§ Mr. CookI beg to move amendment No. 14, in page 12, line 6, at end insert:—
'(a) in respect of so much of an individual's total income as does not exceed £900 at the rate of 25 per cent.'.There is considerable logic in coming to this debate following the Division that we have just completed. The amemdment would restore the reduced rate band that was abolished in last year's Budget.This may be an appropriate time to take up a reference made by the Financial Secretary during the previous debate about the reduction of the marginal rate of taxation on high earners. He said that it was necessary both in the Government's last Budget and in their first Budget to tackle the marginal rate on the higher-paid because the rates were nonsense, a disincentive, and had all the other adverse economic effects that those of us who have sat through the debates are accustomed to hearing from Conservative Members.
One of the paradoxes of the Government's policy is that, having said that it was necessary for all sorts of economic and social reasons to reduce the marginal rates on the higher paid, they last year increased the marginal rate on the low-paid from 25p to 30p. By doing so they increased taxation, on their own estimates—I do not pray 84 in aid any speculative figures produced by the low Paid Unit—for 2¼ million taxpayers. That is a large proportion of the overall total.
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When the reduced rate band was abolished in the previous Budget, it was explicitly and clearly stated by the Chancellor that he was abolishing the reduced rate band and that he intended to use the money thereby saved to increase the thresholds by implementing in full the uprating under the Rooker-Wise amendment. Those thresholds have since been abandoned. The effect of inflation has meant that the thresholds have fallen. They are worth 15 per cent. less than they were when the Chancellor made his speech a year ago.
In our previous debate we were unable to persuade, cajole or hector Conservative Members to change their minds. They have not drowned us with their oratory and advocacy in defending the Government's position but they have overwhelmed us by their numbers in the Divisions. As a result, the thresholds to which the Chancellor referred a year ago no longer obtain. As they have fallen below the point about which he was talking in 1980, it seems apt and appropriate for us to seek to reopen the issue of the reduced rate band, which was abolished to increase thresholds a year ago.
It is apt that we should reopen the issue following a debate in which there were a number of references to the problems of the elderly and of the old age taxpayer. One of the arguments adduced by the Treasury Bench last year in favour of abolishing the reduced rate band was that the bulk of taxpayers within the reduced rate band were part-time earners such as pensioners, housewives and students. The preceding vote will have a serious effect on pensioners. Most of those who will commence paying income tax for the first time in the coming year will be old age pensioners. They are now to become old age taxpayers.
If it was the case a year ago that the reduced rate band was a weak incentive to work because in the main it was benefiting old age pensioners, there is all the more reason for the reduced rate band to be resuscitated to tackle the problem of an old age taxpayer.
There is another reason why it is appropriate and correct for us to introduce a debate on the reduced rate band. After last year's debate on the Budget the then Chief Secretary gave an interview to the press in which he stated that the objective and target of the Government's tax policy was a standard rate of tax of 25p. That target is disappearing over the far horizon. In her interviews over the weekend the Prime Minister, in celebrating, if that is the appropriate word, her two years in office, stated that there was no immediate prospect of a cut in standard rate. Many of the comments in her interviews focused on the playing down of the objective of a further cut in the standard rate.
The hon. Member for Colne Valley (Mr. Wainwright) said that we should not be misled by any promises to the effect that the failure to raise tax thresholds this year may be made good. I concur with that view. I am sure that I shall carry the hon. Gentleman with me in saying that if the Government were to attempt both to make good the failure to increase tax thresholds this year and to cut the standard rate of taxation, they would be building up some extremely expensive commitments that would not tally with the forecast contained in the Red Book about the Government's future financial revenue.
85 We must conclude that the Chief Secretary's prospect of a 25p standard rate has disappeared over the far horizon and set with the sun. Having failed to bring within reasonable striking distance the prospect of a standard rate of 25p, I am sure that the Treasury team would not wish the Government to go down in history as the one who increased tax for the low-paid from 25p to 30p. If we cannot have a standard rate of 25p, let us at least have a reduced rate of 25p such as the Government inherited from the previous Labour Government in 1979.
Anyone who commences to pay income tax in the United Kingdom pays at the standard rate. There is only one other country where the same thing obtains—namely, Australia. Under this Government the thresholds for paying the standard rate have diminished even more sharply than the threshold for income tax itself.
As we observed in the previous debate the threshold of income tax on average earnings has fallen from 45 per cent. to 38 per cent. under the Government. When the Government came to power, those paying income tax on 45 per cent. of average earnings paid it at the reduced rate band. One had to be at 58 per cent. of average earnings to pay standard rate. Thus, within only two years, under this Government the threshold for the standard rate of income tax has fallen from 58 per cent. to 38 per cent., a staggering drop of 20 per cent. inside two years and three Budgets.
The remarkable feature of the British tax system is that virtually everyone pays the same marginal rate of taxation. Over the last two years, we have heard ad nauseam about the plight of those who pay the higher rates of taxation. It is plain from the Government's statistics that only 2 per cent. of all taxpayers pay a higher rate of taxation. Virtually everyone now pays standard rate. From an income of £27 per week to an income of £240 per week, the standard rate is 30p in the pound. If one adds national insurance contributions, the marginal rate at the bottom end of the scale of £27 is 38p in the pound.
There is a curious anomaly. Because national insurance contributions no longer go up in line with income over £200 per week there is the odd result that those who earn between £200 per week—which is where the increase in national insurance contribution ceases—and £240 per week, which is the point at which the higher rates of taxation operate—by anyone's standards, that is a comfortable income—pay a lower marginal rate of taxation, taking income tax and national insurance contributions together, than the person who has just come into the tax bracket at £27 per week.
That cannot be right. In those circumstances, it must be right to restore the reduced rate band which would provide to the person at the bottom end of the scale, with a £27 per week income, a marginal rate of taxation which is at least comparable with the marginal rate of taxation of the person who is earning £200 per week.
I shall adduce one other argument. I should like to remove from the mind of the Committee any view that the reduced rate band was a curious aberration in Britain's tax laws, which existed simply between 1977 and 1980. If one considers the rates of taxation levied as part of our income tax system, for many decades a reduced rate band was common to our tax system. Until 1963 there were no fewer than three separate reduced rates before the standard rate. Those were abolished throughout the 1960s. The last was abolished in 1969 by Mr. Roy Jenkins, who has since devoted himself to smashing the mould of British politics. 86 I am sorry that none of his acolytes or proselytes—I am not sure which word one should use—is here to advise us on the smashing of the mould of British politics—which includes reversing the decision taken by Mr. Jenkins in 1969 as a member of what he is now pleased to term one of the tired old parties—in abolishing the reduced rate band. It would be interesting to hear the opinion of the Social Democratic Pary on the reduced rate band, but I see that it has not favoured us with its presence.
§ The Chief Secretary to the Treasury (Mr. Leon Brittan)There are not many of the hon. Gentleman's hon. Friends here either.
§ Mr. CookWith respect to the Chief Secretary, on a quick calculation, we have the weight of numbers on our side. If he wishes to call a snap vote to establish that, I should be happy to concur.
If I may anticipate what the Chief Secretary will say—and for his elucidation, as he was probabay not present—last year we were told that it was preferable to concentrate the money necessary to maintain the reduced rate band on raising tax thresholds. Every Chancellor who has spoken at the Dispatch Box about eliminating or abolishing a reduced rate band has said that.
However, a curious thing has happened. Between 1963, when the process of eliminating the reduced rate bands commenced, and this year, when it was completed, the tax threshold has consistently fallen. In 1963, when the task began, it was 85 per cent. of average earnings. It is now 38 per cent. It has steadily declined while Chancellors have assured us that they were eliminating reduced rate bands to free resources to increase it. I hope that we shall not hear the same old argument again tonight. Indeed, it is not open to a Government who, for the first time in a dozen years, have not increased tax thresholds by a single penny. I am intrigued to know what excuse will be offered for not restoring the reduced rate band, so I shall speedily conclude and allow the Chief Secretary to put me out of my misery.
Whatever the excuse may be, it cannot be that the Government cannot afford to bring in a reduced rate band because it is necessary to concentrate the money on raising tax thresholds. They have frozen tax thresholds and have refused to reopen the issue. The corollary to their decision not to uprate thresholds but to freeze them and to allow them to decay with inflation is that it is perfectly proper for the Committee to return to last year's debate. The Government have welshed on the bargain struck with the House when we abolished the reduced rate band to increase tax thresholds, so the Committee can properly ask for the reduced rate band to be restored. It is necessary in the interests of the low-paid taxpayer. As we clearly established—and it was not contested by the Financial Secretary—the burden on those at the bottom of the scale has increased as a direct result of the Government's failure to uprate personal allowances. We need not bandy percentages. We are entitled to ask the Government to restore a reduced rate band that will give some protection, if only partial against the increased tax burden foisted on the low-paid by the Government's fiscal policies.
