National Insurance Contributions (Secondary Class 1 Contributions) Bill

Viscount Chandos Excerpts

Committee stage
Tuesday 21st January 2025 Grand Committee

[Lord Randall of Uxbridge (Con)]

My Lords, I support Amendments 4 and 5, to both of which I have added my name. I echo the excellent words of the noble Lord, Lord Storey, who introduced the issue of the childcare sector. I do not particularly need to add to those words, or indeed to what the noble Lord, Lord Sharkey, said about universities, except to say that I have a university that I can remember being built in my back garden, effectively—it is not really my back garden but I could see it rise. That is Brunel University, which is excellent and, like every other such institution, it has its problems. A few years ago, I suggested that it changed the name to “Uxbridge University”, hoping that some benefactors from across the United States might get confused with Uxbridge and Oxbridge and send lots of money across. Like so many of my cunning plans, that was rejected out of hand.

I also want to speak particularly to Amendment 5 about charities, although housing associations are an important issue, too. But the issue of charities is the one we should probably be most aware of. I have to declare that I am a trustee of several charities. I have stood down from a few more in the past year or so but a lot of these charities have approached me and told me of the huge costs. Although for some of the smaller ones the costs may not be the same, in relative terms they are just as difficult.

Earlier today, I wanted to get in on a Question about the National Trust, and there were many people on both sides, but particularly on the government and Liberal Democrat sides, saying that the National Trust is a great organisation, and I would echo that. But I wonder how many people who pay their subscriptions want to see them going not towards the landscape or the historic houses, or whatever, but being swallowed up by these increases.

One charity where I was a member of the council—a trustee—until earlier this year was the RSPB and it was the same thing. It was a huge amount; we are talking about it having to pay out a couple of million. The thing with charities—I think this was mentioned by the noble Earl, Lord Kinnoull, but I would like to reiterate it—is that it is not a matter of putting any prices up because they are supplying stuff. Their funding comes from either organisations, such as foundations or whatever, or individual donations. Charities are not charging for their services. They are performing lots of things which the state would otherwise have to pick up.

One thing which struck me when these organisations approached me, having seen that I put my name down to amendments, is when they told me how much they were going to have to pay they were reticent about me disclosing that, which I will stick to. I thought first, “Why are they so reticent? Is it that they do not want to upset the Government because they want to keep on-side?”. That is a perfectly logical position at this early stage of a Government. After a while, most organisations start to hate the Government rather than the political party who form that Government. Then I thought, “Maybe they do not want to because they have to rely on donations”. Whether it is somebody giving just a few pounds to the Dogs Trust or in a charity shop, if they think that that money is effectively going to the Treasury and not to the good cause that they want to support, they might be less keen. People sometimes do not need much of an excuse.

I am sure many noble Lords here today will have heard the excuse when people do not want to give to charities. They say, “Oh, it is not going to go directly to what I want it to go to”. This is something that charities will be nervous about saying publicly. I am sure that the Minister will have had representations from many charities, because they are extremely worried. This has really upset the whole sector, and it should be reconsidered.

As the noble Earl, Lord Kinnoull, said, there is another possibility. I do not want to give the Minister too many let-outs, but one possibility would be to delay it. Most of these organisations, particularly by this time of the year, have made their budgets. They have put in applications for funding from other organisations and put various amounts in. To suddenly find an increased cost that they were not expecting makes it very difficult for those budgets to be met. Although I have raised the point on other sectors, to me it is the charitable sector which is the most vulnerable. We should really be considering whether we want to impose this on it.

[Viscount Chandos (Lab)]

My Lords, I shall speak briefly on this group, particularly Amendments 4 and 5, but the arguments that I make really apply to many of these early groups because each one is a special plea. My noble friend Lord Davies of Brixton asked, “How can you speak out against an exemption in favour of veterans?”. The same could be said for small animals or whatever tugs at our heartstrings, but it comes back to the argument that my noble friend Lord Eatwell made so powerfully, which is that in an already complicated tax and national insurance system, we should avoid any further complexity if we can, and I think that the price which that may impose on different organisations is a price worth paying.

The noble Baroness, Lady Neville-Rolfe, talked about her involvement in attempts to achieve tax simplification when she was in government. It was the Conservative Government who introduced the Office of Tax Simplification and then abolished it, perhaps because it came up with the inconvenient truth that the agricultural and business relief regime should be reviewed and, implicitly, abolished.

