|Previous Section||Home Page|
Column 244Last year, I suggested that the then Chancellor--after his inevitable dismissal--might end up with a job lecturing on demand management at the London School of Economics. This, I now appreciate, was very unfair to the right hon. Member for Kingston-upon- Thames (Mr. Lamont) and I unreservedly apologise. He should, of course, have sought a post lecturing on the new post-Keynesian economic theory--one which is unique to the British Conservative party--known as demand mismanagement.
It takes a peculiar kind of short-sighted greed combined with enormous arrogance to manage demand in such a way as to take a pro-cyclical rather than a counter-cyclical fiscal stance, and exacerbate rather than offset the economic cycle. That also belies talk of automatic fiscal stabilisers. This is not the Conservative party's first foray into demand mismanagement. The policy that it has adopted is entirely consistent with the way in which the 1981 Budget's tax rises were put into place in the depth of a recession. The folly of the short-term tax cuts of the late 1980s is bluntly exposed by the Budget speech and the accompanying measures included in the Bill. The Chief Secretary told us earlier that his party's "every instinct" is to cut taxes. Having heard that, it is hard to believe that there are £2.5 billion worth of tax increases contained in the Bill for the financial year 1994 to 1995, rising to £4.8 billion worth for the financial year 1996 to 1997.
Altogether, the Budget increases almost entirely reverse the tax cuts which were made in the late 1980s and they exceed anything enacted by Labour Governments. They hit the poor hard and middle-income families the hardest. The tax burden rose from 34.75 per cent. of GDP in 1978 to 1979 to a peak of 39.25 per cent. in 1981 to 1982. It fell to 37.25 per cent. in 1988 to 1989, largely as a result of cuts in the top rate of income tax.
The Conservatives ask what Labour would do. They might at least give the Labour party credit for what it did at the time. It voted against those cuts, and warned that the reduction was unsustainable. At the same time, there was the ideological divide which still exists between the two parties. If it is possible to make tax reductions, it is the Labour party's view that those reductions should go to the very poorest in society and not to the very wealthiest.
In 1993 to 1994, the tax burden fell to 34.25 per cent. of GDP, partly as a result of the cumulative effect of the tax reductions of the late 1980s, but mostly as a result of the effects of the recession on Government revenues.
By the time all of the tax rises come in, and allowing for some recovery, the tax burden is projected to rise to 38.5 per cent. of GDP. That more than offsets the previous tax cuts, although the new taxes are not being paid by the same people who benefited from the reductions. The wealthiest 1 per cent. of our fellow citizens received about £3.2 billion from the 1988 tax cuts. They will pay about £300 million after the tax rises next year. That is a saving of £2.9 billion for them, and yet the tax take for the economy is almost up to its peak of 1981 to 1982.
Mr. Brown : I am addressing myself to the measures in the Finance Bill which is before the House today. It is not my intention to introduce my own tax and spending package, even though I am sure that the hon. Gentleman would rather debate that than the package which the Government have brought before the House today.
The journey back to massive tax increases has been accompanied by the most extraordinary series of climbdowns and U-turns. The journey has been accompanied by the sort of incoherence and double standards which would make even the most well-motivated observer of the Government's management of the economy a little cynical.
I can remember the present Prime Minister denouncing the Labour party at a Welsh Conservative conference a few years ago for planning to peg the married couple's allowance and mortgage tax relief to the basic rate of income tax at 25 per cent. Having alleged that that was our plan, he denounced us thoroughly for it. He then went on to implementing it, engendering not a little cynicism on the way. There was more to follow. Both those tax reliefs are now pegged to the 20 per cent. band.
At least it could be said for the previous Chancellor that he has a tax band to peg the reliefs to. The present Chancellor has not even gone through the usual form of introducing a lower band and accusing the Labour party of secretly planning to undermine two important tax allowances. He has arbitrarily introduced a new 15 per cent. rate for the allowances without reference to any other part of the tax system.
One of the key features of the Chancellor's Budget and the accompanying Finance Bill is its complete opportunism. It is the sort of opportunism that might induce cynicism. Presumably, next year's Chancellor will have the job of tidying it up. In the past, Conservative Chancellors have boasted that they have regularly abolished yet another tax, even if on closer examination it turns out to be the duty on matches and mechanical lighters or something of the sort. The present Chancellor is not bothered with any of that. He has introduced two new taxes, not to broaden the tax base but simply to introduce new taxes. He has done it because he needs the money.
