FSA Investigation into LIBOR

Debate between Lord Sassoon and Lord Lea of Crondall

Thursday 28th June 2012 Lords Chamber

[Lord Sassoon]

My Lords, on the first point made by the noble Lord, Lord Empey, as I have said, other banks are being looked at by the relevant supervisory authorities here and in other countries. All that is ongoing. I very much endorse what the noble Lord has to say about the profession taking responsibility. If the banking industry wants to be thought of as a profession, clearly it should think about how it re-establishes professional standards. I speak as a chairman of the ifs School of Finance, the former Institute of Bankers, so I feel very strongly about that and believe that the profession needs to think about it very clearly.

I am not aware of public authorities being involved. I can be pretty clear that no public body is involved in any way in the LIBOR-setting regime and therefore in what we are discussing this afternoon.

[Lord Lea of Crondall]

My Lords, would the noble Lord remind us of the basis of company law? In whose interests are the banks supposed to be operating? Is it, in some sense, the public interest, the customer’s interest, the worker’s interest? Whose interest is being served by the banks? Is he satisfied that there is now a general perception in this country that it is not like that at all and that the banks are operating in the interest of some people at the top of the banks?

[Lord Sassoon]

My Lords, I think the issue here is that, whatever the law says about the way in which the banks have to operate, the behaviour that has been exposed in this case is that of naked greed, and that is completely unacceptable whatever the legal framework. It is at heart an ethical question as much as anything else, as I see it, and is quite independent of the legal framework around it. Whatever the requirements of the boards vis-à-vis shareholders and other parties, at the heart of this—as has been exposed very clearly by these extraordinary e-mails—were individuals behaving in a most extraordinary way.

Public Service Pensions

Debate between Lord Sassoon and Lord Lea of Crondall

Tuesday 20th December 2011 Lords Chamber

[Lord Sassoon]

My Lords, I am grateful to my noble friend for welcoming this deal. She rightly points out that it means that public sector workers have among the best pensions available in this country, including defined benefit schemes which are not now generally available to people entering private sector schemes. Therefore, I endorse entirely her comments in that respect.

The PCS has not agreed to put the final design of the Civil Service scheme to its executives. It is important to remember that the PCS represents fewer than 5 per cent of the members of the public service schemes and discussions will continue without it. We believe that the final deal—it is a final deal—is a good one and that the remaining unions will recommend it to their members. We are clear that what has been set out today is the Government’s final position.

My noble friend asked about the ability of members exiting a public sector employer to remain in the pension scheme under the “Fair Deal” provision. Implicit in her question was the notion that this may have wider implications. I certainly think that this opens up all sorts of possibilities, whether in relation to the mutualisation of services or the ability of people to come in and out of the public sector.

[Lord Lea of Crondall]

I echo the opening remark of the noble Baroness, Lady Kramer, in referring to the constructive nature of the recent negotiations, albeit at the eleventh hour. I hope that the Minister will take care in saying who represents 5 per cent of what. One minute he is talking about the total public sector negotiation and the next minute he picks out a statistic which is to do with the Civil Service. We ought to be very careful not to pick and mix in that particular way.

I hope that the Minister will comment on a general point: namely, now that we have reached where we have got to, it would be very useful for all of us to discourage people from going in for rhetoric such as many Members of the Minister’s party, both in this House and in the Commons, have indulged in. Their slogan can be summarised as, “Private sector employment is productive; public sector employment is unproductive”. It is not just the Daily Mail, the Daily Express, the Daily Telegraph and the Murdoch newspapers that say that—it is members of his own party in this House and the other House. I do not mean that anyone in this House tonight has said that, but it has been said on other occasions. Such comments are quite ridiculous. People will think that nurses and teachers are unproductive, and that hedge fund managers and second-hand car dealers are productive. Is it not time that, in a modern social democracy or mixed capitalist economy—I do not mind what you call it—we agreed that that is a ludicrous way of dividing people up?

That leads to the point that we must get on with improving pension provision in the private sector. The Adair Turner report on auto-enrolment has been stymied to some extent. Is it not important that we do not have a race for the bottom as regards pensions? I am glad that we have drawn back from that to some extent.

Am I not right in thinking that CPI has been selected instead of RPI because CPI has been growing more slowly in recent years? Would the Government have preferred CPI to RPI if it had been growing faster? I have been around for long enough to know that that is exactly how the Treasury thinks. I ask the Minister whether he agrees with me that there is a position in the final set of correspondence which refers to CPI plus 1.5 per cent or 1.6 per cent, and that that is the rationale for some of the arithmetic, which—understandably, given the Government’s predicament—is based on getting more in for the Treasury, hence the 3 per cent take-away.