§ Mr. Richard WainwrightThe Liberal Party fully supports the amendment. We vigorously opposed the abolition of the reduced rate in 1969 and welcomed its 87 return during the Lib-Lab pact in 1977. We fought last year alongside the Labour Party to resist the opportunist abolition of the reduced rate.
At least one reduced rate—and there is a case for more—is a structural part of a civilised income tax. The Government should not tamper with it, just as no sensible person would tamper with the supporting structure of his house merely because an upper room was temporarily unoccupied.
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The Opposition Front Bench may agree that in fighting the removal of the reduced rate last year we had on our hands not only the Treasury Bench but also some acknowledged experts on tax who at that time unfortunately fell for the argument that there was a strong case for getting rid of the reduced rate. I hope that those expert voices are now somewhat muted.
Last year, to return to my simple metaphor, the room upstairs was temporarily unoccupied and did not require much support. It could be demonstrated that with the full glory—alas, what a fleeting glory—of the Rooker-Wise amendment, most of the people coming into the reduced rate band last year would have been students and part-time workers rather than a great number of fully-occupied low-paid workers or pensioners. But that was a fleeting phenomenon. We stick to our view that that was no respectable excuse to tamper with the essential structure of income tax. Indeed, my hon. Friend the Member for Truro (Mr. Penhaligon)—he has been quoted from by the Labour Front Bench today—pointed out last year that tampering with the income tax structure in that way was an unworthy way to finance the Rooker-Wise amendment.
This year, with the total failure to index the reliefs and allowances in line with inflation, a reduced rate is desperately needed. As has been pointed out, without a reduced rate, the very low-paid and pensioners, including many thousands of women who have not yet reached the age to qualify for age allowance, will be taxed on very short commons indeed. Those are the very people who should not be subject to the appalling swipe of a 37.75p introduction to income tax and national insurance combined. It is absurd that the moment people hit the tax system they come in at the full wallop of nearly 38 per cent. on incomes as small as £28 per week gross. It is for just that type of situation that the reduced rate is needed.
I hope, too, that this year there will not be the absurd attempt to defend the abolition of the reduced rate by alleging that it is an overwhelming clerical burden on a country which has a vast array of simple calculating devices to take the chore out of this type of calculation. That struck us last year as the most unworthy argument of all. In pre-war days, when most of these operations had to be done by mental arithmetic or by a very elaborate mechanical comptometer, we supported no fewer than three lower rates of income tax before standard rate was reached. It is to suggest that civilisation is going backwards fast to say that the Inland Revenue cannot sustain the simple calculations of one reduced rate. If that argument is to be adduced, perhaps the Chief Secretary will tell us how long it will be before we have to go back to a poll tax, reverting to jungle terms, because it is all too tedious and laborious to compute individual tax liabilities.
88 A reduced rate is an essential part of any civilised tax system, as every other developed country, with the exception of Australia, acknowledges. It has the great virtue of introducing people to the tax system by a series of steps, just as one takes the load in a car by letting out the clutch gently.
In our view, this is a brutish tax measure which takes the country back to an uncivilised level of taxation.
§ Mr. BrittanThe amendment, the purpose of which is to reintroduce a lower rate of income tax below the basic rate on the first £900 of income, would cost in a full year £1,100 million. Therefore, we are not talking simply about redressing something which was done inadvertently or misguidedly last year but rather about something which has major revenue implications.
The hon. Member for Colne Valley (Mr. Wainwright) attacked the decision taken last year on the basis that it altered the structure of the income tax. With great respect to him, that is not a persuasive argument except on the basis that the structure was right. Of course it was a structural change to remove the reduced rate, but it does not follow that that was the wrong decision to take. I do not regard the structure as it existed before then as in any way sacrosanct.
With due respect to the hon. Member for Colne Valley, the repeated use of the word "civilised" with reference to a particular tax system does not in itself prove that that is the system most to be desired without reference to the objectives which the system is designed to secure. The damage to the structure need not detain the Committee for long because the structure was in no sense a perfect structure which could not be altered beneficially.
§ Mr. Richard WainwrightHas the Chief Secretary any observations on the fact that every other developed country apart from Australia finds it a suitable structure to have a graduated introduction to income tax rates?
§ Mr. BrittanTo assess that observation I should have to look also at the extent of the allowances in all those countries. There is a very varied pattern. So I do not find persuasive either the argument of taking one element on its own and considering it without looking at the other elements.
Before coming to the thinking behind the amendment, I shall refer to the basic approach taken by the hon. Member for Edinburgh, Central (Mr. Cook). He seemed to be saying that last year we abolished the reduced rate band so as to increase the thresholds and, therefore, as there had been no increase in the thresholds this year, the lower rate should be reintroduced. I think that is not an unfair summary of his argument.
It does not follow that that is the right course to be pursued. If we cannot increase the thresholds, it does not follow that we should do something else instead. If that sum is available the right course might be to increase the thresholds. If that sum of money is not available, or there are other priorities, we should not necessarily be driven to that course merely because this year it is not possible to increase the thresholds. The argument is fallacious. It is a useful peg on which to hang a debate, but no more than a false syllogism. We have to look at the merits of the arguments a little more closely and that I propose to do.
§ Mr. CookI am happy that the Chief Secretary should look at the merits of the argument. I do not found my 89 arguments solely on the basis of the bargain that was struck last year between the abolition of the reduced rate band and uprating the tax thresholds. If he looks at what the Chancellor said last year he will see that it was perfectly plain that he offered the House that bargain. I would counsel him to be careful what he says about the cost of uprating. He is threatening to reopen the whole question of the principle of Rooker-Wise.
The point that persuaded many hon. Members to support the Rooker-Wise amendment in 1977 was that it is fallacy to believe that it costs the Treasury a specific sum to carry through the upratings. The reason why many hon. Members were persuaded to support the amendment was that, because of the workings of inflation it is the Treasury which receives more in money and the taxpayers who have to pay out more to the Treasury as a result of the workings of inflation. It is therefore fallacious to talk in terms of the uprating as costing a specific sum which is coming to the Treasury simply as a result of the workings of inflation.
§ Mr. BrittanI am afraid that the hon. Gentleman was not listening sufficiently closely to what I was saying. I did not talk about the cost of the uprating; I talked about the cost of this amendment being £1,100 million. In that connection the hon. Gentleman might also note that the way he has just put it, with which I do not wish to enter into debate at the moment because it does not relate to this amendment, differs markedly from the way in which the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) put it earlier in our deliberations, when he said that the cost of the Rooker-Wise amendment had been substantial but, as it turned out, thoroughly worthwhile. The hon. Gentleman should get together quietly later with his right hon. Friend to work out their position on that. I do not think it is necessary for that to be done for the purpose of this amendment.
This amendment, compared with what is proposed by my right hon. and learned Friend in the Budget and what appears in the Finance Bill, would mean forgoing £1,100 million of revenue. That is a substantial sum, which cannot just be dealt with in a readjustment of priorities in Committee. If the hon. Gentleman is arguing that, he is in effect reopening the entire Budget strategy; what he is saying is either that there should simply be a higher public sector borrowing requirement or that there should be an increase pro tanto in the basic rate.
I do not propose for the purposes of this amendment, as the hon. Gentleman has proposed it, to re-examine the whole Budget strategy. The Committe has had ample opportunity to debate that and will continue to do so. Similarly, I do not propose to rehearse the arguments against increasing the basic rate which my right hon. Friend the Financial Secretary touched on in the earlier debate, which raised the issue in a more central form. It is right to point out that that is the implication behind this amendment. It is in no sense trivial or minor. It is central and could not be met without one or other of those consequences.
On the administrative cost, which the hon. Member for Colne Valley rather pooh-poohed, the Committee should get the facts on the record and draw its own conclusions. I do not suggest—I very much doubt whether anyone else in my position would—that the administrative cost should be a conclusive consideration, but it is relevant. The Government aim to reduce the proportion of our resources that we spend on administration. The saving of 1,300 staff 90 resulting from the abolition of the lower rate band last year will contribute towards this. Re-introducing a lower rate band would also make more work for employers.
If the hon. Gentleman is talking about the structure of the tax system, simplicity is a considerable virtue when combined with administrative savings. For what it is worth, that is certainly an argument against the hon. Gentleman's proposition. The central question which this amendment exhibits is different. If the Government felt that it was appropriate to devote resources to that extent to reduce the burden of direct taxation, the question would still arise whether the best way of using those resources would be to reintroduce a lower rate band.
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I hasten to add that it is the Budget judgment, as is well known to the Committee, that those resources are not available, and that it would also be wrong instead to put up the basic rate to finance such a reduction. But if resources to that tune were available, I do not believe that the best way of using them would be to reintroduce the lower rate band, or that that would be the best way of helping those who are most disadvantaged and who are least well off, if that is the objective and if one is desirous of approaching it in that way.
