HC Deb 12 May 1987 vol 116 cc190-205 4.15 pm
Dr. Oonagh McDonald (Thurrock)

I beg to move, To leave out Clause 20.

Congratulations are in order on the way in which you conducted the Committee stage, Mr. Deputy Speaker. I do not know how many words per minute you uttered, but I am sure that the speed exceeds most records and perhaps it should be checked for the "Guinness Book of Records".

We went rather quickly through many technical or unexceptional clauses in the Finance Bill and it is not necessary for us to comment at length upon them. However, I should like to make one small point. In the final version of the Finance Bill, clause 58 was left out. That clause spoke about the Inland Revenue's response to Lloyd's of London and it caused Lloyd's underwriters severe anxieties because it looked as if the Inland Revenue would be more assiduously after them than before. One can only express regret—I shall leave it at that—that the clause was left out of the Bill.

Over the last few weeks, I seem to have done endless reading on the Budget and the Finance Bill. A comment in an article in the New Statesman of 13 March seems to sum up the whole debate that preceded the Budget and the debate itself on the Finance Bill. The comment fits the Chancellor rather well. It says: The art of the successful pickpocket lies in diverting the victim's attention at the right moment. In the run-up to the Budget and during the debate on the Finance Bill, the Chancellor and the Government conducted a successful propaganda operation and diverted the attention of the victims, many taxpayers, at the right moment.

Far from the presentation in the Budget that most taxpayers would be better off as a result of that Budget and the changes in the Finance Bill, we know that that is not the case. Those on average and below-average incomes will find that the 2p off the standard rate of tax on or after 18 May, depending on their pay, will make virtually no difference to the proportion of their incomes taken in tax and national insurance contribution.

Much as I hate to keep reminding the Financial Secretary of the extremely detailed and most useful answers to my written questions, I am afraid that I must do so. I received a written answer on 27 March, which occupied a number of pages from column 311 onwards and it makes the Government's position on tax and national insurance quite clear. The tables show for 1978 to 1987–88 the proportion of income taken in tax and national insurance contributions from those on half average earnings, currently £113 a week, from those on three quarters of average male earnings, that is to say £170 a week, and from those on average earnings. Most of those people have suffered a substantial increase in the tax take. That substantial increase ranges from about 4 per cent., but it is sometimes even higher.

It is only when we move on towards the end of those pages of tables and look, for example, at a married man with two children who earns 700 per cent. of average male earnings—that is someone earning £1,500 a week this year—that we see that in 1978–79 the proportion of his income that was taken in tax and national insurance contributions was 58 per cent., but that it has now fallen to 48 per cent. That is a 10 per cent. fall, which is a huge drop for those whose incomes are well above average. However, the average taxpayer or someone on below average incomes is now paying more in income tax and national insurance contributions as a proportion of his gross earnings, in terms of the Financial Secretary's figures. I am sure that he read the parliamentary answer most carefully before he signed it and allowed it to go forward in his name.

Mr. Ian Gow (Eastbourne)

Would not the hon. Lady's case have greater credibility if it were not for the fact that she is now seeking to remove clause 20 from the Finance Bill? If that clause is removed, she will injure still further those on average incomes whose champion she claims to be.

Dr. McDonald

I do not think that the hon. Gentleman has been following the argument. The point is that even the changes proposed in the Finance Bill, which we are now finally considering and voting on, will make virtually no difference to the proportion of income taken in tax and national insurance contributions last year and this year.

To help the hon. Gentleman, I shall give those figures. Before the changes in the Budget, or rather in the Finance Bill, a married man with two children who is on 50 per cent. of average earnings would find that 16.7 per cent. of his gross earnings were taken in tax and national insurance contributions. Assuming the changes that we are discussing, in this financial year 16.6 per cent. of his gross earnings would be taken in tax and national insurance contributions. Therefore in proportional terms, which I am sure the hon. Gentleman understands, there is virtually no change.

Sir William Clark (Croydon, South)

Will the hon. Lady give way?

Dr. McDonald

No, I would like to continue my argument. I am sure that the hon. Gentleman will have plenty of time to study the matter.

Sir William Clark

rose—

Dr. McDonald

No, I shall not give way. I wish to continue. I have already made it perfectly clear that if one is talking about the proportion of earnings taken in income tax and national insurance contributions, the figures are all there.

Sir William Clark

I am grateful to the hon. Lady for giving way. Apart from the percentages to which she has referred, has she not overlooked the fact that many millions of retired persons will benefit from the 2p drop in the standard rate of tax? National insurance contributions do not come into that calculation.

Dr. McDonald

I was going to consider such matters, so I shall incorporate my answer to the hon. Gentleman into that. The question I was asked just now—

Sir William Clark

Answer the question.

Dr. McDonald

The hon. Gentleman should not be so impatient. The point that I was making was that withdrawing the 2p cut, or abandoning the changes that the Government have proposed, would make little difference to most earners who pay tax and national insurance contributions. If one makes those changes, and especially if one requires the higher rate taxpayer to make a fairer contribution to the Exchequer than he or she has been making during the past eight years, we shall use those resources, as the hon. Gentleman knows full well is our policy, to raise pensions by £8 a week for married pensioners and by £5 for single pensioners. We shall also ensure that a heating allowance of £5 per week is paid from December to the end of March to all pensioners on supplementary benefit.

