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Lord Triesman: My Lords, some equipment, some food and some medicines have gone through. I heard an estimate of the number of lorries that have passed through Israel and into Gaza, but I do not want to speculate on the number because I am not 100 per cent certain how reliable it is. The situation in Gaza plainly requires much more food, medicines and materials. There are not enough. Unquestionably, there is a humanitarian problem of major dimensions in Gaza. Without anyone pointing fingers, I state that many civilians are under the kind of pressure that most of us would regard as intolerable. This morning, I was able to meet with Jan Egeland, the United Nations commissioner responsible for humanitarian issues. I am quite satisfied in my mind that the problems go well beyond the materials that have been delivered so far—although materials have been delivered.
Finally, I turn quickly to evacuation. At the moment, there has been no call for evacuation from Israel. We have evacuated a small number of British nationals across the northern border into Syria and we are bolstering our consular team in Syria on the grounds that we may have a need, not necessarily to evacuate people, but at least to assist them on their way home.
Lord Phillips of Sudbury: My Lords, does the noble Lord accept that the continuing colonisation of the West Bank, so that there are now nearly half a million Israelis living in the West Bank—a colonisation that goes on month by month and year by year in complete disregard of the road map requirements—is a provocation for the Palestinians so intense that, frankly, one cannot be surprised that there was an increase in rocket firing from Gaza and the West Bank? Please will the Government accept that, unless something is done to stop building in the West Bank, which now is proposed virtually to encircle East Jerusalem, the last foothold of the Palestinians in Jerusalem, everything else is hot air and evasion?
As all of us are desperate for Israel to live behind secure borders, the Palestinians to live in a state of their own and the Middle East to cease to be the infection of the world's political bloodstream, I urge the Government to get beyond hand-wringing and, frankly, soft words and, if necessary, to break with the United States because, at present, the United States shows not the slightest inclination to accept that fundamental reality.
Lord
Triesman: My Lords, I can hardly think of a
prescription more likely to cause devastation to any prospects of peace
than the quartet breaking up. It represents one of the most serious,
united international forces to try to ensure that some form of
negotiation
17 July 2006 : Column 1038
I have a good deal more sympathy with the points made about the West Bank. I would not use the words that have been used, but it is true that some of the building in the West Bank, certainly in those parts east of Jerusalem that would make a contiguous and viable Palestinian state entirely impossible, is contrary to international law, as is the route of the wall. I have said so from this Dispatch Box, to Israelis in the Israeli Government and to their diplomatic representatives, and I repeat it, if it needs to be repeated, here today. I do not know what is meant by “something should be done to stop building east of Jerusalem”, short of detailed persuasion and key arguments being deployed about the future of peace and the two-state solution, to which we remain 100 per cent committed. I do not know what else is being contemplated.
All the key forces, including the United States, must be brought to bear to secure a return to the road-map negotiations. Anyone, at the UN or elsewhere, who is not disposed to violence as the first tool for dealing with this, believes that those negotiations are the only route to securing a peaceful settlement.
Lord Foulkes of Cumnock: My Lords, does my noble friend agree that, given the currently extremely dangerous situation and the danger of escalation, it does no good whatever to join in the blame game, as we have just heard, either of Israel or, as I would prefer, of Iran and Syria for financially supporting Hezbollah? I expressed my concern to the Iranian Foreign Minister at the weekend. It does not help to have the kind of academic discussions about the general situation that we have heard from some quarters. The G8 is now supporting the potentially viable solution of a ceasefire and an international stability force. What are the Government doing to get the support of other countries—we have the support of the Americans—and from other parties in this country for that solution, which is the only one for dealing with the immediate problem?
Lord
Triesman: My Lords, I hope that, broadly
speaking, people across the political spectrum in the United Kingdom
believe in the two-state solution and the viability of both states as
an international outcome. I wholly agree with my noble friend that the
blame game is seldom profitable and that, at a time like this, it is
most likely to be disruptive. I can see very little merit in it. We
need stability, underpinned by an international force if
necessary—you cannot simply intercede between warring parties. I
understand that Javier Solana and the Secretary-General of the UN are
discussing what kind of force that may be. Such a force may greatly
encourage the parties to cease shooting at each other if it is believed
to be capable of stopping rocket fire in one direction and the bombings
in the other direction, in which case it would be well worth having
such a disposition on
17 July 2006 : Column 1039
Lord Roberts of Llandudno: My Lords, there are a number of Christian and other groups in Israel and Palestine at the moment. What is the advice to them, and can that advice be given to the thousands of people who are planning in the next month or so to be on pilgrimage or other holiday business in Israel?
