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Mr. Jones : I agree with my hon. Friend. The important word is poverty. It is a growing poverty and it is a fuel poverty. My surgery attracted people who were anxious about the future, their fuel poverty and their housing problems. They find the going tough. Heating their homes adequately through the winter is difficult and their domestic budgets are strained to the limit, yet we are discussing a measure that will make their problems greater. One constituent from Penycoed told me that she had arthritic joints and had a ventilator for asthma and that her
Column 215daughter had a heart condition and was also epileptic. She had extreme difficulty in carrying buckets of coal, so she had a coal bag in her kitchen. When I inquired about the specific problem in buying fuel, she told me that she used two to three bags of coal a week ; bags of coal are £6.50 each. She said that she often used an electric fire and that she also often used hot-water bottles. She said that she paid £10 to £15 a week on her electricity bill.
Those are the raw facts of people--ordinary, honest, decent people such as my constituents who are already up against it. This unjust measure proposes hardship. The Bill was arrogantly presented by a Cabinet Minister, without addressing its contents. That is an honest observation by an hon. Member from Wales. The House has not considered such an unjust measure for many years. On behalf of my constituents, I protest in the knowledge that, so far, the measure has not a shred of support.
Another constituent was similarly affected. She said that she had to retire from work because of a severe back complaint. She had arthritis in her shoulders, neck and spine, and it was necessary for her to keep warm. She said that, each week, she used three bags of coal at £6.50 each. She said also that her electricity bill was about £16 a week. She bought logs to keep her fire going.
Wales is not noted for high wages. I am sorry to say that Wales is top of the low wages league. People on low wages already find the going tough in terms of their domestic fuel budget. I remind the House that, for about 10 days in November, in anticyclonic weather, temperatures dropped greatly. At that time, the houses of those who were not wealthy and of those who could not afford perpetually to feed the electricity meter became very cold. I had a series of petitions from householders, mainly those on council estates. I made it my business to meet those people in their own homes. There was a meeting of about 12 or 14 people, including some of those who had signed a petition.
Mr. Richards : If the hon. Gentleman is so concerned about the cost of electricity, will he tell his constituents why he voted against the proposal to build a gas-fired power station at Connah's Quay in his constituency, which would have produced cheaper electricity?
Mr. Jones : I should like the hon. Gentleman to meet the people whom I have met and explain to them why he is prepared to support an unjust measure which will put domestic budgets under greater pressure.
When I met one group of householders, the person who made her home available to her fellow signatories and me said that it was her usual practice to light her fire, the sole source of heat in her home, late in the day. For the purposes of the meeting that I attended, she lit the fire early. Mothers told me of their worry that in such weather there was only one warm room. Some mothers said that it was too cold upstairs for their children to sleep and that there were icicles on blankets. I believe that, because some residents in that street had recorded the temperature in their homes in the dead of night. One way to help to relieve my constituents' predicament and that of several million others is to modernise houses and make them draughtproof and warm. The benefit of modernising a house is that work could be
Column 216found for six or eight people, thereby making inroads into high unemployment. It would also make people happy and healthier. The Government are hellbent on imposing another unjust tax. First, there was the poll tax ; now there is value added tax on domestic fuel. It will hit those on low wages but above benefit level very severely. The Government cannot begin to expect a pennyworth of acceptance from the nation if they propound unjust measures. At its heart, the Bill is very unjust. If the Government want the nation to pull together to overcome our economic problems, just and fair measures will be required. VAT on domestic fuel is most unjust. The nation yearns for a programme for national recovery which proposes fair measures. The Government do not have the respect of our people. The Government are neither wisely led nor decisively led. Many aspects of the measures go against the grain of a national sense of fair play. I therefore hope that the Government's proposal is defeated.
Mr. Quentin Davies (Stamford and Spalding) : I begin by declaring my interests, as set out in the Register of Members' Interests, as an adviser to NatWest Securities, a director of Dewe Rogerson Consultants and an adviser to the Institute of Taxation. I need hardly say that none of those institutions has the faintest idea of what I propose to say.
In the six years in which I have been a Member, there has not been an occasion on which we have debated the Finance Bill on Second Reading against the background of such lively public interest in the issue of taxation. The hon. Member for Newcastle upon Tyne, East (Mr. Brown) is right to laugh at that. There is no doubt that, over the past few days, the Labour party has been making the running. I hope that the hon. Gentleman has enjoyed the experience, because it will be very short. I am confident that this debate will mark the point in the public discussion of the issue throughout the country at which the tide turns. I am confident of that for two precise and specific reasons.
