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Mr. Jeremy Hanley (Richmond and Barnes) : Will the hon. Gentleman give way?
Mr. Clarke : I said that I would give way once and I have done that. I hope that the hon. Gentleman will catch your eye later, Mr. Deputy Speaker.
Because of the Government's unfair taxation policy and the lack of investment in essential industries, unemployment is growing. I shall talk mainly about the problems in my region of Strathclyde. I do not complain about the fact that the hon. Member for Hertford and Stortford did not refer to Strathclyde, although he might have chosen other examples that showed the poverty among the unemployed, pensioners and single-parent families. The comments the other day of the chairman of the Conservative party about single parents did not sound fair to me.
The disabled and those who earn low pay under the Government also have problems. Many of them, especially
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young people, do not now receive the protection that they had under the wages council system. Because we do not have a fair taxation policy, because social services are not properly supported and because we are hitting at social security, great problems are created for carers, ethnic minorities and young homeless people in Strathclyde and elsewhere. Many young homeless people who leave care cannot find homes or jobs or are earning low wages. It is unacceptable that the Government's taxation policy does not address their problem.I thought that it was right in our debate on taxation to draw the attention of the House to the poverty theory, which has been exposed as a fraud but nevertheless is still perpetrated by the Government. They tell us about the "trickle down" effect. We saw in the recent, devastating report by the Select Committee on Social Services--which the hon. Member for Hertford and Stortford did not mention--that the poorest people are worse off since the 1988 social security reforms. Far from a "trickle down" effect, we have heard of an important statistical error, which was acknowledged a day or two before the Easter recess in a written reply, as though it did not matter. It does matter, because that "statistical error" has had a considerable bearing on the Government's taxation policy and social security policy, in the absence of a strategy to deal with poverty in Strathclyde and elsewhere. In taxation, as elsewhere, the Government ignore the views of not only the Opposition parties but voluntary organisations, churches and others who are at the receiving end, who know what this hardship means, who see poverty as a reality day after day and who rightly object to a "statistical error" being treated in such a flimsy way.
The "statistical error" meant that the poorest 10 per cent., instead of enjoying an increase of 8.4 per cent. compared with an average increase of 4.8 per cent.--according to the Prime Minister and her Ministers--received a miserable 2.6 per cent. compared with 5.4 per cent. for the rest of us. We cannot sweep that under the carpet. Those figures and the Prime Minister's attitude to taxation influenced matters such as child benefit, which has been frozen year after year, and single payments, which have been abolished, the introduction of the notorious social fund and its loans instead of grants, and "cash limits" at local offices which have no regard for the poverty of applicants seeking succour.
Housing benefits were slashed. Hon. Members will know from their surgeries that elderly people and disabled people came to us in tears complaining not only about the Government's taxation policy, but the Government using the taxation system to subsidise the rich and ignore the poverty of the poor. On top of that, there was the poll tax, without reasonable rebates. The hon. Member for Hertford and Stortford is mistaken if he suggests that people did not pay attention to that in local and other elections. The "statistical error" was crucial in terms of poverty. I would have expected to hear about it in the hon. Gentleman's lengthy speech. Imagine what would have happened if a similar error had been made and there had been a miscalculation over mortgage tax relief. That would have been regarded as completely unacceptable.
Although it was perhaps not what Conservative Members intended, the House should take this opportunity to analyse what is happening in society and the reasons why poverty is being allowed to continue. In Strathclyde, 42 per cent. of unemployed people have been unemployed
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for more than a year and 27 per cent. for more than two years. I regret to say that the anti-poverty strategy of my colleagues in Strathclyde regional council, to which Labour was re-elected with an overwhelming majority, is not reflected in any of the Government's priorities. The number of people defined as being in poverty in Strathclyde has doubled in the past 10 years. About 22 per cent.--nearly one quarter-- of the Strathclyde population receive income support or are partners or dependants of income support claimants. The problems of individuals, families and communities have not been addressed in the debate so far. Why are we not listening to organisations such as the Child Poverty Action Group which, incidentally, pointed out the error in the statistics long before the Government got round to announcing it themselves? Why are we not crying out for a solution to the debt problem--not the debt problem of 14 or 16 years ago but the debt problem that families in Britain are experiencing today? Nothing in the Government's taxation or social policies is aimed at helping them.At the weekend, the Prime Minister made a speech in Aberdeen.
