§ [Relevant documents: The Second Report from the Treasury Committee, Session 1998–99, on the World Economy and the Pre-Budget Report (HC 91-I), and the Fourth Report from the Environmental Audit Committee, Session 1998–99, on the Pre-Budget Report (HC 93).]4.49 pm
§ The Secretary of State for Social Security (Mr. Alistair Darling)
Last week, the Chancellor delivered a better deal for Britain with a Budget for a fairer society, built on a strong and stable economy, which will ensure that everyone has the chance to share in rising prosperity by tackling child poverty, promoting work and opportunity and delivering a new £1 billion-package of support for pensioners.
All that is possible because we are beginning to see the benefits of sound economic management. We are leaving behind the instability—the boom and bust—that plagued businesses, individuals, and families in the past. We took the tough decision to make the Bank of England independent: a decision opposed by the Conservative party. The result is that inflation is low, long-term interest rates are at their lowest for more than 40 years, and mortgage rates are at their lowest level for 30 years. We have kept a tight control of spending, cutting the debts left behind by the Conservative Government. At the same time, we are investing £40 billion more in schools and hospitals.
The Budget continues to lock in economic stability by keeping public finances under control and delivering targeted tax cuts for enterprise, work and families. The Budget shows how economic efficiency and fairness go hand in hand. We are helping working people who are not wealthy by cutting taxes to reward work, and to make work pay. We are providing better help for parents and their children by cutting taxes, and helping parents when they need it most. We are doing more for pensioners, 730 delivering on our promise to ensure that they share in the rising national prosperity being provided by our economic policies.
The Budget is helping the many, not just the few whom the Conservatives used to help. More than 20 million of the nation's households will gain from this Budget and from the previous one. We are doing all that within tight and prudent spending limits. As a result of our sound economic management and low interest rates, debt interest payments next year have been cut by £2.5 billion from their previous forecast—that is a total of £4 billion over the next three years.
We said that we would cut the bills of economic failure and re-focus spending on our priorities—schools, hospitals, families and pensioners. We have done that, and we shall continue to do so.
We are getting social security spending under control. In this Parliament it is growing at half the annual rate compared with that recorded in the previous Parliament under the Conservatives, when social security spending grew at 4 per cent.—in one year alone the increase in spending almost hit 10 per cent. The lower figure for this Parliament includes the working families tax credit.
Our sound economic policies, and our radical welfare-to-work initiatives, have helped bring unemployment down. Since the election, there are 400,000 more people in work. Long-term unemployment is down by half, as is youth unemployment.
We are getting spending under control not just by cutting unemployment, but by bearing down on fraud and error. We are confronting the Tory economic and administrative incompetence that we inherited. We are tackling housing benefit fraud and tightening the gateways to the benefits system. We are ensuring that we pay the right amount of benefit, but only to those people who are entitled to it.
When we came into office, two out of five income support claims were paid without enough evidence. We have changed that. This year alone we have saved £200 million in income support by getting those payments right. During this Parliament, we will save £1 billion by taking the trouble to ensure that we get those payments right first time. That £1 billion will be available to meet the Government's priorities elsewhere. We shall do more to control our spending, and will switch money to meet our priorities.
In our first two Budgets, and in the comprehensive spending review, we are committed to spending £4 billion a year to help pensioners and families. By controlling our spending we can afford to do more to help those who need it most.
We are also planning for the future, to ensure that social security spending remains affordable, manageable and effective. We are controlling spending in the long term so that, year after year, Budget after Budget, we can afford to do more for those who need it most—just as we have done in this Budget and the previous one. Our Welfare Reform and Pensions Bill now going through the House offers plans for the long term. Its radical structural reforms will help us to meet the needs that we know we shall face in the future.
The best way to help people to tackle the causes of poverty and to prevent future poverty is to help people into work. Benefits can treat the symptoms of poverty, 731 but they cannot tackle its causes. It is easy to send out a giro, but a giro cannot get people a job, or improve their skills or education. We are tackling the causes of poverty by building a strong, stable and enterprising economy with employment opportunities. We are tackling poverty through our radical welfare reform programme, which is driven by our principle of work for those who can and security for those who cannot.
That is why we introduced the new deal, which helps to get people back to work, including the young and now the over-50s too. We have introduced a new £750 grant for in-work training, and a new employment credit that is worth £60 a week when people move into full-time work after six months or more on benefit. It guarantees people aged over 50 a minimum income of £175 a week in their first year back at work.
§ Mr. Malcolm Bruce (Gordon)
In his speech, the Chancellor made great play of the fact that people on the minimum wage would pay taxes and still qualify for benefit. Under the Government's proposals, how many years will it take for people to be able to earn the minimum wage and not pay tax on it?
§ Mr. Darling
The minimum wage will be introduced this April, so everyone will qualify for it from then. The Chancellor made it clear that all our reforms were geared to ensure that people got the best possible return that they could by going into work. That is all part of our strategy to get people back into work, as is the change of culture introduced by the new single gateway, which offers a new contract for people, balancing their rights and responsibilities. The minimum wage will benefit nearly 2 million low-paid workers, two thirds of them women.
We have launched the first ever national child care strategy to help to overcome barriers to work, and to ensure that parents have access to quality, affordable and reliable child care. Our policies are already making a difference. We are already seeing the benefits of our prudent and sound management of the economy, and of our tax and benefit reforms. The new deals for the young and long-term unemployed have already helped nearly 120,000 people into jobs or training.
The Budget builds on all that with further tax and benefit reforms that deliver our commitment to make work pay and to help those who need it most. The Government are determined to deliver. This is a Government who have kept their promises on tax which we made at the election.
We kept our promise to cut VAT on fuel, but we did not do just that. We also introduced extra help with fuel bills for pensioners. We have also helped pensioners with the new minimum income guarantee, the reintroduction of free eye tests and by offering concessions on their bus fares. Of course, we are doing more for pensioners in the current Budget. We have also raised child benefit by a record amount.
§ Mr. Darling
I will certainly give way to the shadow Chancellor. He believes that our spending is unaffordable 732 and reckless. I would be interested to hear whether the Conservatives support our plans to increase help for families and pensioners.
§ Mr. Darling
I would be delighted to relive the general election—for Labour Members, it was an extremely pleasurable experience. Indeed, we cannot see too many action replays of those happy days in April and May 1997, but let me make it absolutely clear that what we said during the general election was that we would not increase the basic or top rate of tax. Despite the fact that the Conservatives tried every day—when they were not squabbling about Europe—to get us to promise more than that, we stuck to the promise that we would not increase the top or basic rate of income tax. We have kept to that promise.
§ Mr. Darling
No doubt the right hon. Gentleman wants to get to his feet to congratulate us on going further than that: we are reducing the basic rate of income tax.
§ Mr. Darling
As I spent much of the general election campaign listening to the Prime Minister, I know exactly what he said about the top and basic rate of tax. [Interruption.] The right hon. Gentleman should be cautious because, although he was not in the previous Parliament—he unfortunately lost his seat—the Conservatives are in no position to lecture us on keeping promises on tax. We well remember the 22 Tory tax rises—every one of them.
The right hon. Gentleman should look at the manifesto and the countless interviews that the Prime Minister and the Chancellor conducted during the election campaign. Every time, they repeated the promise that we have kept: we would not increase the basic rate or the top rate of tax. As I said last Tuesday, the Chancellor went even further than that by reducing the basic rate of tax and introducing the lowest starting rate of tax for many years, so we have kept the promises that we made in the election.
We will deliver on every promise that we made in the manifesto during the election because we are determined to help low and middle-income families—I know that the Conservative party does not know what I am talking about. Helping those families is very important, which is why we introduced the 10p rate of income tax—the lowest starting rate of tax for some 35 years. The basic rate of tax will be at its lowest level for 70 years from next year—it will fall to 22p in the pound—and no family will pay net income tax on earnings of less than £235 a week. We are also introducing and increasing working families tax credit—another measure that the Conservatives oppose, 733 and are pledged to repeal. As a result, every family working full-time, with children, is guaranteed a minimum income of £200 a week, or £10,000 a year. The Conservative party is pledged to get rid of that.
§ Mr. Michael Jack (Fylde)
What, in money terms, is the Secretary of State's definition of "middle income"?
§ Mr. Darling
If that is the best that the right hon. Gentleman can do, it is no wonder that the Conservatives are in their present position. Most people recognise that this Government are helping people on both low and middle incomes as the Conservative party never did—especially people on lower incomes.
Our reforms of national insurance will help to make work pay. We are giving employees an overall cut in contributions worth £2.5 billion a year. Our reforms will also help to make work pay by lifting 900,000 low-paid people out of national insurance payments altogether, while at the same time protecting their entitlement to benefits. Moreover, we are reforming the national insurance scheme for self-employed people in order to reduce the burden for those with lower profits, encourage the start-up of new businesses and make the system fairer.
§ Mr. Steve Webb (Northavon)
As the Secretary of State knows, at present child benefit and family credit are deliberately paid to mothers rather than fathers, in the belief that is of greater benefit to the children. The strategy outlined by the right hon. Gentleman leans heavily on tax credits, which, typically, will go to fathers. Does he worry about that shift from mothers to fathers?
§ Mr. Darling
There is no such shift. In the case of family credit, it is possible for parents to choose to whom it should be paid, and in the case of working families tax credit and child care tax credit we have been careful to ensure that will still be possible, because we have anticipated the difficulties to which the hon. Gentleman has referred. He need not be concerned.
Another of our reforms will also help people to get into work: we shall give lone parents two weeks' income support after they start work. Along with housing benefit, which they can keep for four weeks, that will make it far easier for them to find employment. All these measures are fair, prudent and effective.
§ Mr. Maude
The Secretary of State has been keen to seek refuge behind the specific nature of the commitments and promises made on taxes and taxation rates before the election. Does he recall the poster published by Labour—I have a copy here—sayingIncome Tax Rates Will Not Rise"?How does he reconcile that with the decision in the Budget, to which the Chancellor mysteriously failed to refer, that many people's marginal rate of tax should rise from 20p to 23p in the pound?
§ Mr. Darling
The right hon. Gentleman is wrong about that, as he is about just about everything else. He really will have to do better than brandishing Labour party posters—although I am glad that he has kept them: they may be a salutary reminder to the Conservatives of what they did when they were in power.
734 We have introduced a new starting rate of 10p in the pound, and a new lower basic rate of 22p, which will come into force next year. I think most people will recognise at the next election, as they did at the last, that they can trust the Labour Government to tell the truth about tax.
§ Mr. Darling
One moment, one moment. I understand that the right hon. Gentleman hopes to wind up the debate, if we ever reach that happy point.
I am pretty sure that most people remember exactly what happened under the last Conservative Government, who made promises about tax which they knew they could not keep and which they wilfully broke in Budget after Budget. During the general election, we made specific promises. We were cross-examined on those promises, quite properly, and we have kept to them. Although this may irk some Conservative Members, I remind them that it is this Government who have reduced the basic rate of tax as part of an overall, coherent tax-reforming strategy.
§ Mr. Maude
The Secretary of State is now alleging that, for his purposes, a pledge made on a poster that was published extensively does not amount to a pledge. Nevertheless, if he will consult the Paymaster General, she would tell him—if she can remember the figures—that because the 20p rate has been abolished, the marginal rate of income tax is now 23p for those whose taxable income is between £1,500 and £4,300, and whose marginal income tax rate is currently 20p.
§ Mr. Darling
One has to consider the tax changes in the round, and consider the national insurance payment reductions that we announced at the same time. [Interruption.] I am more than happy that the right hon. Gentleman should brandish that poster, both now and on every day between now and the next general election campaign. People will remember that whereas they could not trust the Tories on tax, they can trust the Labour party on it. We are delivering a tax strategy and a national insurance payment strategy which are designed to help people to get back into work, ensure that work pays, and which are far better and more coherent than their predecessors. He should by all means keep that poster, as he will undoubtedly need it during the next general election campaign.
Last year, the Chancellor promised a substantial increase in support for children, and the Budget delivers on that promise. It is a scandal—for which the previous Government must bear much responsibility—that, in the final year of the 20th century, a child can still be born poor, live poor and die poor. Every child deserves a decent start in life, and we are determined to ensure that every child gets it.
We have already begun, with the record increase in child benefit, to tackle child poverty, and radical initiatives such as the £540 million sure start programme will help young children from deprived communities to 735 get a decent start. The Budget delivers more help. Next year, we are increasing child benefit by even more—a 3 per cent. increase—which is on top of next month's record increase. From April 2000, for the first time ever, child benefit will be worth at least £15 for the first child and £10 for other children. The Government are therefore delivering big increases in child benefit, to provide help and real security for more than 12 million children and their families. From April 2001, we will deliver a new children's tax credit, with a tax cut—worth up to £416 annually—for 5 million families.
The combined result of the new children's tax credit and increased child benefit will be that, by April 2001, families who received £11 a week in 1997—at the time of the previous general election—for their first child will be receiving £23 a week. That is more than double what they were receiving under the previous Government.
Cutting taxes, increasing child benefit and introducing the working families tax credit will significantly boost the incomes of the 1.4 million low-paid working families, thereby helping 3 million children—as we also promised to do at the previous general election.
§ Mr. Webb
I welcome extra support for low-paid families. Nevertheless, the Government said in the Budget that, in the medium term, they wanted to develop a streamlined system of supporting families. Now, someone in a low-paid job will receive child benefit, child credit, child care tax credit and working families tax credit. Is that the type of simple system that the Government want? Why did they not introduce a streamlined system now rather than introducing a messy one first?
§ Mr. Darling
The hon. Gentleman is an academic and takes a keen interest in these matters. The Chancellor said that he wanted a streamlined system because—as the hon. Gentleman was right to say—the current system is quite complicated and can be difficult to understand. However, there are two problems. First, it always takes time to introduce a new system, as one must be confident that the new system will work and deliver payments most effectively and efficiently. Secondly, if we did nothing before introducing the new system, children growing up would miss out on the help that most of us agree is necessary.
In all our tax and benefit changes, therefore, we have chosen a judicious policy mix, one consideration driving that decision is the need to provide help as soon as we possibly can, consistent with our prudent management. The second consideration is to make the structural changes necessary to deliver more efficiently all the tax and benefit changes. We are on the case, and we are getting there. However, to do nothing until we have completely re-engineered the system would not be appreciated by those who would lose out meanwhile.
Another important element of our strategy to help the poorest families is an increase of nearly 30 per cent. in all income-related benefits for children under 11. We want to ensure that all children are looked after properly and that their families have the means of support to ensure that they get the same opportunities as everybody else.
We are also introducing the new sure start maternity grant to replace the existing social fund maternity payment from next year. That will help 200,000 families 736 by doubling the amount that they receive for a new baby from £100 to £200. One in four children born will benefit from that help. We are also doing more to protect the health of pregnant women and their unborn children by extending entitlement for maternity allowance to women on low wages, helping 14,000 mothers each year. From August next year, self-employed women will also benefit from a more generous maternity allowance, which we are increasing by 15 per cent.
We are helping children today because they need that help today. We are helping 700,000 children out of poverty, delivering on another manifesto commitment. In this Budget, we are ensuring that those children have better prospects, better opportunities and the chance of a better future.
We are also concerned that we should help pensioners, to ensure that they share in the rising prosperity of the country. We are providing significant new help for pensioners, with a £1 billion package of support. We are determined to do most to help those pensioners in greatest need, so we are delivering on our proposal in the pensions Green Paper that I published last December, by uprating the new minimum income guarantee in line with earnings in April next year. This year a single pensioner will get £75 and a couple will get £116. From next year, a single pensioner will get around £78 and a couple will get £121. That is a significant amount of help for some of the poorest pensioners in the country. From April next year, the poorest pensioner couples could benefit by nearly £800 a year compared with the help that they received from the previous Government. That is a real boost for the incomes of the poorest pensioners. The Government are delivering real security that was not there during the 18 years that the Conservatives were in power.
§ Mr. David Rendel (Newbury)
Does the Secretary of State accept that the poorest pensioners are those who are not on income support, who will not benefit from the minimum income guarantee?
§ Mr. Darling
As I pointed out to the hon. Gentleman at Social Security questions last week, we made it clear in the pensions Green Paper that we recognise the problem of the nearly poor pensioner—someone with modest capital or a modest income from an occupational pension. We are determined to do more to help those pensioners. In the mean time, we have to tackle a problem that has built up over many years. There are too many pensioners who are very poor. They will benefit from the minimum tax guarantee.
§ Mr. Darling
There is no point in the hon. Gentleman shaking his head. I understand that he is campaigning for the leadership of his party, so he ought to be aware that at least one member of his party does not agree with him. The hon. Member for Northavon (Mr. Webb) thinks that the minimum pension guarantee is a good thing. That is one vote gone before he starts, unless he can convince his hon. Friend to change his mind. The Government are doing more to help pensioners across the board.
§ Mr. Darling
Let me set out what we are doing to help pensioners. We are taking 200,000 pensioners out of 737 income tax. By definition, they were not the poorest pensioners, but that will mean that two thirds of pensioners will not pay any income tax. We want all pensioners to share in rising prosperity, so we are increasing the new winter payment to £100. That is a fivefold increase in the amount that they currently get and will benefit 7 million pensioner households. That is a major step in our fight against poverty. More than 10 million pensioners will benefit from the help that this Labour Government are delivering.
§ Mr. Iain Duncan Smith (Chingford and Woodford Green)
The Secretary of State talks about increasing the winter fuel payment. Why did he not simply increase the basic state pension? Is the price of fuel going to increase by the amount that he has increased the payment, or is there some other reason?
§ Mr. Darling
We wanted to deliver a significant payment to every pensioner household during the winter. Many pensioners find that in winter, increased fuel use and other costs mean that they will greatly value the additional single payment of £100. Most pensioners will welcome the additional help, and will recognise that the Government are doing more to meet other priorities as well.
§ Mr. Geraint Davies (Croydon, Central)
My right hon. Friend may know that that measure was warmly welcomed by Stella Hague, the mother of the Leader of the Opposition. On income tax, will not the change to a 10 per cent. income tax rate—taken together with the marginal rates of 20 and 23 per cent.—offer a net saving to all taxpayers, because—
§ Mr. Deputy Speaker (Mr. Michael J. Martin)
Order. It sounds as though the hon. Member for Croydon, Central (Mr. Davies) is trying to make a speech.
§ Mr. Darling
My hon. Friend made two good points, one of which was that nearly 2 million low-paid people will benefit from the 10p starting rate. That is why it is such a useful addition to the tax regime. On his second point, I have no idea what the mother of the Leader of the Opposition thinks. If she welcomes our pension proposals, perhaps she is urging her son to embark on a reshuffle to get some better quality on the Opposition Front Bench.
I would be interested to learn, in the next half hour or so, what are the Conservative's proposals. Since the Budget, the Conservatives have been strangely silent—apart from the usual squabbling on Europe. There has not been much talk at the kitchen table over the weekend. I would be interested to know whether the Conservatives still adhere to the line that our spending is unaffordable and that, therefore, they would reverse our spending plans.
We are giving significant help to families with children and to pensioners. It would be interesting to know where the Conservatives stand on that. We know that they oppose our increased spending on the health service, housing and education. Let us hope that, this afternoon, they will tell us whether they support our proposals to give more help to families and to pensioners, or whether they support our plans to reduce the basic rate of tax—something that they were unable to do for much of the time that they were in office. Perhaps we will hear what the Conservatives would do.
738 In contrast to Conservative policies, the Budget will help 20 million households throughout the country. Those households are getting a better deal from the Government because we are promoting enterprise and securing a stronger economic future. We are controlling spending, while providing extra money for schools and hospitals. We are providing a better future for millions by cutting taxes to promote work, to help families find work and to help pensioners and the poorest in society.
It is a prudent and fair Budget, and it is a better deal for this country. I commend it to the House.
§ Mr. Iain Duncan Smith (Chingford and Woodford Green)
Last Tuesday, the Chancellor produced his third Budget, three features of which I wish to deal with today: first, the way in which the Chancellor mentioned only what he considered to be the good things, preferring to leave unsaid many bad things—changes by stealth; secondly, the ending of the special place of marriage in the tax and benefits system; and thirdly, rising tax.
I know that the Secretary of State for Social Security does not want to be taken back to this matter, but we will run through it one more time. Last week, the Prime Minister, when confronted by my right hon. Friend the Leader of the Opposition about taxes, responded by saying that taxes had been cut. Perhaps he was economic with the truth, or perhaps he was intimated by his right hon. Friend the Chancellor, who was sitting next to him. One way or the other, even the Prime Minister admitted the week before that taxes are rising; yet a week later, he said something else.
In the Financial Times of 21 September 1995—this point was made by my right hon. Friend the Member for Horsham (Mr. Maude)—the Prime Minister said that he hadno plans to increase tax at all.That is a straightforward pledge, and it is fair that Labour in government should be measured by that pledge. However, the Government do not seem too happy. The fact remains that the two previous Budgets have increased taxes by approximately —40.7 billion over this Parliament, and taxes will rise in the coming year by £7.1 billion. It is the overall burden, not the headline income tax that matters. The overall burden of tax is what the public have to pay, not what the Chancellor wants to publicise. The public are presented with what appears to be a reduction while the Government are busy taking more money out of their pockets.
As my right hon. Friend the Member for Horsham said, look how the Chancellor abolished the 20p rate and attacked the public through changes in national insurance. The Chancellor said not one word about any of that in the Budget speech. Budget speeches are presentations by a Government, but it is fair to present both the good and the bad news and give a reasonable idea of exactly what is happening.
Let us consider what the Chancellor did not say.
§ Mr. Geraint Davies
Does the hon. Gentleman not accept that the net effect of the changes is a cash reduction in the amount of income tax that people pay?
§ Mr. Duncan Smith
As usual, the hon. Gentleman has got it completely wrong. The Red Book shows that the 739 tax burden will rise over the Government's period of office. The public do not want to hear nonsense about fiddled cash figures; they want to know what they will actually pay and the reality is that they will pay more tax. If he does not like that, he should not have stood on Labour's manifesto in the general election.
The Chancellor told us that he was introducing a children's tax credit to replace the married couple's allowance. He did not say that he would get rid of the allowance in 2000–01 but not introduce the children's tax credit until a year later. There was nothing about that in his speech. That manoeuvre nets the Treasury, on Red Book figures, £1.6 billion—a little windfall tax—in that one year. All married couples—with or without children, pensioners, rich or poor—will lose. It is as simple as that.
In getting rid of the married couple's allowance, the Chancellor did not say that he was getting rid of widow's bereavement allowance as well. I do not recall a word about that in the speech; remember, this comes after the previous Budget's reduction of the allowance by 10 per cent from April 1999.
§ Mr. Christopher Leslie (Shipley)
Would the hon. Gentleman retain the married couple's allowance at the existing rate if he were in power?
§ Mr. Duncan Smith
When we get back into power we will reinstate the special place of marriage in the tax and benefit system. We have an absolute pledge to change what the Government have done. We will deal with specifics when we come into government, but we have made that pledge.
§ Mr. Duncan Smith
No. The hon. Gentleman had his moment and he lost it, so he can forget it now.
Getting rid of the married couple's allowance was a major move. The Chancellor did not talk about the national insurance increase, but Library figures show that when all Labour's reforms to employer's national insurance charges have been implemented, thanks to the changes to the upper earnings limit people earning more than £27,000 will be worse off.