Mr. Milligan : The hon. Gentleman is making a detailed attack on Government policy. In the spirit of his speech, may I ask him to give one detail about the Labour party's policy? If Labour had won the election, would public expenditure today be higher or lower?
Mr. Brown : As I said before, I have not come to the House to present my tax and spending plans. The fault of the Labour party--I suppose that the hon. Gentleman is right to refer to it--was to put its tax and spending plans candidly and truthfully before the electorate. The Conservatives put before the electorate a version of events that turned out not to be the truth about either our tax and spending plans or their tax and spending plans. I have to inform the hon. Member for Eastleigh (Mr. Milligan) that, although it may be possible to deceive the electorate once, I doubt whether the Conservative party will ever be trusted on these matters again.
Column 246The Bill contains an astonishing series of deceits and U-turns. Direct tax allowances are again frozen. That is an effective increase in income tax--something which the hon. Member for Eastleigh no doubt promised his electorate that he would not do. The reduced rate band again turns out to be a device for reducing the value of tax allowances instead of reducing the rate of income tax.
The life cycle of the business expansion scheme is remarkable. It has gone through introduction, praise, exploitation, abuse, denunciation, abolition and now resurrection as the enterprise investment scheme. What do we make of clause 89, which reneges on Chancellor Lawson's arrangement for the indexation of capital losses? Is the Conservative party united behind that measure? I suspect not. The clause will reduce the incentive to invest in risky ventures--something that the enterprise investment scheme is supposed to encourage. I see that the clause is listed in the Red Book as an anti- avoidance measure which blocks a loophole. If the Chancellor thinks that that is a loophole, he would not know a loophole if it hit him in the face.
The Budget is incoherent. Its hallmark is fiscal opportunism. There is a further problem. The question of the deficit--
Mr. Brown : I shall not disappoint the hon. Lady. I shall do my best to keep her entertained as well as well informed. However, I certainly would not want to misquote the Chief Secretary or the Financial Secretary.
There is a further problem when discussing the Budget. It is the deficit. The Chancellor has said that it will be dealt with "once and for all". Let us give him the benefit of the doubt. That ought to cheer up the hon. Member for Lancaster (Dame E. Kellett-Bowman) : we are giving the Chancellor the benefit of the doubt. Let us assume that he is not planning to do a flit next door and leave the debt and the bad credit rating to the new tenant of No. 11. Let us assume that that will not be another broken Conservative promise and that he means what he says. I have to say that the spending targets that he has set are very tight. The control total for the non-cyclical elements of public expenditure allows for growth of only 3.8 per cent. between 1992-93 and 1998-99. Under Baroness Thatcher's Government --and Baroness Thatcher was no slouch when it came to dealing with public expenditure--the comparable figure at the same stage of the economic cycle was 12.5 per cent. We are dealing, therefore, with extraordinarily tight parameters for public expenditure.
In the unified Budget process, we are supposed to consider tax and spending together and there are a number of questions to which the House should address itself. Can the public sector pay freeze hold as private sector earnings increase? It is also right to ask whether it is fair that it
Column 247should hold. Even though the Chancellor's dodge with the contingency reserve is a genuine cut in spending, I do not see how it can be repeated.
What happens if there is a real contingency that cannot be met from within Departments' budgets? Will the savings drawn this year from the environment and transport budgets be repeated? I think not. How far will the Government say to local authorities that they are going to cut their budgets and how sustainable will that policy be? Is not the heart of the matter that the Chancellor, to reach his tight public expenditure targets, will have to reduce the civil service by about 10 per cent.?
Are the Government confident about their legislation? I do not entirely think that they are. I have a briefing note provided by Mr. Ian Gambles for the Chief Secretary, the Financial Secretary--and myself. Mr. Gambles draws the Chief Secretary's attention to a number of points. He starts by saying :
"You are responsible for piloting the Finance Bill through the House."
It is just as well that the Chief Secretary has Mr. Gambles to point that out to him. One could not possibly have drawn that conclusion from the Chief Secretary's speech today. Mr. Gambles, who is a shrewd man and clearly has a future under the next regime, goes on to say :
"Life is likely to be made more difficult this year by the Opposition."