Mr. Tony Banks : "We in Scotland".
Mr. Clarke : This time she did not say, "We in Scotland," nor did she move a vote of thanks to the Scottish electorate. She could not have been expected to do that, given the hammering that the Conservative party received when the people of Scotland exercised their right to vote. Mr. Ewen Macaskill, a distinguished commentator in The Scotsman, said this of the Prime Minister's speech in Aberdeen :
"There was one telling moment when she reflected once again the view held by an alarmingly large number of English Conservative MPs--namely, that England is subsidising Scotland."
Does not that tell us everything? Not only do we have a policy of unfair taxation under this Government ; we have a Government led by a Prime Minister who is determined to create divisions in our society. I must tell her that such divisions are no more acceptable in Scotland than they are elsewhere. We take no solace in the fact that, so far from trickling down, the wealth of Great Britain is trickling up. The poor are suffering and there is poverty in every part of Britain. Poverty remains the blight on our society.
It is because I have every confidence in the policy of the next Labour Government on taxation, as on other matters, that I look forward to the British people having an opportunity to offer their indictment of the Government's policies. I am sure that they will do just that.
5.2 pm
Mr. Jeremy Hanley (Richmond and Barnes) : The previous speech was fascinating, in a debate in which Opposition Members have been invited to set out their taxation policies. The hon. Member for Monklands, West (Mr. Clarke) did not mention Labour's policies at all. He gave us the history of the past 10 or 11 years in a speech that was half baked and inaccurate. The hon. Gentleman refused to allow interventions--perhaps because they might have drawn him on the subject of the debate.
I should like to refer to some research that has been carried out into Labour's taxation policies. The research has not been easy, because it is well known that the Labour
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party is trying as hard as possible not to mention its policies in case they get shot down. In the case of those of their policies that do not deserve to be shot down, Opposition Members are trying hard not to let us know what they are in case we happen to pick them up and run with them over the next 18 months. Believe it or not, on issues such as environmental protection, energy conservation and the promotion of better recycling, the Labour party has some sensible policies. But being fit to be wombles does not make Labour fit to govern.Let us examine the policies that we have been able to discover. The first is the phasing out of what was the married man's allowance. I do not know whether Labour Members are up to date on that. It is no longer the married man's allowance ; it is the married couple's allowance. Because the Government have been forthright enough in their taxation policies to introduce almost complete equality between men and women through separate taxation for women, the married couple's allowance can now be allocated between a man and a woman if the income of the two suggests that that would be the best thing for them. Perhaps the Labour party has missed that fact.
Mr. Alice Mahon (Halifax) : Would the hon. Gentleman care to comment on the poll tax and the several and joint liability clause, which is most unfair, as many married women have no income whatever?
Mr. Hanley : The hon. Lady seeks to draw me into a debate whose subject does not appear on the Order Paper. The motion refers to the Labour party's taxation policies. I should willingly argue the case for a community charge that is more broadly based than the old rating system any day of the week, but today we must address ourselves to the Labour party's taxation policies.
As I was saying before I was gracefully interrupted, many married women with husbands on lower incomes than themselves will lose if the married couple's allowance is abolished. That surely cannot be right. If the Labour party looks at the matter again, it will realise how unpopular such a measure would be. But given the policies of some Labour-controlled authorities, I suppose that the Labour party could be accused of being anti -family. Perhaps Labour Members do not want people to be married. Perhaps they do not want to introduce legislation that encourages the family unit.