Finally, is this not also the time to say, given the huge growth in pension pots for the top 0.1 per cent of people—which is scandalous and is getting up the nose of everyone in the country, apart from that 0.1 per cent—that the idea that we are all in this together is a bad joke, unless that issue is also addressed?

[Baroness O'Cathain]

My Lords—

--- Later in debate ---

[Lord Lea of Crondall]

I am quite entitled to come in for a second time within the 20 minutes. I have been asking a question. Is there not a case for looking at which index should be used, based on considerations other than which one is likely to increase more slowly than the other?

[Lord Sassoon]

My Lords, this was a negotiation between the unions and the employers. It was a choice regarding accrual rates and indexation, and the unions have expressed a preference for going for that measure of inflation, essentially as a way of funding better accrual rates. That was just the nature of the negotiations.

Independent Commission on Banking

Debate between Lord Sassoon and Lord Lea of Crondall

Monday 19th December 2011 Lords Chamber

[Lord Sassoon]

My Lords, on the tightening up of Basel III, as my noble friend puts it, the provisions around loss absorbency of 17 per cent and the bailing provisions are items that go beyond Basel. They are welcomed on a global basis. We now have to make sure that the way in which the EU implements Basel III is not only compatible with Basel III itself but allows the UK to go further for as long as the global community is entirely comfortable with that. Depositor preference requires primary legislation. In relation to primary legislation, discussion of all this and the process, the next major stage will be a White Paper, setting out in greater detail how the remaining important detailed matters will be handled in the draft legislation. The draft legislation will then come. I believe that there will be plenty of opportunity, in a staged way, for noble Lords to consider all the detail.

[Lord Lea of Crondall]

My Lords, is this what one might call the final stage in a number of statements about reform of the banking industry, following what has happened over the past four years? Is the Minister aware of the concern about this up and down the country? I welcome the Statement, with the sort of qualifications given by my noble friend Lord Eatwell.

There is great concern about accounting standards which led to false accounting regarding the state of many banks. While no one is suggesting that any senior banker should be shredded in front of his family, the fact is that there seems to be a total black hole as regards anyone taking any responsibility in the banking industry. Is that not something that still needs to be corrected?

[Lord Sassoon]

My Lords, the report today is a response to the Vickers commission’s work on the structure of banking. I fully accept the noble Lord’s reference to other matters, particularly accounting standards. The committee of this House did some extremely important work in that area. I do not pretend that we are solving everything today and accounting is another issue that I am sure Members of this House will not forget as we go forward.

EU: Member States’ Budgets

Debate between Lord Sassoon and Lord Lea of Crondall

Tuesday 29th November 2011 Lords Chamber

[Lord Sassoon]

My Lords, this country has always been party to the stability and growth pact, but as I am sure the noble Lord knows, under Protocol 15 the UK has an opt-out, which means that we have to endeavour to avoid excessive deficits but are not subject to any sanctions such as members of the euro area are. Furthermore, the UK secured particular treatment that ensures—has ensured and will ensure—that Parliament will always be allowed to scrutinise the UK’s budget ahead of the European Commission.

[Lord Lea of Crondall]

Is it not remarkable that the very same people in all parties who are always criticising the European Union for failing—lamentably, they would say—to ensure that people such as the Greeks, Portuguese, Irish and anybody you would like to mention are not meeting their commitments should now complain when we are tightening up the very scrutiny that they have been demanding? As the noble Lord, Lord Sassoon, has said, this is not just the 17 but the 27.

[Lord Sassoon]

My Lords, I am not going to say who should be complaining about what. All I would say is that the eurozone has got itself into a position where it really needs to get on and strengthen its own governance arrangements. We will do everything to encourage it to do that but we, as the UK, have a particular position that we will also protect to make sure that Parliament is able to scrutinise our budget first.

Living Standards

Debate between Lord Sassoon and Lord Lea of Crondall

Monday 5th September 2011 Lords Chamber

[Lord Sassoon]

Indeed, I agree with the points that my noble friend makes. The Government are working on other initiatives to help address this problem, such as driving through the entire package of tax and welfare reforms, introducing the universal credit from 2013-14 and making it pay to work. It is a terrible state of affairs that everything earned by a lone parent who works part time for 10 hours a week is immediately taken off that person through changes to their tax and benefit. Therefore, the introduction of the universal credit and driving through our reforms to tax and welfare are critical to making inroads into this problem.

[Lord Lea of Crondall]

Does the Minister recall that Mr David Cameron, during the election campaign, expressed regret about growing inequality in this country? Of course, that inequality has now accelerated. Does he not agree that the time has come for remuneration committees, which are mutual admiration societies that have been going higher and higher above the upper quartile, should be subject to a reformed company law structure, with supervisory boards and multi-stakeholders to make sure that these people cannot just go on paying themselves a fortune without any regard to the principle of greater equality?

