Taxation

HC Deb 10 March 1998 vol 308 cc331-77

Madam Speaker

I have selected the amendment in the name of the Prime Minister.

4.23 pm

Mr. Peter Lilley (Hitchin and Harpenden)

I beg to move, That this House deplores the fact that the Government broke its pledge not to raise taxes by raising 17 taxes in its first Budget; notes that, although the full impact of many of these taxes, such as the Pensions Tax and higher business taxes, was not immediately apparent to the public, these taxes will undermine Britain's economic success and people's retirement incomes in the long term; and urges the Government not to introduce any further hidden taxes in the forthcoming Budget. With the Budget only a week away, I am sure that the House will not expect Ministers to give us details of their tax plans today. Hon. Members are becoming used to the fact that the House is the last to be informed of any Government policy. But we expect Ministers to answer for the hidden taxes that the Government have introduced so far—hidden taxes on pension funds, savings and business, not to mention extra taxes on motorists, students, smokers and home owners.

Before the last election, Labour had to convince a sceptical electorate that it had changed. It said that it was no longer the party of tax and spend. It claimed to have undergone a conversion, so it invoked biblical language to persuade people that it was genuine. The Prime Minister, in messianic mode, told his conference: I vow that promises we make on tax, we will keep. This is my covenant with the British people. Judge me upon it. New Labour, Old Testament. When the Prime Minister said, We will not increase taxes at all", people believed him. The Chancellor of the Exchequer took a high moral tone. He said: We will not make promises we will later break, we will not say one thing before the election and another after. Above all, we will be straight with the British people about tax.

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

Does the right hon. Gentleman agree that the promise we made was that we would not increase the top or basic rate of income tax?

Mr. Lilley

I was quoting the Prime Minister, then Leader of the Opposition. According to a report in the Financial Times on 21 September 1997, the right hon. Gentleman said at a meeting in Birmingham a few months before the election: We have no plans to increase tax at all. If the Chief Secretary wishes to dissociate himself from the Prime Minister, he should have done so before the election, not afterwards.

As I was saying, the Chancellor also took a high moral tone. He said: We will not make promises we will later break, we will not say one thing before the election and another after. Above all, we will be straight with the British people about tax. That is why at the General Election we will spell out quite clearly our tax plans, so the British people know what we intend to do. There will be no lies, no deceit. When he said, Apart from the Windfall Tax, Labour's plans do not require any extra taxes", people felt that they could believe him. They did not realise that the Chancellor intended to impose hidden taxes—taxes that he had hidden from the voters before the election and which he hoped would be largely invisible after their implementation.

Dr. George Turner (North-West Norfolk)

The right hon. Gentleman says that the Labour party said that it would spell out to the electorate what its tax promises were. As a candidate I know that they were explained in the manifesto on which I fought and won my seat. Can he cite a single promise from that manifesto—not from newspaper reports or cuttings—that the Government have broken?

Mr. Lilley

I was quoting from a speech by the Chancellor given just before last year's Budget—I will be addressing the same audience tomorrow. He said that he would spell out clearly the Government's tax plans so that the British people would know what they were. When did he spell out clearly to people with pensions that he planned a £5 billion annual tax on their pension funds? When did he spell out to business men that he planned £22 billion of extra taxes on the corporate sector? When did he spell out to savers that he would impose the savings tax that we debated last week?

Mr. Ivor Caplin (Hove)

Will the right hon. Gentleman give way?

Mr. Lilley

No, I will get on because I have many questions to which the Chief Secretary may wish to reply.

When did the Chancellor spell out to home owners that he would tax their mortgages by cutting relief even while interest rates were rising? When did he spell out to students that he would impose a pay-as-you-learn tax on higher education? When did he spell out clearly to motorists, especially rural motorists, that he would raise extra taxes on petrol?

Those are the questions that the Chief Secretary must answer today. The Government think that they can get away with deceiving the British people, betraying their pledges and concealing the cost. The cost will come through and then the facts will be clear. They will not get away with it: the facts will not let them; we will not let them; and the British people will not let them.

Mr. Darling

The right hon. Gentleman will find a clear reference in our manifesto to the fact that we intended to review corporation tax. And does he accept that the previous Government, of which he was a member, were committed to a real increase in road fuel duties every year?

Mr. Lilley

During the election campaign, I warned people with pensions that Labour might be planning to abolish tax credits, and that that would hit them. The Times reported the then shadow Chief Secretary as saying: there was no basis for the Tories' claims. They were desperate talk intended to frighten. I will give way to the Chief Secretary if he wishes to explain that. Since the election, the Chancellor has dropped the Chief Secretary from his circulation list—what a shame that the Chancellor did not send him his "no lies, no deceit" speech about taxes before the election.

Labour thought that people would not understand the changes that it was making to taxes on dividends. Labour hoped that people would not recognise that money was being siphoned out of their pension funds until they retired and found that their pensions were smaller than they expected or, if they had already retired, until they found that their pensions did not rise as much as they hoped. The last person who thought he could get away with robbing pensions was another Labour Member of Parliament and business colleague of some absent Treasury Ministers, Robert Maxwell—the original bouncing Czech. That is why I dubbed the July Budget the Robert Maxwell memorial Budget at the time.

The Chancellor cannot claim that this back-door tax was foisted on gullible new Ministers by Treasury officials. All the evidence suggests that it was cooked up in opposition. It was concealed from the electorate—and even civil servants were not consulted until the last minute. That is why the tax has stumbled like a drunken man from one change to the next. The Paymaster General was supposed to have brought his immense business expertise to bear on it. All 1 can say is that if this is the best example of his work, he is not worth the money he is not paid.

Ms Ruth Kelly (Bolton, West)

Does the right hon. Gentleman agree that tax credits on pension funds were a gross distortion of the tax system? Will his party reinstate those tax credits if it returns to power?

Mr. Lilley

Of course I do not accept that the credits were a distortion. On the contrary, the imputation tax system was the least distorting form of tax. I am glad that the hon. Lady accepts that we will form the next Government. I cannot tell her how many of the Labour party's messes we will restore because I fear that there will be many more on top of this.

Mr. Caplin

Does the right hon. Gentleman accept that the UK has the lowest rates of corporation tax?

Mr. Lilley

The changes introduced by the Government reduce the rate but increase the tax take by £8 billion during this Parliament. We reduced the burden of tax on business, and my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) can vouch for that.

Mr. Jonathan Sayeed (Mid-Bedfordshire)

Will my right hon. Friend confirm that, if a company issues a false prospectus and its directors ask for support on the basis of promises that they have no intention of keeping, those directors go to gaol? What does he think should happen to the Labour party, which asked for, and got, the support of the people on the basis of false promises?

Mr. Lilley

In politics, the penalty is usually inflicted by the electorate—as we ourselves have been known to find out.

What is particularly appalling about Labour's pensions tax is that it threatens a great Conservative success. We encouraged people to build up personal and occupational pension funds. As a result, Britain has more money invested to pay for future pensions, not just than any other country in Europe but than all the other countries in the European Union put together. It is criminal to put that at risk, as this tax does.

Faced with the charge that the tax was being levied at the expense of pensioners, the Government have come up with the most preposterous defence. They claim that the tax is unique. It might raise £5 billion at the expense of pension funds, but the Financial Secretary said that that would be good for pensions, good for pension funds and good for pensioners. In short, she thinks that taxation is good for people—except for the Paymaster General, for whom it is too good. [HON. MEMBERS: "Where is he?"] He is probably in Guernsey.

The Chancellor flatly denied that the pensions tax would have an impact on the value of pensions, but the Government Actuary said otherwise. He concluded: The tax changes resulting from the July 1997 budget … potentially affect all forms of contracted-out pension funds. He calculated that pension contributions need to go up by some 12 per cent. For most members of pension schemes, that is equivalent to more than 1 p on their income tax. Labour raises taxes whereas we cut them.

Mr. Steve Webb (Northavon)

Will the right hon. Gentleman confirm that he was a member of the Cabinet when Mr. Lamont first cut the tax credit on dividends and raised £1 billion by doing so?

Mr. Lilley

Surely the hon. Gentleman recognises that the then Chancellor introduced a target 20p rate of tax and aligned the tax credit with it at that time.

The pension tax will come through gradually, but the extra petrol tax was slipped in overnight. By introducing an extra rise in July, slapping on 4p per litre and accelerating future increases, the Chancellor pocketed a cool £730 million of extra tax. If he jacks up petrol taxes yet again next week, there will have been three such new tax rises in 16 months.

Many people have no choice but to pay that extra tax. For most people in rural areas, driving is a necessity, not a luxury. The trouble is that the Government simply do not understand the countryside. They do not care about people who live in rural areas and they do not realise that they need to be able to plan for the future. If the Chancellor wants to regain respect for his party in the countryside, he should drop his plans for yet another petrol tax hike next week.

Mr. Geraint Davies (Croydon, Central)

Will the right hon. Gentleman give way?

Mr. Lilley

No, I wish to make progress.

We must hope that the Chancellor makes a better fist of next week's Budget than he did of last July's. As millions of mortgage holders and business men have been finding out, that Budget was seriously misjudged. In his Budget speech, the Chancellor argued that higher taxes were needed to cool consumer spending. Then, far from taxing consumers and spending, he piled the bulk of his extra taxes on business and savings: £22 billion of extra tax on the corporate sector over the course of this Parliament; taxes on pensions; and taxes on PEPs and TESSAs. Despite his own arguments, he left consumers largely unchecked and the Bank of England has been raising interest rates every since.

Businesses have had the worst of both worlds: higher taxes and higher interest rates, leading to an overvalued pound, clobbering exports, hitting manufacturing, and putting jobs at risk. Does not the Chancellor realise that taking £22 billion from industry leaves it with that much less to invest and create jobs? Do not Labour Members realize—they must see evidence of it in their constituencies—that the Chancellor has brought manufacturing industry to the brink of recession? They may not be able to see that, but we can. Labour is bad for business and we shall defend business against Labour's tax rises.

The Chancellor cannot claim that he opened the books and found that he needed all that extra tax—so much that he had to break his solemn pre-election pledges. On the contrary, he opened the books and found that we had left him with a golden economic legacy. The Budget deficit is falling even faster than my right hon. and learned Friend the Member for Rushcliffe forecast in his last Budget. That should mean that borrowing can be eliminated with less of a rise in the tax burden than anticipated, but instead the Chancellor has been deliberately adding to it.

According to the Government's own figures, the Chancellor now plans, by the turn of the century, to take nearly 3 per cent. more of national income in taxes than in the last year of the Conservative Government. That is equivalent to nearly 10 extra days of tax paying in the course of the year. In the last year of the Conservative Government, taxpayers had to work from 1 January to 10 May to pay off their dues to the state—10 May was tax freedom day. Thereafter, every penny that they earned was their own to spend, give, save or invest as they chose, but under the Labour Government, people will have to work until 20 May to clear their taxes. They will have to do 10 more days of hard labour. That is the price of Labour's plans.

Labour Members cannot claim that it does not matter because the bulk of the taxes fall on businesses, not individuals. All taxes are paid by ordinary people, through higher bills, lower pensions or less take-home pay. As Professor John Kay, a new Labour business guru, says: There is no such thing as a tax on firms: the effective incidence of all taxes is ultimately on individuals. All taxes fall on individuals, but not all individuals pay taxes—indeed, not all Treasury Ministers pay taxes, or not as much as they should, according to the Chancellor, who said: It cannot be right that the decent hard-working majority, paying their share of tax, should watch a minority abusing the system, using scams, loopholes and dodges; distortions in the tax system which must be eliminated.

Mr. Simon Burns (West Chelmsford)

Where is the Paymaster General?

Mr. Lilley

In Guernsey.

It is true that on Friday the Treasury announced that it was cracking down on offshore trusts. It said that a tax loophole would be closed to prevent wealthy individuals from bringing their trusts onshore to avoid capital gains tax. That is all well and good, but the new policy fails the Robinson test: it leaves the Paymaster General in the clear. He is still a tax-free zone. While the rest of us have to work for an extra 10 days a year to finance the Government, he keeps his £12 million offshore to finance his retirement. It seems that the only tax that the Chancellor will not raise is a tax on his hon. Friend the Paymaster General.

In his pre-Budget report, the Chancellor reaffirmed his promise to introduce a 10p starting rate of income tax. We now learn from the newspapers that he may defer it—how typical of Labour. The Government drive ahead with raising taxes in defiance of their pledges, but hold back on the one tax cut that they promised.

Let there be no doubt where we stand on a lop tax rate. Any reduction in tax is welcome, especially after the hidden tax rises that we have had from the Government so far. We shall hold the Chancellor to all his promises on the 10p rate. Does he recall his pre-election pledge, when he said: We would ensure that all lower and middle-income families receive the full benefit of the tax cut"? Will he guarantee that he will not claw back the benefit of the 10p rate from basic rate taxpayers by starting the basic rate at a lower rate of income or by cutting allowances? It is bad enough that the Chancellor has broken his promise not to raise taxes; it would be a disgrace if he did not carry out one of his few tax-cutting commitments in full.

The Government were elected on the basis of the most solemn pledges—

Mr. Darling

The right hon. Gentleman is urging my right hon. Friend the Chancellor to reduce the starting rate of income tax to 10p, but in today's Financial Times he said that he was against that measure.

Mr. Lilley

I certainly did not. On the contrary, I said in the document reported in the Financial Times that we would support the reduction but that we thought that the Government would introduce it in a way that merely clawed back higher up the income scale and, that in that case, it would not be a genuine tax cut. That is the point that I have been making while the right hon. Gentleman has not been listening. The right hon. Gentleman should get his interventions right and ensure that he is on sounder ground than he has been so far.

The Government were elected on the basis of the most solemn pledges not to raise taxes, but they say one thing and do another. Before the election, the Chancellor said that he wanted to encourage investment, yet he is siphoning £5 billion a year from Britain's biggest source of investment capital. The Prime Minister said that he wanted pensioners to be cherished and valued to the end of their days. If so, why is he plundering their pension schemes? So much for the giving age; it is more like the give and take age: they take and we give.

Mr. Geoffrey Clifton-Brown (Cotswold)

Is it not precisely those people on low income who will be hit by the changes in advance corporation tax credits? Their pensions will be lower and their savings in the form of PEPs and TESSAs, on which they were relying for their old age, will be less, so they will become a greater burden on the state.

Mr. Lilley

My hon. Friend makes a good point. The Government have actually reduced the reliefs available to low-income savers and reduced the system that we set up so that it is attractive only to upper rate income tax payers.