The hon. Member for Peckham (Ms Harman) notably failed to take the obvious opportunity of saying how she would achieve the essential prerequisite to reduce the burden of taxation of which she complains by reducing public expenditure. Over and again the question was put to her, and over and again she characteristically avoided it. The people of this country are not fools. They will draw their own conclusions from the hon. Lady's evasive answers. From running household budgets, running the budgets of industry and business, small and large, and running the businesses of clubs, voluntary bodies and charities, they know that it is profoundly frivolous and puerile to dispute one side of a budget without being prepared to take into account the consequences for the other side. It is frivolous to the point of being farcical--and it goes way beyond the normal irresponsibility with which we associate the Labour party in these matters--for the Labour party to say that the Government are raising too much money by means of taxation without being prepared to say how the Government should be spending less, so as to balance the Budget at a lower level.
Column 217for the imposition of VAT on fuel? Will he also give the House a short resume of what he told his constituents about tax at the election?
Mr. Davies rose --
Mr. Davies : Having made my strictures about the evasion of difficult questions, I am sure, Madam Deputy Speaker, that you would not want me to be subsequently and unjustly accused of a similar evasion because you have ruled a question out of order. I am only too anxious to respond to the hon. Gentleman. I said at the election with conviction, and I repeat it now, that the party for which I have the honour to stand is the party of low taxation. The Conservative party is the party which delivered in the 1980s and is most likely to deliver in the future the lowest possible rates of taxation with the lowest possible burden of public spending and borrowing.
I shall vote this evening, as I have said in my constituency, and with all the conviction at my disposal for the increases in taxation and for the extension of VAT to domestic fuel. I believe that that was the right and thoroughly responsible measure for the Government to take in the present circumstances.
The second reason why I believe that the debate will turn during the evening is the Labour party's attempt to depict the Conservative Government as a high taxation Government on the basis of the statistical fact that taxation as a proportion of national income is slightly higher at present than it was at a particular time in the late 1970s. The attempt to depict the Conservative party as a taxation party on the basis of that statistic is based on an optical illusion. That statistical fact conceals a reality which is thoroughly creditable to the Government.
If taxation is slightly higher as a proportion of national income and as a proportion of public expenditure, that is because borrowing is lower both as a proportion of national income and as a proportion of public expenditure than it was when the Labour party was in power. Here again, the Labour party underestimates the intelligence of our voters. Our voters know perfectly well--whether or not the Labour party is willing or able to acknowledge the fact--that borrowing is merely deferred taxation. If we borrow more money today, we will have a higher interest charge tomorrow and we shall have to meet that higher interest charge either by raising taxation or by further cutting public expenditure tomorrow.
That is the salient statistic. Public expenditure as a proportion of national income--current plus deferred taxation as a proportion of national income--is substantially lower than it was in the 1970s. Indeed, the figures are set out incontrovertibly on page 115 of the Red Book for all to see. At present, public expenditure as a proportion of national income is about 44 per cent. Let us look back to 1974-75, when the proportion was 48.75 per cent., or 1975-76, when the proportion was 49.25 per cent.
In the 1970s, the Labour party actually had a level of current and deferred taxation, or aggregate taxation, that was five percentage points higher than at present. That is the optical illusion which will not survive its exposure during the debate tonight.
Mr. Malcolm Chisholm (Edinburgh, Leith) : Is not the hon. Gentleman being too simple-minded in just talking about tax and borrowing? Is there not the question of other receipts? In the 1970s, about 10 per cent. of income came from other receipts. Were not those industries which have now been privatised a major factor in that? Would they not have provided a continuing source of income to the Government, which has now been lost?
Mr. Davies : The hon. Gentleman's intervention was based not so much on an optical illusion, or an attempt to put the wrong gloss on the facts, as on something more elemental--a misunderstanding of the facts. During the 1970s, the nationalised industries turned in an aggregate net loss to the country. They included a large number of industries which, now that they have been privatised, are generating considerable sums of money for the Exchequer by paying corporation tax. The figures in relation to that have been so often quoted in the House that I do not need to detain it on that subject.
It is because of my analysis that what counts is the total amount of public expenditure which has to be met by either current or deferred tax that I particularly pay tribute to the courage of my right hon. and hon. Friends on the Front Bench. They have cut public expenditure by more than £4 billion below the level of the rigorous control totals which they had previously set. In the difficult world of politics, I know how easy it is for Back Benchers to urge my right hon. and hon. Friends to cut public expenditure further, which I regularly do. However, I recognise that cutting £4 billion from the control totals was a major political achievement, and I think we should give them the credit which they are undoubtedly due. I shall turn to one of the other major issues which have been thrown up by the Budget and by the Bill, on which the right hon. Member for Berwick-upon-Tweed (Mr. Beith) spoke earlier. That is the fear which has been expressed in some quarters that the fiscal retrenchment--the reduction in public expenditure and the increase in taxation which the Bill brings in--will have a negative impact on the growth potential of this country and, therefore, on our hopes to get unemployment down further. The fear is that that will act as an excessive check on growth.
I believe that that concern--which I understand theoretically--is misconceived in practice for this reason : we must remember that the economy has received considerable stimulus during the past two or three years. During the past three or so years, nominal interest rates have fallen from a base rate of 15 per cent. to a base rate of 5.5 per cent.--in other words, nominal rates have fallen by about 66 per cent., a considerable reduction over a brief time, by any historical standards.
