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  1. Law
June 18, 2012

Should We Still Have an Elected House of Lords?

By Spear's


All Those in Favour

Martyn Gowar looks at the arguments for and against an elected House of Lords — and sincerely, desperately hopes that, when the time comes, the ayes don’t have it
JUST OVER 100 years ago, the Parliament Act of 1911 restricted the powers of the House of Lords, particularly in the context of tax legislation. No longer could the Upper House stand in the way of the will of the Commons to pass the tax laws it wanted.

What tax were we talking of raising at that time? Income tax was at a maximum rate of 5p in the pound, and the total tax yield of the United Kingdom according to Whitaker’s Almanack (a most worthy and reputable source of information) was £105 million, of which Customs and Excise taxes raised about £60 million, split pretty well equally between the two, and estate duty raised (with some left-over succession and legacy duties from before the Finance Act 1894) £21 million, and income tax raised about £13.5 million. So taxing wealth was the cornerstone of the tax system at that time.

The scope of income tax mushroomed after the First World War and has never looked back, but now inheritance tax (the successor of estate duty) raises little more than the yield of 0.5p of the income tax yield.

Ever since that time, there have been skirmishes to reduce even further the power of the House of Lords, and as we know the past few years have seen this political rag doll being used first as a sop to appease disaffected MPs under the last Labour government, and now as a potential pacifier to the Liberal Democrat minority in the coalition. It seems that the present consensus is that the House of Lords should be largely elected, with members serving fifteen-year single terms.

What concerns me is the shape of how legislation would be passed on any change of the composition of the House of Lords. Most legislation of any importance is driven from the House of Commons and is the creature of the governing party or alliance. Often it has been driven by political cynicism and has been a reaction to political correctness and fashion.

MPs speak of subjects with complete lack of balance as a response to serial single-issue fanatics. All is dependent on the next day’s headlines and the votes that they garner. Where the House of Lords has so often saved the day has been because there are often people who actually know something about the subject, given their varied backgrounds and the personal qualities that often (not always) saw them appointed in the first place.

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THE MOST GLARING example to my mind in tax law of a piece of legislation which, with proper consideration, should never have seen the light of day, was the part of the Finance Act 2006, which stopped most creations of trusts in the UK. Setting up a trust brings an upfront tax charge — and people do not pay voluntary taxes! The chancellor never even mentioned this proposal in his Budget speech that year, and the press releases issued at that time were greeted with astonishment.

The only justification offered, other than a vague and unsubstantiated ‘this is to stop tax avoidance’, was a statement in the debates on the Finance Bill that if a person could vote at age eighteen or could go to war for his country at that age, then he should be able to get his trust fund. Nobody has to vote, nobody has to go to war, so why do they have to get their trust fund? That was the level of debate.

If the principles had been debated in the House of Lords, however, the arguments would have been much more informed and rational. It might also have come to light that the Revenue did have, at that time, results of a survey which confirmed that people set up trusts more often than not for non-tax reasons.

Had the debate proceeded, the practical stupidities restricting people’s freedom to make trusts for non-tax reasons such as protecting the vulnerable, be it from inexperience or disability, would likely not have occurred. The legislation turned into a most horrible mess and needs to be overturned. The transmission of wealth from one generation to another is a most important cog in the economic wheel, and it is not always appropriate that the gift should be without strings.
Since 2006 other ideas have been initiated for getting round this restriction on the freedom to give, but the trust is a valuable mechanism which is clearly understood and is practical. This is an example where a revising chamber would be able to stop the petulance of an ill-considered and unworthy measure. 
Read more by Martyn Gowar

Illustration by Jeremy Leasor

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