At Second Reading, I made a declaration of interests which include being a trustee of two charities. One of them is a higher education institution, so it is covered doubly by Amendment 4 and Amendment 5. Many noble Lords who have spoken have referred to their personal experience of charities or different organisations. I have to say that I am struck by the fact that the organisations of which I am a trustee have, without any input from me, taken this philosophically as a cost that they must cope with. No increase in cost is welcome. Energy-led inflation was not. The insurance inflation that we are all suffering from, the wage inflation that we have seen and the overall increase in the cost of living are unwelcome costs for any organisation, large or small, to bear.

As I suggested at Second Reading, there is an understanding in many organisations, including commercial ones—I cited the comments of Mr James Daunt, as chief executive of Waterstones and his eponymous chain of bookshops—that the purpose of this revenue-raising from the changes to NI feeds into supporting the community from which organisations draw their employees, customers and donors. For this reason, although I do not welcome the increase in the cases of the organisations with which I am associated and of the many others that are similarly affected, I believe in the simplicity of applying the same rate to pretty much all organisations in the private and voluntary sectors. The arguments for simplicity outweigh those of the individual challenges that this measure will give organisations.

[Lord Forsyth of Drumlean (Con)]

My Lords, it is a great pleasure to follow the noble Viscount, Lord Chandos, who is very wise and diligent. For many years, we were together on the Economic Affairs Committee. I agree with him about the simplification of the tax system. Indeed, the Office of Tax Simplification was a recommendation from the tax commission that I chaired back in 2006 to George Osborne and David Cameron. It was implemented and, somehow, the Treasury managed to bog it down in a way that prevented it doing an effective job.

I agree entirely with the noble Lord, Lord Eatwell, that we need a simpler, fairer tax system. The simplest way of dealing with that would be not to have this increase at all because then there would not be the need to have these exemptions. This is a problem that has been created by the Chancellor and the Government. I must say, in speaking to these amendments, that Amendments 4, 5 and 8—

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Viscount Chandos Excerpts

2nd reading
Monday 6th January 2025 Lords Chamber

[Viscount Chandos (Lab)]

It is a pleasure to follow the noble Baroness, Lady Bray, for the first time. I would suggest that she look back at the speech of the noble Lord, Lord Macpherson, who set out some notable former Conservative Chancellors who raised taxes early in their term of office. I should declare the interests set out in the register where I am a director or trustee of organisations that are in some cases losers and in other cases winners from these changes.

I support the Bill and thank my noble friend the Minister for his cogent introduction of it. I say that I support the Bill, rather than welcome it, because, unlike my good friend, the noble Lord, Lord Desai, who I am sorry is not speaking today, I am not in favour of increasing taxes unless absolutely necessary. Unfortunately, it was perfectly clear by the time my right honourable friend the Chancellor came to deliver her first Budget in October that tax rises were needed to restore credibility and stability to the public finances and to fund public services at a sustainable level—even if every department will still need increases beyond the level currently proposed, as soon as economic growth and resulting tax revenues increase.

I will not dwell on the black hole or debate its size, but I will repeat the quotation that I included in my contribution to the Budget debate two months ago, because it is worth repeating. It was the evidence given earlier last year by the chair of the OBR to the Economic Affairs Committee on the forecasts made by the previous Government. He said:

“Some people have referred to that as a work of fiction. That is probably generous, given that someone has bothered to write a work of fiction, whereas the Government have not even bothered to write down their departmental spending plans”.


The Labour Government have had to restore the integrity of the budgeting process and propose plans based on independently compiled and reviewed figures and assumptions. Tax rises were an inevitable consequence of that process, and the increase in employer NI contributions represents the largest part of these. I believe that it is the fairest and most constructive way of raising the necessary revenue, particularly in light of the point made by the noble Lord, Lord Macpherson, that it offsets the reduction in employee national insurance introduced by the last Government.

In election campaigns of the past few decades, an arms race has developed of ruling out specific tax increases over the life of the subsequent Parliament. Like the right reverend Prelate the Bishop of Southwark, I regret that, but, in the world in which politics is now conducted, I recognise that it is naive to think that that is likely to change.

Had my party not made the commitments that it did, would the Chancellor necessarily have chosen to increase employer NI rather than, as some economists and the noble Lord, Lord Macpherson, have argued, reverse the employee NI cuts introduced by the last Government in a desperate and vain attempt to curry favour with the electorate? Perhaps not, but, as I said in the Budget debate, there is a strong case for asking companies to make an increased contribution to the funding of public services on which the resilience of both their customers and employees is dependent.

