House of Lords
Tuesday, 10 November 2015.
Prayers—read by the Lord Bishop of Southwark.
Introduction: Lord Barker of Battle
The right honourable Gregory Leonard George Barker, having been created Baron Barker of Battle, of Battle in the County of East Sussex, was introduced and took the oath, supported by Lord Browne of Madingley and Lord Black of Brentwood, and signed an undertaking to abide by the Code of Conduct.
Introduction: Baroness Burt of Solihull
Lorely Jane Burt, having been created Baroness Burt of Solihull, of Solihull in the County of West Midlands, was introduced and made the solemn affirmation, supported by Lord Dholakia and Baroness Kramer, and signed an undertaking to abide by the Code of Conduct.
Retirement of a Member: Lord Chalfont
My Lords, I should like to notify the House of the retirement, with effect from today, of the noble Lord, Lord Chalfont, pursuant to Section 1 of the House of Lords Reform Act 2014. On behalf of the House, I should like to thank the noble Lord for his much-valued service to the House.
My Lords, the work of local action groups, many established with Defra’s support, has reduced or eradicated Japanese knotweed in several places across England. Community protection notices, available since last year, enable local authorities to require landowners to deal with any nuisance caused by the plant. We continue to explore biocontrol options through the controlled release of a psyllid insect and expect to receive further reports of its progress in December.
My Lords, my noble friend has certainly been tenacious and persistent in dealing with a real thug of a plant. We have had this plant since 1825, when, with good will, it arrived at horticultural gardens; 20 years later it arrived at Kew and was sent up to Edinburgh. I am afraid that we have the consequences of not understanding, as we do now with hindsight, that we should never have allowed this plant to come to these islands.
My Lords, the noble Lord hits on something as regards where it is seen to be a local priority. I should say that this is about local authorities in partnership with householders and landowners in a real community effort. I acknowledge that in Bristol, for instance, 95% of Japanese knotweed surveyed is under management. Cornwall County Council is a leader in tackling Japanese knotweed and is committed to controlling the spread of the plant. These are examples of how, with local action groups, we can make a real difference.
My Lords, I have not been asking these questions as long as the noble Baroness because I have not been here quite as long as her, but if she has been tenacious and persistent, as the Minister says, she is unfortunately not quite as tenacious and persistent—and certainly not as aggressive—as this dreadful weed.
The Minister rightly says that the successful areas now are in local action and traditional means of getting rid of the plant, and that waiting for the famous psyllid, the insect which is going to do the trick, is simply not going to be sufficient. As the noble Lord just asked, why are the Government not making much more effort to spread the good practice, such as that in Pendle, where I live, which is doing a very good job indeed of getting rid of it?
My Lords, I thank the noble Lord, because it is very important that we raise awareness of this plant: awareness-raising is a key element of the strategy on invasive non-native species. There have been many initiatives, such as the Be Plant Wise and Check, Clean, Dry campaigns launched by Defra. It is very important that we all work together on this, because the examples of where it is working and we are eradicating the plant are of huge benefit to local communities.
My Lords, there are 74 local action groups in Great Britain. They range from the south-west to the north-west, Nottingham, Devon, Yorkshire and the Peak District. I have already mentioned Bristol and Cornwall. A Norfolk group has been very successful in saving a great special area of conservation. To answer the noble Lord, these groups are spread across the country. I hope that the success of all the local action groups will bear fruit, with others nearby thinking that this is a good thing to do as well.
My Lords, five years ago, when I was happy enough to be a Minister in Defra, the scientific community was convinced that we were about to take an initiative which could well conquer Japanese knotweed with the introduction of a psyllid which consumes it. It was regarded that that would be a national solution to a whole range of very costly problems we have with Japanese knotweed, not least the enormous cost to our rail system of seeking to keep it clear of the weed. What happened to that development, and why are the Government talking now only about local initiatives, not a national one?
My Lords, I specifically raised in my first Answer the biocontrol scheme that we are progressing, and we are looking at the results. It was never intended that we would be able to eradicate it. What we were hoping was that this would reduce the invasive capacity, but we are looking at the psyllid experiments and assessing them. There has been a further release in river courses because that is an area where we think it may adapt best, but we are waiting for further results on the matter.
Does the Minister think that perhaps the assiduity of following this up for 26 years has had an impact? Does he advise us to do this with other departments or does he think that some of them are quite incorrigible and will never give way?
If I may revert to plants, which is my area of responsibility, this issue is really important. In asking this Question my noble friend probably provided the catalyst for the formation of 74 local action groups. This is about people who care about their communities and want to rid themselves of what—as I have already said—is a very invasive thug of a plant that does no good to our natural habitat.
My Lords, I am sure that the noble Lord will agree that Japanese knotweed has a kind of mythic status as an invasive species. It is all we ever really talk about, but there are many others, and he has already touched upon the fact that there are other invasive species—both plant and animal—about which we have to be concerned. Could he tell the House what is coming down the track after Japanese knotweed to which we should be paying special attention?
The noble Baroness raises something which certainly in Defra we are considering all the time. In fact, I leave for the monthly biosecurity meeting after Question Time. We are leading Europe on many of these issues of biosecurity. There are around 1,000 species around the world that we are concerned about, and we are seeking to ensure that they do not reach our shores, be they plants or animals. We are very much on to this.
Agriculture: Basic Farm Payment
My Lords, I declare my farming interests as set out in the register. The Rural Payments Agency has been working hard and is on track to make the majority of payments in December, and the vast majority by the end of January. Our focus has always been to pay fully, accurately and as soon as possible within the payment window that runs between December and June.
My Lords, I am grateful to the noble Lord for that rather limited Answer. He will recognise that the majority can be 50.01%, and that is not remotely satisfactory for most farmers at a time when they are very hard pressed. The European Commission—our masters in Brussels—have graciously permitted member states to make advance payments to their farmers ahead of the basic payment scheme full payments. Could he explain to the House why Defra has not taken up this option, at a time when British farmers have their backs to the wall?
My Lords, there are a few countries—and I mean a few countries—that are proposing to pay part-payments. What we wish to do is to get as many payments out in full as soon as possible. I will of course undertake to let the noble Lord know as soon as I am in a position to give further details, but the key issue is that we are in the late stages of the final processing point, which is about verification and validation. Once that is done, I will be in a much better position to talk more precisely about percentages. But we understand, and we are working to ensure that farmers get payments as soon as possible.
My Lords, I declare my farming interest. I am sure some people here would accept that I have been raising the question of farm prices even longer than the noble Baroness, Lady Sharples, has been raising that of the horrible knotweed disease we have been talking about. Does the Minister agree that there is a major problem not just for farmers but for the banks and various financial authorities that have been serving farmers over a period of years and have been very accommodating, particularly during this difficult year, which is far worse than the year before? Therefore, it is a matter of urgency that payment which is due be made as soon as possible.
My Lords, I entirely agree. That is why, for instance, the RPA is looking to make payments to dairy farmers fund payment in the first week of December. This is clearly a very difficult time for farmers. We appreciate that, which is why there are 800 people working seven days a week at the RPA to ensure we get payments out as soon as we can.
My Lords, given that our gross payment to Brussels in 2014 was some £20 billion and that our net contribution rose to £11.3 billion, is there any reason why an independent British Government would not be able to pay this money to farmers directly—and rather more efficiently?
My Lords, the reputation of the Rural Payments Agency, which pays the dairy sector in all four parts of the United Kingdom but is responsible for the English basic payments, has been transformed. If you ask many farmers, they will say—as I have; I am a farmer—that their experience with the RPA now is very different from five or 10 years ago, so it has definitely been enhanced.
My Lords, I am grateful to the Minister for referring to the way the Rural Payments Agency has turned things round. Despite its sterling work and the assurances of the Minister, there is no doubt that a number of farmers will experience delays in payments under the basic payment scheme. In light of that, what are Her Majesty’s Government doing to put in place contingency plans to help those farmers who could go out of business simply because of cash-flow problems if payments do not come through on time?
My Lords, that is precisely the issue raised by my noble friend Lord Plumb. It is very important that the continuing good relations between banks and farmers remain as strong as possible. Clearly, one thing we need to do is give the British farming sector a much enhanced future. Indeed, that is why this week the Secretary of State has with her eight dairy businesses and 80 UK farm businesses on her visit to China. This is about a growing market. Obviously, we face a short-term problem but the prospects for British produce are very strong. However, I am very conscious of what the right reverend Prelate has said.
My Lords, I do not know what cuts, if any, there will be in the RPA. Obviously, these matters are way above my station. Clearly, we want to enhance this. We have had a very complicated new basic payment system—far more complex than we would have liked. That is why we want greater simplification next year, and why the Secretary of State has been in touch with Commissioner Hogan. We will continue with an online and a paper application for 2016, which I think will work best for farmers.
My Lords, what plans do the Government have to review the transfer rate from Pillar 1 of the basic farm payments to the rural development programme, as the coalition Government committed to do? That would ensure that the maximum environmental and social benefits were gained from this public money that farmers currently receive.
My Lords, I declare my interest as a dairy farmer in receipt of payments. On the related matter of market and public support, does the Minister agree that it is provocatively dangerous for the farmer-funded Agriculture and Horticulture Development Board to state that commodity prices are not market related? Do the Government have any plans to require the AHDB to monitor and audit retailers’ honesty boxes of public commodity donations to farmers as a way to get fair commodity payments to farmers—or would that be the responsibility of the Groceries Code Adjudicator?
My Lords, I will write to the noble Lord about some of the more technical details, but we very much welcome the fact that some supermarkets are paying a premium. It is important there is transparency, and we want that sum to go to the farmers.
My Lords, the Government’s public consultation about a potential resettlement of the British Indian Ocean Territory concluded on 27 October. We are now examining the results and hope to take a decision on the way ahead soon. This 12-week consultation drew views from around 1,200 Chagossians and continues the conversation with Chagossian communities as part of our review of resettlement policy, which started in 2012. That included an independent feasibility study, which concluded at the end of January 2015.
My Lords, this week is the 50th anniversary of the decision to provide a United States base in Diego Garcia, on British territory and in the Indian Ocean, which then led to the decision to deport 1,500 Chagossians, most of whom were indigenous inhabitants. As the KPMG report, commissioned by the Foreign and Commonwealth Office, has this year concluded that there is no reason why resettlement should not take place, will the Government make next year’s renewal of the agreement between the United States and the United Kingdom conditional on a commitment by both parties to facilitate and support resettlement of the Chagossians, thus rectifying a grave human rights injustice?
My Lords, Her Majesty’s Government regret the way the Chagossians were removed from the British Indian Ocean Territory in the late 1960s and early 1970s. The Government, along with successive Governments before them, have said that what happened was clearly wrong. This is why substantial compensation was rightly paid. The noble Lord mentioned the renewal of the agreement with the American military for occupation of Diego Garcia and we will, no doubt, take these matters into account.
My Lords, we are getting out of our habit here. I suggest we go to the Labour Benches first and then to the Lib Dem Benches.
My Lords, is the Minister aware that, when I wrote to my noble friend Lady Ashton, who was then at the European Commission, to ask whether the United Kingdom was eligible for European Union funding for resettlement, the answer was that we certainly were? Does the Minister agree that the cost of these settlements should not fall exclusively on the British taxpayer and that, apart from the European Union, the United States, international organisations and the private sector should be approached for funding and investment?
My Lords, we will consider all these factors once the consultation is finished. As I said earlier, the feasibility study concluded on schedule. As there were still uncertainties about how any resettlement could work, and potential costs, we went into the consultation system. That is also why we are examining the results of the consultation very carefully.
My Lords, I draw attention to the dedication of the all-party group on this issue over many years. Whether or not there will be an opportunity for this to be debated at some stage will depend on whether noble Lords try to get parliamentary time for it. Once the analysis is made, the Government will make an announcement. I will write to the noble Lord about whether it will be published.
My Lords, the Government now appear to accept that this was one of the more disgraceful episodes of our colonial history. Does the Minister also accept that the Chagossians—the victims—will find it difficult after exile in Mauritius, in the Seychelles and in Crawley to return to life on those remote islands? What is being done about the provision of jobs? Is the US, for example, prepared to offer jobs on their base in Diego Garcia to those Chagossians who choose to return?
The noble Lord makes a very good point, particularly relating to the Chagossian communities in Crawley and Manchester. Of course, they are going to want a certain lifestyle if they return to those islands. I know that the KPMG report looked at the numbers that could be employed by the authorities on Diego Garcia, but I can tell the House that, until we make a final examination of the results of this consultation, nothing can be agreed.
My Lords, as a member of the All-Party Group on the Chagos Islands, I ask the Minister to be more precise about the word “soon”. This is a word that has been used by successive Governments for the past eight years, to my certain knowledge. Frankly, we would like some more precision.
My Lords, there have been 16 years of litigation, which has been very costly to the taxpayer and to Britain’s reputation for human rights. Will the Government undertake to abide by the forthcoming ruling of the UK Supreme Court concerning the right of abode and the marine protected area?
My Lords, Her Majesty’s Government’s first priority is the safety and security of British citizens. We keep aviation security arrangements under close review and we will act where we need to, as we have done in the case of flights from Sharm el-Sheikh. Of course, the noble Lord will appreciate that we do not comment in detail on security arrangements.
I declare my interests in security, as recorded in the register. I thank the Minister for his Answer, but in 2009 we were very concerned about security at foreign airports, and I put in hand work with the OSCT and the Department for Transport to identify all the airports at risk and what we could do to sort things out. We may be getting safer here, but there is no point to that if people are killed on their way back into the country. Can the Minister tell us whether we have that list? Have we put in hand the work to correct the problems in those airports? Are the Government fully involved with the 30 foreign groups that are coming to the transport security exhibition at the beginning of December so that they can be part of it, including, for example, the Egyptians who are coming en masse?
I assure the noble Lord—indeed, the whole House—that we continue to identify and work with airports across the world in not just minimising but ensuring that we seek to eradicate any security and safety risks for all passengers. Our first priority, however, is UK citizens, and we continue to work extensively in that regard; we did so even prior to this incident. On the noble Lord’s second point, of course we work with many Governments across the board, and in this case with the Egyptians. The Prime Minister, in his meeting with President Sisi last week, again indicated that Britain will offer full co-operation in whatever respect it can.
Again, as I am sure my noble friend will appreciate, I shall not go into specific names of airports. The appropriate response is that we are looking at security risks across the board, and it would be right and responsible to do so, to ensure, as I said, that we seek to eradicate any risk to safety. In the action that we took on Sharm el-Sheikh, the British Government’s view is clear. If we perceive that there is a risk to the safety and security of UK citizens, we will act—and we have done so.
I agree with the noble Lord, but I add that it is appropriate that we look at increasing security when necessary on all passengers. Underlying the points that he has raised, there is also the importance ensuring that those who carry out the screening of passengers and baggage are fully and effectively trained.
My Lords, can the Minister explain or give us information on the specific situation at Sharm el-Sheikh Airport? Much anecdotal evidence is now emerging of long-standing security concerns there. Can the Minister explain whether the British Government have been involved at this airport previously, or whether their involvement is occurring only now?
I think I have already answered the question. The British Government have been, continue to be and will in future be engaged with countries and airports across the world to ensure that we address safety concerns. The noble Baroness asked about the situation on the ground in Sharm el-Sheikh, but I am sure she has also been following the fact that the British Government, working together with airlines—I commend their actions in this respect—has already resulted in more than 7,700 UK citizens returning to the UK over the last few days. We continue to work with the Egyptian authorities on the ground and with the airlines, so that all other remaining passengers who wish to return are returned to the UK as soon as possible.
The Government said last Thursday in this House:
“We have continuing arrangements with authorities across the world to review aviation security arrangements in airports regularly to ensure that they are meeting required standards”.—[Official Report, 5/11/2015; col. 1805.]
In the light of the last question, when was the last review of the airport at Sharm el-Sheikh, and did it reveal that the security arrangements met the required standards? If it did so, what confidence can we have in these reviews, in the light of the recent apparent outrage and the Government’s no doubt justified decision to suspend UK-operated flights to and from Sharm el-Sheikh? Finally, will future reviews of airports across the world simply look at trying to ensure that existing security arrangements work properly, or will they look at introducing new features to enhance security?
Again, I shall not go into specific details of security arrangements, but the Government, as I am sure that the noble Lord is aware— and as the whole House is aware—continue to work on the ground with the respective sovereign authorities and airlines to ensure that we not only minimise but eradicate the risk and ensure the safety and security of all passengers. We will continue to do so.
I think my noble friend is alluding to the issue of passenger profiling. Some operators—indeed, the American airlines—engage in passenger profiling. That is certainly something that has been reviewed and I am sure, in light of the recent incident, we are looking at all measures to ensure that we have the most effective procedures on the ground, wherever we are in the world, to ensure the safety and security of all passengers.
