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Mr. Shaw : I agree with my hon. Friend. If ever there were a case for a "quickie" general election, it would be on the basis of what we have heard from those who sit on the Opposition Front Bench today. The Opposition have no new taxation policy to present to the British electorate. All they want to do is to tax the British electorate more and more and to employ more and more civil servants and bureaucrats. The Opposition still have the wrong policies for tackling the economic issues that face us as we come out of the recession. The fact of the matter is--
The Second Deputy Chairman : Order. How does this relate to the amendment under consideration?
Mr. Shaw : You are right, Dame Janet. Again I have been taken slightly away from the point. I was carried away by my enthusiasm for increasing our majority and having another term in government. The key point is that we are still wedded to reducing the rate of income tax over a period of time. That was featured consistently in our successful, election- winning manifestos. The Opposition want to tackle the tax issue differently. They want to raise tax rates and change the way in which taxes are raised. Our policies contain the right balance. The Budget was skilfully constructed in the middle of a worldwide recession that is causing great difficulties. The Budget deficit continues to increase and the lagging
indicator--unemployment--is inevitably at a higher level than one would like.
Clause 52 reflects the fact that both the foreign and the domestic financial markets have given the Government a considerable vote of confidence. The British electorate should recognise the fact and consider giving a further vote of confidence to the Government in any future by- elections. That vote of confidence should be based on the difficult decision that is reflected in the clause we are debating.
Mr. Rooker : What we are debating today, if we cut through the bull and the smears on Opposition policies by Conservative Members today, is a tax increase on the low-paid. At least 300,000 people, who would not otherwise have to do so, will now have to pay income tax. Furthermore, those at the bottom end of the tax threshold--4.5 million people--will not enjoy the benefits that they ought to receive. We shall no doubt hear the Financial Secretary refer to what happened between 1974 and 1979. That point has already been made clear in interventions.
My conscience is clear. My record is okay. The same cannot be said of the Government's record. In 1993, the tax burden on the British economy is greater than it was in 1978-79. Compared with this Government's record, the last Labour Government have nothing to apologise for when it comes to the tax burden on the British economy. I freely admit that the burden is shared differently--hence the steps that I took as an individual hon. Member in 1977. Earlier, I interrupted from a sedentary position to remind the hon. Member for Beaconsfield (Mr. Smith) of the date--14 June.
If the Finance Bill had not been amended in 1977, we would not be able to hold this debate today. We can debate
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this proposed tax increase on the low-paid because of what happened in Committee on 14 June 1977, when I and my hon. Friend the Member for Preston (Mrs. Wise), then the Member for Coventry, South-West, moved amendments on indexation. It is not the fault of the right hon. Member for Berwick-upon-Tweed (Mr. Beith), but that night we did not enjoy the support of the Liberal party. John Pardoe was upset because, as part of the Lib-Lab pact, he was obliged to vote with the Government. He was very distressed because indexation was Liberal policy.I want to consider the obnoxious tax increase on low-paid people, and in doing so I shall give a couple of statistics on the tax burden. Between 1978-79 and 1992-93, as a share of income, the tax burden--income tax and national insurance--declined for single people, married couples and people on average earnings or above who had children. In the same y in tax and national insurance, taking into account child benefit, is greater now than in the last year of the Labour Government. The share paid by the poorest families--those on three quarters or half average earnings--is higher than under the previous Labour Government. They are a unique group.
It is tedious to keep repeating statistics, but I will give the figures for a family with two children and 50 per cent. of average earnings. Hon. Members might regard 50 per cent. of average earnings as irrelevant or unrealistic, but average earnings are alleged to be £340 a week. When I say that, most of my constituents say "Don't talk silly--our wages are nothing like that," and that is true of the majority of people because the average is not the majority. The share of income that a couple on 50 per cent. of average earnings with two children paid in income tax and national insurance, minus child benefit, in 1978-79 was 2.4 per cent. whereas in 1992-93 it was 6.3 per cent.
Mr. David Shaw : Will the hon. Gentleman give way?
The share of income paid by a couple on 75 per cent. of average earnings has increased from 14.6 per cent. to 15.5 per cent. In other words, whatever changes have occurred in that period, couples on less than average earnings with children have suffered uniquely and their position will be made worse by the freezing of tax allowances, which is why the clause is so objectionable.