Lord Triesman: My Lords, as the Minister responsible for consular matters, my advice to everyone, whether they are Christian, Islamic or Jewish visitors, is to behave with the greatest caution and to read the travel advice, which, as people can understand, is changing more or less day by day right across the region. We believe that most places in Israel are relatively—I repeat, relatively—safe, but that is changing all the time. I do not want anything that I have said today to be taken to be advice for people over the next couple of months. That would be foolish, and I will not do that. Our advice in respect of Lebanon is also extremely important. There are now more or less no secure places and no clear routes in or out of the country, although of course we are trying to establish routes out.
Lord Anderson of Swansea: My Lords, does my noble friend agree that there are clear points of leverage in respect of Hamas—be it Egypt or the European Union—but it is difficult to find equivalent points of leverage in respect of Hezbollah, which, it is asserted, has been preparing for this for six months or so? Hezbollah is well supplied with sophisticated weaponry and the countries that lean on it—Syria and Iran—have every interest in maintaining the problem. Where does my noble friend see any areas in which pressure could be applied on Hezbollah for restraint?
Lord Triesman: My Lords, I entirely accept my noble friend’s point that it is easier to identify where there might be some influence on Hamas; it is not easy to see where the influences on Hezbollah are other than among those who would prefer it to continue to fight than not. However, we are trying hard to persuade even those countries that their best interests and security will also, in the long term, be better provided for if they try to assist in ending the violence of Hezbollah across from Lebanon and into Israel.
The Lebanese Government are entitled to survive. One of the great difficulties in this phase of events is the risk to the Lebanese Government, who have, as a result of United Nations decisions—resolution 1559, in particular—had a responsibility to disarm Hezbollah. The other countries in the region, in as much as they have any regard for the survival of the Lebanese Government, should be assisting in that project.
17 July 2006 : Column 1040
Lord Hannay of Chiswick: My Lords, the Minister has mentioned the possibility of a UN monitoring capability. Does he recognise that the UN’s experience in the Lebanon up to now has been fairly disastrous? UNIFIL has been there for many years in large numbers and quite a lot of people have been killed in the process. It has not managed to achieve very much because it has not had the backing of the international community against two forces that have treated it with contempt—the first being Hezbollah and the second being the Government of Israel, both of which have treated UNIFIL with no respect whatever. If UNIFIL, or another UN force, is to be asked to operate in southern Lebanon, will the Government give serious consideration to the sort of backing that will be required from all the major powers with respect to those two forces that have hitherto not respected UNIFIL?
Lord Triesman: My Lords, the simple answer is yes. I do not know whether such a force would be a bolstering of UNIFIL or another force. This is an early phase of what will be a complicated discussion, but there is no doubt that any military presence on the ground would have to respect UNIFIL, or any other force, or that approach could not conceivably work.
Baroness Ludford: My Lords, will the Minister make representations to the Israeli Government to ask them to desist from what I regard to be their unacceptable practice of creating sonic booms across the Palestinian territories? I speak as a member of the Liberal Democrat Friends of Israel, which is very conscious of Israel’s right to take action against threats to its security. I was disappointed because I wrote to the Israeli ambassador in December about this and I have not received a response. I cannot see the military utility of creating sonic booms which are intimidating and harassing the population.
Lord Triesman: My Lords, that is unquestionably a fair point. We are asking that no disproportionate action should take place. Things that cause terror to civilian populations most certainly count in that list.
Lord Monson: The noble Lord, Lord Triesman, rightly declared that the Israeli response to Hezbollah should be proportionate. Can he explain why the Israelis bombed Tripoli, killing a number of people, given that Tripoli is in the north of Lebanon, about as far from the Israeli border as can be imagined? Its population is largely Sunni Muslim, with a small Christian minority, and extremely few Shias who might be supporters of Hezbollah.
