§ Question proposed, That the clause stand part of the Bill.
4.30 pm§ Mr. Edward Davey (Kingston and Surbiton)I rise to oppose clause 31, not only because the Liberal Democrats reject the clause, but because we reject the Government's whole strategy on the nation's income tax system. We want to use the debate both to focus on our long campaign for more investment in our schools paid for out of income tax, with which I shall deal later, and to argue that the Government's whole approach to the personal tax system lacks a coherent strategy.
The Government need to go away and think again. They should not be given statutory cover to collect income tax in the coming year unless Ministers produce on Report a new clause or clauses that address three issues. First, they must revisit their policy of never raising the basic rate of income tax. The Government might say that that was an election pledge, but they did not pledge to cut income tax, which they have done, thus depriving our schools, hospitals and public services of much-needed funds. They should reject that policy, not only in the context of funding public services, but in the context of managing the economy—to enable investment to be made at a time when the economy is growing quite strongly.
Secondly, we believe that the Government need to go away and think about how they are adding unnecessary complications to the income tax system. They promised to simplify that system, but they have done the opposite. That lays unnecessary burdens on business and on individuals, especially those who have low incomes, who are least able to understand the complexities of the system and least able to afford professional advisers to help them to fill in their tax return.
Thirdly, we believe that Ministers must design the income tax system to help to produce a fairer society. The l0p tax rate set out in the clause is a gimmick. Without more serious reform of the tax system, at the bottom and at the top end of the scale, we shall not produce the sort of social justice that Labour talks about, but has done far too little to bring about. So, there are three major charges of failure in the approach to the income tax system that the clause fails to put right.
I shall start with the charge that the Government are obsessed—in the way that the Conservatives were—with cutting the basic rate of income tax. There are three reasons why Liberal Democrats oppose the cut proposed in the clause. The first is our belief that more resources should be made available to schools.
168 The Government's record on investment in education is very poor. They promised—this was a pledge in their election manifesto—that
Education will be our number one priority, and we will increase the share of national income spent on education as we decrease it on the bills of economic and social failure.However, assuming a spring or early summer election in 2001, the amount spent on education as a proportion of national income will have fallen by the end of this Parliament. On current projections, that spending will be 4.6 per cent. of gross domestic product compared with 4.7 per cent. in the last year under the Tories and 5 per cent. for the whole of the previous Parliament. How can the Government claim to be delivering on their education pledges when there will be a reduction in the amount that they have made available?The Government claim that they are providing a huge largesse of £19 billion in the first comprehensive spending review, but when one looks at that figure and takes account of inflation and of double and triple counting, one finds that the figure falls to a mere £6.1 billion. When one strips out the permissions to spend, which are not real resources provided by central Government, the figure falls to just £3 billion. That is not sufficient. It is outrageous for a Government who say that education is at the top of their agenda to be spending more in the coming financial year on income tax cuts than on extra resources for our schools.
I have visited primary and secondary schools since the Budget asking how they look on the extra cheque that they have received from the Secretary of State for Education and Employment. Of course they welcome any extra funding—who would not?—but that money is filling the deficits that they have run up. It is not providing any new resources such as more books and teachers. That is not the sort of investment that people expected the Government to provide. It is no wonder that class sizes are going up.
The Government talk about reductions in class sizes for five to seven-year-olds, but the average class size in secondary schools is now higher than at any time in the past 20 years—failing education. We find that schools are having problems recruiting teachers and that the number of teacher vacancies has risen by 15 per cent. since last year-47 per cent. higher than in 1997. Are the Government happy with that? Why are they not putting resources into that key area?
In a survey by The Times Educational Supplement in January, seven out of 10 parents said that they were prepared to see income tax increase in order to fund improvements in schools. The people—the electorate—are saying to the Government that they have their priorities wrong in putting income tax cuts above the future of our children.
The second reason why we are against the income tax cut in the clause is that it constitutes irresponsible economic management. On Budget day and in the Red Book, the Chancellor tried to pretend that he was not giving so much to public services and that there was not any extra money. He was trying to massage the figures so that they appeared lower by making them opaque. Although an extra £9 billion-worth of public spending is planned not for this coming financial year, but for the year after, the Chancellor was not happy to announce it. Why? The real reason why he was not prepared to sing the 169 praises of the ability to find that extra money—we believe that it was an achievement—is that he was worried about how the markets would react to greater public expenditure.
The markets are of course right to be worried about a loosening of fiscal policy represented by public expenditure increases that are not covered by taxation. That is why income tax plays a crucial role in managing the economy. If, as we believe, vital investments are needed in our schools, colleges and universities, and if that is constrained by the markets' perception of the management of the economy—the fear that fiscal policy is becoming too loose—it is surely right not to cut income tax in such an economic climate. One must ensure that the extra expenditure to be directed into our schools will be covered by taxation. It is a political and economic choice, which the Government are failing to make.
The third reason why we are against the income tax cut is that we believe that the Government are being dishonest about taxation. In fact, they have raised the tax burden substantially in this Parliament, but it is pointless to look for changes in the personal tax system to see where that increase has occurred. There has been no open, honest, up-front approach to raising taxes. The Government have found 101 wheezes, through indirect and corporation taxes, to hide the increases in the tax burden. That is plain dishonest.
The Government ought to be making the political case for extra investment in our public services. They should not rely on stealth taxes, as the Conservatives are right, in part, to criticise the Government for doing. We believe that that devalues the vocabulary of politics, and that the Government should be more honest and use the income tax system to achieve their objective.
