HC Deb 20 April 1999 vol 329 cc703-816

[Relevant document: The Fourth Report from the Treasury Committee, Session 1998–99, on the 1999 Budget (HC 325).]

Order for Second Reading read.

3.42 pm
The Chief Secretary to the Treasury (Mr. Alan Milburn)

I beg to move, That the Bill be now read a Second time.

This is the third Finance Bill of this Parliament, and it builds on our previous two Bills in reforming and strengthening the British economy. It implements the most recent Budget delivered by my right hon. Friend the Chancellor of the Exchequer—a Budget that rewards work and enterprise, rewards families and will help to deliver a stronger economic future for our country.

The Budget will do that by locking in the economic stability that the Government have been creating over the past two years. Our approach has been right and necessary. When we came to office, we inherited an economy that was going off the rails. The national debt had doubled, the public finances were spiralling out of control, inflation was back in the system, and the economy was fundamentally weakened—[HoN. MEMBERS: "No."] The Tories do not like hearing that, but it is true. The economy was fundamentally weakened after two decades of Tory boom and bust.

Mr. Andrew Tyrie (Chichester)

Is the Minister aware that, in the 1960s and 1970s, the British economy grew at about two thirds the average rate of those of our European competitors, whereas, in the 1980s and 1990s, it grew faster than our European competitors' average? Does he think that that had nothing to do with the reforms that Conservative Governments made over 20 years?

Dr. Norman A. Godman (Greenock and Inverclyde)

Where did they go wrong?

Mr. Milburn

As my hon. Friend asks, why, then, did the Conservatives go so badly wrong? I remind the hon. Member for Chichester (Mr. Tyrie) that they inflicted on this country the two deepest and most damaging recessions that this country has ever seen. Only a Tory party as out of touch with reality as the modern Conservatives could describe that pitiful history as a golden economic legacy.

Mr. John Bercow (Buckingham)


Mr. Milburn

Talking of golden economic legacies.

Mr. Bercow

The right hon. Gentleman will be aware that every Labour Government in history, without exception, have left office with levels of taxation and unemployment higher than those that they inherited. If the right hon. Gentleman is so cocksure about the future, is he prepared today to guarantee that this Government will be the exception, and that when they eventually leave office—sooner rather than later—taxation and unemployment rates will be lower than they those that they inherited?

Mr. Milburn

The hon. Gentleman is an assiduous attender of these debates, and I can tell him that we would be pleased to match our record against that of his party any day. We would be pleased in particular to contrast our record on tax promises with that of Conservative Governments. I remind him that the Labour party keeps its tax promises, whereas his party breaks such promises.

Mr. Barry Jones (Alyn and Deeside)

I marvel at my right hon. Friend's patience. I urge him to tell the official Opposition that, in two short years in the 1980s, the policies of Mrs. Thatcher, Keith Joseph and Geoffrey Howe led to Britain losing 2.5 million jobs. Will he please remind the Opposition of that?

Mr. Milburn

My hon. Friend represents a constituency that is thankfully still rich in manufacturing companies, and he knows fine well that what those companies most dread is a return to the days of the 1980s and early 1990s when a million manufacturing jobs were lost, manufacturing output declined by 8 per cent. and manufacturing investment fell by a quarter. Those companies know that, far from leaving a golden economic legacy, the policies of Conservative Governments fundamentally weakened the British economy.

Mr. Jim Cunningham (Coventry, South)

Does my right hon. Friend recall that, under the previous Government, industry was decimated, particularly in the west midlands; unemployment reached record levels; and, more importantly, people suffered from negative equity, which Opposition Members have failed to mention?

Mr. Milburn

My hon. Friend is absolutely right. During the 1980s and early 1990s, inflation and interest rates were in double figures. Indeed, interest rates were at 15 per cent. for a full year. Tens of thousands, if not hundreds of thousands of home owners who had voted Conservative because they believed the promises that the Tories had given, found themselves with negative equity, as my hon. Friend said.

Mr. Michael Jack (Fylde)

Does the Chief Secretary agree that, when the Government took office, they took over the tax plans of my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke)? Those plans, together with my right hon. and learned Friend's plans for the economy, delivered inflation at the target rate of 2.5 per cent., which increased tax flows, and imposed the constraints on public expenditure. They amounted to the golden economic legacy.

Mr. Milburn

The right hon. Gentleman feels that he must defend his own legacy, because he was a Treasury Minister at the time and I shadowed him in that job. I remind him that, if the Tories had got back into power on 1 May 1997, the tax projections in the final Budget proposed by him and his right hon. and learned Friend would have landed the British people with a higher tax burden than they will pay this year, next year or the year after.

Not all Conservatives have been as reticent about the past as those who have spoken this afternoon. The recently announced Scottish Tory party manifesto was a model of the new confessional style of Conservatism, about which we have heard much from the right hon. Member for Richmond, Yorks (Mr. Hague).

Madam Speaker

Order. We have had a robust exchange to begin with, and I have enjoyed it enormously. I hope that we can now get to the Finance Bill.

Mr. Milburn

I fear that I was provoked, Madam Speaker. You are quite right to correct me.

In the past two years, we have been putting the economic fundamentals in place for lasting, long-term prosperity. Inflation is now under control, long-term interest rates are at their lowest level in decades, mortgages have not been cheaper for more than 30 years, youth and long-term unemployment rates have halved, and a record number of people are in work—over 400,000 more than at the time of the general election.

Public finances have been transformed and this Finance Bill continues that process of transformation. We have cut public sector borrowing by some £30 billion, so that the Government are now living within their means, but we have been able to give hospitals and schools the biggest increase in extra funding they have ever seen—increases that were opposed by the Conservatives as reckless. What the Tories now need to declare is whether they think that the further increases in funding that we announced in the Budget and that are taken forward in the Bill are also reckless. Is it reckless to invest an extra £60 million in school books? Is it reckless to spend an extra £170 million on tackling and preventing crime, or to invest an extra £470 million on spreading the benefits of computer learning to every community in the land? Is it reckless to invest extra resources—an additional £430 million on modernising hospital accident and emergency departments and making access to primary care services in the community faster and easier? If the Tories think that it is, they should have the courage of their convictions and they should say so.

Mr. Andrew Rowe (Faversham and Mid-Kent)

It is not reckless, if one has the money. Of course one has the money if one is prepared to take it, for example, from some of the poorest pensioners. Even if the amount taken is very small, it is still a high percentage of their income.

Mr. Milburn

In that case, I am sure that the hon. Gentleman will welcome the £1 billion package that my right hon. Friend the Chancellor announced in his Budget for those pensioners, including a dramatic increase in the amount of money to help them with their winter fuel bills.

Dr. Godman

May I make a plea for a more sympathetic tax regime for our much reduced merchant shipping fleet? I know that Lord Alexander is carrying out a study of that issue, but were a more favourable tax regime to be introduced more ships would come under the British flag, more British sailors and officers would be recruited and our nautical colleges would receive a fillip.

Mr. Milburn

Those points are well made by my hon. Friend. They are precisely the sort of points that Lord Alexander will examine in his inquiry into the reliefs and support that we should give to the merchant fleet, now and in the future.

Mr. John Burnett (Torridge and West Devon)

I endorse the comments of the hon. Member for Greenock and Inverclyde (Dr. Godman) on a tonnage system for taxation of shipping, on which I tabled a new clause at the Report stage of the previous Finance Bill. I hope that the Government pay attention to that point, because there was much sympathy for it in the House. I also hope that the Government will start to unravel the unfair system of long-term capital allowances, which were introduced in the previous Government's last Finance Bill.

Mr. Milburn

I shall ensure that the hon. member's comments and those made by my hon. Friend the Member for Greenock and Inverclyde (Dr. Godman) are passed to Lord Alexander, who has now begun his inquiry and will report in due course. The approach that we are taking is prudent and disciplined. We are locking in stability by keeping the public finances under control. Over the next five years, there will be a current budget surplus of some £34 million. This Government's approach will allow us to meet our tough fiscal rules while at the same time providing a £6 billion boost to the economy at just the point in the cycle at which it is most needed.

The Government are steering a course for stability in what is an uncertain and troubled global economy, but stability is a means, not an end. It is the essential precondition for economic prosperity and progress. In the Finance Bill, we build on that platform of stability to improve the productivity performance of the economy for the long term. For too long, Britain has faced a competitiveness gap with our competitors. There is now a 40 per cent.

performance gap between the UK and the United States of America and a 20 per cent. gap between us and France and Germany. This Finance Bill will help tackle that productivity problem. It does so by taking forward measures to improve investment, to strengthen the links between business and education and to improve the tax position of growing firms.

Clause 69, for example, extends capital allowances to help bridge the investment gap that has opened up between Britain and our competitors. Too many British firms find themselves outgunned by higher levels of investment in plant and machinery among their overseas competitors. In the most recent international business cycle, for every £100 per worker invested in the UK, the US and Germany invested £140, and France invested almost £150.

We have listened carefully to representations from business organisations and have decided to continue enhanced first-year capital allowances to help small and medium-sized firms to grow and to invest. Similarly, clause 53 provides tax relief for companies seconding staff to schools, colleges and universities. It is part of our wider effort to bridge the gap between business and education.

We believe that education and business working together in partnership have a vital role in helping to prepare young people for the world of work. During our pre-Budget consultation with businesses, we found enthusiastic support from firms of all shapes and sizes for a measure that will help business shape the future work force that it will need. It is another small, but significant, step towards making Britain a modern, high-skill, high-learning and high-earning economy, whose success will be due to the investment that we make in the quality of our work force.

Mr. Ian Bruce (South Dorset)

Will the Minister give way?

Mr. Milburn

No. I have given way several times and I must press on.

Success will rely also on giving businesses the right incentives to invest. Clauses 24 to 26 reform the corporation tax system to give Britain the lowest rates of company taxes in our history. Indeed, those clauses give Britain the lowest company tax rate of any major European country and the lowest rate of any major industrialised nation in the world. Moreover, these new rates—of 30p, 20p and 10p—will not apply just for one year. They, or lower rates still, will apply for the rest of this Parliament. They are evidence of this Government's determination to make Britain the best place for business investment.

The new lop rate of corporation tax for small companies in particular halves their tax rate and will benefit almost 270,000 growing firms. Two in three companies that pay tax will benefit. Those fundamental changes will leave more money in the hands of those who are best placed to create wealth and to create jobs.

These enterprise initiatives are complemented by the other measures announced in the Budget. They include a new research and development tax credit for firms with the brightest ideas and the best potential, new rewards for the best entrepreneurs and new incentives for the best investors. There will also be a new Small Business Service, to provide help for those firms that will be the biggest source of new job opportunities in the future.

The Bill builds on the platform of stability that the Government are creating by helping to develop an economy that is based on enterprise and knowledge. However, it also recognises that our country cannot have an enterprise economy without also developing a fair society. The one sustains the other. We cannot have a successful economy without a fair society, in which the talents of all our people are deployed to the full: nor can we have a fair society without a successful economy in which wealth creation provides the surest foundation for job creation.

The Bill takes forward measures to modernise and make fairer the whole tax system. Taxes are being cut for low and middle-income families. More than that: according to the independent Institute for Fiscal Studies, people in every decile group—from bottom to top—will gain from the measures. These are tax cuts for the many, not just for the few. The average household will be £380 a year better off, and the tax burden on the average family will fall to below 20 per cent. for the first time in more than 20 years. However, these are not just tax cuts. They are tax reforms, too. They are tax cuts for a purpose: to reward work, enterprise and families. In our previous two Budgets, we developed new measures to help people move from welfare to work. Now we are taking that fundamental reform a stage further by ensuring that work pays. For years, successive Governments have taken too much tax from those who work hard but are by no means wealthy. For years, successive Governments of both persuasions connived in the situation where the working poor, facing marginal tax rates sometimes in excess of 100 per cent., were penalised simply for trying to move off benefit.

The Finance Bill, with the Government's other measures, such as the minimum wage and the working families tax credit—both opposed by the Conservatives—begin to end the perverse incentives that encourage benefit dependency. Instead, it aims to encourage independence by allowing working families to keep more of their income rather than paying it out in taxes. We do so in the recognition that work is the best way out of poverty and that, for too many people, financial uncertainty has acted as a real barrier to work for far too long.

Clause 20 introduces the lowest starting rate of income tax the country has seen for 35 years. The new 10p rate on the first £1,500 of income will halve the tax rate for almost 2 million people, most of them low-paid. Our reforms to national insurance will lift almost 1 million people out of paying contributions at all. From next April, every basic rate and top-rate taxpayer will benefit from our 1 p reduction in income tax. On any count, those are major reforms to the tax system.

Mr. Bercow

Will the right hon. Gentleman give way?

Mr. Milburn

I have given way to the hon. Gentleman already; I am counting.

Our reforms will make working families better off and, in contrast to the practice of the Conservative party in power, the tax cuts honour our promises at the general election.

Mr. Malcolm Bruce (Gordon)

I assure the Chief Secretary that I am listening carefully to what he says and agree with his broad thrust. Does he accept that he could have done more to increase the personal allowance so that people at the bottom end pay tax at a lower level: not at 25 per cent. but at 50 per cent. of the average wage, as was the case at the end of the war? Why should people on the minimum wage still be paying tax not only now, but for the foreseeable future under this Government?

Mr. Milburn

I hear that from the Liberal Democrats consistently. We carefully compared their policy of increasing the allowances with our policy of introducing the 10p rate. In terms of benefit to the low-paid and the worst-off, there is no comparison at all. The biggest gains go to the lowest-paid as a consequence of the introduction of the 10p rate. The hon. Gentleman may argue about it, but that is the situation.

I say to the Conservative party that, by introducing the 10p rate, we have honoured the pledges that we gave at the general election. We said that we would not increase the top or basic rates of income tax. We have honoured that pledge. We said that we would not extend VAT to food, children's clothes, books, newspapers, and public transport fares. We have honoured that pledge, too. We said that we would cut VAT on fuel and we have done so. We also said that we would introduce the lop rate. We have now done that too, and millions of families will see the benefit in their pay packets from next month.

We said that we would do something else as well. We said that we would give more support to families. The record rises in child benefit are a reminder that it is Labour that increases support for families with children and the Conservative party that freezes it. It is Labour that will pay up to an extra £416 a year into the pay packets of families with children. The new children's tax credit in clause 27 provides most help to those who need it most, when they need it most: families when they are bringing up children. We have been able to do that by abolishing the married couples allowance and related allowances and focusing their help where it is most needed.

Our reforms to child support have been widely welcomed as a decisive step to tackling the disgrace of child poverty in Britain. I remind the House that the Child Poverty Action Group, for example, said the day after the Budget: The Chancellor has proved today that he supports the family and is genuine in his commitment to end child poverty". The National Council for One Parent Families said: This is a clear-thinking, modernising Budget which will help direct help where it is most needed: to families with children, especially those in poverty. In total, 700,000 children will be taken out of poverty by the measures that we are taking.

Almost the only organisation that opposes the new children's tax credit is the Conservative party, despite what the Leader of the Opposition said in his freedom and the family speech just last year. Then he said: If we were going to phase out the married couples allowance we should have replaced it at the same time with a new allowance, better targeted on families who really need the help. We have delivered precisely what the right hon. Gentleman was calling for, but of course that was then; that was a year ago. The Tories are now singing a different tune. Now they oppose the abolition of the married couples allowance, despite the fact that they repeatedly cut it when they were in office, more than halving its value for some people. They had a Chancellor of the Exchequer who described the allowance as an anomaly. They allowed the MCA to be available to people whether they were married or not, separated or not, or had children or not. It is as if collective amnesia has taken hold of the entire Conservative party.

I know that the former Chancellor Lord Lamont said that the Conservatives were a party in office, not in power, but they cannot wash their hands of all responsibility for what they did while they formed the Government of the day. That is precisely what they are trying to do now. Tory political amnesia is not confined to only one part of the Bill. The same symptoms of doing one thing in office and saying another out of it are evident in the Conservatives' approach to the fuel duty escalator. They huff and puff and complain about it now, but there was no huffing or complaining when they were in office, or when they introduced it. Indeed, the shadow Chief Secretary, the right hon. Member for Horsham (Mr. Maude), was a Treasury Minister at the very time.

Mrs. Ann Winterton (Congleton)


Mr. Milburn

I remind that right hon. Gentleman and other Conservative Members of the warning issued by the then Tory Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke), about the escalator—the hon. Member for Congleton (Mrs. Winterton) should listen to this. He said: Any critic of the Government's tax plans who claims also to support the international agreement to curb carbon dioxide emissions will be sailing dangerously near to hypocrisy."—[Official Report, 30 November 1993; Vol. 233. c. 939.]

Mrs. Winterton

The Chief Secretary obviously has a very short memory. When the Conservative party was in government, it introduced the tax to which he referred at 5 per cent. per annum. The Labour Government have put the tax up to 6 per cent. in each and every Budget, which is three Budgets in two years. They have done it at a time when dery is much cheaper on the continent than in the UK. That is why the road haulage industry is thinking of flagging out. The right hon. Gentleman ought to be consistent in what he says.

Mr. Milburn

If I were the hon. Lady, I would be extremely cautious. She should look at the figures. Since the general election, the fuel duty escalator that we have imposed on diesel has led to an increase of 7p per litre. The Conservatives increased the price of dery by 26p per litre. I also remind the hon. Lady of the other measures that the Government have taken to help Britain's haulage industry. We have frozen vehicle excise duty for 98 per cent. of lorries. We have doubled VED reductions for the cleanest lorries and we have widened the differential between cleaner diesel and ordinary derv. And, of course, the cuts in corporation tax will benefit haulage firms, just as they will benefit other firms.

Even at this stage, it is not too late for the hon. Lady and her party to say now what they said when the Conservatives were in office—that the escalator is a necessary environmental measure that will help Britain meet our international legal obligations and contribute to better air quality in our country. The Tories should be supporting the escalator duty now rather than opposing it, but their opposition to the Bill speaks more of them than it does of the Government. They failed in government, just as they are now failing in opposition. They failed to keep their promises then and they are failing to maintain their policies now. They say that they want to put their past mistakes behind them, but their opposition to the Bill shows that they have failed to learn any lessons from their defeat in May 1997. Isolated in Britain and determined to isolate Britain in Europe, they have put themselves on the margins of British politics. They are incapable of knowing what is good for Britain because they are so out of touch with the British people.

The Conservative party belongs to the past. By contrast, the Labour Government are delivering for the future. The Bill will help to build a stronger economic future for our country; it will help to create an enterprise economy and a fair society in which there is opportunity for the many and not merely for the few. The Bill provides the right incentives for people to work and for businesses to invest. It offers a better deal for British business and a better deal for the British people. I commend the Bill to the House.

4.11 pm
Mr. David Heathcoat-Amory (Wells)

I beg to move, To leave out from 'That' to the end of the Question, and to add instead thereof: this House declines to give a Second Reading to the Finance Bill because it imposes further hidden taxes on families, on homeowners, on motorists, on consumers and on business, adding extra costs to business at a time of economic uncertainty and rising unemployment and fails to reverse the damaging measures introduced by the last two Finance Acts which introduced similar damaging and hidden tax increases together with increases in the tax burden on companies and tax rises on savings and on pension funds.

There was nothing new in the Chief Secretary's speech, but there is something new in the Finance Bill this year. It begins, on its introductory page, with the Chancellor of the Exchequer's assertion that it is compatible with the European convention on human rights. It is just as well for the Government that the provisions of that convention do not include the right of the public to honest and straightforward accounts and descriptions of the amounts that they will be paying in the coming year. The whole Budget exercise—from Budget day to the Finance Bill—has been a story of half-truths, fiddled descriptions and cooked statistics. We heard some more of those in the Chief Secretary's speech today.

The story began in the Chancellor's speech on Budget day, but was heard in the Prime Minister's words the following day when he told the House that there was a net tax cut of £4.5 billion.—[Official Report, 10 March 1999; Vol. 327, c. 358.] That is a complete invention. If we try to piece the crime together from the Red Book, it seems that what the Prime Minister did, and what the Treasury is still trying to do, is to reclassify all the spending measures in the Budget table as tax reductions; they have reclassified all the spending measures as negative taxes. One can take an example more or less at random; there is a pledge of an extra £5 million a year for green transport plans. We might think that an extra £5 million a year is a pretty insulting amount to set beside the £1.7 billion that the Government are raising in this Budget alone from extra fuel duty. However, the point is that that extra expenditure on green taxation is classified not as an expenditure measure, but as a reduction in taxation. That is how the Government and the Prime Minister arrived at that £4.5 billion tax cut.

It was not only the Prime Minister; in the Budget debate of the following week, the Chief Secretary referred to a £4 billion tax reduction—he lost £0.5 billion somewhere during that week, which the Chancellor does not care much about. However, there is no possible way that the Budget and the Finance Bill can be construed as cutting taxes on anything like that scale. Indeed, the House of Commons Library has described it as, in total, a tax increase measure of £200 million over the next three years.

Mr. Barry Gardiner (Brent, North)

Will the right hon. Gentleman tell the House whether his party's policy is now to abandon the fuel escalator and so achieve the tax reductions he seeks?

Mr. Heathcoat-Amory

Yes, it is our policy to abandon the fuel escalator, and I shall talk about that later.

I am dwelling—perhaps to the embarrassment of Treasury Ministers—on the fact that they have fiddled the figures so as to try to dress up a tax-raising Budget as a tax-reducing Budget. They did so on a spectacular scale by classifying the working families tax credit not as an expenditure item, but as a reduction in taxation. I do not ask the House to accept my word for that: the Chief Secretary, in an answer to a question asked by my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb), confirmed that the WFTC is an expenditure item and should be classified as such.

The Chief Secretary has broken his own rules by permitting the Prime Minister and his colleagues to claim a tax reduction. If the right hon. Gentleman goes on like that, he will end up describing the extra cost of the war in Kosovo not as an expenditure item, but as a tax reduction. Does he have any idea how much damage he does to the cause of transparency and honesty in public accounting by abusing his own definitions in the way I have described?

Mr. Roger Casale (Wimbledon)

The right hon. Gentleman appears to be arguing that, if one looks in the Red Book and adds up the figures, one will conclude that a benefit is the same as a tax reduction. However, if he leaves the Red Book for a moment, visits my constituency and meets some of the young people who have passed through the gateway to the Government's new deal and who are now going into work, he will notice that there is a great difference between a benefit and a tax credit. A tax credit gives a person an incentive to return to work that a benefit does not give. The whole thrust of the Finance Bill is to give people an incentive to work and to reward work, and I hope that the right hon. Gentleman accepts that that is the reason why some of the changes have been made.

Mr. Heathcoat-Amory

I agree that there is a big difference between a benefit and a tax cut; our point is that the Government are deliberately confusing the two. It is not me but the Chief Secretary who calls the WFTC an expenditure item, but the right hon. Gentleman has not followed that through in the presentation of his figures, on the basis of which he claims that the Budget is a tax-cutting Budget. I strongly support the Bill presented to the House earlier this afternoon by my hon. Friend the Member for East Worthing and Shoreham (Mr. Loughton). It is designed to put some honesty and straightforwardness back into the presentation of the national accounts.

Jacqui Smith (Redditch)

In the spirit of transparency and honesty, will the right hon. Gentleman now explain which tax he would increase, or which section of expenditure he would reduce, so as to recover the £1.6 billion lost by getting rid of the fuel escalator, which is now Conservative party policy?

Mr. Heathcoat-Amory

If the hon. Lady will wait, I shall explain. One of the items that I intended to raise later was the Government's failure to reform the welfare state as they promised. The House will remember that the Prime Minister promised to fund the extra expenditure on health and education by reforming the welfare state, as the Conservative Government had been doing. In the last three years of our Administration, the Conservatives achieved a flat expenditure profile on social security expenditure: it went up in real terms by a total of 1.5 per cent. over those three years. That contrasts with the 3 per cent. annual real-terms increase to which we have now returned. If the Labour Government had continued the successful reforms that the Conservatives had implemented, there would be plenty of money available to use an alternative to the tax-raising measures that I criticise.

Mr. Bercow

Does my right hon. Friend recall that, writing in The Times of 11 March this year, the respected economic commentator Anatole Kaletsky dismissed the Government's claims for the Budget as "simply false"? Mr. Kaletsky went on to say: As shown unambiguously in the Government's own Budget Statement, taxes have risen in each of the past two years and will rise even more in the next financial year. That is surely clear beyond doubt—even to the Chief Secretary to the Treasury.

Mr. Heathcoat-Amory

My hon. Friend is entirely and absolutely correct. The Treasury Committee reached a similar conclusion. The Committee—which has a distinguished Labour Chairman, the hon. Member for North Durham (Mr. Radice), and a Labour majority—deliberated about the precise matter to which my hon. Friend referred, and concluded: The tax burden will increase during the coming financial year. The Committee echoed the evidence given by Andrew Dilnot, the director of the Institute for Fiscal Studies, who said: the aggregate tax burden is certainly rising. People want to know whether their tax burden will be higher next year than it was last year. The fact is that, according to independent commentators and a Committee of the House, the tax burden is increasing and will continue to increase next year.

Mr. Ian Bruce

When the Government came to power, they introduced a utilities tax—the so-called windfall tax—to retain the totals and make it appear as though taxes were not rising. More important, has my right hon. Friend noticed that, although the new deal—which has operated for a whole year for 18 to 24-year-olds—reduced youth unemployment in the Government's first year, it is now rising again? The Government have taxed the utilities, wasted the money and put more people out of work.

Mr. Heathcoat-Amory

My hon. Friend is correct. All the make-work and employment schemes in the world do not compensate for a job market that is going in the wrong direction. If one taxes businesses excessively, one will create fewer jobs. It is quite simple, and my hon. Friend is right to draw that fact to the attention of the House. The only people who do not understand are those sitting on the Government Benches. The truth has been revealed: this is a tax-raising Chancellor and a tax-raising Government, it was a tax-raising Budget, and we now have before us a tax-raising Finance Bill—and we will oppose them all.

One would not know all that if one were to rely on the propagandist leaflet published by the Treasury on Budget day. Some 1.5 million copies of the pamphlet, called "Budget 99", were printed and circulated. A post office in my constituency has refused to distribute the leaflet on the ground that that would be in breach of its contract with the Post Office not to deal in partisan and party political literature.

The postmaster in my constituency has spotted several curious omissions and misleading statements in that leaflet. For instance, it asserts that the 10p starting rate applies to the first £1,500 of income. That is flatly untrue—we did not discover that from the Chancellor on Budget day, but we have since read the Red Book and the small print. We now know that all those who rely on savings—and the Government are trying to encourage people to save—will continue to pay tax not at the new 10p rate but at the rate of 20p on that band of income.

The Government have compounded that injustice by failing completely in the Finance Bill to reverse the injustice already referred to whereby 300,000 non-taxpaying pensioners will not receive their dividend tax credits. That scandal remains uncorrected. The Government are compensating better-off savers and taxpayers for the withdrawal of dividend tax credits. However, those who, by definition, are the poorest savers—those who do not pay tax—will not receive from April this year any of the dividend tax credits.

The Chancellor and the Treasury leaflet also misdescribed the nature of the 10p tax band in another respect because they did not refer to the fact that, although the Government are introducing a 10p band, they are abolishing the 20p band. More than 4 million people will now be paying a higher marginal income tax rate of 23 per cent. instead of the previous rate of 20 per cent. In other words, they are being pushed upwards into the 23p band rather than downwards to the new 10p band.

Exactly the same habit of stealth is apparent in the treatment of the married couples allowance. We shall vote and argue to retain that allowance because it is important that the institution of marriage remains recognised in the tax system. Not only have the Government abolished that allowance, but the children's tax credit, which the Chief Secretary just described, will not replace it until a year later. For a full year between the abolition of the married couples allowance and the introduction of a new and unsatisfactory alternative, the Government have the use of nearly £2 billion.

I turn now to the savings fiasco. The Government came into office committed to a radical reform of the welfare state. They had great plans to reform and reduce expenditure on social security. As I have already explained in reply to an intervention, they failed to do that. Conservative Members understand that reform is a question not only of cutting social security benefits, but of getting people into employment, ending their reliance on benefits and helping them to rely on their own savings and pension provision. So what are the Government doing? They are enmeshing businesses and savings in a web of regulations and extra taxes.

That is well illustrated by the Government's spiteful abolition of the most successful vehicles of all time—tax-exempt special savings accounts and personal equity plans. They were established over many years and have a proven record of success. They have genuinely established a savings habit among the British people. I do not know whether the Government's action is due to a lack of business experience on the Treasury Front Bench or to stupidity, but they are abolishing those tried and tested savings vehicles and replacing them with a scheme that is wholly untested and not trusted. People do not trust the new individual savings accounts because the Government cannot be trusted on savings ever since they introduced their annual £5 billion raid on pension funds. No member of the public trusts the Government on pensions or savings.

Mr. Gardiner

Does the right hon. Gentleman accept that the take-up rate in ISAs suggests that the Government have maintained the public's trust and have, in particular, targeted the means to save at those on lower incomes, rather than those who, rightly, took up PEPs in the past, most of whom were on higher incomes?

Mr. Heathcoat-Amory

No, the hon. Gentleman is entirely wrong. I do not know whether he read The Sunday Times last weekend, but it reported that the take-up of ISAs is running at about 50 per cent. of the previous commitment to PEPs. In contrast to the Economic Secretary's complacent remarks at Question Time last week, the record on the take-up of, and savings through, ISAs is extremely disappointing. ISAs are less generous, more expensive and more complex than what they are replacing. The Prime Minister used to refer to an army of an extra 6 million savers that he was going to attract to this new savings product, but we do not hear any more about that from the Government; perhaps the Financial Secretary, who is to reply to the debate, can give us some updated figures. How many of those extra 6 million savers are applying to save through this new and untried savings vehicle?

Another awkward statistic for the Government, again from their own Red Book, is that the savings ratio has fallen from 11 per cent. in 1997 to 7 per cent. last year. The Government's effort to create a savings culture to replace a welfare culture has failed, and they have only themselves to blame.

Business taxation—

Ms Sally Keeble (Northampton, North)

Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory

I hope that the hon. Lady will forgive me, but I have been fairly generous in giving way. I must make progress because several of my hon. Friends wish to contribute to this important debate.

Exactly the same propaganda machine has been busy in respect of business taxes. The Government came into office saying that they wanted to be friendly to businesses. Well, they have been friendly to a number of business men, but the general taxpaying business community has experienced nothing but an increase in the regulatory and tax burden on their enterprises. There are pages and pages of extra regulations and a massive extra complexity in the tax system.

The Government do not understand that a complex tax system, with multiple rates and complicated allowances, is itself a form of overhead that has to be borne by the productive sector of the economy. The Government have taken a tax system that we were simplifying and lowering, and made it more complex and raised it. I ask the House not to take my word for it, but to listen to what outside commentators and trade bodies are saying.

The president of the Confederation of British Industry, Sir Clive Thompson, said on Budget day: over the next four years as a result of Budgets which we've seen in the last two years, we are going to face something like a £20 billion increase in business taxation". If the Government do not agree with that figure, perhaps they would like to say so now.

The problem does not lie only with the taxes inherited from the previous two budgets. The Association of British Chambers of Commerce, again in response to the Budget, said that its members faced an extra £3.2 billion increase in taxes over the next three years from the 1999 Budget alone. It concluded in a press release: business today is more heavily taxed, more heavily regulated than we were two years ago". These are the very firms on which the Government are relying to produce the extra jobs for their employment schemes, a point made in an intervention by my hon. Friend the Member for South Dorset (Mr. Bruce).

Unemployment in my constituency is going up because firms are simply not able to take on extra unemployed people because of the extra regulations and taxes heaped on them in one Budget after another. The Prime Minister goes to Milan and lectures other European Union leaders on the need to follow the United States model of low regulation and low taxes, yet in the Finance Bill he is converging not on that model but on the European Union model of more regulations and higher taxes. A very good example is what the Chancellor is doing with stamp duty, which is going up again. Contrary to what the Chancellor implied in his Budget speech, three quarters of the revenue is paid by businesses, not by individuals. Again, he is heaping extra burdens on the very sector of the economy that he hopes will provide extra employment.

The leaflet to which I have already referred is entirely silent on stamp duty, even though stamp duty raises more than three times as much as something that the leaflet does describe—a new research and development tax credit. That is proudly stated in that propagandist leaflet which has supposedly gone to 1.5 million households, even though it is not in the Finance Bill and will not come into effect until 2001. That is what the taxpayer is paying for—propaganda issued by the Treasury, which talks about measures not in the Finance Bill and covers up tax-raising measures that are in it.

I have dwelt at length on the fiddled figures. I shall end by mentioning indirect taxes. We shall debate the subject at greater length tomorrow, which is an Opposition day, but let me simply say that it is now beyond doubt that the Government are engaging in a deliberate and systematic raising of fuel duties, which not only does great damage to the rural motorist and those who have to use car transport, but is making an entire British industry uncompetitive in European terms.

Not only have the Government increased the escalator: they have had an extra Budget. Moreover, they have targeted the increases on the fuel of industry—diesel. They have made it nearly twice as expensive as it is for most of our competitors on the continent. Diesel duty is now exactly twice the European Union average.

All that is done under the guise of helping the environment. Will the Government explain how it helps the environment to have fuel smuggled across the border into Northern Ireland? How does it help the environment to have British lorries going to the continent to fill up

with cheap fuel? How does it help the environment to have foreign lorries coming into the country, using cheap fuel and taking jobs from British haulage companies? People in the haulage industry want an answer of the Government—how will putting them out of work help the environment?

I confirm that we, the Conservatives, now commit ourselves to ending the escalator and ending this fiasco of fuel duties.

Mr. Christopher Leslie (Shipley)


Mr. Heathcoat-Amory

I shall not give way. I am ending my remarks now. I hope that the hon. Gentleman will catch your eye, Mr. Deputy Speaker, if he has something original to say—which would be very unusual.

I wish to end on the following point. The fuel duties—

Jacqui Smith

Will the right hon. Gentleman give way?

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

Order. The right hon. Gentleman has indicated that he is not going to give way.

Jacqui Smith

He promised me.

Mr. Deputy Speaker

Order. I do not care what he promised the hon. Lady.

Mr. Heathcoat-Amory

I ask the hon. Members for Redditch (Jacqui Smith) and for Shipley (Mr. Leslie) to forgive me. I usually give way generously, but I am aware that time is moving on.

What the Government are doing on fuel duties is symptomatic of their approach to taxation. Before the Budget, the Prime Minister said that he had no plans to increase taxation at all". The Government have broken that promise repeatedly and deliberately and, by a mixture of stealth taxes, cooked statistics and sheer ignorance, they are putting at risk the golden economic legacy that we left them. Conservative Members will expose and oppose them. I ask all my right hon. and hon. Friends to join in that endeavour.

4.38 pm
Mr. Giles Radice (North Durham)

I welcome this Finance Bill, which enacts an excellent Budget that has provided help for most families and for business, and also useful tax cuts and public spending increases, all within a highly prudent fiscal framework.

The Opposition have quoted what various people think about the Budget. It might be worth quoting Mr. Samuel Brittan in the Financial Times. He says: Mr. Brown has removed two obsolete and harmful reliefs—that for mortgage interest and the so-called married couples allowance. He has improved the national insurance progression to increase incentives and lower the poverty tax. He has also undertaken desirable measures of redistribution towards families with children, where much of today's poverty tends to be found, and to provide top-up benefits for those who prefer to work for modest pay rather than try to claim the dole. He has moreover made a good start on his declared aim of integrating tax and social security into what might eventually be called a negative income tax. That is the opinion of someone who is not a member of the Labour party. That is Samuel Brittan speaking about the Budget. We did not hear much of that from the right hon. Member for Wells (Mr. Heathcoat-Amory), the Opposition spokesman.

