House of Commons Hansard Debates for 14 May 1990

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Labour's Shadow Chancellor, John Smith, explaining various proposals of the Shadow Cabinet. This interview detailed a number of policies which have not been adopted by the Labour Party, including Exchange Rate Mechanism entry in order to pursue a deflationary policy, and the dumping of our commitment to full employment." Later, the letter states :

"Such policies would place a Labour government on a collision course with both the trade union movement and the electorate." The right hon. Member for Chesterfield and his 11 hon. Friends who happened to be around when the letter was signed are clearly unprepared for some of the measures that the right hon. and learned Member for Monklands, East hopes to implement in the name of a Labour Government. Those 12 hon. Members say that they are not Labour policies, but there may be more than 12. If there is any possibility at all of a Labour Government after the next general election, there is not much chance of a Government with a majority of more than 12, and I suspect that that group of hon. Members or others will display their unpreparedness for such policies in no uncertain terms and will make it impossible for the right hon. and learned Gentleman to go on with a series of policies that are being kept under wraps until Labour comes to office. Even if it were a potentially useful electoral device, the policy of silence on taxation cannot prepare a party for any kind of effective government. It will certainly not assist in the taking of some difficult decisions.

Until the recent local government elections, government for my party seemed a rather remote prospect, but my party has been prepared to say what it believes. It has set out in detail its policy on local income tax and on tax reform. It will cost the hon. Member for Hertford and Stortford £1 more to buy our document on the subject, because there is a great deal more in it. I am sure that, when he looks at our policies, in more detail, he will not ask for his money back.

They include things that he says he favours, such as the integration of the tax and benefits systems and an attempt to introduce a citizen's income system as part of a more effective attack on poverty than can be achieved merely by tax allowances and benefits which depend on take-up, let alone by a level of child benefit, which is being deliberately eroded by the Government. During discussions on the last Budget, we said that we were prepared to bring forward a number of those measures in order to tighten the fiscal stance this year because of the inflationary pressures that are so apparent in the current year. The hon. Member for Hertford and Stortford is right to put this matter on the Parliamentary agenda and to try to open up a more public discussion on tax policy for the future. I hope that, before the end of the debate, we will learn just a little of what Labour has in mind. 5.46 pm

Mr. Ian Gow (Eastbourne) : I am happy to follow the hon. Member for Berwick-upon-Tweed (Mr. Beith), who, I suppose, could be described as the shadow Chancellor of the Exchequer for the Liberal party. I noted with keen interest his observation that an income tax rate of 98 per cent. was unsustainable and indefensible. During the notorious Lib-Lab pact, the hon. Gentleman and his party supported a Government who imposed upon the British people precisely that level of taxation.

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That comes as no surprise to any hon. Member, because the previous leader of the Liberal party instructed the delegates to the Liberal party conference before the last general election to go back to their constituencies and prepare for government. His predecessor at the 1979 general election promised to lead the Liberal candidates towards the sound of gunfire. From the Liberal party, we have a never-ending series of myths, and hon. Members who want further examples of mythology should commit to memory from tomorrow's Official Report the speech by the hon. Member for Berwick-upon-Tweed.

The House should be grateful to my hon. Friend the Member for Hertford and Stortford (Mr. Wells) for initiating this most important debate. Its importance is underlined by the presence on the Back Benches of the hon. Member for Newham, North-West (Mr. Banks) who I hope will shortly catch your eye, Mr. Deputy Speaker. The hon. Member for Newham, North-West is very perspicacious. He is in his place on this important occasion, but the importance that he attaches to the debate is not, alas, shared by all his right hon. and hon. Friends. The subject of taxation cannot be divorced from the subject of spending. What should be the level of spending by Governments and how that spending is financed is at the heart of this debate. It is perfectly true that, from 1974 to 1979, there was a dramatic increase in public spending, but there was also a dramatic increase in taxation. Even the increase in taxation, however, was insufficient to meet the vaulting spending plans of the then Government. Even that Government did not dare to impose sufficient taxes to meet spending. They tried to borrow to bridge the gap between spending and revenue, and when they were unable to borrow enough to bridge the gap, they resorted to the printing presses. Those vaulting spending plans and the subsequent inability to raise the money to finance them would be reproduced if ever there were another Labour Government.

