to rise, as the Minister rightly pointed out in Question Time, and the markets are reflecting, that artificial support will be taken away. We are still in for several difficult years in the housing market.
I do not propose to rehearse the general economic policies. We will all be out on the hustings shortly. I have already mentioned the simple and clear Liberal Democrat policy to make the first £10,000 of people’s income tax-free. That will take many lower-paid workers and pensioners out of tax. That is a fully funded tax cut which is covered by actual commitments on things that we will not do, as opposed to the phoney efficiency savings—I can call them only that—being offered by the other two main parties.
The noble Lord also mentioned pensions. I am afraid that we are in a hopelessly complicated system. Again, typically, the Government, having accepted what we have been saying for many years about the unfairness of pension tax relief being offered at high rates to the richest, have again come out with a very fiddly and complicated system which even the pensions experts do not understand, never mind the Treasury and the Government. Thereby, I am afraid that there are very serious pressures on savers and pensioners. Again, the simple solution initially is to bring back immediately the link between earnings and pensions and not wait for several more years.
I have one other separate point and question on Clause 59. If he cannot answer today perhaps the Minister will consider the matter carefully and write to me on the change highlighted in the Guardian and the Daily Telegraph in recent days which raised serious issues of civil liberties. It relates to the proposal to amend Section 106 of the Postal Services Act. At the moment the law is that postal packets containing suspected contraband can be opened only in the presence of the person to whom they are addressed—subject to certain safeguards. That will change and those safeguards will be removed. As one would expect, the Guardian is very concerned about this and is making comparisons with the Stasi in East Germany. The Daly Telegraph quoted a senior tax partner at Grant Thornton as stating:
“This seems like a very small and limited change, but it could be a very big step for increased powers for HMRC”.
That has the ring of truth. He continued:
“Once new powers are in the hands of HMRC they tend to be extended”.
Can we be sure that that does not conflict with Section 6 of the Human Rights Act? Can we also be told what safeguards are being offered? People talk a lot about the surveillance state. There may be a reason for such a measure in individual cases, but we would like it to be properly explained and discussed.
This is not a place where we are able to intervene and argue directly about tax rates, but we have economic expertise to offer from all around the House. I hope and believe that whoever form the next Government we will be able to play a constructive part in rebuilding the nation’s economy.
My Lords, we usually take an opportunity of a debate on the Finance Bill to debate the Budget which preceded it, but we had an excellent debate on the Budget, led by my noble friend Lord MacGregor of Pulham Market. The Minister will notice that my usual team of supporters on Treasury matters has not turned out on this occasion because we have no wish to do anything which will hold up the end of this Parliament, and with it the economic management of the UK by this Government. I was, however, pleased that my noble and learned friend Lord Mackay joined us today, and I hope that the Minister will respond to his questions.
I shall not rerun the critique of the Budget that we discussed before Easter, but I should say that it does not represent a credible plan to restore health to our country’s finances.
In the past couple of days, the Minister has become fond of quoting the OECD, which has recently said some obliging things about the UK: but that of course is just one judgment. The European Commission has been far less complimentary about our deficit reduction plan and our growth prospects. Its analysis was based on the Pre-Budget Report, but the Budget was no better in terms of setting out a credible plan, so I imagine the Commission’s judgment will remain unchanged—and we never hear about that from the Benches opposite.
Closer to home, the Budget got little or no support from commentators in the UK. The CBI was deeply unimpressed, as were most other business groups. By ignoring the increase in inflation that we are currently experiencing in favour of the short-term, negative inflation last September, the Government have managed to introduce yet another stealth tax on ordinary people. Based on the Treasury’s own calculations, this latest stealth tax is worth £2.2 billion to its coffers.
Worst of all, the Budget failed to take the opportunity to rethink unwise decisions made in earlier years to introduce a tax on jobs from next year. It is not in the Finance Bill. It will require separate legislation, which will not be a money Bill and hence will be scrutinised by your Lordships’ House. My party is supported by a growing list of business leaders, and by all business groups, in condemning the increases in national insurance that the Government plan. We are clear that the health of our economy will be harmed if the increase goes ahead in full next year. It will act as a huge disincentive to businesses to create jobs, and hence undermine economic recovery. If introduced, it will cause unemployment to rise. The Chancellor of the Exchequer has admitted this to the Treasury Select Committee in another place. I give way to the noble Lord.
