Finance (No. 2) Bill
(9 years, 7 months ago)
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Lord Newby
Lord Newby (LD)
My Lords, I beg to move that the Bill now be read a second time.
As noble Lords are aware, when this Government took office in 2010, they faced the worst economic crisis in recent history. Since then, this Government have taken decisive action to deal with the debts we inherited and get the economy moving again. Today we are seeing the fruits of those actions, with the fastest rate of growth among the advanced economies, record levels of employment and debt falling.
The Finance Bill before us today takes further important steps to secure the recovery by helping business and enterprise, tackling tax avoidance and evasion, and helping to deliver a fairer and more efficient tax system. I will outline the contents of the Bill in a moment, but I will first say something about this year’s Finance Bill process.
Yesterday, the Bill was debated for six hours in another place. I recognise that this is a compressed timetable, which limits scrutiny of the bill. However, this Government have done what they can to enable as much scrutiny of the Bill as the parliamentary timetable allows. In December 2014, we published over 250 pages of draft Finance Bill legislation for technical consultation. This meets the Government’s commitment to publish the majority of Finance Bill clauses in draft at least three months ahead of the Bill being introduced. We have met this commitment in every year since 2011.
As a result, 80% of the legislation before us has already benefited from public scrutiny and comment. In many cases, there have been several rounds of consultation prior to the final legislation being published. In addition, this Government have taken steps to limit the size of the Bill by holding back around 50 pages of previously announced legislation which, in our judgment, could be delayed until after the election. The provisions that remain represent genuine priorities—where not proceeding with legislation would result in revenue being lost to the Exchequer, or individuals or companies being worse off or faced with considerable uncertainty.
I now turn to the specific provisions in the Bill: first, growth and investment. The Bill builds on previous Finance Bills by creating the conditions in which business and enterprise can flourish. When they took office, this Government set out their ambition to have the most competitive tax system in the G20, and we are achieving that ambition. Next week, the UK’s main rate of corporation tax will be 20%—far lower than the uncompetitive 28% rate we inherited from the previous Government, and the joint lowest in the G20. UK Trade & Investment reported that the UK had attracted more inward investment projects in 2014 than in any year since records began in 1980. Clause 6 confirms that the main rate of corporation tax will remain at 20% in 2016, giving clarity to business.
The Government are also building on their commitment to support the innovative businesses that will drive future economic growth, through generous tax credits for research and development and reliefs for the UK’s world-beating creative sector. Clause 27 increases the rate of the above-the-line R&D tax credit from 10% to 11%, and the rate of the super-deduction for small and medium enterprises from 225% to 230%. This will increase the generosity of the relief, increasing the incentive to carry on R&D and improving the competitiveness of the UK as a location for R&D investment. These reliefs support more than 15,000 firms and £13 billion of investment annually. Clause 30 introduces a new relief for makers of children’s television programmes. Clauses 29 and 31 increase the generosity of the existing film and television tax credits. Together, these clauses will provide a major boost to investment in the UK’s successful film and television sector.
The Bill also includes a comprehensive package to support the oil and gas sector and secure long-term investment in the UK continental shelf. The Government understand the challenges currently facing the UK oil and gas industry as a result of the steep fall in oil prices, and have been proactive in their response. Clause 49 introduces a new investment allowance to reward investment at all stages of the industry life cycle. This new allowance will build on the UK’s existing field allowances, and has been fast-tracked in response to feedback from industry. Clause 48 reduces the rate of the supplementary charge from 32% to 20% from 1 January 2015, and Clause 52 reduces the rate of petroleum revenue tax from 50% to 35% for chargeable periods ending after 31 December 2015, supporting incremental investment in older fields. Taken together, these measures are expected to deliver more than £4 billion in additional investment in the UK and the UK continental shelf, supporting jobs and supply chain opportunities and securing the long-term future of oil and gas exploration in the UK.
I now turn to the measures in the Bill relating to fairness. The Government believe in supporting low and middle-income earners by allowing them to keep more of the money they earn. We set an ambition for the personal allowance to increase to £10,000 by the end of this Parliament—an ambition which we achieved in April 2014, one year ahead of schedule.