Mr. Tony Banks rose--

Mr. Gow : I shall give way to the hon. Gentleman in a moment. He knows that there is no speech that I shall make in this House when I will not give way to him.

Should a Labour Government be elected, the same gap between spending and revenue will emerge and it will be met in the only way possible, by the printing presses. I shall now give way to the hon. Gentleman, whom I almost call my hon. Friend.

Mr. Tony Banks : That is probably the most complete demolition job that has so far been done on me in this House.

I cannot blame the hon. Gentleman for concentrating on what he would consider to be the downside of the Labour Government's economic record. Will he also accept, however, that, during that period, the unemployment rate was conspicuously lower that it is now, that the balance of payments in trade in manufactured goods was healthy and not in deficit as it is now- -

Mr. Tom Clarke : And that was without oil.

Mr. Banks : Yes, my hon. Friend is right. Interest rates were considerably lower than they are now and inflation on a downward turn. In the interest of fairness, I am sure that the hon. Member for Eastbourne (Mr. Gow) will be prepared to put that side of the argument.

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Mr. Gow : I shall make my speech in my own way, subject to my earlier undertaking that I shall, of course, give way to the hon. Gentleman if he seeks to intervene again.

I am glad that the hon. Member for Newham North-West referred to inflation and I am glad to have the opportunity to comment on it in the presence of my hon. Friend the Financial Secretary, who I hope will shortly be my right hon. Friend the Financial Secretary. I shall give way to my hon. Friend if he wants to intervene on my analysis about inflation--I give him the same undertaking as I gave the hon. Member for Newham, North-West.

Only Governments can cause inflation, and only Governments can cure it. It follows 11 years and more after my right hon. Friend the Prime Minister became First Lord of the Treasury that those who sit presently upon the Treasury Bench, and only those--I suppose that the Financial Secretary might say that my right hon. Friend the Member for Blaby (Mr. Lawson), who no longer sits on that Bench, bears some responsibility in the matter, so perhaps I should say, only those who have been or are on the Treasury Bench --are responsible for the present level of inflation.

Inflation is a disease of money and it can be ended only by a monetary cure. It is a matter of deep regret to me that, 11 years and more after a Conservative Government came into office, we have inflation at 9.4 per cent. and probably rising. I hope that the Financial Secretary and his colleagues in the Treasury will re-learn the lesson that some of us thought that they had learnt--that only a strict monetary policy will control the evil of inflation. When I say "control", it is a misuse of language. I have noticed that some of my right hon. and hon. Friends now refer to the control of inflation, but that was not the undertaking given in the manifestos of 1983 and 1987. Those manifestos referred to the goal of the Government as stable prices, which is zero inflation.

It is possible through the proper use of monetary policies to abate and eliminate the evil of inflation. During the lifetime of this Government, we have had inflation down to 2.5 per cent., but that was still 2.5 per cent. too high. If one can bring inflation down from 26.9 per cent.--the highest level under the Labour Administration--to 2.5 per cent., one can certainly get it down from 2.5 per cent. to zero. That should be the policy of my hon. Friend the Financial Secretary, and it should be the policy of the Labour party when it comes to submit its policies to the electorate.

The Labour party, however, will not make that commitment to the elimination of inflation, which was a commitment made by the Conservative party in 1983 and 1987. The Labour party will not do so because it does not believe in honest money and sound finance. If Labour party policies are ever implemented, I fear that there will be a dramatic increase in taxation, a dramatic increase in spending, a massive fall in confidence in sterling-- even the Labour party will then be obliged to put up interest rates--and a diminution of confidence in this country. Many of the ablest people will leave the United Kingdom to seek freer countries.

Sir Geoffrey Finsberg (Hampstead and Highgate) : My hon. Friend is making one mistake by constantly referring to "when" the Labour party produces its policies, as if he

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really believes that it will produce those policies in time for them to be costed, so that the electorate can see the folly into which they are being led.

Mr. Gow : My hon. Friend may well be correct. Hitherto, the Labour party has sought to conceal, and will continue to seek to conceal, the reality of what will happen. I have predicted what would happen if a Labour Government were ever to be elected. It is the duty of Conservative Members, which is why I am grateful to my hon. Friend the Member for Hertford and Stortford, to fill some of the gaps that are clearly and deliberately left by the Labour party.