All that would be far more beneficial to the majority of pensioners than 2p off the standard rate of tax. I can assure the hon. Gentleman that if I take as an example—[Interruption.] The hon. Gentleman is completely out of touch with the way in which most people live. In my constituency, for example, 4,000 pensioners are on supplementary benefit, and a heating allowance during the winter months would be far more beneficial to them than 2p off the standard rate.

Sir William Clark

indicated dissent.

Dr. McDonald

If the hon. Gentleman does not understand, I suggest that he goes away and does some homework on that matter.

On tax, a Conservative Member mentioned from a sedentary position the increase in earnings after tax and national insurance. I should like to point out to Conservative Members that the poorest wage earners have seen only a 2.9 per cent. increase in their real earnings between April 1979 and April 1986. However, the top earners have seen a 21 per cent. increase in their post-tax earnings.

Mr. Tim Smith

Where is the evidence and what is the average?

Dr. McDonald

The evidence is the Treasury's own analysis. I think that the average is about 8 per cent. However, it is an extremely distorted average figure—[Interruption.] The average is certainly not 21 per cent. The Financial Secretary had better study the tables that are provided by the Treasury. Perhaps he simply put his name to them, or glanced at them without giving them any consideration. The increase is 21 per cent. for the top earners and for the lowest earners it is 2.9 per cent. For the median of earnings—which is not quite the average—the increase is about 9 per cent. However, many people have seen only an extremely small increase in their real earnings. Furthermore. under the present Government, the top earners have increased their share of post-tax income from 12 per cent. to 17 per cent. Again, those are the Government's own figures.

Mr. John Maples (Lewisham, West)

Will the hon. Lady give way?

Dr. McDonald

No, I have given way two or three times already and I do not want to prolong this debate. I have just explained to the hon. Gentleman—

Mr. Maples

rose—

Dr. McDonald

No, I shall not give way. I shall tell the hon. Gentleman all over again in case he does not understand the point. If one considers those earning anything from 700 per cent. to 2,000 per cent. of average male earnings, one finds a substantial drop in the proportion of tax and national insurance that is taken from their gross earnings.

Mr. Maples

rose—

Dr. McDonald

No, I shall not give way. I have discussed the proportions and spelled out the tables. I suggest that before the election, the hon. Gentleman goes away and reads the appropriate columns from the Official Report of Friday 27 March. Perhaps then, unusually, the hon. Gentleman will tell his constituents the truth about taxation under the Tories. I can assure the House that Ministers and other Conservative Members most certainly do not.

We have seen the direct tax burden increase on those on below average incomes, and we have also seen indirect taxation increase during the past eight years. Those taxes hit the poor disproportionately. Currently, the poorest 10 per cent. of households—those on just £3,500 a year—pay nearly one quarter of their incomes—23 per cent.—in indirect taxation. However, the richest 10 per cent.—those on more than £28,000 a year—pay only one sixth of their incomes—16 per cent.—in indirect taxes. The doubling of VAT that occurred under the previous Tory Government has hit the poorest households hardest, and it continues to place a heavy burden on them.

Should we have the misfortune to have another Tory Government, we know that their hidden manifesto proposes to extend VAT on food, children's clothing and other items. It would not be the first time that the Chancellor has done that. He has already extended the base for VAT—for example, by charging it on take-away food. We know that that is what the Government have in mind and, indeed, that is a consequence of their commitment to the internal market of the EEC. Therefore, I am not surprised that the Prime Minister prevaricated on the issue in reply to my right hon. Friend the Leader of the Labour party during Prime Minister's Question Time the other day.

4.30 pm

In the past eight years the tax system has been deliberately distorted to make those on average and below-average incomes pay for the tax cuts of the rich, whether through direct or indirect taxation. That is the truth of the matter. Every examination of what has occurred, and even the Government's answers to questions, show that to be the case. This year's Finance Bill makes changes in inheritance tax which in a full year will cost £170 million, but the Government choose to boast about a special tax relief for the over-80s on which they can afford to squander all of £10 million. That shows clearly where the Government's priorities lie.

We have tabled the amendment simply to give us another opportunity to attack the Government's record on taxation and to show the public the truth of the matter before polling day.

Mr. Tim Smith

Will the hon. Lady give way?

Dr. McDonald

The hon. Gentleman is perfectly well aware that I am replying.

We have taken the opportunity of this debate to show the public that they have been paying from their pockets for the benefit of the few. The Government will squander billions of pounds, as they already have done, to benefit those on £1,000 or £2,000 a week, while those who have little more than that to live on a year are paying through the nose to line the pockets of the rich.

Sir Brandon Rhys Williams (Kensington)

The hon. Member for Thurrock (Dr. McDonald) has drawn the attention of the House to new clause 20 and I should like to make some brief remarks which point in entirely the opposite direction from those which she has just been making.

The duty of the Treasury—it is one to which I hope the Treasury will return in coming weeks when the House returns after the election—is to provide the greatest possible stimulus to the economy by the adroit use of taxation reform. From the point of lightening the administration of the tax system the Government should also head towards extreme simplification of the tax system for its own sake. I should therefore like to repeat a recommendation which I made at an earlier stage in our discussion of this clause. We should be moving now towards a single rate of tax on all incomes. We should end the anomaly arising from the impact of national insurance on earned income which has the effect of providing a higher rate of tax on earned income than is normally charged on investment income.