During the dark days of the pandemic, my noble friend Lord Eatwell and I argued that the corporate sector could afford to pay for increased resilience not only in their own supply chains and operations but in society more widely. Over the past 30 or more years, the share of GDP attributable to corporate profits has significantly increased, which I largely celebrate where it has not been at the expense of labour’s reasonable share. That general increase in profitability gives the corporate sector the ability to contribute to a more resilient society, to say nothing of paying back some part of the furlough and other support provided by the Government during the pandemic.

I regret that many in the business community have been so critical of these measures, suggesting, like Chief Vitalstatistix in Asterix the Gaul, that the sky will fall in tomorrow. It was therefore heartening to read in the Financial Times today that James Daunt—whose turnaround of the bookselling industry here and in the US, in the teeth of Amazon’s ferocious competition, is a retailing case study—said that pay inflation was “really significant” for the business, but that he backed the UK Government’s move to increase national insurance costs. I am sure that the noble Baroness, Lady Neville-Rolfe, with her deep experience of retailing, would agree that this is a significant counter to the complaints of other, perhaps less dynamic, retailers.

As a brief digression, Mr Daunt also said that, in relation to the UK, another factor remains the biggest pain, adds to the cost and complexity and makes our labour situation worse. Would any noble Lords on the Benches opposite like to guess what that other factor is?

Of course, not all employers are profitable, or even for profit, and I recognise that, for those—if they are of a size that means the increase in the employment allowance does not offset the increase in the NI rate and the lowering of the threshold—this measure is harder to absorb than for profitable corporate employers. Other noble Lords, led by the noble Baroness, Lady Kramer, in her regret amendment, have highlighted the particular impact on health and social care providers. I am glad that there have not been many arguments—the noble Lord, Lord Scriven, I think was an exception—for exempting different categories of employers from the rise. The tax system is complicated enough without new distortions. However, I hope that the Government and, in the case of charities, donors will be open to targeted financial support where necessary. The grant-making foundation of which I used to be a trustee made an additional tranche of grants two years ago to support charities at the time of the inflationary spike.

The noble Lord, Lord Blackwell, suggested that the left does not understand how tax affects business. I have to say I find that both patronising and wrong. My noble friend Lord Eatwell this afternoon gave a more compelling analysis of how this measure raises necessary revenue while driving productivity improvements, and hence growth, than anything I have heard from the Benches opposite.

I end by strongly endorsing the advocacy by the noble Lord, Lord Macpherson, of a more fundamental review of the relationship between national insurance and income tax. In so doing, I join the noble Lord, Lord Forsyth, in the belief that the pretence of NI being anything other than a tax while quacking like a tax is long overdue for dissolution.

As the noble Lord, Lord Macpherson, demonstrated so well, the path to radical reform is long and rocky, with the noble Lord, Lord Hammond of Runnymede, bearing the scars of trying and failing to enact even quite a modest change. But it is hard to reconcile with fairness the partners of a Magic Circle law firm, earning on average £2 million a year, not only paying a lower rate of self-employed national insurance than employees would but, as partnerships, not being subject to any employer’s NI, saving £300,000 a year for every partner. That is neither fair nor a loss of revenue—hundreds of millions a year from that sector alone—that the country can afford. Will the Minister consider urgently establishing a task force to examine how income tax and national insurance can be integrated and all types of workers, employed and self-employed, equitably taxed?

Autumn Budget 2024

Viscount Chandos Excerpts

Monday 11th November 2024 Lords Chamber

[Viscount Chandos (Lab)]

My Lords, there was much comment about the new Government’s first Budget not being delivered until 117 days after they took office—one of the longest intervals in recent history. George Frideric Handel may, famously, have written “Messiah” in 24 days, without much sleep or even food—which I am sure my noble friend the Minister will recognise—but for a Budget of this importance and complexity, with the accompanying new fiscal framework, the time taken and the preparations before the election are justified and have been well-spent. I pay tribute to my noble friend the Minister for the important part he has played, along with my right honourable friend the Chancellor, as well as for introducing today’s debate with such authority.

I am the first speaker from these Benches to have the opportunity to congratulate the noble Lord, Lord Booth-Smith, on his outstanding maiden speech. He may not be the youngest of the recent appointments to this House, but for many of us he still feels extremely young, and he has packed an extraordinary amount of public service and experience into his career so far.

I welcome the new fiscal framework, like the noble Lord, Lord O’Neill of Gatley, and the adoption of public sector net financial debt as the primary measurement, which brings sensible changes to the treatment of at least some government investment. The obstacles to productive public investment presented by irrational fiscal rules and their erratic interpretation seem to have prevailed throughout my adult life. I well remember, though not, I suspect, as vividly as the noble Lord, Lord Howell of Guildford, the collapse of the important gas-gathering pipeline project in the North Sea over 40 years ago, because the proposed guarantee by HMG was going to be included within the PSBR, which was the fetish of the then Prime Minister.

