HC Deb 29 April 1998 vol 311 cc389-406

Question proposed, That the clause stand part of the Bill.

Mr. David Heathcoat-Amory (Wells)

The clause deals with the rates of income tax that should apply for the current financial year. It is about the only area of taxation not to be increased in the Budget. In this massive tax-raising Finance Bill, the Government are leaving the rates of direct personal tax the same. That is a small mercy, given that other provisions of the Bill increase taxes savagely.

It is a matter of record that in last year's Finance Bill the Government carried out a £5 billion-a-year raid on pension funds, which sent exactly the wrong message to potential savers. The Government say that they should put money by to provide for their old age or to increase their self-reliance, but they may tax such funds at a future date.

The effective rate of corporation tax has been increased in the Budget, adding to what the CBI says is a £20 billion increase in company taxation during this Parliament. Yesterday, we debated indirect tax increases that have been introduced in the face of a rising tide of illegal sales and smuggled imports. Road fuel tax, which is another indirect tax, is being increased way over the rate of inflation. Motorists face a £9 billion additional tax burden during this Parliament.

In that context, it is a small but welcome mercy that the clause leaves the rates of income tax unaltered. However, I must contrast that with the previous Government's record. In 1979, we inherited a basic rate of income tax of 33 per cent. During successive Parliaments, we cut the rate to 23 per cent. We also inherited a higher rate of 83 per cent., which, if we include the surcharge on investment income, meant a staggering top rate of 98 per cent. on income. We cut that to 40 per cent.

The Labour party now seems to support those cuts, because it has left those rates unaltered. The Government accept them, despite the fact that, during those Parliaments, when we reduced tax year by year, Labour Members resisted and voted against all the relevant provisions. They have at last accepted that a low-tax economy is a healthy economy, but it took 18 years for the penny to drop. I welcome their change of view, albeit belated.

Mr. Bermingham

Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory

I shall give way to the hon. Gentleman, who was in the House for at least part of that time.

Mr. Bermingham

Regrettably, I was here for all of it, bar the first four years. The Conservative Government reduced the top and the standard rates of income tax, but the reductions were greater at the top end of the scale than at the bottom. Thus there was a widening of the gap in disposable income. It is a little sad for the right hon. Gentleman to carp about the present Government, who are at least trying to reduce income tax at the bottom end to help those people. The Conservative Government helped only those at the top end.

Mr. Heathcoat-Amory

I take it that the hon. Gentleman is criticising the present structure of income tax. He seems to be complaining that the cut from 98 per cent. to 40 per cent. was greater than the cut from 33 per cent. to 23 per cent.—which, of course, is arithmetically correct. If that is indeed a criticism, however, the hon. Gentleman might care to ask his own Front Benchers why they are doing nothing about it. This, the second of the new Government's Finance Bills, gives them an opportunity to rectify the imbalance, if that is the way in which they perceive it. There is an interesting difference between the opinions of the hon. Gentleman—opinions that I respect—and those of members of his own Front Bench, who are doing nothing to respond to his opinions.

Perhaps there remains a philosophical difference at the root of this. We cut the rate of income tax, in the teeth of opposition from Labour and, I should add, the Liberal Democrats, because we believe in low personal taxes and those parties do not—or, at least, most of their members do not. We consider it right to leave more money in people's pockets whenever possible; we also think that people make better spending decisions than the state in regard to a wide range of financial activities. Furthermore, we believe that a low-tax economy tends to be more efficient and dynamic—and, given that the global market is here to stay, we are engaged in an international tax competition that, thanks to the previous Government, we are winning.

Mr. James Plaskitt (Warwick and Leamington)

I have listened to the right hon. Gentleman's protestations about the merits of low tax, as he sees it. Is it not the case, however, that, after the Conservatives' 18 years of government, the proportion of tax raised from income tax was the same as it had been at the start of that period?

Mr. Heathcoat-Amory

No. The proportion of income tax raised was not greater, and, if the hon. Gentleman consults the Budget statement published in November of the year before last, he will be able to see confirmation in writing.

I do not know whether the hon. Gentleman believes, as I do, that low taxes are not just good for the economy, but good for people's direct standard of living. It seems, however, that the Labour Government—belatedly—have accepted the policies; whether they have accepted the underlying thinking and philosophy we shall find out during the course of a full Parliament.

If we were still in office, we would continue our march towards a 20 per cent. standard rate of income tax. By now we would probably have taken another penny off the standard rate, or we might have employed the alternative of widening the 20 per cent. band that we created several years before the end of the previous Parliament. In other words, there were two ways of ending up with a standard rate of 20 per cent., and we would have pursued either or both in order to fulfil our pledge. We were moving decisively towards a 20 per cent. rate by the time of the general election.

Although the Labour party apparently accepts the policy, it still seems to have—strangely—what appeared at the time to be an even more ambitious policy: that of introducing a starting income tax rate of 10p in the pound. We heard a great deal about that before the general election, when Labour was looking for votes, but it now seems to have gone cold on the whole project. One of my questions to the Minister is this: can he bring us fresh news of when Labour intends to introduce a 10p starting rate, or is this another broken Labour party promise in the making?

I am aware that it was the Liberal Democrat party that wished to debate these matters on the Floor of the House, and we look forward to hearing from its spokesman in a moment. Some years ago, the Liberal party was the party of low taxation. Until the second world war, my family were Liberals—perhaps because they were in business, and felt that low taxes brought benefit to the British economy and to workpeople generally. That was a Liberal article of faith: to lower taxation levels.

At some point since then, however—it is difficult to pinpoint the year—the Liberal party converted itself, and has become the party of tax and spend. In some ways, it is well to the left of the Labour party as it is now. The Liberal Democrats appear to believe in high taxation as a moral good, and to ignore, or overlook, the economic damage that it causes.