Revealing the Government's true intentions, he says :
"Committee of the Whole House is arguably rather pointless ... It may be worth floating the idea of dispensing with it But it is very unlikely that they"
--meaning the parliamentary Labour party--
"will be in a mood to be so co-operative on this occasion." That certainly captures the spirit of these exchanges.
Mr. Gambles goes on to say--and this is the very good advice-- "Assuming we do have Committee of the Whole House, it would be very odd not to debate there the two short clauses introducing new taxes."
He is referring to air passenger duty and insurance premium tax. The Chief Secretary is extraordinarily lucky to have such an adviser. I listened to the Chief Secretary's speech and I did not hear him mention air passenger duty or insurance premium tax, so it is just as well that there are good civil servants to remind him of the contents of the Bill.
This trusty aid goes on to say :
"It is also hard to see how you can avoid having at least one, and probably two debates on the floor of the House relating to income tax and the restriction of MIR"--
mortgage interest relief. But good advice follows. Mr. Gambles says :
"On the former, it might be better to go for clause 72 (personal allowances) rather than clause 73 (restriction of the married couples allowance)",
pertinently going on to say,
"where there will be linkages with Back to basics' and Child Support Agency issues."
Why would the Chief Secretary want to avoid discussion of "back to basics"? I leave that to the House to ponder.
Mr. Gambles, a good and faithful servant, draws our attention to one more matter that will certainly be of interest to hon. Members--including, perhaps, the hon. Member for Lancaster, whose attention I see I am almost holding : who will have to serve in Committee ? The question to which we all like to address ourselves is, "Who is going to do the work ?" It is made clear in the document
Column 248that it will not be the Chief Secretary. Those of us who were responsible for the untimely interruption or at least the revealing of the right hon. Gentleman's holiday in Barbados two years ago during the passage of a Finance Bill will sense a certain irony in that.
The document says :
"I attach a list of Finance Bill clauses with an illustrative division of responsibilities between yourself and your colleagues. It is based on the following assumptions :
you take a small number of high-profile clauses".
It is only fair that I should treat the House to the final carve-up. The Paymaster General will be responsible for 67 clauses and six schedules of this mammoth volume. The Economic Secretary to the Treasury gets 64 clauses and is trusted with one schedule--someone clearly having followed last year's proceedings quite closely. The Financial Secretary is entrusted with the overwhelming bulk of the Bill--perfectly fairly, as he does these things very well. He gets 102 clauses and 14 schedules. Let us hope that we can deal with all this expeditiously upstairs. The Chief Secretary to the Treasury, leading his men from the front, gets six clauses and two schedules. So much for the fair division of labour in the Conservative party. Much has been said about the imposition of value added tax on domestic fuel. The Opposition contend that the House should have a further chance to consider this matter. The reasons are very clear.
Mr. Brown : The hon. Lady really is showing some enthusiasm. I shall do my best to deal with all the points that she has raised from a sedentary position. However, I am not sure that I shall succeed if she keeps firing questions.
It is our contention that VAT is a regressive tax. Indeed, of all the zero- rated goods and services that the Government could have picked on, fuel is the most regressive one to tax. We believe that the compensation package is inadequate. Most pensioners will get only half of what they need, and the same is true of families on income-related benefits. The tax hits standing charges as well as fuel consumed, undermining its credibilty as an environmental measure. My hon. Friends the Members for Dulwich (Ms Jowell) and for Alyn and Deeside (Mr. Jones) made the point that it will hit charities, costing them an extra £35 million over the next two years. And there is further transitional injustice inasmuch as those with money can pay in advance and avoid the early imposition.
It has been said repeatedly, but is worth pointing out again, that before the last general election the Conservative party promised that it would not increase the rate of VAT or extend the scope of the tax. This was stated clearly, firmly and repeatedly, but it has been reneged on.