The Chancellor did not tell anyone that the plans for social security spending add another £1 billion to projected totals. Page 159 of the Red Book is clear about that. The Secretary of State and his colleagues failed to add in their little shimmy over the working families tax credit. They increase spending and say that it is a tax reduction of more than £5 billion a year, which is nonsense. We should add that back in, making the figure £6 billion, which is a net increase of £2.5 billion, counting the £1 billion to which I just referred.
The Chancellor did not tell anyone that the Government expect a rise of at least 400,000 in unemployment benefit claims as a result of the three Budgets. The National Audit Office report makes that clear. The Government know that and have allowed for it. Because of that specific problem, they will have to increase social security spending. We are now in the wonderful position that a Government who talked about lowering unemployment—the Secretary of 740 State just mentioned lowering it by 400,000—are planning to increase it by 400,000. Perhaps the most devious way in which the Government have fiddled the figures is their constant pretence that the working families tax credit is indeed a credit, which it is not. The Chancellor mentioned none of that.
What the Government should have done is to apologise for the raid they made, when they first came to power, on pensioner incomes and savings of £5 billion a year through the abolition of the advance corporation tax dividend tax credit. The National Association of Pension Funds pointed out, even before the Budget, that a pensioner expecting a reasonable income in retirement will find it reduced. The association calculates that someone aged 35, with a starting salary of £10,000 per year rising to £32,000—roughly a 4 per cent. increase per annum—over 30 years, would have retired on a pension of £14,721, but would now retire on a pension of just over £12,000. That is a direct result of the Government's change in their first Budget. I would have congratulated the Government if they had admitted how damaging that tax change has been and had rectified it in this Budget, but they did not take the opportunity to do so.
The Budget did not contain anything for the saver. For example, while the Government have lowered the basic rate of income tax to 10 per cent. on a very narrow band, they have not done the same for savers, who will continue to pay tax at 20 per cent., rising to 40 per cent.
The confirmation that the Government will link the minimum pensions guarantee to earnings was announced in such a way as to confuse people. The real result of that change will be a huge increase in means-testing. As the years go by, more and more people will be trapped in the income support line and the disincentive to save will increase rapidly.
Figures from the Library show clearly that under the current arrangements, the proportion of pensioners on income support could rise from one in five to one in three by 2050. Taking into consideration the projections for the rise in the number of pensioners, those figures also show that the Budget will mean that spending on income support will rise, at today's prices, from just under £4 billion to some £20 billion by 2050. The Budget will do all that, and it will still act as a massive disincentive to saving. That is a huge rise in spending, which will fall on taxpayers, and it comes from a Government who talked about breaking the dependency culture. The Prime Minister did not waste a day before saying that he would change the dependency culture.
Pensioners did not ask for that change in the Budget. Almost 1 million pensioners do not claim income support, so it is perhaps one of the Chancellor's stupidest decisions to change the pension arrangements in that way. I can think of nothing to recommend it. Furthermore, it now appears that the Government have admitted that they have got it wrong. The Chancellor is fond of saying that the married couple's allowance was neither about married people nor was it an allowance. The minimum income guarantee is not a minimum, nor is it a guarantee. When a Treasury spokesman was asked about that, he said:There will be some pensioners in a position where it doesn't quite do that. They will not get the minimum income guarantee in particular circumstances. That principle is something which is being looked at".741 An official from the Department of Social Security said:There are going to be people"—who—have no other form of income other than the state pension … which ministers are aware of.All the nonsense about a minimum income guarantee is utter rubbish. It is all about income support and people who will not qualify for it, but their incomes could be lower than the income level that qualifies people for income support.
§ Mr. Phil Hope (Corby)
Is the hon. Gentleman aware that some 113,000 pensioners in Northamptonshire will benefit from the winter fuel payment of £100 for every pensioner household? Why did his Administration, when they were in government, fail to provide any extra assistance for pensioners during the winter, when they have most demands on their income? If the Conservatives were ever to get back into power, would they take away that £100 from pensioners?
§ Mr. Duncan Smith
What a total load of nonsense. We changed income support levels for pensioners and the hon. Gentleman knows very well that his allegation is rubbish. He raised the question of winter fuel payments, which I have always thought a cock-eyed way to increase pensioner income. If, as the Secretary of State says, the Government have the means to increase pensioner incomes, why did they choose to do it in that way? Are they telling us that, as a result of their policies, fuel prices have rocketed since they came to power and they have to cover that? I do not believe that they are telling us that, so we must ask why they are acting in this way.
Age Concern said that it would have been better if increases had been put directly on to the basic state pension. Scope commented, revealingly and interestingly, that if there was a problem about winter fuel payments, why had not the Government done anything about disabled people who are not pensioners but who suffer much the same problem? Scope concluded—as others must have done—that there must be some other reason for the Government's action. If winter fuel payments were a problem, the Government would have sorted out the problem across the board. The difficulty cannot therefore lie in rising fuel prices.
I suspect that there is another reason for the Government's action, and that if we really probe we will find out what it is. The Government know that if they had put the money on the basic state pension, they would have been locked into a higher base level—and would have to increase the pension from that level—for years to come. The Government would not want that.
Therefore, the Chancellor tried, very cleverly, to find a way of saying, "We will increase pensioner incomes today, but we will not be locked in for the future." That will allow the Government either to cut the payment or to freeze it in years to come. Dare I say that after the next general election the Government may say, "Look, we have kept fuel prices down and it is much better now than it was, so there is no need for the increased payment and we can freeze it."?
§ Mr. Webb
I have a lot of sympathy with the hon. Gentleman's point about the winter fuel payments, but he said that income support should not rise in line with 742 earnings because that implies more means-testing. However, the previous Government linked pensions to prices, and I assume that the hon. Gentleman sticks by that policy. What, therefore, is his strategy for helping poorer pensioners?
§ Mr. Duncan Smith
I will reveal my strategy, but not today. [Interruption.] I see no reason to do so, and I have discussed the point with the hon. Gentleman before. When we return to power, we shall ensure that pensioners will be better off. What the Government are doing will not make pensioners better off, but will mean that anyone who tries to save or to get off state assistance will progressively find that there is no point in doing so. That is my point about the link to earnings—there is a better way.
I shall produce proposals—[Interruption] If the Government want to vote for us at the next election, they are more than welcome to do so. I would not blame them for it; I certainly would not vote for the current lot. It seems strange that Labour Members do not even want to vote for themselves but are desperate to find out our policy. They will know it soon enough.
§ Mr. Duncan Smith
No, I want to make some progress.
The point about winter fuel payments is clear: the Government are engaged in a cynical little game. They know that they have no intention of making that sort of change to the basic state pension. They would much rather see their disincentive hurt some pensioners.
§ Mr. Duncan Smith
My hon. Friend is right; they are desperate to talk about anything but what is in their Budget. I am not surprised by that because the Budget is such nonsense. We will talk about it, however.
Abolition of the married couple's allowance—miserable as that measure is in itself—will also affect pensioners. Existing pensioners will keep the allowance, but another vulnerable group will lose it. Anyone born after 1935 will lose £197 of income, as the Secretary of State has admitted. Over the last few years before they retire, those people's investments are, for obvious reasons, low yielding and low risk. They need a stable fund for investments and annuities. It will be impossible for that group, as they approach retirement, to make the necessary adjustments to recoup their loss. That is compounded by the problem of the falling annuity rate.
We have warned the Secretary of State about that problem before, and we have asked him to do something about it. The Chancellor clearly had the opportunity to deal with the problem in the Budget, but by doing nothing about the annuity rate and by making certain that those approaching retirement will lose income from the married couple's allowance, he has made the problem worse.
743 For example, a couple on a joint income of about £26,000 will find that their income will be cut by about £512 a year as they approach retirement. I asked the Library to run some figures on how the annuity rate problem plus the allowance problems will hurt them. The annuity rate problem alone is serious. The Secretary of State knows that when the Government came to power a man aged 65 with a wife aged 62 who had a £100,000 compulsory pension annuity would have had an annual income of £7,000. That same annuity today would yield less than £5,500. Alternatively, he would need an annuity of £130,000 today to yield £7,000. We have warned the Government that they should do something about that—we will even try to probe them about it in the Standing Committee on the Welfare Reform and Pensions Bill.
Furthermore, from April 2000 the abolition of the widow's bereavement allowance will hurt women pensioners who are widowed. The Chancellor's note to the press on the subject was interesting. He said that widows would be more than compensated by the new widow's allowance in the Welfare Reform and Pensions Bill. He failed to point out that the payment would not be made to women over pensionable age.
Not a word was said about all of that in the Budget speech—it was locked away in secret—which sends a powerful message from the Government that the Prime Minister and the Chancellor do not care for those who choose to save in the long term. In the past two years, the Government have messed up the arrangements for savers with their pension proposals and the ACT dividend tax credit abolition, and have taxed them more and more. The relationship between the long-term saver and the Government is now complex and painful.
Arguably as important, if not more so in the long term, is the position that the Government have taken on marriage. On the married couple's allowance, the Conservative party disagrees with the thrust of the Government's policy—that is no surprise, given the Secretary of State, his predecessors and his colleagues in Cabinet. Their contempt for marriage is now clear—[HoN. MEMBERS: "Oh!"] Labour Members may go on about that, but their policy is what it is all about. I was particularly interested in two opinion polls. The first appeared in The Guardian on the day before the Budget. When asked whether married couples should have a special tax allowance, almost 70 per cent. of respondents said yes; only 24 per cent. said no. The findings were backed up by a poll in The Mail on Sunday.
I have said that the Conservative party is pledged, on returning to office, to reinstate the special position of marriage in the tax and benefit system. It is important to recognise that abolishing the married couple's allowance and not replacing it for one year will hurt individuals. A person on a low income of about £6,000 a year, who does not have children, will lose £188. In the first year, a person with a child will lose £167 because they will not have the much-vaunted children's tax credit; a person with two children will lose £152; and so forth.
§ Mr. Darling
Will the hon. Gentleman answer two questions? First, if he thinks that the married couple's allowance is so important, why did he cut it substantially 744 when he was in power? Secondly, what did the Leader of the Opposition mean when he said last year that,if we were going to phase out the married couple's allowance we should have replaced it at the same time with a new allowance, better targeted on families who really need the help".That is what we have done.
§ Mr. Duncan Smith
I will come to what the Government have not done. To answer the original question, successive Governments—Labour and Conservative—have got that one wrong. The Secretary of State may have forgotten that I was not a member of the previous Government, although I was in the party that supported it.
If the right hon. Gentleman had asked his officials to calculate the figures for him, he might have argued with the Chancellor about the allowance. They would have told him that in the 1950s, married couples did not pay tax until they were on about 124 per cent. of manual workers earnings. Before the Budget, such people paid tax at something like 68 per cent. of earnings. It is worse today. The Government may not like it, but is incredible that they should come in saying that they did not like what the previous Government did but justify what they are doing now by saying that the previous Government, or the Government before that, did it. Have they no ideas of their own? Have they no idea of what they are doing? The Government's real reason for the change is that they oppose the structure of marriage.
§ Mr. Duncan Smith
No; I have taken enough interventions.
Those who suffer from the change to the married couple's allowance will see just how wrong-headed this policy is. It is nonsense to chase the children with the money without any sense of structure. That has been proved on both sides of the Atlantic by report after report.
I suggest that the Government read with great interest a book that I have been reading written by one of their own, an intellectual in Princeton who was once at the forefront of the feminist movement, Sarah McLanahan. She wrote about what affects the upbringing of children, and made it clear that the single most important factor that benefits and assists children in the long run is the institution of marriage. The Government simply say that marriage is irrelevant. They will be judged at the next general election, and I will take great pleasure in being one of those calling for them to be judged.
§ Mr. Duncan Smith
No, I want to make some progress. The hon. Gentleman keeps putting his foot in his mouth, and I do not want to give him another opportunity.
If the Chancellor was so certain that he had the money and wanted a change, why did he give the money to children at the expense of marriage? I do not understand that unless there is a clear message.
§ Mr. Duncan Smith
It is at the expense of marriage. The right hon. Gentleman need only look at the Red Book to see how the figures flow. The Chancellor saved some money, but transferred the bulk to the children's tax credit.
745 It is interesting that Julian McCrae of the Institute for Fiscal Studies, having considered the new children's tax credit, says:This has all the difficulties that would have been associated with taxing child benefit".The Secretary of State will not surprised to find that I agree.
The Government shied away at the last moment from taxing child benefit, although I suspect that deep in their hearts, they want to do it, and will do it. They tried out another scheme as a run to see whether they can do child benefit later. As the IFS points out, the Government's new means-tested sliding scale means they will get into all the problems that were in over the proposals to tax child benefit. The change will lead to dishonesty for the simple reason that, as the Government know, it will be in people's interest not to declare their relationships so that they can avoid the new tax.
The change will penalise marriage because those who are honest about their relationship will find the Government bearing down on them. It will particularly hurt single-earner households because of the ridiculous nonsense with the sliding scale, whereby two earners in a household on £30,000 each could end up receiving the money while a single earner on £38,000 got nothing. That is the absurdity of this. It is fraught with difficulties and complexities. The Government have got into a twist. What they really want is a means-tested benefits system. This is only the start; the most important thing is that this is all part of that process. It is not just the abolition of the married couple's allowance; each notch makes marriage that little bit less viable.
The Government cannot pretend that they were elected on 1 March 1999, as they try to do. They pretend that this is their first Budget—that there were not two Budgets beforehand. They try to disown quietly the tax increases of the first two Budgets. They like to crow about surpluses. In the short term, tax increases create surpluses, but in the long term they have a huge and hard effect on those attempting to work and save.
§ Mr. Duncan Smith
No, I shall not give way.
The third Budget gave us a real insight into the heart of the Chancellor and the Prime Minister. It contained a huge attack on marriage, coupled with massive redistribution by stealth from average earners to a state-based, means-tested social security system. The Government try to call those measures tax credits, but they all amount to the same thing: extra taxation, which will make people more, not less, dependent on the state and negate other measures the Government take. The Budget will make marriage break-up more, not less, likely. The Government go along kicking away the supports for the most important structure in the community, but they will be judged.
§ Mr. Darling
Does the hon. Gentleman seriously believe that people choose to get married or to separate because of tax considerations? Surely most people marry because of something higher than that.
§ Mr. Duncan Smith
The Secretary of State says that nobody gets married because of the married couple's 746 allowance, but he knows that the greater the pressure piled on, the more difficult it is for married couples to stay together and the less likely it is that unmarried couples will get married—all the figures for the past 30 years show that. The Government are barking mad if they really believe that that is an argument for getting rid of the married couple's allowance.
The Government appear to understand the price of everything, but the value of absolutely nothing, and they demonstrate less and less interest in saving long term. They will hurt the more positive aspects of life in the community—people saving, working, getting married and attempting to look after their children in the most balanced way. They have all the hallmarks of a Bart Simpson Government: they are set on creating dysfunctional families and a dysfunctional society.
Labour Members waved their Order Papers in approval on Tuesday, but next year on the same day the British people will be waving their fists, because the Government have broken every single pledge. Mr. Blair's first pledge was not to increase taxes, but he has done so by £40.7 billion over the lifetime of this Parliament. Mr. Blair's second pledge was to reduce the cost of welfare—
§ Mr. Duncan Smith
The Prime Minister—I used his name in case the public did not know it—promised to reduce the cost of welfare, but he will have increased it by almost £40 billion by the time he leaves office. Mr. Blair talked endlessly—[Horn. MEMBERS: "Oh"] It is hard for us to remember that the Prime Minister is a human being, but it will become easier as the years go by. The Prime Minister talked endlessly about supporting marriage, but he kicks away the supports for marriage, increases the taxation of married couples and makes them more dependent on the benefits system.
The Government say one thing, but do another. Their motto should be:O what a tangled web we weave,When first we practise to deceive!After two years and three Budgets, the web has become bigger and more complicated. For a few years, the Prime Minister liked to sound just like a double-headed eagle, but every day he sounds more like a turkey.
§ Mr. Deputy Speaker
Order. I remind the House that between 7 pm and 9 pm, Back Benchers' speeches will be limited to 10 minutes.
§ Mr. Robert Sheldon (Ashton-under-Lyne)
It is a great surprise to me that the main message from the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) is that he wants to retain the married couple's allowance. The abolition of that allowance is one of the two measures in the Budget that I most welcome.
This is the first Labour Budget that has been without constraints, either from small majorities or inherited economic crises. In 1964, the Labour Government had a 747 majority of five, and in 1974 they did not have one at all; both Governments had to deal with the prospect of an election that could come at any time. Each Government had a five-year programme, but only a matter of months before the electorate had, once again, to give their verdict, so those Labour Governments accelerated their programmes. Instead of preparing their measures during the early years, with the final results coming some years afterward, the measures were all compacted within a few months; but few Government decisions can produce results in so short a time scale. Policies were introduced too quickly and, following subsequent elections, the Governments had to retrench. As a result, they incurred the odium of what has come to be called "tax and spend". The Governments spent too soon before the results warranted such expenditure.
As well as being the first Labour Budget that is free from the constraints of a small majority, it is the first that is free from commitments by the previous Government. Before coming to office, Labour accepted the most important constraints of both the rates of income tax and the expenditure plans. It is only now, as we move to the plans for the Government's third year, that relative freedom is at hand. As a result, this is the first Budget that I have been able to welcome for more than 30 years—and that includes the Budgets in which I was involved to some extent. I am not one to praise Chancellors of the Exchequer unduly—although the three previous Labour Chancellors were pretty good considering their electoral constraints—but this Budget combines imagination and competence.
Not all the Budget measures will be free of problems—that is to be expected—but the Chancellor of the Exchequer looks to the long term and seeks sensible solutions, something that I expect to be a continuing feature of this Government. That is particularly true of mortgage interest relief and the married couple's allowance, whose removal required a Chancellor of the Exchequer who was determined to end those two nonsenses. Frankly, I never expected to see those policies introduced. I strongly opposed the decision of Margaret Thatcher to increase mortgage interest relief to £30,000 in 1983. She wanted to be seen as the friend of the property-owning democracy. No one is against that, but Mrs. Thatcher ignited runaway house price inflation.
Under the Thatcher Government, trading up and buying a more expensive house became a way of making money. It was not a means to a secure, comfortable and enjoyable life, but an investment—and the very best investment for most people in this country. Instead of encouraging productive investment, people were entranced by the notion of living more luxuriously while receiving tax advantages for doing so. Over the years, tax advantage for home occupation multiplied. Schedule A, the capital transfer tax, capital gains tax, the inheritance tax and mortgage relief gave advantages of a kind that should never have been available to that extent. Such expenditure was a form of consumption free from tax. It was a shameful escape from reality that many of those who bought during the big housing boom had cause to regret when the market finally woke up.
The married couple's allowance is a relic of the pre-war attitude to income tax. Historically, income tax was an imposition only on those with middle and higher incomes. 748 It recognised, through the allowances, what were considered the essential costs of such taxpayers. For those in the middle and upper income groups, the costs included the cost of maintaining a wife in a society in which few wives worked. That was the reason for the married couple's allowance. As the income level at which people entered the tax system was lowered, it was discovered that many more married women were working for a living. Under war-time conditions, the allowance was promoted as a means of getting women into work: it was an incentive.
Now that the normal expectation is for married women to work when their domestic conditions allow it, the measure has become more than an anomaly: it has become further nonsense. To have ended one outstanding or one difficult-to-erase anomaly would have been an achievement, but to have removed both is a tribute to my right hon. Friend. He has brought about a practical reform of the tax system that will advantage all future Chancellors of the Exchequer.
I welcome the 10p starting rate of income tax. It is an aspect of the more progressive income tax system that I have always wished to see introduced. I understand the arguments of those who call for an increase in personal allowances, but self-assessment provides the opportunity for a fully progressive system along the lines of the American model, with rates increasing with levels of income. Before self-assessment was introduced, a basic rate that applied to most taxpayers was essential for the operation of a complicated system. We now have the opportunity to introduce multiple bands. I accept that we shall have to introduce a higher rate band in due course, and I hope that other intermediate bands will eventually follow also.
This Budget, like all others, must be viewed in an international context. It is most important to take account of the way in which the world's economy is dependent more upon the United States now than at any time since the 1950s. The United States deficit is keeping many weak economies afloat. The question is: how can we be sure that it will be sustainable? The euro may, in time, come to be an alternative to the United States dollar, with international obligations similar to those that the United States has, to a large extent, borne alone.
One of the benefits that should eventually follow Britain's entry into the euro is a wider perspective that should flow naturally from the power that the new currency will acquire. For many reasons, our absence from the euro is the greatest issue of this Parliament. I am sure that we shall join eventually, but we could have played a valuable role influencing the shape of current events.
As to the health service, it is clear that costs will rise faster than the rate of inflation or even growth in the economy. The population is ageing and, as wants are met, health will become perhaps the major area of increased expenditure. The time is coming when we shall need to think more about either private medicine—which I do not favour—or a special national health service tax.
Anyone who has served in the Treasury has a visceral feeling about hypothecation—the road fund licence still casts its shadow 70 years later. One important weakness of hypothecation is that it does not take account of changing patterns of priorities in expenditure. However, as I have said, one certain aspect of health is that demand 749 will increase into the indefinite future. It may be that people will be more willing to accept a national health service tax when they can see the consequences of that expenditure, than other taxes that disappear into the vast generality of public expenditure. The time has surely come to explore sensibly the introduction of such a tax.
One important question is whether the Chancellor of the Exchequer was right to reduce income tax from 23p to 22p. I believe that he is right to do that both if the world economy turns down and if it does not. In fact, the Chancellor of the Exchequer's actions will be even more justifiable if he should need to maintain demand in the event of a downturn. It would be a case, on the one hand, of the economy being able to afford it and, on the other, of there being good counter-cyclical reasons for introducing it.
In this Budget, the Chancellor of the Exchequer has made use of his new-found freedom to act. He has had the space to defer the fruits of a Labour Government until they have been earned and he has done what all past Labour Chancellors wished to do. An important consequence of the Budget is that the Chancellor has helped to bring about a reconciliation between traditional Labour and new Labour. That valuable achievement must be added to his many others.
§ Mr. Malcolm Bruce (Gordon)
I listened with interest to the speech by the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), and especially to his point about the penny off income tax. If the purpose of that measure is some form of macro-economic demand management, one wonders why the Chancellor announced it a year in advance when he could not possibly have known what the trading circumstances would be. The Chancellor did not refer to the demand role because he announced the measure in the last sentence of the Budget and offered no explanations whatsoever. It will be interesting to see whether the right hon. Gentleman's predictions are correct.
Last Tuesday's Budget contained some good things—although fewer of them than the Chancellor pretended. There were also rather bad points in the Budget and, naturally, the Chancellor did not give much explanation of them. Never, in my 16 years in the House, have I heard a Budget that was more selective in its facts or misleading on so many issues. It was impressive on the day but, the closer one examines it, the more it unravels. This was a Budget of deception and half-truth. It is in complete contrast to the Chancellor's claims that he wants to promote transparency and openness. In fact, nothing could be more complicated and impenetrable than the details of the Budget.
We welcome in principle many of the proposals in the Budget—many of which are long-standing Liberal Democrat policies—including the shifting of taxes on to pollution, the raising of the national insurance threshold for the low-paid and the graduation of vehicle excise duty. However, the Chancellor will be forced to admit that the latter was too modest, both in amount and in the level of car size at which it is introduced, to affect people's behaviour or their ability to alter their behaviour.