§ Mr. Nigel Beard (Bexleyheath and Crayford)I thank the hon. Gentleman for giving way. He says that more tax should be raised for public services. How much more? The Liberal Democrats always make the case for raising expenditure, but what is the limit? It seems to be an indefinite amount.
§ Mr. DaveyThe hon. Gentleman seems not to have seen the alternative Budgets that we publish every year. They set out our public expenditure plans in detail, covered by taxation. Of course, there is a limit on the amount of tax that can be taken from our electors.
§ Mr. DaveyWe published our alternative Budget this year, in which we stated that we would not go ahead with the 1p cut that is the subject of the clause, and that we would direct the resources into education, which would have meant up to £3 billion more going into education than the hon. Gentleman's Government are putting into our schools, colleges and universities. He should come over to our point of view, if he believes that education should be the top priority.
170 The second reason why we oppose the Government's income tax strategy is that they are making the system far too complicated. The complexity that they are introducing has a real cost. In the business sector, the compliance costs are going sky-high, particularly for small businesses. In the personal income tax system, the costs, which are more difficult to measure, are high on individuals.
It appears from the clause that the income tax system is not particularly complicated. Three income tax rates are set out, which look relatively simple. However, when one takes into account the various income tax changes that the Government are making, one finds that there are six effective direct tax rates in the tax system. There is a 10 per cent. effective tax rate, a 20 per cent. rate, a 33 per cent. rate, a 23 per cent. rate, a 46.66 per cent. effective tax rate and a 40 per cent. tax rate.
§ Mr. John Burnett (Torridge and West Devon)Let us not start on capital gains tax.
§ Mr. DaveyMy hon. Friend is wise to say that, as the rates are even more complicated. Just in terms of income tax, the Government have made the tax system far too complicated. Many people—small businesses, representatives of pensioner groups, the various tax professional bodies—are perturbed by what is going on. They see the tax system as an asset of this country, and realise that it needs to be managed carefully. By making it more complicated, one reduces and devalues the asset. In an era of self-assessment, when we should be moving in the opposite direction, the Government are making a huge error by complicating the tax system.
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First, the Government should reduce the number of rates. They could start by cutting the 10p rate to 0 per cent., paying for it with a higher rate on incomes above £100,000. People on those higher incomes can afford the professional advisers to assist them in filling out the forms, but pensioners and others on lower incomes cannot. If the Government want complexity, better that it should be at the higher than at the lower end. That would mean that we could simplify the Finance Bill by doing away with clause 32, which introduces a l0p rate on income from savings.
The Government could also look again at a proposal that I made during the Report stage of last year's Finance Bill to help pensioners with no income tax liability who, under current legislation, are required to fill out self-assessment forms. Thousands of pensioners who are not liable to income tax have to worry about tax returns and the Government have to pay for the bureaucracy. It is ludicrous that the Government should be making the tax system more complicated.
The Government should also push ahead with some of the reforms contained in the Taylor report which the Government rightly commissioned in their first year in office. That report considers how to integrate national insurance contributions with the income tax system. However, the Government have implemented only some of the reforms suggested by Mr. Taylor and his colleagues.
§ Mr. John Bercow (Buckingham)The hon. Gentleman is right to inveigh against the Government for the tax 171 system's increased complexity, but I hope that he will not use that as a cloak to advocate higher income and other tax rates, given that the Liberal Democrats' notion that a 1p increase in the basic rate of income tax as the means by which to finance all their spending commitments has been comprehensively discredited. By how much does the hon. Gentleman believe that the top rate should be raised, and what overall increase does he propose in the already burdensome level of business taxation?
§ Mr. DaveyI am rather surprised by the hon. Gentleman's intervention. He usually follows what is said with great care and does his homework with respect to other party's policies, but in this case he has failed to do so. I just mentioned that we advocated a 50 per cent. rate on incomes above £100,000, and I told the hon. Member for Bexleyheath and Crayford (Mr. Beard) that, before the Chancellor's Budget, we published an alternative budget detailing all our tax proposals. The hon. Gentleman should pay more attention.
If the Government want to tackle the problems of complexity, they should consider some of the proposals from bodies such as the Institute of Chartered Accountants, which asks that some principles should underlie the direction of income tax and personal tax policy more generally. Its recent document contains 10 tenets and argues for a code of fiscal simplicity, perhaps to go alongside the Government's welcome code for fiscal stability, setting some real objectives to ensure that, year on year, the overall tax system is made more comprehensible for the ordinary personal taxpayer and the compliance costs for the personal sector are reduced.
§ Mr. BurnettLiberal Democrats will doubtless praise parts of the Finance Bill. On the whole, we are pleased to see the advent of the tonnage tax. But is my hon. Friend surprised that the Finance Bill has 44 pages on the introduction of the tonnage tax?
§ Mr. DaveyMy hon. Friend makes a good point. We debated that matter at some length on Second Reading. The Bill is littered with extra complexities. My point on clause 31 is that the Government are not reducing the complexity of the income tax system. They promised simplicity, but they have failed to deliver that.
I shall outline my final reason for our opposition to the clause. The Government have argued long and hard, before and after the general election, that they believe in social justice. They argue that their reforms of the tax and social security systems are meant to promote social justice. Yet clause 31 provides for a tax cut, which will benefit the richest 20 per cent. of our population fifty times more than the poorest 20 per cent.