7.45 pm

As all hon. Members will probably have noticed, however, the Liberal Democrats are rather selective in that Mr. Bermingham: Of course I do. It is sensible, and regard. Yesterday, they voted with us to reduce the duty on fuel. That struck some of us as rather odd, because the Liberal Democrats used to be in favour of higher fuel duties, for environmental reasons. From that we can conclude that they are somewhat opportunistic in their new-found belief in high taxation. [Interruption.] I hear cries of, "No, "and, "Impossible," from the Opposition Benches, but, as one who may be more familiar with the Liberal Democrat party on a democratic basis, I can assure all hon. Members that this is not entirely out of character. The Liberal Democrats appear to want to increase taxes when they can get away with it. They tabled an amendment to the clause with the intention of increasing the rate of income tax, but, as they might have known, that is out of order: all Finance Bill debates take place on the basis of motions already passed by the House that put a limit on taxes. We can reduce them, as we have tried to do throughout the Committee stage so far, but we increase them. Sadly, the Liberal Democrats therefore cannot speak to the amendment concerned; but doubtless, given their known intentions, they will try to force the same thing on us by another route.

I can tell the Liberal Democrats that we will not support them on that. We are the low-tax party; moreover, we would not dream of supporting a Liberal Democrat move to increase the burden of taxation on the people whom we represent.

Mr. Bermingham

I wait with interest to hear what the Liberal Democrats say. We know from experience, and from reading their leaflets—entitled "The Focus"—that they say one thing in Lancashire and another in Lincolnshire, one thing in Surrey and another in Staffordshire. It is never consistent, and never realistic.

No doubt the Liberal Democrats will say that they want to put a penny on income tax. They will then come up with some spurious explanation, saying that they want to spend the money here or there. The fact that the present Government have spent more on education, health and so forth than the Liberal Democrats ever proposed will no doubt be ignored like everything else. I do not intend to say more about that. I have made my comments about Liberal Democrats. They know my views about their fiscal propriety—if I can put it in that way—and about their taxation policies. I think that their policies are rubbish. They are opportunistic: they say one thing one day and another thing another day—but let us turn to the real world.

The Opposition spokesman, the hon. Member for Wells (Mr. Heathcoat-Amory), was kind enough to say that he listens to my observations. He must know from what I have said over the past 15 years that I do not like income tax. I think it is probably the most unfair and destructive form of taxation possible—but I am not a Poujadist. When the previous Government lowered both the higher and the standard tax rates, it was clear that the spending power that resulted benefited the rich at the expense of the poor.

I shall not criticise my own party tonight, because it has only just taken office, and it would not be realistic to expect it to sort out the messes created in the past 18 or 19 years in the space of 18 or 19 months.

Mr. Norman Baker (Lewes)

Does the hon. Gentleman support his party's pledge not to increase the top rate of tax in this Parliament?

Mr. Bermingham

Of course I do. It is sensible, and totally in line with what I have always said—that income tax is not a sensible tax.

In the first year or two of the Parliament, I do not expect significant changes in the income tax structure. I understand that our manifesto said that we would not put up the rates of tax—I shall corrected if I am wrong—and, without doubt, the Government will ahhere to that. I expect that a 10 per cent. Starting rate will be introduced, but we cannot expect the Government to do that overnight because it has spending implications.

The best way to deal with income tax is to increase the country's wealth, and the Government are succeeding in that. With more people going back to work and fewer on benefit, there are greater incentives, and that encourages production and investment in new businesses. More jobs and greater wealth will be created, and the tax take will rise. It is already beginning to rise and, as it does, there will be more surpluses and the Government can choose what to do with them.

Mr. Tim Collins (Westmorland and Lonsdale)

The hon. Gentleman has been most courteous in giving way. He rightly says that the route to greater resources for the priorities that many of us share is fast growth. Why does the Red Book, which projects ahead to the end of this Parliament, show that at no future point will growth be as rapid as it was in the Government's first year in office?

Mr. Bermingham

We must deal with market forces, world economic conditions and other factors. If the Government said that they intended to grow and grow like Topsy and that did not happen, the hon. Gentleman would say, "Gosh, the Government have not lived up to their Red Book promises." I prefer them to be cautious and to express their hopes while believing that they can surpass them just to show that that can be done.

The hon. Gentleman smiles. When I was in opposition, I used to smile at Government comments. Sometimes I was right and sometimes I was wrong. I suspect that the hon. Gentleman will be proved wrong, because there is underlying growth in the economy. With people being encouraged to return to work and a decrease in benefit spending, the country's wealth will grow. GDP growth is what matters because, the richer a country becomes, the greater are the funds to carry out the policies that were in the manifesto and to create a surplus.

I do not normally speak in Budget debates, save to make the occasional terse comment. In the next year or two, when that surplus begins and the Government examine taxation, I hope that their first priority will be the lower-paid. I hope that we shall seek to enlarge the bands in which no tax or low tax is paid, and that we shall leave the top rate as it is so that the benefit will flow to those who have not rather than to those who have. That is my earnest prayer. We shall see what the Liberal Democrats have to offer. It will be a penny here and a penny there, but I am sure that the Minister will deal adequately with their proposals.

The debate will show the country that the Government have their priorities right. They will not be over-ambitious and will not jump into the dark. They will plan their taxation policies correctly, but will always bear in mind the interests of lower-paid people rather than those who are in the higher-income brackets.

Dr. Cable

Clause 25 is arguably the most important in the Bill, and we intend to oppose it, but for reasons that are different from those of Conservative Members. Hon. Members have been trying to make my speech for me but perhaps I may be permitted to say a few words for myself and my colleagues. Our approach is quite explicit, and I do not understand why hon. Members should be mystified. We have plainly said that the basic tax rate should be 1p higher, that it should be 24p, and that the higher rate should be 50p rather than 40p. That has been set out many times, and there is nothing mysterious about it.