Inside and outside the House, I have expressed the view that increasing the personal allowance is a much more effective way of helping people on low incomes than 750 introducing the 10p tax rate. The process has made the tax system a great deal more complicated than it was before the Chancellor came to power. He certainly has not simplified the system and, if my hon. Friend the Member for Twickenham (Dr. Cable) catches your eye, Mr. Deputy Speaker, he will want to draw the attention of the House to more details of that.
The Secretary of State for Social Security did not appear to understand my intervention about the minimum wage, so I shall clarify it. The Chancellor said that the minimum wage will be introduced at a rate that, at the current level of personal allowances, means that anybody who earns the minimum wage and works full-time will pay tax on that wage and be eligible for benefit. He indicated that he wanted to end that situation.
I was asking the Secretary of State how many years it would be, under the Government's policies, before people who earn the minimum wage and work full-time would be able to do so without paying any tax. The Secretary of State seemed not to understand the question or to have an answer, partly because, I suspect, the Government's strategy addresses itself not to taking people on the lower end of the scale out of tax, but to creating a complex array of tax allowances that are spread thinly across all taxpayers and leaving people on low incomes paying taxes at levels at which they qualify for benefit.
I want now to concentrate on other aspects of the Budget—material that has been buried away in the small print—most of which Liberal Democrat Members do not welcome. The Budget was so misleading and economical with the truth that I agree with Conservative Front-Bench Members that not only has it led to the Prime Minister definitively misleading the House, but the House would be entitled to ask for a supplementary Budget statement to allow clarification of many points that are shrouded in mist. I shall endeavour to help the House by pointing out a number of problems that could be put right.
First, let us consider the Chancellor's growth forecast. He presented the Budget as if he were leaving that forecast unchanged, which he does not. Growth for 1998–99 was revised downwards from 2.25 to 1.75 per cent. That will cut tax revenues by between £3 billion and £5 billion a year over the forecast period. That is a big change, which the Chancellor did not acknowledge in his speech. It would have been helpful if he had done so, because many points flow from that.
My second point of clarification also relates to growth. While repeating his growth forecast for 1999, the Chancellor neglected to make an important point: the mix of growth will change significantly from the forecast that he made in the pre-Budget statement in November. He has had to acknowledge that, as we have been warning him for a year, manufacturing industry will be in recession in 1999. There was no reference to that in his speech, but the papers and the Red Book make it clear that the central forecast for manufacturing growth decreases from 0 per cent. at best to minus 1.25 per cent. That is interesting, because the Chancellor has, at the same time, revised upwards his forecast of domestic demand growth to about 2.25 per cent. The 1999 export growth forecast has also been cut, to 0.5 per cent., even though British export markets are forecast to grow by 5.75 per cent.
Those are pretty stark figures. They mean that we have a forecast of a seriously unbalanced economy with exports grinding to a halt in spite of continuing strong growth in 751 our export markets. That ought to tell us something. If the Chancellor will not even acknowledge the problem, how can we develop a policy to confront it?
The Chancellor forecasts that, during 1999, the gap between the growth in manufacturing and the growth in domestic demand will be 3.5 per cent. —in favour of domestic demand, of course. That is the biggest gap since 1986. It means that, since 1996, we shall have had four years in which domestic demand has grown 12.1 per cent. faster than manufacturing output. That is an incredible transformation of our economy, and not for the better.
Is it not time that the Chancellor woke up to the fact that we have a seriously uncompetitive exchange rate level and that joining the euro involves not only the commitment in principle that the Government are telling us that they have made, but policies in practice to lock in sustainable convergence, including a competitive exchange rate? As I have said on several occasions, even if Britain is not in favour of joining the euro, we still need a competitive rate and we need to reduce our interest rates.
My third point of clarification relates to the net effect of the Budget. The Chancellor presented his Budget as a giveaway Budget and got all the headlines that he wanted. He implied that everyone was a winner and would benefit. On the other hand, he wanted us to believe that it was a highly prudent Budget. If the Budget was all that the tabloid newspapers said the next day, the Bank of England and the Monetary Policy Committee would presumably be putting up interest rates at their next meeting, but the reverse is the case. In its macro-economic and fiscal stance, this was a conservative Budget. The Chancellor was putting on a double act, according to which audience he was choosing to address. On the day, this was a giveaway Budget but, to the City and the Bank of England, it was a prudent Budget.
The Chancellor said:I am … able, with my Budget measures today, to boost purchasing power over the next three years by £6 billion".I should have thought that, while the Monetary Policy Committee is wrestling with inflation, that was not what it wanted to hear. However, it is of course nonsense. Research by the House of Commons Library reveals that the reduction in current receipts is more than fully offset by a reduction in planned public expenditure of £14.4 billion over three years, so the Chancellor has simply changed the basis of his figures to fit the circumstances. That reduction is all achieved by reducing the annually managed expenditure totals by £14.4 billion.
That brings me to my fourth point of clarification. The spending reduction of £14.4 billion was not mentioned in the Chancellor's speech, but it explains why there is no fiscal boost in the Budget. Over the next three years, there will be a £14.4 billion reduction in public spending, which is an £11 billion reduction in current receipts and a cut of £4 billion in borrowing. Where is any of that made clear in the Budget statement? One would look long and hard for that.
Social security spending is mentioned in the statement. The Chancellor said thatover the next three years, social security spending, including unemployment … is set to be significantly lower than previously forecast".752 The Secretary of State for Social Security acknowledged in his opening remarks that that is not true. Table B 13 on page 159 of the Red Book shows that social security spending has been revised up by £1.9 billion since November. That tells us that, on my fifth point, the Chancellor is talking plain nonsense about social security spending. To suggest that it is going down, when the Secretary of State for Social Security has now admitted that it is going up, is pretty deceitful.
Taxation is the sixth point on which I seek clarification. According to the Prime Minister, this was a tax-cutting Budget. According to the Prime Minister, taxes are coming down for all families. According to the Prime Minister, the tax burden will rise more slowly under Labour than was planned under the Tories. Well, each and every one of those claims by the Prime Minister is in fact false.
The Chancellor is on record as saying many of the things that the Prime Minister said. He said:this Budget will cut tax rates".He also said that the Budget delivers tax cuts. Is that really true? I am grateful to the Library for clarifying the matter, because the Budget does not cut taxes. Many of the items in table 1.3 of the Red Book are spending measures, not tax changes.
According to the Library, a couple of days after the Chancellor's statement, the Budget adds £100 million net to taxation over the next three years. That is the Library' s analysis of the Chancellor's own figures. It is not a tax-cutting Budget. Of course, that ignores completely the council tax, which is due to go up by £1 billion next year or, even allowing for inflation, by £700 million.
What of the Prime Minister's claim that taxes are falling for all families? This is my seventh point. Taxes over this Parliament will be £41.8 billion higher on a cumulative basis as a result of all Labour Budgets and, so far, £2.9 billion higher in respect of council taxes. Those are taxes that all families pay, so the claim that all taxes are coming down for all families is not sustainable. That claim is, frankly, utter rubbish.
As a Member of Parliament for a Scottish constituency, involved in debates on the Scottish elections, I find the Government's lectures to those of us who want an honest debate about taxation priorities wholly unacceptable. The Government preach honesty and openness and claim that they are cutting taxes while they are in fact putting them up. They then complain about people who want an honest debate and genuine presentation of priorities. Those of us who have addressed those issues head on, and are prepared to debate them with the people of Scotland, will take no lessons on taxation from the Labour party. The Government are going to have to do better if the debate is to be conducted on a genuine choice of priorities between parties offering different programmes that are honestly presented and honestly costed.
The issue of the tax burden—point No. 8—is one that has been kicked around several times, but I have had an analysis of it done by the Library. It shows that the Government's presentation of the figures does not compare like with like because of the treatment of the working families tax credit and the upward revision of the size of the economy on which, of course, the burden of taxation is based.
The adjusted series produced by the Library shows that the pre-Labour, or previous Conservative Government's, planned tax burden would be 36.8 per cent., compared 753 with 37.6 per cent. now, on a comparable basis. That is an increase in anyone's book—so much for the Government's claim about taxation.
The Government are wrong to pretend that taxation has not been rising. In the previous Parliament, the Conservatives effectively told people to vote for them because they would cut public expenditure to cut taxes, but what actually happened was that taxes went up and public expenditure went up even more, and the national debt doubled. Labour came to power, saying that it would not put up taxes but would boost public expenditure. What has actually happened is that the burden of taxes has continued to rise at more or less the same rate, while the increase in current expenditure on public services in this Parliament is half that delivered by the Conservatives. In other words, the extra taxes are being used to sort out the structural deficit inherited from the Conservatives, and are not delivering either the public spending levels that the Conservatives attack as profligate, or the spending levels that the Government seem to believe will sort out the problems in health and education—far from it.
While the tax burden has risen by 4 per cent. of gross domestic product since 1992, the amount of public spending as a share of GDP is falling fast. Under the Tories, spending as a share of GDP averaged 43.1 per cent. over the previous Parliament. In this Parliament, it is expected to average 39.6 per cent. of GDP—a difference of nearly 4 per cent. Taxes are rising as a share of GDP and spending is falling, the difference being used to close the huge structural Budget deficit. The incompetence and dishonesty inherited from the Tories has been continued for two years on the same basis by Labour. In fact, I wonder whether the time is right to start asking which twin is the Tory in terms of presentation.
A Budget leaflet was to be distributed by the Government as part of their campaign for more openness on taxation and spending. In principle, the Liberal Democrats favour the idea of a tax contract if it is about telling people what taxes they are paying and what services they are getting. What we are not in favour of is party propaganda funded by the taxpayer, controlled by the Government and not independently tested.
What happened to the Government's tax leaflet, which we were expecting to be told about on Tuesday? Why was it not even mentioned? Clarification of this—point No. 9—came on Friday, when a Treasury official inadvertently admitted to my office that the leaflets had had to be withdrawn because of inaccuracies. Fifty thousand leaflets paid for by the taxpayer are apparently to be pulped. That is a shambles. I am not in favour of the Government issuing untrue statements, but I suspect that it is only the difference between the untruths that is at issue, rather than the fact that the leaflets were untrue. If the Government cannot produce objective information that has been independently audited, it might be better if they pulped the whole idea. There should be a genuine objective assessment of what is going on, not a tax-funded propaganda exercise.
The final point of clarification relates to public services. The Chancellor said that he wouldannounce more money and more capital investment in schools, hospitals, transport and fighting crime."—[Official Report, 11 March 1999; Vol. 327, c. 173–78.]In fact, there was no new money, only allocations from an existing fund. Instead of announcing a genuine boost to schools and the health service, the Chancellor decided 754 to spend his largest allocation of Budget money—more than £5 billion over two years in the second half of this Parliament—not on the hard-pressed health service or on investment in education, but on cutting the basic rate of income tax. That is the Government's priority, and it is exactly the same as that of the previous Government, whom we threw out.
The measure was presumably designed to wrong-foot the Tory party, although I cannot see the point of wrong-footing a party that has two left feet—or should that be two right feet?—and cannot walk in a straight line. No one is listening to the Tory party, but people are listening to the Government. The Chancellor had the scope to spend more money on education and health within existing public spending totals. We know that because he took £4.4 billion off the spending totals.
Labour Members will no doubt flood in to support the Budget at 10 pm but, if they think that what the Government have done in their first two years and what they plan to do for the next two or three years of this Parliament will sort out the atrocious mess in our public services, they will be deeply disappointed and will have a hell of a job convincing their constituents that a Labour Government made the difference that they had hoped. People will know that the Labour party decided to abandon its commitment to education, education, education and its commitment to rescue the health service from crisis and decided to go for Tory-style tax cuts. Ministers seem to have been persuading themselves that the problems of health and education are sorted. I advise Labour Back Benchers to be very careful when they have to defend cuts in services or failure to develop services over the next two or three years.
After two years of Tory cuts, it is possible that there will be some improvement over the next two years. It is possible that some of the pledges of the early years will be delivered in the late years of this Parliament, but is that the height of the Labour Government's ambition for those services? Is that all that we shall get? Surely we need more ambition if we want to rebuild a world-class education system. Surely the NHS needs more than crisis management and the odd windfall from the lottery when the Government feel that they need a headline.
When the Chancellor invites us to vote for a 1p cut in the standard rate of income tax, rather than investment in health and education, we will certainly vote against it. We are quite clear about our response to the Government's policies. Yes, we need to raise the take-home pay of the very low paid, but there are much more efficient ways of doing that than a 10p tax rate. Yes, we need environmental taxes that will alter people's behaviour, but that will not be delivered if people do not understand the tax system because the Chancellor is making it infinitely more complex.
Above all, we need a Government who recognise that health and education need investment first, before we go for tax bribes and tax cuts that cannot be justified because the education and health services have not had the investment and development that they need. That is why the Liberal Democrats oppose this deceitful Budget.
§ Mr. Terry Rooney (Bradford, North)
I support my right hon. Friend the Chancellor's Budget, including many of the significant changes that he has made in 755 social security, especially on the theme of making work pay. The Budget builds on the minimum wage, which is to be introduced in a couple of weeks. It will benefit some 2 million people by an incredible amount—as much as two thirds—which just shows the poverty pay that has existed in this country for far too long.
The Budget also builds on the wonderful success that has been achieved for the 18 to 24-year-old group through the new deal. The 53,000 youngsters who are now in work were previously offered an alphabet soup of training schemes, but no real prospect of employment.
The working families tax credit will be a significant monetary and behavioural advance on the failings of the old family credit system. It will improve not only people's prospects, but the way in which they view work and apply themselves when seeking work. It is to the credit of the Chancellor and the Department of Social Security that it has been agreed that those who receive maintenance will have that disregarded in the computation of working families tax credit. It was one of the greatest failings of the Child Support Agency from the outset that people with children who received benefit got no benefit from any maintenance paid. I welcome that important change.
The hon. Member for Gordon (Mr. Bruce) made some interesting but illusory observations about whether a 10p tax rate was a good or a bad thing. Throughout the 1980's the people whom I represent saw that the tax burdens of people on high incomes were substantially reduced, while the tax burden of those on low incomes increased every year. If the people whom I represent can get some of that cake back, fair enough—and about time, too.
Thank goodness we have seen the back of the failed disability working allowance, with the advent of the disabled person's tax credit. In nine or 10 years, the number of claimants of disability working allowance rose to the superb figure of 13,000. What a miserable effort that was. With the simplicity of the disabled person's tax credit, people with disabilities will have an incentive to go to work and to stay in work, because they will get the financial reward due to them.
Single parents on income support who move into work will keep their income support for the first two weeks, on top of any earnings. That is another significant incentive, which will help people over the difficult initial period between benefit ending and the first pay cheque arriving.
The best thing about the Chancellor's proposals to make sure that work pays is that they raise hopes and expectations. For far too long, people believed that it is better to be on benefit than in work. Sadly, that was often true, because of the poverty pay over the past 20 years. Now we are raising hopes and expectations. Like many of my hon. Friends, I represent estates where two, three or four generations have never worked. It is accepted as the norm. It is not seen as unusual that brothers, sisters, uncles, aunts, grandparents, mother and father do not work.
The Budget abolishes not just poverty of income, but poverty of expectation. If we can raise our young people's expectations, the effect on our society will be dramatic—not least the effect on the crime rate.
With respect to the changes affecting children, I particularly welcome the change in maternity allowance. It has been a scandal that low-paid women received no 756 maternity allowance at all because their income was below the arbitrary lower earnings level. I am slightly disappointed that the new rules apply only to those earning more than £30 a week, but I expect that my right hon. Friend is saving any improvement on that as a bonus for next year, when the lower limit will be abolished. I see a smile from my hon. Friend the Member for Wallasey (Angela Eagle) on the Front Bench—I live in hope.
The maternity grant was set at £100 in 1988 and has never changed since. Anyone who has any experience of children knows that the cost of kitting out a new baby is greatly in excess of £100, so I warmly welcome the doubling of maternity grant. In addition, under the proposals in the Employment Relations Bill, 2.3 million women will benefit from the extension of maternity leave from 14 weeks to 18 weeks. The reduction in the qualifying period from two years to one will benefit another 1.4 million women. At last that aspect of work is being addressed.
I welcome the new children's tax credit. I find it incredible that anyone could suggest that people's decision to get married or divorced would be based on anything as trivial as the married couple's allowance. Not only because of the reduction in the rate and the tax benefit over the years, but because of the anomalies built into the system as regards who qualifies for the allowance and who does not, it is time the Chancellor got rid of it.
The Opposition Front-Bench spokesman, the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith), spoke about the stresses and strains on families. The biggest strain on a family occurs when children arrive and one wage is lost. The Budget puts money back into people's pockets to encourage them to deal with those issues when they arise. When they have children and their earning power is reduced, the Government's measures will assist them.
I have always found pensioners the most difficult group to please. I have been staggered over the past week to discover how widely welcomed the Budget has been. The minimum income guarantee is now well understood, which was not the case last year. It is well understood that it will be earnings-linked, so the poorest pensioners will gain from the increase in the national wealth, which has not occurred since 1981.
Some 17,000 pensioners in my city, Bradford, will benefit from the £100 winter fuel payment. The Chancellor has wisely made efficient use of resources to help those who need it most. The payments could have been spread a lot thinner, to benefit every single pensioner, but there would have been much less jam for each household that genuinely needs it.
That measure builds on the significant proposals in the Green Paper on the state second pension and on stakeholder pensions, which will target resources on those with the lowest earning capacity. The state second pension is a significant redistribution of resources and will help the lowest earners throughout their working lives.
In the past few years, we have rightly had debates and statements about pensions mis-selling. It is time we focused on the performance of life assurance companies and their investment records. Mention was made earlier of annuity rates, which are going down, as happens at a time of low inflation. However, there is a 32 per cent. difference between the best and the worst performing 757 annuity providers. That is far more damaging to people's pension prospects than anything else that is happening at the moment.
The difference between the performance of the best and the worst with-profits policies is 27 per cent., and for stand-alone, with-profits policies it is 50 per cent. The best unit-linked policies are eight times better than the worst. When people invest their money, they need to know that it is being invested wisely and with the best investment houses. The Financial Services Authority should examine the performance records of the different providers over a given period—the longer the better—and if their investment policies are as bad as that, they should be ruled out of the market. People need to know that they will get a decent and sensible return on their investments, instead of the miserable performances that far too many of these investment houses are producing.
I welcome the Chancellor's statement about a code of practice on mortgages, but it is sad that mortgages are still excluded from any of the regulatory bodies. Mortgages are the biggest single investment that people make in their lives, and they should have far greater statutory protection. Codes of practice are fine, but we have seen in the past that they are torn up by unscrupulous people. The sooner the mortgage framework comes under the FSA' s remit, the better.
May I make a plea to the Secretary of State for Education and Employment? Too many of us are completely ignorant of financial matters, whether it be pensions, investments or mortgages. [Interruption.] It is sad that some hon. Members act as though they are still at school. There is space in the national curriculum, particularly in the fifth and sixth forms, for our children to receive some basic education on the principles of investments, lending rates, annual percentage rates, mortgages and so on. Too often we expect people to leave school, go to work and start to make these decisions without any knowledge to back them up.
This Budget, like many others, seeks to influence people's behaviour. It is my firm belief that this is a good Budget. It will help to make work pay and to provide better opportunities, particularly for younger and poorer people—the people whom I represent in Bradford, North. I am delighted with the measures that the Chancellor announced last week, and I look forward to seeing them implemented.
§ Sir David Madel (South-West Bedfordshire)
I have an industrial constituency that is heavily dependent on motor vehicle manufacturing and on suppliers to that industry. I was particularly interested in the comment of the Secretary of State for Trade and Industry on 10 March:First, we must invest in British capabilities—in particular, our world-class science and engineering base and our skills."—[Official Report, 10 March 1999; Vol. 327, c. 409.]That view is in the background when the Government wrestle with the problem of deciding whether they should give grant aid to the Rover plant at Longbridge for the new model. I know of the difficulties in deciding whether to give grant aid, but if it were given to Longbridge there would be a free-for-all in the car industry in applications for grant aid. I assure the Government that, if that were the case, we in south Bedfordshire and Luton would regard ourselves as part of the "all".
758 Further questions arise over the problems at Longbridge. Have we got the boundaries right, whereby some areas of the country qualify for grant aid and some do not? Can we be sure that we have got it right? Should we give money just to keep a factory going or should we give it for a specific purpose, such as to launch a new model or a new engine? If we do that, we need to know whether it is within European Union rules.
Ministers' speeches in the Budget debates have been littered with references to science and the environment. In my view, grant aid should be available in the drive for cleaner and more fuel-efficient engines for the car industry, regardless of where a company is situated in the United Kingdom. That would, at long last, provide a level playing field for the motor industry.
On the changes in vehicle excise duty, of course a cut in duty for small cars is welcome. That will be introduced on 1 June. In my view, however, there has been faulty thinking in the Treasury and by the Inland Revenue about the engine size that should benefit from the £55 cut. The Government have fixed it at 1100 cc, but I believe that it should have been 1400 cc, for two reasons. First, 1400 cc is recognised by the Treasury as a ceiling above which higher taxation kicks in for the purposes of taxing free fuel provided to employees by employers. Secondly, the Treasury has admitted that the size of the engine is a poor guide to environmental performance. Surely the Government want to get more people to drive super-minis—not souped-up minis—and 1100 cc is an unrealistic engine size. The Government should think again about this measure—they have time before 1 June—and go for cars up to 1400 cc.
That leads me inevitably to the 6 per cent. increase in the fuel escalator, which, decoded, means steeply rising annual petrol prices. I shudder to think what we would be paying if world oil prices were not as low as they are now. The Government have been incredibly lucky, because there is now an abundant supply of oil, whereas in the 1970s we thought that oil was in permanently scarce supply. We all know how unstable the middle east is: if a Government are overthrown or there is a violent change of Government in the middle east, supplies may suddenly be reduced or cut off. That was certainly the case in Iran in 1979 when the Shah was overthrown. The Government must think again about the fuel escalator, which I believe has outlived its usefulness and is fundamentally wrong.
The Government are being unrealistic if they go on thinking that the bus can replace the private car. I am beginning to get the impression that far too many people in this country do not want ordinary people to own a car. The most realistic public-private partnership—we hear a lot about that—is to make it as easy as possible for people to drive in their car to a station and get on a train. I accept that that cannot be done all over the country, because we cannot cover the country with railways.
It is wrong of the Government to think that, somehow or other, the bus can magically replace the private car. In 1963, Professor Colin Buchanan, in his report on traffic in towns, said that the majority of journeys by car in this country are relatively short journeys, and cannot be done by bus. That is as true now as it was in 1963.
759 I should like to say a word about the Government's attitude to business and their desire to help business. In the Budget last year, the Chancellor of the Exchequer said:For 12 months from July, first year capital allowances for small and medium-sized businesses will be set at 40 per cent., continuing our commitment to boosting long-term investment."—[Official Report, 17 March 1998; Vol. 308. c. 1101.]That statement took us to July 1999. It was repeated this year: the 40 per cent. allowance will go on to July 2000. Beyond that, we do not know what will happen. That is an avoidable uncertainty for business. The Government should make it clear what they will do on capital allowances for the rest of the Parliament. They made it clear in 1998 what they would do for one year. They have it made clear again. They should now go further.