Last year, the Government considered the matter carefully and decided that the best way to help those with the greatest need was to use all the available resources to increase tax thresholds by the full indexation figure. The fact that those resources are, in the Government's view, not available this year, does not alter the judgment as to the way in which they would be best used if they were available.
The introduction of the lower rate band was, of course, a well-intentioned but misdirected attempt to help the lower-paid. I remain of the view that when money is available and when it is appropriate that it should be directed in that particular way, it is far better to raise tax thresholds. The reason is that an increase in the tax threshold would take some people out of tax entirely, and that would be an extremely beneficial thing to do. It is regrettable that our assessment of the resources did not make that possible this year, but I would rather do that than to introduce a lower rate.
I do not believe that the Opposition, were they in a position to implement their wishes, would seriously, pound for pound, prefer to introduce a lower rate band rather than to increase the threshold by a greater amount than would otherwise be possible. For any given sum that is available in this way, there must be a trade-off o f one against the other. [Interruption.] The hon. Member for Grimsby (Mr. Mitchell), who raises these matters from a sedentary position, can well see that, for any given expenditure or forgoing of expenditure, one must decide either to devote the whole of it to increasing the threshold or to divide it up between increasing the threshold and introducing a reduced rate. There is another possibility, and that is to spend all of it on a reduced rate.
The amendment seeks to spend, on a reduced rate, all of the sum that we think is not available. Apart from the fact that increasing the threshold has the advantage of taking some people out of tax entirely, an increase in threshold gives the greatest benefits to those at the bottom of the income scale, and a lower rate band is least effective for those people, because people in the lower rate band get less benefit from it than people paying tax at the basic rate.
91 Therefore, even if one could give effect to the objective for which the Opposition argue, this would not be the best way of doing it. I do not believe that reintroducing the lower rate band would, in addition, substantially improve work incentives for the lower-paid. There is no good evidence for supposing that that would be the case. We are talking about a difference between a 25 per cent. and a 30 per cent. marginal rate and, as has been said, few of those concerned would be full-time adult workers, so I do not think that the incentive effect would be substantial or impressive.
When I hear Labour Members say that they hope that this, that or the other argument will not be used again, what they are saying, in effect, is that it is an argument that is used repeatedly and is unanswerable. Although tabling the amendment may provide a useful peg for reopening many old arguments and dealing with the issues which have already been canvassed in the debate today, the reality is that, if we could forgo £1,100 million, I would not be able to advise the House that the best way to use that money would be to reintroduce the lower rate.
Nothing that either hon. Gentleman has said persuades me that that is so. I would dearly like to be able, with that sort of money available for that purpose, to increase threshold allowances. That would be a better way of spending the money. Sad to say, that is not possible. I do not regard the Opposition's alternative as preferable, even if money on that scale were available. Basically the House will appreciate that it is a theoretical argument. I do not accept that money on that scale is available. For those reasons I advise the Committee to reject the amendment.
§ Mr. Bob Cryer (Keighley)The Minister has put forward predictable arguments that he has read from his brief. He says that in his view the alternatives are either to reduce the rate band or to lift people out of tax. We know from our discussion on an earlier amendment that the Rooker-Wise arrangement—for which the Conservatives voted during the period of the Labour Government of 1977—has been removed. Thus, that is not an alternative. The further reform in the amendment is not suggested as an alternative. The lifting of people in the lower income bands out of tax is not accepted by the Government. It has been rejected because the Government are marshalling their troops into the Lobby against the low wage and salary earners.
The Minister has said that the proposal in the amendment to introduce a lower rate band of 25 per cent. would cost £1.1 billion. That is a modest sum in relation to the incentive that it would give to lower wage and salary earners. The Minister has said that there is unlikely to be an incentive. I find it curious that Government spokesmen always deny the effect of incentives on low wage earners and always emphasise the effect of incentives on the higher income earners. When the Conservatives came into office, they said that the only way the economy could be turned round was by giving incentives to wealthy entrepreneurs so that they could produce jobs that would set the economy moving. The Government did not set a time for the stage to be reached when the economy would start moving again, but they claimed that their Budget was a Budget of incentives. That plainly has not happened, even though the Government gave lavish tax concessions to the rich.
92 The argument they used was that incentives were necessary. The Minister would not deny that incentives are necessary. He would argue that the incentives that the Government gave two years ago, while they are not now working through the economy, will work through at some indeterminate stage. If their view of life for the rich is that incentives are necessary, why is their view of life different for those in the lower income bracket? If people are given the option of going into a tax bracket or paying 25 per cent., they would prefer not to go into a tax bracket, but they are denied that option. Given the option of paying 20, 25, 30 or 35 per cent., most people would choose to pay the lowest amount of tax.
§ Mr. Tristan Garel-Jones (Watford)Hear, hear.
§ Mr. CryerThe hon. Gentleman, who has just drifted into the Chamber, supports my claim.
The Opposition's amendment suggests that those on low incomes would benefit from a 25 per cent. band for those entering the tax bracket for the first time. It would give a marginal form of incentive and would encourage people.
The principle that has been lost sight of is that income tax is supposed to be progressive. Those who earn high incomes are supposed to pay more than those on low incomes. The Government have succeeded in reversing that position. They have taken those on high incomes out of the tax net in many respects and have reduced their tax burden. They have shifted the burden of tax on to indirect taxation. As a result, they gain a greater proportion of tax from the lower income groups than from the middle and higher tax-paying groups. The rejection of the 25 per cent. rate band is a direct rejection of the progressive principle of taxation, that those who earn more are more able to pay tax and should make a greater contribution to the nation's revenue.
Deliberately, with malice aforethought, the Government are placing a greater tax burden on those least able to bear it. Parliament should continually send out the message that the Conservative Party won the general election by a confidence trick. It said that it would put more money into peoples' pockets by reducing taxation, yet it has reversed the position. At the last general election, every Conservative candidate lied to the electorate. There can be no dispute about that, because in every way the tax burden has been increased, except for those in the top bracket. There was a lower bracket of 25 per cent. for those first entering the tax net. The Government now reject the idea of its reintroduction.
§ Mr. William HamiltonNot only do the Tory Government practise such principles, but the Prime Minister went into a City pulpit and said that it was the height of Christian virtue to take from the poor and give to the rich.
§ Mr. CryerMy hon. Friend is right. After the speech which the Prime Minister made two years ago yesterday—black Thursday—we have come to expect a reversal of position. She said that she would produce harmony, but she has produced strife and bitterness which are more deeply felt as the weeks pass.
Together with the abolition of the Rooker-Wise amendment, £1.1 billion is being removed from the economy. As a result, between £3.5 billion and £4 billion is being taken out of the economy. The clause means that 93 £1.1 billion will be taken from those least able to afford it. Consequently, there will be an increase in unemployment. If money is taken out of the economy, demand will be reduced. A decline in demand means that fewer goods and services are desired, which in turn entails further factory closures.
The Government have consciously taken this action. They are using unemployment as part of their social and economic policy. They claim that they want to reduce inflation. They say that they must, therefore, reduce the amount of money circulating in the economy. That is patently untrue. In the past few months, the rate of inflation has dropped a few points but the amount of money in circulation has increased month by month. The Government's practice is at odds with their theory. In addition, they know that unemployment is a weapon that they can use against the trade union movement. They hate and detest the organised trade union movement—they cannot work with it—and they have introduced legislation to try to diminish its effective force. The Government regard unemployment as a weapon which they can use. They turn on tears of sympathy, but we know that they are the Conservative Party described by Disraeli—organised hypocrisy.
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The reduction of £1.1 billion is an example of low wage earners being penalised because of the Government's vindictive attitude. The Government say that there is no money to allow for the £1.1 billion. That is nonsense, because if the Government had the political will they would find the money. They would find £1.1 billion for defence. When they have a political objective, they find the resources. There is money available, but the Government's political will is opposed to putting money into people's pockets, particularly the pockets of people on low incomes, through tax concessions.
Bearing in mind that there will be local elections on Thursday, the message must go out that the Government have reneged on almost every promise that they made, they deliberately misled the public before the election and they are now exploiting those who can least afford to pay.
Because of the range of benefits that are being diminished by the Government, those who do not enter the tax bracket are also facing hardship and suffering. As earnings-related benefits diminish this year and end next year, people are learning that the Government have stealthily been eroding benefits. It behoves the public to bear those factors in mind in the local elections, because, although there are important local government matters to take into account, the elections will allow voters to register their opposition to the Government's policies.
The Chief Secretary said that there were administrative difficulties but they were not insuperable and that the reduction in administrative costs meant that 1,300 staff were saved. By "saved" the Chief Secretary means that the Government got rid—perhaps not directly, but through early retirement or redeployment—of 1,300 staff. The fact that applying a 25 per cent. rate band would produce a fairer society and enable people to feel that the distribution of wealth in our society was being applied on a slightly fairer basis does not matter to this wretched Government. It is more important to them that they are able to sack 1,300 civil servants.