Our policy is described by Conservatives as a tax-and-spend approach—that is their cliché—but we think that some additional public spending is required. It has been suppressed for many years, and there should be transparent additional taxation to fund extra public spending.

Mr. Christopher Leslie (Shipley)

Perhaps I can tell the hon. Gentleman why there is a little confusion about the Liberal Democrat tax plans. The party's manifesto pledges at the general election add up to far more than 1p on income tax could ever provide. There are plans to phase out the contributory principle for state pensions, proposals for thousands more police officers, and plans to spend millions more on the national health service. In Committee last week on the Teaching and Higher Education Bill, the hon. Member for Harrogate and Knaresborough (Mr. Willis) committed the Liberal Democrats to student support for all those over the age of 18 in higher and further education. That would cost £billion. Perhaps that is why there is a little confusion.

Dr. Cable

I have already mentioned two key revenue changes. The first is 1p on income tax and the second relates to higher rates, and we explain those changes specifically and in detail. The hon. Gentleman may have a free copy of the document that shows how the sums balance in the current financial year. All hon. Members may not agree that additional direct taxation is required, but we think it is, and we have itemised the expenditure. Hon. Members may disagree with it, but they should not pretend that the sums do not add up, because they do.

Mr. Plaskitt

If the tax sums add up, why do the Liberal Democrat proposals imply an increase in borrowing of £23.5 billion?

Dr. Cable

Borrowing and debt raise another big issue. In our view, the Government approach to public debt has been excessively cautious. At this stage of the economic cycle, it is not a prudent use of Government revenue to make large-scale reductions in Government debt. Public sector requirements in key services such as health and education, and investment requirements in public transport, for example, require adequate funding. For 18 years, those services were starved, and resources should now be allocated to them. The Government should not prioritise debt reduction.

I have spoken about the broad philosophy, and I shall now deal with petrol duty. We are not hostile to the principle of an increase in petrol duty, which has sound environmental and revenue reasons. Our position on that was clearly set out. We think that the additional revenues from petrol tax should have been hypothecated and set aside for public transport spending. That was the rather different reason why we decided to vote with the official Opposition.

There are three simple reasons for our belief that a modest increase in personal taxation is required. The first relates to revenue that is specifically allocated to specific forms of public expenditure. We have said that the increase in personal taxation should be specifically set aside for education. In that context, we are discussing £1.8 billion. I do not want to rehearse the detailed arguments on education policy because the Committee is discussing taxation policy, but those of us who are on the doorsteps helping our councillors encounter two contrasting situations. In many boroughs, education provision is being cut, the number of teachers is being reduced and services are declining. Although the Government are undoubtedly providing additional resources, they are insufficient to offset that trend.

The second phenomenon, which occurs in my borough, is that education services are being maintained. Of course, my borough is committed to education. That is being achieved within capping limits only as a result of major cuts in social services, for example. In other words, insufficient resources are coming through. We believe that the penny in the pound on income tax is necessary to generate the revenue to avoid making such cuts.

Mr. Derek Twigg (Halton)

I take the hon. Gentleman's point about council revenues, but I was talking to two head teachers in my local authority of Halton—where social services have not been cut—who told me that their school budgets had increased by £100,000. Indeed, the total increase in education spending has been £2 million—people have never had it so good. I am not sure where all this doom and gloom is coming from.

8 pm

Dr. Cable

The hon. Gentleman cannot travel very widely; if he did, he would hear a very different story. Many councils—Labour as well as Liberal Democrat—are hitting out against capping limits, as the pain that those limits cause is being felt partly in the education system and partly elsewhere.

We support an increase in personal taxation, especially in the basic rate, to fund increased education provision. We also argue for it as a basic economic regulator. Over the past year, we have consistently said that the Government have the mix of monetary and fiscal policy wrong. We have argued that they could have avoided many of the difficulties that they have encountered in the past few months, especially as a result of the appreciating pound and high interest rates, if they had resorted to taxing personal consumption—we believe that that basic intellectual argument still holds.

We also believe—we are explicit about this—that more fairness is needed in the tax system: in other words, there should be income distribution. We shall continue to argue that a modest—not punitive—increase in the basic and higher rates of tax represents the best way in which to make the tax system fairer.

Mr. Collins

The hon. Member for St. Helens, South (Mr. Bermingham) made an elegant speech. Perhaps there is a note of unusual bipartisan agreement, as he seemed to be saying that the test of the Government's success would be whether, in this Parliament, they generated faster growth and lower unemployment than in the years before the general election. I am happy to join him in wanting that as a test, although the Red Book does not suggest that there will be faster growth. He may be right to say that his colleagues on the Treasury Bench are being unnaturally cautious and are grossly underestimating the great growth bonanza that they will produce—we shall see.

We shall also find out whether unemployment continues to fall as fast as it did in the year or two before, and in the year since, the general election, or whether, as increasing numbers of economic experts expect, it is likely to start rising soon. If, as the Government predict, growth slows down and if, as most City experts and others predict, unemployment begins to rise, perhaps the hon. Gentleman will, on the basis of his elegant speech, join me in the belief that the Government's economic policies are not working as magically as he hopes.

I devote the bulk of my remarks, however, to the curious Liberal Democrat position and the speech of the hon. Member for Twickenham (Dr. Cable). The Prime Minister rightly uses the phrase "the magic penny" to refer to the penny on income tax, which, as the hon. Member for Shipley (Mr. Leslie) pointed out, Liberal Democrats expect to pay for everything—the police, the health service, education and all the other massive increases in public expenditure that they want.