I wish, in my concluding remarks, not just to make the case against this tax but also to make the case for further consideration by the House. When the tax was introduced the House was not made aware of the other tax rises imposed in the autumn Budget. Nor was it made aware of the latest growth forecast. We were not given a chance to assess the impact of this tax increase on economic recovery. When the tax was introduced, the House had no knowledge of the details of the compensation measures that were supposed to offset the effects of this imposition on the poorest of our fellow citizens. The compensation package has been bludgeoned through the House. Surely it
Column 249is reasonable that the House be given a further opportunity to consider it in the light of the inadequacy of the compensation package.
Why are the Government failing to take public opinion into account before the tax comes into effect? The Chief Secretary might find that the public would be less cyncial about Parliament if, just occasionally, some notice were taken of their opinions.
Is not the House supposed to be considering a unified Budget process which is supposed to bring together tax decisions and spending decisions? Northing of the kind has happened. This is a complete sham.
I urge the House to reassert the principle of annual scrutiny of Government tax measures and to reassert its right annually to refuse supply. It is perfectly possible for Conservative Members to vote for our amendment without ultimately opposing the Bill. [ Hon. Members-- : "No."] They can do so without, untimately, opposing the Bill. Parliament should think about the imposition of VAT on domestic fuel. It should support our amendment, because we are more than just a rubber stamp for the Cabinet's decisions. The right to refuse supply on an annual basis should be a fundamental part of the British constitution, if it is not already.
I do not believe that Parliament has been treated so roughly since the reign of Charles I. It is worth hon. Members remembering his fate. He fell because he was disloyal to his closest associates, chief of whom he got rid of in an effort to save his own skin. He was given to saying one thing and doing another. He told lies and induced cynicism. He was not up to the job and was given to petulance. He might have been described by Andrew Rawnsley as "Richard Nixon, played by Brian Rix." In the 17th century, Parliament stood up for itself, and we should do the same.
The Financial Secretary to the Treasury (Mr. Stephen Dorrell) : I am sorry to tell the House that I do not have a minute from Mr. Gambles to read out, although I enjoyed listening to that minute, and some of the text was familiar.
I must start by commenting briefly on the length of the Bill and on what several of my right hon. and hon. Friends said about that. The Government are aware of the fact that a Bill running to more than 240 clauses and published in two volumes causes concern to both sides of the House, and, in particular, to some of my right hon. and hon. Friends. Its length is not a source of pride to us but, none the less, my hon. Friend the Member for Bristol, North-West (Mr. Stern) drew attention to some of the reasons for its length. We can return to that subject in Committee.
I listened with respect to the views expressed by my right hon. Friend the Member for Worthing (Sir T. Higgins), by my hon. Friends the Members for Slough (Mr. Watts) and for Carshalton and Wallington (Mr. Forman) and by the right hon. Member for Berwick-upon-Tweed (Mr. Beith). They set out their concern that the Bill contains substantial chunks of technical tax legislation which they believe could be as adequately dealt with in a separate taxes management Bill. My hon. Friends and the House will be aware that that has been proposed more than once by the Procedure Committee. The Government
Column 250always listen with respect to its views, but we have set out clearly the reasons why we do not espouse the cause of a separate taxes management Bill.
In recent years, in order to deliver better quality tax legislation, we have ensured that, as far as possible, advance consultation has taken place on the technical aspects of Finance Bills. The Bill is no exception, because roughly half of its clauses have already been subject to consultation. I hope that that will lead to
better-informed consideration in Committee.
All those comments underline the importance of the first point raised by my right hon. Friend the Chief Secretary about the importance of an orderly consideration of the Bill during its passage through Parliament. I very much hope that the official Opposition will see fit to assist in the orderly discussion of the important issues. I hope that the Bill does not become the victim of parliamentary guerilla tactics that deny us the opportunity to give it proper parliamentary consideration.
The debate has presented the House with a certain difficulty, because for as long as any of us can remember there has always been a clear distinction between the Labour party and the Tory party when it comes to the consideration of economic matters. The Labour party has consistently argued for extra money for public services. Today, that cause was maintained in a distinguished fashion by the hon. Member for Birmingham, Perry Barr (Mr. Rooker). His speech, however, seemed to be more directed in code to those on his own Front Bench than to members of the Government Front Bench.
