§ [Relevant documents: The Fourth Report from the Treasury Committee, Session 1997–98, on the 1998 Budget (HC 647).]
§ Order for Second Reading read.
§ Madam SpeakerI have selected the amendment in the name of the right hon. Member for Hitchin and Harpenden (Mr. Lilley).
§ The Chief Secretary to the Treasury (Mr. Alistair Darling)I beg to move, That the Bill be now read a Second time.
This is the second Finance Bill of the Parliament, and it continues the process of modernising the British economy with the objective of raising the sustainable rate of long-term growth, and ensuring that everyone has a share in rising prosperity.
The Bill implements the second Budget of my right hon. Friend the Chancellor of the Exchequer, a Budget which will help to turn ambition into achievement, and which encourages work, promotes enterprise and supports families. Like the Budget, it takes an unashamedly long-term view. There are no quick fixes. Instead, the Bill introduces radical reform designed to bring about long-term gain for the country.
We have made it clear that, first, we need to build economic stability, with a commitment to low inflation and sound public finances. That is the essential foundation for building long-term growth and rising prosperity.
Secondly, we are determined to promote enterprise. The Bill introduces a range of tax initiatives to boost investment, helping small firms and promoting research and development.
Thirdly, we are determined to modernise the welfare system. Our objective of sustainable growth needs a highly skilled and trained work force. We are determined to end the waste of resources when people want to work but face needless barriers to so doing. We want to encourage work by making it pay.
Fourthly, to create a fairer, and therefore more efficient, society, the Government are introducing measures to support families and to protect the environment.
The Bill builds on the first Finance Bill of the Parliament, which introduced the new deal, which is already helping the young and long-term unemployed back into work. It continues with measures to promote enterprise, with further reforms to the corporation tax system. This year, it introduces long-overdue reform to the capital gains tax regime, to encourage investment and innovation.
The Bill, along with other measures, continues to reverse the desperate situation that we inherited. Almost one year ago, we inherited a situation in which 18 years of instability had destroyed many businesses. The Opposition's amendment refers to a "golden economic legacy". Let us consider the legacy that we inherited, and the nonsense it is.
The Government inherited a national debt which had doubled in six years. We were spending £25 billion a year servicing the debt left by the previous Government—more than we spend on schools. We inherited a situation in which BSE will cost Britain some £5 billion—money 600 which could be far better spent on schools, hospitals and other services. The previous Government left a situation in which they were planning to spend £19 billion more than they were due to get in. It is only our deficit reduction plan that is reversing that situation.
The "golden economic legacy" is about as real as Nigel Lawson's "economic miracle" of the 1980s. They both come from the same stable. The previous Government constantly deluded themselves, and tried to delude the rest of the country—until they were finally found out.
§ Mr. Nick Gibb (Bognor Regis and Littlehampton)What did the Prime Minister mean when, as leader of the Labour party during the election campaign, he said that a Labour Government would have no need to raise taxes, apart from the windfall tax, because their programme was fully funded?
§ Mr. DarlingMy right hon. Friend the Prime Minister meant exactly what he said. We said in our manifesto that we would not raise the basic or the top rate of income tax during the course of the Parliament, and we have kept that promise. We said that we would cut the rate of VAT on domestic fuel to 5 per cent., and we kept that promise as well. We also said that we would introduce a windfall tax on the privatised utilities, and we kept that promise as well.
I caution the hon. Gentleman not to lecture us about promises, because he will recall that one of the many reasons why his party is reduced to its present state is that the electorate rumbled the fact that it constantly made promises which it then broke, whether on income tax, VAT or any other taxes. We well remember the 22 Tory tax rises which, as much as anything, contributed to the defeat of the Conservative Government.
§ Mr. Kenneth Clarke (Rushcliffe)Will the right hon. Gentleman give way?
§ Mr. DarlingYes, of course I shall give way to the right hon. and learned Gentleman. I wondered when he would appear.
§ Mr. ClarkeI think that this passage is always put in merely to provoke me, but I am grateful to the Chief Secretary for once more giving way so frequently so early in his speech. He has repeated yet again the claim that the previous Government were planning to borrow £19 billion. He refers back to the last forecast we made. As he knows, it, like the forecasts that the Government made last July and last November, was too prudent.
The strength of the economy and the flow of revenues have brought down borrowing much faster than expected. The only contribution that the Government have made to the speeding up of progress towards balance is £6 billion or £7 billion of extra taxation on business and savings. As my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) said, that was never promised, and is doing great harm to business.
§ Mr. DarlingWhenever I mention the 22 Tory tax rises, the right hon. and learned Gentleman hears the call and canters into the Chamber to speak.
As my right hon. Friend the Chancellor made clear last July and in his Budget in March, we have taken substantial measures to reduce the deficit we inherited, so 601 that we can move into balance in the next two years. The right hon. and learned Gentleman complains that there has been a degree of fiscal tightening. Of course there has, and I am glad that he recognises that we are prudent and that we have introduced a substantial degree of such tightening, which was necessary to ensure that the economy could grow at a sustainable rate.
I make no apology for taking the steps necessary to reduce borrowing and to tighten the fiscal situation to a prudent level, which commentators increasingly recognise as exactly the right judgment, and what is required for the economy at present.
I repeat that we inherited an unsustainable economic situation. I remind Conservative Members that, during their 18 years in power, the previous Government were forced to raise taxes because of economic failure. They began in 1979 by doubling VAT, when they said that they would not do so. At the end of their term of office, they put VAT on domestic fuel, when they had promised that they would not do so.
In contrast, we cut VAT on domestic fuel, and this year we are reducing to 5 per cent. the rate of VAT on the installation of energy-saving materials, which has been widely welcomed. We inherited not only an unsustainable economic situation, but deep-seated economic and social problems. Nearly one household in five of working age had no one in work; there was a second generation of people without work; there was rising inequality between rich and poor; and one child in three were growing up in poverty.
In this country, poor families brought up children who were themselves poor in later life. They were condemned to a life with no hope, and were pushed to one side and forgotten by the previous Government. The golden legacy that the Opposition tell us we inherited was one in which public services were starved of investment and there were shortages in schools.
The previous Government unashamedly backed the few at the expense of the many. That is why we scrapped the assisted places scheme and invested the money in cutting class sizes, and why we scrapped the nursery voucher scheme and provided places for all four-year-olds. In our year in office, we have provided an additional £2.5 billion for schools, which is a real-terms increase in education spending that would not have taken place but for the change of Government.
We inherited a situation in which the health service was struggling to meet its obligations, despite the efforts of those who work in it. We have not only increased investment, but have scrapped the internal market. We saved more than £100 million last year by getting rid of red tape and putting the money into front-line patient care—yet another manifesto promise has been delivered. Since the election, we have invested a further £2 billion in the NHS, in its 50th anniversary year.
We took over from a Government who lacked ambition, and whose objective was getting by, that day or that week. As Norman Lamont, the former Conservative Chancellor, said, they were in office but not in power. We knew that we would inherit a mess, and we are sorting it out, which is why we take a long-term view. This year's Budget and the Bill continue the process of rebuilding this country.
602 The essential precondition for long-term sustainable growth is economic stability and a commitment to openness and transparency in the management of the economy. That is why we are committed to ensuring over the cycle that the Government meet the golden rule: borrow to invest, not to fund current spending. We shall ensure that debt is kept at a prudent and stable ratio. Clauses 151 and 152 of the Bill will implement for the first time a code for fiscal stability that will ensure that fiscal policy is set in this country's long-term interests.
§ Sir Robert Smith (West Aberdeenshire and Kincardine)The Minister speaks of long-term interests. To assist the long-term planning of many of my constituents who contract to the oil industry, can he say when the Chancellor plans to publish his consultation paper on the future of oil taxation?
§ Mr. DarlingThe consultation document will be published shortly, and I am glad to say that that again keeps a promise that I made on behalf of the then Opposition when the previous Government were changing the petroleum revenue tax regime. At that time, I said that, if longer-term changes to the North sea oil taxation regime were to be made, there ought to be widespread consultation. The fact that we are consulting has been broadly welcomed. I assure the hon. Gentleman that the consultation document will shortly be released, to give the industry and everybody with an interest as much time as possible to comment, so that we can take suggestions on board.
§ Mr. Quentin Davies (Grantham and Stamford)The Minister speaks about industry. Has he any concept of the plight of manufacturing at this time, and the threat to its investment and employment from the high value of sterling? Does he agree with the Governor of the Bank of England that if, in his first Budget last year, the Chancellor had introduced incentives for savings and constrained consumption instead of doing exactly the opposite—taxing savings and reducing consumption taxes—interest rates would not have had to be raised to their current level, and sterling would not now be as high?
§ Mr. DarlingI read the exchange between the hon. Gentleman and my right hon. Friend the Chancellor in the Select Committee on the Treasury, in which most of this ground was covered. As not all hon. Members are on that Select Committee, I shall deal with some of the hon. Gentleman's points. Interest rates should have been raised towards the end of the previous Parliament, but they were not, because the then Chancellor of the Exchequer judged it inappropriate—I believe that that was because of the impending general election. He put electoral considerations before those of the economy, and that is why interest rates have had to go up.
The hon. Member for Grantham and Stamford (Mr. Davies) will know that two thirds of the appreciation of sterling took place before the general election. To a substantial degree, sterling has appreciated because of conditions not in this country but elsewhere, and particularly in the rest of Europe. Sterling has not changed much against the dollar. It has clearly appreciated against the deutschmark, but in many respects that is because of what is happening in the rest of Europe. 603 We have made it clear that we intend to do whatever is necessary in the long-term interests of this country. The last thing that manufacturing or any other industry wants is a return to boom and bust, or to a Government who panic and react to day-to-day pressures rather than taking the long-term view. Reducing inflation to the Government's target of 2.5 per cent. is in Britain's long-term interests. Despite what the hon. Member for Grantham and Stamford says, we have tightened the fiscal stance by some 2 per cent. of national income. That is a considerable amount of tightening, and, as the hon. Gentleman will no doubt recall, it was discussed at length in the Select Committee.
My right hon. Friend the Chancellor's measures are right. Many were critical of the Budget in July, but they subsequently realised that my right hon. Friend's judgment was right. It will also be right this time. I repeat that our actions in setting up the Monetary Policy Committee, ensuring low inflation and looking to the future, and the other measures to which I am about to turn, are essential to establish the stable long-term platform that industry wants.
§ Sir Peter Tapsell (Louth and Horncastle)Far from it being proven that the previous Chancellor, my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), made a mistake by not raising interest rates before the general election, is it not becoming increasingly evident, as many economic commentators are saying, that we are heading for recession next year rather than an inflationary problem? The economy is in danger of going out of control precisely because of the Government's mistake in their first week in office in separating control of fiscal policy from monetary policy. As a result, interest rates have gone unnecessarily high. Despite what the Minister says, the money supply is not now under sufficient control.
§ Mr. DarlingI do not accept that at all. Our decision to give the Bank of England operational independence was absolutely right. It is one of the most open and accountable central banks anywhere. It is remarkable that this country's long-term interest rates, which are a measure of the market's expectations, are at their lowest level for more than 33 years. The hon. Gentleman is one of the few Members who were in the House when interest rates were previously that low—indeed, I think that a Labour Government were in power at the time. Long-term interest rates are decreasing.
The hon. Gentleman referred to economic commentators. He must be aware that the vast majority of economic commentators felt that our action within days of entering office to give the Bank operational independence was absolutely right. I am sure that, by the end of this Parliament—when people judge us and see what we have done throughout the economic management sector—the decision to give the Bank operational independence, together with the other steps that the Chancellor has taken, will have been proved to be absolutely right and in the interests of the economy's long-term growth.
§ Mr. John Swinney (North Tayside)In the Chief Secretary's judgment, have interest rates reached their peak? Can exporters and manufacturers expect any further increases, or a change to a downward pattern?
§ Mr. DarlingThe hon. Gentleman tempts me, but such speculation would be unhelpful. What I will say is that 604 most industrialists and most people in manufacturing industry realise why interest rates have been going up. They know that there were inflationary pressures in the economy, which had not been dealt with by the previous Government and which we inherited.
When the books were opened shortly after 1 May, it was obvious that inflation was going to rise way above the then Government's target. It was necessary to take the appropriate action to get that under control. I repeat: the setting up of the Monetary Policy Committee has been widely welcomed, as has the drop in long-term rates.
§ Mr. Dale Campbell-Savours (Workington)Will my right hon. Friend give way on that point?
§ Mr. DarlingI shall, but then I must make some progress, because I am sure that many other hon. Members want to contribute.
§ Mr. Campbell—SavoursMy right hon. Friend has said that long-term rates are at their lowest level for 33 years. Is that drop in any way due to expectations on monetary union?
§ Mr. DarlingI believe that the reason why the UK's long-term rates have fallen—and bear in mind that they are a lot higher than other rates in the rest of Europe—is confidence in this country's economy. Clearly the markets have expectations in relation to monetary union in other countries, but that drop and other factors show that the markets have greater confidence in the management of the UK economy than they have had for many years.
Not just the establishment of the Monetary Policy Committee but other actions are necessary to ensure that we can achieve long-term sustainable growth. For far too long, the British economy has been held back by capacity constraints. We have had expansion, but it has been followed by constraint because of lack of capacity. To increase sustainable growth levels, we needed to deal with that problem, so this Budget encourages work. It makes work pay.
Measures will shortly be brought before the House to implement the working families tax credit, as will measures to reform the national insurance system. They will mean that barriers to work, which have faced so many people, will be removed, which will encourage employment. The new deal is being extended to provide employment opportunities for the long-term unemployed, partners of the unemployed, the long-term sick and disabled, and disadvantaged communities. All that will help to increase economic capacity.
The working families tax credit is a major reform to the tax system. It is necessary because the labour market has changed almost beyond recognition from that of 20 or 30 years ago. It is nonsense that, throughout the country, firms report skill shortages, when, at the same time, a large pool of people are willing and able to work, but far too often find that work simply does not pay. Those reforms, with our increased investment in education, training and skills, will all ensure that our labour market can meet this country's needs in the next century.
§ Mr. DarlingI will make some progress; then I shall certainly give way to the hon. Gentleman. 605 As I have said, clause 25 keeps our promise to hold the basic and top rates of income tax. This year, we are setting the married couple's allowance at 10 per cent. from April 1999, which enables us to channel more support where it is needed most—to families with children. What matters is need, and that is where resources will go in the future. Our primary aim is to support families through supporting children.
I said that we inherited a situation in which one child in three grow up in poverty. The Budget, together with the Bill, increases support for all families with children, to begin to tackle that child poverty. From April next year, child benefit for the eldest child goes up by £2.50 a week, and there is an equivalent increase for poorer families, which increases the family premium of income support and jobseeker's allowance.
The new child care tax credit will pay 70 per cent. of the cost of child care, up to the limit of eligible costs of £100 a week for one child or £150 for two or more children. All those things will make it easier for people to get into work, especially families with children, who in the past have found the costs of child care a significant barrier.
§ Mr. GibbThe right hon. Gentleman has mentioned the working families tax credit and the child care tax credit. This is the Second Reading of the Finance Bill. Where are those issues mentioned in the Bill?
§ Mr. DarlingHad the hon. Gentleman been paying attention to what I said just five minutes ago, instead of bobbing up and down in his seat, he would have heard me say that we will be introducing measures to implement various aspects of the reforms in the near future. If he will contain himself, I want to return to measures that are in the Bill, which he will no doubt be keen to support.
Side by side with the labour market reforms goes the need to promote enterprise, which is an essential part of any economic policy. The Bill further reforms the corporation tax regime. Clauses 28 and 29 confirm that the main corporation tax rate will fall from 31 per cent. this year to 30 per cent. next year—the lowest rate ever. The Bill abolishes advance corporation tax from 1999. We have put in place a corporation tax regime which will encourage long-term investment. That reform that has been widely welcomed.
Of course, our reforms mean that decisions whether to retain or distribute profits lie with management and investors, not with the tax man. We have removed a distortion from the tax system, and the reforms are in the long-term interest of business.
There is a comprehensive package to create a more dynamic small business sector. The small business tax rate is cut by 1 per cent., to 20 per cent. from next year. Clause 119 introduces long-overdue reform to the capital gains tax system, including an effective 10 per cent. rate for business assets held over 10 years, to encourage more long-term investment.
606 As the Chancellor has said, both the main and small business corporation tax rates will be held at the new levels or lower for the lifetime of this Parliament—an undertaking that was never given by the previous Government.
§ Mr. Tim Loughton (East Worthing and Shoreham)On the subject of capital gains tax, will the right hon. Gentleman confirm that the Government will effectively be introducing 18 new levels at which tax will be levied? Can the right hon. Gentleman name a single other country with such a complicated system of capital gains tax?
§ Mr. DarlingOn the contrary: the Government are introducing a system that will be much simpler than the present one, because indexation is being phased out. We are ensuring that there is a tapered system, which means that, the longer an asset is held, the less tax is being paid.
I am surprised that Conservative Members are being a trifle critical. Only a week before the Budget, the shadow Chancellor said that he favoured moving to a capital gains tax system that would be based on a tapered system, holding assets for, say, 10 years. If he backed it a week before the Budget, I would be surprised if the Conservative party had changed its position only a few weeks after the Budget.
§ Mr. Peter Lilley (Hitchin and Harpenden)The right hon. Gentleman will want to make it clear to the House that, when I made that suggestion, I set two conditions. The first was that it was a genuine simplification that resulted in the end of indexation, and secondly, that, with the end of indexation, the final rate for long-term gains would be 0 per cent. The Chief Secretary's system creates a tax on increases which merely compensate for inflation. It is a wealth tax by the back door. Does the right hon. Gentleman agree?
§ Mr. DarlingThe right hon. Gentleman has shifted his ground remarkably from his position before the Budget. Before the Budget, he was anxious to make a mark. People were saying that he had not been saying very much. He went into print, and made a speech, which was reported in the Financial Times. He made it clear that he wanted to examine scrapping indexation and replacing it with a capital gains tax charge related to the time that an asset had been held. That is precisely what we are doing.
The point of detail that the right hon. Gentleman raises is one for the Standing Committee that will consider the Bill. If he deigns to join it, no doubt we shall hear from him. The principle of introducing a capital gains tax that is based on the time an asset has been held is absolutely right, and is widely supported. Once the indexation system is phased out and we move to a tapered tax, the system will be far simpler, and it will encourage people to hold on to assets in the long term. I am sorry that, once again, the Conservative party is in isolation from the vast majority of people who have welcomed a useful tax reform.
§ Mr. David Kidney (Stafford)Before we leave capital gains tax and small businesses, has my right hon. Friend received any representations about the interaction of the new tapers and the phasing out of retirement relief? Is he aware that there is a blip, whereby people retiring from 607 small businesses face a big increase in their capital gains tax bill compared to how it would be if there were a longer phasing out of retirement relief?
§ Mr. DarlingI have not received representations to that effect, but I am aware that representations have been received in the Treasury. The National Farmers Union in particular has raised that point. When any system is phased out and a new one is introduced, there will inevitably be the blips to which my hon. Friend has referred. That is something that we can look at, but, if the existing regime is extended any further than we propose, it will add to complications in the present system.
We are trying to move to the new system as quickly as possible, consistent with the fact that people have made certain arrangements. The transitional arrangements we have made are fair to the vast majority of people. Most people want us to move to the new, simpler system as quickly as possible.
§ Mr. KidneyOn a more general point, the pre-Budget report was an excellent consultation process, and the working families tax credit was improved as a result. The consultation on individual savings accounts was excellent and full and resulted in improvements, but there was no consultation on the proposals for capital gains. Some of the difficulties that are now part of the debate might have been ironed out had there been consultation ahead of the Budget.
§ Mr. DarlingThere was no consultation as part of the pre-Budget report, but there was consultation on aspects of the capital gains tax system. As in other tax matters, the Government are happy to listen to representations. The Bill is about to go into Committee, where it will receive extremely lengthy consideration. I do not know whether my hon. Friend hopes to be on it, but if he is, he will have ample time to tell us about capital gains tax and to study each and every dot and comma of the Bill.
I should like to leave capital gains tax—
§ Sir Peter Tapsellrose—
§ Mr. DarlingI shall give way to the hon. Gentleman once more, then I want to make progress.
§ Sir Peter TapsellI am most grateful to the Chief Secretary for his courtesy in giving way to me a second time.
Broadly speaking, I very much welcome the general thrust of the capital gains tax proposals. However, the right hon. Gentleman said that people will be encouraged to hold assets long-term because of the 10-year rule. I argue that that is precisely the defect in the arrangements. It will distort economic decisions. One wants people to take economic decisions not because of tax considerations but because of business considerations.
I hope that, in Committee, the right hon. Gentleman will look at the philosophy behind that, because the successful national economies are those in which people move their assets around according to the demands of markets and profitability, and not to take advantage of some tax situation.
§ Mr. DarlingI understand the conflict to which the hon. Gentleman referred, which will always be present in 608 the tax system to some extent. The system that we propose is far better than the present one, where people with unrealised gains are fearful of realising them because of the comparatively high rate of capital gains tax that will be visited on them. I am sure that he and other hon. Members have come across a number of people who have perhaps invested their money in a business and want to move it on, who may have had their money tied up for many years, but who, being higher-rate taxpayers, face a substantial capital gains tax burden.
The philosophy behind our proposal is absolutely right. This measure, together with other measures we have introduced, will help especially the small and medium-sized sectors of business about which all hon. Members have expressed concern in debates on previous Finance Bills.
I should mention in passing that the Budget introduced a new university challenge fund, a public-private partnership that will provide £50 million in venture capital to help turn good research into good business. That, alongside the capital gains tax reforms, the reforms that will encourage research and development and the measures that will enhance first-year capital allowances, will help to build a productive base in this country.
Encouraging saving is an essential part of our strategy. The Bill introduces the new individual savings accounts, which make it easier for people to save. Extending the savings habit to more people is absolutely essential, given that more than half the population do not save. We now have a savings regime which is sustainable, unlike the previous system, and under which tax relief is fairly distributed.
We are also committed to protecting the environment. Clause 7 increases the road fuel duties in line with our commitment to an annual increase of at least 6 per cent. in real terms to help meet the targets agreed at Kyoto. For that, of course, credit must go to the previous Government, who were committed to increasing those duties by at least 5 per cent. every year. We have done a little more, but the Tories will no doubt welcome our continuation of that policy. Clause 16 reduces vehicle excise duty for lorries and buses that meet low emission standards.
We recognise that car ownership is necessary in many parts of the country, which is why we are consulting on new measures to reduce vehicle excise duty on smaller and more environmentally friendly cars, and encouraging the use of cleaner fuels such as ultra-low-sulphur diesels and road fuel gases.
§ Mr. Campbell-SavoursI am sorry to intervene again, but representations made to me in my constituency suggest that such diesel, which many people want, is unavailable. I have talked to colleagues in other parts of the country, and they have said the same. Are we going to press industry to ensure that it is made available, and, indeed, that it is stocked on garage forecourts in place of the usual diesel used by cars, rather than at the rear of garages where lorries might fill up?
§ Mr. DarlingI cannot speak for my hon. Friend's constituency, as it is a year or two since I was there, but I am happy to accept what he says. The Government can do many things, but distributing fuel to garage forecourts is not one of them. However, I hear what my hon. Friend 609 says. I hope that such fuels will become more widely available, not just in areas of dense population but in rural areas such as those which comprise part of his constituency.
§ Mr. Campbell-Savoursrose—
§ Mr. Swinneyrose—
§ Mr. DarlingI shall give way to my hon. Friend once more, and then to the hon. Member for North Tayside (Mr. Swinney); I shall then conclude my remarks.
§ Mr. Campbell-SavoursI am sorry, but I should like to press my right hon. Friend on another aspect of the problem, which is that four-star leaded fuel is now cheaper than unleaded fuel in many areas. Will he look into that, as it seems remarkable that four-star leaded fuel is often about the cheapest petrol?
§ Mr. DarlingI have not noticed that at all. In the brief recess last week, I travelled from Edinburgh to Stornoway, and paid particular attention to the various prices, because I knew that I would be speaking in this debate. I am bound to say that four-star petrol appeared to be more expensive than the unleaded petrol on which my car happens to run.
§ Mr. SwinneyOn his way to Stornoway, the Chief Secretary drove through my constituency. He will have noticed that it is a large rural constituency, where car use is absolutely essential. The Treasury is continuing the previous Government's policy on road fuel duties, but has it received any evidence to suggest that increasing the cost of petrol results in a decline in the use of vehicles? I should be interested to find out what evidence the Treasury has considered in that regard.
§ Mr. DarlingThe matter has been looked into. If fuel duties are increased, there is a reduction in car use and lower carbon dioxide emissions. For the sake of completeness, I confirm that I did drive through the hon. Gentleman's constituency, but, as it was the middle of the night and there was a driving snowstorm, I did not see very much of it. However, I congratulate the gritters who were out and about, even though it was 4 o'clock in the morning.
The Budget sets a clear path for this Parliament and beyond. Economic growth will move to a more sustainable level this year. Inflation is set to fall, with a new monetary framework that provides a more credible long-term approach than we have had in the past. Rigorous control of public spending has meant that we have been able to release more money this year for the Government's priorities in health, education and transport. We are increasing investment in London Underground, with a new public-private partnership. We are providing help for rural transport and many other changes. None of that would have happened but for the change of Government a year ago.
The Conservative amendment is in the name of the right hon. Member for Hitchin and Harpenden—none of his colleagues have put their names to it. He claims that 610 the Bill increases business taxation, but it does not, as it reduces corporation tax for large and small businesses. He claims that it reduces the incentive to save, but the individual savings account will encourage people to save. He has the gall to say that we are increasing the incentive for cross-border shopping in duty-paid goods, yet the Conservative Government were in power for 18 years and did nothing to address that problem.
The amendment claims that we are adding to the complexity of the taxation system, when we are simplifying it. It criticises us for failing to deliver an environmental strategy, when we have a clear environmental strategy to encourage people to use public transport and tax the use of cars and lorries that are environmentally damaging.
§ Mr. LoughtonWill the Minister give way?
§ Mr. DarlingNo.
The Conservatives have the impertinence to say that we are threatening to turn a golden economic legacy into a work-to-welfare programme. Many young people who are participating in the new deal are thanking the Government for an opportunity to get into work that they would never have had from the previous Government.
As for the golden economic legacy, that myth was exposed a year ago. The British people saw through what the previous Government had been doing for 18 years. They knew that, far from a golden economic legacy, the previous Government had created despair, and often economic failure rather than success. We have reinforced our commitment to economic stability. We are building a platform to provide for public services on a sustainable basis. We are showing our commitment and determination to modernise the tax and benefits system to make work pay.
The Bill is another step towards fulfilling our manifesto promises of a year ago. We are creating long-term stability, opportunity for the many and not for the few, and a country determined to lift its sights—a new ambition and a modern economy for the 21st century. I commend the Bill to the House.
§ Mr. David Heathcoat-Amory (Wells)I beg to move, To leave out from "That" to the end of the Question, and to add instead thereof:
this House declines to give a Second Reading to the Finance (No. 2) Bill because it increases business taxation, reduces the incentive to save, increases the incentive for cross-border shopping in duty-paid goods, adds to the complexity of the taxation system, fails to deliver an environmental strategy, and threatens to turn a golden economic legacy into a Work to Welfare programme.As the Chief Secretary to the Treasury said, this is the second Finance Bill of this parliamentary Session. It is worse than the first one and does nothing to repair the damage caused by last summer's Finance Bill. It is also one of the largest Finance Bills ever to come before the House, comprising 400 pages in two not very handy volumes.It is remarkable that, despite its extraordinary length, the Bill leaves out the centrepiece of the Budget—the welfare-to-work project. The working families tax credit that featured prominently in the Budget statement is not in the Bill. That proves that it is not really a tax credit. 611 If it were, it would be in the Finance Bill. Instead, it is another benefit that will be administered by the Inland Revenue. That is its only connection so far with the tax system.
There may be another better reason why the welfare-to-work proposals are not in the Finance Bill. Perhaps the Government are still trying to work out exactly how they should operate. In the debate following the Budget, we pointed out that the system will be extraordinarily complex to administer, will impose additional burdens on businesses and will have a large potential cost, which was not reflected in the Budget arithmetic. We also pointed out that there will be a big incentive for everyone to look after everyone else's children, rather than their own. Coupled with the restriction on the married person's allowance, that is a funny way in which to strengthen the family unit.
In a parliamentary answer since the Budget, it emerged that an extra 320,000 families will face a marginal benefit withdrawal—that is, an effective marginal tax rate—of more than 50 per cent. Perhaps a big rethink is going on about the welfare-to-work proposals.
The Bill, minus that central feature, is almost entirely about raising taxes and making them more complicated. This is a tax-raising Finance Bill. That is a breach of the promises made explicitly by the Prime Minister and the Chancellor of the Exchequer on behalf of the Labour party before the general election. They promised, in terms, that they would not increase taxation, and they have. More important, perhaps, is the way in which they have gone about it, which will do great damage to the economy by hitting businesses and savings.
The welfare-to-work project depends on jobs being created by firms. Governments do not create jobs—they are created by industry, firms, businesses and partnerships. Pushing people off the benefit system is not enough. There needs to be an equivalent pull of new jobs being created. The scheme will fail and will become a work-to-welfare system if the Government persist with their high-taxation strategy. Business taxes are set to rise by nearly £20 billion in this Parliament.
It is not just the extra tax burden itself—it is the complexity that goes with it. After the Finance Bill was published, the Financial Times commented on 9 April that
fundamental parts of the bill do not appear as primary legislation but as outline 'regulations'.The newspaper quoted the head of tax at KPMG, Mr. Ian Barlow, as saying:In corporation tax we are no further forward today than we were yesterday.He said that regulations were normally used for detail, but that this sort of material should be in primary legislation.Why does a Bill of this length not contain the detail—or, in some cases, even the main provisions—which companies need to plan their tax affairs? That ought to worry the House, because it means that vital tax matters—which go to the centre of the functions of this House—are being left for enactment by Treasury regulations. Another tax partner—this time from Coopers and Lybrand—commented:
I think we are getting perilously close to some constitutional issues".If outsiders are worried about the scrutiny process of this House, hon. Members should be worried, too.612 When the Financial Secretary to the Treasury winds up the debate, perhaps she can tell us why a 400-page Bill does not contain important provisions about new and existing taxes, which are to be relegated to subsidiary Treasury regulations that the House has not seen yet.
Apart from the increased yield from corporation tax—which will do its own damage—other business taxes are proposed by the Bill; for example, stamp duty. In his Budget statement, the Chancellor led us to believe that the increase in stamp duty was to be paid only by householders, and rich householders at that. In fact, three quarters of stamp duty is paid by businesses transacting business assets. Again, the Government are hitting the corporate sector, which is emblematic of their entire approach.