The one thing of which we can be sure is that Labour Budgets mean higher taxes. When the former right hon. and learned Member for Putney, David Mellor, said that dogs bark, cats miaow and Labour puts up taxes", he did not just mean old Labour. Old Labour was honest about raising taxes. New Labour introduces hidden taxes. Old Labour taxed wealth. New Labour taxes by stealth, and it is a racing certainty that there will be more taxes in the next Budget.

In just 10 months we have had a pensions tax, a savings tax, a student tax, more business tax, higher petrol tax, higher tobacco tax, higher mortgage tax and the highest ever council tax. The Government have broken their promises, abandoned their vows and cast aside their covenants, but they cannot escape the judgment of the British people. Labour cannot be trusted on taxes.

4.46 pm

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

I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof: commends the Government for honouring its election promises not to increase the top or basic rate of income tax, to reduce VAT on domestic fuel to five per cent. and to introduce the levy on the windfall profits of the privatised utilities; approves the Government's determination to put in place a fair tax system, to encourage investment and long-term sustainable growth; believes that Britain's interests lie in the pursuit of sound economic policies that will benefit the many and not just the few, and which are in the long-term interests of the whole country; and urges the Government to reject any return to the boom and bust policies of the past which resulted in the 22 tax rises imposed by the previous administration.". As regards the judgment of the British people, within recent memory the British people have shown which party they trust to form the Government of this country.

The Labour Government are delighted to be having this debate, even if to a large—

Mr. Lilley

Will the right hon. Gentleman give way?

Mr. Darling

I shall certainly give way a little later.

The Labour Government are delighted to be having this debate, even if it is, to a large extent, a re-run of the general election. That is not surprising because, in many ways, the Conservative party has still not come to terms with its defeat. It cannot accept that it lost the last election because it lost the trust of the country. No one believed the Conservatives then, and no one believes them now: nothing has changed.

I shall demonstrate that proposition by looking at two winning manifestos. No doubt Conservatives will remember the first one—

Mr. Lilley

rose—

Mr. Darling

I shall give way because I wonder whether the right hon. Gentleman remembers what was in the Tory manifesto of 1992. It said that the Conservative party wanted to continue to reduce taxes as fast as it could. But during the last Government's term of office a typical family—this afternoon Conservative Members have been professing concern about families and people on lower incomes—paid an extra £2,000 in tax. How does the right hon. Gentleman justify that?

Mr. Lilley

Is the right hon. Gentleman going to apologise to the British people for what he said before the election, which has been rebutted and refuted since?

Mr. Darling

I shall come to our manifesto in just a minute.

The Conservatives fought the 1992 election explicitly on tax, and they won. We all remember the pollsters and the so-called double whammy. The Conservatives won the election because they fought it on tax; indeed, they tried to fight the last election in 1997 on exactly the same grounds, but they failed because they had been condemned by their very own actions.

We also remember the then Prime Minister saying in March 1992: Low tax opens doors…High tax slams the doors on the hopes that are common to all. There have been a lot of slamming doors in the course of the last few years.

Mr. Sayeed

rose—

Mr. Darling

How does the hon. Gentleman justify that? He should know because he lost his seat in 1992.

Mr. Sayeed

The right hon. Gentleman said that an average family paid £2,000 more tax during the previous Parliament, from 1992 to 1997. Will he remind the House by how much the income of an average family increased during that period?

Mr. Darling

Incomes have been rising over many years. The hon. Gentleman and his colleagues fought the 1992 general election on an explicit promise of reducing taxes—[Interruption.] They said: Conservatives have an 'allergy to tax'", and that they were fighting for low taxation"— [Interruption.]

Mr. Deputy Speaker (Mr. Michael J. Martin)

Order. We can hear only one speech at a time.

Mr. Darling

Memories of 1992 seem to be painful for Conservative Members—although they are perhaps rather less painful than memories of 1997. So I shall turn to that manifesto. Labour's 1997 general election manifesto made it clear that we would not increase the top or the basic income tax rates. That was our promise—which we kept in our first Budget, last year, and which we will keep in every single year of this Parliament.

Mr. Nick Gibb (Bognor Regis and Littlehampton)

If the Chief Secretary says that the Labour party did not rule out tax rises before the Budget, does he deny also that, on 8 January 1997, on "The World at One", the Prime Minister said: What I have said is the programme of the Labour party does not imply any tax increases at all"?

Mr. Darling

The charge that my right hon. Friend the Prime Minister was referring to was one that had been made by the previous Government—that we had all sorts of hidden spending plans, which we did not have. We are sticking to the previous Government's spending plans, as we said we would.

As for hidden taxes, our manifesto was absolutely clear about what we would do. Moreover, we were repeatedly questioned on our pledge on the top and basic income tax rates. My right hon. Friends the Prime Minister and the Chancellor were questioned on that pledge, as was everyone else. The only ones who might not have noticed our pledge were Conservative Members—but that does not surprise me. On most days of the general election campaign, they were not fighting us so much as they were fighting each other. It is therefore not surprising that they did not notice what was in our manifesto.

Everyone who went to the polls on 1 May 1997 would have been very aware of our statements, and of our explicit promise on the top and basic income tax rates. I remember my right hon. Friend the Chancellor saying that no prudent Chancellor or shadow Chancellor could ever exclude examining other aspects of the tax system—which was the same point that was made, to his credit, by the former Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke), who is in the Chamber. No Chancellor would want to box himself in in such a manner.

We have kept our promises on the top and basic rates of income tax, and we have kept two other tax promises. First, we delivered on our promise to reduce to 5 per cent. VAT on domestic fuel. Secondly—yes, we will plead guilty to a tax rise—we delivered on our promise to impose a windfall tax on the privatised utilities. We implemented that tax, and the new deal—which that tax is largely financing—is about to be rolled out across the country.

The shadow Chancellor said that we inherited a "golden legacy"—but we inherited a situation in which the national debt had doubled in six years. We are now paying £26 billion annually on servicing that debt, which is more than we spend on schools.

Again in 1992, the Conservative party presented itself as the party of sound finance—which was one of the many reasons why it lost the 1997 general election. People did not believe Conservatives on tax, or in their ability to control public spending. People remembered what the Conservative party said in 1992—that it would not increase taxes. In March 1992, Norman Lamont said that he could not see any circumstances in which that would be necessary. Yet, a year later, he was piling on taxes at every opportunity.

What about VAT? Let us recall what the former Prime Minister, the right hon. Member for Huntingdon (Mr. Major), said about that. In March 1992, he said: We have no plans and no need to increase the impact of VAT. Two days later, he said: There will be no VAT increase." — [Official Report, 28 January 1992; Vol. 202, c. 808.] He said that he had made it clear. We have no need and no plans to extend the scope of VAT. Yet, on 16 March 1993, the then Chancellor of the Exchequer increased VAT on domestic fuel.

The VAT increase did not come as a surprise to Labour Members. We remember that, in 1979, we were accused of telling lies when we said that the Tories, if they were elected to government, would double VAT. The first thing that they did in government was to increase VAT from 8 per cent. to 15 per cent.

Mr. Clifton-Brown

Will the Chief Secretary explain why he and the Chancellor of the Exchequer continue alleging that the previous Government left such a terrible debt legacy, whereas only three countries in Europe meet the Maastricht debt criteria—Britain being one of them, ahead of France, Germany and Italy, all of which will not meet those criteria? How can we have left such a terrible debt legacy?

Mr. Darling

It is a pleasure to hear Conservative Members praying in aid, rather than abusing, other European countries. I repeat that the situation that we inherited was one in which debt was being added annually. We cannot sustain a situation in which the country spends more on servicing those debt levels than on education. As my right hon. Friend the Chancellor made clear in his Budget last year, and again when he introduced last year's pre-Budget report, our strategy has been to ensure that we have sustainable and sound public finances—which the Conservative party did not see to during its 18 years in government.

Mr. Geraint Davies

Will my right hon. Friend confirm that, between November 1996 and November 1997, the forecast for net public sector debt towards the end of the century decreased by £16 billion, which will be a £1 billion annual saving in interest costs?

Mr. Bernard Jenkin (North Essex)

Because of Conservative policies.

Mr. Davies

That decrease is not a hidden tax cost but a hidden tax reduction—which we would not have achieved with a Conservative Government.

Mr. Darling

The hon. Member for North Essex (Mr. Jenkin) said that the saving was achieved by Conservative policies, but it was achieved by the action taken by my right hon. Friend the Chancellor in ensuring that debt levels are reduced, so that our public finances are sustainable.

Mr. Sayeed

Will the right hon. Gentleman give way on that?

Mr. Kenneth Clarke (Rushcliffe)

rose—

Mr. Darling

No, I will not. I am very conscious that this is an Opposition debate, and I should not wish to intrude on the speeches that Opposition Members would like to make. However, I shall certainly give way to the right hon. and learned Member for Rushcliffe.

Mr. Clarke

I hope that the right hon. Gentleman will agree that I have been fairly patient while listening to his bizarre interpretation of the Chancellor of the Exchequer's inheritance. Does the right hon. Gentleman agree that the Government took over a situation in which I had underestimated the rate at which the public sector borrowing requirement was falling and in which we were on course for a balanced Budget before the end of the century—with the inevitable consequence that we were on course to reduce the national debt as a percentage of gross domestic product?

Will the Chief Secretary also recall that, when we fought the general election, our only economic debate was on Labour's plans to increase taxation? The then Chief Secretary and I stated possible ways in which we thought that the Labour party would raise taxation for various reasons—including its spending commitments to allow local authorities to spend capital receipts and to ease capping limits, which the Government have implemented.

The Chief Secretary and the Chancellor denied any intention of raising taxes. During the general election campaign, we were accused of scaremongering, as the Chancellor denied in terms that he would touch PEPs or TESSAs, or that he would tackle the tax treatment of pension funds. As the Chief Secretary looks back to the general election, he should look back with shame.

Mr. Darling

Last night, when I wrote to the right hon. and learned Gentleman stating that I might refer to him in the debate, I knew that he would probably turn up just to hear what I said about him. I shall deal with some of those points— [Interruption.] My letter merely demonstrates that we observe the courtesies of the House.

I shall deal now with some of the points made by the right hon. and learned Member for Rushcliffe, and return to one or two of them later in my speech. I was particularly struck by his point that, in November 1996, he and the then Chief Secretary launched an allegation that Labour had 89 spending promises. I remember that very well, and was very grateful that the Conservative party should tell us about those promises several months before the general election. As he knows, most of those allegations simply did not stand up. One or two of them—such as a reduction in class sizes—formed part of our manifesto. However, the point is that the Conservative party accused us of having all sorts of quite fantastic spending commitments that were simply not true. Privately, the right hon. and learned Gentleman might accept that. I shall return to the subject of company taxation shortly.

Mr. Sayeed

Will the Chief Secretary give way?

Mr. Darling

No, I will not. This is an Opposition day debate, and no doubt the hon. Gentleman and others will try to catch your eye, Mr. Deputy Speaker.

Mrs. Ann Winterton (Congleton)

Will the Chief Secretary give way?

Mr. Darling

I have made it clear that I am not giving way for the moment.

The right hon. Member for Hitchin and Harpenden (Mr. Lilley) did not mention national insurance. Hon. Members will recall that the then Prime Minister said explicitly that he had no plans to raise the top rate of tax, but a year later the Conservatives increased it from 9 per cent. to 10 per cent. Reference has been made to mortgage interest tax relief. It was said that we had done a terrible thing. The 1992 manifesto stated explicitly: We will maintain mortgage tax relief'— but listen to this, a year later: Luckily we didn't say at what rate. That was the right hon. and learned Member for Rushcliffe, who, in his candid and appealing way, was quite frank about what had happened.

This is the essential point about the Conservatives. First, they made promises that they did not keep. Secondly, they raised taxes because of economic failure and misjudgment of economic signals in the late 1980s. Thirdly, it was not tax reform that was driving the increases; tax increases were necessary because of the Conservatives' failed policies. There was no long-term vision, and no strategy. It was simply a matter of rushing around with a biscuit tin trying to gather money—a series of short-term fixes that ended in economic and, certainly, political failure.

Mr. Kenneth Clarke

Will the Chief Secretary give way?

Mr. Darling

I will do so in a moment. The right hon. and learned Gentleman may wish to deal with the point that I am about to make.

One thing that illustrates the short-term nature of the last Government is what they did to the corporate sector. We have been criticised for removing major distortions of the company tax regime by scrapping the payable tax credits and ACT, but the point is that businesses gain in the long term, after the transitional period. We took that action because we believed that managers or investors, not the tax system, should decide on companies' strategy—whether they should retain or invest profits. We think that that decision is right in principle.

When I looked back to see why the Tories had cut ACT in 1993, and to see what issue of principle obtained then, I found it quite revealing. The then Financial Secretary, the right hon. Member for Charnwood (Mr. Done11), gave this explanation of why the Tories had cut ACT. They needed to raise revenue from a group of people with taxable capacity, but who are not taxpayers, in a way that does minimum economic damage".— [Official Report, Standing Committee A, 15 June 1993; c. 377.] No principle was involved. The Tories cut ACT because they needed the money. Norman Lamont, who was then Chancellor, was quite up front about that. No issue of principle drove the Tories' company tax reforms.

Mr. Jenkin

Will the Chief Secretary give way?

Mr. Darling

No, I will not.

Mr. Kenneth Clarke

rose—

Mr. Darling

Yes, I was going to give way to the right hon. and learned Gentleman.

Mr. Clarke

I thank the Chief Secretary for being kinder to me than to my hon. Friend the Member for North Essex (Mr. Jenkin). I genuinely appreciate his courtesy.

The Chief Secretary ignores the fact that Norman Lamont's change brought ACT into line with the 20 per cent. rate. That has already been pointed out. Subsequently, we did not increase corporate taxation—although the Labour party made tremendous play of the tax increases that we made—because we wanted to look after the industrial recovery that was getting under way, which brought about the falls in unemployment that we eventually produced.

Does the Chief Secretary concede that his Government have loaded £22 billion on to the corporate sector over the lifetime of the current Parliament? Combined with high interest rates and a high pound, that is already bringing what is left of our manufacturing base near to a state of recession. Industrial production is falling because of the Government's tax policies, which were not announced at the time of the last election.

Mr. Darling

I do not accept any of that. Had the right hon. and learned Gentleman taken the appropriate action on interest rates before the election, some of our difficulties might have been avoided.

