That the Bill be read a second time.
My Lords, this Government have a clear and highly effective plan to secure our country’s economic future. It is a plan that is cutting the deficit, attracting investment and helping British households to work and to save. This Finance Bill builds on the strong foundations put in place over the past four years.
I begin with those measures aimed at increasing investment and growth. At the start of this Parliament, we set out our ambition to have the most competitive corporation tax system in the G20 and by the end, we will have delivered. We have cut our main rate at every Budget since coming to power. From 2015, it will be 8% less than the rate that we inherited. By 2016, that will mean £9.5 billion-worth of savings for businesses across the UK every year. That is why more and more businesses are starting up here and moving here. For the first time since 2007, business investment has grown for four consecutive quarters. We are helping businesses of all sizes to invest and create jobs. We have doubled the annual investment allowance to £500,000, introduced the first tax relief of its kind for investment in social enterprises and increased the research and development tax relief to provide support for early-stage companies that will become the industries of the future for us. These tax reforms are a central plank of our economic strategy. Employment is at record levels, business confidence is high and investment is forecast to grow rapidly. The Finance Bill 2014 continues to send the message that Britain is open for business.
The quid pro quo for our highly competitive tax regime is that all companies and individuals pay their dues. This Government have taken a firm line in tackling tax avoidance and aggressive tax planning. They have made more than 40 changes to tax law to tackle avoidance and introduced the UK’s first general anti-abuse rule—the GAAR. This approach is working but tough measures are still needed. Over the next five years, almost £5 billion of revenue will be brought forward from users of avoidance schemes which have been defeated in another party’s litigation, or which fall within the scope of the DOTAS rules or the GAAR. The evidence is that these cases are decided against the taxpayer, so this is a fair measure. It is fair to the millions of taxpayers who pay their fair share and expect others to do the same. This measure and others in the Bill which prevent the use of dual contracts or employment intermediaries artificially to reduce or avoid UK tax liability will help to ensure that setting up a contrived structure will not result in a tax advantage and that our tax system will help to provide a level playing field across the labour market.
Taking a firm stance against tax avoidance is an important part of delivering a tax system that is fair, but fairness goes further than just tackling avoidance. It is about making sure that those with the broadest shoulders bear the greatest burden. At our first Budget, we raised the income level at which people began paying tax and we have not stopped since. We are going beyond our original commitment to raise the personal allowance to £10,000, which we accomplished a year ahead of schedule, by introducing a personal allowance of £10,500 from 2015. To put this into perspective, when this Government came into office, the personal allowance was only £6,500. This Government have cut the number of income tax payers by a greater number in five years than any other Government in recorded history. That is not all that we are doing to help. The Bill introduces a transferable tax allowance for married couples, targeting the benefit on married couples and civil partner lower-income households.
Saving, especially saving for retirement, was a fundamental part of this Budget. Thanks to the changes in the Bill before us, from next April those individuals who have been sensible enough to put aside for their future will have far greater control over how they access and ultimately spend their savings.
I turn to this Government’s radical pension reforms, which from next April will allow individuals with defined contribution pension savings more choice and control over their pension wealth. The measures in the Bill help individuals who are approaching retirement now to benefit from that choice this year.
The Finance Bill before us reflects the Government’s commitment to greater consultation on tax policy changes. I thank my noble friend Lord MacGregor and the members of the Economic Affairs Committee for their detailed consideration of the draft Finance Bill legislation at the start of this year and for their report that followed on 11 March. I look forward to some of the contributions that follow, which I am sure will take us through their thinking.
I shall take this opportunity to respond to some of the main points raised in that very thorough report. The focus of the report was on the salaried member element of the partnerships measure, and a recommendation to defer this legislation for a year. The partnerships measure is about fairer taxation and removing distortions across different types of partnerships. It has two key elements. First, the new salaried member rules will reduce differences in the tax treatment between limited liability partnerships—the so-called LLPs—and partnerships generally by providing that individuals who are in essence employees are taxed as employees. Secondly, the mixed membership partnership element will prevent individuals from reducing their personal tax liabilities by allocating profits to a corporate member of the partnership. This measure brings in total tax and NICs revenue of about £3.3 billion over the current forecast period.
The salaried member legislation corrects an anomaly under current law that treats all members of limited liability partnerships as self-employed, regardless of the terms on which they are engaged. This legislation is based on specific statutory tests, as proposed in HMRC’s original consultation document. I would highlight that the draft legislation published last December did not go further than the original consultation proposals but merely updated them to reflect consultation responses received.
As set out in the original consultation document, the legislation has three conditions. Collectively, these capture what it means to be a partner in a traditional partnership by looking at the income entitlements of the members, the amount of capital they have at risk and whether they can significantly influence the LLP’s affairs. The legislation, which came into effect on 6 April 2014, will ensure that members of LLPs will be treated as employees for tax purposes if they are engaged on terms closer to employment.
The Government made clear from the start that the change would take effect from April 2014 and reaffirmed at Budget 2014 that there would be no deferral of this legislation. The argument, of course, is that any deferral would be unfair to the many LLPs that had already taken practical steps to implement these changes. Deferring implementation would also have a significant impact on the Government’s objectives of fairness and deficit reduction.
Noble Lords will of course be aware that the Bill before us today includes this revised legislation as part of the partnership clause and schedule. It was not amended during its passage through the Commons. This legislation will remove structural inconsistencies in the partnership rules and prevent the disguising of employment in LLPs and tax-motivated partnership allocations.
I turn to the points raised by the committee in relation to the development of tax policies in general. The Government set out a new approach to tax policy-making in 2010 following consultation. I am pleased that the committee itself said in its report:
“We commend the Government, HMRC and HMT on the quality of the consultations conducted and the tax legislation produced since 2011”.
Officials consult interested parties and groups from across the tax spectrum throughout the development of measures both to test policy and inform the Government’s understanding of the impacts. The findings are reflected in formal responses to consultations and tax information and impact notes, the majority of which are published with draft Finance Bill legislation in the autumn.
The Finance Bill contains a number of improvements from the technical consultation launched in December. We received more than 300 comments to the draft legislation that we published and have had continuing interaction with individuals and organisations since. The consultation has ensured better legislation and more effective policy.
The committee also considered the policy partnership between the Treasury and HMRC. I assure your Lordships that this is a strong, positive relationship where both departments work closely together, maintain constant contact and look at ways to improve things on a continuous basis. I can assure noble Lords that the policy partnership is kept under constant review to look for improvements. There is a big focus on improving skills and ongoing education. Part of that is being done through the introduction of the new programme, the Policy Skills Learning Programme.
To conclude, this Finance Bill legislates measures that improve our competitiveness, target tax avoidance and leave more money in people’s pockets. It carries out the Government’s economic plan, which has successfully consolidated our recovery and is now driving forward our growth and competitiveness. I commend the Bill to the House. I beg to move.
My Lords, I rise to speak to the Motion standing in my name on the Order Paper. However, before I do so, I shall make two brief points on the Budget as a whole. The Minister outlined many of the measures. I entirely endorse them, and I wholly support the Chancellor’s overall economic strategy and, in particular, his and the Chief Secretary to the Treasury’s heroic efforts to reduce public sector net borrowing and to reach the target of moving the public finances into surplus, which the OBR forecasts will be achieved for the first time in 18 years by 2018-19. That is, of course, clearly dependent on the return of a Conservative Government at the next election or, very much second best, but recognising the role that the Liberal Democrats have played in the past few years, perhaps a coalition Government.