The hon. Member for Twickenham said that the Liberal Democrat policy on fuel taxes was wholly consistent. He said that Liberal Democrats had voted against an increase in petrol taxes—even though, in principle, they favoured it—because they wanted the revenue to be hypothecated. It will not be long before we find examples of Liberal Democrat literature in which they make hay out of the fact that they voted against an increase in petrol tax, but I doubt whether they will mention their support for such an increase in principle.

The magic penny is curious. Whatever the basic rate of income tax has been, the Liberal Democrats have argued that it should be exactly one percentage point higher. Now that it is 23 per cent., they want it to be 24 per cent.; when it was 24 per cent., they wanted it to be 25 per cent.; and when it was 25 per cent., they wanted it to be 26 per cent.

One of the points about which the two main parties agree is that there should be a consistent target for the basic rate of tax. The Conservative Government set a target of 25 per cent., and after we had achieved that, we set another target of 20 per cent.—as my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) pointed out, we had made great strides towards reaching that target in the previous Parliament, and would no doubt have gone further if we had won the general election. The Labour party gave the clear commitment in its manifesto that it would not increase the basic rate of income tax—that is a rare example of a pledge that it has kept. Moreover, the Labour Government have a target, as we did.

The Liberal Democrat position seems to be that the tax rate should be one percentage point higher than whatever figure the other two parties pick, as if, whatever the rate is, it is one percentage point below the ideal. That strategy cannot be explained by any analysis of what is needed for public services or the smooth running of the economy; it can be explained only by the fact that the Liberal Democrats want a policy that they believe differentiates them from other parties, in such a way—they naively assume—as to win them votes.

The Liberal Democrat policy is not likely to win them votes, however, as people do not believe that, following the vast tax increases in the previous two Budgets, economic problems will be solved by an increase in income tax. People are saying that they are already paying too much council tax, petrol tax and income tax—they do not want to pay any more. The Liberal Democrat penny strategy is exhausting public patience, and will further undermine what small respect the public have for their economic credibility.

The Chief Secretary to the Treasury (Mr. Alistair Darling)

It would be tempting to follow the hon. Member for Westmorland and Lonsdale (Mr. Collins) by launching another attack on the Liberal Democrats, but I shall not. [HON. MEMBERS: "Go on."] Not yet, anyway, as I want first to deal with the points made by the right hon. Member for Wells (Mr. Heathcoat-Amory). I think that I can do that briefly, as he covered familiar ground in setting out his stall.

On corporation tax, we have undertaken a long overdue reform to put in place a modern system, in which managers and investors, rather than the tax man, make business decisions. In the longer term, companies will gain as a result of our reforms.

The right hon. Member for Wells also mentioned the tax burden and tax rises, conveniently overlooking the fact that the Conservative Government lost office largely because they broke their promises on tax. We all remember that, despite the fact that the Conservatives fought the 1992 general election on an explicit promise to reduce tax, they increased it. Those of us with longer memories will remember that, in 1979, Lord Howe, as he now is, said that our accusation that he was planning to double the rate of VAT was a nasty Labour lie, yet, within a month of coming to office, the Conservative Government did exactly that. A decade or so later, they broke another promise on VAT by imposing it on domestic fuel after they had said that they would not.

Moreover, we all remember the 22 Tory tax rises that contributed to the fact that most people were paying more tax at the time of the general election last year than they were in 1992. The right hon. Gentleman is ill placed to attack us on tax—although I understand why he has to do it—as we are keeping our promises. I cannot add anything further on the Conservative position, except to pay a back-handed tribute to my immediate predecessor, Mr. William Waldegrave, as we must now call him. Contrary to the right hon. Gentleman's assertion that Conservatives do not like imposing taxes, Mr. Waldegrave said during an interview on the "Dimbleby" programme, in which I was taking part, that, when the Conservatives increased taxes, they favoured indirect taxes, as the country knew only too well.

I come to the Liberal Democrat attack—if, indeed, that is what it was. In some ways, I feel desperately sorry for the hon. Member for Twickenham (Dr. Cable), as I had the distinct impression that his heart was not in what he was saying. As the right hon. Member for Wells said, the Liberal Democrats chose the subject of this debate. It is well known that, when we have these days on the Floor of the House, the Opposition, in recent years at any rate, have to choose the subjects for debate. The Government of the day—ourselves and before that the Conservatives—always took the view that whatever the Opposition wanted on the days allocated could be the subject of the debate; it is a matter for the Opposition.

The Liberal Democrats asked that we debate this clause, yet tonight we have had seven or eight minutes from the hon. Member for Twickenham, who dutifully set out the Liberal Democrat position. Indeed, it is worth recording that only one other Liberal Democrat Member is present. I know that the Liberal Democrats were a bit down on the previous Division, but they seem to be completely out in relation to the next one.

The clause honours our manifesto commitment. We said that we would hold the top and basic rate of income tax for the lifetime of this Parliament. We have kept and will keep that promise, no matter what the Liberal Democrats or anyone else says. We have also committed ourselves to introducing a lower starting rate of tax, as soon as it is prudent to do so. Why did we do that? We did that because it provides a fair tax system. We want people to have incentives to work and, when they do work, we want to ensure not only that works pays, but that people see the reward for their work. That is the whole point of a fair tax system.

Our reforms—the working families tax credit, when it is introduced, and the reforms to the national insurance system—are all geared to ensuring that everyone, particularly those on lower incomes, who have had a raw deal in the past few years, benefits from the fruits of their labours. That seems to be a principle that is worth promoting and preserving.

Of course, the Liberal Democrats want to increase the basic rate of income tax by 1p, or least so they said tonight in Committee. They do not always say that. Perhaps I could apologise to the hon. Member for Gordon (Mr. Bruce) because I would normally have written to him but, frankly, it never occurred to me that he would not be here to press his attack. However, I am sure that he will understand that I really have to refer to him, in the same way as Opposition Members refer to my right hon. and hon. Friends.