I am grateful to the noble Baroness. So this so-called jobs tax is going to create unemployment, as opposed to the alternative, which is so-called efficiency savings. If one is going to reduce expenditure by £10 billion, £20 billion or £30 billion, where is that expenditure saving going to be produced? It will be produced overwhelmingly on wages and salaries. So what the noble Baroness says is pure poppycock—perhaps she would comment about whether another word could be used. She sheds crocodile tears about jobs, but for every £10 billion or £20 billion, would not an equivalent number of jobs, if not more, be lost for the same amount of money?
The noble Lord, Lord Lea, raises a question that people often get confused about. They think that tackling inefficiency will lead to job cuts. However, there are a number of ways of saving money. For example, a pay freeze would not cost a single job but would save a large amount of money. A large number of savings can be achieved through efficiency gains with no loss of jobs. We are clear about that. I give way again to the noble Lord.
It is very rare to intervene twice, but it is a new definition of an efficiency saving to include a pay freeze. That is not what has been said by the Conservative Party, which is magically going to find savings on work being done. Some of the savings could be made at the margin with purchasing, but overwhelmingly the savings will be made on wages and salaries through losing people-hours.
The noble Lord is quite right that procurement savings form part of our strategy. However, we have not said that the rest of the savings will come from jobs. I have given the noble Lord one way in which efficiency savings can be made by reducing the costs of the same output. That is the definition of efficiency. If the noble Lord thinks about it, he will see that there are many ways in which the costs of production can be reduced without cutting jobs. It is not our aim simply to cut jobs.
I also say to the noble Lord that, when we talk about the impact of the tax on jobs, the unemployment will be in the productive sector. There is a big difference between creating new jobs in the productive sector and protecting jobs in the unproductive public sector. That is why it is extremely important. Does the noble Lord really want to have another go?
Yes. I am sure that I am on the edge of breaking a rule by intervening a third time, but as regards every service provided, from dustbins through to economic regeneration, in what sense does the noble Baroness think that this is not money well spent? On that basis, would she say not only that we should not pay people so much, but that we should provide fewer services as well? Is that the doctrine that is now being suggested?
My Lords, I do not wish to prolong this. We have not said that we will cut front-line services, and we will stick to that position. This is not the right debate in which to examine the policies of my party. I would be happy to talk at length to the noble Lord, Lord Lea of Crondall, about my party's policies, in the hope that he might join us at the ballot box—if he had a vote, of course—on 6 May. I live in hope that he might see that this would be a sensible thing for him to support.
My Lords, I promise that I shall say this only once. Is the noble Baroness seriously saying that nurses, teachers, police officers and others who work in the public sector are unproductive? “The unproductive public sector” was an extraordinary thing to say that will be noted in the country.
There are parts of the public sector that are unproductive. I was not referring to front-line services. However, there are a number of activities that do not add value to our nation. I do not think that the noble Lord would disagree with that.
As I was saying, the Chancellor of the Exchequer has already admitted that the jobs tax will lead to rising unemployment. He did not deny the estimate made by the Centre for Economic and Business Research that it will lead to 57,000 people losing their jobs. Of course, it is a tax on people earning more than £20,000 per year, which is significantly below average earnings.
When the Minister introduced the Bill, he said that the Government had made all the right calls. However, he ignored the fact that before the recession, the Chancellor made some very wrong calls. He peddled the false notion of having abolished boom and bust. The fact is that he borrowed too much, he spent too much, and he spent it inefficiently and unwisely. If he had not done those things, we would have entered the recession in a much stronger position and would have been much less badly affected. The Chancellor failed to fix the roof while the sun was shining and now we are all suffering from the effects of the storm that came with the bust.
