Finance (No. 2) Bill
(13 years, 5 months ago)
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The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, this year we have faced quite exceptional circumstances. The general election and necessary emergency Budget have resulted in a plethora of finance Bills. The Bill introduced by the previous Government before the election was considered as part of the wash-up process. The second Bill of the year was understandably short as this Government looked to enact fiscal changes to reassure the markets and the British people. This has left a number of more minor, technical measures that need to be legislated this year but for which there was no space in the other finance Bills. They are the measures before us today.
There is little controversy in this Bill. I am sure that noble Lords on the Benches opposite are well aware that all but one of the measures were announced or agreed by the previous Government. That exception is a minor measure to ensure consistency of treatment of capital allowances. This is not to say that the Bill before us is unimportant. The Bill improves the treatment for carers in Clauses 1, 2, 3 and 16. The vital and under-recognised role that they play in society is one that I know is championed by many on all Benches in this House. The changes introduced in these clauses simplify and align tax rules in small but important ways.
Businesses are supported by 10 clauses. Clauses 5 and 6 assure the future of the venture capital schemes that have supported over £10 billion of investment since their introduction. Clause 9 clarifies the rules on company distributions and Clause 11 fixes glitches in the debt cap rules introduced in 2009. Clause 10 assists real estate investment trusts in complying with their distribution rules.
The changes introduced to HMRC powers follow similar changes made last year. These align the penalty and interest rules across the taxes administered by HMRC to ensure consistency and predictability. The changes will also allow HMRC to be more efficient in its application of penalties and interest. Furthermore, the change in Clause 23 to the duty on long cigarettes will allow HMRC to tackle avoidance of tobacco duty—a cause widely supported.
While many of the changes in this Bill are technical and rather sterile there is a softer side. The encouragement of low emission goods vehicles, through changes in Clause 18, will help support a move to a low-carbon economy. Clause 30 allows the national employment savings trust to be established, which will help approximately 3.6 million people save for their retirement. Clause 31 exempts from tax trusts established to help those exposed to asbestos. This change will help to ensure the viability of such trusts—a matter of real importance.
This Bill has also allowed the Government to demonstrate how tax policy making will be improved. The clauses of the Bill were published in draft in line with commitments set out in the June Budget. This allowed eight weeks for consultation, during which over 60 comments were received. Changes were made to nine clauses as a result of these comments. This different approach will ensure greater predictability, fewer changes and better consultation. We have already made a good start on the first of these. My right honourable friend the Chancellor of the Exchequer has announced that the Budget will be on 23 March next year, giving four and a half months’ notice. My honourable friend the Exchequer Secretary has announced that draft clauses for the 2011 Finance Bill will be published on 9 December so that they may be consulted on.
This is a simple, straightforward Bill that eases burdens on individuals, businesses and HMRC. It is one that the previous Government all but proposed themselves. It is brief but important, and I commend it for consideration by the House.
Lord Desai
My Lords, the Minister has done very well in presenting to us what is a non-controversial Bill. My remarks will be about not the technical aspects of the Bill as such but about the slightly broader context.
I recall that when I first came to your Lordships’ House and the Conservative Party was in power, I managed to wangle a day of general debate on the Budget as soon as it was presented in the House of Commons. Since we cannot amend the Budget anyway, we just discussed the Budget while it was still fresh and in the newspapers. I urge the coalition Government to follow that good practice by ensuring that, when the Budget is presented in March next year, we can perhaps have a day of general discussion on it.
Although I welcome the provisions on zero-carbon emissions vehicles and some of the Bill’s other provisions, I want to make two general comments on other measures that, while not strictly related to the Budget, are part of government policy. First, the well publicised proposal to withdraw child benefits from households that pay the higher rate of income tax is, I think, a bad move. Child benefit is currently paid to the mother rather than the income earner, and neither the mother’s income nor her partner’s income has ever been relevant to the mother’s entitlement to child benefit. I think that the Government’s proposal is a bad move, but if the Government are bent on taxing child benefit, they would be much better to include the benefit in the general income tax category so that everyone, whether they pay tax at the 20 per cent rate or at the 40 per cent rate, was taxed on child benefit. If the Government made it clear that the child benefit goes not to the mother but to the household—although that might require primary legislation—and if they were to tax child benefit across the board, people who do not pay income tax would still get the full child benefit and taxpayers would have either 20 per cent or 40 per cent of the benefit taken off them. That is the first thing that I wanted to say.