In this Bill, we are going further. Clause 3 increases the personal allowance to £10,600 in 2015-16, and Clauses 4 and 5 increase the personal allowance to £10,800 in 2016-17 and then £11,000 in 2017-18. Clauses 4 and 5 also provide that the higher rate threshold, above which individuals start paying the 40% rate of income tax, will rise above inflation for the first time in seven years. As a result of increases to the personal allowance announced during this Parliament, a typical basic rate taxpayer will be £905 a year better off in 2017-18 compared with 2010-11.
The Bill contains further provisions to help hard-working families. Clause 57 extends the child exemption for air passenger duty so that children under 12 travelling on an economy ticket will be exempt from 1 May 2015 and children under 16 travelling in economy will be exempt from 1 March 2016. This measure will deliver significant savings for families going on holiday or visiting distant relatives.
Meanwhile, Clause 34 ensures that death benefits paid as annuities can be paid income tax free where the member dies before age 75, levelling the playing field with other types of death benefit. This complements the pension reforms announced by the Government at Budget 2014.
This Government believe in a fair tax system where those who can best afford it contribute the most. That is why Clause 24 increases the remittance basis charge for non-domiciled individuals to ensure that those who have resided in the UK the longest make a fairer contribution to UK tax receipts.
Clauses 37 and 39 implement important reforms to capital gains tax. Clause 37 extends capital gains tax to non-residents disposing of UK residential property, ensuring that residents and non-residents are treated in the same way when making disposals. Clause 39 ensures that access to private residence relief is limited appropriately.
Finally, this Bill makes changes to the taxation of the banking sector. The Government have been clear that the banking sector should make an additional contribution to reflect its risks to the UK economy. As the banking sector strengthens, it is only fair that this contribution increases. Clause 76 therefore increases the bank levy from 0.156% to 0.21% from 1 January 2015. In addition, Clause 32 and Schedule 2 provide that banks will only be entitled to offset existing carried-forward losses against 50% of their annual profits from 1 April 2015. This will ensure that banks’ future tax payments cannot be eliminated by losses incurred during the crisis and subsequent mis-selling scandals. Together, these banking measures will raise over £8 billion in additional revenue over the next five years.
Let me turn finally to measures designed to tackle avoidance. It is clearly not acceptable that some individuals and companies are not willing to pay their fair share of tax, and this Government have been resolute in clamping down on avoidance and evasion. Part 3 of the Bill will legislate for a new diverted profits tax. This will counter aggressive tax planning by multinational companies who go to extraordinary lengths to avoid paying UK tax. It targets contrived arrangements that are used to divert profits away from the UK. The new tax will be applied at a rate of 25% from 1 April this year. This measure has been subject to a period of technical consultation and a number of aspects have been clarified in the final legislation in response to stakeholder comments.
The diverted profits tax complements work undertaken through the G20 and OECD base erosion and profit shifting project to reform international rules to counter tax avoidance by multinationals. The UK has been playing a leading role in this work. Clause 122 further supports the BEPS project by legislating for the implementation of a new country-by-country reporting template, which will ensure that multinational companies provide tax authorities with high-level information on profits, taxes paid and certain indicators of economic activity for purposes of risk assessment.
The diverted profits tax is a significant new tool in the Government’s battle against avoidance, but this Bill also legislates for a number of other anti-avoidance measures. For example, Clause 33 and Schedule 3 target wholly artificial arrangements that seek to circumvent the UK’s rules on corporate loss relief by converting old losses into new ones that can be used immediately against unrelated profits. Meanwhile, Clause 117 and Schedule 17 strengthen the disclosure of tax avoidance scheme regime, and Clause 119 and Schedule 8 grant additional powers to HMRC to tackle promoters of high-risk tax avoidance schemes. In all, the anti-avoidance measures in this Bill will raise nearly £2.5 billion by 2019-20 to support the economic recovery.
To conclude, this is a significant Bill, which legislates for important changes to the tax system. It supports investment and innovation and secures investment in the UK’s vital oil and gas industry. It delivers further support for families and low and middle-income earners and tackles aggressive avoidance by companies and individuals. These are sensible measures, which should not wait until the next Parliament. I commend the Bill to the House.
Lord Haskel (Lab)
My Lords, it is a pleasure to speak in the Second Reading debate with such a short and, perhaps I may say, select list of speakers. I start with a question. There is one ingredient which, if inserted into the Finance Bill, would raise pay, raise the tax intake, reduce welfare costs, increase exports, raise our standard of living and cut our deficit. What is that magic ingredient? The Minister will not be surprised to learn that it is productivity. He and I have debated it many times over the years, and I think that he agrees with me.