Operating within this new framework, the Government have introduced a well-judged package of measures, balancing the need to fund public services, reintroduce honest financial discipline and support and encourage investment. The incremental increase in employers’ national insurance to a level that the last Government previously imposed is a fair and reasonable ask for larger employers to contribute to the improved resilience of the society from which their employees and customers are drawn and will be to the ultimate benefit of their own businesses.

The noble Lords opposite express outrage at the idea that their Government left a financial black hole. The Economic Affairs Committee report on the sustainability of public debt, to which the committee’s chair, the noble Lord, Lord Bridges, has already referred, referred to two numbers provided to the OBR by the then Government: total current spending and total capital spending. Richard Hughes, the chair of the OBR, gave evidence to the committee and said:

“Some people have referred to that as a work of fiction. That is probably generous, given that someone has bothered to write a work of fiction, whereas the Government have not even bothered to write down their departmental spending plans”.


Is it surprising that the new Government inherited a black hole from the old Government?

I come finally to the increases in inheritance tax on agricultural land and private company shares, including those traded on AIM, albeit to only half the rate applied to other assets. The noble Lord, Lord Johnson of Lainston, in his intemperate and dishonest remarks from the Opposition Front Bench, concentrated on the issue of agricultural land, but as a former investment manager, he will be even more familiar with aggressive promotion of IHT-avoiding AIM portfolios by members of the industry of which he was a member. He may, none the less, have forgotten that the Office of Tax Simplification, created by the then Conservative Government, recommended the abolition of the distorting allowances lying behind these avoidance schemes. Of course, the then Conservative Government ignored the recommendations and abolished the Office of Tax Simplification, demonstrating perhaps once again the prioritisation of vested interests over professional, independent advice.

Budget Responsibility Bill

Viscount Chandos Excerpts

2nd reading & Committee negatived & 3rd reading
Monday 9th September 2024 Lords Chamber

[Viscount Chandos (Lab)]

My Lords, this is a short Bill, which, as it is—in my view, rightly—designated as a money Bill, your Lordships’ House cannot amend. I propose to speak briefly. I add my voice in support of the Bill and of the persuasive reasoning set out by my noble friend the Minister in his opening remarks.

More unusually, I find myself in a position of agreeing with the noble Lord, Lord Frost. Yes, there is a political aspect to the Bill’s introduction. Ben Zaranko from the Institute for Fiscal Studies wrote that it

“is broadly sensible but largely performative … rather theatrical … some future Chancellor determined to misbehave”—

this sounds familiar—

“could almost certainly find a way to get around it”.

He concludes, however,

“but it nonetheless serves as a welcome commitment to fiscal transparency”.

That commitment should not have needed to be codified but the reasons that it is in fact necessary and welcome lie not just in the debacle of the Truss-Kwarteng fiscal event—that mini-budget, self-immolation or whatever—but in the persistent indifference, arguably contempt, shown by the last four Conservative Governments towards the principles of good governance and towards the institutions of the state, old and new.

Restoration of confidence in the professionalism of government and the stability of the UK economy is needed; this Bill is a useful contribution to that. Forecasting, to paraphrase Professor Niels Bohr—or Yogi Berra—is difficult, particularly about the future. Criticisms from some quarters of the OBR’s track record are not, however, well founded, so not a reason for dismissing the validity and importance of its assessment of any proposed large fiscal event.

The Bill increases fiscal transparency, rather than delegating decision-making to an unelected body. Extraordinarily, the shadow Exchequer Secretary, traumatised perhaps by his membership of the previous Government, lamented in the House of Commons in July that

“nowhere in the Bill … is the OBR empowered to prevent a Government from taking fiscally significant action of any kind”.—[Official Report, Commons, 30/7/24; col. 1215.]

The newly elected Labour Government face many challenges in the direction of the UK economy, arising from both the legacy of the Conservative Governments and geopolitical, demographic and technological trends. They are not abdicating responsibility for those decisions but seeking to ensure that those decisions are taken—and can be judged—in the context of the best possible independent analysis. This Bill is an important symbol and insurer of this, and I look forward to its passing all stages in this House and receiving Royal Assent—the first Bill to be enacted by this Government.