On page 41 of the Red Book, the Government say something interesting under the grand title "Helping businesses to succeed." We all wish business to do so, but at paragraph 3.45 the Government say that they believe that they also havea role to play in supporting small businesses through the provision of advice and in particular by helping them to minimise the cost of complying with regulations.The way in which to reduce business costs is to reduce the number of regulations. That is what business wants more than anything else. It would like a couple of other things, too. It would like the road-building programme to stop being slashed and to be restored, so that businesses would find it easier to get their goods to market. It would also like local planning authorities to take a more friendly attitude towards businesses that want to set up shop in various parts of the country. That is the sort of practical help that can be given to businesses. It is missing from the Budget.
I end with a point in relation to the Red Book that underlines the Government's philosophy and worry over the Budget. On page 99, there is a rather nervous statement on income tax in 2001–2002:In the Treasury's view, an amendment of the Scottish Parliament's tax-varying powers is not required as a result of these changes"—in other words, the changes that the Government are making in income tax. It is interesting to note that cutting the basic rate to 10p is a repeat of what the then Chancellor, Mr. Norman Lamont, did in 1992: he introduced a lower rate of tax.
The language being used now is exactly the same as was used by the late John Smith, but for John Smith substitute the Scottish National party. It is now saying what John Smith said in 1992, but the climate is different. There is a huge demand for more money to be spent on health and education. The Chancellor is taking a colossal gamble in what he is doing on income tax north of the border; he may come badly unstuck.
§ Mr. Jim Cunningham (Coventry, South)
I remind the Opposition that the Government are spending at least £40 billion on education and the national health service. Most Opposition Members seem to have forgotten that. More important, I should like to support the Chancellor and his Budget. Indeed, for the first time in a long time, 760 we will see a surplus of £4 billion this year and a net public borrowing requirement of £1 billion. Compare that with the £28 billion deficit that we inherited and we are starting to move, certainly from my perspective, in the right direction.
Nor should we forget what happened to families under the Tories. What they called free markets only broke local economies and smashed families. This is a strong family Budget that builds on previous initiatives and puts families and children at the heart of our policies; it builds on the working families tax credit, child care tax credit, the minimum wage and the fairness at work proposals. I am sure that many people will view the Budget as a step in the right direction.
Many people will welcome the second increase in child benefit—to £15—the continuation of benefit on entering work, and the raising of the minimum income guarantee to £200 a week. Again those are strong measures to deal with poverty. Incidentally, those measures have been endorsed by the Low Pay Unit and the Child Poverty Action Group, so there is some support somewhere for the proposals, even if not among Opposition Members.
We need stable families. They form the bedrock of a successful childhood and consequently better attainment at school, by building on sure start, special educational needs and the rebuilding of crumbling schools. Those are vital, too, in relation to quality of life.
I warmly endorse the £100 million for inner-city schools: a vital part of rebuilding the fabric of our inner cities. We will also give £2,000 to each school to buy books. There will be 1,000 computer learning centres and an initiative to train 370,000 teachers in computing. Those are quite radical programmes.
We can see that the Government have started to build some secure foundations step by step, so that our society can improve. It was often said that we could not have both environmental concern and economic growth. The Chancellor has shown how we can look at, and do something about, both. Corporation tax will be cut to 30p from April. The small business rate will also be cut. In my constituency, many small business people will welcome that. Given that these are tough times, the Chancellor is prepared to take tough action to tackle business problems, rather than let business flounder, as it did with the hollowing out of our economy in two major recessions under the Tories.
The environment was often neglected by Tory Governments. Labour Members welcome the new, revenue-neutral incentives to cut carbon dioxide and, importantly, the special packages that the Government are prepared to introduce for high users. We particularly welcome, especially in my constituency of Coventry, South, the one thing that marks the Budget out as a truly reforming and modernising Government's Budget: the research and development tax credit.
The Government are prepared to underwrite one third of R and D. That is welcome relief in Coventry, which has major employers such as Jaguar, Peugeot and GEC. That will greatly benefit and underpin our manufacturing economy for the long term. I am sure that many hon. Members will remember what happened 10 or 15 years ago under the previous Government. Unemployment in Coventry was between 15 and 18 per cent. It was once known as a boom town.
761 For small companies that often find it difficult to fight court cases, the strengthened powers of the Office of Fair Trading are particularly welcome—something that the Conservative party, despite all its protestations, failed to secure in 18 years of rule.
Additionally, many older people will be grateful for the Budget. Already, we have had a cut in VAT on fuel, the minimum income guarantee of —75 and better regulation of the utilities. I welcome the attempts to do something for pensioners, particularly the raising of the minimum income guarantee to £78 and £121 for couples, the linking of the minimum income guarantee to earnings and the increase in winter fuel payments to £100— 500 per cent. Increase—not to mention the removal of most old age pensioners from income tax. Clearly, it is a Budget for the most vulnerable in society—the very same people whom Conservative Members spent 18 years walking all over and doing nothing about.
The Budget did not stop there. It made provision for hard working people throughout the country—those who are in low-paid work, or who were thrown on the scrap heap by the Tories. Building on the new deal for the young and long-term unemployed, the Budget has introduced a 10p starting rate, helping people not next year, but next month. There is a cut in the basic rate of income tax. In addition, the Government's proposals for ESOPs—employee share ownership plans—will give workers a stake in their firms. The generous tax incentives will put a long-term bias into our sometimes short-termist economy.
Most important for many former industrial workers, certainly in my constituency—the issue has been raised many times with me—there will be a new deal for the over-50s, guaranteeing £170 per week. Contrary to what Opposition Members have said, the new deal has worked and will continue to work for that particular group.
We are getting down to the nitty-gritty by concentrating on education for all. Thus I welcome the individual learning accounts with tax-free contributions and £100 supplements for basic skills. That will mean a new start for many people and it will underpin the new deal by helping people in the long term.
May I ask my right hon. Friend the Secretary of State for Social Security to have another look at occupational pensions and the contributions as they affect genuinely disabled people? If he cannot look at the subject again, will he at least review it yearly to see how the system works out?
We have a Government who listen, learn and put into practice what Britain needs. The Chancellor has delivered a family Budget, a pensioners Budget, a workers Budget and an enterprise Budget.
§ Mr. Michael Jack (Fylde)
When I asked the Secretary of State to tell me how he would define "middle income", he was unable to answer—having chastised Conservative Members for not being in touch with the "middle income" group. That was interesting; it reveals just how in touch Ministers are. The fact that the right hon. Gentleman could not answer such a basic, simple question showed that, in reality, Ministers are out of touch.
The Budget clearly demonstrates that the arcane art of smoke and mirrors that typifies the Treasury's activity in producing any of its documents is as alive and well as it 762 ever has been—although I think that the Chancellor must have consulted Mr. David Copperfield, the well-known illusionist, on how to put his Budget together. There were plenty of clever tricks, and some people are still wondering how they were performed; but performed they were, and earlier speakers have demonstrated that financial pigeons will come home to roost.
This Budget struck me as one produced by a man who liked fiddling with things—a man who liked "toys for the boys". This man could not put the financial machine down; he had to fiddle with lots of things in an attempt to secure the headline the next day. The Budget lacks coherence, purpose and direction. I always want to know what the Chancellor's philosophy is, but, in this instance, I was struggling. Was it a philosophy of long-term tax-cutting? Was it a philosophy of long-term growth? Was it a philosophy to control Government expenditure in relation to gross domestic product at a particular percentage? Was it a philosophy to simplify the tax system? I do not think that it was any of those. As some commentators have observed, this Budget looked more like an accountants charter, given the complexity and the variations that it brought to play. There was a little bit of an allowance here, and a little bit there. This Budget is very difficult to understand.
The ordinary citizen will wonder what happened to the Government's support for the reform of the tax law rewrite. The Budget was silent about any progress that has been made, and we can see why: the Chancellor was embarrassed by the added complexity that he was incurring.
The headline that appeared in, I think, The Sun—"Every One a Winner"—was a triumph of spin, but also a triumph of inaccurate reporting. The Budget featured a grand lack of transparency. There is the way in which the 20p tax band was dispatched: it was not mentioned. There is the fact that the Chancellor stood up in the House of Commons and said that the 10p rate of corporation tax would affect companies that made a profit of up to £50,000. That was true, but the Chancellor forgot to add that the benefit stopped at £10,000. Finally, there is the wonderful statement that old age pensioners, if they are married, will be able not to pay tax on £15,000. When we look at the fine print, we find that it is necessary to add together two personal allowances and a married allowance, and still to have the flexibility within the marriage to move income about, to take full advantage of that provision. As I said at the outset, this takes the arcane art of smoke and mirrors to new heights.
The Chancellor should take some of his own advice. This is the Chancellor who told us, to justify his fiscal rules, that he would have everything audited by the National Audit Office. I challenge Ministers, including the Chancellor—if the Chief Secretary makes a note of this, I may receive an answer at the end of the debate—to agree to submit an audit of those promises before the Budget is published, so that, when the public want to understand what is in a Budget, they will have a clear statement of its implications. The Chancellor should not be frightened of that proposal. If he has good news and believes in his own philosophy, transparency should be the watchword.
It is difficult to digest and understand all the proposals. Given that the Government have said that they will produce a freedom of information Act, now is the time for the charade that we have seen in the Budget to stop. There should be audits and transparency revealing 763 the winners, the losers and the implications of the Chancellor's measures. After all, this is not the Chancellor's Budget; it is our Budget. It is the Budget for the people of this country, and they deserve better than they were given this year.
One argument that will doubtless ping-pong back and forth for some time concerns the level of taxation. "Budget 99", the Treasury publication, suggests an inescapable mathematical outcome. If we look at the tables presenting the results—still to come—of previous Budgets' tax increases and netting them against what the Chancellor claims to be reductions in the current Budget, we find that in the financial year 1999–2000 there will be £2.6 billion in extra tax, that in the following financial year there will be –3.6 billion extra tax, and that in the year after that there will be £4 billion extra tax. Never mind about the percentage of GDP, or other such considerations; those are the cash increases that will be taken out of the UK economy in the form of extra tax. For the Chancellor or, indeed, the Prime Minister to equivocate for a moment on that is for them to defy simple mathematics. Those are the tax-raising facts.
It is interesting to observe what happens when it comes to telling the truth about this Budget. Much was made of the newspaper headline that I quoted earlier, but the Library and the Institute for Fiscal Studies confirm that some 4 million households will lose from the Budget.
Another thing worries me about the transparency of the Government. On 11 December 1996, when I was Financial Secretary to the Treasury, I had to answer an embarrassing and difficult parliamentary question. It was embarrassing and difficult because it showed some of the problems with which we were grappling when we were in government. The question—which can be found in column 190 of Hansard—concerned the effect of that year's Budget, account being taken of gross earnings, national insurance contributions, income tax payable, VAT, other indirect taxes and that awkward thing for this Government, the council tax, on the real take-home pay of the citizenry.
When the hon. Member for Gordon (Mr. Bruce) tabled the same question recently, the Government shuffled their feet. They said, "We want to see how we should construct our answer." They enjoyed the answer. The present Home Secretary, the right hon. Member for Blackburn (Mr. Straw), tabled the question every year following 1981. It went to the heart of how the Budget affected people with incomes varying from 50 per cent. of average earnings to 2000 per cent.
Will Ministers reinstitute the answer to that question? It is the most telling analysis that I know of the effect of the Budget on the individual citizen. If Ministers will not do that, will they tell the House why they will not answer the question? We want to know what the effect of the Budget is, but it is clear from their refusal to answer the question as originally tabled that Ministers now find it deeply embarrassing.
I also hope that Ministers will come clean about some of the Chancellor's huge assumptions, to which other hon. Members have drawn attention. Half a per cent. off his growth figures means that public sector net borrowing will rise by £6 billion, current expenditure will be £1 billion higher and current receipts will be £5 billion lower. We hear little from Treasury Ministers about that.
764 This was supposed to be a Budget about employment and investment. Given all that the Government have said about investment criteria, will the Minister who replies to the debate explain why chart A6, on page 141 of the Red Book, shows that business investment up to the year 2001 is on a falling track? That does not seem to show a great deal of confidence on the Government's part in their own measures to stimulate investment. There are some cyclical explanations in the body of the text, but the document should have told us what the effect of the Budget would be on business investment. The Government have already been rumbled by some of today's speakers, who have pointed out that key factors such as our exchange rate competitiveness and interest rate levels have far more effect on investment than any of the Budget's window-dressing measures.
The Government talk about helping small and medium-sized enterprises to raise money. I should be intrigued to learn why Ministers did not go further—as the British Venture Capital Association suggested in its Budget submission—by providing some encouragement to companies that wish to raise money by means other than straightforward borrowing from a bank. The British Venture Capital Association made an interesting case that the use of equity finance or other forms of debt finance could help in raising capital. Why have Ministers rejected that idea? If they really want to ensure availability of long-term capital funding for investment and provide help in raising funds, particularly for small and medium-sized enterprises, they should have acknowledged the association's sensible proposal.
Labour Members have made much of the so-called help that the Budget will give to the elderly. I am concerned about the many hundreds of thousands of people who fall on the other side of eligibility for state help—the pensioners who are trying desperately to look after themselves by using their own means, or those who are trying to plan for their retirement.
Annuity rates have been mentioned in the debate. However, many of the pensioners I am talking about will gain little comfort from the extra money that they will receive in heating allowance, as that will simply compensate them for loss of tax credit on the modest savings that they have already put away. They will discover that the savings they still have will be subject to a 20p tax rate, not the much-vaunted 10p starting rate. Eventually, widows will find that the changes in the state earnings-related pension scheme reduce their income.
Most importantly, pensioners seeking to capitalise on the equity in their homes will find that abolition of mortgage interest relief at source—MIRAS—greatly increases the cost of home income plans. Currently, people who are able to obtain MIRAS in home income plans receive tax relief at 23p—not at the reduced 10p rate, the rate at which current non-pensioner householders receive MIRAS. The Government seem to be kicking very hard against those who have saved hard and want to use their own resources to look after themselves. The Government failed to look after them in those Budget measures.
Much has been made about those who have children. However, an interesting article in The Daily Telegraph confirmed that the Budget will have some delayed effects. Earlier in the debate, I asked the Secretary of State for 765 Social Security if he knew the definition of "middle income" precisely because of that article, which considered the case of the Fellowes family.
David and Kirsten Fellowes have an income of £35,000 and two children. It is perfectly true that, in tax year 1999–2000, the Budget's combined changes to tax, national insurance, MIRAS, child benefit and petrol duty will leave them better off by £191. However, in 2000–01, when the changes to higher rate national insurance take effect, the picture will change dramatically, and the Fellowes will be £240 a year worse off.
The case of the Fellowes demonstrates the dishonesty for which the Budget caters. On the basis of Budget headline figures, people might think, superficially, that they will be better off. However, once they start examining the Budget's detail, they will discover that they will be worse off.
Among the millions of householders who will be worse off are married couples—who are losing the married couple's allowance and MIRAS—who have no children. Perhaps such couples have a dependent relative whom they look after. Where in the Budget is there help for those people? Help is there none. They will feel that the Government' s tax treatment of them has well and truly kicked them in the teeth.
The Government talked in the Budget about helping to create employment opportunities. It is ironic that, on the last day of the Budget debate, the organisation Manpower published a survey stating:The survey shows that the economy has the worst job prospects for six years, which does not bode well for the coming year.Yet, Ministers tell us that the 10p starting rate will be the saviour in addressing those issues. I tell them that it is wrong to use the tax system to try to stimulate employment. We should have raised the personal allowance to remove some people completely from tax liability.
Earlier in the debate, my hon. Friend the Member for South-West Bedfordshire (Sir D. Madel) spoke eloquently and correctly about the inappropriateness of the Government' s proposals on vehicle excise duty. The proposals are wrong. Ministers should have provided much greater incentives for manufacturers to produce environmentally beneficial cars, and not have opted merely for a sneaky way of raising even more money from motorists. Today's duty reduction on cars with engines no larger than 1100 cc is the precursor to big tax rises for those owning other types of cars.
The Budget kicked the rural economy very hard, and dashed any claim that Labour might make to be the friend of the countryside. Not only will increased diesel costs increase the cost of transport in rural areas, but any measure in the Budget to address the issue of farm costs went completely by the board. Rural Britain is suffering—probably worse than anywhere else—because of the Government and the Budget.
As I said, worse is round the corner for the British economy. It is a great pity that the Budget was not more transparent about the real prospects for our economy.
§ Mr. Deputy Speaker (Sir Alan Haselhurst)
Order. I remind the House that the 10-minute limit on speeches has now come into operation.
§ 7.6 pm
§ Mr. David Kidney (Stafford)
If we were to go outside the House and ask people to tell us what they believe should be the core values of our society and what they think are the basic needs of people in our society, I believe that at the top of their list, or very close to it, would be shelter: access to a home for all those who want one. I should like to concentrate on the Budget's consequences for housing policy.
First, however, I should like to say how very much I disagree with Opposition Members who complain about lack of transparency in the Budget. Perhaps they think that, last Tuesday, the Chancellor should have stood at the Dispatch Box and read out the Red Book, so that no detail was left unmentioned. I welcome the openness that the Chancellor has introduced into the Budget process, just as I applaud the Government's code for fiscal stability, the golden rule on investment and the sustainable investment rule. I welcome the Government's publication of pre-Budget reports. I also remind Opposition Members that, this year, there have been two detailed consultation papers, on the proposed business energy tax and on the variable vehicle excise duty.
The accent in this year's pre-Budget report was on productivity measures. In most of the first 30 minutes of the Chancellor's Budget speech, he concentrated on enterprise and business. He announced in his speech yet further consultation on new measures, such as the all-employee share ownership scheme. It is therefore not right for Opposition Members to complain of a lack of transparency or openness.
In the world of housing, we do not seem to use the term "boom and bust" which is so popular in the world of economics. Why not? Was not one of the legacies of the previous Tory Government a great boom and bust in housing, in the late 1980s and early 1990s? Was there not a huge house price explosion at the end of the 1980s, followed by a great recession—in which people lost their homes, with record numbers of mortgage repossessions and cases of negative equity?
Almost 70 per cent. of households are owner-occupiers, who welcome economic stability, just as businesses do. The Budget made little mention of housing, and two specific provisions were probably unwelcome to people in the housing world—the end, next year, of MIRAS and higher stamp duty for the few who buy houses worth more than £250,000. However, there are countervailing forces at work on those measures. The interest rate cuts of the past six months have already brought substantial gains to those with variable rate mortgages. With higher stamp duty comes greater price stability at the higher end of the market, avoiding the excessive price increases of the past. The surveys by the Halifax and the Nationwide for the past year disagree, putting house price inflation at 4.4 per cent. and 7.4 per cent. respectively. Looking forward to this year, the Royal Institution of Chartered Surveyors forecasts house price inflation of 4 per cent. The Council of Mortgage Lenders and the Association of British Insurers made an announcement shortly before the Budget speech about an accord on what I might call MPPI 2—a second variation of the mortgage payment protection insurance policy that has been in circulation for some time. I hope that the scheme will be widely taken up and will protect more people from losing their home when they lose their employment.
767 In the Red Book and the second of the two press notices from the Department of the Environment, Transport and the Regions came the announcement of a forthcoming Green Paper on housing policy. That is welcome, because although the Government introduced the capital receipts initiative soon after coming to office, providing a boost for housing finance, there has been a lack of debate about the direction of housing policy. I think that there is a lot to look forward to in and outside the Green Paper. For local authorities, there is the duty to achieve best value, the difference that resource accounting might bring to housing finance and the new housing inspectorate. For the registered social landlords sector there will be a change to rent structures. I sincerely hope that there will also be an increase in the grant rate for building new homes for rent. We know what the Government are likely to announce on the funding of supported housing. We have seen a Government consultation paper on modernising the buying and selling process for homes. I hope that during this Parliament we shall achieve justice for all leaseholders. Lastly, the most knotty problem to overcome is the reform of housing benefit. My right hon. Friend the Secretary of State for Trade and Industry made a significant announcement the day after the Budget that comparative information will be published for customers on mortgages and those on other credit.
That might sound like a list of positive measures, but there is no reason for complacency. Last year there were 59,700 mortgage repossessions and 31,000 households in the social and private rented sector suffered eviction orders. Homeless households continue to present themselves to local authorities at a rate of 100,000 a year. Hidden homelessness is probably much greater.
Against that background, spending on housing has been encouraging, but not great. In revenue terms, Government spending on local authorities and registered social landlords is about £2 billion a year. Housing benefit costs the Government about £11 billion a year. Income support mortgage interest payments cost the Government about £500 million a year. MIRAS will cost the Government £1.4 billion next year. On top of that, the capital receipts initiative will raise £5 billion for spending during this Parliament. The comprehensive spending review brought £3.9 billion extra for the next three years. However, it is a pity that the announcement of the end of MIRAS does not coincide with an announcement on additional resources for housing.
My pessimism increased when I read the weekend news reports that my right hon. Friend the Prime Minister is leading the drive to reduce spending on housing benefit. I hope that the Chief Secretary will deal with that point when he replies to the debate. We all expect the crackdown on housing benefit fraud to continue, but I hope that the Green Paper also leads to several desirable outcomes for those at the sharp end of reduced investment in housing. The attack on homelessness that was set out in the social exclusion unit policy on rough sleepers should be driven home relentlessly. I want wider choice to enable people to have the housing that they want. That means that local authorities and registered social landlords will have to build more homes. We need greater flexibility of tenures. I sincerely hope that there will be greater provision of social housing in rural areas. I also hope that 768 housing finance will be reformed to end the current labyrinthine systems. We need more transparency, so that we can see where we get value for money.
I hope that there will be a change to housing benefit so that it supports the Government's welfare-to-work policies rather than hampering them. We need changes that protect the lowest income households from the risk of losing their home. Those are the developments that I hope for in the housing policy Green Paper later this year. I urge the House to ensure that housing policy gets its fair share of time in this place, reflecting the priority that I believe that the public give to it.
Finally, I should like to stray from the subject of housing to a more general consideration of the effect of the Budget. The hon. Member for Gordon (Mr. Bruce) rightly identified that—
§ Mr. Dafydd Wigley (Caernarfon)
I am pleased to follow the hon. Member for Stafford (Mr. Kidney), because housing is very important. I shall deal later with the need for adequate resources for housing renovation, which is a considerable problem in many areas, particularly the old industrial areas.
The Budget is a parson's egg that pretends to be an Easter egg. It is, to say the least, a scrambled egg. It is difficult to see the various parts of any egg that has been scrambled so comprehensively; only after adequate scrutiny do bits of the egg become more apparent. As matters become clearer, the worst parts of the parson's egg will become more evident.
There are some measures in the Budget that everyone welcomes, including the winter allowance, the provision to help small businesses and the support for renewable energy. However, there is a fundamental dishonesty in the way in which the Budget has been put together—or at least in the way in which it has been projected. We heard the Chancellor predicting increasing current surpluses year on year. The Red Book shows increases in public expenditure of £30 billion or £40 billion a year. The Prime Minister has claimed that there is a £4.5 billion net tax cut. Those three factors cannot simultaneously be true. They do not add up. We are comparing different aspects of the figures that are not comparable. That will catch up with the Government sooner or later.
There appears to be a fundamental shift in new Labour's philosophy away from an emphasis on public services towards the Tory policy of lower direct taxes. We do not find that attractive. The proposed reduction in income tax from 23 to 22 per cent. will cost £2.2 billion. That money could have been better spent on other areas. To compensate for that, indirect taxes are being raised by enough to reduce the national debt. However, there is a higher calling for that money than using it to reduce the national debt.