A policy of high taxation and high spending brings with it dangers for the British people. I have been in this place for the twinkling of an eye, but nothing has happened in the past 16 years to lead me to believe that Governments are able to spend money more wisely and effectively than other people. The policies of my right hon. Friend the Prime Minister, however, have had a significant effect, because, when the hon. Member for Newcastle upon Tyne, East (Mr. Brown) comes to give the view of the official Opposition, even he will not say that the Labour party will go back to 98 per cent. levels of taxation on income.

When the hon. Member's party left office, that was the level of taxation, but he will not say that his party will go back to that level. Why? Because my right hon. Friend the Prime Minister has moved the centre of British politics to the right and has occupied the middle ground, dragging with her --with considerable reluctance, it is true--even some Labour Members. I do not want to be unfair to the hon. Member for Newham, North-West, but if he had his way, and if he were ever to be a Treasury Minister, he would not be satisfied with a 98 per cent. tax on income--he would want to go above 100 per cent. Some Labour Members feel a deep sense of envy and think that the purpose of taxation is not to raise revenue--although they frequently raise revenue with higher rate taxes--but to pursue the politics of envy.

Mr. Tony Banks : The hon. Gentleman must realise that, for people with certain levels of income, in particular those caught in the poverty trap, marginal rates of tax can be 100 per cent. We have to get people out of that trap. Is the hon. Gentleman not aware that the percentage of gross domestic product that is paid in taxes, adding indirect and direct taxes together, is more under the present so-called low-tax Government than under the Labour Government in 1978-79?

Mr. Gow : Mercifully, the economy is more buoyant now. The hon. Gentleman is wrong, because the average taxpayer is paying considerably less tax now. If the Opposition's policies were introduced, the burden of taxation would massively increase. The House of Commons is the right place to discuss the central issues of how much Government should spend and how the money should be raised to cover that expenditure. The danger to Britain would be if we returned to a Government with precisely those vaulting spending ambitions that the Labour Government had in the past and to a similar increase in the burden of taxation. If we were massively to increase spending and taxation the prospects for this country, for fuller employment and for higher living standards would all be put at risk.

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I congratulate my hon. Friend the Member for Hertfordshire and Stortford, and I commend his opening speech.

6.1 pm

Mrs. Alice Mahon (Halifax) : What I find most galling about the setpiece of pure Tory party propaganda that we have today heard is that it appears to take most of its evidence from Fabian Society pamphlets-- Conservative Members have the advantage over most Opposition Members who do not read them--or from the fantasising of two obscure Americans, Keating and Franklin, who produced what is probably an expensive report, the Credit Suisse/First Boston report, which made a number of assumptions about Labour policy that are wrong and deliberately misleading. They assume that they know what would be in Labour's first Budget and also what would be in the next four or five. I would be interested to know if they considered Tory plans for 1997, should we be so unlucky as to have the Conservatives elected to government again. The report also omitted the fact that Labour would be applying the Rooker-Wise indexation formula to higher rate thresholds and bands of tax. To pretend that we would not is absolute nonsense.

Let us consider the Government's tax record. I am not surprised that Conservative Members do not want to examine that, because, despite all their claims to be the party of low tax, they are not. The truth is that the overall burden of taxation has increased considerably under the Conservative Administration for those in the lower income groups.

In 1979, a married man with two children on average earnings paid 35 per cent. to the state in income tax, national insurance, rates, value added tax and other indirect taxes. By 1989, a worker on average earnings paid 37.3 per cent. to the state. At the lower end of the income scale, for a married man with two children earning half the average wage, the tax bill has risen from 2.5 per cent. to 7.1 per cent. since 1979. I admit that it is not all doom and gloom under the Tories. If a married man with two children earns 20 times as much as the national average--roughly £5,000 a week--his total tax bill has been reduced from 74.3 per cent. to 38.5 per cent.

Thanks to the excellent work of the Select Committee on Social Services, which exposed the bogus definition of poverty, we know that the Prime Minister was not correct in her much-publicised comments that helping the wealthy gradually trickles down to the poor--she was trying to justify helping the wealthy. I recommend that Conservative Members read that report if they doubt what I am saying.