It is an excellent procedural device that the report of the Select Committee on the Treasury is discussed with the Second Reading of the Finance Bill. It is right that it should be, because we examine the economic background to the Budget and some of the issues that arise from it. I want to refer to both approaches. First, I think that the report reflects the fact that on our Select Committee there is broad support for the Government's economic and fiscal strategy. I shall quote from one of our expert witnesses, Mr. Gavyn Davies, who described quite well the dilemma facing the Government when they took office. He said: When the present Government took office two years ago, the economy was in the midst of an intense consumer led boom, and the key issue for the new Chancellor was whether he could control this boom without inducing a hard landing, with sharp increases in unemployment. Past history was not encouraging in this regard—without exception, all previous consumer booms of this type in the post-war period had been followed by a period of negative growth in real GDP, usually accompanied by new peaks in unemployment. When we think about post-war history, there was the Maudling dash for growth, the Barber boom, the Lawson boom and the Clarke boomlet. I was a supporter of the right hon. and learned Member for Rushcliffe (Mr. Clarke), who I thought was an excellent Chancellor, but at the end of his period in office he allowed the economy to get slightly out of control. I accept that the Labour party has shared in some of that history. I can remember standing unsuccessfully for election to this place in 1964 on the promise that we would manage to increase growth.

Basically, we now know that the aim of fiscal policy is to provide stability on the ground that, if we can secure that stability, growth will to some extent look after itself. I think that that is a sensible economic policy. It is one that has the support, by and large, of the Treasury Committee irrespective of party. If we study the figures, it seems that the Treasury forecast of 1 to 1.5 per cent. growth in 1999—that is predicting a soft landing rather than a hard one—is now quite a possibility, in a way that we would not have thought six months ago, for example. It seems that we shall have a successful slowdown without recession.

Of course, there are potential problems.

Mr. Tyrie

Will the hon. Gentleman give way? Mr. Radice: I shall finish this part of my speech.

There is the international economic situation, the United States and the level of the pound and what that might do for the British economy. We conclude in our report that the Treasury forecasts are not unrealistic.

Mr. Tyrie

The hon. Gentleman has partly covered the point that I wanted to make. However, does he not think that, if there is to be a soft landing, that will have far more to do with the fact that there has been a global slowdown—I think particularly of the collapse in Russia and the attendant effects that that has had throughout the rest of the global economy—than with any change in economic policy by the Bank of England or in fiscal policy?

Mr. Radice

I understand what the hon. Gentleman is saying. However, the Russian experience might have produced a hard landing or a recession rather than a soft landing. I think that the pick-up in consumer confidence that we are now seeing and the impact that that is beginning to have on output give us some hope at least that growth will be resumed. That is extremely good news. We did not hear anything of that from those on the Opposition Front Bench.

Two possible suggestions for this change were put to us on the Select Committee. There was, in a sense, an unholy alliance between Patrick Minford and Gavyn Davies, who both said that beneficial structural changes in the labour market had made it possible for the economy to be run at an unemployment rate substantially below that which had previously been consistent with stable inflation. If that is so, it is good news for the economy, as it means that the equilibrium or sustainable level of unemployment will be much lower than we previously thought. That background has enabled the Bank of England to implement the 225 basis points cut, which has helped the economy.

The second suggestion—here I come to the Chancellor and the Government's policy—is that so far the co-ordination in macro-policy between fiscal and monetary measures has been effective. We comment on that in our report, and it receives support from all quarters of our Committee.

A year ago, there was criticism of the Chancellor for failing to tighten fiscal policy sufficiently. However, it is now clear that, because of the tight control over public spending, and also because of tax increases, there has been a 3 per cent. tightening of gross domestic product since 1997. That is fairly substantial, and it is the Goldman Sachs definition, which is not challenged nowadays.

There is no doubt that, in the present Budget, despite some marginal fiscal stimulus, that tightening has continued. That has enabled the Monetary Policy Committee to cut faster and further than it otherwise would have been able to do. That vindicates the Chancellor's decision to give operational independence to the MPC to run interest rates. It has also shown that it is possible at the same time to co-ordinate monetary policy with fiscal policy. The Chancellor has tightened, and that has enabled the Bank to reduce interest rates. So far, that has worked successfully to produce not the recession that people feared six months ago, but, hopefully, a soft landing.

We comment on those matters, but we also examine some of the controversial issues about which we have been hearing this afternoon. What is the fiscal stance, and what about the tax burden? Of course, truth is many sided. We heard one aspect of the truth from the right hon. Member for Wells.

Let us consider the fiscal stimulus. The Chancellor says that his measures will produce a £6 billion fiscal stimulus over three years. That is true, but overall the Budget will be neutral or slightly tightened. If one considers the Budget in isolation, there will indeed be a £6 billion stimulus, but that does not reverse the fiscal tightening previously announced.

The Budget is basically neutral, as the MPC said in its inflation report. When the Treasury representative reported to the MPC about the Budget, the MPC stated that the overall position was reported to remain stable, which has allowed a further 1.25 per cent. interest rate cut since the Budget. The Budget is not unrealistic or irresponsible. It allows further cuts, which is good news for the economy.

Mr. Bercow

Given the inextricable link that exists between monetary policy and fiscal policy—a link that the hon. Gentleman highlighted—does he accept as a matter of plain logic that the arrogation of powers to the European central bank to run monetary policy will in due course inevitably have to be followed by a similar arrogation of powers to the central bank to run fiscal policy as well?

Mr. Radice

That is a debate for another day. As the hon. Gentleman knows, I shall be pleased to take part in it, but I will not be tempted down that path this afternoon.

I shall now deal with the tax burden issue. Mr. Andrew Dilnot, of the Institute for Fiscal Studies, told the Select Committee that it is possible for anybody to … say, 'The changes announced in this budget will cut the tax burden' … while it is also a true statement to say that, as a result of all the budgets of this Parliament, taxes will be going up in April. Our conclusion, with which neither of the two Front Benches may entirely agree, was that, both on the basis of including rebates and scoring them as expenditure and on the basis of excluding rebates scored in that way, taxes are cut in this Budget. There is no doubt about that: I have done the sums, and looked at the proposition in all possible ways.

On the other hand, if we also take account of increases—mainly in company taxation—that were announced in previous Budgets and will come into effect, we see that the tax burden will increase. I do not think that that is anything to be ashamed of, however, because there has been a reduction in tax on people, and some increase in tax on companies, during the period concerned. That is a sensible policy: it has allowed tax rates to be reduced, and has allowed us to control the Government's fiscal policies.

Mr. Ian Bruce

Surely, at the beginning of a tax year, people want to know whether they will pay more tax than they did in the previous year, rather than when the Government announced that they would pay the increased taxes.

Mr. Radice

As a result of this Budget, most individuals will pay lower taxes. The Institute for Fiscal Studies has said that. It is not just coming out of my head; it is what we were told when we took evidence. That is the point of Select Committees: experts come and tell them things.

Mr. Heathcoat-Amory

I hesitate to intervene, but I must correct what the hon. Gentleman has said about the evidence from the Institute for Fiscal Studies. Mr. Dilnot specifically said that, although it appears that families are better off, the taxes raised by increases in corporation tax and the removal of tax credits are, in effect, eventually borne by individuals. He said that we can be certain it is people who will pay them. The distinction between company taxation and the taxation of individuals is, to that extent, rather artificial.

Hon. Members

What is the reference?

Mr. Heathcoat-Amory


Mr. Deputy Speaker (Sir Alan Haselhurst)

Order. We cannot have sedentary exchanges. The hon. Member for North Durham (Mr. Radice) gave way to an intervention; he must now deal with it.

Mr. Radice

The right hon. Member for Wells quoted from our report without giving us any reference.

Mr. Heathcoat-Amory

I quoted from Mr. Dilnot's response to a Conservative questioner. On page 4 of the minutes of evidence, he says that it is rather artificial to suppose that company taxes are borne by companies. He makes the point—a point that is familiar to tax specialists—that all taxes are eventually borne by the public and by individuals.

Mr. Radice

That is a possibility, but it does not apply in the short term, and it may not even apply in the medium term.

Mr. Bercow


Sir Michael Spicer (West Worcestershire)


Mr. Radice

No, I will not give way for the moment. I want to make some progress.

Sir Michael Spicer


Mr. Radice

Oh, all right.

Sir Michael Spicer

The hon. Gentleman is giving a fair interpretation, certainly of what the Select Committee has said and of what the facts are, but why are his own Front Benchers so coy about the net effect of all these taxes in respect of the percentage of gross domestic product if the position is exactly as he describes?

Mr. Radice

My Front Benchers have been making the point that this Budget reduces taxes. That point has been denied by Opposition Front Benchers.

Sir Michael Spicer

The Chancellor, in evidence, refused to accept the precise point that I am now raising. He constantly refused to accept that taxes were going up over a period in respect of the percentage of GDP, even if the various Budgets were compounded. Why does the Chancellor think, in his own mind, that that is the case?

Mr. Radice

The Chancellor must answer for himself. I am saying that the Government have been trying to make it clear this afternoon that taxes will decline as a result of this Budget; they will be lower than they otherwise would have been. I am not sure that that point is accepted by Conservative Front Benchers, but they must consider that fact—it is the real issue.

The tax burden depends on which definition people accept. We have looked at different ways of calculating the tax burden as a percentage of GDP. The excellent table 2, which is on page xi of the Treasury Committee report, shows that, in all three aspects, there is a reduction in the tax burden related to GDP as a result of this Budget. It goes up in latter years. It is only fair to say that, in respect of the national accounts definition of the tax burden, receipts rise year by year—including this year.

Jacqui Smith

When considering the tax burden, would it also be fair to say that figures in the 1999 Red Book are lower than those in last year's Red Book and lower than those in the last Conservative Budget?

Mr. Radice

Both those points are correct and, in the light of our report, it is quite absurd to accuse the Government of fiddling the figures. That is a stupid charge to make against them. It is also absurd to talk about smoke and minors—everything is in the Red Book, if hon. Members trouble to read it.

I accept that, in some instances, the Red Book is not as clear as it might be and takes some reading. Therefore, our report contains some presentational suggestions, which I hope the Treasury will look at. [Interruption.] The right hon. Member for Fylde (Mr. Jack) smiles, but some of those suggestions would have been applicable when he was in government. Our experience over a number of years prompted me, as Chairman of the Committee, to draft those suggestions. They were accepted by the Committee.

Mr. Jack

I smiled because I have read those three paragraphs in the conclusion. I was quite amused by the fact that it took this Budget to provoke the hon. Gentleman and his Committee to administer a real rap across the knuckles to the Treasury for having gone so far in making it so difficult to find out some of the detail.

Mr. Radice

It was very much the same when the right hon. Gentleman's party was in power, so he cannot come up with that kind of line. He knows that perfectly well.

There is no table setting out the basis on which the Budget changes are estimated. They are difficult to work out—one has to be a considerable scholar to do so—and they are not easily accessible. The figure in question is the £18 billion from which the Government were able to derive tax cuts and increase spending.

As our report says: We … asked for a note on how the figure could be derived. This note explains that the £18 billion figure is reached by subtracting from the expenditure changes listed in table B13 the figures in lines 3, 6, 15, 16 and 19 to 27 of table 1.11, which are the budget measures affecting spending as distinct from taxation. I can see that, but it is rather a difficult way for the ordinary individual to work out what is happening. We suggest that, next time, the Government give a clearer table so that we can understand the figures better.

Mr. Jim Cousins (Newcastle upon Tyne, Central)

I am grateful to my hon. Friend for giving way, because he has given me the opportunity to be a total Government loyalist.

Mr. Radice

A sycophant to the end.

Mr. Cousins


Does my hon. Friend accept the fact that one does not have to explore the highways and byways of accounting conventions to understand that for workers earning half to three quarters of the average income—those are the workers about whom we, as Members of Parliament from the north-east of England, are concerned—the Budget represents a substantial reduction in net direct income tax and net national insurance contributions, as well as, for those who have children, a considerable, almost staggering, increase in support through family credit and working families tax credit?

Mr. Radice

I accept that. Indeed, I started my speech by making some very favourable remarks about the Budget, and I quoted Samuel Brittan, who also made favourable remarks.

I shall finish by offering the Government some more of the Select Committee's suggestions. We would like the tables illustrating the financial effects of successive Budgets to show them not only separately, but combined. That would make it easier to see what was going on.

We would also like to be able to divide taxation and those benefits that are scored as expenditure. Again, that would make it easier to work out what was going on. There should also be a table in the Red Book on distribution, so that we could see the good things that the Budget has done. We should not have to rely on parliamentary questions.

I am in favour of the Budget leaflet suggested by the Chancellor, and I think that it should be delivered to every household—but there should be an independent element. The National Audit Office, for example, or the Institute for Fiscal Studies could look at it so that there could be an agreed view. As I have been trying to show, truth is many sided, but, if such an exercise in providing broad public information is to be undertaken, it is important that it should not be seen as a Government propaganda exercise. In the long term, that could undermine its value. A Government who have made as many innovations in open government as the present Administration should have no difficulty in responding to what I believe are our constructive and helpful suggestions.

The Treasury Committee does not exist to be the Chancellor's cheer leader. If we have suggestions or criticisms, we shall make them. However, we do not exist to provide opposition, either—although, having heard the Opposition spokesman today, I realise why proper opposition is needed.

We have made it clear that we support the Government's overall economic strategy, because we think it highly sensible. We did not hear a word about that from the Opposition. The real role of the Treasury Committee is to ensure that people who come before us, including the Chancellor—and, indeed, my right hon. Friend the Chief Secretary to the Treasury, to whose appearance before us we very much look forward, and my hon. Friend the Paymaster General—are accountable. That is what the Committee is there for. That is why we ask them questions.

We want to be able to elucidate the issues and problems, try to explain them, make what we hope are helpful and constructive proposals and suggestions, and then report them to the House and to the Government. That is what we have been trying to do with the Budget.

5.5 pm

Mr. Malcolm Bruce (Gordon)

It is a pleasure to follow the hon. Member for North Durham (Mr. Radice). The Treasury Committee produced an excellent report. It will be interesting to see the Government's reply to the Committee's specific recommendations. I hope that they will reply not only to the letter, but to the spirit of the report. They may say, "Yes, we might deal with the problems raised," and then find other ways of obscuring the presentation. If we are to have intelligent debate in the House and across the country to inform people, we need a more genuine statement of what Budgets are doing and what the Government intend them to do, and some independent assessment of what is happening.

The Select Committee did not mention the fact that a parliamentary answer on the impact of the Budget on the taxation of the average family is no longer provided. That was the practice for 22 years and was discontinued by the Chancellor after his first Budget. That makes it much more difficult to compare the impact of past, present and future Budgets. No doubt that was the reason for the change. There is, therefore, some justification for the suspicion that the Government do not want, contrary to the spirit of the report, to present an open and clear picture that can be assessed properly and provides a comparison with the past. The Select Committee has done a good job, and is pointing in the direction in which we should go.

Mr. Jack

I sympathise with the hon. Gentleman's point about the parliamentary answer, which has traditionally been the practice since 1981, when the now Secretary of State for the Home Department, the right hon. Member for Blackburn (Mr. Straw), first tabled such a question. I agree with the hon. Gentleman that the Government have seemed reluctant to tell the truth about the impact on different households of their tax proposals. Is the hon. Gentleman aware that, in their latest attempt to answer such parliamentary questions, the Government are praying in aid the difficulties of measuring the impact of indirect taxes—hence the fact that they will not come clean on that aspect?

Mr. Bruce

I am grateful for that intervention, not least because it leads me to the increasing complexity of the tax system that the Chancellor has introduced. Before I refer to that, I shall briefly give the overall economic background to the Finance Bill.

I welcome the fact that we hope to secure a soft landing across the economy. Overall, we will not sink into negative growth and we may start to see a recovery. That is to be welcomed: it is what we hoped the strategy would achieve. Our concern was that the Government took risks early on that may have heightened the risk of moving into recession. The Chancellor's first Budget did not tackle the apparent consumer boom through fiscal policy, so the Monetary Policy Committee of the Bank of England was left with no option but to increase interest rates sharply. That caused borrowers considerable difficulties, and it still remains a serious problem for our divided economy. If the overall situation is looking reasonably encouraging, the situation for manufacturers and exporters is getting worse. We are now predicting a dip into recession.

On today's exchange rates, the pound has almost hit the DM3 level. We have a strong pound and interest rates running at almost double the European rate. All the indications are that that gap is not only likely to be retained in the short to medium term, but could even widen in the not-too-distant future. If recovery starts to show itself strongly in the United Kingdom against a background of fairly flat growth in the European economy, by the middle of the year the Monetary Policy Committee may be putting up interest rates when the European Central Bank is continuing to reduce them. That will inevitably increase the upward pressure on the pound. It remains a concern for us that the Government do not seem to have a strategy for dealing with that problem. We are not suggesting that it is easy for the Government to find a solution.

Ministers are keen to boast about the economic position, with some justification. We predicted that long-term interest rates would come down sharply if the Bank of England was made independent. That was part of our election strategy, and because the Government adopted that policy that is exactly what has happened. The Government, perfectly reasonably I suppose, are claiming the credit.

That being the case, should we not produce policies to encourage more long-term borrowing that can import those lower, long-term interest rates to the short term. [Interruption.] That is a serious point, although the hon. Member for Shipley (Mr. Leslie) is laughing at it. He should recognise that it would be a help in narrowing the interest rate divide between the UK and Europe and taking some of the pressure off the pound.

It is a matter of some regret to us that the Government have not sought to introduce in the Finance Bill some strategy and incentive to make that switch. One hopes, even without incentives from the Government, that institutions, and possibly individuals, will move towards more long-term borrowing. The problem with that—and it must be addressed by the Treasury—is that most individuals are at the mercy of what the financial institutions are prepared to offer. Many of them are not prepared to offer long-term fixed interest rates that give the full benefit of those long-term interest rates. The Treasury could have done more to make that more likely to happen.

We hope that the economy will show an ability to recover, although we expect more job losses and more closures in the manufacturing sector, if the situation continues—as seems likely. Although our reasoned amendment has not been selected and I do not wish to trespass beyond the rules of order, the House will understand that it summarises our main concerns about the Bill and why we will vote against it. One of our concerns is that the Chancellor has made the tax system much more complicated than necessary. It is worth recording that Nigel Lawson, who was a reforming Chancellor, reduced the number of personal taxes to four. When the right hon. and learned Member for Rushcliffe (Mr. Clarke) was Chancellor, he raised that to eight. Under the present Chancellor, the number has peaked at 54, including the capital gains tax, which forms a significant part of it.

I notice that the Chancellor, in an exchange in the Select Committee on the Treasury with my hon. Friend the Member for Twickenham (Dr. Cable), suggested that the capital gains taper was a virtue that we should support. However, we do not regard that reform as progressive. It hits small businesses especially, for which capital gains is an integral part of their business, and allows a small number of very fat cats to get away with massive tax breaks—something that one would not have expected of a Labour Chancellor. It is regrettable that he has pursued it. The Chancellor has made the system much more complicated. It is a wonderful Budget for tax accountants; it is not a good Budget for small businesses and individuals trying to cope with self-assessment and calculating their tax liability.

The debate about the tax burden has become like the mediaeval argument about the number of angels dancing on the head of a pin. It has been generally accepted that the tax burden went up under the Tories by a marginal amount and is probably going up by a modest amount under the present Government. Perhaps it would be much better for the debate if everybody accepted that and started to talk about the merits of the particular taxes and what burden might be acceptable in relation to what we want to do with the economy and with the resources that are generated.

Mr. Tyrie

In countries where the tax burden has risen very fast—for example, in continental Europe—growth performance has been most desultory. In countries where the tax burden has been kept down, long-term economic growth has been outstanding. The United States is the best example and, as I mentioned in an earlier intervention, the United Kingdom is another example. Growth performance has been remarkable, and part of the reason is that the tax burden has been kept down.

Mr. Bruce

It is not worth allowing the hon. Gentleman to intervene for such a predictable comment. It is not as simple as that. I do not suggest that the level of the tax burden does not matter or is not a legitimate matter for debate. It is, and we have taken part in that debate. We have a relatively low tax burden, but we also have seriously underfunded public services. There is a genuine debate about where the balance should rightly be struck. Although France and Germany are currently experiencing difficulties—we should be concerned about that, because they are our trading partners—over 30 and 40 years they have sustained higher long-term growth and a higher tax burden. It may not be unconnected to note that they used the yield on their economies to invest in quality public services, which are substantially superior to our own.

I am not prejudging what is a matter for legitimate debate. However, it would be helpful if we could agree about the basic situation without spending too much time on academic theorising as to the niceties of exact definition—a direction in which I fear that the argument has strayed.

We regret the Budget's impact on the tax system's complexity, and we have articulated our concerns about the 10p tax rate. We do not dissent from the basic argument that that tax, and the overall tax changes related to national insurance, will help to reduce the tax burden on people on lower incomes. Our argument is about whether that is the most efficient way to help those people and whether more could be achieved through a better targeted and more accurately costed proposal, such as the one that we have made. These are legitimate points for debate and genuine discussion.

Our Budget proposals involve an element that the Government do not appear to be prepared to acknowledge—the 50 per cent. tax rate on earnings above £100,000 a year. Given the other allowances that the Government have abolished, that 50p rate could have been used to raise the personal allowance to £5,600. The result would be that 2.5 million people could be taken out of taxation altogether, and the take-home pay of full-time workers on low wages would be boosted significantly.

We think that Labour Members should regard that as desirable, and we ask them to accept that there is a genuine difference between our parties on how the reforms should be targeted to benefit the groups of people that we all want to help. Our proposal is more radical and far-reaching than anything in the Bill.

Although the Chief Secretary seemed deliberately to fail to grasp the implication of my earlier intervention, perhaps Labour Members will be able to connect with my argument if I couch it in terms of the minimum wage. If it is considered that a minimum wage is necessary and that people are not to be expected to work for less, is it not reasonable to aspire to put that wage out of the tax bracket altogether? It is ridiculous that people in full-time work earning the minimum wage should pay tax and also qualify for housing benefit and other benefits.

The sooner the minimum wage is taken out of the tax bracket, the better. In his Budget speech, the Chancellor of the Exchequer said that that was an aspiration, but we consider that he is going more slowly than he needs to with that reform.

The Financial Secretary to the Treasury (Mrs. Barbara Roche)

Will the hon. Gentleman explain how what he has said is compatible with his party's opposition in Committee to the national minimum wage? Liberal Democrat Members at that time argued for a regional minimum wage.

Mr. Bruce

It is perfectly compatible. We share with the Government a recognition of the need to tackle the problem of low wages, but our approach in the Committee considering what became the National Minimum Wage Act 1998 was different. The Government wanted a national minimum wage, but we considered that significant regional variations could and should have been taken into account. Interestingly, many of us took the view that the old wages councils dealt with that problem, as they were able to take account of different industries and different regional factors.

We are worried that the national minimum wage is too blunt an instrument, but we agree with the Government that there is a need to reduce the tax burden on people on low incomes, and that very low incomes should be boosted to more acceptable levels. We believe that the aspiration should be to put people on the national minimum wage outside the tax bracket altogether. That is what the Chancellor says he is aiming for, but, unless he finds a more radical approach, he will take two or three Parliaments to achieve it. If he is looking for a radical approach, he should talk to us: we are still a radical party, not frightened to propose radical policies.

The introduction of the 10p tax rate seems to have trapped the Chancellor in another of the anomalies that arise whenever changes to the tax system are introduced. We now have the absurd situation where people who earn a lowish wage will benefit from the reduction from 20p to 10p on £1,500 of their income. The 10p tax rate is a worthwhile reduction that justifies the claims being made. However, if that same income is derived from the savings of, for example, a pensioner with a small nest egg, it qualifies for a 23 per cent. tax rate. The Chancellor does not accept that, for people on low incomes, it makes no difference whether income is obtained by people of working age going out to earn it or by people who have made some provision for a retirement nest egg and depend on it but do not get the same benefit. The cost to the Treasury of extending the 10p rate to savings for the first £1,500 would be about £85 million. When I asked the Chancellor about that at Treasury questions, I was surprised that he was so contemptuous of the argument. He accused me of being irresponsible with Exchequer funds. Chancellors lose billions easily, so it is reasonable to ask the Treasury to consider £85 million for a reform with a particular purpose.

There are two reasons why Treasury Ministers should consider my proposal. First, last year's Budget abolished the tax refund to non-taxpaying dividend holders or recipients. The then Paymaster General told my hon. Friend the Member for Twickenham (Dr. Cable) and an all-party delegation that he intended to seek a solution. His promise disappeared with his demise. The problem with Ministers is that they do not pass on their promises to their successors. People are still angry about what the Government did and promised to put right. My proposal would provide some recognition that the Government understand that pensioners with small savings deserve consideration.

Secondly, financial institutions say that it is difficult to pass on the full benefit of the latest interest rate cut to borrowers because of their concern about the lower rate for savers. Many of them have not passed it on. If the Government were to introduce this tax change, it would benefit savers by ensuring that they did not pay tax on such earnings and make it easier for financial institutions to pass on the benefit of lower interest rates to borrowers. It would help both parties. It is a small change of real benefit to many people.

Mr. Gardiner

I am grateful to the hon. Gentleman for the unpartisan way in which he makes his remarks. He mentioned the fiscal regime and how it meshes with monetary policy. He alluded to a key plank of the Government's fiscal policy, the abolition of advance corporation tax and the fiscal tightening, which his party called for after the general election, of £5.3 billion. However, his party rejected that fiscal tightening. The new deal money from the windfall tax was rejected by his party. He must explain how he would produce the effects of such a fiscal tightening.

Mr. Bruce

The hon. Gentleman got confused between the windfall tax and the ACT changes. They add up to £10 billion, which is a substantial tax change. We said clearly that a fiscal tightening was needed, but it should have been targeted to take the heat out of inflationary pressure by aiming not at businesses but consumers. The Chancellor chose not to do that. I do not intend to unravel what might have been done two years ago, because the opportunity has been lost. However, he will know, as the House will know, that the Liberal Democrats consistently produce a fully costed manifesto and annual alternative Budgets that explain exactly what different measures we would introduce and where we would derive the income from. We have been complimented on them by external bodies. The Institute for Fiscal Studies said at the election that they were a reasonable presentation of our priorities and how they would be paid for. We are proud of that, and we intend to continue that process.

Our motion contains a reference to the duty on sparkling cider, which we voted against after the Budget statement. The sparkling cider industry is small. It involves relatively small numbers of people, but it is a long-established home industry in the west country of England. It is now subjected to a 400 per cent. tax increase in a single year. It seems to us unreasonable that small businesses should be expected to absorb such an increase as a result of some irrelevant complaints about Italian wine manufacturers. How on earth anyone could presume that people cannot tell the difference between Lambrusco and Somerset cider, I really do not know. It is absurd that we should force people out of business. The cider manufacturers are in no doubt that the consequence of the tax change will be an end to the industry. Their businesses will cease, the income will be lost and people will be put out of work. It is an unjustified change.

A more important measure in the Budget was the change in the fuel tax, which has already been mentioned in today's debate. The Liberal Democrats accept the basic principle of green taxation, or using taxation to encourage environmentally beneficial behaviour. However, certain conditions need to be attached to such taxation. It should not be used as a back-door way of increasing revenue. It should be used specifically to achieve behavioural changes. The revenue should be used clearly to offset taxes in other areas.

The Government have simply banged up the tax on petrol and diesel, with no corresponding offset apart from a minor one for small cars, and have put the revenue straight into the general exchequer. There is very little difference between that and the Conservatives' putting 5 per cent. on domestic fuel and, after the row, claiming that it was an environmental tax and introducing a whole load of benefits for those affected. They had to give half the revenue back to try to allay the outrage that was engendered. The Labour Government will not be able to continue the policy unless they think it through much more carefully.

The Liberal Democrats' proposal on petrol was to abolish vehicle excise duty on fuel-efficient cars below 1600 cc. That would have given people the clear message, "If you do not want to pay the extra tax on petrol, switch to a smaller car and you will not pay vehicle excise duty." People would have known that, if they drove a gas-guzzler, they would pay, but, if they drove a fuel-efficient car, they would get money back. They would know what to do and make their behavioural switch.

Many haulage contractors have no such viable alternative, partly because the Government have not thought through what alternatives people are supposed to use. I should be interested to hear the Government's answer to those in the industry who say that switching to low-emission, fuel-efficient trucks and benefiting from the lower vehicle excise duty will not offset the cost of the escalator. I am assured by haulage contractors in my constituency that, even if the Government paid the entire cost of converting vehicles and abolished vehicle excise duty, the contractors would still be in an uncompetitive situation.

In anticipation of the Minister's reply about corporation tax rates and the whole package, I tell him that most haulage companies say that, to pay tax, a company first has to make a profit. Two major haulage companies in my constituency have gone into liquidation in the past three months and most others say that they are shedding labour by between 20 and 50 per cent. I have heard from other companies that they will relocate part of their business nearer their markets in the south of England. Ministers should be aware that the manager of one company in my constituency pointed from his office window to a yard where there were 30 articulated vehicles and told me that no duty had been paid to the Exchequer of the United Kingdom for any of those trucks in rural Aberdeenshire, because all of them contained diesel that had been bought in continental Europe. He also told me that, as he had good contacts elsewhere, he could cut his duty costs by a further 20 per cent. simply by contracting Irish haulage companies. However, he was not prepared to do that because he wanted to support his local contractors. Those are real problems, facing real companies, and the Government must acknowledge that they need to think those matters through more than they have done so far.

Mr. Ian Bruce

I am a little wary because I see that the Ministers sitting on the Treasury Bench are taking notes of the Liberal Democrat suggestions. Does the hon. Gentleman remember that, before the Conservative Government introduced VAT on domestic fuel, a Liberal Democrat policy document called for a carbon tax on domestic fuel? Indeed, the Liberal Democrat candidate who fought me at the general election said that the very minimum that should be done was to put VAT on domestic fuel. Surely, if the Government were to follow that policy, they would be criticised for doing what the Liberal Democrats had suggested.

Mr. Malcolm Bruce

It has often been said that Liberal Democrats provide policy initiatives for the Tories. Perhaps that was one that the Tories should not have taken up. The hon. Gentleman cannot cite the words of one candidate as the official policy. The truth is that our policy—[Interruption.] It has never been Liberal Democrat policy to put VAT on domestic fuel; it has been our policy to have a carbon tax and it remains our view that there should be pollution taxes. We would use the yield from such taxes to raise the threshold at which people start paying tax, so that we can remove people on low incomes from tax altogether. One can make a connection between green taxes and helping people on low incomes to have more take-home pay and life-style choices—including choices that do not pollute the environment.

However, we must be realistic as to the choices that people can make; it is clear that the impact of the escalator on the haulage industry does not allow that industry the necessary latitude. The Government must acknowledge, or explain in ways that are acceptable to the industry, which choices they believe can realistically be made. I assure the House that there is no way other than trucks to transport timber from the depths of the forests of the highlands and the north-east of Scotland. It is a joke for a Minister at the Scottish Office to produce a brochure showing timber being drawn by trains, when some of those forests are 100 miles from the nearest railhead. It is absurd to suggest that that is a viable solution.

The Liberal Democrats want the Government to reconsider those particular concerns about the Budget. I hope that it is accepted that many of them have been expressed in a constructive way, because we share some common objectives, even though we disagree about the means to achieve them and the speed at which they might be achieved.

The one matter on which we shall not have the opportunity to vote was referred to in the last words of the Chancellor's speech: his announcement of his intention to cut the standard rate of income tax by a penny in his next Budget—presumably, therefore, in the next Finance Bill. What astonishes Liberal Democrat Members is why, if the Government can find money to cut the standard rate of income tax, they cannot find enough money for the investment required to deal with the problems of health and education. That certainly astonishes many people throughout the country who have spoken to me since the Budget. I know what the Government's reply is: "We are finding £40 billion; it will all be sorted." However, Ministers fail to grasp the fact that damage was done, not only by the Conservative Government's squeeze, but by the continuation of that squeeze—with intensification—during the first two years of the Labour Government. There is a long way to go before even the Government's own objectives of reduced class sizes will be achieved.

The other day, my right hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith) very effectively challenged the Deputy Prime Minister. We are told that the Government's priority is to cut class sizes for the first three years of primary education, but that is done at the cost of increasing class sizes for the remaining years of primary and secondary education. Achieving that priority will require more resources than the Government have identified. The fact is that the cost of reducing class sizes has exploded, to about six times the Government's estimate, and that is only for the first three years of primary education.

In the health service, there is a major problem with recruitment and retention of nurses and doctors. We simply cannot go on plundering the third world for its scarce trained nurses and doctors; we have to redeploy and train our own staff. Although it takes several years to train such staff, Ministers should remember that there are many nurses and quite a few doctors who are not working in the national health service, and some who are not working in the health sector at all—because staff calculations do not have built into them the ability to produce flexible rotas that take account of people's real circumstances, or provide rates of pay for part-time work that, once transport and split-shift problems have been taken into account, are adequate to cover child care and other expenses. Such sorts of issues need to be addressed, but they are not being addressed; solving them will require resources that the Government have not even begun to think about.

In every Minister's speech, we hear of the Government's determination to end boom and bust in the economy, but I want to know when they are going to end boom and bust in the public sector and let that sector have clear access to a long-term climate in which real investment and real redress of their problems can be costed through. The Budget gives an indication of changed priorities—a mind change within the Government. The Government tell us that they have sorted out the problems in health and education, even though not a single person in this country believes that. In the second half of this Parliament, the Government are going to move to an agenda of fighting the next general election on the basis of cutting taxes, before they have delivered material improvements in health and education. Following that course will cost the Labour party dear.

In addition, the Government have created an increasingly complicated tax system that is extremely difficult for individuals and businesses to understand. That will provide rich pickings for tax accountants, but cause real difficulties to most individuals and companies. In the next reshuffle, the Prime Minister might want to look for a new Chancellor, one who can sort out the complicated mess into which the current, supposedly reforming, Chancellor has got us. We want a Chancellor who will simplify and reform, not one who will make the system infinitely more complicated.

5.37 pm
Mr. Mohammad Sarwar (Glasgow, Govan)

I am pleased to be able to speak in the debate and to welcome the Finance Bill. I am glad that, by putting families and pensioners at the heart of the Bill, the Government have gone a long way toward helping those who suffered the most during the 18 years of Tory rule. For that reason, I shall focus on the Bill's provisions relating to pensioners and families.

In my constituency, we are extremely lucky to have active and public-minded pensioners. There are several pensioner groups and organisations which not only help pensioners with their individual needs but take a close interest in issues that affect the wider community, such as the problem of drug taking among young people or environmental matters. The elderly play a central role in the life of the local community in Govan.

However, those same people, who worked hard all their lives and made a valuable contribution to society, have found that their needs and concerns have been ignored by the state to such an extent that they have become one of the most disadvantaged groups in our society. It was time that that was put right, so I am glad that the raft of measures in the Bill that are directed at the elderly will help to reward pensioners for the contribution that they have made, and continue to make, to our society. Increasing personal allowances above inflation, linking rises in the minimum income guarantee to earnings and retaining the married couples allowance for pensioners will substantially improve the quality of life for the poorest pensioners.