In the context of the Budget itself, I warmly welcome the various measures in the Finance Bill which the Minister outlined, in particular on ISAs and defined contribution pensions further to encourage savings. Pensioners particularly hard hit by the current very low interest rates on savings will be helped by the new pensioner bond to be introduced by National Savings & Investments in January next year. There are various measures for businesses, including those designed to encourage and assist investment and exports and those specifically for small businesses. When I first became a Member of the other place, one of my passions was for small businesses. I give them my total support.
I cannot resist saying that for all of us who support tax simplification and all that goes with it, the Finance Bill is not the best example. I understand the temptation of a whole lot of fiscal lollypops, but it has resulted in a monumental Bill, one of the largest I can remember. Similarly, the Explanatory Notes are among the largest I have seen in all my time as a Minister or a Back-Bencher in the Committee on the Finance Bill in the other place. I shudder at the thought of having been on that one.
I now turn to the report of the Economic Affairs Committee on the draft Finance Bill. First, as the retiring chairman, I shall give some reflections on the role and process. The committee’s task is limited as the elected House, quite rightly, has sole prerogative over supply and all the revenue raising that goes with it. That means that in nearly all my time in the other place this House had no role in the Finance Bill. But it was recognised that there was considerable professional, actuarial, legal and accounting expertise here which was not being tapped. In addition, because of all the pressures in the other place as Members of Parliament have to deal with so many other things, detailed technical and less partisan examination of various tax issues with expert witnesses from outside was recognised as being a useful addition to parliamentary scrutiny, and so it has proved. I pay tribute to my noble friend Lord Wakeham for the crucial part he played in initiating that.
We cannot amend the Finance Bill so the committee concentrates on selected aspects of tax simplification, clarification, administration and so on which may not be the first priority in the other place. If the committee has to be useful, not least in drawing the attention of the Commons and, indeed, the Government, to certain issues or concerns, it has to work fast and be selective. The timetable aspect has been greatly aided by the present Government’s welcome decision to publish draft Finance Bills, which made our task easier and enabled us to make our report well in advance of the Committee stage in the other place.
Does the process add value? I believe it has three merits. It uses the often considerable experience, knowledge and skills of appropriate Members of this House; it is considerably valued by the expert bodies and associations outside concerned with tax, accountancy, legal issues and business generally in giving them a forum to bring to parliamentary attention in a non-partisan ways their concerns, which are quite technical but important; and it provides the Committee in another place with an independent assessment in its scrutiny of the Bill. There were references to our report in the debates in the other place on Clause 68.
I now turn to our current report. The Minister has already given answers to some of our points, but I still want to persist with them because I want a more detailed explanation. The draft Finance Bill was published on 10 December 2013, and we began our inquiry in January 2014 and published our report on 10 March. I thank my fellow members of the sub-committee for their substantial contribution, their intense scrutiny and the speed at which they were willing to work. I am also most grateful to our specialist advisers Dr Trevor Evans and Mr Tony Orhnial and our committee clerk Bill Sinton and his team for their immaculate and professional support. We made 34 conclusions and recommendations. This is a very complex area and I will touch on some of the most important.
We decided to look at the measures which deal with the taxation of partnerships, now Clause 68 of and Schedule 13 to the Finance Bill, because preliminary evidence suggested that they would be some of the most controversial proposals—technically and professionally as distinct from politically—in this vast Bill, and so it turned out. We had a lot of evidence from expert witnesses. As my noble friend said, the draft Bill contained various measures to counter the abuse—I stress the word “abuse” —of the current rules governing the taxation of traditional partnerships and limited liability partnerships, commonly known as LLPs. Our committee wholly supported the objective of that legislation.
A feature of the original Limited Liability Partnerships Act 2000 is that for tax purposes, all members of an LLP are treated as self-employed partners, even if they would have been treated as employees in a traditional partnership. Most of our witnesses accepted that this provision was being abused in order to minimise the income tax and national insurance contributions paid by LLP members. So the need for action was accepted.
The draft Bill introduced three legislative tests to distinguish between LLP members who were genuine partners and those who were in effect employees. As my noble friend said, the aim of those tests was to put members of LLPs in broadly the same tax position as members of general partnerships. LLP members failing the tests would pay income tax and national insurance contributions on the same basis as employees, and the LLPs concerned would pay employers’ national insurance contributions. There were also other provisions, including special arrangements to accommodate alternative investment fund management partnerships that were obliged to defer bonuses to meet the requirements of an EU directive. I do not have time to go into detail on those today.
Our report recognised the need for the current rules to be reformed in order to stem tax losses. The large majority of our witnesses, however, were concerned that the legislative tests proposed for determining whether, for tax purposes, a member of an LLP was an employee or truly a partner were quite different from those consulted on before the draft Bill was published. I heard what my noble friend said, but that was very much the tenor of the evidence that we were given—and we agreed with it. So: consultation good, but subsequent follow-up not so good.
Moreover, nearly all the evidence we received argued that the tests were unlikely to achieve the aim of aligning the tax treatment of LLPs with that of general partnerships. The differences from the original consultation document were key points for us, so we recommended that the proposals be delayed until April 2015, to allow both the legislative approach and the drafting to be got right, and to give LLPs time to adapt to the revised rules.
There was an issue of yield forgone here. The Government estimate was for a total yield at that stage of £3.26 billion—certainly not a sum to be sneezed at. However, we thought that only a very small part of that yield would be lost by delaying the measures for a year. Our main concern was that, given the substantial difference between the original consultation proposals and the draft Bill, and the concern of the professional bodies that in some respects the legislation could be unworkable—coupled with the fact that we felt that in order to minimise compliance costs, the Government should consider applying the new rules from the start of an LLP’s accounting year rather than the start of the fiscal year—a one-year delay to get all this right would be justified.
Another concern was that in the process of our inquiry the anticipated yield from these measures was increased by nearly £2 billion—pretty well all, I think, emerging from more detailed analysis by HMRC of the alternative investment fund managers sector. This difference was never really explained to us.
Our report was well received by the main professional bodies concerned. They supported our main conclusions, and pointed to the practical problems, which we had identified, in sticking to the Government’s timetable. The Chartered Institute of Taxation stated that,
“it is disappointing that the House of Lords recommendations have been ignored and this has been pushed through so quickly”.
The Law Society of England and Wales commented in similar vein.
In fairness, I must add that the Bill as published improved the drafting of some of the provisions, and introduced some new flexibility around meeting one of the tests. The guidance, too, has been redrafted and improved substantially following the consultation. We welcome these changes, which are in line with our recommendations. But the Government stuck to the proposed tests for determining the employment status of LLP members and to making the start date April this year. As a result, I understand that there is a general feeling throughout the industry—if I may refer to it as such—that although it has learnt to live with this legislation, it has caused a lot of unnecessary work and cost, and taken up a lot of unnecessary time, for not much revenue to the Government. It would have been so much better to have got it right through further consultation on the revised proposals in the first place. Having said that, this is an unfortunate case, because as we said elsewhere in our report, in our analysis of the new approach to tax policy-making:
“We commend the Government, HMRC and HMT on the quality of the consultations conducted and the tax legislation produced since 2011 in these areas (the large majority) where the new approach to tax policy-making has been applied comprehensively”.
