That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance; but this Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—
It is nice to hear that the hon. Member for Bradford, South (Mr. Cryer) is confident that we shall secure our resolutions and that the Bill about which he is so worried will be passed.
I begin by paying tribute to my predecessor, Francis Maude. This is the season of maiden speeches and, in that tradition, it is right to record the considerable achievements of my predecessor not only in tax, which is the interest of the House in this debate, but in a much wider range of responsibilities that he had in his time in the Treasury. He was the Minister responsible for the management of the citizens charter programme and for the introduction of the principles of better government which were enshrined in the White Paper "Competing for Quality". The themes for which he was responsible as Financial Secretary are themes to which we shall return repeatedly during this Parliament and during the rest of the decade. I am sure that I speak for all my right hon. and hon. Friends when I say that I very much hope that Francis will soon be back among us playing his distinguished part in our debates.
The resolutions before the House represent the practical demonstration and putting into effect of another of the major themes of the 1990s. They are not new: they are a continuation of the Budget debate, because almost all of them were on the Order Paper during the Budget debate 774 before the general election campaign and were resolutions on which that debate took place. The debate did not stop when Parliament was dissolved. Rather, it moved into the country. No one can doubt that the debates in the general election campaign were a continuation of the Budget debate that had started in the House.
Furthermore, the issues on which the Budget debate centred were at the heart of the election campaign. The electorate were given a clear choice between the resolutions set down after my right hon. Friend's Budget, based on his commitment to a continued programme of reduction and rationalisation of the tax burden, and the programme espoused and articulated by the right hon. and learned Member for Monklands, East (Mr. Smith). They represented an increase in the tax burden of £7 billion, and that was only the first instalment of what he hoped to introduce.
Given that clear choice, the decision of the electorate was decisive. The best news for my right hon. and hon. Friends would be if the Labour party elected the right hon. and learned Member for Monklands, East as its leader, because we are already preparing the ground for a rerun of that debate in four or five years time. I am sure that my right hon. and hon. Friends look forward with keen anticipation to continuing that debate in the country.
I thought that the House might find it helpful if I took some time to explain how the resolutions fit with the measures announced by my right hon. Friend in his Budget on 10 March. The principal purpose of the resolutions is to complete the implementation of my right hon. Friend's Budget measures. If the House approves them, we shall publish a Finance Bill containing the necessary provisions on 20 May.
In the Finance Act passed before the general election, the House approved many of my right hon. Friend's most important Budget measures. That Act confirmed the Budget changes in the rates of excise duties, VAT penalties and the halving of car tax. It cut income tax from 25 per cent. to 20 per cent. on the first £2,000 of taxable income. It also overrode statutory indexation to keep unchanged the levels of the married couples allowance for under-65s and the basic rate limit. The Act also introduced monthly payments on account for the largest VAT payers.
A number of other Budget measures did not require Finance Bill legislation. For example, the income tax personal and age-related allowances rose in line with inflation under the statutory indexation provisions. Indexation of the income tax car scale charges and the VAT registration threshold were implemented by Treasury orders. So too were changes to the VAT treatment of cars, and extensions of VAT reliefs for charities.
Thus, many of the most significant Budget measures are, I am pleased to say, already law. We are now proceeding with all the remaining tax changes announced in the Budget and before.
Perhaps the most important of the Budget measures left to be implemented are the changes to business rates. These will be worth £480 million in 1992–93 and £590 million in 1993–94 to businesses throughout the United Kingdom. They will be implemented by the Local Government (Finance) Bill announced in the Gracious Speech.
§ Mr. Malcolm Bruce (Gordon)
The hon. Gentleman will know that in Scotland there is continuing dissatisfaction among businesses about the fact that business rates paid by Scottish-based businesses and those 775 paid by businesses based in England differ to the tune of £450 million a year. The Government have said that they intend to close that gap. When will that be achieved? How long will it take? When can businesses in Scotland be expected to compete on an equal footing with comparable businesses in the rest of the United Kingdom?
§ Mr. Dorrell
When the Government give commitments to change the tax system, we implement them in good order and in reasonable time. I cannot give the hon. Gentleman a clear end date to the process that he is probing, but I am sure that, if a commitment has been given, it will be carried out.
Of the Budget measures left to the Finance Bill, perhaps the most significant are changes to inheritance tax. Although resolutions are not required, the Bill will, as my right hon. Friend promised on Budget day, raise the threshold for inheritance tax to £150,000, backdated to 10 March. It will also free most business assets from inheritance tax altogether, fulfilling another promise made by my right hon. Friend in his Budget.
So much for the provisions of the forthcoming Finance Bill that do not require resolutions. The resolutions that are the subject of today's debate fall into four categories. First, some prepare the way for the implementation of those Budget measures that have not yet become law. Secondly, some provide the changes to the indirect tax system consequent on the completion of the European single market on 1 January 1993. Thirdly, some address a number of technical issues designed to improve the working of the tax system. Fourthly, some provide for two new measures, which were announced last week.
In the first group, resolutions 11 and 12 set the main and small companies rates of corporation tax at 33 and 25 per cent. in the financial year 1992. We have the lowest headline rates within the European Community and the G7 countries. As a result of this and of other measures introduced last year, companies will pay £1 billion less in corporation tax in 1992–93 than otherwise would have been the case. The United Kingdom corporation tax regime for smaller companies is one of the most generous in the industrialised world. Over 80 per cent. of United Kingdom tax-paying companies are liable at the small companies rate of 25 per cent., which is applied when profits do not exceed £250,000.
Another provision of importance to many businesses that was announced by my right hon. Friend concerned capital allowances for computer software. Resolution 21 paves the way for the changes that he announced. At present, most business expenditure on computer software is allowable for tax purposes either as a deduction for revenue expenditure or, if it is capital expenditure, under the capital allowances regime.
However, capital expenditure on the right to use software, including expenditure on licences, does not qualify for relief because capital allowances are available only where the taxpayer has outright ownership of the asset concerned. Similarly, capital expenditure on software which has, for example, been transferred by electronic transmission does not qualify for any form of tax relief because the taxpayer has not acquired a tangible asset. The new rules will ensure that all capital expenditure on computer software qualifies for capital allowances on the same basis as plant and machinery used by a business.
776 As for income tax, the Bill will implement my right hon. Friend's proposal to give couples more choice over the allocation of the married couple's allowance. The new arrangements will allow married couples to transfer the whole allowance from husband to wife or to split it equally, and will come into force next year. They extend choice, and give fairer treatment in the tax system to women—a process that started with the introduction of independent taxation in the last Parliament.
Resolution 22 will modify the tax rules for maintenance payments following the introduction of the new Child Support Agency. At present, maintenance payments made under a court order to a divorced or separated spouse qualify for tax relief. The change will ensure that maintenance that has been assessed by the Child Support Agency will also qualify for tax relief in the same way. In addition, maintenance collected by the agency on behalf of a divorced or separated person will qualify for tax relief in the same way as it would if it had been paid directly to that person. The changes will begin when the Child Support Agency starts to operate, probably in April 1993.
The Bill will also contain provisions to bring to an end tax relief under the business expansion scheme at the end of 1993, while in the interim allowing the BES to be used for mortgage rescue schemes. The business expansion scheme for assured tenancies—which now accounts for the overwhelming majority of BES funds—was due to expire then in any case. Both that and the BES generally have given a valuable boost to equity investment, and to investment in private rented housing. They were always intended as time-limited pump primers. They have served their purpose, and, as my right hon. Friend said in his Budget, the time has come to end them.
The second group of resolutions—resolutions 2, 6, 7, 8 and 9—deal with the consequences of the European single market for the indirect tax system. The single market will involve the abolition of tax and duty controls at internal EC frontiers from 1 January 1993. That will bring great benefits and cost savings to business, to add to all the benefits that flow from other aspects of the single market programme. I regret to inform the House, however, that the programme also involves a substantial quantity of legislation.
In negotiations within the Community, and in drafting the necessary legislation, we have sought to consult business, for it is business that will have to operate the new systems. Throughout the negotiations, the United Kingdom has insisted that the burdens on business should be kept to a minimum. All the VAT and excise legislation on the single market has also been issued in the form of draft clauses for consultation. Therefore, not only will it receive detailed scrutiny in the House, but it has already been exposed to those who will have to operate it.
Let me briefly explain the key elements of the changes. First, there is VAT. At present, exports are zero-rated for VAT, and VAT is charged on imports. Control of the system is linked to physical controls at frontiers, and the necessary paper work is separate from the normal VAT return. With the single market, those physical controls, and much of the paper work that went with them, will be swept away. Liability to VAT will in future arise as a result not of importation, but of acquisition by the purchaser.
Sales to VAT-registered traders in other member states will continue to be zero-rated. VAT will be payable when goods or services are acquired from another member state. In such cases, VAT will be collected through the normal 777 VAT return, not separately as at present. Resolution 8 paves the way for that change, which will be implemented by Finance Bill clauses that were issued in draft at the end of February.
Secondly, there will have to be changes to excise duties. The principle will be that duty is paid at the rate that applies in the country of consumption. Excise goods will continue to move within the Community, under duty suspension, between bonded warehouses. To cater for traders who wish to place goods on the market immediately, provision has been made for goods to move from a bonded warehouse in one member state to a registered trader in another and then directly into the market place.
In the United Kingdom, those registered traders will be called REDS—whatever their political complexion. Their designation under last year's Finance Act as registered excise dealers and shippers—REDS for short—is a welcome sign that someone either in Brussels or in Customs and Excise has a sense of humour. Resolution 6 paves the way for provisions to complete the changes that were initiated last year.
As the House already knows, the single market legislation provides that goods on which tax and duty have been paid elsewhere in the Community can be brought back by travellers for their personal use; but United Kingdom tax and duty must be paid on any goods brought in by travellers for resale. That is like an acquisition for VAT. Compliance can be controlled through traders' accounts as well as through the use of declarations at ports. The existing "travellers' allowances" for those arriving from other EC countries will be abolished, but, to help Customs to distinguish between commercial transactions and private importation for personal use, the Council of Ministers has agreed minimum "indicative levels" for alcohol and tobacco. Above those levels, goods will be deemed to be for commercial use unless the traveller can satisfy the Customs authorities that they are indeed for personal use.
The House has considered all that in another form, but legislation will be needed to enact the new levels, to enable Customs to check compliance with them and to support the new excise arrangements generally. Again, Customs has consulted the trade on draft clauses for the Finance Bill, and resolution 7 paves the way for their inclusion in the Bill. I remind the House that duty-free shopping will remain until July 1999, as a result of successful negotiations led last year by my right hon. Friend the Chancellor of the Exchequer.
The third group of resolutions address a number of technical issues designed to improve the working of the tax system. Most tax legislation works in the way in which the House and Parliament intend it to work, and people end up paying the right amount of tax. Sometimes, however, tax rules are found to be either more or less stringent than expected, with perverse results. That usually comes to light in the day-to-day dealings that taxpayers or their advisers have with Revenue departments, or when their interpretation is challenged in the courts. The Finance Bill will deal with a number of such cases.
Resolutions 13 and 14 reflect measures announced last November, well before the Budget. Both seek to correct defects in the rules governing the tax treatment of groups of companies. One covers the capital gains tax rules for assets leaving groups, while the other covers group relief share arrangements. Drafts of the clauses covering both 778 measures were issued earlier this year, and a number of points made in the consultations will be reflected in the final Finance Bill clauses.
Both company group measures are meant to ensure that tax reliefs are available only as Parliament originally intended, and are not expanded in any way unintended by Parliament. But another measure, which corrects a defect in the law on enterprise zones, relaxes the rules where they are currently being interpreted more harshly than was intended. Our intention to legislate on that was announced last December, when we spoke of our intention to introduce changes to the legislation on capital allowances available on enterprise zone buildings.