Despite the fact that we are being told tonight that the Liberal Democrats want to put up income tax—because, basically, they feel that it is the right thing to do and that the money raised can go to education, so they say—the hon. Member for Gordon, at the end of March in an interview with the Herald, when he was at the Inverness conference of the Scottish Liberal Democrats, which was rather like the Chamber tonight in that the Liberal Democrats did not turn up for that either, said:

We have business people here today who don't want to hear us saying we'll be putting up your taxes. That is curious because, in Scotland, the Liberal Democrats, like other parties, hope to win seats at the elections to the Scottish Parliament. There we have the Liberal Democrat finance spokesman saying that business people and others do not want to hear the Liberal Democrats saying, "We'll put up your taxes."

The hon. Member for Gordon went on to say—to put this in its proper context, because I would hate to be accused of quoting anyone out of context—in the context of the Scottish Office budget, that the first thing that we should do is

dig into that budget to find out whether there are savings to be made. That is odd, because that is precisely the line that the Government are taking with their comprehensive spending review.

Dr. Cable

Will the right hon. Gentleman give way?

Mr. Darling

I shall in one moment, because I am sure that the hon. Gentleman will want to explain his colleague's position.

Our position is that, in a budget—in the case of the UK, of more than £350 billion—it is inconceivable that spending cannot be better directed to meet the Government's priorities. Indeed, within the first year of our term of office, thanks to the rigorous control that we have exercised over public spending, we have directed resources to this Government's priorities. However, an accusation has been levelled against the Liberal Democrats, and I am sorry to say that it is familiar one. It is not just the right hon. Member for Wells who makes it. One or two of us have experience of Liberal Democrats saying one thing in one place and another when it suits them elsewhere.

The accusation is that the hon. Member for Gordon sought to give people in Inverness—I understand why he did it—the impression that the Liberal Democrats did not want to put up their taxes and that, first, they should have a review of, in that case, Scottish expenditure. Why are the Liberal Democrats saying one thing in Inverness and something completely different tonight in the Chamber?

Dr. Cable

I hate to interrupt the Chief Secretary's love-in with the Conservatives on this issue, but, with respect, does he not accept that nothing in the quotation that he has just read contradicts the belief of my hon. Friend the Member for Gordon (Mr. Bruce) that we should have an increase in personal taxation for public expenditure?

Mr. Darling

The hon. Member for Gordon did not say that. His first port of call, rightly, was to examine existing spending. Then he was going to reach a decision on increasing taxation. At the general election, the Liberal Democrats' position was, "Never mind what we spend now: tax is going up by a penny."

I want to explore why the Liberal Democrats are making that point. It is worth bearing in mind this simple fact: 1p on the basic rate of income tax raises about £1.8 billion. This year, so far, since the Government came to power, we have made proposals to invest £2.5 billion in education. There is another difference. Of that £2.5 billion, £1.3 billion comes from the windfall tax on the privatised utilities, which, of course, the Liberal Democrats voted against.

Mr. Baker

Will the right hon. Gentleman give way?

Mr. Darling

I will in one moment.

I was struck by the fact that, again, the hapless hon. Member for Gordon made this point in the debate on the previous Finance Bill. He was criticising us for introducing the windfall tax and said:

That proves a basic point—billions of pounds cannot be taken out of the utilities and have no impact on … those organisations."— [Official Report, 15 July 1997; Vol. 298, c. 211.] He must be the only man in Britain who believes that. Everyone else accepts that the windfall tax was fair, justified and eminently payable. Even the privatised utilities accept that, so why not the Liberal Democrats?

Mr. Baker

May I return the Minister to a point that he raised a moment ago? We regularly hear the Prime Minister and others compare spending pledges. Are not the Liberal Democrat pledges for one year, because income tax is calculated in a one-year period? Are not the Government's pledges for the length of the Parliament, and therefore not comparable?

8.15 pm
Mr. Darling

I am going to come on to the Liberal Democrat pledges. The pledges that I am about to go through and to remind the hon. Gentleman about, because he no doubt read his manifesto before he went on the hustings, were by no stretch of the imagination deliverable in one year.

As I was rude about the fact that there were two Liberal Democrat Members in the Chamber earlier, I should record that I think that there are three now, so I need to adjust upwards my estimate of their attack.

Mr. Leslie

Skimming through a few interesting papers, I find a copy of a document entitled "Make the Difference", a supplement to the Liberal Democrat manifesto, which I commend to the hon. Member for Lewes (Mr. Baker). It sets out not a one-year commitment in terms of the 1p on income tax, but a full five-year commitment. Has he not been contradicting himself all the way through?

Mr. Darling

I think that the Liberal Democrats are sometimes prone to read their manifesto selectively, for reasons that I well understand, but the fundamental difference between the Government and the Liberal Democrat party is that we are building a stable economic platform which will provide long-term growth. Without that sustainable long-term growth, we shall not get the public finances into the position that we need to get them into, to provide the services that most of us want.

The Liberal Democrats—I understand why they are doing this, because when they go around the doors, they have got to be able to explain at least to some potential electors what the difference is between them and us, and other parties—are saying, "Vote for us. We will put a penny on education." What remains unsaid, because the Liberal Democrats dare not say it, is that they can say that because they know that they will never be elected and never have to do anything about it.

Mr. Baker

Will the right hon. Gentleman give way?

Mr. Darling

I shall in a moment, because the hon. Gentleman may want to answer this point.

What irritates just a little is that this penny is meant to cover a multitude of promises. The Liberal Democrats want to spend more on education, health, transport, the environment, councils, crime, funding for students, hill farmers and cold weather allowances. Of course, they tell us that the reserve is not high enough either, so it will have to be increased, and they can do all that for a penny, at no cost.