I turn now to the Bill. The Government wisely decided not to proceed with the immediate increase in the duty on cider, with the telephone tax and with the furnished lettings tax changes. We are glad that they agreed to remove these impositions, as well as some other technical provisions that needed more scrutiny. Nevertheless, the Bill creates another set of complex tax rules. The Minister said that this was a shorter Finance Bill than normal, and that is true; but it still has 70 clauses and 20 schedules. Many provisions are very complex. The Institute of Chartered Accountants and the Chartered Institute of Taxation have warned against the dangers of legislating in haste, and it is clear that a large amount of material in the Finance Bill will become law without any effective scrutiny, because a couple of hours in another place yesterday does not constitute effective scrutiny. My party's policy is that tax changes would be introduced only at the Pre-Budget Report stage, so that effective scrutiny would be held on a pre-legislative basis before the Finance Bill was published around the time of the Budget. In that way, we would never again be in this unsatisfactory position if an election were held at the time of the year when the Budget and Finance Bill were published.
The Finance Bill has some lost opportunities. I will take just a couple of examples. In Clause 2, corporation tax rates are kept where they are, and the Government have missed an opportunity to recoup some of the ground that we have lost since 1997. In 1997 we were below the OECD average for corporation tax, and now we are above. Our tax competitiveness is significantly reduced, as we have seen in many of the league tables.
Another example of where the Government have missed an opportunity is with air passenger duty in Clause 14, where the pre-announced increased rates are put into effect. They have missed the opportunity to shift to a plane duty, which could raise the same amount of revenue but in a way which was much more consistent with environmental commitments.
Most of all, the Bill misses an opportunity for simplification. It has, as usual, a lot of complex anti-avoidance provisions. I refer briefly to the changes to pension taxation contained in Schedule 2. That schedule has 12 pages of the most complex rules for modifying relief on pension contributions. They were introduced largely to stop people avoiding the 50 per cent tax rate, so they are linked to avoidance. Perhaps I may read out one formula from page 63. We are told that something called the “appropriate increase” is:
“(ACR x CARARF) – (UOR x OARARF)”.
I submit that this is not understandable by normal people, and it is quite complicated for tax advisers. It is clear that the Government have still not grasped the notion that we need our tax system to be significantly simplified, and not only in the area of pensions, which is hugely complicated and will doubtless be changed again because these formulae will be found not to work in some respects. Our own policies are designed to achieve tax simplification and we are committed to creating an office of tax simplification, which will start the long process of taking our tax law and turning it into something much simpler. By that, I do not mean rewriting it—that is a big project which has been done very effectively—but making the system much easier to use by those who are subject to it and also taking out a lot of the inefficiency that goes with working around such complex tax legislation.
The Budget was not the Government’s finest hour and this Finance Bill is not the Government’s finest Finance Bill. Businesses know that after 13 years of economic management from this Government we have slipped down all the economic league tables. In the world economic performance league tables, we are now in the 80s for tax and regulation. These are not things to be proud of. People know that they have been taxed, both directly and by stealth.
I shall not hold up our debate on this Finance Bill any longer. The verdict on the Government’s economic and fiscal management is due on 6 May and we know what the answer should be.
My Lords, we have had a short but interesting debate and I thank all noble Lords who have contributed. As one would expect with such a wide-ranging Bill, a number of points have been raised. Perhaps I may start with those raised by the noble and learned Lord, Lord Mackay of Clashfern, who drew our attention to two issues: ISAs and the bank bonus tax.
ISAs have proved to be an extremely popular investment method. There are now 19 million ISA account holders and £275 billion has been invested in tax-sheltered ISAs, with a maximum annual allowance of £10,200 per annum. This is a very effective way of saving in a tax-protected manner. However, there is always scope for improvement, and Consumer Focus—a statutory organisation campaigning for a fair deal for consumers in England, Wales and Scotland and for postal services in Northern Ireland, led by my noble friend Lord Whitty, who made an effective contribution to our debate on consumer issues last night—has submitted a super-complaint to the Office of Fair Trading about the ISA market. Consumer Focus has three main concerns: first, that providers’ processes make switching between cash ISAs difficult; secondly, that there is a lack of clarity on interest rates, particularly on older ISAs; and, thirdly, so-called bait pricing, where a high level of interest is paid initially but is followed by a lower one after a few weeks or months. The super-complaint is being made under the terms of the Enterprise Act 2002 and obliges the OFT to respond within 90 days with a decision on what action, if any, it plans to take. We look forward with interest to the OFT’s deliberation on that matter.