The provisions included in the Finance Bill will correct a defect in the law, and will relax the rules for purchasers of used buildings. They will also curtail the open-ended nature of the relief, and target it better towards its original aim of short to medium-term regeneration in rundown areas. The balance of the three measures demonstrates that improving the working of the tax system does not always work to the advantage of the tax gatherer. All three will apply from the date of their announcement.
In his Budget speech, the Chancellor announced proposals to close another loophole. Companies were manipulating the business tax rules to defer tax when rent was paid between connected persons. That loophole will be closed with effect from Budget day, and it is covered by resolution 15.
Resolution 19 deals with a tax that has now been abolished, composite rate tax, which was levied on bank and building society interest. Its abolition by my right hon. Friend the Prime Minister in his 1990 Budget means that non-taxpayers can now enjoy their bank and building society savings free of tax. The House will recall that, during debates on last year's Finance Bill, there were extensive discussions about the transitional arrangements in 1985–86 to accommodate a change in the way in which composite rate tax was collected from building societies. The result was that last year's Finance Act confirmed Parliament's original intention.
The new provision, which I announced in a written answer last week, is related to the composite rates set for the four subsequent years. It results from a legal challenge initiated by the Leeds Permanent building society, which argues that the composite rates set for those years have been inadvertently rendered invalid by last year's legislation. Whatever the technical merits of that case—I have to say that the Government are convinced that the rates were legally and validly set—the consequence could be a loss of composite rate tax for four full years. Huge sums of up to £15 billion could be involved. This is tax that has been paid and that has been reflected in the interest paid to investors.
The normal course would be for the Government to wait for the Leeds to test the validity of its actions in the courts, but that could take several years to resolve. In the meantime, there would be doubt and uncertainty over the Government's legal claim to a huge sum of revenue. No one can seriously suggest that it was Parliament's intention that no tax at all should be collected on bank and building society interest for those four years. We have therefore decided to put the matter beyond doubt now by confirming Parliament's original intention in setting the composite rates for the four financial years 1986–87 to 779 1989–90. As I announced last week, the provision will be retrospective to all composite rate taxpayers, without exception.
§ Mr. Peter Bottomley (Eltham)
I confirm what the Financial Secretary said: that it was Parliament's intention that the composite rate tax should be calculated as it was calculated. What has changed, however, is that retroactive legislation has been passed by this House, without regard to its effect on the composite rate tax. Will the Financial Secretary confirm that what is at issue is not the £15 billion, which the Government collected and virtually all of which they need to keep, but, at the most, 1 per cent. of that, which is £150 million, and probably only half or even a smaller proportion than that?I do not want to anticipate the Finance Bill debates, but I should be obliged if my hon. Friend would confirm that.
§ Mr. Dorrell
I suspect that we may return to this matter during the passage of the Finance Bill, but I can confirm that my hon. Friend is right to say that the motivation of the Leeds Permanent building society is to draw attention to what it believes to have been an injustice at the time that the transitional arrangements were made. However, what I cannot confirm is that that is the effect of the action that the Leeds Permanent building society has brought. The effect of the action that it has brought, if its arguments were upheld, would be to render invalid the basis upon which composite rate tax was collected for four years. It is a matter of history that, during the four years in question, the yield from composite rate tax was £15 billion.
Finally, among these technical measures, I come to two further proposals that I am announcing today. The first concerns the special tax regime for life assurance companies that goes back to 1915. That regime reflects the fact that most of a life office's investment income will ultimately go to its policyholders. It has always been accepted that the income attributable to policyholders could quite properly be taxed while the company itself made a trading loss.
That view has recently been challenged by two companies. We are advised that the legal underpinning for that long-standing, established practice is less robust than was generally thought. We shall therefore be introducing clauses to correct the law and ensure that it does indeed reflect established and long-standing practice. As it often take some years finally to settle the accounts of insurance companies, the change will be made retrospective, with application to all life assurance companies. Anything less than full retrospection on this point would, I believe, confer unjustifiable and capricious windfall gains on some companies whose accounts remain open, and could cost the Exchequer several hundred million pounds.
The second proposal that I am announcing today arises from a recent decision of the special commissioners. They ruled that payments made under equity notes—which are a form of perpetual debt instrument—were interest for tax purposes. The effect of that ruling is to allow multinational companies to exploit asymmetries between different countries' tax regimes. I am advised that, if no action were taken, there could be a loss to the Exchequer of up to £150 million, a year. The Government therefore propose to bring forward legislation in the forthcoming Finance Bill.
780 The legislation will have two components. First, it will restore the general understanding of the thin capitalisation provisions of certain double taxation agreements to what it was before the special commissioners' decision. Secondly, it will establish the relevant domestic law to include payments under equity notes in the definition of distributions. The legislation will apply to all payments made from midnight tonight. We believe that some aspects of the special commissioners' ruling are bound to be a departure from previously established practice. Accordingly, the Inland Revenue is seriously considering an appeal against that ruling.
Most of the resolutions before the House today appeared immediately after the Budget, but were withdrawn once the election was announced; but there is one resolution that reflects a new measure announced since the Budget. This is resolution No. 4. It paves the way for changes to the vehicle excise duty exemption for disabled people. These are being made as a result of changes to disability allowances that came into force on 6 April. As announced last week, in future the VED exemption for disabled drivers will be linked to the higher level of the mobility component of the new disability living allowance. That is in line with the previous entitlement, which was linked to mobility allowance.
The Government, however, have decided that it is no longer possible to continue to operate the exemption for disabled passengers. The Bill will therefore repeal it. This is necessary, because the old scheme for disabled passengers has become virtually impossible to administer, given that disability living allowance and attendance allowance are now self-assessed benefits. However, transitional arrangements will ensure that no individual who currently receives it loses the exemption.
The Finance Bill will also contain provisions that will give effect to the proposals announced by my right hon. Friend the Chancellor of the Exchequer in his Budget to improve tax reliefs for charitable giving. My right hon. Friend proposed to reduce the minimum donation qualifying for tax relief under the gift aid scheme from £600 to £400. He announced that the reduced limit would take effect from 1 July. To speed the benefit to charities and to donors, my right hon. Friend the Paymaster General announced recently that we have decided to bring forward the starting date for these measures to 7 May. I believe that this change will be widely welcomed by charities.
Before concluding, may I take this opportunity to inform the House of developments on one item included in the Budget that will not appear in the Bill, as published, but about which new clauses will be tabled during the passage of the Bill? My right hon. Friend announced his intention to bring forward two measures designed to alleviate the cash flow problems of the film industry. The first would allow film makers relief for pre-production expenditure as it is incurred. The second would allow production expenditure to be written off for tax purposes at a rate of 331/3; per cent. per annum, starting on the completion of the film.
In drafting the details of the legislation it has been necessary to draw on film industry definitions of, for example, pre-production expenses. We have consulted representatives of the industry on the relevant definitions and have received helpful input from them. In addition, I have received representations from the industry on certain aspects of the proposals which I shall want to consider 781 fully in formulating the legislation. In the circumstances, it has not been possible to complete the drafting of the necessary clauses to appear in the Bill when it is published, but we shall introduce new clauses dealing with those issues during the passage of the Bill.
The resolutions are largely technical but, although some of the material and content may appear dry, the purpose behind them is clear and addresses the real concerns of many millions of people. The Finance Bill that rests on the resolutions will take a stage further the Government's commitment to reduce the tax burden and sharpen incentives and rewards for wealth creation. That is the promise that we made to the electorate on 9 April, and it is a promise that we shall keep. I commend the resolutions to the House.
§ Mr. Nicholas Brown (Newcastle upon Tyne, East)
This is the first opportunity that I have had, Mr. Deputy Speaker, to welcome you to the Chair and to congratulate you on your appointment. I also congratulate you on your astuteness in arranging to chair part of what is to be a long Finance Bill, but which is at least limited by time.
It is not easy to present these measures as evidence of a renewed and invigorated Government coming to the House with big ideas for the 1990s; and, to his credit, the new Financial Secretary did not try to do that. As ever with the Conservative party, it is not really possible to defend these measures on the ground of social justice; and, to his credit, he did not try to do that either. It is not easy to present these measures as evidence of competent public administration, but, because it is his job to do so, the Financial Secretary did try to do that. I congratulate him on his appointment and welcome him to the Front Bench during the first of what will be many Treasury debates. In the traditional spirit—at least for me—of what are still, regrettably, the Opposition, I want to be as helpful to him as I can. I shall draw his attention to what I think are some of the potentially difficult areas. However, having heard his speech, I think that he has discovered the principal one for himself—resolution 19.
Resolution 19 paves the way for a repeat of last year's composite rate debate. The new Financial Secretary may wonder why it is necessary. He may wonder why the primary legislation of 1985 was not comprehensive enough to cover the areas in dispute. He may wonder why the Inland Revenue got it wrong, at least according to the courts, in the regulations that it issued in 1986. He may wonder why the Government did not deal with the uncertainty by amending legislation, possibly in 1987 or, at the latest, in 1988. He may ask why the legislation that we passed last year was incapable of dealing with certainty with the issue that it was supposed to be addressing, leaving us to address the whole business again this year.
As the Financial Secretary will probably have appreciated by now, the Government could have got the legislation right last year. Had they done so, it would surely be possible for them to rely on the courts to decide the issue safely. I cannot believe that the Minister is telling the House that he has no faith in the British courts or the House of Lords, which gave us the original Woolwich building society judgment. Apart from the rather obvious point about there being £15 billion at stake, the Financial Secretary may well be wondering, quite reasonably, why 782 and who is responsible. My advice was to be, "Don't ask." However, I see that he has already discovered who told the House:The attraction of composite rate has always been that it allows small amounts of tax to be collected with ease from very large numbers of people. It is very convenient and very cost-effective".—[Official Report, 20 March 1990; Vol. 169, c. 1025].The same person then went on to abolish composite rate tax.
As I have said, the Financial Secretary has wisely discovered who it was and my advice is not to emphasise that aspect of the problem. However, perhaps when he is discussing these matters with senior colleagues he could persuade the Prime Minister to revisit his old home on the Committee Corridor when these matters are before the Finance Bill Committee. He could look in on the debate on building society composite rate tax and, feigning surprise, could say "It is still there; it is." Perhaps he could say that with the same amount of conviction he displayed in the first Tory party political broadcast before the election.
I must alert the Financial Secretary to the possibility that the Government could be back next year with a clause to remove these matters from the competence of the courts. The clause could say that the Inland Revenue's interpretation of the legislation is final and has the force of law. The Financial Secretary seems a nice enough person and I hope that he is not the one who has to persuade the House that we should legislate in that way. That is the direction in which this shambles seems to be moving. It is a pathetic and incompetent episode. I fully accept that it is not of the present Financial Secretary's making; he will have his opportunities soon enough.
Resolution 9 paves the way for harmonising—in Britain's case that means reducing—car tax rates across the European Community. The choices before the Government are to forgo the revenue, raise the revenue elsewhere or introduce a new car levy that is not strictly an excise duty to replace the lost revenue. The cut in car tax to 5 per cent. in the Budget may give a clue about the Government's thinking. If that is so, in the reply to the debate, will the Financial Secretary tell us whether we can expect extra taxation elsewhere in the economy or is the effect of this allowed for in the future estimates of the public sector borrowing requirement?
It may be that resolution 5 reveals the way in which the Government intend to recoup the loss implied by resolution 9. Here, the Government's big idea is the sale of personalised car number plates. No doubt grateful junior Ministers have already clubbed together to purchase MAJOR as a present for their boss. Selling registration marks directly is not a bad idea, but it is not a big idea. It is the product of the sort of minds that can come up with the national lottery and a Secretary of State for National Heritage to run it—not the Treasury—but cannot come up with ideas about unemployment, economic growth, manufacturing industry output, the balance of payments deficit and the increasing poverty and homelessness.
The increase in poverty leads me to resolution 10, which paves the way for the consequential provisions following the new 20 per cent. tax band. When abolishing the lower rate band in 1980, Sir Geoffrey Howe told the House that the case for the lower rate band was never clear. Of course, that was after an election, not before.