I should like to mention particularly the decision to increase winter fuel payments fivefold from £20 to £100. Combined with the reduction in VAT on fuel, that move

has been welcomed by pensioners in Scotland, where the colder climate makes the increase all the more important for the elderly. The decision contrasts with the increases in VAT on fuel introduced by the Conservatives in government and demonstrates the importance that this Government attach to improving the lives of pensioners. The measures provide an additional £ billion for the elderly, which will help to assist some of the poorest members of society and will ensure that the elderly are not left behind as Britain continues to prosper under this Government.

At present, 700,000 pensioners do not claim income support and will, unfortunately, lose out on the increases in the minimum income guarantee. I hope that the Government will introduce initiatives to encourage such pensioners to apply for the benefits to which they are entitled. Perhaps the Government could launch a public information campaign targeted at such pensioners. That would ensure that all pensioners who need help are able to benefit from the measures in the Bill.

Equally importantly, this is a Bill for families and for work. The welfare system that we inherited from the previous Government has failed to bridge the gap between benefit and work. In fact, the benefit and tax systems have constructed increasing barriers for people on benefit who are desperate to return to the workplace and have thus contributed perversely to widening inequality and increasing poverty. That has served to undermine families, resulting in family breakdown and an increasing number of families living in poverty and on low pay. The system needs drastic changes, and I am glad that the Bill delivers them.

The new tax credit for children, set out in clause 27, is a radical and innovative policy which is designed to meet that challenge. The married couples allowance was given at a flat rate to all married people, regardless of income and irrespective of whether they had children. It was very ineffective at directing help where it was needed most. By contrast, the new children's tax credit will direct support to families and people with responsibility for children. As it will not go to those on high incomes, the measure will ensure that help is channelled to those who are most in need.

Five million families will benefit from that bold measure. Together with the working families tax credit and the increase in child benefit, the children's tax credit will go a long way towards easing conditions for families with children—particularly the poorest families. Combined with the measures that my right hon. Friend the Chancellor introduced earlier, the reform will serve to lift 700,000 children out of poverty.

In addition to tackling child poverty and low pay, the changes will help to break down the barriers between benefit and employment. By making work pay, they will make the transition from benefit to work much smoother and easier. The proposal to reduce national insurance payments for low earners and the working families tax credit will assist children whose parents are out of work or receive means-tested benefits by making work more financially attractive through enabling those who depend on benefit to make the difficult transition to employment without being impoverished in the process.

The far-reaching changes that have occurred in the economy, particularly in the labour market, and the impact that they have had on other areas—most notably the welfare state—make the need for an interrelated and integrated approach to welfare policy even more urgent. However, the fragmented benefits and tax system that we inherited from the Tories has served to increase unemployment, the social security budget, inequality and poverty.

The approach embodied in the measures in the Bill and the working families tax credit takes account of the close, complex connections involving benefits, families and employment and how they impact on each other. By introducing measures that will increase the income of poorer families and at the same time enable people to make the difficult transition to work and to stay in work, the Bill and the Chancellor's other reforms mark an important step forward in meeting the challenges presented by the radically different economic environment that we face today.

I hope that the Bill will be followed by further measures to bridge the gap between welfare and work. The Red Book states that the Government are examining long-term proposals to integrate the new children's tax credit with the child allowances that are paid to unemployed families through income support and to in-work families through the working families tax credit. I hope that the Government will be able to give serious consideration to such changes and build on the Bill's measures to create a single, fully integrated system of tax and benefits, making entry into the labour market for those on benefits much easier.

I congratulate my right hon. Friend the Chancellor and his Treasury team on a Bill that contains a plethora of innovative measures. It combines fairness and justice with a long-term strategic vision. I am glad that, although nothing is smooth in life, there has been no intervention on my speech, for which I thank hon. Members on both sides of the House. I commend the Bill to the House.

5.47 pm
Mr. Michael Jack (Fylde)

An intervention on the hon. Member for Glasgow, Govan (Mr. Sarwar) could have been arranged, but he had obviously given great care and attention to his remarks, and I wanted to hear him out. Had I intervened on him, I would have pointed out that the very pensioners to whom he referred at the beginning of his speech, whom he sought to help, have suffered as a result of, for example, the Government's removal of the payable tax credit. Some of the poorest pensioners in the hon. Gentleman's constituency, who perhaps receive a small income from shares bequeathed to them by earlier generations, are now paying more tax as a result of the proposals in the Government's previous Budget, which he so fulsomely supported.

The hon. Gentleman referred also to the removal of 700,000 children from poverty. We all desire an end to poverty conditions, but I recently tabled a question to the Prime Minister to find out his exact definition of child poverty. When I discovered that the definition was rooted in an analysis of what were called "households below average income", I suddenly realised that poverty was a moving target. Households with an income below average will find that their income increases over time, as overall incomes increase, so we may find that those 700,000 children remain within the same category for ever and a day. That is a false target. The hon. Member for Govan was lucky that I did not interrupt him on that point.

The debate is the start of the long process of considering the Finance Bill, which is shorter than those that we have been used to. The last Finance Bill that I had the pleasure of taking through the House was nearly twice as long as this one. However, the fact that there are fewer clauses does not mean that there are not plenty of proposals to question and criticise. That will be my purpose during my remarks.

On the day of the Budget, The Sun exclaimed in triumph, "Everyone a winner!" I am afraid that The Sun got it wrong because, like everybody else, it was seduced by the Chancellor's presentation on the day and did not examine the detail. Over time, people who have a house and no children will lose out because of the Budget. Honourable couples—married couples—who look after an aged relative for example, will lose out as a result of this Budget. Single people will also lose out. Right hon. and hon. Members have already mentioned those in industry and the road haulage industry who will lose out. Something like 4 million people will lose out as a result i of the Budget, and I hope that in the course of the debate we shall tease out who the losers will be.

In his usual perceptive and carefully argued way, the hon. Member for Gordon (Mr. Bruce) put his finger on a very important point. This is a fiddly little Budget. It is a gift to accountants—it has so many intricate details that one really will need an expert to sort it out. I shall later show how in the arcane matter of, for example, schedule 3, which relates to clause 27, the Treasury draftsmen have done their worst and opened up a minefield. I hope that the Financial Secretary, who no doubt has penetrated schedule 3, will be able to answer the questions that I shall put to her.

The hon. Member for North Durham (Mr. Radice), who is the Chairman of the Select Committee on the Treasury, rather pulled me up when I smiled on hearing his Committee's findings on the Budget, but I was much taken by its conclusions on presentation. Given our involvement with Treasury matters, I suppose that we know something about presentation, and the hon. Gentleman was right to point the finger at me and say that I perhaps did some of that too. We all sometimes have to handle difficult messages, but this Budget took smoke and mirrors to the level of a new art form. I can think of some of the people who might have assisted in this, and they have clearly lost none of their skills in the transfer to the new Government.

I was particularly interested in the Select Committee's proposal for an element of independent audit, involving the National Audit Office and the Institute for Fiscal Studies. There is merit in that. It is important that people understand what the Budget is about. The voyage of exploration that we all have to undertake, looking at the detail of the "Financial Statement and Budget Report", is difficult. The Chancellor wanted to triumph on the day, and I am sure that he does not want his triumph taken away later, but he lays himself open to criticism.

I also welcome the Select Committee's finding that the Government should not wait for parliamentary questions to be tabled before reporting on the distributional effects of the Budget. The hon. Member for Gordon touched on that very point. I should like the Financial Secretary and the Economic Secretary to answer fully the question that has recently been tabled and follows the same format as that asked by the right hon. Member for Blackburn (Mr. Straw) in 1981. Will they stop falling back on the excuse that it is difficult to estimate the impact of indirect taxation in terms of the overall impact of tax changes on many different levels of income? However difficult that task might be, the Treasury should at least be consistent. When the Government were in opposition, they were happy to have that information and to use it against the then Government—I have to say that they used it effectively. In this age of open government, the least that the Financial Secretary can do is to ensure that, when that question is retabled, it is properly answered. We need that transparency.

Several people have implied that the Bill's overall effect on the tax burden involves a rather arcane, ethereal debate with which we should not soil our hands. I shall spend a few moments considering that argument and refreshing our memory as to why it is important that we do not lose sight of such important points.

The measures that will determine the overall tax burden of the next three financial years combine measures introduced in the 1998 Budget with those introduced in 1999 Budget. We should not forget the interaction between the two. One of the elements of the lack of transparency displayed in the Budget is the Chancellor's unwillingness to relate that which is already in train to that which is coming. The Chancellor owed it to the House to present a more coherent picture by putting the two together. I shall make up for that deficiency.

Let me remind the House of one or two measures which have already been agreed and are coming. Mention has been made of the abolition of advance corporation tax. I shall touch on two aspects of it which I am sad that the Bill does not seek to address. The Bill does not address the £400 million hit on charities caused by the removal of payable tax credits. There is much in the Bill about new ways of charitable giving. There is something about companies being able to write off the full cost, for example, of materials that they give charitably, as if that will somehow make up for the £400 million.

I asked the Church of England what the impact would be on its accounts—it will lose £12 million. I am not certain how that money will be found in the rather sparse collections made at my church—I make no criticism of my constituents, but there are not many in church at 8 am on Sundays. Indeed, there are only about 25, and there are limits to what they can give. All the Churches, not just the Church of England, will have to make up the deficit. That is the kind of detail that the Chancellor does not like being exposed.

Mention has been made of what is turning into a savings farce—the introduction of individual savings accounts and the abolition of PEPs and TESSAs. It is interesting to note in the Red Book that that gives the Treasury a profit in the financial year that we have just entered of £60 million, and £10 million next year. This is just another subtle way of trying to make savings look good and make money for the Treasury.

Right hon. and hon. Members have also mentioned the 6 per cent. increase in the fuel duty escalator, and we shall mention it again.

The debate so far has saddened me in that there has been no real consideration of the level of taxation. What is the right level of tax burden? We have not had a proper

discussion about what we should tax. Comparisons are made between the lower marginal rates of tax in parts of continental Europe on items such as alcohol and diesel fuel and rates in the United Kingdom, but I am sure that no political party would advocate the 5 per cent. rate of VAT on fresh food which is typical of French taxation. That is a no-go area. It is important that all Front-Bench Members take note of the fact that, if they are to discuss levels of taxation, we should decide how much it is right for the public sector to take from the private citizen. At the same time, we should be honest with ourselves and say what are the tax go and no-go areas.

Another question that I want Ministers to answer is, what has happened to tax simplification? What has happened to the tax rewrite? Where are the clauses that people have been labouring on for the past two or three years? Labour embraced the exercise with enthusiasm when the idea was first mooted—I think that the hon. Member for Wrexham (Dr. Marek) was its appointee to the Committee. Neither the Finance Bill nor any Bill published in parallel with it contains any clauses relating to tax simplification. Indeed, tax complication is the essence of this Bill. What has happened to that exercise? The Bill and the Budget make no mention of it.

The Government cannot escape the fact that, over the next three years, taxation levels are set to rise because of various measures in the Bill. Table 1.3 of the Red Book reveals that some of those measures that have not been discussed are, for example, the next financial year's delayed action hit in terms of national insurance charges—£430 million in 2000–01 and £750 million the following year.

That table has an intriguing little section called "Securing the tax base". I should be grateful if, when the Financial Secretary winds up the debate, she would give a little more detail about what is going on in securing the tax base, because I discover that, in that section of the Red Book, the abolition of mortgage interest relief is said to be securing the tax base—as though it were a tax fiddle. However, in the Customs and Excise and Inland Revenue press release for that item—press release CW 3—I find an oddball collection of measures under the heading "Securing the tax base".

The press release says that the measures will yield "more than £1 billion". That sounds good. One might suppose that it meant £1 billion a year, but no: it is £1 billion over the next three years. A third of a billion—£300 million or £350 million—is not much, so would the Financial Secretary care to tell us what those inspectors, whom I bequeathed to the Treasury before I left, and who deal with the complicated tax issues of larger companies and other institutions have been doing for the past two years? They were retained because of their detailed tax knowledge. I remember that the last tax fiddle that they found was worth about £0.5 billion a year, and they told me that, every so often, they found such things; so why is such a small sum being spent on securing the tax base? What has been going on? Parliament deserves a report about that.

In opposition, Labour Members were fond of saying, "We shall close the tax loopholes." Judging by press release CW 3, they have gone to sleep on this issue. We should be given more detail about that.

Mr. Ian Bruce

I am not sure that my right hon. Friend is doing his mathematics the new Labour way. When he described a saving of £1 billion over three years, he assumed that that meant a third of billion a year. In new Labour mathematics, one starts with a sixth of a billion, in the second year one gets a third of a billion, in the third year one gets half a billion, and all three figures must be added together to reach £1 billion. My right hon. Friend said that a third of a billion was a small amount; a sixth of a billion is even less.

Mr. Jack

I am grateful to my hon. Friend for admonishing me on the arithmetic, and he may well be right, which emphasises the point on which I am probing the Treasury Minister—what has been going on about something about which Labour Members were, in opposition, zealots and now, in government, they have gone to sleep over.

The Government have been very sneaky in the way that little measures such as the 1 per cent. increase in insurance premium tax have crept in. I seem to remember Labour opposing the introduction of that tax, which took place at a time when my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) was seeking ways to address the state of the public finances. Now the Government are slipping in measures to gain another couple of hundred million, rising to £300 million at the end of the period outlined in the "Financial Statement and Budget Report". Not much has been said about that but, when people start to renew their insurance policies, they will realise what this new Labour Budget is about.

The sum total of the effect of all those tax changes is to be found in table B9 in the Red Book, dealing with current receipts, which is the sum total of the financial effects of this Finance Bill. In this financial year, gross receipts encompass 39.4 per cent. of gross domestic product. The percentages will be 39.5 next year, 39.6 the year after, 39.6 the following year and 39.7 at the end of the series, in 2003–04. Those figures take into account netting off, for example, the windfall tax, VAT, excise duties, social security contributions, other taxes and royalties, as well as income tax and the allowance for the tax credit. The percentage does not take into account the other hidden taxes—the increases in council tax, which people must bear as part of their personal tax burden.

Whichever way the Government try to wriggle on the hook of the question, "How are taxes going up under Labour?" the answer is that, in GDP terms, they are. It is no use Labour Members saying, "But if we had followed the Tories' forecasts, the percentage would have been higher." Well, I am sorry; on 1 May 1997, the present Government took over, and the responsibility for the economy passed to them.

When I consider in cash terms the combination of the measures that were introduced in 1998 but are yet to be introduced, and those in this year's Budget, I find that there is a net increase in the tax take over the next three financial years of, respectively £2.6 billion, £3.6 billion and £4 billion. Those are inescapable figures and cannot be denied. They are from the "Financial Statement and Budget Report".

In his opening remarks, the Chief Secretary to the Treasury told us that this was a business-friendly and investment-friendly Budget. If that is so, will the Financial Secretary explain later why chart A6, on page 141 of the "Financial Statement and Budget Report", shows business investment declining over the next two years? She has until a late hour this evening to answer that question. When I asked the Minister for Small Firms, Trade and Industry that question, he frothed at the mouth. He did not recognise the truth in the graph that the Government have published.

Much of the Finance Bill is predicated on what the economy will do. Barclays bank, in its assessment of the Budget, told us that the projections on growth were more optimistic than it, and many other commentators, would predict. It will be interesting to note the extent to which the tax revenues anticipated in the statement are realised. Barclays bank's overall commentary on the Budget detail was more telling. It praised the Chancellor's emphasis on macroeconomic stability", but continued,

but some of the detailed structural reforms could be criticised as being confusing, over-complex and expensive to administer, particularly for small businesses. The structure of personal taxation has become more complex with an increase in the number of tax rates. Simplicity, stability and minimal compliance costs are important virtues for a fiscal framework looking to promote effective planning and productivity. That is a telling and damning criticism of a Budget, and a Finance Bill, that have been published in the name of the so-called reforming Chancellor. If the Government consider themselves to be individual-friendly and company-friendly, they had better address that criticism, because it is not unique to Barclays bank.

The CBI bears out that point in its judgment about the Budget, in which it also draws attention to the growing burden of tax—£5 billion—on its members. It talks about the fact that Budget 99 increased the burden of business taxation and it said there was little recognition of the concern about administrative burdens". There we have it from the CBI, from Barclays bank and from other commentators.

The CBI says that the Budget reality disappointed after the pre-Budget rhetoric. It said: Against … encouraging background"— the pre-Budget consultation— the steps actually taken in Budget 99 were somewhat disappointing. That is from a body that is trying to do business with the Government.

The CBI also observes that a clause dealing with the lop starting rate of income tax is a bit of a gimmick, and it similarly describes the 10p starting rate of corporation tax as such—because it applies only to the first £10,000 of profit. Thereafter, as profit increases, the tax increases very sharply. Those are not my words but those of the CBI, and it makes other detailed criticisms of the Bill.

The Association of Chartered Certified Accountants made another damning criticism of the cost of administration of the Budget, especially to small and medium-sized enterprises. It said: The cost of administration is around a third of the total tax bill. These new measures will impose further costs. That is a damning criticism—[Interruption.] If the hon. Member for Dudley, South (Mr. Pearson) disagrees, will he intervene and tell me why he disagrees with that respectable private body?

Mr. Ian Pearson (Dudley, South)

If the right hon. Gentleman reads the ACCA's newsletter more closely, he will see that it refers to many other measures in addition to the one that he has mentioned.

Mr. Jack

The first paragraph of the document reads: ACCA is disappointed that the government introduced further complex tax changes in last month's Budget. There could be no more damning a sentence than that.

In the magazine Taxation we start getting towards some of the detail of the Bill and some of the problems that it contains. In a leading article, Malcolm Gunn points out the enormous complexity that is brought about by the number of tax rates with which we are now having to cope. He observes that there are four different rates of income tax plus the schedule F upper rate of 32.5 per cent. I would like to know from Ministers on the Treasury Bench why they are prepared to sanction such a complex range of taxes. As has already been said, savers will not get the benefit on their savings of the l0p starting rate, but will have to pay on the basic rate. Why is that? Why is it that people with modest savings, whom, the hon. Member for Govan spoke about with such passion, are once again clobbered by the Government, who will not visit the benefit on savers, as we did, at the lowest starting rate for tax? The Government are wedded to complexity.

As Mr. Gunn said: This must be one of the most complex personal tax systems ever devised for the United Kingdom and the taxpayer, an uninformed layman". As he observes, they have to operate the system on the pain of penalties and surcharges if they get it wrong. It is important that we take note of such comments, which are a damning criticism of what the Government are up to.

At the conclusion of his article, Mr. Gunn states: All this complexity is apparently to satisfy the political objective of introducing 'the lowest rate of income tax this country has seen for more than thirty-five years'—a statement which many consider to be little more than a devious political soundbite—coupled with the Treasury's insistence that the 20 per cent tax deducted from bank interest should not be repayable to the tiny number of taxpayers who are within the starting rate only. That is how the experts see it, but let us consider in more detail clauses 19 and 20, which deal with the starting rate of 10p for tax.

I wonder whether Ministers on the Treasury Front Bench have had a chance to study the report produced by Mr. Paul Gregg of Her Majesty's Treasury and the centre for economic performance at the London school of economics, Mr. Paul Johnson of the Financial Services Authority and by Mr. Howard Reed of the Institute for Fiscal Studies. They have costed the effect of the measures to which I have referred. In their study, published by the Rowntree Trust, they state that the cost per person who is helped back into work by the 10p starting rate of tax will be £3,947. They calculate that 76,000 will be helped back into work. They calculate also that the working families tax credit, which they estimate will help about 92,000 people back into work, costs a mere £869 per person. The national insurance reforms, which will help 115,000 people back into work, will cost £1,826 per person.

Messrs. Gregg, Johnson and Reed conclude that the 10p starting rate of income tax appears to be the least cost-effective reform, perhaps because it is not as well targeted on specific people who are more likely to move into work as the working families tax credit. They go on to press the benefits of the national insurance changes.

Mr. Gardiner

Given that the right hon. Gentleman has quoted the Rowntree figures with such approbation, will he confirm that it is his view that, as a result of the Budget and the changes that will be effected therein, more than 260,000 people will be brought back into work?

Mr. Jack

The report does not highlight the alternative to that, which is whether there may have been other relevant activities in the economy. Although there has been a slowdown in some sectors, unemployment had until fairly recently carried on declining. When talking about a new deal, there was an argument about the dead-weight effect of that measure. The argument involved whether the natural cycling of jobs and changes in the economy might well have produced new employment opportunities.

I must be fair to the hon. Gentleman because, having quoted an analysis, I must accept that it indicates, in the judgment of those who produced it, that some people will be induced back to work. If someone finds a job after a period of unemployment, we would wish to support that and none of us would disagree.

I am talking about the effective use of money that we are asked to approve in the Bill. The report to which I have referred imputes a cost of £3 billion for the lop starting rate of tax. That money could have raised the starting point to £5,000. That could be said succinctly to be £100 a week tax free. That might have had an even greater effect in inducing people back to work.

Mr. Ian Bruce

I must caution my right hon. Friend. If he reads the Red Book, it tells us that 58,000 people have been helped back into work by the new deal. In fact, that is simply the churn. There are more than 30,000 additional people in the 18 to 24-year-old group who are unemployed than when the new deal started, and the scheme has not even been going for a year yet.

Mr. Jack

My hon. Friend, who studies these matters with keenness and assiduousness, makes an important point. I hope that when he makes his own contribution to the debate he will be able to develop these matters.

The Bill seeks to make changes to vehicle excise duty. The Government were happy to triumph the fact that they had taken £50 off VED. However, they increased by £5 the licence fee for any cars with engines larger than 1100 cc. Perhaps Treasury Ministers could tell us how they decided that 1100 cc was to be the start-and-finish point of this measure. I am struggling, but I suspect that the real answer is that there are 25.6 million cars, of which about 2.3 million have engines smaller than 1100 cc. The cost of exempting 2.3 million cars from that increase in order to reduce VED by £50 equates exactly with £5 on for the remaining 23 million vehicles.

The bizarre feature is that the Government have triumphed this measure as a way of encouraging more environmentally friendly cars. I do not know whether the Financial Secretary is aware that the target that 1100 cc cars are supposed to be able to meet is a CO2 volume emission of 140 g per kilogram per year. There are cars in the 1.5 to 1.9 litre category which achieve that objective already. They are diesel cars. If the Treasury is being consistent, why did it draw the line at 1100 cc in trying to encourage environmentally friendly cars, when there are other environmentally friendly cars with larger engines that do the same thing that are clobbered by an increase in VED?

Will the Financial Secretary promise to publish the detailed sales analysis that shows that the consultation exercise that the Chancellor of the Exchequer is carrying out on the tiered structure of VED will achieve its objective? I cannot see that changing VED by £100 or so a year will have the slightest effect on the purchase of the majority of cars in this country, when 55 per cent. of those cars are purchased by companies. Employees have little chance to influence the sales decision. It seems that the Government have introduced a Trojan horse to try to raise yet more money from the motorist. It was introduced as a revenue-neutral measure, yet the Red Book tells us that there will be an increase in tax revenue in the first year of £40 million. Perhaps the Financial Secretary will explain how a revenue-neutral measure will raise an extra £40 million in the first year.

Mr. Gardiner

I am grateful to the right hon. Gentleman for giving way to me again. On his argument about diesel, it is important to reflect on the fact that more than 85 per cent. of the diesel that is consumed in this country is consumed by large lorries and not by small cars such as the ones to which he referred.

Mr. Jack

The hon. Gentleman misses the point. I do not think that he has read in full the Chancellor's consultation document. I urge him to do so because it is very good for insomniacs. The document shows where the direction that the Chancellor's thinking is taking. We see in the proposal a piecemeal approach and, for the sake of a headline—reduced vehicle excise duty—a limit of 1100 cc. There is no logic to that, or to the rest of the consultation exercise.

Other right hon. and hon. Members who have contributed to the debate mentioned the fuel duty escalator. I find it intriguing that Labour Members attack the former Conservative Administration for having introduced it, but I notice that, when Labour came to power, it did not seek to reverse that policy. If the Government had wanted to get rid of the escalator, they could have done so, but they did not do so—they just doubled it.

Mr. Leslie

Am I right in recalling that the right hon. Gentleman was Financial Secretary to the Treasury between 1995 and 1997? Am I right in thinking that he was responsible for partially implementing a fuel duty escalator? Will he now say that he was wrong to increase diesel duty by more than 10 per cent. in each of those years while he was a Minister?

Mr. Jack

If the hon. Gentleman was aware of the duties of the Financial Secretary when I had the honour to hold that post, he would realise that I personally did not introduce that tax. However, I take collective responsibility. The Administration of whom I was a part did that. I do not want to trespass into an "all our yesterdays" debate on the state of the economy—[Interruption.] If you would allow me to do that, Mr. Deputy Speaker, I should be happy to do so, as I am proud of our record.

The short answer is that we are dealing with the Labour Government's response to our criticism of the fact that, as a result of their escalator, diesel fuel in the United Kingdom is the most expensive in Europe. I remember that, when the fuel price was going up, we looked forward to an ending of problems in the middle east, so that the lower oil price would constitute a lower input cost for Britain's business and transport, but that has not happened under new Labour.

A reduction in the oil price to $10 a barrel—the lowest price ever—results in the most expensive diesel fuel and highly taxed petrol in Europe. That is a perverse situation. The increase in inflation that has been announced is entirely down to the Budget measures.

Mr. Ian Bruce

In trying to be fair to the House, my right hon. Friend is perhaps being unfair to himself and the previous Government. Is he aware that the Automobile Association has conducted a survey on the effect of the Conservative Government's escalator on fuel prices, which found that people economised and that the amount of fuel burnt has gone down, despite mileage going up? The AA concluded that further taxes would be foolish. It would simply ensure that people bought their fuel in France.

Mr. Jack

I am grateful to my hon. Friend. If the Government wanted to be radical, why did they not assure motor manufacturers that they would examine the VAT rate on the price of cars, and find a way of recognising more environmentally friendly cars by making them genuinely cheaper? If they had wanted to, the Government could have made an adjustment to the corporation tax of motor dealers to reflect the sales pattern of more environmentally friendly cars. Why did the Government not use the carrot, instead of using the fiscal stick? That is what worries me.

I shall now examine three clauses in detail. Clause 45 deals with the provision and support of bus services. Can the Financial Secretary explain why the Government have sought to provide help for services using buses with a seating capacity of 17 or more? Do they not realise that, in a rural environment, a company that hires a small minibus to pick up people and bring them to work, for example, to save wear and tear on the rural transport infrastructure, will specifically not get help under the provision?

Is that yet another anti-rural measure from the Government? Can the Minister explain why London-based companies are induced by the measure to clog up London's roads even more with large buses, whereas no relief is given on the provision of season tickets for employees wishing to use the rather more environmentally friendly transport system in London—the railway? Why is that?

In clause 47, we see that Treasury Ministers have been busy. The clause deals with tax relief on company-provided cycles and cyclists' safety equipment. We discover that that relief is available only for the purposes of the "qualified journey", which is a journey between the individual's home and workplace or between one workplace and another. Does that mean that representatives of the Inland Revenue will be outside Tesco on Saturday, watching to see whether an employee has ridden on his company bicycle to do his shopping? It is the theatre of the absurd. The Financial Secretary should consider in more detail the practical application of the measure.

Finally, I shall deal with clause 27 and schedule 3. Clause 27 introduces the children's tax credit. I am intrigued by the wording at the beginning of schedule 3. In order for us to judge whether the measure is practical, can the Financial Secretary explain the wording in paragraph 1, which states: Paragraphs 2 to 5 below apply where at any time in a year of assessment— (a) a husband and wife are living together or a man and a woman are living together as husband and wife"? What period does the phrase "at any time" cover? Is it one minute or the whole year? How are people to know whether they have fulfilled the time criterion to qualify? Will we see "Blind Date"-type marriages being entered into so that people can gain the benefit of the tax relief? What is the Treasury's definition of a man and a woman who are living together as husband and wife? I do not know how the Government will deal with the practical implications of that.

I recommend that the Financial Secretary look at paragraph 8(4) dealing with change of circumstances. That is a direct read-across from the provisions applying to the Child Support Agency. All right hon. and hon. Members should examine the provision. If our constituents ask how the tax relief is to be apportioned when two parents have care of the child and both might be eligible for the tax relief, right hon. and hon. Members will find that paragraph 8(4) is a nightmare of complexity. It is typical of the Bill.

I look forward to a detailed examination of the measure in Committee. It will be interesting to discover how the Financial Secretary defines marriage, cohabitation and all the other intimate activities of the same people who might be using their company-provided bicycle to do their shopping, and who may not be able to ride on a small bus to their workplace. The Bill contains some interesting and intimate details, but it all adds up to a tax fiddlers charter and an accountants benefit.

6.28 pm
Mr. Robert Sheldon (Ashton-under-Lyne)

The right hon. Member for Fylde (Mr. Jack) did not welcome the introduction of the 10p starting rate of income tax. I take a longer view of such matters. I look on it as an early instalment of what I hope will be a more progressive tax system which will in due course be made possible by self-assessment.

To me, the most important part of the Finance Bill and the aspect that I particularly welcome is the ending of mortgage interest relief and the married couples allowance, and the use of that money for industry, children and the introduction of the lop rate, among other measures.

Why have we had mortgage interest relief for so long? What was it for? We all know that housing is a necessity; the need for a roof over one's head and the need for basic amenities are therefore a case for subsidy—or at least for freedom from certain forms of taxation. In common with other forms of expenditure, however, once those essential needs have been met, further expenditure becomes not a necessity but an option.

If a person lives in a small council flat or house, that needs to be subsidised, or at least to be outside the tax system. A person must be housed. If that person has funds available for more expensive and comfortable housing, at some stage such housing must be seen, if not as a suitable subject for tax, at least as a suitable subject for the removal of any element of subsidy. It is an anomaly that sumptuous housing has been given substantial subsidies, while the fitting out and furnishing that are part of that more expensive move are not subsidised but taxed, mainly at the rate of 17.5 per cent. That needs to be included in the consideration of all aspects of subsidies set against taxation.

Moreover, the number of anomalies has increased rather than being reduced. For a house owner, expenditure on housing is treated as an investment comparable with other forms of investment. Dealing with that was the main purpose of the old schedule A income tax, which attributed notional income from the ownership of a house and treated it in the same way as income from other forms of investment. That tax, which was always modestly assessed, constituted at least an attempt to balance expenditure that produced a benefit with the return on other investments that produced dividends. It is supremely nonsensical that investment in a company that creates employment, and enriches the community through its overseas sales and by providing and using industrial and technical expertise, should be taxed, while the use of funds to improve a person's life style is not only not taxed, but subsidised.

House ownership provides other forms of subsidy. When capital gains tax was introduced, people's main residences were exempt, which ratcheted up the financial advantages of purchasing a house. As a result, many people now look to a housing ladder of opportunity, not just to improve their comfort or convenience—which is subsidised—but to enrich themselves by engaging in a purchase whose profits will not be taxed. Of course such moves have always been made, and no one can fault them; but encouragement has been introduced on a grand scale, and, to a large extent, house price inflation has been a consequence of that.

On top of all the advantages that I have mentioned, mortgage interest relief confers the ability to borrow at a subsidised rate to secure the benefits involved. The Chancellor of the Exchequer was right to remove one of the greatest distortions in the tax system, and I applaud him unreservedly for doing so. The other distortion that he is removing, by means of clause 28, is the married couples allowance.

Before the war, income tax was essentially a tax on the middle class. On marrying, a woman—even if she had been working—was expected to stay at home to look after the home and the children. Indeed, in the case of many professions and occupations, she was debarred from continuing in her job. The banks traditionally provided jobs for middle class women. There was no glass ceiling for those who married; they received the bank's good wishes, and their employment automatically ended. In the case of many couples, there were not two earners. The taxable capacity of the single earner was reduced, and the tax laws took that into account. Looking after his wife was a financial burden for a man.

The war brought about a number of important changes in the taxation structure. The amount of overtime worked took many employees into the income tax structure, which now applied not just to the middle class, but to many members of the working class. That led to the pay-as-you-earn system. There was a need for married women to be brought into the work force, which meant that the disincentive caused by the removal of the wife's allowance on her taking up of employment had to end. The allowance therefore continued, although the working wife no longer represented the financial expense for which the allowance had been intended to provide. That nonsense has persisted for 60 years—up to the present time, when 67 per cent. of wives work.

Having children is an expense that reduces taxable capacity. The child tax allowance took account of that in the same way as the wife's allowance took account of the reduction in the taxable capacity of the earner. In this instance, whether or not the partner of the earner is working, the child and its needs will clearly reduce the taxable capacity of the family. On that principle, when child benefit was introduced in 1976–77, an agreement was made between the main parties that it would not count as public expenditure. I am therefore sorry to note the apparent uncertainty in the Opposition's attitude to some of these matters. Nowadays, I am much more relaxed about the distinction between tax reliefs and negative expenditures: if it proves satisfactory, I am happy to accept it.

I believe that the fundamental principle of taxation is taxable capacity, which refers to the income that is available after all essential expenditures have been allowed for. That, of course, begs the question of what is "essential", but, as Members of Parliament, it is a question that we must assess ourselves. A consequence is that actions that reduce taxable capacity ought to be considered for tax allowances, or concessions of some kind. I think it right to bring the matter into the open now, while we are discussing two clauses that have such a bearing on it.

We all know the position relating to employees' expenses that are allowable against income tax only when they are wholly, exclusively and necessarily incurred. Little difficulty is involved in dealing with expenses that are wholly and exclusively incurred, which must remain eligible for tax relief; the problem arises with the condition of their having to be necessarily incurred. The trouble with that condition is that employees are not often in a position to pick and choose. It is often a case of, "Do you take this job or not?"

People used to work close to where they lived. They would live around the corner from the pit, the mill or a factory that dominated the local scene. That is not the case today, however, and we need to deal with the anomalies in expenditures that are incurred in what is defined as earning a living. The main expenditure is caused by the cost of travel to work, which has increased substantially, especially for those with fairly modest incomes, who used to work locally.

Today, people travel distances that used to be typical only in London. A number of my constituents travel daily across the Pennines to Bradford and Leeds, a regular journey which would have been inconceivable 20 or so years ago. The travel-to-work area has expanded and continues to expand as people seek job opportunities where they can be found. There must be a strong case for recognising that, and recognising the need to take it into account in the tax structure.

I know the difficulties. I understand the nightmares that the Inland Revenue would experience if a breach of the rules were sanctioned. In the context of returning people to work, however—an important element of the Budget and the Bill—the problems need to be addressed.

There are other expenditures. People must wear reasonable clothes to work. That used not to be the case: many people who worked in the pit or the mill could wear what they liked.

Mr. Burnett

As the right hon. Gentleman will know, expenses incurred in travel to and from work are not allowable in the case of either schedule E or schedule D employees. Not even self-employed people are allowed to claim them against tax. Is the right hon. Gentleman aware of the huge cost that such an allowance would generate in revenue terms?

Mr. Sheldon

I am not asking for an allowance; I am merely saying that the facts need to be recognised in some way.

I was talking about clothing. In a famous case, a barrister's clothes were deemed to be allowable as an expense. As for meals, workers used to take a jam butty to work, but nowadays more substantial meals are involved, which means further expenses.

Mr. Cousins

Does my right hon. Friend not think that the Government have for the first time begun to recognise return-to-work expenses? Introducing to income support a provision under which lone parents who return to work under the Government's policies and schemes retain income support payments for the first two weeks of their return to work acknowledges the costs of going back to work. I accept that that is but a small step, but does he agree that recognising such expenses for the first time is important?