During the past 15 months, the base rate has fallen from 10 per cent. to 5.5 per cent. The time lag in such matters means that a great deal of the stimulus that derives from those reductions in interest rates is still in the pipeline. It will still hit the economy in terms of its impact on borrowing, the creation of money, the increase in demand and, therefore, the potential increases in investment, output and employment. I have no doubt that those increases will come through.
On top of that, there has been the devaluation. Despite some rise in the sterling parity during recent months, the pound is still of a parity 10 per cent. lower on a
Column 219trade-weighted basis than it was in September 1992. That again is a considerable measure of stimulus and, again, not all its effects will have come through.
Finally, we have had the considerable fiscal expansion which preceded this responsible Budget in which we went from a fiscal surplus to a public sector borrowing requirement of about £50 billion on an annual basis. That is a considerable stimulus.
Against the background of all those stimuli, a lot of us would have been worried if some fiscal or other retrenchment had not come through at this stage. We would have been worried that we would overdo it and head into the inflationary problems that have beset the British economy so often and so unfortunately in the past. So, far from being worried about it, I am greatly relieved by the element of fiscal restraint that my right hon. and learned Friend's Budget introduces.
The other factor that we cannot ignore is the international context. Foreign trade accounts for about 40 per cent. of our gross domestic product. We know that our continental trading partners in the rest of the European Union, which represents about 60 per cent. of our overseas trade, are not growing at all. Last year, they had an average growth rate of between minus 1.25 per cent. and minus a little more than 1 per cent., whereas we have enjoyed a positive growth rate of about 2 per cent. That is already a three percentage point differential between our growth rate and those of our major trading partners. The whole of economic history makes it clear that one cannot sustain a substantial differential in growth rates without running into balance of payments problems or inflationary problems, or a combination of both.
Therefore, it is reassuring in the present circumstances--even though I hope that our continental competitors, for all our sakes, will begin to show some positive growth next year--that the reasonable assumption was made that there were natural limits to the extent to which we could drive up the growth rate in the short term. Again, I endorse and welcome the courageous judgments--I use that word advisedly--of my right hon. and hon. Friends.
Now, my right hon. Friend the Paymaster General may have been relatively gratified by some of the observations that I have made so far. However, I have to tell him frankly that, if I applaud, welcome and admire the substance of the Budget and the fiscal judgment that lies behind the Finance Bill, including the brave decisions to set up new taxes, such as the airport tax and the insurance tax, and the extension of VAT to domestic fuel--all of which are the subject of great controversy--I utterly abhor the form of the Bill. I regard the text of the Bill which has been presented to us tonight in an unprecedented two volumes and 400 pages of proposed tax law as an abomination and an example of how we should not legislate. The Bill is a disgraceful comment on the work that has been performed by the parliamentary draftsmen who have the nerve to present it to the House. It is far too long. I was always brought up to believe that the lazy and easy thing to do was to write at great length ; the difficult thing to do and the test of one's drafting was how succinct one could be. The parliamentary draftsmen who produced the Bill have not even heard of that principle, let alone tried to implement it.
Column 220Not only is the Bill far too long, far too prolix--a simple ad valorem duty on insurance comes out at 18 pages--but it shows all sorts of evidence of sloppy thinking and drafting, such as definitions produced way after the terms are first brought into the text. It simply is not good enough.
I began my speech by declaring an interest as an adviser to the Institute of Taxation. I hope that I shall still have that interest tomorrow. Perhaps I will not, after my remarks have been reported to it. The fact is that if one group of people will benefit from this appalling piece of drafting, it is the professional tax advisers. The other side of that is, of course, that the cost of compliance to the taxpayer will increase and, even more crucially, the clarity of the law will be diminished. Parliament and democracy will thereby suffer.
I wonder whether I could leave my right hon. Friend the Paymaster General with a thought. I applaud the Government's initiative in introducing into the civil service an element of competition from the private sector through the principles of contracting out and market testing. I beg him to put right at the top of the priority list for market testing and contracting out the future drafting of the Finance Bills presented to the House.
Ms Tessa Jowell (Dulwich) : I wish to speak in support of the amendment and to take this opportunity to examine the effect of the Budget on charities and other voluntary organisations. In doing so, I should like to register my interest as an adviser to a community care project supported by the Joseph Rowntree Foundation, whose community care programme I ran before my election to Parliament.
The National Council for Voluntary Organisations expressed its disappointment in restrained terms. It said that the Chancellor's Budget had proved to be a "missed opportunity" and that several aspects of it would further increase the tax burden on charities and voluntary organisations and to produce the perverse effect of deterring people from volunteering.