There is much else I could say, but at this hour it is necessary to conclude. I will finish by saying that the Financial Secretary to the Treasury responded to the debate on all these issues in the other place on 13 May. In considering the Financial Secretary’s response to the debate, we maintain that the points made in our report have not been dealt with. First, while it is reassuring that the figures for yield have the OBR’s approval, the detail of how the figures were arrived at needs to be understood. That is why our report made a number of detailed recommendations for greater openness from HMRC. Secondly, the process of arriving at the legislative tests flies in the face of nearly all the evidence submitted to the sub-committee by witnesses. Thirdly, the proposed deferral of the salaried members provisions would have allowed more time for the tests to achieve the intended result and an orderly transition to the new system could have been managed. In contrast to the Financial Secretary’s assurances, the Financial Times reported on 14 April that:
“Thousands of UK lawyers, accountants and property consultants are scrambling to inject equity into their firms”,
in order to avoid falling foul of the new rules. Finally, the rejection of our proposals for formal, published post-implementation reviews is fundamentally inconsistent with the Government’s “new approach to tax policy-making”, which advocates openness and consultation at all stages of the process of developing and implementing a policy change and should include post-implementation reviews. Overall, however, I warmly commend the new approach to consultation that the Government are taking. Our committee makes a considerable contribution in assessing the key measures that we undertake to look at in the Finance Bill. I commend our report to the House.
My Lords, it was a privilege to be a member of the Finance Bill sub-committee, which was so impeccably chaired by the noble Lord, Lord MacGregor, and which, as he has already said, was so superbly organised by the clerk to the committee and his staff and advisers. I will limit my comments to that report and the committee’s proceedings.
On the basis of the evidence received, I agreed and supported all the sub-committee’s recommendations. However, I was concerned about the very narrow base from which that evidence was drawn. There are some 420,000 partnerships of one form or another in the UK, 90% of which have three or fewer partners. Despite that, the evidence that the sub-committee heard was overwhelmingly from associations, organisations and professional advisers who represent large partnerships, which probably make up less than 1% of all partnerships. Professional advisers inevitably had potential conflicts of interest in that some of their members would benefit from a rejection of the proposed changes in the law.
The sub-committee recognised that narrow base in its recommendations in clause 291 of the report, in which HMRC and HMT were urged to urgently develop and publish comprehensive strategies for consulting smaller businesses, non-business stakeholders and other groups. It also drew attention to the same recommendation made by its predecessor committee in 2011, which does not appear to have been acted upon.
Clearly, it will take some time for HMRC and HMT to devise these innovative ways of reaching out to small businesses, or to non-business stakeholders and individual taxpayers. In the mean time, some balanced and objective evidence could be achieved by the sub-committee in future hearings by inviting a significant number of informed witnesses, from organisations to individuals, who are seriously concerned about tax avoidance from a society perspective and who would have no conflict of interest.
Additionally, it would probably be more effective if the committees of this House and those of the other place had budgets made available to them so that they could commission evidence from a wider variety of opinion on important issues such as tax policy. That would make a major contribution to accurately reflecting the views of society on controversial issues, unlike the present position, where we largely only hear from those with command of considerable financial resources, not from the rest of society.
Clearly, the problem for the Chancellor of the Exchequer—who has had considerable success in closing some of the loopholes in the law—is how to close all the gaps. This would require a complete revision of the law on taxation which currently provides endless loopholes that enable talented accountants and lawyers to devise lawful systems for companies and individuals to avoid paying the tax which these laws intend to levy. Unfortunately, the underresourced Inland Revenue is unable to confront on equal terms the talented and highly paid lawyers and accountants who devise these systems.
Pending a complete revision of the law, I draw attention to the budget suggestion made this year by the Association of Revenue and Customs, part of the First Division Association trade union representing senior staff at HMRC. Its suggestion was that if just £312 million a year were spent on additional senior staff in the department, then an extra £8 billion of tax revenue might be raised. If this is even half right, the question has to be why these funds are not being made available at this time, when tax revenue is insufficient to meet the needs of society as a whole.
The Government has rejected a key recommendation of the committee in relation to salaried members. I suspect that this will not make much difference to the amount of tax revenue that will be raised as a result of the changes in the law, as the professional advisers who so passionately oppose the changes in the law will now turn their talents to lawfully devising means to circumvent the provisions, and, with some knowledge of tax avoidance, I think they will probably succeed.
A final suggestion, which I fear may not be within the remit of the committee, is whether the army of highly paid tax lawyers and accountants—some of whom told the committee that the law was the problem—could not devote at least part of their time to developing proposals for policies for changes in the law to prevent avoidance of tax. They would thereby be using their talents and experience to benefit society as a whole, rather than mainly big business and the wealthy.
My Lords, this is a relatively brief but remarkably wide-ranging debate. The most important thing, however, in my judgment, is to pay tribute to my noble friend Lord MacGregor, because this is something of a valedictory occasion. He described himself as the retiring chairman of the Economic Affairs Committee of your Lordships’ House. While his manner is always attractively modest, I have never considered him to be particularly retiring, but he is certainly retired, and his loss will be greatly felt. I have worked with him one way or another for quite a long time. We began working together when we were both what I believe is now known as special advisers to the then Prime Minister, Sir Alec Douglas-Home, 50 years ago. Off and on we have worked together ever since. He was a brilliant assistant and help to me—and more than that—when he was Chief Secretary to the Treasury during my time as Chancellor of the Exchequer. I hope that I served him equally well as a member of the committee under his chairmanship. I certainly enjoyed it; he will be a very hard act to follow. Nobody could possibly better combine a grasp of practical economics with the art of chairmanship of a committee of a very diverse kind, none of whose members was particularly retiring.
My noble friend the Minister began by saying a little about the state of the economy and how it was in pretty good shape. I absolutely agree with him, and I have no wish to add much to that. Of course, not everything is perfect. I am sure that the noble Lord who will respond from the opposition Bench will point that out, but I shall pre-empt that by saying that I have a secret to tell him. In this world, nothing is ever perfect. But the fact is that the state of the economy in this country is not merely pretty good in the way that my noble friend described; it is good relatively. It is the best performing economy in the G7, comparing particularly well with the economies of the eurozone.
One other thing that my noble friend the Minister could have said but did not is that in sticking to his guns, my successor George Osborne—goodness knows how many there have been in between—has proved to be right when pretty well everybody else was wrong outside those who supported the Government in the first instance. The Opposition predicted that these policies would prove to be completely wrong and would doom the country to an ever deeper recession, but they have been proved completely wrong. So has the IMF, which reminds me of the 364 economists who wrote that letter to the Times in 1981, saying that if we pursued the policies that we were pursuing—very similar to the policies that the present Government have pursued—we would commit this country to a self-perpetuating downward spiral. From the moment they said it, the economy recovered and went on recovering. It was exactly the same with the IMF; when it eventually said, “We no longer have confidence in you and you must change your policies”, from that moment the recovery became unequivocal. Of course, some academic economists supported the Government, but the majority did not—particularly the clever-clever ones, like Professor Paul Krugman of the United States, who is always wrong about everything. It makes him a rather useful man to follow, because you know what to believe. He, too, said that if the policy was pursued any further the recession would never end.
So what do we need to do now that the Chancellor has been vindicated? What threats face the economy? I refer to the threats within our own control. There are always threats that are not in our control, because we are exposed to the world economy. If things go wrong in the eurozone, which they usually do, or in China or the United States, it is bound to have a considerable effect on us.