Mr. Dorrell : I have made a calculation for a married man with two children--a single earner in the household--on half average earnings. Will the hon. Gentleman confirm that, since 1979 and at today's values, the real take-home pay of that person has risen by £67.30p a week?
Mr. Rooker : Absolutely--I am coming to that. I am talking about the income share that such a family pays in tax and national insurance. The share that they pay from their household earnings has gone up, whereas it has gone down for everybody on more than average earnings. It has gone down for single people, married couples and families on more than average earnings. It has gone down for single people on less than average earnings. It has gone down for married couples on less than average earnings without children. It has, uniquely, gone up for couples on less than
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average earnings with children. What a record--low-earning families with children are the poorest-paid and the hardest stressed group in the country.The important point is the share. We are talking about the community kitty for the country. That is the purpose of taxation--for people according to their means to pay into the community kitty. Why are the lowest-paid families on less than average earnings with children paying a larger share of their income than in the last year of the Labour Government? Why should their share of the community kitty have gone up when everyone else's has gone down?
Mr. Dorrell : Does the hon. Gentleman believe that the changes in the totality of the tax system which have been made since 1979 may have led to the enhanced rate of improvement in the take-home pay of every group in the community, including the group that he is talking about?
Mr. Rooker : Exactly, but relative to everybody else the share of the burden that they are asked to bear has gone up. The Minister cannot deny that. No one denies that their absolute earnings have gone up. Earnings kept ahead of inflation in the 1980s, which caused some of our present difficulties, but why has their share of the community kitty increased when everybody else's has gone down? Why has the share of income that the hon. Member for Dover (Mr. Shaw), as a Member of Parliament, perhaps with outside earnings, has to pay gone down? Why should the poorest paid families on less than average earnings with children, uniquely, be asked to pay more? The Minister argues that their earnings have gone up, but the share of earnings that they are asked to pay has gone up while everyone else's has gone down.
That is the reality of the debate and not what the hon. Member for Dover was saying. An increase in taxation is being proposed for the poorest people in the country. They are being asked to pay a bigger share of their income in tax than anybody else. I was opposed to that in 1977 when I proposed amendments in Committee and I am opposed to it now.
I do not deny that the spending power of all families and sectors has increased, but those on less than average earnings have done substantially less well than the better off. That is my argument. My argument is one of fairness between groups in society--those on low incomes and those on high incomes. I believe that people who have high incomes should pay a bigger share, and indeed they will pay a bigger share this year, but during this Government's term of office their share has gone down while the share taken from the poorest paid families has gone up. That needs to be emphasised and constantly repeated. That is why we oppose the clause, which stops indexation.
Mr. David Shaw : I believe that at one stage, the hon. Gentleman referred to household income rather than individual income. The average household income increasingly includes the incomes of two people--husband and wife--because more women work today under this Government than when Labour was in office. As a result, a higher rate of income tax may often be paid in a two-income household, because when the two incomes are added together more taxation is paid at the higher rate. That can often account for the phenomenon that the hon. Gentleman has identified.
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6 pmMr. Rooker : I used the term "household income" as a figure of speech, but I was talking about earnings, and the figures that I cited related to earnings. Generally speaking, when figures are produced for a married couple with two children, it is assumed that there will be one earner and one non-earner. the wages earned by some of the women in the families affected are so low that they would not make any difference to the tables, which are produced by the research staff in the Library on the basis of parliamentary answers. I have been talking about low pay, so by definition I have been talking about earnings, and about people who have jobs. We must not forget that the unemployed are also subject to taxation at certain periods. During the year in which they cease to be employed and during the year in which they obtain another job, unemployment benefit is part of their annual taxable income. The impost does not fall only on people with a low-paid full-time or part-time job ; the unemployed are also caught in the tax net now. Some of them are also subject, at the margins, to the effects of the clause and the freezing of personal allowances.
The Minister may say, "What is all the fuss about? It is only £18 a year."
Mr. Rooker : Yes, that is the maximum--or rather, it is £22 a year for the average family but £18 for a single person. People will say, "Eighteen pounds? That is chicken feed." Hon. Members may pay that much for their lunch or their supper, or even leave that much as a tip after their supper. But I have met constituents--my hon. Friends have met such people, and I know that Conservative Members have met them, too--who could not raise that sum at any stage in their yearly existence.