Secondly, I want to ask the Minister, in light of what has happened since the Budget and since the comprehensive spending review, what his estimates are for the growth prospects of the British economy. For the third quarter, the provisional growth rate figure of 0.8 per cent was better than expected, but it was lower than the growth rate in the second quarter. However, the figure for the second quarter has been revised downwards, to 1 per cent rather than 1.2 per cent. Does the Minister think that those successive three quarters of positive output growth give any assurance that growth will continue and, if so, at what rate? What does the Office for Budget Responsibility advise in that respect? Furthermore, in light of what has happened over the past three to four months, what does the government borrowing requirement look like? Are the Government’s borrowing predictions on track, or will borrowing be better or worse? I would be grateful if the Minister could advise us on that.
Lord Ryder of Wensum
My Lords, I make no apology for treating the Second Reading of the Finance (No. 2) Bill in the same way as the Second Reading of other finance Bills. Exactly a year ago today, during the debate on the Queen’s Speech, I devoted my speech solely to the dangers of inflation. Nothing that has transpired since then has eased the scale of my concerns.
First, let me put my views into context, for fear of misrepresentation. After the crash, I supported quantitative easing as devised by Ben Bernanke. We were very lucky to benefit from his scholarly knowledge of the great depression. As a disciple of Milton Friedman, Bernanke adopted this policy, put to him by Friedman, at his 90th birthday party, shortly before his death. However, I doubt whether Friedman would have approved of quantitative easing mark 2 in the USA—and, above all, here—on the ground of it risking further inflation. Reasons for that have been given with great clarity by Alan Greenspan, the OECD and countless others.
Some of us, opposition veterans in the wars against inflation in the 1970s and Treasury Ministers later, will recognise only too well neo-Keynesian phrases such as “competitive sterling” and “stable inflationary expectations” as no more than euphemisms for creeping inflation. Indeed, Lord Kahn, the neo-Keynesian guru from the 1970s era, preached that,
“the right aim of monetary policy is not to secure a stable price level”.
Kahn’s disciples still prowl in the anterooms of influence, and their drugs of preference remain excessive demand and gradual reflation. These diehards are under the delusion that their drugs are stimulants. They are not. They are sedatives, because inflation retards growth and saps commercial will. Ludwig Erhard wrote:
“Inflation is not the result of a curse or a tragic fate but of a frivolous … policy”.
Can the Bank of England and its Monetary Policy Committee be relied on to reach the right judgments on inflation? After all, for about three and a half out of the past four years the Bank has overshot its inflation target. The governor’s letters of explanation to the Chancellors would fill a Treasury filing cabinet, but sometimes I question whether they were worth the postage. Our inflation rate is consistently double that of the eurozone and the United States. Whereas the Bank blames its errors on “price shocks”, I prefer to ascribe them to blind eyes turned to the glaringly obvious. So it seems, on the surface, does the Bank’s chief economist, Spencer Dale, who has counselled against an increase in money creation through the purchase of government bonds and warned about the perils of injecting further liquidity for fear of it worsening inflation, whereas the governor has often given the impression that inflation, though genetic in our case, is the result of a temporary surge.
It is not hard to account for some reasons why our inflation is double that of the eurozone and the United States. Sterling has fallen by 20 per cent against the euro and 30 per cent against the dollar over the past three years. The GDP deflator has risen by about 5 per cent at an annualised rate that is twice as much as usual. Spare capacity has not borne down on inflation, and the asset price index has burgeoned over the past two years. However, extra tribulations are flooding the pipeline—including the rise in VAT, the increase in gas and electricity charges by 8 per cent from next month, ascending food price inflation, already calculated at 4.4 per cent by the British Retail Consortium, as well as escalating petrol prices. Car insurance has leapt up by 38 per cent and rail fares will exceed inflation for years ahead. It is no wonder that a fortnight ago PIMCO, the world’s leading bond manager, urged caution, saying that over the next three to five years it sees multiple drivers of inflation and that,
“the balance of risk is certainly shifting from disinflation to inflation”.
Of course PIMCO is right. Quantitative easing mark 2 in the United States could be the thin end of another inflation wedge, just as it would be here where the United Kingdom is genetically prone to the disease of inflation. I share the opinion of the German Finance Minister that this undermines the credibility of US economic policy. “Clueless”, he called it. I also sympathise with the Chinese and the Brazilians for castigating the Obama Government for pursuing dollar devaluation as a means of dodging more prudent and effective policies.