It is hardly surprising, when the Chief Secretary makes such announcements, that the Government should be in 94 dispute with the Civil Service and are losing revenue because they are adopting an intransigent attitude towards the Civil Service. Civil servants—and I am talking not about the senior civil servants who are close to Ministers, but about civil servants such as those who administer the tax system throughout the country and the DHSS services which are so crucial for so many beneficiaries—know that they are facing an end to their careers.
Youngsters leaving school no longer have the wider range of opportunities that existed under the Labour Government. The Government are cutting back. The notion that there should be some administrative machinery to achieve a more progressive income tax system does not interest the Government. Their attitude is coupled with a determination to place more people on the dole. At a time when 2½ million people are already on the dole, the Minister boasts of administrative savings achieved at a cost of 1,300 jobs. This occurs time after time. No one outside should be fooled into believing that the Conservatives are concerned about unemployment, apart from one or two Members who see their marginal seats disappearing rapidly before their eyes.
This is as hard-hearted and vicious a Government as the nation has ever seen. Everyone remembers the election pledges given by the Conservatives in 1979—the tax concessions that would be made, the greater amount of money to be left in people's pockets and the freedom of choice, all rolled out and wrapped up in the words of Saatchi and Saatchi and put before the electorate with the claim "Labour isn't working". What a lie those words, advertised on great posters, have proved.
The Conservatives did not say that they would add 1½ million people to the dole queues or that they would bring about a more unfair tax system in which the lowest income tax band would be abolished and another 1,300 people would be put on the dole. That was not the message in those heady, public relations days. However, people now understand the position. There are marchers bearing the same colours and carrying similar banners to those that featured in the famous Jarrow march, heading for London to demonstrate that people are not prepared to accept the vicious, hard-hearted face of Conservative Governments and their doctrinaire adherence to bolstering capitalism and their rich friends while adopting a harsh and vicious approach towards those in the lower income bracket. Things will change, and the sooner the better.
In the meantime, the Government could give a ray of hope by allowing this modest amendment to be passed. Of course, that will not happen. The Government have set their hearts—or, I should say, their calculating machines—against giving relief to people on low incomes. They are determined to carry through their wretched policies. The sooner a general election takes place, the sooner we shall see a fairer and more progressive tax system imposed.
The amendment is a tiny and modest step towards a more progressive tax system, based on income. It is a move away from a system of taxation that is additional to income tax but falls more heavily than income tax on the shoulders of people on lower incomes. I do not know what the clarets and blues, those who betrayed the Labour Party, will be doing. I am sure, however, that my steadfast colleagues in the Labour Party will vote for the amendment to restore the situation, decimated by Conservative policies, to that which existed under the Labour Government.
§ Mr. WoolmerFirst, I want to say a word about the failure earlier to support the proposal to uprate personal allowances. I mention that because the amendment now under consideration is, in part, an attempt to make good some of the damage done by that decision to the lower-paid and lower income families and households. Unfortunately, Ministers spoke against that proposal, and it is interesting to consider the balance of feeling reflected in their speeches. I shall attempt to show the relevance of that balance in speaking to the present amendment, which seeks to introduce a lower tax band of 25p in the pound.
The Government argument was that a higher burden of taxation should be imposed on the populace, a proposition with which I do not agree. They argued that more taxation should be levied on people, and that the best way to do that was by not uprating the personal allowance. The alternative that Ministers were considering at that time was 3p on the standard rate of tax. I said that that showed a conscious decision that the relative burden of taxation should fall more heavily on the lower-paid than on the higher-paid. It was a conscious decision. It was not something that had not occurred to the Government. They decided that the balance of the higher burden of taxation could be better borne by the lower and average paid than it could be by the higher-paid.
That decision will help us understand this proposition, which seeks to argue—here I entirely agree with my hon. Friend the Member for Keighley (Mr. Cryer)—that the British people have a strong sense of fairness when it comes to taxation and the political system. It is understood and agreed that the person earning £50 to £60 a week should not pay the same marginal taxation as the person earning £200 or £300 a week. To most people, that is a fair proposition. It would not be considered fair by most people if the person earning £50 or £60 per week paid the same marginal rate of taxation—38 per cent. effective marginal rate of taxation, or 38p in every extra pound—as the person earning £200 or £300 a week.
Last year the Government undoubtedly introduced an element of unfairness into the tax system. This amendment is a modest proposition which seeks to introduce a notion of fairness.
There is the other matter of incentives. The Government believe that it is necessary for highly paid people—extremely wealthy people—to have more incentives to work, through cuts in the highest rates of tax which are paid only by those who earn high incomes. They seek to change the laws on wealth so that people who are already wealthy pay less taxation. The Government believe that it is more important to provide more incentives for the already rich and wealthy, while people at the bottom of the midden have to put up with a high marginal rate of taxation.
I was appalled to hear the Financial Secretary to the Treasury try to excuse the poverty trap by saying that it did not take effect for a few weeks or months. That was the most disgraceful view that I have ever heard expressed by the Government Front Bench.
§ Mr. CookMy hon. Friend will recall that the right hon. Gentleman was the member of the Government who, when challenged on the invention of the 54-week year for the uprating of the pension, responded that he would not cavil over a fortnight.
§ Mr. WoolmerMy hon. Friend is quite right. It is not unfair to say that many Conservative supporters can afford to ignore a fortnight's pay. That may be because, under their methods of assessment, they do not have to pay tax until the year after. They do not appreciate what life is like for those on the level of income that is caught in the poverty trap.
I have heard Conservative Members say that the Labour Party is not the only party with a conscience or the only party that cares. But to say that the poverty trap does not take effect for a few months, and to excuse it on that basis, is a despicable remark which is not worthy of the right hon. Gentleman.
The lower-paid appear not to respond to incentives or to the opportunity to have a low marginal rate of taxation. In some ways, a man or woman earning £50 a week does not mind if he or she is paying 38p in the pound, whereas someone on £200 a week does.
Perhaps the Chief Secretary will explain why a person on £300 or £400 a week needs lop off the marginal rate of tax, whereas a person on £50 or £60 a week does not need 5p or lop off the marginal rate. As many of my hon. Friends would say, it is either a class view of society or it is simply a view of society by people who do not understand or do not care what it is like to be on £50 or £60 a week. I leave hon. Members to choose, but I can honestly say that I found the arguments advanced earlier totally at odds with the kind of people whom I know.
We know that in part some of the elements of the Government's package of incentives are a load of codswallop. Most people in my constituency simply want the opportunity to get a job. In the town of Batley, which has 25 per cent. male unemployment, many men would give their left or right arm for a job. When they are told about incentives, it raises not merely a wry smile but also a sense of anger.
§ Mr. CryerDoes not my right hon. Friend accept that by robbing lower income earners of £1.1 billion by rejecting this amendment, thereby introducing a further deflationary element, the Government will put more people in the dole queues? The result will be that more unemployment benefit will have to be paid, and that will swell the PSBR—already about £8 billion a year—and sustain the massive number of unemployed which the Government are increasing as a result of this Budget.
§ Mr. Brittanindicated dissent.
§ Mr. WoolmerThe right hon. and learned Gentleman chooses to disagree, but I entirely agree with my hon. Friend. Even the Yorkshire chambers of commerce and industry—normally the natural supporters of the Conservatives—are calling for reflation. They know that they could produce things and that the labour and machinery are available. However, the markets are simply not available because the Government have chosen to deflate the economy. But business men know that the Government are deflating the economy into a deeper recession.
Those are the two substantial points that I wanted to make. I should also like to stress the need to consider the whole question of the progressiveness of our tax system. People in Britain have a sense of fairness. Any future Government will have to look at the progressiveness and 97 fairness, not only of the direct tax system but of the indirect tax system. I suspect that the indirect tax system of nil or 15 per cent. VAT with some odds and bods of historical accidents in Excise duties is long past the time for consideration. The Government's latest introduction of a regressive indirect tax on gas has increased the problem of the burden on the lower-paid that we seek to reduce.
I hope that there is a presumption in the Committee that the lower-paid have as much right to fair consideration as the higher-paid and they have as much right to be asked to respond to incentives. I hope that the Government will feel able to move at least some small way towards redressing the undoubted penalty that their refusal to uprate personal allowances and provide minimal assistance has imposed on the lower-paid in our society.
§ Mr. Austin MitchellI am a little disappointed by the Minister's reply to a debate that is still to come. He made the basic mistake of trotting out the lame, standard Treasury argument against all changes beneficial to the less well-off. He appears to be following his earlier basic mistake of giving far too many hostages to fortune about the recovery of the economy. A new Minister in his position should have distanced himself from the mess that he inherited. Instead, he is plunging wholeheartedly into the mess and saying that things will get better when manifestly they will not do so. That is a serious mistake in the career of such an exceptionally able man.