Bank of England (Economic Affairs Committee Report)

Viscount Chandos Excerpts

Thursday 2nd May 2024 Lords Chamber

[Viscount Chandos (Lab)]

My Lords, I am very grateful to the noble Lord, Lord Bridges of Headley, for introducing this debate, and for the exemplary work that he and other members of the Economic Affairs Committee have done to produce this report. I was privileged to be a member of the committee previously, when it conducted inquiries into both quantitative easing and the case for a central bank digital currency. This report revisits those subjects, at the same time as taking a broader view of the Bank’s working. The result is a powerful endorsement of Select Committees generally sticking with subjects and themes over a longer period of time, rather than allowing an inquiry to be seen as a one-off.

There is not a single conclusion or recommendation in this report with which I disagree, which prompts me, like the noble Lord, Lord Bridges, to ask myself whether the unanimity of the committee and the wide support for its findings represent an example of the very groupthink that the committee questioned the Bank of England and other witnesses on. So perhaps I should express my disappointment that the title of the report is blander than some in the past, even if the Governor of the Bank of England was critical of the committee suggesting that the Bank’s use of QE might equate to “addiction”.

As a young banker—so a very long time ago—I developed admiration and respect for the Bank and its culture. As a market participant, it had a profound understanding of the financial markets without generally being captured by them. Of course, even in those halcyon days, there were problems and failings, from BCCI to Barings, but there was widespread confidence in the integrity and competence of the Bank, even though it did not enjoy formally the independence that was granted to it by the Labour Government in 1997.

The structure and remit of the Bank has, as the noble Lord, Lord Bridges, already said, changed considerably—massively—even since then: from one deputy governor to four and from eight executive directors to 21. The multiplicity of additional objectives and “have regards to” was also highlighted by the noble Lord. Has the culture of the Bank remained fundamentally unchanged as a result of this process and evolution? I believe that at the core, the best aspects of this culture remain, but that the recommendations of the report are important and necessary steps for protecting and reinforcing it.

I will focus on two issues: transparency and governance. In doing so I will comment on more specific policy issues and performance. I profoundly believe that transparency should be at the heart of public bodes generally; even the intelligence services are now significantly more open, if in a limited and carefully controlled way. Rather nostalgically, this made me think of my maiden speech, a frightening 42 years ago, on the subject of a European directive on bank accounting. Back then, although the clearing banks did report their true profits, merchant banks still disclosed profits only after transfer to or from a hidden reserve. As a middle-rank employee of one such bank, I questioned whether this really added to the stability of the financial system, faced by innumerable chairmen of banks in the same debate—I think the management of banks has become a little more diverse—arguing for the maintenance of the status quo.

Transparency should be at the core of the financial markets, and of the Bank of England’s role in them. For that reason, I regret that, in the otherwise sensible review of the Bank’s forecasting, Ben Bernanke did not advocate the adoption of forward guidance or the use of a so-called dot plot to provide markets with more data on which to base their interest rate expectations. The central bank is not there to provide the framework for traders to maximise the opportunity for trading games; it is there to create a stable and predictable environment for the benefit of the economy as a whole.

Likewise, as the noble Lord has already touched on, I am baffled by the Treasury’s refusal to publish in full the indemnity under which the Bank of England makes whole any losses from the QE and QT programme. The reasons given by the Government are as opaque as the policy itself. In what way would the publication of the deed of indemnity jeopardise the Government’s cash management operations? Would the Minister be kind enough to answer that when she comes to wind up, and explain why the protection of the Debt Management Office’s operation is not unfairly at the expense of other market participants?

After the nearly three years since the committee’s report on QE was published, it is still hard to come to any definitive conclusions, but this latest report provides an important update. I believe that the QE programme, in its three phases, was right in principle but wrong in degree. Its efficacy in bringing stability to the financial markets at times of maximum stress was clear, but it was of indeterminate impact in more general macroeconomic management. As a result, the scale of the purchases was almost certainly too great, and the speed of subsequent sales too slow. This has arguably exacerbated the problems of responding to a rising interest rate environment, and increased the cost to the Exchequer of the intervention. Can the Minister say what the net realised gain or loss currently is since the start of the programme, and what the mark to market unrealised loss is on the assets still held by the Bank, all of which are for the Treasury’s account under the deed of indemnity, as -far as we know?

Very briefly, on governance and appointments there are serious doubts about, among other factors, intellectual diversity and political independence in relation to the court, the MPC and senior management. Some of this is visible; more lurks below the surface. I very much hope that the next Government—no complacency, on today of all days, but I hope a Labour one—will conduct a thorough review of the governance arrangements and appointment rules for every part of the Bank of England, and in addition look at the whistleblowing and independent process for resolving problems as and when they occur.