There are three things in our own control, which I should like to mention. The first is the danger of allowing interest rates to remain at this crisis level of 0.5%—that is the official rate—for too long. Linked with that is the equally artificial crisis measure of quantitative easing, or “underfunding”, as it was known in my day. As many in your Lordships’ House are aware, I have always favoured an independent central bank. I think it is vital that monetary policy should be its province. That does not mean that noble Lords cannot comment on it. I believe it is of the first importance that we move away from the artificially low level of interest rates, and the sooner the better. We should also begin to unwind quantitative easing and change underfunding to overfunding, to use the old-fashioned expression.
I wish the present Governor of the Bank of England well, as we all must. He is relatively new. He got himself into a jam in the first place with the fiasco of his forward guidance which he has had to abandon. He has still been talking about what is going to happen next—perhaps more than he should.
The extremely able Labour Member of Parliament, Pat McFadden, who sits on the House of Commons Treasury Committee, told the governor that he was behaving rather like an unreliable boyfriend, blowing hot and cold. This was rather too close to the mark for comfort. He has given the impression of floundering, which is very dangerous. He does not need to talk about the future level of interest rates. When there is a change, then he needs to explain why it has happened, but he did not need to talk in the way that he did. The Governor of the Bank of England should not appear to be floundering; he should convey authority. It is particularly important in the context of the financial markets, which are very sensitive to this sort of thing.
The second problem, which is to some extent within our control, is the level of bank lending. We still have a situation in which thoroughly sound SMEs have difficulty getting adequate borrowing from the banks on which they rely. Big companies do not rely on the banks; they have no problem in accessing the capital markets directly. Small and medium-sized enterprises are reliant on the banks and it is very difficult for even the soundest of small businesses to get adequate finance at a reasonable rate of interest.
More attention needs to be paid to the recommendations of the Parliamentary Commission on Banking Standards. A number are relevant to this, though it is too late for me to go into them. I had the honour of serving on that commission. We need to see all those recommendations in force, including particularly ones that the Government have accepted in principle. Some of them are implemented in the banking Act which my noble friend dealt with so well in this House. Others are not in that Act because the Government said that it was not necessary to legislate since the regulatory authorities already had the power. We want to see these things being done. We want the separation between high street, as it used to be called, and investment banking rigorously enforced. Almost every month some new scandal emerges in the banking sector. It is always on the investment banking side and it is detracting from the need for the high street banks to finance SMEs. That is their job and their function.
In this area of bad behaviour we need also to stress the importance of individual responsibility. This is very strongly pointed up in the various reports from the Parliamentary Commission on Banking Standards. It is no good just fining banks. In my experience, that does not have a big effect on banking behaviour. There is no such thing as a bank being responsible for bad behaviour; it is always individuals who are responsible. Individual responsibility needs to be nailed down. Okay, penalise the banks as well, but it is important that the individuals responsible are punished. If they say, as they have in the past, “We didn’t know about it”, that is no excuse. It is their job to know what is going on in their institutions.
The structure of remuneration needs to be addressed. It is fundamental and again has not yet been done by the banks. It is the job of the PRA to ensure it is. It is also the job of the PRA and the Bank of England to introduce the requirement for banks to have a second set of accounts, which I hope they will accept. IFRS is of dubious correctness for companies generally, but it is clearly inadequate for banks. What we recommend, the Government have accepted and it is now for the PRA and the Bank of England to implement is that there should be a second set of accounts that meets regulatory needs and purposes.
The third threat that faces us is a misguided energy policy. Business and industry in this country, and indeed households, are forced to pay quite excessive energy costs as a result of the energy policy we have in place. It is accepted that that is done in the name of combating climate change. However, even Dieter Helm, the leading energy economist in this country and who accepts fully the alarmist interpretation of climate change, which I believe to be mistaken, is a bitter critic of the energy policies we have in place. His latest writing on this, which I commend to the House, is called The Return of the CEGB, which states that we are going back to a complete étatist energy policy—in fact, a rather worse one than we had under the Labour Governments of the 1970s. He also points out that it will be touch and go this coming winter whether the capacity margin will be adequate, but by the following winter it is almost certain the lights will go out because the capacity margin will come to zero or below.
It is very important that there is a change in our energy policy in the short term, but also in the medium term. Government talks the right talk about developing our indigenous supplies of shale gas, which will be a great help to the British economy in the medium term—although obviously not in the short term—but it is just talk. The most recent report of the Economic Affairs Committee, which as I say is so brilliantly chaired by my noble friend Lord MacGregor, was on this very subject. We pointed out that the regulatory regime is in a mess in this country and inhibits the development of shale. That is not because it is too strict—we need a strict regulatory regime—but because it is too cumbersome, involves too many departments that do not co-ordinate and too many agencies. It takes far too long. We produced a unanimous report.
We have now had a reply from DECC, which is the most complacent reply I have ever seen from any government department, and that is saying something. It says that everything is all right and that none of our recommendations is necessary. The department seems not to be aware of the evidence, including the fact that even now not a single exploratory well has been drilled. We had evidence from Cuadrilla, the most prominent of the companies operating, that, even if there is no judicial review of planning, it takes three years from first preparing the environmental impact assessment to being able to drill. That is ludicrous compared with what has happened so successfully in the United States. The response completely ignores the evidence that we had from Chris Wright, the father of shale gas in the United States and a great Anglophile. He said that he would love to invest in this country but, on the present basis, there is no way that it would make sense for him to do that.
I say to the Minister that there is one easy thing that he could do straightaway. The present Government have Cabinet committees on a whole range of trivial matters—one would find it hard to believe—but there is no Cabinet committee on something as important as the extraction of our shale resources. Because of all the departments and agencies involved—the Environment Agency and lots of others—it is absolutely essential to have a Cabinet committee to bring everything together, and we recommended that such a committee should be chaired by the Chancellor of the Exchequer.
I have one final point to make on the report of the Economic Affairs Committee. In 2012—again, under the excellent chairmanship of my noble friend—we produced a report on the economics of development aid. Again, there was unanimous, all-party agreement that the antiquated 1970 aid target of 0.7% of GNP made no sense. Above all, this should never be made statutorily binding. It is palpably absurd to make any public expenditure statutorily binding, and there are no such pretensions with things such as national health spending. I do not think that the public would see any sense in that at all, and we made that absolutely clear.
We are now told that there is going to be a Private Member’s Bill—from the Liberal Democrats, I understand —starting in the other House but reaching us during this Parliament, to make the 0.7% target statutorily binding. If it ever reaches this House—it may not—I hope that we will examine it with exemplary thoroughness and not take too little time over a Bill which is clearly a major nonsense and for which, if it were to be passed, future generations would curse us.
My Lords, I am glad that the noble Lord, Lord Lawson, has just contradicted his statement in The House magazine that the Liberal Democrats have only two policies; apparently, he has just added a third.
Many people outside your Lordships’ House regard this House as being rather pickled in aspic and stuck in procedures that have applied for the past God knows how many centuries. However, since I came to this House in 1997, there have been two significant procedural alterations. First, as demonstrated by this debate, although we cannot amend it, we now debate the Finance Bill. I remember the pressure to do that. The noble Lord, Lord MacGregor, was very much part of that and I think that the noble Lord, Lord Saatchi, also used to press for that to happen. Secondly, since 2003, we have had a Finance Bill Sub-Committee, which examines selected topics of the Finance Bill. This year, as we are debating today, it examined the detailed measures affecting changes in tax law for partnerships.