It is important to set the charitable sector in its context as a significant player in the economy of Britain. It is a sector worth about £16 billion a year. It directly employs almost a quarter of a million people. It is larger than the United Kingdom motor industry. Despite that, charities are still uniquely penalised by the present VAT system. They currently pay more than £335 million a year in irrecoverable VAT. They pay more in tax than commercial organisations or local authorities, which do not have to pay VAT on expenditure associated with the services that they provide. Those services are increasingly exactly the same as the services provided by charities. A clear example is domiciliary care. Local authority home care services are exempt from VAT. However, the community care rules set by Ministers at the Department of Health require local authorities to spend 85 per cent. of their community care grant in the independent sector. When a private care agency acts as principal--that is, provides staff to care for people in their own home--it is liable for VAT. That increases its costs and obviously, in turn, the costs to the elderly or disabled people to whom the agency provides services. Meanwhile, care services provided in registered residential homes are VAT exempt. The position is a mess of inconsistencies.
Column 221A core aim of the community care legislation was to remove what the Audit Commission called "the perverse incentive"-- that was a financial incentive that positively encouraged people through the social security system to enter residential nursing homes rather than to remain cared for in their own home. The imposition of VAT on care services in people's own homes, while care services in institutions are exempt from VAT, perpetuates the financial inequalities and, in turn, the perverse incentive.
I now turn to VAT on domestic fuel. The Chancellor has announced inadequate measures of help for pensioners with the additional costs of VAT on domestic fuel. However, he has failed to acknowledge the position of charities which provide residential care for elderly or disabled people. Estimates of the additional burden on charities range from about £30 million to £50 million. Many smaller organisations are seriously considering reducing their services. The Government may be happy to deal with elderly people's fear that they will be unable to meet their heating bills by telling those who live in their own homes to turn their heating down, put on an extra sweater and knit a woolly hat. But the manager of a residential care home cannot turn down the heating. Such staff will have to make a choice--a choice that many voluntary organisations and charities now face--between cutting another service and asking their friends, supporters and volunteers to undertake still more fund raising. Does the Chancellor really believe that it is a proper use of volunteers and other workers who support charitable effort that they should spend more time rattling cans and running jumble sales to help their organisations to meet VAT bills?
A further aspect of increased taxation is the increased costs resulting from the new tax on insurance premiums. The National Council for Voluntary Organisations has reckoned that the imposition of a 3 per cent. duty on a general insurance premium will represent an additional cost to the charitable sector of about £4.5 million. The obvious fear is that that will prove to be a disincentive to charities' taking out adequate insurance cover against the risks involved in the day-to-day provision of their services.
I should like to quote from the letter that the Charities Tax Reform Group sent to the Chancellor when the Budget proposals were being drawn up. The letter from that very large consortium, which represents all the major charities and charitable voluntary organisations, states :
"In spite of ministerial assurances to the contrary, we are beginning to wonder precisely what value the Government places on the voluntary sector. Charities are not the icing on the cake of state provision. In many areas, such as life boats and rehabilitation services for the newly blind, they are the only provisions." There is no limit to the fine words that the Government will deploy in their apparent support for the work of voluntary organisations and charities up and down the country, but voluntary organisations and charities are increasingly sceptical about the Government's will to do anything to sort out the increasing burden that they have to bear in serving their communities. They are asking the Government to listen to their well-argued and reasoned case for reform of charitable taxation.
Column 222the subject as she obviously does. However, I shall read the report of her speech in Hansard and think more closely about it. I should like to begin by concentrating on a procedural point that has been well made by hon. Members on both sides of the House. It concerns the size of this Finance Bill and the opacity of its language. I agree with my right hon. Friend the Member for Worthing (Sir T. Higgins), the right hon. Member for Berwick-upon-Tweed (Mr. Beith) and others who have pointed out forcefully that this is a very powerful argument for splitting future Finance Bills, and preferably this one, into a technical measure, which could perhaps be dealt with through a semi-Select Committee procedure, and a political measure, which would attract debate such as we have had today, especially at an earlier stage.
I hope that my right hon. Friend the Paymaster General and the Whip who is on duty will take note of the fact that very few hon. Members on either side of the House have expressed disagreement with that view. I hope that, for once, the business managers will be made aware, through the usual channels, of the feelings in the House, and will take those feelings into account.
Mr. Forman : I am sorry to hear that. I hope that my right hon. and hon. Friends will have second thoughts about the matter in relation to this measure, and certainly in relation to future Finance Bills. I should like to make a few points about the speech of the hon. Member for Peckham (Ms Harman), whom I am delighted to see in the House, if not exactly in her own place. In opening for the Opposition, she made great play of the Labour party's alleged new credentials as the taxpayers' friend and the tax- cutting party.
I have been in the House since 1976, but this is something unusual for me to hear. When some of my hon. Friends and I asked where and how the hon. Member would cut taxation if her party were in office, we were told that she would not extend value added tax to domestic fuel and power. That comes as no surprise, as it is the subject of the Labour party's amendment today.