Meanwhile the gold price seldom lies, and even silver is at a 30-year high. Cotton and sugar prices have surged by nearly 70 per cent since August. No wonder commodity brokers in the Chicago pits are in full cry. As for the notion that grain prices may have peaked, this may be correct. But before long they will rocket again due to higher demand in Asia and the Middle East. Reflation produces an illusionary joy ride. It is the so-called acceptable level of inflation founded on expediency. The visible effect may seem all right in the short term, except for those living on fixed earnings. The invisible effect—the inevitable medium-term consequence—is that when inflation accelerates, goods are priced out of markets and it becomes harder to create private sector jobs.
I have always believed that the prime economic duty of a Government is to maintain the value of their currency. That is why, as a member of the MPC, I would now join Andrew Sentance in seeking a small increase, if only as a necessary signal, to interest rates. I do not believe that this would disrupt business or consumer confidence. Alas, the credibility of the Bank is at stake—the same Bank whose complacency led in large part to a huge UK private-sector debt and the biggest house-price bubble in British history. They had better not get it wrong again—otherwise the wisdom of Ludwig Erhard will once more prove accurate. Inflation is the result not of a curse or a tragic fate but of a frivolous policy pursued by softheads allowing expedience to triumph over experience.
Lord Newby
My Lords, I congratulate the Minister on the brevity and clarity of his exposition of this brief Bill. I was not looking forward to a 20-minute exposition of Clause 10, for example, and I was pleased that he dealt with it with such expedition. I shall base what I say today on an issue on which the Minister touched, which is how we make tax policy. During my time in the House, making tax policy has been characterised by a number of unsatisfactory features.
First, we have had hugely long Finance Bills, often with 500 pages of legislation, which I think have meant that, cumulatively, we now have the longest tax code of any country in the world. Secondly, these Bills have been produced with little or no consultation on huge chunks of them, with the result that they have sometimes been very poorly drafted and have had unintended consequences which have required the provisions to be repealed within short order.
Lastly, we have in your Lordships’ House established a mechanism for beginning to look at aspects of the Finance Bill through the sub-committee of the Economic Affairs Select Committee, which had one advantage. It meant that there was a certain amount of deliberative consideration of the non-political parts of the Bill—not the rates but the structure—and that officials and experts were able to give evidence and a report was produced. That was the good news. The bad news was that, partly because of the timetable and partly because of the attitude of the Treasury, it was almost entirely wasted time in terms of any effectiveness in what was, for those who were on the committee and their advisers, a very intensive period of work. This system of making tax law was fairly dysfunctional in many respects.
Some aspects of what the Government are now proposing are a great advantage. There is an advantage in producing, in effect, a draft Finance Bill with all bar the rate changes in it, several months before the Budget. In this case, I think it will be three and half months, which gives interested parties plenty of time to make suggestions. I hope that the spirit of accepting amendments that has been adopted with this Bill will be followed through as we move forward. One of the things that is clear in the way in which Finance Bills have been dealt with in the past—I am sure that this was the case when the noble Lords, Lord Sheldon and Lord Barnett, were dealing with them—is that, once the Bill gets before the House of Commons, the Treasury has no appetite for making the slightest amendment on the smallest comma, because in a sense that would undermine its omnipotence in the original drafting. The new procedure breaks away from that unsatisfactory way of doing things.
The other welcome development, which the Minister did not mention, is the establishment of the Office of Tax Simplification. One of the paradoxes, not just in our tax law but in law generally, is that it is easy to make it more complicated but difficult to make it simpler. It is a positive development that some real experts are now spending time cudgelling their brains on how to make aspects of the tax system simpler. I think that it will be a long job before they can claim total success, but it is a move in the right direction.
I have three suggestions for how the process could be improved even further. The first concerns the documentation that is produced at the time the draft Bill is published. I think it is the case in the US that the Treasury there spends more time in its Green Book than is typically the case here in our Explanatory Notes on explaining the reasoning behind the change. That has the advantage that those looking at the draft legislation can form a clear view about whether it is likely to achieve the aims that are set out for it. Sometimes the Explanatory Notes explain literally what the clause says but do not really explain with any clarity why it has been done in that way, or indeed why it has been done at all. There is an enhanced role there for explanation.