If every Member of the House put his hand on his heart, he would say that it was difficult to remember people coming to his constituency surgeries over the past two years to press him for a reduction in the standard rate of income tax. Equally, he would know that, in every surgery, every week, people asked for assistance with 769 student fees or grants, help for pensioners and disabled people, improvements to the health service and increased expenditure on housing renovation.
Spending is required on a plethora of desperately needed services. The £2 billion represented by a reduction of 1p in income tax could have been much better spent on those matters. That would be the priority of my constituents, and we would rather that the £1.8 billion used to introduce the 10 per cent. tax rate had taken people out of tax altogether.
The proportion of gross domestic product represented by general Government expenditure is still 1 per cent. below the level under the last Tory Government. In 1996–97, the figure was 40.4 per cent. For the coming year, it is projected to be 39.4 per cent. That 1 per cent. difference represents £8 billion, which is needed for health, education, housing and other services in my constituency. It would have been much better had that money been used to avoid taking £700 million a year away from disabled people, as is implicit in the Welfare Reform and Pensions Bill.
I wish to refer to the way in which the Budget will impact on rural areas, such as mine. The great increase in petrol prices will be the last straw for many rural areas, particularly those areas where there are low incomes. In the western part of Wales—the old counties of Gwynedd and Dyfed, for example—income per head stands at 75 per cent. of European GDP per head. In these scattered communities, people must travel far to find work and to find shops. The increased fuel charges will mean increased costs in the shops, exacerbating the problems in rural areas in a way that could have been avoided. This year, it is one step too far.
We need some thinking on how to improve transport and to get transport that is environmentally acceptable for rural areas, rather than using a tax mechanism that hits the poorest hardest, and makes it more difficult for them to find work.
I am concerned also about the effect of the Budget on the parity of the pound. My worry is that the value of the pound will remain too high. We know what that has done to manufacturing, tourism and agriculture—all three of which are the bases of the economy in my area. The Bank of England guidelines need to be broadened so that employment, as well as inflation, is taken on board.
How will the Budget help the economy of the poorest areas? I am thinking of those areas awaiting an announcement on objective 1 status within the new EU structural funds—an announcement which may come later this month, although it may be delayed until May. Are we to get objective 1 status for the western part of Wales and the old coalfield areas? That is justified, as Wales has the lowest GDP of any country or region in Britain, but it has not yet had objective 1 status. To take advantage, it will be necessary to get matched funding—as will be the case for Merseyside, South Yorkshire or Cornwall.
Unless there is additional Treasury money, in terms of the EU additionality rule, to provide that matched funding—or at least a good proportion of it, as we cannot look to the private or voluntary sectors to raise more than a small proportion—we will not be in a position to take up the objective 1 funding that may be available. Between 2000 and 2006, as much as £1.5 billion to £2 billion may be available for Wales, and equal sums may be available 770 for the other areas to which I have referred; yet we will not be able to take it up if we cannot find the matched funding.
The Treasury has consistently refused to show a willingness to find that matched funding, and we need a statement that the Budget's provisions are adequate to meet those requirements. The money is needed to increase living standards and incomes per head in some of the poorest areas of these islands.
Equally, we need a statement on the implications of the Budget in terms of regional assistance. We know that the Department of Trade and Industry is reconsidering its regional map, and we need to know how that will work, what assistance will be available for companies and whether those companies in objective 1 areas will be eligible for full development area status. Again, that will have implications for the Treasury and for the Budget.
In Wales, the Budget will be judged on how it helps to create new jobs; at present, we are losing jobs. The Budget will be judged on how it helps to increase GDP per head; it is not clear how that challenge will be met. It will be judged on how it secures greater social fairness and equity; there are some small moves in the Budget towards that, but I would have liked more far-reaching moves. There is a question also about the way in which the Budget will sustain and develop effective public services, and that is where the priorities have been wrong.
There is much that remains to be proven in the Budget. When the National Assembly assumes responsibility in Wales from 6 May, these questions will come home to roost, and we will have to live with the consequences of an inadequate Budget for this year.
§ Dr. Desmond Turner (Brighton, Kemptown)
I must take issue with the curmudgeonly remarks of Opposition Members about what was a carefully crafted Budget. Officially, we are not supposed to call it a redistributive Budget, but it is wonderful to see how many people at the lower end of the income scale are benefiting from it—people who, throughout 18 years of Conservative government, were robbed year after year by Tory Chancellors, who took money directly out of their pockets and gave it to higher-income earners. This Budget has reversed that process without skinning anybody. That is quite an achievement, on which I commend the Chancellor.
The Chancellor has proposed measures that will underpin growth and stability within the British economy. It is a totally different kind of Budget—it is integrated, and hangs together—from those we were used to from Tory Chancellors, which might have been written on the back of a fag packet.
The first matter which I wish to raise is not remotely concerned with social security, for which I apologise—it is the climate change levy. I wonder how consistent the scale of the levy is with the £50 million identified for promoting the use of alternative and renewable sources for producing energy. Government policy is that we should be aiming to produce 10 per cent. of our energy from renewable sources. However, the Budget proposes that 3 per cent. of the money to be taken by the climate change levy should promote replacement by renewable sources. I wonder whether the Chancellor will wish to review that matter in future Budgets, as a further 771 stimulation of the commercial advantage to producers using renewable sources would help to achieve that policy aim.
The implications of the royal commission's excellent report on continuing care for the elderly will have a considerable price tag. The royal commission tackled a problem that had defied some of the best brains in the country, and tried to find a rational answer to the totally unsustainable situation left to us by the implementation of the care in the community legislation in 1993, taking the burden of domiciliary or residential home care for the elderly away from the Exchequer and handing it to local government, with inadequate resources, making individuals pay, even if their means were modest.
The transfer of responsibility was the worst poisoned chalice ever received by local government from central Government. I was involved in implementing the change in my local council, and it was an horrendous job. Many stresses and injustices were exposed. It got to the point where there were so many problems that in some areas there was a race between the undertaker and the social worker; sometimes the undertaker won because there were not sufficient resources. Local government was made to do a deeply unpleasant job of rationing which it was not set up to do.
If we adopt the royal commission's main recommendations, we will return to the principle to which we have adhered for most of the post-war years—tate paying for the care of elderly people. There is a great deal of justice in that. The report is excellent in its analysis and demonstrates conclusively that there is no way in which the problems can be tackled through private insurance—res simply do not stack up, and the premiums would be insupportable—, if the burden is spread across the state and paid for from general revenues, the system will be sustainable, affordable and just.
It is essential that the Government adopt the principal recommendation that personal care, as opposed to board and lodging, be paid for from general revenues. That has a cost, which the royal commission estimated at between £800 million and£1.2 billion a year.I do not have total confidence in those estimates, because they seem to be calculated from the premise of existing service levels, which I know are inadequate.
The eligibility criteria are unsustainably tight, and some extraordinary things have happened. In some authorities, before a person can receive a care package or residential placement they have to wait for someone else to die. There is an extraordinary policy of one out, one in. I do not know of a social services authority whose community care budget is not overspent, however harshly it rations the care that it delivers.
A more realistic assessment of the likely cost of providing an adequate and sustainable service would be £2 billion. Given my right hon. Friend the Chancellor's magnificent capacity for finding money in the back pocket, that is peanuts, but it has to be found. Society can and must afford it. We must find the means. A society may be judged by the way in which it treats its sick and elderly, and we must face up to that challenge.
One way in which extra revenue could be raised, should it be necessary—drastic measures may not be needed—is to reconsider the ceiling on national insurance 772 contributions, which was set when marginal rates of taxation on high earners were extremely punitive. Was there not a time after the war when the income tax rate was 19s 6d in the pound? In those days, there was some justification for capping national insurance contributions.
I am not making specific suggestions, but I ask my right hon. Friend the Chancellor to re-examine the national insurance system. If the cap were removed, the blow could be softened by reducing the percentage contribution, but making it payable across the whole income spectrum. It is just a thought that—
§ Mr. John Bercow (Buckingham)
Last year's Budget was a triumph of style over substance. In this year's Budget, the Chancellor has progressed in the former and regressed in the latter. I want to focus on tax, regulation and tobacco smuggling, for their handling of which the Government deserve a triple condemnation.
It is clear that Ministers believe that the British people are taxed too little, although they did not say that before the general election. The Labour party manifesto explicitly stated:How and what governments tax sends clear signals about the economic activities they believe should be encouraged or discouraged, and the values they wish to entrench in society.From the record of his first three Budgets, the Chancellor has given a people's performance of a very curious sort. They have been people's Budgets: people who have mortgages, people who are married, people who own cars, people who put petrol in cars, people who have pensions, people who acquire savings, people who buy houses and people who run businesses all face a higher tax burden as a direct consequence of the Government's decisions.
Let us scotch once and for all the absurd untruth peddled by the Prime Minister at Question Time last week that the Budget represents a net tax cut of £4.5 billion. It does nothing of the kind. Anatole Kaletsky is not ordinarily a supporter of the Conservative party, but in The Times he described that prime ministerial utterance as a straightforward untruth.
By the end of this Parliament, there will be an additional £40.7 billion in tax and regulatory costs. In the coming financial year alone, the tax burden will be £7.1 billion higher as a result of the Chancellor's decisions. The cumulative impact of his Budgets is that, at the end of this Parliament, people will pay about £19 billion a year more than at the end of the previous Parliament. That is the reality, as distinct from the propaganda with which Ministers regularly favour us.
I want to draw attention to two especially acute and serious examples. The first is the savage increase in excise duty on petrol. That will hit people in rural areas especially hard, not least in my Buckingham constituency, and my constituents have not been slow to make their protests heard about the Chancellor's move. I quote from one letter from an 81-year-old constituent, Mrs. Zettl, from Buckingham, who wrote to me:Those of us who are lucky enough to run a car suffer so much from the constant increase in petrol. Without my car I would have to get rid of my dogs as I cannot take them for a walk in a built-up area. I would have no social life as my friends are scattered round 773 the villages. At 81 years old I am too old to bicycle or wait in draughty unheated bus shelters for buses which run at the wrong time, if at all, and in this violent age, I do not like to walk in lonely places in the dark.She adds that she works voluntarily for two small charities, neither of which can afford to reimburse her petrol costs, and in pursuing her duties for them she is obliged to visit people in remote and outlying areas. She is the sort of person who will be affected. She has been clobbered by the Budget and she is very angry about it. The gas guzzling Secretary of State for the Environment, Transport and the Regions may not be too bothered and the Chancellor may be insouciant about the effects of what he has done, but my constituent is angry and she has not hesitated to tell me so.
The second significant measure that will be damaging is the colossal rise in national insurance contributions for self-employed people, amounting to £240 million a year. The Government have the brass neck to introduce that damaging change under the chapter in the Red Book entitled "Increasing Employment Opportunity". This is a tax-raising Government and £533 million of the additional tax take during this Parliament will be paid by the people of the county of Buckinghamshire.
It is clear that the Government believe that this country is under-regulated. Before the election, the then shadow Chancellor said that Labour would not impose burdensome regulations on business because it understood that successful businesses must keep costs down. The right hon. Member for Hartlepool (Mr. Mandelson) said:we have no intention of introducing any legislation that presents a burden on business and reduces the competitiveness of British firms."—[official Report, 25 November 1998; Vol. 321, c. 214.]But that is what the Government have done. Some 2,400 additional regulations have been introduced. For example, the fiendishly complex working time directive regulations alone take up 72 pages of A4 paper and the national minimum wage regulations, until amended, take up 112 pages of A4 paper.
What have Ministers had to say about regulation during the Budget debates? There was nothing about it in the Chancellor's speech, nor in the statement on competition by the Secretary of State for Trade and Industry or in his 36-minute speech on Wednesday in the continuation of the Budget debate. Instead, he talked about the establishment of the Small Business Service. The biggest service that the Chancellor of the Exchequer could do for small businesses is to get out of the way, let them make their products, market their products, sell their products and be successful.
To cap it all, the Secretary of State for Trade and Industry said to the House, in what should have been a joke but apparently was not:I am reviewing arrangements for business rescues".—[Official Report, 10 March 1999; Vol. 327, c. 367.]That might be wise, in view of the likely exponential increase in the number of candidates for rescue. Small businesses will need rescuing from the sea of regulation under this Government, which is now deeper and more hazardous than any that British companies have previously had to negotiate. The Government are increasing regulation.
Finally, I turn to the subject of tobacco smuggling. The tobacco industry in this country is important and it yields substantial revenue of some £10.25 billion a year, 774 £8.5 billion of which is excise duty. The Government are pursuing a damaging and ineffective policy. In opposition, the hon. Member for Bristol, South (Dawn Primarolo), who is now Paymaster General, castigated the then Conservative Government for closing their eyes to the implications of their tobacco taxation policy which, she said, was providing opportunities for tobacco smuggling. She said that the Labour party had made clear its views on the health issues involved, but the problem could not be tackled by taxation. Now she has performed a complete tergiversation. The effect is that the Exchequer is suffering to the tune of £1.5 billion a year, foreign tobacco industries are prospering and international crime syndicates are thriving at the expense of British industry.
The Budget will not create jobs, it will destroy them. It will not boost competitiveness, it will sap it. It will not make this country richer, it will make it poorer. It is a bad, thoughtless and damaging Budget. Above all, for those of us concerned about standards in public life, it is a dishonest Budget and it deserves to be rejected by the House tonight.
§ Kali Mountford (Colne Valley)
I had intended to confine my remarks to the effects of the budget on women and children; however, having heard some of the comments in the debate, I wish to widen my scope a little, even though time is short. Listening to some of the contributions from Conservative Members, one would think that they had completely forgotten their record in Government. As the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) was speaking, I remembered the many cuts his Government made in pensions in general, and SERPS in particular, and in help for people on income support. I was alarmed by the hon. Gentleman's comments on pensions and the help that the Government are giving to pensioners, because he seemed to reject some of the boldest and most imaginative changes to pensions that we have seen since the war.
In particular, Conservative Members have mentioned the minimum pension guarantee. In my constituency, in the local authority area of Kirklees, 210 couples and 920 single pensioners are on income support. All those pensioners will benefit from the increase in the minimum pension guarantee. Conservative Members have not told the House what they would do. They seem to be saying that they would take away that money from pensioners, but we did not hear what they would do for pensioners or what their record was when in office. I would like to hear an explanation of why they did nothing about the uptake of income support. When they discussed what was wrong with the minimum pension guarantee, their only resort was the shortfall in the take-up of pensions. It is true that the second state pension, when it is introduced, will get around the problem of uptake, but we need to do something about it today.
This Government are doing something about the 23 pilot areas examining the problem of take-up of pensions. However, when I visited a Benefits Agency office recently, one member of staff asked me, "Why is there so much talk about the poorest pensioners? After all, we can do nothing for them." While we have that attitude, we will not be able to do anything, but at least we now have a Government who have started to reverse that trend.
We also heard some talk about philosophy from Conservative Members. However, the right hon. Member for Fylde (Mr. Jack) gave us a list of measures,not 775 a philosophy. This is a Budget for the long term, but it is not a philosophy. It is a set of measures. The right hon. Member for Caernarfon (Mr. Wigley) also said that this was not a Budget of philosophy, but he referred to particular measures that he would like to see. In my opinion, the philosophy of the Budget is its implementation of the values of this new Labour Government. Those values consist of support for people who need it at the time when they need it most, and in whatever situation they find themselves. The philosophy is an old one: help for those who need it most, and contribution from those most able to make it.
Of course, the people most able to contribute are those who are in work. The Budget encourages work, enabling work to flourish. In considering how to make work pay, we must first think about jobs, and this is a Budget for jobs. The textile industry has declined over the past 15 years in my constituency, so measures for research and development and for product development are of great benefit. One problem with the textile industry is that its product is often not wanted in the marketplace. Any help for investment in new capital or for research and development must benefit my constituents.
My constituency has a flourishing small business sector, but I would like it to flourish further. The measures to help small businesses to start up and to develop must create a trend towards new jobs. My constituency is in a rural area, and new jobs will greatly benefit people who live in large travel-to-work areas. The extra £20 million a year for rural transport will also benefit them because levels of pay mean that many cannot afford a car. People depend on rural buses and trains, the kind of service completely undermined by the previous Government's privatisation programme.
My main subject, however, is women and children. I wanted to hear some gratitude from Conservative Members for the help offered through child benefit. However, I am not surprised that they do not welcome either universal benefits or the increase in them. The hon. Member for Gainsborough (Mr. Leigh) provided an example of their thoughts during the Second Reading of the Welfare Reform and Pensions Bill, when he said:Why do we hand out child benefits to everyone, irrespective of income? Why do we not make parents responsible? Why do we allow young people to become a charge on the state?"—[Official Report, 23 February 1999; Vol. 326, c. 268–69.]That remark signals the philosophy of Conservative Members. They talk about marriage as though it were the only thing that a Budget should protect. However, the main feature of a family that requires our protection is children.
Marriage is a good institution, and I support it—I am, after all, actively engaged in it myself. However, I did not marry in order to get the married couple's tax relief or any other allowance. I got married because I was in a happy partnership and I wanted to continue it and to build a safe and secure family. Families consist of children—the focus of marriage, and the focus of the Budget. Vulnerable children deserve society's support, and they should be able to expect it. An increase in child benefit helps both mothers and families. In particular, it helps the poorest children, and surely everyone must welcome that.
Also welcome must be increases in the children's tax credit, which replaces the married couple's allowance and which shifts the focus of society on to a philosophy that 776 we should support—the philosophy of the family. The country's resources are being targeted at those who most need them—the most vulnerable and those least able to have a say in what society spends its money on.
If we should not spend our money on children, what does deserve our resources? Children, especially those who live in poverty, should be our focus. Consider a child's progress from birth. The Government are investing more money in the maternity benefit denied to the poorest women for too long. A woman on an income of only £30 a week will be entitled now to maternity benefit, and that must help her health and her expectation of returning to a job and a proper income. It must be welcome.
I am surprised that Conservative Members have not welcomed our support for the child. Nor have I heard them welcome sure start for children. Yet children's early years are those in which they must benefit the most to thrive. No child will thrive in school who has suffered total deprivation—not even a proper diet—in his or her early years. Sure start gives mothers and children an opportunity to flourish. The Government's philosophy is clear in their focus on children, and I hope that the House will support that philosophy.
§ Dr. Vincent Cable (Twickenham)
The nature of Budgets has changed radically in recent years. Until recently, they were about the problems of managing boom and bust and about macro-economics. By a combination of good luck and, to a degree, good management, the monetary and fiscal outlook is more stable, and the character of the Budget has changed. Budgets now are essentially about changing people's behaviour—using taxes to encourage savings, investment, long-term investment, environmentally sustainable behaviour, hard work, getting back to work and so on.
That is all very well up to a point. Some tax incentives perform a useful role. The Budget contained small measures that have not really been noticed, such as the lifting of employees' national insurance contributions at the bottom end as an incentive to work. The Government have not had a great deal of credit for some positive initiatives, such as incentives for the over-50s to go back to work. Good behavioural changes are being introduced through budgetary means. However, the problem of that approach to a Budget by a hyperactive Chancellor is that the tax system is becoming increasingly complex and full of contradictions. I should like to highlight just a few in my 10 minutes.
First, it is clear that the Government understand the importance of marginal rates of tax as an incentive. That is why we no longer live in a world in which there are 98p rates at the margin on savings and unearned income. That is why the Government claim to disapprove of the Liberal Democrat proposal for a income tax rate of 50p in the pound on taxable income over £100,000. They argue that it would be a disincentive.
The Government do not seem to appreciate, however, that the Budget is creating high rates of marginal tax at key rates in the tax range. There is a specific point—about £28,000 to £30,000—at which a single earner in a family with children will start to pay the 40 per cent. higher rate of tax, but will simultaneously lose the child's tax credit, which tapers out at that point. That person will also pay a higher rate of employee's national insurance contributions because of the lifting of the upper limit.
777 Such people are the type about whom the Government claim to be concerned—the middle-income middle managers, heads of schools or junior doctors—but who will pay very high marginal rates of tax. I believe that those high rates have crept in unintended, but they result from complicated over-manipulation of the system.
Another example may illustrate the same point. There were big cheers on Budget day when the Government introduced a 10p rate of corporation tax. The right hon. Member for Fylde (Mr. Jack) has already made the point that that rate is illusory in that it applies only to the first £10,000. However, the situation is more complicated even than that. Between £10,000 and £50,000, the marginal rate will be higher than the rate that applied previously—it will be 22.5 per cent. rather than 20 per cent.
The disincentive to risk and entrepreneurship is being increased among precisely the type of people whom the Government are supposedly trying to help. It has been done by accident, but the various interventions and incentives being given through tax mean that practices such as those are becoming progressively greater.
A second example that, at first sight, appears to be a bold and positive innovation in the Budget, is the new energy tax, which will come into effect after a delay. In principle, many of us like the idea of taxing pollution and using the revenues to offset against the cost of employment. Having helped to write the Liberal Democrat party's policy on the subject five years ago, I am tempted to claim that imitation is a form of flattery. However, when one looks at the detail—or the detail that there is, as the Red Book does not give much—the measure is clearly not imitation. The tax has the potential for enormous problems, which will come back to haunt the Government in time.
Most people who have applied themselves to designing carbon taxes say that, first and foremost, such a tax must be applied upstream and kept simple: tax a barrel of crude oil or gas at the upstream end, tax a tonne of coal from the mine, and let the market do the rest. Tax energy once. The Government desperately want to avoid being accused of taxing household energy, so they have introduced their carbon tax at the downstream end. Every company, large and small, will be taxed on its energy use, which could become a nightmare. There will be numerous points of taxation and many companies run different types of business—some will be charged at a higher and some at a lower rate.
Consider the practical problems that will arise when the Government try to tax electricity use in a typical company—electricity is the main form of energy used by many. Uncomfortably, electrons do not arrive with little labels, saying, "I come from a nuclear power plant," or, "I come from a coal plant," which one can hand to the Inland Revenue. Electricity will be charged at a uniform rate. People who use electricity from renewable sources or gas plants, which use relatively little coal, will be charged at the same rate as people who use electricity from coal-burning stations, and that is ludicrous. The purpose of the carbon tax, which is hailed as an effort to contribute to preventing climate change, will be nullified.
Furthermore, the Government state in the Red Book that energy-intensive industries will be taxed less heavily than others. The situation is potentially ludicrous: companies will be penalised for using renewable energy and for not being energy intensive, which is the opposite 778 of what the tax is designed to achieve. All the problems stem from the attempt to hedge around households and protect them from energy taxation.
The third point is the impact of the Budget on savings. I want the Government to answer a simple question at some point during this debate. Have they worked out the impact of this Budget on personal savings? I had hoped that, as the Secretary of State for Social Security opened the debate today, he would have said what the Government propose to do about the savings disregard in the social security system, something that is a massive disincentive to saving for people at the bottom end of the scale.
At present, the Inland Revenue and the Department of Social Security assume that savings can produce yields of about 10 per cent., and that is totally unrealistic. The savings disregard needs to be lifted enormously if people are to be encouraged to save. We have seen no Government initiative on that.
The right hon. Member for Fylde described how the 20p rate applies to small savings from unearned—that is, interest—income. Next year, people will be hit by the double whammy. They will be hit by the 20 per cent. rate on small interest income combined with the loss, from last year, of the tax credits on dividends—that was one of the most deplorable features of last year's Budget. The Government even acknowledged the fact that they had made a mistake, but were technically unable to unravel it.
