Spring Statement

Earl of Lytton Excerpts

Wednesday 20th March 2019 Lords Chamber

[The Earl of Lytton (CB)]

My Lords, it is a delight to follow the noble Baroness, Lady Thornhill. As a fellow vice-president of the Local Government Association, I can relate to her comments. Like the noble Lord, Lord Hain, I declare my complete amateurship among all those who have such great knowledge here.

The Spring Statement has been likened to holding breath. I have previously expressed regret that this whole affair of our relationship with Europe has eclipsed so much else of national importance in the area of necessary self-examination and continual improvement. Although I acknowledge the welcome improvement in the national finances, it is in that context that I look behind the scenes at some of our local management—and certainly, at that concerning building an economy fit for the future, to use the Chancellor’s own term.

I would like to raise a few points, some of which are listed in the post-October 2012 initiatives table and elsewhere in the accompanying documentation. My little list now runs as follows. I start with business rates. Again, I am grateful to the noble Baroness, Lady Thornton, because she has covered so much of the local government side of things. I declare my interest professionally and as an owner of business premises. I have been through this matter on a number of occasions before. Although in its current form the system is not the sole cause of malaise in the business property sector—or, for that matter, specifically the high street—it is a material factor. The truth is that the system has been gamed by HMRC—first, on the spurious ground that the delay in the 2015 revaluation was to the benefit of and provided certainty for the business rate payer, when in fact it was solely for the maintenance of the tax yield; the certainty was one of continued rate charges based on peak market values of 2008.

Reform was promised, but what was in fact put in place was a redress system seemingly purpose-made to make it as difficult as possible for ratepayers to get fair access. I refer to the system known as “check, challenge, appeal”—an online system via the government portal that is so awkward, so poorly designed and so underresourced as to seriously fetter the necessary process of fair access to an impartial system of adjudication. This matters, given the historically high levels of rateable value. The Government point to the small business exemption, but I am afraid I do not buy the excuse of relief for small businesses, when the generality are still treated unjustly, any more than I buy that rather self-satisfied and unquestioning response deployed to justify check, challenge, appeal. New measures to address flagging high streets might usefully look at the imposition of empty rates and consequences of that as regards unlettable property before conferring additional compulsory purchase powers.

Noting the point raised by the noble Lord, Lord Shipley—I am sorry he is not in his place at the moment—I say that a revaluation to achieve land value tax comes at a significant up-front cost and, because it incorporates the concept of most valuable land use, is likely to generate a significant number of additional appeals, therefore affecting the likely yield. So we should be a little careful what we wish for—but it raises a valid point about the need to review the whole system and see whether the whole tax base cannot be stretched somewhere.

Another area of concern on my little list is personal independence payments—PIPs—a large number of unjustly refused applications for which have forced applicants to go through a long-winded process of appeal. This is often successful, provided the applicant lives long enough to collect. This simply plays games with people’s lives, and I find that objectionable.

There are changes in the probate fee arrangements. Leaving aside the level of charges, as I perceive it, both this fee and the way in which inheritance tax has to be paid rely on you getting a grant of probate first, before you can access the deceased’s assets. But the tax has to be paid in advance of that. This seems to put executors in an unprecedented cleft stick unless they can raise a loan or be bailed out by some family member. There is no appeal against this denial of a key principle of fair taxation—that you are not required to pay the tax until you have received the dosh—and I think that ought to be looked at.

HMRC recently announced its intention to progress its Making Tax Digital initiative, about which we heard earlier. This scheme requires those above the VAT exemption limit to make online returns in something approaching real time, but HMRC does not supply or, so far as I can see, approve the necessary software for it, and introduced it at relatively short notice without any proper trialling or, in my view, adequate notice. I have noticed the criticism by your Lordships’ Economic Affairs Committee. Again, there is no redress, and I will wager that if it is anything like check, challenge, appeal, it is another disaster waiting to happen.

I hope I may be forgiven for spotting a pattern here. First, develop a scheme so complicated that the ordinary citizen cannot understand it and will be in no position to mount any challenge. Secondly, in so far as a challenge might be mounted, make sure that in practice this is unavailable or so badly designed or inadequately resourced as to achieve a similar outcome. Thirdly, ensure that tax authorities have free rein to mount a retroactive defence if things go wrong. Fourthly, peddle fake facts to make black appear white and everything appear absolutely fine. Fifthly and finally, where refunds or out-payments are due, delay as long as possible.

To me, this makes it clear why the income tax system in particular is now so complex that no normal citizen is able to comprehend it, let alone complete their own tax return, without professional assistance at significant additional cost. It demonstrates why the complicated process of making returns also contains innumerable tripwires, allied to swingeing penalties for infractions and backed by denial of fair access to adjudication. It all fits into a vicious circle. But complexity in general tax terms, which in business rates administration seems to exceed departmental capability in its own terms, also opens itself up to ever more crafty attempts at evasion or avoidance, even without the curious spectacle of HMRC having approved avoidance schemes. I note that while pursuing self-employed folk under the IR35 scheme, HMRC was simultaneously turning a blind eye to its own employment arrangements, under which new entrants set up personal service companies as required by the Revenue’s own recruitment consultants —a PAYE avoidance scheme on an industrial scale.

I have previously raised the question of the charges raised by Highways England and its contractors for remedying highway defects caused by vehicle accidents on highways. I will not go into the details, but the point here is that the sums claimed thereby from vehicle insurers—the driver’s insurance company—often bear little or no relationship to the much lower charges agreed between Highways England and its contractors. As for the enlarged claims against insurers and inflated premiums in consequence, I note simply that this unjustified practice persists at the hands of a government agency.

In passing, I mention compulsory purchase schemes such as those involved in HS2; there are others. I am told there are ongoing issues over lack of promptness in payment of compensation. I accept that lack of information may sometimes be a factor, but I believe that the acquiring authorities are hiding behind the complexity of the processes to delay paying out.

My point is, therefore, that the policies now implemented are not for the citizen but consciously arraigned against him for the purposes of greater control and coercion by the state and protection of its various departments. Those departments are themselves abusers. Further, in their complexity they have reached diminishing utility, if not actual diminishing returns, and are seriously eroding trust, confidence and adherence. That should be ringing warning bells. It matters if the organs of the state are deliberately pitched against the citizen: wherewith government of the people, by the people, for the people?

We hear about poor levels of private investment, and I see a clear connection between this apparent Scrooge mentality and its inevitable outcome in that dimension. We hear of too many botched and grossly over-budget projects. Why is there this apparent lack of competence—and what about the cost, and the waste involved?

We hear of a growing need for ethical practices in business and commerce. I observe simply that there seems to be a disconnect here. If sharp practices of obfuscation and the covering up of mistakes are going to persist in government, how can we expect the citizen to behave any better? What is to prevent an inexorable slide into the law of the jungle? I believe that we can and must fix this, and the Chancellor can start by calling his own department and its attendant Treasury-funded agencies to order. If not, there ought to be a statutory watchdog with powers to oversee an increasingly out-of-control situation.