The second of the Labour party's taxation plans involves the abolition of the upper earnings limit on national insurance contributions and the conversion of the lower earnings limit into one allowance. My hon. Friend the Member for Hertford and Stortford (Mr. Wells), who so brilliantly introduced the debate and so thoroughly covered the subject, referred to that policy. Let us assume that Labour kept national insurance at 9 per cent. Although there is no basis whatever for such an assumption, because it would be consistent with Labour's announcement of what it intends to spend on the National Health Service for it to increase national insurance to 11 or even 15 per cent. The present upper limit of £16,900 is quite low, given the salaries that are common in industry today--especially with productivity bonuses added into pay. Many people would face a very large increase even if national insurance were kept at 9 per cent. The third of the Labour party's personal taxation plans involves the introduction of a supplementary tax on
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investment income. Greatly to their credit, the Conservative Government have stopped calling unearned income unearned income. It is now called investment income and it is considered perfectly honourable to receive income from saving money. There are differences of opinion on both sides of the House about speculation and hon. Members have differing attitudes to the making of capital gains through investment. No one would deny, however, that from the point of view of the national economy, it is better to save money than to spend it.As far as we can tell, the Labour party would not distinguish between income from forms of speculation and income from deposits. Yet again we could have an investment income surcharge. It might be introduced for sums of more than £2,000 with a surcharge of 15 per cent. We might have figures similar to those which we had before--perhaps on a sliding scale, at 15, 20, 25 or perhaps even 40 per cent. I can well remember the giddy heights that investment income surcharge reached. On top of the 98 per cent.--the top rate of taxation on investment income under the Labour Government--a further surcharge of 5 per cent. was added, making taxation of 103 per cent. on those with high investment incomes.
Nevertheless, on the more modest level of investment income, such as that represented by pensioners, children with savings, inherited sums of money, or those receiving interest payments through banks or building societies, Labour would introduce an investment income surcharge and try to treat all investment as dirty money once again. Part of this Government's success has been in attracting investment to the United Kingdom from abroad. We have tried to attract people to invest during periods of high interest rates. There are now twice as many depositors as borrowers. The high interest rates do as much to encourage saving as to penalise debt.
The fourth aspect of the personal taxation plan that can be gleaned from the Labour party is to increase the top rate of tax from 40 per cent. to 50 per cent--and once national insurance is included, the top rate will be 59 per cent. I am told that that would raise £3 billion, so it seems most attractive. However, if that is meant to be an attempt to raise money to pay for Labour's highly inflated programmes, Labour must be mistaken.
The Labour party tries to claim that, under this Government's taxation policies, all the benefits have been given to the rich instead of to the poor. However, that is not right. For example, if we analyse the top 5 per cent. of taxpayers, under the last year of the previous Labour Government, that top 5 per cent. contributed 24 per cent. of income tax revenue. At the moment, the top 5 per cent. contributes 29 per cent. I believe that the figure will soon be 30 per cent. In other words, the wealthiest in our society are contributing more income tax.
Therefore, this Government's income tax policies are fairer and more sensible because they raise more money. The Labour Government taxed revenue away and removed the incentive to work and people's desire to invest in Great Britain plc. If a supermarket manager reduces his prices, he sells more goods. The same applies to tax. As tax rates have been reduced, the yield to taxation has been greater. This Government have been more sensible and fairer than the previous Labour Government. They have also managed to expand expenditure in every area of
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government. By increasing taxes, the Labour Government had to reduce expenditure and the International Monetary Fund came to bale them out.Mr. Beith : If that is the case, what is stopping the Government from achieving the 20p standard rate of income tax referred to in the motion?
Mr. Hanley : The 20p level remains the Government's stated policy. However, that level would be wrong in present circumstances. The hon. Member for Berwick-upon-Tweed (Mr. Beith) criticised the Government two years ago when a slump was threatened after black Monday. I believe that he criticised us at the time for not going far enough. Certainly the Labour part said that we had not put enough back into the economy. It was clear that what we put into the economy then, through reductions in interest rates and tax cuts, helped to fuel inflation.
Therefore, if tax rates were reduced to 20 per cent. now, that might encourage another spending spree just when we are trying to restrict retail sales. However, 20p remains a Government priority. Anyone outside the House, even someone with no economic brain, would understand that 20 per cent. income tax is more likely to be achieved by this Government than by a Labour Government.
The fifth part of Labour's personal taxation plan involves the introduction of a new series of income tax bands. As yet, they are unspecified, but it is probably true that they would start below 20 per cent.--perhaps at 19 per cent. It is unlikely that the bands would exceed 50 per cent. to start off with although of course we must add on national insurance to those figures. The Labour party claims that the tax burden would therefore increase only for the highest paid. However, that is most unlikely to be the case, particularly if indexation is stopped at the higher levels. If we add all the various figures together, more people would enter the higher rate bands, particularly with the restriction on mortgate interest tax relief that Labour would introduce.