Mr. Sheldon

That is exactly what I am arguing for. Such expenses cannot be wholly allowable for income tax, but they have to be recognised and must receive some understanding and some concession in respect of the way in which these matters are raised or are to be considered.

People who are not in work have to accept a whole range of such costs when they come into work, as my hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cousins) rightly points out. For example, when my constituents add up the cost of travelling across the Pennines against remaining on benefit, they might say that working is not worth their while. We have to make it worth their while. I regard travel expenses as legitimate and, although they should not be taken wholly into account in relief from tax, there should be some understanding of the problems that people face.

The Scottish National party has joined the Liberal party in wanting to refuse the 1p reduction in income tax, in order to use that 1 p for expenditure. It is difficult to persuade people that tax increases will lead to increased spending; we find them rather sceptical about that, because, before they will accept tax increases, they need to be confident that the taxes will be used for the purposes that they support. The relationship between taxation and the particular expenditure that people want is based on a trust which many do not have. In present terms, that is the case for relating taxation to expenditure in certain very limited circumstances.

Anyone who has served in the Treasury has a visceral feeling about hypothecation; the road fund licence still casts its shadow 70 years on. An important weakness of hypothecation is that it does not take account of changing patterns of priorities in expenditure. In a moment of weakness, one might hypothecate a tax and regret it subsequently, because an element of expenditure has become less important than it was when the tax was introduced.

There is, however, one instance in which the objections to hypothecation are met—the national health service. One thing is clear to me: the cost of the NHS will rise ever faster than the rate of inflation or even growth in the economy. That is because the population are ageing—there are also other reasons—and, as wants are met, those of health will perhaps become the major area of increasing expenditure.

The time is coming when we shall need to think more about either private medicine, which I do not favour, or a special NHS tax. As I have said about health, one certain aspect is that demand will increase into the indefinite future. People may be more willing to accept an NHS tax—rather than other taxes, which disappear in the vast generality of public expenditure—if they can see the direct consequences of that expenditure. The time has surely come when the introduction of such a tax ought to be explored sensibly and not rejected out of hand, which it always is.

Mr. William Ross (East Londonderry)

I am greatly interested in what the right hon. Gentleman has said about hypothecated tax, particularly in relation to the NHS. Given the willingness of all Governments eventually to cheat on any hypothecated tax, does he agree that, if such a tax were introduced for the NHS, the NHS would have to be funded in perpetuity from one tax that would be clearly targeted on that item of expenditure, with no subsidies from other forms of taxation?

Mr. Sheldon

The hon. Gentleman discusses a particular form of a tax; I am putting the general point that this matter needs to be explored sensibly. Demand for the NHS will increase and people do not have confidence that the money that they have to give up to spend in taxes is going on the purposes on which they want it to go. In this particular instance, a closer relationship between taxation and expenditure is called for.

I welcome the Finance Bill as I have welcomed the Budget. My right hon. Friend the Chancellor has tackled two of the major distortions of our tax system. They have been known for many years; he had the courage and the resolution to deal with them.

6.45 pm
Sir Michael Spicer (West Worcestershire)

It is always a great pleasure to speak after the right hon. Member for Ashton-under-Lyne (Mr. Sheldon); I have always respected him. In the mid-1970s, I kept him up all night

when he was a Treasury Minister and we were fighting each other—not physically, but across the Floor of the House—on Finance Bill Committees. He was involved with the development land tax.

I want to dwell for a moment on the idea of taxable capacity, to which the right hon. Gentleman referred. I may have misunderstood him, but the effect of what he said seemed to be that we should work out someone's taxable capacity and then tax him to the hilt, according to the definition that had been established for him. That is not my idea of a tax; at least, I would draw the line very much lower than the right hon. Gentleman probably would. Taxation should be minimised and used as sparingly as possible, and people should be allowed to keep as much as possible of the money that they have earned so that they have an incentive to work and invest. Perhaps that is why he is on that side of the House and I am on this side.

I return to the central question of taxation, which has been troubling the House throughout the evening, although there is common ground. We are almost unanimous that, taking into account the accumulated effect of all the Budgets introduced by this Government, taxes will go up over the next three years. Even the hon. Member for North Durham (Mr. Radice), the Chairman of the Select Committee on the Treasury, distanced himself from the one organisation that apparently does not agree with the proposition that tax is going up—the Government.

The hon. Gentleman was very fair on this matter. He is a powerful and highly respected Chairman—I hope that I have not done his career, which is beginning to burgeon, enormous harm—who has the command and respect of the Committee. He has tried to produce as fair a report as he can in the circumstances. It is remarkable—mystifying, to be honest—that the Government are sticking to the position that taxes are not going up.

Proof that the Government are sticking to that position comes from the Committee itself. When the Chancellor appeared before us, he was quite clear. I asked: Would you not accept that the net effect of your three budgets over the next three years has been to raise taxes"? He answered: No, I do not accept that". The Government are still maintaining the position that taxes are not going up over the next three years, even if all the Budgets are compounded, so it is worth spending a little time trying to draw from them either a confession that they are wrong or further justification for their perpetuation of this extraordinary myth. The public will rumble to it, and soon. As has been said, it does not matter too much to the taxpayer whose taxes are going up when a tax was announced; what really counts is the fact that it is going up.

Evidently, one has to go over this ground again and, to begin, I shall raise with the House certain relevant matters which have not been mentioned in the form that I wish to use. First, no one has yet mentioned the Committee's general acceptance of the fact that, if one compounds all the Budgets, one finds that taxes are going up over the next three years. Its report says that the Red Book … publishes a table … which lists the impact of pre-announced changes which are due to come into effect over the next three years. These pre-announced changes amount to a tax increase of £3.7 billion for the year about to start, a tax increase of £5.0 billion for the following year and a tax increase of £7.7 billion for the year after that. These tax increases are larger than the tax cuts announced in the Budget. Hence as our expert witness Andrew Dilnot of the Institute for Fiscal Studies summarised: 'In terms of tax changes, there is no question but that taxes will be going up in April of this year, up in the April after that and up in the April after that."' That is all very plain English. As has been said already, Government supporters are in the majority on the Treasury Committee, so that is an extraordinarily significant quotation.

The Government say, "Ah, but it is all a question of taxes as a percentage of gross domestic product over the next three years." However, as the hon. Member for North Durham pointed out, even if we take account of the various different ways in which GDP is presented, the picture still shows that taxes will rise as a percentage of GDP over the next three years.

That conclusion can be drawn even on the basis of the Government's assumptions in the Red Book about what GDP will be, which are that it will increase by 1 to 1.5 per cent. in 1999, and by 2.25 to 2.75 per cent. in 2000. Those figures look increasingly over-optimistic, and, if they turn out to be so, taxes as a percentage of GDP will go up even faster than the Government—or the Treasury Committee, which has accepted the Government's figures for GDP—now presume.

It is therefore fair to ask whether the forecast GDP figures are accurately estimated. The Red Book forecast for 2000 expects growth, having tapered off, suddenly to jump up again. There is not much explanation for that jump, so it is reasonable to ask why it has been forecast.

When we look at the changing features of the economic landscape, we see at least two reasons for being concerned about the figures. The first, which has already been mentioned, is the strength of the pound, especially against the euro. Unless the euro is expected suddenly, out of the blue, to strengthen against the pound, that relative position is likely to be maintained through the period to which the GDP forecast applies. [Interruption.] The hon. Member for North Durham says, "Not necessarily." I shall give way to him if he wants me to.

The German economy looks as if it might be teetering on the brink of another recession. Given the weaknesses of that economy, and the present signs that the French economy, too, may be going back into weakness, the argument that the pound may fall in value against the euro lacks any real basis.

The Government should at least say what they think will change—to speed up growth in exports, for example—so as to give their GDP figures some sort of credibility. Even today, another factor has emerged that has to be taken into account. It would seem that the Government's inflation target will be exceeded.

Mr. Pearson

indicated dissent.

Sir Michael Spicer

The hon. Gentleman shakes his head, but today the underlying rate of inflation has risen to 2.7 per cent.—0.2 percentage points above the target. To be fair to the Government, the target is not vague; they have enshrined it in law. It is a legal target, with which the Monetary Policy Committee has to comply, and towards which its interest rate policies must be directed.

When representatives of the MPC appear before the Select Committee again, I shall certainly ask them, "Why are you bringing down interest rates when there are strong indications—in the labour market, they have been there all along—that inflation is moving upwards again? It is the MPC's duty not to lower interest rates, but to raise them."

Most commentators would at least accept the fact that interest rates, which are still relatively high, will not come down very fast in the near future. Indeed, on the basis of today's evidence, they will rise. There is therefore a serious question mark against the present forecast for GDP, especially as manufacturing industry is in the middle of a bad recession.

I do not know what the unemployment figures will show tomorrow, but it would come as no surprise to many hon. Members if they began to register an upward movement, or at least were higher than the Government expected.

As I have said, it is fair to ask whether the GDP figures represent an accurate forecast. If they do not, and GDP is lower than forecast, that puts even more of a question mark against all the forecasts, including those by the Government, of taxation as a percentage of GDP. To me, at least, it would be a serious matter if taxation were to rise as a percentage of GDP.

That may be a serious matter to me, because philosophically, that is where I come from. I cannot understand, however, why the Government are so coy on the subject. The right hon. Member for Ashton-under-Lyne was, in a sense, enunciating a policy of higher taxation. He said, "Find out people's capacity to be soaked, and then get them."

Mr. Sheldon

I must defend myself. I simply said that, whatever the level of taxation was, the principle that I enunciated applied. Within that principle, taxation can be low or high. The important point that I made was about the cost of getting people back to work when they considered themselves disadvantaged by the costs involved in earning a living. I was saying that, through taxation or in some other way, that must be taken into account.

Sir Michael Spicer

Perhaps I did not understand the right hon. Gentleman; perhaps I was caricaturing his view—but I do not think that I was caricaturing the view that is held, by and large, within his party. There are certainly hon. Members sitting around him—although not directly behind him, where we see the hon. Member for North Durham—who think that the Government's job is to find out what the capacity for tax is, to tax people and then to spend and distribute the money. That is what socialism is all about.

What happened to the real socialists? There are lots of them. Where are they all? They will come out of the woodwork at some point. What is the Government's problem? They would be cheered by their Back Benchers if they were truthful and said, "Actually, we are a socialist Government, and that means that we shall put up taxes and expenditure."

That is what socialism is all about. That is what people vote for or against at general elections. That is why most of the time they vote Conservative, and why they will go on voting Conservative in the future—because, basically, they do not like that approach to life. None the less, it could be seen as perfectly reasonable. Indeed, it has gone on for thousands of years. [Laughter.] The idea of taxing people has an honourable parentage. I suppose that it has its basis in the work of Rousseau. That may not date back a thousand years, but the idea also goes back to Aristotle and various other philosophers who had the idea of taxing people and distributing wealth. People had their reasons for that—so it is a mystery to me why the Government are confusing themselves, and trying to confuse the public, about taxation.

One fact, if nothing else, will emerge from the debate: there is a common position among members of the Treasury Committee that taxes are rising. It is up to the Minister to stand up at some point and tell us why.

Mr. Radice

Will the hon. Gentleman give way?

Sir Michael Spicer

Of course I shall give way to my boss.

Mr. Radice

There is a common position that, taking all three Budgets into account, the tax burden, in terms of tax receipts as a share of GDP, will rise over the period. That is right, but there is also a common position that this year's Budget cuts taxes. I hope that the hon. Gentleman—whom I was about to call my hon. Friend—agrees with that, because it is what the Select Committee report said, and he did not vote against it. Nor did he vote against the Committee's general approval of Government economic strategy, about which we have heard little.

Sir Michael Spicer

The Opposition are wise to keep very quiet when they are getting something through that they thought they might not get through. In this case, it was a massive achievement; it made sense to keep very quiet when we accepted the consensus that taxes would go up in the next three years. That was a significant statement, and it was worth sitting quietly and not stirring up matters too much.

My view is that it has still not been fully determined whether taxes have gone up in the Budget. I am willing to concede that there may have been some comeback on the swingeing wave of taxation that was introduced in previous Budgets and from which we shall suffer. It is extraordinary that the Government do not accept that taxes are going up. Even the hon. Member for North Durham distanced himself from the Government and said that they must answer for themselves. I hope that they do, but at the moment they are still trying to maintain the myth that taxes are not going up when everyone accepts—the Treasury Committee included—that they are.

There is one tax in the Finance Bill that dare not speak its name. It hangs like a black thundercloud over our economy. A withholding tax of 20 per cent. on financial savings may be introduced. It hangs like a thundercloud because the Government will not say that they will prevent such a tax. The proposition is on the table through a European Commission directive. It was discussed at the informal summit of Finance Ministers at ECOFIN last week, and it was not rejected.

I had the honour of asking the Deputy Prime Minister a question last Wednesday. I can think of three reasons why it was strange that he did not have the faintest idea what a withholding tax was. First, if such a tax were

introduced, it would be of enormous significance to the City of London. Financial services, direct and indirect, account for 25 per cent. of our GDP. That is more than the 23 per cent. accounted for by manufacturing industry, which is likely to shrink further as a result of the Government's policies. Financial services represent a higher proportion of GDP than the entirety of our manufacturing industry. The Deputy Prime Minister did not know that this tax may be imposed on our financial sector. There is no question what the effect would be, because it would be exactly the same as it was when it was imposed in New York. The whole of the bond market there moved across to London—from where it would move straight to Switzerland were this tax to be imposed in this country. It is strange that the Deputy Prime Minister did not have the faintest idea of what this tax is about, given that it is so important.

The second reason for surprise at the right hon. Gentleman's lack of knowledge is the fact that a withholding tax was due to be discussed at ECOFIN in Dresden last Saturday. Other Cabinet Ministers also did not have the faintest idea about this tax—I bumped into one yesterday, but I shall not reveal who it was, because it would not be fair. The significance of that is that it has not been discussed in Cabinet. It is of great concern that the Government are giving mixed assurances on a matter that is of such vital importance to a sector that accounts for 25 per cent. of our GDP without having discussed it properly in Cabinet.

The third reason why the Deputy Prime Minister should have known what was going on is that, in the past few months, Ministers have been giving mixed, but sometimes firm, assurances on this matter in the House of Commons. In the Treasury Committee, I asked the Economic Secretary: Does that mean you would veto any tax regime which included a withholding tax? She answered: We would not accept a directive that required Member States to introduce a withholding tax. I said: That means you would veto any such regime. She replied: That is correct. That was a serious answer by a Treasury Minister to the Treasury Committee. Were the Government to give way on this matter, and were there not to be a veto, the Economic Secretary's position would be extremely difficult to maintain—I wish that she were here to hear me say that, as she has been present for most of the debate. She told the Treasury Committee that the Government would veto the withholding tax if it were necessary to do so.

In a way, she was supported by the Chancellor in his evidence to the Treasury Committee, which is published in its fourth report. He began on good form. I asked him: Will you be vetoing the withholding tax if it is necessary to do so when it comes to finance ministers on 17 April? The Chancellor said: We will take whatever action is necessary. I have said before that we are not prepared to introduce the withholding tax in Britain". So far, so good. He went on: We are fully appraised of the national interests in this matter and I do not think you and I would be in disagreement about that. I replied: Except that I cannot actually hear you saying you will veto the tax. We went on like that for a bit, and then I said: Are you going back on what your economic secretary said when she said, 'That is correct'?"— which was in answer to the question I had put to her about a veto. The Chancellor said:

Of course I am not going back on it. In many ways, I think the statement I am making is the strongest that can be made. Again, so far, so good. He gave a firm assurance on the matter. He then said: I think you are misunderstanding me. I am saying we will take whatever action is necessary to protect our position in this matter. I asked whether that included the veto. He replied: That includes taking whatever action is necessary. I again asked: Does it include the veto? To which he replied: It may on certain occasions include the veto; it may not". It is a serious matter when senior Ministers, including the Chancellor of the Exchequer, give mixed signals on a tax that would cause untold damage if it were imposed on this country. It is serious because a Minister is on record as saying that a specific action would be taken, and the Chancellor has said that he would do everything necessary to prevent such a tax being introduced, but that he might or might not use the veto. When it came to the ECOFIN discussions last Saturday, according to the reports of the meeting, the Government seemed to back away from any confrontation on this matter. The issue was deferred for two or three weeks, and no pronouncements were made to reassure people who are extremely worried about this tax, because it would cripple much of our financial sector, which is the strongest in the world bar none. It is stronger than New York and any other financial capital in the world. It is the great British success story.

It is outrageous that the Government should even flirt with the idea of imposing a tax on the City that would threaten that position: people in Frankfurt and New York would dearly love that to happen. As a result, the business of the City of London would move to Switzerland, and the buildings that are currently being erected would remain as shells. That may not be music to the ears of the Labour party because it does not care too much about the City, but this Government are the custodians of our economy and those facts are, therefore, enormously important.

Mr. Cousins

The hon. Gentleman's argument is somewhat tortured. Is he suggesting that, if the Government were to negotiate a position with the other members of the European Union so that the eurobond market in the City was outside the scope of any of the taxes that he is imagining—so no veto had to be exercised—he would regard that as a satisfactory outcome? Or is he saying that because he lived under the lash of the handbag and was subjected to that pain for so many years that he wants the Government to exercise the veto as a proper display of power? That is a ridiculous position.

Sir Michael Spicer

I am saying that one has to establish one's position firmly in any negotiations if one wants them to go the right way. I do not have any confidence from recent public pronouncements that the Government will do what they initially said that they would do—to defend this country's interests. The Government have begun to show mixed signals. We no longer need a crystal ball, because we can read the book—in so far as it has been printed—of the meeting that took place last Saturday, and it seems that the Government shied away from taking a firm stance. The hon. Gentleman may not care too much about that because it may not be part of his philosophy to defend the City, but—in so far as the Government's policy was to defend the City and its interests, and its contribution to GDP—the emerging picture is a shabby one. If that is the case, the Government's position will be traded off, and that will be serious for this country and for the Government because of the commitments that have been made by some Ministers.

Mr. Tyrie

If such an exclusion were negotiated for the UK, is it my hon. Friend's view that we would be hurt anyway because financial services are increasingly seen in a European or global context and our exclusion would not be sufficient fully to protect us? Is not the whole history of the European Union one in which, if countries have exclusions, the Commission makes proposals some years later to bring them back into the ambit of the tax or controls?

Sir Michael Spicer

I agree with my hon. Friend. The attacks on the City are coming from different directions, with most of them originating from Brussels. The most significant was mentioned by my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory), who said that one of the most worrying aspects of what the Government were doing to the City, and to the economy generally, was the introduction of massive new regulatory regimes. The FSA, and the Bill that will introduce it, are a source of enormous concern. The FSA started as a smallish operation to try to help a few consumers who the Government claimed had had a bad deal, but it has turned into a monster. The Bill will give the FSA huge powers; and it will be able to determine its own size and powers. That is causing grave concern among those who have the interests of the financial sector at heart. The withholding tax is just part of a much wider picture of a Government who are not interested in what really makes a market such as the City of London flourish.

Mr. Tyrie

The Government have not grasped it.

Sir Michael Spicer

That is another way of looking at it. The Government do not have much more time to grasp it—only another year or so.

The Government are a tax and spend Government. They try to disguise that, but their whole philosophy is based on tax and spend and the distribution of the taxes they collect. The Government have created their strange and rather absurd golden rule, which allows expenditure to take place without proper funding and rules about taxation. Therefore, it is doubly surprising that they should try to pretend that the Budget is not part of a tax-raising strategy. It manifestly is, as has been determined by outside commentators and by the Select Committee on the Treasury.

7.16 pm
Mr. Eric Risley (Barnsley, Central)

I do not intend to follow the hon. Member for West Worcestershire (Sir M. Spicer) in analysing the Treasury Committee's report, because I wish to make a few brief points, especially about excise duties—on cigarettes, alcohol and the fuel duty escalator—and their effect on my constituency.

I welcome the Finance Bill and the Budget. The measures they contain will have a marked effect on my constituency, which is an area of high unemployment. We are trying to regenerate the local economy and many of the measures in the Bill will do much to help that—in particular, the lower rates of income tax, the measures to help families, the increases in child benefit, the children's tax credit and the investment in schools and hospitals. The measures to encourage work will also be of great benefit.

In the past few years, I have welcomed successive Governments' commitments to reducing smoking. My constituency suffers from a high incidence of smoking-related diseases and we would welcome any initiative that reduced levels of smoking. Sadly, increasing numbers of young women are taking up smoking, which is very worrying. Successive Governments have used the Budget and the Finance Bill to increase tax on tobacco products to try to reduce smoking, but for young women the effect of those measures has slowed down or they are simply not working. One of the reasons for that—although it is not the only reason—is the difference in duty between cigarettes legally purchased in this country and the duty in France and the other countries of Europe on cigarettes and tobacco products which are smuggled into this country and illegally resold through various outlets or by individuals. It is easy to obtain cheap tobacco products, which defeats the worthwhile objectives of successive Governments in increasing tobacco taxes to reduce smoking.

An interesting article recently described an analysis of discarded cigarette packets at a football ground. Three out of every four packets collected were imported and had not been sold legally in the UK. That gives some idea of the amount of smuggling, which is, to some extent, defeating the Government's objective and removing revenue from the Treasury.

Smuggling also affects retailers. A constituent of mine, a former miner, invested some redundancy money in cigarette machines, but has begun to regret it because he cannot compete with the prices of cigarettes smuggled into the United Kingdom and then resold.

Mr. Rowe

The other end of that chain lies in my constituency, which is full of sinister criminal families who have moved to Kent because there is more profit to be derived from smuggling tobacco than from almost any other substance. Kent police are particularly anxious about that movement.

Mr. Illsley

I am aware of the hon. Gentleman's concern and shall refer later to a slightly amusing incident that he will appreciate in which smugglers from my area went to his.

Smuggling is affecting Government policy and revenues. It also hits retailers in my constituency. I fully support initiatives to reduce smoking taken by this Government and their predecessor, and I support plans to ban tobacco advertising. I do not advocate reducing duty on cigarettes, but more resources should be given to Customs and Excise—and perhaps to Kent police—to try to stop tobacco being smuggled into the UK.

We must try to remove the reasons for wanting to smuggle tobacco. As the hon. Member for Faversham and Mid-Kent (Mr. Rowe) said, it is one of the easiest ways to make a lot of money these days. The Government could consider moving our duty rates closer to those of our continental counterparts more quickly than is envisaged. They could, in short, try to make smuggling less economic.

I welcome the freezing of duty on alcohol, except for cider. The difference between our levels of duty and those in Europe is substantial. Ours are much higher. The duty on a pint of beer, for example, is around 33p, but in France it is about 5p. Some of our European partners have cut their duties towards a target of 8p a pint, and it is easy to see how far we are from that rate. Even if we freeze alcohol duties for a few years, it will take some considerable time before European duties approximate to Ours.

About one and a half million pints of beer enter the UK each year on which duty has been paid in France. That has a huge effect on domestic beer sales, just as tobacco smuggling affects tobacco retailing. Breweries have closed over the past few years and consumption of beer in pubs has decreased. The Treasury is losing an estimated £800 million a year as a consequence of alcohol smuggling. There is a knock-on effect for my constituency, which is one of western Europe's largest producers of glass, by volume. We produce glasses and beer bottles, among other things, and the industry is feeling the pinch.

The hon. Member for Faversham and Mid-Kent mentioned families descending on Kent with the sole intention of smuggling illegal quantities of beer and tobacco. More than 12 months ago, Channel 4's "Dispatches" programme focused on several people from my constituency who had been convicted of smuggling. They had travelled from South Yorkshire to Kent, lived there and gone across the channel with vans to come back with as much alcohol and tobacco as they could carry. They were unemployed, some of them ex-miners. They had no income, and they spotted a way to earn some easy money.

Those people were caught and convicted, but they were detected not by Customs and Excise but by the good people of Kent, who became fed up with lads from Barnsley having a good time and spending money that they had not previously had. The lads stood out a bit in the hostelries of Kent, speaking in good old-fashioned Barnsley accents and spending lots of money, as generous Barnsley people do. The people of Dover reported that an unusual group was camped in that part of Kent; it was not customs who caught them. The Budget announced extra funds for tackling smuggling, but we must try to reduce the differences in duty between ourselves and mainland Europe to remove the reason behind smuggling.

It is often suggested that many smugglers emanate from Sheffield. However, Sheffield is a vehicle registration area. A lot of vans and trucks that are clocked crossing the channel from ferry ports happen to be registered in Sheffield, but they are not always driven by people from Sheffield or South Yorkshire.

The more topical issues of the fuel duty escalator and the perceived effect on the haulage industry of vehicle excise duty on commercial vehicles have already been raised tonight. Like other Members, I have been heavily lobbied by the haulage industry and by local hauliers. In January, Truck, Headlight and other trade magazines ran similar articles calling on hauliers to lobby MPs and drawing attention to VED and the fuel duty escalator. They all carried stories about the possibility of Eddie Stobart moving abroad to take advantage of cheaper VED and cheaper diesel.

The Government are aware of that lobby and have acted to try to reduce the burden on small companies. The 1 per cent. reduction in corporation tax, the 1 per cent. reduction in small companies tax, the quarterly payments of advance corporation tax and the extension of capital allowances have all been cited as Government action that will ease the burden on hauliers. However, as the hon. Member for Gordon (Mr. Bruce) said, companies must be making profits if they are to take advantage of reductions in corporation tax and so on, and must not have costs imposed on them.

A small company with few staff will not receive the advantages of the national insurance initiative that the Government have rightly taken. The smaller the profit, the less benefit there will be from reduced taxes. Our fuel is the most expensive in Europe, and vehicle excise duties for 30-tonne or 32-tonne lorries are, at about £3,200, the most expensive in Europe, too.

We have been through the environmental arguments for imposition of the fuel duty escalator. However, having an 1100 cc engine does not necessarily make a car cleaner than a 3.5 litre, superbly tuned, brand new car with catalytic converter. The smaller motor could easily be twice as dirty as the car with the larger engine. To take advantage of the £1,000 reduction in vehicle excise duty for cleaner engines would mean a hell of an investment to hauliers with few lorries.

The Government should consider the state of research. My research showed that the most recent work on European Union comparisons in respect of the costs of the road haulage industry is quite old. Both the Road Haulage Association and the Freight Transport Association estimate that 8,000 jobs will be lost over the next 12 months. One takes that with a pinch of salt, because they will try to make the best case that they can in respect of the escalator. There has been considerable press coverage and direct action by the hauliers. I condemn such action, which does the industry no good.

I appreciate what the Government have done in freezing VED for most commercial vehicles, but we must consider doing research to compare the situation with that in Europe. The Minister of Transport has mentioned a study—I think it was by KPMG—of comparative costs, but that was predicated on a 50-vehicle fleet. Many hauliers have fewer wagons. There are self-employed people who own one lorry and are contracted to other haulage companies. They cannot can take advantage of the things that I have mentioned and are not considered by the KPMG report. Some such operators are small family businesses, which are finding it difficult to cope.

Some 30 per cent. of lorry journeys are made by empty wagons. Too many lorries deliver fresh air because of our packaging systems, which mean that we cannot make optimal use of containers. We could improve fuel efficiency and route planning to take advantage of joint initiatives where one company contracts with another to bring loads back rather than bringing the lorry back empty.

Mr. Nick St. Aubyn (Guildford)

Can the hon. Gentleman say which countries are doing that so much better than we are?

Mr. Illsley

I cannot. Our industry, and, I think, the Government, would maintain that we have a very efficient haulage industry. No matter how good the industry, packing a 32-tonne lorry with food, carpets or whatever, still means that a lot of space and fresh air is carried. Some issues cannot be addressed without research and development in the areas of packaging and freight haulage. We need up-to-date research to find out whether the arguments of the haulage industry are correct and whether it is true that it is disadvantaged vis-a-vis our European partners.

I welcome the Finance Bill and the Budget. I hope that the Government will consider the matters that I have raised in more detail in Committee.

7.33 pm
Mr. William Ross (East Londonderry)

It is a pleasure to follow the hon. Member for Barnsley, Central (Mr. Illsley), if only because I intend to address many of the issues that he raised from the point of view of Northern Ireland. As he will discover, if things are bad with him, they are a great deal worse with us.

It would be interesting first to consider the debate so far and cast our minds back to the things that used to exercise us when there was much talk about the public sector borrowing requirement and how it could be reduced. The Government, and the previous Government, are to be congratulated in that we have sometimes got to the stage of repaying public sector debt, which I strongly favour. I hope that the Chancellor will keep it firmly in the forefront of his mind, because the saving in interest alone that would result from getting rid of the huge burden of Government debt is a fair prospect that he should try to realise. We pay out far too much money servicing public sector debt, which is often much the priciest way of securing investment. In addition, much borrowing is spent not on investment but on current expenditure, which means that we get no return for the public sector debt. I favour reducing it to nil if it can be managed.

The estimation of the tax demand that the tax-paying public will bear, however grudgingly, has exercised the brains of every ruler and Chancellor since taxation began. Get it wrong, and there will be resistance. At its most benign, that means tax fraud and avoidance. The next level up is smuggling. Formerly, the next level was rebellion and violence; now, it means moving overseas or across borders, as happens in Northern Ireland, to a lower tax regime.

I note from the CARE—Christian Action, Research and Education—brief sent to Members that in his 1997 Budget speech the Chancellor said: The tax system sends critical signals about … activities that a society wishes to promote and deter."—[Ofcial Report, 2 July 1997: Vol.297,c.311.] I hope that he has not forgotten that, but keeps it firmly stuck to the front of his desk when he considers future Budget proposals. It might be better to replace "society" with "Government", but the principle is correct.

The statement illustrates an objective of taxation that is often ignored: the desire of the Government to achieve aims other than the mere raising of revenue. In a world where travel was slow and difficult and economies were isolated, it was relatively easy to ring-fence an economy. There was always some leakage, but in today's world, and especially in a borderless Europe, the leaks have turned into a raging torrent driven by widely different tax rates. Some of our rates have been set for laudable reasons besides raising revenue; but, in pursuit of those objectives, the balance has gone far beyond the willingness of the targeted population. The unwillingness to pay is rooted in the resentment felt by citizens when they compare like with like in other economies and countries.

Some years ago, the previous Government was well warned of the consequences of increasing tax on tobacco. I mentioned it several times. As long ago as 1994, in relation to tobacco, I said: we simply cannot go on allowing important sectors of the economy to be undermined or destroyed because we are so out of step with other countries"—[Official Report, 13 December 1994; Vol. 251,c.854.] That was echoed by the hon. Member for Barnsley, Central. We have now arrived at that point. The tobacco situation has developed exactly as the management and trade union representatives at the Gallaher's factory in Ballymena forecast. Every year they visit the House to meet Members not only from Northern Ireland but from elsewhere in the Kingdom. They will confirm, if confirmation is needed by Treasury Ministers, that those forecasts were made. They have now been borne out.

The smuggling of tobacco in its various forms is swelling from a trickle to a flood because of the vast difference in tax rates between United Kingdom and continental Europe. Those interested in what we were told by Gallaher's workers and management have only to look up my previous speeches. I will not weary the House with all that now, but it is clear that they were correct. Seventy per cent. of hand-rolling tobacco sold in this country is stuff that was exported mainly from Gallaher's. It is back here in a fortnight—smuggled in. The loss to the Revenue is immense. Gallaher's forecast that, if taxation on cigarettes went up, the same thing would happen, and it duly did. That is why I believe that we went far beyond what was fair and reasonable or what people were prepared to pay.

The benefits to the health of the nation from increased taxation on tobacco have not been realised. The tobacco industry is being wrecked and revenue is being lost. As I said in the Budget debate, the Red Book forecasts that the tobacco industry will decline in the next few years because the tax on tobacco has gone beyond what any citizen will willingly pay. Criminal activities have taken over, the revenue stream has been wrecked, and there is no benefit to the country. People are still smoking.

We have used the stick to stop people smoking, but it is not working because people are now avoiding it. It is time to get back to the carrot, and the carrot has to be rooted in education, starting with the very young.

If the desired end of the tobacco tax regime was health rather than revenue, the desired end of the road fuel and vehicle excise duty regimes was environmental rather than revenue-inspired. We all know, of course, that both revenue and environmental considerations brought the road fuel escalator into being. At least that is what we have been told by both the present and previous Administrations.

The explosion of anger and frustration witnessed in Great Britain on the streets of this city and others since the Budget is clear proof that road taxes have passed beyond what most people affected by them believe to be reasonable, fair or equitable compared with those in other countries. I raised that matter in a debate as long ago as 15 December 1994. I pointed out the effect of the cost of fuel on every item that we purchased and the need for urban and suburban, comprehensive, high-frequency, cheap public transport to replace private cars in cities if there was to be any real environmental benefit.

I also drew attention to the consequences of high road fuel taxes for the rural dweller, for whom a car is not an option but an essential. The previous Government, and now the present Chancellor, have continued on the same line of action and have increased road fuel taxes, with the inevitable and foreseeable consequences. So there is no excuse for being where we are today. It should not have happened. People should have known enough to put the brakes on tax increases long since.

I understand that there is to be a debate on fuel taxation and the road haulage industry in the House tomorrow. I personally regret that it is to be held before the report on the effects of the policy in Northern Ireland has been made available. The Northern Ireland Select Committee has done such a report. I fear that it will not be published before tomorrow, but I understand that damning evidence was given as to the effects of the policy in Northern Ireland. I shall content myself by saying that it now seems that the figure that I gave to the House in March of £100 million of lost revenue in Northern Ireland alone in the past year appears to be wide of the mark. That figure is only a fraction of the true cost, which was anything up to £400 million last year. That is the cost of fuel smuggling between the Irish Republic and Northern Ireland.

Any hon. Member besides me who had the opportunity of watching the television news in Belfast just after the Budget would have seen one lorry driver interviewed. I think that he was the owner of one truck, who did most or probably all of his work in Ireland. He told the television crew and the people of Northern Ireland that he did not buy any fuel in Northern Ireland. He bought it all in the Republic, saving £2,200 a month—£550 a week. I suppose that most people would be happy with that as profit, never mind extra profit. But perhaps the driver was not making any profit. He was not the only person buying all his fuel in the Irish Republic.

Many operators are now transferring their fleets to the Republic to take advantage not only of the cheap fuel there. but of the lower vehicle excise duty. I hope that whoever is in the Chair tomorrow will call some of my hon. Friends who are members of the Select Committee. They will be able to give other illustrations of the activities of the smugglers, many of whom in the border areas appear to be tied to the most violent and ruthless of the terrorist organisations. They will be able to describe the role of those organisations in fuel smuggling, the amount of money that they make, the amount of fuel shifted and the damage that is being done to all legitimate businesses in the border towns of Northern Ireland. The damage is colossal, and there is no point in saying, "We are doing our best." The best that has been done so far is not nearly good enough. A system of smuggling of outrageous criminality exists and it has to be defeated.

One story that the Select Committee was told was of a character who had got himself a stock lorry. He built a large tank inside it, stuffed all the ventilation holes with sheep's fleeces, put a dozen old ewes into the back bit, filled up the tank with fuel and drove backwards and forwards across the border all day until the Revenue caught him. Whenever officers glanced into the ventilation holes, they saw a few sheep blatting in the back end of the lorry. They did not realise that there were thousands of gallons of smuggled fuel in the front half of the vehicle.

Smugglers are an ingenious and ruthless lot. They have cost the Treasury an enormous sum of money. The damage that they are doing to the haulage industry in Northern Ireland is beyond comprehension. That has to be dealt with in Northern Ireland and the rest of Great Britain, especially in the light of what the hon. Member for Barnsley, Central (Mr. Illsley) said.