[Lord Sassoon]

Just to be completely clear, inequality increased under the previous Government. The latest data show inequality coefficients to be flat, but it is too soon to see what the trends are under this Government. However, inequality increased under the previous Government—and that was in a decade when 40 per cent more in real terms was put into working-age benefits and tax credits, so this is a very difficult problem to crack. However, I agree with the noble Lord that it is important that informed and active shareholders make sure that they consider the split of rewards within companies between shareholders and employees—and that is precisely why it is high up the agenda of my right honourable friend the Business Secretary, who is considering proposals as we speak.

Greece: Default Contingency

Debate between Lord Sassoon and Lord Lea of Crondall

Monday 20th June 2011 Lords Chamber

[Lord Sassoon]

I certainly agree with my noble friend that the last thing anyone wants is disorder, whether default or anything else. As I made clear, the next steps are, first, a question for the eurozone itself. We are not directly involved in the eurozone discussions. To address my noble friend’s point, the statement from the euro group today reads:

“Ministers agreed that the required additional funding will be financed through both official and private sources and welcome the pursuit of voluntary private sector involvement in the form of informal and voluntary roll-overs of existing Greek debt at maturity for a substantial reduction of the required year-by-year funding within the programme, while avoiding a selective default for Greece”.

As I said, that is a matter for the eurozone Ministers, but I think that they are addressing the issue in the way that my noble friend suggests.

[Lord Lea of Crondall]

Would the Minister care to remind the House of the percentage of, first, the euro area, and, secondly, of the European Economic Area, of which we are a part, which is constituted by the Greek economy? I would not say that it is peanuts, but is it not a rather low percentage? If Europe wished to, could it not help to restructure the Greek economy—with stringent terms, by the way? Would not the whole House stand behind that policy agreed around Europe and say that we want it to work—God’s speed, we want it to work? Are there not some Members of the House who do not want it to work?

[Lord Sassoon]

I am happy to confirm that Greece is a relatively small part of the euro area but, as we have already identified this afternoon, Greece is interconnected, as are all the European and global financial markets. Therefore, one should not in any way trivialise the Greek situation and the capacity for difficulties in the markets.

That said, it is also important to be clear about the lines around whether the UK should or should not be involved in these matters. We are not a member of the eurozone; we are not going into the eurozone; and we are not going to make any preparations to enter the eurozone in the lifetime of this Government, this Parliament. We must make sure that, on the one hand, we are not part of any ongoing and permanent support mechanism for the eurozone; at the same time, we have to play a full part to ensure that the eurozone economic governance is fit for purpose.

EU: Budget

Debate between Lord Sassoon and Lord Lea of Crondall

Monday 16th May 2011 Lords Chamber

[Lord Sassoon]

My Lords, I completely agree with the need to invest in infrastructure in this country, which is why we launched the first ever national infrastructure plan last autumn, at the beginning of our suite of pro-growth policies. Approximately £40 billion to £50 billion will be invested in the UK's infrastructure each year over the next five years. As to the European budget, it is quite right that we should make our contribution; but it is completely wrong that the previous Government gave away a significant part of the UK's rebate. The European Commission's figures show that in this year alone, the amount of rebate given away by the previous Government in 2005 will cost us £1.98 billion. As the result of the action that my right honourable friends the Prime Minister and the Chancellor took in reducing by half the increase this year, we clawed back £350 million at the December decision. That is the scale of the challenge we face.

[Lord Lea of Crondall]

My Lords, would the Minister care to remind us of the size of the EU budget as a percentage of the gross product of the whole of the EU? Will he confirm that the percentage is roughly the same as it has been for some years?

[Lord Sassoon]

My Lords, there are various ways of peeling that onion, but there is indeed a maximum limit of 1.3 per cent, or thereabouts, of European GNI, and a sub-limit in the current financial perspective of about 1 per cent of European GNI. However, those numbers leave considerable latitude for headroom, and the regrettable fact is that that permits the annual budget to go up, if we do not restrain it, by more than inflation year-on-year. Regrettably, there is not enough constraint on total expenditure and it can rise if we are not vigilantly on the case, as this Government are.

Monetary Policy Committee

Debate between Lord Sassoon and Lord Lea of Crondall

Monday 31st January 2011 Lords Chamber

[Lord Sassoon]

My Lords, I absolutely agree with my noble friend that the Government are concerned about inflation. It eats into the savings of people who did all the right and prudent things through the last decade. We are concerned and are taking actions to make sure that the hard working and lower-income families in this country are protected in the current difficult economic circumstances.

[Lord Lea of Crondall]

My Lords, is the noble Lord aware that the City correspondents seem to be briefed that the inflation increase is attributable significantly to employment incomes rising? In fact they are not rising because, according to the ONS, the statistics now include, for the first time, three public sector banks, which pay out about £25 billion to people. That has given the impression, incorrectly, that average workers in the public sector are getting an increase.