We must treat women as entirely separate persons for tax purposes in future. I should also particularly like to repeat my recommendation that we should end higher rate tax altogether. In this way the Government would be adding to the incentives of investors to take risks which would add enormously to the profitability of companies and to the activity of the economy. It would also serve quickly to increase the total yield of tax rather than the reverse. My recommendations, therefore, would lead to a situation in which everyone would gain and nobody would lose.

Mr. Ian Wrigglesworth (Stockton, South)

This short debate comes at an opportune time. First, I must comment on the curious way in which democracy sometimes operates in this House. The sight of the Treasury Bench defeating large sections of its own Bill is an amusing end to this Parliament. I only wish that we could dispatch Finance Bills and many other Bills as speedily as we have done this afternoon. It is a great pleasure to see Ministers defeating large sections of their Bill in order to dispatch the House to the country to fight the general election.

If we in the alliance had been framing the Budget we would not have proceeded to make a 2p cut in income tax at this time. For that reason we have consistently voted against it and will do so again today. Since the publication of the Red Book and the Chancellor's Budget statement we have reviewed all our public expenditure commitments and have published the outcome today. Hon. Members will no doubt obtain details of that extended review in due course.

I shall say a few words about our expenditure commitments in the light of the amendment to delete the 2p cut in income tax. One of the most striking aspects of the Government's Budget forecasts and the Red Book was the scale of the fiscal adjustment and the amount of revenue available to the Chancellor in forthcoming years. It was much higher than had been anticipated by many, certainly until just before the Budget and even on the eve of the Budget. The Red Book showed that there were substantial forecast funds and we must take the Treasury at its word. The forecast was that the funds were in the region of £3 billion for 1988–89, £5 billion for 1989–90, £7 billion for 1990–91 and £9 billion for 1991–92.

Our view, which we expressed during the Budget debates, is that any available funds should be devoted to helping those who have been hit hardest by the recession and to building up the long-term strength of the economy and industry. In our review we have sought to achieve those ends. For that reason we have proposed a package of almost £5 billion to help ensure that the long-term unemployed can obtain work. The long-term unemployed are the section of our community who have been hit hardest by the economic recession and we give them top priority in our expenditure proposals.

We propose several tax cuts to give an incentive to employers to take on more labour, in particular by cutting employers' national insurance contributions in assisted areas, by providing tax incentives to encourage wider share ownership and more investment in industry, and by extending the Government's proposals for profit sharing which were included in the Finance Bill, but which the Government have dropped as a result of the general election. We would change the form of their profit-sharing proposals, but, as I said in our earlier debates on the Bill, we support the principle that the Government have outlined in the Bill.

In addition, we believe that the funds available should be used to help those who are in dire poverty at the bottom end of the income scale, particularly families with children and the long-term unemployed. We propose a substantial increase in expenditure over the next five years to help them and to improve education, health, industry, overseas aid, the arts and the Home Office. Understandably, people will ask how we would finance that increase in expenditure. Our plans imply an increase of some £4 billion in borrowings over five years. Before hon. Members on the Conservative Benches start crowing too much about that, we would have borrowings at a lower percentage of gross domestic product than the Government have had for the majority of their term of office, so it would hardly be an excess of spending.

The borrowings we suggest, compared either historically or with any other country in the Western world, would be a very modest increase. Those borrowings would be necessary to underpin the growth in industry and the economy and to build up the health and education services, which people want to see improved and strengthened. That could be done without restoring the 2p cut in income tax proposed by the Government.

Our proposals have been carefully costed and would be achievable over the coming five years. We would not reverse the 2p cut, but we believe that the Government were wrong to embark upon that road when over 3 million people are unemployed, waiting lists in hospitals are growing and schools do not have the equipment or resources to give children a proper education.

Sir William Clark

The House is following the hon. Gentleman's argument with great interest, but neither I nor some of my colleagues can understand why, the hon. Gentleman having said that his party would not restore the cut, he voted against it.

Mr. Wrigglesworth

Our judgment is that the Government should not have embarked upon this road when many people are unemployed and the education and health services should be upgraded. In the light of the figures in the Red Book and the forecasts by Ministers, it is quite clear that we could achieve the objectives we have set without restoring the cut in income tax. One of the alliance's aims is to stop the sharp reverses in policy which have taken place, when one party has reversed the proposals of another party on taxation and other matters.

The Chancellor of the Exchequer (Mr. Nigel Lawson)

As the Red Book was published on the day of the Budget, why did the hon. Gentleman vote against the tax cuts in March but decide in May that his view is different?

Mr. Wrigglesworth

The Minister knows how long it takes the Government to go through their detailed expenditure proposals and come to a conclusion. No other party in opposition, including the Conservative party, has ever costed its proposals, had them reviewed by Coopers Lybrand and published the full figures, as the alliance has today, in order to make it clear to the country that at least one party in opposition provides a credible alternative to the Government and can carry out its pledges. That is clear from the proposals published today.

We could have easily come back within 24 hours of the Budget statement and the publication of the Red Book and, off the top of our heads, made a decision about what we would do, but the alliance wanted to act responsibly and to review the expenditure proposals in the light of what the Government have done. We have completed that review and the findings have been published today. We can achieve our priorities and targets within the expenditure outlined in detail in the proposals and without restoring the 2p cut in income tax. We have no desire to increase the burden of income tax on people beyond what is necessary to achieve the targets we have set. It is credible and desirable that we should achieve both those objectives.