The Bill was brought from the Commons, read a first time and ordered to be printed.
Motion to Agree
My Lords, I have the pleasure of presenting the report of the Liaison Committee. In recent times, the proposal that the House should establish an international relations committee has received a greater degree of attention. The issue has been raised in the Chamber on a number of occasions and there have been written representations from many Members. Therefore the Liaison Committee has been considering the matter in some detail. We appreciate that there is a range of views across the House on this question. The Motion before the House invites your Lordships to agree with the Liaison Committee’s recommendation to establish an international relations committee from the start of the next Session, together with a number of safeguards relating to membership and financial discipline.
As Members will know, the House has recently established ad hoc committees to consider a particular subject matter for one Session only, with some follow-up by the Liaison Committee. This enables a wide range of colleagues to participate in committee work. However, given the conflicts and tensions in the world and the interest of this House in international affairs, several Members have pressed for your Lordships’ House to have an international relations committee. If the House agrees to the proposition, it will be important to draw on a range of experience, and therefore the report invites the groups to bear this in mind when they make membership recommendations to the Committee of Selection.
We heard concerns, too, about the likely cost of an international relations committee, particularly in relation to travel. In broad terms the average annual cost of a Select Committee is about £225,000. Our report invites the House Committee, in drawing up the House financial plan, to consider whether any additional budget required by the Committee Office for the new committee should be offset by savings in other areas. For clarification, this does not mean that other committees will be affected in the next Session.
In addition, our report recommends a full review of investigative committee activity in the Session 2017-18. This will enable a timely evaluation of whether the new committee is working well, whether the safeguards are effective and how it is interacting with the European Union External Affairs Sub-Committee—Sub-Committee C—as well as of the overall shape of Select Committee activity. Although the Liaison Committee considers committee work at the end of each Session, there has not been a comprehensive review of the committee structure of the House since the Jellicoe committee reported in 1992. Since then there has been a considerable growth in the number of committees. Twenty-five years after the Jellicoe report, the time seems right to look again at our committee structure.
There is never a perfect solution to issues such as this, but the committee agreed that it needed to make a recommendation to the House for a decision. I hope that your Lordships will agree that our recommendation, including the safeguards, strikes an appropriate balance between the views expressed to us. I beg to move.
My Lords, although I welcome the new committee, may I ask the noble Lord to say a little more about why we need it, in addition to the External Affairs Sub-Committee of our European Union Committee? May I also once again ask the noble Lord whether we really need seven European Union sub-committees, especially when Brussels pays so little attention—indeed, virtually no attention—to their deliberations? Would we not do much better to distribute most of the cost of our seven European sub-committees over a number of ad hoc committees, for which your Lordships are so peculiarly knowledgeable and well suited, in the national interest?
My Lords, as a Member of the Liaison Committee at the present time, I endorse the carefully chosen and wise words of the Chairman of Committees and I join him in commending this report. There is, unquestionably, wide knowledge and expertise in the field of international relations in your Lordships’ House. There is of course, too, no shortage of deep knowledge and expertise in other major topics. The Chairman of Committee’s review of all sessional Select Committees in 2017 will give the House the opportunity to consider this wider field and to reach judgments, in the light of available resources, on how best to embrace the expertise available on a variety of topics.
As a previous member of the Liaison Committee during my time as Convenor from 1999 to 2004, I remember similar and protracted pressures on the Liaison Committee then to set up a variety of committees. Voices were raised in favour of sessional committees to consider a variety of topics. In particular, I recall one of those related to the media and creative industries, and this subsequently emerged as the Communications Committee. So the Liaison Committee has in-depth experience of handling such problems. As now, there were many noble Lords with great knowledge and expertise in a variety of other topics, and the Liaison Committee had to reach difficult judgments about both the topics and the resources available for the work.
The then committee had been reluctant to endorse additional Select Committee work on two practical grounds. First, there was no additional funding nor expert staff available to support a full-scale committee. This was ultimately resolved to set up the Communications Committee. Secondly—this is an important point—the number of active Peers who were available to fill the whole range of Select and other committees had to be considered. It was much less than it is now.
Indeed, as Convenor, with fewer available Cross-Benchers than now, and with fewer as active as those who sit following selection by the House of Lords Appointments Commission, I found that it could be quite difficult to find the appropriate numbers and skills to fill the Cross-Bench membership quotas after taking account of rotational requirements. Today, there are more Cross-Benchers ever more fully engaged in the many aspects of the work of the House, and there are many more noble Lords overall from whom to draw committee membership. So I feel that those two practical issues are now properly dealt with.
As an aside, were the membership of your Lordships’ House to be significantly reduced at some future date, this could impact on the number and range of topics that could be dealt with by sessional committees. However, that is a bridge yet to be crossed. I join the Chairman of Committees in commending this report to the House.
My Lords, I add to the good wishes which have already been expressed to the noble Lord for presenting the committee’s report to us. I speak as one who spent many years on Sub-Committee C dealing with foreign affairs and defence. I was chairman of that committee for a number of years and remember very well the frustrations we had in not being able to deal with crucial areas of international affairs around the world, including the issue of the Commonwealth, in which my noble friend Lord Howell of Guildford has been involved and enthusiastic about for many years. We were precluded from looking into the problems of the Far East, India, China and South America, and I am enormously pleased that this proposal has been put before the House today.
My Lords, the Chairman of Committees referred to the Jellicoe review of some 25 years ago. I have to ask a question as an opponent. I have been an opponent as a member of the Liaison Committee, which I recently came off along with a few others. I notice that the mood in the committee seems to have changed in favour of this proposal following a lot of pressure and a successful campaign organised by the noble Lord, Lord Howell of Guildford, I suspect. However, if there is going to be a review again in 2017-18, why could not this proposal be deferred until that review took place? It would have taken place in the context of a redistribution of resources throughout the whole of the Select Committee structure in the House and would have led to a far more rational and reasonable discussion about what is to take place.
Secondly, I refer to paragraph 11 of the report, which recommends,
“an agreement with the EU Committee on the boundaries between the EU Committee’s activities, particularly those of its Sub-Committee on External Affairs, and the International Relations Committee”.
That is not where the conflict is going to be; it will be with the Foreign Affairs Committee in the House of Commons. Indeed, there will be real conflict, because we have some very distinguished former members of previous Governments in this House, including many members of former Cabinets and former Permanent Secretaries, former experts in foreign affairs, representatives of the United Nations and other great, important and significant people, who will dominate this committee.
When delegations from abroad come to the United Kingdom and are deciding on whom they are going to meet and who they want to treat as more significant in the discussion taking place, it will be the Lords committee that commands the day, because it includes all these formerly very eminent people who, in my view, will make it very difficult for the House of Commons Foreign Affairs Committee to operate. There will be Members of the House who will say, “Yes, but we are the House and we are entitled to do this”. But I still believe that we are undermining the credibility of the Foreign Affairs Committee in the House of Commons—I am wearing a Commons hat as I served there as a former Member.
We now come to the question of the financing of this arrangement. In paragraph 9, the report states:
“We invite the House Committee, in drawing up the House’s financial plan, to consider whether any additional budget required by the Committee Office for this purpose should be offset by savings in other areas”.
The members of the House Committee know exactly what will happen: of course it will be funded out of the savings in other areas. The House Committee will be under pressure to increase its general budget to ensure that moneys for travel by this committee are expended, and they will be made available. This is a two-stage process. All we are doing today is establishing the principles of the committee. The next stage will be the resources stage, where the money is allocated.
Then there is the question of the co-option of members, referred to in chapter 11.18 of the Companion. When the discussions were taking place about the role of this committee, its powers and its restrictions, the noble Lord used the phrase “constraints on the committee”. Were there any discussions about the possibility of ad hoc appointees to this new international relations committee? It is important that we know exactly what the position is there.
I turn finally to the question of the ad hocs. I was on the Procedure Committee and the Liaison Committee when we were dealing with the whole question of the appointment and the creation of the ad hoc structures. It was a very interesting debate because the view was expressed generally across the committee that the ad hocs would have free range across all subjects and would be able to raise those subjects as and when the time came annually when we were reviewing the list of applications for inquiries. However, now that this decision is being taken, the whole question of ad hoc work is going to be circumscribed by the existence of this new committee. Whenever a controversial subject comes up in the area of foreign affairs—as I said, I have been on the committee and seen how it works—the members will say, “Let’s leave that to the Foreign Affairs Committee”. The effect of that will be that that committee will determine the agenda, and it will fix an agenda that does not necessarily represent the views of the wider membership of the House, as brought forward in the submissions made to the ad hoc committee by the wider membership.
Therefore, in my view, not only are we undermining the credibility of the Foreign Affairs Committee’s structure in the House of Commons, but we are also undermining the work of the ad hoc committee structures that we have created here in the House of Lords. I appeal to the House to refer this matter back. If we come back on another occasion, we can all go silent, but let us refer the matter back on this occasion, either for another report that takes into account some of the issues that I have raised in my contribution today but perhaps even goes as far as suggesting that we defer this decision until the 2017-18 Session, when the matter can be revisited in the context of all committee memberships.
My Lords, I rise solely to deal with the issue of ad hoc committees and the effect of the foreign affairs committee on the operation of ad hoc committees. First of all, I have to say that I totally support a foreign affairs committee in the House of Lords for the same reason as has been stated. We have so much expertise here and foreign affairs are more important now than they have been for many a year. We are in a very unstable situation worldwide and we need to draw on all the expertise that we can. Let us not forget that Members in the other place have a huge number of responsibilities, not least to their constituents. We have the luxury—I say that word—because we have time to consider, and the experience and expertise to draw on. We do that very, very well.
To get back to the ad hoc committees, the noble Lord made the point that they would suffer if a foreign affairs committee were to come in. How would that impact on the Digital Skills Committee, the Affordable Childcare Committee, or the one which I have the honour to chair, which is on the national policy for the built environment in this country? I think this is using the wrong thing in which to scupper a very good idea.
My Lords, as a member of the committee, might I say that a factor of importance to us was the question of timing? It seemed to us that the fact that it was possible to have a review in the following year was critical to the overall decision. There are various factors that would have to be considered but they are better considered after the year of seeing how the committee actually works, so the timing is as good as it could be for that reason.
A further factor of importance which the noble Lord mentioned is the fact that this is being undertaken without prejudice to the existing structure of committees across the House, including the European Union Committee. No doubt that will have to be reviewed later, but that is best done after this year has passed and we have seen how this particular committee operates in practice.
My Lords, may I say how much I believe my noble friend Lord Campbell-Savours was right to raise important details about resources? I hope that the future committee will indeed have some restraint on travel.
My noble friend also made points about the ad hoc committees, but his major point related to possible conflict with the Foreign Affairs Committee in the other place. I had the honour to follow the noble Lord, Lord Howell of Guildford, in chairing that committee. I chaired it for eight years—for two Parliaments. When the noble Lord, Lord Howell, asked for my opinions at that time on a point of consistency, I said that it is a big world and as long as there is a degree of good will and working together, I fully supported the creation in this House of the committee which is now proposed. Even then, one recognised that there was an enormous pool of relevant experience in this House. There still is but that did not alter my view that, given the turbulence and importance of matters around the world, and the limited agenda of the Foreign Affairs Committee in the other place, it was important that this reservoir of experience should be tapped.
The noble Lord, Lord Pearson, asked, “Well, why not Sub-Committee C?”. I served on that committee and it does some good work, but the Procrustean distortion of that committee is this: that everything has to be viewed through the prism of the European Union. As the noble Lord, Lord Jopling, said, important areas—be it the Commonwealth, the Far East, or other areas that are not directly relevant to the European Union—are excluded from its remit. Yes, there will have to be a degree of co-ordination, of good will and of working together, but this is appropriate and I personally congratulate the noble Lord, Lord Howell, on what has been a long and rather successful campaign.
My Lords, in warmly supporting this proposal I suggest that an additional reason for it is that we have no formal structure for scrutinising our international obligations. We have an ample structure for scrutinising European legislation proposals—and one which is widely admired—but absolutely nothing to deal with our obligations under international treaties or proposals under them, such as international protocols. That is what this committee could provide. It is very important for Parliament to have a voice in these negotiations.
My Lords, I have a simple factual question. Everybody has been talking as if there is clarity about when the committee will be established and when the review will take place. That seems to be based on a false premise, unless I missed something in an announcement. The reference is that the committee will be established in the next Session and the review will be in the following Session. I do not know when the next Session is going to start. I do not know whether the Chairman of Committees can tell me that. I have a rather nervous disposition, and I remember that in the last Parliament, the one beginning 2010, the first Session—much to the opposition of many of us—lasted for two years. The Leader and the Chief Whip are present, so I would like an instant response on this question: I simply want to know when the next Session will start, because until we get clarity on that a lot of this discussion is based on a false premise.
My Lords, I do not disagree with what my noble friend has said, but I have one point to make. I had the honour of following my noble friend Lord Campbell-Savours as a member of this Liaison Committee. When I joined the committee, I found that there had been a very long-running battle between the enthusiasts for setting up an international relations committee and those who had reservations. Since the noble Lord, Lord Laming, took over as Convenor, he has, with tremendous skill and remarkable diplomacy, come up with a compromise which allows the setting up of the committee but puts very strong limits and controls on it. He is to be congratulated. I hope that we do not delay it and that the House passes it and endorses it unanimously.
My Lords, I welcome the decision of the Liaison Committee and the Chairman. I want to disabuse the noble Lord, Lord Campbell-Savours, on one point, because I understand many of his concerns. However, like the noble Lord, Lord Anderson, I had nine years as chair of the Foreign Affairs Committee in the Commons and I should explain to him something that I do not think he has quite grasped: that the focus of the FAC in the Commons is on the Foreign and Commonwealth Office. It scrutinises the budget, expenditure and activities of the Foreign and Commonwealth Office. This is entirely appropriate: it is a department-focused committee.
In the world that we are living in, the international relations concerns of this nation are engaged in by almost all the departments of state and many government agencies—it goes well beyond the Foreign and Commonwealth Office. There is a need for a body that can begin to focus on these much wider international relations issues, which are now in great turbulence around the world and where the direction and purpose of this country really need as much support and analysis as we can supply. We have the Commons Foreign Affairs Committee, which does an excellent job—its latest report on the Foreign and Commonwealth Office is strongly recommended—but a wider view is needed, and a wider view is just the sort of thing that this Chamber can provide. This is a good move for the House of Lords, and heaven knows we need a few good moves. I strongly welcome it, and, although I appreciate the worries of the noble Lord, Lord Campbell-Savours, they are based on a false understanding of the world that we live in.
My Lords, the country has been through immense change in recent decades. We have moved from being a great imperial power to one which is dependent for the survival and well-being of its people on international co-operation. We will be judged by our children and our grandchildren on our success or failure in relation to that demanding challenge. Given the experience at the disposal of this House, it seems to me inconceivable that we should go any further without establishing a committee on international affairs as a priority. A tremendous tribute is due to the noble Lord, Lord Howell, for the consistent leadership he has shown on this issue.
My Lords, I am very grateful indeed to all colleagues who have taken part in this debate. I said earlier, perhaps rather inadequately, that there is never a perfect solution to issues of this kind. This debate has demonstrated that there is no perfect solution. I say to the noble Lord, Lord Grocott, that I have no idea about the Session. We as a committee were charged with thinking about where we are now and to face the reality of where we are now. We have come up with a recommendation on where we are now which I hope will commend itself to the House.
I am most grateful to members of the committee who spoke in support of this recommendation. The noble and gallant Lord, Lord Craig, the noble Lord, Lord Foulkes, and the Convenor, the noble and learned Lord, Lord Hope, have all played a very full part in what has been a serious examination of these important matters. I hope that it will be no surprise to the House that many, if not all, of the points that have been raised this afternoon were raised in the committee.
The noble Lord, Lord Jopling, and the noble Baroness, Lady Whitaker, made extremely strong points in respect of the fact that the EU Committee and its sub-committees serve this House, this nation and the European community extremely well. It scrutinises all the proposals that come from Europe. I have not served on any of the sub-committees but everything that I have heard indicates that those committees do their job very conscientiously, and sometimes to much greater effect than any of the other member states of the European Union. But the material that they get relates to Europe and European interests. The noble Lords, Lord Judd and Lord Anderson, referred to the turbulence in the world. We are now thinking about the tremendous conflicts and the very serious issues that ought to concern us all—and I know do concern us all—and which are well beyond the boundaries or the immediate interests of Europe. It is those issues that the Liaison Committee recognises are important.