Secondly, it is not clear to me that there is an enhanced system of parliamentary scrutiny, either in place or planned, to take advantage of this three-and-a-half-month window that we now have with regard to draft Finance Bills. I know that the Treasury Select Committee in another place will look at this, but that committee has a very full agenda. I wonder whether its members will feel that this should be their top priority when they are looking at so many other things and have such little technical advice to assist them—it is a tough job trawling through all this stuff. As I say, I am not absolutely sure that there is a huge appetite for this in another place.
That brings me back to our own approach. There is now an enhanced opportunity for the sub-committee of the Economic Affairs Select Committee to look at the draft clauses of the new Finance Bill in the way that it has up to now; namely, by taking evidence from Ministers, from officials and from interested parties and then producing a report, but this time producing a report that gives the Government time to consider it fully before the Finance Bill proper is published. It is to be hoped that the Government will see that sub-committee of your Lordships’ House as having significant status when it looks at making changes between the draft Bill and the final version.
Thirdly, it was a retrograde step when virtually all responsibility for tax policy-making was taken away from HMRC and brought into the Treasury. I declare an interest as a former policy adviser on tax to HM Customs and Excise. For much of the Finance Bill one is talking about very technical provisions. I am yet to be persuaded that the Treasury has either the expertise or, frankly, the appetite for the kind of detailed consideration of tax policy that those officials in the revenue departments of old did. They often spent their entire careers working on tax policy, which meant that they had encyclopaedic knowledge of the taxes on which they were advising Ministers. As I say, I am unconvinced that the new arrangements, which have brought that power into the Treasury, are good for either the Treasury or HMRC, which is now being forced to be an executive arm only, rather than a policy-making arm. As these are the people who must make the policy work, they should have a bigger input into it.
As I said in the early part of my speech, the new timetable gives many more opportunities to ensure that tax legislation is better produced than in the past. I look forward to seeing these other developments, which should improve it even further, being adopted by the Government.
Viscount Trenchard
My Lords, with your Lordships’ leave, I will speak briefly in the gap. I congratulate my noble friend the Minister on introducing the Bill today. As he said, the Bill is entirely technical and enabling in nature. It is also, I fear, somewhat dull. That may be one reason why not many of your Lordships have chosen to add your names to the speakers list. However, my noble friend did not mention one point. A substantial part of the Bill is intended to replace technical aspects of our law with European law.
As my honourable friend Jacob Rees-Mogg pointed out in another place, Clauses 5, 6, 14, 18, 19, 20, 21, 22 and 23 are, in whole or in part, requirements of the European Union. Furthermore, related to what my noble friend Lord Newby said, the Explanatory Notes to the Bill provided by the Treasury offer in certain instances, as a reason for changing the law, merely the fact that it is necessary for United Kingdom law to conform to European law. It is disappointing that it seems irrelevant to consider in each case which has more merit. Other than that, I will not detain your Lordships; I just wanted to make that point, which my noble friend the Minister omitted to mention.
Lord Eatwell
My Lords, I am grateful to the noble Lord, Lord Sassoon, for his introduction to the Bill. In the Bill we are told that its purpose is to:
“Grant certain duties … and to amend the law relating to the National Debt and the Public Revenue, and to make further provision in connection with finance”.
I intend to address those broader issues. I hope that, while the noble Viscount, Lord Trenchard, feels the debate has been dull, I might be able to liven things up a little.
I begin by referring to the comments of my noble friend Lord Desai and the noble Lord, Lord Newby. In particular, my noble friend Lord Desai referred to the difficulties in which the Government have now found themselves over their policy of removing child benefit from those families in which one member is a higher-rate taxpayer. My noble friend suggests that child benefit be treated just as a general taxable benefit, and the current structure in which it is simply paid to the woman be changed. I remind him that when the late Barbara Castle introduced child benefit in the 1970s, she was insistent that it should go to the woman for fear that men might, as she said, spend the benefit on drink and gambling.
The Chancellor has said that any woman who lives in a household in which there is a higher rate taxpayer and does not declare the fact will be fined. I suggest a credible scenario to the Minister. Let us suppose that a grandmother, who is a higher rate taxpayer, on the death of her husband moves in with her daughter and young family who are in receipt of child benefit. What will then happen? Will the grandmother be fined if she does not tell her daughter that she is a higher rate taxpayer, or will the family lose its child benefit? This is hardly a family-friendly policy and a number of similar scenarios can be constructed which demonstrate that this change in the law has not been thought through.