Dr. Cable

Will the right hon. Gentleman give way?

Mr. Darling

I will give way to the hon. Gentleman after I draw his attention to one or two points.

In the Liberal Democrats' 1997 manifesto—time does not permit me to read the whole thing—we find free eye and dental check-ups, an enhanced carers' benefit, phasing out the contributory principle for state pensions, establishing a new partial disability benefit, providing for fees for adult learners, increasing the present number of students in higher education by 2 million—if you please—making improvements in the scope and level of housing benefit, restoring benefit entitlements to students, restoring benefit entitlements to 16 and 17-year-olds, restoring full income support for under 25-year-olds, substantially increasing investment in public transport, 3,000 more police officers, and investing at least £540 million every year in the NHS—by the way, we are providing £2 billion this year alone. All that for a penny? It simply defies belief.

Dr. Cable


Mr. Darling

I said that I would give way, and I will. I should like the hon. Gentleman to deal with those points.

When I read all those promises and listen to his comments, how am I to square them with a note from the Association of Liberal Democrat Councillors of 16 December 1997, which states: The constitutional role of an Opposition group is to oppose and not to martyr itself trying to produce a Budget"? Does not that statement say it all about the Liberal Democrats?

Dr. Cable

As for that quotation of our councillors, is not the Chief Secretary to the Treasury aware that education is a local government service, that many of our councillors are running councils, and that many Liberal Democrat-controlled councils—led by mine, as it happens—are at the top of the Government's own tables on education performance? One of the main reasons for our success is that our councillors are willing to use their limited discretion in increasing council tax to fund increased education provision in their council area.

Mr. Darling

I notice that, in March 1997, in the Royal Borough of Kingston upon Thames—I am pleased to call it a "royal borough", although, in 1994, its Liberal Democrat leader, who was an anti-monarchist, wanted to drop the "royal"—the Liberal Democrats voted to cut the education budget by £1.5 million.

The first point is that the Government are providing education funding over and above that planned by the previous Government, and that that increased funding is beginning to make a difference. The second point is that the Government's comprehensive spending review, which is nearing completion, will set our spending priorities not only for this Parliament, but beyond it.

We made it clear in our election manifesto and subsequently that education is a priority. Our actions in delivering education—not only in increased spending, but in the efforts made by my right hon. Friend the Secretary of State for Education and Employment and his Ministers to improve standards—are demonstrating to people that they now have a Government who care about public education and are making a difference.

The difference between us and the Liberal Democrats is that we are making progress, on a steady and sustainable basis, on spending and standards. We are not making ludicrous promises that we know cannot possibly be delivered.

Mr. Baker

For the record—as the Minister knows—the penny on income tax was to be used solely for education. Our other pledges were all identified and costed in our manifesto. The free eye and dental checks were to be paid for by an extra 5p tax on a packet of 20 cigarettes.

However, what is the Minister's view on the ideal taxation level? We have heard that, although a 10 per cent. starting rate will be introduced, the Tory tax levels will be maintained. Presumably, therefore, the Minister thinks that the Tory party got it right in its taxation levels at the end of the previous Parliament. If and when there are budget surpluses in the years ahead, will they be used further to cut taxes or to improve public services?

Mr. Darling

There is an awful lot in that intervention to suggest that the hon. Gentleman is feeling a trifle guilty about his party's position. Nevertheless, the previous Government had to increase taxation because of economic failure. They managed to transform an economic miracle of the 1980s into an economic disaster of the 1990s. I repeat that we shall ensure that our priorities are attained, and that we are building the essential stable economic platform to do so.

In his intervention, the hon. Member for Lewes (Mr. Baker) started to rein in the Liberal Democrats' position by saying that that penny will be spent only on education. However, I have to tell him that, if the Liberal Democrats continue voting against other tax-raising measures, the suggestion is unavoidable that that penny will have also to make up shortfalls elsewhere—unless they are advocating cuts elsewhere.

I mentioned the rise in fuel duties not only because other hon. Members have mentioned it in this debate, but because the Liberal Democrats are trying to have it several ways at once. In his "alternative Select Committee report", the hon. Member for Gordon—whom I mention once again—said that the Government had failed sufficiently to tax consumers. However, when we dealt with a proposal increasing the fuel escalator, which is clearly a tax on spending, the Liberal Democrats voted against it.

Like other hon. Members speaking in this debate, I had always believed that the Liberal Democrats were in favour of taxing fuel for environmental reasons. However, I remember also that, during the by-election in Kincardine and Deeside—which is an extremely large rural constituency—it transpired that the Liberal Democrats were not in favour of taxing fuel in that constituency. Had they been so, they might have found it rather difficult to win the by-election.

At every stage, the Liberal Democrats are in favour of the environment and of taxes on consumers—except when they are confronted with the job of seeing the business through. The Liberal Democrats' history shows that, whenever they are confronted with a difficult decision, they simply back off. They also tend to say different things in different parts of the country. Frankly, their 1p to pay for education improvement is risible.

Mr. Baker

I should like the Minister to return to the questions that I asked and he has not answered. First, does he think that current income tax levels are ideal or still too high? Secondly, if there are budget surpluses in the years ahead, will he use those surpluses further to cut indirect taxes or on public spending?

Mr. Darling

I answered the questions. I am not sure whether the hon. Gentleman was in the Chamber on Budget day or has read anything about the Budget since my right hon. Friend made his statement. If the hon. Gentleman was here or read about the Budget, he will be aware of our priorities, which are to remove the taxation burden and barriers facing people who are entering work. Achieving that objective was the entire point of our reform of the tax and benefit system and of our changes to the national insurance system. Those are our priorities. We want to reduce the starting income tax rate as soon as it is prudent to do so to achieve those priorities.