Opposition Members have never been in any doubt about the results of the Government's tax policies. Of course the rich have got richer and the poor poorer. Hon. Members only have to use their eyes to study the position in the regions. How can we make sense of policies that allow the highest paid director in 1989--William Brown of Walsham Brothers--to pay himself more than £2 million in salary a year, or policies that mean that a 19-year -old student on a Business and Technician Education Council course, studying for more than 21 hours a week, and living with her unemployed parents, should lose her only income once she reaches the age of 19? Her income was only £27 a week. I know of such a case. Her parents were receiving income support and child benefit until she reached the age

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of 19, then every penny was withdrawn. Yet the same policies mean that she is expected to pay 20 per cent. of her poll tax. I am glad that the hon. Member for Hertford and Stortford mentioned credit controls, he made quite a good case for them. If we are discussing the Government's record during the past decade, we should consider their record on debt. The National Consumer Council recently published a report that showed that on average consumers now owe twice as much as they did 10 years ago, and that the number of households that have difficulty in paying their debts has risen sharply. A staggering 2 million households have difficulty paying some sort of debt, and some half a million have multiple debts including mortgages and rents. That speaks volumes about a party that claims that home ownership is such a success story. I do not think that the right hon. Member for Mole Valley (Mr. Baker) can mirage that issue away.

The hon. Member for Hertford and Stortford based his assumptions about Labour policies on that doubtful document by two Americans, yet there has not been a success story in America for the vast majority of the people. Under Reagan, the tax burden was shifted from the rich to the poor. A study by the Urban Institute, whose members include prominent Republicans as well as Democrats, showed that, between 1980 and 1984, the poorest 20 per cent. of the population suffered a 7.6 per cent. decrease in disposable income, the next 20 per cent. up the scale suffered a decrease of 1.7 per cent. and the 20 per cent. at the top of the scale increased their income by 8.7 per cent. It is worth mentioning what has happened in America because much of what the hon. Member for Hertford and Stortford said was based on the CreditSuisse /First Boston report.

Mr. Hanley : If the hon. Lady is denying what my hon. Friend the Member for Hertford and Stortford and I said, which we believe to be the fruits of research into what the Labour party has told us about its policies so far, will she tell us what Labour's income tax policies are? We are waiting to hear if our research has been proved wrong.

Mrs. Mahon : If the hon. Gentleman is patient, he might hear something that will do him some good.

In America, similar policies of reducing taxes to reward the rich led to problems similar to those in the United Kingdom. Nobody denies that the Americans invested the millions that they received from tax cuts, as did the wealthy in Britain, but in neither case did they invest in wealth- producing assets. They went for short, speculative gains, which have not done either country any good.

The trickle-down approach in America failed just as spectacularly as it did in this country. We all remember President Bush's election pledge :

"Watch my lips--no new taxes."

He is now faced with a projected federal deficit of more than $150 billion. He has recently signalled that he intends to preside over a budget reduction package that will include taxes, despite all that we heard during the run-up to the election--unless he again gets away with watering down the Gramm-Rudman Act, which would enable him legally to introduce an even larger budget.

The hon. Members for Hertford and Stortford and for Richmond and Barnes (Mr. Hanley) should concentrate on the Government's taxation record before taking to task those trying to put forward a fair programme of taxation. We believe in taxation because we believe in the

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redistribution of wealth. We certainly would not have introduced the poll tax. Hon. Members should deal with that issue, but they do not want to talk about it. They should think about the high interest rates that the Government are using as a one-club weapon to avoid tax increases. That has harmed economic activity. Manufacturing in my constituency is suffering because firms cannot afford to borrow with the cost of money being so high.

Conservative Members should concentrate on the skills shortage and the crisis in education. They should concentrate their minds also on the explosion of poverty. They may be proud of their tax policies, but the poor and those on low incomes are not happy with Tory tax policies. The Labour party is proud of its policy review and its aims. I am sure that we will have magnificent achievements. My right hon. and hon. Friends will propose policies that will be properly costed, and the electorate will believe them.

6.12 pm

The Financial Secretary to the Treasury (Mr. Peter Lilley) : I congratulate my hon. Friend the Member for Hertford and Stortford (Mr. Wells) on securing this debate, on his excellent motion, and on the superb speech with which he introduced it and with which he demolished the Labour party's tax programme. The debate has been embellished by contributions from my hon. Friends the Members, for Richmond and Barnes (Mr. Hanley) and for Eastbourne (Mr. Gow). Their speeches, together with that of my hon. Friend the Member for Hertford and Stortford, will merit reading and re- reading throughout the country.