So why is there no strategy for raising productivity in the Finance Bill? The Bill makes some announcements which may help the nation’s economy. The Minister has mentioned some, but there are others: help for northern cities and the energy-intensive industries; encouraging online sharing; apprenticeship vouchers; and, yes, the tax avoidance that he spoke about. But that is not a strategy. It is not a coherent whole; it is not a clear vision; it is just reacting to events.
The Government do not understand that because they have a one-sided view of the economy. By concentrating on total GDP, they ignore the fact that our GDP per head is 1.8% lower than it was in 2008. Total GDP has risen only because of population growth—largely because of immigration, we have been told. Output per person is 1.8% lower. In his speech, the Chancellor took pride in the fact that Yorkshire had created more jobs than the whole of France. What he did not tell us is that four people in France produce as much as five people in Yorkshire, and we work longer hours. Perhaps that is because the French taxpayer is reluctant to subsidise low wages.
On Budget day, the BBC’s “Today” programme went to Reading. Among others, it interviewed a man who works for a company, not identified but said to be nationally recognised, that guaranteed him seven hours’ work per week. The rest of his hours were subject to summons by text message with 30 minutes’ notice. Not only is that unfair to the employee; it is unfair to the taxpayer. Why should we subsidise that job with housing benefit and tax credit when it would appear that, with better management and a more acceptable business model, the company could reduce the employee’s dependence on taxpayers’ support? Low productivity is enabled—indeed, it is facilitated—by exploiting workers through low pay and unfair terms of employment, and the absence of a sense of public value.
In raising these matters, some accuse us of not being business-friendly. Not true. Does the Minister not agree that the wider interests of business are better served not by leniency towards dubious business activity by people and companies, not by special treatment for powerful lobbies, not by subsidies given to compensate for poor management but by a clear business strategy, especially one to raise productivity? Yes, the Government have tried to have a business strategy, a strategy consisting of helping exports, encouraging those sectors which show promise, innovation stimulus centres—the Minister mentioned others—but they could work a lot better. Why? Because increased productivity is what is really needed to make those initiatives work. The two are interdependent.
What should be in the remaining 337-page Finance Bill to deal with that? Jonathan Portes, director of the National Institute of Economic and Social Research, said:
“The question is: what should the government do? It should go hell for leather on doing whatever it can to boost productivity, like infrastructure investment and housing. We should be throwing the kitchen sink at it.”
In this era of low interest rates, now is the time to boost the supply side. The world is awash with cheap capital, so let us use it to have the blitz on productivity called for by Jonathan Portes.
What makes it more urgent is this. The Chancellor tells us that unemployment has fallen to 5.5%. We are reaching the unemployment norm, which means that future growth depends on raising our productivity. Indeed, without growth in productivity a growing economy means that we will continue to see rising inequality and rising immigration, perhaps reaching a point where things could really become quite nasty. A strategy for productivity means planning for the long term—not changing grants and allowances or doing a lot of the things that the Minister has just mentioned, but spending evenly spread and not what the OBR calls “a rollercoaster profile” for public spending, with a big drop followed by a big rise. That is no way to do it.
If the Government really want to be business-friendly, what about having another 10-year plan for science? What about raising the proportion of GDP that we spend on research? What about introducing the long-term values into our business culture, so that we can take advantage of this? I put it to the Minister that this is what is being business-friendly. This version—our version— will encourage business to be more productive, to invest and to create the kinds of inflation that build the value of our goods and services. What I would like to see in the Bill is a long-term strategy that is business-friendly in its widest sense.
Yes, we have some wonderful companies that take a long-term view and, yes, they will benefit from some of the aspects of this Bill. But it is too little and too slow to deal with today’s productivity challenge. I know that the Minister has heard much of this before, from me and from others, but it does not make it any less true. These are honest, consistent and responsible elements—elements which, I am afraid, are hard to find in the Bill.
Lord Desai (Lab)
My Lords, this is the fifth and last time that we are going to discuss a Finance Bill and all that one can say is that, so far at least, the macroeconomic strategy that the Labour Party had laid down before it went out of office has been achieved by the Conservative Party. We are grateful for that. We said that the deficit should be halved. Given the greater ambition of the Chancellor, at least he has managed to achieve half of the job.