Low-income savers will be hit by both measures at once. Also, pensioners and small savers will find the savings tax regime complicated. Those who have interest income from building societies on top of their state pension will be paying their 20p. Another group who have superannuation schemes from their companies will be paying 10p and 23p. Some pensioners will face a combination of the two. All pensioners, however lowly, will be strongly advised to get a tax accountant to sort all of that out.
That is one of the central lessons of the Budget. A whole set of measures, which in isolation might be well conceived, when put together will create a nightmare of complexity in which the only ultimate beneficiaries will be accountants rather than the taxpayer.
§ 8.4 pm
§ Mr. Stephen Hesford (Wirral, West)
So far, the debate has been confusing. I agree with my hon. Friend the Member for Colne Valley (Kali Mountford). It begs the question, is the debate about measures or philosophy? I want to deal with the philosophy behind the Budget.
Some members of the Labour party—I certainly know some in my constituency party—ask whether this is the first Budget of a real Labour Government. I can understand why. I ask the House and the wider public to look at the Budget as the third Budget of this new Labour Government. One has to see it in that context, not taken out of context, or fiddled about with as, with respect, the hon. Member for Twickenham (Dr. Cable) fiddled about with various measures. He did not seem coherent about what he wanted from policy.
The right hon. Member for Fylde (Mr. Jack) asked what was the coherence and purpose behind the Budget, and that is the question that I hope to answer. When my right hon. Friend was created Chancellor, he found a deficit of 779 £28 billion—a public spending black hole. He found that social security spending was heading out of control, much because of fraud. Those are the issues that we have begun to tackle in a series of Budgets and other measures. What he found created a difficulty. For the first two years, we had to live within inherited spending plans. There were severe restraints in certain areas, which caused alarm to Labour Members. The public asked what the new Labour Government were about.
The history of previous Labour Governments—certainly those of recent memory in the 1970s—was optimism when the party came to power, optimistic social policy spending at the beginning of the Government, followed by the brake, which was applied half way through the term in office or towards the end in a storm of economic uncertainty. This country could not have repeated that and that is what we had to avoid at the beginning of this Parliament. I suggest that we are doing so.
That is the backdrop to what my right hon. Friend the Chancellor calls prudent management of the economy—the traditional Labour aim. The history of the party has not, of course, always been favourable in that regard. We have not always attained economic stability. We are doing so now and we will do so for the next two to three years until the next election. The value of sterling has not crashed. Interest rates are falling and we are weathering the storm of the south-east Asian difficulties while 40 per cent. of the world is in recession. Inflation is stabilising at the target rate of 2.5 per cent., Government borrowing is under control and coming down at less than 40 per cent. of gross domestic product and is due to fall in the next two years at an annual rate of 2.5 per cent. per annum. That is stability and it is the backdrop to the Budget.
As Labour Governments—and the country—have found to their cost, the Labour party cannot achieve anything if there is an economic crash or a perceived or actual lack of economic confidence and that it is then voted out of office. If we are out of office, we cannot put in place the measures that many of my right hon. and hon. Friends have already mentioned.
I want to put the Chancellor's measures in the context of his Labour predecessors and set the scene about what has gone wrong in the past with a brief review of four Labour Chancellors. The response of the Labour Chancellor in the 1929 Government to the economic crash was simply to ask for cuts in unemployment benefit. That split the party, and it took almost a generation for it to recover from that mismanagement. Stafford Cripps in the 1945–50 Government applied a credit squeeze and rationing from 1948. Roy Jenkins, now Lord Jenkins, applied a credit squeeze in 1969 and 1970. In the 1974–79 Government, Denis Healey, now Lord Healey, famously said that he would tax the rich until their pips squeaked. Those measures were attempted, but we ended up going to the International Monetary Fund cap in hand, followed by the winter of discontent.
In summary, two former Labour Chancellors ended up in different parties, while two, indirectly or directly, split the party. Three presided over financial crises, Lord Jenkins having taken over from Lord Callaghan, who devalued in 1967. In effect, all lost the following election, two losing majorities of 96 and around 140. That is not good for the country and certainly not good for the party. 780 There is a coherent philosophy behind many of the measures that my right hon. Friend the Chancellor outlined in this and previous Budgets.
What do the Opposition say about the Budget? The Liberal Democrats' bladder continues to ail them: they want to spend the 1p again and again. Unfortunately, that condition is often accompanied by excessive wind, some of which we heard tonight.
The Tories are against the rise in petrol duty. The Conservative party is the polluter's friend. They are hypocritical into the bargain because it was they who set the measures in train in the previous Government. The Tories are against the £40 billion increase in spending on the health service and schools. What do they want to put in its place? That is a rhetorical question. They are against the new deal. Many of my constituents across the range—the young and single mothers, and now the disabled and the over-50s—are benefiting from it.
The Tories ask where the £8 billion that the Chancellor was able to save against previously forecast social security spending came from. It came in part from the Government's success in putting people back to work: 400,000 jobs created since 1997. Thousands of people in my constituency continue to benefit from those measures. It is an £8 billion improvement on what we would have got under the previous Government because they would not have embarked on those measures. They would not have had the money to play with. That is how my right hon. Friend will pay for many of the measures on families and the elderly, to which I shall come shortly.
Conservative Members want to continue their policy of grinding the 6 million senior citizens on basic pay, many on income support, into poverty. They do not want the linked minimum pension—
§ Mr. John Randall (Uxbridge)
Last week's Budget was greeted by Labour Members with much enthusiasm, but rather like a boozy night out, what seemed like a good idea at the time has been followed by a nasty hangover. The Red Book makes less than pleasant reading. All Chancellors tend to gloss over the bad news and hide the detail, but this one has turned the practice into a veritable art form. That makes it more difficult for the ordinary public fully to grasp the overall implications of the Budget for themselves and for the economy.
In opposition, the Government said that they wanted to simplify the tax system. That would have reduced the earnings of accountants and lawyers and made the cost of government clearer to taxpayers. Unfortunately, the opposite has happened. There are now no fewer than 54 personal tax rates compared with four 10 years ago. We have become more reliant than ever on experts to filter out the truth.
Let me turn to the Budget's consequences for some of the things that directly impinge on many people's everyday lives. It has made petrol the most expensive in the developed world when oil prices have fallen to an historic low. Since 1997, pump prices have risen by 15 per cent. while the price of crude has fallen by a third. The average price of petrol in Britain is 68.6p per litre, compared with 15.9p in America and 41.1p in Greece.
781 I know that the Chancellor has defended that as an environmental measure, but, sadly, he is treating the motorist as a cash cow for the Treasury.
Since the above-inflation duty escalator was introduced in 1993, car traffic has grown by about 2 per cent. a year. It is failing in its primary function of reducing the number of journeys made. Millions of drivers depend on their cars. This tightening of the screw particularly affects the elderly, the disabled and those who live in the country. Such people have no alternative to using the car. There will be Labour Members who say that the Government are only continuing the strategy of their predecessors, but if something clearly is not working, it is not working, whoever was responsible for its introduction. In case I am accused of being too partisan, may I say that I welcome the tax break for employers and employees who encourage use of public transport? I believe that it is time for more carrot and less stick.
In addition to the high cost of petrol, several concerns have been raised about the decision to provide a £55 road tax discount for the 8 per cent. of cars with engines below 1100 cu cm. According to the Automobile Association, many such cars have less environmentally friendly engines than bigger, more modern cars. That will give drivers a perverse incentive to hold on to less eco-friendly cars. An AA spokesman said:This £55 could mean the difference between scrapping the car and putting it through one more MOT.What at first sight seems to be an environmentally friendly measure turns out on closer examination to have precisely the opposite effect.
On top of the high cost of petrol for the ordinary motorist, there is the increased burden on the road haulage business. The vehicle excise duty increase will push the duty on a 38-tonne, five-axle lorry from £3,310 to £5,750 a year, compared with £296 in Spain, £459 in France and £651 in Holland. The European average is £1,100, compared with £5,750 here in the UK.
It is not difficult to see the impact that such large tax differentials are having on our road haulage industry. British hauliers currently carry 1.65 billion tonnes of goods a year—about 81 per cent. of domestic freight. That can only be threatened by the punitive tax regime being created by the Government.
The Road Haulage Association has launched flagging out packages to its members, to encourage them to register their vehicles abroad. The Freight Transport Association has warned that up to 53,000 jobs could be at risk as a result of the combined increases in duty on diesel and excise. Already, some estimates put the loss in revenue to the Treasury at £400 million, rising to £1 billion by 2002, as a result of hauliers buying their fuel in mainland Europe. The combination of taxes and fuel duty is slowly but steadily strangling the road haulage industry.
Another sector of the economy that is suffering is the tobacco and drinks trade. Duty on tobacco and alcohol continues to fan the flames of the black market for cigarettes and alcoholic drinks. It is estimated that 1.5 million pints of beer are smuggled into the UK every day, which damages the long-term prospects for the brewing industry, especially small independent brewers. High duties are helping to fuel the black market and attract the involvement of organised crime. It would be helpful if the Minister gave the House some indication of the long-term approach to tobacco and alcohol duty.
782 It may be that the case against tobacco is a foregone conclusion; the only problem is that the current strategy appears not to be working. As for alcohol, and barring this year's freeze in duty apart from on sparkling cider—a matter that was ignored in the Chancellor's speech—the general upward trend in duty will continue. Most people enjoy a glass of beer or wine, but resent having to pay so much in duty while the unscrupulous engage in criminal activity through smuggling.
Why should the Government continue to use the drinker as a sitting duck, squeezing more and more from every pint of beer or glass of wine drunk? It might not be politically correct or fashionable to champion the British drinker or driver, but given that many of our constituents fall into those categories, I feel that it is right and proper to air their concerns tonight.
§ Mr. Paul Goggins (Wythenshawe and Sale, East)
The principal challenge facing any Member who speaks at nearly 8.30 pm on the fourth day of the Budget debate is to find something different to say or a new point to make. I have concluded that that is probably impossible, although I have noticed that those who speak today have one advantage, which is that they speak after the weekend, having had a chance to get away from the politics and punditry of Westminster and hear what their constituents think about the Budget.
I shall talk about two particular groups of people who have spoken to me over the past few days while I have been in my constituency. The first group are the pensioners whom I met on Friday and Saturday. They are fairly typical of the 21,000 pensioners who live in my constituency. Many will benefit from the Government's commitment to uprate the minimum income guarantee in line with earnings. It is worth remembering that the single rate of £78 and the couple's rate of £121 announced in the Budget mean that there has been an increase of nearly £10 for single pensioners and £16 for pensioner couples on the equivalent rate when the Labour Government entered office.
Some of the pensioners in my constituency will benefit from the tax changes, including the new tax threshold which raised 200,000 pensioners out of tax altogether; but all the pensioners to whom I spoke were agreed on one point: the high point of the Budget was the £100 extra help with their heating costs that they will receive next year and in subsequent years. They did not expect such an announcement and they were absolutely delighted to hear it. Pensioners in my constituency view that, along with free eye tests, the reduction in VAT on fuel and the extra money that they know is going to the national health service, as a clear indication that the Government are serious when they say that they want to help today's pensioners as well as set a framework for future pensioners.
The second group are the parents and teachers in the three schools in my constituency that I visited on Friday. At each school, I met parents who were delighted with the announcement on child benefit—from next year their oldest child will qualify for £15 each week, and each subsequent child for £10 each week. Likewise, teachers were delighted with the announcement that every school is to receive £2,000 next year to purchase new books. The drive to literacy is extremely important and teachers are crucial to that effort, but without new books they cannot succeed in the task.
783 Like other hon. Members, I read the more abstract analyses of the Budget over the weekend. As I mulled over some of the millions of words that have been written about the Budget since last Tuesday, I was struck by the way in which many commentators used two words—"fairness" and "redistribution"—as though they were interchangeable. In fact, they are quite different: fairness is a value and a political objective, whereas redistribution is a method or means of achieving that political objective—at least, it can be. I say "can be" because redistribution can go in either direction, as my hon. Friend the Member for Brighton, Kemptown (Dr. Turner) said. I well remember the 1988 Budget, which took £4 billion out of benefits and fed it back through the tax system as a reward to the better-off.
That and similar policy decisions had, by the middle of the 1990s, led to one in four people in this country living in a household that had less than half the average income, and one in three children being born and brought up in poverty. By that time, with the exception of New Zealand, ours was the most unequal industrialised society in the world. The impact on the community in terms of crime and ill health was plain for all to see. It is right that progressive redistribution has been an element in the three Budgets of this Parliament, because the better-off should shoulder a fairer share of their responsibilities.
I welcome the announcements on national insurance, such as the increase in the upper earnings limit to £575 a week. I also welcome the zero rating of earnings between £64 and £87 a week, which means that many low-paid, part-time workers will receive benefits without having to make contributions for them. It is a positive step that maternity allowance is being extended to women workers earning £30 a week or more. On tax, I welcome the new 10p starting rate. No one who is working and bringing up a family will pay tax until he or she earns at least £235 a week. It is also right that higher earners will not gain from the children's tax credit, and that the maximum benefit of that new tax credit will go to those on low and middle incomes—an extra £8 a week for those groups.
Redistribution is only one method of trying to deliver fairness. Another route to fairness is better public services. The Budget makes a commitment to investing £1 billion more in information technology, in improved accident and emergency facilities in our hospitals and, crucially, in measures that will sustain community safety. It is also important to improve employment prospects. That is a focus of the Budget, which strengthens the new deal for under-25s and introduces employment credits for unemployed workers over 50. There is the minimum income guarantee for pensioners, the guarantee of £200 a week take-home pay for workers with families, and a guarantee of £170 for older workers as they move off benefit and into work.
Fairness requires not that everyone be treated the same, but that everyone is included in the equation. As The Economist pointed out this weekend:Fairness is a Brown phrase which Conservative Chancellors did not much use.Curiously, The Economist also accused the Chancellor of beingobsessed with getting people off welfare and into work.784 I say three cheers for the Chancellor's obsession. Probably the most moving letter that I have received since my election to the House was from the father of a 21-year-old woman who had never had a job and lacked confidence in her own abilities. She went on new deal and is now working in a nursery. She is fulfilling her potential and contributing to society. She wanted to do both, and that is now possible through the new deal.
One of the Government's finest achievements so far is the way they have halved long-term and youth unemployment. This Budget takes us much further not only through the measures that I have mentioned, but through encouragement to small business, which will create many new jobs. The extension of benefits to lone parents for their first two weeks of employment after coming off benefit is crucial. The Budget fits neatly with many of the other initiatives that the Government are pursuing, particularly the single work-focused gateway, which reconnects to the workplace the one in five families with no one in work.
The Budget raises two long-term issues that I must mention in passing: national insurance and means-testing. The Chancellor moved in the Budget closely to align national insurance contributions and income tax. The hon. Member for Twickenham (Dr. Cable) described some of those changes as complex, but I believe that they introduce greater fairness and transparency. It is right to smooth out the system in that way, but it is also right to keep the national insurance and income tax systems separate. That is necessary, first, for practical reasons—for example, most pensioners receive national insurance benefits but do not make national insurance contributions—and secondly, because keeping them separate reinforces the important connection between work, contribution, entitlement and benefit. That is especially important when we are trying to overcome barriers to work and tackle the issue of mass unemployment.
We must face the fact that we need to modernise the national insurance system. The Beveridge principle of flat-rate benefits for flat-rate contributions no longer works. Income differentials have widened and many more people in society are relatively better off. While it is important to keep the two systems apart, it is right that more progressive payments should be made.
As to means-testing, I am amazed at the bare-faced cheek of Opposition spokespeople. The previous Government introduced changes that, over 18 years, led to an increase of 5.5 million in the number of people on means-tested benefits. Some 2.3 million children were dependent on income support—
§ Mr. Peter Brooke (Cities of London and Westminster)
I declare two interests: the first that I am the father of a son who is a self-employed letter cutter and stone carver; and, secondly, that I am of pensionable age. I sympathise with the hon. Member for Wythenshawe and Sale, East (Mr. Goggins) about the hour at which we both find ourselves speaking. I made my maiden speech on this day of the Budget debate in March 1977, and I think speaking at this hour in this debate—just before the winding-up speeches—is worse than making my maiden speech.
785 On that occasion, I was speaking about the Budget introduced by the noble Lord Healey. I do not have a single drop of Scottish blood, which distances me somewhat from the present Chancellor, but the one eighth of my blood that is English is Yorkshire blood. I therefore say with some pride that one could always rely on the noble Lord Healey to give one bad news straight and not allow one to find it out in the watches of the night, the Red Book or in the Budget tables.
There has been some remark about the Budget—perhaps derived from the phenomenon that I have just mentioned—that it does not smell as sweet today as when the Chancellor sat down last Tuesday. The late lain Macleod's law about Budgets—those that are well received on Budget day are less kindly regarded in the autumn—is true in this case, although the process has clearly speeded up.
In his speech in the Budget debate last week, the hon. Member for Halton (Mr. Twigg) said that it was "an excellent performance". The hon. Member for Northampton, North (Ms Keeble) called the Budget a "resounding success". The hon. Member for Lincoln (Gillian Merron) quoted the judgment in the headline "Flash Gordon", and the hon. Member for Harrow, West (Mr. Thomas) said that it was "another excellent Budget". "An outstanding Budget" was the verdict of the hon. Member for Watford (Ms Ward). The hon. Member for Croydon, Central (Mr. Davies) began:What a great Budget! … a fantastic media reception".—[Official Report, Wednesday 10 March 1999; Vol. 327, c. 450.]The hon. Member for Sittingbourne and Sheppey (Mr. Wyatt) began by saying:I should like to say how brilliant the Budget is".—[Official Report, 11 March 1999; Vol. 327, c. 591.]
This week's letter column in The Times is led by a letter by the director general of the Freight Transport Association, signed also by the CBI, the Federation of Small Businesses, the United Road Transport Union, the British Chambers of Commerce, the National Farmers Union and the Road Haulage Association Ltd., all commenting pithily on the major disadvantages that the Budget confers on their industry. As I spent last Thursday's debate in the Standing Committee considering the Greater London Authority Bill being told by Ministers how well the new Government understand business, I shall re-read Hansard with the letter from the Road Haulage Association by my side.
All that said, it would be churlish not to remark on those aspects of the Budget where the Chancellor is maintaining Conservative policies. Given his reluctance to come clean and be upfront about his bad news, it should not surprise us that he makes no reference to the golden legacy that we bequeathed him which even commentators with no partiality towards our party acknowledge is the bedrock of his success. Not for him the fate of some of his Labour predecessors, to whom the hon. Member for Wirral, West (Mr. Hesford) referred, who came into office under economic conditions similar to those that, when I was working in New York, caused The Wall Street Journal to remark on its front page:The economic recession has become so severe that the mafia have had to lay off two judges in New Jersey.786 Before any Labour Members intervene with their selective crib sheet, I repeat last week's observation by my hon. Friend the Member for Chichester (Mr. Tyrie) thatBritain is the only major country to have reduced the overall burden of debt as a proportion of gross domestic production in the period from 1979 to 1997."—[Official Report, 11 March 1999; Vol. 327, c. 589.]
I served as a junior Treasury Minister under my noble Friend Lord Lawson of Blaby for almost four years, during which time part of the national debt was repaid by the then Government for the first time since 1968. However, an essential difference between those years and these is that my noble Friend, year after year, simplified and made clearer the tax arrangements of this land, whereas, in the three Budgets since 1997, the present Chancellor has complicated them and made them more opaque.
Throughout my four years with my noble Friend, I also served on the Budget Council of the European Union. It may be that it is euro enthusiasm that has contaminated the Treasury under the present Administration. The EU budget consisted of small programme after small programme in penny packet after penny packet. That made negotiation between the Council of Ministers and the Parliament a nightmare, because the house of cards constructed in Strasbourg was so delicate a piece of fiscal architecture that one could not withdraw a single card without bringing the whole structure slithering down on the table. As a process, it shared another characteristic with the Government's conduct of public expenditure, in that no one ever went back rigorously to test whether the programme had delivered the goods that were claimed for it.
The process was also distorted by being spread over several years. The manner in which the Government chronologically set out their expenditure and taxes may be a political paradigm, but it is a three-dimensional mathematical monkey puzzler. That may have more to do with getting a Government elected than with good government itself. Those who went on to the Terrace at lunchtime today to visit the science, engineering and technology reception will have noticed a billboard entitled "Predictions of Pressure Fluctuations over Stealth Aircraft". Had one amended "aircraft" to read "taxes", the title would still have been meaningful.
Nine months ago, we had a long, late-night debate on heritage issues in the Report stage of the Finance Bill, and the present Paymaster General made soothing noises, saying that we were wrong in predicting a flood of art treasures coming on the market because of the Bill's measures on inheritance-protected objets. It is bad luck for the Government that today should see the threatened flood returning to the pages of The Times at precisely the moment the Secretary of State for Culture, Media and Sport has, in his own words, raided the lottery, thus robbing the heritage lottery fund of the capacity to keep those treasures in the country.
I want, before closing, to draw attention to one serious omission from the Budget—the issue of small and medium-sized companies not being able to get access to equity capital in the markets. The FTSE 100 is spectacularly well funded. I recall a figure of £57 billion going from the markets to our largest companies. It is now commonplace that, in about 37 of the 40 years up to the early 1990s, the small companies sector outperformed the 787 FTSE 100 share market or its equivalent, but, in nine of the past 11 years, that sector has under-performed it. However, in five of the past six years, the earnings of small companies have grown more rapidly than those of larger companies. Nor has the market under-performance come about as a result of the FTSE 100 growing more rapidly than small companies. Between 1984 and 1998, turnover of all companies in the FTSE 100 share index showed little growth in real terms. An article in the Financial Times a few months ago put the small company sector at its lowest relative market rating since the early 1960s.
The Bank of England, which led such valuable work on improving the financing of small companies since the last recession, is seized of the problem and its consequences and implications, but the reason for mentioning it in this debate is that attention will have to be given to capital gains tax, let alone bed and breakfasting, if we are to find a solution to the problem that I am describing. We have to find ways of increasing liquidity for small companies.
The Government should not regard my words as being a Trojan horse. In 1997, capital gains tax in the Republic of Ireland stood at 40 per cent., with tax proceeds of £131 million. In 1998, capital gains tax in the Republic was halved to 20 per cent. and proceeds jumped to £193 million, an increase of 47 per cent.
I am not surprised that the Chancellor has been able to find producer groups to applaud his penny-packet programmes. His colleague the Secretary of State for Culture, Media and Sport had no difficulty in finding similar producer groups to applaud his raid on the lottery. I have long treasured C. S. Lewis's aphorism that, if one hears of someone going around doing good to others, one can always tell the others by their hunted look. One can always rely on producer groups not to look a gift horse in the mouth. However, that does not mean that it will be a good use of taxpayers' money or, indeed, of our money.
I began with 1977, and I reached my noble Friend Lord Lawson in the middle of my speech. In 1977, business men were taking decisions in response to the tax system. In 1987, they were taking decisions because they were the right decisions to take, in their own interests as seen by them. It is sad that, since 1997, we have been going back to tax-driven decisions—alas, the man in Whitehall never knows best.
§ Mr. Gerald Bermingham (St. Helens, South)
As someone said a moment ago, it is difficult to find something to say after all these days of debate and after having read carefully in Hansard what has been said, so I decided to be honest and say how I look at the Budget.