Why do this now? We do it now because grave issues face the world. We have great expertise in this House but we do not want the membership of the committee —if it is approved by the House—to be made up mainly of noble Lords with known expertise that we all recognise, such as the noble Lord, Lord Howell, who has been mentioned. When members are put forward in the usual way, we would like consideration to be given to ensuring that we have a proper balance.
I am sorry to intervene again. Was there any discussion with the chairman of the Foreign Affairs Committee in the House of Commons—I know a new chairman has just been elected? Was there any consultation with the Foreign Affairs Committee on the proposal that we are considering?
If the noble Lord will just give me a minute, I will get to how we make sure that the resources of both Houses are used to the greatest effect. In fact, I will deal with it now. We have experience in this House of committees with similar interests working closely with the other end. We have extremely good experience of the two ends of the building working together on science and technology.
One of the reasons why we think it would be helpful to establish a committee of this kind, at this stage, is that—as the noble and learned Lord, Lord Hope, said—when it comes to a major review later on, as I indicated, we would have experience of how it works, not just with the EU sub-committee but how it works with the other end and also with regard to the safeguards we are putting in place. As a direct answer, I have not spoken to the chairman at the other end, but I am very happy to do so. But I imagine that what is much more important is that, whoever becomes the chairman of such a committee, I confidently predict that the chairman of a committee of this House will make it his or her business to have close liaison with the chairman at the other end.
My Lords, can I ask the noble Lord, Lord Laming, if he can give an assurance that if the parliamentary timetable should change—because I note we did not get an answer to the question from my noble friend Lord Grocott—this proposal would come back for reconsideration in the light of changed circumstances?
I hope that the House will agree today to do several things. One is to agree that this House will appoint an international relations committee. Secondly, that this House will undertake—in the time I made reference to; and it is in the report—a thorough review of all committees. We will do that, if the House approves, in a timely way and will go on carrying out our business. I do not think there is any impediment to us doing that.
With regard to some of the other points that were made, it has been said that it would have a bad effect upon ad hoc committees. Actually, with regard to an international relations committee, in the light of what is happening in the world today—and there are grave matters—I do not think that anyone would not want an ad hoc committee to look at the Arctic or women in situations of conflict. We can continue to do these things. The choices of topics for ad hoc committees are made in this House, and they can be influenced by whatever the concerns and interests of the House may be.
I am not very good at all this, but I am doing my best. If I have missed somebody out or some really serious point, please take me to task afterwards. However, I commend the report to the House.
My Lords, I beg leave to repeat a Statement made earlier today in the House of Commons.
“With permission, Mr Speaker, I will now make a Statement on the Government’s EU renegotiation. As the House knows, this Government were elected with a mandate to renegotiate the United Kingdom’s relationship with the European Union, ahead of an in/out referendum by the end of 2017. Since July, technical talks have taken place in Brussels to inform our analysis of the legal options for reform. The Prime Minister has today written to the President of the European Council to set out the changes we want to see. A Written Ministerial Statement with a copy of this letter was laid before the House earlier today. I would like to offer the House further detail.
The Prime Minister’s speech at Bloomberg three years ago set out a vision for the future of the European Union. Three years on, the central argument then remains more persuasive than ever. The European Union needs to change, and others have increasingly recognised this. Only two weeks ago, Chancellor Merkel said that British concerns were German concerns as well. The purpose of the Prime Minister’s letter is not to describe the precise means, including the detailed legal amendments, for bringing our reforms into effect. That is a matter for the negotiation itself. What matters to us is finding solutions. This agreement must be legally binding and irreversible—and, where necessary, have force in the treaties.
I will outline the four main areas where we seek reform. The first is economic governance. Measures which eurozone countries need to take to secure the long-term future of their currency will affect all members of the EU. These are real concerns, demonstrated by the proposal we saw off this summer to bail out Greece using contributions which also came from non-euro members. As the Prime Minister and Chancellor have set out, a number of principles should underpin any long-term solution on this, as well as a safeguard mechanism to ensure that these principles are respected and enforced.
These principles should include recognition that: the European Union has more than one currency; there should be no discrimination and no disadvantage for any business on the basis of currency; taxpayers in non-euro countries should never be financially liable for supporting eurozone members; any changes the eurozone needs to make, such as creation of a banking union, must never be compulsory for non-euro countries; financial stability and supervision should be a key area of competence for national institutions such as the Bank of England for non-euro members, just as financial stability and supervision have become a key area of competence for eurozone institutions such as the ECB; and any issues that affect all member states must be discussed and decided by all member states.
I turn to Europe’s competitiveness. We welcome the European Commission’s focus on this. Legislative proposals have been cut by 80% and more proposals taken off the table this year than ever before. Progress has been made towards a single digital market, a capital markets union and in last month’s new trade strategy. But we must go further. The burden from existing regulation remains too high. Just as we secured the first ever real-terms cut in the EU budget, so we should set a target to cut the total burden on business. This should be part of one clear commitment, bringing together all the various proposals, promises and agreements on competitiveness.
I turn now to sovereignty. As the Prime Minister said at Bloomberg, and we have stressed many times since, in the United Kingdom and in many other member states, too many people feel that the European Union is something that is done to them. In his letter, the Prime Minister makes three proposals to address this. First, we want to end the United Kingdom’s obligation to work towards an ‘ever closer union’ as set out in the treaties. For many British people, this simply reinforces the sense of being dragged against our will towards a political union. Secondly, we want to enable national parliaments to work together to block unwanted European legislation, building on the arrangements already in the treaties. Thirdly, we want to see the European Union’s commitments to subsidiarity fully implemented, with clear proposals to achieve that. We believe that if powers do not need to reside in Brussels, they should be returned to Westminster. As the Dutch have said, the ambition should be,
‘Europe where necessary, national where possible’.
I turn now to an issue of great concern for the British people: immigration. As the Prime Minister made clear in his speech last November, we believe in an open economy which includes the principle of free movement to work. I am proud that people from every country can find their community in the United Kingdom. But the issue is one of scale and speed. The pressure which the current level of inward migration puts on our public services is simply too great, and has a profound effect on those member states whose most highly qualified citizens have departed.
The Prime Minister’s letter sets out again our proposals to address this. We need to ensure that when new countries are admitted to the European Union, free movement will not apply until their economies have converged much more closely with those of existing member states. We need to crack down on all abuse of free movement. This includes tougher and longer re-entry bans and stronger powers to deport criminals, stop them coming back and prevent them entering in the first place. It includes dealing with the situation whereby it is easier for an EU citizen to bring a non-EU spouse to Britain than for a British citizen to do the same. We must also reduce the pull factor drawing migrants to the United Kingdom to take low-skilled jobs, expecting their salary to be subsidised by the state from day one.
We propose that people coming to Britain should live here and contribute for four years before qualifying for in-work benefits or social housing, and that we should end the practice of sending child benefit overseas. The Government are open to different ways of dealing with these issues, but we need to secure arrangements that deliver on these commitments.
Let me say something about the next steps. There will now be a process of formal negotiation with the European institutions and all European partners, leading to substantive discussion at the December European Council. The Prime Minister’s aim is to conclude an agreement at the earliest opportunity, but the priority is to ensure that the substance is right. It is progress in this renegotiation that will determine the timing of the referendum itself.
The Government fully recognise the close interest from this House. We cannot provide a running commentary, but we will continue to engage fully with the wide range of parliamentary inquiries—currently 12 across both Houses—into the renegotiation. Documents will be submitted for scrutiny in line with normal practices. The Foreign Secretary, I and other Ministers will continue to appear regularly before Select Committees, and the referendum Bill will return to this House before long.
The Prime Minister has said that, should his concerns fall on deaf ears, he rules nothing out, but that he also believes that meaningful reform in these areas would benefit our economic and national security, provide a fresh settlement for the UK’s membership of the European Union, and offer a basis on which to campaign to keep the United Kingdom as a member of a reformed EU. I commend this Statement to the House”.
My Lords, I thank the Minister for repeating the Statement on the Government’s EU renegotiation. It is disappointing that the Prime Minister did not come to Parliament to report on the negotiations and that he made his speech in front of an external organisation.
The Prime Minister was right to say this morning that the decision on whether the United Kingdom remains a member of the European Union is the biggest decision this country will take for a generation. That is one of the reasons why we will be pushing for 16 and 17 year-olds to be given a vote in the referendum when the EU referendum Bill comes before this House next week.
We want to see Britain playing a full role in shaping a better Europe that offers jobs and hope to its young people, a Europe that stands together to face urgent security problems and a Europe that uses its collective strength in trade with the rest of the world. At last, we have heard, following repeated requests—not just from people in the United Kingdom, but from leaders throughout the European Union—what the Government are looking for in their renegotiation. I am sure that, for some on the government Benches, there will never be enough to satisfy them in their desire to leave the largest single market in the world. They will want to leave the EU irrespective of the costs to the people of this nation. They are willing the Prime Minister to fail and their only role will be to push the demands that they know cannot be met.
The agenda published today raises important issues, including some that were raised in Labour’s election manifesto earlier this year. It is interesting to note that there is very little in the Prime Minister’s request list about jobs and growth. It seems to us that one of the issues that Europe has been struggling with has been low growth and high unemployment. There does not seem to be anything in his letter to President Tusk—apart from his aim to reduce the regulatory burden, which is already under way—that addresses this issue. Will the Minister explain why this is the case?
Many workers throughout the land will be relieved to see that there is no attempt to water down the hard-won employment rights that have been agreed at the European level over the years. It will be useful to know whether the Minister thinks that there will be a need for a special EU summit meeting to agree the outcome of the renegotiation or whether it will be tagged on to a prescheduled Council meeting. If so, can the Minister confirm whether the earliest possible date for an agreement is the March Council meeting, which would make it almost impossible to hold the referendum in June next year? Does the Minister agree that while Europe is trying to cope with the largest refugee crisis that it has seen since the Second World War, the British negotiation will not be top of the in-tray of most leaders in EU member states?
I always find the Prime Minister’s talk of the need for sovereignty to be quite interesting. He is willing to flog our railways off to European nationalised companies, sell our water companies off to unaccountable hedge funds and allow the Chinese to run our nuclear power stations. Does the Minister find the double standards on the issue of sovereignty as startling as I do? Can the Minister also outline whether he thinks it would be fair and necessary for those who advocate withdrawal from the EU to set out clearly what the alternative relationship with our EU partners will look like? Can he address, specifically, the likely impact on jobs, trade, investment, employment rights, agriculture and the environment, to name just a few? Finally, can the Minister give an assurance that the Foreign Office will receive substantial protection in the forthcoming budget round and will have the staff resources necessary to navigate this difficult renegotiation?
We believe that the EU does need reform and must offer its people more hope for the future, but we believe that that is best achieved by Britain playing a leading role in the future of the EU. Our history is not the same as that of many other member states, and perhaps we never look at these issues through precisely the same eyes. However, noble Lords should be clear that Labour will be campaigning to remain in the EU and will argue for a Britain engaged with the world and using its power and influence to the maximum—not walking away from a partnership we have built over a period of 40 years.
My Lords, like the noble Baroness, Lady Morgan, I welcome the Statement. I also had the good fortune—I think—to have been at the speech this morning. Having also read the letter, I feel as if I have read and seen the same thing three times, so at least there is consistency in the letter that, finally, we have seen. Members of your Lordships’ House called at Second Reading of the European Union Referendum Bill to see the letter at the same time that it was sent to President Tusk, so that is clearly very welcome.
There is probably nothing terribly surprising in the letter. When I was in Brussels at the end of September, people were saying, “Where is the letter? What does the Prime Minister want?”. Fellow leaders and members of the permanent representations in Brussels were told, “Look at the Bloomberg speech; look at the Conservative Party manifesto”. The Prime Minister was certainly very keen this morning to keep sending us back to his Bloomberg speech, as many of the issues that he raised in January 2013 have reappeared in the letter. Many of them appear to be very sensible: non-discrimination against non-eurozone countries is something that everyone in this country can welcome. The idea that the Prime Minister and the United Kingdom generally accept that there should not be a unilateral request for changes for the UK but that whatever we negotiate should benefit the European Union as a whole is clearly welcome. Several of the areas covered seem to be straightforward, and Liberal Democrats would not object to the requests or the issues for negotiation in terms of economic governance or competitiveness. Indeed, competitiveness and the digital single market are areas where we are already seeing progress on reform, even before we get to more formal renegotiation.
On the sovereignty side of things, although some of us might still quite like to be committed to ever-closer union, we recognise that the issue is totemic for some. However, for some of the Eurosceptics in another place, that already seems to be a bit of a problem in that they seem to think it does not really matter. One omission seems to be proportionality. There is a reference to subsidiarity, but can the Minister say whether the Government will also look at the issue of proportionality, which links with wider questions about the role of national parliaments?
Finally, there are questions on immigration and fairness of the system. Nobody favours abuse of the system, but can the noble Earl tell us what sort of abuses the Government seek to rectify? Can he clarify how the Government propose to address ECJ judgments that have widened the scope of free movement? I understand that he cannot get into the technicalities of negotiation, but from listening to the Prime Minister this morning and hearing the Statement, it is not wholly clear what is meant there.
I, along with other Liberal Democrats, very much look forward to campaigning with the Prime Minister to keep Britain in the European Union—which, if this renegotiation is satisfactory, I believe that he will be doing, and I hope that the noble Earl will be joining us.
My Lords, I thank both noble Baronesses for their response to the Statement. I was pleased to hear a lot of agreement over the broad thrust of much of what my right honourable friend the Prime Minister said. The noble Baroness, Lady Morgan, said how important this was and that it was a really big decision, and she is quite right. The noble Baroness, Lady Smith, agreed with her. We want Britain to play a full role in it.
The noble Baroness, Lady Morgan, mentioned jobs. We have continued to improve employment in this country, with wages rising as well. We want to ensure that that continues, and part of that will be productivity, which is one area where we may need further work to be done. That is all part of our planned EU reforms to ensure that our growth improves and that unemployment remains very low. As noble Lords will be aware, we have the greatest growth in the G7 and the best unemployment figures in the EU.
The noble Baroness also mentioned the FCO budget and the CSR. There are another couple of weeks before that will be announced, but I understand that there is also a Question on the subject the week after next. The noble Baroness, Lady Smith, mentioned proportionality and the ECJ. For any greater detail on that, I will have to write to her.
The Prime Minister is focused on this renegotiation and reforming the UK’s relationship with the European Union. He is confident that, with good will and understanding, he can and will succeed in negotiating to reform the European Union and Britain’s relationship with it. As he has said, if he succeeds, he will campaign to keep the UK in a reformed European Union—as will I—but, if he does not achieve these changes, he rules nothing out.
My Lords, the Statement we have heard runs the full gamut from the inadequate through the vague to the completely meaningless. I ask my noble friend two quick questions of elucidation. Under economic governance, the Statement concludes that any issues that affect all member states must be discussed and decided by all member states. Does it mean that legislation in this area must be agreed by all member states? If not, what on earth does it mean?
Secondly, under sovereignty, the Prime Minister’s letter to President Tusk states that he would seek a formal, legally binding and irreversible way to exempt the United Kingdom from the commitment to ever-closer union. But since the rest of the European Union is committed to ever-closer union, and since the European Union will continue to legislate to this end, what on earth does that achieve?
My Lords, my noble friend raised two questions, and in the second he talked about ever-closer union. As he is aware, we want to halt this constant flow of powers to Brussels and part of that includes ensuring a stronger role for national parliaments. The concept of ever-closer union may be what some others want but it is not for us. We also need to ensure that subsidiarity is properly implemented.
The noble Lord also mentioned the legally binding nature of any renegotiations. We have on the table at present a substantial package of changes, including treaty change, which needs to be agreed before there is a British referendum. This is exactly what has happened in other countries and on other occasions. Agreement on the package must happen before the referendum, but we would never have got all 27 other parliaments to pass treaty change before the referendum. That is not in any way strange; it is how it is usually done, as in the case of the Croatian accession treaty and the ESM treaty. What matters is getting the substantial agreement. It will be difficult to get but it is not impossible. Indeed, it is eminently resolvable.
Will the Minister cast his mind back to the Statement made by the Minister of State at the Foreign Office following the last European Council meeting? She outlined four main principles. What additional information are we given in this letter, compared with that given by the noble Baroness, Lady Anelay, in the Statement following the last European Council meeting? We were told that there would be substantial detail, yet as we get the Statement the covering letter says very clearly that,
“this letter is not to describe the precise means, or detailed legal proposals, for bringing the reforms we seek into effect”.
What is it supposed to do if it is not supposed to do that? We were promised by the Minister of State that we would get much more significant detail by the time we got the letter addressed to the President of the European Council. Can he tell us where—in either the Statement or the letter—that additional detail is?