Hon. Members will recall that in Question Time last week the Minister of Transport gave the impression that accurate figures were available in respect of the costs for the road haulage industry in each EU country. I tabled written questions asking for those costs, which were due to be answered on Friday. The reply to the five or six questions that I tabled was that the Minister would answer me shortly. I hope that he will. I had hoped that the answers would be available today: they are not. That will surprise the House, because the Minister suggested that the information was sitting there and we had only to ask for it. Perhaps the details that I have asked for are so comprehensive that it has taken some time to assemble them. Let us hope that they are available tomorrow. I hope that they will give us a clear picture.

If the figures show that the costs in the United Kingdom as compared with those in EU countries are as the Government allege, hauliers will recognise that it is in their financial interest to stay within the United Kingdom. Given some of their reactions to the new tax rates in the past few weeks, I think that hauliers will take some convincing. We shall wait and see. It is sufficient for today's proceedings to say that the situation is intolerable and it has to be resolved.

I am glad to see that the provisions of the Bill in relation to road fuel will be considered on the Floor of the House. I look forward to those debates, but I regret that we are not taking on the Floor of the House the provisions relating to vehicle excise duty.

My final point is on an unrelated matter. Do the Government really believe in marriage? Will the tax system send out a clear signal that the Government want marriage to be the foundation of a stable society in this country? If so, will the Government take steps to make it financially prudent to become and stay wed?

7.50 pm
Mr. Ian Pearson (Dudley, South)

Budget 1999 takes a major step towards building a stronger economic future for Britain and I warmly welcome the Finance Bill that takes it forward. The Bill adds to the two previous Finance Bills of the new Labour Government and, in many ways, will be seen as the most radical of the three. With 129 clauses and 20 schedules in 169 pages, it is certainly shorter than the two previous Finance Bills, but is none the worse for that—although it continues to surprise me that there are no fewer than eight schedules covering various aspects of stamp duty. However, there is a great deal of meat on the Bill and I am sure that all those who discuss it in Standing Committee will find that there is plenty of work to do.

I have served on every Finance Bill Standing Committee since I was elected to the House in December 1994, so I am becoming something of a connoisseur. Although 1995 and 1996 were good vintages for Bordeaux and Burgundy, they were very poor indeed for Birmingham, Brighton, Bristol and the rest of Britain. That meant that, when the new Labour Government took office in May 1997, we inherited an extremely fragile economy, a national debt that had doubled and public finances that were in a terrible state.

Our first two Budgets laid down a sound macroeconomic framework for the United Kingdom and this Budget builds on that. The Budget is finely balanced. The overall fiscal stance of all three Budgets has clearly benefited the British economy, and will put us in a position that ensures that, in the next century, British companies will have the ability to succeed in Europe and our European home market.

Mr. St. Aubyn

The hon. Gentleman tells us that the situation that his Government inherited at the election was unsound. We could argue about that for a long time, but will he tell us whether he believes that the situation was better or worse than that which the Conservatives inherited in 1979?

Mr. Pearson

I have no desire to spend Second Reading giving the hon. Gentleman a history lesson, but, if he wants to pursue that matter outside the Chamber, I shall be happy to engage in debate with him.

It is clear that the Budget and the Finance Bill will make work pay and help to build a fairer society. I particularly welcome the 10p starting rate for income tax; that will benefit many hundreds of thousands of people throughout Britain. It sends an important signal as to the Labour Government's views on personal taxation. I also welcome other measures, such as the national insurance reforms that have taken place. They will relieve almost a million people from paying tax at all. The minimum income guarantee means that families with one wage earner will be able to earn slightly more than £10,000 before they have to pay tax. A package of reforms totalling £1 billion will benefit pensioners. We should also welcome the increases in child benefit that were announced in the Budget.

I want to devote most of my speech to the effects of the Budget on business. The first point to acknowledge is that the 10 per cent. starting rate of corporation tax is widely welcomed by small businesses. The research and development tax credit is also welcomed by small and medium-sized businesses. The Opposition have lost the plot when it comes to issues such as the R and D tax credit. Britain's future clearly lies in building a knowledge-driven economy. Research and development encouraging innovation and the development of value-added products and services must be the future for the British nation. It is essential that we have an R and D tax credit and I am sure that it will be used by businesses.

The extension of the scheme for employee share ownership is welcome; a vast body of evidence suggests that that is an extremely sensible measure that will help to improve company performance. Likewise, the 40 per cent. capital allowances regime will be significant in helping to encourage investment and growth—I shall say more about that later.

Finally, in respect of measures that are welcomed by businesses, there is the announcement of the establishment of the small business service. For too long, small businesses have received short shrift from Governments of whatever political persuasion. Now, the small business service has the potential to do something radical and to ensure that the voice of small business is heard at the heart of Government. My hon. Friend the Financial Secretary and her colleagues on the Treasury Bench are keen that that should happen, and I hope that we follow through on that matter so that we develop a powerful body with the same clout as the Small Business Administration in the United States.

As other Members want to contribute to the debate, I shall be brief. I want to focus on three matters: road fuel duty; the climate change levy; and the capital allowances regime. In relation to road fuel duty, I have no time for the opportunism of the Tories. The Conservative Government introduced the road fuel duty escalator and it is a bit rich for the Conservatives to say that they have changed their minds on that issue now, late in the day. The road hauliers, too, have not been especially well served by having as their chief spokesman a former Tory Minister with ambitions to be the mayor of London.

Countless local road hauliers have talked to me about the road fuel duty. I have seen their balance sheets, profit and loss accounts, cash-flow forecasts, management accounts and order books, and I know that many of them have real problems. The problems are not confined to road hauliers; large swathes of manufacturing industry are beginning to be hit by the tax. As no other Government in Europe are following the road that we are going down, and as the pace of technological change is such that new developments in clean fuel technology and alternative propulsion systems mean that year by year our cars are becoming cleaner, we need to reconsider the road fuel duty escalator. We have reached the stage—we may even have gone past it—when it is time to take our foot off the gas and to say that the road fuel duty has now achieved what we could have reasonably expected for it without damaging the competitiveness of British industry. Common sense says that we must take our foot off the escalator at some time; I should like to think that, after this year, we shall decide to discontinue the road fuel duty escalator policy—perhaps that is an early Budget 2000 representation. I should welcome any review or detailed proposals that the Government might want to make on that matter.

Mr. St. Aubyn

I applaud the courage of the hon. Gentleman in standing up to the pressure from his colleagues on the Treasury Bench on that matter. However, if he accepts that it is right to call a halt to the escalator, why does he criticise the Conservatives for saying that we should call a halt before the Finance Bill is passed and not afterwards? Surely, we are on the same side; it is only a question of when we call a halt. The road hauliers in his constituency are telling him that we should call a halt before this latest increase, not after it.

Mr. Pearson

I can assure the hon. Gentleman that we are not on the same side. The Conservatives' opportunism beggars belief: they have wound up hauliers and they have given tacit support to some of the recent demonstrations, which I condemn. However, the issue will not go away. The hon. Member for East Londonderry (Mr. Ross) was right to say that the problem is especially acute in Northern Ireland. My hon. Friend the Member for Barnsley, Central (Mr. Illsley) also made some sensible points in respect of the road fuel duty escalator.

On the question of technological progress, every major automotive manufacturer is currently spending a lot of money on research into battery-operated vehicles and fuel cells. Daimler-Chrysler has already announced that, in 2004, it is to start production of a fuel cell-powered car, and Toyota, Ford and GM are all following suit. The technology already exists and the costs are being driven down, if not by the minute, then by the day. If we were able to fast-forward to 2010 and look back on the period between now and then, we might feel rather silly at having taken action that damaged British competitiveness when cleaner, more fuel-efficient cars were coming along to remove the problem. If we do not have a European solution to the problem, we do not have any solution at all.

The climate change levy will not be introduced until 2001, and consultation will be carried out in respect of the proposals, which is welcome. I remain concerned that the primary impact will be on manufacturing industry, so we must take care during the consultation phase to do all that we can to ensure that extra burdens are not imposed on manufacturing. I am sure that the Government will come up with an exemption scheme for high-energy users, but I should like to highlight the glass industry, which is important to my constituency.

Glass manufacturers operate in an extremely competitive environment and they are significant energy users. The industry uses fairly large pieces of capital equipment, so changing to investing in more efficient technology in anything less than the medium term would create insuperable business burdens and threaten the future of large sections of the industry. I raise those issues as part of my early representations and hope that they will be considered during the consultation process.

The 40 per cent. capital allowances regime is extremely welcome—perhaps in the next Budget, the Government will announce that it is to be a permanent feature of their policy. The specific matter which I want to highlight is leasing, which is currently excluded from the proposals for the capital allowances regime. I have no qualms about saying that some of the scams that went on in finance leasing occupied a lot of our time, as we tried to do something about them in previous Finance Bills. No one wants the tax base to be eroded by purely artificial schemes, but let us consider leasing in connection with information technology.

The current tax system has the potential to distort investment decisions, because, if a company has the money or the financial security to borrow the money to do so, the existing regime provides an incentive for it to buy, or to take out a loan to buy, capital equipment such as IT equipment. Most sensible companies consider leasing as a means of purchasing IT equipment, but the companies are unable to benefit from leasing arrangements under the current regime. That is wrong, because leasing computer equipment is a sensible option that gives small businesses the opportunity to upgrade their equipment, which is not possible if they buy the equipment. As a Government, we should not in effect be encouraging companies to buy IT equipment when leasing deals would be far more efficient.

I know that, because the benefits of the capital allowances would go to the leasing companies, it is not a simple matter to bring leasing under the capital allowances regime in a way that would help small and medium-sized businesses. However, it is not beyond the intelligence of Treasury officials to develop arrangements whereby the benefits of those capital allowances could be passported through to the small and medium-sized businesses. If we did that, we would have an improved capital allowances regime. I already think that it is good, but if the regime could include a sensible leasing package, it would be better.

This year's Finance Bill represents a tremendous step forward in building a stronger modern economy in Britain. It has been welcomed by people in my constituency and by the vast majority of businesses. A recent study by Manchester university reported that small businesses will be 5.7 per cent. better off as a result of the Budget; that is a testament to the Government's commitment to small businesses in this country. I warmly welcome the Bill.

8.7 pm

Mr. Ian Bruce (South Dorset)

I am grateful to have been called to speak in the debate. I suspect that this is the first time that I have spoken in a debate on a Finance Bill. When I came into the Chamber, I thought that I had little to say but, the more I read of the Bill, the more issues I find on which I want to comment seriously.

I am pleased that some Labour Members are starting break away from their Trappist tendencies, or from the sycophancy whereby they say nothing bad. The one issue that appears to unite hon. Members on both sides—even though some would deny it—is the fuel duty escalator. When a Conservative Chancellor introduced the escalator, he did not do so without taking a good deal of criticism from Conservative Members. Therefore, although I doubt that I shall be a member of the Standing Committee on the Bill, I am sure that, if the hon. Members for Dudley, South (Mr. Pearson) and for Barnsley, Central (Mr. Illsley) are on that Committee and they get together with the Opposition, we shall be able to table an amendment that will be passed with support from both sides of the Committee. I should not make such suggestions while the Whips are listening.

It was with the support of hon. Members on both sides of the House that the previous Conservative Administration moved toward having a unified Budget, so I am concerned that, although the Government have carried out their comprehensive spending review and decided what is to be spent over the next three years, this Budget has again split the two processes of taxation and spending. However good their crystal ball, I cannot believe that any Government can state their spending totals for the next three years and be absolutely certain of achieving them.

The Government can set targets and try to achieve them, but unexpected issues always arise—for example, Kosovo will have increased defence costs and aid spending. There is considerable pressure to be far more generous in paying nurses and teachers, but proper analysis of the increased funding for the national health service and education shows that that pay pressure will continue, because the money is not there even to pay what has already been promised to those two groups of people.

It is a tradition in such debates to say something positive. I must declare an interest as I am an adviser to the Telecommunication Managers Association, and I welcome without reservation the removal of the tax on mobile phones. The tax was introduced by a Conservative Chancellor who thought that he made a rather good joke about being disturbed in restaurants by mobile phones. That joke was not appreciated by anybody in business. It was completely wrong to tax an individual because he owned a mobile phone and could be contacted by his employer at any time of the day or night. Many mobile phones are now equipped with vibrators and messages appear on the screen to identify the caller. One may be contacted by telephone even in the Chamber. I am surprised that no one has decided to tax pagers, but I am grateful that that decision has not been taken.

Unfortunately, I have no more praise for the Bill. Many clauses of Finance Bills have gone down in infamy, and clause 31, which abolishes the right of widows to receive bereavement allowance, might be the infamous clause in this case. That is one of the very few benefits—probably the only one—that a married woman receives when her husband dies prematurely. At present, it is a non-means-tested benefit that is paid for by national insurance contributions—I understand that the size of those contributions may decrease, but that does not matter to individuals who are now in their 50s and who have paid contributions all their working lives so that, if they die, their wives may benefit.

No matter what their level of income, it is always more expensive for people to carry on alone. Many women who have chosen to be home makers will be forced back into work and perhaps into low-paid jobs because they lack workplace skills. Perhaps even more serious is the plight of the woman who is in work when her husband dies. Under the non-means-tested benefit system, that woman was able to stay in work because she also received the widows benefit. The removal of that allowance is most appalling. I asked the Prime Minister during Question Time whether he was proud to be the Labour Prime Minister who abolished the widows pension. He gave me a fair answer: he said that it was a matter of balance and that we must decide which direction to take. I think it is totally wrong for a Labour Government to introduce means testing of the widows pension.

Many Conservative Governments signalled their desire to abolish stamp duties and we had almost reached that point, but duties have now been cranked up again. It is a wholly wrong-headed tax. For example, someone who moves house every few years because of his job—perhaps he is in the armed forces—must pay a tax for occupying exactly the same size house as someone who remains in one place in the same dwelling. Stamp duty will hit people hard and hinder labour flexibility. It is a particularly strange imposition because this Budget is supposed to help people back into work.

I am particularly worried about economic policy. The Government claim constantly that they have a stable economic policy, but stability may be defined as zero growth. I do not think that Labour Ministers, even in their wildest dreams or nightmares, would aspire to zero growth. I think they want an economy that is growing at a steady rate, with no sudden moves up or down. That sounds wonderful: we would all love to see it. However, what has happened? We have moved from the ideal position of 3 per cent. growth to 1 per cent. growth or lower and a near-recessionary situation, yet the Government claim that they have achieved stability and moved away from Tory boom and bust. We may have a soft landing, but the economy that was growing so well has gone bust.

Hon. Members may argue about the way in which we share the cake, but, unless the economy is growing—hopefully at a steady rate, but perhaps by fits and starts—we will not be able to pay for additional services for our constituents. We might argue about the size of allocations to the health service or to defence, but, if the cake is not growing, we are fooling ourselves, because we cannot achieve anything. I do not see where that steady growth will come from in this Budget. It provides penny packet assistance for companies, but will not, for example, compensate for the massive increase in fuel duty, which will deflate the economy and retard growth.

The Government have produced all sorts of glossy brochures which do not say anything in an attempt to persuade people that they are either preparing the economy to join the euro or at least preparing to put the membership question to the people. Nothing in the Bill suggests how those outcomes will be achieved. What has happened to the euro since the Government's strategy began? I do not know whether the euro has devalued by 7 or 8 per cent. against the pound, but it has had enormous effects on the United Kingdom economy.

I do not blame the Labour Government: the European central bank must take much of the responsibility for that devaluation. After all, it suggested to the world that the euro would be a stable reserve currency. It is stable for the 11 countries in economic and monetary union, but it is certainly not stable for anyone else. At one point, there was a 1 per cent. devaluation every week. If that had continued for a year, the euro's value would have halved and it would have been worth as little as the rouble.

The Chancellor can no longer knock on the door of the Bank of England and say, "Excuse me, Governor, but I think that you have got interest rates wrong." However, unlike the 11 EMU member countries, the Chancellor can knock on the door of the president of the European central bank and tell him to do something about the euro. The devaluation of the euro will cause all sorts of problems for our economy, and therefore the Government's Budget. When we take off 0.25 per cent., euroland takes off 0.5 per cent. We must address that problem if this economy is to work and if the gross domestic product figures in the Budget are to be achieved. Everything depends on it; the Government must not be pushed off course.

A few months after losing office, former Chancellors will usually admit that Treasury forecasts are never right. One can bet one's shirt on it. That is understandable because the Treasury does not have a reliable forecasting mechanism: it has only a crystal ball.

I shall deal now with one of the main issues in the Bill. My right hon. Friend the Member for Fylde (Mr. Jack), who has had much experience in trying to achieve simplification of tax, referred earlier to the previous Government's attempts at that and said that all hon. Members, including Labour Members, had signed up to that aim. We are moving towards increased complexity, which is not what we want. I used to work out wages for the companies that I worked for, and I know how much time and effort go into that task when there are multiple tax rates. Having a single tax rate for the vast majority of people and raising the upper tax rate out of the reach of many people were good moves.

The previous Conservative Government set themselves a target. They could not reduce the basic tax rate to 20p overnight, so they said—their proposal was complex, but it was at least a development—that they would introduce a lower rate of 20p and try gradually to bring down the standard rate to 20p. This Government have said, "We shall have a 10p rate because we promised one and it sounded really good." That is paid for by abolishing the 20p rate, but is anybody suggesting that the standard 23p rate of income tax will, over the next five or 10 years, go down to 10p? Layers are being introduced to the income rate structure which will become permanent.

People jump up and down with joy and say that lower tax rates will benefit the low-paid, but those rates will be the accountants' delight because they allow people to move income around. I have always wanted national insurance rates to be close to tax rates, and I welcome the move towards that, but I caution the Government that many households can move income around, and they will start to do so.

It has always been advantageous for a man who is in business for himself and whose wife is a home maker and looks after the children to say that she does the books or answers the phone once in a while, so that he can pay her up to the national insurance minimum. That practice is widespread, and I am not giving away any secrets. By increasing the national insurance limit, the Government have introduced a greater incentive for wealthy people who run their own limited company to indulge in that practice. Treasury Ministers say that they want to close loopholes, but they might well find that they have just widened a loophole, and that will create difficulties for them.

Some people might say that the introduction of the working families tax credit is a generous move. There is certainly a case for saying to individuals who are at home, "We shall give you an incentive to get back to work." That proposal is more complicated than previous measures. If the Government wanted to give people more help through income support or other means, they could have done so more simply. In addition to dealing with all the different tax rates, employers must now work out the working families tax credit. It is a negative income tax, and this is the first time that we have had such a tax.

The Government will face problems with people fraudulently manipulating the working families tax credit. My right hon. Friend the Leader of the Opposition stated the case perfectly when he said that people would be able to look after other people's children and get paid for it. They will find devices so that they can say that they are working for somebody else, and income will be going backwards and forwards, but the Government will be topping up that money.

I do not know how many hours people will have to work before they will be entitled to the working families tax credit. That may well be in the detail of the Bill, but I suspect that it is not. I believe that the figure may be 30 hours.

Mr. Tyrie

It is 16 hours.

Mr. Bruce

In that case, the situation is a great deal worse than I thought, as we would realise if we divided the guaranteed minimum income of £200 a week by 16, which would give an awfully high hourly rate. That provides an incentive for people to get jobs paid at £3.60 an hour or, if they are under 22, £3 an hour, and claim the rest of their income from the tax system. We can imagine the scams that people could set up because we know of the present scams in social security fraud, such as people having multiple identities.

Mrs. Louise Ellman (Liverpool, Riverside)

Is the hon. Gentleman saying that he and his party are committed to repealing the working families tax credit? How would he explain that to the families who stand to gain by about £23 extra a week?

Mr. Bruce

The hon. Lady must be a little careful. We expect the Labour party to be in government for at least another year, probably two. That will give us the opportunity to find out how the working families tax credit works and whether it is better than income support and the other systems that we have had. We have always attempted to ensure that people are able to go back to work, and hon. Members are united in their desire to remove poverty traps from which people cannot escape.

I shall make a prediction to the hon. Lady. People in the Treasury, even under a Labour Government, are not stupid, and I suspect that the problems that I have warned the Government of will come back to haunt them. It may well be a Labour Government, rather than a Conservative Government, who will abolish the working families tax credit. We must remember that the Labour Government have just abolished student grants. Who could ever have predicted that? In the Bill, they are abolishing the widow's mite and means-testing widows' pensions, for which their husbands paid. I do not exonerate the Government from any of their actions. They will find out how the working families tax credit works, and I suspect that an awful lot of rules and regulations will be introduced to try to prevent it from being abused.

I decided that my speech would be about the utilities tax. There are a small number of measures in the Bill relating to the new deal. To keep in order, as the new deal was in the previous Finance Bill, and is already in place, I ask the Government to consider seriously how the new deal is working. When a Government raise £5 billion by taxing the utilities and then announce a new deal, it would be a strange beast who would not try to make the best of the new deal figures. However, I started examining the new deal figures in my constituency. I meet regularly with the staff of the jobcentre in my area, with whom I have a very good working relationship. I was the only Member of Parliament in my area who turned up at a meeting to launch the new deal for the region—I wanted the new deal to work and be effective.

The Government's aim—to target the long-term unemployed—was a good one. Under the previous Government, long-term unemployment was coming down rapidly. It also declined under the first year of the Labour Government, before the new deal was introduced. Whenever one challenges the Government about the new deal figures, they repeatedly claim that they have slashed long-term unemployment among 18 to 24-year-olds. That was true until the new deal was introduced.

The new deal is due to cost £5.2 billion over four years. After three months of the new deal, it looked as though about 9,000 people had been put back to work. That figure refers to people coming off the long-term unemployment register—never mind the complex figures that the new deal people provide. After six months—the period for which the new deal was meant to help people—the number had gone back up by 9,000 or 10,000. After nine months, the number had gone up by another 22,000. The figures that are cited—I am sure that every hon. Member receives such a figure every month, showing how many people have "found a job" under the new deal—are the churn that always existed: if long-term unemployed people find a job, they come off the long-term unemployment register; and others who might have been unemployed for rather a long time go on the register.

What is interesting is that, in the three or four years before the previous Government lost power, and for the year that the present Government continued our policies, the number of the long-term unemployed was falling rapidly. Indeed, the number of the unemployed in general was going down rapidly. We have to be careful with the statistics. If someone signs off from long-term unemployment, does a week's bar work and then signs on again, he is on ordinary unemployment as he has a fresh claim. In other words, there may be long-term unemployed people who are never included in the six-month unemployment figure.

The Government are spending £5.2 billion on the new deal, but the one group of people that has had the "advantage" of the new deal for virtually a year is the group that is growing faster than any other. I asked the Prime Minister a question about this after six months. One group—the long-term unemployed—had increased by 43 per cent. over a quarter, which is absolutely unbelievable. One could say that the statistics are wrong, but I tried to investigate what was really happening, as I could not understand how the group of people that we were trying to help could grow in number.

It seems that the Employment Service is concentrating all its efforts and resources—its resources have been cut by this Government—on people who have been unemployed for six months. Perhaps who have not been unemployed for six months are left on their own. Also, more might be coming up to being unemployed for six months because less effort is being made to help them in that time. Effort is being made, not to find people subsidised jobs but to send them on a training course, a do-gooding course or a make-work course. There are people in every constituency who have signed contracts with the Department for Education and Employment to provide such schemes. These people are great advocates for the schemes. I am sure that they are very good, but they are not bringing people back into work.

Mr. Gardiner

Does the hon. Gentleman agree that young people's capacity to achieve skills, at least at general national vocational qualification, level 2, is vital for their long-term employment prospects? Will he take on board the very real need to make sure that young people in the labour pool have those skills if they are to get jobs that they will retain in the long term? He was rather dismissive of the need to establish a skills base.

Mr. Bruce

I follow the hon. Gentleman's argument. When the new deal was first suggested, I would have agreed that, by providing those skills, we would improve people's employability. We might have wonderful ideas in this place about what might happen if only we gave people additional skills, but I am reporting what has actually happened. Unfortunately, what the hon. Gentleman suggests has not happened.

Unless one finds a job for someone in the first place, it is like bringing an unemployed person and employee together and saying to the employer, "I know you don't want to take on this individual now, but, if I promise to give him a six-month course to do this, that and the other, will you promise to give him at least a chance of employment?" I am afraid that schemes set up by every Government have had that feature. A group of people goes off into education and, although the educational establishment does its best, the scheme never achieves what it was intended to achieve.

The Government admit that the original plan was that about 40 per cent.—perhaps 50 per cent.—of people entering a new deal scheme would enter subsidised employment. However, the subsidised employment is almost non-existent. In my constituency, supposedly, only 10 people have gone into a new deal subsidised employment option.

I was heavily criticised by Labour councillors in my constituency, whose message is, "These damn Tories do not care about the long-term unemployed," so I telephoned the local authority and asked, "How many people do you have working from the new deal?" The reply was, "We have not discussed it with those responsible." I have persuaded the council to get together with the jobcentre.

I want the council to take people on. I want the £5 billion to be sensibly spent. I am simply telling the Minister that the fiddly little things that the Government are trying to do in the Bill are not enough. We need to take a fundamental look at what is happening, because the money is running out and is not doing what we intended it to do.

On page 54, in box 4.1, although the "Financial Statement and Budget Report" says: The New Deal for 18-24s has already secured 58,000 jobs for young people. Among them are", that is untrue. The new deal did none of that. It has actually slowed down what was happening without the new deal. It has been a failure. Before the hon. Member for Brent, North (Mr. Gardiner) shakes his head, let me say that, tomorrow, we get the first year's full figures in relation to long-term unemployment, and I suspect that they will cause great concern.

I suggest that the hon. Member for Brent, North and other Labour Members table questions to the Minister to find out what has happened in their constituencies. It is not enough to know the flow of people through the new deal scheme, because masses of people are moving from the gateway on to a scheme and so on, but they are falling off the other end and going nowhere. More people are disappearing off the books to who-knows-where than are being helped. We must find out what is happening.

I shall now discuss ISAs and PEPs. We should remember why the previous Government introduced tax-free savings schemes. At the time, a person might save long term for a pension by entering a pension scheme with all the tax benefits, allowing someone else to manage that money, but managing one's own money to a certain extent and putting an amount away for retirement was not allowed.

Appallingly, when the Labour Government decided to introduce ISAs, they intended to tell people with PEPs to cash them in. I am glad that, as a result of protests by the Conservatives, by the industry and by the people who held PEPs for their long-term retirement benefit—which would ensure that the state would not have to keep people—the Government very quickly abandoned that intention.

Now that the Government have introduced ISAs, a simple piece of arithmetic may explain why ISAs will not be right for people, even as a short-term savings method. At the moment, individuals receive only about 3 per cent. interest. When financial institutions tell the investor, "We shall charge you 1 per cent. to manage your money and then you can have a tax-free allowance," that 1 per cent. is, in effect, the 33.3 per cent. tax; so, although one may save 10, 23 or even 40 per cent. tax, one pays the guy—I am sorry, the person; the woman or the man—who sold the ISA more than one would pay the taxman. People must therefore consider the matter very carefully.

If we had interest rates of 15 per cent., and if one paid tax on that 15 per cent. and then paid someone 1 per cent. to manage the money, the individual would obviously do better. I did not mean to suggest that interest rates would reach 15 per cent. under the present Government. I cannot remember—was it 23 per cent. or 25 per cent. inflation that Labour got at one time?

If interest rates are very low, the management charges on a complicated product such as an ISA or a PEP may outweigh the benefits. The Conservative Government had problems after persuading people to take out personal pensions. I hate to think that, in a few years' time, the Chancellor may be pulled up and asked by individuals, "Please, will you pay back billions of pounds? We were persuaded to take our money out of the building society to put it into an ISA, and it is worth less than it would have been if we had left it in the building society."

The first PEP that my wife and I took out performed appallingly. The guys who were running it—they were guys in this instance, but I shall not name them because I think that others were in the same position—were getting their 2 or 3 per cent. for managing our funds, but the stock market was doing nowt and our PEP was doing even worse. Eventually things turned round and it is now a reasonable long-term investment. However, there has to be an element of return on which tax would be paid in the normal way to pay for the management of these funds.

I think that 1SAs are being badly directed. The Government say, "But people can take the money in and out ever so easily." However, ISAs may become investments into which people transfer their building society savings or their ready-money account, when they should keep those savings where they are. We should be encouraging people to save so as to keep up the savings ratio, which is good for government. That should be done by encouraging people to enter into long-term savings that the Government are providing. That is an alternative to putting money away into a pension scheme.

Mr. Gardiner

Will the hon. Gentleman give way?

Mr. Bruce

I will, indeed. The hon. Gentleman is very energetic.

Mr. Gardiner

Does the hon. Gentleman not realise that one of the most important ways of persuading poor people to save is to ensure that the funds that they put into a savings account are not locked up? The fact that they can withdraw their savings does not mean that they will, but the ability to do so acts as a great incentive for people with not much money to put it into a savings vehicle.

Mr. Bruce

I understand what the hon. Gentleman is saying. I am disappointed that he did not listen to my economic argument.

We already have the Giro bank, National Savings and many building societies, banks and other establishments that spend a fortune persuading people to invest with them on the basis that it will be easy to get their money out. In effect, some are saying, "I will even give you more money than you put in." Much is being done to encourage people to save. However, at the end of the day, if someone does not really have enough money on which to live, is scraping all the time and is trying to decide whether he can afford to buy a tin of baked beans or a tin of cat food at the end of the week, he will not save. That will be the position whatever we politicians say to encourage such people to save.

I accept that some people are regular savers. Some kids put half their pocket money away and accumulate. Other kids are always coming to mum by Wednesday, saying, "Can I have some more pocket money, because I have spent all that I was given?" People are like that. I remember that, whenever I gave one of my employees her pay slip—I used to pay my employees with cash—she would say, "That is for the mortgage, that is for my club, that is for this and that is for that, and I have £5 to last me till the end of the week." Some people spend in advance and other save.

I am not suggesting to the Government that they should not try to encourage people to save. I am saying that it is a good thing to encourage people who can put a good deal of their money away every year because it is tax advantageous to do so. Such an approach should not be destroyed. I cannot see any logic in anything that acts against those investors in the vain hope that people who are poor will suddenly start saving lots of money. That defeats me.

Several Members have spoken about the fuel escalator. It may be known that I am the vice-chairman of the all-party motor group. The Automobile Association has spent much time and trouble analysing what happened over the years during which the Conservative party had a fuel escalator. I can assure the House that, in looking after a rural constituency, every time that fuel tax has increased, I have said, "I don't think that you should have done that, Chancellor." However, we know that Chancellors want to raise money. They also have the excuse that Rio has intervened.

Sir Robert Smith (West Aberdeenshire and Kincardine)

Did the hon. Gentleman feel a slight pang of guilt when, in 1992, the Conservative party fought a fairly hefty campaign implying that a fuel escalator was a very bad thing? Was there not then a slight element of hypocrisy when the then Conservative Chancellor introduced it?

Mr. Bruce

I do not recall fighting the 1992 election and saying that there would not be a fuel price escalator. If the hon. Gentleman tells me that that was my manifesto, I shall defer to his greater knowledge.

On the carbon tax issue, if the Chancellor had said, "I shall not put VAT on fuel. I have read the Liberal Democrat manifesto. I have read the Labour party's policy papers. Although my Conservative colleagues tell me that it is a bad idea, I am persuaded that we should introduce a carbon tax at 17.5 per cent," who could have argued against that? It is presentation, presentation, presentation, is it not?

We had given certain undertakings that we would reduce carbon dioxide emissions into the atmosphere. We as a country should be proud, and I believe that the Government are proud when they go to environmental conferences and say, "We Brits have done what we said that we would do."

The tax on domestic fuel was highly unpopular. I am a realist and I was in favour of removing it as soon as possible. That was an unhappy experience for Conservatives. We decided to squeeze the motorist, and we raised a lot of money from that. We spent a considerable amount of it on new road building, but that programme has now been slashed. Much of the money that was raised from the escalator was spent on hospitals, schools and so on. If people are willing to pay a tax and it also has the effect of reducing carbon dioxide emissions, that could be a good thing.

When the Automobile Association carried out a survey of how much fuel was burned by our cars in the UK, the findings were amazing. Despite the fact that the economy had been booming and people had been buying cars and driving further in their cars, the amount of CO2 being produced by those cars had gone down. People had got rid of their old gas guzzlers and bought more economic cars. We in the House have changed the way in which we pay our allowances so that it is more economic for hon. Members to take on smaller cars.

In the Bill, the Government have tried to avoid complicated ways of getting more fuel-efficient cars on the road. They have decided that any car under 1100 cc will be cheaper to run, and any car over 1100 cc will be more expensive. I have made the same comment on several occasions. My wife used to have a Vauxhall Nova that was just under 1100 cc. After seven or eight years, she changed the car to another Vauxhall Nova of the same size and shape, but with a 1.4 litre engine—a more modern engine—but she uses less fuel with that engine than with the previous one.

The data provided by the Government laboratories on buying a car and the different engine sizes show that it does not follow that a bigger engine in the same car uses more fuel—on the contrary. If one puts a diesel engine, which is the largest of all, in the car, it uses a good deal less fuel. In trying to achieve simplicity, the Government have missed the point. The escalator has done its job of persuading people to change to more fuel-efficient cars, but it is wrong to continue with the measure. If the Government decided to give a special boost to fuel cells and provide a subsidy that was not available to other types of car, that might do some good, but they are not tackling the problem in the right way.

With their measures relating to diesel in lorries, the Government have lost the plot entirely. If they make diesel so expensive that people will drive to the nearest port, cross the channel, fill up with diesel on the other side paying French taxes, drive back via the port and do a week's work on that diesel fuel to save money, or if they encourage drivers from eastern Europe with clapped-out old lorries to come over and do all the cabotage, they will increase the amount of fuel used. That strikes me as wholly logical.

When I was on a radio programme with a Labour MP recently, he boasted, "We are spending an extra £21 billion on the health service. You have never been able to match that." What is more, he claimed that our Treasury Front Bench team had said that the expenditure was too extravagant. I said, "I think that your smoke and mirrors were so efficient that they fooled even our Front-Bench team."

What does an extra £21 billion actually mean? Let me analyse it. Labour Members laugh. They must wonder why those who run schools in their constituencies telephone them to say that they have not received the £19 billion that was supposedly going to arrive.

Let us deal with the £21 billion, because that is an easier amount with which to deal. The period involved is three years. My right hon. Friend the Member for Fylde suggested a moment ago that £1 billion over three years meant a third of that amount in each of those years, but that is not the case. The £21 billion does not mean that, in each of the years involved, the Government will add £7 billion to the total, so that, at the end of the three years, an extra £21 billion will go to schools.

Let me explain the system. It is wonderful: it is like magic. I am sure that all hon. Members are very attentive. In fact, the Government will give an extra £3.5 billion—I believe that that is 0.2 per cent. more than the amount that we used to give in every one of our 18 years in office—to the health service in year one. In the next year, they will provide another £3.5 billion—a little over inflation, but there we are—and, in the year after that, they will provide a further £3.5 billion. That amounts to £10.5 billion. Where does the £21 billion figure come from?

To achieve that figure, it is necessary to add three figures together. First there is £3.5 billion, then there is £7 billion, then there is £10.5 billion—and that adds up to £21 billion. Those who want to know how much extra they will receive over a year according to new Labour arithmetic must cut the amount by half to start with—because we are talking about the extra amount that will be received in the third year—and then cut the final amount by a third to find the annual income.