I thought of a couple of examples today involving unemployed constituents seeking to get back into work, who had used the opportunity of unemployment to further their education. But they could not pay the exam fees. One person could not pay the £10 assessment fee for nursing training. When people are that low down the income scale they do not have the money. That is why it is wholly unfair to ask those people to pay an increased share of taxation. It is immoral--there is no other word for it.
I do not accept the argument that the sum is small, because I consider that sum not in isolation but in the context of the generality of what other taxpayers are asked to pay. There should be fair shares. The well-off should pay their fair share, but the clause freezes allowances in such a way that they will not pay as fair a share as they would otherwise have done.
One of the long-running advantages of the 1977 indexation measures-- although they have subsequently been amended, the kernel of them remains-- is that these days at Budget time the Treasury publishes tables which make a good comparison with what the figures would have been like if there had been indexation. Indeed, I was amazed at the brass face of the Budget press release dated 16 March, with its illustrative tables on income tax rates and allowances. Every hon. Member has an average of 500 constituents who will now pay tax at 20p in the pound although they did not pay tax before the Budget. The average number is 500, so some hon. Members will have many more constituents in that position.
The Treasury tables showing the annual effects of the income tax changes in the Budget, compared with what
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indexation would have provided, has to assume an increase in incomes. When comparing one year with another one must not assume that incomes will stay the same ; one must assume an increase in earnings. I thought that the Treasury would assume an increase of 1.5 per cent., but not on your life--the Treasury assumed an increase of 4 per cent.Why did the Treasury assume that incomes would increase by 4 per cent. between 1992-93 and 1993-94 when there is a 1.5 per cent. pay freeze in the public sector which also runs through the low-paid part of the private sector? What brass face the Treasury and Ministers must have to approve the use of 4 per cent. as an illustrative figure when they have introduced a pay freeze of 1.5 per cent. That is outrageous. When the Financial Secretary winds up the debate, I should like him to tell us why the figure of 4 per cent. was approved. That figure does not represent reality for most people. I shall finish soon, because the point has been well made that the effect of the clause is a massive tax increase for the low-paid. The burden is greater for the low-paid--especially if they have children--than for the rest of the country, and to that extent it is extremely unfair.
Because of the increased burden of taxation on the low-paid, we are creating in this country an underclass of citizens who are bewildered by the system and who struggle to make ends meet from one week to the next. Hon. Members all know this from what they hear in their constituency surgeries, and from the letters and telephone calls that even Conservative Members mention. In a debate not long ago, a Conservative Back Bencher referred to the people who shuffled into his surgery with a haunted look in their eyes, the down-beaten and downtrodden who could not cope because of the increased tax burden and the cuts in benefits that his own Government had brought about. I shall not cause that Conservative Member any more trouble than he is already in by reminding the Committee of his name.
According to the average figure, 500 constituents of mine will pay tax at 20p in the pound rather than paying nothing as, because they are so low- paid, they would otherwise have done. I am speaking for those people tonight, as my hon. Friends have spoken for their constituents. No Conservative Member has said, "Well, that is it. I have some low-paid constituents, and it is tough, but they will just have to pay more tax." Conservative Members will not have the courage to say that.
Instead they will say that the budget has to be balanced and extra revenue is needed. Nobody denies that, but why take from people on lower than average earnings a greater share of their income than is taken from people on higher than average earnings? That is wholly unfair, and we shall certainly pin it on the Government.
What will the money pay for? The Government were open about that. The brief published on Budget day gave a little summary of the measures for 1993-94 :
"The Chancellor proposes that there should be little net change in 1993-94. Certain taxes are reduced : there is help for business and the housing market".
There certainly is help for business. Some of the extra taxation brought in by the clause--brought in off the backs of people so low paid that they were not paying tax at all--will help to fund businesses such as the Heron corporation so that money can be forked out for the Ronsons of this world.
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The idea is outrageous. It is beyond belief that that is the sort of business that the Government are supporting. They will raise taxes on the low-paid and say, "Yes, we want to get business going," but they give no directions and no special incentives to ensure that that money is put into real investment to create real jobs, now factories and new businesses. No--businesses will be able to do exactly what they like.Mr. Tim Smith : I understand what the hon. Gentleman is saying, but the Red Book shows that the main factor was the decision not to increase business rates by more than the rate of inflation. Had that decision not been made, many businesses might have been pushed over the brink and jobs would have been lost. There is a balance between jobs and income tax. Which would people prefer to have--a job, with earnings on which they had to pay income tax, or no job?