The Leader of the Opposition said that the mid-£30,000 to £40,000 level would be the first to be hit. However, that is wrong. As I said, if the married couple's allowance is abolished, all married women, who can use that allowance for the first time, will be hit.
Mr. Battle : What about the poll tax?
Mr. Hanley : Rather like a parrot, the hon. Member for Leeds, West, (Mr. Battle) is trying to divert attention from the Labour party's income tax plans.
With regard to what the hon. Member for Leeds, West chooses to call the poll tax, the nearer we get to a general election, the closer men on average earnings might get to Labour's taxation policies. A consideration of next year's community charge in comparison to this year's charge--when for example the charge for boroughs throughout London will be so much lower, the nearer we get to a general election, the closer we will get to the increase in taxation that Labour is bound to introduce. That could mean £1,000 to £2,000 per person or per family. I believe that in comparison with Labour's income tax policies, the community charge is a welcome relief.
Mr. Battle : The poll tax is a form of taxation. However, many people cannot understand why women who do not work are charged the poll tax because of the regulation that states that husbands are responsible for their partners.
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That applies to such an extent that disabled women receiving a disability pension must pay the full whack of the poll tax. How is that a fair tax system?Mr. Hanley : I am sure that you would bring me to order, Mr. Deputy Speaker, if I tried to explain that. However, for the sake of good order, if all married women were exempt from the poll tax, the rates would have to rise commensurately higher for everyone else. Therefore, the benefit to a couple would be almost wiped out immediately. The hon. Member for Leeds, West is talking nonsense.
Mr. Chris Butler (Warrington, South) : Is not the community charge a very interesting indicator of how the Labour party would act in government? The local authority in my consituency of Warrington is Labour-controlled, and Cheshire county council is run on a Labour budget. We have experienced an increase in the community charge, which translates into an increase in the rates--if they still existed--of 52.3 per cent. this year. Is not it true that the Labour party is a high spender locally, just as it would be nationally?
Mr. Hanley : My hon. Friend has made a most effective point. I am sure that the people in west London who have learnt what living under Labour means, are now living under Conservative-controlled authorities for the reasons given by my hon. Friend the Member for Warrington, South (Mr. Butler).
I have gleaned more information about Labour's personal taxation plan. For example, the personal allowance would be converted into a zero rate band so that, when it is uprated for inflation, all taxpayers would gain the same amount. That sounds like a pleasant policy that would benefit those at the bottom rather than those at the top. However, the cost would be about £1.4 billion and it seems that two thirds of the people who would be affected by the change are already on the basic rate of tax. While one third are on the higher rate, two thirds of people on average incomes would be hit. It seems that Labour would continue mortgage interest relief at the single rate, probably equivalent to the basic rate of relief that it inherited, and that higher rate relief would end. That would probably gain Labour £0.5 billion. However, that would also throw more people into higher rates.
Labour also apparently intends to restrict tax avoidance by high income earners by setting a minimum proportion of income that would have to be paid as tax. That has some attractions, and I do not dispute that it would be an interesting way of continuing this Government's drive to reduce tax avoidance. This Government have been stronger than any Government in trying to catch people who avoid tax. Therefore, I have no argument with that policy.
Labour would apparently also reduce the threshold for capital gains tax. That is yet another savings disincentive. As my hon. Friend the Member for Hertford and Stortford said, Labour's policy is anti-savings. The Labour party seems to be trying to cane those whom, for some reason, it disapproves of for earning money through investments. Reducing the capital gains tax threshold would hit London as a financial market, to the benefit of markets in other countries. There is little doubt that investment into the United Kingdom would begin to dry up. In fact, the existence of a Labour Government would
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probably encourage that in any event, and I have already mentioned that Labour would introduce investment income surcharges. As the hon. Member for Leeds, West has mentioned the poll tax with unfailing regularity, let us look at exactly what Labour would put in its place. The Labour party would value properties and houses for its roof tax or would introduce a local income tax and a property tax combined. In either event, it would value properties. Would that be the forerunner of a full-blown wealth tax? I doubt whether a Labour Government could resist introducing a wealth tax, under which occupational pensions would be taxed. A whole range of so-called "wealth" would be taxed in addition to income tax. Gifts and inheritances would be taxed at the point of receipt. People would be hit for saving and then passing on their money. That would be another disincentive to saving.I have managed to find some of Labour's corporate taxation plans. They include the abolition of the uniform business rate. Labour Members referred to that time and again during the local elections, saying that business rates should be set locally, not centrally. I remind them that the uniform business rate was introduced to try to redistribute wealth throughout the country.