Taxes on property transactions are comparatively low, certainly by European standards. That is to our advantage—it is one reason why businesses migrate into this country and why we are an attractive centre for new businesses and investment. So what do the Government do? They spot a soft target and increase stamp duty, eroding our comparative advantage. In Brussels, that advantage is regarded as unfair tax competition, and our competitiveness is threatened by tax harmonisation, which will come about anyway—not because of Brussels, but because of the Bill.
The golden economic legacy—it is noticeable that even the Chief Secretary now refers to it—is turning out to be even more precious than we thought. As my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) said, all these measures are unnecessary. The Budget deficit has fallen further and faster than we planned, not because of anything that the Government have done, but simply because of the prudent—perhaps over-prudent—approach of the previous Government. Revenues are pouring in and the tax-raising proposals are unnecessary.
That applies not only to stamp duty, but to another proposed business tax that has been mentioned—the tax on diesel. That will be increased by another 12 per cent., which is more than the increase in the tax on petrol. The Freight Transport Association said:
The disproportionate increase in fuel duty for trucks has no economic or environmental credibility … The fuel tax increase will raise industry's transport costs by 2.5 per cent.The tax will hit industry and distribution when they are already suffering from the high rate of the pound and the erosion of their international competitiveness. It is also inflationary, as all goods and raw materials that have to be transported will incur those higher costs. As it was announced today that the Government have missed their inflation target for the 10th month out of 11, they should be seriously worried about Budget provisions that threaten further to raise inflation.The tax is not very bright environmentally. The Government are proud of the agreement that was reached at Kyoto in Japan to stabilise or reduce the emissions of greenhouse gases, but diesel produces less CO2, which is the main greenhouse gas, than petrol does. Why, then, is diesel duty rising further and faster than petrol duty? That is completely perverse.
I do not think that the Government have thought about the matter—they are in a muddle, and the Budget's environmental package is something of a non-event. That opinion is not mine alone; it is also the view of the 613 Treasury Select Committee, which, in its report on the Budget, expressed disappointment that the promised environmental Green Book had not appeared. It said:
The Financial Secretary to the Treasury said in July 1997 that the nextRed Bookwould be accompanied by a 'Green Book' setting out the environmental implications of government policy, but this did not appear.That is yet another broken Government promise. When the Financial Secretary responds to the debate, I hope that she will explain why she broke that promise and why the Government are increasing the tax on diesel, which, in terms of global warming, is more benign than alternative fuels.
§ Mr. LoughtonIf, like me, my right hon. Friend blinked when the Chief Secretary was talking about the supposed environmental package in the Budget, he will have missed it. For all the fury from the Deputy Prime Minister before the Budget about a target of 60 per cent. development of brown-field sites, is my right hon. Friend aware of a single measure in the Budget that will have made that target more realisable?
§ Mr. Heathcoat-AmoryMy hon. Friend is right: it is all talk and no action. That is certainly the case in the west country as well as in his constituency. All we get is more talk and more reviews. There are to be reviews on water pollution; on a possible aggregates tax; on energy use in industry; and on whether VAT can be reduced on energy-efficient materials. That is all for later; all we get now are tax increases. When the Chancellor hears the word "environment", he reaches for a tax increase.
Take the overall figure for fuel: the Chancellor says that we had a fuel escalator, and we did, but he has increased it and brought it forward. Fuel duties will now be increased by 6 per cent. in real terms. Added to the fact that the Government have brought forward the dates of the increases and made them more frequent, they will raise in this Parliament an extra £9 billion beyond what we planned, from fuel duties alone. That has nothing to do with concern for the environment and everything to do with building up a revenue reserve in the Treasury for spending later.
That does not hit only businesses; it is damaging to ordinary motorists, and especially to those in rural areas who run cars as a necessity, not a luxury. Ministers probably do not fill up their cars now that they are driven around by other people, but for our constituents who have to do so, the increases are a real burden. It is frankly an insult to tell them that in compensation they will be flicked another £50 million over three years for some gimmick on rural bus services. That does not go even a tiny part of the way towards compensating them for the increase in their transport costs.
We are not talking only about petrol. The duty on other fuels, such as heating oil, has gone up by at least 9 per cent. as well. So much for the Government's concern for the old, the poor and the cold in winter.
The central failure in the Government's economic strategy is the taxation on savings, which started in last July's Budget with the £5 billion-a-year raid on pension 614 funds. The Chancellor should at that time have been encouraging and giving additional incentives for savings, instead of which he taxed them. As a direct consequence, the entire strain of controlling inflation was transferred to monetary policy, leading to the five interest rate rises since the Budget.
The rise in interest rates has nothing to do with anything that my right hon. and learned Friend the Member for Rushcliffe did or did not do before the general election. He met his inflation target of 2.5 per cent. or less by the end of the previous Parliament. The present Government, by taxing savings, have caused the job of controlling inflation to fall entirely to the Monetary Policy Committee at the Bank of England.
§ Mr. Quentin DaviesIs not it clear that the Chief Secretary does not even believe himself the criticism that he has levelled at my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), that he did not put up interest rates when he should have done before the general election? If the Government had genuinely believed that interest rates were substantially too low, they would have put them up by more than 0.25 per cent. when they came to power; they would have put them up by 1 per cent. or 2 per cent., or whatever they thought the shortfall was at that time.
§ Mr. Heathcoat-AmoryMy hon. Friend makes an unanswerable point. If it is true that the Government thought that my right hon. and learned Friend the Member for Rushcliffe should have put up interest rates before then, why did they not compensate for the alleged failing immediately on gaining office? Instead, the Government attacked savings instead of consumption, which led directly to those five interest rate rises, which have now put an immense strain on manufacturing industry and exports, because of the strength of the pound.
§ Mr. Derek Twigg (Halton)I am interested in the right hon. Gentleman's comments about interest rates. Would he like to comment on the fact that during the 18 years that his party was in power, interest rates rose from 5; to 17 per cent.? Does he think that that gave our industry stability?
§ Mr. Heathcoat-AmoryIn the past few years, industry and Government have enjoyed a golden period of stability, in terms of exchange rates, interest rates and taxation, so we need take no lectures from the hon. Gentleman on that. We are debating what has happened since the general election; that legacy has been put at risk by a misplaced macro-economic tactic of taxing businesses and savings instead of anything else.
§ Mr. DarlingI, too, am interested in listening to the right hon. Gentleman, who says that we should have been taxing consumption. Which taxes on consumption would he have increased?
§ Mr. Heathcoat-AmoryThe right hon. Gentleman is wrong. I did not say that we should be taxing consumption. If he had not taxed savings, of necessity he would not have been in the position that he is in now, because, in macro-economic terms, savings are an alternative to taxation—they neutralise expenditure and consumption. Instead of attacking savings, he should have 615 provided additional incentives. That would have been an alternative strategy, and it was one that we were pursuing by the time that we left office.
The point before us now is that those errors and mistakes, which are clear and beyond dispute to outside commentators, go uncorrected in the Finance Bill. Piled on top of the £5 billion-a-year raid on pension funds we now have the botched introduction of individual savings accounts to replace personal equity plans and tax-exempt special savings accounts. If the Chancellor had wanted to reform those savings systems and vehicles, he could have done so. Instead, he was determined to have an entirely different system with a new name, so he has transferred all the costs and the organisational expense to the savings industry and savers by setting up a new instrument that is more expensive and less generous.
An annual limit of £10,800 of savings under TESSAs and PEPs will be reduced to £5,000, and the tax credit that goes to savers will be cut from 20 per cent. to 10 per cent. and then abolished altogether. After that abolition, there will be no advantage in saving through ISAs at all for any but higher-rate taxpayers. Therefore, where the Government get their 6 million extra low-income savers from no one knows. In addition, the expense of setting up the new accounts is entirely uncompensated for by the Government.
We welcome the Government's U-turn on some of their earlier intentions, but the damage has already been done, because everyone now knows what the Government really want to do. The message is, if one has a pension, the Government will tax the pension fund and, if one saves, the Government may well try to change the rules and restrict the benefit. Therefore, it is not surprising that in the Red Book the savings ratio is predicted to fall during the next few years.
On top of that, we have a new system of capital gains tax. Again, the Treasury Select Committee was scathing about it and observed:
We regret that the capital gains tax proposals were not included in the Pre-Budget Report; we recommend that the Treasury should give urgent attention to reducing the complexity of the new system of tapers.It is unusual and a great mistake to introduce a tax reform of such size and complexity without proper consultation, which is not simply saying to people, "Tell us what your ideas are for the reform of capital gains tax." With every other large-scale reform of the tax system, the Government have published proposals and invited outside commentators, practitioners and taxpayers to comment before draft legislation was put before the House. As the Treasury Select Committee stated, that is not what they have done in this case.The result is that we have a gigantic mistake on our hands—a capital gains tax system that is bafflingly complex. By some calculations, there will be 34 different rates, which will be expensive for taxpayers and for the Inland Revenue to administer. That will encourage people to lock into unsatisfactory investments for long periods, which is the opposite of what is required in a flexible, dynamic economy, when investments should flow and be diverted to places where they are needed at short notice. If inflation increases above the Government's predictions, we shall return to the situation where we are taxing inflationary gains all over again. It is a bad reform and we will amend it in Committee.
616 On the indirect taxes, the tax on casinos has been unnecessarily and dramatically increased. No consultation took place and the increase will hit foreign earnings, investment and employment—all things that the Government may need rather more in the years ahead. According to the Red Book, the balance of payments deficit is set to widen, so the Government will be looking for more foreign earnings, not fewer. It also predicts a decline in business investment in the years ahead, and the labour market could easily turn down later this year. Why tax an industry that brings in foreign earnings and has high investment and employment?
The other excise duties, on tobacco and alcohol, were all put up by more than we planned when we left office, and in the face of a growing problem of smuggling and cross-border shopping. In the pre-Budget report in November, the Government announced that Customs and Excise would review smuggling and fraud, which was done by the end of last year, but the findings have not been published. Inquiries as to the reason have simply met with the statement that the findings are confidential. So much for the White Paper, "Your Right to Know". According to the Government, we have no right to know about an important matter of public concern—fraud and smuggling.
§ The Financial Secretary to the Treasury (Dawn Primarolo)I am sure that the right hon. Gentleman would not want to mislead the House. What has been said about the review is that the personnel implications mean that it must be considered within the comprehensive spending review, and an announcement will be made. As he well knows as a former Minister, when Government documents are being worked on before publication, they are processed in that way. He has not been told what he has just told the House.
§ Mr. Heathcoat-AmoryAll that is very interesting, but why was it not put in the answer to my written question? I asked the hon. Lady when the findings would be published, but she did not refer to that subject at all, and simply said that there would be a review of personnel in due course. She did not even promise that the report would be published at that time, yet meanwhile the Government published a White Paper called, "Your Right to Know".
One thing is clear: we have no right to know what Customs and Excise has done on that issue, and the Government are making a bad situation worse, by raising those duties and increasing the differential between prices in the United Kingdom and those on the continent, and the incentive to shop abroad and to smuggle. I hope that when the hon. Lady replies to the debate, she will be able to give us an idea of whether and by how much smuggling and fraud are getting worse and being made worse as a result of the Budget proposals.
This Bill is built on the faulty premise that one can build a strong economy by raising business taxes and make people more self-reliant by taxing their savings. Despite the imminent large Budget surplus, the Chancellor is asking the House to pass higher, more damaging and more complex taxes. The Opposition will oppose them.
§ Mr. Robert Sheldon (Ashton-under-Lyne)The right hon. Member for Wells (Mr. Heathcoat-Amory) talked about a golden economic legacy. The only definition I can think of for that golden economic legacy is the absence of crisis. Each time a Conservative Government have departed and a Labour Government taken over, there has been a crisis. In 1974 there was a crisis, and when I entered the House in 1964 there was a crisis. If that is his new definition of a golden economic legacy, he is entitled to it, but when eventually my Government are replaced, they will leave a legacy rather better than those we got when taking over from previous Conservative Administrations.
§ Mr. John Bercow (Buckingham)Will the right hon. Gentleman give way?
§ Mr. SheldonI have only just started. I want to deal with some of the most important problems that we face.
I wish to highlight the balance of trade and the level of the pound. The complaints of manufacturing industry have been well documented. We have heard some today, and I am sure that we shall hear more. Exporters are frequently quoted, and their difficulties have been described in detail. We hear less about the consequences of the high pound for imports. I must declare an interest. I started my own company long before I came into this House, and I retain an interest in it. It is a manufacturer of household textiles and imports both raw materials and semi-manufactures as well as exporting manufactures.
Stability, particularly of prices, is important to all companies and is our watchword in dealing with our economic problems, as my right hon. Friend the Chief Secretary said. However, stability is needed in exchange rates, too. That is one of our major problems. A high pound brought many overseas exporters to establish a foothold in the United Kingdom market in the past and I think that that will happen again. The competition from imports made cheap by the 30 per cent. over-valuation of the pound has long-term effects. That is the real danger. Overseas suppliers are given a free incentive to compete for jobs and market share in this country. The greatest danger of the high pound is not just the loss of exports and the increase in imports but the fact that it allows longer-term adjustments. That may be taking place now.
The Red Book gives a range of 3¼ to 3½ per cent. for the increase in exports in 1998 over 1997, and 7½ to 8 per cent. for the increase in imports. We often hear about the problems of our exporters, but we do not hear so much about British manufacturers who are suffering from increased competition from imports and who will suffer from growing competition. We have learned this lesson in the past. Once importers get a hold in this market, they are reluctant to let go. They make considerable expenditures and once they have the market, they hold on. That happened with the motor car and white goods industries. It will happen again, but, I hope, to a more limited extent. The questions posed by the high pound are whether companies will pull out of an overseas market and whether overseas suppliers will find attractions in moving into the United Kingdom market. Once such longer-term decisions are taken, they are hard to reverse. That is the penalty that we may be paying. What we can do about it?
618 First, the Budget and the Finance Bill must be produced with the decisions, and anticipated decisions, of the Monetary Policy Committee of the Bank of England very much in mind. If the Chancellor wants lower interest rates and a lower pound, there are certain actions that he can take. The Treasury Select Committee's excellent fourth report—I pay tribute to my hon. Friend the Member for North Durham (Mr. Radice)—put it well. Among the ways in which the Chancellor could achieve those objectives are raising taxation on consumption and increasing savings markedly. That would have an effect on the Monetary Policy Committee and could have an effect on reducing interest rates.
The freedom to operate the levers of economic policy that my right hon. Friend the Chancellor may require has always been limited by international considerations. That is a factor to which we are well used. Now that the Bank of England is responsible for setting interest rates, that limited freedom is more circumscribed, but that does not mean that it does not exist. Quite apart from his decisions on taxation and savings, he still has certain powers that he could yet use. If he wished, he could invoke his authority and alter the inflation rate target. He is unlikely to use that power, for very good reasons. If he were ever to use it, it would have to be with great circumspection.
Much more reasonably, the Chancellor could make use of the prescription offered by my hon. Friend the Economic Secretary when she reminded the House that the instructions given to the Bank of England were
'to maintain price stability and, subject to that, to support the … economic policy'of Her Majesty's Government,'including its objectives for growth and employment."'—[Official Report, 11 November 1997; Vol. 300, c. 801.]Maintaining sustainable growth is one of the criteria that the Bank must take into account. She went on to describe the mix of elements that make up macro-economic policy.We all know that the fundamental aim of the Monetary Policy Committee is to achieve a set level of inflation and abide by it, but that is not the only thing that it has to consider. If it were convinced of the need to increase interest rates to maintain the inflation target, under the agreement, price stability and particularly the goal of 2.5 per cent. inflation would be decisive. There is no question about that; that is the instruction to it. However, the situation is not, and frequently cannot be, quite so clear. Under such circumstances, the mix of elements that make up macro-economic policy, and the other objectives of growth and employment, come to occupy an important position.
The Monetary Policy Committee is divided four-four, with a casting vote required. Alan Greenspan never had to face anything like that. That is a sign, if any were required, of the uncertainty about price stability. The criteria not just of inflation, but of growth and employment, come to occupy a rather more important position. When there is uncertainty, the Chancellor must use his greater knowledge of those other matters. He is then—perhaps only then—in a strong position to remind the committee of the importance of the other objectives of growth and employment in respect of which the level of the pound should play a crucial role in its considerations.
We do not know what pressures the Chancellor may be putting on the Governor. Such matters are naturally confidential. In my time, there were frequent meetings 619 between the Governor of the Bank of England and the Chancellor of the Exchequer. They were -generally conducted with good sense and reason, and I assume that the same sort of thing happens today. It would be surprising if the Chancellor did not make his view known to the Governor, particularly in the context of such division in the committee. I hope that that is taking place at present.
We have to compare the need for stability in prices with the need for stability in exchange rates. There is an advantage in stability in both. One cannot say that stability in prices is the end of all our economic problems. There are many other areas in which stability is important. My right hon. Friend the Chancellor is right to press for price stability, but we need stability in exchange rates, too.
We need stability because, whereas at one time one could operate in the foreign exchange markets and hedge, it is not so easy to do so now. Although the markets are much more complex and can provide the answers, it is industry that does not provide the answers. We have an international trading situation that is much more like the home trade now. People buy and sell on a continuing basis, not just on a batch basis. In those circumstances, it is much more difficult today to know exactly what will happen a few months ahead and engage in hedging.
The Government obviously have to be concerned with manufacturing industry. Manufacturing industry has been suffering, whereas services have been doing well until fairly recently. I am very conscious of the importance of manufacturing industry, because my constituency suffered greatly between 1979 and 1981, when I lost 30 per cent. of the firms in my constituency. It was a massive tragedy, caused by the $2.40 pound and 17 per cent. interest rates. They were good firms—firms such as exist in every country. Successful countries have all those kinds of firms. The question that we have to ask ourselves is how we deal with the value of the pound and the possibility that the euro will play a rather more important role than people have perhaps anticipated.
I wish that economic and monetary union had not gone ahead, but it is there. I am increasingly finding it pointless to argue about whether it will be a success. It is happening, and we have to realise that. We have to face the reality. I know that we are not very good at facing reality, but this is one of the realities that we have to face. Although I wish that EMU had not happened, we have to adjust to that reality.
Not only is EMU happening, but it will be successful in the only way in which it can be. It is going to survive. That is one criterion for its success. We may not like it, but it is going to be there. Too many interests are involved for it to fail. Of course there will be fudge, more fudge, still more fudge and yet more fudge. We know all that. There will be fudge over the principles, but its survival is assured. We have to adjust to that survival. If we wish, we can make our stand on principle. Good luck to those who want to do that, but it would have been better by far to have joined. At any rate, we should now announce our intention to join at some stage, so that we have some effect on the changes that will be made.
It would have been better by far to have been able to influence the most important decisions. The most important decisions are taken at the beginning of the life of an institution. We shall largely be excluded from them, but if we state our intention to join, we shall have some 620 involvement in the important discussions that lie ahead. An announcement of our intention to join EMU would also have an effect on interest rates and, therefore, on the value of the pound.
That is about all that I have to say. I am impressed with the decision on child benefit. It is a move in the right direction. I note that our economic policy is a cautious one. That is not a bad way for a new Government to commence our economic management, but as confidence in the operation of our economy grows, I look forward to wider initiatives.
§ 5.3 pm
§ Mr. Malcolm Bruce (Gordon)I shall make detailed comments about some clauses in a moment, but I want to start by making some more general points about the Budget, especially in the context of the Treasury Committee report, which has been referred to and which was published yesterday.
As hon. Members may know, I do not support the report and have produced an alternative. I regret the need to do so and it is not something that I have done lightly. I have been accused by some of using the report to make party political capital. They should bear it in mind that I have been a member of the Committee for three years and, in that time, including the run-up to the general election, I saw no need to issue a minority report and did not do so.
I issued a minority report yesterday because I felt that the majority report was not up to the high, constructively critical standards of previous reports. I made it clear to my colleagues on the Committee that I was unhappy with what they were doing.
There is much in the Budget that I and my colleagues welcome. The reformed individual savings account proposals are an improvement and a justification for the new consultative pre-Budget report and the process that goes with it, which the hon. Member for Stafford (Mr. Kidney), who is also a member of the Select Committee, has mentioned. I would, however, like to issue one caution: I hope that in future Ministers will not use the pre-Budget statement as an excuse for a mini-Budget, because that would obscure its fundamental purpose.
The code for fiscal stability is welcome, as are the reforms to the structure of national insurance contributions. Those are real changes, which I welcome and we shall support, but it is not the job of the Select Committee or Members of Parliament simply to be cheerleaders for the good policies; we have a responsibility to provide constructive and rigorous scrutiny of the more controversial and questionable parts of the Budget, and of errors and omissions in the Budget process.
There should have been proper scrutiny of the public spending plans in relation to the Budget, including evidence from the Chief Secretary. It is nonsense to argue that there is nothing to scrutinise, which is the Government's line. There is a new set of spending figures for 1998–99, even if they are very similar to the Conservative plans. Precisely that issue should be examined. Questions have to be asked. Will the new money for education and health be enough? What explains the revisions to the estimates of the reserve? How will the tax credits be accounted for—a matter that the 621 Conservative spokesman, the right hon. Member for Wells (Mr. Heathcoat-Amory), has also raised and has not been dealt with? Why have the Government broken their promise to keep to the 1998–99 control total?
Why is there not the usual spending information in the Red Book, including the tables of real public expenditure? The Red Book does not stand alone; it can be made sense of only by looking back over previous Red Books. Why? What factors are framing the Government's plans for their future spending policies? I have tried to promote debate on that, but the Government have been reluctant to enter into it. I believe that we should be asking such questions.
I am worried that there is little scrutiny of the Government's plans to deal with the millennium computer problem in the public sector. It has major expenditure implications that need to be considered carefully. By the by, the last time I spoke in the House on the matter was when the Chancellor of the Duchy of Lancaster made a statement that the Government had the matter under control and that it would cost about £350 million. He then admitted that that was not the total Government expenditure and that the Liberal Democrats had done a calculation of £1 billion, which he thought was about right.
We revised our figure at Christmas time. A few weeks after Christmas, the Prime Minister said that he thought that the cost would be about £3 billion, which ironically was exactly the same as the Liberal Democrats' revised figure. So is it the Liberal Democrats who are working out the cost to the Government or do the Government have their own costs? If they do, should we not have an assessment of what the cost of dealing with the problem will mean to the public finances and to Government Departments? Unfortunately, the Select Committee report ignored that. No report should ignore such serious factors.
The other problem with the Select Committee report is that it has rather fudged the issue of fiscal policy. The Chief Secretary said that there had been a tightening of fiscal policy, but this is an ex post situation and most of it has had little impact on cooling consumer demand. The tightening has come not so much from a conscious act of government as from higher nominal revenues because of higher inflation and the extra taxes the Government have introduced, not on consumers, but on businesses and savers. No one can pretend that the effects in the short term of such a fiscal tightening are the same as a tightening directed against consumer demand; it does not have the same rebalancing effect. The Confederation of British Industry's comment on the Budget is that:
It remains our view that had last year's fiscal tightening been more immediate and obvious in its effects on the consumer, rather than focusing on investors, the interest rate dilemma now facing the Bank of England would be less acute.That missed opportunity helps to explain the strength of the pound and the unbalanced nature of the economy, which is the biggest threat to continuing recovery.We need a great deal of scrutiny of the new tax credit policies. There is no question but that those policies will help some people in low-paid work, but there is a question as to whether employment as a whole will benefit. There are a host of issues relating to fraud and cost-benefit analyses of each of the credits that need to be monitored. That is why I am concerned that the amounts of tax credit 622 should not ultimately be hidden away as merely a reduction in the tax take, but should appear explicitly, with a periodic review of the effects on employment, the additional expenditure involved and the losses through fraud. It is the Government's flagship policy, yet they have not explained any of those matters, nor have they been effectively challenged to do so.
The Budget was weak in respect of the environment. The promise made in the House on 10 July last year by the Financial Secretary—to provide a Green Book to complement the Red Book—has simply been broken, which reflects the Government's giving a lower priority to environmental issues. We have not yet seen the policies that are needed if the Government's manifesto pledge of a 20 per cent. cut in carbon dioxide emissions is to be met. Frankly, there is growing concern that the Government are backsliding on that pledge and it was of specific concern that the Budget referred to an 8 per cent. target, rather than one of 20 per cent. I hope that we will be given clear assurances on that point.
I shall now address some of the clauses with which we shall deal in the early stages of our consideration of the Bill. The Government's new proposals on capital gains tax—which give us cause for concern—have been mentioned. We do not share the view that it is necessarily economically sensible to restructure capital gains tax in the manner proposed or that artificial incentives should be offered to encourage longer-term asset allocation decisions. As has been said, that can lead to inefficiencies and to abuse of some of the claimed benefits.
The changes to capital gains tax have been widely criticised. The Chief Secretary implied that they had been overwhelmingly welcomed, but they have been criticised by the tax profession generally and by the Institute for Fiscal Studies. The only complimentary comment that I have heard was made by an accountant who told me that the additional complication would substantially raise his fee income. It is always worrying when accountants make the biggest gain from tax changes. The Government should consider constructively amendments to their proposals, given that they have not consulted publicly on them. The Government did consult on and were sensible enough to listen to advice in respect of individual savings accounts and were commended for doing so by all parties in the House and by people outside. It is an example that they should follow and I hope that, on the issue of capital gains tax, they might show similar flexibility.
We also oppose the fuel duty rise. If there is to be confidence in and public support for a large environmental tax shift, it must be seen to be a shift and not a smash-and-grab raid on motorists; yet that was what drove the previous Government and how the policy continues to be operated by the current Government. The Liberal Democrat policy of increasing fuel duties has always been clearly balanced by a commitment to use the revenues to reduce vehicle excise duty on fuel-efficient cars to a nominal £10 per year. Shifting the tax off ownership and on to use makes good economic sense. I welcome the Government's commitment to consider making such changes in future Budgets, but they should acknowledge that they got the balance all wrong in this Budget. There is no offsetting benefit—the change is simply a tax hike dressed up as a green tax.
On clause 25, it is still argued that the rate of income tax should have risen by 1p in the pound to fund specific education investments. The need for greater investment in 623 education is underlined by the Treasury's confirmation that education spending as a percentage of gross domestic product has already declined under the Labour Government, from 4.7 per cent. to 4.5 per cent., which directly contradicts the Prime Minister's pledge that it would increase as a share of GDP year on year. We should be told why it has declined and how the Government intend to redress the situation.
On clause 30, we are concerned by the continuing adverse impact on business cash flow of the advance corporation tax changes. On clause 152, I shall probe later the issue of auditing Budget assumptions. To me, it is clearly not for the Treasury to specify which assumptions should or should not be audited; that is a role in which the Treasury Committee should have a clear responsibility. It is not for the Chancellor to write his own script as to which aspects of policy he wishes to have monitored. That matter should be determined objectively by those who have to comment on the policy and on developments in it.
I hope that the Government will address those points and that, in future, we shall be able to create a regime in which what the Government do is set down clearly in advance and monitored objectively and that the Government can be held effectively to account. They are a powerful Government with a large majority. That tends to breed arrogance—the Government certainly do not take kindly to criticism—but Governments need effective and constructive criticism if they are to do their job well and policy mistakes are to be avoided. The Select Committees of the House have an important role to play and it is a matter of regret to me that, on this occasion, the Treasury Committee has fallen short of what it could and should have done and of what I hope it will do in future.
Opposition Members, whether in the House or in Select Committees, should avoid either synthetic opposition—I would dispute accusations that anything in my alternative report is calculated in that fashion—or undue sycophancy. The reality is that the Government need to be held effectively to account by the House and we intend to ensure that they are made properly accountable and required to explain their actions and future intentions. We are determined to ensure that the Government's economic policy is subjected to proper scrutiny.
§ Mr. David Kidney (Stafford)I am a newcomer to the Treasury Committee, so I was grateful to the hon. Member for Gordon (Mr. Bruce) for explaining the reason for the lateness of his report. In my innocence, I had thought that it was late because he could not deliver it in time for the deliberative meeting of the Select Committee.
I am pleased to support the Bill. It gives effect to many of the good things that were announced in this year's Budget, welcome examples being promotion of enterprise and jobs and support for families, including children—and I was pleased to hear the earlier welcome for the increase in child benefit announced in the Budget. I especially support three processes that were either started or continued in the Budget and which are worthy of our support.
The first is the process of openness and consultation throughout the Budget process. No longer is there to be the secrecy of the—understandable—purdah of Treasury Ministers, with representations going into the black hole and announcements made with great glitz on Budget day. 624 Instead, there was a pre-Budget report made available to the public, interested parties and hon. Members, so that they could contribute before Budget day. There was consultation on individual savings accounts, which greatly improved them prior to the launch. We should all welcome those changes and I hope that the Treasury Committee will be involved in the consultation process in future years, because it is an extremely desirable process.
The second process that I applaud is the intention to make work pay. Last year, very early in their term of office, the Government acted on their intention to make work pay by introducing the windfall tax and the welfare-to-work programme. Many people said: "The windfall tax is a one-off tax; what happens when the money runs out?" The Government are thinking long term, even in the process of getting people into jobs, and planning ahead, as is evidenced by the working families tax credit and the new child care tax credit—excellent inventions.
To the criticism that high marginal tax rates for people on benefits are a disincentive to work, I say that it was ever thus. In 18 years of Tory government we had shameful marginal tax rates in excess of 100 per cent. for people receiving family credit, housing benefit and council tax benefit. Where was the sense of urgency to remove that shameful disincentive for people on benefit to return to work? Where now is the welcome from the official Opposition of a Government who have abolished marginal tax rates in excess of 100 per cent., and who have greatly reduced the number of people who have a marginal tax rate of more than 70 per cent.? The Opposition have had to reach down to a marginal tax rate of 50 per cent. to find an increase in the number of people suffering from what is colloquially called the poverty trap.
§ Mr. Steve Webb (Northavon)Following the example that the hon. Gentleman cited—of someone on family credit, housing benefit and council tax benefit—does he accept that the new combined marginal rate is probably 96 per cent.? Does he really think that that makes any difference?
§ Mr. KidneyI shall answer in a moment, if the hon. Gentleman will bear with me.
To reduce the number of people on those marginal tax rates, it is vital to tackle not only the working families tax credit—to which the Budget illustrations relate—but those other contributions to the disincentive, of which the hon. Member for Northavon (Mr. Webb) reminds me: housing benefit and council tax benefit.
If the hon. Member for Northavon has read the notes of evidence given at meetings of the Treasury Committee, he will see that I pressed the Chancellor of the Exchequer on why the present review of housing benefit and council tax benefit could not have been completed in time for his Budget announcement. Having since met officials from the Department of Social Security, I understand why the Government were not ready with that announcement then. However, it is important, as the hon. Gentleman said, for a marker to be put down for the reform of housing benefit and council tax benefit to be completed soon, to remove all aspects of the disincentive for those on benefit to get into work.
The third process that I welcome as part of the Budget process is the new openness on stability and prudence, with the publication of the code for fiscal stability. 625 How welcome it is that the Chancellor positively invites the Treasury Committee to help in the assessment and monitoring of the Government's performance against the code for fiscal stability. How much more confident and open could the new Labour Government be in managing the economy?
