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Lord McIntosh of Haringey: My Lords, I always enjoy these debates, but I enjoy them particularly when there is an opportunity for us to listen to three such distinguished maiden speakers as we have heard tonight. When the Prime Minister made his modest attempt to raise the proportion of Peers supporting the Government from 29 per cent to, I think, 31 per cent, there were the usual cries about stuffing the House of Lords with "Tony's cronies". However, I hope that everyone here will agree that, in addition to the quantity, which we certainly needed, we have the highest quality that could conceivably be imagined. I am enormously grateful to all three noble Lords.
The noble Lord, Lord Bhattacharyya, not only made a nonsense of the Tebbit rule on cricket, but brought expertise in manufacturing, as both a teacher and a practitioner. That will be of huge value to the House. The noble Lord, Lord Giddens, brought us a rational approach to taxation that I found very refreshing. He rejected the dogmatism of the Left in favour of economic taxation designed to support economic dynamism and risk-taking. He rejected the dogmatism of the Right in defending the role of taxation for social protection and, above all, he offered us a moral basis for taxation and equated it with a civilised society. I agree very much with that, and am grateful to him for what he said. I do not know Luton as well as some people, but the noble Lord, Lord McKenzie of Luton, has distinction in local government and in accountancy. His contribution made the best of both those distinctions.
In one way, however, I am disappointed in the debate, because, in past years when I have occupied this position, I have had an opportunity to discuss wider issues in Finance Bills and in the economy. However, this year and last, it was decided by the usual channels that the Finance Bill would be debated together with the report of the sub-committee of the Economic Affairs Committee of this House. I am not one to attack that decision, but the result has been that some pages of outline that I prepared for what I was going to say have been left blank. There has been no debate about public services this evening, and no debate about productivity or enterprise. I can simply remove those pages, put them away and save your Lordships' time. However, I would like to have discussed those matters, because some things need to be said in more detail than I used in my opening speech.
Even on the basic issue of the state of the economy—of macroeconomics as opposed to taxation policy—very little was said. The noble Baroness, Lady Noakes,
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made a valiant attempt to attack the Government on their economic policy, but not by going so far as to say that it was not working. Instead she said that perhaps at some time in the future it might not work. That is a somewhat defensive position for her to take. I remember her making it clear to me that she was not criticising the economy in the short term but in the medium term. I have listened to these debates for seven years now. Rather than saying that there is no jam today people always say that there will be disaster tomorrow. It never happens. Let us see.
On the golden rule, the economy and the Chancellor are on track for both of the fiscal rules. The Budget calculations show an £11 billion margin and there is a £53 billion margin before we reach the 51 per cent under the sustainable investment rule. The noble Baroness, Lady Wilcox, said that there were over-optimistic projections of tax revenue. As is well known, the National Audit Office has audited the assumptions behind the Budget, which are reflected in last week's spending review statement, and it has approved them. Certainly, on any estimate from independent economists the projections are on the cautious side rather than in the other direction.
The noble Baronesses, Lady Noakes and Lady Wilcox, both talked about the risk of tax rises in the future. The spending plans announced last week reflect the 2004 Budget public finance projections and they have been audited as being fully affordable.
The noble Lord, Lord Northbrook, who also contributed to some extent to the debate on macroeconomic issues, talked about the decline in the savings ratio. I think that I have said this to him before, but I must point out that savings ratios are high at times of insecurity and high interest rates. The savings ratio has gone down because of low interest rates and a greater degree of security, but at the same time net assets have risen and household net worth has increased by 50 per cent since 1997. In terms of economic stability, that is an important point.
Points were made from the Opposition Front Bench about tax ratios—what they call the tax burden. The tax ratio was lower in 2003 than it was in 1997–98. It is expected to rise as the economy recovers from the recent global downturn, but it will still be lower than the heights reached in the early 1980s. It was 38.9 per cent, for example, in 1984–85. This is a relatively lightly taxed economy. Our overall tax ratio is well below the average both for the EU 15 and for the EU 25.
I turn now, since there is no further criticism on macroeconomic policy to defend, to the issues in the Finance Bill to which the committee referred. I must say before I go any further that the noble Lord, Lord Peston, has achieved something in that every speaker who has referred to it has asked for the continuation of the committee that he chaired in future years. I think that he is well aware that the Treasury would not welcome that. It must be observed in fairness that he has secured the confidence of those who have spoken in the House.