[Lord Sassoon]

My Lords, forgive me but I did not quite follow the logic of all of that. All I can say is that, if we are talking about the City, the Treasury’s latest comparison of independent inflation forecasts from City and other commentators in mid-December shows that the City is forecasting inflation to come down to 1.8 per cent in 2012 and then to be steady at 2 per cent thereafter.

Taxation: Deficit Reduction

Debate between Lord Sassoon and Lord Lea of Crondall

Thursday 28th October 2010 Lords Chamber

[Lord Lea of Crondall]

To ask Her Majesty’s Government how far they expect increased income tax and corporation tax revenues to contribute to the reduction of the deficit.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, the Office for Budget Responsibility’s Budget forecast shows that income tax receipts are forecast to be 10.2 per cent of GDP in this fiscal year and 11 per cent of GDP in 2015-16. The OBR has forecast corporation tax receipts to be 2.9 per cent of GDP this fiscal year and 3.2 per cent of GDP in 2015-16.

[Lord Lea of Crondall]

My Lords, I thank the Minister for that reply but I hope that I may translate his figures into actual cash. Will he confirm that the Red Book, which fully anticipated the cuts announced last week, states that, as compared with the Labour Government’s plans, there will be a reduction in income tax and corporation tax revenue each year until 2014, when the cost will be £5 billion, and that is on top of another £5 billion as a result of lower national insurance contributions from employers? That adds up over the period to no less than £40 billion. Will he also confirm that that £40 billion is additional to the direct Exchequer cost of extra unemployment payouts, forecast by the Office for Budget Responsibility to be higher in every year through to and including 2014, as compared with the Labour Government’s plans?

[Lord Sassoon]

My Lords, as compared with the Labour Government’s plans, an awful lot of things have changed. The first is that we have a credible deficit reduction plan. We have yet to hear the Opposition’s plans on that. There will be a reduction in public spending of £81 billion by 2014-15, but, critically, we need growth, and so 77 per cent of the deficit reduction plan will come out of a reduction in spending. We absolutely want to keep the pain of increased taxation to a minimum. That is why it is absolutely critical and right that our taxation plans aim for lower revenue than do the Opposition, because that is what is required to get growth in the economy going.

Bank of England: Economic Forecast

Debate between Lord Sassoon and Lord Lea of Crondall

Wednesday 6th October 2010 Lords Chamber

[Lord Sassoon]

I am grateful to my noble friend for drawing our attention to the important words of Sir Terry Leahy, the chief executive of our largest retailer. It confirms the remarks of such bodies as the CBI, which now says that the prospect of the UK going back into recession is unlikely, and the ringing endorsement on 27 September of the IMF.

On the second part of my noble friend’s question, it is an absolute priority of the Government to do everything we can to promote trade with the Asian and other economies. I took advantage of the House not sitting in September to visit India and the Gulf to do precisely that. Many of my ministerial colleagues have been doing exactly the same thing.

[Lord Lea of Crondall]

Does the Minister agree that throwing several hundred thousand public servants on to the unemployment register will reduce income tax revenues? Does he also agree that this, in turn, will mean that the deficit reduction will not be as fast as is being forecast, and that the rate of economic growth is likely to be adjusted downwards, rather than upwards?

[Lord Sassoon]

I am not sure I agree with much of the noble Lord’s analysis of the situation, other than that a very necessary rebalancing of the economy has to take place. Within 50 days, my right honourable friend the Chancellor came forward with a radical, necessary and tough Budget. There will be painful adjustments as the private sector takes up the slack from the overbloated public sector. That is fully built into the Budget forecasts and the details of the spending cuts will be revealed on 20 October. The great range of forecasters, including the independent Office for Budget Responsibility, expect growth to continue quarter by quarter, with unemployment falling and employment going up.

Finance Bill

Debate between Lord Sassoon and Lord Lea of Crondall

Monday 26th July 2010 Lords Chamber

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, I beg to move that the Bill be now read a second time.

This Bill follows the emergency Budget and puts in place many of the measures necessary to gain control of the public finances and strengthen the economy. Despite its brevity, this Bill makes significant and necessary changes to our tax system—changes that will secure fiscal credibility, changes that will promote free enterprise and changes that will promote fairness, especially for the most vulnerable in society.