Mr. Rooker : For my sins, I was the Opposition local government spokesman in 1987-88 when the Bill introducing the poll tax was in Committee. It took 200 hours. We were dealing with the business rate, the poll tax for business, and we shot the Government's arguments to pieces. The rates that business pays as an overall proportion are minuscule. I do not accept the argument that to help businesses we have to impose more taxes on the low-paid. That is what I cannot justify. We cannot consider one small provision of the Bill in isolation.
This provision will raise money on the backs of the low paid. What will it be used for? It will be used to reduce the tax burden on businesses. It is unfair to expect people whose earnings are 50 per cent. of the average to pay a bigger share than the average Member of Parliament or the Gerald Ronsons of this world for the purpose of reducing the taxes paid by businesses. Nobody is on lower pay than those who until now were below the tax threshold.
There must be no taxation by stealth. In this regard, the hon. Member for Beaconsfield was quite honest and open. As I look at the Strangers Gallery, to which I am not supposed to refer, I expect that very few people realise that what we are debating here is a big increase in taxation. What is being done is not being done by stealth, as in the past. The Committee has an opportunity to debate and to vote. When I found out in 1977 how the system worked I objected strongly. The roof came in on my hon. Friend the Member for Preston and myself for what we were doing. We were criticised by the press and by the leadership of our own party. But then the penny dropped as messages came in from pensioners' groups and trade union branches. It is much fairer to have things done in the open.
The tax burden on the poor is too great, and the Government are reverting to the previous process. Next year they will say that the rate of inflation this year was only 2.6 per cent. and that the forecast figure for the following year is 3.6 per cent.--nowhere near the level of the late 1970s. They think that if they get away with freezing allowances in one year, they will get away with it again. We are returning, step by step, to the old system of taxation by stealth.
This process must be opposed at every turn. In 1981 I came to the Chamber and opposed what was being done. I will act similarly today, and I will continue to do so. I do not take any pleasure in this. It takes time, and it is not
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easy to explain to people outside. What members of the public do know, however, is that under the Budget taxes on the low-paid have increased.I should like to make again a point that I made at the end of the Second Reading debate, when between the end of the Financial Secretary's winding- up speech and the Division I used the procedure of the House for a couple of minutes without upsetting everyone. In the course of a visit to Hereford and Worcester that day, I was asked what I was doing about the Rooker-Wise amendment. The person concerned, having been sucked back into the tax system many times, understood how it worked. He was so close to the margin that he knew he would be in the system for half of the year and out of it for the remainder.
I understood the mechanics. He realised that the Budget would result in freezing--that, having been sucked into the tax system, he would stay there. He regarded that as wholly unfair. I told him that, having been on the Opposition Benches for 14 years, I did not have much responsibility for the situation but that I would go to the House of Commons at the first opportunity and raise the point.
Mr. David Shaw : This is why the hon. Gentleman is in opposition.
The point that I am making illustrates the unfairness of freezing allowances. By definition, as everyone knows, the burden on those with less than average earnings is disproportionately great. The Government will not increase income tax by a penny in the pound, because that would have the reverse effect. They do not want to attack the well-off. Tory Governments are bound to adopt this attitude. They talk about tax cuts, but they raise taxes. They talk about decreasing the tax burden, but they increase it--not only the overall burden on the economy but also the burden on the lowest- paid.
We shall nail the Government with this. It will not be easy, as was demonstrated in 1987 and 1992. It is not easy to get this message across, even during general election campaigns. The Conservatives always quote the 83 per cent. and 98 per cent. tax rates under the last Labour Government, as in the ebb and flow of politics they are quite entitled to do, but nobody ever paid at those rates. The average rate was far less. It was stupid of the last Labour Government to have high tax rates that were not actually used. They were warned that those rates would be used against them. At the other end of the scale, the system was such that tax revenue could be raised from the low paid.