A 1p cut in income tax gives far more to the wealthiest in our society. Perhaps it would be more acceptable if the Government had accompanied it with some sort of package to help the poorest pensioners and those who are less well off. However, the cut is accompanied by an increase of 75p a week in the basic state pension. It is therefore not surprising that pensioners throughout the country are incredibly dissatisfied with the Government. They do not believe that the Government are fulfilling the promises that they made to pensioners at the last election.
§ Mr. Bill Rammell (Harlow)To clarify matters, will the hon. Gentleman remind us of the Liberal Democrat 172 commitment in the party's general election manifesto on raising the basic pension? Was not it to increase the basic pension in line with prices—that is, by 75p a week?
§ Mr. DaveyAgain, I am surprised that hon. Members have not read our most recent publication, which is our alternative Budget. The proposals in the current Finance Bill were not in the Labour party's manifesto; all our current proposals did not appear in our manifesto. Time moves on. I am more than happy to take on the hon. Member for Harlow (Mr. Rammell) about that subject. Liberal Democrat Members and our colleagues on these Benches are determined to push the case for pensioners and for an increase in the basic state pension that is far greater than a measly 75p a week. Large increases should be made in the pensions of the most elderly people, the over-75s and the over-80s. We should target resources at the most elderly people, who need our support.
§ Mr. RammellWill the hon. Gentleman give way on that point?
§ Mr. DaveyNo, I shall not. Let us consider the wider community. The Government claim that the lop tax rate, which the clause reaffirms, somehow helps the lowest paid. Yet every independent commentator, from the Institute for Fiscal Studies to the Institute of Chartered Accountants, can readily show anyone who is able to do basic arithmetic that cutting the 10p rate to 0 per cent. and setting a larger personal income tax allowance directs far more resources at the lowest paid.
Again, the Government make a political mistake. They take the rhetoric of the Conservative party and play a political game with our income tax system. If they were more interested in social justice, they would focus resources, not rhetoric, on the lowest paid.
§ Mr. BercowDespite the hon. Gentleman's rude remarks about me, I always enjoy listening to his speeches. A few moments ago, he said that relatively well-off wage earners had access and a desire to use accountants' services to minimise their tax burden. What assessment has he made of the likely use of those accounting services as a result of the proposed introduction of his 50 per cent. top rate, which would damage the tax take? While he deals with that point, will he confirm that because he believes that any cut in the basic rate of tax always disproportionately benefits higher wage earners, regardless of the basic rate of tax, he would always oppose any reduction in it?
§ Mr. DaveyIt has never been the Liberal Democrats' position to oppose any reduction in income tax. The key issue that we must debate as politicians is the balance between tax and expenditure and whether we believe that the people we represent have the services that they want. If the hon. Gentleman asked his constituents who use the health service and the state education system, and have to rely on the police services and the emergency services whether they were satisfied with public services, the answer would probably be no.
We need to invest in the public services to achieve the quality that exists in some of our continental neighbour countries and other parts of the western world. There is appalling underinvestment in some of our public services. Public servants are trying their very best to provide 173 quality services and, because the previous Conservative Administration and the Government have failed to make that investment, my party favours putting investment ahead of tax cuts.
§ Mr. BercowRaising taxes.
§ Mr. DaveyWe would not proceed with the cut from 23 to 22 per cent. under the clause. I do not think that I could make that clearer for the hon. Gentleman. He also mentioned the accountancy profession. It advocates some of our policies, which would make the tax system far simpler. If they could be implemented, the relatively few taxpayers who would have to face the 50p rate that we propose would not present a problem.
Liberal Democrats reject the clause. We ask the Government to reconsider their income tax strategy and introduce proposals that would deal with the issues that we have discussed this evening: the need to ensure that investment in public services is put ahead of tax cuts; the need to make our tax system more comprehensible, simple and easy to use for the average citizen in an age of self-assessment; and to produce an income tax system that promotes social justice.
§ Mr. Andrew Welsh (Angus)I agree with much of what the hon. Member for Kingston and Surbiton (Mr. Davey) says on a better general approach to fairer taxation and a proper rate of public investment. The debate is about three issues: the Government's approach to taxation and our tax structure in general, the proposed income tax rates and the balance between tax rates and public spending.
On the tax structure, there is little doubt that there has been a shift towards indirect taxation by the Government. According to research from the Institute for Fiscal Studies, more than 40 per cent. of the changes in the Chancellor's previous Budgets were made to indirect taxation. As hon. Members will know, indirect taxation is regressive; it hits those on lower incomes disproportionately harder. What the Chancellor gives with one hand—for example, the welcome increase in child benefit—he takes away with the other in indirect taxes.
The Government should pay particular heed to another element of the IFS report, which showed that changes in indirect taxation have had the most pronounced effect on those in lower income groups. The lowest income decile has lost almost 2.5 per cent. of its net income, compared with a 0.7 per cent. reduction for those in the highest income group.
The Scottish National party asks the Chancellor to consider reversing the trend of holding a Dutch auction on income tax funded by stealth tax hikes towards making the tax structure fairer and more transparent. The SNP recognises the need for a clear strategic shift of the tax burden from indirect to direct taxation methods. Such a review is necessary to consider new ways in which to promote transparency, accountability and simplicity in the tax system.