Inflation, however, is knocking most of that out. Let us now return to the £19 billion figure. I know that hon. Members are attending carefully to what I am saying. That will give us a starting sum of £3 1/6 billion. I mention that because I know that the Hansard reporters will have a job reporting it, because there is no one sixth on their word processors. The figure then becomes £6⅓ billion, and then £9½ billion.

Just in case anyone is running away with the thought that the House is providing £19 billion, let me say that it ain't. The Red Book tells us that those are the totals that are being provided, the stealth tax—the rise in council tax—being included. This is what the Budget actually means for education spending, and what will happen in the next three years. Over the coming year, £0.8 billion will be spent on education; during the following year, £1.3 billion will be spent, and in the year after that, it will be another £1 billion. That is what is being contributed from the central Exchequer. The rest of the money will come from the stealth tax—the council tax—and I hope that people will understand that on 6 May.

Mr. Allan Rogers (Rhondda)

Will the hon. Gentleman give way?

Mr. Bruce

I was about to sit down, but I shall give way.

Mr. Rogers

The hon. Gentleman is not suggesting that Labour Front Benchers are being deceitful, is he?

Mr. Bruce

I cannot add anything to what the hon. Gentleman has said, but I think that Labour Front Benchers are very, very clever. I would never tell my constituents that they are a deceitful, lying bunch, because I am much too parliamentary. I say that they are very clever. We have new Labour, new economics, new arithmetic: it just has to be explained to people.

8.54 pm
Ms Sally Keeble (Northampton, North)

It has been interesting to listen to the speeches today. They have shown, first, that many Opposition Members do not have much of a handle on what is in the Bill—a good deal of the debate has concerned what is not in it—and, secondly, that they do not have much of a handle on what they want to happen to the tax system and the income of the general public.

Opposition Members have spent a lot of time criticising what they call tax increases. Some have said that they are stealth taxes; others have said that they have been discussed publicly and that everyone knows about them. There is a lack of clarity there.

A number of Opposition Members have criticised the different types of spending that we are proposing which are not in the Bill but were in the Budget that the Bill implements. To a great extent, this is familiar territory for Labour Members, because we have heard Conservative Members criticising taxes and public spending before. However, those criticisms do not square with the latest relaunch of the Conservative party, which I heard being discussed quite fulsomely by the right hon. Member for Hitchin and Harpenden (Mr. Lilley), the deputy leader of the Conservative party.

The right hon. Gentleman said that the Conservative party now understands that the public are generally concerned about the national health service, education and spending on them, and that people want more provision—not from the private sector, but in the public sector. The money has to come from somewhere; if it is public sector money, it has to come through taxation.

The Bill represents a fair judgment about taxation and where taxes should come from that also equates with the amount of money that the Government propose to spend on services. We have got that balance right, which has put an end to the futile discussions that used to go on about by how much taxes should go up or down. The public think that we have raised taxes through fair means and we have spent money on the things that people want money to be spent on, which accounts for the Government's continued good standing with the public. Although some might say that their standing is surprisingly high for this point in a parliamentary term, many of us have found that our constituents give a general welcome to the Budget, which is a tribute to the Government.

In many ways, the Bill is the mirror image of Conservative Finance Bills of the mid and late 1980s, which were extremely radical and extremely bold. Those Bills said clearly what the Conservatives wanted to happen in society and shifted money sharply from ordinary people to the privileged few. This Bill is part of the long-term and continued restructuring of the economy and of our society, which will ensure that people see that work pays. The Bill supports families and, more important, children. It also supports pensioners and small businesses. Conservative Members have talked about growth. The Bill will provide sustainable growth, which provides security and enables people to plan their lives and finances.

I shall pick out from the Bill proposals that deal with some of the financial issues confronting families and will solve some of the deep-seated problems with which families have to deal. In particular, I shall discuss the children's tax credit, the introduction of the new lop rate and the raising of the threshold for national insurance contributions.

It is possible to over-egg a particular part of a proposal which, taken in the round, would help people on low and middle incomes. I am more concerned about my constituents who are on middle incomes than those on low incomes. The Bill will ensure that people are given incentives to work and to provide.

It is easy to underestimate the financial pressures that families face. I recently conducted a questionnaire survey in my constituency. It was linked to campaigning on a wider range of policies for families, but it is relevant to some of the issues that have arisen in the debate. All the findings pointed to money as the biggest problem for families—and that in an area where most people are in work, so unemployment and hardship are not the issue. The fact remains that the incomes of working people are often inadequate to meet all the extra costs of bringing up children.

When people were asked what the biggest pressures on family life were, the answer that came out top for most people was finances, with balancing home and work in second place. When they were asked what would most help them to balance home and work, the single biggest issue mentioned by 25 to 40-year-olds—those with the biggest family responsibilities—was financial help with child care. For people going through family breakdown, too, the single biggest pressure identified was financial. We know from official statistics that those who are least likely to have savings are single parents and couples with children, and that having a child is the biggest likely indicator of poverty.

The proposals in the Bill, on top of the other measures introduced by the Government, will be of real help in providing the support that people want, which is financial help at the point of most need—when they have their children. That is why I welcome the children's tax credit provided for in the Bill.

I also welcome the fact that the credit is to be extended to stepchildren, which is a recognition that many children now live with step-parents, who often provide a supportive and caring home. The right hon. Member for Fylde (Mr. Jack) drew attention to the schedules, and talked about the problems of calculating who would get the credit when families split up. Of course that will be an issue, but I am glad that we are recognising the fact that families are changing. If we are serious about supporting children, we must support them where they are, not where we might like them to be.

The hon. Member for East Londonderry (Mr. Ross) said that the Bill did not support marriage. However, the aim is to deal with the financial pressure points, not with issues about life-style choices. Looking after children is the financial pressure point.

I realise that the consequence of the introduction of the new credit is the abolition of the married couples allowance, which some people will regret. However, I believe that the Government have done the right thing in targeting children, and the parent who supports those children.

That is borne out by all the statistics about incomes and savings. A couple without children are likely to be among the more affluent in our society, especially now that so many women go out to work. It is not realistic to regard marriage of itself as a financial liability. Gone, thank goodness, are the days when a married man took financial responsibility for his wife. My right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) spoke clearly and eloquently about that. Having children, however, is a financial liability, and that is where the Government's help should be targeted.

The coming generation of women pensioners will be the first in which many have a proper record of contributions and savings for their pensions. It is therefore right that, as reflected in the Bill, we change the tax and benefit structure to ensure that those changes are carried through in a realistic way.

I am pleased to see that the married couples allowance is being retained for the over-65s. The lives of that generation were different; fewer women went out to work, and more were financially dependent on their husbands. They have fewer opportunities to adjust their income, so I am glad that the Government are keeping the married couples allowance for them. That is a welcome recognition of their position.

I welcome the proposed increase in the threshold at which pensioners have to pay tax, and the higher threshold for over-75s. During a recent consultation about pensions organised by Nationwide on my behalf, a cross-section of its employees made it clear that they regarded self-provision, not state provision, as the future for pensions. What they looked for from the Government was a supportive tax regime, rather than a series of handouts.

Many of today's pensioners have occupational pensions and other sources of income, and for them tax relief is the most effective form of financial help. That applies to many of the pensioners in my constituency. They are not reliant only on the basic state pension and associated benefits. The changes set out in the Bill are part of a wide-ranging series of changes for pensioners that I believe will make the Labour party the party for pensioners, just as it has made it the party for families. The right hon. Member for Wells (Mr. Heathcoat-Amory) tried to cast aspersions on the Labour party's record on pensions. That was a smokescreen to hide his party's failure over the pension mis-selling scandal.

The Labour Government have introduced the minimum income guarantee, the change to the threshold and the pension for carers, which will be extremely important in ensuring a continued level of contribution for women who look after children at home or disabled relatives. That, more than anything else, will encourage the caring attitude and support for family life that the Conservative party says it believes in but does little to promote.

I should like briefly to deal with savings because, although those measures are not in the Bill, they have been discussed at great length. Much of the discussion has been misdirected and destructive of some of the changes that will affect people and for which the Government are right to make provision. Much has been made of the high level of PEP and TESSA sales, especially in the past year. Those sales have resulted from major advertising campaigns.I would have expected people to pile into those savings vehicles during the last few months for which they were available.

The individual savings account deals with some of the changes in the financial regime that people will face. The hon. Member for South Dorset (Mr. Bruce) said that high interest rates were good for savers. It is true that they were good for savers, but wildly fluctuating interest rates were extremely damaging to many private individuals and to industry. The regime into which we are now entering will, I hope, be a permanent one of sustainably low interest rates. That means that some of the conventional savings vehicles will not be so attractive. I believe that the individual savings account will enable people to have different types of savings, including equity-based savings, which will provide them with advantages that have so far been reserved for people on higher incomes.

The measures to deal with families and pensioners are just a small fraction of the provisions of the Bill. They are part of the Government's wide-ranging measures to support family life. They recognise the profound changes in families that have been brought about by women going out to work, and they recast the way in which we provide

for our retirement. They are part of a much wider agenda; I believe that they will be welcomed by the public at large; and I commend them and the rest of the Finance Bill to the House.

9.8 pm

Mr. Andrew Tyrie (Chichester)

The hon. Member for Northampton, North (Ms Keeble) made a thoughtful speech. If I had plenty of time, I would take issue with her on a few points, but I do not intend to speak for as long as some hon. Members. On the crucial issue of savings, the hon. Lady said that some of the comments made by Conservative Members had been destructive of the climate in which savings take place.

The savings culture in this country was badly damaged in the 1960s and 1970s— particularly the 1970s—and it took a huge effort to restore it in the 1980s and 1990s. That is why the savings ratio took a long time to recover. It eventually recovered: PEPs were introduced as part of an attempt to restore it.

It is important to bear in mind the fact that, although the Conservative party did not say so at the time, when PEPs were introduced they were a bit of a flop. It took several years of reforms and adjustments to the PEP regime for them to become part of the mass savings culture. What is destructive of savings is constant change to the regulations.

What the Government have done is to remove a brilliant brand. A successful part of the savings culture has been replaced with something that many people do not understand, and I fear that we will see a further dip in the savings ratio as a consequence.

My main theme is the macro-economic background, the fiscal and monetary judgment, that underpins the Finance Bill. I will briefly address three questions. First, do the Finance Bill and the Budget judgment make early entry into monetary union more or less likely? My hon. Friend the Member for South Dorset (Mr. Bruce) touched on that issue earlier. Secondly, does the growth forecast support the overall fiscal position? Thirdly, are the measures in the Budget likely to encourage growth?

Let me first, in a short digression, pick up on the points made by my hon. Friend the Member for West Worcestershire (Sir M. Spicer). I was in the Treasury when the Germans and the French made their previous great push for the withholding tax. I well remember a lunch I attended with Nigel Lawson and Pierre Bèrè govoy, when he was French Finance Minister. He leaned across the table at a crucial point in the discussions and said, "Look, unless we can have our withholding tax, all bets are off on this capital liberalisation directive." That was being discussed at the time. I thought that that had upped the ante. Lawson replied, "As a matter of fact, all those capital controls you have are great news for the City and we would prefer you to stick to them." That is how we fended off the withholding tax in the late 1980s. However, we must grasp the fact that the pressure for the withholding tax is relentless and remorseless, and it will not stop. If we fend it off this time with only a partial protection, we face the risk of erosion of the protection, in ways that are not always easy to foresee. That is why it is very important that the Government stick to what they have said and veto any measure for a withholding tax.

Unusually, the judgment in the Budget statement and Finance Bill was overshadowed by an earlier statement by the Prime Minister in which he changed the mood on EMU. He appeared to say that he wanted Britain to join economic and monetary union. The right hon. Gentleman came off the fence. In fact, his words were more equivocal than that, but that was the briefing given to the press. That was the background to the Budget.

If policy has changed, the Government will have to agree, sooner or later, to abide by the terms of the stability pact, which require a balanced budget or a surplus over the cycle. In the short term, of course, revenue is pouring into the Treasury, and the Government will not have too much of a problem. However, the Government are currently committed to a looser fiscal stance than contained in the stability pact, because they have formulated the golden rule for the public finances. That gives the Government licence for substantial borrowing. They can borrow almost as much as they like by reclassifying it as capital—although so far they have only done that to the tune of £7 billion, or a little less than 1 per cent. of GDP. The fact that the capital-current distinction is virtually meaningless— as everybody who has considered the issue agrees—means that the Government have enormous scope for flexibility. The Government will have to find a way to abandon that and tighten their fiscal stance, if they are to agree to the stability pact. But there was nothing about that in the Budget.

Then there is the issue of cyclical convergence. Our interest rates are nearly twice as high as those in the eurozone. Early entry to EMU would imply either tighter fiscal policy or, even more implausibly, a higher exchange rate than we have at present. Faced with a worse problem of the same type, the Irish did a bit of both, revaluing the punt just before entering EMU, and tightening fiscal policy. If the UK were to consider early entry, we would have to follow a similar course. We would not be able to allow the currency to depreciate. We would have to tighten fiscal policy. There is no mention of that issue in the Budget, even by implication.

The Government's exchange rate policy is the most important for EMU. Whatever the legal requirement—and there is some dispute over it—there will have to be a period of exchange rate stability before rates are locked. The Budget says nothing about that, and nor has any Government statement suggested that the Government believe that the Monetary Policy Committee should start to take the exchange rate into account as a target. The MPC will be told to stick to its last and to stabilise the internal value of the currency, not its external value.

The fact that the Budget and the Finance Bill virtually ignore EMU tells us that the Prime Minister's statement may have been little more than mood music. Furthermore, buried away in that statement was a new get-out clause from his euro enthusiasm. He added a sixth economic test that must be passed before the UK is prepared to join EMU.

What the Prime Minister said was scarcely noticed, but it is very important. He said that he understood the worries of those who were concerned about the type of euro zone that we might be joining. He said: There are real problems in the EU requiring labour market reform … capital market reform … and product market reform. Before Britain enters, he said: We are determined that these must be in place."—[Official Report, 23 February 1999; Vol. 326, c. 183.] In other words, the EU must reform itself. He was talking not only about UK flexibility; greater EU flexibility has been added to the five economic tests, a sixth test.

There is a gap between the Government's mood music and the reality of policy on EMU. Nothing has been done over the past year that would not have been done in any event. Policy has not been altered in any way to take account of monetary union. If any hon. Member can think of a way in which it has been changed, I shall gladly give way to him or her.

This resembles the Government's policy making on many other issues. I could mention Kosovo, devolution and House of Lords reform. We have heard a soundbite, and we have seen the first steps towards a policy. But there has been no clear plan for reaching the end point on any of those issues.

To some degree, the same is true of the growth forecast, which has been given to us as a stated figure without any clear explanation of how such an adventurous forecast can be delivered. Why should we be able to obtain a higher medium-term growth rate? The Government are taking risks with the public finances. The Chancellor has spent a lot of money. The smallest ever spending reserves underpin his plans, and his Budget gave a lot of money away in various lollipop measures.

The green Budget contained some plausible forecasts, but, under the title "Alternative growth scenarios" in the Red Book, the Chancellor offers an upbeat story of 2.25 per cent. medium term growth, and a very upbeat 2.75 per cent. growth scenario. That is hopelessly adventurous. We have not achieved 2.75 per cent. growth since the 1960s. I will be surprised if it is achieved.

It is not hard to imagine how the forecast could be upset. For example, does any hon. Member think that equity prices in the United States will avoid a correction? Does anyone believe that Wall street will carry on floating along at these prices? If so, I would gladly give way. No one thinks that the US equity market can carry on like this indefinitely. If there is a sharp fall in equity prices, United States consumer demand will collapse because the household savings ratio is virtually zero. Spending and consumer demand are being sustained from the growth in equity prices.

Our growth rate would take a huge tumble if the main motor of global growth stalled, as it will if Wall street takes a tumble. If the growth forecast is not achieved, fiscal policy will be in a huge mess, and the measures in the Finance Bill will not add up. That is a serious concern. I was amazed that I could find no mention in the Red Book of the balance of risk of a sharp slowdown in the United States economy as a consequence of overvaluation of equities. A Budget judgment has been taken without the identification of any public discussion of one of the most important risks involved.

There are many other reasons why I am worried about the public finances. The contingency reserve is half the average of the previous 20 years. A war is going on while the reserve is small. The war will bear on taxes more quickly than it would have if we had had a larger reserve. Asset sales are still written in at £4 billion a year. I will be surprised if the Government achieve that. Welfare spending is still rising faster than even the growth forecast. There is much pressure on the public finances. Everything is underpinned by the optimistic growth forecast. If it is not achieved, the whole pack of cards could collapse and there will be a sharp downturn in the fiscal position.

That brings me to the next question: will policies in the Finance Bill encourage growth? I will say something that I know Labour Members do not like. The fact is that Labour was not elected to run an alternative economic strategy; it was elected because people finally trusted it to run broadly the policies that it inherited. That is hardly surprising, because those policies had transformed our economic performance over the past 20 years. On economic matters, Labour's electoral chances will be prejudiced to the extent that policy diverges from that inheritance and the new global, free enterprise, conservative, economic consensus.

In some respects, the Chancellor has entrenched a sense of continuity with past practice. In fact, he has gone further, particularly by introducing Bank of England independence. However, bit by bit, in this Budget, he is diverging from the inheritance. Most important are the tax rises. Previous Labour Governments paraded tax rises as a legitimate instrument of social as well as economic policy, but they have learned their lesson. That was unpopular, so the Government have introduced taxes more stealthily this time.

All the same, Labour Members will have their work cut out explaining what the Prime Minister meant when he said: We have no plans to increase taxes at all. Or when he said: I vow that promises we make on tax we will keep. This is my covenant with the British people. Judge me upon it. Or what about the Chancellor? He said: We will not make promises that 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. How does all that square with the indisputable tax rises that we have seen in the past two years? It is worth bearing it in mind that those tax rises have taken place in a benign economic environment. What kind of tax rises will we see from a Labour Government in the depths of a recession? We might find out if there is a recession before long.

Labour talks as if it has abolished the business cycle when it refers to the end of boom and bust, but the business cycle has always been with us. There will be a recession. I do not know when, but I guarantee that there will be one. It may be sooner or later, but, when it comes, the relatively incautious fiscal position that I have described will be found to be extremely vulnerable.

It is not just on tax that the Chancellor is moving away from his inheritance. The Conservatives bequeathed Labour a tax system that was still too complicated, but was vastly simpler and less distorted than the one that the Conservatives inherited. I do not suggest that the Conservatives did not introduce distortive tax policies in Finance Bills, but the principles underlying Conservative Budgets were clear. We introduced lower and less distortive taxes. What we have in this Budget is higher and more distortive taxes.

The previous Government showed that, if the Government get out of the job of picking winners and out of the way of the wealth creators, capital will be allocated more efficiently. It should be the job of the Government to reduce the tax burden and simplify the tax system. In the Finance Bill, we are now getting complications of the tax system and higher taxes. That will throttle growth and is a reason why I believe that the growth forecasts are unlikely to be achieved.

9.26 pm
Kali Mountford (Colne Valley)

You will notice, Mr. Deputy Speaker, that my voice has not the same vigour as usual. That will prevent me from responding in my customary style to the many comments made by hon. Members on both sides of the House during the debate and force me to focus on relatively few aspects of this wide-ranging Bill.

In the previous debates on the Budget, we had some discourse on the principles underlying it and what it was intended to do. Questions were asked about whether it was a Budget for jobs, for the family or for industry. I argued that it refocused priorities and gave greater support to families and children. Since then, I have pondered the question further and I still believe that the Budget epitomises the Government's policy of giving help to the people who need it most at the time when they are in most need, and recognises the needs of children in a way that previous Budgets simply have not. The sure start programme, the children's tax credit and the highest ever rise in child benefit are measures that target children in an unprecedented way.

The Budget is a Budget for stability. I commend my right hon. Friend the Chancellor's decisions so far on building stability in the public sector. I am impressed with the change from year-on-year public expenditure survey settlements, which were inefficient and ineffective. Expenditure in the public sector has now been refocused. Even more important, three-year forward planning has been introduced. The effect has been that extra money and revenue has been found for the Government's priorities of education, health, youth unemployment and crime. That refocusing has already enabled the Government almost completely to fulfil some of their main pledges, including class size and youth unemployment. Extra money for health is allowing the NHS to reform. The money has been used to abolish the internal market and cut waste. Those are all-important election pledges that need to be kept. The comprehensive spending review has enabled us to focus on them.

Health managers and local government officers have been telling me that the extra money is welcome and can be used on their local priorities, but three-year planning has had the most impact on some of their local decisions on how they spend cash as part of budget settlements. That has enabled them to make more sensible decisions. It has enabled them to focus their planning on services in local areas, using money more efficiently and effectively. That stability provides the ability to plan and to grow and we need it in the rest of the economy.

I come now to the rest of the economy, and in particular the textile industry. The labour force survey shows that 4,560 jobs in my constituency are dependent on the textile industry and I want to focus my remarks on how the Budget affects that industry. I take this opportunity to thank members of the Treasury team, especially my right hon. Friend the Chancellor and my hon. Friend the Paymaster General, and the Trade and Industry team, especially my right hon. Friend the Secretary of State for Trade and Industry, for listening so carefully to my concerns about the textile industry and its ability to grow and sustain itself through what has been a difficult trading period.

If people could be bothered to go to the mills, they would find, as I did on my visits, that mills can be most old-fashioned. The labour force in a mill can be extremely old. Unlike many other industries, which tend to employ people in the 30 to 40 age group, the textile industry is heavily dependent on a work force aged over 40 and possibly over 50. It is hard to find anyone in their 20s employed in the textile industry.

Mr. St. Aubyn

Will the hon. Lady give way?

Kali Mountford

I fear that the state of my voice will make it difficult to continue to respond, so I have decided not to take interventions. I apologise to the hon. Gentleman.

Mr. St. Aubyn

It would give the hon. Lady's voice a rest.

Kali Mountford

It would give my voice a rest if I was not diverted. The hon. Gentleman must not try to divert me from my course.

Training is most important for the whole economy, but especially so for the textile industry, because there is a clear skills gap. I do not pretend that that gap can be met by the new deal alone, but I am sad to find that the textile industry has not taken all the opportunities available to employ younger people using the new deal programme, even though some mill owners have told me that they desperately want to employ younger people. Other measures are available to them—the Yorkshire task force for textiles has produced a training programme using the ability of the industry, local universities and colleges and bringing all that expertise together. It is a pity that some people in the textile industry do not even know that the task force exists, but I hope that they will realise that it does exist and that it can benefit them.

I hope that people will listen to the Transport and General Workers Union, which has produced a plan for textiles, part of which refers to the need to fill that skills gap. The Government's programme contains measures that will enable the industry to fill that gap. However, even if the gap were filled, there would still be more for the industry to do. There are huge gaps in investment in the textile industry, which typify the gaps in investment in a range of our other traditional industries. For example, during one of my visits to a local mill, I was shown a loom that had been there since 1947. That piece of machinery would have been better in a museum than in a modern industrial economy. It was pointed out to me that a machine of that calibre cost only £600, so it was very cheap. People knew the limits of the machine; they knew how many times they would have to repair it and what the costs would be, and they knew about its production run. In other words, they had become comfortable with that old-fashioned technology.

If ever there was an industry that needed investment, it must be the textile industry. For example, one entrepreneurial mill owner told me that he was trying to invest in new machinery. He was looking at quite old second-hand machinery with newer technology and it cost about £2,500. Even that sort of expenditure formed a large part of his annual budget, as his turnover was relatively low. It is extremely difficult for him to find the extra money that is needed for big investments in high-tech, computer controlled and operated textiles machinery, especially looms. I have seen some highly imaginative machines, mostly from America, that can produce huge runs of high-quality material at low cost, but the investment that they require would completely wipe out an entrepreneur of the calibre of the man with whom I spoke. Small and medium-sized enterprises cannot afford to pay the price that a loom with that sort of technology can command.

What can we do? An entrepreneurial mill owner such as the man I describe can benefit from the measures contained in the Bill. The measures previously introduced by my right hon. Friend the Chancellor—especially the new 30 per cent. corporation tax rate and the capital gains tax changes in the previous Budget—have enabled that entrepreneur to invest in plant and machinery, but more needs to be done. Therefore, I am pleased by the introduction of the 10p corporation tax rate, which will help small and medium—scale entrepreneurs. I like to think that my right hon. Friend had the mill owner I am talking about in mind when he made that change—he certainly listened closely to me. Like my hon. Friend the Member for Dudley, South (Mr. Pearson), I welcome the extension of the 40 per cent. capital allowance for small and medium-sized enterprises to July 2000. I hope that it can be extended even further, because it would help the industry and the business that I am describing.

It might be hard to believe that the textile industry needs further research and development. To most people, woollens are woollens and knits are knits, and they have become accustomed to polycottons and other new fibres such as polyester, so they ask why new investment in textile research is needed. However, the competition in Europe and the demands of modern designers have ensured that it is no longer good enough to rest on our laurels and tell ourselves that the British textile industry has always produced the best woollen cloth in the world. Designers demand lighter-weight cloths with new designs and new weaves.

The relatively new mill owner to whom I spoke showed me some very imaginative designs. I was impressed by his imagination, his innovations and the style of material that he is able to produce, but he is unable to produce it in the right quantity to command the respect of the designers with whom he has to do business if he is to expand his business even further. He is dependent on fairly old-fashioned machinery and he cannot take his research and development programme further because of the constraints of operating within a small industry, so he cannot take advantage of the full scope of the European market for textiles.

Most of our textile trade goes to Europe—to Italy, France, Germany and Belgium. Companies in those countries are investing in high-tech machinery and, more significantly, in the new weaves of cloth and new types of fibre on whose development the growth of the industry depends. Although the textile industry is one of our more old-fashioned and traditional industries, it is an industry that needs to take on the challenge of change. The Budget and the Bill have the potential to enable the industry to take up that challenge.

At first glance, the tax credits for research and development might not appeal to textile manufacturers, but I would urge the entrepreneur I met to take advantage of that measure. If he does so, he will be able to compete on level terms with the Italian designers who are coming up with imaginative new yarns. I believe that he could benefit from the venture capital challenge. When banks do not want to take the risk of supporting a new small business and an unproven new fibre, that exciting measure can provide assistance. The £20 million for research and development, particularly in venture capital, could benefit that entrepreneur and enable his business to grow.

If businesses are to flourish, there must be economic stability. Several hon. Members asked what the Government mean by "economic stability" and equated the term with zero growth. Of course it does not mean that; it means having sure financial conditions that allow decisions to be taken for the future and enable businesses to invest with certainty, which must have an impact on the stability of the entire economy.

In the past 10 years, we have witnessed the slow decline and death of the textile industry in my area. Many jobs have been lost, and there are no mills remaining in parts of West Yorkshire that once depended heavily on the textile trade. That must lead to instability in local economies. My local economy has suffered serious instability in recent years and I want that trend to end. However, it must not be stopped by using old-fashioned interventionist measures that retain the same old jobs in the same old sectors.

We must regenerate the economy and bring the older industrial base into the new industrial age. We must produce the high-quality products that will make Britain successful. It is not right to hark back to some golden age when the means of production and growth were confined to a particular part of the economy. It is right to revisit the old economic values and reconsider how we can help businesses to develop today.

I believe the traditional industry to which I have referred will have a place in the new economy when it meets the challenges of change. A stable economy will develop if traditional jobs are sustained by producing the necessary high-quality products. The new investment capability in this Finance Bill will make that happen, and that is why I support the legislation.

9.42 pm
Mr. Edward Davey (Kingston and Surbiton)

When the Finance Bill was published before the recess, I must confess to feeling slightly elated. Having rushed to the Vote Office and eagerly demanded my copy of the Bill. I was pleased to see that it was rather shorter than usual. The right hon. Member for Fylde (Mr. Jack) and the hon. Member for Dudley, South (Mr. Pearson) also commented on the brevity of the Bill, and I congratulate the Government on that achievement. My elation was due partly to surprise because, on Budget day, the Chancellor of the Exchequer stood at the Dispatch Box and pulled out rabbits, gizmos and fizz bangs as if there were no tomorrow. I remember commenting to my hon. Friend the Member for Richmond Park (Dr. Tonge) that, with all those gimmicks, the Bill was bound to be very long.

The brevity of this Finance Bill is explained partly by the fact that some of the Chancellor's gizmos are to do with national insurance, which will be covered in other

legislation, and some—such as the cut in the basic rate of income tax—will be introduced next year. The Bill is also quite short because the Budget is far less substantial than it first appeared. The Chancellor has no philosophy for managing the tax system, and he has no strategy or direction regarding its development. He is getting a reputation for being a Chancellor of the big picture. He has sorted out the macro-economy by borrowing the Liberal Democrats' idea for an independent Bank of England—we welcome that move—and by laying fiscal foundations and introducing a code of fiscal stability. On smaller-scale economic policy, however, he is found wanting.

The Chancellor may eventually be starting to have some success, having made mistakes in macro-economic policy in his first two years—he had an awful lot of luck in the process—but he will make a severe mistake if he does not pay attention to the micro-foundations of economic policy. If he gets the micro-economics wrong, he will get the macro-economics wrong later, as sure as eggs are eggs.

What is the reason for the Chancellor's failure on micro-economics? He seems to be complicating the tax system. It is ironic that even a short Finance Bill contributes to the ever-growing complexity in the tax system, and that is the Bill's key shortcoming. I am sorry that the right hon. Member for Fylde is not in his place, because he made a telling speech earlier in the debate which elucidated many of the extra complications in the Bill. He referred to the extra tax rates, including the l0p rate, and the retention of the 20p rate on savings. A third corporate tax rate has also been introduced. The new children's tax credit, with its rather complicated withdrawal system, will produce a marginal tax rate of 46.7 per cent. on a range of incomes around £30,000. There will therefore be much more complexity in the tax system.

Much of my speech was delivered by the right hon. Member for Fylde, so I shall ask a question that he did not ask. Why is the Chancellor creating more complexity in the tax system? Many commentators in specialist tax journals and the quality press are asking that question, and three theses have been put forward. The first is that the Chancellor has no interest in that policy area; he is leaving it to others and they are making a mess of it. Secondly, it is a ruse to hide and obfuscate the Chancellor's underlying strategies. Perhaps he has a redistribution strategy, but he does not want to tell anyone about it. The third theory is that tax complexity is a policy that is driven by presentational demands rather than an understanding of the demands of the users of the tax system.

Of those three theses to explain the Chancellor's tax strategy—or lack of strategy —the first two can be refuted. The Chancellor is hyperactive and he is involved in all aspects of economic and social policy in every Department. He seems to be a workaholic. He has a hand in almost every domestic policy announcement that the Government make, whether it relates to child care, employment or housing policy. The theory that he is not interested in the detail of tax policy does not stand up. He told us before the election and in his pre-Budget report that Labour's policy was pro-tax simplification, which demonstrates that he wants to be involved in tax policy.

The second theory is that tax complication is a ruse to hide alternative strategies. There have been many tax rises, as we have heard in this debate. I do not want to engage in what my hon. Friend the Member for Gordon (Mr. Bruce) called the debate about angels on pinheads—the mediaeval debate. Liberal Democrat Members do not want to have a statistical debate about whether the tax burden, as a percentage of gross domestic product, has increased. However, the Chancellor did not need to complicate the tax system to camouflage an increase in the tax burden because he can conceal that increase using statistics, as he has demonstrated in his description of the tax burden for this year, not including tax rises from previous Budgets that feed into the overall tax burden.

Mr. Gardiner

The hon. Gentleman has been on his feet for six minutes and he has talked about the complexity that the Chancellor has introduced to the tax structure, but he has not yet managed to make a substantive criticism of what the Chancellor has achieved through that process. To talk about complexity and transparency, as Conservative Members have done, is not to deal with the benefits of the Budget that are being delivered to people.

Mr. Davey

My immediate response to that is, "Oh, dear." Labour Members clearly have no understanding of the tax system if they do not realise that complexity is a very real problem. Compliance costs to business are a serious issue, as is the effect on individual taxpayers. Does the hon. Gentleman realise that more than 9 million people now fill in their tax returns every year? Self-assessment is now widespread. If we complicate the tax system, we make it difficult for people to understand; if we make it difficult to understand, we reduce its transparency and undermine the Government's accountability to the people. Complexity is a major criticism, and I make no apology for its being the main theme of my speech, for however long I end up speaking.

I was trying to find a reason for the direction of the Chancellor's tax policy. I was considering whether it was a ruse to hide something else. Some people have suggested—I think that The Economist did so in an editorial on the Budget—that perhaps he was trying to hide the fact that there was some redistribution going on in the tax system. If that is the case, he is using a very large fig leaf to cover up that strategy, because the element of redistribution is very small.

The incomes of the bottom fifth are going up by 2.5 per cent. as a result of tax changes, whereas those of the top two fifths go up by 1 per cent. That is a redistribution, which we welcome, but it hardly requires the degree of camouflage provided by the overgrown complexity of the tax system. The real reason for the complexity is that the Government are driven in their tax policy by presentational requirements, not by the requirement to improve the tax system for the good of business and individuals.

We are entering an age in which the tax system is driven by soundbite economics and soundbite Budget statements. That is the new Treasury orthodoxy. In days gone by, although we might not have agreed with them, Chancellors of the Exchequer used to go into detail as to whether monetarism or joining the exchange rate mechanism were sensible policies. Those were the sorts of issues that Chancellors used to discuss on Budget day. Now, the Chancellor comes up with a few fizz bangs and soundbites, and that passes as debate on economic policy. Frankly, it is not good enough. It seems that a Treasury mandarin is required to master the media, not macro-economics. That downgrades the economic debate.

We saw that very failure in the presentation of the Budget. A great deal of time was spent on tiny matters. At the beginning of his speech, the Chancellor spent much time talking about the 10p tax rate for small businesses, as if it were a huge change to the tax system. It certainly introduces an extra complexity, but it will make very little difference to entrepreneurial activity in this country. It costs a small amount and relates only to a small band of profits.

The Chancellor failed, however, to announce the very large tax changes that he was making. He did not let words to the effect that he was abolishing the 20p tax rate cross his lips. We were all left in some confusion until we read the Budget book and the press releases. As I said, the economic analysis that he provided to the House was devoid of content. The press releases revealed the complexity. We got it not from the presentation, but from the press releases.

I mention only one press release, on clause 19—the clause that introduces the new 10p starting rate of income tax. One would have thought that that was the simple soundbite tax policy of the Budget statement—the one that would grab voters and hit tabloid headlines. But the press release shows that the Government are introducing that policy into the tax system in a way that is far from simple. Paragraph 18 of the press release explains: The starting rate will not apply to income from savings. The rates of tax on savings income remain at the lower rate of 20 per cent. for income up to the basic rate limit and at 40 per cent. above that, except for dividends which, from 6 April 1999, will be taxed at 10 per cent. up to the basic rate limit and at 32.5 per cent. above that limit. That is simple, is it not?

The tax system is becoming incredibly complex, and Liberal Democrats are concerned for our constituents, who are asked every year to try to understand it when they complete their tax return. As my hon. Friend the Member for Gordon said, the current series of Budgets from the Chancellor, including this year's Budget, is a gift to tax accountants.

It is even worse because, as tax policy and economic policy become driven by what sounds good and what will fit into a soundbite, the choice of policy is affected; so policies are chosen not for their merits, but because they sell well.