If the Labour party--this Johnny-come-lately of the tax-cutting cause--is to be taken more seriously, the hon. Lady and her right hon. and learned Friend the Leader of the Opposition ought to demonstrate some commitment to cutting levels and rates of income tax, and similar commitment in the sphere of corporation tax and, perhaps, in the sphere of national insurance contributions, all of which ordinary electors tend to regard as taxation. I am telling the hon. Lady gently--and I shall give way if she wishes to intervene again--that her party's record does not indicate very powerful tax-cutting credentials. This is something of which the electorate should take note.
With regard to the Labour party's position in relation to public expenditure savings--the other side of the account--the hon. Lady, in answer to questions from Conservative Members, was able only to make comments that were rather fatuous. In saying so, I am turning the adjective against her. Her fatuous answer was that a future Labour Government would cut unemployment.
Column 223As I pointed out in an intervention during the course of the speech of the right hon. Member for Berwick-upon-Tweed, cutting unemployment--if the process is to be state-led--inevitably involves some initial extra public expenditure, which in turn is likely to increase the deficit, encourage extra public borrowing, and possibly even put upward pressure on interest rates--or there may be a combination of all those things.
I cannot see that, in the short term--politicians have to deal with the short term as well as the long--it is enough simply to parrot that the Labour party would cut unemployment.
Mr. Peter L. Pike (Burnley) : Does the hon. Gentleman accept that our greatest concern about the Conservative Government's taxation policy, as demonstrated in the Budget, the Finance Bill and the direction in which the country is going, is that freezing personal allowances has affected people at the lower end of the income scale far more than the wealthy? Indeed, wealthy people have benefited from Conservative tax policies since 1979. The people at the bottom are losing considerably as a result of the freezing of personal allowances.
Mr. Forman : I understand what the hon. Gentleman is saying, but I believe that, if he looks at the tax tables in the Red Book and in the Inland Revenue's press releases, he will see that income at all levels is affected by the Chancellor's adjustment of allowances. It is true that, relatively speaking, the effect may be greater on those in low-paid work. However, I am very keen that, on the social security side, we should boost such things as family credit, which is designed to assist the low-paid in a cost-effective manner. Were we to put much faith in the Labour party's new- found position--it has taken the Opposition about 15 years to reach this point--it would be rather like putting Dracula in charge of the blood bank, as my right hon. Friend the former Member for Bath, who is now the Governor of Hong Kong, used to say. That is how the electorate ought to treat what the Opposition is saying.
In spite of the fact that this Finance Bill is the product of the first unified Budget in modern times, it is still public spending that creates the need to borrow and the need to tax. The need to borrow and the need to tax do not drive public spending. I wish it were otherwise, but that is the reality.
Because it would have been wholly impracticable to make large cuts in public expenditure in one year--something that could not sensibly be done by a responsible Government--and because it would have been wholly irresponsible of the Chancellor not to seek to reduce the level of public borrowing over several years, as his Budget measures are intended to do, my right hon. and learned Friend had no responsible alternative to a substantial increase in taxation through this Bill. That is something that his predecessor did in the Budget of last March, and Governments of different political hues throughout the European Union are doing likewise almost as we speak. Such an approach to public finances is obviously unwelcome to everyone who pays tax, whether direct taxpayers, indirect taxpayers or corporate taxpayers. The alternative to such fiscal responsibility would either have been punished by the markets, if the level of unchecked
Column 224borrowing had brought on a funding crisis, which would have been the worst possible outcome, or, in less dramatic circumstances, would have led to the monetisation of public debt--in other words, another bout of severe inflation. That is something which this country, in a highly competitive global economy, could do with like a hole in the head.
As Martin Wolf put it in the Financial Times on Monday : "The proper start for discussion of the fiscal burden is not with taxation, but spending. In the short term governments may borrow, rather than tax. In the long term, revenue will have to be raised, either to service debt or in the form of the inflation tax." Those of us with long memories will know that inflation is the most insidious form of taxation and that it affects this country more than most, or used to, because of the consequences of so-called fiscal drag.
Conservative Members were greatly relieved that the Chancellor and his immediate predecessor grasped the nettle of deficit reduction this year as the main priority of fiscal policy. With the economic recovery now healthily under way and a structure of taxation which, at least in terms of corporate tax and income tax, is now much more responsive to the economic cycle than it used to be--that is one of the positive legacies of my right hon. and noble Friend Lord Lawson--it should be possible to reduce PSBR relatively quickly as the recovery gathers pace. At any rate, it should be possible to reduce it to a safely low level by the end of this Parliament, which I understand to be the objective of the Red Book.
Once the PSBR reduction is achieved via the mechanism of this Budget and subsequent ones, I urge my right hon. Friends on the Treasury Bench to adhere to two broad principles of fiscal policy in future Finance Bills and Budgets.