For that reason I am sure that we will gain much support, because undoubtedly the country wants to see the education and health services improved and the jobless cared for. People do not want taxes to be raised more than is necessary. I hope that the vote tonight will be the last chapter of the Finance Bill proposals. We shall go into the election campaign with a fully costed programme which, I am sure, will gain the support of the electorate.

4.45 pm
Mr. Gow

The speech of the hon. Member for Stockton, South (Mr. Wrigglesworth) was characterised during its closing moments by a claim that it was an example of the credibility of the Social Democratic party. I do not know what the fate of the hon. Member for Stockton, South will be when his speech is read in the Official Report tomorrow morning by the right hon. Member for Glasgow, Hillhead (Mr. Jenkins). but in so far as the hon. Gentleman may be an official Treasury spokesman for the Social Democratic party, that is not a position he is likely to hold should he be re-elected in the next Parliament.

His speech was one of the most breathtaking speeches to which we have listened in the House. The hon. Gentleman will correct me if I am wrong when I assert that he is an official Treasury spokesman for his party. If I have got that wrong, I will gladly give way. The hon. Gentleman said that he was opposed to the reduction of 2p in the pound income tax, but that, the proposal now being before the House, he will not vote against it. The characteristic courage of the Social Democratic party was shown in the hon. Gentleman's act of heroism in the closing stages of the Parliament when he led us to believe that he will abstain.

No one from the Government wishes to misrepresent the Social Democratic party, and if I have misunderstood the hon. Gentleman and he will take his courage in his hands and vote in favour of my right hon. Friends who sit on the Treasury Bench, I shall gladly give way. On the other hand, he may vote with his former colleagues in the Labour party. I fully understand that he has not yet been cured of the disease from which they still suffer, because he is wearing his red tie today and he was the supporter of a Government who borrowed where they dared not tax and printed when they could not borrow.

The hon. Gentleman said that he proposes a mere £4 billion extra borrowing. The hon. Gentleman did not say, either to the Chief Secretary or to the Finance Secretary, what would be the effect upon interest rates of that extra borrowing. He did not tell the House, although he had the opportunity to do so, what would be the consequences for interest rates or extra Government expenditure because of the interest the Government would have to pay on their loans.

Mr. Deputy Speaker, you will remember that the late Lord Butler described the Liberal party as a band of visionary missionaries with neither vision nor mission. The hon. Gentleman has climbed into bed with the Liberals and I hope that he will make many more speeches before the House rises.

Mr. MacGregor

I wish to oppose the Opposition's proposition that clause 20 should be deleted from the Bill, but before I do so I want to make one comment on a remark made by the hon. Member for Stockton, South (Mr. Wrigglesworth) about other parts of the Bill. I am sure that he would not feel that it would be right for the House to pass major pieces of legislation on important subjects for the Government without any scrutiny, and that is why we took the view that we did on those clauses today. But let me assure him that the Government propose to reintroduce all those provisions which have had to be left out of the shortened Finance Bill as early as possible in the next Parliament.

When we debated the 2p reduction in income tax in the House less than two weeks ago, the hon. Member for Dagenham (Mr. Gould) accused the Government of showing judgment as mistaken as it is cynical"—[Official Report, 29 April 1987; Vol. 115, c. 332.] in choosing to reduce income tax. It is his judgment and the judgment of the hon. Member for Thurrock (Dr. McDonald) which is mistaken, both in what the hon. Member for Dagenham said then and in choosing to highlight the clause again today. I can assure the Opposition that the clause could never be regarded as cynical. We have always stressed our determination to reduce the basic rate of income tax with a target of 25p in the pound. This move this year is entirely consistent with that—open, plain, right and popular, and not to be reversed, as the Labour party would do. Therefore, I am delighted that our major debate at this stage is on this clause. Nothing underlines the difference between the Conservatives and all other parties on tax policies more, and the country now has the opportunity to make the choice.

Let me briefly restate why we believe that it is right to take action to reduce the basic rate of income tax. The basic rate of income tax is the marginal rate for about 95 per cent. of all taxpayers. Therefore, reducing the basic rate of tax directly improves the incentives for some 21 million taxpayers. It allows them to keep more of the rewards of their own efforts. It is good for incentives and motivation, and the British economy benefits. If those lower tax bills feed through into lower pay settlements, there will be a directly beneficial effect on employment.

On the other hand, the Opposition's attitude is clear. They believe in high taxes for their own sake. They believe that allowing people to keep more of their own money is—they used this phrase in the previous debate—"givIng money away", not giving it back. The Opposition see the tax system as some great engine of social change, penalising those who aim to better themselves and their families. They do not recognise the language of incentives, effort or motivation. They recognise only the language of egalitarianism and interference. They are only happy when they are spending other people's money for them. They do not recognise the moral benefits to the family arid the practical benefits to the economy of enabling people to keep more of what they earn to spend as they consider right and appropriate.

The extent to which we have won this ideological argument was demonstrated by the extraordinary attack on the Budget by the hon. Member for Dagenham in the previous debate on this clause, and the hon. Member for Thurrock was at it again today. True, the hon. Member for Dagenham did at times imply—as did the hon. Member for Thurrock—indeed, he stated, that the Opposition did not think that we were right to give priority to reducing income tax. But that was sotto voce. Those were the muted passages in both speeches.

Dr. McDonald

The Chief Secretary cannot be allowed to get away with that sort of nonsense. He knows that it is nonsense. We have made our priorities clear inside and outside the House. We have made it clear that our priority is to raise child benefit and pensions, and, indeed, the tax burden on those on well above average incomes will be increased. That is only fair and we are looking for fairness. To suggest that there are no social priorities and no priorities for jobs is utter and complete nonsense and the Chief Secretary knows that.