§ Mr. William HamiltonDo not kid yourself.
§ Mr. MitchellThat will probably be proved wrong as night follows day, but we shall have to wait and see. The Minister's argument was that of a bankrupt debating whether to give £1,000 to charity or to spend £900 on booze. He was hairsplitting about the morality of one as opposed to the other when he could, in fact, do neither. He was rather like a eunuch deciding whether he preferred blondes or brunettes—[Interruption.] I apologise for my sexist remark about eunuchs.
The Government have said, "We will not introduce the reduced rate band because it is not the best method of helping the less well-off. We cannot adopt the best method because we have made such a disastrous financial mess. Therefore, we will do neither and use the arguments for the one to snipe at the other."
Last year the Government abolished the reduced rate band. They justified that by the increase in the allowances. Having failed to increase the allowances this year, it surely is incumbent upon them to take the concomitant step of reintroducing the reduced rate band to help those who will be seriously hit. That would be less expensive than increasing the allowances. The hair-splitting argument about which is best as a preface to rejecting both is a pointless approach to the entire subject. Why cannot the Government do what the previous Labour Government did in 1978—namely, to increase the allowances and to introduce a reduced rate band?
The Government's attitude toward tax is to help not the less well-off, not those most in need, but the 2 per cent. of top taxpayers who do most of the moaning and from whom the chorus of rumbling and complaints comes in its most vociferous form. It is not the Government's policy to help the mass of the people who are most severely hit.
There is a strong case for spending the £1,100 million that this measure would cost as it would reduce the deflationary impact of a severely deflationary Budget 98 which will severely and adversely affect an already contracting economy. That is an economic argument. The social argument is a step towards a more graduated tax system. We should all favour progress towards such a system.
§ Mr. George Grant (Morpeth)I think that my hon. Friend is being rather too kind in his approach. He has been talking about the economic approach to the problem but our main consideration should be the political approach. Does my hon. Friend recall that at the general election in 1979 the Tories promised to reduce taxes`? That was one of their main planks. The surtax payers' liability was reduced from 83 per cent. to 59 per cent. At the same time value added tax was doubled. This is the real argument. This is what it is all about.
§ Mr. MitchellI am grateful to my hon. Friend for his intervention, which emphasises the role of the Conservative Party. It is the party that believes in the principle, "To him that hath shall be given, given and given and we shall take from those who have not by devious manoeuvres such as failing to increase the allowances and failing to reintroduce a reduced rate band."
There was a reduced rate band for much of the period before the war. That continued after the war and reached its height in 1952–53, when it progressed from 2s 6d to 5s and to 7s, the standard rate being 9s in the pound. There were bands of income of about £100 at that stage. Such an approach is a beneficial step towards a graduated system which would follow major precedents overseas. For example, the American graduated system is based on self-assessment. A system of graduation would ease the pain of taxation and make the whole system more effective arid efficient. It is possible with computerisation and it was possible before computers were introduced.
Secondly, such a system would ease the poverty trap. The Government have made it deeper still—and wider still and wider shall the trap be set—by the efforts of the previous two Budgets. We should not try to eliminate consequences of the trap by reducing benefits. We must ease the steep introduction of taxation. We have an extremely high starting rate which is applied at a low level. That is surely the worst feature of our tax system rather than the reliefs for the better-off for which the Government are always claiming credit.
Acceptance of the amendment would have the virtue of easing the poverty trap, which is one of the blots on our social system and our tax system. How can it be right to have such heavy marginal rates for those least able to afford them? Families with dependent children, in which only one parent is working, usually on low wages, are crippled by the present system. At a weekly income of £41.25, one begins to pay income tax at 30 per cent. on extra earnings. That is iniquitous, particularly in the light of what the Government have given to the well-off.
9.45 pm
In the range of earnings from about £50 to £68 a week, taking the tax with the loss of benefits, the effective marginal rate tax is 107 per cent., which is ludicrous for the poor. It has been calculated that, between £50 and £74 a week, any sustained increase in pay leaves the family worse off. A typical wage earner is no better off earning £90 than £50 a week in that poverty trap. Surely that is ludicrous.
It will take much time, effort and detailed provision to eliminate that blot entirely from our social system. 99 However, we can take a minor step towards it by adopting the proposal of a reduced rate band. We should take that step. I hope that Conservative Members who are concerned about the fate of the less-well-off who are faced with the Government's economic policies, will support us in the Lobby by voting for the amendment.
§ Mr. CookI hope that my colleagues who have participated in the debate will forgive me if, in the interest of time, I do not comment in detail on their helpful and constructive speeches. In my response to the debate, I should like to return to the one speech in the debate which was dissonant from the general support for the restoration of the reduced rate band—that of the Chief Secretary, who, as my hon. Friend the Member for Grimsby (Mr. Mitchell) reminded us, is plainly an unreconstructed monetarist when revisionism is breaking out all around him.
The Chief Secretary was kind enough to say that I had amused him when I said that I feared that we would hear the old arguments. I hope that it will raise the general hilarity in his office if I assure him that there was nothing original in this year's Treasury brief. The only argument which we did not hear this year which we heard last year was that which was assiduously peddled, that the reduced rate band did not help the poor because the poor could not afford to take a badly paid job.
We have heard the rest of the arguments. We heard the argument about administrative costs from the hon. Member for Colne Valley (Mr. Wainwright). I cheerfully admit to the Chief Secretary that there is a certain tension between simplicity and equity. The easiest tax administered which involves the fewest civil servants would be a poll tax. It would also be the unfairest. As my hon. Friend the Member for Blackburn (Mr. Straw) reminds me, he has returned to the House fresh from celebrating the 600th anniversary of the peasants' revolt. [Interruption.]
As the hon. Member for Yarmouth (Mr. Fell) has chosen to grace us with his presence and to intervene to say that we are being funny, I assure him that I am not being funny. I shall give way in a moment to the hon. Member. I would not pass up the opportunity so lightly as we so rarely hear his dulcet tones. I am not being funny.
A poll tax gave rise to a peasants' revolt 600 years ago. I do not believe that it is improper or in any way extravagant to say that the increasing burden of taxation on the low-paid created by the Government will give rise to intolerable social pressure on our political fabric, which will be difficult to withstand when the same Government have thrown 2½ million people on the streets with nothing to do other than revolt.
§ Mr. Anthony Fell (Yarmouth)I was not referring to the hon. Gentleman. I would not bother.
§ Mr. CookIt is rare for the hon. Gentleman to grace us with his presence at this hour. We are deeply flattered that he has chosen to attend our debate. I am glad that he does not believe that the argument is funny. It is important.
The Chief Secretary's second argument—that the reduced rate band has no incentive effect—was also rehearsed last year. I share the bewilderment of my hon. Friend the Member for Batley and Morley (Mr. Woolmer). Why is it an incentive to cut the marginal rate of taxation 100 for the highly-paid but no disincentive to increase the marginal rate of taxation for the low-paid? That paradox is never explained when the Treasury simultaneously cuts the marginal rate of taxation for the highly-paid and proposes increases in the marginal rate of tax for the low-paid.
The Chief Secretary said that the reduced rate band mainly affected part-time workers, so the incentive argument did not apply. If I may risk using a technical term to the Chief Secretary, the labour supply is more elastic with part-time workers. Surveys confirm that a part-time worker is more likely to be discouraged from work by a financial or tax disincentive. If we are to pay regard to the incentive—disincentive argument, it applies with greater force to the part-time worker.
I rashly predicted that we should not hear again the argument that it is preferable to concentrate the resources on raising tax thresholds. I was confident that a Government who had failed to raise tax thresholds would not resort to it, but, confound it, we had that argument as well. The Government argued that it would be better to concentrate on raising tax thresholds, even though in the Bill they have plainly abandoned any attempt to do so.
I accept that the cost of restoring the reduced rate band would be high. The Chief Secretary was good enough to acknowledge that the amendment was not trivial. It is no part of my case that it is. It is important and will cost money. As I said when I introduced it, in the vote on the last amendment the Treasury took for itself a further £2 billion of the public's money, so it is not unreasonable to suggest that half that money should be clawed back to mitigate the social consequence of the third uprating of tax thresholds. The argument for abolishing the reduced rate band last year was that those who benefited from it would benefit more from uprating the tax thresholds. They are also the people who will suffer most when tax thresholds are not increased, so some compensation should be found for the people who will suffer most from the vote earlier tonight.
During the election the Conservatives were fond of contrasting what we had done about tax with what they planned to do. The contrast that emerges from this debate is plain. In 1978 we uprated tax thresholds in line with inflation. We also introduced and maintained a reduced rate band. In 1981 the Government tell us that they can do neither. That is the contrast. The Chief Secretary was willing to have an academic debate about which would be preferable if the Government could afford to do either. The House should not go in for that sort of academic debate. We are responsible for choosing between the options.