When it comes to making long-term judgments, whether on tax increases or on anything else, the Government's whole record leaves much to be desired. In the late 1980s, which many Conservatives now try to disown as if that period was nothing to do with them, they completely misread the economic signals. They did what the Liberal Democrats want us to do—looked at optimistic figures, and started spending money as if everything was sorted out. That is precisely what the Liberal Democrats' amendment calls on us to do.

In the late 1980s, the last Government went on a spending spree, with the result that inflation nearly doubled in the space of two years and interest rates went up to 14 per cent. That legacy resulted in one of the deepest recessions that the country has ever seen. When it came down to it, the last Government were always looking for the short-term advantage rather than the long-term interests of the country.

We are committed to a strategy that is fair and seen to be fair. That is why we reduced VAT. We want to encourage work, and to make work pay. That is why we are examining the whole question of tax and benefits. We have cut the main rate of corporation tax. The Conservatives ask what we have done for business. We have cut the rate of corporation tax, and indicated a further cut to come. That helps the profitability of companies.

We introduced a windfall tax on the privatised utilities, which had made colossal profits because of the way in which they were privatised. That money is now being used to get the young and the long-term unemployed back into work. We have taken the necessary action to prevent overheating in the housing market—just as the Conservatives did, to give them credit, although they do not like to admit it now. Norman Lamont, whom many of them now pretend never to have known, recognised that there are circumstances in which a Government must take the necessary action to ensure that house prices do not escalate as they did in the late 1980s, when Nigel Lawson completely relaxed any sensible and prudent control.

We set in place a long-term framework for interest rate decisions, to keep inflation down. We are committed to the golden rule for prudence in public spending. We have set out a tough five-year deficit reduction plan, to which the Government will rigorously adhere. We will not make the mistakes of earlier Governments, Conservative or Labour, who failed to control public spending and then had to cut back as a consequence of that failure.

We have learnt the lessons of the late 1980s, when public finances and the economy's ability to sustain growth were completely misjudged by the last Government, plunging us into the longest recession since the war. Next Tuesday's Budget will not be a Budget for quick fixes in the short term; it will be a Budget for investment in the long term. We will continue to lay the foundations to build a more dynamic and successful economy, but we will not sacrifice our spending discipline and our commitment to prudence. Instead, there will be consistency to ensure long-term prosperity.

We have inherited a £400 billion national debt. As I have said, we have inherited £26 billion a year in interest payments, and a borrowing requirement last year of £23 billion, with the deficit due to continue into next year. We need to get that under control, and to ensure prudence in our public finances. That is our priority, not just in one year but in every year across the economic cycle. Just as there will be no return to boom and bust in the economy, there will be no return to soft options in public spending.

We were elected because we said that we would take the long-term view. We said that we would make tough decisions, because that is the only way in which to guarantee our future in the long term. That is the difference between this Government and the last. We are prepared to look to the long term. We are prepared to make the decisions that we need to make. But, above all, we look to the long term. Encouraging enterprise and work, and making work pay, are at the top of our agenda.

Mr. Quentin Davies (Grantham and Stamford)

Will the Chief Secretary give way?

Mr. Darling

No, I will not.

Today's debate has shown that the Opposition have learnt absolutely nothing from their defeat. When they were asked a simple question about whether they would reinstate payable tax credits, they could not answer. The truth is that, nearly a year after the election, they still do not know where they are—which is why they have called a debate today to fight the battles of more than a year ago.

In contrast, this Government are looking to the long term for the good of the whole country. We are laying the foundations for the future. That is why we enjoy the trust of the people of this country, and the Conservative party does not.

5.9 pm

Mr. Malcolm Bruce (Gordon)

I was astonished to see the Conservatives' motion on broken tax promises. It shows that, despite all the disappointment after the general election, someone at the Conservative party still has a sense of humour. It may be normal for politicians to try to change their spots, but we have never seen such an absurd attempt to re-brand after so short a period of penance.

Do the Conservatives honestly believe that we have forgotten their record and the broken promises on value added tax, mortgage interest tax relief and general taxation? Have they forgotten their hidden taxes and the way in which they forced council tax up to shuffle off the responsibility to local government?

Mr. Jenkin

That is what Labour is doing.

Mr. Bruce

If the Conservative party's complaint is that the Labour Government are playing tricks on the taxpayer, we might ask who taught them those tricks. The Conservative Government had an 18-year history of deception over tax. Did they tell people in manifestos over those years that, when they promised to cut income tax, they intended to finance it by more than doubling the rate of VAT? Of course not.

Mr. Jenkin

When they were opposing VAT on fuel, did the Liberal Democrats ever explain to the electorate the consequences of a carbon tax?

Mr. Bruce

We most certainly did. The former Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke), said that any responsible Opposition party would present a draft alternative Budget, which the Liberal Democrats have done every year. Does the shadow Chancellor intend to produce an alternative Budget this week to tell us what the Conservative party would do, rather than simply attacking the Government for pursuing many of the policies and approaches set in train by the previous Government?

I asked the Library to look at the effects of both Tory and Labour Budgets since 1992. If the tax rises in the Tories' 1993–94 Budgets were continued, on automatic indexing, to the end of the century, they would amount to £109 billion. That is an extraordinary increase for a party that came to power on a pledge to reduce taxation. After 18 years, the Conservatives presided over higher taxes than they inherited in 1979. It is not at all clear from the motion what the Conservative party is opposed to or, indeed, what it is in favour of. It has a record of constantly introducing hidden, deceptive taxes, yet it complains when the new Government do exactly the same.

Mr. Lilley

Will the hon. Gentleman confirm that it is his thesis that neither the Labour party nor the Conservative party raised taxes as high as his party would raise them?

Mr. Bruce

We have stated clearly our objectives and priorities and what extra taxation would be involved. The other two parties have said that they can deliver, implying that one can have more for less. That has never added up. The Tories could never deliver, and Labour cannot do so now.

That is the fundamental reason why we set out in both our manifesto and our alternative Budget the cost difference in our policies compared with those of the Government of the day. This weekend, as we have always done, we shall produce our own alternative Budget. Are the Conservatives prepared to do that? The former Chancellor said that any responsible Opposition party would. I think that it has been confirmed that the Conservatives are not such a party.

The Tories have experienced 10 months of total shell shock in which they have been all over the place. They have now decided that perhaps they ought to do a little bit of opposing, but when asked what they are in favour of, they do not know. They have not come to terms with that part of opposition, because what they are in favour of is, presumably, what they were doing in government, which the people so firmly rejected. That leaves them in some understandable difficulty.

Mr. Iain Duncan Smith (Chingford and Woodford Green)

The Liberal Democrats are in favour of everything and nothing.

Mr. Bruce

The hon. Gentleman may make abusive remarks, but he knows perfectly well that we are a party that does not merely rhetorically state that we are in favour of "education, education, education" but specifically states which elements of education we would invest in, how much it would cost and where the money would come from. In our view, that is how responsible politics should be conducted.

It is no wonder that the electorate are disillusioned by politicians who tell them only a quarter of the story. The good news is up front, but the price is hidden.

Mr. Oliver Heald (North-East Hertfordshire)

When the hon. Gentleman says that politicians say only a quarter of what they mean, does that apply to his penny extra on income tax?

Mr. Bruce

That extra penny has been clearly costed. At the time of the general election, the Institute for Fiscal Studies said that our costed proposals were broadly in line with the outcome. [Interruption.] If Conservative Members are implying that the institute is in some way not independent or responsible, so be it.

The Labour Government may argue, as the Chief Secretary said, that all that they specifically pledged in the general election campaign was that they would not increase the basic or higher rates of tax, but they gave the impression, because they were sticking to Tory spending plans, that there would be no significant additional tax requirements other than the windfall tax. Indeed, the Prime Minister, as Leader of the Opposition, seems to have said that in so many words, and that is certainly what the electorate understood.

The reality is that the Government have introduced massive tax increases, almost exactly comparable to those of the Tories when they were in government. The present Chancellor, as shadow Chancellor, said that he was determined to build a new trust on tax with the British people and to get tax rates down for ordinary families, but that is hardly what has been happening.

The Library confirms that, since the general election, the Chancellor has raised taxes by £30 billion, excluding the huge rise in council tax that is now taking place. The Government did not want to publish those facts, but they have been calculated by the Library.

Those tax rises—fuel and tobacco duties, mortgage interest tax relief, taxes on pensions, business taxes, council taxes and many more—affect all parts of society, and the Labour party has been in power for less than a year. Our point is certainly not that all those tax rises were unnecessary or undesirable.

Mr. Darling

What exactly is the Liberal Democrats' position on tobacco duties? Do they think that they should go down or up?

Mr. Bruce

Our position is entirely clear. Our manifesto said that we would increase tobacco duties in order to abolish dental and eye test charges. The Labour and Conservative parties are not getting the message. It is a question not of whether one is in favour of taxes but of whether one is prepared to tell the electorate honestly the costs of one' s programme and how one intends to raise the money.

We said frequently before the general election that the state of public finances meant that any pre-election tax cuts would be unsustainable. We had the honesty to say on the record that taxes could not be cut and would have to rise somewhat after the election.

Before the election, the Labour party voted in favour of tax cuts. Afterwards, it piled the taxes back on, just as we predicted. How does that strategy help to avoid boom and bust? Such chopping and changing creates uncertainty among voters and businesses and in the economy in general.

The Conservative and Labour parties are acting like a pair of pickpockets: the quickness of the hand deceives the eye, and the taxpayers' pockets are lighter.

Mr. Shaun Woodward (Witney)

Not as light as they would be under the hon. Gentleman's party.

Mr. Bruce

The tax rises that are now in place, combined with the Conservative tax rises feeding through—

Mr. Deputy Speaker

Order. The hon. Member for Witney (Mr. Woodward) is out of order, and has a very bad habit of interrupting when other hon. Members are speaking.

Mr. Bruce

If the tax rises that are in place are fed through, without any change of Government policy, the highest taxes in British history will be achieved at about the turn of the century. Not all the tax rises that have been put in place are necessary, and I do not believe that the Government believe that they are necessary.

The Government are getting their tax rises in now so that they can build up a war chest which may be used to boost spending in the run-up to the general election. That would give the appearance of cutting taxes just before the election and the Government could say how generous they were, but the Government would only be giving back to taxpayers the money that they took from them four years previously.

Labour Back Benchers should be aware of the implications of what is happening: if reports in today's press are anything to go by, and departmental spending limits are to be frozen for the next three years, control of the war chest will rest entirely in the hands of the Prime Minister and the Chancellor of the Exchequer, not in those of departmental Ministers and certainly not those of Labour Members. The Chief Secretary laughs, so I suspect that I have hit the right button, and that will happen.

It is evident from the projected size of the Government's cyclically adjusted current balance, and from their reluctance to reveal the figures in black and white, that a war chest is being built up. Again, I had to ask the Library to do the calculations. I look forward to the Government passing a fiscal responsibility Act that requires them to publish the figures and put them on the record, so that people are not forced to work them out from the information available.

The Chief Secretary implied that Liberal Democrats take the view that the Government should be irresponsible. Our view is that the Government are deliberately being extremely cautious. Andrew Dilnot told the Treasury Select Committee: The Treasury and the Government are publishing forecasts"— on public finances— which are based on their view of what the worst case is". Although the Government are being relatively cautious overall, the forecasts for a number of areas, in particular value added tax, are very cautious. The Government's cash flow gain from the proposed changes to advance corporation tax is not in the forecast, because it is a proposal. Andrew Dilnot continued: At every possible point, I think the Government has…taken a cautious stance". A projection of incomes for this Parliament shows a massive surplus which will enable the Government to reduce national debt, and to do a great deal more besides. One can therefore assume that there will be a spending objective, and probably a tax-cutting objective, in the second half of the Parliament. There is nothing necessarily wrong with that, except that it is inconsistent with the rhetoric used when the election was fought, which is the opposite of what the Chief Secretary claims. The Government's squeezing of public services now, and any throwing of money at them later in the Parliament, will create a bust-boom cycle in those services just when they are trying to squeeze such cycles out of macro-economic management. That is crazy and destructive.

It is impossible for the Government to fulfil their early pledges against that background: they have abandoned any pretence that they will cut hospital waiting lists, and class sizes are still rising.

Mr. Ivan Lewis (Bury, South)

Why does the hon. Gentleman persist in peddling the myth that maintaining the spending limits of the previous Government is the same as pursuing their spending priorities? Before the general election, people in my locality faced £5 million of cuts in our school budgets and 70 teacher redundancies. As a result of the extra money that has been provided by the Government for schools, there will be no cuts or teacher redundancies, and 95 per cent. of our five, six and seven-year-olds will be taught in classes of 30 pupils or fewer from September. In addition, bed blocking, where perhaps 70 or 80 elderly people blocked beds in our local hospitals, is no longer a problem as a direct result of extra money going into the national health service. Will the hon. Gentleman stop peddling the myth that we are not spending money on public services?

Mr. Bruce

The hon. Gentleman might be vindicated if his 409 colleagues were able to tell the same story for every constituency, but he knows that Government objectives—for example, cutting hospital waiting lists—have effectively been abandoned for the time being, which is the logical consequence of sticking to the previous Government's spending targets. I did not specifically say that sticking to Conservative spending plans necessarily meant that the Government were sticking to every detail of Conservative spending policy, but where did the cut in single parent benefits come from if it was not a Conservative proposal that the Government were forced to adopt to meet departmental spending totals? The shadow Chancellor could probably confirm that. Unless the Government are prepared to find the resources, it will be impossible for them to deliver their early pledges. Taxes have gone up, but public services continue to be squeezed, which is an irresponsible and unjustified way to manage the public sector that will seriously damage health and education.

We must change the way in which financial information is presented. If a fiscal responsibility Act had been passed, a statement of fiscal and economic priorities would have had to be put before the people before the general election, and there would not have been an emergency Budget after it. We could have debated the issues during the general election campaign on the basis of objective facts, rather than having the previous Government suppress information and the new Government alter figures to justify tax rises for building up a war chest to deploy later in the Parliament.

The cynical way in which voters have been treated will lead to a breakdown of trust. The Conservatives were thrown out of office after 18 years because they claimed that theirs was a tax-cutting party, but put overall tax levels up. Labour came into office with a pledge on taxes, but broke it within a year. The Government are manipulating the tax system to secure short-term political gain, but I must warn them that people will become cynical about that process. The Government are doing serious damage to the public services in the short term, which may take more than a Parliament to put right. The voters will make their own judgment on that

5.27 pm

Mr. Ivan Lewis (Bury, South)

The Government's record on taxation is a curious topic for the Opposition to choose for a Supply day debate. Most people accept that general elections are determined by two predominant issues—economic competence and the record of the Government of the day on taxation—and the record general election landslide of only 10 months ago was largely a judgment of the previous Government's record on those issues. When I read the title of today's motion, I wondered whether Conservative Members would finally let the Government into the secret of how they introduced hidden taxes and got away with it for at least 13 years.

