Queen's Speech

Lord Oakeshott of Seagrove Bay Excerpts

Wednesday 2nd June 2010 Lords Chamber

[Lord Oakeshott of Seagrove Bay]

My Lords, that was a sparkling and penetrating speech. I am sure that if the noble Lord, Lord Myners, leaves a gap on the Front Bench, the noble Lord, Lord O’Neill, will be well able to fill it if he so wishes. I, too, congratulate the noble Baroness, Lady Wilcox, on her appointment. Having had the privilege of working closely over the past few years with my right honourable friends David Laws and Danny Alexander, I think that David is a tragic loss and I very much hope that we will see him back soon at the highest levels of government. Anyone who knows Danny knows that he will do an exceptionally good job in David’s place.

I declare an interest as a pension fund investment manager since 1976. I now specialise in commercial property, and Vince Cable has just appointed me as chairman of his business advisory group of experts to give him private, informal, and indeed unpaid, advice on business and economic policy.

I will talk today about tax and tax avoidance as the Liberal Democrat Treasury spokesman. Tax was at the very heart of the general election campaign. Our pledge to take anyone earning under £10,000 a year out of income tax struck a real chord with people of all political persuasions and none: combining, as it did, fairness with incentives to work for our fellow citizens trapped by cripplingly high rates of tax if they come off benefits into paid work. That is why that same pledge is now at the heart of our coalition’s Programme for Government. We also welcome the support of the noble Lord, Lord Myners, for the coalition policy on CGT. May I say to him that the coalition’s door is always open?

It is worth reminding ourselves what the Programme for Government says about tax:

“We will increase the personal allowance for income tax to help lower and middle income earners. We will announce in the first Budget a substantial increase in the personal allowance from April 2011”.

That will be funded partly by,

“revenues from increases in Capital Gains Tax for non-business assets as described below”.

We will prioritise increasing the personal allowance,

“over other tax cuts, including cuts to Inheritance Tax … We will seek ways of taxing non-business capital gains at rates similar or close to those applied to income, with generous exemptions for entrepreneurial business activities. We will make every effort to tackle tax avoidance, including detailed development of Liberal Democrat proposals”.

It is important that we remember all those words. A great deal of noise is coming from right-wing commentators, who are trying to chip away at this agreed programme of government, and indeed from Back-Bench Members of Parliament. I was both flattered and alarmed to be quoted by Mr David Davis in apparent support of his campaign against the coalition’s policy on CGT in a full-page article in the Daily Mail the other day, so I checked what I actually said. I was talking about the Tax Reform Commission of the noble Lord, Lord Forsyth, last year, and I am sorry that he is not in his place. I actually said:

“Raising the tax-free personal allowance, slashing fringe benefits and cutting business and personal tax rates by closing loopholes are all our priorities, too”.—[Official Report, 7/5/09; col. 677.]

That is what I said and what I say now, and it is the exact reverse of what Mr Davis implied.

Tax dodging in Britain is a deep-seated, pervasive, pernicious disease that infects our body politic and eats away at society. Of course, some of it has always gone on, and it is difficult to quantify, but I have been working pretty close to the heart of the City now for 34 years. I started at a time when tax rates were much higher than they are today, and I have no doubt at all that highly organised, aggressive, abusive tax avoidance, which used to be a marginal and rather spivvy operation that was frowned on by the main banks and institutions and shunned by top accountants and lawyers who were concerned about reputational risk, has now mushroomed out of all recognition.

Last month, a tax specialist at one of the big four accountancy firms, which by the way charge the British taxpayer hundreds of millions of pounds in fees for consultancy services, explained to me how they convert the hundreds of thousands, or indeed millions, that are earned every year by each of the partners in some of the main magic-circle law firms into so-called capital profits that are taxed at only 18 per cent. These same solicitors also charge the British Government and the British taxpayer millions of pounds for their advice. I do not know how these professionals, who pride themselves on their high ethical standards and high standards of corporate governance, look at themselves in the mirror in the morning. It is not just the private equity bosses who pay less tax than their cleaners.

Tax avoidance is obviously widespread in other areas. Last year, the Guardian exposed Barclays’ highly aggressive tax avoidance operations. Anyone who knows their way around the property market will tell you that precious few luxury houses or flats worth more than £10 million these days ever feature on Land Registry records with stamp duty having been paid. I am pleased to say that, with the support of many noble friends here, we have at least established that after 7 July no one can sit in this place who does not pay full British tax, but that just shows you what a battle this has been.

Taxing non-business capital gains at rates that are similar or close to those that apply to income tax will not just raise revenue to help low and middle-income earners; it is also essential in order to fight the tax-dodging cancer that is simply uncontrollable. There is a yawning gap between an 18 per cent capital gains tax rate and income tax rates of 40 or 50 per cent. As the noble Lord, Lord Lawson, said, CGT needs to be simple and straightforward, as it was under him in the 1980s. Taper relief, as Vince Cable has made clear, is an open invitation to avoidance. It is complicated and just does not work. I would like non-business capital gains to be indexed in line with the retail prices index so that you do not pay on gains over inflation, and to be included simply with income at whatever rate the individual pays. People of modest means would pay no tax on their annual exemption limit or 20 per cent above that, while those on an above-average income would pay a higher rate and pay more. Let us remember that the average income in this country is £24,000 a year. Only about 250,000 people have second homes, on which they have had substantial gains in recent years. Therefore, it is fair, right and essential that we stick to the whole coalition programme on capital gains tax and other things. I am sure that the Chancellor will do the right thing on 22 June.