The Bill continues a dishonest tax policy, which was largely introduced by the Conservative party, but, like so much else, is now enthusiastically embraced by new Labour. The Government are trying to deceive taxpayers with a 1p cut in the basic rate of income tax on one hand and billions of pounds of invisible, indirect taxes on the 174 other. However, I am happy to report that recent by-election results show that, in Scotland at least, the voters are becoming wise to that trick. In Hamilton and Ayr, they made it clear that the time has come for Labour to start delivering its election promises and that they are frustrated by the Government's failure adequately to address the core issues—health, education and poverty. The message, which I pass on to the Government, is that spin is not enough; substance is required.
The people of Scotland are making it clear that their priorities are for new resources for our public services, which have suffered from more than 20 years of under-investment. We in the SNP have nailed our colours firmly to the mast of fair taxes and real investment in vital public services. Today, I simply repeat our opposition to the needless cut in the basic rate of income tax proposed in the clause.
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Our public services are still in need of substantial investment, and, although the spending increases announced in the Budget were welcomed by the SNP, they are insufficient to deal effectively with the significant problems affecting our crumbling schools, hospitals and infrastructure. The additional spending must be seen against a backdrop of spending cuts in the first three years of this Labour Government.
Health spending in Scotland is due to increase by £173 million next year, but let me put that in context. Scottish hospitals are expected to be £50 million in deficit by the end of the current financial year, and nearly all trusts are expected to miss their waiting-list targets for this year. The Government's higher-than-inflation pay rises must be found from already stretched NHS budgets at a cost of some £449 million a year, which means that the additional money will just about allow the health service in Scotland to stand still, never mind move forward and provide improved services. In fact, it was reported today that Scotland's only heart transplant unit may be forced to close.
According to the Secretary of State for Scotland, Scotland will receive £86.6 million of the additional £1 billion announced for education next year. That should be seen in the context of the cuts that Labour has imposed at local authority level. Next year, local authority education funding will be £540 million lower than it was even in the last year of the Conservative Government. All that stems from the Government's taxation philosophy, and the policies that they are imposing. Any increases in education spending will be swallowed by cuts already imposed on our schools.
A total of £15.9 million is being allocated to Scotland's transport. That, too, must be seen against a backdrop of cuts in the transport budget, which next year will have £100 million less than it had in the last year of the Conservative Government. Scotland's road infrastructure clearly needs more investment. For example, full implementation of the strategic roads review in Scotland would cost £800 million a year, and the much-needed rail link between the Scottish borders and Edinburgh would cost £30 million.
In short, this is not a time for tax cuts. Spending in Scotland as a percentage of gross domestic product is even lower than when the Conservatives were in government. That is not what those who voted Labour in 175 Scotland expected, but that is what has been delivered. Our pensioners must make do with a pathetic 75p increase in state pensions, and local authority budgets are being slashed year after year. The Government are pursuing a Tory tax-cutting agenda, at the expense of our nation's public services.
What is required is a longer-term strategy much more suited to Scotland's actual needs, and built on a fairer, more open, accountable tax system—something that this new Labour Government, and the Budget in particular, do not deliver. There will be a cost to the Labour party in future years.
§ Mr. Richard Ottaway (Croydon, South)There could be no clearer contrast between the approaches of the Scottish National party and of the Liberal Democrats. Although I did not agree with a word of what was said by the hon. Member for Angus (Mr. Welsh), at least I was clear about what he stood for. However, when the hon. Member for Kingston and Surbiton (Mr. Davey) was asked what I considered a perfectly clear question—how much more would the Liberal Democrats like to be done in terms of public expenditure and taxation?—we were given no clear answer. The hon. Gentleman said repeatedly that we should know about that, because it was in Liberal Democrat manifestos and other publications. I must confess that I have never seen a Liberal Democrat Budget proposal, a Liberal Democrat manifesto or a Liberal Democrat policy document. Perhaps the Liberal Democrats will include me in their distribution lists in future, so that I have some idea of what they are talking about.
§ Mr. Edward DaveyThe Liberal Democrats publish their alternative Budgets at press conferences, which are often attended by a gentleman from Conservative central office. Can the hon. Gentleman tell us when, during the present Parliament, the Conservative party has published its tax and spending proposals as the Liberal Democrats have, and what spending cuts the Conservatives propose to meet their tax guarantee?
§ Mr. OttawayWe have not published a tax and spending programme. We will do so before the next election, but one thing is for sure: we will campaign on a tax-cutting agenda because, if a party has the will and commitment to cut taxes, it can do so. That is what will differentiate the Conservative party from the other three parties that are represented here today.
§ Mr. DaveyWhich of the public expenditures will the Conservative party cut to pay for those tax cuts?
§ Mr. OttawayFirst, I do not accept that we have to cut spending to cut tax. Secondly, we will let the hon. Gentleman know in due course and with absolute clarity exactly what our plans are. He said that the Conservative party was obsessed with tax cuts. Frankly, it is a worthy objective to reduce taxation.
§ Mr. BeardWhy is tax cutting such a worthy objective if it puts in jeopardy the national health service and state education for the coming generations?
§ Mr. OttawayI do not accept that we have to reduce expenditure on the health and education services to cut 176 taxes. It is a worthy objective because Britain lives in a competitive world and, as we will find out in the next debate on IR35, it is Britain's competitive position that creates the prosperity that pays for the health service and education.
§ Mr. BeardWhen the hon. Gentleman's party was in government, it pursued an economic policy of competing internationally on the lowest costs. The present Government's policy is to compete through high added value and a highly skilled population, which demands high spending on education.
§ Mr. OttawayI do not quarrel with that, but I do quarrel with the hon. Gentleman's assumption that the previous Government worked on the lowest possible cost. That is not true and he does not have the evidence to prove it.