The Government have excluded the option of upgrading the tax thresholds. We did not do so. As that option has been excluded, the House should have the opportunity to vote on the alternative option and to see whether the Conservative Back Benchers are prepared to vote to defend the Government when they wish to increase the marginal rate of tax for the poorest taxpayers, as they did in the previous vote to defend them in lowering tax thresholds.
§ Question put, That the amendment be made:—
§ The Committee divided: Ayes 247, Noes 293.
104| Division No. 171] | [9.55 pm |
| AYES | |
| Abse, Leo | Archer, Rt Hon Peter |
| Adams, Allen | Ashley, Rt Hon Jack |
| Anderson, Donald | Ashton, Joe |
| Barnett, Guy (Greenwich) | Ginsburg, David |
| Barnett, Rt Hon Joel (H'wd) | Golding, John |
| Beith, A. J. | Gourlay, Harry |
| Benn, Rt Hon A. Wedgwood | Graham, Ted |
| Bennett, Andrew(St'kp't N) | Grant, George (Morpeth) |
| Bidwell, Sydney | Grant, John (Islington C) |
| Booth, Rt Hon Albert | Hamilton, James (Bothwell) |
| Boothroyd, Miss Betty | Hamilton, W. W. (C'tral Fife) |
| Bottomley, Rt Hon A.(M'b'ro) | Hardy, Peter |
| Bradley, Tom | Harrison, Rt Hon Walter |
| Bray, Dr Jeremy | Hart, Rt Hon Dame Judith |
| Brocklebank-Fowler, C. | Hattersley, Rt Hon Roy |
| Brown, Hugh D. (Provan) | Haynes, Frank |
| Brown, R. C. (N'castle W) | Healey, Rt Hon Denis |
| Brown, Ron (E'burgh, Leith) | Heffer, Eric S. |
| Brown, Ronald W. (H'ckn'y S) | Hogg, N. (E Dunb't'nshire) |
| Buchan, Norman | Holland, S. (L'b'th, Vauxh'll) |
| Callaghan, Jim (Midd't'n & P) | Home Robertson, John |
| Campbell, Ian | Homewood, William |
| Campbell-Savours, Dale | Hooley, Frank |
| Canavan, Dennis | Horam, John |
| Carmichael, Neil | Howells, Geraint |
| Carter-Jones, Lewis | Huckfield, Les |
| Cartwright, John | Hudson Davies, Gwilym E. |
| Clark, Dr David (S Shields) | Hughes, Robert (Aberdeen N) |
| Cocks, Rt Hon M. (B'stol S) | Hughes, Roy (Newport) |
| Cohen, Stanley | Janner, Hon Greville |
| Coleman, Donald | Jay, Rt Hon Douglas |
| Conlan, Bernard | John, Brynmor |
| Cook, Robin F. | Johnson, Walter (Derby S) |
| Cowans, Harry | Johnston, Russell (Inverness) |
| Cox, T. (W'dsw'th, Toot'g) | Jones, Rt Hon Alec (Rh'dda) |
| Craigen, J. M. | Jones, Barry (East Flint) |
| Crawshaw, Richard | Jones, Dan (Burnley) |
| Crowther, J. S. | Kerr, Russell |
| Cryer, Bob | Kilroy-Silk, Robert |
| Cunliffe, Lawrence | Kinnock, Neil |
| Cunningham, G. (Islington S) | Lambie, David |
| Cunningham, Dr J. (W'h'n) | Lamborn, Harry |
| Dalyell, Tam | Lamond, James |
| Davidson, Arthur | Leadbitter, Ted |
| Davies, Ifor (Gower) | Leighton, Ronald |
| Davis, Clinton (Hackney C) | Lestor, Miss Joan |
| Davis, T. (B'ham, Stechf'd) | Lewis, Arthur (N'ham NW) |
| Deakins, Eric | Lewis, Ron (Carlisle) |
| Dempsey, James | Litherland, Robert |
| Dewar, Donald | Lofthouse, Geoffrey |
| Dixon, Donald | Lyon, Alexander (York) |
| Dobson, Frank | Lyons, Edward (Bradf'd W) |
| Dormand, Jack | Mabon, Rt Hon Dr J. Dickson |
| Douglas-Mann, Bruce | McCartney, Hugh |
| Dubs, Alfred | McDonald, Dr Oonagh |
| Duffy, A. E. P. | McElhone, Frank |
| Dunn, James A. | McGuire, Michael (Ince) |
| Dunwoody, Hon Mrs G. | McKay, Allen (Penistone) |
| Eadie, Alex | McKelvey, William |
| Eastham, Ken | MacKenzie, Rt Hon Gregor |
| Edwards, R. (W'hampt'n S E) | Maclennan, Robert |
| Ellis, Tom (Wrexham) | McMahon, Andrew |
| English, Michael | McNally, Thomas |
| Ennals, Rt Hon David | McNamara, Kevin |
| Evans, Ioan (Aberdare) | McTaggart, Robert |
| Evans, John (Newton) | McWilliam, John |
| Ewing, Harry | Magee, Bryan |
| Faulds, Andrew | Marshall, D(G'gow S'ton) |
| Field, Frank | Marshall, Dr Edmund (Goole) |
| Fitch, Alan | Marshall, Jim (Leicester S) |
| Flannery, Martin | Martin, M(G'gow S'burn) |
| Fletcher, Raymond (Ilkestdn) | Mason, Rt Hon Roy |
| Fletcher, Ted (Darlington) | Maxton, John |
| Foot, Rt Hon Michael | Maynard, Miss Joan |
| Ford, Ben | Meacher, Michael |
| Forrester, John | Mellish, Rt Hon Robert |
| Foster, Derek | Mikardo, Ian |
| Foulkes, George | Millan, Rt Hon Bruce |
| Fraser, J. (Lamb'th, N'w'd) | Miller, Dr M. S. (E Kilbride) |
| Garrett, John (Norwich S) | Mitchell, Austin (Grimsby) |
| Garrett, W. E. (Wallsend) | Mitchell, R. C. (Soton Itchen) |
| George, Bruce | Morris, Rt Hon A. (W'shawe) |
| Gilbert, Rt Hon Dr John | Morris, Rt Hon C. (O'shaw) |
| Morris, Rt Hon J. (Aberavon) | Snape, Peter |
| Morton, George | Soley, Clive |
| Moyle, Rt Hon Roland | Spearing, Nigel |
| Mulley, Rt Hon Frederick | Spriggs, Leslie |
| Newens, Stanley | Stallard, A. W. |
| Oakes, Rt Hon Gordon | Stewart, Rt Hon D. (W Isles) |
| Ogden, Eric | Stoddart, David |
| O'Halloran, Michael | Stott, Roger |
| O'Neill, Martin | Strang, Gavin |
| Palmer, Arthur | Straw, Jack |
| Parker, John | Summerskill, Hon Dr Shirley |
| Parry, Robert | Thomas, Dafydd (Merioneth) |
| Pavitt, Laurie | Thomas, Jeffrey (Abertillery) |
| Pendry, Tom | Thomas, Mike (Newcastle E) |
| Penhaligon, David | Thomas, Dr R.(Carmarthen) |
| Powell, Raymond (Ogmore) | Thorne, Stan (Preston South) |
| Prescott, John | Tilley, John |
| Price, C. (Lewisham W) | Tinn, James |
| Race, Reg | Torney, Tom |
| Rees, Rt Hon M (Leeds S) | Urwin, Rt Hon Tom |
| Richardson, Jo | Varley, Rt Hon Eric G. |
| Roberts, Albert (Normanton) | Wainwright, R.(Colne V) |
| Roberts, Allan (Bootle) | Walker, Rt Hon H.(D'caster) |
| Roberts, Ernest (Hackney N) | Weetch, Ken |
| Roberts, Gwilym (Cannock) | Welsh, Michael |
| Robertson, George | White, J. (G'gow Pollok) |
| Robinson, G. (Coventry NW) | Wigley, Dafydd |
| Rodgers, Rt Hon William | Willey, Rt Hon Frederick |
| Rooker, J. W. | Williams, Rt Hon A.(S'sea W) |
| Roper, John | Williams, Sir T.(W'ton) |
| Ross, Ernest (Dundee West) | Wilson, Gordon (Dundee E) |
| Rowlands, Ted | Wilson, Rt Hon Sir H.(H'ton) |
| Ryman, John | Wilson, William (C'try SE) |
| Sandelson, Neville | Winnick, David |
| Sever, John | Woolmer, Kenneth |
| Sheerman, Barry | Wrigglesworth, Ian |
| Sheldon, Rt Hon R. | Wright, Sheila |
| Shore, Rt Hon Peter | Young, David (Bolton E) |
| Short, Mrs Renée | |
| Silkin, Rt Hon J. (Deptford) | Tellers for the Ayes: |
| Silkin, Rt Hon S. C. (Dulwich) | Mr. Joseph Dean and |
| Skinner, Dennis | Mr. Frank R. White. |
| Smith, Rt Hon J. (N Lanark) |
| NOES | |
| Adley, Robert | Brittan, Leon |
| Aitken, Jonathan | Brooke, Hon Peter |
| Alexander, Richard | Brotherton, Michael |
| Alison, Michael | Brown, Michael(Brigg & Sc'n) |
| Amery, Rt Hon Julian | Browne, John (Winchester) |
| Ancram, Michael | Bruce-Gardyne, John |
| Arnold, Tom | Bryan, Sir Paul |
| Aspinwall, Jack | Buchanan-Smith, Alick |
| Atkins, Robert(Preston N) | Buck, Antony |
| Atkinson, David (B'm'th.E) | Budgen, Nick |
| Baker, Kenneth(St.M'bone) | Bulmer, Esmond |
| Baker, Nicholas (N Dorset) | Burden, Sir Frederick |
| Banks, Robert | Butcher, John |
| Beaumont-Dark, Anthony | Butler, Hon Adam |
| Bell, Sir Ronald | Cadbury, Jocelyn |