The Chancellor and many of his Labour colleagues are proud of the fact that they introduced the £100 fuel payment for pensioners. When one starts analysing whether a £100 fuel payment is a good use of public resources, one starts to question it severely. Is it a good policy? It certainly sells well. It may be included in leaflets to be distributed around a constituency. However, it is completely untargeted—it is worth the same to a millionaire pensioner as to a very poor pensioner. Moreover, it is extremely costly to administer. It has cost more than £10 million to set up the system, and the payment has cost more than £10 million every year to administer because it is given on top of the basic pension.

Mr. Gardiner

Would it be Liberal Democrat party policy to abolish that fuel payment?

Mr. Davey

We would put the £100 on the pension, so we would give pensioners exactly the same amount but save the country millions in administration costs. The Labour party is the party of bureaucracy and complexity, not just in the tax system but in the benefit system.

Mr. David Taylor (North-West Leicestershire)

Will the hon. Gentleman give way?

Mr. Davey

I shall continue, if the hon. Gentleman will allow me.

We have a targeted pensions policy, which has been ably developed by my hon. Friend the Member for Northavon (Mr. Webb). It is now becoming the accepted wisdom. Recently, the right hon. Member for Birkenhead (Mr. Field) wrote an article in a newspaper backing up Liberal Democrat policy for targeted increases in pensions.

Let me tell Labour Members what that policy is. For over-75s, we would increase the basic pension by £3 a week. For the over-80s, instead of the derisory 25p a week that they get, we would give them an increase of £5 a week. Yes, that is targeted, because the poorest pensioners are the oldest pensioners. [Interruption.] Some Labour Members shake their heads, but the figures for income distribution among pensioners and elderly people show a clear correlation between poverty and age. The older one gets, the poorer one is. That makes it essential to target extra resources in a very administratively efficient way, through the basic pension system.

Pensioners in my constituency feel completely betrayed by the Labour party. They hear that there is a minimum pension guarantee, but, when they read the small print, they realise that they are not eligible, and that it is no guarantee at all—not worth the paper that it is written on. Instead, some pensioners in my constituency are having the dividend tax credits that they used to get every year from the Inland Revenue taken from them.

The official Opposition were quite right, last year, to use an Opposition day to debate that issue, and we joined forces with them. We were very glad that some Labour Members actually criticised Ministers. Unfortunately, the Government were not to be moved on that, but we shall return to the issue during the Bill's passage—and we warn the Government that we shall return to the issue repeatedly. We shall not support a policy that has taken, on average, £75 a year from the poorest pensioners in our country.

Mr. Burnett

Does my hon. Friend recall that in the previous Budget a series of measures was introduced that directly penalised the less well-off, not least the change in capital gains tax retirement relief?

Mr. Davey

My hon. Friend is exactly right. Small business men in my constituency, and small business women, were using the capital growth in their business as part of their pension. They were looking forward to retirement relief on the first £250,000 of that capital growth—a provision which the Government abolished—to fund their retirement. The Government have hit those people, but they have provided new capital gains tax loopholes for the super-rich. We have calculated that partners at Goldman Sachs will cash in to the tune of £500 million That is what happens when a Government go for complexity in the tax system, rather than simplicity. They

provide loopholes for the rich, who can afford clever accountants to exploit them. Simplicity is good for redistribution and for fairness.

The main theme of my speech is that the Budget and the Bill will add extra complications, and I have referred to the policies that affect pensioners. During the debate, however, Ministers and some Labour Back-Bench Members have lauded their policies on children. We support their move to give more money to families. A revolution is taking place in terms of how much money will be put into the hands of families with children. Of course, there are different ways of doing that. The Government have introduced four separate support mechanisms. We have child benefit, which all parties support. In addition, we have the working families tax credit and the child care tax credit, and we shall have the children's tax credit, which is being introduced in clause 27 and schedule 3.

We must ask ourselves why there are so many mechanisms. Why are they all needed? It is partly because, as my hon. Friend the Member for Northavon can more ably explain to the House, the Government are fixated with the untested dogma that helping people through the tax system is somehow better than helping them through the benefit system. That is part of their rationale, although we do not agree with it.

The Government also have a plethora of mechanisms for helping families for presentational reasons. There is the desire to fudge the social security spending figures so that they appear to be channelling support through the tax system, thereby getting away with not admitting to the people that they are spending more on social security. If they believe in that approach, why do they not tell the people?

There is another presentational reason. The Government want to disguise their U-turn on their proposal to tax child benefit paid to higher-rate taxpayers. That is what the children's tax credit is all about. It would have been much simpler to go down the road that the Government opted for previously. That would certainly have been far more honest.

There is a real problem with having a plethora of mechanisms. First, there is the complexity of having four support mechanisms for families and children. Secondly, there is the cost element. The children's tax credit will mean that tax authorities will become directly involved with the marriages of and relationships between men and women. I would have thought that the Government had learned from the experience of the social security system, and more significantly from the experience of the Child Support Agency. We have seen what happens when Government bureaucracies become involved in the minutiae of relationships between men and women. However, the Government are now suggesting, through clause 27 and schedule 3, that the Inland Revenue will become involved. They will come to regret that. Labour Members will have people saying to them, "I do not understand how this is happening. I do not understand why my husband"—or wife—"is getting more of this tax credit."

The Government have used four pages of schedule 3 to try to describe how they will work out the different demands of men and women. The right hon. Member for Fylde quoted from those pages, and those Members who were present will understand how complex the proposals are.

It is not just the bureaucracy surrounding those proposals that is complicated, but the new marginal tax rate of 46.7 per cent. that is to be introduced between the low £30,000s and the high £30,000s as the tax credit is clawed back. Such complexity has a cost for our constituents. There is a lack of comprehension about where the support to which they are entitled is coming from. That is bound to lead to a problem of take-up and a waste of resources.

This morning, I was at the Playbox playgroup based at Kingston Methodist church, painting a picture with the help of two young children. It was interesting to speak to people who work at the playgroup. They were worried that the Government's policies were pushing up the fees that they had to charge. They did not realise that extra help would come from the working families tax credit.

The Government have become stuck on their own presentational fork. In trying to make things easy for themselves in the hothouse of Westminster, they are failing to present their policies properly to the people out there. They are shooting themselves in the foot. I do my best to explain the Government's policy for them. My constituents say, "That is a bit complicated," and I advise them to come and see me. I am more than happy to help them out, but, if the Government want to get the benefits of their own policies, they should make them simpler.

I remember when Labour Members were in opposition. They used to complain about the Tory Government and say that they were fiddling the figures, with 21 changes to the employment statistics—[Interruption.] Indeed, I believe the correct figure is 22. They used to complain that the Tories used to cut taxes nationally and load the tax on to the local taxpayer by increasing the council tax. Now the Labour Government are doing the same thing. Not only have they stolen the tricks of the Tories, but, worse, they have added a bundle of their own.

We see that in the Red Book, which is set out not as a proper financial report, but with chapters whose headings are politically biased. The chapters are entitled not "The state of the public finances", but "Increasing Employment Opportunity", "Building a Fairer Society" and so on. Is that objective? Does that state that it is the Government's report? No—it puts a spin on it. Spin doctors are determining official Government documents. That is leading to an information deficit in the House. We are not getting the information that we need for our debates, and it is not being set out objectively.

We on the Liberal Democrat Benches do not believe that the Bill deserves a Second Reading. It deserves to be referred to the Advertising Standards Authority, the Plain English Campaign and many other bodies. It complicates our tax system and makes life far more difficult for our constituents and for businesses.

10.8 pm

Mrs. Louise Ellman (Liverpool, Riverside)

I welcome the Bill which, together with other measures that have been enacted or are planned, shows that it is possible to combine the search for social and economic justice with support for initiative and enterprise. The other developments that go with the Bill include public investment, investment in our health and education services, the beginning of measures to address the needs of a public transport service, and wide-ranging and far-reaching support for business, including financial measures and the creation of regional development agencies.

Both the main Opposition parties seem to be aggrieved by the Bill, the Conservatives because it seeks to change the system that they established and that failed the people of this country so badly, and the Liberal Democrats because they resent the effectiveness of presentation and because they are so trapped by their own rhetoric that they join the Conservatives in opposing the working families tax credit, which will put about £23 extra into the pockets of the families who need it most. The Liberal Democrats seem to be acting under the delusion that it is possible to govern without complexity. Anyone who has tried to govern will know that complexity is an aspect that must be handled. What really matters, however, is that the direction of policy should be correct. The policy in this Finance Bill is directed towards social justice, combined with the development of our economy.

The right hon. Member for Fylde (Mr. Jack), in response to an intervention, said that he did not want to turn the debate into a debate about all our yesterdays. I am hardly surprised by that, given that the "all our yesterdays" of the last Conservative Government led to more inequality than the country had seen since the last war. As a result of the economic deficit that that Government created, not one region outside London could match the European average in terms of gross domestic product per head, and the social deficit was so marked that the National Institute of Economic and Social Research considered adding a new category— that of the socially excluded—to its social class categorisation.

The hon. Member for Chichester (Mr. Tyrie) expressed the remarkable view that the Labour Government had been elected to continue the policies of the last Government. In fact, the Government were elected—with a majority rarely seen before—to change what the last Government had done. I am pleased to note the direction taken by the Bill, which builds on the work already done by the Government. That direction is towards social equity, and the development of economic initiative and entrepreneurship.

One of the most unacceptable features of the economy inherited by the Government was the penal rate of taxation imposed on the poorest people. Because of the way in which the tax and benefits systems worked together, when the Government came to power 750,000 poor people faced effective tax rates of 70 per cent. or more as they tried to better themselves. The number has now fallen by two thirds, although we have further to go. That has happened because of the Government's consistent and determined efforts to deal with inequality, and to look at the tax and benefits systems together with the aim of bringing about more justice and creating incentives for those who are working hardest.

If we examine the measures in the Bill, we see that the Government's policy is directed towards seeking more social justice. Twenty million households will be better off, including 7 million with children; 700,000 children will be taken out of the worst poverty; and child benefit has already been increased by 25 per cent., which is the largest increase ever. Because of the introduction of the working families tax credit—opposed by both Opposition parties—families will have a guaranteed income of £200 a week. The Government are introducing the long-awaited system under which families whose incomes are no more than £12,000 a year will not be taxed.

The working families tax credit will bring many benefits, including proper child care credits amounting to up to £100 per week per child. There are also the new low tax rates —the new low base rate, and the new low rate of lop in the pound. That l0p rate will take 300,000 of the poorest people out of tax altogether, and will halve the tax bill of 1.8 million. Cuts in national insurance contributions will mean that 900,000 of the poorest people in work will not pay contributions. The Government have included all those measures in the Bill to address problems of inequality, and to start to make it possible for us to give more justice and incentives to those who need them.

The Budget does more than look directly at economic injustice; it looks to supporting business—the creation of wealth. The new 10p rate of corporation tax supports small businesses in particular, and the main rate of corporation tax was cut last year.

I welcome the continuation of support in tax incentives for investment, tax credits for research and development, and the changes in the enterprise investment scheme to permit more small companies to benefit and encourage more start-ups of more new companies. I also welcome the extension of capital allowances and the setting up of the Small Business Service. All those measures, put together, send out a message to business—a strong message that the Government are supporting businesses and that practical measures are being taken, and will continue to be taken, to support them.

I represent Liverpool, Riverside—an inner-city constituency which must rank among the poorest in the country. It is in the city that is No. 1 on the list of cities with urban deprivation—and one of the poorest areas in Europe, qualifying for objective 1 funding. In that area of urban deprivation there is great poverty, but also great initiative and enterprise. I welcome the Bill because it, together with other measures that the Government have introduced, will assist my constituents, as it will assist people elsewhere in the region and in the country.

The Bill will give direct assistance to people who are suffering acute poverty, and the extra finance—including the additional £23 a week which will soon go to into the pockets of people with families who are most in need—will make a direct difference to their lives. For someone who is very poor and struggling to survive, £23 a week is a significant amount which will make a real difference. I say: shame upon those who voted against that measure in the Budget.

I welcome the Bill's support for business. There is great entrepreneurship in Liverpool and businesses are developing and thriving. The regeneration policies being introduced and developed by the Government mean that there are increasing opportunities for business development and business support.

The Government are backing business, and the Bill will give it further support. General measures are already in place to develop an effective infrastructure and create a supportive atmosphere for business, for business start-ups, for expanding businesses and for businesses growing out of the regeneration initiatives; so the Bill will help businesses to survive and prosper and to create more and much needed employment.

The Bill takes us a step further to creating a fairer society—a society that addresses social and economic injustice and supports enterprise that benefits the community as a whole. I welcome the Bill and hope that the whole House will support it. I say: shame on those who vote against the Bill; those who oppose it are opposing help for those who need it most and help for the enterprise economy.

10.19 pm
Mrs. Jacqui Lait (Beckenham)

I hope that the hon. Member for Liverpool, Riverside (Mrs. Ellman) will forgive me if I do not follow her detailed critique of the Bill with my own, because we are coming under some slight time pressure.

So many Budgets are greeted on the day with great cheers, but, the more one examines them, the more one sees the flaws. Many of my hon. Friends have analysed in great detail the problems of this Budget and the difficulties that the Government have stored up for themselves.

I shall mention briefly one or two issues of particular interest to my constituents. For instance, the small businesses that have been badly affected by the increase in red tape are disappointed because the Small Business Service will, so far as they can make out, teach them how to use e-mail, but will not help them with their regulatory problems. There is an even more detailed concern among many people who use their own limited companies to do their work. They are worried that those may be abolished in the sacred name of combating tax avoidance.

When we add up all the complexities that the Government have introduced to the tax system, it is clear that there will be a return of the tax avoidance industry. If this Budget is for anyone, it is for the accountants.

I shall spend most of my time talking about the same subject as I have spoken about in Finance Bill debates for the past five years. Indeed, I remember that, when the Economic Secretary to the Treasury was first appointed, I welcomed her to my annual contribution about smuggling and bootlegging. The hon. Member for Barnsley, Central (Mr. Illsley) spoke on the very same subject. It is refreshing that at long last the Government have recognised that the problem is growing by leaps and bounds, and have acknowledged an official figure for lost revenues—£1.5 billion.

Just before Christmas, I went to Dover harbour and saw an exercise in which Customs and Excise, the transport arm of DETR, the Benefits Agency and the police worked together to pick up the white vans. Twenty-six vehicles were dangerously overweight with beer and tobacco. Ironically, the drivers were allowed to telephone local taxi firms and hire taxis to take away the excess goods, so they got clean away with bringing in excess tobacco and alcohol. Eight of the vans were prohibited as defective, and 90 people were interviewed by the Benefits Agency. I understand that the agency reckons that it saved £31,000 in benefits on that morning alone. There were also customs seizures of about £19,000 worth of tobacco and alcohol.

If that was the effect of a by no means comprehensive exercise lasting only a few hours on one day just before Christmas, it is easy to imagine the sheer volume of tobacco and alcohol being smuggled and bootlegged.

The Budget has done nothing to make any difference. The Chancellor patted himself on the back for having frozen alcohol duty, but that will have no effect because the price differential is such that it is still extremely profitable to smuggle alcohol.

The Chancellor increased the revenue from cigarettes. At least, he thinks that he has increased the revenue from cigarettes, but in fact he has only increased their cost. He is simply encouraging worldwide smuggling. A packet of cigarettes from South Africa costs only 70p, so it is worth smuggling in crates and pallets full of cigarettes from somewhere that far away—not to mention the profits made by smuggling from Europe, especially from Belgium.

Inevitably, we are seeing the knock-on effects on health. The fact that the number of people smoking in this country is increasing has been confirmed by studies by Mintel, the British Market Research Bureau and several other respectable organisations. The Department of Health's figures prove the same thing.

We are building up a smoking-related health problem directly related to the increase in cheap tobacco. The Government cannot say any longer that the high price that they have put on tobacco is stopping people smoking—first, because it is palpably not doing that and, secondly, because wherever people are in the country, they can get cheap tobacco.

It would be logical and sensible to face the problem squarely. The tendency has been for the Government to build up customs services and prevention, and we shall see what effect that has on the return for the revenue men. The Government are now building up greater bureaucracy. Indeed, they have asked for product marking, which will add to the costs of industry. Industry rightly responds by saying that, if the Government would only reduce excise duties, it could afford to pay for that.

I emphasise again and again that the only answer to this problem is to reduce the excise duty on tobacco and alcohol. If we were going to debate this issue on the Floor of the House, I would table amendments to the Bill.

Sir Robert Smith

Will the hon. Lady give way?

Mrs. Lait

I am terribly sorry, I shall not give way, because I want to allow the Front-Bench spokesman time to reply to the debate.

I seriously suggest that the only solution to this problem is for the Government to grasp the nettle and reduce excise duty on tobacco and alcohol. History shows that, in the long run, revenue would then increase again.

10.25 pm
Mr. John Whittingdale (Maldon and East Chelmsford)

This has been a good debate, with a number of thoughtful and well-informed contributions from hon. Members on both sides of the House. It seems a long time ago that the Chancellor delivered his Budget speech outlining some of the measures that we have debated today. My right hon. Friend the Member for Fylde (Mr. Jack) referred to the initial burst of enthusiasm that greeted the Budget, with headlines in The Sun such as "Everyone's a winner". As he said, it did not take people long to realise that anything but that was the case.

The first flush of enthusiasm that greeted the Budget barely lasted 24 hours. Since then, enthusiasm has given way to disappointment, which in turn has been replaced by anger as more and more details of the stealth tax increases in the Budget have gradually emerged. We were told at the time that everyone would be better off, but it did not take long to discover that many people would face tax increases not tax cuts. Once again, the reality is very different from the presentational gloss.

The new 10p starting rate of income tax, which has been referred to by a number of hon. Members, is a typical public relations gimmick. By restricting it to the first £1,500 of income, it will make only a small difference to most people's tax bills. However, by reducing the amount of income that is covered by the 10p rate and by abolishing the 20p rate, the Chancellor increased the marginal rate of income tax for a significant number of people.

According to the Government's own figures, about 4.4 million income taxpayers will have a taxable income of between £1,500 and £4300. As a result of the Budget, the rate of income tax that they pay will rise from 20p to 23p in the pound. As the hon. Member for Kingston and Surbiton (Mr. Davey) said, the Chancellor overlooked that aspect when he made his Budget speech. It is also a direct breach of the Labour party's pledge at the last election not to put up income tax.

It is not just those 4.4 million people who have been conned by the new 10p rate. It became clear only after the Budget that savers on low incomes will also lose out. In a throwaway line in the Budget debate, the Chancellor said: The tax rates on savings will remained unchanged."—[Official Report, 9 March 1999; Vol. 327, c. 188.] Not many people picked up that line at the time, and those who did probably thought that they had misheard it, but it was no mistake. People whose income is derived from a small amount of savings will not enjoy a 10p starting rate: they will continue to pay 20p in the pound on their savings income. As the hon. Member for Gordon (Mr. Bruce) said, as a result of that, almost a million pensioners will get no benefit from the 10p rate.

It should come as no surprise that a Government who were willing to deprive 300,000 pensioners on the lowest incomes of a tax refund of £75 a year on their dividend payments should now penalise pensioners who pay tax, albeit at the lowest level. As the hon. Member for Kingston and Surbiton said, we shall want to return in Committee to the issue of the dividend tax credits for non-taxpayers.

The chief executive of the Birmingham Midshires building society was right when he described the 20 per cent. rate on savings as "unfair and contradictory". The Chancellor should even now listen to the representations of Age Concern, the Daily Mail and the "Money Box" programme on Radio 4, which are all calling on him to put the situation right.

Married couples will also lose out from the Finance Bill. The abolition of the married couples allowance for those under 65 will cost couples almost £200 a year extra in tax. It also finally removes from the tax system any recognition of the state of marriage. In his Budget, the Chancellor said that the allowance would be replaced by the children's tax credit and, as a result, the typical family with children would be left better off. However, they will not be better off next year, as we now find that the children's tax credit will not even come in until 2001. Nor will they be better off if either partner is a higher rate taxpayer, because they will lose the credit through the operation of the taper system. The result is the ludicrous situation in which a couple each earning £30,000 a year will receive the entire children's tax credit, while a family with only one earner on £ 36,000 will see it tapered away.

It does not stop there. Many married couples do not have children or, if they have, their children have grown up. According to the Government's figures, there are 6.4 million married couples who benefit from the married couples allowance but do not have children who are eligible for child benefit, and another 300,000 have children who receive child benefit but those children are aged over 16. They, too, will get no benefit from the children's tax credit and will end up paying more in tax.

The only exception is the pensioners, who retain the allowance. However, in a phrase the significance of which became apparent only after the Chancellor sat down, he said in the Budget speech that he was restricting the exception to "Today's pensioner couples". Any couples who are unfortunate enough to reach pensionable age after April next year will lose the allowance and gain no benefit at all.

The Chancellor said in the Budget that he was providing a better deal for families and children, but he certainly did not for one type of family. Couples who have divorced or separated, with one person paying maintenance, will also have to pay a lot more. Some 300,000 taxpayers will lose relief on the maintenance payments that they make for their children, costing each on average about £220. For some, the figure will be considerably higher. Those who separated before March 1988 can currently get tax relief at the higher rate of 40 per cent., but from next year they will receive no relief at all. Many parents paying 'maintenance already resent having to pay large amounts as a result of the actions of the Child Support Agency, as hon. Members know. For those parents, that Budget measure will be another blow. When the Chancellor was asked about it in an interview after the Budget, he did not even know about it, despite its appearing in his own Red Book.

Home owners will also pay more tax under the Finance Bill, as a result of the abolition of mortgage interest relief. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) described that as removing a massive distortion from the tax system. However, according to the Government, it is not a taxation measure at all. Instead, we are told that it represents a reduction in public spending. That conveniently overlooks the fact that, in the last Parliament, the reduction in mortgage interest relief was cited by the Labour party as one of the alleged 22 Tory tax rises.

In the Budget speech, the Chancellor said that the allowance was worth on average £ 2.50 a week. Most people are mystified as to how he reached that figure. In fact, it is worth about £4 a week and, in total, about 19 million home buyers will pay a total of £1.9 billion extra in tax each year.

Those who buy homes worth more than £250,000 face the extra costs of the increase in stamp duty. Last year, 45,000 residential transactions would have been affected. Some would say that those who can afford a house worth more than £250,000 can afford to pay the increase. However, in the south-east, in constituencies such as mine and that of my hon. Friend the Member for South Dorset (Mr. Bruce), £250,000 does not buy a mansion. The increase will affect many people with families who aspire to buy a bigger home.

Business will bear the brunt of the stamp duty increase. Some 65 per cent. of total receipts from stamp duty on transactions of more than £250,000 comes from commercial property and land transactions. The measure will put up the cost of commercial property, and that will hit businesses. Even more seriously, it will have a direct impact on commercial property values, making it harder for small and medium-sized firms to raise loan finance.

My hon. Friend the Member for West Worcestershire (Sir M. Spicer) spent some time on the threat posed to the City of London by the possible withholding tax. Rightly, he expressed astonishment that the Deputy Prime Minister appeared, only last week, to be totally unaware of that proposal, which puts at risk 10,000 jobs. My hon. Friend suggested that that might imply that the matter had not been raised in Cabinet. I very much hope that he was Wrong. It is, perhaps, more likely that the Deputy Prime Minister was otherwise engaged when the matter came up, possibly looking at tigers or examining a coral reef.

Whatever the explanation, my hon. Friend was absolutely right to say that the proposal represented a huge threat to one of the most successful component parts of our economy. If it goes ahead, the Eurobond market will be permanently lost to the UK because it will transfer to Switzerland. For that reason, when this proposal was first made in the 1980s, the then Government made it clear that it was utterly unacceptable.

We heard a fascinating account from my hon. Friend the Member for Chichester (Mr. Tyrie) of the negotiating tactics that Lord Lawson employed to put a stop to that absurd measure. As a result of that action, the proposal was dropped by our European Community partners, but the Government have refused to make the same commitment this time. Instead, weasel words have allowed the other countries of Europe to believe that we are prepared to compromise on this matter.

One of the Bill's most pointless and counter-productive tax rises is the increase in duty on tobacco. My hon. Friend the Member for Beckenham (Mrs. Lait) has followed that issue closely for many years and she made some powerful points. The Government are already losing at least £1.5 billion in revenue as a result of smuggling and cross-border imports. About 15 per cent. of the market has been taken by imported cigarettes, and each small retailer of tobacco loses about £42,000 in sales revenue each year.

The Chancellor blindly ignored that evidence as, yet again, he imposed an increase of 5 per cent. The price of 20 cigarettes in the UK is about £3.80, while the price in Belgium is about £2. It is hardly surprising that a huge number of people take advantage of that difference.

Sir Robert Smith

Will the hon. Gentleman give way?

Mr. Whittingdale

If the hon. Gentleman will forgive me, I shall not as I have only a couple of minutes left.

The policy of annual rises in the price of cigarettes has clearly failed, as the hon. Member for Barnsley, Central (Mr. Illsley) was brave enough to acknowledge. According to the Government's own estimates, revenue will fall this year. The time has come when the Government must think again. In terms of health, revenue and law and order, their policy is not working, and a new approach is needed. At the very least, they should take their heads out of the sand and freeze tobacco duty at its present rate.

Of all the many unpopular and damaging measures in the Budget, the worst is the increase in duty on hydrocarbons. Motorists in rural areas bitterly resent being treated by the Government as a cash cow. Many have no choice but to use their cars. The justification that raising the cost of petrol will encourage people to leave their cars at home is entirely spurious. People know that the only justification for raising petrol duty is to raise more money for the Government. It is not an environmental or transport measure, but a tax-raising measure pure and simple. Motorists have no choice but to pay the fuel duty, with the exception of those living in Northern Ireland. I endorse the comments of the hon. Member for East Londonderry (Mr. Ross) on that.

While most motorists have no choice but to pay the duty, the haulage industry can choose to fill its tanks with diesel in the United Kingdom and pay British rates or in France and Belgium and pay about half the amount. Even before the Budget, hauliers warned that the differences in duty rates threatened to wipe their industry out, yet the Chancellor ignored their pleas. He did not increase the rate of duty by only the 6 per cent. escalator; he increased it by 12 per cent. To ensure that there was no chance of industry being able to compete, he raised the rate of vehicle excise duty on 38-tonne trucks to £5,750—six times the level in Belgium and 12 times the level in France. The anger throughout the industry is genuine and justified. Hauliers see their livelihoods being destroyed by the Government without any benefit to the environment. The only gainers will be their competitors on the continent, who can hardly believe their luck. Even now, I urge the Government to come to their senses and think again.

The Bill enacts a Budget that we were told would cut taxes. Instead, it contains a catalogue of stealth tax increases on savers, married couples, fathers paying maintenance, home buyers, the self-employed, smokers and motorists. It is the third instalment of a tax-raising programme that directly breaches Labour's promises at the general election. I urge the House to vote against it tonight.

10.41 pm
The Financial Secretary to the Treasury (Mrs. Barbara Roche)

Let me start by agreeing with the hon. Member for Maldon and East Chelmsford (Mr. Whittingdale). This has been a good debate with valuable contributions from Members on both sides of the House.

The Finance Bill marks yet another step on the road to delivering a stronger economic future for our country. Conservative Members laugh, but we know the legacy of unemployment and lack of productivity that we were left with and our task in dealing with it.

The Budget and the Finance Bill build on a strong foundation for economic stability. The Budget offers a better deal to business and delivers a better deal for Britain. The hon. Member for Maldon and East Chelmsford laughs when I talk about business. I know that he has strong views on the burdens on business. I recently read an early-day motion that called for ministers within their respective Government departments whose brief includes deregulation to reinvigorate their laconic record". I am sure that he agrees. The problem is that that motion was tabled against the Conservative party when it was in government by its own Back Benchers in 1996. He was one of its main signatories. It is not my policy to embarrass him. I want only to make him remember his past mistakes so that he can repent of them.

The Budget continues to lock in the economic stability that the Government have delivered by keeping public finances under control. We have taken tough and decisive action with a new framework for monetary policy by making the Bank of England independent and setting up a new framework for the public finances based on tough rules. The excellent speech of my hon. Friend the Member for North Durham (Mr. Radice), the distinguished Chairman of the Treasury Committee, noted the effective co-ordination between fiscal and monetary policy. We are already seeing the benefits. Inflation is close to its target, mortgage rates are at their lowest for 33 years and we have cut borrowing by £29 billion in our first two years in office. That is why my right hon. Friend the Chancellor was able to deliver the Budget that the Finance Bill implements—a Budget that is good for those in work, good for families and, very important, good for business.

The Budget provides a platform for stability. We have as a country to raise our game, to deliver higher productivity for the long term, better skills, and greater innovation and competition. In contrast to the somehow golden legacy that the hon. Member for Chichester (Mr. Tyrie) spoke about, there is a productivity gap that we need to fill. There is a 40 per cent. performance gap between the United Kingdom and the United States of America. We have a duty to fill it. The measures in the Budget, including support for productivity, for research and development and for innovation, which were well emphasised by my hon. Friend the Member for Colne Valley (Kali Mountford), are aimed at just that. We have introduced a new 10p rate of corporation tax for small companies. That halves the tax rate for the smallest companies and benefits a great number of small and growing businesses.

The hon. Members for Gordon (Mr. Bruce) and for Kingston and Surbiton (Mr. Davey) suggested that, despite all the measures that I have mentioned, this was not a Budget for small business. But the Government feel very supported in their aims by the excellent comments of the hon. Member for Tunbridge Wells (Mr. Norman)—we recognise that he has a great deal of business experience—who said, immediately after the Budget statement, Not a bad Budget for small businesses. With recommendations like that, we know that we are on the right track.

A number of points were made during the debate about savings. The right hon. Member for Wells (Mr. Heathcoat-Amory) and the hon. Member for South Dorset (Mr. Bruce) spoke about the new ISAs. Perhaps Opposition Members have not looked at the figures on the take-up of ISAs. In one week, one of the providers sold 0.25 million. When many people in this country—half the population—have little or no savings, that is a major step forward.

My hon. Friend the Member for Dudley, South (Mr. Pearson) and others spoke about the fuel escalator. It was interesting to hear what Opposition Members had to say. The right hon. Member for Wells is not in his place at the moment, but he said that if the Conservatives were fortunate enough to be returned to power they would abolish the fuel escalator; but when asked very tellingly what he would cut to make up the £1.5 billion shortfall, he could not answer. Perhaps that explains why he is not in his place.

The right hon. Member for Fylde (Mr. Jack) also spoke about the fuel escalator. He was asked by my hon. Friend the Member for Shipley (Mr. Leslie) about his position, because the right hon. Gentleman was a member of the Government who introduced the escalator. The right hon. Gentleman replied that, as Financial Secretary, he was not responsible for the fuel duty escalator imposed by his colleague the Chancellor of the Exchequer. I have heard about the previous Government's lack of collective responsibility, but this takes the biscuit.

Mr. Jack

The Financial Secretary is being uncharacteristically inaccurate in reporting what I said in my defence. I was asked whether the escalator was my responsibility. I pointed out that it was not, but I also owned up to the collective responsibility that all of us in Treasury at the time had for taking difficult actions to put our public finances right.

Mrs. Roche

Of course I accept completely the right hon. Gentleman's clarification, although I doubt whether it aids his cause with the House.

The right hon. Gentleman mentioned the documentation covering the Budget, as did the hon. Member for West Worcestershire (Sir M. Spicer). The hon. Member for South Dorset even used the expression "smoke and mirrors". The documentation accompanying this Budget gives the fullest account ever of the Government's objectives; every tax change has been clearly spelt out.

The right hon. Member for Fylde also mentioned transparency. I agree with him that transparency is important. That is why we have introduced the new monetary policy framework of which transparency and accountability are central elements. The Monetary Policy Committee is subject to parliamentary scrutiny by the Select Committee on the Treasury and by the House of Lords Select Committee on the Monetary Policy Committee of the Bank of England. Our Budget reporting is underpinned by the code for fiscal stability.

The hon. Member for Gordon spoke about cider. As he knows, the problems were identified by the Conservative Government in 1996 and the alignment was necessary to fulfil the commitment made by the United Kingdom. However, he did not mention a fact that might perhaps have supported the debate: that the National Association of Cider Makers has supported this Government's action throughout.

There has been much discussion about tobacco and the worrying problem of smuggling; for instance, it was referred to by the hon. Member for East Londonderry (Mr. Ross), my hon. Friend the Member for Barnsley, Central (Mr. Illsley) and, towards the end of the evening, the hon. Member for Beckenham (Mrs. Lait). I was disappointed by the comments of the hon. Member for Maldon and East Chelmsford on that subject. The Conservatives, rightly, introduced the tobacco escalator. I remind the House that smoking kills more than 13 people an hour and there is a particular problem among young. The hon. Gentleman's response to that is that there is a problem with smuggling.

Smuggling is rather a romantic name for what is organised crime, leading to great criminality in various areas, which hurts decent, law-abiding people. The answer of the Opposition —who used to pride themselves on being members of the party of law and order—is that, because there is a problem with smuggling, we should attack the duty. They attack the duty rather than the criminals. The Government have put resources into tackling that problem. My hon. Friend the Paymaster General has put a great deal of effort in working with Customs and Excise to that end.

In an extremely well-considered speech of the kind that the House is accustomed to hear from him, my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) supported the ending of mortgage interest relief at source and made some important points about the housing market. I am sure that the whole House appreciated his remarks.

Mr. William Ross

The hon. Lady has correctly pointed out that the tobacco and fuel escalators were introduced by the previous Administration. As I recall, the intention was to double the price of fuel in real terms within a certain period. Does that remain the Labour Government's intention? When can we expect the escalator to stop for tobacco and fuel?

Mrs. Roche

As the hon. Gentleman will be aware, there are clear environmental and health objectives underlying all our policies on those matters. [HON MEMBERS: "Oh."] I know that the Opposition do not like hearing Ministers speak, but they have made some lengthy speeches this evening—one was 47 minutes long. I am not saying that I was bored—all the speeches were fascinating—but the Opposition might want to hear the Government's response.

The Government believe that enterprise and fairness can go hand in hand and that one supports the other, and that is why the Budget was a Budget for enterprise as well as fairness. It is why the Finance Bill will help families by paying an extra £416 directly into the pay packet of all lower and middle-income families with children—an important point that was made extremely well by my hon. Friend the Member for Northampton, North (Ms Keeble). It is also why, from April next year, we shall increase child benefit by 3 per cent. in real terms.

There was discussion about the winter allowance for pensioners, which will increase fivefold to £100 for every pensioner household in this country. That measure was warmly welcomed by my hon. Friend the Member for Glasgow, Govan (Mr. Sarwar). I listened with interest as the hon. Member for Kingston and Surbiton attacked that measure. I wonder whether he lives in the real world, because I know what pensioners in my constituency have said and how warmly the measure has been greeted. My hon. Friend the Member for Liverpool, Riverside (Mrs. Ellman) spoke about our priorities for public spending.

There was also discussion about the working families tax credit, and I thought that I detected a split in the Tory ranks on that subject. The hon. Member for South Dorset— someone I know well, having crossed swords with him on several occasions—was asked whether a Conservative Government would repeal the WFTC, and he said, rather fairly, "We'll see how it works—we'll see." It pains me to break the news to him so publicly, and I am sorry to have to do so, but his view is not shared by Conservative Front Benchers—their view on that subject is entirely different.

In addition to all the measures that I have described, we have been able to add to money for education and health, and we are providing a major new £1.1 billion boost from the capital modernisation fund.

Mr. Ian Bruce

Will the Financial Secretary give way?

Mrs. Roche

Of course.

Mr. Bruce

If she reads Hansard, the hon. Lady may realise that I said that it may well be that the Labour Government will withdraw the WFTC because it does not work.