Lord Triesman: My Lords, very briefly, I am not party to the thinking of Israeli military strategists, but I understand the point that is being made. For what it is worth, it appears to me that there is an attempt to create a degree of isolation, which probably means that port installations more generally have been hit. We want to see this stopped and a peaceful outcome, and we expect everyone to behave in a way that gives peace a chance.
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Consolidated Fund (Appropriation) (No. 3) Bill
5 pm
Lord McKenzie of Luton: My Lords, I beg to move that this Bill be now read a second time.
Moved, That the Bill be now read a second time.—(Lord McKenzie of Luton.)
On Question, Bill read a second time; Committee negatived.
Then, Standing Order 47 having been dispensed with, Bill read a third time, and passed.
Finance (No. 2) Bill
5.02 pm
Lord McKenzie of Luton: My Lords, I beg to move that this Bill be now read a second time. In addition to covering the substance and main clauses in the Bill, I will address some of the issues raised by the report of the Economic Affairs Committee on the Finance Bill 2006. I also look forward to the maiden speech of the noble Lord, Lord Burnett; this is a good debate in which to start.
Let me first set the scene. In March, my right honourable friend the Chancellor outlined in the Budget the Government’s vision for Britain. The Government believe in a modern and fair tax system which keeps pace with the changing world, encourages work and saving, and ensures that everybody pays their fair share in delivering world-class public services. The long-term decisions taken by the Government—giving independence to the Bank of England, new fiscal rules and a reduction in debt—have created a strong platform of economic stability. The international economy has in recent years been affected by geopolitical uncertainty, rising oil prices, large current-account imbalances and shifting exchange rates between the US, Asia and Europe. Despite this, the UK has low and stable inflation and its economy is experiencing its longest unbroken expansion since quarterly records began, with 55 consecutive quarters of GDP growth. In fact, in the nine years since the Government came to office in 1997, UK GDP growth has risen by around 26 per cent. By contrast, in the nine years to 1997 the economy grew by 15 per cent. Based on internationally recognised measures of economic stability, the UK has moved from being last for stability of inflation among G7 competitors before 1997 to now being described by the OECD as a “paragon of stability”. The IMF has emphasised that the UK’s macroeconomic stability remains remarkable, being supported by,
- “sound policies
implemented by strong institutions and underpinned by monetary, fiscal
and structural policy frameworks that have increasingly instilled
confidence in the authorities’ conduct of macroeconomic
policies”.
17 July 2006 : Column 1042
I should like to say a little about the debate on the perceived complexity in this Bill. These measures are designed to be as simple as possible while protecting revenue, encouraging growth and enterprise, and addressing market failures. Complexity is an issue that the Government take seriously. Tax systems in the modern world are inherently complicated, reflecting the complex economic and social realities in which we live. Recent research carried out by KPMG found that the UK tax system imposes administrative burdens of only around 0.41 per cent of GDP, comparing favourably with other countries. However, HMRC has been set challenging targets to reduce even further this burden. It will reduce the time spent dealing with forms by 10 per cent and with inspections by at least 15 per cent over the next five years. The Government have a strong record of engaging with business and intend to continue this dialogue. Large proportions of the Bill follow extensive consultations with business to ensure that the legislation is modernised to reflect the changing business environment. The—
Lord Forsyth of Drumlean: My Lords, I apologise for interrupting the Minister but could he tell the House what percentage of the clauses and how many of the pages in this 500-page Bill were debated in the House of Commons?
Lord McKenzie of Luton: My Lords, I do not have those data to hand. But, as I can, the noble Lord can look up the record and read the debates. I am sure that he has.
The Bill includes measures responding to those consultations: for example, we are expanding R&D tax credits, establishing a new film tax credit and creating real estate investment trusts. Stability in the tax system is key to economic security and we have undertaken a number of tax reforms to improve productivity, promote sustainable development and tackle market failures in the economy. This finance Bill contains further measures to support the sustainability of the tax system. It allows business to be able to plan for the long term on the basis of low and stable tax rates.