| Bendall, Vivian | Carlisle, John (Luton West) |
| Bennett, Sir Frederic (T'bay) | Carlisle, Kenneth (Lincoln) |
| Benyon, Thomas (A'don) | Carlisle, Rt Hon M. (R'c'n) |
| Benyon, W. (Buckingham) | Chalker, Mrs. Lynda |
| Berry, Hon Anthony | Chapman, Sydney |
| Best, Keith | Churchill, W. S. |
| Bevan, David Gilroy | Clark, Hon A. (Plym'th, S'n) |
| Biffen, Rt Hon John | Clark, Sir W. (Croydon S) |
| Biggs-Davison, John | Clarke, Kenneth (Rushcliffe) |
| Blackburn, John | Clegg, Sir Walter |
| Blaker, Peter | Cockeram, Eric |
| Body, Richard | Cope, John |
| Bonsor, Sir Nicholas | Cormack, Patrick |
| Boscawen, Hon Robert | Corrie, John |
| Bottomley, Peter (W'wich W) | Costain, Sir Albert |
| Bowden, Andrew | Cranborne, Viscount |
| Boyson, Dr Rhodes | Critchley, Julian |
| Braine, Sir Bernard | Crouch, David |
| Bright, Graham | Dean, Paul (North Somerset) |
| Brinton, Tim | Dickens, Geoffrey |
| Dorrell, Stephen | Lester, Jim (Beeston) |
| Douglas-Hamilton, Lord J. | Lewis, Kenneth (Rutland) |
| Dover, Denshore | Lloyd, Ian (Havant & W'loo) |
| du Cann, Rt Hon Edward | Lloyd, Peter (Fareham) |
| Dunn, Robert (Dartford) | Loveridge, John |
| Durant, Tony | Luce, Richard |
| Dykes, Hugh | Lyell, Nicholas |
| Eden, Rt Hon Sir John | McCrindle, Robert |
| Edwards, Rt Hon N. (P'broke) | Macfarlane, Neil |
| Eggar, Tim | MacGregor, John |
| Elliott, Sir William | MacKay, John (Argyll) |
| Eyre, Reginald | Macmillan, Rt Hon M. |
| Fairbalrn, Nicholas | McNair-Wilson, M. (N'bury) |
| Fairgrieve, Russell | McNair-Wilson, P. (New F'st) |
| Faith, Mrs Sheila | McQuarrie, Albert |
| Farr, John | Madel, David |
| Fell, Anthony | Major, John |
| Fenner, Mrs Peggy | Marland, Paul |
| Fisher, Sir Nigel | Marlow, Tony |
| Fletcher, A. (Ed'nb'gh N) | Marshall, Michael (Arundel) |
| Fletcher-Cooke, Sir Charles | Marten, Neil (Banbury) |
| Fookes, Miss Janet | Mather, Carol |
| Forman, Nigel | Maude, Rt Hon Sir Angus |
| Fowler, Rt Hon Norman | Mawby, Ray |
| Fox, Marcus | Mawhinney, Dr Brian |
| Fraser, Peter (South Angus) | Maxwell-Hyslop, Robin |
| Gardiner, George (Reigate) | Mayhew, Patrick |
| Garel-Jones, Tristan | Mellor, David |
| Glyn, Dr Alan | Meyer, Sir Anthony |
| Goodhart, Philip | Miller, Hal (B'grove) |
| Goodhew, Victor | Mills, Iain (Meriden) |
| Gorst, John | Mills, Peter (West Devon) |
| Gow, Ian | Miscampbell, Norman |
| Gower, Sir Raymond | Mitchell, David (Basingstoke) |
| Grant, Anthony (Harrow C) | Moate, Roger |
| Gray, Hamish | Monro, Hector |
| Greenway, Harry | Montgomery, Fergus |
| Griffiths, Peter Portsm'th N) | Moore, John |
| Grist, Ian | Morgan, Geraint |
| Grylls, Michael | Morris, M. (N'hampton S) |
| Gummer, John Selwyn | Morrison, Hon C. (Devizes) |
| Hamilton, Hon A. | Morrison, Hon P. (Chester) |
| Hamilton, Michael (Salisbury) | Murphy, Christopher |
| Hampson, Dr Keith | Myles, David |
| Hannam, John | Neale, Gerrard |
| Haselhurst, Alan | Needham, Richard |
| Havers, Rt Hon Sir Michael | Nelson, Anthony |
| Hawkins, Paul | Neubert, Michael |
| Hawksley, Warren | Newton, Tony |
| Hayhoe, Barney | Nott, Rt Hon John |
| Heddle, John | Onslow, Cranley |
| Henderson, Barry | Oppenheim, Rt Hon Mrs S. |
| Hicks, Robert | Osborn, John |
| Higgins, Rt Hon Terence L | Page, Rt Hon Sir G. (Crosby) |
| Hill, James | Page, Richard (SW Herts) |
| Hogg, Hon Douglas (Gr'th'm) | Parris, Matthew |
| Holland, Philip (Carlton) | Patten, Christopher (Bath) |
| Hooson, Tom | Patten, John (Oxford) |
| Howell, Rt Hon D. (G'ldf'd) | Pawsey, James |
| Hunt, David (Wirral) | Percival, Sir Ian |
| Hunt, John (Ravensbourne) | Pink, R. Bonner |
| Hurd, Hon Douglas | Pollock, Alexander |
| Irving, Charles (Cheltenham) | Porter, Barry |
| Jenkin, Rt Hon Patrick | Prentice, Rt Hon Reg |
| Jessel, Toby | Price, Sir David (Eastleigh) |
| Jopling, Rt Hon Michael | Prior, Rt Hon James |
| Kaberry, Sir Donald | Proctor, K. Harvey |
| Kimball, Marcus | Pym, Rt Hon Francis |
| King, Rt Hon Tom | Raison, Timothy |
| Knight, Mrs Jill | Rathbone, Tim |
| Knox, David | Rees, Peter (Dover and Deal) |
| Lamont, Norman | Renton, Tim |
| Lang, Ian | Rhodes James, Robert |
| Langford-Holt, Sir John | Rhys Williams, Sir Brandon |
| Latham, Michael | Ridsdale, Sir Julian |
| Lawrence, Ivan | Rifkind, Malcolm |
| Lawson, Rt Hon Nigel | Rippon, Rt Hon Geoffrey |
| Lee, John | Roberts, M. (Cardiff NW) |
| Le Merchant, Spencer | Roberts, Wyn (Conway) |
| Lennox-Boyd, Hon Mark | Rost, Peter |
| Sainsbury, Hon Timothy | Thorns, Neil (Ilford South) |
| St. John-Stevas, Rt Hon N. | Thornton, Malcolm |
| Scott, Nicholas | Townend, John (Bridlington) |
| Shaw, Giles (Pudsey) | Townsend, Cyril D, (B'heath) |
| Shaw, Michael (Scarborough) | Trippier, David |
| Shelton, William (Streatham) | van Straubenzee, W. R. |
| Shepherd, Colin (Hereford) | Vaughan, Dr Gerard |
| Shepherd, Richard | Viggers, Peter |
| Shersby, Michael | Waddington, David |
| Silvester, Fred | Wakeham, John |
| Sims, Roger | Waldegrave, Hon William |
| Skeet, T. H. H. | Walker, Rt Hon P.(W'cester) |
| Smith, Dudley | Walker, B. (Perth) |
| Speed, Keith | Walker-Smith, Rt Hon Sir D. |
| Speller, Tony | Waller, Gary |
| Spence, John | Ward, John |
| Spicer, Jim (West Dorset) | Warren, Kenneth |
| Spicer, Michael (S Worcs) | Watson, John |
| Sproat, Iain | Wells, Bowen |
| Squire, Robin | Wheeler, John |
| Stainton, Keith | Whitelaw, Rt Hon William |
| Stanbrook, Ivor | Whitney, Raymond |
| Stanley, John | Wickenden, Keith |
| Steen, Anthony | Wiggin, Jerry |
| Stevens, Martin | Wilkinson, John |
| Stewart, Ian (Hitchin) | Williams, D.(Montgomery) |
| Stewart, A.(E Renfrewshire) | Wolfson, Mark |
| Stokes, John | Young, Sir George (Acton) |
| Stradling Thomas, J. | Younger, Rt Hon George |
| Tapsell, Peter | |
| Taylor, Robert (Croydon NW) | Tellers for the Noes: |
| Taylor, Teddy (S'end E) | Mr. Alastair Goodlad and |
| Temple-Morris, Peter | Mr. Donald Thompson. |
| Thomas, Rt Hon Peter |
§ Mr. Richard WainwrightI beg to move amendment No. 51, in page 12, line 22, leave out from "shall" to end of line and insert
`apply for the year 1981–82 only as regards the basic rate limit'.With a brevity which I hope is suited to the hour, I am moving this amendment in the name of the Liberal Members. Members who have been here much longer than I may share my view that this has been an unusual Finance Bill Committee day on at least two counts. First, up to now—I hope that this amendment will serve to break the spell—it has been a day of total silence on the part of the Conservative Back Benchers. Not one Government supporter other than the emasculated team on the Front Bench has spoken during today's debate.Secondly, the day has been devoted almost entirely to one principle—indexation. There again, I find it odd and rather disturbing that on a crucial principle of tax law there should have been no Back Bench Conservative contribution. This amendment may at least give the Tory Back Benchers a chance to come to the rescue of some of their supporters in the country.