I get married and the married couple's tax allowance is removed; I buy a house and MIRAS is taken away, so I began to feel very pessimistic. But I read on, and I began to see that there was in the Budget the seedcorn of development and growth. To a constituency like mine, development and growth is the elixir of life, but we have had so little of it.
St. Helens has been a deprived area for the 16 years that I have represented it, and certainly for many years before that. We lost the glass industry, the mining 788 industry, a large part of our chemical industry and the pharmaceutical industries. What did we have in return? Between 1983 and 1987, we got very little of anything. We were always, as it were, outside the pale. Since 1997, we have slowly begun to grow again. Slowly, we are beginning to get the development that we need, but does the Budget hurt or help? The answer is that it helps.
The Chancellor decided not to pursue the policy with regard to aggregate tax. We are grateful for that, because it would of course have hurt the glass industry. I know that there will have to be further discussions, and I understand the environmental argument on the one hand and the needs of the glass industry and other industries on the other. It is a fine balance, because what to one person can appear to be a great advance can cause pain and trouble to another.
I hope that the Government will look again at the issue of diesel fuel costs and the duty levies on lorries. I have in my constituency one of the biggest haulage companies in England—Suttons—and were it to send even half its lorries abroad, the effect on St. Helens would be disastrous. I say that quite openly. There is always a natural balance between the interests of both sides.
I can understand the need to restrict motorists and to push people to use public transport. I fully endorse that, and of course we want to encourage the haulage industry to move freight by rail rather than road. However, the minute we do that, there is a backlash in the other direction. There must be a middle way. I hope that when the Finance Bill goes through Committee, such matters will be considered.
I also noticed in the Budget the provisions for pensioners. When I was in St. Helens over the weekend, such matters were brought back to me time and again. For once a Government seemed to understand the needs of the elderly. The £20 increase in winter fuel payment to £100 may not seem much to many of us, but to the old it means an awful lot. The increase in the pension itself and the new tax arrangements may mean little in financial terms, but to the people concerned, they mean an awful lot. If the Government are pleasing an awful lot of people, they are getting something right.
One aspect of the Budget has caused me concern, because I think that we must drive harder and deeper at it. I declare an interest as a practising lawyer. There has been much talk in the House about the smuggling of tobacco. It has been estimated that the trade is worth about £1 billion. Whoever produced that estimate did not know Monday from Friday, because the figures are much, much higher. I know that from my personal knowledge of what is going on.
I know of the vast volume that is being smuggled through. I know that 70 per cent. of all the rolled tobacco in the south-east, the midlands and the north is smuggled. It comes in costing virtually nothing, it is sold at virtually nothing, and honest traders buying legitimately are losing their livelihoods.
There are several ways in which we can tackle that problem. I suggested to the Home Secretary some months ago that we should start bilateral conversations with the Belgians about the matter. Where is the tobacco bought? It is bought in Antwerp, Bruges and so on. There are warehouses—I have seen them—where the lorries drive in, load up with rolled tobacco, drive out and drive back to the UK. There are bus-loads of people and car-loads of 789 five or six people going across on "day trips" to get that tobacco. They are flooding through Dover, hour after hour.
The trade is so profitable that, it is said, even the drug dealers of old find it a much more convenient way to make their crooked money. The profits from importing tobacco are greater, the risks are lower and the penalties are far smaller.
How can the smuggling be conquered? All we have to do is to say to the Belgian authorities, "Come on, we are both in the European Common Market. This is wrecking our home trade. There is a way to solve it. If we find that a warehouse"—there are seven in Antwerp, which I can name—"is involved in the smuggling of tobacco, the warehouse owners will be deemed to be part of a conspiracy to defeat the United Kingdom importation rules under section 170 of the Customs and Excise Management Act 1979."
We must get the Belgians' co-operation. They should agree that we can extradite the warehouse owners to stand trial in the United Kingdom. The Belgians will not let that happen. I know from professional experience of case after case in which we know the source of supply, but there is nothing that we can do to stop it because we do not have the co-operation of the Belgian authorities.
The latest scam is the export of cigarettes to Benidorm and one or two other places. They go out entirely legitimately and come back totally illegitimately. Our major cigarette companies say that there is nothing to worry about—they are just exporting to Benidorm. It is surprising how many packets come back to the UK. Why do we not simply insist that any packet of cigarettes exported from the UK has stamped on it in thick red, black or green—the colour matters not—"Made in the UK"? If such packets come back, they will stand out like beacons on the shelves of superstores and everywhere else that they are sold.
In practical ways like that, we can begin to cut the illegal trade. Similarly, bottles of alcohol should be stamped. There have been cases where the villains, if I may use that word, bought their own distillery, so that they could have their own whisky bottled, exported and brought back. That product is on the supermarket shelves of southern England. When the problem is as bad as that, how much is the Treasury losing?
We need practical measures, such as an agreement with the Belgians. and we need more Customs officers. When people drive through Dover, who is there to check for drugs, fags or booze? I do not blame the Government for that. I remember speaking in the House many years ago when I criticised the removal of the cutter barges and the reduction in the number of Customs officers, yet here we are 10 years later paying the price in billions of pounds. What could we do with those billions if we had them?
It is a good Budget. Two little matters tweaked me, but I realise what the Government are doing for pensioners. I am getting near to pension age, so I shall no doubt go off into the sunset with a wonderful pension for my retirement. That will not be for a while yet, so before I go perhaps I can impress on Treasury Ministers that positive action is needed to stop the smuggling. That would pour billions into the Government's coffers, and then perhaps the hospitals and schools in St. Helens would get more money, over and above what we have generously been given, and perhaps we could have some industrial 790 grants to get factories into the constituency and thus reduce the problem of long-term unemployment among the over-50s.
It is not a bad Budget. I give it nine out of 10. I cannot think of anything the Government could have done better.
§ Mr. David Ruffley (Bury St. Edmunds)
Among the many deficiencies in the Budget is the absence of a clear statement of gratitude from the Chancellor to my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) for his brilliant stewardship of the British economy in the previous Parliament. My right hon. and learned Friend bequeathed a legacy of falling borrowing, historically low inflation, low interest rates and record exports.
In the past three Budgets, the Chancellor has done his best to squander that legacy. The principal means by which he has done that has been to load tax on to taxpayers and business. Statistics produced by the House of Commons Library—rather than anyone else—clearly show that during this Parliament £40 billion extra tax has been loaded on to the British economy.
That fact is underscored in table B9 in the Red Book, which clearly shows that the tax burden has been rising. In 1996–97, the last year of the Conservative Government, the share of gross domestic product accounted for by net tax and social security contributions was 35.4 per cent. That figure was given in a written answer provided by the Chief Secretary two weeks ago. In the first year of this Parliament, 1997–98, the relevant figure is 36.6 per cent. In the last year of this Parliament, 2001–02, the figure will be 37 per cent. That is proof positive that the tax burden is rising under this Government. Conservative Members would like to hear the Chief Secretary apologise for denying that the tax burden is rising under the Government in the lifetime of this Parliament over the five financial years to which I have referred.
The Budget was received with a certain amount of euphoria, but since last Wednesday there has been a cascade of critical commentary to the effect that the Budget was produced with smoke and mirrors; that it gave with one hand and took with another; that it was a pick-pocketing Budget; and that it was not all that it seemed. But Ministers on the Treasury Front Bench are still as smug and self-satisfied as they were on Tuesday. They remind me of a bunch of arrogant confidence tricksters who think that the punters are so stupid that they will not realise that they have been taken for a ride. The punters to whom I refer are the people of middle Britain. When they look at the abolition of the married couple's allowance, they understand not only that will it be abolished in April 2000, with an alleged replacement coming in one full year after, but that a recognition of marriage has been abolished from the tax system. They also understand that there are anomalies in the new system. The children's tax credit—some £400 per annum—will be available, for example, to a two-earner couple on £32,000 a year, which is just under the top-rate threshold. But a single-earner couple on more than £38,500 a year will not get that, or any compensation, in lieu of the abolition of MCA. That is a ridiculous anomaly, but the people of middle Britain are spotting it.
Those people also understand that the pensioners who were told that they would keep their MCA will not keep it. If an individual is unlucky enough to turn 65 after 791 April 2000 and does not have any dependent children in the household, he will receive no credit and no compensation for married couple's allowance being abolished.
Furthermore, middle Britain understands full well that national insurance contributions, the direct tax that that represents, will be increased for them; the increase in the upper earnings limit to £575 a week represents nearly an 18 per cent. increase in direct tax. In addition, self-employed individuals, some typically on £20,000 per annum, will pay around £110 a year more in NICs as a result of the Budget.
As a result of the abolition of MIRAS, the mortgage payments of middle Britain will go up. It is no use Ministers talking about the fall in interest rates. We all know that interest rates went up in the first 18 months that the Government were in power as a direct result of the botched transfer of control of monetary policy to the Bank of England, leaving interest rates higher than they need have been.
Business has borne the brunt of the £40 billion tax increase. We know that businesses are important. As John Kay and Mervyn King have described in their classic text "The British Tax System", there is no such thing as a tax on firms. The incidence of tax is always on individuals in the end.
The president of the Confederation of British Industry said the day before the Budget that some £20 billion had been loaded on to industry. Of course, since then, more taxes have been loaded on to it, the energy tax and the diesel tax being the two biggest hits on manufacturing industry in particular.
Small businesses in my constituency derive no benefit from the Budget. They wanted a cut in business rates. A correspondent from Stowmarket, a small market town in my constituency, said, "What we want is a cut in the business rate burden. Without that, the future of village shops and small businesses is in grave danger," but there is nothing in the Budget to help hard-pressed village shops.
Those shops also face higher delivery costs as a result of the fuel duty increase. The corner shop tax is looming as a result of the future levy to help to set up the Food Standards Agency.
The Government need a better understanding of rural areas. There has been a savage and brutal increase in the cost of motoring for rural dwellers. Labour has given us the £3 gallon of petrol. That burden falls disproportionately on rural areas such as the one in Suffolk that I represent.
In the face of higher fuel duties, the prospects for rural areas are not good. The people of middle England, who reside in shire counties, will not be able to afford a Mondeo upgrade. They will be scratching around to see whether they can buy a second-hand Sierra, given the burden that the Government have put on them in the Budget.
I draw attention to the hubris of the Budget. It is strong on hype and spin, but it will do nothing for wealth creation, although it tinkers around with redistribution. It will do nothing to increase the long-term growth potential of the United Kingdom's economy. The fanciful forecasts 792 for GDP growth are overblown; everyone knows that. The independent survey forecast predicts that this year the economy will grow by 0.6 per cent., rather than the 1 to 1.5 per cent. predicted by the Red Book. The Treasury forecast of growth of between 2.25 and 2.75 per cent. next year is contradicted by a 1.8 per cent. forecast by the independent surveys.
This Budget will do little for middle Britain in terms of families, enterprise and work. It is a Budget for hubris—a Budget that courts nemesis at the hands of middle Britain. Middle Britain will be disaffected and disillusioned, which is why the Budget deserves to be opposed and fought in the Lobby tonight.
§ Mr. David Rendel (Newbury)
I want to speak mainly about pensioners, but first I shall make some general points.
Along with many of my hon. Friends, I find it depressing that the Government have finally decided to make wealth creation a more important objective than wealth redistribution. We believe that this Government were elected by the people of Britain to produce a fairer society, and to return justice and opportunity to all our people; we are sorry that they seem to have rejected that aim.
The Budget illustrates what has been happening. It is a Budget for tax cuts, while it should have been a Budget for investment in public services and to support the weakest and most vulnerable of our fellow citizens. I have lost track of how often I have heard the Prime Minister and the Secretary of State for Social Security rail against the social security system. They are, of course, right to blame the system for trapping people in poverty—that is what it does—but they are wrong to blame it for failing to alleviate poverty. Indeed, sometimes it seems that only our social security system stands between the poorest members of society and real penury—homelessness and starvation.
The Prime Minister can repeat the mantra "work for those who can, security for those who cannot" as often as he likes, but the real need is to create full-time jobs that pay a living wage. After all, the one thing for which the Department of Social Security cannot be blamed is unemployment. Part of the solution to the problem of poverty and inequality in Britain must lie in our economy. Welfare reform will come to very little if there is no work for people to do: we cannot tell them to go back to work, when no jobs are available.
In this Budget, there is, at last, something for pensioners, and we welcome that; but, although an increase in the winter fuel payment for all pensioner households may look good on the surface, there are various problems. Using the money to add £2 a week to the weekly state pension payment would have saved nearly £14 million in advertising and administration costs. As it is, the huge cost of organising an audit every year to establish which households are pensioner households is a terrible waste of money—money that could have been given directly to the pensioners involved.
The winter fuel payments are intended to help vulnerable elderly people to stay warm and therefore healthy, but a much more effective way of dealing with that aspect of fuel poverty would have been spending the 793 money on insulation and energy-efficient housing. The problem of fuel poverty involves much more than simple economics.
This is not a good way of targeting money at the poorest pensioners. Better-off pensioner households—some of whom, last year, gave their winter fuel payments to charity because they were so well off—will receive an extra £80 or £90, compared with just £50 for pensioner households on income support. The Secretary of State's claim that he was increasing fivefold the amount that pensioners were receiving may apply to the better-off, but it does not apply to the poorest, who should have been targeted.
The winter fuel payment increase is administratively expensive. It fails to target fuel poverty and the poorest pensioners properly. Although Liberal Democrat Members welcome more being spent on pensioners, we wish that the Government could have spent it more sensibly and effectively.
From April 2000, the minimum income guarantee—the Government's other great claim to be doing more for pensioners—will be linked to earnings, rather than prices. Although the measure is very welcome, it comes with a sting in its tail, just as the minimum income guarantee does. The widening of the gap between the basic state pension and the higher income support levels inherent in the income guarantee will bring ever more people on to means-tested benefits.
The Government know, from their own research, how the more elderly people in our society are often embarrassed by the idea of applying for income support. That is why the minimum income guarantee is a shameful deceit. It is not an increase in the basic state pension, but it is guaranteed that many of the poorest pensioners will never get extra. Earlier in the debate, when I made that point to the Secretary of State for Social Security, he could not deny it.
Currently, 700,000 pensioners are not claiming the benefits to which they are entitled. Some of them do not do so because they are too proud to claim what they think is state charity, and others do not because they find the forms simply too complex to fill in.
Moreover, 600,000 pensioners are disqualified from the minimum income guarantee because they have too much in savings. They are the ones who were brought up to think that it was a good thing to save money for their old age and for a rainy day, or to put aside a bit to pass on to their descendants. Now, they are penalised for doing just that. The Government really have to get their act together on that issue—to save or not to save. People are asking that question, but the Government have given them no answer.
§ Mr. Rendel
No. I should continue if I am to leave time for other hon. Members to speak.
I hope that, in replying to the debate, the Chief Secretary to the Treasury will deal with the anomaly of pensioners who rely on income from savings—some of whom will find themselves in the bizarre tax situation of being within the 10p rate for income tax, but still paying 20p tax on each pound of income from savings. It is a bizarre situation to be in, and I hope that the Minister will tell us what the Government will do about it.
794 I noticed that the Chancellor, in his speech, mentioned a chaotic, even counter-productive system of child support. Had I not been paying full attention, I might have thought that he was attacking the Child Support Agency once again, and that he was going to tell us that he would not continue with the pale imitation of the CSA with which the Government are trying to replace it. He was really, of course, talking about supporting families with children.
Extra money for families is always welcome, and Liberal Democrat Members strongly support such provision. However, as with winter fuel payments, there are problems with how that support is distributed. As a tax credit, it will go to the household's main earner, who is usually the man. However, it is vital that funds for the care of children should go to the person with the primary care responsibility, who is usually the woman.
The Government have fallen into the trap of directing those funds—like money from the working families tax credit—from the purse to the wallet. We all know that there is usually precious little hope of getting money back intact from the wallet to the purse. Although the Secretary of State for Social Security said earlier today that choice in the matter would be given to each family, we know that the only families in which there is real choice are those who do not need the choice, as the earner is prepared to give the money to the other partner regardless. The families in which there is no choice are those who really need choice, as the father is not prepared to give the money to the mother.
Therefore, as with pensioners' money, the measure adds a level of administrative complexity without helping the weakest in our society. It seems to be an attempt to tax the Government's support for the children of higher-rate taxpayers while pretending that that is not happening.
To sum up the Budget, we welcome the new money that the Chancellor has offered to pensioners and children, but what a pity it is that it is going mainly not to the very poorest, but to those just above that level. Perhaps the Government feel that the poorest and most vulnerable are likely either to vote Labour anyway or not to bother to vote. That fits with their benefit cuts for widows, the sick and the disabled. The most vulnerable no longer seem to be cared for by the Government. We are proud to care for those people and target our policies at them. That is why we support a policy of £3 extra for the over-75s and £5 extra for the over-80s. We believe that the Government should support that policy. I very much hope that the Minister will accept the policy tonight.
§ Mr. Lindsay Hoyle (Chorley)
I find it very strange that the hon. Member for Newbury (Mr. Rendel) thinks that it will be an administrative nightmare to pay pensioners £100 per household. If we can distinguish between £50 and £20 per household for pensioners, why will it be more difficult for all households to receive £100? I am mystified by his argument.
I welcome most of the Budget. It would be naive and wrong for anyone to say that they loved every part of it. There will always be some aspects that we like and questions about other aspects that we do not like, but we have to consider the Budget in its entirety. It is a quality Budget which has been welcomed throughout the country.
Education is important to all. Each school will benefit from £2,000 for new books. I do not remember much of that during the 18 years of the previous Government 795 They were quiet on education. There is a lot of noise from the Conservatives now that they are in opposition, but they were not very positive towards education and schools when they were in government.
We are all concerned about pensioners, but, during the 18 years of the previous Government, pensioners were not top of the list. In fairness to the new Government, they have realised that pensioners count and are an important part of our society—a part that cannot be left and neglected as it has been. I am pleased to tell the pensioners of Chorley that the Government are listening and delivering and will continue to look after them. I have had very positive feedback from the pensioners of Chorley and a good response is coming through the mailbag.
The Conservatives are always saying that they were the party to cut taxation and that they are the party of businesses. It has been up to this Government to ensure a cut in tax and continued support for small business—not just talking about it, but delivering on election promises. That is why I am proud to be a Labour Member of Parliament. I am proud to be able to tell my constituents what the Government are doing for them and what the previous Government did not do for them.
My constituency has low unemployment. That will continue, thanks to my right hon. Friend the Chancellor, who will ensure that companies will benefit. The good-quality companies and the small and medium-sized enterprises to which this country will look for the future are being supported by positive actions. It is all well and good for the Conservatives to say what they would do, but, when they had 18 years to deliver, they failed. They must be embarrassed. Is their leader not now saying that they should stand up and say what was wrong and how they let the people down? After 18 years, he has realised that they failed. The leader of the Conservatives is now admitting that they were wrong. Yet, now that they are in opposition, they think that they are right. I do not understand their hypocrisy. That is a strange way to work.
The Chancellor has given to the good people of Chorley, ensuring that companies such as Scottish and Newcastle in my constituency will benefit, because there will be no further taxation on beer this year. That is good news not just for the employees of Scottish and Newcastle, but for all the public houses in Chorley and all the jobs related to the brewing industry. Those jobs will be secured, and that is a bonus. Before the Budget, Conservative Members were on the radio saying that my right hon. Friend would hit beer and whisky, and that those employed in the drinks industry would be affected. That did not happen, and I am pleased about that. Those jobs are now more secure than they have ever been.
I hope that my right hon. Friend takes on board the problem of drink smuggling, which is beginning to hit all parts of the country. We need to take further action because of the loss of duty and the knock-on effect on jobs. People are using artics to smuggle—we are not talking about people with loading up their cars—and criminals are flooding the country from Scotland to Cornwall. Nowhere is free from the effects of smuggling.
We have heard about tobacco smuggling, which is also affecting jobs—and tobacco will continue to be smuggled. My right hon. Friend must try to stop smuggling, as it is 796 crucial that we do not lose good jobs. My right hon. Friend has supported the brewing industry, and we must protect jobs in it.
If there was a downside to the Budget—it was hard to find one—it was in the provisions affecting the haulage industry. The industry is suffering, and is on the back foot. I will be writing to my right hon. Friend the Chancellor to address the plight of the haulage companies in my constituency, and to ask him to see what support we can give. Many jobs could be at risk.
The concern is not just about companies from France or Germany, but about companies from the former eastern bloc, which will be sending poorer-quality trucks into the UK and undercutting haulage companies here. That is why I ask for a special case to be made for the industry, and I know that my right hon. Friend the Chancellor will look at that.
Accelerated fuel duty was introduced by the Conservatives, but we did not hear a whisper from them at that time—then, they had no worries about the haulage industry at all. In fact, the industry was attacked year on year. I am pleased to say that this was a good Budget.
The Minister of State, Department of Trade and Industry, my right hon. Friend the Member for Makerfield (Mr. McCartney), came to Chorley on Friday to open phase 2 of the Chorley business and technical centre, which is 50 per cent. full already. That proves the success of the Government, and their commitment to those companies. We are ensuring not only that each day new companies start, but that they are flourishing and expanding in Chorley. That is why phase 2 is so important. It was a pleasure to see my right hon. Friend opening the new centre.
Following the Budget, we will see the development of a brown-field site that will be second to none in this country—an area of 800 acres that will benefit from the Chancellor's proposals to ensure that new businesses come in and deliver jobs for central Lancashire. This is a strategic site—[Interruption.]
§ Mr. Deputy Speaker
Order. We cannot have so many conversations in the Chamber. The hon. Gentleman is addressing the House.
§ Mr. Hoyle
Obviously, Conservative Members do not want to listen to the truth, but that is not a worry.
I was talking about new jobs for Chorley and a new commitment to Chorley, and the use of a brown-field site—not a green-field site—as a flagship for the north-west. We believe that the site will generate 15,000 jobs in the next five years—jobs lost at Royal Ordnance as a result of the previous Government's lack of commitment to defence.
Throughout the 1980s and into the 1990s, we suffered from the lack of commitment to and investment in British jobs in defence. Jobs went down the pan, but the Conservatives do not care to remember that they were in government at that time. They failed the people of Chorley, of Lancashire and of the United Kingdom. Their shame and embarrassment prevent them from congratulating my right hon. Friend the Chancellor on a good Budget and thanking him for what he has done for all our constituencies. They are not man enough to accept the truth. They throw away their cheap remarks and ensure that the only voice that is heard is noise without constructive comment. I welcome the Budget.
§ Mr. Francis Maude (Horsham)
For the avoidance of doubt, and for the benefit of Labour Members who take an excessive interest in such matters, I declare the modest interests disclosed in the register, in case anyone thinks that they are relevant.
We have just heard a tirade from the hon. Member for Chorley (Mr. Hoyle) about listening to the truth. That is a plea of which we want to take notice, because we have not heard much in the way of truth in the presentation of the Budget. It is probably the most dishonest Budget in living memory.
The only thing that mattered to the Chancellor last Tuesday was the next day's headlines. He claimed that it was a Budget for families while abolishing the last recognition of marriage in the tax system, and then had the insolence to claim that the married couple's allowance is not a recognition of marriage. He claimed that it was a Budget for enterprise, while increasing tax on business by £3.2 billion. He claimed that it was a Budget for tax cuts, when taxes go on rising by stealth.