The tradition has been that Labour argues for more money for public services while we recognise the need to restrain ambitions for the public services without an affordable tax burden. The House has been asked to believe that during the past week there has been an important event--it might be described as a seismic event--in British politics. We have been asked to believe that Opposition Front-Bench spokesmen have changed sides in the argument and have suddenly become more concerned about the tax burden than about increases in public expenditure. We have the rather touching prospect of the hon. Member for Peckham (Ms Harman) and my right hon. Friend the Chief Secretary marching shoulder to shoulder to control the tax burden and deliver the taxpayer from increased taxes.
Not surprisingly, the prospect of this unexpected alliance has aroused some interest in the media. It is right for them to be interested because if it were true that the Opposition had changed sides in the argument, it would be rather like Martin Luther calling off the Reformation. The key phrase is "if it were true". Every hon. Member knows that Labour's claim to be the party of low tax simply does not stand up to five minutes' serious examination.
Labour appears to believe that it will be allowed to conduct two separate but parallel debates--one on tax and one on spending--and that no voter anywhere in the country will make the link between its advocacy on one day of extra public expenditure and on the next of control of the tax burden, and that those two unrelated debates are carried on in hermetically sealed units.
Let us look at what happened last week on the issue of tax and expenditure- -one week in the life of the Labour party. On Monday, the hon. Member for Monklands, West (Mr. Clarke), the Opposition spokesman on overseas aid, railed against reductions in official development assistance. On Tuesday, I did not have to read far through
Column 251Hansard to find the hon. Member for Rother Valley (Mr. Barron) because he asked the first question at 2.35, and joined his hon. Friends the Members for Liverpool, Walton (Mr. Kilfoyle) and for Leeds, East (Mr. Mudie) in railing against alleged reductions in grant aid to the Health and Safety Executive.
On Wednesday during Environment questions it was the turn of my parliamentary neighbour, the hon. Member for Leicester, East (Mr. Vaz), who railed against what he called the inability and unwillingness of my right hon. Friend the Chief Secretary to provide extra money for public expenditure on London. On Thursday, the hon. Member for Sheffield, Brightside (Mr. Blunkett), who makes the others look like amateurs, was asked by my hon. Friend the Member for City of Chester (Mr. Brandreth)-- [Interruption.] My hon. Friend is an excellent Member and he asked a pertinent question. He asked the hon. Gentleman why he opposed compulsory competitive tendering, which is producing £130 million extra for patient care. The response by the hon. Member for Brightside was informative. He dismissed my hon. Friend's perfectly correct question with the comment "brass neck". The real spending commitment of the hon. Member for Brightside was not made in the House last week : it was made, as is often the case with Opposition spokesmen, to the lobby group that they wanted to buy off. It was made through the columns of Public Finance and Accountancy. In that journal, the hon. Gentleman made the commitment to take Britain into the 7 per cent. club of countries that spend more than 7 per cent. of gross domestic product on health care. That commitment would cost £6 billion and still the Labour party expects us to take it seriously as the party committed to controlling the tax burden.
Last Saturday, against the background of the spending concerns and commitments that had been rolling out of Labour Front-Bench spokesmen for the whole of last week, the hon. Member for Dunfermline, East (Mr. Brown) and the hon. Member for Peckham sought to persuade the British people that Labour would tax less. That is the politics of make-believe.
The hon. Member for Peckham cut a sorry figure today. She was charged by her Front Bench with making a speech arguing the case for lower tax. So deeply ingrained were her own habits that she could not resist the opportunity of implying that we needed to spend more on health and transport. The hon. Lady's habit of advocating extra public expenditure is so deeply ingrained that she does not seem to have noticed that it is inconsistent with her new-found interest in controlling the tax burden.
I agree with my hon. Friend the Member or Stamford and Spalding (Mr. Davies). The Opposition Front Bench are playing a dangerous game in front of their own goal. By stressing the importance of tax as an issue, they are creating the opportunity for the Government to show the
Column 252importance of expenditure restraint if we are to deliver the low tax burden, and that is precisely what I and my hon. Friends intend to do.
Mr. Ian Taylor : As my hon. Friend was discussing the hon. Member for Peckham (Ms Harman), did he notice that she was so modest in moving the motion in the name of the Leader of the Opposition that hardly anyone in the House heard her move it ? That reinforced the fact that she forgot to table the amendment in the Budget debate.