It was a generous idea to give the Opposition the opportunity to explain their policies. They have had that opportunity, but so far they have refused to take it. Labour Members have not once explained their party's tax policies. It is manifest that they are ashamed of them. They have exercised their right of silence for fear of incriminating themselves, and we well understand why. We shall have to wait to hear whether the hon. Member for Newcastle upon Tyne, East (Mr. Brown) will continue that policy. It is noteworthy that he is saving his speech until the end of the debate so that there will be no opportunity to comment on it.

The Government have always made clear the principles on which our tax policy is based. Our record of implementation demonstrates them in action and we have set clear targets for the future. Our principles are to reform taxes so that they are simpler ; to remove unwarranted reliefs ; to plug loopholes ; to broaden the tax base ; and ultimately to reduce marginal rates because they affect economic activity. Our record demonstrates a successful reform of the taxation of companies, of personal income, of capital, of inheritance, of husbands and wives and of savings. We have abolished seven major taxes and several minor ones. Our targets are progressively to reduce the burden of public spending and thereby tax as a share of national income, and to reduce the all-important basic rate of income tax to 20p as and when it is prudent to do so.

The Labour party is under an even greater obligation than we are to spell out its tax policies because they will impose an increased burden. People have the right to know how much extra tax they will have to pay, who will pay it,

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which taxes will be raised and what new taxes will be introduced. That obligation is recognised by many Opposition Members who have been distinctly unhappy with the evasiveness of their Front-Bench spokesmen during recent months. The hon. Member for Kingston upon Hull, East (Mr. Prescott) made it an issue in the deputy leadership election little more than a year ago. He said :

"We must learn the lesson from the last election when our tax policy was a mess. It is not credible for Labour to suggest our policies can be financed on a programme of low taxation. It can't and the electorate know it can't. We need to argue our case not duck the issues."

We shall learn later whether the Front-Bench spokesman argues the case or ducks the issue. I fear that the Opposition will continue to take as their motto, "Mum's the word." Indeed, they became quite angry on Second Reading of the Finance Bill when I suggested that those in the press who criticise Treasury Ministers for going into pre-Budget purdah might direct their fire at the Labour party for going into post-Budget purdah. However, they seem determined to remain there, at least until the next election.

Because the Opposition are not very forthcoming, we have the right to reconstruct, from the evidence available, the tax policies that it appears they will introduce. We can draw on three sources of evidence--first, their policy statements made before they went into pre-election purdah ; secondly, their voting records on tax changes over the last decade ; and, thirdly, their record when in government. Those sources combine to paint a clear picture of a party committed to high spending, requiring high taxation that will mean most people on average incomes and above paying more, and that will impose significantly higher marginal tax rates on a substantial minority. Let us consider some of the Opposition's specific proposals--and we must make no bones about this--for tax changes. They include the upper earnings limit, investment income surcharge, the higher rate of income tax and the basic rate of income tax. The first proposal is to abolish the upper earnings limit on national insurance contributions and impose a 9 per cent. tax surcharge on 3 million people on all incomes above £18,000 a year. In his article in the Independent on Sunday, --which I commend to my hon. Friends--the right hon. and learned Member for Monklands, East (Mr. Smith) was frank about that. He said :

"They say you are going to hit people earning about £18,000 by making them pay this extra amount'. I say Yes I am'."

There is no reason to doubt the right hon. and learned Gentleman's word. A party that has as a central revenue-raising item a surcharge on employers' national insurance contributions--the notorious tax on jobs that my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) had the privilege of abolishing--would have no compunction about abolishing the upper earnings limit.

The second proposal is the restoration of a special supplementary tax on savings--the investment income surcharge that was also abolished by my right hon. and learned Friend the Member for Surrey, East. There is some doubt whether the plan is to restore a 15 per cent. surcharge, as previously existed, or to impose a 9 per cent. charge on all savings income --the hon. Member for Newcastle upon Tyne, East is nodding--mirroring

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national insurance contributions. The Opposition voted against the abolition of the 15 per cent. surcharge, but it appears that a 9 per cent. tax on all 20 million savers who pay tax is now in vogue. Either way, it will be a tax on savings when we need more savings, not less.

It would bear most heavily on the elderly, retired, and those who would suffer most from the effect of Labour's inflationary policies in wiping out their lifetime savings.