Our Budget was necessarily a tough Budget, but it was also a fair Budget. It set out the decisive and credible plan that is necessary to deal with the record deficit that this Government inherited. We currently have the largest budget deficit in Europe, with the single exception of Ireland, and we are borrowing one pound for every four we spend. Our deficit reduction plan will pave the way for sustainable, private-sector led growth, keep interest rates lower for longer and help to support jobs in the private sector. I cannot put it better than the noble Lord, Lord Myners, put it in this House on 8 June, when he said:

“There is nothing progressive about a Government who consistently spend more than they can raise in taxation, and certainly nothing progressive that endows generations to come with the liabilities incurred by the current generation. There will need to be significant cuts in public expenditure”.

The noble Lord went on to say:

“The Government cannot create jobs. The Government can create an environment that is conducive to the creation of jobs, but they cannot create jobs and we mislead ourselves if we believe they can”.—[Official Report, 8/6/10; col. 625.]

Earlier this month, in its report on the UK, the OECD said:

“The comprehensive budget announced by the government on 22 June was courageous and appropriate. It was an essential starting point. It signals the commitment to provide the necessary degree of fiscal consolidation over the coming years to bring public finances to a sustainable path, while still supporting the recovery”.

Despite containing only nine substantive clauses, the Bill represents a clear change from the past and a new direction of travel. As my honourable friend the Exchequer Secretary said to the other place, it is underpinned by the three principles of responsibility, freedom and fairness. First, the Bill is based on the principle of responsibility. We are taking responsible action to restore our nation’s finances because failure to address the deficit is the greatest economic threat that we face. We have been honest about the scale of the challenge and we have been honest about the actions needed to address it. If we are to bring down the deficit without cutting vital public services, raising valued added tax is an unavoidable choice.

For the first time, we have published within the Budget an analysis of the distributional impacts its measures will have. This shows that fairness underpins the tough choices that the Government have taken to tackle the deficit. It shows that this is a progressive Budget that deals with the deficit fairly: all sections of society will contribute, but the richest pay more than the poorest. We cannot, as some have done, look at the VAT increase in isolation. It is part of a wider package that ensures that the most vulnerable in society are protected. Without tough action on the deficit we risk losing the freedom to protect the services that the most vulnerable rely on.

Our long-term objective remains to increase the income tax personal allowance to £10,000, as set out in the coalition agreement, and we will take steps towards achieving that objective through the rest of this Parliament. Additionally, we have taken steps to increase child tax credit by £150 next year and £60 the following year. As a result of that, the level of child poverty will not increase.

Secondly, the Bill is based on the principle of freedom of enterprise in Britain, the freedom that our private sector so urgently needs in order to thrive and to spearhead a strong and stable recovery. A genuine and long-lasting economic recovery must have its foundations in the private sector. By cutting the corporation tax rate to 27 per cent, the Bill takes the first step towards reversing the decline in the UK’s competitiveness that we have seen over the past decade. As the Budget announced, we will continue to cut the rate of corporation tax by one percentage point every year until it reaches 24 per cent—the lowest rate of any major western economy and the lowest rate that this country has ever known.

The concern has been raised that cutting the main rate of corporation tax would mean that banks do not pay their fair share of taxes. However, I would point to the wider reforms outlined in the Budget, in particular the announcement of a banking levy, which will, in fact, ensure that the banking sector makes a greater contribution, one that outweighs the benefit that it receives from lower corporation tax rates. Banks will pay at least £2 billion more in tax as a consequence of these proposals.

Concerns were also raised in another place that the banks will not be deterred from pursuing risky behaviour. This is not the case: we have taken a targeted approach that preserves competitiveness, while ensuring that those who indulge in risky behaviour pay an appropriate premium for it. Tax competitiveness is good for employment and society as a whole and the bank levy allows us to be competitive while ensuring appropriate tax treatment for those activities that pose the greatest threat.

The reduction in the main rate of corporation tax is just one part of a wider package to build a private sector led recovery. Instead of increasing the small profits rate by 1 per cent, as planned by the previous Government, in next year’s Bill we will cut it to 20 per cent, benefiting some 850,000 companies from April 2011. We are also increasing the threshold at which employers start to pay national insurance contributions, and the Budget included a wider package of support for small businesses.

As we cut the rate of corporation tax we will also reduce allowances. The Budget announced a reduction in the writing-down value of plant and machinery allowances to 18 per cent and a reduction in the annual investment allowance to £25,000. However, allowances will remain broadly in line with depreciation and the annual investment allowance will still cover the annual qualifying expenditure of 95 per cent of businesses. Furthermore, by reducing the main rate of corporation tax in 2011 and changing allowances only in 2012, we are giving companies a timing benefit, which will form part of the £13 billion additional investment that we expect as a result of these changes.