Then the Tory party thought that it would be a good idea to introduce some truth into the tax system. The get-out clause was introduced by a former Chancellor, now Lord Lawson. At the back of the noble Lord's mind was the idea that a Tory Government needed a get-out. The Financial Secretary appears not to know what a get-out is. Perhaps I will have an opportunity to explain to him later. Our original amendment on indexation was cut and dried. There would have been no get-out, but for an amendment tagged on at the end by a specific vote in the House. That is how the tax law was left at the time. Today we are at least guaranteed a debate, and some of us are
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able to demonstrate that it is very unfair to put this extra tax burden on the low-paid. I invite the Financial Secretary to defend disproportionately great tax increases for those people : he cannot do it.6.15 pm
Mr. Dorrell : Members of all parties agree that the hon. Member for Birmingham, Perry Barr (Mr. Rooker) takes a serious interest in these issues. Indeed, the Committee is indebted to him for the part that he played in 1977 in ensuring that we could have this debate today. He has said that at that time everybody was against him. As he would be the first to acknowledge, our parliamentary system does not work in quite that way.
Far from everybody being against the hon. Gentleman, the Conservative party of the time, of which I think my hon. Friend the Member for Beaconsfield (Mr. Smith) is the only representative present today, supported him. The Rooker-Wise amendment that has been referred to is, in fact, the Rooker- Wise-Lawson amendment. The action of the hon. Gentleman and his hon. Friend the Member for Preston (Mrs. Wise) was supported by the Tory party.
We do not resile at all from the decision that the Government took then. We believe that, as the hon. Gentleman has said, changes in the real level of allowances should be the subject of debate in the Chamber. That is precisely why we are having this debate. Thus far, at least, I go along with the hon. Gentleman. I shall refer later to some of his arguments that I found to be substantially less convincing.
I should like to start with something that ought to be obvious. My hon. Friends the Members for Dover (Mr. Shaw) and Beaconsfield said that this element of the Bill is part of the total package that my right hon. Friend the Chancellor introduced to deal with the budget deficit. It is most remarkable that a constant in the debates we have had on this Bill is the assertion--made sometimes in almost accusatorial tones by the Opposition-- that these are revenue-raising proposals, as though we had somehow stumbled over them almost in a fit of absence of mind. It is true that many of the changes made in the Bill are put together as a revenue-raising package.
The reason for that should not be surprising or unfamiliar to any hon. Member. It is that my right hon. Friend the Chancellor faced the need to do something about the Budget deficit. The Government take the budget deficit seriously. As these debates proceed, it is becoming abundantly clear that the Labour party does not share our commitment to a policy of seriously addressing the deficit. Over the past few weeks and months, we have seen several examples of that lack of firmness of purpose. The hon. Member for Dunfermline, East (Mr. Brown) has been anxious to rule out options which may help deal with the budget deficit. In January, on the radio, he said :
"I'm not talking about raising income tax or national insurance or VAT."
That was said by the shadow Chancellor, who acknowledges that the budget deficit is too high but is anxious to rule out the three key tax weapons available to do something about it. In March, just before the Budget was delivered, he said on television.
"I think at this particular point in time to raise income tax or national insurance or VAT would be a mistake."
So all three major sources of revenue available to the Government were explicitly ruled out twice, on the record, by the hon. Member for Dunfermline, East.
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While the hon. Gentleman has been busy telling the world what he would not do to address the budget deficit, his hon. Friend the Member for Peckham (Ms. Harman) has been going round telling the world what she would do to make the budget deficit worse. She has been committing the Labour party to extra expenditure on training and, as my hon. Friend the Member for Beaconsfield said, to more generous capital allowances. So, on the one hand, the Labour party says that the budget deficit needs attention : on the other, it either forecloses options for doing anything about it and opposes all proposals that are put to the House, or it comes forward only with proposals which would make the deficit worse.The first thing that we have to be clear about in addressing the question is that we face a budget deficit that demands attention. The Government have a package of proposals to address the deficit. All the arguments from the Opposition Benches come from a party which has been anxious to foreclose as many options as possible for dealing with the deficit.
The hon. Member for Newcastle upon Tyne, East (Mr. Brown) was generous enough, as were other hon. Members, to acknowledge the second element : that the proposals for changes to allowances and thresholds have to be seen in the context of other proposals for changes to the income tax system, particularly the introduction of the lower rate band. The interrelationship between changes to allowances and changes to the lower rate band is a key element of the Budget package.