Basically, at heart, those who oppose the clause want the Government to tax more and to spend more. That is the clear position of both parties. The hon. Member for Angus accused the Government of engaging in a Tory tax-cutting agenda. Nothing could be further from the truth.
The Committee would benefit from examples of tax-raising measures since May 1997. In the July 1997 Budget, mortgage tax relief was restricted to 10 per cent., stamp duty was increased for property transactions of more than £250,000 and payable tax credits on dividends were abolished. It introduced the windfall tax, abolished relief for private health insurance for the over-60s, increased road fuel duties by 6 per cent. in real terms, and tobacco duties by 5 per cent. in real terms.
The 1998 Budget abolished advance corporation tax and introduced the quarterly payment of corporation tax, restricted the married couple's allowance to 10 per cent. from April 1999, increased stamp duty again for property transactions of more than £250,000, increased tobacco duties by 5 per cent., and road fuel duties by 6 per cent. and advanced the date of the road fuel duty increases.
The 1999 Budget abolished the married couple's allowance for the under-65s from April 2000, abolished mortgage tax relief, increased insurance premium tax from 4 to 5 per cent., increased stamp duty for property transactions of more than £250,000, increased tobacco duties by 5 per cent., and road fuel duties by 6 per cent. It advanced the date of the tobacco and fuel duty increases, extended employers' national insurance contributions to all taxable benefits in kind from April 2000 and increased company car taxation.
This year's Budget increased tobacco duties by 5 per cent. in real terms, increased stamp duty on property transactions over £250,000, introduced the aggregates tax from April 2002 and increased tax on wine by more than the rate of inflation. There have been no fewer than 26 tax increases since the 1997 general election, so the next time that Labour Members start hollering about 22 tax increases—most of which are fabrications—under the previous Government, I suggest that they take a close look at my list and the 26 tax increases over the past three years.
§ Mr. Geraint Davies (Croydon, Central)Will the hon. Gentleman give way?
§ Mr. OttawayNo—[Interruption.] I did not catch what the hon. Gentleman said.
§ Mr. DaviesI thought as much.
The Second Deputy ChairmanOrder. The hon. Member for Croydon, Central (Mr. Davies) has only just entered the Chamber. I remind the hon. Member for Croydon, South (Mr. Ottaway), who has just given us a long list of different kinds of tax, that the debate is specifically about income tax.
§ Mr. OttawayI am pointing out that the Government can reduce income tax by 1 per cent. only because they have imposed 26 other tax increases. I did not give way to the hon. Member for Croydon, Central (Mr. Davies) first, because he has only just entered the Chamber and secondly, because every time I have given way to him, what he has said has been total and absolute rubbish, so it is not worth giving way to him.
§ Mr. DaviesYou are a small man.
§ Mr. OttawayI am a bigger man than you.
The Second Deputy ChairmanOrder. Perhaps we might continue in a slightly more sensible way and address the important matter before the Committee.
§ Mr. OttawayOf course I bow to your wishes, Mr. Lord.
The list of taxes that I have just read out provides transparency in respect of the 1 per cent. reduction in income tax. The Liberal Democrats and the SNP have got what they wanted. They have got tax increases and increased expenditure, so it is nonsense for them to oppose the clause. For the same reason, we shall not oppose it tonight.
§ The Paymaster General (Dawn Primarolo)In responding to this brief debate, let me turn first to the comments of the hon. Member for Kingston and Surbiton (Mr. Davey). I was not surprised that the hon. Gentleman does not agree with the Government as, presumably, if he did agree with us, he would be on the Government side of the Chamber, changing things, instead of sitting on the Opposition side of the Chamber, dreaming of irrelevancies.
The hon. Gentleman went on about complexity and fairness, so I would remind him of a few points. He talked about complexity causing problems with the system and about self-assessment. Only 9 million out of 28 million taxpayers pay through the self-assessment system. He was not suggesting that everybody should complete a self-assessment form and he recognises that most people do not. He then complained about the complexity of the system and proposed that we should introduce a 50p rate of tax for income over £100,000 and that that would fund a zero-rated band rather than the 10 per cent. band in the clause.
The Liberal Democrats and the hon. Gentleman who spoke on their behalf cannot complain about complexity and say that the tax system confuses people and then make such a proposal. It is difficult to see how a new rate of tax in addition to a personal allowance would make the system easier to understand.
The hon. Gentleman then said that, if the 1p reduction were part of a package of measures in respect of fairness and help to the low-paid, perhaps the Liberal Democrats would take a different view. I shall return to that point.
178 The hon. Gentleman also said that the system should be fairer for pensioners. As I think that he will know, four out of 10 pensioners are able to pay tax. I think that he will also agree at least on the point that the Government should focus first on the poorest households. The Government's measures are dealing with precisely that point.
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The hon. Gentleman then prayed in aid 10 points on simplification of the tax system, and discussed whether we should have tax exemption certificates particularly for pensioners. We have considered carefully both that idea and the points that have been made. We have also acted on many of those points. However, I do not know how a tax exemption certificate could offer more than is already available. Pensioners who do not have to pay tax on their gross income are already able, when registering a savings account, to receive interest gross. Exemption certificates would seem to require such pensioners not only to have to apply for an exemption, but to supply more information. How would that make the tax system simpler? How would it remove complexity?
I also remind the hon. Gentleman that the changes that the Government introduced in July 1999—taking precisely the type of action that he and other people have advocated—removed 200,000 pensioners from self-assessment.