Mr. Dorrell : It is within the memory of every hon. Member that the reason why the amendment is on the Order Paper today is that somebody on the Opposition Front Bench forgot to move the relevant amendment at the end of the Budget debate. It is the hon. Lady's good fortune that the First Deputy Chairman of Ways and Means was in the Chair to prompt her today. Perhaps she regrets that that friendly prompt was not there at the end of the Budget debate.
Labour Members have no credibility whatever on those issues. By arguing the case for low tax, they demonstrate why they sit on the Opposition Benches and will continue to sit there. They show that they are unselective and cannot resist a populist cry, never mind that it is inconsistent with the argument that they presented last week or even a few hours before. They have no strategy and cannot resist a sound bite.
I agree with my right hon. Friend the Chief Secretary that the best sound bite on the subject of the Labourparty and tax came from the hon. Member for Dagenham (Mr. Gould). I quote him with respect as I always do. He is a former tutor of mine, who, quite rightly, said : "I think the Labour party ought to accept that we will always be likely to have a higher tax burden than our opponents because we believe in public spending."
That is the truth about the Opposition. It is the truth about what they want to do and, furthermore, it is the truth about what they did. They cannot escape the fact that, when they were in government and had the opportunity to deliver their aspirations, between 1974 and 1979 the average share of national income taken in public expenditure was 46 per cent. That was the average for the five years they were in office.
During the current cycle, public expenditure will peak at 45 per cent. of national income and we have published in the Red Book firm plans to reduce the share of national income taken by public expenditure from 45 to 41 per cent.
The fact is that the Labour party spends more. It wants to spend more. It is because it spends more that it is inevitably committed to tax more.
Mr. Pike : Does the Financial Secretary recognise one important factor? It would have helped them in their attempts to spend money and avoid taxation increases if the Government had not destroyed such a large part of the British economy and employment by trying to maintain the pound at an artificially high value when it was in the exchange rate mechanism.
Mr. Dorrell : That was the policy espoused by the Labour party. What the hon. Gentleman overlooks is that, over the past 12 months, the year in which the hon. Member for Dunfermline, East projected continued increases in unemployment, we have delivered a reduction of 225,000 in the unemployment queue and a growth rate of 2 per cent. against an almost equivalent recession rate in
Column 253the former West Germany. The recession rate last year in West Germany was 2 per cent. whereas there was 2 per cent. growth in this country under this Government.
There is, of course, an escape route for the Members on the Opposition Front Bench. It is just as well that the hon. Member for Dunfermline, East spotted it in advance. It is the escape route that they used last time. "Oh, no," they said, "we do not need to raise the tax burden. We can pump up expenditure. There is always another way of squaring the circle. We can borrow it." That is what they did the last time. The borrowing requirement of national income was 7 per cent. between 1974 and 1979. That was the average deficit. I agree with my right hon. Friend the Member for Shropshire, North (Mr. Biffen). The key difference between the parties in the debate this evening is that, when we commit ourselves to expenditure plans, we accept that it follows that we must finance those plans responsibly. We saw between 1974 and 1979 what happens when Governments do not do that. They deliver instead 15 per cent. inflation, economic decline and a cycle of disappointed expectations. We shall not allow that to happen. The reason for the Bill is that we are committed to put in place the tax plans that are necessary to deliver responsible finance of our expenditure proposals, because that is what underwrites and will sustain the recovery in the medium and long term. That is the key difference. That is the essential priority that the Bill represents. It underwrites the recovery. That is not only our view ; virtually every independent commentator has agreed with the Government's view that it is necessary to close the budget deficit, and to do that by reducing public expenditure and raising revenue.
Mr. Dorrell : My hon. Friend would no doubt have his own candidate for that. The one Department that the Labour party usually regards as the milch cow, the one that can always be safely reduced, and whose future one can gamble away, is the Ministry of Defence. Whatever the figure, the Labour party always says, "You can spend less." The Government are determined to deliver key economic disciplines. We shall continue to deliver the improvement in living standards for the British people that we have seen since the Conservatives took office. The vote at the end of the debate is about whether the House is prepared to take the necessary action to deliver the key economic disciplines. It is a straight choice between the responsible finance of the Conservatives and the Opposition's public services on the never-never. It is a straight choice between sound money and a return to the Opposition's borrowing and inflation.