As a practising lawyer for over 30 years, I am well aware of the significant role that professional partnerships have played, especially the lawyers and accountants, in the development of the financial services industry. In my professional lifetime, there have been two very significant events in this area. First, a lot of people forget that, until 1967, no partnership could contain more than 20 partners. Our Victorian forefathers took the view that if you wanted to have a business with more than that, the appropriate thing to do was to have a limited liability company. Those of us who have attempted to manage professional partnerships in later years will realise their wisdom because of the significant problems of managing a large professional organisation where the owners of the business are also the means of production. The problem for the law and accountancy firms was that they could not incorporate because their professional organisations did not allow them to have limited liability. It was not until the Companies Act 1967 that, under pressure from the big firms of lawyers and accounts, the limit of 20 partners was removed. That has resulted in the huge organisations that have subsequently been created in both those industries.
The second major change was the Limited Liability Partnerships Act 2000. The major driver for that was the desire for individual firms of accountants and lawyers to obtain a limited liability to protect themselves against large negligence claims. Nowadays, almost all major professional firms have become limited liability partnerships and the structures of those organisations are well established. It would be common ground that, where a limited liability partner is in reality a salaried employee, he or she should be treated as such for tax purposes. However, as the noble Lord’s committee has indicated, there has been significant pressure from the professions that a case law test should apply to the definition of the nature of partnership rather than a legislative one. As the noble Lord, and his report, indicated, there has been significant concern that the consultation set up by the department was inadequate because the proposals on which it was based were not the same as those set out in the Finance Bill. I strongly support the recommendation by the sub-committee to delay implementation of these proposals until 15 April, not only to make sure that the rules are correct but to give a longer opportunity for firms to make any structural changes needed to comply with them. For example, this would enable them to put in place adequate resources so that the capital requirement needed by partners could be met.
As this House now has the opportunity to discuss the Finance Bill, I, like the previous speaker, cannot miss the opportunity to make an overall comment on the last effective Finance Bill before the general election. The tax provisions in the Bill must be looked at in the context of the overall economic position and the policy to reduce the deficit and the public sector borrowing requirement. As the Institute for Fiscal Studies has pointed out, no Government raise taxes in the year before an election but, surprise, surprise, taxes tend to go up straight after one. As noble Lords will be aware, both coalition parties are committed to eliminate the budget deficit in 2017-18, although there is some political difference about to how to do it. The Tories seem to propose that it should be done primarily through cuts in expenditure. I think that the Lib Dem members of the coalition think that there should be a mix between expenditure cuts and tax increases. The problem, as the Institute for Fiscal Studies has certainly demonstrated, is that if all the savings were to come from departmental cuts in order to get back to a budget equilibrium in that year, the cuts would have to accelerate from 2.3% per annum to 3.7% per annum.
Whoever is in government after 2015, if the decision is maintained to protect the National Health Service, the schools budget and overseas aid, and if they are immune to cuts in real terms, it is estimated that other departments will have to deliver annual cuts of more than 20% per annum for the three years after the election. The Home Office, the Ministry of Justice, Defra and DBIS, let alone other departments, could not deliver the current level of services if they were compelled to make cuts on that scale. Whatever political party, or combination of political parties, forms the Government after the general election, it would be impossible to achieve that in practice.
What is likely to happen? It may be that growth in tax revenues as the economy picks up will, to some extent, come to the rescue of a future Chancellor, or it may be that a future Chancellor will contemplate a modest deficit if the debt burden is falling as a share of GDP and if the economy is continuing to grow. In any case, I am sure that all noble Lords will accept that if we are forced by then to accept a drastically smaller state, a proper debate will need to take place.
My Lords, this has been an extremely wide-ranging debate. Perhaps the Minister might like to take some comfort if I tell him that I support the Finance Bill that he has brought before the House and that I would like to see it passed. That would be an encouragement to him. I add my congratulations to my noble friend who has just finished his time as chairman of the Economic Affairs Select Committee. In fact, not many of us have been chairman of that committee because when it was set up the noble Lord, Lord Peston, was chairman. He was extremely good and when his term of office came to an end we changed the rules so that he could do another session as chairman. He might even have done a third term. He certainly did it for a very long time and was extremely good, so when I followed him as chairman some years ago, it was a bit of a revelation to have someone without the deep knowledge that he has. Certainly, my noble friend Lord MacGregor has tackled a number of very important issues very well. I remember my time particularly because the committee produced, as my noble friend Lord Lawson will remember, the first serious report on the economics of climate change. It was a unanimous report. As he was a very prominent member of the committee, we had a job to educate one or two members of some of the finer points but we got it through.
The Government need credit for their improved consultation but our report indicates that it is still not good enough. They are still not as good as I would like to see them in their consultation. Certainly, when plans change, they do not consult about the new plans. We are very impressed with the people who give us evidence. But I sometimes wonder whether, in practice, some of them know what they are saying or whether they are taking from their own members what they tell them to say. The noble Lord wanted experts in tax to come and tell us how to collect more tax, but I want these advisers to be very practical about telling us the unintended consequences of what the Government are doing. That is what I think these advisers are best at, or ought to be best at.
While the Government have made progress in all sorts of areas, the truth of the matter is that virtually every one of our taxes in this country will need some very serious looking at over the next few years—not necessarily to reduce the tax rates; that is not what concerns me. Virtually every tax has anomalies and difficulties. For example, with income tax, if you earn between £100,000 and £120,000 a year, your effective rate of tax is 60%, because as the personal allowances fall and you go up to the 45% rate, you end up paying 60% on your income. That is complete nonsense and it should not be so. The Government know this perfectly well and they should change it.
I will not go far into corporation tax because my noble friend Lord Lawson made a scathing attack on its inadequacies. However, if the Government think that they will get international agreement to deal with the problems of Starbucks and other such companies by negotiating on corporation tax in a wider world, they should forget it; that is not going to be the way. Corporation tax has passed its sell-by date as far as international business is concerned. We have to find some other way.
In the past I have talked about capital gains tax. Somebody in the Labour Party made a speech the other day to say that a rate of capital gains tax for long-term holders of investments should be considered. If that is not recognition that a substantial part of the capital gains tax that people pay is a tax on inflation, I do not know what is. Capital gains tax is very substantially —not completely, of course—a tax on inflation, and sooner or later we will have to face that.
I have had a go before in the House about stamp duty. It is fundamentally a bad tax. It is a tax on change. What we need in the country and in the world is for things to change and to improve. Of course, the Inland Revenue loves stamp duty because it is an easy tax to collect, but it is fundamentally a bad tax. The economic effects are being felt now. Things that would happen are not happening because stamp duty is too high. Lastly, I turn to inheritance tax. The Prime Minister has said in a speech that he thinks it needs to be looked at. Right across the board, you can see things that need to be done to bring our tax system up to proper modern standards.