Mr. MacGregor

But the thrust of the hon. Lady's speech today, and that of the hon. Member for Dagenham the other week, was to accuse us of not having cut tax enough. The hon. Lady was trying to say that we had not succeeded in cutting tax enough. Only sotto voce, and only when pressed, do they concede that they will raise taxes. The hon. Lady knows perfectly well that we are not just talking about taxes on, in her own words, the better-off. Her proposal today to restore the 2p tax cut means an increase in taxes on most people and certainly an increase on taxes on all taxpayers. Therefore, the thrust of the Opposition's onslaught is not that we are cutting taxes but that we have apparently not cut them enough. That is an almost unbelievable position for the Opposition to take, given their tax and spending policies.

I can only assume that the Opposition are taking that position for one reason: to accuse us of not being successful enough yet in cutting income tax was, in their judgment, more likely to receive a better response from the country than to tell them what Labour would do. It is just about the most convoluted position for the Opposition to take up than I can imagine and it will fool no one.

Let me face the charge head on. As my right hon. Friend the Chancellor and I have often made clear, we wish and intend to do more to cut income tax, which is in itself an acknowledgement that we have not yet done enough. That is in no small part due to our success in, and the priority that we have given to, reducing that other burden, the level of public borrowing, to which my hon. Friend the Member for Eastbourne (Mr. Gow) referred. That was another inheritance from Labour that we had to tackle first.

It is interesting to observe that, with current levels of Government expenditure, if we had had borrowing at today's prices at the same unsustainable rate as we had under Labour in 1975–76, there would be hardly any need for income tax. Under Labour today, we would have had all three much higher then they are now—Whigher spending, higher taxes and higher borrowing, and, of course, higher interest rates too.

Mr. David Winnick (Walsall, North)

Why does the Minister not deal with the argument of my hon. Friend the Member for Thurrock (Dr. McDonald) about the burden of indirect taxation, which has been substantially increased in eight years of Tory Government? Why does not he answer the point, repeatedly made, about what the Government would do, if re-elected, about those items which are at present not subject to VAT—children's clothing, food and so on? Is not it clear that any re-elected Tory Government are likely to take action that would mean that millions of people would suffer as a result of those items being subject to VAT?

Mr. MacGregor

I was dealing with a separate point, but let me come to that directly. We have made our position on VAT clear on many occasions. The Opposition are making the most extraordinary charges in order to try to make their claims credible and they are failing.

Let me quote from a letter from the hon. Member for Dagenham to my right hon. Friend the Chancellor the other day: It is common knowledge among higher levels of the Inland Revenue that a team of five senior officials from the Policy Division are working on the extension of VAT to goods currently exempt, including both food and children's clothes. If the Opposition do not know that VAT is handled by Customs and Excise, not the Inland Revenue, it demonstrates how incredible their charge is.

Let me come directly to the hon. Gentleman's other point on indirect taxes. What is also clear is that for a person whose real earnings—that is, after inflation—are the same as they were in 1978–79, which is a perfectly fair test to take, taxation today is much lower than it was at all income levels. For example, a married man on half average earnings in 1978–79, whose earnings have gone up in line with prices, would pay tax and national insurance contributions of 12.9 per cent. under our regime now, instead of the 16 per cent. that he paid in 1978–79. Because that is in real terms and includes prices, it takes account of VAT.

But that is not all that matters. What is much more important—this is the point that the hon. Member for Thurrock is constantly missing—is the increase in earnings that people have been able to achieve under the Government. That is why the hon. Lady's figures were not relevant. The most telling comparison of all is—this is the real comparison, including the increase in earnings and the tax changes—that the real take-home pay of the man on average earnings has risen by 21.5 per cent. under this Government. I am surprised that the hon. Lady did not know that, but that is the fact. That compares with the tiniest increase under the last Labour Government of 0.6 per cent. which is well under 1 per cent.

5 pm

Dr. McDonald

The figures that I used were the Treasury's own figures taken over the years 1979 to 1986. The 21 per cent. increase was for the highest decile only. The Treasury must make up its mind which are the true figures and which are the false figures. It is clear that the true figures are the ones that the Government find most uncomfortable.

The right hon. Gentleman made his little joke about the collection of VAT, but he did not answer the question. If the EC Commissioners recommend imposition of VAT on food and other zero-rated items would a Conservative Government accept that recommendation? Yes or no?

Mr. MacGregor

On the first point, the hon. Lady is quite wrong. My right hon. Friend the Financial Secretary replied to certain specific questions that she asked. The two sets of figures that I have put before the House are the relevant ones—the difference in tax burden for people whose real earnings have remained the same as they were under the Labour Government and, above all, the difference in real take-home pay. The 21.5 per cent. increase is in the real take-home pay of the person on average earnings.

As for any recommendation that might come from the European Community, that is hypothetical because we do not know what the Commission will recommend so the hon. Lady's question is on a par with the ludicrous final question that the hon. Member for Dagenham put to my right hon. Friend the Chancellor.