All those are very positive things. I hope that the Chief Secretary will forgive me if I move on to the capital gains tax reforms, the issue that most interests me in the Bill. I believe that the Government have not got the reforms right. As the hon. Member for Gordon said, outside the Chamber there is widespread criticism of them.
Briefly, the reforms are as follows. For capital gains by individuals, not companies, there is to be an end of the indexation system—the taking out of the gain that is attributable only to inflation. Instead, a 10-year tapering scheme is to be introduced. The retirement exemption is to be phased out and a distinction is to be drawn between business and non-business assets.
Interestingly, by contrast, capital gains by companies are dealt with separately, through corporation tax. As part of the Budget process, the Chancellor announced a review of the taxation of companies' capital gains—to be followed, this summer, by consultation about the review.
The tapers for individuals' capital gains differ according to whether the asset is a business or non-business asset. For a business asset, the rate for a gain would be 100 per cent. in year one but only 25 per cent by year 10. A higher-rate taxpayer, holding an asset for 10 full years to benefit from the 25 per cent. taper, would pay an effective rate of only 10 per cent. instead of 40 per cent. For non-business assets, the taper is much less steep, only reducing from 100 per cent. in year one to 60 per cent. in year 10, giving a higher-rate taxpayer an effective tax rate of 24 per cent. only.
All those changes are welcome. As the Chief Secretary said, the differentiation of business and non-business assets is meant to encourage the longer-term holding of assets by businesses. Before the Budget, the business community and the Confederation of British Industry strongly advocated that approach. In a representation to the Government, they argued that encouragement should be given through the tax system.
It is forecast that capital gains tax receipts for the whole of next year will be £2.2 billion—about the equivalent of 1 p on the standard rate of income tax. The change from the indexation system to the taper system is cost neutral; it does not affect the forecast.
I do not know how many hon. Members have read their CBI briefing for today's debate; it discusses capital gains tax. The CBI's criticism is noticeably more restrained than the criticism that, according to the hon. Member for Gordon, has been received from other quarters. That is very likely, because the CBI urged the Government to change the system to encourage long-term holding of business assets. However, the briefing contains several very constructive arguments, which I urge the Government to consider in the light of, possibly, making changes in Committee.
§ Mr. Geoffrey Clifton-Brown (Cotswold)Does the hon. Gentleman welcome the fact that capital gains tax is already the most complicated of all taxes to administer; 626 that the Budget measures will make it even more complicated; and that cost compliance of capital gains tax to the ratio of tax gained is the highest of any tax and will be higher still when the changes are made?
§ Mr. KidneyThe hon. Gentleman anticipates my next point. I do not welcome a complicated system, but he is right to say that the present system is complicated. At the moment, we appear to be replacing one complicated system with another. How do we progress to the least complicated system? My answer is that we publish our proposals for widespread consultation and hope that we emerge with a better tax proposal as a result of the consultation process.
As the Treasury Committee's report said, that change to the tax regime was not in the pre-Budget report. It seems odd that it has been announced that the system of corporate capital gains will be subject to review, and therefore consultation, but the capital gains system for individuals will not. It seems odd that the changes are cost neutral—which implies that there is no need to rush the changes and introduce them earlier.
It seems odd that there is no public debate about the removal of the inflation element before it is removed. I could easily respond—supporting the Government, as is my instinct—that because we now have stability and, consequently, long-term low inflation, we need no longer worry about taking inflation into account.
As the hon. Member for Cotswold (Mr. Clifton-Brown) just said, the system of tapers is complex, with different systems for business and non-business assets. There are tests to determine whether an asset is a business asset, and whether an asset is an individual's or a company's asset. All that is complex indeed.
§ Mr. John Burnett (Torridge and West Devon)Does the hon. Gentleman agree that there has been absolutely no simplification of the change? The complexity of the crucial test that he mentioned—to decide whether an asset is a business or non-business asset and, at the time of disposal, whether associated with retirement—will be compounded by the new tax rules.
§ Mr. KidneyI accepted with great pleasure my right hon. Friend the Chief Secretary's assurance that, in Committee, the Government will be responsible and listen to the case for changes that would improve the proposals.
That brings me to my final point about how consultation might improve the system. It relates to whether there should be a nil rate at the end of the taper for people who hold assets for a long time and the effect that the present system has on business people who are about to retire.
My right hon. Friend the Chief Secretary was shrewd, not having heard the representation himself, to guess that, when I asked about representations about businesses where people are due to retire and affected by the interaction of the new system for tapers and the phasing out of the retirement relief, I was talking about farmers.
To make the obvious political point, farmers have had a dreadful time in recent years. No doubt, in due course, we shall see to what extent the previous Government were responsible for that, but this is a bad time for farmers to be faced with another problem, on this occasion with regard to planning their retirement. 627 One of the points made by the CBI in its briefing is that some businesses may favour early retirement to ensure that the full retirement relief is received now rather than risk the period of phasing out when, because of the blip I mentioned earlier, people will pay a higher tax than they would otherwise have done. I hasten to add that that applies to small businesses, not large ones.
§ Mr. Clifton-BrownThe hon. Gentleman raises an important point. Does he agree that the new rules will have a serious distorting effect in the agriculture industry and, far from bringing down the average age of the entrepreneurs—the farmers—who run those businesses, they will encourage people who should retire to hang on until the end of the 10-year taper so that they obtain the maximum capital gains tax relief once retirement relief has been abolished?
§ Mr. KidneyNo, I do not agree. The last thing I said was that some people will retire earlier than they had intended if the planned changes go through in their present form.
Consultation would improve the capital gains system proposed in the Bill. Because consultation has not yet taken place I suspect that the work in Committee will be harder than it might have been. We might even have to come back to the matter later.
The right hon. Member for Wells (Mr. Heathcote-Amory) said that there would be great opposition to the Bill in Committee. I caution him by referring to just one sentence in the CBI's briefing, which says:
Entrepreneurs with substantial gains on business assets should benefit, with the steep downward taper offsetting the phasing out of retirement relief and abolition of indexation in most—though by no means all—circumstances.I caution Opposition Members to beware throwing out the baby with the bath water.
§ Mr. Quentin Davies (Grantham and Stamford)I have been becoming increasingly depressed about Britain's economic prospects since last year's Budget, and my pessimism has been greatly exacerbated by what we have heard this afternoon. The Government are not so much confused yet honestly thrashing around for solutions, which would be something, as arrogantly cocooned from reality; they are willing prisoners of their own illusions.
That is no hyperbole. I noted down a number of extraordinary remarks made by the Chief Secretary this afternoon, and I am sure that Hansard will show that I did not note them down wrongly. For example, the Chief Secretary spoke about the prospective abolition of advance corporation tax and the abolition of the dividend tax credit, and referred to those changes as "removing distortions from the tax system". Those changes do precisely the opposite.
First, the changes introduced into Britain's corporate tax system the biggest distortion of all, which is double taxation. Henceforth, company shareholders will pay two lots of tax. They will pay corporation tax within the corporate vehicle and they will then pay income tax on the dividends that they receive on which they will have no relief. Therefore, double taxation has now been introduced. If that is not a distortion, I do not know what is.
628 Matters are made worse by the fact that the effect of that is to tax distributed profits at a higher effective rate than retained profits. That is a double and an extremely dangerous distortion because it reduces the mobility of capital in the economy. It encourages companies to hoard profits. It creates an artificial incentive for them to diversify unduly—to search around desperately looking for some way to invest money within the company or to take over other companies—rather than saying that, if they can no longer make their threshold rate of return on their current range of activities, it would be a good idea to pass the money back to their shareholders so that, through the mechanism of the financial markets, that money can be recycled to other parts of the economy where there may be a demand for it and where it can be used to greater effect.
A double distortion has thus been introduced into the economy by this ill-considered measure. But what is worse is that the Government do not seem to realise what they have done. They seem to believe that, rather than creating a distortion, they have eliminated one.
The Chief Secretary this afternoon referred to the company tax changes as "reducing the corporation tax burden". When I heard him say that across the Floor of the House—not, apparently, as a joke, or even as a sick joke, but as a statement of fact that he appeared to believe—I thought that this was a most extraordinary day. What he is actually doing is what a dishonest loan shark does when he tells some poor little old lady that he can refinance her borrowings at a cheaper rate: the apparent nominal interest rate is lower, but there is a far greater cost to the loan because all the cost is loaded into the front-end charges. That is exactly the kind of statement that the Chief Secretary made this afternoon when he said that his measures reduced the corporation tax burden. I am sure that I wrote down his words correctly. In fact, the measures do nothing of the kind; they do exactly the reverse.
The Chief Secretary need only turn to page 152 of the Red Book, where Treasury officials have calculated for him the exact net impact of his changes in the corporation tax regime. On the one hand, he has slightly reduced the rate of corporation tax; on the other, he has introduced a new system of quarterly payments of corporation tax. That will fall heavily on companies. There is such a thing as a time value of money. I imagine that the Chief Secretary has heard of the time value of money. If money has to be paid out earlier rather than later, a cost is involved. The Treasury officials have calculated the net position. They have calculated the additional burden on companies of paying corporation tax on a new quarterly basis, on an advanced basis—the whole of corporation tax, not just the old ACT on an advanced basis—set off against the reduction in the nominal rates of corporation tax.
The facts are there in black and white on page 152 of the Red Book. In the next financial year, the first full year of the new regime, 1999–2000, the net return to the Treasury from the new measures—the net cost to business—is £1.6 billion. In the following financial year it is £2 billion. So much for reducing the corporation tax burden. It has not been reduced but increased. There can be no marks either for deceiving the House or for deceiving oneself on that important point.
The Chief Secretary also said that he had done nothing to reduce the incentive to save. I give him full credit for not doing some of the unbelievably stupid things that were 629 proposed in the Government's consultation document with regard to PEPs and TESSAs. I am glad that, as a result of the outcry in the House and the pressure from the public at large, the Government were led to think again on that one.
The Chief Secretary has not reduced the incentive to save as much as he might have done if he had gone ahead with his original ideas—I give him that—but one does not have to be an arithmetical genius to work out that he has still reduced it. Any citizen or taxpayer will be able to put a maximum of £5,000 a year into the new individual savings accounts. The PEPs regime, which is still in force, allows a taxpayer to put in £9,000, and he can also have a TESSA. The scope for tax-sheltered savings has been more than halved, which can hardly be described as not reducing the incentive to save.
The fact that the reduction is not as great as it might have been had other, particularly ill-conceived, proposals been implemented does not mean that there has been no reduction in the incentive to save through the tax system: there has been a material reduction. Irrespective of whether it is a good idea to reduce the incentive to save, we should not deceive ourselves, and the Chief Secretary should not be in the business of deceiving the House, about such an essential point. That is what depresses me.
People in an aircraft would be concerned if they were in a storm or if the pilot momentarily lost his way, but they would have greater grounds for concern if it was clear that he was deceiving himself into thinking that he was not in a storm or had not lost his way. That is the position in which this country unfortunately finds itself: the Government are not only doing stupid things but do not even acknowledge what they are doing. They do not even appear to have read what is in the Red Book, which the Treasury itself publishes.
The worst aspect of fiscal policy in the past year has been that the Government made an initial but fundamental economic error on coming to power. I drew attention to it at the time, and drew the Chancellor's attention to it when he appeared before the Treasury Committee. Many of my colleagues have drawn his attention to it since, and we go on doing so. Rarely have predictions been so rapidly, so unfortunately and so fully fulfilled as those which we have made on this matter.
The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) holds a position of great distinction, not only because of his long service in the House and in government, but because he is a business man, as he reminded hon. Members. He spoke about the great difficulties that manufacturing industry faces. They are entirely gratuitous.
I clearly remember telling the Chancellor last July that, if he did not take fiscal measures to bring about the necessary dampening in demand through a reduction in consumption spending, either investment spending would have to be reduced or the internationally traded sector would bear the burden. The right hon. Member for Ashton-under-Lyne described what has happened over the past few months—imports have risen and exports have fallen—and correctly drew the attention of hon. Members to what the Red Book says on the subject. Treasury officials have taken that into account in their predictions.
630 Last summer, the Government embarked on a course that led inexorably to the problems from which we are now suffering.
§ Liz Blackman (Erewash)Given the significant fiscal tightening in the past two Budgets, which most economic experts support, what additional fiscal measures does the hon. Gentleman advocate?
§ Mr. DaviesI am glad that the hon. Lady asks that question because of the rhetorical advantage that I may enjoy in the debate, but I am not glad for the interests of this country. She is under the same illusion as Treasury Ministers, and her comment allows me to deal with the misuse of the word "tightening". I am grateful to her for conveniently bringing me to the worst of the many illusions that the Chief Secretary is under—his complete misunderstanding of the concept of tightening. He congratulated himself because the Government have achieved a fiscal tightening of 2 per cent., but he does not seem to understand that whether that tightening—a reduction in the public sector borrowing requirement—is achieved through a reduction in expenditure or through an increase in particular taxes makes all the difference to demand management.
I must tell the hon. Lady, if she is seriously interested in the answer to her question, that if, for example, the Government spent £1 billion more on social security benefits, almost all the money would go into consumption because people in receipt of benefits have a high propensity to consume and a low or even negative propensity to save. On the other hand, the impact on demand would be less if the Government reduced the higher rate of income tax, because the beneficiaries have a slightly lower propensity to consume and a higher propensity to save. Money would go to people with a very high propensity to save or a low propensity to consume if the Government decided to redeem a gilt issue prematurely, which would have a low impact on increasing demand.
Those measures would all have some effect on increasing demand, but if the Government taxed savings—they have done that over the past year—that would have an entirely positive effect on demand. People's propensity to save would be reduced and they would reduce their aggregate savings ratio—in other words, they would increase their aggregate consumption ratio—and demand would increase. If the Government carry out a so-called tightening by taxing savings because they think that the economy is overheating, rather than solving the problem, they will make it even worse. Consumption spending would be increased and savings would be reduced. The Government would then have to use other measures to reduce consumption spending.
Having failed to reduce consumption spending in such a way and having acted perversely by taxing savings and thereby making the problem a great deal worse, the Government have placed the whole burden of stabilising the economy on to monetary policy. The Monetary Policy Committee of the Bank of England has had to increase interest rates by one and a quarter percentage points since the election, which has had the effect on sterling to which the right hon. Member for Ashton-under-Lyne referred. Demand has indeed been squeezed, but only in a narrow but important sector of the economy—the internationally traded sector, which exports or competes with imports. 631 The most extraordinary thing is that Labour Members traditionally used to present themselves as the defenders and promoters of manufacturing industry, but they are the architects of the worst squeeze on that industry in my adult lifetime. If that is not a perverse effect of ill-conceived economic policy, I do not know what is. Hon. Members must conclude from the debate that the prospects for the British economy under such management are grim indeed.
§ Mrs. Helen Brinton (Peterborough)I shall concentrate my remarks on environmental matters in the Budget, which have been discussed previously.
I believe that the packages of measures announced in the Budget go a long way to making the car civilised. Whether we drive or not—I cannot—we all enjoy the freedom that motor cars bring, but they will bring precious little if we encounter gridlock on the nation's roads, or if our environment becomes so degraded by emissions that there is a clear and present danger to us all.
In line with our pledge, we increased road fuel duty by 6 per cent. above inflation, which will discourage unnecessary journeys and encourage the use of fuel-efficient vehicles. The carbon savings from that are likely to total 1 million tonnes a year by 2001. We must remember that road traffic is the fastest growing source of CO2, which causes adverse climate change.
Nobody likes paying more tax, but we must judge the Budget in the round. It contains tax concessions that send strong economic signals to ordinary motorists to switch to new and more environmentally friendly transport. Next year a system of graduated vehicle excise duty will provide for a rate of £100 for the least polluting cars. The Chancellor announced a reduction of up to £500 in vehicle excise rates for low-emission lorries and buses, and that is a great advance. In addition, the duty on road fuel gases, such as liquified petroleum gas or LPG, has again been frozen because of the environmental benefits of those gases compared with petrol and diesel. Out, too, goes the perverse provision that an employee has to pay more income tax because his car has been converted by his employer to run on LPG. I am pleased that my early-day motion 705, which was tabled before the Budget and which called upon the Government to encourage the use of LPG, has received such support throughout the House.
There is no reason why a substantial market for road fuel gases should not be created in the United Kingdom, particularly among fleet operators where the potential for environmental benefit is greatest. There are mature markets in countries such as Japan and Holland, which have more than 1 million and 700,000 LPG-fuelled vehicles respectively. Those countries have mature markets and we do not because the overall fiscal framework in the United Kingdom has not encouraged substantial conversion. I hope that that will change.
I have a couple of points which I hope will be regarded as positive contributions to achieving the correct overall balance for the framework. First, in some respects, the tax system is still pulling in a different direction from the main thrust of Government policies. It is essential to give fleet owners a further boost so that they can clearly see that it makes economic sense to convert to road fuel gases. The concessions that I advocate do not have significant revenue implications because at present there are not many conversions. That is because, on balance, the fiscal framework is still unfavourable.
632 It would be helpful if fleet owners could write down 100 per cent. of the capital cost of conversion in the first year. There is a precedent in the 100 per cent. write-down allowance on scientific equipment. Another concession—also virtually cost-free in terms of revenue forgone—would be to zero-rate for VAT purposes work on the conversion of company car engines. Of course the Treasury does not like the setting of precedents, but the Government are pledged to recasting the tax system for the environmental good. I should like to hear the Minister's reaction to those modest proposals.
Secondly, the Chancellor has said that, later this year, he will introduce regulations to implement the £500 vehicle excise duty reduction. I hope that he will evaluate the regulations carefully because, by setting heroic targets for reductions in particulate emissions, he could achieve reductions lower than those that would flow from more modest targets. The meeting of what I understand were the Government's original targets would involve considerable outlay—about £4,000 for a particulate trap and about £28,000 for a new gas engine. In such circumstances a £500 reduction is not a great incentive. However, diesel oxidation catalysts can reduce particulate emissions by up to 60 per cent. That is rather lower than the Government's target, but, at £1,000 to £1,500 per catalyst, the technology is appreciably cheaper. For this admirable scheme to work, and to meet achievable targets, we must strike the right balance between vehicle excise duty reduction and the cost of environmental adaptation. I am sure that the Minister will strike a careful balance.
§ Mrs. Jacqui Lait (Beckenham)I commend the speeches by my hon. Friends in discussing and assessing monetary and fiscal policy. I do not intend to spend time adding to their comments. The message that I have received from listening to the Budget statement and reading the Bill is that a great deal of the thinking behind fiscal and monetary policy is directed towards the establishment of long-term investment by using the tax system. Using the tax system will distort business decisions because they will be made to gain tax advantage, and that will not be in the long-term interests of the economy.
It is disappointing that the Government have not grasped the blindingly simple fact that the maintenance of low inflation will encourage long-termism in investment decisions. It is sad that time and again, the Government miss their inflation target, and I am concerned that in the long term, inflation will creep up again, thereby ensuring that the gains in changing people's attitude in favour of long-term investment will disappear. At the same time, investment decisions will be distorted by the provision of tax incentives.
An important issue that takes up only a small part of the Bill, and to which the Chief Secretary did not refer at all, is the smuggling and bootlegging of tobacco and alcohol. The Treasury's continuing policy and that of the previous Government, who made a similar mistake which I pointed out on numerous occasions, is cavalier because it fails to recognise the significant impact on society of the bootlegging industry, which undermines the rule of law. If society does not respect the law and its institutions, it will become less than civilised because the rule of law is the basis of society. 633 If the Treasury, of all institutions, and its Ministers adopt a cavalier attitude towards the importance of the rule of law, we shall have to consider seriously the long-term implications for society. Criminals are being made of innocent people, crime is being encouraged and respect for the police and customs is being reduced.
We are bringing violent crime to parts of the country that previously never expected it. The Treasury is responsible for creating protection rackets and killing the small businesses from which it expects taxation in order to be able to carry on its spending programme. It is responsible for introducing cheap tobacco and alcohol to the young and the vulnerable, the very people who, in their health policy, this Government are trying desperately to ensure do not have access to cheap tobacco and alcohol, let alone have access to them at all.
The Government are trying to ban advertising to ensure that youngsters do not have access to tobacco. They talk about increasing the age at which people can buy tobacco legally. At the same time, they are countenancing—and in this Budget, indeed, increasing the attraction of—the sale of cigarettes and hand-rolling tobacco to people who are on low budgets and who are most vulnerable to cheap tobacco sales.
This problem exists not just on the south coast and around London, but throughout the country. It exists in all the big cities and in the countryside. Unless we recognise that youngsters can get hold of cheap tobacco and that there is a huge difference between the cost of tobacco sold legally and the cost of tobacco sold through bootlegging and smuggling, any policy that we may wish to introduce—and, believe me, as a non-smoker, I recognise the damage that tobacco can do to people's health—will never encourage people to give up smoking. We are increasing the number of people who smoke and the Treasury is responsible.
When we consider the undermining of the rule of law, we have also to consider the institutions that try to enforce the current untenable situation. Customs and Excise is increasing the resources that it gives to trying to prevent innocent people from committing a crime: bringing in tobacco and alcohol cheaply. Along with the police, who throughout the country are having to enforce some of those laws, it is having to ensure that people are caught and prosecuted. In that way, its resources are diverted so that it cannot go on and fight the good fight against drugs, the results of which have been publicised in the past week.
Customs and Excise is losing the fight against drugs. Meanwhile, it is having to put money, resources and staff into trying to stop people bringing in tobacco and alcohol, which most of us recognise is not a crime. Tobacco and alcohol are accepted by society; drugs are not. Drugs are already under the control of the big international gangs. If the Government wish the big international gangs to get control of the tobacco and alcohol industry, that is their decision. They have to recognise that it is already more profitable to smuggle hand-rolling tobacco than cannabis. If heroin producers go on producing at the rate that they are alleged to be producing, it will not be long before smuggling hand-rolling tobacco is more profitable than importing heroin.
634 I cannot imagine that any responsible Government would wish that situation to be created, but that, in essence, is what the Treasury and Treasury Ministers are prepared to tolerate unless and until they deal seriously with the difference in customs duties.
The only way in which the Treasury can deal with the problem is to do exactly what was done in the 18th and 19th centuries—reduce duties. There are good arguments for saying that, if duties are reduced, revenue will go up because what is currently illegal becomes legal, businesses pay more tax and less is lost through benefit fraud. There is a huge amount of benefit fraud. Many people on benefits are the mules in this trade.
We have to deal with this as a problem of society, and deal with it promptly because the longer we bury our heads in the sand and the longer the Treasury believes that it is a matter of revenue only, the longer the problems of the 18th and 19th centuries will continue into the 20th and 21st centuries.
§ Mr. Peter Brooke (Cities of London and Westminster)Is my hon. Friend aware that the decision of Pitt the Younger, who was, of course, a Tory Prime Minister, to reduce the duties, which eliminated smuggling at a stroke and greatly increased the revenues in the way in which she describes, coincided exactly with the introduction of the Consolidated Fund Bill, to the great benefit of the nation's resources?
§ Mrs. LaitI am grateful to my right hon. Friend because the parallels between the Pitt Administration and their solution of the customs problem and today are strong.
Adam Smith made comments that remain penetratingly true:
The smuggler would have been in every respect an excellent citizen had not the laws of his country made that a crime which nature never meant to be so".I beg Treasury Ministers to start to recognise that we have a crime on our hands for which the Treasury is responsible and which it can cure. Unless it does, the rule of law is seriously threatened.
§ 6.6 pm
§ Ms Margaret Moran (Luton, South)I should like to deal with some of the issues in the Bill that affect small and medium enterprises, particularly in my constituency, and Conservative Members' allegations that the Bill increases business taxation. I have to ask how widely some Conservative Members have consulted on the Budget and thus the Bill's contents. Perhaps some of them should get out a bit more. if they had, they might have reflected on the fact that many Labour Members have been out consulting on the Budget and have written to many of their local businesses. Their responses do not reflect some of the comments in the debate.
I have consulted my local businesses, including members of the Sikh community, many of whom run very small businesses. It is worth hearing some views from the business community on Luton's front line. The responses that I have received from that community show that it welcomed the Budget's initiatives, which will help small and medium enterprises in particular.
This is a progressive package of measures to improve incentives to investment, create jobs and cut red tape. Those businesses welcomed a radical reform of the tax 635 and national insurance system, which will not only mean that low-paid workers will immensely benefit from changes that will allow them to earn £81 a week before a penny of national insurance contribution needs to be paid, and that 1 million employees will be taken out of the employer-NIC charge, but make it easier for employers to create new jobs and thereby complement our new deal initiatives. That is significant for an area such as Luton. Youth unemployment in some wards in my constituency is almost double the national average, so any initiatives in the Bill that give incentives to employers to create new jobs are extremely welcome.
As those small business told me, the simplification of the system by such moves as the alignment of the national insurance contribution system to the Inland Revenue by the abolition of the NIC "entry fee", and the alignment of the lower earnings limit with income tax personal allowances is welcome.
The biggest cheer was for the fact that, as a result of the Bill, the level of corporation tax will be the lowest in Europe. That is particularly so for smaller businesses where the rate will be cut to about 20 per cent. That represents a major boost to tax profits and encourages investment. We can add to that the improvements to cash flow from the abolition of advance corporation tax, and an extension of enhanced allowances to small and medium-sized enterprises for investment in plant and machinery. All that will mean that small and medium-sized enterprises will pay about £140 million less tax in the next financial year. That is significant for smaller businesses.
I recognise that Luton is traditionally associated with larger businesses and the support given to larger industries in my area by the Treasury team is welcome. However, I regret the fact that our traditional image as a town of large industry was, sadly, transformed over the 18 years of the previous Government so that now the service sector and smaller businesses predominate. It is regrettable that the Opposition do not recognise the impact of their boom-and-bust economic policies on towns such as mine. We have seen the closure of many large and significant industries as a direct result of their policies. A little humility is called for from them when we discuss the impact on businesses.
Luton retains a significant small and medium-sized enterprise sector, and it is significant that the Budget has been particularly welcomed by that group. My comments were borne out by a recent business breakfast—I thank my right hon. Friend the Chancellor and his colleagues for attending. That breakfast was attended by many of the small and medium-sized businesses in Luton, including a company called Dairybom. Those of us who enjoy pre-prepared pizzas and lasagnes after a hard day's work in the House may not realise that much of the grated cheese for those meals comes from that company in Luton. It had a turnover of £12.5 million last year and was named business of the year in Bedfordshire's business excellence award. The turnover is projected to grow to £15 million this year. It is a significant contributor to the local economy.
Dairyborn gave its response to the Budget and the contents of the Finance Bill. It said:
We are particularly encouraged by the capital allowances and absolutely delighted to see a reduction in corporation tax.636This Budget provides just the right level of incentive for investors interested in becoming involved in businesses like Dairyborn and the confidence to leave their money to grow with us in the future. It is a much-needed boost to British business.The company also believes that the Budget and the Bill will encourage greater investment in the future. It says:
it will encourage us to buy machinery we might otherwise have deferred for another year. It is important for any business to invest for the future. It is one of the things that we as a country have not been too good at.We have not been too good at that for 18 years, which is why the Budget and the Bill are welcome. The measures will be an incentive to long-term investment and job creation. These examples, based on the consultations that I and other Labour Members have had with their businesses, show how out of touch Conservative Members really are.Conservative Members referred to their concern at the threat that the Bill poses to what they call the golden legacy of the economy in favour of the welfare-to-work programme. What golden legacy? As I said earlier, in areas such as Luton, the legacy is one of significant unemployment, particularly youth unemployment.
The new deal and the incentives to job creation that will come about as a result of the Bill are significant to us. Recently, I helped to launch our new deal in Luton. It got off to a flying start at Luton airport because a significant contribution to the new jobs is coming from our major airlines such as Debonair, EasyJet, Monarch and Britannia, all of which have enthusiastically signed up to the new deal proposals. Even before the new deal was launched, almost 30 young people were hammering on the door of the local jobcentre, desperate for the opportunity to participate in what will be a significant contribution to their opportunities and the opportunities for the local economy.
I welcome the measures in the Bill because they will act as an incentive for investment for our small businesses. The Bill is welcomed by the small and medium-sized enterprises in Luton and will encourage greater job creation and opportunities.
On a general point, Labour Members have mentioned some of the issues that we hope will be addressed in further discussions on the Budget, particularly alleviating the poverty traps that we inherited from the ramshackle benefit and economic policies of the previous Government. I hope that we shall see some progressive measures to tackle the problems of the poverty trap in relation to housing benefit, to which other hon. Members have referred.
I finish by making a plea. As a result of the Government's economic policies, we shall have a golden opportunity in that we shall see a fall in the public sector borrowing requirement to £5 billion in 1997–98 and to zero in two years. I should like to suggest, and hope, that in a future Budget or Finance Bill, we take that golden opportunity to further reinforce our themes of investment in the long term and job creation by using that favourable PSBR level to consider a switch to a general Government financial deficit. That would open opportunities for much greater investment, particularly in affordable housing, which could tackle the poverty trap and social exclusion and increase job creation. It could be done by such a move and by the introduction of quasi-corporations for housing. That idea has been worked on for over four years by many 637 in local government. It is in line with the Government's thinking on long-term investment and job opportunities, and I hope to welcome it in a future Finance Bill.
§ Mr. Shaun Woodward (Witney)The Finance Bill is a huge Bill in all sorts of ways, not least because of the huge number of betrayals that it sets out for the British people. It is a remarkable Bill for several reasons. It is remarkable because of the number of taxes that it raises, including a tax on fuel, stamp duty, company car fuel scales, taxes on landfill, tobacco and casinos, and holiday insurance—the list is endless.
The Bill is also remarkable for what is not in it. The centrepiece of the Chancellor's statement was the welfare-to-work policy. There is not a clause on it or a mention of it in the Bill, despite the fact that we heard great claims for it in the Chancellor's statement.
The Bill is also extraordinary because, yet again, the Labour Government are using instruments to accrue power in other places. They are taking power away from the House and are giving it to the Treasury. They are using secondary legislation to allow the Chancellor and his colleagues to take the power of debate away from the House. On those grounds, the Bill is to be deplored.
The Bill has come about, the Government tell us, through a great deal of public consultation. Quite what the difference is between public consultation and leaks and trails I am not quite clear with this Government, but on the issues on which they might have conducted considerable public consultation, they have singularly failed. The manufacturing industry and the service sector are screaming for help because of the dangerously high pound. It is beginning to cost jobs throughout the country, yet the Government claim that there is nothing they can do to save these companies from imminent bankruptcy. The Government want to put into place a welfare-to-work project, yet they preside over a mechanism that is throwing people out of work and on to welfare.
The Government could and should take action, but their Bill takes no action that will be helpful to the employment prospects of manufacturing industry. Manufacturing industry is teetering on the brink of technical recession. Output has decreased by 0.5 per cent. in the three months to February. We await the figures for March, which will come out in May, but we suspect that they will be as bad or worse. The Red Book expects export growth to be more than halved in 1998, from 8 per cent last year to 3.25 per cent. this year.