My Lords, the noble Lord asks for more detail. As he obviously recognises, while renegotiation is still taking place we cannot give a running commentary on this issue. There are four objectives, which my noble friend mentioned briefly in the initial Statement, and more information has been given in the speech and letter by my right honourable friend the Prime Minister. One is to protect the single market for Britain and others outside the eurozone in the form of a set of binding principles that guarantee fairness between the euro countries and non-euro countries. The second is to write competitiveness into the DNA of the whole European Union, including cutting the total burden on business. The third is to exempt Britain from ever-closer union and bolster national parliaments through legally binding and irreversible changes. Then the fourth is to tackle abuses of the right to free movement and to enable us to control migration from the EU. As soon as more information is available, and at a suitable moment, the House will no doubt be informed.
My Lords I welcome the Statement and the letter to Mr Donald Tusk. I trust the contents will benefit all member states and the Union as a whole. My wish is that it should help this country to vote yes. As regards the applicant members in south-east Europe, I suggest that the brake on free movement will accelerate their entry into the EU, which is so desirable. As regards refugees and migrants now posing a great challenge to the EU, can the noble Earl confirm that negotiations on our future relationship will not prejudice effective and humane action to handle the challenge more effectively than up to now?
My Lords, the noble Lord, Lord Hylton, mentioned primarily migration and the problem hitting the whole of Europe at the moment. I see no reason why we would stop our continuing work, and particularly our DfID budget, helping those migrants—preferably upstream, where we can stop them moving towards Europe in the first place.
My Lords, as my noble friend Lady Smith said, none of us wants any abuse of free movement and benefits. Will the noble Earl confirm that the statistic much cited today, that 40% of EU migrants claim benefits, largely means tax credits and possibly child tax credits? We are not talking about scroungers on the dole but working EU migrants. That is what this is meant to be about. Could the noble Earl kindly explain a little more on this? The Prime Minister still talks about a four-year wait but there are hints that other solutions could be possible. For instance, does the Prime Minister mean codifying the very helpful recent judgments by the Court of Justice of the European Union? Could the noble Earl signpost us to an alternative to a frankly unachievable objective?
My Lords, the noble Baroness, Lady Ludford, mentioned the detail of my right honourable friend’s speech earlier today. He said:
“We now know that, at any one time, around 40% of all recent European Economic Area migrants are supported by the UK benefits system … with each family claiming on average around £6,000 a year of in-work benefits alone”.
On the noble Baroness’s other point, relating to the four-year restriction, I will read out the whole paragraph I have here, if the House allows. It says:
“Our objective is to better control migration from within the EU. There are obviously different ways in which we could achieve that. We … can do that by reducing the incentives offered by our welfare system”.
That is why we set out the proposal that you must contribute before you can claim. We understand that others across the European Union also have concerns about this. That is why we say to them: “Put forward alternative proposals that deliver the same results”. We are open to different ways of dealing with this issue, as long as we do just that and agree new measures that will reduce the numbers coming here.
My Lords, does my noble friend agree that one of the disappointments of the last 10 or 15 years has been the way the principle of subsidiarity, which was supposed to ensure that nothing was done centrally that could be properly done by member states, has been undermined by a bureaucratic process known as the yellow card system? It is most encouraging to hear that the Prime Minister intends to try to revive this principle and bring it back to what it was supposed to do. I suggest that that could be done without bringing about a treaty change. It is perfectly possible for the Commission itself to extend autonomously the period of eight weeks, which is all that national parliaments are given at the moment to consider new proposals. It is also perfectly possible for it not just to extend the time but to say that it will regard the yellow card as a red card. If those two things could be achieved, it would really enhance the role of national parliaments in the legislative process.
Picking up the point made by the noble Baroness on proportionality, I think it is now the case that qualified majority voting is population-related. Therefore, to a large extent, proportionality has already been introduced into the system.
I welcome the Statement and particularly the conciliatory tone of the Prime Minister’s letter. I, too, will probe the noble Earl a little about exactly what is meant by “closer union” in the phrase,
“we want to end the United Kingdom’s obligation to work towards an ‘ever closer union’”.
In his letter, the Prime Minister sets out various ways in which closer union is clearly desirable, for example steps towards a single digital market and a capital markets union. Everyone, particularly the Government, agrees that we want much more unity in our policy on immigration and refugees. I hope the Government also agree that we want a much greater coming to one mind on defence and foreign policy. If we want to work closer and closer together on all these aspects of major policy, what exactly is being rejected in this phrase?
My Lords, the noble and right reverend Lord is quite right. There are many issues that have been an advantage, but we still want to halt the constant flow of powers to Brussels, including by ensuring a stronger role for national Parliaments, dealing with the concept which the noble and right reverend Lord mentioned. It is interesting that, in late October, Frans Timmermans, the First Vice-President of the European Commission, said, on BBC Radio 4:
“If I understand correctly, what the British Government want is to say: ‘We don’t want this, others might want this and it’s up to them, but we don’t want to be forced into an ever-closer union in the sense of more and more integration’. I would say to that: ‘Fair enough, there’s nobody who will tell you that you are forced into integration with other European countries’”.
My Lords, we have plenty of time. Let us go to the noble Lord, Lord Clinton-Davis, and then to my noble friend.
I speak as a former commissioner in Europe. This debate is outrageous. We ought to be discussing not how we are going to withdraw from Europe but how we can play a part in ensuring that our voice is heard. At the moment, it is not, because the Prime Minister is being ambiguous—we do not know where he stands. He will not say whether he is for or against. What is vital is how we make our views heard, not how we can withdraw. We should not have this attenuated debate, but a real one about the all-important issues. At the moment, that is being denied to Parliament, and that is wrong.
I am sorry that the noble Lord feels that this is an outrageous debate. As I said earlier, the Prime Minister is focusing on renegotiation. I understand how the noble Lord, with all his experience, probably wants to get more involved in the actual negotiation. However, the fact is that the negotiation in Europe is going on. We shall see if anything can be reported at the next Council meeting.
My Lords, does my noble friend agree that the distinct tone of widening the focus of this issue on to the reform of the European Union as a whole, to bring it up to date, as outlined originally three years ago in the Bloomberg speech, and developed considerably since then, is very welcome indeed? The media trick is going to be to polarise and build this up as a Punch and Judy show, with deals achieved or not. That is natural, and I suspect there will be one or two political manoeuvres of the same kind. The more we can show that we are concerned with bringing the EU model into the 21st century, the better. That is bound to require treaty change in due course, for the simple reason that the treaties, right up to Lisbon, are obsolete and out of date. They were designed in the pre-digital era and do not fit what is actually happening in Europe. The more we can do that, the better the transition—there is going to be a great transition—will be for ourselves and the whole of Europe.
Can the Minister clear up this small confusion? The Prime Minster today said that if Europe did not listen to his demands he would rule nothing out. He also said, however, that,
“our membership of the EU does matter for our national security and for the security of our allies”.
Does that mean that if the Prime Minister is unsuccessful in getting Europe to listen to his demands and to respond constructively, he is prepared to recommend leaving, although leaving is against our national security?
My Lords, I ask the Minister how seriously the Prime Minister takes his belief, according to the Statement, that if powers do not need to reside in Brussels, they should be returned to Westminster? Does the Minister think the Prime Minister understands that this requires the breaking of the acquis communautaire, the one-way ratchet to complete union? Surely that will require unanimity. It will require treaty change. I suppose the real question is that if the others do not agree this revolutionary concept in the project of European integration, does that mean that the Prime Minister will campaign to leave?
My Lords, in these negotiations, will the Government be sure to look after the interests of the 2 million British citizens living elsewhere in the European Union? As the noble Lord, Lord Lawson, reminds us so frequently, people like him who are residents of other EU countries would be adversely affected if we were to leave, and we would naturally wish the interests of the noble Lord and others to be fully protected in these negotiations.
My Lords, all three Front Benches have told us that this is a momentous decision of huge, crucial, national importance. I can only say as kindly as I can muster the words that neither the debate nor the performance of the Government so far has in any way matched up to this rhetoric. The Prime Minister did not want a referendum, but he was forced into having one. He did not know what he wanted to negotiate. We did not know what he wanted to negotiate. Our European partners did not know what he wanted to negotiate. The only thing we know for certain, and I am sure the Minister can confirm this, is that whatever he does negotiate will result in his returning to Downing Street saying that it has been a triumph, and he will then recommend a yes vote.
The noble Lord, of course, is very welcome to his opinion on this. I do not agree with him. My right honourable friend the Prime Minister is focused on renegotiating and reforming the UK’s relationship with the EU. As he has said, if he succeeds he will campaign to keep the UK in a reformed European Union, but if he does not achieve these changes he rules nothing out.
National Insurance Contributions (Rate Ceilings) Bill
My Lords, it is a pleasure to open this debate on the National Insurance Contributions (Rate Ceilings) Bill before us today. The Bill implements the Government’s manifesto commitment that pledged not to increase the main rate of 12% and the additional rate of 2% for employees’ class 1 national insurance contributions, and the employer rate of 13.8%. The Bill also places a ceiling on the employee upper earnings limit. This is part of a wider package of measures designed to provide businesses with the certainty that they need to invest with confidence, and also to help deliver the low and competitive rates of taxation to underpin our growing economy.
Noble Lords will be aware of the Government’s strong record of significantly reducing the burden of national insurance. At Budget 2011, the Chancellor of the Exchequer announced a £21 a week above inflation increase in the employers’ national insurance contributions threshold; in 2014, the Government introduced the employment allowance to support businesses and charities across the UK, reducing the national insurance bills of over 1 million employers by up to £2,000 a year. The employment allowance allows employers to deduct up to £2,000 a year from the total of employer national insurance contributions that would otherwise be due to be paid to HMRC. Around 450,000 businesses and charities will not have to pay any employer national insurance contributions at all.
The Government are now going further. Noble Lords will recall that, as part of the summer Budget, the Chancellor announced that the employment allowance would be increased to £3,000 from next April. From April of this year, the vast majority of employers with workers under the age of 21 were lifted out of employer national insurance contributions. This move has supported over 1.5 million jobs for young people. Noble Lords may be aware that in a further move to support young people in employment, from April of next year the Government will abolish employer national insurance contributions for all apprentices under the age of 25. It is through these reforms that the Government are improving skills, increasing employment and delivering on their long-term economic plan.
I turn to the contents of this Bill. Noble Lords will be aware of the Government’s election commitment not to increase the main rates of income tax, value added tax or national insurance. The Finance Bill contained legislation to deliver that commitment for income tax and value added tax; this Bill delivers on the commitment for national insurance contributions. First, the Bill sets a ceiling on the rates of class 1 national insurance contributions paid by employees and employers. Secondly, it enshrines in law the existing convention that the level of the upper earnings limit for national insurance contributions will not exceed the level of the higher rate threshold for income tax. Both the ceiling on the rates of class 1 national insurance contributions paid by employees and employers and the ceiling on the upper earnings limit come into force on Royal Assent of this Bill, and will apply until the start of the first tax year following the next general election.
The Bill provides much-needed certainty for employers and employees that a ceiling is being placed on the main and additional class 1 national insurance contributions primary percentage paid by employees at a rate of 12% and 2% respectively; sets a ceiling on the employer class 1 national insurance contributions secondary percentage rate of 13.8%; and ensures that the upper earnings limit will not exceed the higher rate threshold for income tax. Furthermore, it is possible to increase the main rate of employee national insurance contributions and employer national insurance contributions by 0.25% each tax year through secondary legislation. So this legislation helps to make it clear that this will not happen. This means that businesses can make investment decisions, confident in the knowledge that this Government will not change the ceilings on the employee and employer national insurance contribution rates for the duration of this Parliament.
In summary, the Government have already taken action to reduce significantly the burden of national insurance contributions on most employers across the UK. The Bill supplements that work. It demonstrates the Government’s overarching commitment to provide certainty on tax rates for the duration of this Parliament. In doing so, it delivers on the Conservative manifesto pledge to maintain low and competitive rates of taxation by preventing the main and additional rates of national insurance contributions paid by employees and employers from being increased above their current levels. This is an important Bill and I commend it to the House.
My Lords, I shall be very brief, because the debate on this Bill flows, in effect, into the Finance Bill debate which will follow shortly on its heels. My party is pleased that there will be an increase in the national insurance employment allowance —a policy we fought hard for, and eventually achieved. It will now go up to £3,000; that is welcome news. We are also pleased that national insurance contributions applicable to young apprentices will be removed.
We have no problem with the Government’s policy that in the next Parliament they do not intend to increase national insurance contributions. What, frankly, we find silly, is the requirement that that be put into legislation. Surely a Government can control themselves well enough to enforce their own policy without putting up a legislative hurdle.
I shall speak more extensively on the Finance Bill, but I have to say now that the translation into legislation is far less serious with national insurance contributions, because they are rarely the tool that needs to be used in a crisis to cope with the unexpected and deal with events that can turn unfortunate for the economy. When we debate the Finance Bill we shall be talking about the related charter for fiscal responsibility, whereby the Government are putting handcuffs on themselves to make themselves impotent in the face of an oncoming crisis. That is one of the silliest and most arrogant measures that I have seen a Government introduce recently. However, there is very little concern about the Bill before us and its contents.
My Lords, I thank the Minister for introducing the Bill and I look forward to working with her on what I believe is the first piece of legislation she has taken the lead on since entering your Lordships’ House. As the Minister has just outlined, the Bill will implement the Conservative manifesto commitment to cap the main rates of national insurance contributions at their current levels for the duration of this Parliament.
This is one-third of the so called triple lock—a promise not to raise VAT, income tax or national insurance contributions which the Conservatives gave during the election campaign. The Bill provides for the NICs element of that pledge. Such a measure has to remain separate from the Finance Bill, on which the VAT and income tax locks will be debated, because statutory provisions regarding NICs cannot be included in the annual Finance Bill.
Let me start by saying that we wholeheartedly support the principle of not raising taxes for working people, so we are not opposing the Bill. Indeed, Labour was the first to commit to not increasing national insurance contributions. However, we do question the necessity of implementing that commitment in primary legislation, and are concerned that this, when taken as part of the triple lock, could present a significant challenge for the Government if the economic outlook changes.
Clause 1 will prevent class 1 national insurance contributions payable by employees at the main primary percentage from exceeding 12%, and for earnings above £815 a week, cap the additional primary percentage at 2%. This was a Conservative and Labour commitment at the election. As we progress to Committee, we would appreciate it if the Minister updated the House about the investigation being undertaken by the Office of Tax Simplification into national insurance contributions and their alignment with income tax.
Clause 2 freezes the rate of employer national insurance contributions by setting the maximum secondary percentage payable by employers at 13.8%. By doing this it also fixes the class 1A and 1B contributions. The Chancellor's spending plans are predicated on a forecast rise in revenue yield from NICs, so he has placed a great deal of confidence in economic forecasting. I am sure that during consideration of the Bill, we will debate what contingencies are in place if these forecasts are wrong and the potential impact that could have on public services. I look forward to the Minister’s responses.
Clause 3 links the upper earnings limit to the highest rate of income tax threshold by setting out that it should not exceed the weekly equivalent of the proposed higher-rate threshold for that tax year. In practice, this means employees stop paying national insurance contributions at the 12% rate when their income reaches the higher income rate tax threshold for that tax year.
What is particularly interesting about these three short clauses, beyond their technical detail, is the manner in which they have been introduced, which is so telling of this Government and their approach to policy-making. They argued during the passage of the Bill in the other place that the legislation is required to ensure that the market has confidence in the Government to keep their election promises. Can the Minister tell us why the Chancellor thinks the electorate and business will not simply trust his word? Perhaps it is because the Government promised not to raise VAT before the last election—and then proceeded to do the opposite by raising it to 20%. Indeed, in the last Parliament the Chancellor raised tax 24 times despite his claims to be promoting a low-tax, high-wage economy. Let me reaffirm that we do not want to see taxes raised for working people, so we will not oppose the Bill. However, it is difficult to regard it as little more than a gimmick that could have troubling consequences.
The response to the decision to legislate on this issue was remarkably consistent. The Financial Times leader of 29 April summed it up well when it said:
“Arguably the silliest idea yet came this week when David Cameron proposed an act of parliament that would make it illegal for a future Tory government to raise various taxes to close the deficit: VAT, income tax, and national insurance. Even after five years of tough spending measures, the UK fiscal deficit is still high. Removing the option of tapping revenue streams that in aggregate raise more than £350 bn for the Exchequer would make the challenge needlessly hard”.
The summer Budget, which included significant revenue-raising measures that will amount to significant tax rises for millions of people, demonstrated decisively that this was nothing more than a political stunt.
Commenting on the Budget, the director of the Institute for Fiscal Studies said:
“The figures are quite clear—this was a tax-raising budget”.