The Chancellor even spent taxpayers' money writing a propaganda leaflet that was meant to explain the Budget to ordinary people but failed even to mention that the 20p tax rate had been scrapped and MIRAS abolished. The only surprise is that only 50,000 of the leaflets had to be pulped. That gives a whole new dimension to the phrase "pulp fiction".
The Chancellor is guilty of Budget mis-selling and the Budget did nothing to reverse Labour's huge tax increases. Labour's lies on tax will catch up with them. Those people who drive, save, are married, have mortgages, are self-employed, have company cars, want to buy a house or smoke will all lose. People from all walks of life will lose from the Budget and will soon feel betrayed by a Government who claim that taxes are going down when they know that they are going up and who deliberately say that families are paying less tax when they know that they are paying more. A week on and, sure enough, the Budget is coming apart at the seams.
Let us look at what the experts are saying. The Automobile Association says that the Chancellor's tax plans are based onspurious arguments that do not stand up to scrutiny.The Freight Transport Association described the Budget as "crass" and "crazy". The Federation of Small Businesses said that itcompletely missed the target where the majority of small firms were concerned.Anatole Kaletsky—not a supporter of the Conservative party, and frequently a supporter of the Government—said in The Times:The feverish expectations created by the headlines are going to be disappointed once people open their pay slips and penetrate the veils of deception so skilfully flourished by Mr. Brown. And when people discover that they have been deceived they are apt to get angry.Graham Searjeant in the same newspaper said:The fatal flaw in Mr. Brown is behind the cloying parade of virtue, he is just another clever confidence trickster … the last Budget of the millennium was made by the last great conman of the millennium.The British Chambers of Commerce warned of a£20 bn penalty from the 'smoke and mirrors' Chancellor".798 The BBC's economics correspondent said:this much is clear. Labour has increased taxes and are continuing to raise them. It's in black and white in the … Treasury Budget documents".It was not in the Chancellor's speech.The Economist's description of the Chancellor's addiction to meddling with, and complicating, the tax system wasBubble, bubble, toil and muddle".That point was made very well by my right hon. Friend the Member for Fylde (Mr. Jack). The article continued:The biggest losers under Mr Brown have been businesses and pension funds".Even the New Statesman, the Government's house journal, said that, under this Government, there isno taxation without stealth … Behind the glittering presentation he gave us an almost neutral Budget".Of course, taken with the past two Budgets, that means that taxes are going up.
The first piece of dishonesty was that the Chancellor concealed the massive increase in the overall level of tax under Labour. The Prime Minister does not want us to remember it now, but, before the election, he promised the country that he hadno plans to increase tax at all".What did he mean by that? What did the Chancellor take him to mean by that? Labour's first two Budgets increased taxes by more than £40 billion over the course of this Parliament. It is now clear that, behind the gimmicks and headlines, the Budget did nothing to reverse those big tax increases.
We commissioned the Library to calculate how much higher taxes will be over the course of this Parliament. The answer is £40.7 billion.[Interruption.] That seems to be a surprise to Labour Members. It is not surprising that they did not know that, because the Chancellor said nothing about it.[Interruption.]
§ Mr. Deputy Speaker
Order. I cannot have any shouting in the Chamber. I am looking at Mr. McNulty. You have to be quiet, Mr. McNulty. I do not want to hear you.
§ Mr. Maude
Taxes were up by nearly £6 billion in the first year of the Government and by nearly £8 billion in the second year. They will be up by £7.1 billion this coming year, by £10.5 billion in 2000–01, and by £9.3 billion in the year after that. The Government are giving a little with one hand while they take back much more with the other. Every tax reduction announced by the Chancellor with such a fanfare was cancelled out by a stealth tax increase hidden away in the fine print.
Taxes will be £7.1 billion higher next year as a direct result of Labour, but the Government will not admit it. The Prime Minister was asked a simple question by my right hon. Friend the Leader of the Opposition on Wednesday, the day after the Budget. He asked:what is the total tax increase for the coming year"?I am not surprised that the Chancellor casts his eyes up to heaven, because he knows that the Prime Minister got it wrong and misled the House. The Prime Minister should come back to the House and put the record straight.
§ Mr. Deputy Speaker
Order. I cannot allow the right hon. Gentleman to say that any hon. Member misled the House. Perhaps he will reconsider that.
§ Mr. Maude
I am sure that, if the Prime Minister has inadvertently misled the House, he would want to come 799 back and set the record straight. I am not aware of any attempt by the Prime Minister to make a personal statement and set the record straight, as the ministerial code of guidance requires. He is responsible for that code. Where is he? Why has he not come back to the House to set the record straight? We all know that what he said was incorrect. If it was inadvertently incorrect, let him come back and put us straight.
The answer to the question asked by my right hon. Friend the Leader of the Opposition—easily arrived at—was £7.1 billion. The Prime Minister responded:There is a net tax cut of £4.5 billion."—[Official Report, 10 March 1999; Vol. 327, c. 358.]That is utter rubbish. It is so far out of line with the truth that it makes one wonder whether the Prime Minister actually understands the figures at all.
§ Mr. Maude
No. I have little time. I cut my time to allow the hon. Member for Chorley to speak, and that was a mistake.
Anatole Kaletsky in The Times wrote of the Prime Minister's answer:this was simply false. 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".It is not only true that taxes are going up under Labour. The Budget also failed to come clean on the fact that many more people will pay income tax in the coming financial year as a direct result of measures taken by the Government.
The gain that people make from the introduction of the 10p rate is partially clawed back by the scrapping of the 20p rate. Why did the Chancellor not mention the scrapping of that rate? Overall, the changes mean that most people will gain only £60 a year from that move, a small gain that will be completely swamped by the loss of mortgage interest tax relief and the married couple's allowance, both of which will be abolished next year.
We must not let the Government make their feeble claim that the child tax credit will replace married couple's allowance. There is a year's gap between the two. What kind of replacement is it when there a year's gap between abolition of one thing and the introduction of another? What a con.
§ Mr. Maude
No, I am not going to give way.
What comfort is there for people approaching retirement? They are being told that, for the crime of being born after 1935, there will be no married couples allowance for them, and nothing to replace it, even if they still support children. They can forget it.
§ Mr. Maude
800 That is not the complete story. Not only will people pay more income tax and other tax under Labour, but many people on low incomes will also pay a higher marginal rate of income tax. We asked the Secretary of State for Social Security how he squares the commitment not to raise income tax rates at all with the fact that the marginal rate of income tax has been increased for a large number of people. That increase is in clear contravention of Labour's direct pledge. Many people who previously paid a marginal rate of 20 per cent. will now have to pay income tax at a marginal rate of 23 per cent.
What price the posters everywhere that said that income tax rates would not be increased at all? Under the new system, people will start to pay income tax when their earnings reach nearly £6,000. Under the old system, that would not have happened until their earnings reached £8,600. For people between those income levels, there are higher marginal income tax rates under Labour. There was nothing about that in the promises before the general election, and no mention of it in the Chancellor's Budget statement. It is a disgrace.
Higher marginal rates of tax are bad because they reduce incentives. People are less likely to work for a pay increase if they know that a greater proportion of every extra pound they earn will be taken in tax. The increased rate is a complete betrayal of the Prime Minister's clear promise before the election that he would not increase income tax rates. About 4.3 million people have been let down by Labour's breach of that election promise.
Income tax is not the only one going up. National insurance is going up for many people. One might be forgiven for missing that fact, because it was not in the Chancellor's statement last Tuesday. We welcome the reforms that abolish the 2 per cent. entry fee, and we welcome the alignment of the national insurance contributions threshold with the income tax threshold. However, as ever, what Labour has given with one hand, it is taking back with the other.
In a move that merited just eight words in the Chancellor's speech, the Budget increased the upper earnings limit for employees' NICs to £575 a week. That amounts to a huge stealth tax increase on middle Britain. The net effect of the Government's changes to national insurance will be that many middle-income workers will be worse off because the gains that they make from threshold alignment and the abolition of the entry fee will be more than offset by the increase in the upper earnings limit.
§ Mr. Maude
Labour Members ought to listen. I am talking about precisely the sort of people whom the Prime Minister was at such pains to claim he was going to protect.
When all Labour's reforms to employee NICs have been implemented, anyone who earns more than £27,000 a year will be worse off. Those people are by no means 801 rich and there are plenty of them—another 4 million, on top of the 4.3 million who were let down by Labour's previous pledge on income taxes—
§ Mrs. Campbell
On a point of order, Madam Speaker. Is this not supposed to be a debate and should not the right hon. Member for Horsham (Mr. Maude) give way when hon. Members seek to intervene?
§ Madam Speaker
It is up to the hon. Member who has the Floor to determine whether to give way. I understood the right hon. Gentleman to have indicated that he would not do so. Is that correct?
§ Mr. Maude
Although it was a great mistake, I have already cut my speech short to accommodate the hon. Member for Chorley, who wasted the time of the House.
Business taxes are up too. The Chancellor and his right hon. Friends like to pose as the friends of business. Last Tuesday, the right hon. Gentleman told the House that he was announcing tax cuts for business—that is not how they look now. The Budget will increase tax on business by £3.2 billion in the next three years—we did not hear too much about that—on top of the £5 billion a year in extra taxes imposed in the Government's first two Budgets.
Those are not my figures but those of the British Chambers of Commerce. It took a few days for them to see through the vacuous gloss of the Chancellor's speech, but, by last Thursday, they were denouncing the right hon. Gentleman as a "smoke and mirrors Chancellor", who has increased tax on business, while pretending to cut it. The chambers of commerce calculate thatBusiness will be a grand total of £6 billion worse off each year for the next three years than they were before the last election".The Budget offered some small tax breaks for investment, but those reductions are hugely outweighed by the increased cost of doing business under Labour: stealth taxes, regulation and red tape. It is no wonder that the Federation of Small Businesses has denounced the changes, stating:the real entrepreneurs and risk takers—the sole traders—will miss out on the corporation tax changes, but will be hit by increases to national insurance contributions".On top of that, we must consider the effect of the swingeing 11 per cent. increase in diesel tax. No one heard the Chancellor announce that increase, which is hitting hauliers throughout the country and leading to a flood of people saying that they will leave. The words, "11 per cent." did not pass his lips, but that is what the price of diesel is going up by and that is why jobs will go. Even some of the right hon. Gentleman's hon. Friends are now pointing out the damage that is being done to serious British businesses. Business is being driven offshore by a Chancellor who does not care.
Perhaps the most discreditable part of the Government's policy has been their record on savings. Given the attack on pension funds and on dividend tax credits for the poorest pensioners and the abolition of tax-exempt special savings accounts and personal equity 802 plans—to be replaced by measures introduced by the former Paymaster General as his swan song—it is not surprising that the savings ratio has plummeted by nearly a third.
The Budget has made things worse. By committing himself to increasing the minimum income for pensioners in line with earnings, the Chancellor will increase dependency and discourage savings. People who save hard throughout their lives in an effort to remain independent of the state might as well not have bothered. It is not surprising that the right hon. Member for Birkenhead (Mr. Field) has borne that out and that the response of the savings industry to the Budget has also been scathing.
What did the Budget say about the economy? We have the first official confirmation that manufacturing will be in recession next year. The Treasury now expects a fall in manufacturing output. If the Government had listened to what they were being told earlier and stopped heaping on the damage, the higher taxes and the extra regulation, that recession might have been avoided, but it is too late now, as the Treasury has finally admitted. That means thousands more lost jobs. We read today that job prospects are at their bleakest for a long time.
The Chancellor's forecasts for growth are wildly unrealistic—[Interruption.]
§ The Chief Secretary to the Treasury (Mr. Alan Milburn)
I have rarely seen a senior politician in a debate as important as this refuse to give way to hon. Members on both sides of the House. It makes me wonder what the shadow Chancellor has to hide.
We have had an important debate over the past few days. Last Tuesday, the Chancellor delivered a Budget that will deliver an enterprise economy and 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.
§ Mr. Ian Bruce (South Dorset)
I am grateful to the right hon. Gentleman. Can he solve a problem and admit to everyone that the Budget has brought in £7.1 billion in extra taxes? At least we would have some honesty from him.
§ Mr. Milburn
Perhaps the shadow Chancellor was right not to give way. As usual, the hon. Gentleman is wrong. The Budget cuts taxes by £4 billion.
§ Mr. Ruffley
I am most grateful to the Chief Secretary. Can he explain why table B9 of the Red Book clearly demonstrates that the tax burden will be higher in the last year of this Parliament than in the first year?
§ Mr. Milburn
The tax burden will fall next year and will continue to be broadly flat over the remainder of this Parliament. More important, it is lower than the Tories had planned for if they had been in government.
803 Our approach to tax is symbolised by the two new low starting rates of taxes introduced in this Budget. There is a new 10p starting rate of corporation tax to help companies create the wealth to sustain the investment to create the jobs that a fair society needs. There is also a new 10p rate of income tax to help people move from welfare to work, to harness their potential to stimulate the productive economy that our country demands.
These are Budget measures to create wealth and opportunity, as my hon. Friends the Members for St. Helens, South (Mr. Bermingham) and for Stafford (Mr. Kidney) rightly pointed out. The point was also made by my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon), who welcomed the Budget. He said that it was the first in 30 years, most of them under the Conservatives, that he could wholeheartedly welcome. I am grateful to him for his support. He is in good company, because the Budget has been warmly welcomed by pro-business organisations and anti-poverty groups alike.
I have a word of advice for the Leader of the Opposition and the shadow Chancellor. If they are serious about the Budget, they should practise what they preach and go out and listen to the people of Britain. They should listen to the British Retail Consortium, which said that the Budget wouldgive a tremendous boost to small retailers.They should listen to the Institute of Directors, which welcomed the reductions in company taxes, and to the Child Poverty Action Group, which welcomed the measures to tackle child poverty. It was even welcomed by the chairman of Asda himself, a well known and respected member of the Conservative party and of this House. He would be a fitting person to sit round the kitchen table that the Leader of the Opposition is so concerned about.
Wearing not his politician's hat but his business man's hat on Budget day, what did the hon. Member for Tunbridge Wells (Mr. Norman) have to say?We'd welcome the help for small businesses. I think that's good. We'd welcome the reduction in corporation tax and lower corporation tax for smaller businesses. That's good. As I said, we welcome, particularly in Asda … we're very keen on employee share ownership. I think everyone in the country is dead keen on it, and that's good."Overall," he concluded,not a bad business budget".
§ Mr. Bercow
I am most grateful to the Chief Secretary for giving way on that point. In light of the remarks that he has just quoted, how does he explain the fact that, in a 70-minute Budget speech, a 10-minute statement on enterprise and competition and a 36-minute speech in Wednesday's debate on the Budget, neither the Chancellor nor the Secretary of State for Trade and Industry said anything about the need to reverse the burden of slothful regulation on the industry and commerce of this country? Might it be that they want to impose regulation on the productive businesses of this country?
§ Mr. Milburn
I say to the hon. Gentleman in all candour that if he had been listening on Budget day, as I 804 am sure he was, he would have heard my right hon. Friend the Chancellor announce cuts in taxes on small companies.
This Budget is the product of this Government's sound and prudent economic management—a point that was reinforced only a week ago by the IMF. When we entered office, we inherited a national debt that had doubled, inflation was back in the system and the public finances were spiralling out of control. While the Conservative party is only now owning up to its mistakes, we have been busy putting them right: inflation is under control, unemployment is down and employment up, long-term interest rates are at their lowest for many years and mortgages are cheaper than they have been for thirty years.
The Budget continues to lock in the stability that we are creating by keeping the public finances under control, while at the same time giving a £6 billion boost to the economy at just the right time in the economic cycle. The platform of stability that we are creating allows us to tackle the fundamental problem facing our country—how to raise our productivity performance. Therefore, in the Budget we introduced major reforms for a new, knowledge-based enterprise economy open to all.
There is to be a new research and development tax credit for firms with the brightest ideas and the best potential. There are to be new allowances for smaller businesses to help to bridge the investment gap between Britain and our competitors—just as the right hon. Member for Cities of London and Westminster (Mr. Brooke) called for in his useful contribution. There are to be new rewards for the best entrepreneurs and new incentives for the best inventors. Finally, as my hon. Friend the Member for Chorley (Mr. Hoyle) emphasised, there are to be new company tax cuts that will help two in three of all firms that pay corporation tax. The right hon. Member for Fylde (Mr. Jack) said that that measure would help only companies making profits of up to £10,000 a year, but he was wrong; it will help two in three of all companies paying corporation tax—those earning up to £50,000 a year in profits.
§ Mr. Milburn
This Government have already created the lowest company taxes of any major country in Europe. When, on Tuesday, my right hon. Friend the Chancellor said that we are now to give small British firms the lowest starting rate of company tax of any major industrialised country in the world, I swear I could almost hear the blood draining from the faces of the Conservatives, especially the Leader of the Opposition. The new 10p corporation tax will leave more money in the hands of those who are best placed to create wealth and jobs.
§ Mr. Milburn
Because of our prudent approach, there will be more money for our essential public services. Next month, an extra—
§ Mr. Bercow
May I ask for your guidance, Madam Speaker? Is it not a matter of the grossest discourtesy for 805 the Chief Secretary—[Interruption.] If the right hon. Gentleman will hear the point, he might be able to offer an intelligible answer. Is it not the grossest discourtesy for the Chief Secretary directly to refer to a right hon. Member, but to fail to take his intervention in response?
§ Madam Speaker
I refer the hon. Gentleman to the response I made a moment ago. He was here, so he knows what I am talking about.
§ Mr. Milburn
Thank you, Madam Speaker. There will be more money than ever before for our public services, but for some, more is never enough. As the hon. Member for Gordon (Mr. Bruce) confirmed, the Liberals will vote against the 22p rate of income tax, because the record £19 billion that we are putting into schools in a month's time is inadequate—this from the party that promised only £2 billion more for education: £4.5 billion less than we will spend each year.
The more Labour delivers, the more the Liberals demand. They have proved once again that they have an insatiable appetite for spending other people's money. If they had their way, the Liberals and the nationalists alike would land the average family with higher tax bills. This Budget cuts taxes for low and middle-income families.
§ Mr. Malcolm Bruce
Will the Chief Secretary confirm that the increase in current spending on health and education across the Parliament will be half the rate it was under the Conservative Government? Is that true or false? If it is true, how does the Chief Secretary think he will solve the problems of health and education?
§ Mr. Milburn
I know that the hon. Gentleman has a reputation for torturing the statistics until they confess, but this is a record investment in our health and education services. There will be £40,000 million more for our hospitals and schools—more than the Liberals promised the British people at the last general election.
This Budget cuts taxes for low and middle-income families, but it does even more than that. The independent Institute for Fiscal Studies says that people in every decile group—from top to bottom—will gain. 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.
This is not just a tax-cutting Budget, but a tax-reforming Budget too. These are tax cuts for a purpose: to reward work, enterprise and families. For years, successive Governments have taken too much tax from those who work hard but are by no means wealthy. Middle-income families who are self-reliant have been penalised for being so. The working poor, who have faced marginal tax rates of up to 100 per cent., have been penalised for moving off benefit. Families, who have seen their tax burden rising for three decades, have been penalised for having children.
This Budget begins to put things right: it will lift people up, not tie them down. It does so, first, by making sure that work pays.
§ Mr. Milburn
No, Madam Speaker. I have given way four times, which is 400 per cent. more than the shadow Chancellor managed.
This Budget makes sure that work pays. The new 10p starting rate will halve the tax bills of 2 million people. Our reforms to national insurance will lift almost 1 million people out of paying any contributions at all. Our pensions tax guarantee will help take 200,000 pensioners out of the tax bracket altogether. Our extension of the new deal to the over-50s will give a new lease on life and hope to thousands who had been written off. From April next year, every basic-rate and top-rate taxpayer will benefit from our 1p reduction in income tax.
Secondly, the Budget will provide most help to those who need it most when they need it most: families who are bringing up children. The new children's tax credit will put more than £400 into the pay packets of families with children. On top of that, there will be record increases in child benefit for all families.
So, as Opposition Members enter a new era of what can best be described as "confessional Conservatism", let me remind them about the extent of their past mistakes. In case they have forgotten, the Conservatives are the party that froze child benefit; we are the party that increases it. The Conservatives were wrong to put value-added tax on fuel and they were wrong when they tried to double it. It is right that we have cut VAT on gas and electricity and it is equally right that we will now help pensioners to cut their winter heating bills too.
This Budget delivers on our manifesto commitments. We said that we would cut VAT on fuel, and we have. We said that we would introduce a 10p starting rate of income tax, and we have. We said that we would give more help for pensioners, and we have. We said that we would make work pay, and we have. We said that we would give more support for families, and we have. By the end of this Parliament, the amount given to every child will have doubled from £11 to £23 and the extra help for pensioners will have increased dramatically. All that is opposed by the Conservative party.
When the Tories criticise the Budget, they do so not because of what we have done but because of what they did. We have kept our tax promises, but they broke theirs. They said in 1979 that they had no plans to increase VAT, but within a year they had doubled it. The Prime Minister said in 1992 that the Tories had no plans to extend VAT, but within a year they had put VAT on people's heating bills. Now they say that they want to put their past mistakes behind them, but by opposing the Budget, they are making new mistakes for the future that would cost the British people dear.
§ Mr. Paul Keetch (Hereford)
I am grateful to the Chief Secretary for giving way. I apologise for missing the first two minutes of his speech, but I did hear him say that he was supporting a Budget for small business and shareholders. What is his message to the British cider industry? The only duty increase is on cider, which will affect jobs in Herefordshire, Worcestershire, Gloucestershire and Somerset. Is he not merely following the Tories' misguided policy? Should he not be supporting a truly English drink?
§ Mr. Milburn
Well, Madam Speaker, the hon. Gentleman was fastest on the draw. The cider industry, like all the industries that will benefit from our cuts in corporation tax, stands to benefit this evening.
The Tories and Liberal Democrats are making mistakes not only for the past but for the future because the mistakes that they will make by opposing the Budget tonight would cost the British people dear. Their actions would cost the British people the new 10p starting rate of tax, which is the lowest in 35 years. They would cost them the new 20p rate of income tax, which is the lowest in 70 years. They would cost them the extra help for families, children and pensioners. They would cost them the extra cash for schools, hospitals, rural transport and the fight against crime.
Already isolated in Europe and determined to be further isolated in Britain, the Tories will tonight set their face against a Budget that is good for our country and good for the people. This Budget debate has staked out the new dividing lines in British politics: the Tories consigned ever more to the margins; the Liberals and the nationalists exposed as the parties of tax and spend; and new Labour confirmed as the party of fairness and enterprise. The Government are delivering on our promises, step by step, building a stronger economy and a fairer society and offering a better deal for all Britain's people.
§ Sir Peter Tapsell
Will the Chief Secretary say whether it is true that the three Budgets of the Labour Government have increased the overall tax take by £40 billion?
§ Question put and agreed to.
That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in
connection with finance; but this Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—
- (a) for zero-rating or exempting a supply, acquisition or importation;
- (b) for refunding an amount of tax;
- (c) for varying any rate at which that tax is at any time chargeable; or
- (d) for any relief, other than a relief which—
- (i) so far as it is applicable to goods, applies to goods of every description, and
- (ii) so far as it is applicable to services, applies to services of every description.
§ MADAM SPEAKER then, pursuant to Standing Order No. 51(3) (Ways and Means Motions), put forthwith the Questions necessary to dispose of the further motions.