Everyone accepts that, for years, the Tories cynically and unashamedly conned the British people on taxation. They claimed the mantle of being the party of low taxation and economic competence for election after election, but history shows that we had a boom and bust economy. When the Tories left office, the tax burden on the British people was greater than when Labour left office in 1979.

As the Tories systematically set about reducing income tax, other taxes were increased and introduced. We need only consider commitments and promises that were made by senior Conservatives while they were in government. Before the 1992 general election, the then Prime Minister, the right hon. Member for Huntingdon (Mr. Major), said: In the next Parliament we will go on tax cutting. We will make that our aim year after year". What happened during the last Parliament? We had 22 hidden Tory tax rises, costing a typical family more than £2,000 extra in tax.

Before the 1992 general election, the right hon. Member for Huntingdon said: We have no need and no plans to extend the scope of VAT. What actually happened? VAT was imposed on fuel at 8 per cent., which is regarded by most people as one of the most disgraceful taxes imposed by any Government. We should not forget that they would have increased that 8 per cent. to 17.5 per cent., had it not been for the combined opposition of Labour Members and Tory Members representing marginal seats, such as my predecessor, who regarded it as the "nail in the coffin" tax. Little did he know that there were many more nails to come.

The Tories' tax record might have been defendable if it had contributed to economic and social renewal, but the legacy of their 18 years in government is underfunded and underperforming schools and hospitals, record expenditure on welfare, not work, and a crumbling infrastructure. I find it strange when Conservative Members talk about the decline in manufacturing industry, which was one the greatest legacies of Thatcher years, but choose to blame us for that after only 10 months in office. They presided over a second-rate economy and deteriorating public services, despite the fact that they had the proceeds from North sea oil revenues and the income generated by the privatisation of public utilities. No better windfall has been available to any Government in history than the one the Tory Governments had at their disposal.

The British people are entitled to ask, "Where did all our money go during those years?" The answer is relatively straightforward: the Conservative party chose disproportionate tax cuts for the few at the expense of the many; they chose to pay the bill of economic failure, funding unemployment instead of investing in jobs; they chose to steal from the taxpayer, as demonstrated by the scandalous sell-off of some of our public assets—flogged off at knockdown prices to fat cats with share options and excessive salaries.

Let us compare and contrast that record with the Labour Government's mere 10 months in office. In our election manifesto, the current Government made some clear promises. We promised to reduce VAT on fuel to 5 per cent. and we have delivered on that commitment. We promised a windfall tax on the excess profits of the privatised utilities in order to fund the most ambitious welfare-to-work scheme in our history. Despite being told before the election that the windfall tax would be illegal and unfeasible, we have done it and young people, the long-term unemployed, disabled people and single parents are all to be given opportunities denied to them during the years of Conservative government. We have kept our promise not to put up the basic or top rate of income tax. We have kept our promises not to extend VAT to food, children's clothes, books, newspapers or public transport fares. It is true that we hid the fact that we would reduce corporation tax to the lowest level ever seen in this country; we did not say that before the election, so if we are to be accused of a hidden tax, we shall accept that one.

Conservative Members accuse the Government of 17 tax rises, but they fail to say that, of those 17, seven are the closure of tax loopholes. Does the Conservative party support the closure of tax loopholes? Would the Conservatives reinstate those loopholes if they were ever to regain power? They will not answer those questions. The truth is that the rationale behind the debate is straightforward: Conservative Members know that the British people will neither forgive nor forget their tax record. They know the true meaning and long-term political implications of the statement made by the former Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke), before the last election. Conservative Members should remember what he said, because it will come back to haunt them time and again. He said: The public will be deeply suspicious of any tax cuts because they remember we promised tax cuts last time and unfortunately weren't able to deliver them. In contrast, the Labour Government will continue to keep their promises on tax. A fair tax system will encourage and reward those who work hard and play by the rules. It will be designed to benefit the many, not the few. It will underpin the Government's belief that economic prosperity and social justice are inextricably linked. The Conservatives should understand that our record in government will once and for all undermine their smears about Labour and tax. Theirs is no longer the party of law and order, no longer the party of business and now no longer the party of low taxation or economic competence. I sincerely hope that they can find a new niche in British politics—after all, a healthy democracy requires a credible Opposition.

5.34 pm

Mr. Geoffrey Clifton-Brown (Cotswold)

It has been 10 months since the general election, yet what an insidious record the Government have on tax.

The Labour Government hit the home owner by reducing mortgage interest relief at source, but one of the worst aspects of the tax changes introduced by the Labour Government is that most of them hit the poorest in society hardest. Let us take the cut in MIRAS. The maximum tax relief available under MIRAS is about £340 a year which, to someone on the top rate of tax, is not a huge sum, but to someone on the basic or lower rate of tax, who would not even get that amount, it is a considerable sum.

The tax changes will hit all our constituents, including the elderly. One of the most insidious changes of all was the abolition of ACT. The Association of Consulting Actuaries has worked out that someone aged 30 saving £100 a month would have to increase his or her pension by 12 per cent. to maintain the same level of pension. The abolition of ACT has other consequences: companies will have to pay out higher dividends because they will be pressured by pension funds and other investing companies that want the same level of return, so the yield on gilts will fall. That has a knock-on impact on other savers.

The tax changes hit the young, by reducing the grants paid to students. Poor parents are hit by the abolition of the assisted places scheme. Above all, the Government have shifted money away from rural areas to urban areas. [Interruption.] If Labour Members listen, they may learn something. To increase taxes on petrol is discriminatory against rural dwellers, whose cars are essential. Many of them cannot get to the doctor or to the post office to claim their benefits without use of a car. Labour Members will say that that is our fault for deregulating the buses, but it would never be economic to run a bus service in many places. In my constituency, the hamlets are too small for a bus service to run, so the residents have to rely on their cars for day-to-day living.

We have already had a 6p increase in petrol in the November Budget and, no doubt, there will be a huge whack put on petrol next week. Rural dwellers will not forgive the Government for those increases in petrol duty, nor will they forgive the huge increases in council tax that they will have to pay. Under the local government support settlement, urban areas were given good settlements—for example, the increase in Sedgefield was a staggering 13 per cent., whereas we in rural Gloucestershire received an increase of only 5 per cent. I ask the Chief Secretary, who has just left the Chamber, whether that sort of gerrymandering of funds away from rural areas is fair.

We are seeing the same in the national health service. The national increase in NHS funding was 2 per cent., but rural Gloucestershire got only 1.4 per cent. The result is that each day in the health service in Gloucestershire, 100 people who, clinically speaking, should not be there block beds and, as a result, operations are cancelled and waiting lists get longer. The Financial Secretary should listen to these points. It costs about £150 a day to keep someone in hospital, whereas it costs between £30 and £50 a day to give them a proper domiciliary care, residential care or nursing care package and so get them out of hospital. Nationally, such policies make no sense whatsoever.

The Budget is coming up next week. I have already alluded to the road tax increase that it is likely to introduce, but I have no doubt that it will contain further tax increases. Savers have already been penalised by the abolition of personal equity plans and tax-exempt special savings accounts. It would be interesting to know from the Financial Secretary whether the report in today's Financial Times that she is thinking of scrapping the £50,000 limit is true. The Financial Secretary has, I hope, listened to the savings industry, which reckons that it would be almost impossible to police that lifetime limit. In any case, it would set a dangerous precedent of a retrospective tax. I hope that she will be able to give at least my middle-England, middle-income and low-income constituents some cheer, if not this evening, then in the Budget, by saying that the £50,000 limit will be scrapped.

The Conservative party left this Government the golden legacy of the best-performing economy in Europe. We had the golden scenario, which has been achieved only twice since the war, of growth outstripping inflation. This evening, we have heard much about Government expenditure and taxation, but, as any economist knows, the only way in which to go on satisfactorily putting more money into public services is by achieving growth that is higher than inflation. The sad fact is that, because of the economic changes that the Government have brought about, growth is beginning to slow and inflation is beginning to rise.

The five interest rate rises since the election keep the pound far too high. Unfortunately, that is having a disastrous effect on our manufacturing industry. Today's business news page in The Daily Telegraph reports that the British Retail Consortium reckons that annual sales growth fell from 6.1 per cent. in January to 3.4 per cent. in February". Much more important, the article says: Separate figures yesterday reveal that output of British-made goods stagnated in January for the second month in a row and has fallen by 0.6 per cent. over the past three months. Simon Briscoe of Nikko Europe said: 'The message is clear—industry is on the brink of recession."' It would be sad if this Government, who inherited one of the best economic circumstances since the war, by economic mismanagement put this great economy and this great country, which had such superb prospects, into recession in two and a half years' time.

The Government have not taken into account the damage that the strength of the pound is having on manufacturing industry, the deflationary effect throughout Europe that meeting the Maastricht criteria will have, the deflationary effect of the situation in the far east and, above all, the deflationary effect of the structural problems with the American economy. I will hold the Government to account, as will my constituents, if we run into a recession in two and a half to three years' time. Sadly, that is what may happen.

5.42 pm

Mr. Bill Rammell (Harlow)

We have had an interesting debate, but unfortunately it has generated much heat and not much light. We heard the accusation from the right hon. Member for Hitchin and Harpenden (Mr. Lilley), the shadow Chancellor of the Exchequer, that, during the general election campaign, the Labour party made a commitment that it would never raise any taxes. Yet, as my right hon. Friend the Chief Secretary to the Treasury has rightly pointed out, during that campaign, every time interviewers said, "You have said that you will not raise the top and standard rate of income tax. What about all those other indirect taxes?", the then Chancellor and then Prime Minister said that no responsible Chancellor would give a commitment on the 200 or so indirect taxes and tax reliefs. Therefore, to claim that we have acted differently from that is extraordinarily misleading.

We have heard accusations over tuition fees and the response to Dearing. During the general election campaign, we said clearly that we would accept the outcome of the Dearing report and that is broadly what we have done, with the exception that we have protected the poorest students, which should be the Government's absolute priority.

Mr. Heald

Where does the Dearing report mention scrapping maintenance grants? While the hon. Gentleman is talking about taxes, by how much is his council tax going up in Harlow?

Mr. Rammell

Our clear commitment during the general election campaign was that we would move from a system of maintenance grants to one of student loans. We said that we would accept the rest of the Dearing package, which is what we have done, with the exception that we have protected the poorest students.

The right hon. Member for Hitchin and Harpenden had the audacity to lecture us about decent pension provision. When the Tories were in office, they encouraged people to opt out of decent company schemes—which was never going to be in their interests—and millions of pensions were mis-sold, from which many people are still suffering. On that issue, a period of silence from the Opposition would be appropriate.

The right hon. Member for Hitchin and Harpenden said that Labour was bad for business and that the Conservative party would defend business. What is bad for business is the refusal of a once-great party to judge the issue of economic and monetary union on its merits. Instead, it digs in with an extreme ideological position, which leaves business despairing about the Conservatives' attitude towards one of the most crucial issues that we face as we head towards the 21st century.

I had to check my notes when I was listening to the shadow Chancellor. I heard him say that any tax reduction by the Government would be welcome. This Government have made it clear that they will not raise the top rate of income tax, but, presumably, from what the right hon. Gentleman has said today, he would welcome a cut in the top rate of income tax. Nothing could demonstrate more clearly the Conservative party's fundamentally misplaced sense of priorities, given the problems that we face in public services and the need for any tax reductions to be targeted at people on low incomes. I would welcome confirmation from the Opposition Treasury Front-Bench team that that is what the right hon. Gentleman was saying.

The hon. Member for Cotswold (Mr. Clifton-Brown) spoke about the reduction in MIRAS. Has he conveniently forgotten, just 10 months after the general election, that it was the Tory Government who cut MIRAS year on year? He went on completely to dismiss the impact of bus deregulation on the provision of public transport in rural communities. It is convenient to forget that impact. We will not let Conservative Members forget the fact that they introduced bus deregulation, since when bus services in rural and urban areas alike have decreased by 25 per cent. They need to remind people in rural areas about that as well.

Mr. Clifton-Brown

The point that I was making about MIRAS is that the cuts that have been imposed by this Government are regressive. We restricted MIRAS to the basic rate of tax because we felt that we were being too generous. Therefore, my point is entirely valid. The effect on low-paid people is much more severe if MIRAS is abolished altogether.

Mr. Rammell

The hon. Gentleman is conveniently trying to correct history after what happened, year on year, under the Conservative Government.

It speaks volumes that, as usual, the hon. Member for Gordon (Mr. Bruce), the Liberal Democrat Treasury spokesperson, has walked into the Chamber, made a speech and then walked out. Nothing undermines the case for constructive tax-and-spend policies more than dishonest and irresponsible opposition that is based on plans that simply do not add up. The Labour party had 18 years to learn that fact. Unfortunately, it will take the Liberal Democrats much longer to learn it.

Liberal Democrats support the new deal, yet do not support the windfall tax to fund it. They say that they want council tax capping to be lifted, but they oppose every council tax increase that is introduced. They have committed themselves to raising £6 billion in extra taxation and £23 billion in extra borrowing, all to be funded from the famous penny on the standard rate of income tax. That is irresponsible gesture politics.

The heart of this debate serves as a smokescreen for the Conservative party on a range of issues. It is trying to claim that it may have been wrong and dishonest during its last period in office, but that all politicians are much the same. The reason why it makes that claim is that, at the general election, it was convicted by the British electorate of dishonesty in public life, with the cash-for-questions affair, and of abusing and misusing the power of patronage, with the appointment to public bodies only of people who carried Conservative party cards. Most importantly, the Conservatives were convicted of breaking key and specific pledges given before the 1992 election. Let us examine what happened under the Conservative Government.

The charge against the Conservative party was not based on statements that we took out of context—words which, as the right hon. and learned Member for Rushcliffe (Mr. Clarke) once infamously and disingenuously claimed, were said off the cuff on a wet night in Dudley. The charge was that the Conservatives broke specific commitments given in answer to specific questions. They knew exactly what they were saying and why those statements and claims were false. It has been a long history. It goes back as far as 1979, when Lord Howe said: We have absolutely no intention of doubling VAT. Yet as soon as the general election was over, that was exactly what he did.