I turn now to the main areas covered within the recently published Economic Affairs Committee report. The Government are committed to maintaining a fair tax system that clamps down on tax avoidance. Clause 92 of the Bill amends Section 420 of the Income Tax (Earnings and Pensions) Act 2003 and is designed to counter arrangements which use options over shares and securities to deliver employment reward with the purpose of avoiding tax and national insurance contributions. The Government are also intent on tackling marketing tax avoidance schemes to ensure that everyone pays their fair share. Clause 76 goes a long way towards securing that objective in closing down a number of avoidance arrangements involving financial products.
17 July 2006 : Column 1043
I was pleased to see in the committee’s report that there is a broad consensus in the private sector that the tax avoidance disclosure rules are working well, and that the private sector has a positive view of the consultation process in this area. I am aware that concerns have been raised over the scope of some of these provisions and their possible impact on genuine employee share schemes and the consequent uncertainty for business. Let me confirm that those using genuine employee share schemes that are either tax-advantaged as sanctioned by Parliament or fully taxed as value passes to the employee have nothing to fear from the changes made by Clause 92. Outside the Government’s special tax advantage schemes they should be expecting the full benefit delivered to the employee to be properly subject to income tax and national insurance contributions. Indeed, the evidence from annual employer returns since 2003 is that genuine taxed employee share plans continue to increase in numbers.
This is a proportionate response to continued avoidance in this area and I was glad to see the Economic Affairs Committee report recognise that the operation of the tax avoidance disclosure regime has served to create a behavioural shift against wide-scale adoption of more aggressive and sophisticated tax avoidance schemes. Neither the Government nor the Opposition want to see attacks on the tax system by criminals, and I know that noble Lords will lend their support to measures which prevent such attacks.
Clause 19 enables a change in the VAT accounting provisions for sale of certain goods to tackle missing trader intra-community fraud. This fraud is an organised criminal attack on the VAT system which in 2004-05 is estimated to have cost up to £1.9 billion in stolen VAT. The fraud relies on contrived movements of high-value goods—typically mobile phones and computer chips—which are often moved in a series of carousel circuits between the UK and other EU member states. The tax loss occurs when the VAT charged on the initial sale of the goods in the UK is not paid to HMRC but can still be reclaimed by the purchaser. Clauses 20 and 21 clarify the scope of the existing power for HM Revenue and Customs officers to inspect goods and directions to keep records for VAT purposes. I welcome the positive remarks in the Economic Affairs Committee’s report on the Government’s efforts to tackle missing trader intra-community fraud.
The Government want to see a continuation of a fair and targeted inheritance tax system and are committed to providing certainty for families in this area. The Bill proposes increases in the inheritance tax threshold to £312,000 for transfers of value on or after 6 April 2008, and to £325,000 for transfers of value on or after 6 April 2009. The increased tax-free threshold of £285,000 for 2006-07 means that the number of taxpaying estates will be about 37,000 in the current tax year. Despite concerns about the numbers of people affected by inheritance tax, it remains the case that only around 6 per cent of the estates of those who die in 2006-07 will pay any inheritance tax.
17 July 2006 : Column 1044
The Budget announced new rules for two types of trust—known as “accumulation and maintenance” and “interest in possession”—that are currently exempt from the inheritance tax charges that already apply to other types of trust. It has become clear that some wealthy individuals are using these types of trust primarily as a way to shelter their wealth from inheritance tax. The Government believe that it is unfair for people to gain a tax advantage by using trusts in this manner.
It has been said that there should be no difference between the inheritance tax due on setting up a trust and giving assets away. I disagree. People who set up trusts continue to control how the money is used. That is not the same as an outright gift and there is no reason why they should be taxed in the same way. Therefore, we have taken action to ensure that the exemptions from IHT trust charges apply only where trusts are set up to cater for certain prescribed circumstances—that is, broadly, where they provide for the disabled or are set up on death, including for spouses and bereaved minor children. In all other cases, the normal charges for trusts will apply, preventing them being used to shelter wealth from inheritance tax.
There has been a lot of speculation in the media about this measure and the Economic Affairs Committee raised several concerns. For the avoidance of doubt, I can confirm a number of things. Where someone dies without having made a will, their bereaved spouse or civil partner will continue to get spouse relief, and spouse relief will continue to be due when an “interest in possession” trust is set up under a will giving a life interest to a bereaved spouse or civil partner.