The Budget is presented in the context of new ambitions for Britain, yet much in the Bill will destroy the ambitions of many in Britain. It will hurt their employment prospects and it will not enhance the companies for which they work.
The Chief Secretary spoke of inheriting a mess. The truth is that it is the Labour Government who are creating a mess. Let us take the centrepiece of the Government's plan to make it easier to take on lower-paid employees. Next year, the Government will revamp the employers' national insurance regime, with cuts in national insurance contributions for lower-paid employees, yet because the Government want revenue, they will raise employers' national insurance contributions by 25 per cent.—from 638 10 per cent. to 12.2 per cent.—and employment costs will increase. It is an incentive to pay people lower wages and it will, of course, produce unemployment.
There are two areas of taxation on which I shall dwell: corporation tax and capital gains tax. The Bill has much to say to the corporate sector. The big issue for many large companies will undoubtedly be the move from the current corporation tax payment system to a new quarterly payments regime. It will hurt those companies and cost them billions of pounds. The companies affected will face a cash flow hit in the next few years as a result.
Although the cut in the corporation tax main rate to 30 per cent. offers some compensation, there will be a doubling up of payments as the transition to the new regime begins. The change will hurt because the transition takes place over three years. It will provide the Exchequer with an additional £7.5 billion in cash, which will be taken away from the companies that will provide investment and employment for the future. Companies in this country will be severely hit.
The change will hurt because it will create problems in relation to payment. The proposed clause on interest is of major importance because quarterly payments are to be based on estimates of the current year's liability. Companies will have to project taxable profits for the year at the half-year. That means an additional burden on business. The change will hurt because it will place particular difficulty on seasonal businesses, such as retailers, throughout the country. The Government seek to mask all this by pushing forward their cut in corporation tax. Conservative Members support tax cuts, but we do not support the additional costs and burdens in the Bill that far outstrip the cut in corporate taxation.
We have long argued for simplification and fairness in capital gains tax and, indeed, the removal, when appropriate, of indexation. The Government's proposals achieve neither of those strategic goals. Indeed, up to 34 different rates of capital gains tax are proposed. That is hardly simplification in any form. Given the Government's failure to hit their own inflation targets, it is not much comfort for the investor either.
The Chancellor made much of his attempt to encourage enterprise and long-term investment. It is difficult to see how an additional £20 billion of taxes piled on by the Government in this Parliament will assist enterprise. It is difficult to see how a family now £1,000 a year worse off because of the Labour Government's higher taxes and mortgage interest payments will be able to make long-term investments. If the Chancellor is so keen to promote investment and enterprise, why has he so massively increased the taxes and burdens on business in the past two Budgets?
Capital gains tax, as proposed, will be difficult to administer. The introduction of tapering of CGT from 40 per cent. for higher-rate taxpayers after two years to 24 per cent. after 10 years will make calculating tax liabilities a horrendous job. It will distort the gains. Taxpayers making regular or frequent investments in shares or unit trusts will not benefit fully. Until all the shares are sold, the full gain from holding them will not be received.
The proposal is deceptive because longer-term rates in the Bill may look attractive, but indexation that decreases tax to take account of inflation will be frozen in April. Tax will have to be paid even on gains that result purely 639 from inflation. The justification for scrapping indexation, the Chancellor tells us, is the low-inflation environment in which the economy now operates.
In being so critical of the previous Government, the Chief Secretary appears to ignore the inheritance of the Labour Government. Inflation was at its lowest sustained level in nearly 50 years. However, we can never be complacent because even at its current level of 3.3 per cent., inflation still has an impact. With inflation at 3.3 per cent. a year, in 10 years, the value of £100 today would be cut to £71.50—a fall of 28.5 per cent. That is a noticeable drop. The Chancellor is, perhaps, too confident in his belief that the days of inflation are over. What if—in the wake of the proposed changes—inflation rises faster than the value of assets? Long-term investors will pay capital gains tax on purely nominal gains.
The saddest thing is that the proposals for capital gains tax are based on a fallacy—that long-term investors are morally correct and that short-term investors are morally incorrect. It is a sign that the Government do not understand the nature of a successful market. This tax measure will come between the investor and his or her economic decision. It will distort the investment market—it is not by chance that we have heard the words "distort" and "distortion" used repeatedly this afternoon. It will encourage investors to leave money in inefficient companies, so those companies will retain equity capital that is far cheaper than they probably deserve. Investors will effectively be subsidising inefficient companies. The measure is a distortion, and a dangerous one at that.
The Bill gives effect to the Government's second Budget. It comes from a party that promised not to raise taxes or interfere in the market yet, clause by clause, the Government demonstrate their will and their determination to break every promise, to raise taxes wherever they can and to interfere and distort the market at every opportunity. Just as they have broken their promises not to raise taxes, so they have broken their pledges on spending.
In his Budget statement, the Chancellor made much of the extra money that would be found for the health service, so why is my local community hospital in Burford facing closure, and why are 25 per cent. of the beds at the next nearest hospital about to be removed? The answer is that the Government have broken their promise to the people of this country to find the extra money that they said would be found for the health service. Indeed, they have found less. The Chancellor assured the House that extra money would be found, but Burford community hospital will close, not because the people want it closed, but because the Government have not considered the people's needs. The Government have wilfully turned their back on the people of Burford and Witney.
The Finance Bill is not unique, but resembles much of the Government's other legislation. It is misleading and damaging, and very destructive of Britain's long-term interests. It piles tax on tax, it savages the incentive to save, it distorts the workings of the marketplace and it gives even more power to the Treasury, which will be able to operate without the need for debate in the House.
This is a bad Bill and a deceptive one, whose detail betrays the fact that the Government are not ambitious for Britain—and certainly not for a single Britain—but ambitious for power and ambitious to get their hands on the people's money.
§ Mr. Ross Cranston (Dudley, North)The hon. Member for Witney (Mr. Woodward) is a professional spinner—that is how he made his money before 1 May. I do not know whether he wants us to judge him on the results of 1 May or on his speech today, but the latter was largely a collection of fantasies. The hon. Gentleman is also distinctly off message, because his Front-Bench colleagues were saying that there had not been a fiscal tightening on the household sector, yet his line was that we were somehow taxing people until the pips squeaked.
I regard the Bill as one more piece of the jigsaw or larger picture which the Government are completing to ensure a fairer society and economic stability and to promote enterprise. I shall concentrate on those three points.
It is clear that, unless we can achieve economic stability, we shall not have stable levels of growth and employment. The Government have taken several important steps to promote stability, including giving operational independence to the Bank of England. As we heard again yesterday in the debate on the Bank of England Bill, Conservative Members are still not happy with that measure, although, as the hon. Member for Witney just proved, they do not seem able to agree among themselves.
§ Mr. WoodwardIf the hon. Gentleman is so proud of the achievements of the Monetary Policy Committee of the Bank of England, does he support the current level of sterling against the deutschmark, and does he hope that it stays at that level?
§ Mr. CranstonFirst, the pound has gone up 25 per cent. but most of that increase happened under the previous Government. Secondly, the market's judgment of the change involving the Bank of England has been distinctly positive. The hon. Gentleman need only read about the long-term interest rates reported daily in the financial press to see that favourable judgment.
§ Mr. Nick St. Aubyn (Guildford)Does not the hon. Gentleman recognise that, at the time that the Bank of England was given its putative independence, there was a change of Government? We moved from minority government to a Government with a large majority. That would always have an effect on long-term gilt yields by increasing investor confidence, regardless of which party won the election.
§ Mr. CranstonThat is certainly a very good argument for what the people did on 1 May when they voted us in with a massive majority. I thank the hon. Gentleman for making that point for me.
In addition to taking the specific step involving the Bank of England, the Chancellor reaffirmed the inflation target in the Budget. He also elaborated once again the golden rule on Government debt, and set out the achievements that we have been able to reap so far in terms of deficit reduction. The figures in the Red Book show that, in the coming years, there will be a substantial reduction in Government debt. That is how it should be at this stage of the economic cycle. The comprehensive spending review will make medium-term planning so 641 much more feasible, but I shall concentrate on the code for fiscal stability, the key principles of which are set out in clause 151.
We heard much from the Opposition about the lack of consultation, about irresponsibility and so on, but the code for fiscal stability shows yet again the Government's commitment to transparency, stability, responsibility and fairness. Not only a Red Book but an economic and fiscal strategy report, and a debt management report, will be published. They will all be underpinned by the work of the Comptroller and Auditor General who will report on these matters and on the underlying assumptions. All this strengthens the credibility of fiscal policy and debt management policy and contributes to economic stability. Of course, none of this was mentioned by the right hon. Member for Wells (Mr. Heathcoat-Amory); instead, he revealed the parsimonious spirit which we so often hear from him.
Never have a Government consulted so widely, and I shall cite just one example. Clause 42 sets out the move away from a cash basis for calculating profits for trades and professions. When the issue was first mooted, it was clear that it had serious implications for the Bar and especially for younger barristers. The Bar Council and several people, including myself, made representations to my hon. Friend the Financial Secretary about the measure's serious disincentive effects on young barristers.
§ Mr. BrookeDoes the hon. Gentleman feel that the decision to publish the notice about the clause to which he is now referring after the House had risen for Christmas was in line with the transparency to which he was paying tribute in clause 151?
§ Mr. CranstonThe right hon. Gentleman makes the point that the notice was published just before Christmas, but that is in the nature of things. Following that, there have been extensive discussions, which are continuing, and the Bar Council has been brought into the discussions about how the final measure will be drafted. Last week, it appeared to be reasonably satisfied with the recognition in clause 43 of the position of younger members of the Bar.
§ Mr. Dominic Grieve (Beaconsfield)Is the hon. Gentleman satisfied with the basic principle that has been adopted by the Government in respect of the taxation of professionals? The press release published by the Inland Revenue states that the old system was not a form of tax avoidance, but the changes in respect of timing will bring in an extra £40 million a year. How does the hon. Gentleman square that with the inordinate amount of time and bother that will be foisted on every professional taxed under the old system by the change to the new one?
§ Mr. CranstonIt is unfortunate that the hon. Gentleman has just wandered into the Chamber. If he stays and listens to the debate, some of his questions will be answered.
Let me move on to the second theme of the Bill—the promotion of enterprise. My hon. Friend the Member for Luton, South (Ms Moran) mentioned the benefits of the reduction in corporation tax for industry in her 642 constituency. Earlier in the debate, mention was made of the abolition of advance corporation tax. The method of payment of corporation tax will be especially beneficial to smaller companies. The continuation of the enhanced capital allowances will also benefit small and medium-sized enterprises.
Like my hon. Friend the Member for Luton, South, I have met representatives of industry in my constituency. In the past three weeks, I have attended two meetings organised by Dudley chamber of commerce, which is especially active. [Interruption.] I am glad that the hon. Member for Solihull (Mr. Taylor) agrees. Under the dynamic leadership of Charles Hanmer, it is a very go-ahead organisation. The hon. Gentleman may be interested to learn that members of the Dudley chamber of commerce have met more Ministers in the past 12 months than in the past 12 years. They are especially grateful for visits from my right hon. and hon. Friends at the Department of Trade and Industry.
Members of the Dudley chamber of commerce are not natural supporters of the Labour party, but they were most complimentary about the three measures in respect of corporation tax, enhanced capital allowances and the small business concession in respect of the abolition of advance corporation tax.
I should like to devote some time to two measures. The first concerns capital gains tax and the taper relief that will be introduced under clause 119. It is part of a larger review of capital gains tax. Opposition Members have suggested that it breaches an economic rule that the tax system should never be used to affect behaviour. Where have they been for the past 18 years if they do not think that the tax system is constantly used to influence economic behaviour?
Those of us who have advised on transactions will often realise that a particular transaction is tax-driven, and there is no doubt that it is accepted that the tax system is used to try to influence behaviour, and that business decisions are influenced by tax considerations. We do not live in a perfect world, where all decision making by businesses is tax-neutral. I support the sentiments behind the clause.
I should mention one technical aspect that no doubt will be discussed in detail in Committee—the approach adopted in respect of tapering. In other countries where an attempt has been made to encourage the long-term holding of assets, legislation has tried to distinguish between assets held for speculative as opposed to investment purposes and that has given rise to a great deal of tricky decision making by tax tribunals and tax courts. It seems to me that the tapered approach in the Bill, under which time is used as a measure of investment, is the right one.
I should mention that, at my meetings with Dudley chamber of commerce, concern was expressed about the high value of sterling. Dudley is in the centre of an important manufacturing region—the black country—and there is no doubt that there are such concerns.
However, at the second meeting, I was able to discuss some of those concerns in greater detail, and, on closer examination, it transpired that they were not as catastrophic as some commentators had made out. First, some of the transactions engaged in by members of the chamber of 643 commerce were conducted in dollars. Of course, the movement of the pound against the dollar has not been as significant as it has against the deutschmark.
§ Mr. David Ruffley (Bury St. Edmunds)Could the hon. Gentleman give the House an estimate of the number of jobs that might have been lost in the manufacturing sector in his constituency as a result of the Government's high-pound policy?
§ Mr. CranstonThe members of Dudley chamber of commerce whom I met did not report any job losses. They intimated that there might be job losses in future, but at this stage none has been reported to me.
Let me develop the theme a little further. Secondly, it transpired from my more detailed discussions with Dudley chamber of commerce that many members of the chamber had not used in the past, and were not contemplating using, the hedging devices that can provide some protection from fluctuating currency values. I shall write to my right hon. Friend the President of the Board of Trade suggesting that the Department considers a more active policy of making known to smaller businesses the financial products that can be used as protection against currency movements.
§ Mr. Clifton-BrownWhat on earth would be the point of encouraging the DTI to adopt those instruments, when the Chancellor has said that the pound is at an unsustainably high level? Finns adopting the instruments would merely put themselves in a loss-making situation if the pound decreased.
§ Mr. CranstonThe hon. Gentleman has just wandered into the Chamber, and I was talking about the DTI helping to promote the use of particular instruments.
Incidentally, one of the chamber members at the discussion said that one of his customers had recently told him about a future deal in euros. At the suggestion of this member of the chamber—who happened to be a local bank manager—the manufacturer was going to consider a hedging device. I hope that the hon. Member for Cotswold (Mr. Clifton-Brown) now appreciates that these devices are available, and some can be used in future.
The third point that members of the chamber had to concede was that the United Kingdom economy is an open economy, and that there was instability as a result of the single currency moves in Europe and the economic crisis in Asia. At the end of the discussions, the catastrophic predictions which some members of the chamber were echoing transpired not to be as serious as first suggested.
I wish to refer to fiscal tightening in terms of stability. We pledged that we would not increase personal rates of taxation. I know that it is difficult for Conservative Members to understand the notion of adhering to election promises. In terms of maintaining the trust of the people, there is no way we can break that promise. That is one limit on what we can do.
§ Mr. RuffleyThe Labour party did not merely say that it would not increase tax rates—it went further. The Prime Minister said that no tax increases were implied by his 644 party's programme. Would the hon. Gentleman care to answer that point? Is not the Labour party guilty of a colossal betrayal of the trust of the British people?
§ Mr. CranstonWe need no lectures from the hon. Gentleman on betrayals of the trust of the British people.
There has been a substantial fiscal tightening, and the hon. Member for Witney referred to a huge fiscal tightening. The only positive suggestion we have heard from Opposition Front Benchers is that somehow we should encourage saving—but that is precisely what our proposals for ISAs are designed to achieve.
I wish to refer to fairness—and again I know that it is difficult for Conservative Members to understand that notion. The Bill is set in a wider context in terms of making work pay, our new deal proposals, our Green Paper on welfare reform, and the working families tax credit proposals.
The Bill proposes a new regime for transfer pricing. For many years, multinational enterprises have used transfer pricing as a method of tax minimisation. Clause 106 is a genuine attempt to deal with this matter by introducing the notion of advance pricing arrangements, whereby multinational enterprises can enter into particular arrangements with the Inland Revenue.
Part I promotes the use of low-emission fuels and vehicles—my hon. Friend the Member for Peterborough (Mrs. Brinton) addressed that issue. I have heard nothing from Conservative Members about the provisions in clauses 47 and 48 for promoting millennium gift aid. Clause 47 deals with gifts which manufacturers might make of machinery to universities in third-world countries, or gifts that members of the legal profession might make of law books to universities in developing countries. Clause 47 will promote such assistance. [Interruption.] Conservative Members do not seem to appreciate that altruism is a virtue promoted by the Bill. Clause 48 deals with gifts of money for relief in poorer countries.
In terms of fairness, promoting enterprise and guaranteeing economic stability, the Bill makes a substantial contribution, and I support it.
§ Mr. Edward Davey (Kingston and Surbiton)I may be the only Member in the Chamber—I hope I am not—who found the speech by the hon. Member for Dudley, North (Mr. Cranston) rather entertaining. The notion that the high level of sterling is not causing problems for the British economy is, frankly, laughable. He said that he would help business by writing to the President of the Board of Trade to promote hedging—to get her to intervene. However, the hedging will have to be retrospective. If the hon. Gentleman can find me a broker who can advise me on how I can hedge retrospectively, I would like to write to him, because I am sure that I could make millions, if not billions, of pounds. I am afraid that his argument falls at the first hurdle.
I will be arguing against the Second Reading of the Bill, and my party will vote against Second Reading; not because there are not welcome measures within the Bill—there are, as my hon. Friend the Member for Gordon (Mr. Bruce) made clear—but because it fails to give the country and the wider economy the fiscal policy they 645 need. That policy is needed partly because of the high level of sterling, which has the potential to put our economy into recession.
There is the potential—it is unlikely—that the recession could be economy-wide, but it is likely, and probable now, that certain pockets of our economy will go into recession. For example, manufacturing looks like teetering on the brink of recession.
The agricultural sector—mentioned by the hon. Member for Stafford (Mr. Kidney)—is, due to a number of other issues, in crisis. The high level of sterling looks like putting that sector into recession.
The whole economy may not go into recession because, unlike the last time we had such a high level of sterling—in the 1979–81 recession—the economy does not have a large manufacturing sector. If it did, the whole economy would now be in recession. It is only because the economy is so based on the service sector that it is not.
§ Mr. St. AubynDoes the hon. Gentleman agree that there is a contrast with the recession of the early 1980s, when there was a great deal of fat and inefficiency in manufacturing industry, which we ironed out so that the very best companies could survive? Now, it is the best companies which are being pushed to the limit by high exchange rates.
§ Mr. DaveyIf the hon. Gentleman expects me to back a recession because it threw 1 million people on to the dole, he is being ridiculous. There was an appalling error in economic policy in that period—the fact that the present Government are making similar mistakes does not make those policies correct.
In the next few months, many hon. Members will say—in questions, points of order and debates—that there is a recession in their constituencies. Hon. Members whose constituents rely on the industries that are particularly affected by the high level of the pound—manufacturing and agriculture—are likely to see a significant rise in unemployment in their areas. This is a genuine problem, and I do not think that the "R" word—recession—has been sufficiently discussed tonight.
It is ironic that the Government are not tackling the high pound and its effects on manufacturing industry. I remember that, only a few years ago, one could not turn on the television without seeing the current Chancellor of Exchequer fixing his eye on the camera, dropping his jaw and saying with determination that the then Government were not doing enough for manufacturing industry. Now that he is in government, he too is failing to do enough.
One wonders whether new Labour any longer cares about manufacturing industry. Perhaps it is more interested in cool Britannia, to use those awful words—it seems to be more interested in the British Academy of Film and Television Arts awards than in the Queen's award for industry. Unless it starts to support manufacturing industry, it will be promoting the "Full Monty" society, which is more focused on the service sector than on manufacturing—ironically, the storyline of that film describes the Government's policy.
The Government give a litany of excuses for their inaction. They say, as we heard from the hon. Member for Dudley, North, that the pound's appreciation mostly 646 occurred before the election. So what? Labour is in government now, and it has to tackle the problem. The Government say that the power lies only with the Bank of England, but that is not right—the Chancellor still controls fiscal policy. They say that he has tightened fiscal policy, but that is a myth. There has been some tightening, but most of it has arisen automatically because of the economic cycle. Only yesterday, we heard that the public sector borrowing requirement had shrunk to below £1 billion for this year as a result of the higher tax revenues deriving from the growth in the economy.
The tighter fiscal policy has nothing to do with the Government's actions. Moreover, tightening fiscal policy is effective only when it is discretionary, not automatic. The Government have not used fiscal policy in the way that is necessary to balance the economy. In so far as they have used it, they have not targeted the problems that are causing an increase in demand.
§ Mr. CranstonWill the hon. Gentleman explain what particular measures of fiscal policy he is talking about? Will he also say something about time lags?
§ Mr. DaveyI am more than happy to answer the hon. Gentleman's questions. If he had been listening, he would have heard my hon. Friend the Member for Gordon outline some of our fiscal policies, although I am happy to repeat them. We have for a long time argued for a penny on income tax to take money out of consumers' pockets, and for higher taxes on tobacco, both of which would have had an effect. If he wants, I shall send him copies of our alternative Budgets and costed manifestos, which spell out our policies in great detail.
The Government sound like the Conservative Government during the 1979–81 recession. The then Prime Minister said, "There is no alternative"—TINA, as the policy was christened. I wonder who the TINA is in the current Government. We could tighten fiscal policy, but there is an alternative—as my hon. Friend the Member for Gordon said, we could have a proper, long-term European policy.
As the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) said, one of the Government's great failings is that they have failed to set out a long-term strategy on the single currency. That is having devastating effects; it has contributed significantly to the appreciation of the pound.
Investors in the foreign exchanges—indeed, all those operating those financial markets—are understandably cautious in advance of the formation of the single currency, and they regard the pound as a safe haven. They are buying sterling not because it has great virtues in itself, but as a hedge. Again, the speculators are undermining our economy, but the Government are failing to tackle that problem.
§ Mr. Michael Fallon (Sevenoaks)Is it not the case that speculators regard sterling as a hedge not only because it will be outside the single currency, but because the Government are softening the single currency by fudging the Maastricht criteria and allowing the lira into the euro and the drachma into the exchange rate mechanism? Do the Liberal Democrats support the admission of the lira into the euro and the admission of the drachma into the ERM?
§ Mr. DaveyThe hon. Gentleman fails to make his case. The markets have passed a sound judgment on the future 647 of the euro. Long-term interest rates for the franc and the deutschmark are lower than United States bond rates over 10 years, which means that the markets are judging the euro favourably.
§ Mr. Malcolm BruceThat is even allowing for Italy and Greece.
§ Mr. DaveyAs my hon. Friend says, that is even allowing for Italy and Greece. The financial markets see no problem, and I had understood that the Conservative party supported the financial markets—perhaps it is changing its position, and becoming the "new Tory" party.
§ Mr. St. AubynDoes the hon. Gentleman recognise that long-term bond yields can signal something other than low inflation—they may signal recession? The 10-year rates in these currencies may be signalling the fact that, as a result of the euro, Europe faces a long recession, partly because of the pursuit of the wrong monetary policies and partly because of its inflexible labour markets.
§ Mr. DaveyThe hon. Gentleman redefines financial economics as we know it. Most economic equations take the long-term bond rate as an indicator of expectations of inflation. If he wants to rewrite economics, he will not get far in these debates.
Clause 158 outlines the various measures that the House will have to agree because of the adoption of the single currency by other member states. The fact that we are legislating because we are not prepared to take real decisions is a sorry state of affairs—we are preparing for being unprepared to decide the long-term future of our economy. The Government have said that they are preparing the economy for the single currency, but the Bill clearly shows that they are not.
The Government's position on the single currency has long been illogical—I wonder why that has not been pointed out by more commentators. The Government are asking companies to prepare for the single currency—to invest in training their employees and in the systems that will be needed to run the single currency—but why should companies do so? The Government have put off the referendum, which will rightly be the final decision, until after the next general election—only then will companies know whether Britain is to join the single currency. Why should one spend millions of pounds in preparation when the people's verdict will not be given for several years? The Government are asking the impossible—their policy defies logic.
The only sustainable position on the single currency is to have an early referendum and let the people decide as soon as possible, so that we can take the economic measures that will be required as a result of the people's verdict. That would not only enable us to develop long-term economic policy, but, fortuitously, help us out of some of our short-term difficulties arising from the over-valued pound, which would bring great benefits to agriculture and manufacturing across the country.
The Government may have many reasons for not pursuing a more long-term approach to the currency—perhaps they have political reasons. As a new Member, I may be a bit naive, but I think that there may be a 648 political calculation. If the Government are to prepare the country properly for the single currency, they will have to join a currency arrangement—either the exchange rate mechanism or the new arrangement that will have to be made after 1 January next year with the introduction of the euro.
Because of experience with the ERM, the Government are afraid to admit that that is what is required. They should have more confidence. After 1 January next year, with the irrevocable locking of exchange rates in 12 nations in the European Union, we will be in a completely different currency debate. The ERM will be history, and no grid arrangements will be needed to manage the exchange rates for currencies outside the single currency. There will have to be a completely different currency management system.
The Government should be using the European presidency to describe such a new currency management system in far greater detail, to enable the British economy to enter it in due course. That is the hole at the heart of the Government's economic policy, and it is causing businesses and communities throughout the country great hardship.
That policy area is also a hole at the heart of the Conservatives' strategy, and we heard almost nothing about it from the right hon. Member for Wells (Mr. Heathcoat-Amory). The right hon. Member for Wokingham (Mr. Redwood) occasionally sets out his penn'orth on the radio, but the official Treasury spokesman says nothing. We do not know what the current Conservative thinking is on the single currency.
The Government have made a great step forward on insurance premium tax, by levelling it up for travel agents. That has largely tackled the problem for that industry, but other industries affected by the distortion caused by insurance premium tax at the current rates have been left out.
Many companies other than travel agencies—for example, car dealerships and television rental companies—sell insurance as a complementary product. Those companies are losing out to insurance brokers, because, with the current insurance premium tax regime, it is more expensive for them than for the brokers to provide insurance. A real tax distortion remains, despite the Government's other welcome decisions.
This is a bleat not for the industry but for consumers. The tax distortion is changing the marketplace substantially, especially for cars, but also for rented televisions and white goods. Car dealers and others are being moved away from the insurance-based policy approach that they have had for some years to a guarantee approach.
Figures that I have seen suggest that 50 per cent. of used cars that are sold come with guarantees rather than insurance policies. That sets us back many years: for the past 20 years, and especially the past 10, the move was towards insurance-based policies, which afford consumers far greater protection.
That is not a theoretical point: it is actually happening out there in the marketplace. The Financial Secretary should consider what will happen when a large car dealership goes bust and all the guarantees that it has given become worthless. The insurance-based approach ensures that the protection continues, but the distortion will lead to many consumers finding that they do not have the protection they thought they had. 649 There may be a solution, and I hope that we can agree one in Committee. The industries to which I have referred are not the same as travel agencies: they sell different products. The travel agency industry could not go down the guarantee route, because it often sells life insurance, a far more substantial form of insurance, which could not apply to parts and labour for a car, for example; so the solution that the Government have rightly put in the Bill for travel agencies would not be suitable for car dealerships and other affected businesses.
My investigations suggest that an insurance premium tax rate of perhaps 10 to 12 per cent. would level the tax playing field for the affected industries, and prevent competitive pressures from making businesses go down the guarantee route. I have good news for Treasury Ministers: such a change would increase tax revenue. They are losing tax revenue because of the guarantees. I hope that the PSBR will decline a little further if the Government take up my kind offer. I implore Treasury Ministers at the very least to meet representatives of the industries and discuss the problems. I am sure that a suitable compromise can be reached.
The Bill does not contain tax incentives for profit-related pay, but it should. Those incentives fell into disorder under the previous Government; they were widely abused and widely criticised. Indeed, some of that criticism came from the Liberal Democrats. That Government reacted by taking a hammer to crack a nut: they abolished all tax incentives for profit-related pay, rather than reforming the system.
We are in favour of limited tax relief for profit-related pay, to help those who gain from profits through their wage packets but are on only modest incomes. Such a system would not be abused by the wealthy, and the relief would go to those on average or below-average earnings, for whom the profit-related part of their remuneration is very valuable. I suggest a ceiling of £1,000, which is modest by any standards and would not lead to the abuse that occurred under the previous regime.
I welcome the changes to the tax regime surrounding liquefied petroleum gas—road fuel gas—in terms both of converting car fleets and of freezing the duty, but the Government could have gone a lot further. Councils throughout the country are trying to promote environmentally sound policies. The council in the royal borough of Kingston bought gas-powered vehicles to do its bit. The Government have the power to go much further, and ensure that such vehicles are bought far more widely in the private sector.
As a new Member, I seek some guidance from the Chair, Mr. Deputy Speaker, perhaps not now, but later, outside the Chamber. The Liberal Democrats tabled an amendment to today's motion that was signed by six Members of Parliament, and the official Opposition tabled an amendment that was signed by only one, so I found it odd that that amendment was preferred to our more widely supported one.
To say that I am looking forward to sitting on the Finance Bill Standing Committee would be a slight exaggeration or overstatement, given the size of the Bill, although I am of course looking forward to discussions and debate with Ministers. As for tonight, the Bill fails to 650 provide the fiscal policy that is needed to re-balance our economy, and it will not receive the support of Liberal Democrat Members.
§ Mr. Derek Twigg (Halton)This year, it would nice if the Liberal Democrats turned up to the Finance Bill Standing Committee, unlike last year, but we shall see.
I am pleased to be able to speak and to welcome the Budget and the Finance Bill. One thing that has come over clearly is how warmly welcomed the Budget was. My local newspaper carried a number of interviews with local people, the overwhelming majority of whom said how pleased they were with most of the Budget measures. In fact, one constituent was moved to say of the Government:
They seem to be knuckling down and getting things done.That underlines what the Government are doing, particularly in the Budget and the Finance Bill.Many measures were welcomed, in particular the increase in child benefit and the working families tax credit. The Chancellor has made it clear that the Budget will secure economic stability, reward work, encourage enterprise and promote fairness for families and children, which are all most welcome.
The new agenda requires co-ordinated action, using the full range of the Government's economic, tax and spending powers, which we have seen in the Budget and in the Bill. All are important and all are part of the co-ordinated approach.
Like many other Labour Members, I welcomed last July's Budget, which laid the groundwork and the economic framework to deliver the goals that I mentioned, in particular the new deal to get the young, the long-term unemployed and lone parents into jobs and the massive additional boost for schools and the national health service.
I particularly welcome the statements in the Red Book on creating a fairer and more equal society now and in the future—a number of commentators have remarked on that. I also welcome the statement about growing inequality, about giving serious consideration to improving equality and taking account not only of the short-term social consequences but of the fact that inequality can weaken the long-term potential of the economy. Those are important statements. Possibly, it is the first time that the Red Book has enshrined a target to reduce inequality alongside the usual monetary objectives. Those statements underline the major differences between our economic strategy and that of the previous Government and answer some of the critics of our strategy.