In reply to the other point made by the hon. Member for Lewes, we have been increasing and will continue to increase resources, for education. We have already increased those resources, and, as I said, we are taking action to raise standards—which are as crucial as funding in education. We have funded higher education on a long-term and sustainable basis—which the Liberal Democrats opposed. Returning to the old grant system would itself add 3p to income tax, and would enable us merely to stand still and provide nothing else for schools or other parts of the education system.

There are now three Liberal Democrat Members in the Chamber. I should like to tell them that, last September, I attended a fringe meeting at the Liberal Democrat conference. I believe that I was the first serving Cabinet Minister to do so. I did it because I welcome discussion, debate and information exchange between political parties, to determine how we might better rebuild our country. However, if we are to have such an exchange, Liberal Democrat Members really will have to take a realistic and serious approach to government.

A political party that is serious in aspiring to government needs serious and well-founded policies, which the Liberal Democrats do not have. At this stage of British political development, the Liberal Democrats have a choice. They can either be a party of perpetual opposition or a credible challenger to the Tories in opposition. However, on today's reckoning, they have yet to face up to that challenge. No political party can be serious about being in government unless it can demonstrate that it can sometimes take hard choices and occasionally reach unpopular decisions, if it believes that that is the right thing to do.

In the year that we have been in office, the Government have implemented a substantial number of our manifesto commitments. We have introduced a Bill—the Education (Schools) Bill—to cut class sizes for all five to seven-year-olds. The first £22 million is already being spent on cutting class sizes. We have also provided an extra £1.3 billion to improve school buildings and equipment. The Opposition could not do that because they were against such extra funding.

The national health service is receiving an extra £2 billion, and the NHS internal market is being scrapped. The United Kingdom now has the lowest corporation tax rate of any major industrialised country. Corporation tax in the United Kingdom is at its lowest ever level, which is good for business, good for jobs and good for creating wealth.

We reformed the national insurance system. This year, pensioners are receiving cash payments of £20 to cope with winter fuel bills, on top of cuts to value added tax on fuel to 5 per cent. We are investing receipts from council tax sales to start tackling the huge repair backlog that we inherited. We have taken all those actions while sticking to our pledge not to raise income tax rates.

Mr. Adrian Sanders (Torbay)

Will the Minister give way?

Mr. Darling

No, I will not. We have been able to take that action because people both inside and outside the United Kingdom have growing confidence in the Government's ability to ensure that we build the sound economic platform that we need. On keeping inflation under control, our reforms to the Bank of England have resulted in the United Kingdom's lowest long-term interest rates for 33 years.

The Government take an unashamedly long-term view of what is needed in the United Kingdom. We take a long-term view on how to create the wealth we need to get people into work, to help business and to create job opportunities. Above all, we take a long-term view on ensuring that public finances are in a proper state, so that we can ensure delivery on a long-term basis of the public services that we all need and want.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 248, Noes 28.