The noble Lord, Lord Newby, referred to the changes in the making of tax policy. I have pleasure in following him in welcoming the Government’s changes in tax-making policy. I had the privilege of serving on the sub-committee of your Lordships’ Economic Affairs Committee which examined the Finance Bill. His proposal that its role be extended and that more technical resources be made available to it is a very good one which the Government should take seriously.
As I said just now, I wish to focus my remarks on the wider issues of the national debt. In doing so, I will return to comments made by Mr Bernanke and to the speech of the noble Lord, Lord Ryder. I also want to refer to the overall fiscal stance in the June Budget, of which the measures in this Bill are part of the practical emanation. Two slogans have dominated the presentation of the Budget and of the Government’s policies by the noble Lord and his government colleagues: first, that the budget deficit is, as Mr Cameron has put it on numerous occasions, a burden on our children; and, secondly—the point often made by the noble Lord, Lord Sassoon—that when the Government took office Britain was on the brink of bankruptcy. These two propositions provide the foundation on which the case for the Government’s policies on the national debt and deficit reduction is built, so they are worth examining in detail.
First, let us consider the proposition that the deficit, and the national debt which results, are a burden on our children. While the scale of the nation’s indebtedness is a constant theme of government statements, I cannot remember a single reference by the Government as regards to whom the debt is owed. The answer, as is clear in the data published by the Debt Management Office, is that most of government borrowing is from British lenders, predominantly insurance companies and pension funds but also local authorities and some individuals. In other words, the taxes that are raised to pay the interest on the debt and to repay the premium are raised from British taxpayers predominantly to pay to British taxpayers. The accumulation of debt simply defines a pattern of income redistribution; it does not in and of itself result in a loss of income to Britain as a whole,
What of the fate of our children? If we are placing a burden on our children, the policies pursued today would result in lower GDP per head in the future. But by their own admission, it is the Government’s own policies, not the deficit, that are lowering the growth rate of the British economy; and hence lowering future GDP per head. That is the real increase in the burden placed on our children by this Government as compared with the budget reduction plans advanced by my right honourable friend Alistair Darling. Had the Government stuck to Labour’s plans, our children would enjoy a higher income per head in the future. The loss of GDP growth that is the consequence of coalition policy is the clear and present cost of this Government. Indeed, it is the Government’s lack of any growth strategy that is most disturbing. Will the Minister confirm the story in the Financial Times this morning, which stated that the expected White Paper on growth has been,
“quietly dropped after George Osborne, the chancellor, decided he needed more time to draw up a coherent strategy”?
The report continues:
“The much-awaited growth white paper, which was originally scheduled for publication last month, has been downgraded to little more than a discussion document. Aides admitted the government did not have enough serious content to warrant a white paper”.
No serious content and no coherent strategy—that sums up the Government’s approach to growth in Britain.
There is one sense in which the deficit could be a burden on our children, and that is of the taxation necessary to pay interest or reduce the debt were to reduce the GDP’s rate of growth. No argument to that effect has been advanced by this Government. Let us follow that up. Taken to extremes, it is obvious that taxation can inhibit growth. If taxes were 100 per cent of income, then nobody would be prepared to work or invest, even if those taxes were subsequently redistributed as interest payments. So has the deficit threatened to push taxes so high that growth prospects are damaged? Among the G7 economies, the US, Canada and Japan have lower shares of taxation in GDP than us, but Germany, France and Italy all have higher tax rates, and all the Scandinavian countries have tax rates that are higher than the UK deficit—they could pay it off in one year, yet they still sustain respectable rates of growth.
Of course, the transfer payments demanded by a budget deficit can be an unwanted restraint on other government spending policies. However, the core issue here is balance—which mixture of spending and taxation will secure the best long-term growth of GDP per head for our children? The Government’s slogan-driven policy does not just get the balance wrong, it does not even recognise that there is a balance to be struck.
What of the other pillar of Government sloganeering —the claim that the UK was on the “brink of bankruptcy”. The noble Lord has used this expression so many times that he must be able to tell your Lordships exactly what he means by it. Does he mean that the UK was about to run out of cash, as the Greek Government were? If so, how does he account for the ready supply of cash dispensed in the Bank of England’s programme of quantitative easing? Does he mean that the UK had difficulty funding its bond sales? If so, he should look at the Debt Management Office data which show that not a single gilts auction this year has been less than 40 per cent oversubscribed, and many were 100 per cent oversubscribed. Or is he referring to speculation about Britain being downgraded by the ratings agencies from its triple-A status? Would these ratings agencies to which the Government pay so much attention be the same clowns who told us that securitised subprime mortgages were as safe as Uncle Sam? Given their track record, are these agencies the sort of people who the Government listen to when shaping the economic future of the British people?