Thirdly, I come to the principle of fairness in the Bill. Clause 2 increases the rate of capital gains tax for higher-rate taxpayers to 28 per cent. This progressive change will substantially reduce the incentive for individuals to disguise their income as a return on capital and will ensure that the appropriate rate of taxation is paid. This is fair in itself, but we have also ensured protection for those on more modest incomes. Consequently, those who pay only the basic rate of income tax will carry on paying capital gains tax at 18 per cent. In addition, this increase in the rate will help to fund the increases in income tax personal allowances that I mentioned. Those who have the most will help to lift more of those who earn the least out of income tax altogether. The optimum rate of capital gains tax has been debated at length in another place. Treasury analysis has shown that 28 per cent is the revenue-maximising level and is therefore the appropriate rate. A different value would reduce revenues, either by increasing the incentive to shift from income to capital or by reducing the incentive to invest in the economy.

Tax avoidance has also been a significant issue during the passage of the Bill. It was raised in reference to corporation tax and capital gains tax and is the target of Clauses 8 and 9, which together protect around £200 million of revenue per annum. The Government are absolutely committed to tackling robustly avoidance and evasion. We must continue to take the necessary steps to protect the Exchequer and to maintain fairness in the tax system. In the future, we want to take a more strategic approach to tax avoidance by protecting against such opportunities when reforming policy and by seeking to reduce complexity within the tax system. Against this background, we are considering whether a general anti-avoidance rule should form one element of those defences and we will seek the views of interested parties on whether there is a case for this approach.

The Government have inherited plans to limit tax relief on pension saving for the wealthiest. Under the approach of the Finance Act 2010, individuals on the highest incomes who are able to make very large pension contributions could have continued to receive pensions tax relief worth up to £51,000 every year. We have concerns about both the complexity and the fairness of the previous Government’s approach but, given the state of the public finances, we cannot ignore the £4 billion of revenue that this policy was set to raise. We are committed to protecting the public finances and we will put forward an alternative measure that will raise no less revenue than the existing plans. We are looking at an approach where annual tax relief available will be restricted to less than half that available under the previous Government’s plan, which will significantly curtail the ability of the super-rich to benefit from pensions tax relief. We want to ensure that this is a fair and effective approach and will be talking to employers, pension schemes and other interested parties to determine the design of an alternative scheme. It was requested in another place that the Government publish an analysis of the impacts of the alternative measure that we establish. I can confirm that the Government, as a part of our commitment to transparency, will publish a range of assessments alongside the legislation, including the impact on the economy and the impacts of the policy, as suggested.

This is a progressive Budget. It ensures that every part of society makes a contribution to deficit reduction, while protecting the most vulnerable, including pensioners. In fact, the Budget included a number of measures to support pensioners, not least our triple lock guaranteeing an annual increase in the state pension in line with earnings, prices or a 2.5 per cent increase, whichever is highest, to the benefit of 11 million pensioners across the country.

[Lord Lea of Crondall]

Is the noble Lord suggesting that inequality in Britain will be reduced by this Budget?

[Lord Sassoon]

My Lords, as I have already said, the Budget document sets out transparently for the first time tables which have never been published before and indicate the effect on different decile income bands of the population. These show that the Budget is progressive in its effect.

Continuing on the theme of pensions, the Government will enable people in retirement to make more flexible use of their pension savings. We intend to end from April 2011 the obligation to annuitise by the age of 75. Last week we launched a consultation on the detail of this change. The Bill therefore provides interim measures which delay this requirement until an individual has reached the age of 77, so that people turning 75 on or after the day of the Budget will not be required to annuitise before the new system is introduced in next year’s Finance Bill.

To conclude, the Finance Bill is founded on the principles of responsibility, freedom of enterprise and fairness, and is a vital part of implementing the changes to the tax system set out in the Budget. I look forward to hearing this afternoon’s speeches. In particular, I will listen intently to the maiden speeches of my noble friends Lady Browning and Lord Spicer, who bring many years’ experience of scrutinising Finance Bills in the other place. I commend the Bill to the House.

Finance Bill

Debate between Lord Sassoon and Lord Lea of Crondall

Monday 26th July 2010 Lords Chamber

[Lord Sassoon]

The OBR receives unpublished information of different kinds and then publishes its forecasts publicly. I should have thought that the information the OBR has is of limited ongoing value. However, I have listened carefully to the points made by noble Lords. As the legislation to set up the OBR on a permanent basis goes through the House, there will be other opportunities for noble Lords to discuss the issue more fully. However, as we are concentrating today on the Finance Bill, perhaps I may move on and discuss matters which are of more direct relevance to that Bill.

I have said, and will return to say again, that the new fiscal mandate will eliminate the deficit in five years and that the bulk of this reduction will come from lower spending rather than higher taxes. However, this autumn’s spending review is not only about cuts and tackling the deficit; it will be a complete re-evaluation of the Government’s role in providing public services. I take the point to which my noble friend Lord Razzall rightly drew attention in our earlier discussions about this. As to the specific point made by the noble Lord, Lord Barnett, even areas which are protected—such as the National Health Service—will be looked at to ensure that administration costs are cut. I agree with the noble Lord that that should be done; the question is where and how such administration cuts should be recycled.