As a result of the 18 years of Tory government, our productivity and living standards have fallen behind those of Europe and the United States. Those major policy initiatives will close the gap between our living standards and those of our main competitors.
The new financial framework put in place by the Chancellor was welcome, as it will reduce the unnecessary volatility in the economic cycle—again, it is a major trademark. The Chancellor was right to say that the boom and bust under the previous Government wreaked havoc in manufacturing industry and severely 651 reduced investment in the private sector; we have seen the long-term consequences for unemployment in the past 18 years.
I support the disciplined approach to fiscal policy that the Chancellor has shown. In some respects, the lack of such an approach was a weakness of previous Labour Governments, which caused them major problems. The underlying fiscal stance has been tightened by 2 per cent. of the gross domestic product for 1997–98, and I think that the Liberal Democrats were incorrect, as that 2 per cent. is quite a stiff tightening of fiscal policy.
§ Mr. CranstonThey want to change travel insurance.
§ Mr. TwiggYes, I know. Labour Members want to talk about the major issues.
The Chancellor has also proposed a number of measures, which we welcome, to increase the transparency and accountability of this and future Budgets. As has been said, transparency and accountability are important in this Budget. They are something that our record can be measured by and that we are proud of and willing to undertake, unlike previous Governments. As one commentator said:
It is certainly the most ambitious and probably coherent statement of a Government's overall economic objectives for some time.That is praise indeed.The Government want to turn their ambition into achievement. The Bill and the Budget proposals will keep faith with the people who put their trust in new Labour. There will be more money to cut NHS waiting lists and school class sizes.
I could comment on many aspects of the Bill, but one measure is close to my heart. I wrote to the Chancellor about the extension of the additional personal allowance following contact with a constituent. With effect from 6 April 1997—which is backdated, which I welcome—the additional personal allowance will be extended to women with children and incapacitated husbands living with them. Previously, it had been available only to a parent who was not living with a spouse and to fathers with incapacitated wives. That is an important change as regards equality and fairness, and I was particularly pleased, because the issue was raised by a constituent. I am not suggesting that because I wrote to my right hon. Friend the Chancellor on behalf of that constituent, the policy was changed—I am sure that other people have written to him, too—but it is an example of the Government listening to people and showing equality and fairness in their Budget policies. I am delighted that that cause has been taken up.
Fairness in tax and spending is important. Clearly, the Budget will result in a redistribution of resources to the least well-off in society. The £250 million extra for schools and skills again demonstrates the Government's commitment to education, and many of my constituents have warmly welcomed it, as they have the £500 million package to cut NHS waiting lists. As an example of how that can be used to great effect, last year, when the extra money was given for winter pressures, Halton hospital—my local hospital—was able to use the £300,000 that it received from the extra resources to set up a special team to go to people's houses, particularly to the elderly, to give them help, support and medical care, which resulted 652 in them not having to spend weeks on end in hospital, blocking beds and increasing waiting lists, but staying in the comfort of their homes. That policy was so successful that the hospital is hoping to continue with it. Many of the people who benefited from that new initiative in Halton have been demanding that it should continue. That is just one of a number of examples that I could quote of our innovation and of how putting the money to good effect can bring about real improvements in people's lives.
In terms of fairness, I also welcome the measures to curb tax avoidance and close loopholes, to remove unfair advantage and detect evasion. They will yield substantial income in the coming years. The measures are about fairness and will protect ordinary taxpayers, ensuring a fairer tax system. They will protect funding for the priorities of health, education and jobs, which are the people's priorities. We want people to contribute to a fair taxation scheme.
Clearly, the Government will be giving a great deal of help to business because of the Budget, particularly small businesses. Many small business people have told me how welcome the initiatives are. A number of business representatives have been quoted in national newspapers as saying how welcome the Budget was and how it was very much a Budget for business. The 1 per cent. cut from April 1999 in the main rate of corporation tax will bring it to 30 per cent., the lowest rate ever—something that the Opposition never did, and one could see the shock on their faces when the Chancellor announced that new initiative. That was about helping business and improving enterprise, and it will also promote long-term investment.
§ Mr. RuffleyHow can the £20 billion extra levied on business in the lifetime of this Parliament possibly be good for and in the interests of business?
§ Mr. TwiggThe hon. Gentleman is entitled to his figures, but, as commentators have recognised, the Budget is business friendly and will help business. It is important that we recognise that. Many of the things that the Government have done since they have been in power, not merely in this but in the previous Budget, have been welcomed by business overall. The real burden on business was imposed by the previous Tory Government.
§ Mr. St. AubynWho are more business friendly: the previous Government, who cut corporation tax from 52 per cent. to 33 per cent., or this Government, who have just cut it from 33 per cent. to 30 per cent.?
§ Mr. TwiggWhat is more business friendly is that, unlike the previous Government, who got rid of two out of every five manufacturing jobs and decimated manufacturing industry, we are providing the climate for sustainable investment for business in future. That is the difference.
§ Mr. CranstonSome of the Opposition call for fiscal tightening; some are against it. I cannot work it out. Perhaps my hon. Friend can help me.
§ Mr. TwiggI am afraid that I cannot. Policy depends on who is speaking. In the Conservative party, there are 653 different views on various matters. I cannot answer that question. We shall have to wait, to find what future speakers come up with.
There is a comprehensive package to help create a dynamic small business sector, in which, as everyone recognises, most of the jobs growth will occur. The cut in the rate of corporation tax by 1 per cent. to 20 per cent. was very welcome.
The capital gains tax package will encourage and reward long-term investment and will be fair to all. The capital gains tax taper introduced for individuals will reward risk taking and encourage enterprise for the longer term, particularly through the holding of business assets. Also welcome is the higher-rate taxpayers capital gains tax rate reduction from 40 per cent. to 10 per cent. for business assets. We have also reduced the burden of national insurance on employers, for low and middle-income employees.
It would be remiss not to refer further to the Government's new deal initiatives. In areas such as mine, with high unemployment among the young and many long-term unemployed, lone parents and disabled people, the measures have been most welcome. Some 700 to 800 young people will be helped by the new deal. From talking to young people who will be part of the new deal, I know that they welcome it as a real commitment by the Government to helping them, to providing support and to giving them an opportunity for a kick start in life. That is only one example. I have talked to other young people, and they do not believe the scare stories put about by Opposition parties.
On lone parents, I was at an event on Saturday. The Benefits Agency had set up a family day for lone parents to hear what the new deal had to offer and about the Government's Budget proposals on benefits such as child benefit. I was amazed by the number of people who did not realise what a good package the Government had put together and by how welcome they found it. Many people signed up to come and talk to new deal advisers. It was a successful day. Again, the Government were talking to people at a level that they understand. That is one of several initiatives that have resulted from the new deal for lone parents.
Like many hon. Members, I have had numerous letters from disabled people—people who want to get into work. They want to know what the Government are doing to give them that opportunity. There is an extra cost in employing disabled people. In a previous life, I was a manager with 100 staff, including some disabled people, working for me. I know that it is difficult for such people to get into employment. Counselling and advice are needed. The new deal proposals for disabled people are welcomed by people when one talks to them. As a manager, I would have welcomed many of the initiatives that are being taken. The new deal is coming to fruition. It will be a major success.
The Red Book's title, "New Ambitions for Britain", is ambitious but it is the right title because we are ambitious for our country to succeed and for the people to share in wealth creation and to have an opportunity to contribute to society. The Budget provides many such opportunities. As a result, the country will move in the right direction towards a fairer, more equal society. There is a shift of 654 resources to the least well-off. The Budget shows clearly that hard work will be rewarded but also says that people who are not able to work and who are vulnerable will be looked after. Importantly, it is also a Budget for families and children. It should be welcomed.
§ Mr. Peter Brooke (Cities of London and Westminster)It is a great pleasure to follow the hon. Member for Halton (Mr. Twigg). I hope that I pronounced his constituency correctly. As a citizen, I am reassured by his confidence in the current economic stability. In a low voice, I mention that my constituents at Coopers and Lybrand recently issued a report showing that in the past six months, there has developed a greater danger of a hard landing from the present growth pattern and an increasing danger of growth grinding down to zero in 1999. I mention that because welfare to work, to which he alluded, depends on there being jobs for people to go into. If growth disappears, they will not be available.
I did not agree with much of what was said by the hon. Member for Dudley, North (Mr. Cranston), but I thank him for reminding me of clauses 47 and 48, which I thought were an imaginative initiative when the Chancellor introduced them. In Mr. Gladstone's words, I hope that these gifts will fructify in the pockets of the people to whom they are being transferred.
As debate on Second Reading can go on until any hour—a fact that must depress you, Mr. Deputy Speaker—there is a temptation, which I have little difficulty in resisting, to embark on a tour d'horizon of the Government's economic policies as exemplified by the provisions of this Finance Bill and the consequences that will flow from them, but my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) has already done that to great effect. I shall, however, add a brief word before remarking on three aspects of Bill that have particular constituency applications for me.
It is nearly 40 years since I became the Financial Times correspondent in Switzerland, which in those far-off days was a part-time position. I was present when the Germans and the Dutch in 1961 revalued their currencies by 5 per cent. Up to that time, there were 12 deutschmarks to the pound and 12 Swiss francs to the pound. It is a great tribute to the productivity of the Swiss and the Germans that they have over the intervening years contrived to live with an exchange rate which until recently had risen fivefold since 1961. The deutschmark is currently worth four times its 1961 value against sterling. They had 37 years in which to accomplish the transition. The current appreciation of the pound has occurred over a much shorter period. I acknowledge that part of it occurred under the previous Government; indeed, I am proud that the markets saluted the policies of the previous Government in that way.
I realise that there is some ambivalence among those on the Treasury Bench about the strength of the pound, but the one certainty is that, at least in this House, whoever is responsible for the strength of the pound, it will not be the Government. Sometimes in their view, it is the responsibility of the Government they succeeded, sometimes of the Bank of England but never, never is it their responsibility, whatever fiscal balance they strike or how. It was said of the treaty of Utrecht that like the peace of God, it passeth all understanding. There are things in 655 life that I have never understood, such as the parable of the fig tree and Benjamin Jowett's injunction, "Never explain, never apologise." I realise that whichever of Mr. Alastair Campbell or the Minister without Portfolio is Benjamin Jowett's present representative on earth, they do not hold precisely to Jowett's view, but they certainly believe that the Government should apologise only for things that happened a long time ago, such as the potato famine, and that at no time are the Government responsible for anything that goes wrong. We must regard the strong pound as a given, a shoal that we must all negotiate, useful in the interim for inducing a sense of well-being among British tourists abroad. Although the Government wash their hands of it, the rest of the British world has to cope with it.
The recent British Chambers of Commerce report shows exactly how dire are the consequences for manufacturing industry, as several Conservative Members have said. When Campbell's Soups came to Britain, it believed that what was good enough for America was good enough for us. That assumption was upset by British consumers, whose reluctance to consume its tomato soup was annually disguised in the parent company's annual report with the agreeable euphemism
internationally, our costs continue to exceed our sales.That is matched by the Treasury's engaging phrase in the Red Book about net trade making a negative contribution to growth through this year and the first half of next. I am reminded of the passage in Robert Graves's "Goodbye to all That", in which Professor Edgeworth, an economist with a polysyllabic tendency, met Lawrence of Arabia in the porch of All Souls and said:Was it caliginous in the metropolis today, Lawrence?",to which Lawrence, in my view to his credit, replied:Somewhat caliginous, Edgeworth, but not altogether inspissated.Through the Treasury's obfuscation, we too can infer that all is not entirely well in our trade figures. That has some relevance to one of my later constituency points.The irony of the dilemma is that the Government, having put the rural community offside, may now be about to inflict similar damage on some elements of the urban community through manufacturing recession. Of course, the Government will wash their hands of it all. No doubt the President of the Board of Trade will join whatever march emerges, but some of us will remember that the pound would not be as strong as it is if the Government had done more to prevent the application of the Eurofudge to the Maastricht criteria.
Before I leave the rural community, let me say that the Government's emphasis on hydrocarbon oil duties impinges unfairly on that community. We all know the consequences of higher hydrocarbon oil duties for the rural community. I am, however, personally embarrassed that 12 per cent. of cars in London are automatic polluters, whereas only 1 per cent. of those in the borders are. I appreciate that reliability of one's car may be a greater and more necessary virtue in the borders, but it is unjust that people there should be clobbered with taxes to solve a problem that in reality is being created elsewhere.
The first of my constituency points relates to hydrocarbon oil duties, but to something that is not in the Bill rather than something that is. I hope that I shall remain within the rules of order, Mr. Deputy Speaker, 656 by criticising the thrust of the Bill by means of one of its omissions. The dog that did not bark in the night contributed to the resolution of the disappearance of Silver Blaze in one of Mr. Sherlock Holmes's earliest cases. I refer to the absence of significant further fiscal incentives in the Bill for city diesel or, more technically, low-sulphur diesel. The City of Westminster has a good record in the use of city diesel, which contributed to its recent international award in Madrid as the city that made the greatest contribution to the environment. I am delighted that it has been given participation in the pilot project for random emission tests. However, it and I, and my constituents, would sleep more easily if the Government were reinforcing that policy by encouraging further the use of city diesel.
To echo the hon. Member for Workington (Mr. Campbell-Savours), who intervened in the speech of the Chief Secretary, city diesel is plentifully available in the City of Westminster because of the city council's encouragement, but it is not available in the suburbs or out of town, from which so many vehicles set out on journeys into central London. I noticed the Chief Secretary absolve the Government of responsibility for that absence from the forecourts, as indeed he does of so much else. Fiscal incentives affect consumption and consumption affects distribution.
My second constituency point can be briefly put. It alludes to schedule 25. Constituents of mine with distinguished artistic collections on which undertakings have earlier been given under inheritance tax expressed apprehension to me after the Budget about the threatened need to advertise predictable access to what is happily described in the schedule as
Property of historic interest etc.I understand the concern about access, but I understand equally the security problems for those who hold such property in a personal capacity rather than as institutions. There was an understandable concern about objects of at least museum quality coming in profusion on to the market at precisely the moment when the Government were curbing the lottery resources of the national heritage memorial fund.I am not a lawyer, so I do not know whether my constituents who are currently in possession of relevant
Property of historic interest etc.",but who are fearful of necessary disposal for security reasons, should feel their anxieties allayed by the wording of each of the last sub-paragraphs of paragraphs 3 to 9 of schedule 25 in terms of property dealt with before the Budget, or whether paragraphs 9 and 10, which refer back to paragraph 8(1), mean that their anxieties will continue. I should be grateful if the Financial Secretary clarified whether all prior property is or is not directly affected by schedule 25 and, if it is, to what extent.My final constituency point is more immediately substantive, not least as I shall be in Northern Ireland with a Select Committee in the early part of next week and may miss the Committee discussion of clause 11 on the Floor of the House. Clause 11 relates to gaming duty. In consequence, I apologise for treating on it at some length. The justification for the increase in the gaming duty implicit in clause 11 did not fall from the lips of a Minister but came from one of the attendant Budget press releases. It stated that the measure was directed at the larger, more profitable London casinos. My fear is that 657 clause 11 is not effectively concentrated on that target except by the most literal use of language, and that it runs a significant risk of reducing the casino market not only at a cost to the Government's tax revenues but at social risk.
As, for reasons not immediately apparent, the Government uniquely did not consult on this occasion on the change to rates of duty, I hope that the problem is due to misunderstanding of how the industry works and that it is capable of being resolved by disentanglement and discussion. I do not know whether the absence of consultation included the Home Office.
The problem arises as a result of the bulge in the increase in duties imposed, for which I have not so far seen an explanation. At turnover bands of £1 million to £4 million, the tax increase is 29 per cent., 6 per cent., 12 per cent. and 39 per cent. respectively. The bands from £13 million to £20 million see the rate of increase in duty fall steadily and without interruption from 46 per cent. to 34 per cent. respectively. The puzzle is the bands from £5 million to £12 million, where the rate of increase is not consistent, but never falls below 50 per cent. and rises as far as 55 per cent. and 56 per cent. in the bands at £9 million to £11 million. That has the perverse effect that a London casino with a domestic, not international, clientele in my constituency and a turnover of £12 million, can see the gaming duty rise by 50 per cent. but its profitability fall by 80 per cent., which brings its absolute level of profitability down to the same level as that of a provincial casino with a turnover of £2 million, which is hit by an increase of duty of only 6 per cent. as against 50 per cent.
I have on another occasion in this Chamber accused the Government of being anti-London, but even I do not suggest that a blow on this scale was deliberate anti-London malice but rather due to misunderstanding. A casino of which the profitability falls by 80 per cent. on a turnover six times that of a much smaller casino of which the profits barely wobble becomes potentially marginal if the economy turns down, as Coopers and Lybrand has warned us that it may. A fall of 80 per cent. in profitability for reasons outside the casino's control makes a mockery of the Government's enthusiasm for forward planning and investment. In this instance, the closure of a casino of which the customers are indigenous would be wholly due to the tax change, and even this Government could not disclaim that responsibility.
At a time when racing, as we heard earlier this afternoon from my hon. Friend the Member for Tewkesbury (Mr. Robertson), is threatened with moving offshore in part as a result of the pattern of racing tax—I can in this instance claim to have been directly in support of my noble Friend Lord Lawson in removing on-course betting duty in 1987—it would be sad if the Government were inadvertently in this instance to damage an industry which, as my right hon. Friend the Member for Wells said, makes so notable a contribution to our balance of payments. Net overseas receipts of £161 million are a remarkable contribution from an industry that employs fewer than 12,000 people.
I do not accuse the Treasury Bench of not realising that a turnover tax can take no account of individual casinos' structural arrangements, nor that in a regulated industry there is no way in which the industry can alter the odds, nor thus that an increase in taxation can be passed on to 658 the punter. I gave an instance of a very domestic casino, but overseas customers are less likely to play if casinos cannot reinvest in their physical stock and ambience. Finally on the background to taxation in this area, I do not accuse the Treasury Bench of not realising that the high rates of gaming duty in other jurisdictions—jurisdictions to which overseas players may decamp—march hand in hand with much more liberal regulation, much greater permitted use of and profits from slot machines, genuinely open-door policies and tips to employees, which are unavailable here, being substituted for British direct payroll costs.
If a casino closes, it is not only the increase in unemployment that concerns me and which, I imagine, would also concern the Government, as even in an area as vigorous as central London we are talking about 4,500 jobs. I foreshadowed my other concern by inquiring earlier as to whether the Home Office had been consulted. The 1968 legislation, which was in part prompted by vicious back-street casinos in the 1960s and which gave us our present pattern of regulation, was contested by my noble Friend Lord Hailsham and Lord Callaghan. The one thing on which they were agreed was that the legislation would be revisited many times in future; the one thing that would have surprised them is that it has scarcely been revisited at all. If casinos start to close as a consequence of the putative duties—on the current figures, I am not being alarmist—the risk of returning to back-street casinos increases, and more sharply if the clientele of the casinos that close are domestic rather than international. I remind the House of the importance of not affording the triads fertile ground on which to feed.
I therefore hope that, as the Bill wends its way through our deliberations, the Government look again at their proposals and the consequential calculations. It may help the Government if I tell them that the industry believes that the Government have underestimated their tax take in the next full year and that, rather than £25 million, they are likely to take £29 million, so there should be some latitude for adjusting the proposals without adversely affecting expected revenues. The industry also believes that, of that £29 million, between £26 million and £27 million will fall on the 21 London casinos and the small balance on the 94 casinos outside London. I have eschewed accusing the Government of an anti-London bias in this instance, but if the Government believe that London casinos are different because of their international clientele, they might like to consider liberalising the casino regime in London in an international direction at a time when overseas earnings are, as my right hon. Friend the Member for Wells said, of such current importance.
§ Mr. Andrew Love (Edmonton)I had hoped that this Second Reading debate would be more restrained than the Budget debate, but, listening to the hyperbole of the hon. Member for Witney (Mr. Woodward) and other Opposition Members, I was reminded of the headlines at the time of the famous giveaway Budget—which, if memory serves, was in 1987—when the then Mr. Nigel Lawson was celebrated in the media as possibly the greatest Chancellor of the Exchequer this century, which really was hyperbole. Sadly, over the past few years, we have had to live with the consequences of those decisions.
Many Opposition Members have tried to console themselves with the hope that the initial popularity of the Budget would soon be replaced by a more critical 659 judgment along the lines they have set out today—I leave it to others to decide which one of the Opposition lines. That might have been the Conservatives' experience when they were in government, but there is little doubt that this Budget was and continues to be popular and that both economic commentators and the media, including the Tory press, remain stubbornly supportive of it.
It is fairly easy to see why. Inflation, currently at 3 per cent., is set to decline to the target range set for the Monetary Policy Committee by my right hon. Friend the Chancellor—2.5 per cent. in 1999. Economic growth in the coming year is likely to be between 2 and 2.5 per cent. and it is set to stay roughly within that range for the next two years, which is at or near the trend and sustainable rate of growth of the British economy. There was an announcement only yesterday that the public sector borrowing requirement was slightly less than £1 billion for the year just ended, which is a substantial reduction on the £5 billion predicted in the Red Book and some £18 billion less than the prediction of the Conservative Government. I feared that that remark would set the Liberal Democrats off on the subject of the election war chest, but we might be spared that as their spokesman, the hon. Member for Gordon (Mr. Bruce), is not in the Chamber.
All that is the result not only of buoyant revenues, as the hon. Member for Gordon said, but of the five-year deficit reduction programme introduced in the previous Budget, which had to deal with the so-called golden economic legacy about which we hear so much from Conservative Members. That legacy was an overheating economy, a structural deficit in excess of 2 per cent. of gross domestic product and borrowing of more than £23 billion. The deficit reduction programme has been spectacularly successful, as we heard yesterday.
We learn from the Red Book that we are also now well on the way to fulfilling the golden rule of the economic cycle as set out by my right hon. Friend the Chancellor. With the debt:GDP [...] set to come down to about 47 per cent. by the turn of the century, we can say that we are fulfilling both of the fiscal rules set out by my right hon. Friend in last July's Budget.
§ Mr. Clifton—BrownGiven that the hon. Gentleman is talking about the reduction in the debt:GDP ratio, would he care to comment on the expenditure:GDP ratio and, more important, the tax:GDP ratio? Based on the fairly optimistic growth assumptions in the Red Book, both ratios are likely to be about 40 per cent. next year, which is at or higher than those of most of our main competitors, including Japan and the United States.
§ Mr. LoveThat has been a theme of Conservative arguments. In respect of the economy, the important thing is stability. Above all else, business wants a stable economic climate and that is what the measures in the Budget are designed to achieve.
Stability is critical. We have already established the long-term monetary framework that will maintain low and stable inflation—that was the first step. To further the objective of stability, the Budget introduces a code for fiscal stability, which will enshrine the need for transparency and accountability in Britain's economic policy framework and strengthen the credibility of fiscal and debt management, much as the new monetary policy 660 framework has done for the setting of interest rates. It will be underpinned by detailed reporting arrangements and proper accounting methods.
As a member of the Public Accounts Committee, I am pleased that the National Audit Office is to be asked to audit the assumptions and conventions behind the projections, as is did in respect of the July Budget. The code will be put on a statutory basis, which demonstrates the Government's commitment to maintaining and strengthening the credibility of their economic policies.
Important though it is, creating economic stability is not the Budget's only objective, nor is it in some respects the most important. The Budget is emphatically about jobs and families. Its centrepiece is a series of measures to modernise the tax and benefits system, to reward work, to support families and to start the process of reversing the growing inequality in society. In that respect, I welcome the Budget's endorsement of child benefit as one of the pillars of a modern tax and benefits system. My right hon. Friend the Chancellor has reaffirmed that child benefit will remain universal and that it will continue to be paid directly to the parent with primary responsibility for the children.
Many low-paid families will also benefit from the introduction of the working families tax credit, and not only because we are turning a benefit into a credit. The working families tax credit will provide more generous help to families through higher thresholds, gentler tapers and—most important—increased child care disregards.
As a result of those changes, the working families tax credit will reach nearly twice as many families as family credit. It is also hoped that take-up will be increased because of the reduced stigma attached to a tax credit. It is more acceptable not only to claimants, but to taxpayers.
In the mid-1980s, the previous Government's extension of family income supplement into family credit increased the take-up from 50 per cent. to 70 per cent. We very much hope that, with a further extension of the working families tax credit and its transformation into a tax credit take-up will be boosted substantially.
§ Mr. GibbWhat percentage take-up does the hon. Gentleman believe the Government have used in estimating the cost of the working families tax credit published in the Red Book? I have sought to question the Government on that and have been unable to obtain an answer. Is the hon. Gentleman aware that the Institute for Fiscal Studies says that if there were 100 per cent. take-up, the cost would be £4 billion a year—not the £200 million the Red Book states? Will he give me the answer that I have tried to get from the Government?
§ Mr. LoveMy answer is that the Government always act on prudent assumptions and only a prudent assumption would be included in the Red Book.
The working families tax credit will make significantly more families better off and, according to table 3.3 in the Red Book, substantially reduce the number of families facing very high marginal rates of tax—above 70 per cent.
Those changes combined will provide a powerful boost to family incomes and help reduce the worst impact of the poverty trap. However, the changes will interact with many other benefits, especially housing benefit, with a taper on all income over income support levels of 65 per cent. That is likely to remain a major barrier to returning 661 to work. We must look to the comprehensive spending review and subsequent benefit reform to develop the new welfare state further for the 21st century.
Nothing has signalled the change of direction brought about by the election of the Labour Government better than our welfare-to-work proposals to put both the young and the long-term unemployed back to work. In recent months, unease has been expressed by, among others, the Education and Employment Committee, about the lack of support for the long-term unemployed—those over 25 who have been unemployed for more than two years. That problem has been addressed in the Budget, which contains a proposal to provide intensive, individual support similar to that provided for the young through the gateway initiative. It will be targeted at one in three of that long-term group—about 70,000 individuals.
In combination with the weekly subsidy of £75 to employers to employ the long-term unemployed, that additional support will go a long way to meet the needs of this group. Personal support is particularly valuable to the over-50s, who are especially vulnerable. They will receive specific additional back-up support to address the special problems that confront them in the labour market.
The new deal needs new jobs to be successful. Two associated proposals will help to ensure the creation of some of them. The cut in corporation tax for small and medium enterprises and the extension of last year's capital allowances will improve their cash flow and help them to grow. In addition, the national insurance changes for employers will raise the lower earnings limit and replace banding with a single rate. At no extra cost to employers, those changes will harmonise national insurance with the tax system and decrease the burden on companies of their lower-paid employees. We hope that the changes will allow more people both from the unemployment register and from the new deal to take up employment.
I give a resounding welcome to a small initiative that, in many ways, reflects the fresh priorities of the new Government. The recent White Paper on international development has given a strong lead on the present Government's policy toward the developing countries of the third world. The Chancellor's initiative, returning up to £40 for every £100 donated from private sources, provides support to individuals throughout the country who want to contribute to the relief of third-world poverty and inequality. I hope that the tax concession will be an opportunity for the people of this country to show their support and solidarity for empowering third-world countries to find their own way to a better and more productive future.
The Government were elected on a pledge to improve our public services. That was especially true in the case of education and health; the improvement of those vital services will be a measure of our success as a Government. Although substantial additional funds were made available in the July 1997 Budget, it is widely recognised that more needs to be done. Part of that is already happening, through savings and changes in priorities, especially in health, and much is expected from the comprehensive spending review. However, the needs of those services have been recognised in this Budget.
The Budget provides £500 million to add to the £1½ billion for health to be spent directly on reducing waiting lists. I welcome the commitment to get waiting 662 lists on a downward trend in the coming year. An extra £250 million has also been made available for education. Including that amount, £2½ billion has been provided for education since the Government came to office. That includes £1.3 billion for investment in school dwellings and equipment during the next five years.
The Government are as prudent as one would expect, given who the Chancellor is. In recognition of the reduced PSBR for last year, a substantial amount will be placed in reserve in the coming year.
As the Red Book says, the Budget sets out new ambitions for Britain. The Budget encourages work, supports families and will modernise the welfare state. It will encourage a fairer society in which all can share in higher living standards and greater job opportunities. I commend it to the House.
§ 8.7 pm
§ Mr. Nick St. Aubyn (Guildford)Some weeks ago, I was lucky to have a few minutes in hand, and I popped into an exhibition in Horse Guards parade called powerhouse::uk. Tonight there has been some quibbling over the extent of the golden legacy of the previous Government, but anyone who went to the powerhouse::uk exhibition could not fail to note that the dates on every exhibit, almost without exception, pre-dated 1 May 1997. It was charitable, if unintentionally so, of the new Government to produce such a showpiece, such a monument, to the achievement of enterprise in this country under the Conservative Government.
Today, as I passed Horse Guards parade, I could not help noticing that the exhibition was being dismantled. I very much fear that, just as the present Government are dismantling that showpiece of Conservative achievement, they are dismantling, through the Budget and the Treasury team's policies, the real achievements of the real economy under the previous Government.
This week, we had another example of that achievement in my constituency, when a Queen's award for technological achievement was given for satellite systems based at the university of Surrey—an extraordinary but, in many ways, typical example of the enterprise and imagination shown by people in this country under the previous Government. We are talking about a tremendous success story: British innovation has cut the cost of launching micro-satellites, with the result that there are now in space at least 12 such satellites, at a cost of more than $2 million each, all financed by private sector customers of Surrey university, which developed the technology to launch them into space. That is a tremendous achievement for a British business in a British university.
On the same day, Sibert Instruments Ltd., another firm in my constituency, won a Queen's award for exports. It, like the many other high value added manufacturing businesses in my constituency, is worried about the high level of sterling.
I want to add three points to those already well made by my right hon. and hon. Friends, to hammer home the fact that it is the Government's policies that have inflicted on manufacturing industry a far higher exchange rate—an uncompetitive exchange rate vis-à-vis the rest of Europe.
The Government are guilty of a failure of monetary tactics. Let us not forget that at the same time as the Chancellor gave putative independence to the Bank of 663 England, he raised interest rates by one quarter of one percentage point. It was the Chancellor—not the Bank—who set in train an incremental approach to raising interest rates. It is now evident, as it was to many of us who said so at the time, that what the economy demanded last summer was not an incremental but a decisive approach to adjusting monetary policy.
Any change in monetary policy has a two-pronged effect. First, it has an effect on the exchange markets, and, in economic terms, the exchange markets' reaction to adjustments in monetary policy is elastic. The exchange markets anticipate what may happen after the first move, thinking forward to further interest rate moves and calculating that, at that point, they can buy the pound against other currencies and profit from higher interest rates against a background of rising interest rates. It was such a speculative calculation which drove up sterling after May last year.
§ Mr. Derek TwiggWill the hon. Gentleman give way?
§ Mr. St. AubynI shall give way when I have completed my point.