The Minister quoted from a report about the greatly improved way in which tax policy is being achieved, but the formal review that was promised has not actually happened. I hope that it will happen. I am not saying that there are not some good things in what has been done, but I am not sure that it is as good as it might be. If the Government come to do their formal review, I would invite the people to look at one particular paragraph in our report. It is a quotation from the senior tax partner in a firm that I used to work for. I suspect that I left the firm long before he was born, so I do not know him, but he is very good. He is referring to the division of expertise between the Treasury and HMRC and whether that is right—whether the Treasury has sufficient experts. He says,
“if HMRC’s role was to ‘own’ the policies, ensuring that any proposals are rigorously evaluated by both the policy lead and those with practical experience of the operation of the tax system, then a number of the concerns of detail might be identified and addressed up front. HM Treasury would then have a clearer ‘scrutiny’ role, which would provide the ‘challenge function’ to the policies being developed”.
That is the way that policy arrangements between the Treasury and HMRC should develop rather than as it is at the moment, where there seems to be a division of expertise between the two. I am not sure it is as good as it might be. But I finish by saying that I am in favour of the Bill that the Minister has brought before the House.
My Lords, I first make the rather obvious point that the relative brevity of this important debate and the thinness of the Chamber reflect the lack of power of this House to amend Finance Bills. It strikes me that now that this House is essentially an appointed and not a hereditary House, that is out of date. Much though I pay credit to the noble Lord, Lord MacGregor, and his committee, it is time for the issue of this House being able properly to consider financial legislation in the same way as the other place to be looked at.
I pay my own credit to the term of office of the noble Lord, Lord MacGregor, and the excellent work that his committee has done. His committee is right in its recommendations with regard to delaying the new measures for LLPs. I agreed with everything that my noble friend Lord Lawson and the noble Lord, Lord Wakeham, had to say. With regard to the issue of the personal conduct of bankers, I was recently rereading Professor Plumb’s biography of Walpole and noted that at the time of the South Sea bubble all those involved, including the Prime Minister of the day, were promptly clapped up in the Tower and had all their estates removed. They were let out in due course, but our forebears seemed rather more effective at disciplining people who had acted improperly than we are today.
There are obviously good things in the Finance Bill, and it has been a popular Bill. In particular, I like the improved export credit finance arrangements. Many of our small and medium-sized companies have found it increasingly difficult to get export finance. I also like the transferable tax allowance and the tax allowance for fracking development. But the most radical measures have been the anti-tax avoidance measures and I want to say a little about those.
First, I find it rather sad that even in this House the language of this territory has become rather muddled and, dare I say, misleading. Let us be clear: you start off with evasion, which is criminal. That is simply breaking the law and not paying the tax that you should pay. Then there is avoidance. By definition, avoidance is within the law. If it were not, it would be evasion and without the law. But within avoidance there is a hierarchy. There are all sorts of government tax incentives such as ISAs, EIS, pension saving and the very tax incentives that are in this Finance Bill, which everyone would say were fine. They are actually there to avoid tax. The other side of the coin is that they constitute tax avoidance. I am sure that there are very few Members of this House who have not invested in ISAs or benefited from the tax incentives of pension savings. Everyone is a tax avoider in that sense.
Then we have what have been essentially government schemes, but which have been poorly drafted and have then been exploited and abused where fundamentally the issue is that the original law needs tightening up. Then, at the bottom of the heap, are what I view as unacceptable schemes—fabrications. Tax is wholly justified on those. It has always been my view that I knew one when I saw one and always felt that it was unwise for anyone to consider using one of those.
However, the measures in this Bill do not apply just to the latter—as I think the noble Lord, Lord Deighton, implied. They also apply to statutory government schemes brought in by the previous Government, where the law is somewhat unclear—in part because they were legislated in a hurry—and where there are disagreements between lawyers and HMRC, often as to what is within and without the measures that were enacted.
There is a better solution—and here I declare an interest as chair of the EIS Association. There were criticisms that EIS was at one stage subject to abuse, and the industry sat down with HMRC and went through what HMRC thought and what the industry thought. It ended up with a win-win solution whereby in future all EIS issues are subject to pre-clearance. That means that those raising the money, and the companies, know where they stand, the Revenue knows where it stands, and the whole issue is satisfactorily cleansed of criticism. This Finance Bill introduces a retrospective requirement, where the Revenue considers that a scheme has been abused, for the full amount of tax being saved to be deposited. This applies to three areas of government statutory incentives in particular: to film and sale schemes, known as Sections 42 and 48; to enterprise zones; and, where I think there is most injustice, to the Business Premises Renovation Allowance —BPRA—scheme. I might add that I have no investment in any of these areas and no direct first-hand knowledge, but a lot of perfectly responsible people have brought concerns to me, and they have been raised with the Treasury.
I start by saying that if the Treasury and HMRC considered that some schemes did not meet the statutory requirements, they should probably have disallowed them at the outset. Instead, for years things have been waiting to be sorted out and have not been addressed one way or the other.
My next point is that many people registered under the so-called DOTAS—Disclosure of Tax Avoidance Scheme—rules before there was any obligation to do so. They registered with an intention to be transparent. Ironically, it now ends up with those registering being punished and those not registering not being punished. It is a very strange anomaly in the approach that has been taken. What is happening is that HMRC is demanding money when they cannot necessarily show that the relevant investors have done something wrong.
The proposed legislation which authorises HMRC to remove funds from individuals’ bank accounts goes even further towards a somewhat overbearing state. It is such a complicated and difficult area that very few people actually know what is in the Finance Bill in this regard. However, the Treasury Select Committee and the Chartered Institute of Taxation have complained about unprecedented HMRC executive powers of decision, and of HMRC being put in the position of judge and jury, and they have complained that it creates a precedent in the UK tax system whereby the tax authorities are given power to demand payment without any right of appeal. The Treasury Select Committee also objected to the retrospective nature of the requirement for taxpayers to pay 100% up front within 90 days—potentially applying, I think, to some 65,000 cases. This puts fiscal policy on a slippery slope towards arbitrary taxation. Many individuals have been good-faith, legitimate BPRA investors over several years with no complaints from HMRC. They now find themselves on the wrong side, with notices to pay.
Moreover, the current position seems immediately to be shambolic, in that although HMRC has published an extensive list of all those to whom those arrangements are to apply, at the same time it appears to be saying—if anyone can get through to it on the telephone—that, no, they will not apply until negotiations have been completed.
There is an important issue, which is that there may be some situations, particularly with the BPRA, where most of the schemes are completely in compliance with the law but some are deemed not to be by HMRC, so a modest and partial amount of tax may have to be recovered. I am advised—I do not know whether it is true—that HMRC did not take full external legal advice on the measures before the Finance Bill was produced and that there is a significant possibility of judicial reviews where the courts will find against HMRC.
Finally, the accelerated payments rules are contrary to two fundamental legal principles. First, I believe that in this country we are always innocent until proven guilty; whereas what is happening here is that the standard basis of self-assessment is being overridden and taxpayers are being treated as guilty until they can prove their innocence. Secondly, there is no proper appeal mechanism. As I have already said, HMRC is judge and jury in these matters. Extraordinarily to my mind, two of the schemes are—I repeat—government, statutory schemes, state-aid approved and brought in under the previous Government.
The Treasury and HMRC have been unwilling to listen to the concerns of many people. I exhort the Treasury and HMRC to be extremely careful how they use the new powers; to endeavour to use them justly; and that HMRC itself is wholly transparent in the use of those powers.
My Lords, this has been a wide-ranging debate. I wish the noble Lord, Lord Flight, well in his campaign to wrest control of supply from the other place; he has to reverse more than a century of history and quite significant political obstacles before he achieves that objective.