I very much hope that the Economic Affairs Committee will continue to bring its laser-like focus on the workings of the Bank of England, with many aspects of its operations not covered in this report. As the noble Lord, Lord Bridges, has also advocated, I hope that your Lordships’ House will have much more time than in the past to debate these issues.

Autumn Statement 2022

Viscount Chandos Excerpts

Tuesday 29th November 2022 Lords Chamber

[Viscount Chandos (Lab)]

My Lords, what can a Back-Bench speaker this late in the order usefully do other than allow your Lordships to get home as early as possible? It is not to repeat arguments powerfully made by other speakers on every side of the House, nor is it to usurp the role of the Front-Bench spokesman in winding up—although speaking late after my noble friend Lord Eatwell so passionately opened for these Benches prompted happy memories of my winding-up debates which he opened when I was his apprentice in 1995 to 1997. What a time of justified optimism that was.

My noble friend drew comparisons between the austerity inflicted by George Osborne and that now proposed by Sunak and Hunt. As Marx said, history repeats itself,

“the first time as tragedy, the second as farce,”

although in this case, the farce came under Truss and Kwarteng, followed by a repeat of tragedy for millions of people as the Government resort to overkill in a certainly vain attempt to restore confidence in their shattered economic and financial credibility—a sticking plaster over a deep wound. For the avoidance of doubt, I am more inclined to follow Marx for his one-liners than for his economics.

I propose to use my time to cover a couple of points raised by the Minister which have perhaps not received particular attention. The Minister talked proudly of investing in capital—the noble Lord, Lord Horam, just emphasised how important that is—and then tried to spin a budgeted freeze in nominal terms in public investment at a time of rocketing inflation as confirmation of this, whereas, as the Resolution Foundation has calculated, it represents a £15 billion cut in real terms in capital investment.

Why do these cuts have to take place? A number of noble Lords have highlighted the hugely increased debt service cost that is causing the Government to look for savings elsewhere. The noble Lord, Lord Lamont, highlighted the increase in index-linked debt from 6% in 2001 to 22% now, the vast majority of that coming under Conservative or Conservative-led Governments. However, as important a factor in the increase in the debt service cost are the projected payments by the Treasury to the Bank of England under the indemnity that has been entered into for the operations of quantitative easing.

At the Economic Affairs Committee meeting earlier today, the Governor of the Bank of England said that he did not believe in hindsight and therefore he would not agree with his own chief economist’s evidence earlier this month that maybe too much quantitative easing had taken place in the period since the start of the pandemic. Quantitative easing represents a huge interest rate swap or a hedge fund carry trade, so that debt service has been lower than the last 10 years as payments under the indemnity have gone from the Bank to the Treasury. However, this is payback time. Even John Redwood has noticed this.

The Minister also made a point of the tax rises on wealthier individuals—wealthier but not the wealthiest. Growth in inequality over the last 12 years, as the noble Lord, Lord Willetts, has highlighted, has been much more in terms of wealth and capital than in income. I hope my friendship with the noble Baroness, Lady Noakes, who I am glad to say is not in her place, will survive my advocating a much more significant increase in the taxation of wealth than the phased reduction of the capital gains tax tax-free allowance, whose impact anyway is much more relevant to the relatively wealthy but is a rounding error for the very wealthy.

I am not as convinced as my noble friend Lord Sikka by the arguments for equalising the rate of CGT with that of income tax. Evidence from the tax take after that doctrinaire socialist, the noble Lord, Lord Lawson, equalised the rates suggests that it may not be the optimal policy. Equally, the right rate in terms of both tax take and fairness is almost certainly not the 50% of marginal income tax that currently applies.

Finally, inheritance tax is so important. The noble Lord, Lord Livingston, highlighted the question of why gifts should be taxed at a lower rate than income. The great reform of inheritance tax that is needed is the restoration of the taxation of inter vivos gifts as applied in capital transfer tax, introduced by Denis Healey. It is worth saying that this is particularly relevant for non-doms because, even if a non-dom volunteers to pay income tax on income from assets held overseas, the potential avoidance of UK inheritance tax deprives the Exchequer of substantial revenue, as the Prime Minister and former Chancellor must be aware. Increasing rates of VAT, personal tax and corporate tax is often said to be the only way of raising substantial amounts. However, just as public expenditure is made up of a mix of large items and smaller items, so the raising of tax is a combination of large, cash-generating taxes and smaller ones such as CGT and inheritance tax.