Tax policy measures in the Budget are expected to raise £5.1 billion by 2017-18, rising to £6.5 billion in 2020-21. So the notion that taxes on working people are being protected is an illusion.
The Government are still increasing the amount they get from tax revenues under the guise of the triple tax lock. Crucially, it could also limit the pace at which the Chancellor could act if an unexpected event arose. If the Minister does not believe this, he should listen to his noble friend Lord Lawson, who said:
“I don’t think it is a good idea … nobody knows what the economic conditions are going to be like … nobody knows what world conditions are going to be like … this was clearly done for electoral purposes not for good government”.
National insurance contributions, together with VAT and income tax, are the three largest revenue raisers for any Chancellor, so it is surprising that the Government feel the need to tie their hands in this way. The Chancellor is taking an incredible gamble that seems to be based on nothing other than the hope that no further unexpected events will occur over the course of this Parliament. If the economic outlook does change, the Chancellor will have to do more than be in listening mode—he will have to act. We are concerned that this Bill makes it harder to do that.
Then I thank the noble Lord and the noble Baroness for their support for the policy of this Bill, and also for supporting the £3,000 employment allowance and the abolition of national insurance contributions for apprentices.
Before I address the specific points raised by the noble Lords, it is important to put the Bill within the context of the significant action that the Government have already taken to reduce the burden of class 1 national insurance contributions on earnings and employment. These measures have all been strongly welcomed by business and have contributed to the current record levels of employment. I also emphasise that from April next year the Government will abolish employer class 1 national insurance contributions for apprentices under the age of 25, as I have said. Apprenticeships are at the heart of the Government’s drive to equip people of all ages with the skills most valued by employers. This is a very important move. It will help employers who provide apprenticeships to young people and provide a significant boost to youth employment rates more generally.
The Bill before us today introduces the final aspect of the Government’s five-year tax lock. This is further testament to the Government’s commitment to provide certainty on tax rates for the duration of this Parliament, and it delivers on the commitment to lower levels of taxation that was made in the Conservative manifesto.
On the question from the noble Lord, Lord Tunnicliffe, as to whether the taxes announced in the summer Budget have breached this lock, that is not the case. The Government have been clear that the tax lock will not prevent future changes to the tax system to make it fairer or to deal with avoidance—those were the measures in the Budget. Furthermore, the Government remain committed to lowering taxes and supporting hard-working people through increases in the personal allowance.
The noble Lord also asked about an update on the measures being considered by the Office of Tax Simplification. The Government are committed to simplifying tax and to transparency. The overall aim of the project is to build on earlier work undertaken in this area, to understand the steps that would be needed to achieve closer alignment of the taxes and the costs, benefits and impact of each step. The terms of reference were published on 21 July, and the Office of Tax Simplification will publish a final report ahead of Budget 2016.
As regards whether this Bill is a gimmick, I do not believe that it is. This was a Conservative manifesto pledge and, as I have said, there is the ability in secondary legislation to increase national insurance rates by 0.25% each year on class 1. This will give an added element of certainly to businesses and employees as to the maximum rates of national insurance that they might face.
The noble Baroness and the noble Lord are right that there could be circumstances in which tax revenues fall short and some contingency planning is required. However, future funding of contributory benefits, should national insurance contribution receipts prove insufficient, is a matter for the Chancellor, and that decision would need to be made at the relevant fiscal event based on the latest projections available at the time and taking into account the National Insurance Contributions (Rate Ceilings) Bill that we are introducing. Indeed, as the noble Baroness indicated, if there were an economic emergency, it would not normally be the economic policy of choice to increase national insurance contribution rates. The aim of this Government is to continue to drive growth and to create 2 million more jobs during this Parliament.
I think the noble Baroness is saying that I suggested that the Government had broken the triple lock in the summer Budget. I was not suggesting that they broke the triple lock but that the summer Budget had very significant tax increases—of the order of £4 billion-plus. I hope that she is not disagreeing with that assessment. If she is, perhaps she will write to me and set out the logic behind her disagreement.
I was not assuming that the noble Lord was talking about the triple lock. Indeed, the Government are absolutely committed to the triple lock. I was talking about some of the other measures that do not breach this commitment.
I am grateful for the opportunity to explain the issues we have debated today. There are clearly a number of points that we might debate at greater length when the Bill moves to Committee. I commend the Bill and ask the House to give the Bill a Second Reading.
Bill read a second time.
Second Reading (and remaining stages)
My Lords, since 2010 the Government have laid the foundations for a stronger economy. We can now see that the recovery is well established. The UK had the fastest-growing economy in the G7 countries in 2014, and is reasonably well positioned for the same in 2015.The fiscal deficit has been halved as a share of GDP and national debt, as a share of GDP, is forecast to fall in 2015-16.
Working people are, generally, also feeling the benefits. Employment has increased and continues to increase reasonably rapidly, with full-time employment at record highs, as I heard my noble friend mention in the previous debate. Unemployment is lower and continues to fall. In addition to more people being in work than ever before, very importantly and encouragingly, wages continue to rise—a relatively new trend in the past 12 to 18 months or so. Therefore, it seems reasonably clear that the long-term economic plan is having some success. However, of course, the job is not done. The Finance Bill before us today is the first of this Parliament and it demonstrates this Government’s commitment to continue the work of the last five years. It implements key measures to eliminate the fiscal deficit in a way that is fair to taxpayers and supports the growth of business.
As the Chancellor set out in the summer Budget 2015, the Government want to ensure that people are able to keep more of the money that they have worked hard to earn. The Bill includes three manifesto pledges to achieve that aim. First, the Government committed to legislate within 100 days for the five-year tax lock, ruling out increases to income tax rates, VAT and national insurance contributions for the duration of this Parliament. Clauses 1 and 2 of the Finance Bill deliver the first two aspects of this commitment. The third aspect of the tax lock was debated in this House earlier today.
Secondly, the Government committed to ensuring that individuals working 30 hours a week on the national minimum wage do not pay income tax. The Government have a proud record of reducing tax bills for the lowest paid. In total, 3.8 million individuals have been removed from income tax altogether since 2010. Clause 5 continues this record by increasing the personal allowance from £10,600 in 2015-16 to £11,000 in 2016-17 and £11,200 in 2017-18. Compared to today, 570,000 individuals will be taken out of income tax altogether by 2016-17.
As I just said, the Government have made a commitment to ensure that individuals working 30 hours a week on the national minimum wage do not pay income tax. Clauses 3 and 4 will extend this commitment beyond this Parliament. Once the personal allowance has reached £12,500, it will automatically increase to stay in line with this threshold. This will be the first time in history that the personal allowance is not indexed to price inflation.
Finally, as I am sure many—if not most, or even all —noble Lords will agree, it is a natural desire to pass on a home to your children and grandchildren. Clause 9 will introduce a new inheritance tax main residence nil-rate band, so that around 93% of estates will be able to pass on all their assets without paying any inheritance tax. However, to ensure that the wealthiest continue to contribute their fair share to the public finances, the largest estates will not be able to benefit from the new nil-rate band.
These are three important manifesto commitments delivered to ensure that hard-working British people keep more of the money they earn. Of course, these commitments must be delivered in a way that is fair and sustainable. In 2013-14, the Government spent more than £34 billion on income tax relief for pensions, making it one of the most expensive reliefs. Two-thirds of this relief currently goes to higher and additional-rate payers. The Finance Bill will restrict pension tax relief for the highest earners, putting it on a more sustainable footing.
I turn briefly to productivity, a topic that I have discussed quite broadly in this place before, and will no doubt discuss again. It is well known that improving the productivity of the UK remains a historic and significant economic challenge, which this Government are eager to do something about. The summer Budget set out a number of measures to meet this challenge, including, for example, investment in infrastructure and the creation of 3 million new apprenticeships funded by a new levy on employers.
The Finance Bill implements further measures to address parts of the productivity issue. It includes several measures to back business. Clause 7 cuts the rate of corporation tax to 19% in 2017 and 18% in 2020. This will benefit more than a million businesses, saving them a total of £6.6 billion by 2021 and giving the UK the lowest rate of corporation tax in the G20. Clause 8 increases the permanent level of the annual investment allowance to £200,000 from 2016, to provide stable and long-term incentives for small and medium-sized businesses to invest in plant and machinery.
Improving productivity, however, also means prioritising central investment in infrastructure. That is why Clause 46 reforms vehicle excise duty, to support the creation of a new roads fund. From 2020, all revenue raised from vehicle excise duty in England will be invested directly back into the strategic road network. These reforms are also being implemented in a fair and sustainable way that strengthens incentives for the cleanest cars. Nobody will pay more than they do today for the cars they already own. For cars in the new system, the vast majority of motorists will pay less than the average they pay today. Zero-emission cars will continue to pay nothing, whereas cars worth more than £40,000 will pay a supplementary charge. As I said, productivity is a challenge but it is a challenge that the Finance Bill, as well as other measures beyond it, is designed to meet.
As I set out at the beginning of this speech, the Government have made significant progress in bringing down the fiscal deficit but the hard work is not yet complete. As set out in the summer Budget, around £37 billion of fiscal consolidation is required over the next five years, and £5 billion of this will be raised by measures announced at the summer Budget to tackle tax avoidance, evasion, non-compliance and imbalances in the tax system, many of which are being legislated for in this Bill.
As evidenced in the last Parliament, this Government are tough on corporate tax avoidance. The Finance Bill continues this trend. First, Clause 44 stops investment fund managers exploiting loopholes in the tax system to avoid paying the correct amount of capital gains tax on the profits of the fund payable to them. Secondly, Clause 37 stops multinationals off-setting losses against controlled foreign companies tax to ensure that they pay tax on profits diverted from the UK. Finally, Clauses 40 and 42 stop corporate groups reducing their taxable profit by transferring stock or intangible assets around the group.
Fixing the public finances also means ensuring that everyone pays their fair share of tax. Clause 51 introduces a new means for HMRC to recover tax and tax credits debt directly from the bank accounts of debtors. This levels the playing field between hard-working, honest taxpayers and those who persistently refuse to pay their debts, almost half of whom have more than £20,000 readily available in cash.
The Bill also ensures that landlords with the largest incomes are no longer unfairly helped by the tax system. Landlords are able to off-set their finance costs from property income when calculating their taxable income. At present, the relief they receive is at their marginal rate of tax. This means that landlords with the largest incomes receive either 40% or 45% relief, whereas landlords with lower incomes benefit only at the basic rate of income tax—20%. Clause 24 ensures that all individual residential landlords will get the same rate of tax relief on their property finance costs.
The Government believe that it is only fair for the contribution made by banks to reflect the risk they pose to the economy. However, the UK must also remain competitive as a major dominant global financial centre. The Finance Bill introduces a balanced approach to bank taxation by introducing a new supplementary tax of 8% on banking centre profit in Clause 17, while gradually reducing the full bank levy rate over the course of this Parliament in Clause 16. This will increase banks’ tax contribution by around £2 billion over the next six years, while at the same time providing a more sustainable long-term basis of taxation.
The Government are committed to supporting low-carbon energy, while at the same time ensuring value for money. The climate change levy exemption provided indirect support only to renewable generators, and the value UK renewable generators receive from the exemption was expected to be negligible by the early 2020s. That is why Clause 49 removes this exemption. Any loss that UK renewable generators face will be small compared with the other financial support they receive from the Government, which will total around £5.1 billion in 2015-16 alone. Taken together, this Bill is tough on tax avoidance by wealthy individuals and businesses and resolute in ensuring that the tax system is balanced and fair.
In conclusion, the Finance Bill before us demonstrates the clear direction set out by the Government at the start of the Parliament. It prioritises economic security for working people, businesses and the public finances. I commend the Bill to the House.
My Lords, I will focus my brief remarks on two aspects of the Bill: one is an amendment to it and the other is an omission from it. Both would improve this legislation—they are intended to be constructive and helpful—and both are important to many millions of people, working or otherwise. First, I want to raise the issue of inheritance tax, which the Minister highlighted in his comments. Secondly, I want to raise the so-called tampon tax.
Politics is about choices, and showing who we care about and how we connect with them are central to any party’s political strategy. The choices reveal much about the values that inform our politics and our policies, and the Tory Government have recently laid bare their current values. At this time, at this defining moment, when all the analysis and forecasts of the UK economy are best described as fragile—rather than the rather robust description given by the Minister—and the public realm is about to be subjected to 40% austerity cuts, the Government have decided that the time is right, never better, to increase the inheritance tax threshold to £1 million, so that those with the most, the wealthiest 10%, get a fighting chance at keeping the wolf away from their doors. The cost to the Exchequer is close to £1 billion.
Compounding this particular choice at this time is the fact that it is being put forward while the Chancellor is seeking to cut £1,300 on average from the income of the lowest-paid 3 million working people in the country. It is a somewhat hideous juxtaposition that the Government are putting forward. The richest 10% get a £1 billion give-away; the poorest working people lose £1,300 on average a year. It is compassionate conservativism laid bare. The rhetoric may be compassionate, but the reality is conservatism.
Instead of the somewhat false fury that emanates from Downing Street about some sort of constitutional crisis in this House because of the decisions your Lordships’ House took on the issue of tax credits, they should be thanking your Lordships for getting them out of a deep hole. It was getting deeper and deeper by the minute as Conservative Member after Conservative Member was in rebellious mood about the matter. We will seek a delay on this issue, deletion of this clause, and a delay at least until the Chancellor has achieved a current budget surplus before any further consideration of changes to the inheritance tax threshold.
On the tampon tax, until the recent exchanges in the other place, I have to admit that I was unaware that VAT was payable on tampons and sanitary towels. If I had to guess the odd one out or play spot the luxury item from among the following list—Jaffa Cakes, a game of bingo, a ticket to the zoo, or tampons—I do not think I would have picked tampons as being the specific luxury item. However, apparently that is the case. Jaffa Cakes are a necessity; tampons a luxury. As we have heard, the Prime Minister this morning set out his priorities for achieving reforms in the EU in advance of the forthcoming referendum. I had hoped that, when the letter to President Tusk was written, it would have contained a line seeking support across Europe to allow tampons and sanitary towels to be zero-rated in each member state. Had he done so, his legacy would be assured. We have had some words of support from government representatives, but nothing concrete is proposed. Incidentally, the cost of this change to this country would be no more than £15 million to the Exchequer. Labour will seek to add a clause to the Finance Bill to give effect to this.
I look forward to hearing the Minister’s response to these two items in his closing summary.
My Lords, in 2010 the coalition Government came into being in the face of a financial crisis and succeeded over the next five years in stabilising the economy and the country’s finances—significantly reducing the structural deficit—but they did so on the basis that we were all in it together and that the greatest burden should fall on the broadest shoulders. In his opening speech a few moments ago, the noble Lord, Lord O’Neill, gave the impression that that continues but that is the wrong word to use in this case, because the policy that we are all in it together and that the broadest shoulders should continue to carry the greatest burden is one that the Conservatives in their Budget and in this Finance Bill and various other related Bills have made a point of moving away from in an extremely distinctive manner.
It is absolutely true that we need to continue to eliminate the structural deficit. That is a responsible action to take so that we do not pass those burdens on to the next generation. But this Government are seeking to cut in the region of £50 billion more than necessary from public spending over the next five years in their goal to move from eliminating a structural deficit to building a significant surplus—a surplus that is not required by the financial conditions that we live in today. They have departed from the principle that we are all in it together.
I looked at the distributional analysis, which finally came out rather late—in June, I believe. It is a document that should have come with the Budget. It is interesting because the principles under which it is put together have changed. Indeed, I hope that the Treasury might engage with us at some point to explain further those changes and their implications. But what is absolutely fascinating about the distributional analysis is that it focuses almost exclusively on the benefits delivered by the coalition and gives virtually no sense to the change that was introduced, marked and signalled by the first Budget and embedded, in part, in this Finance Bill.
It is clear from looking at the distributional analysis that by 2017-18 those in the wealthiest quintiles will have had no proportionate loss in the welfare benefits that they receive. Presumably that is because harsh reductions in welfare are being introduced for the lowest quintiles in the Budget and the related legislation that has been presented to us, but it is difficult to tease that out because of the way in which the distributional analysis glosses over the difference created in this past year. I have noticed that in his various responses to Questions in this House, the noble Lord, Lord O’Neill, also talks as if the coalition period was the marked umbrella, and barely pays attention to the change of direction which his Government have so proudly heralded in shifting away from placing the burden on those broadest shoulders and beginning the process of pushing it back on to the weakest shoulders.