We have had very interesting contributions. Of course, I particularly enjoyed that from the noble Lord, Lord Lawson. I appreciated him as a historian when he indicated to us that spads going on to become prominent parliamentarians is by no means a new phenomenon but went back more than half a century. As I shall show in a moment, he is also pretty good as a forecaster, because I shall be critical about the Budget. He is right on both counts.
First, I pay tribute to the noble Lord, Lord MacGregor, who introduced his report on limited liability companies and has played such a significant part in enriching our debates on Finance Bills through the reports of his committee. This was one of the more challenging reports in many ways, because it asked the Government to delay what they had clearly set their mind to do and indicated why consultation ought to be respected more clearly than appeared to be the case by both the Treasury and HMRC. My noble friend Lord Joffe put a particular perspective on that, suggesting that the committee itself could enhance its role in relationship to future Finance Bills by ensuring that it consulted in greater depth and produced reports that established contact with the smaller organisations in the country—even the very smallest. After all, this report was significantly about limited liability partnerships and SMEs. Of course, they are small. I gather that the danger for the committee was that it listened to representative organisations and a little less to those who are active on the ground. I am sure that my noble friend Lord Joffe has a significant point there. However, we all very much respect the work of the noble Lord, Lord MacGregor, and thank him for his contributions over the years. We know that he will still contribute significantly to our deliberations, even when he has retired from the chairmanship.
The noble Lord, Lord Wakeham, also introduced an interesting dimension to the debate. I identified three quite significant taxes which he wanted the Revenue to wipe out in terms of receipts. We are often accused on this side of the House of spending money too easily—quite wrongly, of course—but the noble Lord is in great danger of reducing the receipts of government in a dramatic way. Unless he comes out with some pretty clear proposals for where other tax revenues are going to emerge, I am quite sure that the Government will be giving fairly limited consideration to that at present.
The noble Lord, Lord Razzall, indicated that there will be choices before any Government after 2015. We know those choices to be harsh and challenging but he indicated that some amelioration might occur if the economy grew. My goodness: that is partly to recognise the Opposition’s case that the economy has not grown fast enough over these past few years, hence the level of privation. It is also not likely to grow very fast over the next few years, with the Government hell bent on following the principles which they have up until now.
I want to demonstrate that the Bill does of course show a long overdue growth in our somewhat fragile economy. There clearly is growth in the economy but in 2010, the Chancellor forecast that over this period, the economy would have grown by 9.2%. In fact it has grown by exactly half that, or 4.6%. Is it therefore any wonder that the Chancellor is short of some resources? I might add that if it is suggested that the economy now is doing well compared with other economies, first, it has risen from a very low base and, secondly, the United States and Germany have still both had growth rates over this period which have been far higher than those of the United Kingdom. There is not much to boast about there. It is also the case that the Chancellor is borrowing over this period £190 billion more than was planned and, as the Minister made quite explicit, the Chancellor is going to clear the deficit in 2018 when the proposition in 2010 was that it would be cleared by five years of coalition government. It is a pretty tawdry success that the Government are presenting to the House in this Bill.
Of course, we are all in this together, as has been emphasised on all sides. It is true that the top 1%, in order to be along with the rest and in it together, needed a tax cut which has been worth £3 billion while 7 million people who are at work are in poverty. That is the nature of it. I know that the Government constantly emphasise the employment figures but we are going to examine them more carefully. The nation knows the quality of the jobs that are being created. There are people who define themselves as self-employed, move out of the unemployment category and are living hand to mouth. That is why there is so much concern in the country about the constant use of food banks, and why on all sides there are indications that pressure upon ordinary people is very intense.
What is at the root of this? Quite clearly, it is that wages have continued to fall behind prices, and the Government know this to be so. Even this month, that has been confirmed for the most recent period. So people’s living standards have fallen over these five years. It may be that the Government think that because we now have a recovery—the slowest recovery for 100 years—people’s minds will wipe out the level of deprivation over these past years. They may not be right. If ordinary families are £974 worse off through tax and benefit changes than they were in 2010, these problems are deep.
Is the coalition completely unaware that in the past four years a massive stimulus has been given to the continuing creation of the unfair society, where wages stagnate and the resources devoted to the highest rewarded sections of our society continue to escalate? I know that from time to time it hits the headlines that some shareholders carry out a minor revolt against their chief executive but what continually goes on, day in and day out, is the widening of differentials between the pay of the super-rich—I am including people who work; I mean the chief executives of companies—and the average pay in their companies.
This growing inequality brings, as so much research now indicates, a clear problem of dissatisfaction in society, a sense of unfairness that may express itself in passive disillusion but may not be reflected at the ballot box in quite that way. The Government have opted for a low-wage, low-skill economy. That is what we have, with all these people working harder and longer for less, yet the Government pretend that they can congratulate themselves on the employment statistics that they represent. Surely the clearest indication of the Government’s limited success in this area is the decline in productivity and the problem of Britain being able to earn its way. Our balance of payments continually shows an increased deficit.
We are clear that this Budget and Finance Bill should have been based on much fairer principles than have been reflected in them. Hard-pressed families need help with their energy bills, which we have all seen rise rapidly and unfairly. Indeed, although the noble Lord, Lord Lawson, waxed strong on certain issues regarding energy, I do not think that he commented on whether he thought the public had been exploited by private monopolies in the way in which energy bills have gone up in recent years.
We will of course get rid of the dreadful bedroom tax. I am not sure that Members of this House are at all aware of the cost to families of very limited resources who are in real need and the misery that they suffer when they are told that they must give up the one room that they hold for a visitor or another member of the family, to give them some respite, particularly when it is concerned with the disabled, and the bedroom tax forces them into penury or having to move. We think that the ordinary earner also needs a fairer basic rate of taxation, and will attend to that.
Another area where we think there should have been much more emphasis in these past four years is housing stimulus. I understand the Minister’s role with regard to infrastructure and we applaud many of the initiatives taken in that area, but where is the support for the construction industry and the building of houses? Surely that has to be recognised as a priority, otherwise we are faced with a situation where the Government provide a token measure to help people to buy while house price inflation is rampant.
We believe that this Budget is a missed opportunity. The Government could have tried to get the people on their side, and they will pay the cost for not having done so.
My Lords, the phrase wide-ranging debate is often used in this House, but we can justifiably describe this debate as one of the widest-ranging. It ranged from the broadest macroeconomic issues and challenges to society to the very specific and detailed implications of the taxation of limited liability partnerships. I learnt a lot and I hope that noble Lords did too. Like many of the speakers, I pay tribute to my noble friend Lord MacGregor. I could not do it more eloquently than they have done, or with the same historical experience. It is clear that his contribution is enormously valued. I also thank the other members of the Economic Affairs Sub-Committee.
I shall try to address some of the questions, and given their breadth and technical depth, I am sure that noble Lords will grant me some poetic licence. I shall start with the noble Lord, Lord Davies, who summarised very well many of the contributions, so I shall not re-summarise them in exactly the same way as he did. As to our competing visions for an economic strategy, I tried very hard to determine the alternative economic strategy that was being offered. As I understood it, the objection to our economic strategy was that the economy has not grown quite fast enough. I do not think that that is an adequate basis for winning the hearts and minds of the British electorate in attempting to get back the keys to drive this particular car. I think that we also heard that one of the explanations for the strength of the recovery was the very low base from which we started. We all know why we had such a low base; I do not really need to revisit that. The work that this Government have done to stabilise the public finances and get the situation under control, so that we can focus on the key drivers of economic growth, is our major accomplishment. My noble friend Lord Lawson reminded me that I should have congratulated my boss the Chancellor of the Exchequer on sticking to his guns. I am not sure how many people would have done the same, given the extreme pressure of those early years of government when the depth of the recession really hit home.
