Finance Bill

Baroness Kramer Excerpts

Monday 15th July 2013 Lords Chamber

[Baroness Kramer]

My Lords, it will surprise no one that, in my mind, the most significant measure in this Finance Bill is the lifting of the tax threshold to £9,440, shortly to rise to £10,000. More than 23 million people are now paying £700 a year less in tax—that is cash in their pocket—and 3 million of the lowest paid are out of income tax altogether. It has led to a fairer society. I was very pleased to read the ONS study, which named this as one of the key elements in income now being shared more equally between households than at any time since 1986. That is a very significant achievement.

I was also exceedingly pleased by the change in capital allowances—the temporary uplift in the capital allowance from £25,000 to £250,000. From my work with small businesses I am very aware that one of the competitive deficits in the UK is small businesses which have not invested in new technology in their production lines. This gives them a real incentive to do so and to do it now. The timing of that, as we begin to emerge from recession and companies have new opportunities to grow and expand, is absolutely essential and will be an important element in the economic growth that we are all seeking.

I was very privileged to be a member of the Finance Bill sub-committee. I thank the noble Lord, Lord MacGregor, for his fair but effective chairing of that committee. It has been one of the most enjoyable committees in which I have participated; that was shown by the work we achieved and the consensus that existed right across those from different political parties and on the Cross Benches. Like the noble Lord, Lord MacGregor, I emphasise that the work we looked at, particularly on the GAAR, does not cover international and multinational tax abuse. It does not cover issues such as forms of avoidance by deferring income from one year to another, as that is not its purpose. We have to emphasise that, as so often friendly politicians fall into the trap of thinking that the GAAR fulfils that role. It does not and should not. Christian Aid and others asked for clauses to be introduced into the Finance Bill that might do some of that work, but that is not appropriate as this has to be an international effort. I understand that they want a study—which seems right—on the impact of UK tax structures on developing countries. However, that is outside the scope of the Finance Bill.

Ironically, if the GAAR is a success, in a sense we may almost never see it used. Its role is very much one of deterrence. It makes the judgment as to whether a GAAR works quite difficult. However, the review is absolutely crucial. If it turns out that general rules—the noble Lord, Lord Wakeham, spoke eloquently on this issue—are far more effective in partnership with specific rules in managing the constant attempts of companies to find mechanisms around attempts to get them to pay their fair share of tax, we will need to start to think through whether or not we should consider an anti-avoidance GAAR. Like many others—I notice that the noble Lord, Lord Haskel, who spoke eloquently on this issue, is not here today—I note the importance of including a clearing system, which has been discarded as being too expensive at this time.

I am one of those who are somewhat concerned by the narrowness of the GAAR, not because it is anti-abuse but because we have the double reasonableness test. I understand where the Government are coming from in introducing such a test, but I have two concerns. One is that there is quite a lot of deference by the Government to the accounting profession. It would be wise sometimes to be more cynical and challenging to that profession around these issues. Also, if it is taken to its extreme so that nothing is ever an abuse because somebody can always come up with a reason as to why it has some economic basis, this whole exercise will have been in vain. Therefore we need to look at the application; that is a very particular vulnerability, and one in which we have to have an ongoing watching brief.

I will move quickly to the issues around stamp duty, land tax avoidance and the annual residential property tax which we also examined. I know the legislation is complex, but I believe that it is a crucial step. For many people the unfairness of watching those with very large and expensive properties avoiding the stamp duty and the inheritance tax that they bear on their smaller properties has tended to undermine the sense of common bond that is necessary in our tax system. My concern is less about what is in the legislation than the fact that, as yet, it does not capture some of those opportunities for abuse—for example, the use of the Cayman Islands for trusts and companies that have also been used by those seeking to avoid those kind of taxes. If I am wrong, I should be glad for the Minister to correct me. There are still loopholes and none of us wants to see them exploited.

I also found myself defending the Chancellor over his cap on income tax relief. This is not an approach which is palatable to everybody. For many years, I lived in the United States where the alternative minimum tax plays this kind of role. No matter how people choose to invest—whether or not it is in economic growth—on the basis of fairness, I believe that everyone should participate in the income tax system, and the tax on reliefs gets us much more into that territory. Fairness matters, especially in a time of austerity—we are all in this together.

This issue has been widely debated and there is little else that I can add to the speeches that came before mine, except to say that I think this has been an important Finance Bill which helps to position us for a fairer society, as well as one that is growing economically.