In 1992 the Conservatives said that they would not increase the scope or rate of VAT or increase national insurance contributions. The right hon. Member for Huntingdon (Mr. Major) said at the time: Unlike the Labour party, we have published our spending plans and there is no need for us to raise VAT to meet them. Neither, so there is no doubt, do we plan to raise the level of National Insurance contributions. Yet that was exactly what the Conservative Government did in their first Budget after the general election.

The Conservatives claimed that they would cut taxes year on year yet, as Labour Members know, during 18 years of Tory government, the tax take as a proportion of GDP went up from 34.3 per cent. in 1979 to 35.8 per cent. in 1996. It was higher than in 1979 in every year bar one of the 18 Tory years.

No party in a general election campaign can or will give a commitment on every tax measure. It would give up its ability to govern and react to circumstances if it did. If one does not want to give a commitment, one does not respond to specific questions on that commitment, but that is what the Tory party did. It was challenged repeatedly on specific commitments and gave answers that were subsequently found to be false. That is what this debate is all about.

We have made it clear that the debate about tax is about trust. We gave a central commitment in the election campaign not on all the issues that have been discussed today, but on the standard and top rates of taxation. I do not deny that that has given us problems within the Government in that we cannot increase public expenditure as quickly as we would wish, but we made a commitment. We made a promise to the electorate. That is the fundamental difference between the Labour party in government and the party that is now in opposition.

I spent every year of my adult life until 1 May last year under a Conservative Government, and I find astonishing the degree to which the Conservatives have lost touch on tax and do not make their arguments with clarity. This is about faith and trust in politics. Those are the issues on which we convinced the people on 1 May last year and nothing has changed since then.

5.53 pm

Mr. David Ruffley (Bury St. Edmunds)

In rising to support the motion tabled by my right hon. and hon. Friends, I am reminded of a conversation that I had during the general election campaign. An elderly voter remarked on a performance by the then Leader of the Opposition, the right hon. Member for Sedgefield (Mr. Blair). That elderly voter, now my constituent, said that the right hon. Gentleman resembled nothing so much as an American-style, fake and phoney television evangelist pushing a dodgy creed. We all know what that dodgy creed was. It was the notion that a Labour Government would not increase taxes. It was a preposterous and incredible proposition. My elderly gentleman saw through that ridiculous claim. He saw it for what it was—a fake and phoney promise—but others were not so lucky. They succumbed to the blandishments of the right hon. Member for Sedgefield.

Mr. Ivan Lewis

Was the elderly gentleman one of the 11 per cent. of people in this country who say that the present Leader of the Opposition would make a suitable Prime Minister?

Mr. Ruffley

Let us have sensible interventions on the point, which is the Government's record of breaking their tax promises.

My constituents saw through the phoney and fake promises. Others were not so lucky. Let me remind the House what manner of litany it was that took in so many people before the election. The right hon. Member for Sedgefield was reported in the Financial Times as saying to Birmingham business men on 21 September 1996: We have no plans to increase tax at all. On "Breakfast with Frost" on 12 January 1997, he said: There are no hidden spending commitments and therefore, no hidden tax rises".

Mr. Geraint Davies

Will the hon. Gentleman give way?

Mr. Ruffley

In a moment. The hon. Gentleman may not like the truth, but the House is going to hear it. Do Labour Members deny that the right hon. Member for Sedgefield said on 8 January: Any spending commitment that we have is properly financed, that means there are no tax increases implied by the programme"? I give way to the hon. Gentleman. Did the right hon. Member for Sedgefield say it? Yes or no?

Mr. Davies

Talking of hidden taxes, may I ask for your view of tax in relation to the privatisation of British industry, in which public assets were sold at a net cost of £5.7 billion, if you compare the sale price with the value of the shares the following day? Does the hon. Gentleman accept that the give-away of £5.7 billion of public money was a hidden cost?

Mr. Deputy Speaker

Order. The hon. Gentleman must be careful about using the word "you". It applies to the Chair.

Mr. Ruffley

We are talking about hidden taxes. The intervention was not even worth waiting for.

Perhaps I could continue by talking about the assistance lent by the right hon. Member for Dunfermline, East (Mr. Brown), now the Chancellor of the Exchequer. He was at it as well before the election. He is the self-styled iron Chancellor, but before the election, he said on 20 January 1997 on "Newsnight": It's my aim to get the burden down for ordinary people". On Channel 4 on 27 April, he said: I want to see tax cut for the ordinary family". At a Labour press conference on 16 April, the right hon. Gentleman said: we have always said that we want to reduce the tax burden for ordinary families. Those were words spoken by Ministers in the Labour Government. We should draw attention to that fact because they have broken their promises.

Those taken in by those words will not be fooled again because they know that following the so-called emergency Budget last July, the average household is paying some £650 more. In my region of East Anglia, the average family is losing slightly less—about £630. That is because the Government have introduced 17 new taxes. I do not have time to go through the new Labour, new tax litany. We all know what those taxes are. Four in particular have struck my constituents. We have the mortgage tax—the cut in MIRAS and several increases in mortgage rates which are hammering home owners in my constituency and throughout the country. We have the pensions tax arising a result of the abolition of advance corporation tax. We have high council taxes—something that the Labour party did not tell us about before 1 May. We have higher petrol duty. The increases are greater than any announced by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke). They are 6 per cent. per annum, and they were brought forward by five months last year. That is a double whammy for rural drivers, for whom a car is not a luxury but a necessity.

The shire counties, particularly my county of Suffolk, are discomfited by the prospect of a 27p a gallon tax increase in the coming Budget. We know of the increase because one of the Chancellor's special advisers leaked it to the Evening Standard. We can only hope that, by protesting on behalf of the shire counties, many of which Conservative Members are proud to represent, we shall shame the Chancellor into not going ahead with such exorbitant tax hikes. We hope that he will keep the petrol increase down to a sensible amount.

Many of my constituents are amazed by the way in which Labour pretends to listen to the rural areas and the shire counties. Only this morning, we heard a report on the "Today" programme to the effect that the shire counties faced average council tax increases for the coming year of 11 per cent—far more than the increases in Labour-dominated urban areas.

These are all tax hikes which Labour said it would never inflict on ordinary people. But they will not be hidden tax increases for much longer. The public are beginning to see them for what they are—and the Labour party for what it is: politicians, men and women, without principles, without scruple and without any sense of shame, who deceived the British public before the election about the true nature of their tax policies.

6 pm

Mr. James Plaskitt (Warwick and Leamington)

This debate is about credibility, and it was audacious, not to say foolhardy, of the Conservative party to choose tax as the topic for debate. Perhaps it was a form of aversion therapy, given its record and the electorate's recent judgment on it. I should have thought that a period of silent contemplation might be more appropriate. Instead, we have an attempt to create a smokescreen, as one or two colleagues have called it, to blot out the Tories' abysmal record.

Starting off the debate, the shadow Chancellor spoke for 23 minutes, in which he failed to mention value added tax once. I wonder why. Labour Members recall the Tory party's 1992 election pledge that it had no need and no plans to extend VAT". What a worthless pledge that was. No wonder the shadow Chancellor omitted to remind us of it during his 23 minutes.

The fact is that the Tories are the VAT party. They introduced it in 1973; it was the subsequent Labour Government who reduced it. When the Tories returned to office, they increased VAT twice, more than doubling the rate, and they extended its scope time and again. In so doing, they broke every pledge on VAT that the party had ever given.

The history of VAT between 1992 and 1997 speaks for itself. VAT raised £35 billion in 1992 but £50 billion by 1997—a 43 per cent. increase in VAT revenue, which was much greater than the overall growth in revenue. The picture between 1979 and 1997 was even more dramatic. Over that period, real GDP grew by 49 per cent. but VAT revenue, in real terms, grew by 123 per cent.—this from the party that had no need and no plans to extend the tax.

Moreover, the Tory party continually widened the scope of VAT, to include: hot takeaway food and drinks, building alterations, civil engineering works, newspaper advertisements, cereal bars, iced tea, non-residential construction and property development, news services, incontinence pads, fairground rides, airport car parking, protective boots and helmets, fuel and power to businesses, water and sewerage services to industry, domestic fuel and power, travel and car hire insurance. Hardly an aspect of life escaped the Tory mania for imposing VAT. That is why I say that this is a debate about credibility on tax.

Mr. Woodward

Given the hon. Gentleman's clear instinct for avoiding any attempts at responsible taxation, if his party decides to increase VAT or widen its scope, will he give an undertaking to vote against his party?

Mr. Plaskitt

I was just going on to contrast the record of the Tory party on VAT with my party's record. My party has never increased the general rate of VAT. In fact, once before, we cut it; and in the lifetime of this new Government, we have already cut the rate on fuel and power.

The inescapable conclusion is that only Labour Governments can be trusted on VAT. We deliver on our VAT election pledges. We pledged to reduce it on domestic fuel and power, and we have already honoured that. We also made other pledges before the election—for instance, not to extend VAT to food, children's clothes, books, newspapers or public transport. We can confidently expect those pledges to be honoured, too.

Conservative Members may reluctantly accept that VAT is their Achilles' heel—perhaps they would like our attention to be focused elsewhere in an attempt to find any evidence of what the right hon. Member for Huntingdon (Mr. Major) described at the election as the Tories' "aversion" to tax. We can look in vain. Over their 18 years in power, there were reductions in income tax rates, but they were not the whole story.

The increase in national insurance rates clawed back 3.5p in the pound from the reductions in income tax rates. Taking VAT from 8 per cent. to 17.5 per cent. more than clawed back the rest, certainly for families on lower incomes. On top of that came the Government-engineered council tax hikes during the last six years of the Tory Administration.

While we are at it, we should recall all the other new taxes that the Tories implemented after promising at the 1992 election to cut taxes year on year. Tax allowances were trimmed: the cut in the married couple's allowance meant a tax increase for the average family of £500; and the cut in the personal tax allowance cost the average family an extra £145.

We were told at the 1992 election that MIRAS would be maintained; it was subsequently restricted, at a cost of £600 a year to the average family. There were also new taxes on top of that: a tax on contents and buildings insurance, a tax on vehicle insurance and mortgage protection policies, and the airport tax. Taken together, the changes meant a tax increase of more than £2,000 for the average family.

The tax record of the Conservative party is well known. The percentage of GDP taken in tax did not fall during its 18 years in power. The tax burden on people earning more than £64,000 fell, but it rose for everyone else.

The most remarkable aspect of the Tories' tax record is the fact that, despite imposing all this extra taxation year on year, despite the extraordinary bonus of North sea oil and gas revenues totalling £80 billion, and despite the even greater boost to the Government's coffers from the endless privatisations, miraculously the Conservatives bequeathed the new Labour Government an appalling record of public debt. They managed that despite a 48 per cent. real-terms increase in tax revenues over their 18 years in office. In fact, they displayed an extraordinary fecklessness with the national finances; it has no modern parallel. Over 18 years, the national debt increased from £91 billion to £400 billion—by more than 300 per cent., in other words. When they left office last year, there was a £23 billion hole in the Government's finances.

Over 18 years, the Conservatives chalked up public spending annual deficits of more than £300 billion—almost the equivalent of a full year's public spending. As a result, the average British taxpayer now contributes £1,000 a year just to meeting the cost of the Tories' legacy of debt.

This record of debt and taxation cannot be hidden behind the smokescreen of today's motion. It is a record of broken pledges, tax increases and mountainous debts. Little wonder that, at the end of it all, the right hon. and learned Member for Rushcliffe (Mr. Clarke)—I am sorry to see that he has left the Chamber—admitted in the run-up to the election that voters would be "suspicious" of further Tory tax promises. No wonder the electorate called an end last May to that orgy of tax and debt, now replaced by our Government's deficit reduction programme, prudent fiscal management, clear and consistent principles of fair taxation, and pledges on tax that are being honoured. The House will be suspicious of the Opposition motion.

6.9 pm

Mr. Nick Gibb (Bognor Regis and Littlehampton)

This is a Government who told the British people that they had no need to raise taxes, that their programme was fully funded, and that they had abandoned their past and become a low-tax party. It is interesting that the Chief Secretary is now so keen to narrow the commitment given during the election so that it applies to rates only, thereby admitting that taxes generally have risen under his Government.

The Labour manifesto said that the principles underlying its tax policy were, first, to encourage employment opportunities and work incentives; secondly, to promote savings and investment; and thirdly, to be fair and to be seen to be fair. Within 10 months—indeed, within two months of coming to office—the Government have breached all those pledges.

The Government have introduced measures that discourage employment and reduce work incentives. They have damaged the savings industry, and last July's Budget damaged business investment in this country to the tune of a £5 billion windfall tax, as well as £5 billion a year from the pension funds. Labour's tax measures have not been fair, and are certainly not seen to be fair. They discriminate against middle England, penalise thrift, and do nothing to help the less well-off.

Mr. Ivan Lewis

rose—

Mr. Gibb

There is a shortage of time, so I shall plough on, if I may.

Labour's manifesto also states that it is pledged not to raise the basic or top rates of income tax throughout the next Parliament. Posters throughout the country trumpeted that pledge, lulling the electorate into a false sense of security. Elected on that pledge in May, two months later, in July, the Government abolished the repayment of tax credits on dividends paid to non-taxpayers.

Non-taxpayers include two thirds of all pensioners. Many retired people in my constituency have a small portfolio of shares, the income from which they use to supplement their pension income. Before 2 July, they could claim back from the Inland Revenue the tax credits, which amounted to a quarter of the dividend that they had received. Now they cannot. The non-taxpaying pensioners whom Labour said they wanted to help are the very people who have suffered most from that measure. Age Concern has called on the Government to continue to pay tax credits on dividends to individual non-taxpayers.

Non-taxpayers include pension funds, which own £650 billion of assets on behalf of 19 million working people and 6 million retired people. The prospect of taxing such a pot of gold was too tempting for the Labour Government: £5 billion a year was too large a sum to avoid taking. Preventing pension funds from reclaiming tax credit on their dividend income will cost the funds £5 billion a year. According to the Association of Consulting Actuaries, the average 30-year-old working person will have to pay an extra £12 a month to keep his pension at the same rate. Chantrey Vellacott has said that, on average, the 19 million members of company or personal pension schemes will require an increase in contributions of £190 a year.

Dr. George Turner

Does the hon. Gentleman recognise that the figures regularly quoted from the Conservative Benches are based on all other things being equal, and that the point of a Chancellor's Budget is to make sure that all other things are not equal? Will he therefore explain to the House how much the average pension fund has increased since the Government took office?