The Government's claim is that an average single-earner family gains £2.64 per week from the measure. The 783 fact is that 72p of that £2.64 is due entirely to annual indexation in line with inflation. The 250,000 families who pay tax but also receive family credit lose 70p in benefit for every £1 that they gain in the tax cut. The increases in excise duties that were announced in the same Budget cost the same average single-earner family £1.56 per week. All that leaves a net loss for the low paid of 76p per week.
Nobody can seriously believe that the Conservative party intends to assist the least-well-off; there is too much evidence to the contrary. The Select Committee on Social Services told the House that between 1979 and 1988 the poorest 10 per cent. of households endured a cut of 6.2 per cent. in real terms in their living standards. The study by Professor Townsend of Bristol university found that over the decade between 1979 and 1989 the real annual disposable income of the poorest fifth of households fell by £160. Over the same period the figure for the richest fifth rose by an astonishing £8,000.
The Prime Minister said that he wants a classless society, yet, as Chief Secretary and Chancellor, he presided over the most regressive shift in the tax burden of modern times. In 1979 the poorest 20 per cent. of our fellow citizens paid 30.5 per cent. of their total income in taxes, both direct and indirect. By 1988 the Conservative Government had moved the total tax take from the poorest 20 per cent. of the population from 30.5 per cent. to an obscene 397 per cent. Did they realise the error of their ways in 1988? Did the then Chief Secretary to the Treasury—now the Prime Minister—say that that was not the way to create a classless society? No, he did not. Like the rest of the Cabinet, he supported the poll tax which gave a further twist to the regressive direction of our tax system.
§ Mr. Malcolm Bruce
Could not the explanation of the problem be that the Prime Minister does not accept that the problem exists? On "Election Call" on 31 March when that information was put to him, he answered:I don't accept your statisticsand went on to say that he did not believe that the gap had widened. If the Prime Minister does not accept the facts, is there any chance that the Government will deal with the problem?
§ Mr. Brown
There is a dislocation between saying that one believes in a classless society and then doing nothing to bring it about. The facts are absolutely overwhelming and many of those to which I am referring are drawn from the Government's own answers to parliamentary questions. It is difficult for the Prime Minister, who is presiding over the Government, to say convincingly that he does not accept the facts that his Ministers are providing for the House.
When we challenged the Government on these issues, they did not defend what they were trying to do in the light of the available evidence. The Treasury ducked, weaved, evaded and did everything but answer parliamentary questions on the distributive effect of the poll tax, but the real effects of a decade and a halls redistribution of the tax burden are clear enough to any Member of Parliament with an inner city constituency. Real cuts in the income of the poorest, combined with long-term withdrawal of 784 employment opportunities, create the circumstances that we saw on Tyneside last summer. This Finance Bill offers no hope or even change for this summer.
What of the better-off? In 1979, the wealthiest 20 per cent. of our fellow citizens paid 37.6 per cent. of their total income in all taxes, direct and indirect. By 1988, the Conservative party had got that figure down to 34.5 per cent. and was introducing the poll tax to reduce that burden still further by shifting it from the wealthiest 20 per cent. to the rest. Even without the poll tax, by 1988 the wealthiest 20 per cent. of our society were paying less tax as a proportion of their total income than the poorest 20 per cent.—34.5 per cent. for the wealthiest compared with 39.7 per cent. for the poorest. From 1988, the position of the poorest deteriorated further, largely due to the regressive effect of the poll tax.
By 1991, a two-child family on 75 per cent. of average earnings was paying 34.9 per cent. of its income in direct and indirect taxes. There was an increase in the rates and the community charge element from 3.5 per cent. in 1979 to 6.2 per cent. in 1991. No wonder the Treasury was shy at the time and for a substantial period after about releasing those figures.
This Budget and the motions fall to be considered at the end of more than a decade of regressive redistribution of the tax burden. Given that the Government have had two sets of Budget resolutions and two Finance Bills for one Budget and that a parade of Treasury Ministers—old and new—has fought for this Budget in the House, one would have thought that there might be something in it, that there might be an important stepping stone towards a classless society. Not a bit of it. There is nothing for the unemployed, nothing for training, nothing for industry and pitifully little even for small businesses about which the Conservatives say that they care. Most importantly, the financial resolutions offer no comfort to the millions of people whom the Government have pushed into poverty in the past decade.
§ Mr. Peter Bottomley (Eltham)
I congratulate the hon. Member for Newcastle upon Tyne, East (Mr. Brown) on the way in which he delivered his speech. It was all the more enjoyable to hear because he has an engaging style involving understatement. Had the same style been used during the general election by his right hon. and learned Friend the Member for Monklands, East (Mr. Smith), who speaks for Treasury matters on behalf of the Labour party, the Labour party might not have done so badly. Clearly, one style works within the Labour party and another works across the country.
It might also be a good thing if the Labour party chose its leaders according to what they said and how they said it rather than according to their looks or their forensic debating skills—it might find that more of the country identified with it.
§ Mrs. Llin Golding (Newcastle-under-Lyme)
I think that my hon. Friend the Member for Newcastle upon Tyne, East (Mr. Brown) is good looking.
§ Mr. Bottomley
If the hon. Lady starts to make a speech, I might make the same remarks about her, but for the moment I shall concentrate on her hon. Friend.
The resolutions raise a number of issues. My hon. Friend the Financial Secretary and the hon. Member for 785 Newcastle upon Tyne, East referred to the £15 billion covered in—I think—resolution No. 19 which was foreshadowed in a parliamentary answer on 7 May to a question by my hon. Friend the Member for Chelmsford (Mr. Burns). Before dealing with that, I refer to one or two other issues.
It is worth noting that the casualties of the election included not only Francis Maude but John Maples, whom I hope we shall see back in the House. Although he and I were unable to agree on resolution No. 19, I think that the whole House will recognise that he made a valuable contribution and would be able to do so again if he were to be re-elected. Of course, we may see the same happening with the many members of the Labour party who have returned as retreads. I am sure that many of them will join their party's Front Bench soon, although perhaps not as quickly as one of the Liberal Democrats who seemed to be speaking for his party at Question Time this afternoon in his first week in Parliament.
One important issue to which the hon. Member for Newcastle upon Tyne, East did not refer was confidence. There is no doubt that there will be a greater air of confidence within the economy and among ordinary households—of whatever level of income—now that the uncertainty of the general election is out of the way. It would be possible for the Conservatives to argue that a Conservative victory will lead to more confidence sooner and that people will put their efforts and talents into new small businesses and into extra education and training in the hope that the rewards will stick with them and with their families.
I do not wish to make too much of a partisan point because I think that, in its review of the consequences of the general election, the new model Labour party will adopt most of the social democratic policies against which it fought—some rather more successfully in the past few weeks than in previous years. In view of the change in the Labour party's constitution and its change in approach, I believe that more Labour hon. Members will speak more clearly on behalf of those who set up their own businesses.
I do not exclude the importance of the industrial and manufacturing sector, but it is in the service sector—whether in retail or other services—that more people take risks with their family prosperity. I believe that the Labour party will speak more clearly for them, and I hope that the Government will also recognise more clearly what an immense burden has been carried in the past three years by people in small business, in the service sector and in retail.
For people whose businesses were built over generations, it was a personal tragedy to have them wiped out as a result of the massive recession. I pay tribute to those who have pulled themselves out of bankruptcy or liquidation and who are willing to have another go. We need to create circumstances in which the rewards for success appear to balance properly the risks of failure. That is where lower levels of taxation, an understanding of the risks that people are bearing and the ways in which taxes are imposed matter. However, with regard to the national insurance and tax system, we should be well advised to continue to ensure that people who owe money pay regularly.
Often, when people get behind, they find that the money that they should have paid to the public authorities has gone elsewhere; when businesses crash, it is even worse. Thus, as with the payment of rent, the community charge, the rates we had or the council tax as it will be, it 786 is important to have a system whereby people accept their obligations on time. I recommend that the brain boxes at the Inland Revenue and Customs and Excise find a way to impose a tax penalty on big businesses which do not pay their bills to sub-contractors on time. An element of self-discipline would be greatly welcomed and would add to the velocity of circulation of money. I am sure that people considering expenditure and inflation will say that we would need to compensate for that, but it would be appreciated by contractors and sub-contractors.
I shall deal with some details, and I hope that my hon. Friend the Financial Secretary will forgive me if I do not stick to all the resolutions before us but deal with some of those which might be thought of. One resolution deals with high earners from overseas.
My hon. Friend the Financial Secretary referred to some help to be given to the film industry. There are two problems in the performing arts in that respect. One is that some very high earners—whether stars or producers—are reluctant to make films in this country because of the way in which the tax system works. Without asking for a detailed response from him today, may I suggest that my hon. Friend or some of his colleagues get together with those who are trying to put together projects in order to ascertain the impact.
As a middle income earner, I hesitate to say this, but sometimes, if we give some of the very high earners who are resident or normally work overseas, an apparent or actual better deal to come and perform here or create productions, whether on film or in the theatre, here, we find that more of our people are employed as technicians and in supporting those activities in other ways. If we did that in future, we would again become a centre of production and a centre of excellence for the performing arts—that would be important. Some people in the profession would be able to talk with some authority on the subject, and discussing it with them would be useful.
At the other end of the scale, we have not yet solved the problem of the difficulty and expense caused by the intermittent working patterns when people first come into the performing arts. People trying to earn a living as professional musicians or actors or something similar find themselves moving in and out of their desired employment, which involves expenses not fully recognised by the Inland Revenue. I am not sure whether a problem with VAT would arise, because people would not reach the threshold early. Will consideration be given to that, perhaps in consultation with some of the leaders of the acting profession, especially those involved in the Actors Benevolent Fund, who often have to pick up the pieces? It may be possible to find ways, at relatively low cost, to help people on to the first or second step of the ladder and allow them to carry on in their chosen profession.
If the national lottery and the Department of National Heritage can refurbish many more of the buildings in which people perform, we could find that more people are employed in entertainment, too. Help at the early stages would, of course, help people to become successful and go on paying more tax—which most people are happy to do at the rates that we are now introducing.
I know that the House will have other opportunities to consider the national lottery Bill when it is introduced, but I ask my hon. Friend the Financial Secretary now whether there will be an explanation of where the mythical £1,000 million will come from. We keep hearing that £1,000 million a year in extra money will be available for the arts, 787 heritage, sport and many other good causes. I do not believe that it is possible for more than one third of the stake money to emerge as good cause money. There will be friction costs, and some return to the prizewinners. I do not see the prizewinners settling for less than one third of what is staked, nor the other elements in the friction costs, such as retail distribution, amounting to less than one third, so we are talking about £3,000 million.
A reasonably high proportion of the money staked on horse racing comes back each time it is staked, so although there may be a turnover of, say, £3,000 million, there is only about £1,000 million of new money each year—at least, there is a multiplication factor; I probably have not got the figures quite right.
In contrast, most of the money won on the national lottery will not be recycled into it but will be used for other purposes. The money which goes to good causes will not be recycled into the national lottery; nor will the friction costs. In effect, if the result is to be £1,000 million, we are talking about an extra £3,000 million being used for this form of spending—to use a neutral word.
We know nothing about the taxation proposals, but most other forms of gaming and gambling carry heavy taxation—the taxation that would have been a feature of a Ways and Means resolution in the past. While the details of the national lottery Bill are being considered, people should come out into the open. I ask my hon. Friend the Financial Secretary whether there will be a clear statement on whether the deadline of 1 June in the White Paper is firm, or whether it is a target and there can be more discussion.
I believe that no one outside the House, and very few people inside, have given serious consideration to the idea of an extra £3,000 million in new gambling. That is roughly equivalent to all current gambling. My fear is not only that shared in Liverpool, with Vernons, Littlewoods and the other football pools people, with their genuine interests and staff interests; it is that we shall see unrestrained gambling and gaming.