As to the top rate of income tax, on a number of occasions, Labour's spokesmen have affirmed that it would be raised to a maximum of 50p in the pound--or 59p in the pound including the national insurance surcharge. In his revealing interview in the Independent on Sunday , the right hon. and learned Member for Monklands, East described that rather menacingly as

"an exercise in moderation."

It is not clear why anyone should rely on Labour's promise not to raise tax rates if it came to power. I wonder whether the hon. Member for Halifax (Mrs. Mahon), who called for redistribution, believes that a top tax rate of 50p in the pound is high enough.

Mr. Tony Banks : Will the Minister give way?

Mr. Lilley : Of course I will give way--my hon. Friend the Member for Eastbourne (Mr. Gow) set an example.

Mr. Banks : It was a fine example to follow. I may say to the young Minister that it is all very well Conservative Members complaining about the Labour party not spelling out what it intends to do, but when my right hon. and learned Friend the shadow Chancellor does exactly that, Conservative Members will respond, "We do not believe what you say." We cannot win in that situation, can we?

Mr. Lilley : There is some suspicion, because Labour's voting record in Parliament indicates otherwise. Labour Members voted not only against the reduction of the top rate of income tax from 60p to 40p, but from 83p to 60p. Labour's record in government, too, belies the "exercise in moderation" to which the right hon. and learned Member for Monklands, East referred. When in government, Labour raised the top rate of tax from 75p to 83p, and the overall top rate was increased to 98p in the pound, on income from savings. Labour deliberately took that action, to "squeeze the rich until the pips squeak"--to use the inelegant words of the right hon. Member for Leeds, East (Mr. Healey).

Mr. Nicholas Brown : Is it the Financial Secretary's view that the entire process of Labour's policy review was just some kind of charade, for the purpose of presenting a pleasant face to the electorate, and that we do not mean a word of it? If that is the Minister's view, he should say so, rather than just imply that it is.

Mr. Lilley : There is an element of charade in Labour's policy review, and there is an important reason for some doubts lingering in the minds of not only my right hon. and hon. Friends but of people in the country at large, as to whether the conversion of the Labour party is sincere. The reason for those doubts is that Labour has never admitted that it was wrong. There is more joy in heaven over one sinner who repents than at 99 just men who need no repentance. Never has a Labour Member stood up and said, "We were wrong. We are sorry. We have changed, and we now have a different policy." Until Labour

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disowns both its voting record and its record in government, doubts must remain about the policies that it presents.

I would expect any changed policy to be accompanied by a recognition that the previous policy was wrong. However, if Labour maintains a dual allegiance to its previous record and to its new, temporary policies concocted before a general election, it must expect the man in the street to hold some suspicions.

When Labour was in power, it deliberately raised top rates of tax, but not, it would seem, to acquire a great deal of extra revenue. The consequence of that action was that the top 5 per cent. of this country's richest people, who at the beginning of Labour's period of office paid 29 per cent. of our income tax revenues, paid only 24 per cent. of them by the end of Labour's term of office. That is scarcely in tune with the redistributive aims of at least the hon. Member for Halifax.

Mr. Frank Haynes (Ashfield) : I do not know where the Minister got his brief, but he is wandering about all over the place. I wonder whether he holds constituency surgeries, as do I and my right hon. and hon. Friends. I held a surgery on Saturday, and people came in to complain about the taxes that they have to pay, even when they are in a very low income group. I could cry at some of the problems that they have as a consequence of the present Administration. The Minister keeps harping on about what Labour's policy will be if it gets into power. Don't worry, lad. Labour will get in next time. When it does, taxes will be based on people's ability to pay. That is what it is all about--so let the Minister put that in his pipe and smoke it.

Mr. Lilley : I am grateful for that constructive contribution from the hon. Gentleman, who has just wandered in.

The main issue affecting both the hon. Gentleman's constituents and mine is not the top rate of income tax, which falls directly upon no more than 1.7 million people, but the basic rate. Neither Labour's policy review nor the statements of Opposition figures give clear guidance. My hon. Friend the Member for Hertford and Stortford made clear, as did my hon. Friend the Member for Richmond and Barnes, the conflicting statements made by Opposition Members. If today's debate serves any purpose, it is to achieve clarification from Opposition Members as to whether it is Labour's intention to raise the basic rate of income tax.