All that I heard from representatives of both Opposition parties during the previous general election campaign was that there was some sort of north- south divide. However, when the Government introduced the uniform business rate, which, I am sure it is true to say, is a form of social engineering, which moves money from the south to the north and encourages employment in the north, they were criticised for doing so.
To an extent, the uniform business rate could be said to discourage employment in the south where unemployment rates are so low-- Mr. Allen McKay (Barnsley, West and Penistone) rose
Mr. Hanley : The hon. Gentleman has not been here for most of my speech. He has just come in, but perhaps he would like to warm up with an intervention.
Mr. McKay : As the hon. Gentleman is talking about the uniform business rate and businesses as a whole, does he agree that it would be far better if industry in the north received the benefits now rather than having them phased in over the next 20 years?
Mr. Hanley : I am glad that the hon. Gentleman admits that there are benefits to the north. Any benefits to the north must be paid for by businesses in the south, which is why it is only right that the scheme should be phased in gradually. Phasing in is not only sensible, but humane. It is wholly sensible to help the small businesses in the south in that way. The hon. Gentleman has let the cat out of the bag by agreeing that the uniform business rate brings benefits to the north.
Mr. McKay rose --
Mr. Hanley : I am sorry, but I cannot give way again. I have already given way about seven or eight times--
Mr. McKay rose --
Mr. Hanley : Well, this is the last time.
Mr. McKay : I am grateful to the hon. Gentleman for giving way. It is not a case of letting the cat out of the bag,
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because Labour Members have always accepted that some benefits will come to the north. However, although the north benefits in that way, it loses per person on the poll tax. If the hon. Gentleman wants me to go into that, perhaps I shall catch your eye later, Mr. Deputy Speaker.The leaders of the chambers of commerce and industry in the north are saying that those benefits will not accrue purely and simply because of the time that it will take for the balance to take effect.
Mr. Hanley : The hon. Gentleman has not added much to the argument. He has said merely that chambers of trade and various trade bodies would like the benefits to the north to flow more quickly. The fact remains that it is this Government's policy that has produced those benefits and that they are now coming through. The hon. Gentleman is simply saying that he is impatient to receive those benefits more quickly. That is fine, because I am sure that, if the Government are retained in power, they will bring the benefits forward more quickly than at the moment, but for now they must be cautious in their economic policy.
As part of its corporate taxation plans, the Labour party has stated that it would reinstate capital allowances, which were an absolute nightmare of a system. I concede that certain allowances for the film industry would be welcome and are deserved, but to reinstate capital allowances lock, stock and barrel would be a reversal of progress. The Labour party has also said that it would withdraw the tax breaks that are offered to private landlords through the business expansion scheme. That scheme was introduced to try to help the homeless, by providing an incentive to create the properties that would house the homeless. I am therefore surprised that the Labour party wants to ditch that policy.
The Labour party also states that it would stimulate research and development, education and training, and regional economic development through tax incentives or allowances. That sounds great, but I am afraid that we would also see a jobs tax. I know that the stated 0.5 per cent. payroll tax was conveniently removed from Labour's policy as soon as there was an uproar when it was announced. That statement has now been dropped from public display, but I am absolutely certain that it would be back as soon as the general election was over.
The Labour party seems to be full of ideas that will not be disclosed until Labour is elected. I wonder how much of its policy it can try to keep secret. The list that I have given has been gleaned from a copious amount of work by many people, but the bottom line is found in the one positive statement that we have heard from an Opposition Treasury spokesman, the hon. Member for Islington, South and Finsbury (Mr. Smith). His summary of the major taxation changes that the Labour party would introduce included lower rates of VAT on recycled materials, energy-efficient goods and insulation materials and higher rates on packaging that cannot be recycled. That is great in itself, but it is not a taxation policy for the nation as a whole.