There are restrictions on current gambling. For example, the football pools companies cannot use shops or television promotions. I believe that there have been four or five gambling and gaming Acts, all based on the assumption that those activities should satisfy a demand that is there, but should not stimulate more demand. I do not believe that it will be possible to keep the national lottery draw off the television. How can we allow that—and probably advertising for it, too—if we do not allow other forms of gambling and gaming the same facility?
I do not want this country to be seen as the gaming and gambling capital of the world. I do not want to sound too puritan, or Calvinist, but there is common sense in our present approach, which is to make provision for gambling and gaming tables, but not to allow those activities to be stimulated. Too many people would risk too much. I do not wish to go into too much detail now, but there is a series of questions that the Government should answer over the next few weeks.
In passing, I understand that the Home Office gambling and gaming team has not moved to the Department of National Heritage. It is difficult to see a proper distinction or differentiation being made between the responsibilities 788 of the Home Office team and the team which I am sure is now being created in the Department of National Heritage.
I hope that the Churches and others concerned with social conditions will pay attention to the issues—not because it is necessarily right or proper to block the national lottery Bill, but to try to ensure that issues are considered in advance, rather than our simply finding ourselves with the benefit of the money, but with the "disbenefit" that many people's lives will be wrecked by the temptation of instant success.
I pay tribute to the pools industry for the fact that people in general do not stake large sums on the pools. A very few may win large sums but they do not stake too much. Very few people's lives are made difficult because of the money that they have put on the football pools.
§ Mr. William Ross (Londonderry, East)
The hon. Gentleman mentioned the Churches while he was talking about the national lottery. Perhaps he would encourage his right hon. and hon. Friends in government to take notice of the views of the Churches in the Republic of Ireland.
§ Mr. Bottomley
My hon. Friend the Minister will have heard that remark. We should retain a focus on the experience of the Republic of Ireland. Some of the promises made there did not turn out to be accurate.
§ Mr. Barry Porter (Wirral, South)
My hon. Friend is taking an unusually Cromwellian and gloomy view of people. As we already have a national lottery, called the premium bonds, can he tell us how many people have gone bankrupt as a result of buying those?
§ Mr. Bottomley
My hon. Friend the Minister will have heard the remarks of the hon. Member for Londonderry, East (Mr. Ross). The stake money on premium bonds is available to be paid back. It may be affected by inflation, but as we are now aiming at stable prices, premium bonds may become an even better deal.
Several changes have been made affecting charitable giving. Most have been welcome, and I am sure that others will be suggested. The gift aid schemes and give-as-you-earn schemes need more publicity rather than all those changes in the legislation.
I pay tribute to Mr. Russell Twisk, the editor of the Reader's Digest, who has taken positive action with his colleagues at work, as a result of which a level of giving has been reached under the give-as-you-earn scheme which I doubt can be matched by any other organisation. If more of us were willing to find out how people can come together and give successfully, and to gain charitable donations in new ways, using the tax break system, more of us would give more cheerfully and more often. That would be a good thing.
I am sure that my hon. Friend the Financial Secretary would be disappointed if I did not say something about resolution No. 19. As a stepping stone to that, may I say how important it is for us to pay serious attention to social politics. Social conditions need to be improved; people need greater opportunities in their lives. Often it is those whom we do not see in our ordinary lives who need those opportunities most. People need the opportunity to earn —too many people are out of work—and the opportunity for their needs over the family life cycle to be better recognised. People need the chance of better housing.
789 The building society movement has done as much as local authorities and housing associations over the past 40 years to increase the number of homes available and to improve their condition. We should recognise the role of those who founded the building societies in helping people to create new homes. I hope that now the building societies will turn more of their time and talent towards helping to create more new homes again, rather than simply helping people to buy and sell clean secondhand houses.
It is worth remembering that the way in which the building societies managed to help so much was by getting the savings of so many people. There are between four and 10 savers for every person who borrows. The taxation arrangements made it possible for the societies to expand without there being too much bureaucracy or form-filling for the depositors—the members of the societies.
The hon. Member for Newcastle upon Tyne, East gave us a good potted history of the events that have led to resolution No. 19, one of the few resolutions to be introduced since the general election. As my hon. Friend the Minister said, it is clearly a consequence of the Leeds Permanent judicial review. That review has been joined by at least three other building societies that are adversely affected.
That conjoint judicial review is a bad precedent. On tax appeals, it is perfectly reasonable to say that if someone wins an appeal against the intention of the Government or of the Inland Revenue, he should necessarily get the benefit only if he appealed along with the person whose case was heard.
It is a very bad precedent to follow what has happened in the Woolwich case. The Woolwich went ahead with a judicial review. Others did not join in, although the Leeds Permanent, to mention just one, was the first to complain strongly about the use of the 1985 legislation in 1986. The societies shared the same lawyers.
If the Government were going to say, "We are not willing to accept the risk of the Woolwich winning", they should have introduced a resolution similar to resolution No. 19. They should have said, "We are going to knock out your judicial review by primary legislation". I would not have advised that, but I believe that that would have been a more open approach.
To have drawn a distinction between the Woolwich, the Leeds Permanent, the Greenwich and the other societies affected was a mistake which should be reviewed by the Law Officers, and by the legal advisers to the Treasury and to the Inland Revenue. There should be an open statement that from now on, in the absence of exceptional circumstances, those who gain by judicial review should be treated on all fours with each other. If not, we shall find that there is the extra cost of many people going for conjoint judicial reviews, which would be a waste of money and would give too much money to the lawyers.
One per cent. of the £15 billion will be at stake if the Leeds Permanent is successful in the judicial review. Whatever the outcome of resolution No. 19 and whatever the outcome of the Finance Bill, it would be sensible for the Inland Revenue or the Treasury to have discussions with the building societies that are adversely affected to see whether it is possible to draft a resolution which does not put £15 billion at risk and which could tidy away the issue.
Following the point made by the hon. Member for Newcastle upon Tyne, East, no matter how often the Government bring retroactive legislation to the House this is the third time—they cannot achieve the same object 790 at the higher Court of Appeal. There is a good case for taking the issue to Europe where people can put their experience of extra taxation for a period for which they have already paid tax that satisfied the Revenue.
We had a merry-go-round of legislation and I doubt whether it will stop here. I seriously advise the Government to see whether it is possible to find a way out which will resolve the issue with reasonable rough justice.
§ Ms. Tessa Jowell (Dulwich)
I join other hon. Members in congratulating you, Mr. Deputy Speaker, on your appointment. I have been elected to represent Dulwich, a constituency in south London a few miles from here. Within it are extremes of prosperity and poverty which mirror the country as a whole.
Dulwich is principally a residential area. What industry there was has mostly long since gone. Employment, being mainly service-based, has been heavily hit by the recession, and unemployment has increased locally by 99 per cent. since March 1990. One person in six is now out of work, and the fear of unemployment is a fact of life.
Action to end recession, to combat poverty and to see improvements in health care, raise standards in our local schools, the development of nursery education and nursery care, and the regeneration of our inner cities are all policies for which people in Dulwich voted and which led them to elect me as their Labour Member of Parliament and to displace my Conservative predecessor.
I take the opportunity to pay a sincere tribute to Gerald Bowden, who was the Conservative Member for Dulwich until the election. He served my constituents well and conducted the election campaign with dignity and integrity. He earned widespread respect for his active lobby against the rail link, an issue that 1 will continue to pursue along with local groups such as Peckham Against the Rail Link on the sure foundation that he laid.
I also record the debt that Dulwich owes to its previous Labour Member, Sam Silkin, the former Attorney-General, who represented the seat for 19 years until 1979. Local people say about him, "Sam was Dulwich". There was nothing more important to him than the attentive and conscientious care with which he addressed the problems and issues affecting his constituents. That is a fine tradition which I will do my best to follow in my work as the new Member for Dulwich.
I used to work at the Maudsley hospital in Dulwich, where my brief was to re-establish and resettle in the local community people with long-term and chronic mental illness. I want to talk about a very big question for my constituents—how we care for our elderly people, for people with mental illness and for people with disabilities, and how we get the best from community care.
In Dulwich, one person in five is over 65. The number of very elderly people living alone is on the increase. Serious problems are emerging in the local health service on the care of elderly people which arise partly from the loss over the past three years of 52 beds previously provided for elderly people. The closure of those beds has increased pressure for elderly people to be admitted to other beds, generally acute and surgical. The evidence of that pressure exists in the notorious and scandalous queues of people waiting on trolleys in the casualty department of King's College hospital until a bed in the hospital becomes free.
791 The risks to elderly people are especially great. If they are confused, they may become even more so. There are attendant risks of dehydration, and pressure sores may develop even after a relatively short time lying on a trolley. A wait on a casualty trolley may set back the time of recovery. A longer hospital stay may be caused by the difficulties of the hospital's admission procedure.
Some of the elderly people seeking admission to hospital could be looked after at home if the community services were still available. I spoke recently to an elderly lady who had been waiting for six hours to be admitted to King's and who had been lying on a casualty trolley. She had broken her arm, but she did not really need to be in hospital. However, there was no one to put her to bed at home, so hospital was the only safe alternative. Until a year ago, it would have been possible to get a district nurse to put her to bed, but the service has been cut.
Two Government policies are clashing headlong, and that elderly lady is the victim. The hospital needs to reduce its costs as it prepares to become a trust. That clashes with the other Government policy to provide responsive and individually appropriate care to elderly people in their own homes wherever possible.
If the community care policy is to work properly, elderly people must also have immediate access to the medical treatment they need. That is important if they are to have a real chance of being able to cope in their own homes, even with support. An elderly man is, for example, today waiting in a Dulwich hospital for a hip replacement. He cannot manage at home until his hip is repaired. However, by the time that he has his operation, it is likely that he will be so dependent that he will be unable to manage in his own home. Residential care will be the only alternative.
"Going into a home" and "arranging a residential placement" are bureaucratic carespeak which obscures the personal tragedy which the loss of a home invariably represents. Let us pause for a moment and consider what it means to leave one's home for ever and enter a residential or nursing home, however good the care, however much safer and however unavoidable. It means the loss of freedom to run one's life in the way that one chooses; to make a cup of tea when one wants; to wear the clothes that one wants to wear; to cook one's own choice of food and watch the television programmes that one prefers. Those are the freedoms which we properly take for granted and which define us as individuals. That is why it is so important to make the community care policy work and to understand the impediments to its success.
We will hear a lot during this Session about the need to measure the performance of our public services and about the role of the citizens charter. However, we should not be carried away by the creation of a new science to help us to recognise a good service. The delivery of health and community care should be measured against a simple question: hon. Members, as they take decisions about the care of vulnerable elderly people, should ask themselves whether what they are deciding is what they would want for themselves or for their families. If the answer is that it is not, the policy is unacceptable. That simple test should set our standards for the judgment of effective community care.
§ 6.1 pm
§ Sir Michael Grylls (Surrey, North-West)
I congratulate the hon. Member for Dulwich (Ms. Jowell) on her first-class maiden speech, which she delivered with great confidence and fluency. We were much impressed by what she said. Her handsome tribute to Gerald Bowden, the former Member for Dulwich who was a much loved and respected Member of this House, struck a chord with all of us. I hope that she will not take it amiss when I say that I am sure that we all hope to see Gerald Bowden back in this place in the very near future. However, I wish the hon. Lady success in her career, and the House looks forward to hearing from her in future.
There are many excellent measures in the Budget resolutions, and I want to concentrate on the changes in the inheritance tax for private businesses. Although Conservative Governments over the past 10 years have greatly reduced the impact of inheritance tax on privately owned businesses, it was still a penal burden which all too often could result in a business having to be sold or taken over by a larger firm. In such circumstances, that independent small business would cease to exist.