I want to concentrate in this debate on lots of things which have not been done. I do so not from a partisan basis but from the point of view of economics. We continue to tax income rather than consumption, and when we tax income we make far too many small distinctions—between married people and this and that—so that the whole thing becomes very complicated. Again and again, we have tried to simplify the tax system. While the raising of the threshold has been very welcome, it really needs thinking out whether we should not just try to find a suitable definition of consumption. I think that would be easier to define than income, which at the higher levels gets to be a very tricky concept. Lots and lots of tax advisers make a fortune out of trying to game the system, so we should think of doing a consumption tax.
To that extent, I am disappointed that the Chancellor, who is a very innovative person, has not put his mind to this sort of thing. Whoever the Chancellor is next time, they may do that. The same argument extends to corporation tax. Again and again, we tax profits, not resource consumption. The important thing is to tax not achievements but expenditure and the consumption of resources, if we could find a way of taxing resource consumption.
My noble friend Lord Haskel talked about productivity. Another aspect of productivity is asking, “Are you achieving an efficient input/output combination? Are you achieving productivity in terms of the non-labour input as well as the labour input in the way that you conduct business?”. We ought to give incentives in such a way that companies economise on resource use rather than just taxing profits. Again, that is an open question for the future; I do not know whether we will be able to achieve it.
Going further along the line, if we can decide early on that whatever we do should encourage work and employment, we ought then to go on to look at the national insurance contribution. I have never understood why we still have that tax. Again and again, promises have been made to merge it with income tax or do something drastic, but we have not had that. In a sense we are stuck in a rut, because it is easier to make marginal changes to the existing tax structure than to review the tax structure itself. I wanted to make that general comment.
One of the things that we are about to face is that the developed economies, which have had the good fortune to grow well and easily over the past 50 years, are about to enter a low-growth economy. Good times are no longer going to be around as they were before. In that sort of situation, we ought to be much more vigilant about achieving growth-enhancing things to the extent that we can. Ultimately, it will be the human resource, the productivity of labour and the way in which we use our resources that will determine the marginal difference between having, as it were, 2% growth or 3% growth.
We need to rejig our thinking. Growth is no longer going to be automatic and natural. We are going to face severe headwinds unless we rethink our economic system. To that extent, while much may have been achieved in the last five years, we have not had time to rethink our economic system. It is about time that we did that, in which case we would not tax income but tax consumption, not tax profits but tax resource use, not tax labour but reward work and, further along, try to find as many other things as possible that could be growth enhancing. We need Budgets that are genuinely growth enhancing and not just tax concessions to businesses. We need better than this.
Lord Marlesford (Con)
Before the noble Lord sits down, he raised the interesting question of the expenditure tax. He will remember much better than I do Lord Kaldor’s famous book on the expenditure tax, probably in the 1960s or even earlier. The big problem with the expenditure tax, and I just wonder whether he has taken this into account, was the taxation of the benefit of the ownership of capital. Nicholas Kaldor said that it was necessary to attribute a value to capital as part of the formula under which expenditure could be determined. In other words, the return on capital was part of the income, and then at the end of the year it would be more expenditure that would be counted in. This of course raised the whole problem of the taxation of capital and having a wealth tax, and it foundered on that basis. Does the noble Lord have any view on how he would tackle that problem?
Lord Desai
Basically, I would be much more radical than even Lord Kaldor. It is because you are trying to tax income, capital or income from capital that a variety of complications arise in our tax system and our tax code gets ever more elaborate. Beyond the small range of PAYE-type incomes, income is not definable conceptually in economics. Therefore, when you try to tax something called income, you get into complications because people can find ways of redefining whatever it is as not income. The whole approach is really to go down the expenditure tax route—purely expenditure—and not to worry about income of other kinds. If people are deriving income from capital, that is fine. What we would want to know is what expenses they incur in trying to do that, and tax that.
Especially now when we are in a very different dispensation than we have been used to for the past 50 years, we will have to be radical about rethinking our taxation. I would even go further and not worry about considerations like that.
Lord Soley (Lab)
My Lords, I shall make two or three small but important points and one large and general point. I shall start with the large and general point because it follows on very neatly from my noble friend Lord Haskell’s comments on productivity. It is clear, particularly after some of the statements made in Prime Minister’s Questions yesterday, that whoever forms the next Government, they will have difficulty in raising income in a significant way. I remind the Minister of what many of us have been saying over a number of years: that one of the best ways—indeed, the best way—of getting deficits down is through growth. I know the Government will say they are achieving growth, and there is some truth in that, but one of the problems that trouble me is that that growth comes from a low-income use of labour. My noble friend’s comments on immigration are exactly right. Immigration, particularly from eastern Europe, has depressed wages, particularly in the less-skilled areas. Even though these people are often highly skilled, their skills are not recognised here in a way that enables them to get a job. So there is a problem with boosting growth by means other than just increased employment and lower incomes.