Mr. Gibb

If the hon. Gentleman had waited a few more seconds, I would have come to that.

The extra £190 a year is equivalent to a 1 per cent. rise in income tax. Is that not a clear breach of Labour's pledge not to raise the basic rate of income tax? It is worse than that, however. It is a hidden tax, levied in a deceitful way—a back-door method of raising the rate of income tax in a way that the Government hoped few would notice.

How will the measure help investment? How will it encourage savings? Both questions were manifesto pledges. When the measure was debated in Committee on the Floor of the House, the Economic Secretary said: Many pension funds are in surplus by as much as £50 billion. In combination with the current high level of the stock market, that means that there is a much greater opportunity for funds to absorb the change without any great difficulty."—[Official Report, 16 July 1997: Vol. 298, c. 487.] That has been the Government's line all along, and I assume that it is also the line of the hon. Member for North-West Norfolk (Dr. Turner): the £5 billion tax will be easily paid by the pension funds because of a soaring stock market, all other things being equal, as the hon. Gentleman says—no need for higher contributions or for increased rebates for opting out of SERPS.

That was the Government's claim. The reality is that the Government Actuary has had to recommend higher rebates. He stated: As a result of the tax changes announced in the July 1997 Budget…the amount of dividend income from UK equities reduces by just under 20 per cent. That will reduce dividend yields from about 3.5 per cent. to about 2.8 per cent.

There is no mention by the Government Actuary of dividend yields rising to absorb the pensions tax. He says that the yield has fallen. So, too, do the consulting actuaries Bacon and Woodrow in the Financial Times today. They say that one in four UK companies could be forced to put more into their pension schemes, following the abolition of tax credits on dividends. The shortfall, they say, could be as much as £5 billion—a familiar figure, and an answer to the hon. Gentleman's question.

Not only is the tax hidden; it will cost UK business money to put right the shortfall—money that could have gone into investment. The measure will reduce savings and damage pensions, both of which the Government said they wanted to boost.

The tax rise has caused many other problems. Abolishing the tax credit also meant that the Government had to abolish foreign income dividends at the same time, to avoid a flood of FID payments to absorb the £7 billion of unrelieved surplus advance corporation tax. That would have meant £7 billion of lost corporation tax receipts for the Treasury. However, the announced abolition of FIDs sent shock waves through British industry, particularly through companies with large overseas interests.

Little thought had been given to the consequences of the announcement, so in the Financial Times every other day from July to November were proposed solutions to the great FID problem that the Government had created. During the Report stage of the Bill, the Paymaster General even mooted four possible solutions of his own, all of which turned out to be non-starters. Finally, in November, having given up hope of finding a solution, the Government simply proposed the wholesale abolition of ACT. However, that would cause a huge cash-flow dip for the Government.

The solution was to restructure the entire corporation tax system and introduce quarterly corporation tax payments on account. That gave the Government the opportunity to raise further hidden taxes, to the tune of £2 billion a year for the next four years, as companies have to pay their corporation tax bills significantly earlier.

Is that a fair tax, in line with the principles set out in Labour's manifesto? Is it transparent? How will taking £2 billion a year from the corporate sector increase investment? In its green Budget, the Institute for Fiscal Studies states: The cashflow impact is unlikely to encourage investment, particularly in the short term. The most extraordinary decision of all in the tax context is the Government's proposal to abolish PEPs and TESSAs, the most successful savings vehicles yet devised, and to replace them with ISAs. The measure was purportedly introduced to help to encourage savings by those on lower incomes, but the truth is that there is absolutely no advantage for any lower rate or even basic rate taxpayers to hold equity investments through an ISA. Few are likely to generate capital gains in excess of their own annual capital gains tax allowance, and the tax credit now reduced to 10 per cent. by the Government is unlikely to cover any management expenses.

Indeed, the Association of Unit Trusts and Investment Funds said: We believe that the administrative and regulatory issues raised by the proposals would render the ISA complex, costly and, possibly, unworkable. The association went on to say: We believe the ISA will discourage people from raising their level of long-term savings. The most iniquitous aspect of ISAs is the retrospection, penalising those who have saved, particularly the self-employed, who may not have an occupational pension but would have used PEPs to save capital, out of which their retirement income can be paid. The £50,000 limit is unfair to those people, as it generates an income of just £1,500 a year after tax, according to the Government's own figures. Age Concern has attacked the limit, saying: Before deciding on an overall limit, the Government should look further into the circumstances of those with over £50,000 invested in PEPs". On every other day, the FT index is treated to an informal leak mooting various proposed solutions to this fiasco. Here is another tax that is widely regarded as unfair, which discourages savings and penalises those in or approaching retirement.

Will the Financial Secretary confirm that next week's Budget will include fewer ill-thought-through proposals and fewer decisions such as the one to abolish FIDs without any thought about the consequences? We want to see fewer decisions such as the one to abolish PEPs and TESSAs without any thought about the consequences for the self-employed and the decision to introduce quarterly corporation tax payments without any thought for its cash-flow problems and practicalities, including on what profit figure to base the payments.

The Government have sneaked through tax rises that are anti-thrift, damaging to investment and anti-middle England. They talk about increasing investment and then raise taxes on companies and investment funds so that those bodies must reduce investment. The Government talk softly about lone parents, and then remove their benefits. They promise to protect pensioners, and then take £5 billion a year out of pension funds. The Government claim to care for disabled people, but then propose to tax the disability living allowance. In opposition, the Labour party opposed tuition fees, but, in government, it has introduced them. The Government claim that they want to protect the monarchy, yet they do all they can to undermine it. The Government attack the countryside, and then send the Minister for the Environment to join a march against his Government.

This Government seek to be all things to all people. Their message to the people is: "We will be whatever you want us to be." In reality, the Government are what everybody does not want them to be. The Government have increased taxes, attacked middle England and told people what they can and cannot eat, and what they can and cannot do. The Government think that they can get away with a wholesale agenda of hidden tax rises. In short, this is an arrogant Government, who have let power go to their head.

6.21 pm

Mr. Geraint Davies (Croydon, Central)

The basic question that we must ask this evening is: what would be the tax situation in the nightmare scenario of another Tory Government? In such a scenario, the plans that Labour has made to reduce debt, increase productivity and skill, and translate welfare into work—all of which reduce future tax liability for this country—would not go ahead. That is the real question for the British public.

The Government inherited a legacy of millions on the dole who were unable to pay tax while others paid higher tax to support them. Britain had slipped down the skills league and we had witnessed the emergence of social exclusion and rising crime—all the symptoms of economic failure and a cost to future taxpayers. The challenge for Labour was to tackle that vicious downward spiral and the high tax-low success economy of the Conservatives. We have met that challenge.

Immediately upon taking office, we granted independence to the Bank of England. We do not know what Conservative Members think about that, but the impact was to reduce overnight long-term borrowing costs by 0.29 per cent.—a saving of £1 billion a year. That reduction has grown to represent a saving for the taxpayer of about £6 billion a year, which is equivalent to 3p on tax. What would Opposition Members have done? They do not know. I guess that, in an even-steven situation, they would raise tax by 3p—which is another hidden tax.

I said earlier that national debt forecasts have decreased by £16 billion in the past year, which will save the taxpayer £1 billion a year. That would not happen under the Tories, so there would be another hidden tax. What about the new deal? The essence of the new deal is to translate claimants into taxpayers. The Conservatives had no plans to introduce that programme, so there would be another hidden tax.

We have heard that advance corporation tax and pensions will make the Government £5 billion. Where would the Conservatives get that £5 billion—perhaps from value-added tax? That is another hidden tax. I shall not go into great detail about the pensions issue, which has been discussed already—we know that there is an actuarial difference of view. Pension funds are rising in value as share values increase along with market confidence. Setting interest rates outside the political control of the Chancellor means that there is no risk premium on investment in British jobs, and therefore industry can move forward. That is the reality.

What about Europe? The right hon. Member for Huntingdon (Mr. Major) has said that we should be at the heart of Europe, but the right hon. Member for Wokingham (Mr. Redwood) says in his book—I know that no one has read it, but never mind—that we should block the euro and derail the legislation, although 60 per cent. of our trade is with Europe. Would that be in the interests of the British economy? Would it translate into high hidden taxes? Of course it would.

Recent Tory history is a sad catalogue of waste and cost. The previous Government's failure to act decisively on bovine spongiform encephalopathy cost £3.7 billion—the equivalent of 2p on income tax in a given year. What about privatisation? As I said, the previous Government sold off British assets at £5.7 billion less than their valuation by the market the next day. That amounts to 3p on income tax in one year, so it is another hidden tax.

Mr. Richard Page (South-West Hertfordshire)

Will the hon. Gentleman give way?

Mr. Davies

I am sorry, but I do not have time.

What is the real cost of the 300,000 repossessions—there were 3,000 in 1979—that took place under the Tories? That is another hidden tax resulting from the bungling failure of discredited Tory Members.

The reality of the increases in council tax—the need for an extra £4 billion in local tax in the following three years—was disclosed in the Red Book by the previous Chancellor in November 1996. I could continue: we are talking about billions and billions, which is the equivalent of 10p on the standard rate of tax.

We do not want to hear any more lectures from Conservative Members about hidden taxes because we are dealing with enough of them now. Thank goodness we are getting Britain back to work, recovering our debt and putting the country on a good long-term footing.

6.26 pm

Mr. Howard Flight (Arundel and South Downs)

Labour Members are living in a completely unrealistic world. The Organisation for Economic Co-operation and Development, the International Monetary Fund and the World bank will confirm—as we well know—that the Labour party inherited the soundest economy in Europe, with the lowest unemployment of 5 per cent., the best fiscal record of improvement and the lowest debt. This debate is about the Labour Government's taxation policy: it is silly to seek to claim that the new Labour Government had to resolve major economic problems. That is a most unconvincing argument.

I suggest that the Chief Secretary and other Labour Members take a walk in Britain's leafy suburbs. The Labour party convinced many members of the middle class that they would be safe with Labour, as it was no longer a socially redistributive party pledged to increase taxes for the middle classes. As has been admitted in debate, Labour has not increased taxes but has followed a clear agenda, led by the Chancellor of the Exchequer, of finding other ways to tax the middle classes more.

Most of those measures have been described in the debate. I remind hon. Members that advance corporation tax has reduced the pensions that people will receive in future, and that those with personal pensions will have to pay about £20 week more to maintain their pensions.

Reference has been made to the charging of tuition fees to students attending university. Do Labour Members realise that the payment of £1,000 per annum by an ordinary middle-class family in middle England is equivalent to a 10 per cent. rise in income tax? Student loans were perfectly fair—students repaid them when they could afford it. I am sure that my colleagues will agree that it was a necessary reform in line with Dearing. However, tuition fees are quite different: they are a hidden tax on the middle class.

Mr. Rammell

Will the hon. Gentleman give way?

Mr. Flight

No. There are only five minutes left.

When I asked about the community tax, it was pointed out to me that, because my constituency has, allegedly, a higher income per capita than other parts of Britain, it is fair and just that the gerrymandering with central Government money should result in the community tax in West Sussex going up by some 11 per cent. There is a clear agenda to increase the taxes of shire middle England by devious means.

The Government have boasted that the abolition of the assisted places scheme is a measure of redistribution. I spoke recently to the headmistress of an excellent school in the state sector, and was interested to note that the number of applications to her school had doubled, led in part by the Prime Minister's wife, as it is a school of academic excellence. The headmistress complained that so many parents could not afford to pay for academic excellence, and that they are going into debt so to do. As the Government well know, the abolition of assisted places hit the members of the middle class who aspired to give their children a better education.

Mr. Ivan Lewis

Will the hon. Gentleman give way?

Mr. Flight

No. There is not much time.

Many Government Members made the point that the Conservatives let down the middle classes similarly when we were in government between 1992 and 1997. I personally take quite a degree of blame for that. Middle-class families paid more tax when they should not have, but I remind the Government why, because they are about to fall into the same trap. It was because—for which my right hon. Friend the Leader of the Opposition has apologized—we locked into the exchange rate mechanism and were stuck with rising interest rates when they needed to fall, and we had an uncompetitive currency. Those who wish to do the same when our own and Europe's economic cycles are so out of kilter will have the same future.

Where will the middle class be taxed more in the forthcoming Budget? Will it be in an increase of petrol tax; the abolition of mortgage interest relief at source; means-testing state pensions; limiting personal allowance to the standard rate of tax; taxing child benefit; and higher national insurance contributions? The Government know as well as I do that it will be some of those, and that all of them amount to the higher taxation of middle England.

Middle England is not deceived. It is well aware of what is happening. The crucial point is that it is not necessary. The reason for it is, as the hon. Member for Bolsover (Mr. Skinner) pointed out, to build up a war chest to try to bribe the electorate when the next election comes, but they will not be deceived. It is time the Prime Minister kept his pledge to middle England and started to reduce taxation on middle-class families, and not to increase it yet further.

6.32 pm

Mr. David Heathcoat-Amory (Wells)

It was striking how hon. Members on the Government Benches kept almost entirely off the subject of the debate. They talked about everything except the Government's tax record. Perhaps they are embarrassed about it. Perhaps they implicitly accept the points that we have made: that the Labour party has consistently broken its tax promises, and is, perhaps, afraid of what the future may hold.

Although this has been a short debate, it has confirmed beyond doubt that the Labour party explicitly promised before the election not to increase taxes and then immediately did so in a Budget some two months later. We are not really surprised by that, as it is one of the laws of nature that Labour Governments increase taxation, but we were all somewhat taken aback by the speed with which they broke their tax promises.

The Prime Minister could hardly have been more explicit in a speech that he made to business men in Birmingham when Leader of the Opposition—a speech to which my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), who is shadow Chancellor, and my hon. Friend the Member for Bury St. Edmunds (Mr. Ruffley) referred—when he said: We have no plans to increase tax at all. That is one of the few really clear statements about tax made by the previous Leader of the Opposition. At the end of that speech, he did not say, "Well, that's not really what I meant. When I just told you I have no plans to increase taxation, I meant that I do have plans to increase taxation." Nor, when he was reported the next day in the Financial Times, did he or anyone else write to the paper to say, "That was a pack of lies and does not accurately reflect my intentions if we win the general election." So it remained on the record as a clear statement of the Labour party's intentions.