My right hon. Friend the Chancellor of the Exchequer should be congratulated on seizing that point and opting for outright abolition. From now on, firms can be passed on intact from one generation to another so that they can grow from one generation to another. When defending the continuation of any form of inheritance tax on privately owned businesses, previous Chancellors, including some Conservative Chancellors, have said that, with proper advice and planning, it was possible to avoid that tax. If the business was handed over within seven years, that tax could be avoided. However, that is the wrong way to consider the issue.
Business decisions that are tax-driven are all too often wrong business decisions. It is wrong to tell entrepreneurs that they can avoid tax if they hire professional tax advisers. It is wonderful that the House is about to abolish that tax and so tell that splendid breed of people from the 1980s—and I am sure from the 1990s as well—who have risked their own capital and effort in building up businesses, employing people and creating wealth, that, when they decide to retire or if they die, the Government will not take a large lump from them in inheritance tax. Those businesses can be continued by future generations of the family or by future generations of the management. They can carry on and expand those businesses.
The alteration to inheritance tax in respect of small businesses is a momentous part of the Budget. Strangely, in the excitement of the general election, it was not a central issue. I guess that a Labour Government would not have pursued that tax change. However, when the Budget is examined in years to come, the abolition of inheritance tax for private firms will, in the context of British entrepreneurship, be seen as an important and historic decision. I hope that my right hon. Friend the Chancellor will be encouraged by that.
I want to jump a wide gap from referring to the interests of small firms in relation to the Budget to an issue that affects many of our largest companies and international businesses. I must first declare an interest of which the House is aware.
Nearly seven years ago, during the passage of the 1985 Finance Bill, I tried to describe the efforts of the United Kingdom to eliminate the use by certain states in the 793 United States of unitary taxation as it affected British firms. That involved taxing companies not just on their profits within a particular state, but including that company's worldwide profits and other statistics.
That form of taxation still exists in California. It is internationally criticised and is agreed to be a barrier to trade. We want to remove as many barriers to trade as we possibly can. That form of taxation is also a severe irritant to good international relations. The use of unitary taxation has been condemned internationally by the United Nations, the Organisation for Economic Cooperation and Development, the European Community, Japan, Australia, Switzerland and Canada. They have all said that that form of taxation is the wrong way to deal with international business. Even the United States Administration has agreed with that.
The strongest opponent of unitary taxation has been the United Kingdom. Although the House had been patient to a fault, I said in 1985 that it could no longer continue to wring its hands about the issue and hope that something would be done. I said that the time for action had arrived.
As you will recall, Mr. Deputy Speaker, the House decided in 1985 to adopt retaliatory legislation in section 54 of the Finance Act 1985, which is now section 812 of the Income and Corporation Taxes Act 1988. I raise the matter today because, seven years after I raised the matter in 1985, I have bad and disappointing news. On Monday, the California supreme court issued an opinion in the Barclays bank case reversing victories obtained in the lower and middle courts. The opinion declared that unitary taxation is constitutional in California.
That news will be a shock to the House and to the Government. Many will say that it is an outrage, and I would agree. It is apparently a very perverse judgment. The House may be surprised to learn that the California supreme court believes that the United States Congress had approved unitary taxation because, although when the Senate originally considered article 9(4) of the United Kingdom/United States double taxation treaty, it failed to pass it by a majority of two thirds, it nevertheless received a clear majority.
The House may be surprised to learn that the California supreme court believes that, when the United States Administration assured Her Majesty's Government that they would use their best endeavours to eliminate the international application of unitary taxation, Congress had already acted to approve the tax. The House may be equally surprised to learn that the California supreme court believes that Congress, by failing to bar the use of unitary taxation, approved the use of such a tax.
I believe that the House will say, of course, that such arguments are nonsense. The California supreme court also believes that only the states of the United States and United States business have an interest in the outcome of the unitary taxation issue. That is profoundly wrong. The court has ignored the real interests of British international firms, which are welcomed in California and other places and are highly successful. It has ignored the real interests of the British Parliament and Her Majesty's Government by refusing to eliminate a method of taxation that is contrary to all internationally accepted principles of taxing profits where a company or group of companies operates internationally.
We can no longer wring our hands and hope that something will happen. I am sure that, with the agreement 794 of Her Majesty's Opposition, the House will want to urge the Government and the United States Administration to seek an urgent review of the Barclays decision in the United States Supreme Court with no further delay.
You will recall, with your excellent memory, Mr. Deputy Speaker, that, during the 1985 retaliatory debate, the then Financial Secretary, the predecessor to my hon. Friend the Member for Loughborough (Mr. Dorrell), the right honourable John Moore, asked rhetorically:have we done enough to impress our friends in the United States the importance which we attach to the unitary issue?" Sadly, tonight the House will say, "Apparently not.We should send a clear message today that we shall wait no longer, that our patience has finally run out. I ask my hon. Friend the Financial Secretary to convey to my right hon. Friend the Chancellor the wish of the House that he introduce at the earliest possible opportunity the retaliatory clauses contained in section 812 of the Income and Corporation Taxes Act 1988. Only such action, and no lesser action, will convince the diehards in the United States who wish to cling to such an improper use of taxation, which is so damaging to investment and international trade. It is also damaging to Britain's relations with our great friend and ally the United States.
The role of Her Majesty's Government in taking retaliatory action must be finally to convince the United States Administration that Britain will not tolerate one day longer the continuation of this abominable form of taxation which, as I have said, is so damaging. I believe that the House will agree that it is damaging to international trade and investment and to British business in general.
§ Mr. Malcolm Bruce (Gordon)
May I also welcome you to the Chair, Mr. Deputy Speaker. It is the first occasion on which you have called me, but I certainly hope that it will not be the last, in view of the length of the Parliament that stretches ahead of us. The whole House is pleased to see you in the Chair.
I also congratulate the hon. Member for Dulwich (Ms. Jowell) on an excellent maiden speech. It struck a definite chord with me, because my maiden speech nine years ago was on health and community care. The House will welcome her clear expertise on the subject and her obvious commitment to it. Tomorrow I shall have a meeting at one of my psychiatric hospitals which is about to become a trust. I shall be able to report that another Member of Parliament is well able to argue the case. I congratulate her and look forward to many more speeches from her.
I support what the hon. Member for Surrey, North-West (Sir M. Grylls) said. I have signed numerous motions on the issue that he raised. I wholly agree that it has gone on for far too long. The one word that he did not use was "unfair". Unitary taxation is downright unfair. Indeed, if everyone operated that system, world trade and business could grind to a halt. It is preposterous that people should tax the benefits of activities that have taken place halfway round the world and have no connection whatever with the receivers of that tax benefit. I agree with the hon. Gentleman that we need to press for urgent action on that matter.
By its nature, this is an esoteric debate. I do not even pretend to be qualified in the technical details of some of the resolutions on the Order Paper, but I want to address 795 several general and specific points. The first resolution is a catch-all to stop us from trying to change the Budget in any fundamental way. But one or two points arise. It is worth going back to the Queen's Speech and asking the Financial Secretary a question. The Queen's Speech says that the Governmentwill reduce the share of national income taken by the public sector and balance the budget over the medium term, reducing taxes when it is prudent to do so.How the hell will the Government do that?
§ Mr. Bruce
Give me a minute.
The Government have produced forecasts for the medium-term strategy. Already, over the period 1990 to 1993, forecast repayments of £10 billion, £6 billion and £3 billion have become deficits of £0.5 billion, £14 billion and £28 billion. So over three years, the Government are just £61.5 billion down on their short-term forecast, to say nothing of their long-term forecast.
Indeed, at no time on the horizon can one see the Government achieving a balanced budget in anything that would normally be described as the medium term.
§ Mr. Nicholas Brown
The Financial Secretary's intervention was revealing. The total tax take from the British economy went up during the 1980s, not down. So the Financial Secretary is effectively announcing further tax increases this evening.
§ Mr. Bruce
That is a point to which I intend to refer. I freely admit that my speech is somewhat fluid and unstructured, so I can pick a piece out which I intended to come to later.
During the election, I was canvassing in one village in my constituency when I was asked a direct question by a gentleman who said, "I am on disability benefit. That is my only source of income. All this talk about tax cuts—what good is it to me? I do not pay income tax. But I do pay the increase in VAT, poll tax and all the other taxes imposed on me by this Government, who continually claim to cut taxes." For people like that constituent, taxes have done nothing but increase steadily under the Conservative Administration.
Indeed, as the hon. Member for Newcastle upon Tyne, East (Mr. Brown) said, the disparity between the tax burden on the better-off and that on the less-well-off has widened. The Government should consider how they can address that. A simple political comment is making many of us think, and I hope that it will make the Government think, too. A Government who can be continually re-elected with 42 per cent. of the vote can afford perhaps to ignore the poor and underprivileged, because such people do not have enough votes to defeat the Government.
796 I hope that the Government will not ignore the poor and will not allow the imbalance to continue. If they do, they will be setting up Britain to become a South American country, where the poor become very much poorer and the rich become very much richer.
§ Mr. Bruce
The Financial Secretary is shaking his head. I do not suggest that that is the intention of the Government, but they are setting objectives in terms of political promises to the people who elect them which can be paid for only by squeezing the people who do not. It is high time that we sought to secure some cross-party consensus to address the problem of people such as my constituent and ensure that they do not face continuing reductions in their real standard of living, given that it is much lower than the average across the country.
It is unfortunate, perhaps, that resolution 1 will prevent us from introducing one or two pieces of "mischief" that might discipline the Government. They have failed to predict and manage the public sector borrowing requirement, and £60.5 billion is a monumental discrepancy. Perhaps we should set a target for what the Government think the PSBR is and introduce a requirement that, if they overshoot it, they undertake to raise the difference by increasing taxation or cutting services. That would impose a sharp discipline on all Government Departments to be more accurate in their forecasting and more close in their management and acceptance of responsibility for the state of the economy.
Businesses in Scotland, and especially small ones, feel that it is unjust that they have to pay £450 million more in business rates than they would pay if they were taxed on the same basis as businesses in England and Wales. I have already raised this matter with the Minister in an intervention, and I shall certainly take it up with Scottish Office Ministers. The Government have said that they are prepared to eliminate the discrepancy, but they have not said how long that will take. The measures that they have introduced suggest that the process is more likely to take 15 years than the lifetime of this Parliament. I ask the Government to give themselves a much shorter and sharper target and provide Scottish business with the chance to compete on an equal footing with businesses in England and Wales.
I shall raise a legitimate and important issue that I take up in all Budget debates. I shall continue pressing it until there is a response from the Government. I make what I consider to be a legitimate plea on behalf of the Scotch Whisky Association. The unique character of Scotch whisky is that it has, by law, to be matured for three years before it can be marketed as Scotch. I have been told on numerous occasions that this piece of legislation was requested by the industry because it wanted to secure the quality of Scotch and its distinctive character and maturity. It was requested, however, in 1913, and those who requested it are probably all now dead. The industry should be given the chance to engage in a reassessment.
Scotch whisky constitutes one of our major export industries. It is an important employer, especially in the more remote rural areas of Scotland. It is important also, of course, in some urban areas, where there are substantial bottling plants. The industry is at a definite disadvantage compared with its counterparts which produce other spirits in the United Kingdom or, more importantly, 797 produce them elsewhere in Europe. Its request is that it should be able to have tax relief on the statutory requirement to stock whole for three years.
The problem arose with the abolition of stock relief some years ago. Governments never admit publicly to mistakes of this sort, but I am assured that, when the then Chancellor of the Exchequer abolished stock relief, he did not realise the implications for the Scotch whisky industry. Ministers must know now, because the message is brought home to them every year. There are serious implications, and it is a matter of genuine concern. I believe that it is a legitimate interest, and I hope that Ministers will take it on board. Were it not for resolution 1, I would he motivated to table an amendment to the Finance Bill.