What the Committee would not have gathered from the speeches so far in the debate, particularly from the Opposition Benches, is that, for the single person who is a basic rate taxpayer, it is not a coincidence that the effect of the freezing of the allowances and of the widening of the basic rate band is precisely the same : they net out. For the single person on basic rate tax the freezing of allowances costs him £22.50 this year ; the widening of the lower rate band benefits him to the tune of £22.50 this year. There is a statistical equivalent.
The married couple basic rate payer is £12.50 a year worse off as a consequence of the changes. Taking particularly the single person basic rate taxpayer, he is in precisely the same position after the changes as he would have been if the indexation proposal of the hon. Member for Perry Barr had been allowed to run its course in respect of both the lower rate band and the basic rate band.
There are differences. All higher rate taxpayers are losers as a consequence of the changes because the effect of freezing allowances is to ensure that the benefit available from the changes to the higher rate taxpayer is exactly the same as to the basic rate taxpayer. The hon. Member for Perry Barr was right to say that those who are marginal payers within the lower rate are to a varying degree losers in absolute terms, although I would argue strongly that they are also gainers in the sense that the marginal rate of income tax which they are paying is lower than at any time since the Government came to power.
The changes that we are introducing in the package are part of the progress that we can make to introduce a wider lower rate band which will have important positive benefits in dealing with the poverty trap, the unemployment trap and the sharpening of incentives, which must be an important priority for those on lower incomes.
Mr. Graham : Does the Minister realise that, for 14 years, we have been told that, once the Conservative
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Government got to grips with the economy, things would go well? For the past three years, we have been told that the end of the recession is round the corner. We have been told that by the Chancellor until he was blue in the face. The Minister is telling us that low wage earners will benefit. In God's honest truth, that is not the case. If we can prove that he is not right, will the Minister come back and reverse what he has said?Mr. Dorrell : The hon. Gentleman suggests that people on average earnings, or the majority of people, have not benefited from the logic of the changes which we have been introducing for the past 14 years. As I said in an intervention in the speech of the hon. Member for Perry Barr, that is not true. Those who are on half average earnings have benefited in their take-home pay from the economic record of the Government to the tune of £67.50 a week in real terms since 1979. In the period 1974-79, the same group saw their real take-home pay increase by just over £8 a week.
People on average earnings are more than £80 a week better off than they were in 1979. Their income grew in real terms over the five years of the Labour Government by just over £1 a week. So there was an increase of £80 a week under the Tories and £1 a week under Labour ; that is the contrast that answers the point made by the hon. Member for Renfrew, West and Inverclyde (Mr. Graham).
I have said that we cannot consider the changes in allowances in isolation from the rest of the changes to the income tax system. Nor can we consider them in isolation from the other changes contained elsewhere in the Budget. I discussed that point with my hon. Friend the Member for Beaconsfield in an intervention based on the analysis of the Institute of Fiscal Studies. It took the Budget package as a whole and looked at the distributional effect of the increase in the tax burden which my right hon. Friend introduced in his Budget. The institute--an independent organisation-- concluded that the average loss as a percentage of net income was virtually the same right across the income scale, from the poorest 10 per cent. of households to the richest 10 per cent. All of them, to within a very narrow range of variance, contribute roughly 2.5 per cent. of their net income to the deficit reduction programme which my right hon. Friend introduced in his Budget.
Of course, if the Budget is addressing the deficit by means of revenue raising, there will be by definition an average loss in resources available to taxpayers. Those figures show that that loss is shared fairly across the income scale. We cannot consider it in isolation from other income tax changes, nor in isolation from other changes elsewhere in the Budget. Nor, most important of all, can we consider it in isolation from the history of the past 20 years. That is where the record of the Government bears very favourable comparison with the record of our predecessors.
The hon. Member for Perry Barr is entitled to mark himself out in regard to his responsibility for what happened to personal allowances under the Labour Government. The effect of his action on what happened during those years is extremely marked in the figures. The year in which he rebelled was the only year of the Labour Government's period of office in which personal allowances increased in real terms. Over their total period
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of office, the single personal allowance fell in real terms by 21 per cent. In the period since 1979, it has risen by 25 per cent. 6.30 pmWe will not accept any lectures from members of the Opposition Front Bench on the subject of the indexation of personal allowances ; nor will we accept lectures from any member of the Labour party, even including the hon. Member for Perry Barr, on the subject of the living standards of people right across the income scale.