We have set out our steps for tackling the budget deficit and we have done so in a more transparent way than any previous Government. Some noble Lords have argued that, because we have lifted the skirt a bit, they would now like the skirt to be lifted a lot further. However, they do not give us much credit for the greater transparency we have already introduced.

We are on track to have debt falling and a balanced structural current budget by the end of this Parliament. It is only by acting quickly to tackle the deficit and restore confidence in the public finances that we will underpin and achieve economic growth. Action of this kind requires us to take tough decisions. A number of noble Lords have questioned this basic judgment, starting with the noble Lord, Lord Tunnicliffe. I was struck by the intervention from the opposition Benches of the noble Lord, Lord Desai, who did not in any way question the basic Budget judgment and gave a very balanced account. I had a look two or three times at the briefing notes that officials had given me just to check that the noble Lord was sitting on the right Benches, because I thought it was a very balanced account of the judgment that has been taken. And of course there are risks ahead. The basic judgment was questioned by other noble Lords, including the noble Lords, Lord Tunnicliffe and Lord Rosser. We had one quote from the OECD. The one I have to hand is from its Secretary-General, Angel Gurría, who hailed the Budget as a courageous move by the British Government, and said:

“It provides the necessary degree of fiscal consolidation over the coming years to restore public finances to a sustainable path, while still supporting the recovery”.

That is the basic judgment at the heart of the Budget.

The recent G20 communiqué stated that those countries with serious fiscal challenges needed to accelerate the pace of consolidation. The noble Lord, Lord McFall of Alcluith, says that it is the UK Government calling for early fiscal consolidation but it is actually the G20 that is calling for countries such as the UK to get on with it. The noble Lord, Lord Davies of Oldham, says that we are not adopting the same policies as certain other countries. Too right. Different countries need to adopt different policies appropriate to their particular circumstances, and our circumstances are regrettably that we inherited from the previous Government the largest budget deficit in Europe except Ireland, and we have to get on and tackle it. The bulk of the deficit reduction will come from lower spending but given the astonishing size of the budget deficit, we have not been able to avoid the need to raise some taxes. My noble friend Lord Higgins asked what increase of revenue there would be in the current and next year. The figures in the Red Book in Table 2.1 on page 40 show that the amounts raised by tax policy decisions in the Budget represent an increase in revenue of £2.8 billion in 2010-11 and £6.25 billion in 2011-12.

The choices that we have now made are ones that face up to the challenges ahead and do not simply defer them to future generations. There has been precious little from the opposition Benches in the way of alternative plans and thoughts as to how we are to deal with it. I welcome the contribution from the noble Lord, Lord Skidelsky, in one respect and that is that he put up a radical alternative vision. It seemed to be founded on the starting premise or assertion that we can continue to push up government borrowing without limit, although even he went on to recognise that certain Governments have got to the limits of what the borrowing capacity of a country can be.

There was an interesting contrast between the contributions from the noble Lord, Lord Skidelsky, and my noble friend Lord Bates. The noble Lord, Lord Skidelsky, postulated what might cause a businessman to invest, but I heard from my noble friend Lord Bates pretty much what I had already scribbled down as what I thought businessmen wanted, which is that they will increase their investment when they have confidence that there will be increasing orders from their customers. I believe that their confidence in their customers will be founded on the customers’ view of whether there is a grip on the economy. Businessmen will look at the level of interest rates and they will want to see them kept low. They will want and need to see credit continuing to flow. They will need to see that government expenditure is under control. They will want to see that regulation is being tackled. They will want to see predictable and falling corporate tax rates. They will want to see that employment taxes are being cut from where the previous Government intended to take them. They will want to see that the Government, in cutting back expenditure, are maintaining investment in those areas of economic growth. These are all things which I see in the total Budget package. I agree with my noble friend Lord Bates on them.

There was discussion about value added tax and, in that context, whether this a progressive or regressive Budget. We are taking responsibility in this Bill for the financial challenges that we have inherited but in a way that is fair and open. Everyday essentials such as food and children’s clothing will remain zero-rated for VAT throughout the Parliament, protecting those on low and middle incomes. Those most affected by the VAT rise will be those who spend the most. This is clear in both government and independent analysis. If one looks at the impact of expenditure by decile, as is appropriate for a tax on expenditure, one sees that the richest pay the most and the poorest least. These points were questioned by the noble Lord, Lord Tunnicliffe, but were knocked admirably on the head by the noble Lord, Lord Desai, who said that it was wrong to suggest that VAT was necessarily a regressive tax. I do not want bore everybody with more quotes from the IFS, but its view is that total expenditure is the more appropriate guide to lifetime living standards, as households smooth their expenditure over their lifetime. Analysis by expenditure rather than income level is therefore a better measure of the impact of the VAT increase and, on this basis, the VAT increase is progressive.