Before the Minister replies on the issue of being on the brink of bankruptcy—and I am sure he will reply in detail since that is a favourite expression of his—would he care to reflect on the words of Ms Rachel Lomax, who was, until recently, Deputy Governor of the Bank of England? Speaking in the City just a couple of weeks ago she said that the
“crisis conjured up by George Osborne”
was a “straw man”—a misrepresentation of the true position. She added,
“It's just not true. We weren't on the brink of bankruptcy”.
None of what I have said should be taken in any way to suggest that somehow deficits do not matter. I am arguing that they are simply part of the balance by which the Government seek to secure the best possible performance of the economy. An important part of that balance—
Lord Barnett
I have a Question next Monday on this specific point about bankruptcy, on which I hope we will all have an opportunity to comment. Is my noble friend aware of what the Conservative chairman of the Treasury Select Committee said regarding the exaggerated nonsense—a massive exaggeration—about bankruptcy? In a massive understatement of the real situation he defined it as being “slightly over the top”.
Lord Eatwell
“A massive exaggeration” is a rather balanced statement from a Conservative Member of Parliament, and is balanced nicely by Ms Lomax’s statement, “It’s just not true”.
An important part of seeking balance in the economy is to avoid the slogan-driven hysteria that has characterised economic policy-making under this Government. It is not just that basing policy on slogans can lead to seriously unbalanced policies, but that slogans themselves can seriously damage economic performance. Words used by government Ministers to describe the economy include “shattered”, “busted”, and, of course, “on the brink of bankruptcy”. They have done this over and over again, which can lead to a serious loss of confidence in fragile international financial markets. There is increasing evidence that business and investor confidence has fallen, damaging investment prospects in Britain. Has the noble Lord noticed the conclusions of the latest monitor of UK business confidence for the fourth quarter of 2010, published by the Institute of Chartered Accountants in England and Wales? It states:
“The decline in the Confidence Index has accelerated this quarter, partly reflecting ongoing uncertainty about the path of the UK economy over the coming years ... Business leaders are becoming less sure about the UK's economic prospects for 2011 and beyond”.
That is the impact of this Government's slogan-driven policies.
We on this side of the House have argued for an economic policy based on a balanced appraisal of the relative contributions of fiscal policy and growth in restoring public finances after the ravages of the recession. We support the position taken by the head of the Federal Reserve System, Mr Ben Bernanke, to whom the noble Lord, Lord Ryder, referred. Commenting last Friday on the destructive grip of austerity policies, Mr Bernanke called for,
“a fiscal programme that combines near-term measures to enhance growth with strong, confidence-inducing steps to reduce longer-term structural deficits”.
Those words describe the economic measures put in place by Alistair Darling. They were a measured and considered response to our current economic woes and the very antithesis of the Government's slogan-driven hysteria.
Lord Sassoon
My Lords, the debate on the Bill this afternoon has been interesting and wide-ranging, even though it has been between relatively few of us. It has covered a fair amount of ground. I normally respond thematically to points made in debates, but I am trying to get to grips with the number of them. They cover a wide area and I will try to group one or two together. It is interesting that no noble Lord who has spoken has touched on the details of the measures in the Bill, as opposed to the process by which the new Government are going about making tax policy. I stuck my neck out in my introduction and said that the measures were uncontroversial, and I welcome the fact that they appear to be. I am grateful to have that confirmed.
I will start with one or two comments on growth and the broader strategy. First, it is important to remind noble Lords that we have been rolling out a very considerable suite of growth-enhancing policies, right from the start of the new Government. First, we sent a very strong signal to the markets that we had the deficit gripped and that we had indeed come back from the brink of bankruptcy. That is what has convinced the markets that interest rates can remain low, which underpins what business needs in order to invest.
Lord Myners
My Lords, I come back to a point made in an earlier debate when I asked the Minister whether the differential between UK and US bond rates has widened or narrowed since 11 May. At the time, he shook his head, indicating that they had narrowed. In fact, as he has now been obliged to cover in a Written Answer, they have actually widened. The Government can claim no credit for the reduction in interest rates. It is a global phenomenon and, if anything, the risk to the UK economy is deemed by financial investors to have increased since 11 May, rather than decreased.