To be honest, when we were in coalition, Conservatives did argue that we should not be putting so much on the wealthy, and that the burden ought to be falling on those at the bottom of the scale because they were benefit recipients. I would very much appreciate at some point hearing from the Treasury how it has made those changes from its perspective. Until then, we are dependent on the Institute for Fiscal Studies, which, as the noble Lord, Lord Lennie, reported, has identified so clearly the huge burden of tax credit cuts that fall on the working poor and are not offset by the changes in the living wage or childcare. So we have moved away from “We are all in it together” and it is particularly the working poor, young people and those with disabilities who suffer the most.
Of course, I welcome some of the key pillars of this Finance Bill. The increase in the personal allowance—a long-standing Liberal Democrat policy—is captured in the Bill and obviously we are very pleased to see that there. We are supporters of the new living wage, although it is inappropriate to call it a living wage because it is not a wage on which anyone could live; it is a new minimum wage. An increase in the minimum wage is welcome, although I hope at some point we will hear from the Government how they intend to cope with the consequences for, for example, local authorities or the care home sector or others which will struggle to pay that minimum wage; that is not an argument for discarding it but we need to understand how on earth those costs are going to be properly absorbed in the current climate. We are also pleased, obviously, with the restrictions on pension tax relief, which is an important measure in the Bill. It is beyond us, however—and I echo the noble Lord, Lord Lennie, in this—why the inheritance tax cut is being introduced at this time, when such a burden is being placed on the working poor. Surely that timing almost adds insult to injury.
We do not accept that reductions in the bank levy have been necessary: the banks are brilliant lobbyists, and this is good evidence that they have been successful. I am spending two other days this week working on the Bank of England and Financial Services Bill, which has further roll-backs of the various measures that were imposed on the banks in response to their behaviour that generated the financial crisis—not just the original crisis, but consequential crises such as LIBOR, various money-laundering and PPI. The bank levy, therefore, has to be looked on in the light of effective lobbying by the banking industry and not as a necessary measure to sustain the financial services industry in this country. Moreover, I do not understand why it is the right time to raise the higher-rate tax threshold, when we are placing so many burdens on those at the bottom of the scale, the young, and the disabled.
The Minister talked about productivity, which is obviously his area of special interest. Productivity is going to be absolutely key to our future, so I fully recognise the importance of the comments that he made. However, this Finance Bill, and the other actions of the Treasury, once again fail to recognise the difference between capital and revenue: they are rolled together again. I know that it is a conviction of the Chancellor that one should not make distinctions between capital and revenue, but I completely fail to understand the arguments that are meant to support it. There is such an infrastructure deficit after generations of neglect in this country—I think everyone in this House would agree that that was true, in area after area, whether rail, road, broadband, energy generation or, in particular, housing—that we are generations behind where we should be on both infrastructure renewal and infrastructure building. Under such a circumstance, when the British Government can borrow at the lowest rates they have seen for generations, this should be the opportunity to accelerate investment into that sector. It should be distinguished from revenue in the management of the fiscal framework, and this Bill does not succeed in doing that. I hope that the Minister will be able to give us some argument as to why that has not happened, because I fail to see one. It is a lost opportunity and passes on to the next generation the burden of making that infrastructure catch up.
I have a small question on the road fund. It is unusual for the British Government to hypothecate taxes to a particular spending commitment. In this case, VED is being hypothecated to road infrastructure. Will the Minister tell us which areas are now going to lose investment as a consequence of that hypothecation? The cake is not expanding: it is just being given to one particular party, so it would be helpful to understand how all that is put together. That being said, I am glad to hear of his ongoing commitment to ultra-low-emission vehicles. It is an area in which the UK can be an absolute leader. We need it not just because of our own environment, but because it offers great potential for jobs in the future. We are becoming leaders in the R&D in this area, and there is a very significant opportunity to be snatched and taken—if the Government continue their commitment to it, which began under the coalition.
The Government referred to the training levy. It is absolutely apparent that we must increase skills within the UK. It is the major reason that any business would give for our failure to achieve productivity on a par with our competitors, whether in the European Union or looking further afield. I see the advantages of the training levy, but how are we going to tackle the need for training within SMEs? I can understand the reluctance not to put a levy on small and medium-sized businesses that may not be able to bear it, but they have to become significant providers of apprenticeships and training. The Government need to tell us why they have not used this Bill to enhance that potential. There is an increase in the national insurance employment allowance, but I do not think anybody believes that that alone is sufficient to generate the levels of training that we need in the SME sector.
I disagree with the Minister that removing the climate change levy exemption for renewable energy is a minor factor. This is about the green economy, which again is fundamental to our future. We moved, over a five-year period, from being laggards in the green economy to creating the basis for some of the leading green industries across the globe, generating significant numbers of jobs. The decision to remove that exemption seems to me to be part of a much broader anti-green strategy, as is the decision not to implement zero-carbon homes. We have had example after example where green measures have been watered down, apparently for ideological reasons, because the numbers we are talking about in terms of the overall government budget are absolutely minimal. The green industries are taking that to heart and understand very clearly that they are getting the message from this Government that, instead of this being a place where a green future is being encouraged and underpinned, it is going to be, at the very best, treated with indifference.
SMEs are absolutely crucial to our future. Many in this House can testify to the fact that small and medium-sized businesses provide something like 90% of the jobs in this country, are a leading provider of exports and are absolutely critical as the backbone of the UK. So why have the Government chosen to reduce corporation tax, which is paid by very few SMEs? To the extent that it is paid, it is a very small part of their expenditure. It is the large corporations that benefit from the cuts in corporation tax, and surely that is exactly the wrong decision. This would have been an opportunity to provide support to small businesses, particularly around training but also to enable them to achieve the kind of growth and scale-up which we need for our future. Frankly, when we are already one of the countries with the lowest corporation tax in the OECD, using this opportunity to bring it down so that we will be the country with the absolute lowest rate of corporation tax seems simply wrong as a priority. It does not bring a whole lot of benefit and is targeted on exactly the wrong part of business. Having that money flowing into small businesses and providing them with support would be far more beneficial. However, I recognise that the Government are helping small businesses by keeping the annual investment allowance at £200,000, which surely is good news.
The Minister talked about tackling tax evasion. Who could complain about that? However, I suspect there is much more work to be done as we try and get a grip on the new digital economy, and the Bill goes only a very small way in trying to grasp that nettle. I recognise that this is a complex issue and a great deal of work needs to be done in this area, but this new focus on tax evasion and enforcement of tax payment comes when we have just heard that HMRC has agreed to something like a 30% reduction in its spending over the remainder of this Parliament. We are already in a situation where again and again HMRC does not seem to have the manpower necessary to enforce tax law. It certainly does not have the manpower necessary to respond to the endless queries from the many individual and small business payers that need to speak with it to get their affairs in order. A further cut at this point just seems, again, entirely inappropriate. Is the Minister able to give us some assurance that the resources will be available for the extensive programme to deal with tax evasion that he has talked about today?
I finish by referring to the Charter for Fiscal Responsibility—the tax lock, as the Minister described it. As I said in discussion on the then National Insurance Contributions Bill, it seems extraordinary that a Government make a pledge that they will carry out a policy but then so distrust themselves that they decide that they have to capture it in legislation. That is a very dangerous precedent.
I have raised this issue before. One reason that we ended up with a financial crisis to which it was so difficult for the Government to respond was because of real arrogance in the Treasury. We had a Labour Government, a Gordon Brown Government, who had decided that boom and bust were over. I have always said that I do not think that Alistair Darling would for five minutes have agreed to the public spending that Labour committed to had he ever thought that an economic cycle could impact the country, never mind an external shock.
That same arrogance seems to be back here. The Government are once again deliberately tying their hands. I know that they say that if growth drops to 1%, they can step away from the constraints that they have put themselves in, but that is too late. The Minister will tell me if it is different, but I am certain, looking back, that nobody forecast the financial crisis. When a crisis comes, the need to be able to respond is immediate; it cannot be embedded in a forecast for a five-year period. Governments have to have that freedom and flexibility to act, and act quickly.
We must never get ourselves into a situation where we are in a car, we can see the crash coming but we cannot veer out of the way. That is exactly where this Government are putting themselves. It comes from that utter conviction that things will never go wrong. Well, they do go wrong. It is essential that Governments recognise that. Not to be able to use VAT, which is a tax that can be used very rapidly if necessary to remedy a problem, strikes me as significant.
There is a lot that is unsatisfactory in the Bill. There is nothing much that this House will be able to do about the exact clauses, as we take no votes on money Bills, but I am glad to say that many aspects are not part of a money Bill, and I hope that we will be able to tackle those when they come before this House.
My Lords, I am grateful to my noble friend Lord O’Neill of Gatley for introducing this Second Reading debate. I was not quite sure how to approach it, as it is a strange one to be holding in your Lordships’ House, but I start by congratulating the Government on their continuing determination, as I see it, to do whatever is needed to restore good health to the nation’s finances. I realise that that is not always popular or easy, but it is urgent.
With every passing day, the perception grows that things are not quite so bad after all. “Why not water down the medicine?”, some are saying. Some commentators come close to saying that Ministers themselves share that delusion. We remain in a very dangerous place, and it is much to the credit of this Government that they hold to the course on which they were elected. I believe that we are heading for a strong economy, the chief beneficiaries of which are the working poor. It saddens me to think that the noble Baroness, Lady Kramer, and the noble Lord, Lord Lennie, cannot accept that.
This afternoon, I want to touch on the topical issue of infrastructure and how it can be financed. Especially, I want to focus on my local town of Barrow-in-Furness and its surrounding area. As I have told your Lordships before, we are expecting investment in the region of £40 billion over the next decade. It will come from shipbuilding, pharmaceuticals, civil nuclear, offshore gas and other things, and a very exciting prospect that is for an area whose economic future has not always been certain.
Here I should perhaps declare a personal interest. I make no secret of the fact that the group of family companies of which I used to be chairman—I have now handed over to my daughter—will want to take advantage of that investment. I refer noble Lords to the Register of Lords’ Interests.
I think I am right in saying that private or institutional investment in infrastructure projects is at an all-time low. In 2008-09 infrastructure spending reached £57 billion. Since then it has dropped, in 2013-14, to £42 billion. The Chancellor’s anticipated commitment to spend £100 billion on infrastructure will be greatly welcomed, but how to find the money?
Brooding on this, I was struck by a piece I found on the Centre for Political Studies online news service, CapX, written by George Trefgarne whose father, of course, has long adorned your Lordships’ House with great distinction. Mr Trefgarne’s piece is headed with the words: “An idea whose time has come: project bonds.” I strongly commend it and further reading on the subject to your Lordships.
There was a consensus that allowed my party’s programme of privatisation and the less than ideal PFI arrangements of the party opposite. For whatever reason, that consensus collapsed after the financial crisis. In consequence, there seems to be very little appetite among investors for participating in today’s projects or mechanisms to attract those investors. It is difficult to reconcile the Chancellor’s spending ambitions with his admirable goal of deficit reduction. It is not only the annual deficit that should concern us, but the many billions of pounds that are set to be added to the national debt. Worse, unless a solution is found the Treasury will be on course once again to be in charge of every road, hospital and railway system in the land.
Mr Trefgarne’s article highlights a potential solution that is being canvassed both here and abroad. Instead of relying on the public sector to deliver our vital infrastructure needs, new companies would be created, perhaps jointly owned by a combination of devolved Administrations, local authorities and private sector investors. They would keep revenues and charges and in turn issue their own debt, underwritten at least in part by the taxpayer. Experience elsewhere suggests that project bonds offer long-term investors attractive yields and significant credit spreads. Typically, they are attractive to pension funds and life insurance companies. I understand that even in countries where public finance is not so constrained, project bonds are used to diversify funding, meet regulatory demands, improve efficiency or quite simply tap into private sector expertise.
The system is not so different from the one the Victorians presided over that led to the great boom in bridge, canal and railway building, but one does not have to hark back so far for a similar precedent. I believe London’s Crossrail is coming in on time and on budget, if I am permitted to sing the praises of the mayor in your Lordships’ House. It is funded by a coalition of private and public interests, and Transport for London has been licensed by the Treasury to issue its own debt to fund it. The EU and the European Investment Bank are running project bond pilot projects.
Of course, I am telling my noble friend nothing new, but I would like to ask him how closely he has followed the project bond debate and what conclusions he draws. Does he agree that such a mechanism will not occur without the Treasury willing it to happen? I think I may be right in saying that the Treasury has experience of and a track record with similar financial mechanisms. The proposal would in effect entail the Government launching and licensing an entirely new capital market. Can my noble friend say whether the Government stand ready to do such a thing? Combined with the incomparable existing skills in the City, that makes for a hugely exciting prospect—and a huge problem removed from the Government. If an increasing number of proponents are right about the potential of project bonds, then why wait? Above all, why wait until Wall Street or some other financial centre steals a march on us?
Returning to Barrow-in-Furness, my personal view is that the beautiful area in which I live is ill-prepared for the large investments I have talked about coming its way. By any measurement, our infrastructure is in a shocking state of disrepair. I have grounds for thinking that our local government representatives are in touch with Ministers and seek ways to remedy these problems. I wish them well. When I was in local government, I remember being tremendously impressed by the skill and ingenuity of our financial officers. I dare say it is a different skill set from the one my noble friend finds at the Treasury, but it is nevertheless completely appropriate to a rural county with a few dominant tier 1 companies and myriad SMEs, among which my family businesses are included. I look forward to a time when devolved government will once again allow this reservoir of skill to be deployed for the benefit of local people, jobs and services.
Finally, I repeat a plea I have made in other debates. It will not be lost on my noble friend that much of the investment I talked about stems from government procurement of one kind or another. Like the Government, tier 1 companies have cultural problems when it comes to engaging with SMEs. A more sinister problem is when tier 1 companies collude to keep SMEs out. There is often much comforting talk about benefits to the local supply chain, but again and again they fail to materialise. Is it possible to compel large companies to report on what proportion of their business benefits local companies? Also, could the Government be rather more forceful in changing this culture, especially given that they are ultimately the customer?
It is a pleasure to speak about the problems of success. My noble friend the Minister is an economist of great distinction and I have no doubt he will make a great contribution to Britain’s economic recovery. I live in a rather different world from him—among people who make things, grow things and do things, and market their wares at home and overseas. Our whole existence is about judging risk and living with the consequences. We seldom make a headline, nor do we seek to do so. However, I remind my noble friend that we represent 95% of this nation’s economy. I hope that, as he surveys his huge brief, he will keep in mind that the sector’s interests also need his concern and protection.
My Lords, even though we cannot do much about it, I welcome this opportunity to debate the Finance Bill because it is a chance to expose a mismatch between what the Government promise and what is actually in the Bill. We are promised a fairer and more equal society, a more prosperous economy based on higher skills, higher-paid jobs and a greener and more pleasant land. The Finance Bill says otherwise.
The most glaring example of inequality is of course the mismatch between the rising minimum wage and reducing benefits, which leaves millions of poorer people worse off. The IFS distributional analysis says it all but there are other examples. I agree with my noble friend Lord Lennie that raising the inheritance tax threshold at a time of austerity must contribute towards inequality. Surely the time to raise inheritance tax thresholds is when our current account is in balance or even surplus. What the Chancellor is doing now is just giving the better-off a tax break, especially as the IFS tells us that the percentage of the population liable for inheritance tax is in single digits. As other noble Lords said, this comes at a time when 3 million working families are at risk of being worse off next year. We still do not know how the social care sector will manage. It really is a bit of a shambles.
The Minister spoke of anti-avoidance measures for corporations and individuals. Yes, those are welcome but how robust are these measures? According to the Institute of Chartered Accountants, corporation and income tax revenues are decreasing. Is this because they are not being collected by an efficient and motivated staff, as suggested by the noble Baroness, Lady Kramer? Is this yet another example of this Government alienating their public servants? Nurses and doctors, teachers and carers, police and firefighters: do we now add Revenue and Customs staff? The Public Accounts Committee in another place seems to think so. These measures will not be effective if the Government are not an effective employer.
We are also promised a more prosperous economy, hopefully through productivity and rising skills. However, skills are changing all the time in our digital economy and it is good practice for people in work to upskill through part-time study. In 2012 tuition fee loans were extended to part-time students, but they were hedged about with so many restrictions that few took them up. As a result, we have seen a sharp decline in the number of part-time students and the courses available to them. This is confirmed by this morning’s news about FE colleges. Despite much debate and frequent presentation of the facts, the Bill does not recognise this. Nor is there any mention of part-time education in the Green Paper published on 6 November. Consequently, we are losing a huge opportunity to raise the skills of our workforce, although that is industry’s most frequent complaint. This is despite the good intentions in the Minister’s recent productivity paper.