The second prong to monetary policy is the effect on the domestic consumer, who reacts in what economists would call an inelastic way to changes in monetary policy. The new Chancellor said that he was giving the Bank of England independence and that monetary policy would be conducted differently in future. The British consumer would last year have been entitled to assume that the Bank had decided that a 0.25 per cent. change in interest rates was enough, and that, if that was what was required, that was what the British consumer would get. That is the type of adjustment that consumers were led by the Government to expect.
§ Mr. St. AubynI shall not give way until I have finished making this point.
On both fronts, the Government gave out the wrong signal. They gave out a signal which drove up sterling but at the same time gave out a signal to domestic consumers which failed to constrain consumption.
§ Mr. TwiggWould the hon. Gentleman care to share with us the number of occasions on which the previous Government put up interest rates?
§ Mr. St. AubynThe previous Government not only put up interest rates; they reduced them, as they reduced inflation. We inherited a rate of inflation of 16 per cent.; we bequeathed one of 2.5 per cent.
§ Mr. RuffleyDid not my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) succeed by 1997 in bringing interest rates down to their lowest level since we won the World cup in 1966?
§ Mr. St. AubynI am grateful to my hon. Friend for his knowledge of football as well as economics. He makes a valid point.
We have had a bit of badinage this evening about whether interest rates should have risen before the election. I am sure that any economist would agree that 664 the period leading up to an election is one of uncertainty which, of itself, restrains investment decisions. In the months before an election—we saw this before the 1992 election as well—a different monetary policy is required from that which is required after the dramatic event, as it always is, of an election result.
Earlier, the hon. Member for Dudley, North (Mr. Cranston) said that I was arguing that it was a good thing that we had a large Labour majority. I was not arguing that. I was arguing that it is a good thing that, by and large, our system of government delivers a decisive election result. Hon. Members should pause long and hard before agreeing to deviate to any other system which would not in future continue to deliver decisive political results following general elections, which at least ensure, even when we do not agree with them, that we can presume to know what the Government's policy will be.
As well as the failure of monetary tactics, we also saw from the new Government a failure of fiscal strategy. It was the Chancellor who chose to introduce a second Budget in the same year, a Budget which put up many duties and, with them, the rate of inflation. Having just transferred the control of interest rates to the Bank of England, and having given a firm injunction as to the inflation target, the Chancellor forced up the rate of inflation and, literally, by those decisions, forced up the level of interest rates needed to give the monetary policy of the newly independent Bank of England any sense of credibility.
It was a failure of fiscal strategy, forcing up the duties, forcing up the inflation rate, that compounded the problem, pushing up interest rates even further, and again hammering our exporters with a rising pound.
As has been said, there was also the failure in that Budget—continued, I regret to say, in this Budget—of savings policy. At a moment when windfalls were accruing to British consumers from the demutualisation of the building societies, and when every effort should have been made to encourage them to invest and save their money, the new Government attacked the most popular and successful form of saving that Britain has known—its pension funds. The pensions tax was a direct attack on saving and sent consumers the message that they are better off spending their money than saving it. If they go into long-term saving schemes, they never know when the new Government might come along and change the rules, taking some of those savings from them.
We also heard a debate about whether the Government had, by that move, tightened policy. In the long run, if people's savings are attacked—everyone has to save for their retirement—they are obliged to put more of their hard-earned income into savings. Therefore, in the long run, one achieves some element of fiscal tightening. But in the short run, one simply takes money from savings in Britain and accrues it to the Government in a confiscation of savings the like of which we have not seen since the previous Labour Government.
§ Mr. Derek TwiggI am interested in the hon. Gentleman's concern for pension funds. Will he comment on the mis-selling of pensions and say how the record number of house repossessions under the previous Government helped people to save?
§ Mr. St. AubynI am grateful to the hon. Gentleman for reminding us that the problems of pensions mis-selling 665 were as nothing compared with the Government's election manifesto mis-selling on pensions and PEPs. Although individual savings accounts would have been much worse without the strenuous efforts of Conservative Members and without the campaigning that took place, the system introduced in the Budget is worse than PEPs and TESSAs because it is more restrictive. Treasury Ministers say that they are targeting the new savings vehicle at the less well-off: they should think harder about how jobs in manufacturing industry could be saved before handing out carrots to people to save money. People are unable to save anything when they have lost their jobs; indeed, they have to draw on their savings to survive. [Interruption.] The hon. Member for Halton (Mr. Twigg) appears to want me to give way again, but I have had enough and he spoke at length earlier.
I met a Labour voter in my constituency recently—there are a few in the Guildford area—who was putting up a fence in my garden, for the safety of my children. He told me that the Conservatives needed a rest after 18 years in government but that, although he was delighted by the result of the election, he was disgusted by the five interest rate increases which he had suffered under the new Labour Government. They were not what he had expected when he helped to put them into power.
The Government thought that they would escape responsibility by the sleight of hand of making it appear that the Bank of England is taking the decisions, but they have earned the contempt of the people of this country by their actions. If they had acted decisively, they would have deserved respect. That is the difference between their actions and those of my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) and his predecessors.
This is a rag-bag of a Finance Bill and whether one comes out of it better or worse is a lottery. One person has come out much worse—the Paymaster General. I am told that when members of the Law Society were asked for advice on offshore trusts, they sat around a table and said, "We can all agree on one thing: whatever else comes out of the proposals, they must hit Robinson."
§ Mr. RuffleyWhere is the Paymaster General? Where is Geoff?
§ Mr. St. AubynIndeed, where is the hon. Gentleman? In time, the Bill may become known as the Robinson Bill.
The arbitrary nature of much of the Bill is what is most objectionable about it. My right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) mentioned the arbitrary nature of the corporation tax clauses, and arbitrary clauses relate to personal portfolio bonds, an obscure area of the law. Nevertheless, clause 87 contains a dangerous principle, because the manner in which and rate at which such savings vehicles may be taxed does not have to be considered by the House.
It is a fundamental principle of the House that proposals to tax members of our society should be debated by hon. Members, but the Government propose in clause 87 that they should have the power to set any rate of tax at any time—retrospectively, if they want to—and in such manner as they choose. The clause is a disgraceful one which hon. Members with a conscience about their duties in this House must surely oppose.
666 There has been another sleight of hand over encouraging investment. We have heard that the Budget encourages long-term investment. The rules, as they affect small, non-traded companies, have been changed for the worse. Many people who invested in companies on the alternative investment market in the belief that they would receive the benefits of that market will find that companies quoted on it will be excluded from the future enterprise investment scheme. The healthy demand from a wide group of people for shares on that market will disappear, and its liquidity will suffer. The value of shares will fall as a result of the Government's detrimental change to the treatment of small quoted companies' shares and the application of the enterprise investment scheme.
The Government are not encouraging long-term investment. Their broader rules on tapering relief are encouraging speculative investment. A person who puts £1,000 into a speculative so—called hedge fund in 1998 and holds it for 10 years before selling it will pay a far lower tax bill than under the old rules, assuming that the hedge fund speculates successfully. On the other hand, if that person invests in a conservative asset the growth in value of which merely tracks the rate of inflation, tax may be levied on between 10 and 24 per cent. of the notional gain, which is no gain at all in real terms. Under the old rules, he would have no tax to pay when he sold the asset. We are back to the old confiscatory regime of capital gains tax, which we inherited and which was eliminated by the former hon. Member for Blaby, Nigel Lawson.
A great many things are wrong with the Bill. First and foremost is the contrast with the problems that Government policy is creating for businesses, especially those in the manufacturing sector. Labour Members' rhetoric suggests that they are losing touch with their constituents and with the real needs of business.
§ Ms MoranThe hon. Gentleman has waxed lyrical about the previous Government's encouragement of enterprise among small businesses. How does he reconcile his comments with the fact that, on average, three small businesses went bust every working day in the last four years of the Conservative Administration?
§ Mr. St. AubynThe hon. Lady does not appear to realise that a proportion of new small businesses do not work. Under any regime, a number will fail, but the number of failures went down dramatically in the last five years of Conservative government, to the point at which receiverships and bankruptcies were the lowest that they had been for a long time. I shall not take any notice of the hon. Lady's remarks on business failures. The previous Government had financial success and they bequeathed a golden inheritance. This Government do not realise the damage that they are doing by unpicking all that good work.
§ Mr. David Ruffley (Bury St. Edmunds)The Budget was a Budget for spinners and was not all that it seemed. Conservative Members are delighted to have the opportunity to delve into the detail on Second Reading and we will do the same in Committee because, with the Government's proposals, the devil is always in the detail.
After the pre-Budget statement in the autumn, there were some rather pernicious proposals relating to ISAs, the Government's proposed new savings vehicle. 667 We carried out a detailed analysis of the proposals and mounted a skilled offensive, which resulted in a Government U-turn. We are glad to see the fruits of our campaign on ISAs encapsulated in the Bill. As we go through the Bill line by line, we shall see many more instances of the Government not thinking through the proposals that they are asking the House to approve.
I should like to focus on the clauses dealing with fiscal stability. In the debate, there has been a great deal of new Labour rhetoric—standard, robotic Back-Bench comments about prudence, stability and fiscal credibility. Labour Members should have regard to the sorry state of affairs attending the representation in the Red Book of tax revenue and receipts. Treasury Ministers have decided to score tax credits, primarily working families tax credits, as negative tax revenue. Those of us who speak to business people and those in the City, and who have some experience of commercial and financial affairs, know that that is nothing but a shabby trick—a ruse—to massage down the tax burden in the Red Book.
Why did Treasury Ministers who were preparing the Red Book figures to be published on Budget day not wait for the decision by the Office for National Statistics on whether income tax credits should be scored as negative tax revenue? As I have said, we think that it was an attempt to massage down the tax burden. Why did the Financial Secretary not wait for the independent decision by the ONS? We await with bated breath the hon. Lady's response, and I trust that she will give a full and frank explanation of what to us and to City practitioners was nothing more than a fiddling of the figures and dodgy accountancy practice.
That is not the end of the story about the scoring of working families tax credits. Ministers did not even get that right in the Red Book because on 27 March, the Financial Secretary had to give a Labour Member a written answer, and column 348 shows that tables B5, B8, B9 and B24 had to be completely recast. In her written answer, the hon. Lady rather disingenuously said that these were "minor errors". The key minor error related to the fact that in the Red Book, the Chancellor said that for the financial year 2002-03, the share of national income accounted for by income tax credits was 0.3 per cent. of GDP. The hon. Lady had to recalculate the figure for her reply of 27 March and it went up to 0.8 per cent, of GDP. Some minor error! Cumulatively and in nominal terms, it was an error of £15 billion. That is an index of the incompetence and the shabby methods of calculation of these so-called fiscally prudent Treasury Ministers. It was a disgrace, and in her winding-up speech, the hon. Lady should explain why that error occurred.
In the end, the Government managed to get one item right. As a result of the way in whey they have scored income tax credits, they have, according to the Financial Secretary's revised answer, brought down the national tax burden as a share of GDP to 37.8 per cent. compared with the 38.5 per cent. that they originally advertised in the Red Book. Perhaps for the Financial Secretary, all's well that ends well. That is new Labour, new accountancy. It is very much in the Robert Maxwell school of creative accounting.
Sadly, the Economic Secretary and the Paymaster General are not in their places. They both worked for the late Robert Maxwell and his dodgy accountancy seems to have rubbed off on them. They are practising these dark arts in the Treasury. They will not wash, and they do not 668 carry any credibility. It is a pathetic joke for Labour Members to parrot the rhetoric of prudence and responsibility when the Government cannot even get basic figures about tax receipts and revenues right and, on Budget day, give the House the correct figures. The House is owed an explanation. I have posed two questions on that technical issue, and I hope that the Financial Secretary will have the good grace to respond to them in detail.
The final issue that I wish to raise is the Government's credibility on tax. I have already described their shambolic accountancy and number crunching in the Red Book, and in subsequent revisions. What about the misleading impressions that the Government gave the electorate before Budget day? Labour Members may not like to be reminded of some of the false impressions that they gave the electorate before Labour came to office. The hon. Member for Dudley, North (Mr. Cranston) made great play of the fact that Labour promised not to increase marginal rates of income tax. We do not dispute that Labour said that, but it went further, as the quotations that I have to hand admirably prove. Labour clearly gave the British people the impression that there would be no unnecessary tax increases.
Perhaps the Financial Secretary could respond to the following question with a straight yes or no. On 8 January 1997, did the Prime Minister, then the Leader of the Opposition, say:
Look, I am not going into the election with anybody saying there is any hidden agenda anywhere. There are no tax increases implied by the programme"?He was speaking not about rates, but about tax increases, and we have had a bellyful of tax increases not only in this Budget, but in the one before it. I await the hon. Lady's reply to my question.The Budget is a tale of woe for the average family. The Library was asked to calculate the cost to an average household of tax and mortgage increases since Labour came to power. These are House of Commons figures. The calculations were based on a typical family, which is sensibly defined as containing a single earner with a non-working partner, two children, a car, a personal pension and an outstanding mortgage of about £40,000, which is the national average.
As a result of the economic policies that have been put into effect by the Labour party, that average family is £1,000 per annum worse off: so much for Labour's posturing about helping ordinary people. We are talking about a married man on average earnings. I should be grateful if the Financial Secretary could tell Conservative Members whether the House of Commons Library is wrong. Has it made faulty assumptions? Has it failed to add up properly?
Perhaps I could assist the Financial Secretary with some numbers because she obviously has difficulty, with her officials, in adding up properly when it comes to scoring tax receipts and credits relating thereto. The mortgage rate changes have added some £400 a year to the average mortgage. As a result of advance corporation tax changes, the pension contributions of the average single earner in the typical household that I have described have increased by £20 a month.
We have a council tax increase which, even on conservative estimates, for band D properties is £60 per annum, and we have the tax changes, the most scandalous 669 of which are the cut in the married couple's allowance—slashed by a third in the Budget—and the petrol tax increases. Not only has there been an increase in the percentage in the escalator, but the timing of the increases has been brought forward in such a way that car drivers pay 38p more per gallon as a result of the Government's policies since 1 May.
We have had some elegant and technically well-informed analyses of the effect that the corporate taxation that has been introduced by the Government has had on British business. I will not repeat some of the points that have been made in excellent contributions by my hon. Friends, but it remains the case that £20 billion extra will be levied on business during this Parliament because of the Government's measures. There is no getting away from the fact that the words of Professor John Kay and Mervyn King in their classic text on the British tax system remain as true today as ever:
There is no such thing as a tax on firms; the effective incidence of all taxes is ultimately on individuals".The average family that I have described is £1,000 worse off; we can demonstrate that clearly. Over the medium and long term, the effects on business will also have an impact on those families; their living standards will drop and they will be worse off.This is a bad Budget. It is a bad Bill and I shall have the greatest pleasure in giving moral and any other support that I can to my hon. Friends, who will take this Bill apart clause by clause.
§ Ms Helen Southworth (Warrington, South)I welcome the opportunity to speak in this debate. I particularly welcome the opportunity to follow the previous two hon. Members who have spoken. When Napoleon said that Britain was a nation of shopkeepers, he was trying to imply small-mindedness and he was wrong; it was not the only thing that he was wrong about. However, I suspect that he has something in common with the hon. Member for Guildford (Mr. St. Aubyn) in that he knew very little about small business in Britain.
§ Mr. St. AubynWill the hon. Lady give way?
§ Ms SouthworthNo. I have only just begun.
Small and medium businesses are dynamic. They are the drivers of the economy. They are entrepreneurs and close to the action.
§ Mr. Owen Paterson (North Shropshire)On a point of order, Mr. Deputy Speaker. Is it not a convention of the House that, if an hon. Member is named by another hon. Member, he should be allowed to reply?
§ Mr. Deputy Speaker (Mr. Michael J. Martin)The hon. Member for Warrington, South (Ms Southworth) chose not to give way and she was perfectly in order to do so. She has only just started her speech.
§ Ms SouthworthThank you, Mr. Deputy Speaker.
As Labour Members know, small and medium businesses are key players in industry and commerce. They are the drivers of the economy and provide 670 46 per cent. of non-Government employment. More than that, they often use their skills in the community not just to improve the competitiveness of their local economies, but, in a range of social sectors, to contribute significantly in education, the health service and the voluntary sector.
In my constituency of Warrington, South, people have developed effective partnerships between local government and the private sector over a number of years, working co-operatively to considerable effect to improve the local economy, so that Warrington is becoming a boom town. They are developing a supportive infrastructure, which means that we have managed to overcome the boom and bust that the previous Government thrust on small businesses throughout the country, resulting in some of the problems that were mentioned by Conservative Members earlier.
Small business people look forward to and welcome a relationship with the national Government and a dialogue that recognises complementary roles. They look forward to working together to create stable economic development, which enhances social cohesion. Those things are important. I recognise that small businesses and small business people are effective in our local economy and local society. I respect them for that, work closely with them and intend to continue to do so over many years in government.
§ Mr. Desmond Swayne (New Forest, West)Would the hon. Lady, therefore, like to reflect on the changes in the capital gains tax regime, which will have a significant effect on small business men who plan to retire in the next few years? Will the dialogue of which she has spoken extend to a dialogue with them and with the Government to bring about a change in the regime that has been announced?
§ Ms SouthworthI am sure that the hon. Gentleman will listen to the rest of the things that I have to say. I am sure that he will listen with interest to the things that both I and my constituents, the entrepreneurs of whom I have been speaking and who welcome many aspects of the Budget, are saying. That particular aspect—listening—is important. I know that it is something that Labour Members recognise to be important. [HON. MEMBERS: "Where are they?"] I am not entirely sure about Conservative Members, but I know that in my constituency, small businesses are saying clearly to me, and I take it clearly to—[Interruption.]
§ Mr. Deputy SpeakerOrder. I do not want so many interruptions. The hon. Lady is in good order and no one should be out of order by adding comments from a sedentary position.
§ Ms SouthworthThank you, Mr. Deputy Speaker.
As I was saying, dialogue is important and the Government recognise dialogue with local businesses. I am pleased to be able to report that discussions that I held before and after the Budget with small and medium businesses in my constituency bring good news. Those local small businesses recognise that the Government are working for and with them, and that the Bill will have a direct impact on the effectiveness of their businesses.
The key issues for local small and medium businesses, which they tell me about, which I listen to and which the Government listen to, are that they want economic 671 stability and prudence—something which some Conservative Members were laughing about earlier—a stable economy and customers with money in their pockets, all things that the Bill is bringing forward. They want to survive and thrive and, working with this Government, that is going to happen.
Those businesses made clear comments on the new deal, recognising that there is a skills gap. Earlier, Conservative Members talked about the destruction of manufacturing industry. We remember that clearly. We remember what happened when the Opposition were in government. We saw manufacturing, certainly in the north-west, destroyed and taken apart. Skills and opportunities were lost and businesses were closing by the minute. The Government are having to rebuild from that position, but we are taking on that responsibility and taking action that will rebuild business in Britain.
Small businesses welcome the new deal because it is giving them an opportunity to develop skills. More than that, big businesses also recognise that they have a role to play in the development of a skilled work force and that they have to support small businesses. Only last week, I was talking to one of the senior directors of a building company who referred to the crucial need for him to support trades people in their development of skills so that small businesses would have a pool of labour to employ and he could make his own business more effective.
§ Mr. St. AubynThe hon. Lady accused me of knowing nothing about small business. I run a small business in the construction sector and we were helping people to develop their skills in that sector for years before the Government came on the scene.
§ Ms SouthworthI am so impressed, but I am saddened that those skills were not used when the Conservative party was in government because if they had been, the building industry might be in a far better state than it is now.
Small businesses in my constituency and other small businesses to which I have spoken value the joined-up thinking of the Government and welcome the co-ordinated action that the Bill demonstrates. They also welcome the fact that it demonstrates support for the social aspects of the new deal across Government Departments.
Another important and interesting aspect of the dialogue with businesses is that they tell me how bitterly disappointed they were that 50 per cent. of 11-year-olds entering secondary schools were without basic standards in the three Rs. Small businesses said that they had to take on employees without basic literacy skills and felt that they should not have to compensate for the poor educational standards of the previous Government. They and the Government recognise that there is a cost to local employers if employees do not have basic skills.
The research and development proposals in the Bill are working actively to reverse the trend of recent years in which civil R and D spending has been reduced as a proportion of GDP year on year. I welcome the Government's proposals to increase investment in R and D and, equally importantly, to ensure that research results are exploited effectively so that nationally, we gain the economic benefit of our intelligence and skills.
Coming from Warrington, I am pleased that we are working hard to encourage the formation and growth of small high-tech companies. That is demonstrated by the 672 Budget announcement of the £50 million venture capital fund for universities. Other significant points for my constituency include the removal of the barriers to growth—the regulatory burdens that we are cutting—the fact that we are giving better and more co-ordinated advice to small businesses, the tax and national insurance co-ordination, the payroll services we are offering and the experimental call centre at East Kilbride. This Government, together with small businesses, recognise that customers should be served effectively if we are to succeed. We are ensuring that the Government are servicing our small business customers.
I talked about dialogue and I want to discuss with the House the ballot of the Forum of Private Business on the 1997 Budget. Its members were balloted and asked a series of specific questions, and their verdict was that the overall Government handling of the economy and of non-tax issues was positive and that the impact on tax issues was neutral.
I further want to bring to the House the comments of the Federation of Small Businesses and its reaction to the 1998 Budget. [Interruption.] The FSB policy unit chairman, Brian Prime, said:
The Chancellor has delivered a Budget for both employers, employees and consumers.[Interruption.]
§ Mr. Deputy SpeakerOrder. I will not tolerate private discussions in the Chamber. If hon. Members want to enter into private discussions, they can do so outside.
§ Ms SouthworthThank you very much, Mr. Deputy Speaker. The Federation of Small Businesses would be interested to learn that Conservative Members chose to have a private chat rather than listen to its views.
§ Mr. St. AubynWill the hon. Lady give way?
§ Ms SouthworthNo.
As I was saying, the policy unit chairman said:
The Chancellor has delivered a Budget for both employers, employees and consumers. Small businesses with long-term investments will benefit, more people will be encouraged into the jobs market and at the same time consumers will have more money in their pocket.That is precisely what the small businesses in my constituency were asking this Government to provide before the Budget.The Forum of Private Business talked about what it considered to be "significant progress" in the 1998 Budget, which included:
Integration of the administration of income tax (PAYE) and national insurance by transferring the Contributions Agency … from the Department of Social Security to the Inland Revenue.Simplification of capital gains tax through the introduction of a tapered regime (endorsed by members in Referendum 133)Reductions in corporation tax rates.Continuation of the enhanced first-year capital relief at 40 per cent.Measures to encourage and reward work including reducing NI costs at the lower pay scales and a move to a single rate of NI which should be simpler to administer.It said that they were all significant measures. 673 Thank you, Mr. Deputy Speaker, for giving me the opportunity to bring to the House the things that small businesses in my constituency and throughout the country have been saying about the Bill. I would have been happy had Conservative Members been prepared to listen to those things because it would have been better for the country. However, I am happy to know that the Government listen and take action, and intend to be in office for many years so that the country will benefit and small businesses can continue to participate in partnership with local government and national Government.
§ Mr. David Heath (Somerton and Frome)I spoke briefly in the Budget debate, and expressed my views on the broad shape of the Budget. There are many things within it that are entirely to the Government's credit, but there are other things with which I disagree, and some with which I profoundly disagree. Ministers will not be surprised to hear me say that.
The specific areas of disagreement largely fall outside the scope of the debate, in that they are concerned mainly with expenditure rather than income. I am sure that I would be ruled out of order if I dwelt on the fact that I see little benefit from the Budget in the county of Somerset in terms of the provisions on which we rely to educate our children, and to provide a health service and all the other services that people expect.
My only comment on that—it would be otiose to repeat the comments that I made previously—is to refer to the intervention by the hon. Member for Edmonton (Mr. Love), who is not in his place at the moment and who was kind enough to ignore my existence earlier in the debate. He mentioned clause 152 and the provision in the Bill for the National Audit Office to provide an assessment of the assumptions that underlie Budget expenditure.
Would it not be a good idea if the Audit Commission—I confess my murky past as a member of that body in a previous existence—were to assess the effectiveness of the Government's budgetary measures in providing an even service for local authorities and the health service? Such an audit might show up the inequalities in provision that exist across the country, and the areas that are badly treated by present Government policy.
I also draw attention to the difficulties that the increase in petrol duty will cause to a great many residents in my constituency without the important counter-balance of reform to vehicle excise duty. It would have been so much better had the Government introduced concrete proposals to reform vehicle excise duty at the same time as they increased the petrol tax.
Similarly, the best single measure for small businesses—certainly in my constituency—would be for the uniform business rate to be replaced by a fairer and locally administered alternative. We have not seen the progress that I had hoped the Government would make in that area.
I base the main thrust of my speech on clause 2, particularly subsection (3), which deals with the rate of duty on sparkling cider. As I am a Somerset Member, it may not be surprising that I wish to talk about cider.
674 Indeed, a number of my constituents would be happy were I to propose the abolition of duty on cider. There was a time, in my youth, when cider carried no duty. It was half a crown a gallon. The Chancellor of the Exchequer did not consider it worthy of his attention; what is more, the health inspectors did not consider it worthy of their attention either, and a much better drink it was for those reasons.
I am concerned about a category of cider that is seriously affected by the Bill—bottle-fermented cider. I do not think that the Government intended that. I am not taking a populist line, because few people in Somerset drink it. It is a niche product, and there is not a vast employment consequence. It is affected by the increase in duty on sparkling ciders and the reduction in duty on sparkling wines.
The Government's rationale for what they doing is that there have been complaints from the Italian Government and the European Commission that certain alcoholic beverages made from apples and pears are being sold as Italian sparkling wines. I do not know why anyone should counterfeit Italian sparkling wines, but such an industry has developed.
Because the European Commission upheld the Italian Government's complaint, the Conservative Government introduced a separate category of sparkling ciders in their Budget two years ago. There have been increases in duty to make a uniform duty framework for the two products, and sparkling cider carries 100 per cent. more duty than normal cider.
§ Mr. FallonDoes that mean that, on this issue at least, the hon. Gentleman is deviating slightly from the Liberal Democrat policy of European tax harmonisation?
§ Mr. HeathLet me be clear that what we are talking about is harmonisation within this country of two totally disparate products. If the hon. Gentleman listens a little further, he will find out what I mean.
The proposal will not have the desired effect—that is the tragedy. Bottle-fermented sparkling cider, a craft product, will carry 100 per cent. more duty than ordinary cider, and by next year, if the Government's suggestion is carried through, it will carry 200 per cent. more duty than its commercially produced equivalent. We are talking about a craft product that is consumed by few people. It is made in the old-fashioned way on a few farms in my constituency and elsewhere. It employs relatively few people.
The difficulty is with the products that pretend to be lambrusco. I am told that there is a product made in the north of England called lambrini bianco. It is a sparkling perry, and has a picture of Venice on the label to convince people that it is a lambrusco from Italy, although it is in fact a lambrini from Liverpool. The Government have gone to great lengths to change the duty because they are so concerned about this disastrous situation. Unfortunately, they do not seem to have read the fine print of the regulation from Customs and Excise.
The Customs and Excise regulation resulting from the 1996 Budget provides for a separate rate of duty for
sparkling cider and perry defined as exceeding 5.5 per cent. alcohol by volume (abv) but less than 8.5 per cent. abv which is contained in bottles with 'mushroom stoppers' held in place by ties or fastening, or which has an excess pressure due to carbon dioxide solution of three bar or more.675 I know that all hon. Members are aware of that, and they will also recognise that lambrini bianco does not fall into that category. It will carry exactly the same duty as before, because it has a pressure of less than one bar, and so will continue to be a counterfeit Italian wine. The only people who will suffer are those making traditional Somerset cider that is bottled and fermented and sold at only a few outlets across the country.What will the net revenue effect be? The Minister has estimated that there will be £5 million less duty as a result of the reduction in the duty on sparkling wine, but the increase in duty on the bottle-fermented cider will he about £200 or £300 certainly less than £1,000. People are being put out of business for that small sum. I do not believe that that was the Government's intention. I believe that it is a mistake, and that Customs and Excise has given grossly misleading information.
If the committal motion is agreed later this evening, we shall not have the opportunity to debate this important matter on the Floor of the House, so I must make my point now. I do so on behalf of very few people, but I hope that the Financial Secretary will look at the matter again, and be able to tell me on Report that she has regularised the position so that people like my constituent Mr. Julian Temperley, who makes an exceedingly good cider in Kingsbury Episcopi, will be satisfied that the Government have listened to the small battalions as well as the big ones, and that such people will be able to continue to make their product.
This has nothing to do with Taunton, Bulmer or any of the big producers, which do not make cider in the category in question. I am talking about a few farmers who make a specialist product, whose voice should be heard.
§ 9.7 pm
§ Mr. Geoffrey Clifton-Brown (Cotswold)I am grateful to have caught your eye, Mr. Deputy Speaker, and to follow the hon. Member for Somerton and Frome (Mr. Heath). My speech will range a little wider than his.
As I said in my speech on 18 March at column 1341 of Hansard, there was considerable disappointment after the Budget, because the pound immediately strengthened to a nine-year high, and now stands at almost $1.7 and more than DM3. Larger manufacturers in particular will simply transfer their production to lower-cost centres elsewhere in the world, which means that we are exporting jobs. No socialist Government have ever left office with unemployment lower than when they took office, and I predict that this Labour Government will be no exception.
There is another unfortunate effect of a high pound. If it remains high—at more than DM3—for 15 days preceding 5 May, the green pound will have to be revalued yet again, putting further pressure on our already overburdened farmers. Farmers will find that the support they receive from Europe is suddenly reduced because of the revaluation of the green pound.
Let me refer to a matter that was addressed by my hon. Friend the Member for Guildford (Mr. St. Aubyn)—the very wide powers that clause 87 gives the Treasury under secondary legislation. This Finance Bill confers some of the widest secondary powers conferred by any Finance Bill.
676 I refer particularly to clause 158, which provides the enacting legislation to prepare for European monetary union. Subsection (4) reads as follows:
The power to make regulations under this section includes—In one Bill, Henry VIII transferred the whole religious status of this country—
- (a) power to impose charges to taxation;
- (b) power to amend or repeal any enactment; and
- (c) power to make such incidental, supplemental, consequential and transitional provision as appears to the Treasury to be appropriate."
§ Mr. SwayneRightly so.
§ Mr. Clifton-BrownI am not sure about that, and nor were subsequent generations. My hon. Friend makes an interesting sedentary contribution to my peroration.
I understood that the House was based on a money-granting provision. That was the reason for the Parliament Acts earlier this century, and it is why only this House can pass financial legislation.
Paragraph 15 of the explanation of clause 158 that the Government have kindly provided states:
The breadth of the enabling power also means the Government will be able to remove any further specific obstacles arising from the introduction of the single currency which businesses may identify later in the run-up to EMU.The Bill is an utter disgrace, because it completely ignores Parliament. The sovereign Parliament of the United Kingdom is being marginalised in a way that I have not seen since I entered the House.