The hon. Gentleman also stated that there would be additional allowances against corporation tax to encourage the reduction of pollution. Great--we all agree with that. He stated that there would be a grading of car tax, with owners of small cars paying less than the present
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£100 and owners of large cars paying considerably more. That idea has been mooted by Conservative Members as well. Although it would be a nightmare to administer, it is nevertheless part of the great taxation plan of the hon. Member for Islington, South and Finsbury. The hon. Gentleman also stated that there would be an increase in the leaded-unleaded price differential. Who invented the differential between leaded and unleaded petrol? This party in government created that differential so successfully that the Labour party is now choosing to pick up one of the jewels in our crown--Mr. Nicholas Brown indicated assent .
Mr. Hanley : I note that the hon. Member for Newcastle upon Tyne, East (Mr. Brown), who is sitting on the Opposition Front Bench, is nodding.
The hon. Member for Islington, South and Finsbury also said that there would be zero VAT on catalytic converters and lower taxes on sales of new cars that are fitted with such converters. I am sure that that will be the case when converters are in general use. Indeed, the Government have agreed a policy for changing to catalytic converters. The hon. Gentleman also said that there would be higher duties on company cars to raise an additional £500 million. I remind him that this Government have increased taxation on company cars as a benefit in kind by 350 per cent. in the past four years. Surely the Labour party will give us some credit for trying to remove that perk.
I have set out some of Labour's policies, and as we have seen, the Labour party has three major plans. It plans heavier taxes, higher taxes and more taxes. If one adds up all the spending promises from Labour's Front-Bench team, one realises that there is no way in which they can achieve them other than by those three policies. The Leader of the Opposition has said that the huge majority of taxpayers will not be any worse off, but that does not stand up to any form of scrutiny. Research by Credit Suisse/First Boston has shown that by the removal of the married man's allowance, which is now called the married couple's allowance and the removal of the national insurance contribution upper limit, a married man without children, earning £6,000 per year, would be £4 a week worse off. The report suggests that those earning more than £17,000 a year would suffer dramatic increases in marginal rates.
As my hon. Friend the Member for Pembroke (Mr. Bennett) said earlier, if the tax rates of the previous Labour Government had been indexed to today's prices, they would mean that a person on average income would be paying £1,000 more per year in taxation than under this Government.
The Government have been fair to all. By reducing the rates of tax at the top, they have provided an income so that people at the bottom end of the social scale, such those in need of improved health and pensioners, can be protected and have the money that they so desperately require. Under Labour Governments, higher taxes drive away investors and the means to be able to support the economy, to build hospitals, housing estates and prisons--a Labour party demand. Therefore, the Labour party's taxation policies are cynical and Labour's silence is shaming. The report, "Labour's new policies : the complete guide", describes the hon. Member for Newcastle upon Tyne, East as a
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"good House of Commons type with competent, aggressive style in debate. Up and coming."Therefore, I hope that the hon. Gentleman will show the House that he is up and coming, that he will stand up, be honest and set out his party's income tax policies.
Mr. Hanley : I shall willingly give my hon. Friend the report, which sets out a potted history of some of the leading lights, and then happens to mention that none of them has said anything about taxation. I hope that the hon. Gentleman will prove the truth of the report by coming clean on Labour's policy. If he does, he will remain an Opposition spokesman.
5.30 pm
Mr. A. J. Beith (Berwick-upon-Tweed) : One would not think from the remarks of the hon. Member for Richmond and Barnes (Mr. Hanley) that the Government have increased the overall level of taxation above that which they inherited and shown themselves to be a Government of high taxation. The changes that they have made have been in the structure of the tax system, and a number have been seriously to the detriment of the least well -off in our society.
The hon. Gentleman also needs to talk to some of his hon. Friends about the impact of the uniform business rate. Not only are the potential benefits of the uniform business rate for the north delayed to such an extent that they show no likelihood of an early influence on the location of industry, but the system is hedged about in such a way that any firm that considers moving in or from the south will lose protections to such an extent that it is not likely to move. The uniform business rate system is not likely to achieve the claimed benefits of a shift from the south to the north. That message is coming quite clearly, not just from the Opposition, but from Government Members.
I hope that it is not unkind of me to intervene in this exchange between two other parties about taxation policy. Any such exchange is made that much more difficult in the light of President Bush's recent public disclaimer of his earlier, well-known and dramatised pledge that there would be no new taxation. He said :
"Read my lips--no new taxes."