That paper also referred to the housing crisis. In spite of what the Minister said, the Bill does nothing to hold back ever higher rents, higher deposits, falling home ownership and the lowest rate of housebuilding that any of us can remember. All this is with a rising housing benefit bill and less secure tenancies. Despite what the Minister said, the Bill does nothing to encourage a culture of productivity; the kind of culture you immediately sense when you walk into a highly productive business or service. We have a financial strategy reflected in the Bill, but no industrial strategy. This is why our economy remains unbalanced, with growth still depending on low wages, rising house prices and rising consumer credit.
With the Paris meeting due soon, perhaps my greatest disappointment with the Bill is that it reduces our commitment to combating climate change. The Minister told us of the exemption of renewables from the climate change levy which is, incidentally, back-dated. The levy was designed both to promote energy efficiency and reduce CO2 emissions. Since then, subsidies for onshore wind have been virtually removed with a single cut. At least these changes could have been tapered.
Another example of diminishing commitment to climate change in the Bill is the vehicle excise duty for passenger cars, which the Minister spoke about. Levels of excise duty used to deter high-polluting cars and encourage low-polluting ones. The new, rather complicated, rules seem to have abandoned this. Instead, under the new proposals, cars in band A, which paid no road tax, will pay much the same tax in years two and beyond as cars in band M, the highest-polluting band. Setting aside the public scepticism about car emission figures, what is the purpose of penalising polluting cars only in the first year? Is it just to maintain revenue from cars, irrespective of emissions; is it just to invest in roads? There were three items of news this morning about climate change. The Bill really ought to recognise it.
These are just a few examples of the way this Bill does not reflect the rhetoric of the Government. It certainly does not move us towards the greener, more prosperous and more equal society that we have been promised.
My Lords, it seems a long time since the second Budget was announced. This second Finance Bill has had rather limited media coverage. I agree wholeheartedly with the comments of my noble friend Lord Cavendish about the need for infrastructure investment and about the success, going back into our history, of financing models that have involved both public and private sector. Crossrail has been, in our time, a brilliant example of that, and is on time and on cost.
Credit must go to the Chancellor for having got things dramatically right and having got this economy recovering better than any other in the world. All those clever left-wing economists told him he had got it wrong, and the IMF rapped his knuckles and so forth. He in essence followed a sensible, balanced path. He was substantially Keynesian and did not overdo trying to cut the deficit. However, he also took measures that helped the real economy to expand.
As I have said before, there has been a wonderful entrepreneurial explosion in the past five years. We have 5 million new companies, we are leading the world in a lot of tech areas, and it has been an age of greater entrepreneurial activity than I can remember ever in my lifetime. As we all know, it is producing more than 13 million jobs in the economy.
I also think that, although things are not all resolved, the balance of putting the public finances right is about right over the next five years. I was rereading a book on Disraeli the other day, noting that, as late as 1868, debt service on the borrowings that had financed the Peninsular Wars at the beginning of the 19th century were still the biggest item of public expenditure. If you overborrow, you end up burdening future generations with too much debt to service.
If people stand back and look at the whole area of welfare spending, they will see that something is very clearly wrong. Alistair Darling has been the most honest politician to point out what is wrong. Total welfare spending now is running at close to £300 billion a year because you have the basic of £231 billion, to which you have to add personal social spending of £30 billion. Housing claims benefit is now approximately another £30 billion. I am not even clear whether working tax credits, now up from their original £2 billion to £30 billion per annum, are still treated as a net-off from income tax revenues, which was the accounting fix that Gordon Brown put in, or whether they are within the total.
At least a third of public expenditure now goes on different forms of welfare spending. The point Alistair Darling had the honesty to make was that, with income tax credits, what was intended to boost incomes was simply serving to drive down and hold down wages. We have a system similar to that which we had in the early 19th century, when what was called outdoor relief was paid. It led to overemployment, poor productivity and underinvestment. When it ended, there was a great burst in wages, the new industries came up and people moved to the new areas.
Now we have a ridiculous system in which someone is better off working 16 hours a week on low pay, with the top-up tax credits, than working 40 hours a week on average pay. The whole formula in these areas needs addressing radically. I would go even further: the German model of dealing with welfare, which is assessed individually, ends up being much more sensible than our arrangements, which often help those who would be much better off if they worked a full, normal working week, and often do not help those who do need more help.
I repeat: it is well overdue for politicians of all parties to realise that income tax credits have been an economic disaster for this country, with exactly the same unsatisfactory effects as the system had 200 years ago. Of course, you must have a relatively high minimum wage if you are to have income tax credits, or employers tend to exploit it by not paying people sufficiently. Now, it is all well and good; £7.20 will go up to £9 by 2020, but that is particularly damaging in parts of the country where the cost of living is much lower, especially the housing costs. Those parts are landed with too high a minimum wage, so losing the economic advantage that they would otherwise have in getting businesses to move towards them. Then you say that perhaps you should have different minimum wages for different parts of the country, but imagine the complexity of trying to administer that. We have yet to see how measures will be worked out. I am certain that the Conservative Government wish to be fair to people, but it is a mistake for people not to perceive that income tax credits have caused a lot of the problems of our times.
I have some criticisms of this Bill. To me, there is too much stealth tax in it, and I feel that Gordon Brown would have been rather proud of it. Indeed, it rather smacks of quite a lot of the type of thing that he used to get up to. Hidden within it, the middle classes, whom I still stand up for, are having their tax bills increased by something approaching £20 billion, but in a way that the Government hope they will not realise, such as in the change on dividend income. No one really knows how dividends are taxed anyway—but that tax will add about £8 billion or £9 billion a year to the bills of ordinary people’s pension funds. I support corporation tax being reduced to 18% by 2020; I accept that to some extent it is a headline tax, but at least that attracts businesses to being based here. But the extra 8% tax on banks makes little sense, to my mind. Banks need another £355 billion of capital over the next few years to be safe against financial risk in future. They have been subject to fines of something like $300 billion, and now there are higher taxes. All that means, again, is that pension fund shareholders will end up having to put up more money; they are the people the Government are really taxing by the 8% profits tax.
The increase in insurance premiums from 6% to 9.5% will hit about 20 million home owners and car owners on their various insurance policies, with a cost in the order of another £2 billion per annum. I wonder why the Chancellor did not stick to the pledge that he gave—which was so popular and led Gordon Brown to put off having an election—when he said that he would simply raise the IHT threshold to £1 million. But no, we have some extremely complicated arrangement, whereby it works for some but, if your estate is worth above a certain level, you do not qualify. Would it have been easier for him to have stuck to his promise, which was extremely popular?
On pensions, I think the lifetime limit is foolish. This country needs a higher level of saving and investment, which is a function of that; we need to stop having to sell the family silver the whole time because our current account deficit is so large, yet we are discouraging the better-off from saving. It is fair that people should all have the same 20% tax credit, but we are getting a pension law loaded to discourage those earning higher incomes from saving more in their pensions.
Then there is something that is not the fault of the Government but, I am afraid, that of the EU Trade Commissioner. I have spoken of the EIS system and the VCT arrangements before—and I declare my interests as chair of the EIS Association. EIS has raised more than £12 billion of high-risk equity investment for small companies, and in 2010 the Government agreed arrangements with Europe that led to big increases in the amount of money that it raised. For reasons I cannot understand, complicated rules have now been forced on the UK by the EU Competition Commissioner that will limit the amount of money available, especially to SMEs that have cut their teeth, been going two or three years, and then need some more money to expand. I cannot see how the EU concept of state aid relates in any way to what the Government of this country choose to do in offering incentives to people to invest in local SMEs. Why does the EU have the right to stick its finger into this and—perhaps not make a mess of it, because there is still good scope—but—damage what has worked extremely well?
Even on buy to let there is a misunderstanding. Before pensions, people used to buy one or two houses, if they could, and let them out. That was their source of income in old age. Those were the people who owned and financed a lot of the Victorian terraces all over south Wales, as well as London. The generation now in their 40s has often gone down the route of buying houses to let rather than using pension schemes—for rather good reasons, because as an asset, houses have performed better. The only tax incentive for that has been the ability to off-set interest. I am not sure how wise these measures will be. Without buy to let, lots of people would have had nowhere to live in the past few years. I certainly do not agree with retrospective taxation. We can change the tax laws for new purchases, but it is unwise to change tax arrangements retrospectively. I can just see what will happen: a time will come when inflation and interest rates rise, and the housing market goes down. Then there will be problems.
That touches on something I mentioned earlier. While the economy is expanding, it is crucial to get our savings rate up so that our investment rate can rise and our external finances come into balance. If anything, what is in the Finance Bill is not at all conducive to saving; in fact it is negative towards saving.
I congratulate the noble Lord, Lord O’Neill, on the discreet way in which he described this measure, but I think it is disgraceful to give HMRC the power to raid people’s bank accounts for sums of more than £1,000. Why should not the Government, like any citizen, have to rely on the power of the courts to go after money owing to them? To me, that is a totalitarian measure of the kind that we have fought against for almost 1,000 years. It shows the Government in a very poor light if they put that sort of thing on the statute book.
I am critical of a lot of the Finance Bill, speaking as a capitalist and as representing, in a sense, the middle classes of this country. But I am full of praise for the Chancellor for the way he has so successfully managed the economy.
My Lords, much has been said and debated in the past few days as to whether your Lordships’ House can amend a statutory instrument that relates to money. As the instrument was not a money Bill, such amendments, fatal or otherwise, were allowable. However there is no doubt that the Finance Bill before us today both is a Bill and relates to money. Therefore, as other noble Lords have said, we cannot amend it.
I would like to take this opportunity to raise what happens when the other place gets it wrong on a money Bill. That can be because too little time is spent in the other place, or because of hasty government amendments. The noble Lord, Lord Flight, took us back a couple of hundred years, but I only want to take us back to March this year. The March 2015 Finance Bill—not the Bill before us today—had a clause added to it without consultation, and was enacted two days after that addition was made. The Government did not notify the umbrella company sector that it would be making those changes at that late stage. In speaking today, I am seeking that the Government should think again with the current Bill and repeal the section in question.
The section will prevent contractors and freelancers claiming their legitimate tax relief at source as they have always been able to do. Instead, because of the hastily added section in the March Finance Act 2015, they will now only be able to claim via self-assessment, which at best will result in a significant delay during which time the individual will be out of pocket. I refer of course to Section 289A of the March 2015 Act relating to exemption for paid or reimbursed expenses. The addition of subsection (5)(b), which contains an innocuous, convoluted phrase, will affect about 400,000 contractors by delaying receipt of their properly incurred tax relief. Whereas at present the tax relief is given at source, it will now have to be claimed after the end of the tax year. Many contractors will fail to do so; many will need to employ an accountant to sort it out; and—just imagine—the overworked and understaffed HMRC will need to process an additional 400,000 tax returns.
I have had recent experience of trying to phone my inspector of taxes. On three occasions, I was told I was in the queue and should be answered in 35 minutes. On the first two occasions I gave up; on the third occasion I hung on for 45 minutes, when a charming, helpful but overworked inspector dealt with my query. My noble friend Lady Kramer and the noble Lord, Lord Haskel, referred to the pressures on HMRC, and the effect of this section in the March 2015 Act will exacerbate that no end.
I have knowledge of this sector of the industry through having served in this House on the Select Committee on Personal Service Companies and as a now retired chartered accountant. Many companies do not employ contractors directly as employees: many use an umbrella company. This is not a brolly manufacturer but a company that acts as an employer to agency contractors who work under a fixed-term contract assignment, usually through a recruitment employment agency in the United Kingdom. The umbrella company receives the fee and pays it to the agency contractor after deducting full PAYE. However, the umbrella company can deduct at source relevant and valid expenses before calculating the PAYE. The expenses will be valid in calculating the tax but by this mysterious section, which suddenly appeared in the March Finance Act 2015 with two days’ notice, the tax relief on expenses would have to wait until the end of the tax year and beyond and use up the valuable HMRC staff time—to which other noble Lords have referred—to achieve no material tax gain to the Exchequer.
This is not only a technical point. Umbrella companies are a critical element in supporting the UK’s flexible workforce. They offer workers the platform to work without the worry of running their own companies while offering employers, directly or through an agency, the flexible workforce they require. Umbrella employees will see significant drops in their monthly income because of the delays they will face when claiming for tax relief that they are legitimately entitled to. Many of those affected will also have the added administrative burden of filing a self-assessment tax return which they had previously not needed to complete.
However, the significant number of umbrella employees in the UK—estimated to be at least 300,000 and probably 400,000—means that this will have a significant impact on the economy, particularly in restricting the flexibility of the workforce. The opportunity to provide contractors with their entitled tax relief at source is a key benefit for individuals choosing an umbrella firm—a perfectly acceptable tax use—and the new law would effectively remove this key commercial advantage, putting the whole industry at risk. The Freelancer and Contractor Services Association calculates the impact of the section is financially greater for many families than the loss of tax credits. That demonstrates how important this is.
I ask the Government to consider in the current Finance Bill repealing Section 289A(5)(b) of the March 2015 Finance Act—I am sure the Minister has it close to his chest and remembers every word of it—or, at the very least, to insert a new clause to delay the implementation of Section 289A(5)(b) for 12 months to enable a full consultation to take place so that an impact assessment can be made. I hope that the Minister will take this suggestion—that is all we can do in a Finance Bill debate—back to the Government so as to remedy in this Bill what may have been the unintended consequences of a section added to the previous Finance Bill and enacted two days later.
Turning back briefly to today’s debate, given that the noble Lord, Lord Lennie, referred to the fact that the reduction in tax credits was a dreadful thing, I ought to put on record that the Liberal Democrat amendment failed. I then went home and on the television I heard the Chancellor of the Exchequer saying that the Labour Party was fully against any reduction in tax credits, which was not what happened in the vote. What we voted for in the end was a deferment of tax credits.
The noble Lord, Lord Cavendish, talked about the tribute to the mayor for Crossrail. I pay tribute to him for giving the credit to the Labour mayor who introduced Crossrail, and for bringing this to this House in that manner.
I hope that the noble Lord will take into account the difficulties of this House giving advice on a Finance Bill—a money Bill—which will be listened to by the other place.
My Lords, I shall comment briefly on just one aspect of the Finance Bill. Before doing so, I must say that it must have been a relief to the Chancellor not to have had to negotiate with the Liberal Democrats.
It is fundamental in this country that all are equal under the law; “all” includes the Government, in whatever guise—the Government, the state, the Administration. No one should be above the law. Schedule 8 to the Bill, briefly referred to by my noble friend Lord Flight, allows HMRC to take money directly from a person’s bank account without first seeking approval from a court of law. Yes, there are safeguards, but the principle behind Schedule 8 is wrong and it should not have been put forward. I imagine that is why the same idea was withdrawn after it was proposed in 2007. There is also some doubt about the security of the safeguards, as Clause 47(2) allows the Treasury to use secondary legislation to amend or alter at will.
It is right that HMRC should be able to collect taxes, but not that it should be above the law. It must be subject to the law in the same way as everybody else. One of the justifications given for enforcement by direct deduction from bank accounts is that more revenue will be raised than would be if HMRC first had to apply to the courts. This raises the question of whether some direct deductions might not have been approved in a court of law. If that were not the case, how could more money be collected?
If Schedule 8 is enacted, there are instances in the Bill where a decision is left to the discretion of HMRC, even if only by default, because of the lack of a time limit for a response or action by HMRC. This could create unreasonable delays, effectively freezing bank accounts. In particular, there is a time limit of 30 days for a response by HMRC in paragraph 11(1) of Schedule 8. Can the Minister clarify that the same time limit applies to paragraph 11(3)? It would appear that it does but that may not be the case.
The Explanatory Notes emphasise that there will be face-to-face interviews with taxpayers before these powers are used. It is too late for this to be in the Bill. We are all familiar with the need to make economies, forcing reductions in public services, but I would argue that ensuring every debtor receives a face-to-face meeting with HMRC officers is not something that should be put at risk when HMRC is looking at ways to reduce costs. I would be grateful if the Minister could clarify that face-to-face meetings will not be abandoned. After all it was a major selling point of getting Schedule 8 to the Bill through the House of Commons.
My Lords, this has been a most interesting debate and the Minister will enjoy summing up these varied contributions. I hear what the noble Lord, Lord Howard of Rising, has just said, and what the noble Lord, Lord Flight, said earlier about tax inspectors. I cannot remember them raising the issue on how the bedroom tax would be enforced and whether people would in any shape or form suffer any derogation of liberty when investigations were done on that front. Of course, we accept that the Inland Revenue has to work within the framework of the law and we are glad that that has been emphasised, so the two contributions were of some value.
I will begin by commenting on those parts of the Bill which my party finds acceptable, and on which we congratulate the Government. On the annual allowance on pensions, Clause 23 restricts tax relief on pensions for high-income individuals by introducing a tapered annual allowance with effect from 6 April. It restricts tax relief for pensions contributions for those who earn more than £150,000 a year. So there is a gesture of some recognition of fairness as far as pensions are concerned.