Lord Sassoon
My Lords, the noble Lord, Lord Myners, is a master at selective quoting of the evidence. There has been a marginal widening of the spread over the 10-year Treasury, and there has been a significant narrowing against the 10-year bond, which is a much better comparator, and against all the other comparators that I look at on a daily basis. I am very happy to go on answering the noble Lord's questions on this point for as long as he would like, but the predominant evidence suggests that not only have spreads narrowed against the comparators but the price of CDSs on UK gilts has fallen considerably as others have gone up. That is proof that people get the message that we have the growth policies in place. It extends to cutting the deficit, low interest rates, tax policy, the focus on investment in infrastructure in a very tight spending review, the attack on regulation, and I could go on. Whether we shall have White Papers, Green Papers or discussion documents, there has been a very full suite of growth policies and there is plenty more to come.
As to whether I should explain what I mean by the brink of bankruptcy, the noble Lord, Lord Barnett, has already stepped in to point out what I was going to point out: that he has already tabled a Question for oral answer. He has got to the front of the queue, and I do not want to be discourteous to him. He will receive a considered answer.
Lord Barnett
I have no objection whatever if the Minister has a better definition than he has given so far.
Lord Sassoon
For the time being, I refer the noble Lord to the first edition of the Oxford English Dictionary, volume 1, part 2, under “B”, which was printed some time in 1888. That is quite a good starting point. We shall return to that in answer to his Question in a few days’ time.
Lord Eatwell
We are having some fun, but this really is a very serious matter indeed. The Minister has used this expression time and time again as one of the key factors that justifies the economic stance taken by Her Majesty's Government. Is he saying that he cannot stand at the Dispatch Box right now and tell us what it means?
Lord Sassoon
My Lords, as I said, a Question has been tabled and I shall answer it then. I have already referred the House to the two meanings in the Oxford English Dictionary first edition of 1888, which I think explains it very well. We had a reference to PIMCO earlier in the debate from my noble friend Lord Ryder of Wensum. I refer the noble Lord to the comments of the founder of PIMCO a few months before the election when he talked about the toxic pile. He may or may not have been front-running a position, but when the largest bondholder in the world talks about UK debt in toxic terms, the point is well understood. The critical question that arises from all of this—
Lord Marlesford
My Lords, perhaps I may help my noble friend by giving an example of a very dangerous toxic situation that was certainly inherited from the previous Government and of which the noble Lord, Lord Myners, is extremely aware: that is, the level of credit card debt in this country on which interest is being paid—I am not talking about the ordinary stuff that we pay off each month. That has not decreased. According to the Bank of England’s September figures, the level of credit that has been overrun is currently at £58 billion and interest is being paid at more than 15 per cent, which is £9 billion of interest due each year. The noble Lord, Lord Myners, was kind enough to write to all the banks asking them for details of what value they had on their books. Only one answered, and that was Barclays Bank—and I felt that it prevaricated in its answer. Does my noble friend agree that that is an example of the reservoir of potential toxicity that can make people very apprehensive about the fundamentals of Britain's economic situation?
Lord Sassoon
I am grateful to my noble friend Lord Marlesford for pointing that out; I absolutely agree. Any country that has total debt—he is talking about wider debt—of 400 per cent of GDP, as this country has, is indeed skating on very thin ice.
Lord Myners
Surely it is a matter of the purpose for which that debt is used. If the Minister is criticising people for taking out mortgages to buy their homes, which is the largest single source of domestic debt, that is a novel and important statement from the government Benches. Surely, Minister, you need to have regard to both the assets and liabilities on both the public and the private sector balance sheets.
Lord Sassoon
I am grateful for the noble Lord’s attempts to put words into my mouth, but of course we want to see a steady and sustainable mortgage market.
I want to get back to the question of growth and getting the economy on track, which is where we got into this interesting debate but somewhat sidetracked from the main thrust of the debate this afternoon. The noble Lords, Lord Eatwell and Lord Desai, asked about growth, which is important. The question is whether the growth will be sustained and at what levels. I was just looking at the latest of the international forecasts issued: the OECD's November 2010 economic outlook from last week. It is now forecasting growth for 2010 to be 1.8 per cent, growth for 2011 to be 1.7 per cent, and growth for 2012 to be 2 per cent. Of course, we wait until next week to see what the OBR’s latest forecast will be.