The background to the amendment is simple. The law as sanctified by the Chancellor of the Exchequer only last year provides that among the many thresholds that are to be indexed in accordance with inflation over the previous 12 months is the point at which income is taxed at a rate higher than the basic rate.
This year, the Finance Bill goes out of its way to try to excuse the Government from operating that part of the law. It is no part of my purpose to suggest that the failure of the Government that is covered by the amendment is in any sense the worst dereliction of the Government in respect of indexation.
We have had today all the hard cases, all the main injustices and all the most foolish and perverse failures to index, and we ought to round off this day of indexation by 105 considering another example—one which does not create anything like as much hardship as those that we have been discussing heretofore but which is nevertheless important.
In the history of taxation, human nature being what it is, great importance has been attached socially to the point at which somebody in an executive or similar position becomes what used to be called a surtax payer. This is a notable landmark for people who measure their career success in those terms. It is important for the House regularly to consider at what point a person's income calls for taxation at an unusually high rate.
Last year the House, after very considerable debate, and at the instigation of the Government, decided that an income of £11,250, in terms of last year's money, should be the starting point for a higher rate of income tax. That was the top limit to which anyone could go without incurring more than the basic rate of 30 per cent. This year the Government seek to be allowed, as an exception, to make no adjustment whatever for the 15 per cent. inflation which has taken place during the past 12 months, whereas, if Parliament's view last year was correct, it seems only fair that the figure of £11,250 should be indexed at 15 per cent. to approximately £12,940.
Let us consider the main practical reason for indexing this limit—namely, to preserve some incentive effect, so that promotion or merit money for somebody in middle management is not immediately clobbered by a higher rate of taxation which has a disincentive effect. The basis of incentives at that level of income is that they should be stable, reliable and as permanent as possible.
I have sat in the House when, from a comfortable Opposition stance, hon. Members who are now on the Government Benches have railed at Labour Governments because of the instability of their incentives to industry to develop in the regions, to invest in new plant and so on. Conservatives used to claim with great vigour that those incentives varied hopelessly from year to year, that they could not be counted upon and that by the time a business had planned to develop somewhere the incentive had changed and the whole thing was hopelessly unstable.
But what have Conservative Members done now that they have responsibility? Last year, by indexing the thresholds, they gave middle management the impression that some kind of stable incentive was here to stay and that people in that position could plan ahead and not be clobbered merely through the silent, stealthy advance of inflation. But after only a year the whole thing has crumbled into ruins. People who were told last year that they had a great incentive given to them now find that it has wholly vanished. It cannot be an incentive as long as it is at the mercy of capricious Governments, as this limit has proved to be.
Incidentally, one byproduct is that any incentive that was held out last year, at some cost to the Revenue, is now worthless and might as well not have been given, because it has proved to be so transient and so unreliable. Yet the people at this level of income are people whom the Tories have always regarded and played up to as being of peculiar value to the economy. They are high on the Prime Minister's list of favourite people, who can be relied on to improve the economy, to take risks and to show entrepreneurial spirit. What is their reward? Their reward is the complete failure to index, even partially, the limit at which they pass into the realms of higher taxation.
That is another example of the havoc wrought when the Government suddenly decide to ask the House to exempt 106 them totally from a principle to which the Financial Secretary added his name when in Opposition. He gave the impression thereby that the Conservative Party was the party of indexation. This is the final proof that it is nothing of the sort.
§ Mr. BrittanThe speech of the hon. Member for Coble Valley (Mr. Wainwright) is a marvellously classic example of the way in which he can run true to form. He seeks to be all things to all men. Earlier he supported the official Opposition in favour of increasing the allowance in accordance with the requirements of indexation, for the sake of benefiting the lower-paid. He was entirely in favour of that. Although the Committee has decided not to take that course and that that is not an appropriate thing to do, the hon. Gentleman and his hon. Friends wish to persist with an amendment which would single out the better-paid for indexation.
The argument has shifted. The one-time friend of the "have nots" has become the self-appointed friend of middle management. No doubt the hon. Gentleman will say that he would like to be both. That is the Government's position. In effect, the Government have said that if they could proceed with the indexation provisions provided for by legislation—in the absence of a decision to the contrary—it would be right to carry them out across the board. The hon. Gentleman has addressed the Committee after it has taken decisions on the bulk of the indexation provisions. It is difficult to understand the logic of coming up with a partial indexation of the higher rate.
Given his experience, I am sure that the hon. Gentleman has not fallen into this amendment by accident. It is important to point out its consequences. It proposes that the starting point for the higher rate of tax should be increased by £1,750 to £13,000. Raising the higher rate threshold in that way would also increase by £1,750 the starting point of each of the successive higher rate bands. However, for some reason which the hon. Gentleman has not explained, he has not carried out the indexation provisions as one might have expected him to do. The widths of the bands are not altered by the amendment. The amendment offers a partial indexation of somewhat inexplicable and certainly unexplained type to a section of those who pay at the higher rate of tax. It seems strange to increase the higher rate threshold and the starting point of successive rate bands, but not their width.
The reality is that it is impossible to be all things to all men. Although one accepts the general case for indexation, it has not been possible to introduce it. Therefore, there is no justification for indexation on a partial basis under cover of giving incentives to middle management.
The truth is that by the courageous action that my right hon. and learned Friend took in his first Budget the shape and picture of incentives were altered permanently for those on the higher rates of tax and those on the standard basic rate.
In the light of the decision taken earlier by the Committee, I find it difficult to understand why the hon. Gentleman proposes his amendment. I cannot recommend it to the House.
§ Mr. Richard WainwrightHaving heard the remarks of the Chief Secretary, I am not surprised that Conservative Back Benchers have failed to support him. 107 The only argument that might have carried apparent weight will vanish when I explain to those who are not privy to these matters that the Liberal Party is in no sense part of the usual channels. It was not with the consent of or consultation with the Liberal Party that the usual channels, in their wisdom, decided to discuss the amendments to clause 23 before the amendments to clause 19. Our amendment is logical and reasonable. It is impudent for the Chief Secretary to say; because he has conned the Labour segment of the Opposition into taking the clauses in reverse order, that amendment No. 51 is defective.
I am satisfied now that the Government have no possible foundation for producing the only excuse that I thought they might offer, namely, to ask their friends and supporters to bear with them because "it will be all right next year".
There was an enormous gap in the Chief Secretary's remarks because of his failure to offer the slightest comfort to the group on whose behalf I am pleading. There was no 108 willingness to suggest that it will be better next year. He has made it brazenly plain in table 8 of the Financial Statement, for which the Financial Secretary was responsible on Budget day, that for 1982–83 the only scope for altering taxation—the implied fiscal adjustment—is a mere £1 billion. In the apparent El Dorado of 1983–84—when one would have thought there might be a reason for staging an El Dorado—the implied fiscal adjustment is a mere £2 billion.
Through tabling these amendments we have elicited from the Government that they are unable to hold out any hope of redressing this year's blunders and hardships in the next two years. I hope that that will sink home to the British public and that at last they will begin to realise what a pup they bought in 1979.
§ I beg to ask leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 19 ordered to stand part of the Bill.
§ To report Progress and ask leave to sit again tomorrow—[Mr. Brittan.]
§ Committee report Progress; to sit again tomorrow.