§ Mr. Edward DaveyCan the Minister tell the Committee how many pensioners who are not liable for income tax are still being required to fill out income tax self-assessment forms?
§ Dawn PrimaroloI do not have that precise figure to hand. I am sure the hon. Gentleman did not really expect me to have it, but was simply making a debating point. Although I think that he will find that that information is available, I shall, nevertheless, in the tradition of the House, ensure that he receives it, if he does not already have it.
The hon. Gentleman then said that we need a strategy to help those who are in the lower-income bracket. However, the Government's proposals are part of a package aimed at achieving precisely that objective. The package includes the working families tax credit—which Liberal Democrat Members have opposed and voted against every time the House has considered it—the national minimum wage, and the national insurance reforms.
Additionally, the Government are examining precisely how best to tackle the issue of child poverty. Hence—as will be debated later today—we are introducing the children's tax credit; from next month, increasing the working families tax credit child rate; and developing the new integrated child credit. As the hon. Gentleman will know, because of the changes made in the Government's Budgets to date, by April 2001, 1.2 million children will have been lifted out of poverty.
The hon. Gentleman is therefore trying to focus on a tiny piece of the Government's strategy, simply to repeat Liberal Democrat Members' usual mantra, "Give us 1p."
Then, the hon. Gentleman and the hon. Member for Angus (Mr. Welsh)—whom I shall deal with later, in relation to health and education in Scotland—suggested 179 that the Government's taxation policy is regressive. The suggestion is ridiculous. Because of our policies, a single-earner family on average earnings with two children will be £2,600 per year better off. A family with one full-time worker will be guaranteed an income of £214 per week—which is more than £11,000 per year. Introduction of the 10p band will halve the marginal tax rate of 2.7 million people who are on low incomes. Moreover, as I said, our measures will lift 1.2 million children out of poverty.
The hon. Member for Kingston and Surbiton then said that it would be better to increase the personal allowance than to introduce the 10p rate. That demonstrates yet again the total confusion of the Liberal Democrats—they tell us that we must not give too much to those on higher incomes, while advancing a policy that would do that. In isolation, increasing the personal allowance would give the biggest cash gain to the highest payers, a point which the hon. Gentleman does not accept.
The hon. Member for Angus presented, if he will forgive me for saying so, the economic strategy of the Scottish National party worked out on the back of a fag packet, revealing yet again that the SNP's approach to taxation is to raise tax without considering the basis on which the economy is moving forward. The hon. Gentleman complains that Scotland does not receive its fair share of expenditure. Spending per head in Scotland is some 22 per cent. higher than in England—well above the United Kingdom average. Spending on health is 24 per cent. higher than in England and spending on education is 28 per cent. higher.
The allocation of extra resources is based on the population and the allocation of resources between England, Wales and Scotland. Spending on health in Scotland is £1,197 per head; in England, the figure is £963. Spending on education in Scotland is £840 per head; in England, the figure is £636. So for the SNP to advance the argument that somehow Scotland is getting a bad deal from the Union is typically fanciful and untrue.
§ Mr. WelshWhat is spent per head of population is only one way of measuring public spending. The Minister is continuing an old Tory tradition—Michael Forsyth tried the same game, but when he investigated it further, he found out that, when looked at in the round, spending worked out basically the same.
Under-investment in the health service over decades has led to a massive problem in Scotland. Health trusts are running at a deficit, there are cuts and closures, and local government is again underfunded this year. What the Minister says may sound clever in this Chamber, but it will not sound so clever on the doorsteps when she and her colleagues have to face the electorate who are dealing with the effects of her policies.
§ Dawn PrimaroloI agree with the hon. Gentleman that 18 years of Tory Government left our health, education and public services with massive under-investment. The scale of the task that the Government face in reversing that is truly phenomenal. The economic policies pursued by this Government are turning the tide.
180 The Budget gives an immediate boost of £1 billion to education, and an increase of £2 billion in national health service spending. Health spending is to increase by more than 50 per cent. over the five years from the beginning of the comprehensive spending review, from £45 billion in 1998–99 to £69 billion in 2003–04. if the hon. Gentleman is saying there is still a long way to go, Labour Members agree with him, but, instead of undermining our economic policy, he should be considering its elements and how to ensure investment in public services and economic prosperity.
§ Dawn PrimaroloI am coming to the end of my remarks, and I have dealt with the hon. Gentleman's points, so I hope that he will forgive me for not giving way again. This is supposed to be a debate about clause 31.
The clause imposes income tax for the year 2000–01. It sets the rates for income tax at 10 per cent. for the starting rate, 22 per cent. for the basic rate and 40 per cent. for the higher rate. It implements the commitment of my right hon. Friend the Chancellor in his 1999 Budget to cut the basic rate of income tax by 1p. We have introduced a range of measures to make work pay better and to encourage people into work. We have cut the basic rate, benefiting 24 million taxpayers. The provision implements the measures already in place to help those on low incomes, such as the starting rate for income tax, national insurance, the working families tax credit and the national minimum wage. Cutting the basic rate cuts the marginal tax rate for the majority of employees. The introduction of the 10 per cent. starting rate halves the marginal rate for 2.7 million people.
Of course we are not cutting taxes at the expense of public services, as both the hon. Members for Angus and for Kingston and Surbiton suggested. My right hon. Friend the Chancellor announced in his Budget the largest-ever increase in national health service resources. We are providing for a 35 per cent. real-terms increase in national health service spending over the five years from the beginning of the first comprehensive spending review, including the additional £2 billion for this year. On top of all of that, this Government are spending £7 billion per year extra on support for children—to lift children out of poverty by 2001.