Other noble Lords made wider points on whether the Budget is regressive or progressive, including the noble Lords, Lord Lea of Crondall, Lord Rosser, and, again, Lord Myners. They questioned whether policies of the previous Government should be included in the assessment. The IFS accepts that, looking at the Budget as a whole, the changes are progressive. It does not make sense, surely, to ignore the policies of the previous Government which the coalition Government have decided to retain and will legislate to implement.

[Lord Lea of Crondall]

The Minister is rather gratuitously missing the point. The Government have never made that clear when they proclaim that the Budget is progressive. I can make their sums add up to that conclusion only by including the March measures of the Labour Government. That is an astonishing thing to do.

Will the Minister agree to desist from claiming that this Budget has those effects? Does he agree with the Treasury Select Committee that a proper analysis of the income redistribution effects of measures announced this year should include the public expenditure cuts and that they should be looked at together? The noble Lord, Lord Razzall, and I persistently have asked these questions. This is an opportunity for answers. They are serious questions and they need serious answers.

[Lord Sassoon]

My Lords, given that I have just said that I thought it appropriate for the assessment of the total effect of the Budget to include an assessment of those policies proposed by the previous Government which the coalition Government have decided to retain and will legislate to implement, I am at a bit of a loss to understand the premise of the noble Lord’s question. I am not sure that this stage of the Bill is the point to be going into clarifications of this kind, so, if he will permit me, I will move on.

I turn to the welfare budget. We have to strike a balance between what is right to do with the welfare budget on the one hand and the depth of cuts to public expenditure on the other. If we fully protected the welfare budget, it would force deeper cuts to public spending, which could affect the services on which the most vulnerable in society depend. Refocusing benefits so that they go to those who need them most helps in turn to relieve pressures on front-line spending. I remind noble Lords that 880,000 people on the lowest incomes are being lifted out of income tax entirely.

We also had a certain amount of talk from the noble Lord, Lord Lea of Crondall, about “private sector good, public sector bad”. I want to refute any suggestion that that is the Government’s view. A much more sophisticated and appropriate way to look at it was the approach of my noble friend Lord Blackwell, who pointed out that a situation in which government spending accounted for 48 per cent of GDP was unsustainable. That is the right way to look at it. Private sector growth is absolutely what we need, but the public sector does a very fine job; it is just that we cannot afford a public sector of the size to which it had grown under the previous Government.

Although we probably had enough talk of cake from the noble Lord, Lord McFall, it is a question of the size of the cake, how it is distributed and what we can afford of the cake, not of wholly inappropriate comparisons between one part of it being good and the other part being bad.

[Lord Lea of Crondall]

On the idea that it is a gross caricature to say, “private sector good, public sector bad”, the Minister’s predecessor on the Conservative Front Bench said that the private sector is productive, the public sector is unproductive. The noble Lord can look at Hansard. I was simply making the point about all the ordering—I mentioned Costain—when it comes to cutting schools and cutting hospitals, and the interdependence of the public and the private sector.

[Lord Sassoon]

My Lords, I fully accept that of course there is huge interdependence between the public and private sectors.

I stress again that the Government’s aim is to make Britain a place where innovation and enterprise can succeed. This is critical. We want to send a clear signal to international business that Britain is once more open for business. Attracting inward investment will stimulate growth and create jobs, and the Budget provides a springboard for a private sector-led recovery, with measures to support business and restore the UK’s competitiveness. These include not only a reduction in corporation tax to 24 per cent, but a reduction in the small profits rate to 20 per cent, an increase in the national insurance contribution threshold for employers and a wide package of support for small businesses. In answer to the specific point raised by my noble friend Lord Northbrook, on the reduction of capital allowances, I can assure and reassure my noble friend that even allowing for reduction of capital allowances and the decrease in annual investment allowances, the next take from corporation tax will be reduced by £1.3 billion per year by the end of the forecast period.

It is right, as set out in the coalition agreement, that capital gains tax should increase in order to help create a fairer tax system. The approach we have taken balances the competing demands of fairness, simplicity and competitiveness and the increase in the rate of capital gains tax will allow this Government to remove almost a million of the poorest people from income tax.

My noble friend Lord Higgins talked about indexation allowances and taper relief. I should point out that indexation allowance for CGT has a substantial Exchequer cost. It cost £1.4 billion in 1997-98 and indexation would add significant complexity to the tax system. Therefore, we do not believe that indexation is justified when CGT rates are well below the top marginal income tax rate and at a period with lower inflation than at a time that indexation allowance was originally introduced.