First, they should recognise that the right approach to tax policy requires continuing, endless tax reform, especially by making sustained efforts to broaden the base of taxation, so that lower rates of tax in all categories can be achieved without loss of revenue. The figures that have been quoted in the debate relating to the impact of the personal tax changes in 1988, in particular, reveal the way in which one can broaden the base, lower the rates and get in more revenue. The same was true during the period of growth in the 1980s, in relation to corporation tax following the 1984 reforms. In that context, I greatly welcome clauses 73 and 77, which progressively restrict to 15 per cent., in 1995-96, the tax relief available via the married couple's allowance and mortgage interest relief. It is the right decision to phase out those allowances gradually and to drive towards a situation where we can emulate Hong Kong, which has a standard rate of tax of about 15 per cent. Such action by the Chancellor will increase the effective rate of tax, but it should leave the way open for future reductions in the marginal rates of tax, and steady progress towards making 20 per cent. the standard rate of income tax. Perhaps 15 per cent. is too much to ask for in the foreseeable future, but it should be feasible to broaden the 20 per cent. band as part of broadening the base of tax. That is something for which the Chancellor should strive. My second point of principle is that we shall only achieve those lower rates of tax on income, which we must have if our economy is to remain internationally competitive, if we also move gradually, over the years ahead, towards more of an expenditure-based tax system.
Column 225That implies lower rates of tax on income and capital, with the burden of providing extra revenue borne more by VAT and excise duties.
I therefore support the extension of VAT to domestic fuel and power, even though it is an unpopular move, which was contained in the Finance Act 1993. It forms a logical part of a longer-term thrust of policy, with a broader base for VAT. This could enable the Chancellor, perhaps next year, to reduce the standard rate of VAT to 15 per cent. and to introduce a lower starting rate on the real essentials at perhaps 7 per cent. or 8 per cent., as happens elsewhere in the European Union. That is not an outlandish suggestion, and it would offer a net contribution to the overall revenue according to runs on the Treasury model that I have seen. I set out those broad arguments in my speech during the Budget debate, so I will not weary the House by repeating the consequentials tonight.
The House will know that I am the parliamentary adviser to the Institute of Chartered Accountants. Having declared that interest, I should like to put down markers on two further points which arise out of the Finance Bill and which cause some concern to the accountancy profession.
The first point has already been raised by the president of the institute in a letter to the Chancellor. There is little point in introducing "simplified assessment" clauses in a Bill of this kind if their effect is to be vitiated by the tortuous style of parliamentary draftsmen. That point has already been underlined by my hon. Friend the Member for Stamford and Spalding (Mr. Davies).
It might have been better to allow the profession and all taxpayers to get used to the current year basis of assessment in the cause of simplification, which was brought in initially last year, before introducing the far-reaching changes of self-assessment, which are planned to be fully introduced before the current year basis of assessment is fully running.
Secondly, many in the profession have grave reservations about clause 241, which appears to allow the Inland Revenue extensive powers to obtain papers relating to people's personal tax position, subject simply to the consent of a special commissioner. I do not know enough about the technicalities of this matter because I am not an accountant, but it has been brought to my attention that it would be well worth Treasury Ministers reconsidering the issue to ensure that they have got it right.
The Bill is necessary. It is the legislative expression of but one part of a responsible unified Budget. It takes some useful steps towards a more broadly based and buoyant tax system, and I hope that further steps will be taken by the Chancellor in subsequent years. I must end by offering the House the rather sad reminder that the overall burden of taxation can only be lowered, at any stage in the economic cycle, if the burden of public expenditure is reduced. That is likely to mean going further with the deliberate reduction in the scope and responsibilities of the state. Big government is always likely to mean high taxation.
To escape from that universal dilemma, which affects all societies, we must continue to privatise, to contract out and to reassess and reduce the role of the state. That way lies greater freedom and prosperity, and that is the path that we should follow.
Column 2267.57 pm
Mr. Alex Salmond (Banff and Buchan) : I begin, uncontroversially, by accusing the Government of racial incitement. I do not believe that I can possibly interpret the actions of the Chancellor as anything other than that, given that he decided to launch his Budget on St. Andrew's day and now has its Second Reading on Burns night. I suppose that I should be grateful that the House was not recalled on Hogmanay to debate some other part of this miserable Budget. I detect a plot to ruin Scotland's great national days with debates on this depressing Bill.
There is no doubt that the Cabinet would benefit from some Burns--
Mr. Salmond : No doubt that will come to them all in due course. In this earthly life, however, the Cabinet would benefit from some quotes from Robert Burns. Earlier today the Prime Minister dared to accuse another hon. Member of speaking in cliches. The Prime Minister obviously has not encountered
"O wad some Pow'r the giftie gie us
To see oursels as others see us!"