The right hon. and learned Member for Monklands, East acknowledged in his recent interview that the tax reforms he proposes will not be "revenue- neutral." He was clear about that. The right hon. and learned Gentleman admits that the yield from implementing just one of them would be absorbed by just one of Labour's pledges. We have yet to see the Opposition spell out and cost all their pledges. They promised to do so in the foreword to the very document that the hon. Member for Newcastle upon Tyne, East suggested as a reliable guide. But the shadow Chief Secretary has said that she disowns the promise made by the Leader of the Opposition in his foreword to cost Labour's policies before the general election. Labour has now gone back on that promise and said that it will not cost them until afterwards. That is another reason why we have doubts about the reliability of Labour's spokesmen.

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In the absence of clear statements by members of the Opposition Front Bench, and as they have not taken the opportunity today to stand up and say whether they will raise the basic rate, we must refer again to Labour's voting record and its record in government. The voting record of Labour Members is clear. They voted against every cut in the basic rate that we have introduced in this and previous Parliaments. They voted against a reduction from 33 per cent. to 30 per cent. in 1979 ; 30 per cent. to 29 per cent. in 1986 ; 29 per cent. to 27 per cent. in 1987 ; and 27 per cent. to 25 per cent. in 1988. On each occasion, the Opposition said that they would prefer to use potential revenues from income tax to increase public spending.

One can believe that, because one knows that that is where Opposition hearts lie. When in government, and after some ups and downs, Labour ended up with a basic tax rate 3p higher than that which applied when they were first elected. If we were simply to uprate in line with inflation the tax allowances that Labour left behind for a Conservative Government, and if we had maintained the same tax rates, the average man would be paying over £1,000 a year more income tax.

That underestimates the true burden of public expenditure under Labour. A large part of its programme was financed not by tax but by borrowing. Borrowing is nothing more than deferred taxation. The equivalent value today of the deferred tax burden that Labour was incurring, year in and year out, was equivalent to about £2,000 per household in the last year of that Labour Government.

Mr. Tony Banks : That is what one borrows money for.

Mr. Lilley : I am afraid that it is not as simple as the hon. Member for Newham, North-East suggests-- [Interruption.] I meant to say Newham, North-West.

Mr. Banks : I hope that the Minister's economics are better than his geography.

Mr. Simon Coombs (Swindon) : Will my hon. Friend confirm that, such was the Labour Government's inability to control public expenditure, that in 1976, although they raised personal and corporate taxes significantly that year, they had begun the year by assuming that the public sector borrowing requirement would be £2.7 billion? As it turned out, by the end of the year the PSBR had reached £9 billion.

Mr. Lilley : My hon. Friend is absolutely right. It is difficult to forecast the public sector borrowing requirement, but happily we often make the mistake of underestimating our surpluses.

The overall impact of the Labour party's policies is clear : a higher burden of taxation, higher taxation of the average man in the street and, most of all, a substantial increase in marginal tax rates for large numbers of people. At last we know what supply side socialism means. It is the exact opposite of what the rest of the world did during the supply side revolution of the 1980s. During that period, countries from India to America, from Japan to the Ivory Coast, reduced their top rates of tax and their rates of tax generally because they believed that marginal rates of tax were important for efficiency, growth and the prosperity of the economy.

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Mr. Battle : If the result of this week's meeting is that Congress and the President of the United States decide to do a U-turn and raise taxes to fund the trade and budget deficit, will the Government here do likewise?

Mr. Lilley : I am grateful to the hon. Gentleman for making that point ; it reinforces what I said earlier. We had to raise the tax burden to deal with the deficit that we inherited from Labour. I do not intend to comment on the United States Government's predicament. If, however, the hon. Gentleman is suggesting that deficits cannot be sustained and have to be financed, there is a great deal of force in what he says.

The hon. Gentleman's colleagues do not seem to recognise the damage that can be done by high rates of tax, not just to individuals but to the health of the economy as a whole. The Labour party specifically denies that they cause damage. The hon. Member for Dunfermline, East (Mr. Brown) said :

"I find that there is no respectable evidence There is nothing at home or abroad that can justify the ideology of incentives"--[ Official Report, 26 April 1988 ; Vol. 132, 231.]

That was said in the context of cutting the basic and the top rates of tax. The hon. Gentleman is happy to ignore the evidence of common sense and experience that has convinced the rest of the world that taxes must be reduced.