Do the Government have real control over the direction of the economy? Is the rather spurious accuracy of Budget figures anything more than a fantasy or fairy tale that reflects what the Government hope will happen rather than a solid belief? The figures are based on the presumption that there will be a 3.5 per cent. growth rate per annum, and I do not know many independent commentators who have the confidence to believe that that is likely to be achieved. I hope, of course, that it is achieved. I have no desire to see anything other than success for the recovery of the economy. At the moment, however, ministerial speeches do not create wealth, and the wealth-creation process suggests that the target, which is necessary for the fulfilment of the Government's budget, is not being reached.
There is a relationship with the unemployment figures. Unemployment has increased by 29,000, and the total is 2.7 million. I have been my party's employment spokesman in the past, and today I went the round of the studios with the shadow employment spokesman. We tried to find some new adjectives to describe the situation but it is difficult to make interesting and original comments on the monthly figures. It is clear that unemployment of 2.7 million is causing a great deal of misery for many families. It is not good enough to ignore those people because they are not part of the 42 per cent. who voted for the Conservative party. I know that some of them did vote Conservative, but heaven knows why.
§ Mr. Bruce
They want jobs, but they have not been successful in obtaining them. In a way, that is neither here nor there. People are entitled to vote for any party according to their own judgment.
Unemployment is a tragedy and a waste for those who find themselves in that position. More to the point, it is a tragedy and a waste for the entire community. Those who are employed should be outraged at having to carry the burden of the many who are not. It is estimated that each unemployed worker costs the Exchequer £8,900 a year. If it were possible to reduce unemployment by I million—at 1.7 million, it would still be high—we would be able to generate £9 billion of revenue. Far be it from me to cross the Floor and determine the Government's priorities, but I would point out that the Government's objective is a standard rate of income tax of 20 per cent. If 1 million fewer people were unemployed, they would be able to achieve that at a stroke. Yet there is no evidence that the Government have the necessary will or imagination to set the necessary target.
798 I would have liked to see measures in the Budget designed to stimulate real jobs in new areas and new industries. We heard this morning that a royal ordnance factory in Lancashire is to shed 450 employees. We all accept that the peace dividend means substantial cuts in defence spending with consequential job losses, but it must be borne in mind that it is an employment area of high skill and high technology, and that traditionally it has a high export value. If we no longer have a need for its specific products, we surely have a need for the skills and capabilities of its employees and for the revenue that they could produce. We must find ways of reorienting and retraining them.
It is a matter of beating swords into ploughshares in modern, high-tech terms. We must try to ensure that the technical capabilities of the defence industry are introduced into new areas, so that skills are not lost and wasted and export opportunities are made secure. I would like to believe that the Government would accept that they have some responsibility to do that. The tax mechanism may be a useful component for introducing imaginative ways of stimulating special investment, long-term investment, research and export opportunities in areas where there is new growth. Perhaps there could be training support for those who have skills but need to be reoriented.
§ Sir Michael Grylls
Perhaps I should not intervene, having only just resumed my place, but 1 wish to say that the hon. Gentleman is on to an important point. As he has said, it is essential that firms in the defence industry switch to civil work. If the hon. Gentleman studies the record of the past two years, he will learn that this is beginning to happen. Much more of the turnover of British Aerospace, Lucas and other large companies is in civil work.
I part company with the hon. Gentleman when he says that there is an active role or pro-active role for Government. It would be better to keep corporation tax as low as possible and leave it to the brains, skill and entrepreneurial expertise of those who are responsible for firms in the defence industry to seek out new markets in the civilian sector. When Governments have tried to intervene, they have not been very successful.
§ Mr. Bruce
The hon. Gentleman may be surprised to hear that I do not disagree with anything that he has said. I was not suggesting that the Government should step in and act; I was suggesting that the Government should consider ways of ensuring that the private sector effort is given an extra spin by giving it some short-term additional tax incentive, tax relief or training boost to enable it to pick up the opportunities and make the switch more quickly than would otherwise be the case. I was not suggesting that the Government should say what the switch should be or second-guess the markets. We are at one on that issue. I am glad that the hon. Gentleman intervened to give me a chance to explain that.
I have tried to link my points to my concern that the Government are not in control and do not know what is happening. They are on a wing and a prayer, and are well out of touch with their own forecasts. I have suggested how they might achieve their targets.
I remain puzzled by the argument for the reduced 20 per cent. rate band. I will not dig out the papers now, but I have here endless speeches from Conservative Ministers saying that it was a daft idea, which was why it was 799 abolished in 1981. It is not efficient at delivering its objective, which is to help the low-paid. [Interruption.] If the Minister is saying that that was a Liberal idea, I accept that, too. Every party has tried and opposed the suggestion on different occasions. I make no virtue of that. This is not suddenly a bright and consistent idea.
The reduced 20 per cent. rate band is not the most efficient way of simplifying the tax system, which is one of the Government's objectives. It adds complexity. Some people estimate that it would mean 800 extra staff; the Chief Secretary to the Treasury estimates 300 extra staff. It is not as effective as raising thresholds and targeting benefits, which would help to narrow the differentials that the Government have succeeded in widening over the years.
I accept that to some extent the Government are committed to the band. We have had an election, they have won and they must go ahead with it. However, I hope that they will give real thought to how they can simplify and structure the tax system in a way which provides incentives, but not at the expense of the very poor and the low-paid. I hope that the Government try to strike a balance between stimulating business and achieving social justice.
That should be the aspiration of the entire House, regardless of one's political base. It would be best if we got out of this ideological conflict and genuinely tried to find ways of achieving that more balanced result. Clearly, this Budget will not do that because of the Government's commitments, but I hope that the next one will.
§ Mr. John Austin-Walker (Woolwich)
I, too, congratulate you, Madam Deputy Speaker, on your election to your office.
My immediate predecessor had a reputation in the constituency as a hard-working constituency Member of Parliament. I hope to follow in that tradition as the representative for Woolwich.
As the new Member for Woolwich, it is impossible for me to stand in this Chamber without a sense of history. When I first moved to Woolwich in 1966, Plumstead school was at the bottom of my garden, which is now in the constituency of the hon. Member for Eltham (Mr. Bottomley). On the wall there was a plaque which said that on that spot Mr. William Ewart Gladstone had made his last speech to his Greenwich constituents. I doubt whether many Members of the House can claim to have had a speech made by a Prime Minister at the bottom of their garden.
Outside the Chamber there is a bust of another of my predecessors. Younger residents of Woolwich may know of Ernest Bevin only as the name on one of the Woolwich ferries. Parliamentarians will probably remember him as one of our great Foreign Secretaries. I prefer to remember him for his origins and trade unionism: born into poverty, often hungry and admitting that he sometimes had to steal for food as a young boy, he permanently identified with those whose experience had been the same as his. It has been said of him thatunlike many self-made men of the Victorian age he never had any wish to climb out of his own class. He preferred, instead, to help it to rise and to rise with it.800 In 1908 Ernie Bevin led the Right to Work movement. Given the absence of any reference in the Gracious Speech to the problems of unemployment, perhaps now is the appropriate time to relaunch that movement.
Unemployment in Woolwich and Eltham has risen 170 per cent. over the past year and more than 400 per cent. since 1979, with an overall unemployment rate for the constituency of Woolwich approaching 25 per cent. Around the town centre the level of adult male unemployment is 40 per cent. and in the Arsenal ward it is a staggering 60 per cent., the highest in London. The lack of any measures to redress that situation in the Government's programme is deeply distressing both for those already unemployed and for the many more in Woolwich who fear for their jobs and security.
Young people face the most difficulty and poorest prospects. The unemployment figures reveal the complete failure of the Government's training policies. Although the Government claim to give the highest priority to helping young people who have been out of work for more than six months, it is precisely in that group where the rise in unemployment has been highest. In the borough of Greenwich 790 people under 18 are registered, available and looking for a training place. There are currently 12 vacancies. Unemployment is costing the country more than £20 billion a year—money which could and should be invested in our schools, hospitals, public transport and training.
Woolwich has been particularly hard hit by the decline in jobs in manufacturing industries and the lack of training and skills opportunities for young people. London has the lowest percentage of apprenticeships in the country and the skills shortage will soon become apparent, if and when the recovery begins. Figures for economic performance published in January by my hon. Friend the Member for Fife, Central (Mr. McLeish) show that Woolwich and Newham, North-East are the hardest hit constituencies in London. Woolwich needs policies that recognise the need to rebuild our manufacturing base and offer opportunities for young people in training and education.
Of the 10 most deprived wards in Greater London, three are in and around Woolwich town centre. For 300 years the area was the home of and provided labour for the Royal Arsenal. At one time the arsenal employed 80,000 people and was the largest single factory in the United Kingdom. If ever there were an example of where the skills of people in the defence industry have been lost because of a lack of provision for retraining, it is Woolwich. The number employed in the arsenal today is down to 1,300 and those jobs are shortly to go.
The 300-year-old role of the arsenal as a huge primary industrial production centre has come to an end, but tremendous opportunities can be realised with Government help. The closure of the last remnants of the arsenal will release 75 acres of development land in the town centre. The arsenal site contains an extraordinary heritage of buildings of international significance, at least one by Vanbrugh. Yet the Ministry of Defence has allowed many to fall into such a state of dilapidation and decay that an estimated £60 million may be needed for basic restoration of those historic buildings which have lain hidden from public view behind the arsenal wall. That any property owner could allow such a heritage to fall into disrepair is a tragedy; for the Government to have done so is a crime. I invite the Secretaries of State for Defence, for 801 the Environment and for National Heritage to visit the site as a matter of urgency and to accept responsibility for the restoration and refurbishment of those buildings.
I welcome the commitment in the Queen's Speech to combat crime, but any attempt to combat crime must start from an understanding of its causes. My hon. Friend the Member for Oldham, West (Mr. Meacher), in his eloquent speech on Thursday, warned of the grave risk of a social explosion. My hon. Friend the Member for Newcastle upon Tyne, East (Mr. Brown) reinforced that point today in his opening speech. Poverty and deprivation, alienation and hopelessness are the breeding ground for crime and provide an environment in which racism can thrive.
The Woolwich constituency includes most of Thamesmead, which is shared with the constituency of the hon. Member for Erith and Crayford (Mr. Evennett). Thamesmead shot into national prominence a year ago, following a brutal racist murder. Just over the boundary in the neighbouring borough of Bexley are the national headquarters of the British National party, masquerading as a book shop and in contravention of planning regulations. Bexley council, however, chooses to give comfort to racists by ignoring its presence and refusing to use its enforcement powers. The British National party churns out its racist literature and occasionally the police seize some of it, but the Attorney-General has so far failed to act.
Some people ask why we should make such a fuss about a small and insignificant bunch of freaks. But they are not so small and insignificant if one is black and lives in Woolwich, Plumstead, Erith, Belvedere or Thamesmead and is subjected daily to harassment, abuse, attacks on one's property and sometimes physical violence. I shall continue to draw the attention of the House to that threat, not only to the black citizens in my constituency but to our democracy and the freedom of us all.
If we are to tackle racism seriously, the law must be strengthened and racial harassment made a specific offence. More needs to be done to reform the procedures, systems and structures that perpetuate indirect discrimination and institutional racism. In employment, we need tighter and more effective legislation along the lines of the fair employment legislation in Northern Ireland.
Health care is another area of concern in Woolwich. The Brook hospital serves Woolwich. Its emergency unit is threatened with closure and the hospital's long-term future is in doubt. My hon. Friend the Member for Dulwich (Ms. Jowell) spoke eloquently about community care. As a former chair of the Association of Community Health Councils and a past chair of Greenwich MIND, I share her concern about the quality of community care. We need high-quality care, not services on the cheap provided often with reliance on low-paid or unpaid carers.
Increasingly, the burden of community care is being carried by relatives, usually women, often with no financial or emotional support. For those without relatives, being discharged from institutions often means the exchange of one institution for another—out of hospital and into the institution of poverty and isolation.