The noble and learned Lord, Lord Mackay of Clashfern, also raised the question of the bank payroll tax. It was never going to be easy to estimate the proceeds because, importantly, that depended on the decisions taken by the banks. The observation made by both the noble and learned Lord, Lord Mackay, and the noble Lord, Lord Oakeshott of Seagrove Bay—that the banks chose to pay the bonuses and the tax rather than avoid the tax and conserve the capital—is, to a certain extent, true, although there is evidence from banks such as Deutsche Bank, Credit Suisse and Goldman Sachs that the bank payroll tax had an impact on their bonus decisions. However, it continues to be a matter of considerable regret that the owners of banks are not taking a sufficient interest in the levels of remuneration at the very top of these organisations.
As we have seen in more recent reports from other companies, this problem is not limited to banks alone; excessive remuneration for a small managerial elite at the tops of our companies is now spreading across all sectors. This can be addressed only if the ultimate beneficial owners—pension fund trustees, insurance companies and those saving through mutuals—take an active and effective interest in challenging what strikes me as being a profound economic anomaly. This enormous growth in high-level remuneration, dealt with admirably in so many ways by Sir David Walker’s report, cannot be explained by simple supply and demand. It is not as though there is now a more limited supply of extraordinarily talented men and women to lead companies or that the demand has in some way increased. I think that it speaks to a profound failure of agency responsibility by those who stand in prime position for the beneficial owners. To avoid any doubt, I do not put the primary responsibility on institutional fund managers; I think that it lies with the clients of institutional fund managers who are not giving those fund managers appropriate direction. In a moment, we will come to another issue concerning packages raised by the noble Lord, Lord Oakeshott, but not bankers’ packages.
The support that the Government have provided in the face of a global recession has worked. The economy has returned to growth and the effects of recession on both households and businesses have been less severe than many feared. The noble Lord, Lord Oakeshott, picked me up for suggesting that families and businesses had weathered the storm well. I do not for one moment wish to minimise the impact of this global recession on those who have lost their jobs or those whose businesses have had to close because of the global recession brought upon us by the bankers. However, at the same time, I pay tribute to those who have, through their energy, diligence and sheer commitment, proved that they can weather the storm and carry us through. We must not be seduced into the habit which is so often seen from the opposition Benches of talking Britain down. We need to celebrate the fact that, in an extraordinarily difficult time, so many British families and businesses have, through their sheer energy, drive and determination, proved that they can work their way through, supported by government policies, until we now look forward to much better economic prospects for the future.
We know there are still uncertainties and we set out the actions that we will need to take as we confront the challenges that lie ahead. Support for businesses and families is absolutely vital in those circumstances. I pointed to the programmes that we have taken to support more than 200,000 businesses, which have been given time to pay and which have had their cash flows eased. Under the vehicle scrappage scheme, more than 388,000 orders for new cars and vans have been received and the enterprise finance guarantee has provided support to 9,000 SMEs since January 2009. It is right that we continue to support business and ensure that that support is not withdrawn too soon. This Bill builds on that support, helping businesses to continue to invest and grow. We are doubling both the annual investment allowance limit in Clause 5 and the lifetime limit on entrepreneurs’ relief in Clause 4. We are also further deferring the increase in the small profits rate of corporation tax, maintaining the current rate at 21 per cent, which is highly competitive on a global basis.
Let me be absolutely clear: we must reduce borrowing but we must do it at the right time and not damage the economy through a lust for overly rapid correction in public expenditure. As the economy recovers, the Government will halve the level of borrowing and it is right that those with the highest incomes make the greatest contribution. Only the top 1 per cent of taxpayers will pay the 50 per cent rate of income tax; only the top 2 per cent of pension savers will be affected by the restrictions on pensions tax relief; and only the top 4 per cent of estates will be expected to be liable for inheritance tax by 2014-15.