We are in competition with countries throughout the world that are endeavouring to reduce taxes. I do not believe that the electorate, both because of family budgets and their recognition of this country's needs, will vote for a party that is as committed as the Labour party clearly is to raising marginal tax rates and clobbering the British people, and therefore the British economy.

6.32 pm

Mr. Nicholas Brown (Newcastle upon Tyne, East) : Like the hon. Member for Eastbourne (Mr. Gow), I am grateful to the hon. Member for Hertford and Stortford (Mr. Wells) for tabling his motion. I am sorry that he feels that he has been cheated twice. He feels that he has been cheated by the Labour party's headquarters in Walworth road, which seems to have provided him with a different copy of the policy review from the one that the rest of us have. If that is the reason why he has been misled, I am sorry. I am also sorry that he may have been cheated by his own party's Whips Office.

We respect the hon. Gentleman's views on the Third world and overseas aid. Given his special interests and his luck in the ballot, I should have thought that he would choose a subject for debate that related to the Third world and overseas aid. This is a partisan motion. Nevertheless, it has provided me with an opportunity to respond to the matter of substance. I did not expect to have such an opportunity until after the next general election.

The motion has no ground in fact. It is the sort of contemptible motion that one associates with Liberal party councillors. It suggests that the Labour party is committed to

"massive increases in public expenditure".

I do not know why the hon. Gentleman believes that public expenditure increases would be massive. Many Opposition Members believe that there ought to be substantial increases in public expenditure, but we are not committed to them, because we know that they cannot be achieved.

The motion states that the Labour party would impose

"new taxes on savings, jobs and property".

Column 643

We do not intend to invent new taxes to cover any of those matters. We shall no doubt adjust the present tax rates, but we do not intend to introduce new taxes.

The motion goes on to say that the Labour party would increase the rates of income tax. That is a fair point ; I shall have more to say about it later. However, the Labour party's policies will be directed at those who pay the top rates of income tax. Those who pay income tax at the standard rate have nothing to fear from our policies. The motion goes on to state that the Labour party would increase national insurance. That is a bit rich, coming from the party that in 1979 suggested that it would do exactly the opposite and then increased the rate from 6.5 to 9 per cent. If we increased national insurance, it would be only a question of removing the ceiling. We do not suggest any further increase in national insurance charges. the policy review document suggests nothing of the sort.

The motion also says that the Labour party is refusing to reveal its plans for the basic rate of income tax and contrasts that with the Government's goal of basic rate of just 20p. When we set goals we are told that they are vague promises, that we should be unable to achieve them and that we are not to be believed. When the Government set goals and do not achieve them-- some Conservative Back Benchers have said that they ought not to be achieved at the moment--that is laudable. Why are our goals derided as dishonest while the Government's goals are praised? It is unusual for the hon. Member for Hertford and Stortford to be so partisan.

The motion goes on to say that Labour

"will be forced substantially to increase the burden of tax on many lower and middle income earners."

We shall do nothing of the sort. Our taxation policies are designed to increase the wealth of the low-paid, not to diminish it. It is a bit rich for the Conservative party to say that, when only last Thursday it was condemned by the Social Services Committee, an all-party Committee, for having produced misleading statistics relating to those on low incomes. In its report the Select Committee said :

"It is now clear that those on lowest incomes gained least in the period 1981-85. We await with interest the publication of the new tables on Households Below Average Income to see whether this trend continued to 1987."

The blame lies with the Conservative Government. It is wrong for them to try to palm that off on us.

The motion

"notes that Labour plans run counter to the growing international consensus on the case for low taxes."

That is wrong. Our taxation policy is more in harmony with what is happening in Europe and among the developed countries of the world than the narrow and restrictive tax policies, with only two bands, that are being pursued by the Government. Only one person in 25 pays the top rate of income tax. For everyone else, regardless of their earnings up to the top rate threshold, there is only one rate of tax. That is not what happens in the rest of Europe and that is not what we propose. If criticism is to be directed at anyone, it ought to be directed at the hon. Gentleman's own party, not at the Labour party. The motion also states that

"new taxes would stifle enterprise, drive firms and individuals abroad"--

although we are trying to do exactly the opposite--

"and gravely weaken the wealth-creating capacity of the United Kingdom".

When one examines the recently published investment and growth figures, one realises that the Government ought

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