I certainly believe that if the Cabinet, collectively, had read "Holy Willie's Prayer" they would never have embarked on a "back to basics" policy. If Rabbie was silently and mockingly listening to our proceedings tonight--who knows, perhaps he is--he might get the imspiration to go off and pen, "The De'il's awa wi' th' Vatman." The Chief Secretary earlier said that it was not possible to target the compensation scheme for VAT on domestic fuel to allow those vulnerable groups in the coldest areas of the country, who will suffer most, to benefit from some extra compensation package. The Chief Secretary told me in grand terms that it was not possible to target fiscal measures in such detail. I went to the Library and discovered that it had been possible specifically to target huge tax handouts. Almost £14,000 million was given away in tax handouts over four years starting from the 1988 Budget--£12,516 for each high-rate taxpayer. The geographical split for those tax handouts was 58.7 per cent. for the south-east of England, about twice its population share, and 4 per cent. for Scotland, which is about half its population share. The Government were clearly capable of targeting that fiscal initiative but are somehow incapable of targeting a compensation scheme to allow some additional benefit to those who will suffer first and foremost from the imposition of VAT on domestic fuel. The present level of fuel poverty is totally unacceptable. It is well documented that there are 3,000 to 5,000 deaths in Scotland every winter because of the rigours of the Scottish climate. On 28 October a debate on cold climate allowance was initiated by hon. Friends in Plaid Cymru and the SNP. That debate had two remarkable features. After the debate I received a letter of apology from a social security Minister, the first time that I have had such a letter following a debate, in which he apologised for inadvertently misleading the House on some statistics. That is a cautionary tale for Ministers who suggest that the cold climate of Scotland does not translate into higher fuel bills. The Minister led himself into trouble by trying to disprove that obvious fact.
The second remarkable feature about the debate was that only 33 hon. Members voted in favour of a cold
Column 227climate allowance. To their eternal discredit, Labour's Front-Bench spokesmen sat on their hands during the vote. If my memory serves me correctly, only eight Scottish Labour Members were prepared to defy their party's instruction and voted in favour of the allowance. The deplorable attitude of Labour Front Benchers on that occasion has certainly not gone unnoticed by the many organisations representing pensioners and other vulnerable groups in Scotland. That debate was designed to highlight the fact that fuel poverty is utterly unacceptable. The imposition of VAT on domestic fuel will inevitably cause more suffering to more people in those groups.
I enjoyed the speech of the hon. Member for Alyn and Deeside (Mr. Jones). He capably showed, by using individual examples, that it was nonsense to believe that the compensation scheme would be adequate in real terms for his constituents. The best guess is that for vulnerable groups the compensation scheme will meet about half the VAT imposition. In broad figures, I calculate that over the next three years an extra £500 million will be taken out of the Scottish economy by VAT on domestic fuel. The rebate by way of the compensation scheme will be about £130 million, or about 25 per cent. of the total tax yield. That averages an additional £75 a head over those three years for every man, woman and child in Scotland. The heaviest additional burden will fall on the vulnerable groups who are already unable to pay fuel bills. The Under- Secretary of State for Scotland, the hon. Member for Edinburgh, West (Lord James Douglas-Hamilton), has joined us in the Chamber. I should like to see some semblance of a sign that there is a Scottish dimension to this policy. Even at this stage, Scottish Office Ministers should attempt to persuade their Treasury colleagues that the cold climate problem needs to be addressed and not made worse by the Bill. Scots suffer the paradox of fuel poverty amid energy plenty.
The hon. Member for Alyn and Deeside said that it will be possible, at least for a time, for some people to escape VAT on domestic fuel. Helpfully and carefully, some electricity companies, one of which is the Hydro Board in Scotland, are putting in a readable place in electricity bills the information that, if bills are paid in advance, VAT can be avoided. That is because VAT is charged at the point of sale and not at the point of use. I am informed by my accountancy friends that those who have the money to pay their electricity bills for the next three years could get a much higher return than is available from any bank or building society.
For those who have £2,000 or £3,000 in the bank, such knowledge is useful, but once again those who will be hit hardest by the measure will be totally unable to finance even that sort of temporary tax avoidance. I do not begrudge people the loophole, but I would like to see it widened so that it could be used by vulnerable groups who most need such relief. But, more than that, I should like to see a properly funded cold climate scheme, such as the one suggested many times in the House by my hon. Friend the Member for Moray (Mrs. Ewing). That would tackle the problem at its source.
Because of the Government's repeated failure to raise allowances when that is inconvenient for the Treasury, people on depressing and disgracefully low incomes will now be expected to pay income tax. A person on the
Column 228princely annual income of £3,445, or £66.25 a week, will have to pay it. That compares with a £124 a week tax threshold in France. If the Government were prepared to consider the raising of allowances by 15 per cent., financed perhaps by the raising of the ceiling on national insurance contributions--which is approximately a pound for pound exchange involving no additional cost to the Treasury--it would be possible to raise the level at which people pay tax to £4,033 a year, or £77 a week, which is hardly a prince's ransom. I hope that most hon. Members agree that, in terms of equity, that would be a much more reasonable level at which to expect low-paid workers to come into the taxation net than the current depressing £66 a week. At the last election the Labour party suggested the raising of the national insurance ceiling. In a sea of nonsense, that was an island of common sense in Labour's proposals, and I wish that the Treasury would consider the trade- off that I put forward because it would be of enormous benefit to low-paid workers.