Mrs. Roche

I think that I detect another change of heart, but I do not want to add to the hon. Gentleman's misery. It is possible that promotion to the Front Bench is in the offing for him, and I do not want to do anything to spoil his chances.

The Finance Bill will enact a Budget that builds on a strong foundation of economic stability, advances a modern framework of efficient public services and encourages a dynamic Britain of enterprise and fairness. It represents a better deal for our country, one that puts work, enterprise and families first. The Bill will cut tax rates and implement far-reaching tax reform, while simultaneously boosting public investment, and it will do so at the right time for our economy. The Government are giving all our people a better deal for work, a better deal for the family and a better deal for business. I commend the Bill to the House.

Question put, That the amendment be made:—

The House divided: Ayes 132, Noes 341.

Division No. 146] [10.59 pm
Ainsworth, Peter (E Surrey) Butterfill, John
Ancram, Rt Hon Michael Cash, William
Arbuthnot, Rt Hon James Chapman, Sir Sydney
Atkinson, Peter (Hexham) (Chipping Barnet)
Baldry, Tony Chope, Christopher
Beggs, Roy Clappison, James
Bercow, John Collins, Tim
Beresford, Sir Paul Colvin, Michael
Blunt, Crispin Cormack, Sir Patrick
Boswell, Tim Cran, James
Bottomley, Peter (Worthing W) Curry, Rt Hon David
Brady, Graham Davies, Quentin (Grantham)
Brazier, Julian Dorrell, Rt Hon Stephen
Browning, Mrs Angela Duncan, Alan
Bruce, Ian (S Dorset) Duncan Smith, Iain
Burns, Simon Emery, Rt Hon Sir Peter
Evans, Nigel Nicholls, patrick
Faber, David Norman, Archie
Fabricant, Michael Ottaway, Richard
Fallon, Michael Paice, James
Flight, Howard Paterson, Owen
Fowler, Rt Hon Sir Norman Pickles, Eric
Fox, Dr Liam Prior, David
Fraser, Christopher Redwood, Rt Hon John
Gale, Roger Robathan, Andrew
Garnier, Edward Robathan, Laurence (Tewk'bry)
Gibb, Nick Roe Mrs Marion (Broxbourne)
Gill, Christopher Ross, William(E Lond'y)
Gillan, Mrs Cheryl Rowe, Andrew (Faversham)
Goodlad, Rt Hon Sir Alastair Ruffley, David
Gorman, Mrs Teresa St Aubyn, Nick
Green, Damian Sayeed, Jonathan
Greenway, John Shepherd, Richard
Grieve, Dominic Simpson, Keith (Mid-Norfolk)
Hague, Rt Hon William Smyth, Rev Martin (Belfast S)
Hamilton, Rt Hon Sir Archie Soames, Nicholas
Hammond, Philip Spelman, Mrs Caroline
Hawkins, Nick Spicer, Sir Michael
Hayes, John Spring, Richard
Heald, Oliver Streeter, Gary
Heathcoat-Amory, Rt Hon David Swayne, Desmond
Hogg, Rt Hon Douglas Syms, Robert
Horam, John Tapsell, Sir Peter
Howard, Rt Hon Michael Taylor, Ian (Esher & Walton)
Hunter, Andrew Taylor, John M (Solihull)
Jack, Rt Hon Michael Taylor, Sir Teddy
Jackson, Robert (Wantage) Thompson, William
Jenkin, Bernard Townend, John
Key, Robert Tredinnick, David
King, Rt Hon Tom (Bridgwater) Trend, Michael
Kirkbride, Miss Julie Tyrie, Andrew
Lait, Mrs Jacqui Viggers, Peter
Lansley, Andrew Walter, Robert
Leigh, Edward Waterson, Nigel
Letwin, Oliver Wells, Bowen
Lewis, Dr Julian (New Forest E) Whitney, Sir Raymond
Lidington, David Whittingdale, John
Lloyd, Rt Hon Sir Peter (Fareham) Widdecombe, Rt Hon Miss Ann
Luff, Peter Wilkinson, John
Lyell, Rt Hon Sir Nicholas Willetts, David
McIntosh, Miss Anne Wilshire, David
MacKay, Rt Hon Andrew Winterton, Mrs Ann (Congleton)
McLoughlin, Patrick Winterton, Nicholas (Macclesfield)
Malins, Humfrey Yeo, Tim
Maude, Rt Hon Francis Young, Rt Hon Sir George
Mawhinney, Rt Hon Sir Brian Tellers for the Ayes:
May, Mrs Theresa Mrs. Eleanor Laing and
Moss, Malcolm Mr. Stephen Day.
Abbott, Ms Diane Bell, Martin (Tatton)
Adams, Mrs Irene (Paisley N) Bell, Stuart (Middlesbrough)
Ainsworth, Robert (Cov'try, NE) Benn, Rt Hon Tony
Allan, Richard Benton, Joe
Allen, Graham Bermingham, Gerald
Anderson, Donald (Swansea E) Berry, Roger
Anderson, Janet (Rossendale) Best, Harold
Armstrong, Rt Hon Ms Hilary Blackman, Liz
Ashton, Joe Blears, Ms Hazel
Atherton, Ms Candy Blizzard, Bob
Atkins, Charlotte Blunkett, Rt Hon David
Austin, John Boateng, Paul
Baker, Norman Borrow, David
Ballard, Jackie Bradley, Keith (Withington)
Barnes, Harry Bradley, Peter (The Wrekin)
Barron, Kevin Bradshaw, Ben
Battle, John Breed, Colin
Bayley, Hugh Brinton, Mrs Helen
Beard, Nigel Brown, Rt Hon Nick (Newcastle E)
Beckett, Rt Hon Mrs Margaret Brown, Russell (Dumfries)
Begg, Miss Anne Bruce, Malcolm (Gordon)
Buck, Ms Karen Goggins, Paul
Burden, Richard Golding, Mrs Llin
Burnett, John Gordon, Mrs Eileen
Burstow, Paul Griffiths, Nigel (Edinburgh S)
Butler, Mrs Christine Griffiths, Win (Bridgend)
Byers, Rt Hon Stephen Grocott, Bruce
Cable, Dr Vincent Grogan, John
Campbell, Mrs Anne (C'bridge) Gunnell, John
Campbell, Rt Hon Menzies Hall, Mike (Weaver Vale)
(NE Fife)
Campbell, Ronnie (Blyth V) Hall, Patrick (Bedford)
Cann, Jamie Hancock, Mike
Caplin, Ivor Harman, Rt Hon Ms Harriet
Casale, Roger Harris, Dr Evan
Caton, Martin Harvey, Nick
Cawsey, Ian Heal, Mrs Sylvia
Chapman, Ben (Wirral S) Heath, David (Somerton & Frome)
Chaytor, David Henderson, Ivan (Harwich)
Chidgey, David Hepburn, Stephen
Clapham, Michael Heppell, John
Clark, Rt Hon Dr David (S Shields) Hesford, Stephen
Clark, Dr Lynda Hewitt, Ms Patricia
(Edinburgh Pentlands) Hill, Keith
Clarke, Charles (Norwich S) Hinchliffe, David
Clarke, Eric (Midlothian) Hodge, Ms Margaret
Clarke, Tony(Northampton S) Hoon, Geoffrey
Clwyd, Ann Hope, Phil
Coaker, Vernon Hopkins, Kelvin
Coffey, Ms Ann Howarth, Alan (Newport E)
Coleman, Iain Howarth, George (Knowsley N)
Connarty, Michael Howells, Dr Kim
Corbett, Robin Hoyle, Lindsay
Corbyn, Jeremy Hughes, Ms Beverley (Stretford)
Corston, Ms Jean Hughes, Kevin (Doncaster N)
Cotter, Brian Hughes, Simon (Southwark N)
Cousins, Jim Humble, Mrs Joan
Crausby, David Hurst, Alan
Cryer, Mrs Ann (Keighley) Hutton, John
Cryer, John (Hornchurch) Iddon, Dr Brian
Cummings, John Illsley, Eric
Cunningham, Rt Hon Dr Jack Jackson, Ms Glenda (Hampstead)
(Copeland) Jackson, Helen, (Hillsborough)
Cunningham, Jim (Cov'try S) Jamieson, David
Dalyell, Tam Jenkins, Brian
Darvill, Keith Johnson, Miss Melanie
Davey, Edward (Kingston) (Welwyn Hatfield)
Davey, Valerie (Bristol W) Jones, Barry (Alyn & Deeside)
Davies, Rt Hon Denzil (Llanelli) Jones, Helen (Warrington N)
Dean, Mrs Janet Jones, Ms Jenny
Denham, John (Wolverh'ton SW)
Dismore, Andrew Jones, Dr Lynne (Selly Oak)
Dobbin, Jim Jones, Martyn (Clwyd S)
Dobson, Rt Hon Frank Kaufman, Rt Hon Gerald
Drew, David Keeble, Ms Sally
Drown, Ms Julia Keen, Alan (Feltham & Heston)
Dunwoody, Mrs Gwyneth Keen, Ann (Brentford & Isleworth)
Eagle, Angela (Wallasey) Keetch, Paul
Edwards, Huw Kemp, Fraser
Efford, Clive Keenedy, Jane (Wavertree)
Ellman, Mrs Louise Khabra, Piara S
Ennis, Jeff Kidney, David
Fearn, Ronnie Kilfoyle, Peter
Field, Rt Hon Frank King, Andy (Rugby & Kenilworth)
Fitzsimons, Lorna King, Ms Oona (Bethnal Green)
Flint, Caroline Kingham, MS Tess
Flynn, Paul Kirkwood, Archy
Foster, Rt Hon Derek Kumar, Dr Ashok
Foster, Michael Jabez (Hastings) Ladyman, Dr Stephen
Fyfe, Maria Lawrence, Ms Jackie
Galloway, George Laxton, Bob
Gardiner, Barry Lepper, David
George, Andrew (St Ives) Leslie, Christopher
Gerrard, Neil Levitt, Tom
Gibson, Dr Ian Lewis, Terry (Worsley)
Gilroy, Mrs Linda Linton, Martin
Godman, Dr Norman A Livingstone, Ken
Lloyd, Tony Manchester C)
Llwyd, Elfyn Rogers, Allan
Lock, David Rooker, Jeff
McAvoy, Thomas Ross, Erine (Dundee W)
McCafferty, Ms Chris Rowlands, Ted
McCartney, Rt Hon Ian Roy, Frank
(Makerfield) Ruane, Chris
McDonagh, Siobhain Ruddock, Joan
McDonnell, John Russell, Bob (Colchester)
McFall, John Russell, Ms Christine (Chester)
McIsaac, Shona Sanders, Adrian
Mackinlay, Andrew Sarwar, Mohammad
Maclennan, Rt Hon Robert Savidge, Malcolm
McNulty, Tony Sawford, Phil
MacShane, Denis Sedgemore, Brian
Mactaggart, Fiona Shaw, Jonathan
McWalter, Tony Sheerman, Barry
McWilliam, John Sheldon, Rt Hon Robert
Mahon, Mrs Alice Shipley, Ms Debra
Mallaber, Judy Simpson, Alan (Nottingham S)
Marsden, Gordon (Blackpool S) Singh, Marsha
Marshall, David (Shettleston) Skinner, Dennis
Marshall-Andrews, Robert Smith, Rt Hon Andrew (Oxford E)
Martlew, Eric Smith, Angela (Basildon)
Maxton, John Smith, Jacqui (Redditch)
Meacher, Rt Hon Michael Smith, Llew (Blaenau Gwent)
Meale, Alan Smith, Sir Robert (W Ab'd'ns)
Merron, Gillian Snape, Peter
Michie, Bill (Shefld Heeley) Soley, Clive
Milburn, Rt Hon Alan Southworth, Ms Helen
Miller, Andrew Spellar, John
Mitchell, Austin Squire, Ms Rachel
Moffatt, Laura Starkey, Dr, Phyllis
Moonie, Dr Lewis Stevenson, George
Moran, Ms Margaret Stewart, David (Inverness E)
Morgan, Ms Julie (Cardiff N) Stewart, Ian (Eccles)
Morley, Elliot Stinchcombe, Paul
Morris, Ms Estelle (B'ham Yardley) Stott, Roger
Mounttord, Kali Straw, Rt Hon Jack
Mudie, George Stringer, Graham
Mullin, Chris Stuart, Ms Gisela
Murphy, Denis (Wansbeck) Stunell, Andrew
Naysmith, Dr Doug Sutcliffe, Gerry
Oaten, Mark Taylor, Rt Hon Mrs Ann
O'Brien, Bill (Normanton) (Dewsbury)
O'Brien, Mike (N Warks) Taylor, Ms Dari (Stockton S)
O'Hara, Eddie Taylor, David (NW Leics)
O'Neill, Martin Taylor, Matthew (Truro)
Osborne, Ms Sandra Temple-Morris, Peter
Palmer, Dr Nick Thomas, Gareth R (Harrow W)
Pearson, Ian Timms, Stephen
Pendry, Tom Todd, Mark
Pickthall, Colin Tonge, Dr Jenny
Pike, Peter L Truswell, Paul
Plaskitt, James Turner, Dennis (Wolverh'ton SE)
Pollard, Kerry Turner, Dr Desmond (Kemptown)
Pond, Chris Turner, Dr George (NW Norfolk)
Pope, Greg Twigg, Stephen (Enfield)
Pound, Stephen Tyler, Paul
Powell, Sir Raymond Vaz, Keith
Prentice, Ms Bridget (Lewisham E) Vis, Dr Rudi
Prentice, Gordon (Pendle) Walley, Ms Joan
Primarolo, Dawn Ward, Ms Claire
Purchase, Ken Wareing, Robert N
Quin, Rt Hon Ms Joyce Watts, David
Quinn, Lawrie Webb, Steve
Radice, Giles White, Brian
Rammell, Bill Wicks, Malcolm
Rapson, Syd Willis Phil
Raynsford, Nick Wills, Michael
Reed, Andrew (Loughborough) Wilson, Brian
Reid, Rt Hon Dr John (Hamilton N) Winnick, David
Rendel, David Winterton, Ms Rosie (Doncaster c)
Robertson, Rt Hon George Wise, Audrey
(Hamilton S) Wood, Mike
Robinson, Geoffrey (Cov'try NW) Worthington, Tony
Roche, Mrs Barbara Wray, James
Wright, Anthony D (Gt Yarmouth) Tellers for the Noes:
Wright, Dr Tony (Cannock) Mr. David Clelland and
>Wyatt, Derek Mr. Jim Dowd.

Question accordingly negatived.

Main Question put forthwith, pursuant to Standing Order No. 62 (Amendment on Second or Third Reading):

The House divided: Ayes 304, Noes 164.

Division No. 147] [11.13 pm
Abbott, Ms Diane Connarty, Michael
Adams, Mrs Irene (Paisley N) Corbett, Robin
Ainsworth, Robert (Cov'try NE) Corbyn, Jeremy
Allen, Graham Corston, Ms Jean
Anderson, Donald (Swansea E) Cousins, Jim
Anderson, Janet (Rossendale) Crausby, David
Armstrong, Rt Hon Ms Hilary Cryer, Mrs Ann (Keighley)
Ashton, Joe Cryer, John (Hornchurch)
Atherton, Ms Candy Cummings, John
Atkins, Charlotte Cunningham, Rt Hon Dr Jack
Austin, John (Copeland)
Barnes, Harry Cunningham, Jim (Cov'try S)
Barron, Kevin Dalyell, Tam
Battle, John Darvill, Keith
Bayley, Hugh Davey, Valerie (Bristol W)
Beard, Nigel Davies, Rt Hon Denzil (Llanelli)
Beckett, Rt Hon Mrs Margaret Dean, Mrs Janet
Begg, Miss Anne Denham, John
Bell, Martin (Tatton) Dismore, Andrew
Bell, Stuart (Middlesbrough) Dobbin, Jim
Benn, Rt Hon Tony Dobson, Rt Hon Frank
Benton, Joe Drew, David
Bermingham, Gerald Drown, Ms Julia
Berry, Roger Dunwoody, Mrs Gwyneth
Best, Harold Eagle, Angela (Wallasey)
Blackman, Liz Edwards, Huw
Blears, Ms Hazel Efford, Clive
Blizzard, Bob Ellman, Mrs Louise
Blunkett, Rt Hon David Ennis, Jeff
Boateng, Paul Field, Rt Hon Frank
Borrow, David Fitzsimons, Lorna
Bradley, Keith (Withington) Flint, Caroline
Bradley, Peter (The Wrekin) Flynn, Paul
Bradshaw, Ben Foster, Rt Hon Derek
Brinton, Mrs Helen Foster, Michael Jabez (Hastings)
Brown, Rt Hon Nick (Newcastle E) Fyfe, Maria
Brown, Russell (Dumfries) Galloway, Geroge
Buck, Ms Karen Gardiner, Barry
Burden, Richard Gerrard, Neil
Butler, Mrs Christine Gibson, Dr Ian
Byers, Rt Hon Stephen Gilroy, Mrs Linda
Campbell, Mrs Anne (C'bridge) Godman, Dr Norman A
Campbell, Ronnie (Blyth V) Goggins, paul
Cann, Jamie Golding, Mrs Llin
Caplin, Ivor Gordon, Mrs Eileen
Casale, Roger Griffiths, Nigel (Edinburgh S)
Caton, Martin Griffiths, Win (Bridgend)
Cawsey, Ian Grocott, Bruce
Chapman, Ben (Wirral S) Grogan, John
Chaytor, David Gunnell, John
Clapham, Michael Hall, Mike (Weaver Vale)
Clark, Rt Hon Dr David (S Shields) Hall, Patrick (Bedford)
Clark, Dr Lynda Harman, Rt Hon Ms Harriet
(Edinburgh Pentlands) Heal, Mrs Sylvia
Clarke, Charles (Norwich S) Henderson, Ivan (Harwish)
Clarke, Eric (Midlothian) Hepburn, Stephen
Clarke, Tony (Northampton S) Heppell, John
Clwyd, Ann Hesford, Stephen
Coaker, Vernon Hewit, Ms Patricia
Coffey, Ms Ann Hill, Keith
Coleman, Iain Hinchliffe, David
Hodge, Ms Margaret Moffatt, Laura
Hoon, Geoffrey Moonie, Dr Lewis
Hope, Phil Moran, Ms Margaret
Hopkins, Kelvin Morgan, Ms Julie (Cardiff N)
Howarth, Alan (Newport E) Morley, Elliot
Howarth, George (Knowsley N) Morris, Ms Estelle (B'ham Yardley)
Howells, Dr Kim Mountford, Kali
Hoyle, Lindsay Mudie, George
Hughes, Ms Beverley (Stretford) Mullin, Chris
Hughes, Kevin (Doncaster N) Murphy, Denis (Wansbeck)
Humble, Mrs Joan Naysmith, Dr Doug
Hurst, Alan O'Brien, Bill (Normanton)
Hutton, John O'Brien, Mike (N Warks)
Iddon, Dr Brian O'Hara, Eddie
Illsley, Eric O'Neill, Martin
Turner, Dennis (Wolverh'ton SE) Wright, Dr Tony (Cannock)
Jackson, Ms Glenda (Hampstead) Osborne, Ms Sandra
Jackson, Helen (Hillsborough) Palmer, Dr Nick
Jamieson, David Pearson, Ian
Jenkins, Brian Pendry, Tom
Johnson, Miss Melanie Pickthall, Colin
(Welwyn Hatfield) Pike, Peter L
Jones, Barry (Alyn & Deeside) Plaskitt, James
Jones, Helen (Warrington N) Pollard, Kerry
Jones, Ms Jenny Pond, Chris
(Wolverh'ton SW) Pope, Greg
Jones, Dr Lynne (Selly Oak) Pound, Stephen
Jones, Martyn (Clwyd S) Powell, Sir Raymond
Kaufman, Rt Hon Gerald Prentice, Ms Bridget (Lewisham E)
Keeble, Ms Sally Prentice, Gordon (Pendle)
Keen, Alan (Feltham & Heston) Primarolo, Dawn
Keen, Ann (Brentford & Isleworth) Purchase, Ken
Kemp, Fraser Quin, Rt Hon Ms Joyce
Kennedy, Jane (Wavertree) Quinn, Lawrie
Khabra, Piara S Radice, Giles
Kidney, David Rammell, Bill
Kilfoyle, Peter Rapson, Syd
King, Andy (Rugby & Kenilworth) Raynsford, Nick
King, Ms Oona (Bethnal Green) Reed, Andrew (Loughborough)
Kingham, Ms Tess Reid, Rt Hon Dr John (Hamilton N)
Kumar, Dr Ashok Robertson, Rt Hon George
Ladyman, Dr Stephen (Hamilton S)
Lawrence, Ms Jackie Robinson, Geoffrey (CoVtry NW)
Laxton, Bob Roche, Mrs Barbara
Lepper, David Rogers, Allan
Leslie, Christopher Rooker, Jeff
Levitt, Tom Ross, Ernie (Dundee W)
Lewis, Terry (Worsley) Rowlands, Ted
Linton, Martin Roy, Frank
Livingstone, Ken Ruane, Chris
Lloyd, Tony (Manchester C) Ruddock, Joan
Lock, David Russell, Ms Christine (Chester)
Chapman, Sir Sydney Jack, Rt Hon Michael
McAvoy, Thomas Sarwar, Mohammad
McCafferty, Ms Chris Savidge, Malcolm
McDonagh, Siobhain Sawford, Phil
McDonnell, John Sedgemore, Brian
McFall, John Shaw, Jonathan
McIsaac, Shona Sheerman, Barry
Mackinlay, Andrew Sheldon, Rt Hon Robert
McNulty, Tony Shipley, Ms Debra
MacShane, Denis Simpson, Alan (Nottingham S)
Mactaggart, Fiona Singh, Marsha
McWalter, Tony Skinner, Dennis
Mahon, Mrs Alice Smith, Rt Hon Andrew (Oxford E)
Mallaber, Judy Smith, Angela (Basildon)
Marsden, Gordon (Blackpool S) Smith, Jacqui (Redditch)
Marshall, David (Shettleston) Smith, Llew (Blaenau Gwent)
Marshall-Andrews, Robert Snape, Peter
Martlew, Eric Soley, Clive
Maxton, John Southworth, Ms Helen
Meacher, Rt Hon Michael Spellar, John
Meale, Alan Squire, Ms Rachel
Merron, Gillian Starkey, Dr Phyllis
Michie, Bill (Shefld Heeley) Stevenson, George
Milburn, Rt Hon Alan Stewart, David (Inverness E)
Miller, Andrew Stewart, Ian (Eccles)
Mitchell, Austin Stinchcombe, Paul
Stott, Roger Walley, Ms Joan
Straw, Rt Hon Jack Ward, Ms Claire
Stringer, Graham Wareing, Robert N
Stuart, Ms Gisela Watts, David
Sutcliffe, Gerry White, Brian
Taylor, Rt Hon Mrs Ann Wicks, Malcolm
(Dewsbury) Wills, Michael
Taylor, David (NW Leics) Winterton, Ms Rosie (Doncaster C)
Temple-Morris, Peter Wise, Audrey
Thomas, Gareth R (Harrow W) Wood, Mike
Timms, Stephen Worthington, Tony
Todd, Mark Wray, James
Truswell, Paul Wright, Anthony D (Gt Yarmouth)
Turner, Dr Desmond (Kemptown) Wyatt, Derek
Turner, Dr George (NW Norfolk)
Twigg, Stephen (Enfield) Tellers for the Ayes:
Vaz, Keith Mr. David Clelland and
Vis, Dr Rudi Mr. Jim Dowd.
Ainsworth, Peter (E Surrey) Gale, Roger
Allan, Richard Gariner, Edward
Ancram, Rt Hon Michael George, Andrew (St Ives)
Arbuthnot, Rt Hon James Gibb, Nick
Atkinson, Peter (Hexham) Gill, Christopher
Baker, Norman Gillan, Mrs Cheryl
Baldry, Tony Goodlad, Rt Hon Sir Alastair
Ballard, Jackie Gorman, Mrs Teresa
Beggs, Roy Green, Damian
Bercow, John Greenway, John
Beresford, Sir Paul Grieve, Dominic
Blunt, Crispin Hague, Rt Hon William
Boswell, Tim Hamilton, Rt Hon Sir Archie
Bottomley, Peter (Worthing W) Hammond, Philip
Brady, Graham Hancock, Mike
Brazier, Julian Harris, Dr Evan
Breed, Colin Harvey, Nick
Browning, Mrs Angela Hawkins, Nick
Bruce, Ian (S Dorset) Hayes, John
Bruce, Malcolm (Gordon) Heald, Oliver
Burnett, John Heath, David (Somerton & Frome)
Burns, Simon Heathcoat-Amory, Rt Hon David
Burstow, Paul Hogg, Rt Hon Douglas
Butterfill, John Horam, John
Cable, Dr Vincent Howard, Rt Hon Michael
Campbell, Rt Hon Menzies Howarth, Gerald (Aldershot)
(NE Fife) Hughes, Simon (Southwark N)
Cash, William Hunter, Andrew
(Chipping Barnet) Jenkin, Bernard
Chidgey, David Keetch, Paul
Chope, Christopher Key, Robert
Clappison, James King, Rt Hon Tom (Bridgwater)
Collins, Tim Kirkbride, Miss Julie
Colvin, Michael Kirkwood, Archy
Cormack, Sir Patrick Lait, Mrs Jacqui
Cotter, Brian Lansley, Andrew
Cran, James Leigh, Edward
Curry, Rt Hon David Letwin, Oliver
Davey, Edward (Kingston) Lewis, Dr Julian (New Forest E)
Davies, Quentin (Grantham) Lidington, David
Dorrell, Rt Hon Stephen Lloyd, Rt Hon Sir peter (Fareham)
Duncan, Alan Llwyd, Elfyn
Duncan Smith, Iain Luff, Peter
Emery, Rt Hon Sir Peter Lyell, Rt Hon Sir Nicholas
Evans, Nigel McIntosh, Miss Anne
Faber, David Mackay, Rt Hon Andrew
Fabricant, Michael Maclennan, Rt Hon Robert
Fallon, Michael McLoughlin, Patrick
Fearn, Ronnie Malins, Humfrey
Flight, Howard Maude, Rt Hon Francis
Fowler, Rt Hon Sir Norman Mawhinney, Rt Hon Sir Brian
Fix, Dr Liam May, Mrs Theresa
Fraser, Christopher Moss, Malcolm
Nicholls, Patrick Syms, Robert
Norman, Archie Tapsell, Sir Peter
Oaten, Mark Taylor, Ian (Esher & Walton)
Ottaway, Richard Taylor, Matthew (Truro)
Paice, James Taylor, Sir Teddy
Paterson, Owen Thompson, William
Pickles, Eric Tonge, Dr Jenny
Prior, David Townend, John
Redwood, Rt Hon John Tredinnick, David
Rendel, David Trend, Michael
Robathan, Andrew Tyler, Paul
Robertson, Laurence (Tewk'b'ry) Tyne, Andrew
Roe, Mrs Marion (Broxbourne) Viggers, Peter
Ross, William (E Lond'y) Walter, Robert
Rowe, Andrew (Faversham) Waterson, Nigel
Ruffley, David Webb, Steve
Russell, Bob (Colchester) Wells, Bowen
St Aubyn, Nick Whitney, Sir Raymond
Sanders, Adrian Whittingdale, John
Sayeed, Jonathan Widdecombe, Rt Hon Miss Ann
Shepherd, Richard Wilkinson, John
Simpson, Keith (Mid-Norfolk) Willetts, David
Smith, Sir Robert (W Ab'd'ns) Willis, Phil
Smyth, Rev Martin (Belfast S) Winterton, Mrs Ann (Congleton)
Soames, Nicholas Winterton, Nicholas (Macclesfield)
Spelman, Mrs Caroline Yeo, Tim
Spicer, Sir Michael Young, Rt Hon Sir George Spring, Richard
Streeter, Gary Tellers for the Noes:
Stunell, Andrew Mr. Stephen Day and
Swayne, Desmond Mrs. Eleanor Laing.

Question accordingly agreed to.

Bill read a Second time.

Motion made, and Question proposed,


  1. (1) Clauses 2, 28 and 99 be committed to a Committee of the whole House;
  2. (2) the remainder of the Bill he committed to a Standing Committee;
  3. (3) when the provisions of the Bill considered, respectively, by the Committee of the whole House and by the Standing Committee have been reported to the House, the Bill be proceeded with as if the Bill had been reported as a whole to the House from the Standing Committee.—[Mrs. Roche.]

11.25 pm
Mr. Nick St. Aubyn (Guildford)

I am sure that I am not the only Member who believes that careful consideration should be given to the motion concerning the clauses to be debated on the Floor of the House before the Bill goes into Standing Committee. I welcome the fact that on the Floor of the House we will debate the petrol duty, the loss of the married couples allowance and the unwise proposal, in the view of many people outside the House, yet again to increase stamp duty.

I suggest that we should consider other measures to be debated on the Floor. Although this is not as long a Finance Bill as the one that we had to suffer last year, it is wide-ranging and covers matters that may not be as well addressed and publicised in Standing Committee, where not as many hon. Members will be able to contribute as would be possible on the Floor of the House.

For example, I could have referred to clause 53, which deals with employees who work in education and training. I am sure that many hon. Members want to speak about that, but I know that the time on the Floor of the House is limited. I could have suggested that we consider the clauses relating to student loans and to the enterprise investment scheme.

However, there are two clauses that it will not be possible to debate under the terms of the motion and deserve proper consideration by the entire House. I refer, first, to clause 121, which relates to

"economic and monetary union: taxes and duties".

It is a wide-ranging clause which seems to give untrammelled power to the Inland Revenue to spend taxpayers' money promoting economic and monetary union before any referendum on the matter has taken place.

I am grateful to the Inland Revenue for providing such a clear note in the guidance on clauses. It states that the clause

"provides legal cover for Inland Revenue and Customs and Excise to spend on preparing for the possibility of UK entry to the single currency."

The note continues:

"The Revenue Departments may need to spend some tens of millions of pounds", but the amount proposed in the clause is unlimited. We need to debate on the Floor of the House whether there should be a cap on that amount. The note refers to tens of millions of pounds being spent before the United Kingdom even has a referendum on the issue.

The note goes on to state:

Some of this expenditure would go beyond current Parliamentary guidelines. If a short clause in the Bill proposes such a radical measure, surely it is right for it to be considered by the whole House, rather than being kicked up into a Committee Room, where Ministers and Labour Members no doubt want to sweep it under the table.

If we are to have a debate about economic and monetary union and whether the Inland Revenue should be spending money on it, we should also consider whether we should approve clause 59. Clauses 59 and 50 relate to investments and securities, and concern tax avoidance in that context. As we all know, the Government are under great pressure—in connection with a wholly misguided system of tax avoidance—to attack, in effect, investments and securities held through the Eurobond market. A debate on the Floor of the House on those clauses, and on amendments tabled by my hon. Friends and me, would give us an opportunity to prevent the Government from entering into any arrangement with other members of the European Union that might introduce a withholding tax on such securities and investments.

Only today, representatives of the Swiss Government and Swiss monetary authorities visited London. They have a clear message to deliver about withholding tax on investments and securities. The message—to London, to the Government in particular and to the European Union—is that such a tax cannot work; but we have not debated the matter since it was last raised, over the weekend during a meeting of the European Union Finance Ministers. We need such a debate on the Floor of the House. Not just thousands but tens of thousands of jobs will be at risk if the Government give in to pressure from Germany and other members of the European Union. That is simply not acceptable—and we are talking not just about thousands, or tens of thousands, of jobs in London; in constituencies such as mine, job losses will result if the matter is allowed—

Mr. Deputy Speaker (Mr. Michael Lord)

Order. The hon. Gentleman is now starting to go into the details of a debate that will, in fact, take place in Committee. I should be grateful if he would stick to the point.

Mr. St. Aubyn

Thank you for helping me to stick to the matter with which we are dealing, Mr. Deputy Speaker. Nevertheless, if we are to consider these clauses, we must consider what is to be the range of the debate about them.

The clauses relating to the bonds that I mentioned, involving tax avoidance, raise many other issues. It is in the spirit of the Bill to crack down on tax avoidance, and there is no desire on my part—or, I believe, on that of any other Conservative Member—to allow people to get away with it; but we question the methods proposed in the Bill.

In dealing only with clauses 2, 28 and 99—which, as I have said, concern petrol duty, the married couples allowance and stamp duty—we are not dealing with all aspects of those matters. For instance, it may not be within the ambit of the debate on clause 99 for us to consider a different level of stamp duty for different types of property. If we debated more clauses on the Floor of the House, we could consider that here rather than in Committee.

If the debate on clause 121 went its way, I would hope that we could discuss the enterprise investment scheme. The Government are now trying to go halfway towards correcting the problems that they created before, while leaving many people who invested in small businesses far worse off than they were before the Finance Act 1998. I believe that the clauses relating to that scheme would also benefit from being discussed on the Floor of the House.

Finally, there are the clauses relating to value added tax. Given the terms on which the Bill is referred to a Standing Committee, it will not be possible to debate VAT matters. A matter that we tried to debate last year relates to the art market in this country, which is threatened by a serious increase in VAT. Unless we are allowed to debate the VAT clauses on the Floor of the House, it may not be possible for us to raise an important issue that may threaten as many as 5,000 jobs in London alone if no action is taken in the next few months to prevent the increase in VAT on art sales in this country that is in the pipeline.

Mr. Allan Rogers (Rhondda)

On a point of order, Mr. Deputy Speaker. Is it proper for an hon. Member to talk about an issue when he has not declared an interest? I understand that the family of the hon. Member for Guildford (Mr. St. Aubyn) owns St. Michael's mount, the castle and the paintings in it. Now he has advocated—

Mr. Deputy Speaker

Order. Hon. Members should not make such complaints across the Floor of the House. If any Members have an interest to declare, I have no doubt that they will do so. If the hon. Member for Rhondda (Mr. Rogers) has any complaints, he should pursue them through the normal channels.

Mr. St. Aubyn

My family has no plans to sell any works of art; besides, the property mentioned by the hon. Member for Rhondda (Mr. Rogers) is owned by the National Trust. I hope that he pays it a visit, provided that he is prepared to pay his way.

The art market affects many Members of this House—

Mr. Deputy Speaker

Order. The hon. Gentleman has had his time.

11.36 pm
The Financial Secretary to the Treasury (Mrs. Barbara Roche)

I am astonished at the performance of the hon. Member for Guildford (Mr. St. Aubyn). I was going to say that perhaps he did not realise that the clauses that will be discussed on the Floor of the House were requested by his own Front Benchers, but the hon. Member for Epping Forest (Mrs. Laing) —who is about to leave the Chamber and who is, I understand, a member of the Opposition Whips' Office—was encouraging him.

Mr. St. Aubyn


Mrs. Roche

Please sit down. We heard from the hon. Gentleman for long enough.

I assume that Conservative Front Benchers knew about that arrangement, which suggests how they intend to conduct proceedings. The hon. Member for Guildford could have made those points during today's proceedings; he chose not to.

Mr. Deputy Speaker

The Question is as that on the Order Paper. As many as are of that opinion say, "Aye". [HON. MEMBERS: "Aye.] The hon. Member for Guildford, having spoken against the motion, must shout, "No".

Mr. St. Aubyn


Mr. Deputy Speaker

The hon. Gentleman must simply shout, "No".

Mr. St. Aubyn


Mr. Deputy Speaker

I think the Ayes have it.

Question agreed to.

Committee tomorrow.