Where a trust is set up by a parent on their death for a bereaved minor, the trust charges will begin to accrue only from the child’s 18th birthday. People will still be able to set up trusts that run on past a child’s 18th birthday if they wish to do so. Most trusts that come within the new rules will not have any inheritance tax to pay. Inheritance tax will be due only from trusts that have amounts in excess of the threshold of £285,000, rising to £325,000 by 2009. This allowance can be in addition to the inheritance tax threshold that applies to a person’s estate when they die. I reject statements that these changes will affect millions of people.
I read with interest the Economic Affairs Committee report’s comments on the absence of consultation. The Government always consider the benefits of undertaking consultation and try to make as much room as possible for advance preparation ahead of changes to the tax regime. However, this will not always be possible—for example, in cases like this, where there is a significant risk of large-scale forestalling.
The Government
recognise that trusts have an important role to play in helping people
to manage their affairs, but we believe that the tax system for trusts
should not provide artificial incentives for setting them up. Over the
past few years, we have made a number of changes to close loopholes in
the inheritance tax regime and the tax regime for trusts to
17 July 2006 : Column 1045
Let me talk briefly about some other important areas in the Bill that are not covered in the Economic Affairs Committee’s report. The research and development tax credit is a key part of the Government’s strategy to raise business research and development, as part of our wider aim to boost science and innovation in the economy and help secure the UK’s long-term prosperity. The scheme was introduced for small and medium-sized enterprises in 2000 and extended to all companies in 2002. To date, there have been nearly 22,000 claims for R&D tax credits. Support claimed under the scheme amounts to just under £1 billion for SMEs and almost £1.8 billion of support overall. The Government want to maintain a prosperous and world-class UK film industry, so we have designed a new and more modern tax treatment for films, one that closely reflects contemporary film-making practice. It is a more generous incentive for film producers and better targeted at the makers of culturally British films.
Real estate investment trusts are a new tax regime for the UK, designed to remove inefficiencies, which currently persist in both the commercial and residential property investment markets. Property companies are taxed at the corporate level on their rental income, but for many investors, such as those in pension funds, the overall tax effect of investing indirectly through a property company is higher than if they owned the property directly. It is this tax distortion that the Government seek to address, which will in turn help to improve the efficiency of the property investment market in the UK.
In summary, the Government are striking a balance between encouraging enterprise yet discouraging avoidance, and between building a favourable climate for business yet ensuring that the tax system is fair and seen to be fair. This Bill demonstrates the Government’s commitment to the continuing development of a modern and fair tax system, and I commend it to the House.
Moved, That the Bill be now read a second time.—(Lord McKenzie of Luton.)
5.16 pm
Lord
Wakeham: My Lords, I am not sure what is
happening in the test match but in this debate, for the second year
running, the batting order has been altered by general agreement. It
may be helpful if I say what I have to say at this stage, as I have the
honour to be chairman of the Economic Affairs Committee and the
sub-committee that has looked at the Finance Bill. This is the fourth
annual inquiry into the Finance Bill that the Economic Affairs
Committee has carried out. I am privileged to have been associated with
all four—in the case of the last two, as chairman of the
sub-committee. I am also
17 July 2006 : Column 1046
The response from your Lordships' House and another place has been generally supportive of our work, which has been recognised as significantly assisting informed debate in Parliament. I thank the members of the sub-committee, who had to work extremely hard over a relatively short period. There were lots of meetings—several a week—and a lot of briefing, and I am very grateful to them for taking on that burden. I also thank our Clerk, Robert Preston, who is moving on to other duties, and our special advisers, Leonard Beighton and Brian Shepherd, who gave us very good service and worked extremely hard.
Of late, however, the Government have expressed concerns about our report. These concerns are based on a misunderstanding not only of what the sub-committee has been doing but, perhaps more important, of the distribution of powers between your Lordships' House and another place. So I should begin by discussing those powers and laying those concerns to rest.
The Government have stated in evidence to the Joint Committee on Conventions that the existence of the Finance Bill sub-committee risks your Lordships’ House intruding on Commons financial privilege. Indeed, the Leader of the Commons went further in giving oral evidence to the Joint Committee, suggesting that,
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