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.