As chair of the all-party London Ecology Committee, I am disappointed by the Government's lack of commitment to environmental protection. The Prime Minister has expressed concern about tropical forests, yet his Government are prepared to drive an urban motorway, the east London river crossing, through Oxleas Wood in Woolwich, an 8,000-year-old ancient woodland and site of 802 special scientific interest. In so doing, they are prepared to ignore the European environmental protection legislation to which the United Kingdom is a signatory.
I have spoken of the need for full employment to be at the top of the political agenda. Those employment policies must include a commitment to equal opportunities. I fully support the sentiments expressed by my hon. Friend the Member for Edinburgh, Leith (Mr. Chisholm) that free or affordable child care is an essential pre-requisite for equal opportunities in employment. I refer not only to care for the under-fives; the absence of child care beyond the age of five is also a barrier to many women seeking employment.
Regarding equal opportunity, I was pleased to be here on that historic occasion when we elected the first woman to hold the office of Speaker. That came about because of the past struggle of many women, with the support of a few men. One of those few men was another of my predecessors, Will Crooks, who was elected the Member for Woolwich in 1903. He campaigned for equal rights and first moved a Bill in the House in 1903 for the enfranchisement of women.
Will Crooks went from the workhouse to Westminster, but never deserted the ranks from which he came. In the words of his biographer, he continued to stand four square with the working classes against monopoly and privilege. He achieved a spectacular victory in Woolwich in the 1903 by-election, a result described by the Speaker of the day as the greatest by-election victory of modern times. His victory was followed by the election of Labour candidates in several parts of the country in the election of 1906, when it was said:This is the party that was born in Woolwich.I have a proud history to follow.
In his maiden speech, Will Crooks asked to be forgiven for being controversial. He spoke out, in that 1903 speech, against the privatisation of defence contracts and criticised the unfair way in which contracting procedures favoured private contractors over the Government's own services. In the same way today, local authority direct service organisations are at a disadvantage compared with private contractors under the current compulsory competitive tendering arrangements.
Will Crooks apologised to the House for breaking with precedent by speaking out on an issue of concern to his constituents. I make no such apology. If I had failed to speak out on the very issues that are concerning my constituents, I would have had to apologise to them. I thank the House for its tolerance, but I assure hon. Members that, although the needs of Woolwich may have been overlooked by the Government, its voice will not go unheard in this Chamber.
§ Mr. Peter Mandelson (Hartlepool)
It is my pleasure to commend my hon. Friend the Member for Woolwich (Mr. Austin-Walker) on an excellent maiden speech. He demonstrated tremendous experience and knowledge, qualities that will enable him to make many more valued contributions to the House in the future. I only hope that I am able to acquit myself as ably as he has done.
In representing Hartlepool, I have the honour of succeeding Ted Leadbitter, who was as popular in the House as he was admired in his constituency. Ted Leadbitter was first elected in 1964. Supported by his wife 803 Irene and his indomitable agent, Mrs. Elsie Reed, he lost no time in demonstrating his diligence and, equally, his independence.
My right hon. Friend the Member for Chesterfield (Mr. Benn), who was Postmaster-General at the time, describes in his ministerial diaries for 10 February 1965—when the Labour Government had a majority of only three—how a new hon. Member, Ted Leadbitter from West Hartlepool, had written to complain about a telegraph pole being put up in front of a constituent's home. Refusing to be fobbed off with some bureaucratic response, the MP of three months' standing rang up my right hon. Friend's office with the message:Mr. Leadbitter regards the Postmaster-General's reply as so rude and evasive that he does not propose to come to the House or to accept the Labour whip until the answer is withdrawn and the pole is removed.The pole was duly removed. I am sure that hon. Members can agree that in such important matters—to parody Edmund Burke—I, too, should be a representative of my constituents, not a delegate of my party. I can reassure the Whips, however, that I am not aware—at present at any rate—of any misplaced telephone poles in Hartlepool.
Ted Leadbitter's predecessor, the first Labour Member to be elected for the constituency, in 1945, was David Jones. A man who knew poverty and unemployment at first hand, Mr. Jones dedicated himself to freeing his constituents from the appalling social conditions of the time, "the evil days", as he called them, of ill-health, poor housing and insecurity in old age. David Jones' memory is particularly special to me because he was a friend of my grandfather when he was a Member of this House, and he spoke for David Jones at several elections.
When they took their seats, my predecessors took pride in representing the two Hartlepools. While I represent only one in name, I am conscious of the fierce community loyalties in both Hartlepool and West Hartlepool. Even before the two Hartlepools were each denied their own borough status, music hall references celebrated the local demand for home rule. In the review of local government to which the Conservative party is committed, the minimum that would be acceptable to current residents is the restoration of full unitary authority status to Hartlepool. I shall continue the work of my predecessor in supporting that change.
Hartlepool's great strength is that it rightly sees itself as a community, with shared needs, strongly felt local loyalties and a sense of common purpose and civic pride. That pride is especially strong now. Our football team, Hartlepool United, is at its highest ever league position in the history of the club; the West Hartlepool Rugby Football Club has gained promotion this season to national division one; and first-class cricket has arrived in the town, with the selection of the town's club as a venue for Durham county cricket.
However, there are serious challenges to be faced by my town. Fifty years ago, Hartlepool, like other towns, even with its social problems, was at least more industrially secure because of the success of its shipyards, engineering, steel-making and manufacturing. The task of the coming decade, as we approach the 21st century, is to transform a now industrially poorer and less confident Hartlepool into the thriving industrial community of the future that it can 804 become. That is why the people of Hartlepool are now embarking on an era of change. They do so in the knowledge that it is not possible for any community or town—or, indeed, political party—to try to recreate the future in the image of the past.
For the first time, in the general election, the Labour party in Hartlepool received more than 50 per cent. of the popular vote. It was a vote to embrace change but it is still change for the same purpose now as it was 50 years ago: to use the power of the community, acting together, to improve the individual circumstances of all. Central to that process is a modern economic policy; new ways of revitalising industry; innovative solutions to the problems created by social change; and sustaining economic growth in ways that are friendly to the environment.
My aim is to see new opportunities created for my constituents so that the confidence and optimism experienced in former times can be enjoyed once again by old and young alike. New opportunities do not mean opt-out schools and opt-out hospitals. When the services of thousands of patients opt out and the local hospital ceases to feel like the local community hospital, when thousands opt out of schools and the local schools cease to be like local community schools, the foundation on which the community is based is being removed.
What is true for our public services is also true, although in a different way, for industry. We cannot rebuild the industrial strength of our nation when manufacturing investment fell by 13 per cent. last year and is still falling now. When apprenticeships are axed and young school leavers fail to find training places, when firms are denied the chance to adapt to new skills and technology, we are eliminating the means by which depleted communities can become strong again.
The local training and enterprise council has seen a 20 per cent. Government cut in its training budget this year. At a time of rising unemployment, is that any way to restore industrial strength to our country? The result of that short-termism is both to deprive our young people of the opportunity that they need to get on in life and to deprive the nation of talent and ability of its people, which is critical to its future success.
When the Conservative party changed its leader and softened its rhetoric, the promise was of a classless society, a nation at ease with itself and opportunity for all. But what hope is there for the young person without a job due to the recession, without training due to cuts in funding, and without benefit due to the actions of a Social Security Minister who is now Prime Minister?
What opportunity is there for the thousands in my constituency and the millions in this country, struggling in poverty and living on the margins of our society? What ease is there in the mind of anyone, in or out of work, if our industrial base, and, therefore, our economic future, lies untended and in neglect?
In truth, there cannot be hope, or opportunity or ease unless we all accept our responsibility to help create them and, in doing so, realise that this benefits us all. Yet when we examine the Government's economic policy we find that urgency and responsibility absent. In large part, that is because the Government cannot break free from their past. The days of reliance on some invisible hand of the market are as discredited as those of centralised planning and the command economy. We need a new partnership between the public sector, the business community and the Government, based not on dogma but on co-operation to 805 secure objectives in the interests of the economy as a whole. The principle of co-operation is more relevant than ever, even if we must look to different ways and new methods to fulfill that principle.
Let me stress that the townspeople whom I represent are looking for neither handouts nor subsidies from Government. They have never deluded themselves that the man in Whitehall knows best. In the absence of a Government willing to back the scale of investment in new skills and technology which we need in Hartlepool, the town has not sat back. Over the past decade, the local authority has worked tirelessly to bring in new employment, in both the service and industrial sectors. Indeed, even with the drastically reduced help available from central Government, the partnership between public and private sector has achieved much.
The new marina, being built with the backing of Teesside development corporation and the borough council, is a symbol of the town's efforts at recovery, even if it has not brought the employment that many hoped for. It has, however, helped to draw to the town the new Imperial War Museum located in the north, and I hope that that exciting project will receive the Government's full support. The marina will also enable the town to play host to the Round Britain yacht race this summer.
Hartlepool has made a powerful bid for the Department of the Environment's city challenge programme, and if it is successful, as I earnestly hope it will be, it will further help to transform the appearance and economic potential of Hartlepool's central locations.
All those initiatives show how willing we and similar communities are to work with any opportunities opened up to us. But imagine how much more successful the industrious people of Hartlepool would be with a Government committed to re-skilling the work force and actively supporting our local industrial effort. That co-operation is needed now.
Hartlepool and the whole of the north face immense competitive challenges: the savage nature of the current recession; the creation this year of the single European market; and the completion, in a few years, of the channel tunnel. If we fail to invest now, we cannot meet those future challenges.
In rhetoric, the Government accept that case. But they should also realise that to will the ends without willing the means is, as Tawney said, akin to inviting unwelcome guests to dinner in the certain knowledge that circumstances will prevent them from being able to attend. What Hartlepool and the north-east desperately need is not another cynical invitation to share in the nation's fortune, only to find that no place is set for it at the table. In the 1990s we need a decade of regeneration—in industry, our public services and our social cohesion. We can achieve that, but only if we recognise the size of the task to be done and the utter necessity of working together as a nation to achieve it.
Those values of partnership, co-operation and social justice represent all that is best in the Labour party, as true today as ever. It will be my privilege to advance those values on behalf of my constituents and my party throughout my time in this House.
§ 7 pm
§ Mr. Nicholas Brown
I welcome you to the Chair, Madam Deputy Speaker, and congratulate you on your elevation to office.
There have been three absolutely first-rate maiden speeches from my hon. Friends the Members for Dulwich (Ms. Jowell), for Woolwich (Mr. Austin-Walker) and for Hartlepool (Mr. Mandelson). Each had something warm to say about his or her immediate and previous predecessors. Each of them—and it cannot be mere coincidence—had something to say about unemployment and its attendant problems.
My hon. Friend the Member for Dulwich emphasised the importance of community care issues. Of course, her remarks struck a chord with Labour Members, and I hope that they also struck a chord with Conservative Members. I have never heard the case put as well and as effectively.
My hon. Friend the Member for Woolwich also struck a chord with Labour Members when he spoke about unemployment in the defence industries. It especially struck a chord with me because Newcastle upon Tyne, East has similar problems with the decline of an employment base that is very much related to defence industries. It is tragic to see a major employer, which once employed 80,000 people, being steadily diminished, without the Government intervening to help to provide new jobs. As a public representative, I find it hard to preside over that. It is clear that the electorate of Woolwich realised the need to put into office someone who cared about the problem and who had a solution to it. I am confident that that is why they elected my hon. Friend.
My hon. Friend the Member for Hartlepool made a point that is well known throughout the northern region —that no other region has done more to help itself through the difficulties of the 1980s. My hon. Friend rightly praised the efforts of local people and institutions.
My hon. Friend quoted what I thought to be a rather dangerous anecdote about his predecessor, Ted Leadbitter. Indeed, I even thought that he was quoting it with approval. I am not sure that it is right for an hon. Member to quote with approval the behaviour of a predecessor who, when he was a new Member, held the Government—who had a majority of only three—to ransom just to get a telegraph pole removed. If in future there are more telegraph poles that need removing, I hope that my hon. Friend will be able to arrange that through gentle persuasion rather than through the blunt methods of his predecessor.