Division No. 263] [8.29 pm
Abbott, Ms Diane Chaytor, David
Adams, Mrs Irene (Paisley N) Chisholm, Malcolm
Ainger, Nick Clark, Dr Lynda
Ainsworth, Robert (Cov'try NE) (Edinburgh Pentlands)
Alexander, Douglas Clarke, Charles (Norwich S)
Allen, Graham Clarke, Eric (Midlothian)
Anderson, Janet (Rossendale) Clarke, Rt Hon Tom (Coatbridge)
Armstrong, Ms Hilary Clarke, Tony (Northampton S)
Ashton, Joe Clelland, David
Atherton, Ms Candy Clwyd, Ann
Atkins, Charlotte Coaker, Vernon
Barnes, Harry Coffey, Ms Ann
Battle, John Cook, Frank (Stockton N)
Bayley, Hugh Cooper, Yvette
Beckett, Rt Hon Mrs Margaret Cousins, Jim
Begg, Miss Anne Cox, Tom
Bell, Stuart (Middlesbrough) Cranston, Ross
Benn, Rt Hon Tony Cryer, Mrs Ann (Keighley)
Bennett, Andrew F Cummings, John
Bermingham, Gerald Cunliffe, Lawrence
Betts, Clive Cunningham, Jim (Cov'try S)
Blizzard, Bob Dalyell, Tam
Blunkett, Rt Hon David Darling, Rt Hon Alistair
Borrow, David Davidson, Ian
Bradley, Keith (Withington) Davies, Rt Hon Denzil (Llanelli)
Bradley, Peter (The Wrekin) Davies, Geraint (Croydon C)
Bradshaw, Ben Dean, Mrs Janet
Brinton, Mrs Helen Dobbin, Jim
Brown, Russell (Dumfries) Dowd, Jim
Browne, Desmond Drown, Ms Julia
Burden, Richard Eagle, Angela (Wallasey)
Burgon, Colin Eagle, Maria (L'pool Garston)
Byers, Stephen Edwards, Huw
Caborn, Richard Ellman, Mrs Louise
Campbell, Alan (Tynemouth) Etherington, Bill
Campbell, Mrs Anne (C'bridge) Field, Rt Hon Frank
Campbell, Ronnie (Blyth V) Fisher, Mark
Campbell-Savours, Dale Flynn, Paul
Canavan, Dennis Foster, Rt Hon Derek
Casale, Roger Foster, Michael J (Worcester)
Caton, Martin Fyfe, Maria
Chapman, Ben (Wirral S) Galloway, George
Gardiner, Barry Moonie, Dr Lewis
George, Bruce (Walsall S) Moran, Ms Margaret
Gerrard, Neil Morgan, Alasdair (Galloway)
Gibson, Dr Ian Morgan, Rhodri (Cardiff W)
Gilroy, Mrs Linda Morley, Elliot
Godman, Dr Norman A Morris, Ms Estelle (B'ham Yardley)
Godsiff, Roger Mudie, George
Goggins, Paul Mullin, Chris
Golding, Mrs Llin Murphy, Denis (Wansbeck)
Griffiths, Jane (Reading E) O'Brien, Bill (Normanton)
Gunnell, John O'Brien, Mike (N Warks)
Hall, Mike (Weaver Vale) Olner, Bill
Hall, Patrick (Bedford) O'Neill Martin
Hanson, David Organ, Mrs Diana
Heal, Mrs Sylvia Osborne, Ms Sandra
Healey, John Palmer, Dr Nick
Henderson, Doug (Newcastle N) Pearson, Ian
Hesford, Stephen Pickthall, Colin
Hinchliffe, David Pike, Peter L
Home Robertson, John Plaskitt, James
Hoon, Geoffrey Pope, Greg
Hopkins, Kelvin Powell, Sir Raymond
Howarth, George (Knowsley N) Prentice, Ms Bridget (Lewisham E)
Humble, Mrs Joan Prentice, Gordon (Pendle)
Hurst, Alan Primarolo, Dawn
Hutton, John Prosser, Gwyn
Iddon, Dr Brian Purchase, Ken
Jackson, Helen (Hillsborough) Quinn, Lawrie
Jenkins, Brian Rammell, Bill
Johnson, Alan (Hull W & Hessle) Rapson, Syd
Johnson, Miss Melanie Raynsford, Nick
(Welwyn Hatfield) Reed, Andrew (Loughborough)
Jones, Barry (Alyn & Deeside) Reid, Dr John (Hamilton N)
Jones, Helen (Warrington N) Robertson, Rt Hon George
Jones, Ms Jenny (Hamilton S)
(Wolverh'ton SW) Robinson, Geoffrey (Cov'try NW)
Jones, Martyn (Clwyd S) Roche, Mrs Barbara
Kaufman, Rt Hon Gerald Rogers, Allan
Keeble, Ms Sally Rooker, Jeff
Kidney, David Ross, Ernie (Dundee W)
Kilfoyle, Peter Rowlands, Ted
Kingham, Ms Tess Roy, Frank
Kumar, Dr Ashok Ruane, Chris
Lawrence, Ms Jackie Ruddock, Ms Joan
Lepper, David Savidge, Malcolm
Leslie, Christopher Sawford, Phil
Levitt, Tom Shaw, Jonathan
Lewis, Ivan (Bury S) Sheerman, Barry
Liddell, Mrs Helen Sheldon, Rt Hon Robert
Livingstone, Ken Short, Rt Hon Clare
Lloyd, Tony (Manchester C) Simpson, Alan (Nottingham S)
Lock, David Singh, Marsha
Love, Andrew Skinner, Dennis
McAllion, John Smith, Rt Hon Andrew (Oxford E)
McAvoy, Thomas Smith, Miss Geraldine
McCabe, Steve (Morecambe & Lunesdale)
McCafferty, Ms Chris Smith, John (Glamorgan)
McDonnell, John Smith, Llew (Blaenau Gwent)
McFall, John Spellar, John
McGuire, Mrs Anne Squire, Ms Rachel
McKenna, Mrs Rosemary Steinberg, Gerry
Mackinlay, Andrew Stevenson, George
McNamara, Kevin Stewart, David (Inverness E)
McNulty, Tony Stewart, Ian (Eccles)
McWalter, Tony Stinchcombe, Paul
Mallaber, Judy Stott, Roger
Mandelson, Peter Strang, Rt Hon Dr Gavin
Marsden, Gordon (Blackpool S) Stringer, Graham
Marshall, David (Shettleston) Stuart, Ms Gisela
Marshall, Jim (Leicester S) Swinney, John
Marshall-Andrews, Robert Taylor, Rt Hon Mrs Ann
Maxton, John (Dewsbury)
Michie, Bill (Shef'ld Heeley) Taylor, Ms Dari (Stockton S)
Milburn, Alan Thomas, Gareth (Clwyd W)
Mitchell, Austin Thomas, Gareth R (Harrow W)
Moffatt, Laura Timms, Stephen
Tipping, Paddy Williams, Rt Hon Alan
Touhig, Don (Swansea W)
Trickett, Jon Williams, Alan W (E Carmarthen)
Truswell, Paul Wills, Michael
Turner, Dennis (Wolverh'ton SE) Winnick, David
Turner, Dr Desmond (Kemptown) Wise, Audrey
Turner, Dr George (NW Norfolk) Wood, Mike
Twigg, Derek (Halton) Wray, James
Watts, David Tellers for the Ayes:
White, Brian Jane Kennedy and
Wicks, Malcolm Mr. David Jamieson.
Allan, Richard Kirkwood, Archy
Ballard, Mrs Jackie Livsey, Richard
Beith, Rt Hon A J Michie, Mrs Ray (Argyll & Bute)
Bell, Martin (Tatton) Moore, Michael
Brake, Tom Russell, Bob (Colchester)
Breed, Colin Smith, Sir Robert (W Ab'd'ns)
Bruce, Malcolm (Gordon) Stunell, Andrew
Cable, Dr Vincent Tonge, Dr Jenny
Chidgey, David Tyler, Paul
Cotter, Brian Wallace, James
Davey, Edward (Kingston) Webb, Steve
Hancock, Mike Willis, Phil
Harris, Dr Evan
Heath, David (Somerton & Frome) Tellers for the Noes:
Keetch, Paul Mr. Adrian Sanders and
Kennedy, Charles (Ross Skye) Mr. Norman Baker.

Question accordingly agreed to.

Clause 25 ordered to stand part of the Bill.

Forward to