§ Mr. GrieveI was trying to find the correct way of putting it, but does my hon. Friend agree that, like Henry VIII's legislation, the Bill is arbitrary, tyrannical and lacking in sensitivity—precisely what the hon. Member for Warrington, South (Ms Southworth) seemed to believe that this caring, sharing Government were all about?
§ Mr. Clifton-BrownI hear what my hon. Friend says.
The Prime Minister may consider himself president-elect and world peacemaker extraordinary, but he is ignoring Parliament. He is presiding over an increasingly presidential regime that Labour Members may have cause to regret. Power corrupts, and absolute power corrupts absolutely, so that is what will happen to the Prime Minister.
After a sustained campaign by my right hon. and hon. Friends, we managed to persuade the Government to listen to the hundreds of thousands of small savers, and not abolish PEPs and TESSAs.
§ Ms Sally Keeble (Northampton, North)Opposition Members have made great play of the fact that they have managed to effect those changes. Does the hon. Gentleman accept that one of the forceful points that made the Government change their mind was the fact that many women have PEPs pensions because of the nature of their earnings pattern? Does he also accept that the disgraceful antics of himself and his colleagues during the speech by my hon. Friend the Member for Warrington, South (Ms Southworth) will make absolutely sure that the faith of many women in the Opposition's ability to listen, let alone act in their interests, is roughly zilch?
§ Mr. Clifton-BrownI am grateful to the hon. Lady for that speech, which purported to be an intervention. 677 However, she made an interesting point. Small savers who are saving for their old age will be hit by the phasing out of PEPs and TESSAs.
§ Mr. SwayneWomen among them.
§ Mr. Deputy SpeakerOrder. The hon. Member for New Forest, West (Mr. Swayne) must behave himself.
§ Mr. Clifton-BrownI will not listen to my hon. Friend any more.
I was referring to the curtailment of PEPs and TESSAs, combined with the abolition of ACT and the increase in national insurance. Effectively, that will reduce savings—particularly of those who are saving to buy a house, or those saving for nursing or residential care in their old age. It will make vulnerable old people increasingly dependent on the state.
The previous Conservative regime encouraged people to take out their own personal pension, so that 50 per cent. of all people retiring now have some form of personal pension. That is the route we ought to be encouraging people to go down, so that, when they retire, they can be independent and make their own choices, and not rely on the state. Chart A3 on page 90 of the Red Book makes it clear that the savings ratio went down by 1 per cent. last year, and will go down again this year. That is not healthy for this country.
I mentioned national insurance, and I wish to refer to what I believe to be a flaw in the Bill. I will be grateful if the Financial Secretary could look at this matter before she replies. In his Budget speech, the Chancellor said:
Further reforms will ensure that no one pays national insurance for the first £81 of their weekly eamings."—[0fficial Report, 17 March 1998; Vol. 308, c. 1106.]However, paragraph 3.31 of the Red Book says:The lower earnings limit for employees will remain unchanged (at £64 in 1998-99.)Clearly, the two statements cannot be correct. I have looked to try to find whether the Bill addresses that anomaly, but I cannot see whether it does or not. I should be grateful for an explanation.I have listened carefully to the debate—including the speech of the hon. Member for Warrington, South (Ms Southworth)—and I have heard Labour Members say nothing about stamp duty. Like insurance premium tax, stamp duty was set at a relatively low rate, and did not deter anyone from their normal behaviour—in the case of stamp duty, from purchasing or selling property. When the rate was 0.5 or 1 per cent, that situation applied. Now, there have been serious increases. For the band between £250,000 and £500,000, stamp duty will be 2 per cent. More significantly, for those properties over £500,000, the rate will be 3 per cent.
The notes on clauses are helpful, because they tell us that £390 million will be raised by the increases, more than 75 per cent. of which will be raised on commercial and landed property—mainly commercial property. When people make property transactions, many other areas of the economy are affected. When people move house, there is an effect on the soft furnishings sector. When commercial or office property is sold, there is an effect 678 on lawyers, estate agents and office refurbishment companies. Thus, the whole economy benefits, and the money goes round. One must look at the distorting effect that this tax increase will have.
§ Mr. Denis MacShane (Rotherham)Does the hon. Gentleman have any idea how many properties worth more than £250,000 are regularly on the market in my constituency?
§ Mr. Clifton-BrownI have no idea, but I suspect that some commercial properties will be on the market. If a profitable firm in the hon. Gentleman's constituency wants to move to a bigger office but cannot do so and is therefore stifled, the hon. Gentleman will not be pleased.
Adam Smith, that great philosopher, said that the cardinal principles of taxation were that it should be simple, fair and easy to administer. The Government clearly did not pay heed to their consultation paper on capital gains tax, as all the measures in the Bill have an effect that is the opposite of Adam Smith's cardinal principle. Capital gains tax is already vastly too complicated; its administration takes up far too much of accountants' and tax professionals' time. Now, it will be even more complicated and expensive to administer, as 17 extra tax bands will be introduced.
Much more spitefully, retirement relief will be removed. After 2003-04, all those people in small and medium businesses who have worked hard all their lives and want to retire with a nest egg will not be able to do so without paying capital gains tax. That is a particularly spiteful measure.
I believe that the Budget has failed. It has failed to encourage an improvement in long-term macro-economics. It does nothing to help inward investment, employment, the balance of payments or growth, and it does nothing to help meet the Chancellor's inflationary target. In short, it is a total failure, and it will come to haunt the Government.
§ Mr. Michael Fallon (Sevenoaks)Over the past six or so hours, we have had a long, wide-ranging, useful and sometimes entertaining debate, and I want to refer to those hon. Members who have contributed to it.
In a typically thoughtful speech, the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) pointed out the continuing uncertainty that is bound up in the arrangements of the new Monetary Policy Committee. The hon. Member for Gordon (Mr. Bruce) welcomed bits of the Budget, but then brought to the Floor of the House his quarrel with the Treasury Select Committee—perhaps that would be better left upstairs.
The hon. Member for Stafford (Mr. Kidney) spoke knowledgeably about capital gains tax, and bravely intervened twice on the Chief Secretary—we shall see in a day or so whether that strengthens or weakens his bid for membership of the Standing Committee.
In one of the best speeches of the day, my hon. Friend the Member for Grantham and Stamford (Mr. Davies) eloquently dealt with the invidious and distortive nature of the new system of corporation tax payments.
The hon. Member for Peterborough (Mrs. Brinton) understandably lavished praise on her early-day motion and then asked for some specific capital allowances, 679 including allowances for fleet owners. We await to see whether the Financial Secretary will exercise largesse on that.
My hon. Friend the Member for Beckenham (Mrs. Lait) rightly drew attention to the growing problem of bootlegging and smuggling, which particularly affects south-east England, especially Kent. It is having a marked effect on the sale of beer and tobacco and on the survival of public houses in our region. That is a matter to which we shall certainly want to return when we debate the detail of the Bill in Committee.
§ Mr. FallonI am sorry, but I shall not.
The hon. Member for Luton, South (Ms Moran) claimed that businesses supported the Budget. Indeed, she claimed that small businesses supported the Budget. She did not mention—I am sure that it was inadvertent—whether large businesses, including car manufacturers in Luton, supported the penal charges that will be put on car use.
My hon. Friend the Member for Witney (Mr. Woodward) eloquently warned of the dangers to investment—anyone with a serious interest in our economic prospects over the next couple of years would profit from reading his speech again.
In what I am sure was an inadvertently amusing speech, the hon. Member for Dudley, North (Mr. Cranston) first praised the code for fiscal stability and then urged the Department of Trade and Industry to intervene in the Treasury's handling of the economy. Finally, on the clauses relating to charitable giving, he suggested that third-world countries might welcome out-of-date law books. Perhaps they might welcome even more some out-of-date lawyers to go with them.
The hon. Member for Kingston and Surbiton (Mr. Davey) rightly criticised the Government's dogma in hammering manufacturing industry. The hon. Member for Halton (Mr. Twigg) praised last year's fiscal tightening, but showed no understanding of the damage that it is doing to his own constituency.
In an enlightening speech, my right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke) gave us the full benefit of his ministerial, professional and indeed literary expertise. He was equally instructive in the matters of city diesel and gaming duty, and I assure him that those are both matters to which we intend to return in Committee, whether or not he is invited to serve there.
The hon. Member for Edmonton (Mr. Love) claimed that the lower rate of corporation tax would create jobs. Presumably, then, he would accept that the increased burden of corporation tax will destroy jobs.
My hon. Friend the Member for Guildford (Mr. St. Aubyn) attacked the arbitrary, retrospective and unparliamentary nature of the Bill and gave us valuable evidence of the changing mood of former Labour supporters by praying in aid his own fence maker: only one, I am sure, of a vast army of specialist craftsmen working on his estate, who are all doubtless equally disillusioned with what they have to pay under new Labour.
680 My hon. Friend the Member for Bury St. Edmunds (Mr. Ruffley) drew attention to the Red Book fiasco—a matter to which I shall return later—and pinned down Labour's impact on a typical family budget so effectively that not one Labour Member challenged the figures produced by the Library, showing the burden to have increased by more than £1,000 since 1 May last year.
The hon. Member for Warrington, South (Ms Southworth) said that dialogue was important. I hope that she keeps up that dialogue, and that when unemployment starts rising in her constituency, as I fear it will, she will report back honestly on that.
The hon. Member for Somerton and Frome (Mr. Heath), in the best tradition of old Liberal politics, spoke up for a single craft product in his constituency. He concentrated his entire speech on the duty not even on cider generally but on bottle-fermented cider: a duty, as I pointed out in an intervention, that has been increased solely to meet the aspirations of European tax harmonisation, which is otherwise endorsed by the Liberal Democrats.
My hon. Friend the Member for Cotswold (Mr. Clifton-Brown) warned the House eloquently of the prospect of rising unemployment and took the Government to task about the arbitrary powers contained in the Bill.
The Bill is damaging. Yesterday, we had good news: the public sector borrowing requirement is heading back towards balance, at the end of a year that we, the Conservatives, began. That is a tribute to our earlier Budget decisions, which were unpopular at the time, taken in the teeth of a recession and opposed by the Labour party.
Any further progress towards balance simply reflects Labour's commitment to our spending targets. The judgment for the House to make tonight is whether Labour's first two Budgets, encapsulated in the Bill, continue that Conservative progress or jeopardise the golden legacy that Labour inherited. This is a damaging Bill. It confirms all our fears. It confirms Labour's broken promises on tax and complements all the mistakes made in the Government's first Budget. Finally, it confirms that this Government are now pushing business to the very brink of recession.
First, let us deal with the promises. The Government said clearly that there was no need to increase taxes—not income tax, but taxes. The Bill does increase taxes—it increases the people's taxes. It further cuts the married couple's allowance and further adds to the burden of taxation—council tax, petrol tax and personal tax—borne by the ordinary family. That was not in the manifesto of any Labour Member. Those are broken promises.
It is not merely the people who will pay more tax as a result of the Bill, as businesses will pay more. As my hon. Friend the Member for Grantham and Stamford so eloquently set out, the lower rate of corporation tax and the different payment system that the Government propose do not together even compensate for the extra payments involved in bringing corporation tax forward.
Clauses 30 to 36 and the Red Book figures make that clear. Business will pay an extra £1.6 billion in the year beginning 1999, an extra £2 billion in the year beginning 2000 and an extra £3.1 billion in the year beginning 2001, which is about £6.8 billion more in this Parliament alone—far more than the effect of any 1 per cent. cut in 681 the rates. Added to the cost of abolishing ACT credits, that gives a net extra burden on business of £18.5 billion during this Parliament, and that is before the windfall tax, the stamp duty that applies to businesses, the fuel costs that pile extra costs on to businesses and farmers and the extra company car taxation. All those are costs that businesses must now absorb while the Chancellor lectures them on becoming more competitive and the economy slides towards recession. Far from reducing the burden on business, the Bill simply adds to it.
Some of the Bill clumsily—very clumsily—tries to correct some of the mistakes made in the Finance Act 1997. Of course, the rate of corporation tax had to be lowered, simply because business was screaming about the cost of bringing the payments forward. The provisions on the individual savings account attempt to correct the disaster of the consultation document. The code for fiscal stability in itself acknowledges that a Labour Government cannot be trusted not to mess up the public finances.
The Bill goes on to make new, technical, important mistakes on personal pensions and transfer pricing. The industry concerned has written to the Minister, saying:
There is considerable consternation… that insurance companies… will be included within the proposed transfer pricing legislation … this will result in more expensive financial services products and a poorer deal for the consumer.The Government have got that wrong. As my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory), the former Paymaster General, pointed out, they did not bother to consult at all on gaming duty. Suddenly, the casinos and the gaming industry were faced without warning with a massive increase. All those are measures that we shall have to put right in Committee.Of course, we welcome the U-turn on individual savings accounts, but it is only a partial U-turn. The current annual limit of £10,800 is being reduced to £5,000, which is less than half, and it is still a lifetime limit. The Paymaster General, and we have not seen much of him today—[HON. MEMBERS: "Where is he?"] He is attending to other matters. He said that he will guarantee that the tax relief in the ISA will last for 10 years. It will not have escaped my hon. Friends that a £5,000 limit for 10 years is the £50,000 limit reintroduced by the back door. I further point out to the Financial Secretary that that pledge—and when the Paymaster General talks about trust, we need a little more detail—is not in the Bill. We shall table amendments to ensure that it is.
Above all, the ISA is not likely to be effective. Because the tax credit on dividends has been cut from 20 to 10 per cent., only upper-rate taxpayers will find it worth while. The Labour-dominated Treasury Select Committee stated:
Given that those on the lowest incomes do not pay income tax anyway, and therefore will not benefit, as well as being short of money to save, it is not immediately obvious how ISAs will help.On capital gains tax, the Government have still not given answers about the complexity of the proposed taper and their failure to consult adequately. I hope that the Financial Secretary will address the point. Proper consultation is not simply a question of inviting people to write in with their views on capital gains tax. The Treasury Select Committee report states:
We regret that the capital gains tax proposals were not included in the Pre-Budget Report; we recommend that the Treasury should give urgent attention to reducing the complexity of the new system of tapers.682 Clauses 151 and 152 deal with the code for fiscal stability. It is, of course, only a code, and not binding on the Government. The code comprises only the Treasury's understanding of the five principles concerned. Indeed, the Bill provides for the Treasury to be able to modify the code if its understanding of the five key principles should suddenly change. Crucially, the code does not cap tax or spending. Indeed, tax and spending could double and the code could still be satisfied. We see only one advantage in the code for fiscal stability: it puts the Red Book on a statutory basis and ensures that it is accurate.I come now to the point first raised by my hon. Friend the Member for Bury St. Edmunds. Since the Red Book appeared, the Financial Secretary has had to correct it. She has increased the value of tax credits by £1 billion next year, £3 billion the year after, £5 billion the year after that and £5 billion the year after that, an increase in the full five years of 0.5 per cent. of GDP per year. The difference between the Red Book figures and the table that she had to publish later is £15 billion. In her written answer, she called that a minor error. I shudder to think what she considers a major error. Clearly, she is not a lady one should lightly go shopping with. The Treasury official contacted by the Library acknowledged that the error was highly regrettable. I hope that she will come clean and apologise for her £15 billion mistake.
Finally, I want to address the last point made by my hon. Friend the Member for Cotswold. An enormous part of the Bill is left to regulation. At least 22 clauses give the Treasury, the Revenue and Customs and Excise further powers to make regulations that we know will escape proper scrutiny by this House through the negative resolution procedure. My right hon. Friend the Member for Wells quoted the tax partner at Coopers and Lybrand who said:
"I think we are getting perilously close to some constitutional issues".
§ Mr. Clifton—BrownWill my hon. Friend give way?
§ Mr. FallonI will not; I have only a minute left.
The Financial Times said:
The Inland Revenue declined to comment, saying the issue was for politicians…Privately, officials … believe … that Ministers do not want to be seen to make U-turns.In other words, they want carte blanche tonight to make orders or regulations under 22 different clauses, when outside the House people will not be able to see those requirements and provisions being properly scrutinised.The key to the long-term stability that both sides of the House want is to encourage savings and investments, not to discourage them; to back business, not to heap extra costs on it; and to keep taxes low. The Bill fails those tests. As with the Chancellor's first effort last July, it will only further undermine savings, further push up the burden of taxation and further push British business into recession. I invite my hon. Friends to vote against it.
§ The Financial Secretary to the Treasury (Dawn Primarolo)This has been a wide-ranging debate. It has ranged from bottle-fermented cider to casinos, from fences in Guildford to the influence that Henry VIII may or may not have had on our proceedings this evening—comments not always obviously connected with the Bill. 683 The Liberal Democrats want to tax consumers more, but they are against every tax rise. Conservative Members cannot decide among themselves what they agree with. On the one hand they complain that the Bill is too long and complex and on the other they complain that there is too little in it. One minute they advocate the introduction of a taper for taxing long-term capital gains and the next they are rapidly trying to distance themselves from the idea—or at least some Opposition Members are. One minute they claim that the Government have increased the burdens on families, the next they advocate more consumption taxes and criticise the help that we are giving to families through the working families tax credit. The Opposition can presumably agree what today's date is, but not a lot else.
The Budget continues the process of modernising the British economy. The objectives are to raise the sustainable growth rate for the long term, ensuring that everyone has a share in rising prosperity; secure economic stability based on low inflation; sound public finances; promoting enterprise; encouraging work; and creating a fairer and more efficient society. The Bill builds on the work begun in the first Finance Bill of this Parliament, which introduced the new deal, which is already helping the young and long-term unemployed back to work.
§ Mr. Malcolm BruceWill the Minister give way?
§ Dawn PrimaroloI shall make a little progress and give way to the hon. Gentleman later.
The right hon. Member for Wells (Mr. Heathcoat-Amory) and other Conservative Members referred to the golden legacy that their Government bequeathed to this Government-the golden legacy of national debt doubling in six years and spending of more than £25 billion a year to service the debt. The Conservative Government doubled VAT when they promised they would not and imposed it on fuel when they said that they would not increase or extend it. One household in five of people of working age with no one in work, rising inequality between rich and poor and one in three children growing up in poverty—that is the golden legacy that the Conservatives claim they left the Labour Government. The electorate took a different view last May—that not only did the Conservatives not have a golden legacy, but they did not have a legacy to stand on at all—and threw them out of office.
The right hon. Member for Wells made an extraordinary speech—I am not sure whether he believed in it himself, let alone expected the House to support him. He said that the length of the Bill was excessive, as was the use of regulation. When he was a Minister, he was a master of the use of regulation and of ensuring that that was how legislation would proceed through the House. The right hon. Gentleman complains, but he turns a blind eye to what he did when he and his party were in government.
The right hon. Gentleman attacks the Government on our policy on diesel, in blissful ignorance of the nitrous oxide and particulate emissions that are so damaging to urban air quality and people's health. In a gratuitous attack, he decides to take a swing at the Government on our review of alcohol and tobacco smuggling and fraud—a problem that his Government failed to tackle. The hon. Member for Beckenham (Mrs. Lait) also spoke about that 684 problem, although she went a little over the top in blaming the Treasury for everything, including creating crime. I shall return to some of her points later.
The House will recall that in the July Budget we announced a review of alcohol and tobacco fraud. That was co-ordinated by customs in partnership with the trade, for whose representatives' significant contribution I am grateful. The review reported to me at the end of the year, as promised, since when my Treasury colleagues and I have been studying the proposals carefully. As the House might expect, the proposals have resource implications and it is only right and proper that we should decide how they can be evaluated against other commitments and priorities. We shall therefore announce our plans as part of the outcome of the comprehensive spending reviews.
In the meantime, we shall continue to take action to crack down on smuggling. In 1996–97, customs seized smuggled goods to the value of £30 million and I am confident that that figure will be improved on. Smugglers are criminals, not enterprising Jack-the-lads, so I shall be announcing a tougher approach toward offenders and, during the next few weeks, I hope to announce further measures to allow quicker disposal of seized goods and vehicles, which will help to reduce customs' costs.
The hon. Member for Beckenham spoke about the problems of crime, especially the use of tobacco by the young, resulting from smuggled goods. There has been no diversion of resources from drug smuggling to tobacco. The Government are increasing the pressure and concentrating on dealing with smuggling. We do not take a cavalier attitude to the problem. The problem of smuggling did not arise only in the past 10 months, but built up over a number of years because of the Conservative Government's lack of action, so I implore the hon. Lady to support the Government in the action we take.
§ Mrs. LaitThe hon. Lady may remember using some of the arguments I used tonight when the Conservatives were in government and she was in opposition, so she cannot say that she comes to the debate fresh. Will she tell the House whether the Government have increased the resources available to customs, or is customs having to use the same amount of money to combat both drug smuggling and tobacco and alcohol smuggling?
§ Dawn PrimaroloThat is an incredible argument from a member of the previous Government, who cut customs' resources so substantially as to undermine its ability to tackle that very problem.
The right hon. Member for Wells asked a series of questions about the working families tax credit. In the next Session, in autumn 1998, the main legislation on that will be introduced as a Bill. The detailed rules, setting out who will receive the tax credit and providing information for employers, will be contained in that legislation and will follow Royal Assent to the Bill—and will provide for the important scrutiny of those proposals that the House requires.
My right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) emphasised the importance of stability and of the Government's commitment to manufacturing industry. He spoke about the future of the euro, calling on hon. Members not to engage in ostrich behaviour and pretend that the euro would not happen. He 685 also, I think by way of congratulation, said that, at the start, the Government were cautious in their policy. I take that as a compliment, because that is no bad thing in the early stages of a new Government.
My hon. Friend the Member for Peterborough (Mrs. Brinton) raised many points on environmental policy. I know that she is an active member of the Environmental Audit Committee, before which I have had the pleasure of appearing. The environment measures in the Budget deal with CO2 emissions, urban air quality and a reduction of vehicle excise duty for buses and lorries with clean fuel. We are restructuring vehicle excise duties on cars and will engage in consultation on that to ensure the use of smaller, cleaner cars.
We have allowed for the conversion of gas vehicles. We have increased the price differential between ultra-low-sulphur diesel and diesel. We are introducing measures on energy-saving materials. We have dealt with free fuel for company car users. We have increased the landfill tax. Policy is developing in many other areas.
My hon. Friend the Member for Peterborough proposed several candidates for consideration in the context of environmental policy. I carefully noted her arguments—and arguments made by the Environmental Audit Committee and the Treasury Committee. I am sure that Government policy will develop in that area.
§ Mr. GrieveHow does the hon. Lady view the landfill tax in the light of the problems of illegal dumping that have developed as a direct result of it? Is not the way in which the tax has been introduced a thoroughly blunt instrument?
§ Dawn PrimaroloThat intervention is breathtaking. The landfill tax was introduced by a Conservative Government and the hon. Gentleman is a Conservative Member. We happen to think that it is a good environment tax. Fly tipping needs to be taken seriously and tackled, but that problem is not a reason to weaken the commitment to the landfill tax or to relax our pressure on people to recycle.
My hon. Friend the Member for Luton, South (Ms Moran) spoke about the comments from the front line of Luton. At a business breakfast, we had the benefit of discussing the Budget proposals with business men and women from her constituency. Like many others, my hon. Friend rightly welcomed the commitments to small business; the reduction in national insurance contributions; the amalgamation of the Contributions Agency into the Inland Revenue; the reduction in corporation tax; and the investment relief changes.
My hon. Friend the Member for Dudley, North (Mr. Cranston) made some good comments on the cash basis proposals in the Bill. He has taken a great interest in anti-avoidance—a matter covered in the Bill—and undoubtedly he will be interested, when the draft clauses are produced for consultation, to see whether we can build on the tax law rewrite proposals to introduce a general anti-avoidance regulation.
The hon. Member for Kingston upon—
§ Mr. Edward DaveyKingston and Surbiton.
§ Dawn PrimaroloThe hon. Member for Kingston and Surbiton (Mr. Davey) mentioned insurance premium tax. 686 I remind him that it too was introduced by the previous Government because of identified value shifting, and that that reasoning still applies, especially in the case of cars and televisions—the examples that he took. The higher rate of IPT on certain travel insurance was applied because of specific market conditions that have developed in this sector. [Interruption.]
§ Mr. Deputy SpeakerOrder. There is far too much background noise. We must hear the Financial Secretary.
§ Dawn PrimaroloIn Committee, we shall be happy to discuss value shifting and IPT, but the Government's position remains the same on the sectors that the hon. Gentleman identified.
§ Mr. Malcolm BruceThe hon. Lady is going through a catalogue of taxes. Will she now acknowledge that Government borrowing this year will be less than £1 billion against the previous Government's forecast of £19 billion? Will she explain why, contrary to Government pledges, spending on education as a percentage of GDP should still be falling and say when the nurses and teachers will be able to share in the country's prosperity—in which the hon. Lady says she wants everyone to share?
§ Dawn PrimaroloI am trying to answer the points that were put to me during the debate, which for numerous hours Conservative Members have implored me to do. We are putting the accounts in proper order and there has been a real increase in spending on education and health. It would be nice if, just occasionally, Liberal Democrats could acknowledge that.
My hon. Friend the Member for Halton (Mr. Twigg) talked about the importance of reducing inequality, to which the Budget makes a key contribution. He talked about the importance of extending the additional personal allowance and removing discrimination.
The right hon. Member for Cities of London and Westminster (Mr. Brooke) asked three specific questions. With regard to the hydrocarbon oil duties, I think that I have already said that we are increasing the differential between ultra-low-sulphur diesel and diesel. The right hon. Gentleman is right that we need to build incentives into the system. We are encouraging the distribution of city diesel by increasing the differential and we are encouraged by the number of retail outlets, particularly large supermarkets, that have said that they intend to ensure that that is available.
The right hon. Gentleman asked specific questions about inheritance tax provisions and a series of detailed questions about public access security for owners and, in particular, how we shall ensure that agreements already entered into will be honoured. Given the pressure of time, if the right hon. Gentleman will forgive me, I shall write to him on those points and on the points that he made about casinos, particularly London casinos. As a Londoner, there is no way in which I would want to see London persecuted, and it is not the Government's intention to do so either.
My hon. Friend the Member for Edmonton (Mr. Love) made several important points about making work pay and how the Budget seeks to do that. 687 The hon. Member for Guildford (Mr. St. Aubyn) asked whether the new enterprise investment scheme will hit the alternative investment market. It is right to target tax reliefs where they are needed most. The purpose is to encourage the provision of start-up and those who do not already have access to the capital market. The alternative investment market provides an active market share and there is no need for the Exchequer to subsidise it further.
The hon. Gentleman also asked about regulations concerning the taxation of policy holders' gains. They will be included in secondary legislation. The aim is to restrict the charge to a narrow range of products. Using secondary legislation enables us to consult the industry to obtain the definitions and ensure that the legislation is correct.
The hon. Gentleman also asked several questions about the working families tax credit and why it is scored as it is in the Red Book. It follows the national accounts convention for similar schemes such as MIRAS. Where payments are in excess of individuals' total tax liability it will be scored as public expenditure, otherwise it will be seen as tax.
My right hon. Friend the Chancellor's Budget represents the Government's commitment to fairness in the economy and to a tax system that delivers to those who want to work. It will ensure that small businesses can thrive and that, by agreement and consultation, the Government base their policies on what is good for the country instead of on what is good for the political party in power, as the Conservative Government did. I commend the Bill to the House.
§ Question put, That the amendment be made:—
§ The House divided: Ayes 144, Noes 350.