The income tax cuts proposed by the Government will appear in pay packets from 17 May onwards. A married man with average earnings will be £3.87 per week better off and a married man on half average earnings will be £1.59 better off. Those increases in take-home pay will come into effect at the end of this week, but the hon. Members for Thurrock and for Stockton, South wish to prevent that. A reversal of the Government's proposals would have two consequences. First, there would be chaos in companies. Many employers with computerised payrolls will already have run their monthly pay for May and many others will have calculated pay in advance on the basis of a 27p basic rate, so it would not be possible to ask them to reverse the tax cuts at this stage.

Secondly, therefore, and much more important for the country, employees would receive the tax cuts only to have them clawed back. That is what the Labour party, the Liberal party and the SDP are saying. They intend to claw back the increases in pay resulting from the tax cut. [Interruption.] The hon. Member for Stockton, South cannot get away with this. He has been wriggling throughout proceedings on the Finance Bill about the position of the SDP and Liberal parties on clause 20 but he has said that he intends to vote against clause 20.

Mr. Wrigglesworth

indicated assent.

Mr. MacGregor

The hon. Gentleman acknowledges that. Plainly, if the SDP and Liberal parties succeeded in their intentions today, employees throughout the country would receive the tax cuts at the end of this week only to have them clawed back.

Mr. Wrigglesworth

indicated dissent.

Mr. MacGregor

The hon. Gentleman cannot have it all ways. If he votes against our proposal today he will be relying entirely on Conservative votes to ensure that the tax cuts appear in employees' pay packets. The consequence of a vote for the Opposition parties on 11 June would be not just a clawing back—that is, a 2p increase in income tax—but in the case of the Labour party much higher taxation to finance huge increases in public expenditure. The hon. Member for Dagenham has been no more successful than his right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) in stemming the torrent of commitments from his colleagues, so a vote for Labour is a vote for higher taxation and borrowing, leading yet again to the familiar spiral of high inflation and deteriorating economic performance which typified Labour economic management in the 1970s.

As the speechof the hon. Member for Stockton, South has shown, the SDP and the Liberals want it all ways. The hon. Gentleman gave a most tortuous explanation in reply to my hon. Friend the Member for Croydon, South (Sir W. Clark). There is a saying that even though a dog has four legs it cannot move in two directions at once. The hon. Gentleman has only two and he endeavours to move in two directions all the time, but the electorate will not be fooled.

I am grateful to the hon. Gentleman for drawing attention to the Red Book and the fiscal adjustment in future years because, in so doing, he showed the strength of the economy built up by the Government. I remind the House, however, that those are forecasts and they will come about only with the continuation of our economic policies and our prudent management. To judge from what the hon. Member for Stockton, South has said, typically again the SDP and the Liberals are making huge spending promises without economic policies to produce the necessary growth. It is clear that they, too, are on the side of higher taxes and higher spending financed by higher borrowing when they are forced to come clean about it.

I agree with the Opposition in one respect at least. This proposal is the centrepiece of the 1987 Finance Bill and it continues our firm progress down the path towards lower taxes for all taxpayers. Next week, the effect of these reductions and the higher tax allowances will start to be felt in pay packets. The young married police constable will be £3.07 per week better off, the train driver £3.61 and the average manual worker in the water industry £355 better off. That is not a cynical pre-election bribe.

Mr. McDonald

What is it then?

Mr. MacGregor

We have made our tax objectives clear throughout. It is not a bribe. It is the dividend of eight years' prudent and sound economic management—the same prudent and sound economic management which allowed us to reduce borrowing to 1 per cent. of GDP and to increase our spending in priority areas by £4.75 billion this year.

That is the prospectus on which we shall fight the election, not the fictions dreamed up in Walworth road and laced with recurring Labour nightmares about their period in office. Our prospectus has already redynamised the British economy after years of failure and it allows me to offer the House the following assertion which, as we have learnt from today's debate, no other party can offer. The next Conservative Government will seek to reduce the basic rate of income tax to 25p as soon as we prudently can. This clause is strong evidence of our ability to achieve that aim in the next Parliament and I urge the House to pass it today.

Question put, That the amendment be made:—

The House divided: Ayes 157, Noes 253.