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The first and most important issue is tax avoidance. That issue is one of those on which noble Lords—I cannot remember which exactly—said that they agreed with the Treasury's objectives on all of the five issues that the committee considered. Certainly, my noble friend Lord Peston referred to the size of the problem of tax avoidance. In fact, my noble friend Lord McKenzie of Luton beat me. I wrote down "gilt strip" and "off-market swap", which are tax avoidance measures that I had never heard of. Clearly, we are learning something tonight.
It is an enormous problem, and it needed to be tackled. We recognise that there is a risk of over-reporting, a point made by my noble friends Lord Peston and Lord Sheldon and by the noble Lord, Lord Newby. That is why we are working with business on the regulations and guidance that will give effect to the provisions in the Finance Bill on tax avoidance.
My noble friend Lord Sheldon thought that there was something wrong with the five-day notification period. It is a notification period for products that are already on the market or are available to be sold or marketed. There is no reason why they should not be available for reporting within one day—let alone five days—of going on to the market. He criticised the lack of the affirmative resolution procedure for the prescribed descriptions orders. The prescribed descriptions order reduces the tests. In other words, it is limiting, whereas the VAT order, which is subject to the affirmative resolution procedure, imposes additional requirements. That seems to be a reasonable balance.
The noble Baroness, Lady Wilcox, puzzled me by talking about a new tax on trusts. There is no new tax on trusts. The changes in trust legislation are designed to help small trusts; they are not an additional tax.
On the issue of non-corporate distribution, my noble friend Lord Bhattacharyya went so far as to depart from the principle of non-contentiousness—very, very marginally—by saying that there was a degree of uncertainty about the Government's policy on the matter. I think that it is recognised that there has not, in fact, been a policy change. The noble and learned Lord, Lord Howe of Aberavon, and the noble Lord, Lord Northbrook, described it as a mistaken attempt, resulting from over-enthusiasm. The noble Lord, Lord Newby, went so far as to say that we should reverse the zero and 10 per cent starting rates. The zero and 10 per cent starting rates work. They have worked for a larger number of people than are affected by the 19 per cent charge on non-corporate distribution. The introduction of those starting rates was followed by Internet-based, mass-marketed incorporation schemes that were designed only for tax saving. It is those schemes that will be eliminated by the Finance Bill.
Several noble Lords referred to the stamp duty land tax. Even the noble Baroness, Lady Noakes, in what was only a glancing reference, neglected to mention the fact that it has worked well since December 2003. I
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think that the noble Lord, Lord Newby, used the words "muddling through", but there has not been any evidence of distortion in conveyancing markets. The vast majority of transactions have been unaffected by the changes. I agree with my noble friend Lord Peston that this is another example of outrageous tax avoidance via partnerships. I notice that the defence of the noble Baroness, Lady Noakes, was not very robust.
The noble Lord, Lord Northbrook, raised the issue of payable tax credits on ISAs. It was never intended that ISAs or their predecessors—PEPs and TESSAs—were going to continue for ever. There has been a reduction from £7,000 to £5,000, but it will take place in 2006 not in 2000 as originally intended. In any case there are so many additional offers, including child trust funds, stakeholder products and the advantages of pension simplification, that that criticism does not hold water.
The references to spirit duty stamps puzzled me. My puzzlement is because I am also a statistician of a sort: a practical statistician rather than an academic statistician. The scale of evasion—in other words of illegality, of fraud—is by definition what we call an unknowable statistic. The calculations made are based on a comparison of the answers to the question in the general household survey, "How much do you drink?", with the amount of spirits on which duty is paid. If we search our consciences, whether we are talking to a doctor or to an interviewer, any of us will tend to underestimate rather than overestimate the amount we drink and therefore the estimates of fraud are likely to be too low rather than too high. I am insulting noble Lords; I can see that everyone is very shocked.
My noble friend Lord Sheldon and the noble Lord, Lord Newby, suggested that there had not been consultation on compliance costs. Consultation started in 2001 and took place on the options again in 2003; and a third set of consultations took place between last year's Pre-Budget Report and the Budget. With a central estimate of fraud at £600 million and the highest estimate of compliance costs at £50 million this strikes me as rather a good deal.
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