The key to addressing the issue is science and technology, as I have mentioned before. In his opening remarks the Minister rightly drew attention to Clauses 27 and 28, which increase the aid provided to small and medium-sized enterprises for research and development. If this country is really to make a success of growth over a long period, science and technology will always have to be at the forefront. We have to do far more to invest in science and technology and, above all, to give small entrepreneurs greater help.
If you look round some of the university cities of this country you will find that many small and medium-sized enterprises have sprung up around those universities. I seem to remember that, many years ago, in the early stages of the Labour Government under Mr Blair, Cambridge did increasingly well with its link between the science departments, the banks and these entrepreneurial people. Somehow or other we have to boost that so that we do not have to rely for our growth on a lower income scale, important as that is. There was a very good article about this in the Guardian the other day. Boosting growth through low-income immigration from other countries might work economically for a while but you will not keep up with what is happening in more advanced technology areas. We have to be at the cutting edge. I would love to see every Budget start with a section on what will be done to give advantage to science and technology. It will also have to be linked to the universities, and the universities will need to be linked to the banks so that the banks will more generously fund and risk-take for the small and medium-sized enterprises.
The argument about immigration needs to be seen in two ways. There is clearly a problem in social terms with the pressure on schools, housing, hospitals or whatever. However, there is also the problem of how the issue feeds into our economy. Overall, immigration has been beneficial to this country—I think that almost everybody recognises that now. However, the question is how we can produce growth out of this immigration, which is why Members on all sides of this House and people outside it take a very dim view of including the many students who come to this country in the immigration figures. That has done much damage to Britain’s reputation, particularly in India. My message to the Government is that, overall, in a Budget which does not have much in it to criticise—although there are a few good things to say about it, which, to encourage the Minister, I will do in a moment—there is not the necessary emphasis on science and technology and small and medium-sized enterprises.
I will give one example. A company in Cardington, the old RAF base up in Bedfordshire, produces in essence a very large inflatable balloon that carries very heavy goods and has already done a tour of South America. I have talked to the company and seen the balloon. This sort of technology can be very helpful environmentally and also very good for our transport infrastructure in terms of transporting very heavy goods, the need for which is becoming increasingly common. For example, the assembly centre for the Airbus industry is largely in France but many of the parts are made in this country and have to be transported to France. These parts are transported in all sorts of bizarre ways as the aircraft themselves are often not big enough to carry them. We need to be imaginative and push such industries forward.
I am sure the Minister will not be surprised if I mention air passenger duty. There has been a small step in the right direction. He said in his opening comments that he thought that Britain must have the most competitive rate in the world. At the moment, however, our air passenger duty actually encourages people to fly more. People in this country will take a short hop across the Channel and then take a long-haul flight as it is cheaper there because they have no air passenger duty. I understand that it is very difficult in the current economic climate to change that overnight. However—and I say this to my own party as well—we need to get rid of the air passenger duty tax if we are to compete with other countries, particularly European countries which can offer far better deals to the travelling public, be it for holidays, work or whatever. That is very important.
I welcome the move to make gift aid easier for intermediaries, and also declare an interest as the chairman of a charity. Our charity will not benefit from this provision, however, because the famous statue of Mary Seacole will be unveiled across the river from here in September or October, we hope, as long as I can raise a little more money. If anyone would like to talk to me about that, please see me after the debate—because I am getting worried. However, that apart, it is so much easier if intermediaries can do the gift aid bit. I welcome the movement on that. It is very helpful.
I also have a small suggestion on car duty. I have been struck by the growth in the number of electric vehicles but, as the Minister will know, in some areas it is difficult to charge them. I do not know the tax position as regards establishing charging points. However, when there is clearly a long-term and important change in vehicle technology, there should be significant tax relief for establishing charging points. There might be some relief already—I do not know. I do not think that the relief should be ongoing but while this technological change is taking place it needs to be encouraged. I am sure that as electric vehicles become more and more common, the supply of charging points will increase to meet that demand. In the short-term, however, such investment could be very useful.