I also have a very different view of the fairness behind this Budget and Finance Bill. The basis of the Bill is very clear. We are doing everything that we can to make this an extraordinarily attractive environment for businesses to grow, to create jobs and to improve their productivity—the very things that create value and drive the economy forward. The concept which I think the noble Lord opposite is not addressing is how you get this economy going. The Government are creating an environment in which businesses are growing and new businesses are starting up. Businesses from around the world want to come here. I have a long queue of investors outside my office every day from all over the world who want to come to this country because they think that it is the best place in the world to invest their capital. That is a result of the environment that this Government are creating.
The noble Lord focused hugely on fairness. This Finance Bill is all about fairness. There is a huge focus on making sure that people pay their taxes, and that focus is inevitably on people right at the top of the income levels. The core income tax measure is the progressive increase of the personal allowance, and there is no fairer way to benefit people at the bottom of the income chain. So what is driving this Budget could not be more focused on those combined goals of making sure that things are done fairly, but also of making sure that we have some growth, so that we have some real proceeds from that growth to distribute across the population.
I take on board some of the suggestions about things that need to be looked at and done better. I certainly agree that responsibility around executive pay is a big issue, and my personal view is that boards need to do their job as effectively as possible. It is certainly right to say that improving productivity will be at the heart of driving forward improvements in real disposable household income, which is what we are all looking for. The OBR tells us that, given what we have done with inflation and growth, we will see those lines cross this year. It has been a long hard path, but we are getting there. I also agree that a compelling strategy for improving the supply of homes is vital for this country. So although I disagree on many of the core approaches, there are two or three things in there that any new Government should redouble their efforts to attend to.
My noble friend Lord MacGregor asked absolutely the right question about the work of this House on the Finance Bill: does it add value? All I can say is that, having spent the weekend reading the report, and having listened to this debate, I am thinking a lot harder about the real issues and how we can do our job more effectively—whether that is about how the Treasury and HMRC work together, how we train our people, how we consult, or, in particular, how focused we are on improving tax simplification and administration. The quality of the work that my noble friend has overseen makes it easy to answer yes to his question.
I am in a rather strange hypothetical position, because normally when we are discussing such issues we are having a debate after which we could amend things, but I am now defending decisions that have already been taken, so no change will result from this debate. The fundamental difference between us is whether the consultation produced such different results that we needed more time to implement the system. When I looked into this with my officials, we were not in any way persuaded that spending another 12 months working through it would have resulted in a different outcome, and we were extremely keen to ensure that we could put this legislation into practice so that we could collect the money that needed to be paid. Indeed, as I have said before, many of the partnerships that had to change as a result of the measure had already made those changes. It may have been a pragmatic decision, but on balance we feel that we were justified in getting on with this.
The noble Lord, Lord Razzall, made the point about following case law rather than statutory provisions. Again, we felt that in order to administer the rules effectively, we needed the certainty that clear tests apply. The noble Lord, Lord Joffe, made some interesting observations about how much we should invest in HMRC in order to increase the yield. Since 2010 we have invested about another £1 billion in numbers of people and systems to help us collect revenue, so the management approach of evaluating the investment we need to make to enhance the yield is indeed a way in which we think about that challenge.
It is always fascinating to learn about the current perspective of my noble friend Lord Lawson on the economy. I am interested in those things that we can control, and therefore can do something about, but I shall not comment on monetary policy. It is dangerous for a Treasury Minister to do that, given the independence of the Bank of England. It is always good to revisit our discussion on banking reform. I agree that following through those things that the Parliamentary Commission on Banking Standards recommended is absolutely right. In particular, getting SME lending going is a key focus of this Government. On energy policy, to bring my own experience to bear, it is hard to think of another area where I personally spend more time in trying to think things through and make things work which have real economy implications than energy policy. I will certainly take on board with respect to shale and getting that whole industry moving whether the way the Government are looking at that is sufficiently focused and driven. At the moment, it is managed through the growth implementation committee, which the Chancellor chairs, but it is of course one of a wide number of topics. I have discussed with industry participants how we should follow through on that.
The noble Lord, Lord Razzall, talked about the challenges of keeping our focus on managing the deficit down. I acknowledge the simple point that our work is by no means done. We are still confronted by the same issues around priorities, and the same questions around having the right debate to ensure that we understand the implications of the choices that we will continue to be forced to make.
I agree with a specific point made by my noble friend Lord Wakeham and a number of noble Lords. The best role for advisers is to help us to understand and identify the unintended consequences of the changes and proposals we put in place. That is an extraordinarily valuable role. On rationalising, modernising and simplifying our existing portfolio of taxes, obviously to get the balance right between continuing to meet our tax yield objectives and making them operate more effectively is always something that has to be worked through. Personally, I am a big advocate of the simplest possible portfolio of taxation so that we do not have all the kinds of issues we talked about today—I will move on to address the comments of my noble friend Lord Flight later—which are in the main created by complexity and the perverse incentives you end up with when you fiddle around with a tax regime over many years.
My noble friend Lord Wakeham also referred to the formal review between HMT and HMRC that the committee recommended. I made those comments in my opening remarks, but it is kept continually under review. The independent Tax Professionals Forum also scrutinised the process. The Office of Tax Simplification looked at that and commented positively on how the two worked together. Therefore I do not by any means want to suggest complacency, but that is an ongoing process. I accept absolutely that everything we do could be done better. There is no situation in life where consultation cannot ever be improved. It is like communication—you can never have enough of it. However, we are well seized of the importance of that.
My noble friend Lord Flight, as ever, took on the difficult task of making the case for those who have participated in schemes to manage their tax payments. I admire him for that. He is certainly right that we need to be careful about the language and that there are tiers of how we should regard just how heinous the abuse or avoidance is. I could not agree more that we do not want to be in a position where we are creating retrospective acts, where we are left with anomalies which make it very hard for people to work out what to do. As regards taking money out of people’s bank accounts, if you look at the process that will be gone through by HMRC before that is done—I will not read out the details—we should take some comfort from that.
My final point on tax avoidance is my own personal view. I have always been a strong advocate in the Chancellor’s ear to pursue these changes quite aggressively. It is important that everyone who could potentially avail themselves of these schemes knows that they are being treated fairly. If you were in a position personally to be able to take advantage of them, you would not want to see other people in an equivalent position, who are prepared to be more aggressive, just paying less tax. There is a real fairness issue here. I think we have got the slant of what we are doing right—a whole regime of competitive taxes where we are rigorous in expecting people to adhere to them and there is no wriggle room for people with a more aggressive frame of mind to play the system. I like the way we are heading, though I know it creates some challenges.
In conclusion, I think we have taken some difficult decisions and resolute action to tackle the enormous debts we inherited. We are all agreed that the job is not done. The whole point of this Bill is to put us back on the right path. We are supporting enterprise, helping families and ensuring everybody pays their fair share of tax. I commend the Bill to the House. I beg to move.
Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time, and passed.