This is a Government who keep their promises, who have an economic strategy, and who can balance economic fairness, growth in prosperity and investment in public services. This is a Government who cannot be challenged on those points by Opposition Members. I commend the clause to the Committee.
§ Question put, That the clause stand part of the Bill:—
§ The Committee divided: Ayes 267 Noes 26.
182| Division No. 176] | [5.26 pm |
| AYES | |
| Adams, Mrs Irene (Paisley N) | Barnes, Harry |
| Ainger, Nick | Bayley, Hugh |
| Ainsworth, Robert (Cov'try NE) | Beard, Nigel |
| Alexander, Douglas | Beckett, Rt Hon Mrs Margaret |
| Allen, Graham | Bell, Martin (Tatton) |
| Anderson, Donald (Swansea E) | Benn, Hilary (Leeds C) |
| Atherton, Ms Candy | Benn, Rt Hon Tony (Chesterfield) |
| Austin, John | Bennett, Andrew F |
| Benton, Joe | Gardiner, Barry |
| Bermingham, Gerald | George, Bruce (Walsall S) |
| Berry, Roger | Gerrard, Neil |
| Best, Harold | Gibson, Dr Ian |
| Blackman, Liz | Godman, Dr Norman A |
| Blair, Rt Hon Tony | Godsiff, Roger |
| Blears, Ms Hazel | Goggins, Paul |
| Blunkett, Rt Hon David | Golding, Mrs Llin |
| Borrow, David | Gordon, Mrs Eileen |
| Bradley, Keith (Withington) | Griffiths, Nigel (Edinburgh S) |
| Bradshaw, Ben | Grocott, Bruce |
| Brinton, Mrs Helen | Grogan, John |
| Brown, Rt Hon Gordon (Dunfermline E) | Gunnell, John |
| Hamilton, Fabian (Leeds NE) | |
| Brown, Rt Hon Nick (Newcastle E) | Hanson, David |
| Brown, Russell (Dumfries) | Harman, Rt Hon Ms Harriet |
| Browne, Desmond | Heal, Mrs Sylvia |
| Butler, Mrs Christine | Healey, John |
| Byers, Rt Hon Stephen | Henderson, Ivan (Harwich) |
| Campbell, Mrs Anne (C'bridge) | Hepburn, Stephen |
| Campbell, Ronnie (Blyth V) | Hill, Keith |
| Campbell-Savours, Dale | Hinchliffe, David |
| Cann, Jamie | Hodge, Ms Margaret |
| Caplin, Ivor | Hood, Jimmy |
| Caton, Martin | Hoon, Rt Hon Geoffrey |
| Cawsey, Ian | Hope, Phil |
| Chaytor, David | Howells, Dr Kim |
| Clapham, Michael | Humble, Mrs Joan |
| Clark, Rt Hon Dr David (S Shields) | Hurst, Alan |
| Clark, Dr Lynda (Edinburgh Pentlands) | Hutton, John |
| Iddon, Dr Brian | |
| Clarke, Eric (Midlothian) | Jackson, Ms Glenda (Hampstead) |
| Clarke, Rt Hon Tom (Coatbridge) | Johnson, Alan (Hull W & Hessle) |
| Clarke, Tony (Northampton S) | Johnson, Miss Melanie (Welwyn Hatfield) |
| Clelland, David | |
| Clwyd, Ann | Jones, Rt Hon Barry (Alyn) |
| Coaker, Vernon | Jones, Helen (Warrington N) |
| Coffey, Ms Ann | Jones, Ms Jenny (Wolverh'ton SW) |
| Colman, Tony | |
| Connarty, Michael | Jones, Dr Lynne (Selly Oak) |
| Cooper, Yvette | Jowell, Rt Hon Ms Tessa |
| Corbett, Robin | Kaufman, Rt Hon Gerald |
| Corston, Jean | Keen, Alan (Feltham & Heston) |
| Cranston, Ross | Kelly, Ms Ruth |
| Crausby, David | Kemp, Fraser |
| Cryer, Mrs Ann (Keighley) | Khabra, Piara S |
| Cryer, John (Hornchurch) | Kilfoyle, Peter |
| Cummings, John | King, Ms Oona (Bethnal Green) |
| Cunningham, Jim (Cov'try S) | Ladyman, Dr Stephen |
| Dalyell, Tam | Lawrence, Mrs Jackie |
| Darling, Rt Hon Alistair | Lepper, David |
| Davey, Valerie (Bristol W) | Levitt, Tom |
| Davidson, Ian | Lewis, Ivan (Bury S) |
| Davies, Rt Hon Denzil (Llanelli) | Liddell, Rt Hon Mrs Helen |
| Davies, Geraint (Croydon C) | Lloyd, Tony (Manchester C) |
| Dawson, Hilton | Love, Andrew |
| Dean, Mrs Janet | McAvoy, Thomas |
| Denham, John | McCafferty, Ms Chris |
| Dobbin, Jim | McDonagh, Siobhain |
| Donaldson, Jeffrey | Macdonald, Calum |
| Donohoe, Brian H | McDonnell, John |
| Doran, Frank | McFall, John |
| Dowd, Jim | McGuire, Mrs Anne |
| Drew, David | McIsaac, Shona |