However, within two months of winning the election, the Labour Government produced a Budget that reversed all that. Pages 40 and 41 of the Budget statement, published on Budget day in July, contains lists and columns of taxes that were increased. Even if one leaves out the windfall tax, which we agree that we were warned about, it adds up to a tax increase in the current financial year of £3.5 billion, rising by the end of the third year to more than £005 billion a year. There we have it. The Prime Minister promised before the election that he would not raise taxes at all, and in the first Budget he did exactly that. If that is what no increases at all means, I hate to think what the Government will do when they get really serious.

There is an explanation, advanced by my right hon. Friend the shadow Chancellor. He pointed out that, when referring to the £5 billion-a-year raid on pension funds, the Financial Secretary—I am glad that she is to reply to the debate—said: The measure is good for pensions and pensioners, not bad for them."—[Official Report, 3 July 1997; Vol. 297, c. 507.] Again, she did not qualify that statement. I suppose that, if one really believes that taxing people is good for them, one feels rather less inhibited about doing so in successive Budgets, but it hardly explains the 17 tax rises in the first Budget. We have calculated them in exactly the same way that Labour did when it alleged that we put up taxes 22 times when we were in government. If the present Government continue at this rate, they will introduce four times as many tax increases during a full term in office. The 17 tax rises in the first Budget do not include many of the taxes to which my hon. Friend the Member for Arundel and South Downs (Mr. Flight) quite rightly referred, because that figure excludes the student tax and the double-figure council tax rises in place in most of our rural constituencies, which are a direct result of the Government piling on to local authorities obligations without matching them with the necessary funding.

To be fair, we were warned about one or two taxes. We were told about the windfall tax. We were also warned about the withdrawal of tax relief on medical insurance, but its withdrawal was not clever. Causing people to cancel their medical insurance policies and switching to the NHS has contributed directly to the breach of another Labour election promise: that it would get NHS waiting lists down. Instead, they have gone up by 100,000 since the election.

The central feature of the debate has been not only the number and scale of the tax increases but the fact that the full impact of the increases was hidden from the electorate. They are indeed stealth taxes. Old Labour, let us be fair, used to be fairly open about its tax plans. New Labour does it by the back door.

Take the pension tax. Labour thought that it would not be noticed because the damage was long term. The Chancellor said that the Budget would be for the long term, and in that sense he was right because the damage done to pension funds and people's savings will evolve over a long period. Labour went further than that. It tried to disguise the fact that it was raising taxes on pension funds at all. In the pocket Budget, produced at taxpayers' expense and circulated to the public, the only reference to that £5 billion-a-year tax raid on people's pension funds was the sentence: The Budget makes other tax changes to encourage companies to invest profits in the future. That is the only reference to the biggest raid on people's savings that Britain has ever seen in a Budget.

The point is that that was not just wrong and deceitful; it was stupid. If the economy was in danger of overheating last year, as the Chancellor said that it was, the last thing that he should have done was to tax savings because, by doing so, by taxing institutional savings rather than people, he transferred the burden of controlling inflation on to interest rates. That is why we have seen five interest rate rises since the general election. That has hit investment, the strong pound has hit manufacturing—output from manufacturing industry fell again last month—and we are on the brink of a technical recession.

We know that the Chancellor has shuffled off responsibility—at least for the decision about interest rates—on to the Bank of England, but he cannot escape responsibility for a tax policy which went for disguise of his measures rather than economic effectiveness.

Taxing savings was stupid for another reason. The Government say that they are trying to reform welfare and cut welfare expenditure, but the only realistic alternative to the welfare state is for people to be reliant on private savings and private pension provision. That is precisely what the Chancellor hit in his last Budget, so taxing savings does not even make sense from that point of view.

The damage has already started. The National Association of Pension Funds is already reporting that many pension funds are reducing their prospective benefits, increasing the contributions demanded from their members, or switching from final salary schemes to money purchase schemes, which are less generous.

That was well set out by my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb). It is all right for Labour Members to do this because they, like us, enjoy a generous parliamentary final salary scheme. The Conservative Government's policy was to extend those benefits to as many people as possible. Labour's policy has been to retain those benefits for itself, but everyone else's benefits will be cut. Labour has done exactly the same with PEPs and TESSAs. Labour Members may have generous pension funds. In a debate last week, it was pointed out that the hon. Member for Bolsover (Mr. Skinner), who, sadly, is not in his place today, has pension entitlements worth a capital sum of £356,000; the Financial Secretary to the Treasury has been in the House for only 11 years, but she will be pleased to know that, already, her pension entitlement has a capital value of £140,000. It is all right for them, but the small business man, self-employed, trying to build up a modest pension entitlement to see him through hard times or his old age, is thought to be rich if he has £50,000 in a PEP or TESSA. That is new Labour—we are all right, Jack, but everyone else must pay the high taxes.

There is a rumour in the air of a U-turn on PEPs and TESSAs and the individual savings account, but we know where Labour's instincts lie. It tries to cut everyone down to £50,000. If there is a U-turn, as I believe there may be next week, it will be because of the taxpayers' revolt and our debate last week in which we explained to the Government what they were walking into.

What about the other stealth taxes? We have heard quite a bit in the debate about the reduction in VAT on fuel from 8 to 5 per cent. Leaving aside the obvious point that by far and away the biggest benefit enjoyed by users of fuel was the price reductions consequential on privatisations, all of which were opposed by the Labour party, and leaving aside the fact that the benefit increases that we brought in when we put VAT on fuel ensured that all pensioner households were at least as well off as they would have been without it, the real story on VAT and indirect taxation is that the Government have not only increased the rates on fuel, tobacco and alcohol, but—this is a stealth point—brought forward the increases and made them more frequent in that we have had three Budgets in 16 months. Therefore, not only are the increases higher; they are more frequent.

For example, this year, 1997–98, the extra fuel duty amounts to £730 million as a result of the increase brought forward in the July Budget. We were not told that during the election either. My hon. Friend the Member for Cotswold (Mr. Clifton-Brown) was right to draw attention to the fact that that hits rural areas disproportionately.

Then we have the stealth tax on companies—the corporation tax changes. When the Chancellor announced the changes, he claimed that they had been welcomed by business; that business had accepted that it was necessary to move to the abolition of advance corporation tax and had welcomed the cut in corporation tax.

The Paymaster General, who, sadly, is not here—he is famously well informed about business matters—said that the statement had been welcomed by the Confederation of British Industry. That was not true. In a press release, the CBI said: The proposals in the November pre-Budget report, together with the measures in the July 1997 Budget, could increase taxation on business by almost £22 billion during this Parliament. If that is so, it is a pretty funny way of expressing support for the Chancellor.

Industry faces further falls in manufacturing output—that has just been confirmed by statistics released yesterday—higher interest rates, a higher pound and £22 billion of extra taxation in this Parliament. The Chancellor said that he wanted to rebalance the economy. Is that really the way that he intended to do it?

Some people who have not seen taxes go up are still waiting for the Budget next week. We wonder whether that includes the Paymaster General. To quote the Chancellor, those with millions in offshore tax havens have not so far been touched. We had a panic slamming of the tax avoidance door last Friday, but that does not seem to have affected the Paymaster General. The Labour Government have failed to tax those whom they promised before the election they would tax, and have taxed those whom they promised before the election they would not tax. Those are the priorities of new Labour and that is the reality of a new Labour Government.

6.49 pm

The Financial Secretary to the Treasury (Dawn Primarolo)

In the few minutes left in the debate, I want to reply to a number of questions. I must tell the right hon. Member for Wells (Mr. Heathcoat-Amory) that I would not buy a second-hand pension from him and I certainly would not rely on any pension advice from him or any of his hon. Friends. As my hon. Friend the Member for Harlow (Mr. Rammell) reminded the House, 500,000 cases of pension mis-selling have already been recorded in phase 1 and more information is to be announced on Thursday. That is a direct result of the policies of the previous Government.

It was a predictable speech from the shadow Chancellor but, in fairness to him, he said that he did not expect us to give him the Budget announcements today. Unfortunately, I am not sure that the shadow Chief Secretary understood that. I am sure that all hon. Members will understand that for many of the answers they will have to wait for my right hon. Friend the Chancellor to announce the Budget next week.

The debate revolved around false promises and comparing records. It was a debate about therapy for the Opposition. They need the help of Labour Members if they are to come to terms with what happened when they were in government and why they lost the trust of the electorate.

Before dealing specifically with the previous Government's record, I shall respond to some of the points made by the hon. Member for Gordon (Mr. Bruce). For 45 minutes, there were no Liberal Democrats in the Chamber to take part in the debate. However, the hon. Member for Gordon did take part in the debate and accused the Government of being cautious. As ever, he wants to spend money everywhere, but cannot say where it is to come from. Apparently, the 1 p on tax is now not only for education but is to be used to write off everything that the Government inherited from the Tories. Presumably, he is urging the Government to be incautious. We shall not respond to that proposition.

My hon. Friend the Member for Bury, South (Mr. Lewis) reminded the House that the Conservative Government gave away the zero rate on VAT on domestic fuel and then tried to raise it to 17.5 per cent. He pointed out that they squandered billions of pounds of North sea oil revenues and that the list of accusations that they make against this Government includes the closure of tax loopholes. My hon. Friend challenged Conservative Members to say whether they were in favour of allowing those loopholes to continue. Of course, they did not want to respond. They do not want to have a policy for themselves, but simply want to create amnesia in the Chamber and among the electorate about what their Government did over 18 years.

We then had the incredible contribution from the hon. Member for Cotswold (Mr. Clifton-Brown) who professed concern for the low-paid. I do not know where he was when his Government were in office. He complained about the attack on MIRAS. What did he say to his Government when they cut MIRAS from 25 to 20 per cent. and then to 15 per cent.? Perhaps he can tell us what he thought about VAT on fuel. What did he say when his Government destroyed bus services with deregulation? What did he say to the then Prime Minister about the poll tax when the then Prime Minister said that he believed that, once the poll tax was fully understood, it would be seen to be very much fairer and more acceptable? A total of £14 billion later, plus all the attacks on the low-paid, and the Conservatives now say that they care about what happens to people on low incomes. What a load of rubbish.

Mr. Clifton-Brown

Does the Financial Secretary recall saying in the Standing Committee on the Finance Bill, on which we both served, that the withdrawal of ACT credits was good for pensioners? How can the withdrawal of £22 billion-worth of tax credits be good for pensioners? Will she tell my constituents that?

Dawn Primarolo

I told the House and the Committee that we believed that it was for companies, not the tax man, to take the decisions, and that we were withdrawing a distortion in the system, as the hon. Gentleman well knows.

What is all this about keeping promises? When the Conservative Government were in office, they could not spell the word "promise". In March 1992, the then Prime Minister said that the Conservatives have an allergy to tax. In fact, they have an allergy to telling the truth about tax, except for the hapless then Chief Secretary, William Waldegrave—he is no longer in the House—who said on the Dimbleby programme in 1996 that it was no secret that the Conservative Government, right back to 1979, had always said that they preferred to take tax off direct taxation and put it on to indirect tax and "all those other taxes". By that, he meant VAT.

What did the Conservative party say about that? How did it mislead the electorate? In January 1992, the then Conservative Prime Minister said that there would be no VAT increase. In March 1992, he said that his Government had no need to increase VAT and no plans to extend its scope.

In the normal candid fashion that we have come to expect from the right hon. and learned Member for Rushcliffe (Mr. Clarke), he said, when defending the imposition of VAT on fuel that it was "a perfectly fair tax". He also said that he had always thought that VAT had a narrow base and that it was worthy of reform. At one time he said—women were very pleased to hear this—that there were exemptions for children's clothes so that every woman with small feet would not have to pay tax on her shoes. Thank goodness for small mercies. I suppose that women felt secure with that statement.

However, by November 1993, the right hon. and learned Gentleman was saying that one of his options must be to extend the VAT base, and that the main candidates for that were food, children's clothing, transport, sewerage and newspapers, for all of which a powerful case could be made, but no amount of lobbying should put the Government off. The Conservative Government told the electorate one thing and did another.

Mr. Kenneth Clarke

I am glad that the hon. Lady still reads my speeches. If she reads on, she will see why I rejected that case in my Budget speech. While she is going back in history, will she explain to the House why, when we said at the last election that a Labour Government would raise taxation, it was so vehemently denied and why the Chief Secretary expressly denied that there was any intention of changing the tax relief for PEPs or TESSAs or for the pensions industry?

Dawn Primarolo

I am glad that the right hon. and learned Gentleman is in the Chamber, because I have another point to put to him. Perhaps when it comes to honesty and answering questions, he can explain why the 1992 Conservative manifesto said that the party would maintain mortgage tax relief, when, in December 1993, he said that, luckily, it had not said at what rate. What is that if it is not misleading the country? [Interruption.] Conservative Members do not like the truth. They want to make accusations, but they will not listen to their own record.

The right hon. and learned Member for Rushcliffe had it well sussed when he said in September 1996 that the public would be deeply suspicious of any tax cuts because they would remember that the Conservative party had promised tax cuts and had not been able to deliver them. Instead, it delivered tax rises—£2,000 per family over the period of that Government.

Mr. Clarke

Will the Minister give way?

Dawn Primarolo

The debate has to finish at 7 o'clock—I am sorry. The right hon. and learned Gentleman—[Interruption.] The Government have cut taxes. We reduced VAT on fuel.

Hon. Members

Answer the question.

Mr. Deputy Speaker (Mr. Michael Lord)

Order. The House must hear the Minister.

Dawn Primarolo

The Conservatives are hoping that the country will not be able to hear about their record. The Government have made tax promises and kept them: a winter fuel package for pensioners, a cut in corporation tax, help for small companies and a promise on energy-saving materials. We are helping the young and the long-term unemployed. We are about keeping promises and not breaking them. Next week, my right hon. Friend the Chancellor will be presenting to the House how the Government will continue to defend jobs, to invest in our economy and to ensure that our promises are kept—however much Opposition Members choose to heckle.

Question put, That the original words stand part of the Question:—

The House divided: Ayes 174, Noes 298.