Will anybody ever again believe a politician talking about a tax promise after President Bush so publicly disavowed his?
When talking about tax proposals and promises, as way of introduction we must look a little more closely at the basis of the argument advanced by the hon. Member for Hertford and Stortford (Mr. Wells) on the Government's behalf. To argue about taxation policy without making any reference to the fundamental change involved in the poll tax, or community charge, is misleading. The poll tax has hugely shifted the burden of paying for local government services through a form of taxation that has an extremely severe impact on large numbers of people on modest incomes and some on low incomes. It redistributes money in the direction of the most well-off in our society.
There have been enormous gains under the poll tax system for those who previously paid high rates because they are wealthy and live in large and expensive houses. There are many people on low incomes who face enormous increases in personal taxation because of the impact of the poll tax. They are paying hundreds of
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pounds a year more than they previously did per family or household in order to meet this frightening new tax. I can genuinely say that I have never seen such extensive distress in my constituency surgeries as that tax introduced--certainly not from any change in the taxation system that has occurred in the 16 or 17 years that I have been a Member. That is a part of the background that Conservative Members cannot deny or disavow.Conservative Members must also take into account the difficult position in which the Government finds themselves over the pledge of 20p income tax referred to in the motion tabled by the hon. Member for Hertford and Stortford. It was perhaps unfortunate that he tabled his motion last week before the Chief Secretary to the Treasury appeared on television at the weekend to say that, after all, the Government would not be able to manage it, and there was no prospect of the 20p pledge being implemented this side of a general election. He said that, not because the Government have suddenly found that they cannot meet the bill, but for a quite different reason. It may turn out that, if privatisation revenues fall, as they look likely to do in the shambles of electricity privatisation, that the Government cannot make the books balance. But that is not the present reason. It is one of general economic management and the fear of inflation. At the time of the Budget, the Chancellor made much of the idea that fiscal policy could not involve fine tuning of the tax system and it was inappropriate to try to combat inflation by adjustments in the tax policy. However, that is precisely what the Government are doing. They have a declared objective of reaching 20p in the pound income tax, but they are currently engaged in an adjustment and saying, "Sorry, we cannot do it, because if we do, we think that, just as last time when we cut taxes there was a big increase in demand, so there will be if we do so again, and, as a result, inflation will get worse." I am glad that the Government have got the message at last, and I wish that the previous Chancellor had got the message.
I wonder what the Government would do if they ever attained their objective of 20p in the pound income tax. That is their policy goal and presumably, having reached that point, they do not make any further changes in income tax levels--up or down--so how do they cope with the circumstances in which they now find themselves when they are under threat of severe inflation? How do they make adjustments to cope with inflation when we are in the exchange rate mechanism of the European monetary system if they cannot use the taxation level for that purpose?
In the European monetary system, the interest rate weapon will increasingly be used at the behest of the system as a whole to preserve the exchange rate parities in the system. Therefore, it will be necessary to use other instruments to deal with domestic inflation. The Financial Secretary shakes his head, but it will come to that. He will have to look for other instruments to deal with domestic inflation. The limitations of interest rates for that purpose are already apparent in the difficulties in which the Government find themselves. They cannot put up interest rates any more at present, because it would be so politically unpopular, but sooner or later they may find themselves obliged to do so. However, they are under much greater political restraint than ever before because of the huge burdens borne by many home buyers and small businesses.
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Mr. John Butcher (Coventry, South-West) : I think that the House would welcome a comment from the hon. Gentleman about whether the Social and Liberal Democrats still believe in supply side economics. If recent evidence shows fairly conclusively that reduction of the top rates of income tax not only increases the total tax take to the Treasury, but the proportion paid by the better-off, surely that is a philosophy very much in line with the old-style Liberal economists of the last century. Bearing in mind the fact that the reduction in interest rates pumps in proportionately more purchasing power than does a reduction in taxation rates and the phenomenon that I described adds to the budget surplus, surely that is also non-inflationary. I am not trying to interrupt the hon. Gentleman's flow, but I think this is a useful opportunity to let us know how the thinking of the Social and Liberal Democrats is going.