We also recognise the relief for finance costs related to residential property businesses in Clause 24. That will ensure that relief will be at only 20% for those landlords claiming on mortgage interest payments. Some of them in the past have claimed 45%, which approaches a level of being scandalous. We are glad that that loophole has been plugged.
We are also interested in the anti-avoidance provisions and congratulate the Government on making progress in that area. Clauses 40 and 41 ensure that investment fund managers who receive carried interest are taxed within capital gains rules. We would have liked to see those interest earnings treated as income rather than as a capital gain. The manager does not contribute a meaningful amount to buy the investment, so why he should be taxed at the lower rate in those circumstance is not clear. The OECD has produced a report calling for carried interest to be taxed as income, and I hope that we will subscribe to that position in due course.
We welcome certain other areas of the Bill which, as indicated by the noble Baroness, Lady Kramer, are also welcome to the Liberal Democrats. I see merit in the vehicle excise duty changes, which she praised highly, but not to the extent that she does. We all recognise that VED needed reform. Green or more carbon-efficient vehicles are becoming more common, which will undoubtedly have implications for vehicle excise duty as a future source of government revenue. The fact that zero-emission vehicles will continue to be exempt from road tax is, of course, welcome, but we are concerned that a flat rate of VED, as outlined in the Bill, will mean that low-emission vehicles will pay £800 or £1,000 more over a seven-year period while many high-emission vehicles are expected to pay up to £440 less. We have, therefore, some anxieties about the way in which that new system is being introduced. We also have concerns about the potential impact of the new VAT system on car manufacturing in this country. There certainly need to be changes, but we do not believe that what is included in relation to vehicle excise duty is the right change for the environment, the consumer or manufacturing industry. It is a good shot by the Government but they have not hit the target as we would have wished.
Furthermore, as my noble friend Lord Haskel emphasised—he was very critical of the Government and I endorse his criticism—the position of the Government on green issues in this Bill is lamentable. The Bill removes a climate change levy exemption for renewable source electricity generated after August 2015. Can the Minister say whether there was any consultation with the industry about this issue, or any impact assessment produced? Or is it just another example of the Government undermining investment confidence in the renewable energy sector?
We sought to bring amendments to improve Clause 27 on Report in the other place, but were unsuccessful. Last week, more than 100 green energy groups wrote to the Chancellor asking him to think again and warning that the proposal to deny community energy investors access to both enterprise investment schemes and social investment tax relief is seen by many in the sector as a final nail in the coffin for future projects. This comes in a week when the wider world is emphasising the actions that need to be taken, particularly by the advanced world, to reduce the impact on the environment of global warming. The Government are stepping back from their commitments in these areas. The Government are hollowing out the renewable energy market from producer to consumer. Whether you are a large company looking to invest in a growing global market or a local community energy project seeking to inform and educate the local public, this Government are clearly not on your side.
Members on both sides of the House referred to the fact that the Bill provides for an inheritance tax threshold of £1 million for married couples and civil partners by the end of this Parliament. This was commended by the noble Lord, Lord Flight, and others on his side and criticised by my noble friends Lord Haskel and Lord Lennie. How can the Government continually emphasise that it is about encouraging those of the working population who deserve support but then happily say that it is also entirely right that people should inherit more than they can possibly earn in one year, in fact over 10 years, when property is transferred to them?
Surely there has to be some recognition by the Government, apart from pandering to the electorate in the search for votes, of equity in this area. We have sought, in the other place, to amend the inheritance tax scheme contained in Clause 9, but without success. We had a little more success when subsequently we tackled the tax credit cuts that the Chancellor sought to bring forward. Is it not extraordinary that the Government should think that the poorest in society, those on very modest incomes, should be hit at the rate of £1,300 a year while the better-off should gain from enhanced inheritance tax opportunities? The Government, and the Minister, have a lot to do to justify themselves on this issue.
Another issue has cropped up in the context of whether taxation in our society is fair. More than 30 years ago, when I first entered the House of Commons in 1974, we were just beginning to debate with some force whether levying VAT on sanitary products was biased against women and not fair to the consumer. Over that long period, we still have not levied the same taxation on sanitary products as is levied on chocolate-chip biscuits, Jaffa cakes and toffee apples, which are all exempt from the relevant taxation.
The Government could have done a great deal in the Budget but what was the overall position adopted in it? The Minister introduced the Bill with his usual calm assurance and insight and took us through the clauses very effectively. He prefaced his remarks with a statement about the enormous success of the Chancellor’s management of the economy. However, he is best placed to recognise that aspects of the current economic scene are extremely worrying. Our productivity and investment record are still poor and our productivity rate is below that of our G7 competitors to a greater extent than at any point since 1991. Today, we heard the news that FE colleges are to be blitzed by this Government, thus impacting on those aged 16 to 19 and those who engage in part-time work and study who seek to increase their productivity through improving their skills. There is even the suggestion that 40% of them should close. How on earth can the Government justify that? In the last debate we had on productivity, the Minister made an extremely acceptable defence of the progress of his plans for improving productivity but referred to the role of the education system in improving productivity simply in terms of the universities. Now I know why he did that as he, or certainly his Government, intended to blitz the opportunities for those who do not go to university but who need the skills which our society now largely tends to import from abroad. The Government are doing devastating damage to a sector of the economy which is necessary to increase productivity.
We jolly well need to increase productivity because our balance of payments deficit is at its highest level since modern records began. If this Government were analysed on the basis of the big debates on the viability of the economy that took place in the 1970s, when even importing a few aircraft could cause a Government great balance of payments difficulties, the situation this Government are in at present would be deemed absolutely chronic and one that far outweighs the anxieties that obtained at that time.
The Chancellor told us that his 2010 Budget would ensure that borrowing would reach only £37 billion by 2014-15. Last year, it was more than £87 billion. He said that public sector net debt would be 69% in 2014-15. It was in fact 80.2%. He also promised that the deficit would be eliminated. He has failed on all those counts. Therefore, while I accept the points made in the Minister’s opening remarks, I hope that he will also address the other side of the picture, which is all too bleak.
My Lords, yet again we have had an extremely interesting debate, and I thank all noble Lords for their excellent contributions. As has become my wont in previous debates, especially when not too many noble Lords have spoken, I will attempt to respond to most of what my modest brain could understand about what everybody said. I apologise in advance if I forget some of you, or if I misunderstood some parts.
Let me start with two overall points, especially concerning the comments of the noble Lord, Lord Davies, about the economy in general, because they link to a number of things that noble Lords touched on. Also—I will come back to this issue when I respond to the comments about welfare—it is very important when we debate government policy that we do not forget that it is presented in this Bill in the context of the mandate the Government sought and, importantly, secured in the election that they won with a majority. In the election campaign, the Government made it pretty clear that they were committed to deficit reduction, debt reduction, as low tax as possible and a low welfare spending environment. By and large, that is the framework that has shaped this Budget.
On the economy, I will address the three points that the noble Lord, Lord Davies, touched on in his interesting closing comments. First, I said in my opening comments that we have had considerable discussions about productivity and, given its importance, I am sure we will have many more in this place in the future. I welcome many of the insightful comments that a number of noble Lords made about aspects of productivity. I hope we can learn as we go along, because this is a complex and huge challenge.
As I have pointed out, it is not only the UK economy that has experienced challenges in the past few years. If we can believe the reported data, even some of the supposedly highly productive economies seem to have struggled recently. In addition to the caveat that we will soon get early indications from the independent review which the Government authorised Charlie Bean to undertake—I hope it will include some indications of how productivity is measured—in the most recent quarter, we have some evidence that productivity has started to improve. It is far too dangerous to presume that that is the beginning of a sizeable and permanent improvement, but the latest data show the best improvement since 2011.
On an important and closely related aspect—in my experience, the two go hand in hand—over the past two quarters there have been more encouraging signs about the performance of investment spending. According to our GDP accounts, at least, investment spending has become a more important, positive contributor to GDP. However, I quickly add that, according to some recent business surveys, there has been some softening in the confidence of apparent business investment intentions, which is probably related to global events.
On the balance of payments issue, as I have touched on in previous debates but would like to re-emphasise, it is quite intriguing that our trade deficit, which is usually the subject of most people’s focus on our seemingly never-ending poor performance, has not deteriorated. In fact, it has actually shown some signs of improvement, especially in recent months. But in the main identifiable parts of the accounts, it is the so-called invisibles surplus that has deteriorated. That could be due to something substantial, but it could be something to do with valuation and accounting treatment that is not necessarily going to be permanent, and there may be some questions about the validity of some of the statistics. At the risk of my sounding like a bit of a nerd, the newly appointed governor of the Central Bank of Ireland is a known expert on international balance of payments issues, and it was very interesting to read his suggestion that some of the apparent deterioration in our invisibles account may relate to the behaviour and book-keeping of international companies, which is among the reasons why it is very important that we embolden HMRC to do the work it is tasked with doing. I will come back to this in a few minutes.
I turn now to the individual, very useful comments that noble Lords made. First, the noble Lord, Lord Lennie, spent some time talking about the environment for our tax policy with reference to the fragile economy. In addition to what I have just said, it is quite interesting that the very latest high-frequency indicators, specifically the purchasing managers’ indices for the most recent finishing month, showed in both the manufacturing and services sectors a notable—and to some degree, even for someone like me, surprisingly strong—acceleration. I am not so sure, other than being cognisant of the never-ending uncertainties that go hand in hand with life and the state of the world, quite where the fragilities that he referred to are. I would add in that regard that the tax policy path and the spending path this Government have chosen to pursue do not appear to be slowing the economic recovery, although of course the evidence varies from month to month, depending on the individual economic data.
On the second general point raised by the noble Lord, Lord Lennie, the so-called tampon tax—I apologise for reading the brief; I do not like to do that in my closing comments, as I am sure noble Lords appreciate—the UK does apply a 5% VAT rate to sanitary products, which is the lowest rate currently allowable under EU rules. During the debate in the other House on this issue on 26 October, my fellow Treasury Minister David Gauke said that he would raise the issue with the European Commission and other member states, setting out the Government’s view. I can advise the House that David has now written to the Commission and other member states setting out our strong position that member states should have full discretion over what rate of VAT they can apply to those products.
Turning to the considerable number of lengthy but, as always, very interesting comments made by the noble Baroness, Lady Kramer, again, I apologise that I will not be able to go through them all in the remaining time, but I want to touch on a number of points that relate to both the big picture and the specifics. On the overall nature of fiscal policy, the spending cuts and the figures to which she referred, let me repeat—even though everyone in this place, the other place and the country are aware of this—that one of the reasons why certain areas are being cut to the levels proposed is that the Government, in addition to emphasising their commitment to the lowest tax possible and to deficit and debt reduction, have consciously and deliberately, as part of the election campaign and since, promised to protect key areas which, in my own judgment, are vital to the long-term performance of our country. These are health, education, foreign aid and investment spending and, of course, spending linked to security challenges—following the latest Budget— and defence. It follows by definition that, if you are protecting those areas and are committed, as we are, to deficit and debt reduction, the other unprotected areas have to take the lion’s share of the work.
It is in that context that the interesting comments made by the noble Baroness, Lady Kramer, about welfare payments, and those of many others, should be considered. I am sure—following the rather emotive and intriguing debates we have had about that topic in this House, and what noble Lords have heard from the Chancellor, when he said that he would listen and set out in the Autumn Statement what he would do to address the concerns raised about the transition from a high-welfare, low-wage economy to a lower-welfare, higher-wage economy—that we will have some of these debates again in the future.
However, I will highlight, of the many statistics that are often quoted in debates in the other place and in here, one that I think that we cannot forget. We are about 4% of global GDP and about 1% of the world’s population. It is the case that today, we are spending about 7% of the world’s welfare payments. If we do not believe that we can do something about that, it is a pretty worrying state of affairs, particularly when our economy has improved as much as it has done; and, let me emphasise—in contrast to the tone that was adopted by a number of comments—when we have record levels of full-time employment that are showing continued signs of improving further. If we cannot tackle some of the welfare payment challenges during an economic environment like that, then it is a pretty concerning sign, even though the complexity of our welfare payment system in itself makes it pretty challenging to ensure that none of the policies being pursued has some unforeseen consequences that we did not wish to introduce.
The noble Baroness, Lady Kramer, and others made quite a few comments about skills. I cannot spend too much time on that other than to reiterate, as I said during both the last productivity debate and a previous one, that in my own personal judgment the challenge of skills, within all the factors relevant to the future performance of productivity, will perhaps be the highest one that we face.
It was very interesting and slightly distressing to hear the comments of the noble Lord, Lord Davies, towards the end of his speech, when he suggested that in my previous reference to this I gave the impression that the only thing that mattered was higher education. Let me emphasise right here that that is far from the case, which is why, in the productivity plan, and linked to it, we are very proud of the fact that we have introduced the apprenticeship levy to put more responsibility on the corporate sector, as is the case in some of our fellow developed economies, Germany being a particularly model example in this area. We are also proud that the corporate sector itself essentially picks up a lot bigger share of the indirect, and perhaps even direct, cost of education spending, certainly as it relates to skills. In highlighting further education in the productivity plan, we focused on improving the quality of the further educational attainments of our young adults rather than just their number—both of course are important. I cannot emphasise enough—on my own behalf and, I believe, that of the Government—that there is great awareness of the importance of this challenge and the importance of not just focusing on it in higher education.
The noble Baroness, Lady Kramer, and other noble Lords touched on the Government’s so-called lack of commitment to green policy. The Government remain committed to trying to improve the carbon performance of our economy but they are also trying to be even more focused on the value for money that goes along with a number of these individual policies from the past, especially in the circumstances of our desire to commit to a lower deficit and lower debt.
The noble Baroness, Lady Kramer, and a number of other noble Lords also touched on corporation tax, asking why we are continuing to lower it and, in some cases, why we were favouring large corporations relative to SMEs. I could spend a lot of time on this topic but will just highlight that in the past few weeks, the UK has been recognised positively by independent and globally recognised experts on such measures. I will name just two. In the World Bank’s review of the cost and ease of doing business, we have just overtaken the United States and are now ahead of them on that. Our stance on transparency and tax policy was also mentioned in that review, as it was by the Legatum Institute, which said that the UK’s leadership in Europe is accelerating relative to our European neighbours.
My noble friend Lord Cavendish made some very interesting comments about infrastructure. We are having discussions with many parts of the country about devolution and giving regions more responsibility for some big issues for their future. He touched on a couple of them, and may be aware that Barrow, in Cumbria, is one of the many we are having discussions with. I hope that at some stage those discussions will result in a fruitful outcome for Barrow.
More broadly, I emphasise to the House that I spend considerable time on the fascinating challenge of infrastructure. Whether it be project bonds or any other form of bonds, I am trying to challenge my own mind and my own past of many decades in finance, and the finance industry. At a time when we have such remarkably low bond yields all over the world, rising equity valuations and considerable amounts of cash, along with a massive infrastructure challenge here and elsewhere in the world, somebody in the future weeks, months or years will help us come up with a smart way of doing this that is not just some artificial way of putting it back on the Government’s balance sheets. Many of the suggestions that have been put to me typically end up doing that.
In that regard, I also highlight the very successful role played by the UK government guarantee scheme, which so far is showing signs of helping us boost the scale of our national infrastructure ambition. I cannot finish on that topic without highlighting the fact that since I last spoke in this House, we have announced an independent National Infrastructure Commission, which will pressurise this Government and future Governments over how we rise to these very complex and ambitious infrastructure challenges with our beautiful and complex democracy. Part of the purpose and why I believe that that is such an important thing for us to do is to put us under more pressure to meet those challenges.
I realise that I have taken up 20 minutes of your Lordships’ valuable time, and I now apologise to several noble Lords that I have not had the chance to speak to their individual comments. At the risk of going beyond 20 minutes, I would like to touch quickly on the issue of HMRC, which several noble Lords mentioned.
To meet our fiscal and debt reduction commitments, the Government are committed to trying to tackle tax avoidance. Although it will remain a challenge, given the ambitions that we have set, we are committing the right resources to enable HMRC to ask the right questions and pursue those who are not meeting their obligations. Perhaps I may write to the noble Lords, Lord Flight and Lord Howard, but I can say with some confidence on their specific question that we think there is plenty of protection for people’s individual rights.
I draw to a close. I thank all noble Lords again for their valuable comments, and commend the Bill to the House.
Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time and passed.
Consolidation etc. Bills Committee
Message from the Commons
A message was bought from the Commons that they have appointed a Select Committee of twelve members to join with the Committee appointed by the Lords as the Joint Committee on Consolidation etc. Bills.
House adjourned at 6.53 pm.