A fair tax system will support sustainable growth and public finances in the future. This Bill also continues to strengthen our ability to tackle avoidance, non-compliance and offshore evasion. The length of the Bill is driven, more than anything else, by the creativity of the accounting profession, from which the noble Baroness comes, and which, through its wish to protect the interests of its clients, has been ever more imaginative in coming up with schemes to avoid the intentions of Parliament. That is why we have a long tax Bill. If the accounting profession showed a willingness to be more restrained in that respect, it is probable that we would need less legislation. I hope the noble Baroness will bear that in mind in her future contributions from the opposition Front Bench when we discuss matters relating to tax and finance Bills.
There was much discussion about NIC. I remind noble Lords that when the right honourable Kenneth Clarke was Chancellor of the Exchequer, he raised national insurance by 3 per cent and employment grew and unemployment fell. There is no logical connection which mandates that an increase in NIC will lead to a reduction in employment. Indeed, one of the reasons why my right honourable friend the Chancellor of the Exchequer has delayed the increase in NIC until next year is precisely because it will come into effect in an increasingly strengthening economy and, as I reminded noble Lords earlier today, an economy which the OECD forecasts will be the strongest growing economy in Europe in 2010.
I am making the point that it is not —I was going to say “possible to make simplistic extrapolations”, but regrettably the Opposition frequently do—wise or sensible to make simplistic extrapolations such as saying that an increase in this or that will have such an effect. Other economic forces are at work. We are suggesting that this increase in NIC will be coincident with a strong recovery in the economy and, therefore, if there is any effect on employment at all it will be very modest. I pointed out that previous Conservative Administrations had not only increased NIC—
I am very aware of the statement made. I think there is a sleight of hand here in the way in which the shadow Chancellor of the Exchequer has talked about NIC reductions. Some of the business people who have expressed views on this are perhaps rather guilty of behaviour similar to contestants on “University Challenge” who press the button a little too soon. If asked, “Do you think that a reduction in NIC is good?”, one would not be entirely surprised if a reduction in employer NIC were welcomed by business people. However, if one waited until the end of the question, one would hear it heavily caveated. If the consequence of that were to place important front-line programmes at risk and mean that you had to rely on entirely ephemeral savings through efficiency—savings through efficiency which the right honourable David Cameron and the right honourable George Osborne were dismissing in the past as not being a sensible basis for making a tax gesture—then these business people might give a slightly different answer.
As my right honourable friend the Chancellor of the Exchequer said, most of those business people, if presented with a proposition which said, “We think you should spend more money here and more money there”, and the chief executive said, “How will we finance that?”, would say, “Through efficiency savings”, without actually identifying them. It would be very generalised and much less detailed than those that we identified in the PBR 2009. I encourage the noble Lord, Lord Bates, to read the PBR 2009 as there was much more granularity to our proposals than anything suggested by the Conservatives to justify their proposal. I hope that provides an answer to the noble Lord, Lord Sheikh.
Of course, historically, the tax of choice for the Conservative Party has been VAT and it has been very interesting to see that neither Mr Cameron nor Mr Osborne is willing to make a clear commitment on VAT. Past experience has shown that given any opportunity, any Conservative Prime Minister and their Administration will increase VAT.
I am also very grateful to the noble Lord, Lord Oakeshott, for underlining the comments of the noble Baroness on the unproductive public sector. What damning words those are; how hurtful that must be to those who care for the elderly, to those who work in our hospitals, to those who look after our children in schools—the dismissive hand with which freezes in pay are proposed. Again, that reminds us that a Conservative Administration, should we have one, would be a deeply uncaring one, giving priority to lifting inheritance tax rates, abolishing children's trust funds and damning those who work in the public sector. That is the very clear choice that the electorate will face on 6 May. If my noble friend Lord Lea of Crondall were allowed to vote, I know how he would vote, and I rest assured that the fine British people will vote in the correct way and return this Government to a further period in office. I beg to move.
Bill read a second time. Committee negatived. Standing Order 47 having been dispensed with, the Bill was read a third time and passed.