Those were my main points. I will end with a plea which is totally different from the other points—it is not about the Budget per se but about Her Majesty’s income and revenue department. I am one of a fast-growing number of people in this country who hold power of attorney for a relative or friend. Going on to the tax website and trying to find a way in which to deal with it is almost impossible. The only good thing that I can say for the department on this is that it is not alone, in that the banks are equally bad. I have been trying to close down a Barclaycard for two months now. There must be a way of typing into the website on tax matters “power of attorney” and being directed to it, because the situation that I have is that there are no paper records at all. I do not know what the tax position is or where to find the information, so I wrote some weeks ago to the tax department asking where I could find it and where to send my authenticated copy of the power of attorney. I still have not had an answer.
A big advantage for Peers and MPs and so on is that they can write to the Minister, but I do not want to do that. Every department nowadays must have some place where you can quickly access information on the current situation regarding power of attorney. The situation currently is almost impossible. When I asked other people about this, I found that I was not alone in having this problem. It is a very real problem and it can cause considerable difficulties. I am not saying that I am brilliant at using the internet and the web, but I am certainly not bad; if I can pat myself on the back, I would say that I was better than average. I may be being incredibly stupid on this, but I cannot find anything of assistance on the income tax website. I can find things on power of attorney, but the website does not direct you in the right way—nor is it developed enough—to give the information that I need. But that is a non-Budget point; it is a general point about the Minister's department, and I would be very grateful if he would pass it on and get it sorted out. An awful lot of people in this country now have to manage power of attorney—it is a growing number, as I say—and need this information to be on all major websites of private and public organisations.
Lord Davies of Oldham (Lab)
My Lords, we live in a strangely surreal world with regard to this Finance Bill. My noble friends and noble Lords on the government side will recall when they were in the other place long days and nights spent on Finance Bills, watching dawn break across the river as we struggled with the issues presented by their depth and significance. This Finance Bill went through the Commons in one day. The Budget was debated. There was a very good debate in the other place over several days. Of course, yesterday in this House we had four hours of excellent contributions to the general issue of the economy and what the Budget represented in relation to that economy. But I can scarcely for the life of me engender the same degree of intense scrutiny of this one little Bill. Even the Minister was able to dispatch it in 20 minutes or so.
In any case, this Finance Bill is a pretty mean-spirited effort. The Chancellor tried to boast and establish the fact that living standards were not lower than they had been in 2010. It is a strange thing to boast about—that there has been no growth in living standards since that time. In the area where he suggested that there had been some progress, others, such as the Resolution Foundation think tank, challenged his figures and indicated that far from there being income growth for people, incomes had fallen.
We know who has been hardest hit over these past five years—young people, in particular, and middle-aged people with low-paid jobs. There are plenty of those about. We know that there are 1.8 million zero-hours contract jobs at present. I do not know how the Government can be proud of a low-wage economy that has slumped to that level but that is what faces us. When the Minister blithely says that the Government are increasing the personal allowance, he ignores the fact that for 5 million people that is utterly and totally irrelevant as they do not earn enough to pay tax. The changes in the allowance are of absolutely no relevance to them at all. However, the more you earn, of course, the more relevant the changes become. It is typical of the Government to look after the better-off while doing very little to help the less well-off.
What does this mean-spirited little Bill mean? We had the Chancellor trying to talk about success in a land where food banks proliferate. In my old stomping ground of Oldham, rickets has emerged in recent months. Is that the society over which this Government wish to preside? Are the Government content that the pay of chief executives of FTSE companies and of some people in the public sector has increased to the extent that it has while those at the other end of the spectrum experience the difficulties that I have mentioned? We know of chief executives in local authorities who earn considerably more than the Prime Minister. We are also well aware that high salaries are paid to some officeholders whose posts were never distinguished by high earnings in the past. For example, a university vice-chancellor can earn £640,000 a year. I have great respect for British universities. They have done tremendously good work. However, one has to ask questions about the relationship between vice-chancellors and the rest of the scholastic community when their incomes almost equal those of FTSE chief executives. One also has to ask questions about the differential between vice-chancellors’ pay and the average pay of university staff. We hoped that the Government would address some of these issues. When they did address them, on the whole they rewarded the very rich with further tax cuts.
