Lord Sassoon
Main Page: Lord Sassoon (Conservative - Life peer)
Lord Sassoon
My Lords, as I conclude the debate on this Finance Bill—and I note that it is a debate on the Finance Bill, although I am grateful to noble Lords who have contextualised it by talking more widely about the Budget—I thank all noble Lords for their contributions, which have played an important part in scrutinising this legislation. I beg to differ from the view expressed by the noble Lord, Lord Tunnicliffe, at the outset, that this debate would be a formality. It has been an excellent debate, and I would like to start by drawing attention to the maiden speeches of my noble friends Lord Spicer and Lady Browning. Their contributions did not disappoint. My noble friend Lord Spicer drew important lessons from economic history. He started a bit of a debate with the noble Lord, Lord Barnett, about who had participated in more Finance Bills. I have to confess that I have only part of one to my name so far, but there will be another one later this year, so I will be trying my best to catch up.
My noble friend Lady Browning talked about the important need for financing for small and medium-sized enterprises, which is one key plank of the Government’s focus at the moment. Attention was drawn to this issue by my noble friend Lord Bates and the noble Lord, Lord Myners. In response to points made by my noble friend Lord Higgins and others about the money supply, the proof of the pudding is in the eating—which is partly whether finance does indeed flow particularly into the small and medium-sized enterprise sector of the economy. I remind your Lordships that today the Treasury and BIS, my right honourable friend Dr Cable’s department, jointly published the document Financing a Private Sector Recovery. The noble Lord, Lord Myners, might like to read that as an exposé of government policy in this important area.
The Government have inherited an exceptional fiscal challenge. Within seven weeks of taking office, we have set out a decisive plan for dealing with this challenge. Within 12 weeks we have our first Finance Act in place, legislation which will help to restore our public finances and confidence in our economy. We have also set up the independent Office for Budget Responsibility, which has been much discussed today. The noble Lord, Lord Stern, has today graphically shown why the OBR is so necessary. He speaks in the very guarded language of a former distinguished Second Permanent Secretary to the Treasury and head of the Government Economic Service. When he talks about the way in which revenue forecasts in particular were previously handled by Treasury Ministers and their advisers, and talks in terms of lack of clarity, hopeful judgments and inflated forecasts, I take that as a damning indictment of the way in which Ministers under the previous regime were able to play fast and loose with the data. That approach has made the OBR necessary, and the OBR will not allow Ministers to take such an approach in future.
I very much take to heart the suggestions that the noble Lord, Lord Stern, made about the conduct of the OBR. I note his well-balanced perspective on these issues of independence which other noble Lords seem to have got excessively fussed about in recent weeks. I also note that even the view of the noble Lord, Lord Barnett, on the OBR may be softening a bit. I think that I heard him talk about semi-criticism. He is shaking his head, but if we have got to semi-criticism, we are making progress, and we might have him fully on board very shortly.
As we are talking about the conduct of fiscal policy under the previous Government, I should point out that the noble Lord, Lord Myners, drew attention to the previous fiscal rules, which were open to all sorts of manipulation. The beginning and end of cycles could be changed at the whim of Ministers, and Ministers did so regularly.
The noble Lord, Lord Barnett, also drew attention to the relationship between the Monetary Policy Committee and the Treasury. Even though he attempted to put a completely false construction on my previous answer on this point, I absolutely stand by what I said. I am sorry to disappoint him on that.
Lord Barnett
I pointed out that I was delighted that the Treasury intervenes in the MPC. I asked the Minister to make sure that it intervenes again in the future.
Lord Sassoon
I thank the noble Lord for that. But I did not say that the Treasury intervened at all in the workings of the MPC. It has a representative there to point out policy matters which the Treasury might be aware of or which it thinks the MPC might be aware of. That is not in any sense intervention in the way in which I think the noble Lord means it.
Lord Myners
I fear that the noble Lord is moving on from the OBR, so may I ask him again for a simple and straightforward answer? Are the members of the OBR going to be allowed to return to the hedge funds for which they previously worked immediately on leaving the OBR, or will they be subject to a period of purdah?
Lord Sassoon
I thank the noble Lord, although that was a different point from the one that he made previously; the point that he made in his speech was whether members of the OBR would have inside knowledge of the forecasts. The whole point about the OBR is that it will publish its forecasts transparently. I am not sure what the inside information is that the noble Lord is so concerned about.
Lord Myners
Perhaps I may help the Minister. In his evidence to the Treasury Select Committee, Sir Alan Budd said that he had seen confidential information which was not in the public domain—information which the Minister, given his past City career as a Swiss banker, would no doubt recognise as price-sensitive information.
Lord Sassoon
I look forward to seeing if and when the noble Lord, Lord Myners, returns to the City. There are accepted practices and terms for all who have worked in different parts of the public sector when they return to the City or elsewhere. Perhaps I may move on to talk about the new fiscal mandate.
Lord McFall of Alcluith
If the OBR members have access to confidential information and take that away with them, will it be available to them in their new job a few days after leaving the OBR? The purdah issue is very important. Can the Minister address it?
Lord Sassoon
My Lords, I believe that I have addressed the point. As with any such office, it would be inconceivable if members of the OBR took confidential information away with them. Just as the noble Lord, Lord Stern, has referred to a report which he compiled for Ministers in 2004 but which he left behind in 2007, it would be extraordinary to suggest that those working on sensitive matters in the public sector would take away secret documents.