Mr. Graham rose --
t the effect of this Government's policies taken as a whole has been to deliver a substantial increase in real take-home pay and living standards right across the income scale, benefiting the average wage earner by £81 a week, at today's values, this year, and benefiting the group on which the hon. Member for Perry Barr was focusing by just over £67 a week.
Mr. Graham : Anyone who thinks that the 3 million unemployed, the pensioners and disabled people have benefited under this Government is living in cloud cuckoo land. I want to ask the Minister what the Government have done with the money that they got from oil. How did they fritter that away? Why should we expect a pensioner to pay VAT on fuel and power when we had billions of pounds' worth of oil in the north of Scotland and in other places? How did the Government absolutely squander that?
Mr. Dorrell : One of the things that we have done is to increase by more than 50 per cent. the amount of money spent on the national health service as a result of the improved economic performance. Since 1979, we have seen a substantial improvement in Britain's economic performance, and this has been delivered to the British people by improving real take-home pay and social services. That was the commitment that we gave in 1979, 1983, 1987 and again in 1992. We have been delivering it for 14 years, and we will go on delivering it.
Mr. Jim Cunningham : I could not believe my ears when the Chief Secretary to the Treasury said that over the last 14 years Britain's economic performance had improved. If that is the case, why are we talking about borrowing, and funding deficits? The Chief Secretary has fallen into the trap of believing his own rhetoric. Last week showed that the Government listen to themselves and nobody else, and live in a totally different world from the rest of Britain. The tragedy of this Budget is that, once again, the burden has been put on those who can ill afford to pay. As the Chief Secretary said, we cannot look at allowances in isolation from the rest of the Chancellor's package. If we look at the burden imposed by the lack of action in relation to tax easement from the lower-paid, add to that such things as VAT, and then start to work out what inflation will be 12 months hence, we can see this tremendous burden unfold. If I were the Chief Secretary to the Treasury, or any other member of the Government Front Bench, I would be
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ashamed to be a member of a party that, after 14 years, has brought a great country like ours to such a state that we have to borrow tremendous sums of money and raise money to pay it back.One or two have to be answered. Two or three times today, hon. Members have alluded to these, and once again we have to take them up. The Chief Secretary, for example, referrred to issues that he must talk about that have arisen over the last 20 years. If we go back 20 years, we are talking about the Heath Government. Has the Chief Secretary forgotten, when talking about industrial relations, the three-day week and the fact that prices rose considerably, particularly petroleum prices? The members of the Organisation of Petroleum Exporting Countries decided to put prices up, that led to inflation, and the 1974 Labour Government had to pick up the pieces. Let us remember a few facts when we talk about the improvement in Britain's economic position and start to compare records. I do not think that the Government have anything to be proud of.
The Chief Secretary talks about packages, and the Budget is a package, but nothing has been said during the debates or in anything that I have heard over the last few weeks about the balance of payments deficit. I wonder how much planning has gone into that. I wonder what taxes are in the pipeline for the future--or will it be higher interest rates, or perhaps a combination of the two? Those are the things that the Government should start to think about, because we certainly do not want the stop-go situation again. The Government said 14 years ago that they would bring that sort of thing to an end. They were also elected on the slogan of lower taxation, but in reality we have had sneaky tax, hidden tax, and now taxation has been expanded through VAT. So, if they have not got on top of the deficit next year, will we see further expansion of VAT--for example, to newspapers, children's clothing, and so on? Again, nothing has been done to help old-age pensioners or one-parent families. Instead, the burden on them has been increased. That is a sorry indictment of this Government. They may try to find excuses, but the answer is that they have run out of alibis for their stewardship of this country over the last 14 years. The Chief Secretary must be very careful when he talks about improvements in Britain's economic performance, because the ordinary people in the street rejected his Government's policies last week. They are paying a terrible price for their tremendous efforts to put this country on its feet.
I welcome some of the initiatives to help businesses--I do not think that anybody who is concerned about unemployment could fail to do so--but we must ensure that small businesses get the benefits intended for them, and that sums of money in the form of grants are spent wisely.