I am grateful for the fact that three of my noble friends have spoken in this debate. I note that no one from the government Back-Benches thinks that it is worth speaking in support of this Bill, although their presence may be an enthusiastic endorsement of what the Government are doing. However, it is a pretty limited endorsement. At least, three of my noble friends have sought to address the Bill. In all honesty, their talents would have been better deployed yesterday because my noble friend Lord Haskel, who spoke so eloquently about the fundamental issue of productivity, a phrase which I do not think passed the Chancellor’s lips at all—
Lord Forsyth of Drumlean (Con)
I am most grateful to the noble Lord. If this is such a bad Bill, which parts of it would he reverse if his party were to win the next election?
Lord Davies of Oldham
Not a great deal. I am not arguing that it is such a bad Bill but that it is such an irrelevant Bill. It contains absolutely nothing of any significance. As I said, my noble friend Lord Haskel alighted on productivity, but that was not mentioned at all in the Chancellor’s speech. However, as my noble friend clearly identified, we have to see improvement in that area if Britain is to earn its way in the world. We cannot be ignorant of our current balance of trade problems.
I listened carefully to what my noble friend Lord Desai argued. He put his case with considerable force and I hope it will get a sympathetic response from those who will lead the next Labour Government after the general election and that they will acknowledge some of the cogent points he made.
My noble friend Lord Soley is absolutely right to say that we need to concentrate on growth. However, as we established yesterday, the Government spent the first three years in office dissipating any potential for growth, and we even dropped back from the growth levels obtained by the Labour Government in their last year in office. There is, of course, growth this year, just before the general election. It is just like the Government’s public expenditure plans: there will be three years of vicious cuts—greater cuts in three years than the country has suffered in five—but there will be a certain easing back by 2018-19 in preparation for the next general election.
The Chancellor has a reputation for being political. He has certainly earned it in this tawdry little Bill.
Lord Newby
My Lords, I thank all noble Lords who have spoken in this debate. I shall come back to the matters raised by the noble Lord, Lord Davies, but perhaps I may correct one point. He claimed, completely falsely, that there was no enthusiastic endorsement from my Benches for the Bill. My noble friends have been restraining themselves, because their enthusiasm is very considerable indeed. I am sorry that he has not picked that up. I certainly have and it has given me great strength.
Lord Soley
As to my noble friend Lord Davies’s speech, the reason why so many people were on the government Benches, none of whom were speaking, is that they were trying to give subtle support to my noble friend Lord Haskel’s point that you can increase numbers without productivity. That is clearly the problem.
Lord Newby
As my noble friend said, a nice try. The big theme of several speakers related to productivity, and I will deal with that as best I can. I should like again to correct the noble Lord, Lord Haskel, about GDP per capita. This year, 2015, it will in fact be 5% higher than it was in 2010, so it is simply not the case that while GDP overall has risen, GDP per capita has fallen.
There is, I think, widespread acceptance that we need to increase productivity. As the noble Lord, Lord Haskel, is aware, there has been a productivity gap between this country and some of our competitors in Europe and the States for a long time. It fell and has risen slightly again. There is an interesting argument to be had about whether, particularly in times of austerity, it is better to have rapid employment growth, even if productivity does not increase as quickly, than to have higher unemployment and higher productivity. Personally, I think that over the last five years the fact that there has been rapid employment growth has been of crucial importance. We are now beginning to see some increase in productivity, and I obviously share his view that we wish this to accelerate.
I should like, though, to tackle head-on the assertion of the noble Lord, Lord Haskel, that the Government have no view or strategy on improving productivity. How do we do it? One of the key points is that we have to improve the qualification and skill levels of the workforce. Everybody agrees on that. We accept that there are far too many people who have far too few skills. That is why, for example, we have accelerated the academies programme to improve teaching in schools.
Lord Davies of Oldham
Does the noble Lord recall the figures of the projected cuts in the further education budget for the trainers of a great number of these people without skills?
Lord Newby
Given the policy of the noble Lord’s party on further education, and given that if you talk to anybody in a university about their absolute fears about what will happen if a Labour Government comes in, with their policies to cut grants, and their views on what that does to university funding, I would have thought that the best thing for the Labour Party to do for the future of universities is to pursue a policy of as much silence as it can manage. In this Parliament we have seen record numbers of young people going to university, including record numbers of girls and of young people from poorer backgrounds. That is exactly the sort of change and development that I thought the Labour Party supported. We have recognised that there is a need to improve skills below university level. As I was saying, we have supported the creation of university technology colleges and overseen the increase in the number of apprentices to 2 million, which is vastly more than obtained during the previous Government.