Lord McFall of Alcluith
They are taking away information in their head. It is intellectual property; it is not taking away documents. The Minister is being less than open with us if he puts that construction on it.
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.
Lord Higgins
On the point about indexation, to say that it would increase complexity when the Explanatory Notes to the clause as it stands run to six pages is perhaps a little strange. May I pursue with my noble friend the broader point that I raised: is it not important to have a monetary policy that is compatible with the cuts being made? Also, in that context, why does he think that quantitative easing appears not to have had a significant effect on the money supply?
Lord Sassoon
My Lords, I am not going to answer for judgments that are fundamentally for the Bank of England. It has a very clear monetary policy mandate, which is around keeping inflation low, and through the combination of monetary policy and confidence in the new Government’s fiscal stance we have seen that UK government borrowing rates have indeed remained low, and that the spread against the benchmark of the German Bund has indeed worked in the UK’s favour since the election. That goes to the heart of the nexus between monetary policy, low interest rates and keeping the flow of credit going to businesses and private individuals. I want to move on—
Lord Myners
The Minister spoke on the subject of capital gains tax. Can he confirm whether he stands by his statement, in introducing this debate, that the capital gains tax rate for those on standard-rate income tax will remain at a lower rate of 18 per cent and that a standard-rate taxpayer will not be required to pay a higher rate of capital gains tax?
Baroness Anelay of St Johns
My Lords, I appreciate the nature of the intervention by the noble Lord, Lord Myners, and the Minister has been generous in giving way. The House will understand that the guidance in the Companion is that speeches are normally not expected to exceed 20 minutes. I also understand that this is an unusual debate, because this House has a great interest in but is not permitted to return to this matter at a future stage. I therefore took, perhaps, a sole decision that matters ought to be allowed to continue so that noble Lords could intervene upon my noble friend. I should perhaps indicate that the patience of the House may soon be extinguished and I therefore advise my noble friend that although he may of course respond as he may feel appropriate to the intervention by the noble Lord, Lord Myners, he should then draw his remarks to a close.
Lord Sassoon
My Lords, I confirm to the noble Lord, Lord Myners, that the proposals are indeed for an 18 per cent capital gains tax rate and for 28 per cent on those who are on the higher bands for income tax. We have no other proposals. I shall respond briefly to the point made by the noble Lord, Lord Desai, about unearned income needing, in his view, to be taxed at rates as high as earned income. Taxing unearned income at lower rates maintains incentives to save and invest, and it is critical that we continue to think about and promote savings and investment in this country. Lower rates for unearned income allow for the fact that income has already been taxed before it is saved. Higher tax rates on savings would lead to high levels of double taxation, which would not be conducive to increasing savings and investment.
One or two comments have been made today about pensions, because the Bill will provide the first step in freeing employers from the complicated and poorly targeted pensions legislation that the previous Government introduced. We will use this power, which expires on 31 December this year, only if a sensible alternative system can be found that provides the same necessary revenue. We will also be clear about the impacts of this alternative, so I am glad that my noble friend Lord Blackwell recognises the benefit of what we are doing. I will certainly make sure that the ideas which he puts forward are fed into our consultation on this issue.
On annuities, the Government, as I have said, will remove the requirement to purchase annuities at 75. In answer, I think, to the point that my noble friend Lord Higgins was making, this Bill brings in transitional provisions that prevent anyone turning 75 on or after Budget day from being disadvantaged by having to make a decision before the new rules are in place. We are consulting on the mechanics of the new system now, and in that context I will make sure that we look at my noble friend’s previous amendments on this subject.
Lastly, I want to do justice to the points that have been made in the debate. If noble Lords will permit me, I will say a couple of words on points that have been raised on the general structure of the tax system. This topic was first brought up by the noble Lord, Lord Stern. The noble Lord, Lord Desai, also made some comments, as did my noble friends Lord Northbrook and Lord Bates. As set out in the coalition’s programme for government, the tax system does indeed need to be reformed to make it more competitive, to make it simpler, to make it greener and to make it fairer.
In addition to structural reform, at the Budget the Government committed to reforming the way in which tax policy is made to restore the UK tax system’s reputation for predictability, stability and simplicity. The Government will consider the conclusions of the Mirrlees review when they are published later this year and, as announced at Budget, the Government are considering improvements to specific green taxes, including changes to the climate change levy and to the aviation tax system. I do not know whether I will be able to get access—I rather doubt it under the arrangements that apply—to the 2004 paper of the noble Lord, Lord Stern, but I hope if he can remember some of the critical ideas in it that he may drop me a line. I remind him and my noble friends Lord Northbrook and Lord Bates that the Office of Tax Simplification has now launched, and it will address the critical issues to which they properly draw attention.
Before we conclude, I will explain briefly how the Government will ensure greater scrutiny of the next two Finance Bills. Given this unusual year, the Government will publish a further Finance Bill in the autumn. I cannot promise my noble friend Lord Bates that it will be as short as this one but it will introduce those measures inherited from the previous Government. For the first time, draft legislation and Explanatory Notes are available on the Treasury website.
To conclude, this Bill sets out our priorities, our vision and a credible path to a sustainable recovery. We are encouraging enterprise and protecting those most in need, yet tackling the stratospheric debt left to us and this country. This Government are taking action where others have not.
Bill read a second time. Committee negatived. Standing Order 47 having been dispensed with, the Bill was read a third time and passed.