Budget Statement

Viscount Chandos Excerpts

Tuesday 14th March 2017 Lords Chamber

[Viscount Chandos (Lab)]

My Lords, the Government have given your Lordships the opportunity to debate the economy in the light of the Budget, billed by the Minister as the last one in spring—until, of course, a future Chancellor switches it back again. But they then fielded a flyweight contender of a Budget whose likely fiscal impact will be minimal—going out with a whimper, as the director of the IFS has said. It is rather remarkable that the Government have been able to whip up such a political storm out of a mouse of a Budget. But that is perhaps more a reflection of the cynical and irresponsible triple-lock commitment in the Conservative Party’s manifesto—to which the noble Lord, Lord Macpherson, referred in more diplomatic terms—than of any radical streak in last week’s measures.

In the interests of time I shall confine myself largely to one issue—one which was only elliptically included in this year’s Budget. In table 2.2 of the Budget report there is a list of items announced in previous Budgets or Autumn Statements but only now taking effect. In passing, I note that by far the largest numbers are in column BG concerning the cost of the phased reduction in corporation tax to 18%: £17.7 billion in the five years to 2021-22—a figure dwarfed by the £64 billion estimated to have been given up by the Exchequer in the period from this year as a result of all corporation tax cuts enacted since 2010. I had understood the Prime Minister and the Chancellor to have only threatened to turn the UK into a corporate tax haven as part of their sophisticated negotiating tactics with the EU, but now I realise, of course, that the process is already well under way—even before we knew that we were leaving the EU, let alone before the only too possible breakdown of negotiations. As we struggle to pay for the NHS, social care, education and other public services, can we justify the corporation tax cuts already introduced, let alone contemplate any further reduction implied by the, frankly, incredible negotiating position suggested by the Government?

My principal theme, however, relates to one of the other significant line items, in column BE: the cost of the new inheritance tax nil-rate band for main residences —an estimated total of £2.8 billion over five years, which compares with a total IHT take in 2013-14 of only £3.4 billion. Other noble Lords and I highlighted in last week’s debate on housing the folly of introducing new distortions to an already overheated housing market. As the noble Lord, Lord Macpherson, said, a sensible tax system should not favour one group over another. But then this falls under two of the no-go areas he identified: residential property and inheritance. Even before this measure—and indeed the Government’s cack-handed introduction of a stealth tax in the form of hugely increased, albeit graduated, probate fees—the Nobel economics laureate Sir James Mirrlees wrote in his IFS review on taxation in 2011 that,

“the current UK system does not stack up terribly well against any reasonable set of principles for the design of a tax on inherited wealth”.

The “biggest barrier”, Sir James concluded,

“to the effective working of inheritance tax … is that it is levied only at or close to death, allowing the wealthy to avoid it altogether by the simple expedient of passing on wealth well before they die”.

My noble friend Lord Eatwell, five years ago, asked the then Commercial Secretary whether the Government would undertake a comprehensive review of inheritance tax and the case for moving to tax the lifetime receipt of gifts by individuals rather than the estates of those who have died. Since then the system has become only more unfair and more complicated. In addition to the simple expedient of giving assets away long before death, which of course only the very wealthiest can afford, there is also a plethora of reliefs to be exploited, further increasing unfairness and reducing the reasonable tax take for the Exchequer. Agricultural land and business reliefs alone amounted in 2013-14 to more than the total net IHT take.

A moment searching on the internet provides a plethora of fund managers offering AIM portfolios with the specific and principal aim of reducing individuals’ liability for IHT.

“Our Inheritance Tax Portfolio Service is a bespoke, discretionary service designed to reduce … IHT”,


says one firm.

“A plan to reduce your IHT liability”,


reads another.

“We adopt a conservative approach … in order to diversify the risk we seek to hold a minimum of 15 different companies”,


says another. Does the Minister not agree that that sounds very much like aggressive tax avoidance, and what are the Government going to do about it?

The current inheritance tax system is deeply flawed, sacrificing revenue for the public purse, and manifestly unfair, infecting the public trust in the tax system overall. I urge the Minister and her colleagues in the Treasury to overcome the taboos identified by the noble Lord, Lord Macpherson, and institute urgently the comprehensive review advocated by these Benches for so many years.

Budget Statement

Viscount Chandos Excerpts

Wednesday 23rd March 2016 Grand Committee

[Viscount Chandos (Lab)]

My Lords, it feels quite like old times, not just to be sitting alongside my noble friends Lord Eatwell and Lord Desai but to be sitting opposite the noble Lord, Lord Lupton, although previously we did so on other sides of the negotiating table in our roles as corporate finance advisers. I wear as a badge of honour his suggestion that I am a member of the hypocritical group of Labour Peers on these Benches and I will come back to some of the points that he made on capital gains tax changes.