On one point of detail from the question asked by the noble Lord, Lord Desai, I do not think it is correct to say that the quarter 2 growth numbers have been revised down. There has been some discussion about what was always seen as a surprisingly high number, but there has been no formal revision of those numbers. If there is, it will be on 22 December. Growth prospects remain robust in the view of most independent commentators, although, as I have said here before, of course the recovery is bound to be choppy.
We then had a couple of comments about child benefit policies. That links into the general state of the economy that we inherited. My right honourable friend the Chancellor announced the withdrawal of child benefit for families containing a higher rate taxpayer in order to make a contribution to addressing the deficit that we inherited from the previous Government. In current circumstances, it is simply wrong that the lower paid should be subsidising the better off. Times are very tough; this is a tough decision but a necessary one. There have been all sorts of suggestions as to how it could be implemented, but the Chancellor was explicit about the need to avoid a complex system of either means-testing or something that would require significant changes to the existing PAYE and self-assessment systems.
Lord Eatwell
On child benefit, I did not argue that it was not inappropriate for the burdens of deficit reduction to be widely shared; I argued that the Government’s policy will not work. It has not been thought through. It is incompatible with the structure of child benefit as it is paid today. Perhaps the Minister would like to take my example of a top-rate-paying taxpayer who, on the death of her husband, moves in with a daughter who is receiving child benefit. Is that grandmother going to be fined by the Chancellor or will her daughter lose her child benefit? I do not think that is very family friendly. Do you?
Lord Sassoon
I have explained the general and difficult principles within which we have had to operate. My right honourable friend has had to make difficult decisions on child benefit. The case study put forward by the noble Lord, Lord Eatwell, reminds me of the sort of things that were presented in a tax exam when I was struggling through my accountancy qualification. Of course there are complicated cases but, as I have explained, in the implementation of child benefit it has been important to avoid a complex system or one that required a fundamental rewrite of the existing PAYE and self-assessment systems.
I come back to the fundamental point underlying all this which is that growth prospects remain on track and, in answer to a related question from the noble Lord, Lord Desai, borrowing remains on track. I will give an update in parallel with the autumn forecast next week, in the normal course. However, in terms of the funding to date, the programme is ahead of the pro-rata schedule, so the Debt Management Office has raised £127.4 billion to date, which accounts for 77.2 per cent of the remit that it was given at the time of the Budget. That is slightly ahead of the pro-rata run rate. The DMO has carried out that mandate on very fine terms. If the remit needs to be changed in any way, that will come next week, in the normal course.
I thought there might be some points to address to my noble friend Lord Ryder of Wensum, but his advice was addressed to the Monetary Policy Committee. I listened with interest to what he had to say and note that in some of the things he has said in this area in the past he has proved prescient. I am sure that the Monetary Policy Committee is listening to his thoughts.
I turn to tax policy making. I was grateful to the noble Lord, Lord Eatwell, for welcoming the steps we have taken and to my noble friend Lord Newby. In answer to their questions, the Government welcome the contribution of the Economic Affairs Committee. If the new timetable gives the Select Committee time to look at the draft legislation, as it should, we would welcome any comments that it has on it. That will add the greater scrutiny and transparency that we wish to see. I take my noble friend’s point about fuller Explanatory Notes and will look to see whether there is any more that we can do on that.
On the question about whether it was right in around 2003 or 2004 to move responsibility for tax policy making wholly into the Treasury, from what I observe of how that operated then and now, there have been considerable gains from the physical collocation of a large part of HMRC’s headquarters and the Treasury. I certainly observe that HM Treasury’s tax policy making is absolutely informed, as it must be, by what HMRC brings to the table, even if the formal responsibility is not what it was originally.
On one final point, my noble friend Lord Trenchard talked about the number of European-related clauses. To get the record straight, in another place, the litany of such clauses was slightly erroneous because, on my list, Clause 14 on film tax relief has no European link, whereas Clause 4 on seafarers’ earnings has a European link. The list is a series of technical adjustments, whether it is the important question of the length of cigarettes to reflect an EU directive aiming at counteravoidance or technical adjustments related to VAT directives. These things are relatively technical and it is important to make sure that we align the details of our regime with what is changing in Europe.
I am afraid that I may have disappointed my noble friend Lord Newby, who commended me charitably for my brief opening, but I will not detain noble Lords any longer other than to say that we have had an interesting debate today. We have not talked in any detail about the clauses of the Bill, which I take to mean that the Bill—in the way that it removes some of the discrepancies that plague our tax system—is welcomed on all sides of the House. I commend this Bill to the House.