Division No. 163] [5.08 pm
AYES
Adams, Allen (Paisley N) Cunliffe, Lawrence
Alton, David Davies, Rt Hon Denzil (L'lli)
Anderson, Donald Davis, Terry (B'ham, H'ge H'l)
Archer, Rt Hon Peter Deakins, Eric
Ashton, Joe Dewar, Donald
Bagier, Gordon A. T. Dixon, Donald
Barnes, Mrs Rosemary Dormand, Jack
Barron, Kevin Dubs, Alfred
Beckett, Mrs Margaret Dunwoody, Hon Mrs G.
Beith, A. J. Eadie, Alex
Bell, Stuart Eastham, Ken
Benn, Rt Hon Tony Edwards, Bob (Wh'mpt'n SE)
Bennett, A. (Dent'n & Red'sh) Evans, John (St. Helens N)
Bidwell, Sydney Fatchett, Derek
Blair, Anthony Faulds, Andrew
Boothroyd, Miss Betty Field, Frank (Birkenhead)
Boyes, Roland Fisher, Mark
Brown, Gordon (D'f'mline E) Flannery, Martin
Brown, Hugh D. (Provan) Foot, Rt Hon Michael
Brown, N. (N'c'tle-u-Tyne E) Foster, Derek
Brown, R. (N'c'tle-u-Tyne N) Fraser, J. (Norwood)
Caborn, Richard Freeson, Rt Hon Reginald
Callaghan, Rt Hon J. Freud, Clement
Callaghan, Jim (Heyw'd & M) Garrett, W. E.
Campbell-Savours, Dale Golding, Mrs Llin
Canavan, Dennis Gould, Bryan
Carter-Jones, Lewis Hamilton, James (M'well N)
Cartwright, John Hamilton, W. W. (Fife Central)
Clark, Dr David (S Shields) Hardy, Peter
Clarke, Thomas Hart, Rt Hon Dame Judith
Clwyd, Mrs Ann Hattersley, Rt Hon Roy
Coleman, Donald Haynes, Frank
Conlan, Bernard Heffer, Eric S.
Cook, Robin F. (Livingston) Hogg, N. (C'nauld & Kilsyth)
Corbett, Robin Holland, Stuart (Vauxhall)
Corbyn, Jeremy Home Robertson, John
Craigen, J. M. Howarth, George (Knowsley, N)
Crowther, Stan Howell, Rt Hon D. (S'heath)
Howells, Geraint Radice, Giles
Hoyle, Douglas Randall, Stuart
Hughes, Robert (Aberdeen N) Raynsford, Nick
Hughes, Roy (Newport East) Redmond, Martin
Hughes, Simon (Southwark) Rees, Rt Hon M. (Leeds S)
John, Brynmor Richardson, Ms Jo
Johnston, Sir Russell Roberts, Allan (Bootle)
Jones, Barry (Alyn & Deeside) Roberts, Ernest (Hackney N)
Kaufman, Rt Hon Gerald Robertson, George
Kinnock, Rt Hon Neil Rogers, Allan
Kirkwood, Archy Ross, Ernest (Dundee W)
Lamond, James Ross, Stephen (Isle of Wight)
Lewis, Ron (Carlisle) Rowlands, Ted
Lewis, Terence (Worsley) Sheerman, Barry
Litherland, Robert Sheldon, Rt Hon R.
Lloyd, Tony (Stretford) Shields, Mrs Elizabeth
Loyden, Edward Shore, Rt Hon Peter
McCartney, Hugh Short, Ms Clare (Ladywood)
McDonald, Dr Oonagh Short, Mrs R.(W'hampt'n NE)
McKay, Allen (Penistone) Skinner, Dennis
McKelvey, William Smith, C.(Isl'ton S & F'bury)
MacKenzie, Rt Hon Gregor Smith, Rt Hon J. (M'ds E)
McTaggart, Robert Soley, Clive
McWilliam, John Spearing, Nigel
Madden, Max Steel, Rt Hon David
Marshall, David (Shettleston) Stewart, Rt Hon D. (W Isles)
Martin, Michael Strang, Gavin
Maynard, Miss Joan Straw, Jack
Meadowcroft, Michael Taylor, Matthew
Michie, William Thompson, J. (Wansbeck)
Mikardo, Ian Tinn, James
Millan, Rt Hon Bruce Wainwright, R.
Miller, Dr M. S. (E Kilbride) Welsh, Michael
Morris, Rt Hon A. (W'shawe) Williams, Rt Hon A.
Nellist, David Wilson, Gordon
O'Neill, Martin Winnick, David
Orme, Rt Hon Stanley Woodall, Alec
Owen, Rt Hon Dr David Wrigglesworth, Ian
Parry, Robert
Patchett, Terry Tellers for the Ayes:
Pike, Peter Mr. Ron Davies and Mr. Sean Hughes.
Powell, Raymond (Ogmore)
Prescott, John
NOES
Adley, Robert Clegg, Sir Walter
Aitken, Jonathan Colvin, Michael
Alexander, Richard Conway, Derek
Amess, David Coombs, Simon
Ancram, Michael Cope,John
Aspinwall, Jack Cormack, Patrick
Atkins, Rt Hon Sir H. Corrie, John
Atkins, Robert (South Ribble) Couchman, James
Baker, Nicholas (Dorset N) Dickens, Geoffrey
Banks, Robert (Harrogate) Dorrell, Stephen
Batiste, Spencer Douglas-Hamilton, Lord J.
Benyon, William Dover, Den
Best, Keith Durant, Tony
Bevan, David Gilroy Dykes, Hugh
Biffen, Rt Hon John Eggar, Tim
Biggs-Davison, Sir John Eyre, Sir Reginald
Blackburn, John Fairbairn, Nicholas
Bonsor, Sir Nicholas Favell, Anthony
Boscawen, Hon Robert Fenner, Dame Peggy
Bottomley, Mrs Virginia Finsberg, Sir Geoffrey
Braine, Rt Hon Sir Bernard Fletcher, Sir Alexander
Bright, Graham Fookes, Miss Janet
Brooke, Hon Peter Forman, Nigel
Brown, M. (Brigg & Cl'thpes) Forsyth, Michael (Stirling)
Browne, John Forth, Eric
Bruinvels, Peter Fowler, Rt Hon Norman