The noble Lord, Lord Soley, quite rightly talked about the absolute importance of science and technology and the transfer of basic research into business success. We have maintained resource funding and increased capital for science in real terms during the lifetime of this Parliament. Over the period ahead, we are planning some £5.9 billion of investment in the science infrastructure. On how we get that science applied, we have consistently put money into the catapults, the purpose of which is to act as a bridge between universities and firms. These have been extremely successful: the high-end engineering ones have been very successful. I saw the National Composites Centre in Bristol, which is doing tremendous work. It is possible to do that work only because it is a partnership between government, the universities and business. This concept began under the last Government, but we have strongly supported it. We need to do more, first, because it is successful and, secondly, because all our competitors are doing something like it.
Furthermore, in science we have initiated a grand challenge fund, which will deliver some £400 million of funding on a competitive basis for new, world-leading scientific infrastructure. Within the overall area of science and technology, we have put a £100 million investment, for example, into the research and development of intelligent mobility, which is one of the leading potential growth areas on which this country wishes to be, and remain, in the lead.
The noble Lord, Lord Desai, reminded us that the Labour Party legislated to halve the deficit over a four-year period, which is almost precisely what has happened under this Government. On his radical plans for changing the basis of corporate taxes and taxation more generally, this Government increased indirect taxation on consumption by increasing VAT and they have reduced taxation on income by putting up the personal allowance. Clearly that process, at least as far as indirect taxation is concerned, will not be pursued by any party in the next Government, as we heard yesterday.
On the noble Lord’s more radical ideas on taxing consumption, I am not a tax radical, I am afraid, partly because I started my working life as a tax man. I think that grand taxation schemes often have a whole raft of unanticipated consequences. Of course, those who suffer from any tax change make about 100 times as much noise as those who benefit, so politically I wish the noble Lord luck with the sort of grand scheme that he has in mind, but I hope that I am never called upon to try to do something equally ambitious.
The noble Lord, Lord Soley, made a number of interesting and useful points. I am pleased that he welcomed the changes to gift aid, and I wish him well in finishing the funding for the Mary Seacole statue. Having been in charge of fundraising for the Lloyd George statue in Parliament Square, I know just how stressful the process is, and I hope very much that it is quickly brought to a successful conclusion.
I will pass back to my colleagues in the Treasury and the Department for Transport the point that the noble Lord made about subsidising the establishment of charging points for electric vehicles. I have considerable sympathy with what he said about the power of attorney. I have power of attorney for my mother, and trying to work out how to exercise it is really quite difficult. Having gone through the whole process, I found that it was remarkably anachronistic. As we are moving into a period where power of attorney will be required by more and more families, there is an argument for looking a bit more fundamentally at the whole thing and not just at the way in which it can be used once it has been granted.
Lord Soley
I agree with the noble Lord’s general point, but I ask him to do one thing before the House prorogues. Will he ask his officials to put a reference to power of attorney on the tax website so that people can follow the link and find out what to do? That is not difficult to do, actually.
Lord Newby
I will do that very readily. Finally, the noble Lord, Lord Davies of Oldham, described this as a mean-spirited Bill, and he did not have a huge number of positive things to say about the Government’s track record during this Parliament. This is now the end of the Parliament and we have been in government for five years. We came into the coalition to turn the public finances around and to put the economy on a positive track, and that is what has happened. I think of the position that we were in, even when I first stood at this Dispatch Box three years ago, on growth, employment and our prospects in virtually every respect, and I look at the situation now. We have the quickest growth in the G7, the claimant count has come down a third in this Parliament, there are 400,000 fewer households with children with no one in work, and record numbers of women, both absolute and proportionately, at work.
Nobody can claim that the economy has yet reached a state of perfection—that will never happen—but looking at the progress that this Government have made in turning the economy around and making it fit for the challenges that we face, I am very happy to fight a general election on that basis. This Finance Bill completes the process by the Government in that respect and I commend it to the House.
Lord Haskel
Is the noble Lord aware that the figure I used for productivity per person comes from the Institute for Fiscal Studies? I think it can be considered to be pretty good and independent. On skills and qualifications, the Minister spoke of numbers, but it is important to speak of standards, because that is what will help our economy. We do not need what the OBR calls the rollercoaster attitude towards science; we need the continuous support over many, many years.