| Dunwoody, Mrs Gwyneth | McKenna, Mrs Rosemary |
| Eagle, Maria (L 'pool Garston) | Mackinlay, Andrew |
| Edwards, Huw | McNamara, Kevin |
| Ellman, Mrs Louise | Mactaggart, Fiona |
| Field, Rt Hon Frank | McWalter, Tony |
| Fisher, Mark | McWilliam, John |
| Fitzpatrick, Jim | Mahon, Mrs Alice |
| Fitzsimons, Lorna | Marsden, Gordon (Blackpool S) |
| Flint, Caroline | Marsden, Paul (Shrewsbury) |
| Flynn, Paul | Marshall, Jim (Leicester S) |
| Foster, Rt Hon Derek | Meacher, Rt Hon Michael |
| Foster, Michael Jabez (Hastings) | Michael, Rt Hon Alun |
| Michie, Bill (Shef'ld Heeley) | Sawford, Phil |
| Milburn, Rt Hon Alan | Sedgemore, Brian |
| Miller, Andrew | Sheerman, Barry |
| Moffatt, Laura | Sheldon, Rt Hon Robert |
| Moonie, Dr Lewis | Simpson, Alan (Nottingham S) |
| Moran, Ms Margaret | Skinner, Dennis |
| Morgan, Ms Julie (Cardiff N) | Smith, Rt Hon Andrew (Oxford E) |
| Morley, Elliot | Smith, Miss Geraldine (Morecambe & Lunesdale) |
| Mullin, Chris | |
| Murphy, Denis (Wansbeck) | Smith, Jacqui (Redditch) |
| Murphy, Jim (Eastwood) | Smith, John (Glamorgan) |
| Naysmith, Dr Doug | Smith, Llew (Blaenau Gwent) |
| Norris, Dan | Snape, Peter |
| O'Brien, Bill (Normanton) | Soley, Clive |
| O'Hara, Eddie | Spellar, John |
| Olner, Bill | Squire, Ms Rachel |
| O'Neill, Martin | Steinberg, Gerry |
| Organ, Mrs Diana | Stevenson, George |
| Osborne, Ms Sandra | Stewart, David (Inverness E) |
| Palmer, Dr Nick | Stewart, Ian (Eccles) |
| Pearson, Ian | Stoate, Dr Howard |
| Perham, Ms Linda | Strang, Rt Hon Dr Gavin |
| Pickthall, Colin | Stuart, Ms Gisela |
| Pike, Peter L | Taylor, Rt Hon Mrs Ann (Dewsbury) |
| Plaskitt, James | Taylor, David (NW Leics) |
| Pollard, Kerry | Temple-Morris, Peter |
| Pond, Chris | Thomas, Gareth (Clwyd W) |
| Pound, Stephen | Tipping, Paddy |
| Powell, Sir Raymond | Todd Mark |
| Prentice, Ms Bridget (Lewisham E) | Touhig, Don |
| Prentice, Gordon (Pendle) | Trickett Jon |
| Prescott, Rt Hon John | Truswell, Paul |
| Primarolo, Dawn | Turner, Dennis (Wolverh'ton SE) |
| Prosser, Gwyn | Turner, Dr Desmond (Kemptown) |
| Purchase, Ken | Turner, Dr George (NW Norfolk) |
| Quin, Rt Hon Ms Joyce | Turner, Neil (Wigan) |
| Radice, Rt Hon Giles | Twigg, Derek (Halton) |
| Rammell, Bill | Tynan, Bill |
| Rapson, Syd | Vis, Dr Rudi |
| Raynsford, Nick | Ward, Ms Claire |
| Reed, Andrew (Loughborough) | Wicks, Malcolm |
| Reid, Rt Hon Dr John (Hamilton N) | Williams, Rt Hon Alan (Swansea W) |
| Robinson, Geoffrey (Cov'try NW) | |
| Robinson, Peter (Belfast E) | Williams, Mrs Betty (Conwy) |
| Roche, Mrs Barbara | Wilson, Brian |
| Rooker, Rt Hon Jeff | Winnick, David |
| Ross, Ernie (Dundee W) | Wood, Mike |
| Rowlands, Ted | Worthington, Tony |
| Roy, Frank | Wray, James |
| Ruane, Chris | Wright, Dr Tony (Cannock) |
| Ruddock, Joan | |
| Ryan, Ms Joan | Tellers for the Ayes: |
| Sarwar, Mohammad | Mr. Kevin Hughes and |
| Savidge, Malcolm | Mr. Mike Hall. |
| NOES | |
| Allan, Richard | Livsey, Richard |
| Ashdown, Rt Hon Paddy | Llwyd, Elfyn |
| Ballard, Jackie | Maclennan, Rt Hon Robert |
| Berth, Rt Hon A J | Michie, Mrs Ray (Argyll & Bute) |
| Brand, Dr Peter | Moore, Michael |
| Breed, Colin | Taylor, Matthew (Truro) |
| Bruce, Malcolm (Gordon) | Tonge, Dr Jenny |
| Burnett, John | Tyler, Paul |
| Burstow, Paul | Webb, Steve |
| Cable, Dr Vincent | Wigley, Rt Hon Dafydd |
| Davey, Edward (Kingston) | Willis, Phil |
| Foster, Don (Bath) | |
| Harvey, Nick | Tellers for the Noes: |
| Keetch, Paul | Sir Robert Smith and |
| Kirkwood, Archy | Mr. Bob Russell. |
§ Question accordingly agreed to.
§ Clause 31 ordered to stand part of the Bill.