I welcome the chance to debate the Budget measures and the implications they have for the economy, but I regret that this debate is not taking place on the Floor of the House but here in the Moses Room, whatever the charms of this room may be. I regret that particularly in terms of the exceptional maiden and valedictory speeches of the noble Lord, Lord Price, and the noble Baroness, Lady Knight, respectively, and in the context of the separation of this debate from the Motion which will take place as last business in the Chamber today, to which my noble friend Lord Desai referred. Perhaps it is an unworthy thought that this room is being used not just because of the pressure of legislative business in the Chamber but, rather, because the Government remember their good friend and supporter the late Lord Hanson, who made a practice of always holding the annual general meeting of Hanson Trust on one of the days between Christmas and the new year, while denying that that was done in any way to discourage the attendance of troublesome shareholders.

As the last Back-Bench speaker and having heard so many powerful comments about the macroeconomic scene—I support entirely the contributions of my noble friends Lord Eatwell, Lord Darling and Lord Desai—I propose, even before hearing the speech of the noble Lord, Lord Lupton, to focus on one or two areas of specific tax policy, particularly capital gains tax, relating to entrepreneurial activity.

The Minister referred to the problem of low productivity, as did my noble friend Lord Eatwell and many other speakers this afternoon. Of course, the linkage between productivity and technology, innovation and entrepreneurial activity is complex and what we see in the US reflects many of the issues that we struggle with here. But notwithstanding the suggestions of the noble Lord, Lord Lupton, like all my colleagues on these Benches in both Houses, I strongly recognise the contribution of small and innovative businesses to the increase in productivity.

The Minister referred to the CGT changes as a measure to encourage investment. He also said that tax should be not just competitive but fair. That last statement reminded me of something written by the excellent Financial Times political commentator Janan Ganesh—indeed, the biographer of the Chancellor —when he wrote last year:

“A country’s tax code is not just a mesh of rules and rates—it is a secular bible of moral signals”.

Although Ganesh was writing principally about inheritance tax in that particular article, which I will refrain from addressing at least today, his argument is compelling on a broad view. I will quickly examine the CGT changes and indeed the related pre-existing tax treatment of investment in smaller companies, and ask whether this achieves the aim of stimulating productive investment and at the same time sends the right signal of fairness.

The noble Lord, Lord Lupton, took us through a long history of the changes in CGT rates. He rather glossed over that it was the noble Lord, Lord Lawson, who as a Conservative Chancellor raised the CGT rate to the same level as the marginal rate of income tax, which I think we can see now as a triumph of intellectual purity over practical efficacy. We then went through the period that he described of taper relief. It was then my noble friend Lord Darling who simplified the system, removed in large part the separate taxation of business assets, private company shares and so forth from other assets, and introduced a single rate of 18%. At the same time he introduced entrepreneurs’ relief at a 10% rate capped at £1 million in any entrepreneur’s lifetime. The current Chancellor, both during the coalition Government and subsequently, significantly raised the CGT rate to 28% but at the same time substantially increased entrepreneurs’ relief in two stages to £10 million.

The changes in this year’s Budget Statement bring us back to a basic rate that is very similar to that introduced by my noble friend Lord Darling, but with a further broadening, in effect, of entrepreneurs’ relief and the reintroduction of a two-tier system. There may be a reasonable argument, as is made by Hamish McRae in today’s Independent, that 20% as a general CGT rate may be optimal from the point of view of raising tax revenue. That may have influenced my noble friend Lord Darling when he pitched the rate at 18%. But do we need ever-growing concessions to small and private company investment? In 20 years of advising and investing in early-stage companies, I have never seen any evidence that a capital gains tax as low as 10% makes any difference to the quality or quantity of investment in these companies, let alone the effect of the income tax breaks that apply through EIS and VCT investment. What are the Minister and his colleagues doing to try to assess the total cost of concessions to private company investment, both the pre-existing ones through income tax and other CGT breaks and the newly introduced ones? Will he give an assessment of whether the taxpayer gets value for money from that? If we do not, surely we are falling into the trap that Mr Ganesh referred to in the FT of sending the wrong moral signal.

I should emphasise that these Benches strongly support the activities of small companies. As I have said, I have devoted most of my working life to working with them. But we need to be rigorous in the way that we examine what allowances are really needed as opposed to currying favour with the small business lobby.