I and many other Members of the northern group of Labour Members often used to join Ted Leadbitter for a drink in the bar. Without casting any aspersions on his willingness to get in his round, I hope that it is one area in which my hon. Friend will not emulate his predecessor.
The hon. Member for Surrey, North-West (Sir M. Grylls) raised an important matter about unitary tax, although it was slightly wide of the motion. It is right that I say on behalf of the Labour party that the outcome of Monday's court case in California is very serious indeed. I want to make it absolutely clear that there is no distinction between the view of the Government and that of the Opposition on this matter. We are at one. I realise that the Financial Secretary and the Chancellor will need time to reflect on how best to proceed, but it is clear that 807 the only way to get a resolution of this issue is to get the whole case in front of the Supreme Court in the United States.
If the Californian judgment means that to do that will be difficult or will be unduly or even substantially delayed, as I suspect it means, after reflecting on the matter the Government will need to make representations to our friends in the federal Administration of the United States. The double taxation treaty is supposed to exist between our two countries and we cannot continue to allow it effectively to be flouted by the Californian state government. It is sad that the Californian court system appears to be backing its state government because of domestic pressures rather than upholding international law.
The motions before us relate to the tax regime for this financial year. I regret that there is nothing in them to deal with the essentially regressive nature of the present tax system; nor is there any acknowledgement of the plight of the poor. Every Labour speaker tonight has called for such an acknowledgement. The poorest 10 per cent. of households spend 45 per cent. of their gross income on tax. The richest 10 per cent. of households spend 32.7 per cent. of their gross income on tax.
The hon. Member for Gordon (Mr. Bruce) asked about the percentage of income spent on tax by the poorest households. I can give him the figures. The average household income for the poorest 10 per cent. is £4,081 a year. The total tax take from that sum is £1,835. Very little of that, just £40, is income tax. That is not because those people are all members of the royal family or that they are all too rich to pay income tax because they are professionally advised; it is because they are too poor to pay income tax. However, they are not so poor that they did not have to pay the rates and the successor poll tax. They are not so poor that they can get out of paying Excise duties, VAT or television licence fees. All those sums of money are part of the tax burden and they bear down more heavily on the poor than they do on the better off.
Those households also have to pay their gas bills—to help pay Mr. Robert Evans his 21.4 per cent. salary increase, which takes him to an annual salary of £340,000. That one person receives the equivalent of the income of 83 households drawn from the poorest 10 per cent. of our citizens. Not for nothing have gas charges risen by 167.7 per cent. between 1979 and 1991, compared with a retail prices index rise of 135.4 per cent. Today's truculent announcement of a price cut hardly makes amends for that obscenity in the gas industry.
It is because of those issues of injustice that people look to the Government—a Government who proclaim a commitment to the classless society—for help. If they look to the Government for deeds, what is reflected in these financial motions—rather than their words—proves that they look in vain.
§ 7.8 pm
§ Mr. Dorrell
I echo the congratulations of the hon. Member for Newcastle upon Tyne, East (Mr. Brown) to his three hon. Friends who made their maiden speeches this afternoon. They were all good and interesting speeches. I am grateful to the hon. Member for Dulwich (Ms. Jowell) for her kind words about her predecessor, 808 Gerald Bowden, who is a longstanding friend of mine. I understand that one of the Treasury Parliamentary Private Secretaries was his constituency chairman before being elected, so I hope that there will be a continuing relationship between the Treasury and Gerald. I also hope that he will find his way back to this House in the not-too-distant future.
The hon. Lady spoke of the importance of community reprovision at the Maudsley hospital. She will know that until only a month ago I was the Minister with responsibility for mental health services. I endorse every word that she said about the importance of an effective reprovision programme out of traditional mental illness institutions. She is quite right to place stress, in the successful discharge of that policy, on properly planned and managed community health care and social care services. I have said many times that I think that it is one of the great challenges facing health service managers. While I do not endorse everything that she said, I warmly endorse what she said about the importance of a proper community-based reprovision programme for people suffering from mental illness and learning disability and for the elderly.
The hon. Member for Woolwich (Mr. Austin-Walker) paid a tribute, at least in passing, to John Cartwright. Not all Conservative Members would number him among our close friends, but we always listened with respect to what he had to say. The hon. Gentleman then gave us a Cook's tour of what he saw as the problems in his constituency, which he alleged that the Government were not interested in. He listed jobs, crime, the health service and the environment. I waited for the issue on which he would be able to demonstrate lack of interest by those on the Treasury Bench. Although he will not agree with me, in my view he did not discharge the burden of proof in the way that he needed to in order to support his assertions.
The hon. Member for Jarrow (Mr. Dixon) was not in the Chamber when the hon. Member for Hartlepool (Mr. Mandelson) was recounting the story of the exploits of Ted Leadbitter when he first arrived in the House. However, as a former Whip—a member of the Broederbond—I shall ensure that the remarks of the hon. Member for Hartlepool are drawn to the attention of the hon. Member for Jarrow. As I was speaking earlier in the debate, I was conscious of the hon. Member for Hartlepool as a brooding presence under the Gallery. I wondered whether he would offer me some sartorial advice, or suggestions on how to improve the presentation of my case. I also wondered whether, if he had sat on the Government Benches, I would have survived at all.
The hon. Member for Hartlepool said—I think that I quote him accurately—that one should nottry to recreate the future in the image of the past.I entirely agree. I wish that in what he went on to say about schools, hospitals and businesses in his Hartlepool constituency he had followed his own advice. Perhaps the best advice that I can give him is to have the courage of his convictions and ensure that we do nottry to recreate the future in the image of the past.The hon. Member for Newcastle upon Tyne, East (Mr. Brown) asked about resolution 9. The changes envisaged in the resolution are about the system for collecting car taxes, not the tax rate, and there are, I am advised, no Community proposals for the harmonisation of car tax.
The hon. Gentleman twitted me about composite rate tax and my hon. Friend the Member for Eltham (Mr. 809 Bottomley) came back to the subject, as I thought that he might. I can only repeat what I said in an intervention in my hon. Friend's speech. The key point about the Leeds case is that, whatever the motivation of the managers in bringing the case, if their arguments were sustained in court, the effect would not be to reopen the transitional arrangements argument which we conducted and concluded in the House last year. Instead, it would render invalid the basis on which composite rate tax was collected for four financial years, to the tune of £15 billion. It was to put that question beyond doubt that I announced last week that we intend to introduce certain clauses in the Finance Bill.
I entirely agree with my hon. Friend the Member for Eltham about the importance of building society managers seeking opportunities to finance not merely the purchase of houses but the development and building of imaginative housing schemes. I think that he will agree that building societies already play a part in that, and it is a part which is to be welcomed.
My hon. Friend suggested that we should take action to bring into line the payment patterns of big companies when they meet their obligations to their creditors. I draw my hon. Friend's attention to what my right hon. Friend the Chancellor had to say on that subject in his Budget speech. My right hon. Friend said that the Government were proposing a three-pronged attack on the timely payment of bills. He said:First, the Government propose to require larger companies to state in their annual report and accounts how quickly they pay. Second, my noble and learned Friend the Lord Chancellor will be proposing simpler procedures in small claims and debt recovery cases.Third, I want to see the Government's good record on the payment of bills extended to firms which win Government contracts. From next month, those successfully negotiating a contract with a Government Department will be required to include clauses in their own contracts with subcontractors which provide for the prompt payment of bills".—[Official Report, 10 March 1992; Vol. 205, c. 753.]I hope that that goes some way to answering my hon. Friend's point.
My hon. Friend also stressed the importance that he places on ensuring that the tax regime is benign towards internationally mobile high earners. I also attach importance to that perspective of the tax system. While I am not sure whether, in my time as Financial Secretary, I shall be able to meet every one of his expectations, I am not blind to the point that he makes.
My hon. Friend the Member for Surrey, North-West (Sir M. Grylls) stressed the importance for entrepreneurs of the Budget proposals substantially to release business assets from the effects of inheritance tax, and I entirely endorse everything that he said. He then went on to a theme about which, as he said, he had spoken many times in the House—the effect of American unitary tax practice, particularly in California.
If my hon. Friend searches the records, he will find that I am a signatory of at least one and perhaps more than one early-day motion that he has promoted as he has argued this case in the House. Unlike some of the early-day motions that Back Benchers sign and come to regret when they later have to explain the strength of the Government's case from the Dispatch Box, that is not a signature that I regret. I am pleased to have signed the early-day motion and to have this opportunity now to carry through the policy that lies behind it.
810 My hon. Friend is right to express disappointment at the ruling of the Californian supreme court. The Government agree with my hon. Friend's argument that the basis on which the Californian legal system seeks to collect tax does not fit in with the international taxation of business. That has been the Government's view for some years. I am pleased that it is also the Opposition's view. It is also, as my hon. Friend will know, the view of the United States Government. Both the British and the American Governments have made clear their support for litigation in the American system to overturn those provisions. The American Government have submitted an opinion to the court setting out their opposition to the provisions that are operated in California.
My hon. Friend asked for early implementation of the penal provisions put into legislation in 1985. The time is not right for me to announce today that we shall use those provisions, but I assure my hon. Friend that we do not regard them merely as an ornament on our statute book.
The hon. Member for Gordon (Mr. Bruce) put to the House a question posed to him by a man who asked, "What good is an income tax cut to me, on disability allowance?" That question goes to the heart of the strategy of my right hon. Friend the Chancellor of the Exchequer. A similar question was posed by the hon. Member for Newcastle upon Tyne, East who asked, "What is the big idea'?" My hon. Friend the Member for Eltham answered both questions when he reminded the House of the importance of low marginal rates of direct tax, given that the first priority is the promotion of wealth creation.
It is by stressing the importance of sharp incentives and an effective system of rewards for those who take risks and commit themselves to extra effort that Governments get a free economy moving. That is the strategy which the Government have pursued consistently, and it has delivered results.
§ Mr. Malcolm Bruce
I do not disagree with the point that the Financial Secretary is making, but he is deliberately trying to combine two issues. Yes, taxation can be used to stimulate investment and provide incentives; but that does not answer another question. Why must those on the lowest incomes be further squeezed to finance such incentives?
§ Mr. Dorrell
Will the hon. Gentleman allow me to develop my argument for a moment? He asked what the man on disablility allowance had to gain from a system that stressed low marginal rates of direct tax. The answer is this. If, by establishing a tax system that is friendly to incentives and therefore friendly to wealth creation, we build a more successful economy, we have a better economic base from which to draw the resources that are necessary for the welfare state that we all want.
In stressing the existence of a gap, the Opposition constantly pick up the wrong issue. The real issue is the question of the living standards of everyone in the country, including those at the bottom of the income scale. Opposition Members should consider the effect of the policies that we pursued during the 1980s on the man on average earnings, rather than the activities of the bond dealers—essential though they no doubt are in terms of fancy commissions in the City. After 13 years of Conservative government, the man on average earnings was 39 per cent. better off in regard to real-terms take-home pay than he was in 1979. Between 1974 and 811 1979, the man's take-home pay rose by 1 per cent. in real terms. Between 1979 and 1992, it rose by 39 per cent.—by £78 a week, for the benefit of those who prefer real today-money figures.
That is the quantum of the success of the Government's approach to managing the economy: a success measured not in terms of fancy commissions for well-paid people, but in terms of the man on average earnings living in the constituency of the hon. Member for Hartlepool, that of the hon. Member for Dulwich or that of the hon. Member for Woolwich. That is the principle which we sought to follow throughout the 1980s, and we shall follow it again in the 1990s. It delivered results before, and it will deliver them again.
§ Question put and agreed to.
That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance; but this Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—
§ MADAM DEPUTY SPEAKER then proceeded, pursuant to Standing Order No. 50 ( Ways and Means Motions), to put forthwith the Questions necessary to dispose of the further motions, which were made by Mr. Stephen Dorrell.