This is a sorry Budget, a tragic Budget. The former Sir Geoffrey Howe's Budget in 1981 was supposed to set Britain in a new direction, on a new economic course, yet in 1993, we are looking at the same issues as we looked at in 1981. Those in the Government who call themselves accountants play ducks and drakes with figures, but the people of the country can do their homework ; they can see the price that they have to pay for the follies of this Government. The Government may defend the highest 5 per cent., but we are very proud of the fact that we defend the lower-paid and people in the middle-income bracket.
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The Government's recommendation must, I submit, be rejected tonight.Dr. Berry : I had not intended to speak in this debate, but I want to respond briefly to a number of comments that have been made. The proposal before us today is effectively to increase the tax burden on lower income groups, and we have been given some extraordinary reasons why this is appropriate. One extraordinary argument was that the tax burden had to be increased and it could not possibly be increased for those on higher incomes, who have benefited substantially from previous tax cuts.
Even good old Professor Laffer has been invoked, as if it is generally accepted that a little graph that the Professor scribbled on the back of a serviette in a restaurant in the United States a long time ago is somehow gospel and can be used to talk sensibly about tax policy.
I have to say that it cannot. The point is a very simple one. The argument rests on the proposition that, if we reduce people's taxes, they will work harder, so their incomes will be higher, and therefore they will pay more taxes. Ministers have given no evidence whatsoever that if, as has happened, the direct tax burden on higher income groups is reduced, they will work more overtime and consequently pay more income tax. The reason that they have not offered that evidence is that no such evidence exists. Exhaustive studies, not least by Professor C. V. Brown, have shown that income tax cuts on high income groups do not encourage greater efforts to pay even more income tax. It really is nonsense.
The Minister said that the budget deficit has to be corrected, but he did not recognise that it is so high precisely because of the Government's economic performance. I repeat my earlier point : that the Government have the worst record on economic growth of any post-war Government--1.9 per cent. per annum. The Government responded by saying, "No, you misunderstand. Living standards have improved". Of course they have. If the Government had achieved the remarkable feat of negative growth, no doubt average living standards would have fallen, but even the present Government have managed to secure some economic growth over the past 14 years. It is the natural order of things. However, they have managed to reduce that rate of growth. Living standards have improved for some people, because they have borrowed extensively in the financial regime created in the late 1980s. I advise the Government to worry as much, if not more, about the scale of private sector debt as they do about public sector debt. If they honestly believe that our economy is capable of sustaining increased living standards in the way that they have suggested, they are deluding themselves.
The clause is part of a tax package that in one sense is perfectly consistent with everything the Government have done. They have increased the tax burden over the past 14 years. It may be a useful device to tell people that they have not, but it is dishonest. The Government have shifted the tax burden from the higher income groups to the lower. Not one person who has seriously examined the statistics would attempt to deny that charge. It is a charge, an accusation and a criticism. How can anyone conceivably support a tax
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regime that, year by year, is being geared to ensure that those on higher incomes get more and those on lower incomes get less ? Apparently, in order to encourage those on higher incomes to work harder, they have to pay less tax. Those on lower incomes are encouraged to work harder by paying more tax. That is the nonsense of the Government's position and I hope that the amendment will be supported in the Lobby.Mr. Thomas Graham (Renfrew, West and Inverclyde) : The Minister told us about the regime that will operate, but he made no apologies for the fact that the wealthy people in Britain will become more wealthy as a result. The rich are getting richer and the poor are getting poorer. Quite clearly, the Treasury had an opportunity to redress the balance and tax the rich people in Britain substantially more and reverse the trend that the Government have been applying for a long time.
I was amazed to hear the Minister's glib reply to me about how the Government frittered away billions of pounds of North sea oil revenue. I wonder what happened to North sea gas, as the gas from the Government is quite stinking. We have the sickest geriatric Government ever. They are so old-fashioned that they are not just getting grey hairs ; they are dying on their feet.
6.45 pm
Last week, the English and the Welsh consigned them to the bin and left them with just one council. That is no wonder, because they are utterly mismanaging the economy. There is no way they will get away with that anywhere in Great Britain. I would love the folk of Scotland to have an opportunity to register their protests, which would swing the boot at the Government. Perhaps the Government would then take a responsible attitude, instead of putting VAT on fuel and power, and at least folk would be able to live in a wee bit of comfort.
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