Division No. 196]	[7 pm
AYES
Ainsworth, Peter (E Surrey)	Clark, Dr Michael (Rayleigh)
Allan, Richard	Clarke, Rt Hon Kenneth (Rushcliffe)
Amess, David	Clifton-Brown, Geoffrey
Ancram, Rt Hon Michael	Collins, Tim
Arbuthnot, James	Cotter, Brian
Atkinson, David (Bour'mth E)	Cran, James
Atkinson, Peter (Hexham)	Curry, Rt Hon David
Baker, Norman	Dafis, Cynog
Baldry, Tony	Davies, Quentin (Grantham)
Ballard, Mrs Jackie	Davis, Rt Hon David (Haltemprice)
Beggs, Roy	Duncan, Alan
Bercow, John	Duncan Smith, Iain
Beresford, Sir Paul	Evans, Nigel
Boswell, Tim	Faber, David
Bottomley, Peter (Worthing W)	Fallon, Michael
Brady, Graham	Flight, Howard
Brand, Dr Peter	Forsythe, Clifford
Brazier, Julian	Forth, Rt Hon Eric
Brooke, Rt Hon Peter	Foster, Don (Bath)
Bruce, Ian (S Dorset)	Fowler, Rt Hon Sir Norman
Bruce, Malcolm (Gordon)	Fox, Dr Liam
Burnett, John	Gale, Roger
Burns, Simon	Garnier, Edward
Burstow, Paul	George, Andrew (St Ives)
Campbell, Menzies (NE Fife)	Gibb, Nick
Cash, William	Gill, Christopher
Chapman, Sir Sydney (Chipping Barnet)]	Goodlad, Rt Hon Sir Alastair
Chidgey, David	Gorman, Mrs Teresa
Chope, Christopher	Gorrie, Donald
Clappison, James	Gray, James

Greenway, John	Ottaway, Richard
Grieve, Dominic	Page, Richard
Gummer, Rt Hon John	Paice, James
Hague, Rt Hon William	Pickles, Eric
Hamilton, Rt Hon Sir Archie	Prior, David
Hammond, Philip	Randall, John
Hancock, Mike	Redwood, Rt Hon John
Harris, Dr Evan	Rendel, David
Harvey, Nick	Robathan, Andrew
Heald, Oliver	Robertson, Laurence (Tewk'b'ry)
Heathcoat-Amory, Rt Hon David	Roe, Mrs Marion (Broxbourne)
Hogg, Rt Hon Douglas	Ross, William (E Lond'y)
Horam, John	Rowe, Andrew (Faversham)
Howard, Rt Hon Michael	Ruffley, David
Howarth, Gerald (Aldershot)	Russell, Bob (Colchester)
Hughes, Simon (Southwark N)	St Aubyn, Nick
Hunter, Andrew	Sanders, Adrian
Jack, Rt Hon Michael	Sayeed, Jonathan
Jenkin, Bernard	Shepherd, Richard
Johnson Smith, Rt Hon Sir Geoffrey	Simpson, Keith (Mid-Norfolk)
Jones, leuan Wyn (Ynys Môn)	Smith, Sir Robert (W Ab'd'ns)
Jones, Nigel (Cheltenham)	Smyth, Rev Martin (Belfast S)
Keetch, Paul	Soames, Nicholas
Kennedy, Charles (Ross Skye)	Spelman, Mrs Caroline
Key, Robert	Spicer, Sir Michael
Kirkbride, Miss Julie	Spring, Richard
Kirkwood, Archy	Steen, Anthony
Laing, Mrs Eleanor	Streeter, Gary
Lait, Mrs Jacqui	Swayne, Desmond
Lansley, Andrew	Syms, Robert
Leigh, Edward	Tapsell, Sir Peter
Letwin, Oliver	Taylor, Ian (Esher & Walton)
Lewis, Dr Julian (New Forest E)	Taylor, John M (Solihull)
Lidington, David	Taylor, Matthew (Truro)
Lilley, Rt Hon Peter	Taylor, Sir Teddy
Livsey, Richard	Townend, John
Lloyd, Rt Hon Sir Peter (Fareham)	Trend, Michael
Llwyd, Elfyn	Tyler, Paul
Luff, Peter	Tyrie, Andrew
Lyell, Rt Hon Sir Nicholas	Viggers, Peter
MacGregor, Rt Hon John	Wallace, James
MacKay, Andrew	Wardle, Charles
Maclean, Rt Hon David	Waterson, Nigel
Maclennan, Rt Hon Robert	Webb, Steve
McLoughlin, Patrick	Wells, Bowen
Madel, Sir David	Whitney, Sir Raymond
Maginnis, Ken	Widdecombe, Rt Hon Miss Ann
Malins, Humfrey	Wigley, Rt Hon Dafydd
Maples, John	Wilkinson, John
Maude, Rt Hon Francis	Willetts, David
Mawhinney, Rt Hon Sir Brian	Winterton, Mrs Ann (Congleton)
May, Mrs Theresa	Winterton, Nicholas (Macclesfield)
Michie, Mrs Ray (Argyll & Bute)	Woodward, Shaun
Moss, Malcolm	Yeo, Tim
Nicholls, Patrick	Young, Rt Hon Sir George
Norman, Archie	Tellers for the Ayes:
Oaten, Mark	Mr. John Whittingdale and
Öpik, Lembit	Mr. Stephen Day.

NOES
Ainger, Nick	Beckett, Rt Hon Mrs Margaret
Ainsworth, Robert (Cov'try NE)	Bell, Stuart (Middlesbrough)
Alexander, Douglas	Benton, Joe
Allen, Graham	Bermingham, Gerald
Anderson, Janet (Rossendale)	Berry, Roger
Ashton, Joe	Best, Harold
Atherton, Ms Candy	Betts, Clive
Atkins, Charlotte	Blackman, Liz
Austin, John	Blears, Ms Hazel
Banks, Tony	Blizzard, Bob
Barnes, Harry	Blunkett, Rt Hon David
Battle, John	Boateng, Paul
Bayley, Hugh	Bradley, Keith (Withington)
Beard, Nigel	Bradshaw, Ben

Brinton, Mrs Helen	George, Bruce (Walsall S)
Brown, Rt Hon Gordon (Dunfermline E)	Gerrard, Neil
Brown, Rt Hon Nick (Newcastle E)	Gibson, Dr Ian
Brown, Russell (Dumfries)	Gilroy, Mrs Linda
Browne, Desmond	Godsiff, Roger
Burden, Richard	Goggins, Paul
Burgon, Colin	Gordon, Mrs Eileen
Butler, Mrs Christine	Griffiths, Jane (Reading E)
Byers, Stephen	Griffiths, Nigel (Edinburgh S)
Campbell, Mrs Anne (C'bridge)	Griffiths, Win (Bridgend)
Campbell, Ronnie (Blyth V)	Grocott, Bruce
Canavan, Dennis	Gunnell, John
Caplin, Ivor	Hall, Mike (Weaver Vale)
Casale, Roger	Hamilton, Fabian (Leeds NE)
Caton, Martin	Hanson, David
Cawsey, Ian	Harman, Rt Hon Ms Harriet
Chapman, Ben (Wirral S)	Healey, John
Chaytor, David	Hepburn, Stephen
Clapham, Michael	Heppell, John
Clark, Paul (Gillingham)	Hesford, Stephen
Clarke, Rt Hon Tom (Coatbridge)	Hill, Keith
Clarke, Tony (Northampton S)	Hinchliffe, David
Clwyd, Ann	Hoey, Kate
Coaker, Vernon	Home Robertson, John
Coffey, Ms Ann	Hope, Phil
Cohen, Harry	Hopkins, Kelvin
Coleman, Iain	Howarth, Alan (Newport E)
Colman, Tony	Hoyle, Lindsay
Cook, Frank (Stockton N)	Hughes, Ms Beverley (Stretford)
Cook, Rt Hon Robin (Livingston)	Hughes, Kevin (Doncaster N)
Corbett, Robin	Humble, Mrs Joan
Corbyn, Jeremy	Hutton, John
Corston, Ms Jean	Iddon, Dr Brian
Cox, Tom	Ingram, Adam
Cranston, Ross	Jackson, Ms Glenda (Hampstead)
Crausby, David	Jackson, Helen (Hillsborough)
Cryer, Mrs Ann (Keighley)	Jamieson, David
Cunningham, Jim (Cov'try S)	Jenkins, Brian
Dalyell, Tam	Johnson, Alan (Hull W & Hessle)
Darling, Rt Hon Alistair	Johnson, Miss Melanie (Welwyn Hatfield)
Davey, Valerie (Bristol W)	Jones, Helen (Warrington N)
Davidson, Ian	Jones, Ms Jenny (Wolverh'ton SW)
Davies, Rt Hon Denzil (Llanelli)	Jones, Jon Owen (Cardiff C)
Davies, Geraint (Croydon C)	Jones, Dr Lynne (Selly Oak)
Davies, Rt Hon Ron (Caerphilly)	Jowell, Ms Tessa
Davis, Terry (B'ham Hodge H)	Keeble, Ms Sally
Dawson, Hilton	Keen, Ann (Brentford & Isleworth)
Denham, John	Kelly, Ms Ruth
Dewar, Rt Hon Donald	Kennedy, Jane (Wavertree)
Dismore, Andrew	Khabra, Piara S
Dobbin, Jim	Kilfoyle, Peter
Dobson, Rt Hon Frank	King, Andy (Rugby & Kenilworth)
Donohoe, Brian H	Kingham, Ms Tess
Dowd, Jim	Kumar, Dr Ashok
Drew, David	Lawrence, Ms Jackie
Drown, Ms Julia	Laxton, Bob
Dunwoody, Mrs Gwyneth	Leslie, Christopher
Eagle, Angela (Wallasey)	Levitt, Tom
Efford, Clive	Lewis, Ivan (Bury S)
Ennis, Jeff	Liddell, Mrs Helen
Etherington, Bill	Linton, Martin
Field, Rt Hon Frank	Livingstone, Ken
Fisher, Mark	Lloyd, Tony (Manchester C)
Fitzpatrick, Jim	Lock, David
Fitzsimons, Lorna	Love, Andrew
Flint, Caroline	McAvoy, Thomas
Flynn, Paul	McCabe, Steve
Follett, Barbara	McCafferty, Ms Chris
Foster, Michael Jabez (Hastings)	McCartney, Ian (Makerfield)
Foster, Michael J (Worcester)	McDonagh, Siobhain
Foulkes, George	McDonnell, John
Fyfe, Maria	McGuire, Mrs Anne
Galbraith, Sam	McIsaac, Shona
Gapes, Mike	McLeish, Henry
Gardiner, Barry

McNamara, Kevin	Rooney, Terry
McNulty, Tony	Rowlands, Ted
MacShane, Denis	Ruane, Chris
Mactaggart, Fiona	Russell, Ms Christine (Chester)
McWafter, Tony	Ryan, Ms Joan
Mallaber, Judy	Sarwar, Mohammad
Mandelson, Peter	Savidge, Malcolm
Marek, Dr John	Sawford, Phil
Marsden, Paul (Shrewsbury)	Sedgemore, Brian
Marshall, Jim (Leicester S)	Shaw, Jonathan
Marshall-Andrews, Robert	Sheldon, Rt Hon Robert
Meale, Alan	Singh, Marsha
Merron, Gillian	Skinner, Dennis
Michael, Alun	Smith, Rt Hon Andrew (Oxford E)
Michie, Bill (Shef'ld Heeley)	Smith, Angela (Basildon)
Milburn, Alan	Smith, Rt Hon Chris (Islington S)
Miller, Andrew	Smith, Miss Geraldine (Morecambe & Lunesdale)
Mitchell, Austin	Smith, Jacqui (Redditch)
Moffatt, Laura	Smith, John (Glamorgan)
Moonie, Dr Lewis	Soley, Clive
Moran, Ms Margaret	Southworth, Ms Helen
Morgan, Rhodri (Cardiff W)	Spellar, John
Morris, Ms Estelle (B'ham Yardley)	Squire, Ms Rachel
Morris, Rt Hon John (Aberavon)	Steinberg, Gerry
Mountford, Kali	Stewart, Ian (Eccles)
Mowlam, Rt Hon Marjorie	Stinchcombe, Paul
Mudie, George	Stoate, Dr Howard
Mullin, Chris	Stringer, Graham
Murphy, Denis (Wansbeck)	Stuart, Ms Gisela
Naysmith, Dr Doug	Sutcliffe, Gerry
Norris, Dan	Taylor, Rt Hon Mrs Ann (Dewsbury)
O'Brien, Bill (Normanton)	Thomas, Gareth (Clwyd W)
O'Brien, Mike (N Warks)	Thomas, Gareth R (Harrow W)
O'Hara, Eddie	Timms, Stephen
Olner, Bill	Todd, Mark
O'Neill, Martin	Touhig, Don
Organ, Mrs Diana	Truswell, Paul
Palmer, Dr Nick	Turner, Dennis (Wolverh'ton SE)
Pearson, Ian	Turner, Dr Desmond (Kemptown)
Pendry, Tom	Turner, Dr George (NW Norfolk)
Perham, Ms Linda	Twigg, Stephen (Enfield)
Pickthall, Colin	Vis, Dr Rudi
Pike, Peter L	Wareing, Robert N
Plaskitt, James	White, Brian
	Wicks, Malcolm
Pond, Chris	Williams, Rt Hon Alan (Swansea W)
Pope, Greg	Williams, Alan W (E Carmarthen)
Pound, Stephen	Williams, Mrs Betty (Conwy)
Prentice, Ms Bridget (Lewisham E)	Wills, Michael
Prentice, Gordon (Pendle)	Wilson, Brian
Prescott, Rt Hon John	Winnick, David
Primarolo, Dawn	Winterton, Ms Rosie (Doncaster C)
Purchase, Ken	Wise, Audrey
Quin, Ms Joyce	Wood, Mike
Quinn, Lawrie	Woolas, Phil
Radice, Giles
Wright, Anthony D (Gt Yarmouth)
Rammell, Bill
Wright, Dr Tony (Cannock)
Rapson, Syd
Raynsford, Nick
Reed, Andrew (Loughborough)
Reid, Dr John (Hamilton N)
Robertson, Rt Hon George (Hamilton S)	Tellers for the Noes:
Robinson, Geoffrey (Cov'try NW)	Mr. David Clelland and
Rooker, Jeff	Mr. John McFall.

Question accordingly negatived.

Question, That the proposed words be there added, put forthwith, pursuant to Standing Order No. 31 (Questions on amendments), and agreed to.

MR. DEPUTY SPEAKER forthwith declared the main Question, as amended, to be agreed to.

Resolved, That this House commends the Government for honouring its election promises not to increase the top or basic rate of income tax, to reduce VAT on domestic fuel to five per cent. and to introduce the levy on the windfall profits of the privatised utilities; approves the Government's determination to put in place a fair tax system, to encourage investment and long-term sustainable growth; believes that Britain's interests lie in the pursuit of sound economic policies that will benefit the many and not just the few, and which are in the long-term interests of the whole country; and urges the Government to reject any return to the boom and bust policies of the past which resulted in the 22 tax rises imposed by the previous administration.