There has been little notice taken and, as yet, little comment on a specific tax incentive in the Bill. In a Budget that was awash with taxation increases for a huge number of people, many of whom will be totally unable to meet these imposts, there was a significant taxation concession. It was not announced by the Chancellor in his Budget speech, but it is in Inland Revenue press release No. 23 on petroleum revenue tax, one of the many attendant on the Budget details. That tax concession was extraordinarily specific. In an earlier speech in the House I said that if it had been an income tax concession, it would have been rather like the Chancellor announcing a concession for people called Clarke, whose first name was Kenneth, who happened to be Chancellors of the Exchequer, who wore Hush Puppy shoes and who dressed in a dishevelled manner.
The tax concession on petroleum revenue tax is drawn in quite remarkably specific terms and is for a single pipeline system in the North sea. It is not for all pipeline systems, but for one called the Central Area Transmission System--CATS. It was already the beneficiary of some £200 million of public finance in terms of offsets against petroleum revenue tax to enable it to be established. The Treasury now believes that it should benefit from an additional tax inventive of £20 million over the next few years.
I should like some explanation from the Financial Secretary of how a Budget which increased taxation across the board could find an additional £20 million to respond to the no doubt intense lobby from British Gas, Amoco and other oil companies which make up the CATS consortium.
Significantly, from a Scottish viewpoint, the pipeline from the central North sea to Tayside is currently suctioning Scottish gas out of Scottish waters with no economic benefit whatsoever to the Scottish economy. As a result of the tax subsidy to the CATS pipeline, Scotland has become the first country in history to pay a consortium of international oil companies to take away one of our most valuable natural resources.
The message from the Finance Bill is clear : even when times are tough, the Government look after their own. That is very clear indeed from the lack of equity in the taxation proposals. Even at a time of financial stringency, another £20 million could be found to bung to the companies in the CATS consortium to enable them to continue the process of denuding Scotland of its natural resources.
Column 229The Budget which was introduced on St. Andrew's day and which has its Second Reading on Burns night is resplendent with anti-Scottish measures, from VAT on domestic fuel to extra subsidies to the Central Area Transmission System. Such a Budget is inflicted on Scotland, a country which has huge amounts of energy but is desperately in need of power.
Mr. Barry Legg (Milton Keynes, South-West) : Earlier this evening, I had the rather unusual experience of hearing my parliamentary representative, my hon. Friend the Member for Stamford and Spalding (Mr. Davies), speaking on the Bill. I am the only hon. Member in the House who is a member of the Institute of Taxation and my hon. Friend is our parliamentary representative. At the end of his speech, he questioned whether he would still have a job tomorrow. I shall certainly be contacting the institute in the morning to discuss his future.
As several hon. Members have said, the Bill is quite a substantial document. I have not yet had the opportunity to read it. I doubt whether anyone has read it all and it will be some time before anyone will be able to cross reference the Bill to various sections of existing tax legislation.
Like my parliamentary representative, I have some concerns about the form and scope of the Bill, which runs to 419 pages. I have conducted a short exercise on its contents. Altogether, it raises about £7 billion in extra tax. I have found that measures accounting for around £6.9 billion--more than 90 per cent. of the tax raised--are contained in 51 pages of the Bill, so the other 370 pages do not appear to deal with significant tax-raising measures. There may be some merit in the argument that we have heard today from some of our colleagues, including my right hon. Friend the Member for Worthing (Sir T. Higgins) and my hon. Friend the Member for Slough (Mr. Watts), that it may be time to decide whether some of the technical aspects of the Bill can be considered separately.
The Bill provides a particular challenge to hon. Members in terms of scrutiny. There has been criticism in recent years that various Acts have not been adequately scrutinised. Although the Bill will not affect everyone in Britain, it contains provisions that will affect many businesses and companies and may create difficulties. The Bill should also be a monument to one of the tax strategies of the Labour party. The hon. Member for Dunfermline, East (Mr. Brown) is for ever saying that, if only we could close up all the tax loopholes, we would raise much more revenue. I am sure that the Bill's 419 pages contain many measures aimed at closing so-called loopholes, but I suspect that they will raise very little revenue. That illustrates the paucity of the argument that the hon. Gentleman advances on behalf of the Labour party.
Before this evening's debate, I spent some little while trawling through the columns of Hansard trying to ascertain Opposition Front Bench policy on the budget deficit. Despite studying many column inches and listening to the hon. Member for Peckham (Ms Harman) this afternoon, I found very little information on what Opposition Front-Bench Members think about the budget deficit and whether the Labour party advocates any policy changes.