691| Division No. 249] | [10 pm |
| AYES | |
| Ainsworth, Peter (E Surrey) | Dorrell, Rt Hon Stephen |
| Amess, David | Duncan, Alan |
| Ancram, Rt Hon Michael | Duncan Smith, Iain |
| Arbuthnot, James | Emery, Rt Hon Sir Peter |
| Atkinson, Peter (Hexham) | Evans, Nigel |
| Baldry, Tony | Faber, David |
| Beggs, Roy | Fabricant, Michael |
| Bercow, John | Fallon, Michael |
| Beresford, Sir Paul | Flight, Howard |
| Blunt, Crispin | Forsythe, Clifford |
| Body, Sir Richard | Forth, Rt Hon Eric |
| Boswell, Tim | Fowler, Rt Hon Sir Norman |
| Bottomley, Peter (Worthing W) | Fox, Dr Liam |
| Brady, Graham | Fraser, Christopher |
| Brazier, Julian | Gale, Roger |
| Brooke, Rt Hon Peter | Garnier, Edward |
| Browning, Mrs Angela | Gibb, Nick |
| Bruce, Ian (S Dorset) | Gillan, Mrs Cheryl |
| Burns, Simon | Gorman, Mrs Teresa |
| Cash, William | Gray, James |
| Chope, Christopher | Green, Damian |
| Clappison, James | Greenway, John |
| Clark, Rt Hon Alan (Kensington) | Grieve, Dominic |
| Clarke, Rt Hon Kenneth (Rushcliffe) | Gummer, Rt Hon John |
| Hamilton, Rt Hon Sir Archie | |
| Clifton—Brown, Geoffrey | Hammond, Philip |
| Collins, Tim | Hawkins, Nick |
| Cormack, Sir Patrick | Hayes, John |
| Cran, James | Heathcoat—Amory, Rt Hon David |
| Curry, Rt Hon David | Hogg, Rt Hon Douglas |
| Davies, Quentin (Grantham) | Horam, John |
| Davis, Rt Hon David (Haltemprice) | Howard, Rt Hon Michael |
| Day, Stephen | Howarth, Gerald (Aldershot) |
| Hunter, Andrew | Redwood, Rt Hon John |
| Jack, Rt Hon Michael | Robathan, Andrew |
| Jackson, Robert (Wantage) | Robertson, Laurence (Tewk'b'ry) |
| Jenkin, Bernard | Roe, Mrs Marion (Broxbourne) |
| Johnson Smith, | Ruffley, David |
| Rt Hon Sir Geoffrey | St Aubyn, Nick |
| Key, Robert | Sayeed, Jonathan |
| King, Rt Hon Tom (Bridgwater) | Shephard, Rt Hon Mrs Gillian |
| Kirkbride, Miss Julie | Shepherd, Richard |
| Laing, Mrs Eleanor | Simpson, Keith (Mid-Norfolk) |
| Lait, Mrs Jacqui | Smyth, Rev Martin (Belfast S) |
| Lansley, Andrew | Soames, Nicholas |
| Leigh, Edward | Spelman, Mrs Caroline |
| Letwin, Oliver | Spicer, Sir Michael |
| Lewis, Dr Julian (New Forest E) | Spring, Richard |
| Lidington, David | Stanley, Rt Hon Sir John |
| Lilley, Rt Hon Peter | Steen, Anthony |
| Lloyd, Rt Hon Sir Peter (Fareham) | Streeter, Gary |
| Luff, Peter | Swayne, Desmond |
| Lyell, Rt Hon Sir Nicholas | Syms, Robert |
| MacGregor, Rt Hon John | Tapsell, Sir Peter |
| McIntosh, Miss Anne | Taylor, Ian (Esher & Walton) |
| MacKay, Andrew | Taylor, John M (Solihull) |
| Maclean, Rt Hon David | Taylor, Sir Teddy |
| McLoughlin, Patrick | Thompson, William |
| Madel, Sir David | Tredinnick, David |
| Major, Rt Hon John | Trend, Michael |
| Malins, Humfrey | Tyrie Andrew |
| Maples, John | Walter, Robert |
| Mates, Michael | Wardle, Charles |
| Mawhinney, Rt Hon Sir Brian | Whitney, Sir Raymond |
| May, Mrs Theresa | Whittingdale, John |
| Moss, Malcolm | Widdecombe, Rt Hon Miss Ann |
| Nicholls, Patrick | Wilkinson, John |
| Norman, Archie | Winterton, Mrs Ann (Congleton) |
| Ottaway, Richard | Winterton, Nicholas (Macclesfield) |
| Page, Richard | Woodward, Shaun |
| Paice, James | Yeo, Tim |
| Paterson, Owen | Young, Rt Hon Sir George |
| Prior, David | Tellers for the Ayes: |
| Randall, John | Mr. Oliver Heald and |
| Mr. Nigel Waterson. | |
| NOES | |
| Abbott, Ms Diane | Blears, Ms Hazel |
| Adams, Mrs Irene (Paisley N) | Blizzard, Bob |
| Ainger, Nick | Blunkett, Rt Hon David |
| Ainsworth, Robert (Cov'try NE) | Boateng, Paul |
| Alexander, Douglas | Bradley, Keith (Withington) |
| Allan, Richard | Bradley, Peter (The Wrekin) |
| Allen, Graham | Brake, Tom |
| Anderson, Donald (Swansea E) | Brand, Dr Peter |
| Armstrong, Ms Hilary | Breed, Colin |
| Ashdown, Rt Hon Paddy | Brinton, Mrs Helen |
| Ashton, Joe | Brown, Rt Hon Gordon (Dunfermline E) |
| Atherton, Ms Candy | |
| Austin, John | Brown, Rt Hon Nick (Newcastle E) |
| Baker, Norman | Brown, Russell (Dumfries) |
| Ballard, Mrs Jackie | Browne, Desmond |
| Barnes, Harry | Bruce, Malcolm (Gordon) |
| Barron, Kevin | Buck, Ms Karen |
| Bayley, Hugh | Burnett, John |
| Beard, Nigel | Burstow, Paul |
| Beckett, Rt Hon Mrs Margaret | Butler, Mrs Christine |
| Begg, Miss Anne | Byers, Stephen |
| Bell, Martin (Tatton) | Cable, Dr Vincent |
| Benn, Rt Hon Tony | Caborn, Richard |
| Bennett, Andrew F | Campbell, Alan (Tynemouth) |
| Benton, Joe | Campbell, Menzies (NE Fife) |
| Berry, Roger | Campbell, Ronnie (Blyth V) |
| Best, Harold | Campbell-Savours, Dale |
| Betts, Clive | Canavan, Dennis |
| Blackman, Liz | Cann, Jamie |
| Caplin, Ivor | Gorrie, Donald |
| Casale, Roger | Grant, Bernie |
| Caton, Martin | Griffiths, Nigel (Edinburgh S) |
| Chidgey, David | Griffiths, Win (Bridgend) |
| Chisholm, Malcolm | Grocott, Bruce |
| Church, Ms Judith | Grogan, John |
| Clapham, Michael | Gunnell, John |
| Clark, Rt Hon Dr David (S Shields) | Hain, Peter |
| Clark, Dr Lynda | Hall, Mike (Weaver Vale) |
| (Edinburgh Pentlands) | Hanson, David |
| Clarke, Eric (Midlothian) | Harman, Rt Hon Ms Harriet |
| Clarke, Rt Hon Tom (Coatbridge) | Harvey, Nick |
| Clwyd, Ann | Heal, Mrs Sylvia |
| Coaker, Vernon | Heath, David (Somerton & Frome) |
| Coffey, Ms Ann | Henderson, Ivan (Harwich) |
| Coleman, lain | Hepburn, Stephen |
| Colman, Tony | Heppell, John |
| Connarty, Michael | Hewitt, Ms Patricia |
| Cook, Frank (Stockton N) | Hill, Keith |
| Cook, Rt Hon Robin (Livingston) | Hinchliffe, David |
| Cooper, Yvette | Hodge, Ms Margaret |
| Corbett, Robin | Hoey, Kate |
| Corston, Ms Jean | Home Robertson, John |
| Cotter, Brian | Hood, Jimmy |
| Cousins, Jim | Hoon, Geoffrey |
| Cranston, Ross | Hope, Phil |
| Crausby, David | Howarth, Alan (Newport E) |
| Cryer, John (Hornchurch) | Howarth, George (Knowsley N) |
| Cummings, John | Howells, Dr Kim |
| Cunningham, Jim (Cov'try S) | Hoyle, Lindsay |
| Cunningham, Ms Roseanna (Perth) | Hughes, Ms Beverley (Stretford) |
| Hurst, Alan | |
| Curtis—Thomas, Mrs Claire | Hutton, John |
| Dafis, Cynog | Iddon, Dr Brian |
| Darling, Rt Hon Alistair | Illsley, Eric |
| Darvill, Keith | Jackson, Ms Glenda (Hampstead) |
| Davey, Edward (Kingston) | Jackson, Helen (Hillsborough) |
| Davey, Valerie (Bristol W) | Jamieson, David |
| Davies, Rt Hon Denzil (Llanelli) | Johnson, Alan (Hull W & Hessle) |
| Davies, Rt Hon Ron (Caerphilly) | Johnson, Miss Melanie (Welwyn Hatfield) |
| Dawson, Hilton | |
| Dean, Mrs Janet | Jones, Barry (Alyn & Deeside) |
| Denham, John | Jones, Helen (Warrington N) |
| Dewar, Rt Hon Donald | Jones, Ieuan Wyn (Ynys Môn) |
| Dismore, Andrew | Jones, Dr Lynne (Selly Oak) |
| Dobson, Rt Hon Frank | Jones, Martyn (Clwyd S) |
| Donohoe, Brian H | Jones, Nigel (Cheltenham) |
| Dowd, Jim | Kaufman, Rt Hon Gerald |
| Drown, Ms Julia | Keeble, Ms Sally |
| Eagle, Angela (Wallasey) | Keen, Alan (Feltham & Heston) |
| Eagle, Maria (L'pool Garston) | Keen, Ann (Brentford & Isleworth) |
| Edwards, Huw | Keetch, Paul |
| Efford, Clive | Kennedy, Charles (Ross Skye) |
| Ennis, Jeff | Kennedy, Jane (Wavertree) |
| Ewing, Mrs Margaret | Khabra, Piara S |
| Fearn, Ronnie | Kidney, David |
| Field, Rt Hon Frank | Kilfoyle, Peter |
| Fitzpatrick, Jim | King, Andy (Rugby & Kenilworth) |
| Fitzsimons, Lorna | King, Ms Oona (Bethnal Green) |
| Flint, Caroline | Kirkwood, Archy |
| Foster, Rt Hon Derek | Kumar, Dr Ashok |
| Foster, Don (Bath) | Ladyman, Dr Stephen |
| Galbraith, Sam | Lawrence, Ms Jackie |
| Galloway, George | Laxton, Bob |
| Gapes, Mike | Lepper, David |
| Gardiner, Barry | Leslie, Christopher |
| George, Andrew (St Ives) | Levitt, Tom |
| George, Bruce (Walsall S) | Liddell, Mrs Helen |
| Gibson, Dr Ian | Linton, Martin |
| Gilroy, Mrs Linda | Livingstone, Ken |
| Godman, Dr Norman A | Livsey, Richard |
| Goggins, Paul | Llwyd, Elfyn |
| Golding, Mrs Llin | Love, Andrew |
| Gordon, Mrs Eileen | McAllion, John |
| McAvoy, Thomas | Rogers, Allan |
| McCafferty, Ms Chris | Rooker, Jeff |
| McCartney, Ian (Makerfield) | Rooney, Terry |
| McDonagh, Siobhain | Ross, Ernie (Dundee W) |
| Macdonald, Calum | Rowlands, Ted |
| McFall, John | Roy, Frank |
| McGuire, Mrs Anne | Ruane, Chris |
| McIsaac, Shona | Ruddock, Ms Joan |
| Mackinlay, Andrew | Russell, Bob (Colchester) |
| McLeish, Henry | Russell, Ms Christine (Chester) |
| Maclennan, Rt Hon Robert | Salter, Martin |
| McNulty, Tony | Sanders, Adrian |
| MacShane, Denis | Savidge, Malcolm |
| Mactaggart, Fiona | Sedgemore, Brian |
| McWalter, Tony | Shaw, Jonathan |
| McWilliam, John | Sheldon, Rt Hon Robert |
| Mahon, Mrs Alice | Short, Rt Hon Clare |
| Mandelson, Peter | Skinner, Dennis |
| Marsden, Gordon (Blackpool S) | Smith, Rt Hon Chris (Islington S) |
| Marshall, David (Shettleston) | Smith, John (Glamorgan) |
| Marshall, Jim (Leicester S) | Smith, Llew (Blaenau Gwent) |
| Marshall—Andrews, Robert | Smith, Sir Robert (W Ab'd'ns) |
| Martlew, Eric | Soley, Clive |
| Maxton, John | Southworth, Ms Helen |
| Meacher, Rt Hon Michael | Spellar, John |
| Meale, Alan | Squire, Ms Rachel |
| Merron, Gillian | Starkey, Dr Phyllis |
| Michael, Alun | Steinberg, Gerry |
| Michie, Mrs Ray (Argyll & Bute) | Stevenson, George |
| Milburn, Alan | Stewart, David (Inverness E) |
| Miller, Andrew | Stewart, Ian (Eccles) |
| Mitchell, Austin | Stinchcombe, Paul |
| Moonie, Dr Lewis | Stoate, Dr Howard |
| Moore, Michael | Stott, Roger |
| Moran, Ms Margaret | Strang, Rt Hon Dr Gavin |
| Morgan, Ms Julie (Cardiff N) | Stuart, Ms Gisela |
| Morgan, Rhodri (Cardiff W) | Stunell, Andrew |
| Morley, Elliot | Sutcliffe, Gerry |
| Morris, Ms Estelle (B'ham Yardley) | Swinney, John |
| Mudie, George | Taylor, RI Hon Mrs Ann (Dewsbury) |
| Mullin, Chris | |
| Murphy, Denis (Wansbeck) | Taylor, Ms Dari (Stockton S) |
| Murphy, Jim (Eastwood) | Taylor, Matthew (Truro) |
| Murphy, Paul (Torfaen) | Temple—Morris, Peter |
| Oaten, Mark | Thomas, Gareth (Clwyd W) |
| O'Brien, Bill (Normanton) | Tipping, Paddy |
| O'Brien, Mike (N Warks) | Todd, Mark |
| Olner, Bill | Touhig, Don |
| O'Neill, Martin | Trickett, Jon |
| Organ, Mrs Diana | Truswell, Paul |
| Osborne, Ms Sandra | Turner, Dennis (Wolverh'ton SE) |
| Palmer, Dr Nick | Turner, Dr Desmond (Kemptown) |
| Pearson, Ian | Turner, Dr George (NW Norfolk) |
| Pendry, Tom | Twigg, Derek (Halton) |
| Pickthall, Colin | Twigg, Stephen (Enfield) |
| Pike, Peter L | Tyler, Paul |
| Plaskitt, James | Vaz, Keith |
| Pond, Chris | Wallace, James |
| Pope, Greg | Ward, Ms Claire |
| Pound, Stephen | Wareing, Robert N |
| Powell, Sir Raymond | Watts, David |
| Prentice, Ms Bridget (Lewisham E) | Webb, Steve |
| Prentice, Gordon (Pendle) | Welsh, Andrew |
| Prescott, Rt Hon John | White, Brian |
| Primarolo, Dawn | Whitehead, Dr Alan |
| Purchase, Ken | Wigley, Rt Hon Dafydd |
| Quinn, Lawrie | Williams, Rt Hon Alan (Swansea W) |
| Radice, Giles | |
| Rapson, Syd | Williams, Alan W (E Carmarthen) |
| Raynsford, Nick | Williams, Mrs Betty (Conwy) |
| Reid, Dr John (Hamilton N) | Willis, Phil |
| Rendel, David | Wills, Michael |
| Robertson, Rt Hon George (Hamilton S) | Winnick, David |
| Woolas, Phil |
| Wright, Anthony D (Gt Yarmouth) | Tellers for the Noes: |
| Wright, Dr Tony (Cannock) | Mr. Jon Owen Jones and |
| Wyatt, Derek | Janet Anderson. |
§ Question accordingly negatived.
§ Main Question put forthwith, pursuant to Standing Order No. 62 (Amendment on Second or Third Reading), That the Bill be now read a Second time:—
§ The House divided: Ayes 298, Noes 190.
694| Division No. 250] | [10.14 pm |
| AYES | |
| Abbott, Ms Diane | Cook, Rt Hon Robin (Livingston) |
| Adams, Mrs Irene (Paisley N) | Cooper, Yvette |
| Ainger, Nick | Corbett, Robin |
| Ainsworth, Robert (Cov'try NE) | Corston, Ms Jean |
| Alexander, Douglas | Cousins, Jim |
| Allen, Graham | Cranston, Ross |
| Anderson, Donald (Swansea E) | Crausby, David |
| Armstrong, Ms Hilary | Cryer, John (Hornchurch) |
| Ashton, Joe | Cummings, John |
| Atherton, Ms Candy | Cunningham, Jim (Cov'try S) |
| Austin, John | Curtis—Thomas, Mrs Claire |
| Barnes, Harry | Darling, Rt Hon Alistair |
| Barron, Kevin | Darvill, Keith |
| Bayley, Hugh | Davey, Valerie (Bristol W) |
| Beard, Nigel | Davies, Rt Hon Denzil (Llanelli) |
| Beckett, Rt Hon Mrs Margaret | Davies, Rt Hon Ron (Caerphilly) |
| Begg, Miss Anne | Dawson, Hilton |
| Benn, Rt Hon Tony | Dean, Mrs Janet |
| Bennett, Andrew F | Denham, John |
| Benton, Joe | Dewar, Rt Hon Donald |
| Berry, Roger | Dismore, Andrew |
| Betts, Clive | Dobson, Rt Hon Frank |
| Blackman, Liz | Donohoe, Brian H |
| Blears, Ms Hazel | Dowd, Jim |
| Blizzard, Bob | Drown, Ms Julia |
| Blunkett, Rt Hon David | Eagle, Angela (Wallasey) |
| Boateng, Paul | Eagle, Maria (L'pool Garston) |
| Bradley, Keith (Withington) | Edwards, Huw |
| Bradley, Peter (The Wrekin) | Efford, Clive |
| Brinton, Mrs Helen | Ennis, Jeff |
| Brown, Rt Hon Gordon | Field, Rt Hon Frank |
| (Dunfermline E) | Fitzpatrick, Jim |
| Brown, Rt Hon Nick (Newcastle E) | Fitzsimons, Lorna |
| Brown, Russell (Dumfries) | Flint, Caroline |
| Browne, Desmond | Foster, Rt Hon Derek |
| Buck, Ms Karen | Galbraith, Sam |
| Butler, Mrs Christine | Galloway, George |
| Byers, Stephen | Gapes, Mike |
| Caborn, Richard | George, Bruce (Walsall S) |
| Campbell, Alan (Tynemouth) | Gibson, Dr Ian |
| Campbell, Ronnie (Blyth V) | Gilroy, Mrs Linda |
| Campbell—Savours, Dale | Godman, Dr Norman A |
| Canavan, Dennis | Goggins, Paul |
| Cann, Jamie | Golding, Mrs Llin |
| Caplin, Ivor | Gordon, Mrs Eileen |
| Casale, Roger | Grant, Bernie |
| Caton, Martin | Griffiths, Nigel (Edinburgh S) |
| Chisholm, Malcolm | Griffiths, Win (Bridgend) |
| Church, Ms Judith | Grocott, Bruce |
| Clapham, Michael | Grogan, John |
| Clark, Rt Hon Dr David (S Shields) | Gunnell, John |
| Clark, Dr Lynda (Edinburgh Pentlands) | Hain, Peter |
| Hall, Mike (Weaver Vale) | |
| Clarke, Eric (Midlothian) | Hanson, David |
| Clarke, Rt Hon Tom (Coatbridge) | Harman, Rt Hon Ms Harriet |
| Clwyd, Ann | Heal, Mrs Sylvia |
| Coaker, Vernon | Henderson, Ivan (Harwich) |
| Coffey, Ms Ann | Hepburn, Stephen |
| Coleman, Iain | Heppell, John |
| Colman, Tony | Hewitt, Ms Patricia |
| Connarty, Michael | Hill, Keith |
| Cook, Frank (Stockton N) | Hinchliffe, David |
| Hodge, Ms Margaret | Mitchell, Austin |
| Hoey, Kate | Moonie, Dr Lewis |
| Home Robertson, John | Moran, Ms Margaret |
| Hood, Jimmy | Morgan, Ms Julie (Cardiff N) |
| Hoon, Geoffrey | Morgan, Rhodri (Cardiff W) |
| Hope, Phil | Morley, Elliot |
| Howarth, Alan (Newport E) | Morris, Ms Estelle (B'ham Yardley) |
| Howarth, George (Knowsley N) | Mudie, George |
| Howells, Dr Kim | Mullin, Chris |
| Hoyle, Lindsay | Murphy, Denis (Wansbeck) |
| Hughes, Ms Beverley (Stretford) | Murphy, Jim (Eastwood) |
| Hurst, Alan | Murphy, Paul (Torfaen) |
| Hutton, John | O'Brien, Bill (Normanton) |
| Iddon, Dr Brian | O'Brien, Mike (N Warks) |
| Illsley, Eric | Olner, Bill |
| Jackson, Ms Glenda (Hampstead) | O'Neill, Martin |
| Jackson, Helen (Hillsborough) | Organ, Mrs Diana |
| Jamieson, David | Osborne, Ms Sandra |
| Johnson, Alan (Hull W & Hessle) | Palmer, Dr Nick |
| Johnson, Miss Melanie (Welwyn Hatfield) | Pearson, Ian |
| Pendry, Tom | |
| Jones, Barry (Alyn & Deeside) | Pickthall, Colin |
| Jones, Helen (Warrington N) | Pike, Peter L |
| Jones, Dr Lynne (Selly Oak) | Plaskitt, James |
| Jones, Martyn (Clwyd S) | Pond, Chris |
| Kaufman, Rt Hon Gerald | Pope, Greg |
| Keeble, Ms Sally | Pound, Stephen |
| Keen, Alan (Feltham & Heston) | Powell, Sir Raymond |
| Keen, Ann (Brentford & Isleworth) | Prentice, Ms Bridget (Lewisham E) |
| Kennedy, Jane (Wavertree) | Prentice, Gordon (Pendle) |
| Khabra, Piara S | Prescott, Rt Hon John |
| Kidney, David | Primarolo, Dawn |
| Kilfoyle, Peter | Purchase, Ken |
| King, Andy (Rugby & Kenilworth) | Quinn, Lawrie |
| King, Ms Oona (Bethnal Green) | Radice, Giles |
| Kumar, Dr Ashok | Rapson, Syd |
| Ladyman, Dr Stephen | Raynsford, Nick |
| Lawrence, Ms Jackie | Reid, Dr John (Hamilton N) |
| Laxton, Bob | Robertson, Rt Hon George (Hamilton S) |
| Lepper, David | |
| Leslie, Christopher | Rogers, Allan |
| Levitt, Tom | Rooker, Jeff |
| Liddell, Mrs Helen | Rooney, Terry |
| Linton, Martin | Ross, Ernie (Dundee W) |
| Livingstone, Ken | Rowlands, Ted |
| Love, Andrew | Roy, Frank |
| McAllion, John | Ruane, Chris |
| McAvoy, Thomas | Ruddock, Ms Joan |
| McCafferty, Ms Chris | Russell, Ms Christine (Chester) |
| McCartney, Ian (Makerfield) | Salter, Martin |
| McDonagh, Siobhain | Savidge, Malcolm |
| Macdonald, Calum | Sedgemore, Brian |
| McFall, John | Shaw, Jonathan |
| McGuire, Mrs Anne | Sheldon, Rt Hon Robert |
| McIsaac, Shona | Short, Rt Hon Clare |
| Mackinlay, Andrew | Skinner, Dennis |
| McLeish, Henry | Smith, Rt Hon Chris (Islington S) |
| McNulty, Tony | Smith, John (Glamorgan) |
| MacShane, Denis | Smith, Llew (Blaenau Gwent) |
| Mactaggart, Fiona | Soley, Clive |
| McWalter, Tony | Southworth, Ms Helen |
| McWilliam, John | Spellar, John |
| Mahon, Mrs Alice | Squire, Ms Rachel |
| Mandelson, Peter | Starkey, Dr Phyllis |
| Marsden, Gordon (Blackpool S) | Steinberg, Gerry |
| Marshall, David (Shettleston) | Stevenson, George |
| Marshall, Jim (Leicester S) | Stewart, David (Inverness E) |
| Marshall—Andrews, Robert | Stewart, Ian (Eccles) |
| Martlew, Eric | Stinchcombe, Paul |
| Maxton, John | Stoate, Dr Howard |
| Meacher, Rt Hon Michael | Stott, Roger |
| Meale, Alan | Strang, Rt Hon Dr Gavin |
| Merron, Gillian | Stuart, Ms Gisela |
| Michael, Alun | Sutcliffe, Gerry |
| Milburn, Alan | Taylor, Rt Hon Mrs Ann (Dewsbury) |
| Miller, Andrew |
| Taylor, Ms Dari (Stockton S) | White, Brian |
| Temple—Morris, Peter | Whitehead, Dr Alan |
| Thomas, Gareth (Clwyd W) | Williams, Rt Hon Alan (Swansea W) |
| Tipping, Paddy | |
| Touhig, Don | Williams, Alan W (E Carmarthen) |
| Trickett, Jon | Williams, Mrs Betty (Conwy) |
| Truswell, Paul | Wills, Michael |
| Turner, Dennis (Wolverh'ton SE) | Winnick, David |
| Turner, Dr Desmond (Kemptown) | Woolas, Phil |
| Turner, Dr George (NW Norfolk) | Wright, Anthony D (Gt Yarmouth) |
| Twigg, Derek (Halton) | Wright, Dr Tony (Cannock) |
| Twigg, Stephen (Enfield) | Wyatt, Derek |
| Vaz, Keith | |
| Ward, Ms Claire | Tellers for the Ayes: |
| Wareing, Robert N | Mr. Jon Owen Jones and |
| Watts, David | Janet Anderson. |
| NOES | |
| Ainsworth, Peter (E Surrey) | Fallon, Michael |
| Allan, Richard | Fearn, Ronnie |
| Amess, David | Flight, Howard |
| Ancram, Rt Hon Michael | Forsythe, Clifford |
| Arbuthnot, James | Forth, Rt Hon Eric |
| Ashdown, Rt Hon Paddy | Foster, Don (Bath) |
| Atkinson, Peter (Hexham) | Fowler, Rt Hon Sir Norman |
| Baker, Norman | Fox, Dr Liam |
| Ballard, Mrs Jackie | Fraser, Christopher |
| Beggs, Roy | Gale, Roger |
| Bell, Martin (Tatton) | Garnier, Edward |
| Bercow, John | George, Andrew (St Ives) |
| Beresford, Sir Paul | Gibb, Nick |
| Blunt, Crispin | Gillan, Mrs Cheryl |
| Body, Sir Richard | Gorman, Mrs Teresa |
| Boswell, Tim | Gorrie, Donald |
| Bottomley, Peter (Worthing W) | Gray, James |
| Brady, Graham | Green, Damian |
| Brake, Tom | Greenway, John |
| Brand, Dr Peter | Grieve, Dominic |
| Brazier, Julian | Gummer, Rt Hon John |
| Breed, Colin | Hamilton, Rt Hon Sir Archie |
| Brooke, Rt Hon Peter | Hammond, Philip |
| Browning, Mrs Angela | Harvey, Nick |
| Bruce, Ian (S Dorset) | Hawkins, Nick |
| Bruce, Malcolm (Gordon) | Hayes, John |
| Burnett, John | Heath, David (Somerton & Frome) |
| Burns, Simon | Heathcoat—Amory, Rt Hon David |
| Burstow, Paul | Hogg, Rt Hon Douglas |
| Cable, Dr Vincent | Horam, John |
| Campbell, Menzies (NE Fife) | Howard, Rt Hon Michael |
| Cash, William | Howarth, Gerald (Aldershot) |
| Chidgey, David | Hunter, Andrew |
| Chope, Christopher | Jackson, Robert (Wantage) |
| Clappison, James | Jenkin, Bernard |
| Clark, Rt Hon Alan (Kensington) | Johnson Smith, |
| Clarke, Rt Hon Kenneth (Rushcliffe) | Rt Hon Sir Geoffrey |
| Jones, Ieuan Wyn (Ynys Môn) | |
| Clifton—Brown, Geoffrey | Jones, Nigel (Cheltenham) |
| Collins, Tim | Keetch, Paul |
| Cormack, Sir Patrick | Kennedy, Charles (Ross Skye) |
| Cotter, Brian | Key, Robert |
| Cran, James | King, Rt Hon Tom (Bridgwater) |
| Cunningham, Ms Roseanna (Perth) | Kirkbride, Miss Julie |
| Kirkwood, Archy | |
| Dafis, Cynog | Laing, Mrs Eleanor |
| Davey, Edward (Kingston) | Lait, Mrs Jacqui |
| Davies, Quentin (Grantham) | Lansley, Andrew |
| Davis, Rt Hon David (Haltemprice) | Leigh, Edward |
| Day, Stephen | Letwin, Oliver |
| Dorrell, Rt Hon Stephen | Lewis, Dr Julian (New Forest E) |
| Duncan, Alan | Lidington, David |
| Duncan Smith, Iain | Lilley, Rt Hon Peter |
| Emery, Rt Hon Sir Peter | Livsey, Richard |
| Evans, Nigel | Lloyd, Rt Hon Sir Peter (Fareham) |
| Ewing, Mrs Margaret | Llwyd, Elfyn |
| Faber, David | Luff, Peter |
| Fabricant, Michael | Lyell, Rt Hon Sir Nicholas |
| MacGregor, Rt Hon John | Smyth, Rev Martin (Belfast S) |
| McIntosh, Miss Anne | Soames, Nicholas |
| MacKay, Andrew | Spelman, Mrs Caroline |
| Maclean, Rt Hon David | Spicer, Sir Michael |
| Maclennan, Rt Hon Robert | Spring, Richard |
| McLoughlin, Patrick | Stanley, Rt Hon Sir John |
| Madel, Sir David | Steen, Anthony |
| Major, Rt Hon John | Streeter, Gary |
| Malins, Humfrey | Stunell, Andrew |
| Maples, John | Swayne, Desmond |
| Mates, Michael | Swinney, John |
| Mawhinney, Rt Hon Sir Brian | Syms, Robert |
| May, Mrs Theresa | Tapsell, Sir Peter |
| Michie, Mrs Ray (Argyll & Bute) | Taylor, Ian (Esher & Walton) |
| Moore, Michael | Taylor, John M (Solihull) |
| Morgan, Alasdair (Galloway) | Taylor, Matthew (Truro) |
| Moss, Malcolm | Taylor, Sir Teddy |
| Nicholls, Patrick | Thompson, William |
| Norman, Archie | Tredinnick, David |
| Oaten, Mark | Trend, Michael |
| Ottaway, Richard | Tyrie, Andrew |
| Page, Richard | Wallace, James |
| Paice, James | Walter, Robert |
| Paterson, Owen | Wardle, Charles |
| Prior, David | Webb, Steve |
| Randall, John | Welsh, Andrew |
| Redwood, Rt Hon John | Whitney, Sir Raymond |
| Rendel, David | Whittingdale, John |
| Robathan, Andrew | Widdecombe, Rt Hon Miss Ann |
| Robertson, Laurence (Tewk'b'ry) | Wigley, Rt Hon Dafydd |
| Roe, Mrs Marion (Broxbourne) | Wilkinson, John |
| Ruffley, David | Willis, Phil |
| Russell, Bob (Colchester) | Winterton, Mrs Ann (Congleton) |
| St Aubyn, Nick | Winterton, Nicholas (Macclesfield) |
| Sanders, Adrian | Woodward, Shaun |
| Sayeed, Jonathan | Yeo, Tim |
| Shephard, Rt Hon Mrs Gillian | Young, Rt Hon Sir George |
| Shepherd, Richard | Tellers for the Noes: |
| Simpson, Keith (Mid-Norfolk) | Mr. Nigel Waterson and |
| Smith, Sir Robert (W Ab'd'ns) | Mr. Oliver Heald. |
§ Question accordingly agreed to.
§ Bill read a Second time.
§ Motion made, and Question put forthwith, pursuant to Standing Order No. 63 (Committal of Bills),
§ That—
- (1) Clauses 1, 7, 10, 11, 25, 27, 30, 75, 119 and 147 be committed to a Committee of the whole House;
- (2) the remainder of the Bill be committed to a Standing Committee;
- (3) when the provisions of the Bill considered, respectively, by the Committee of the whole House and by the Standing Committee have been reported to the House, the Bill be proceeded with as if the Bill had been reported as a whole to the House from the Standing Committee.—[Dawn Primarolo.]
§ Question agreed to.
§ Committee tomorrow.
§ Dr. Liam Fox (Woodspring)On a point of order, Mr. Deputy Speaker. Have the Government requested to make an urgent statement regarding reports in today's edition of the New York Times? As you may be aware, a sweetheart deal has been proposed between the Prime Minister and President Clinton on the processing of nuclear waste at Dounreay. According to the New York Times, the Prime Minister has agreed that shipments of waste, which the United States and France refused to process, will come from Georgia to the United Kingdom, despite the fact that the matter has not come before the House. I wonder whether, given the Government's 695 reputation for open government, we can expect a statement, or is this an example of Government humbug and hypocrisy?
§ Mr. Deputy SpeakerThe hon. Gentleman knows that that is not a matter for the Chair.
§ Mr. John Gummer (Suffolk, Coastal)Further to that point of order, Mr. Deputy Speaker.
§ Mr. Deputy SpeakerI have just told the hon. Member for Woodspring (Dr. Fox) that it was not a matter for me. Does the right hon. Gentleman have a point of order?
§ Mr. GummerI think it is a point of order to ask whether the Prime Minister has applied to make a statement on whether he has asked the Law Officers if he has the legal right to allow into this country waste that it appears cannot be produced here. If he has not, he is acting in a presidential way and not a parliamentary and legal way.
§ Mr. Deputy SpeakerThe right hon. Gentleman was a Minister, and he must know that the Chair does not discuss what approaches have been made to him.