Mr. Beith : Part of the hon. Gentleman's thesis was wrong. Reductions in personal taxation at a time of much greater credit liberalisation generated demand and created the severe inflationary pressures that we are now experiencing. The Government, and Chancellors appearing before the Select Committee on the Treasury and Civil Service, have admitted that. However, I agree with the hon. Gentleman that the high levels of personal taxation that existed under previous Governments and the absurd levels of 98 per cent. taxation on investment income were wholly inappropriate, and it was right to get away from that level. I have been talking about the economic judgments that Governments must make. It remains the case that, in deciding to make a cut in standard rate at the time that he did, the previous Chancellor took part in a series of miscalculations that have left us with our present inflationary problems. I still do not understand why the Government disavow the use of the taxation system as a means of regulating inflation at a time when they are engaged in precisely that. Again and again Conservative Members have told me that it is their intention to reduce the basic rate of income tax to 20p in the pound. They are not doing so, because they believe that they will create more inflation if they do. Let us have a little more clarity on that.
The object of the debate is to try to tease out Labour's taxation policy. We must leave some time for that important task, because not much progress has been made on it so far. If the experience of the local elections is anything to go by, Labour will continue its policy of saying as little as possible. Its alternative to the poll tax was unstated, or at least confused, throughout the election campaign. It was to be some combination of a property tax and banding to take account of income. The combination never became clear.
It seemed to many people--including, I suspect, some Labour Members--to be an unnecessarily expensive as well as a confused tax because it involved two mechanisms--the valuation of property and the assessment of income. That leads me to wonder why Labour does not adopt our proposal for a local income tax, which seems an eminently more sensible procedure. Labour's habits of silence were well illustrated during the local election campaign, when it could not tell us its alternative to the poll tax.
Mr. Battle : Will the hon. Gentleman give way?
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Mr. Beith : I will gladly give way to the hon. Gentleman, in the hope that he will tell me something about this matter.
Mr. Battle : I am puzzled by hon. Members who say that there is some difficulty about two concepts being held together. Under the rating system, linked to the benefits system of rebates, two different systems worked and interacted.
Mr. Beith : Yes, but I do not see why, in seeking to assess revenue for local authorities, we should go to the trouble of valuing property all over the country, which is not a particularly good guide to income, while at the same time assessing income and then trying to combine the two assessments. The old system was not particularly good, but the poll tax is infinitely worse. It is possible to have a system that is better than either, and I do not understand why Labour does not want to do so. I suspect that it is part of the policy of not saying what it proposes to do.
The Budget discussions also revealed ample evidence of that. In the immediate prelude to the Budget, the shadow Chancellor produced a two-page typed statement containing the Labour party's alternative to the Budget. On reading that, one would suppose that it might be possible to have lower inflation, a lower trade deficit and no significant increases in taxation for most people. The statement was noted more for its brevity than for anything else, and I suspect that it too was part of a policy of not really saying anything very much. I have known the right hon. and learned Member for Monklands, East (Mr. Smith) for many years, and I think that that is his line. He may well have ideas about what he wants to do, but he does not propose to tell anybody just now, because people will only disagree with him and make trouble, and it is far easier to take office with no commitments at all. After all, parties have done that before.
Labour's attempt to claim economic credibility rests on the belief that the right hon. and learned Gentleman will be as strict and successful in containing public spending and inflation as he has been in containing his weight since the illness from which we were all so pleased to see him make such a good recovery. How he manages to do it while attending all the City lunches and dinners that he is supposed to attend I do not know. He has been extremely successful in self-discipline. The belief that he can somehow extend that discipline over the entire breadth of the Labour party seems wholly misguided. It is leading to a situation in which Labour would be unprepared for government even if there were some real prospect of it reaching government.
The right hon. and learned Member for Monklands, East has led many of his hon. Friends to believe that all sorts of laudable objects can be achieved without significant pain or difficulty, except to a few rich people whom Labour assumes will not vote for it anyway. Some of the richest houses at which I call during by-election campaigns are the ones in which I have located the Labour votes. The problem of a party that has not prepared itself for the most difficult decisions of government seems especially well illustrated by a letter that appeared in The Independent this morning. It is signed by the right hon. Member for Chesterfield (Mr. Benn) and 11 of his hon. Friends. It states :
"In your leading article last Monday (7 May) you refer to an interview published in the Independent on Sunday with
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