Buchanan-Smith, Rt Hon A. Fox, Sir Marcus
Buck, Sir Antony Franks, Cecil
Bulmer, Esmond Fraser, Peter (Angus East)
Butterfill, John Freeman, Roger
Carlisle, Rt Hon M. (W'ton S) Fry, Peter
Carttiss, Michael Gale, Roger
Chapman, Sydney Gardiner, George (Reigate)
Chope, Christopher Garel-Jones, Tristan
Clark, Sir W. (Croydon S) Glyn, Dr Alan
Goodlad, Alastair Mather, Sir Carol
Gow, Ian Maude, Hon Francis
Gower, Sir Raymond Mawhinney, Dr Brian
Greenway, Harry Maxwell-Hyslop, Robin
Gregory, Conal Mayhew, Sir Patrick
Griffiths, Sir Eldon Merchant, Piers
Ground, Patrick Meyer, Sir Anthony
Grylls, Michael Miller, Hal (B'grove)
Gummer, Rt Hon John S Mills, Sir Peter (West Devon)
Hamilton, Hon A. (Epsom) Mitchell, David (Hants NW)
Hanley, Jeremy Moate, Roger
Hannam, John Monro, Sir Hector
Hargreaves, Kenneth Montgomery, Sir Fergus
Harris, David Morris, M. (N'hampton S)
Haselhurst, Alan Moynihan, Hon C.
Havers, Rt Hon Sir Michael Mudd, David
Hawkins, C. (High Peak) Murphy, Christopher
Hawkins, Sir Paul (N'folk SW) Neale, Gerrard
Hawksley, Warren Newton, Tony
Hayes, J. Nicholls, Patrick
Hayward, Robert Norris, Steven
Heathcoat-Amory, David Onslow, Cranley
Heddle, John Osborn, Sir John
Henderson, Barry Page, Richard (Herts SW)
Hickmet, Richard Patten, Christopher (Bath)
Hicks, Robert Patten, J. (Oxf W & Abgdn)
Higgins, Rt Hon Terence L. Pawsey, James
Hirst, Michael Peacock, Mrs Elizabeth
Holland, Sir Philip (Gedling) Percival, Rt Hon Sir Ian
Holt, Richard Pollock, Alexander
Hordern, Sir Peter Porter, Barry
Howard, Michael Powley, John
Howarth, Alan (Stratf'd-on-A) Prentice, Rt Hon Reg
Howarth, Gerald (Cannock) Price, Sir David
Howell, Rt Hon D. (G'ldford) Proctor, K. Harvey
Howell, Ralph (Norfolk, N) Pym, Rt Hon Francis
Hubbard-Miles, Peter Raffan, Keith
Hunter, Andrew Rathbone, Tim
Jackson, Robert Rees, Rt Hon Peter (Dover)
Jenkin, Rt Hon Patrick Renton, Tim
Jessel, Toby Rhodes James, Robert
Johnson Smith, Sir Geoffrey Rhys Williams, Sir Brandon
Jones, Gwilym (Cardiff N) Ridsdale, Sir Julian
Jones, Robert (Herts W) Rifkind, Rt Hon Malcolm
Kellett-Bowman, Mrs Elaine Roberts, Wyn (Conwy)
Kershaw, Sir Anthony Robinson, Mark (N'port W)
Key, Robert Rossi, Sir Hugh
King, Roger (B'ham N'field) Rowe, Andrew
Knight, Greg (Derby N) Rumbold, Mrs Angela
Knight, Dame Jill (Edgbaston) Sackville, Hon Thomas
Knox, David Sainsbury, Hon Timothy
Lamont, Rt Hon Norman Sayeed, Jonathan
Lang, Ian Shaw, Sir Michael (Scarb')
Latham, Michael Shelton, William (Streatham)
Lawler, Geoffrey Shepherd, Richard (Aldridge)
Lawson, Rt Hon Nigel Shersby, Michael
Lee, John (Pendle) Silvester, Fred
Lennox-Boyd, Hon Mark Sims, Roger
Lester, Jim Skeet, Sir Trevor
Lewis, Sir Kenneth (Stamf'd) Smith, Tim (Beaconsfield)
Lightbown, David Soames, Hon Nicholas
Lilley, Peter Speed, Keith
Lloyd, Sir Ian (Havant) Speller, Tony
Lloyd, Peter (Fareham) Spencer, Derek
Lord, Michael Spicer, Jim (Dorset W)
McCrindle, Robert Squire, Robin
MacGregor, Rt Hon John Stanbrook, Ivor
MacKay, Andrew (Berkshire) Steen, Anthony
MacKay, John (Argyll & Bute) Stern, Michael
Maclean, David John Stevens, Lewis (Nuneaton)
McNair-Wilson, M. (N'bury) Stewart, Andrew (Sherwood)
McNair-Wilson, P. (New F'st) Stewart, Ian (Hertf'dshire N)
McQuarrie, Albert Stradling Thomas, Sir John
Madel, David Sumberg, David
Major, John Tapsell, Sir Peter
Malone, Gerald Temple-Morris, Peter
Maples, John Thomas, Rt Hon Peter
Marland, Paul Thompson, Donald (Calder V)
Marlow, Antony Thompson, Patrick (N'ich N)
Marshall, Michael (Arundel) Thorne, Neil (llford S)
Thornton, Malcolm Wells, Sir John (Maidstone)
Thurnham, Peter Wheeler, John
Townend, John (Bridlington) Whitfield, John
Townsend, Cyril D. (B'heath) Winterton, Mrs Ann
Trotter, Neville Wolfson, Mark
van Straubenzee, Sir W. Wood, Timothy
Vaughan, Sir Gerard Woodcock, Michael
Walden, George Yeo, Tim
Walker, Bill (T'side N) Young, Sir George (Acton)
Wall, Sir Patrick
Waller, Gary Tellers for the Noes:
Wardle, C. (Bexhill) Mr. Michael Portillo and Mr. Michael Neubert.
Watts, John
Wells, Bowen (Hertford)

Question accordingly negatived.

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