House of Commons Hansard Debates for 20 Apr 1994

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Mr. Portillo : No doubt the hon. Gentleman will want to pursue that matter with my right hon. Friend the Secretary of State for Scotland.

If what I have outlined is the Opposition's approach to public finance, what about their sense of purpose ? One would think that Labour had at least clear policies that it would consistently follow in our debates. Writing in the Labour party's London Forum document as recently as September 1993, the hon. Member for Peckham said : "Mortgage interest tax relief should be phased out for existing borrowers."

We assumed that during the progress of the Bill Labour would table an amendment to put flesh on the bones of that proposal. But the hon. Lady's proposed amendment to clause 74 would have kept mortgage interest relief higher than the Government now intend, and that would have cost £1 billion this year and £2 billion next year. Labour is guilty not only of hopeless incompetence but of hopeless inconsistency.

Ms Harman : Not only do hon. Members and people outside not believe what the Chief Secretary and his Treasury team say about their plans, but they believe that they cannot be trusted to tell the truth about what we have said. The quotes that the right hon. Gentleman attributed to me are certainly not mine. Whatever document he is talking about it was certainly never published. It is a scurrilous attempt to divert attention from the Government's betrayal of election promises.

Mr. Portillo : If the hon. Lady has not heard of the Labour party's London Forum with which her name is associated and which produced the document from which I have quoted, the degree of disorganisation in the Labour party is even greater than I have been led to believe.

Mr. Michael Stern (Bristol, West) : My right hon. Friend has listed the amendments that were tabled in Committee by the hon. Lady and her colleagues and the cost of them. Will he look at what it would have cost the Exchequer if the Government clauses to save money and against which the Opposition voted had been lost ? Perhaps my right hon. Friend could write to members of the Committee about that.

Mr. Portillo : That will be a most interesting piece of research, and I shall be happy to contribute to it. My hon. Friend is right to add to the examples of

Dame Elaine Kellett-Bowman : Profligacy.

Mr. Portillo : I thank my hon. Friend--of which Labour was guilty in Committee.

The contrast between the two parties could not be more substantial. We have set out the path by which the public sector borrowing requirement will be steadily reduced towards balance. It will be close to zero in 1998-99. By 1997-98, the public sector current account deficit will have been eliminated. Throughout the period ahead, public spending as a proportion of our national income will be reduced. The net public sector debt to GDP ratio will peak in 1996-97 and reduce thereafter.

The reference values that are set out in the Maastricht treaty requiring that the general Government financial deficit to GDP ratio should be lower than 3 per cent. will be met by 1996-97, and the reference value on debt itself--the proportion of general Government debt to GDP--should be lower than 60 per cent. That reference value will never be breached at any time in the coming year.

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Our objectives for the economy, for spending and for borrowing are clearly set out. In Committee, Labour said nothing about what its policy would be. There have been nothing but infantile attempts to drive up the PSBR, and Labour has said nothing about the way in which it would guide the economy. There has been nothing but

irresponsibility by contrast with the Government's transparent purpose of bringing our economy forward during a time of recovery and sustained low inflation.

6.15 pm

Ms Harman : The Bill is a milestone. In years to come it will be seen as marking a defining moment in the course of British politics. It is the moment when the truth about taxes has finally caught up with the Conservative party--the truth that the Conservatives have broken their promises ; that their party is not the party of low tax but the party of unfair tax ; and that their failure to cut taxes is because of their failure on the economy. People now know that on taxes and the economy they can never again trust the Tories. The Bill also marks failure and betrayal. On the Chief Secretary's own admission, the Conservative Government who before the election offered a successful economy have failed--and the price of that failure is to be paid through the tax increases in the Bill.

Mr. John Townend : The hon. Lady is fulsome in her attacks on the Government for increasing taxation. Does not she agree that if the Government had not increased taxation in the Budget the alternative would have been to cut public spending ? But every time the Government try to do that Labour criticises them and offers more and more proposals for increasing public spending. Is not the whole of the hon. Lady's policy hypocrisy ?

Ms Harman : It is hard to keep up with the hon. Gentleman. He stood and cheered when the Chancellor sat down after his Budget speech, but a month later he complained about it. Do we understand from his intervention that he is now back in favour of the tax increases ? If he is, the Chief Secretary will be glad to have him as an ally once again.

There have been two Budgets since the Tories won the last general election- -two Budgets of failure and betrayal. As the economy struggles into recovery--and we hope that it will recover--confidence in the Government slumps. The Chancellor, who replaced the one who was sacked for lack of credibility, now has himself no credibility. Why should anyone believe anything that the Chancellor says ? First, the Tories promised to cut taxes. But they put them up, and the Chancellor said that they never actually promised to cut them. Of course they did.

In the Chancellor's personal election address, he told his constituents :

"Only the Conservatives believe in keeping taxation down." The Chief Secretary to the Treasury told his constituents in Enfield in his election address :

"The Conservatives want to cut your taxes."

How is that for fixity of purpose, Mr. Deputy Speaker ? We have had something new. We have had the Conservatives' objectives, not met ; their intentions, not achieved ; their aims, unfulfilled ; and now we have something new on the political agenda--it is never delivery on their promises. Now we are offered a fixity of purpose.

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The Chief Secretary to the Treasury demonstrated fixity of purpose when he told constituents at Enfield, when asking for their vote :

"The Conservatives want to cut your taxes".

The Financial Secretary to the Treasury, in his election address, told his constituents, no doubt showing the same fixity of purpose :

"We promise to hold taxes low".

However, the truth has caught up with the Tories on their claim to be the party of low tax. The Conservative party is no such thing. The burden of direct and indirect taxes on a family on average income in 1978-79 was 32.2 per cent. This year, the total tax burden on that family will be 35 per cent. of their income.

Mr. Ian Taylor : The hon. Lady rehearsed by quoting from those election addresses in Committee. Given that the public sector borrowing requirement was nearly £50 billion, what would the hon. Lady have done ? [Interruption.] Would she have left taxation as it was, or would she have cut public expenditure or increased borrowing ? We need to know an answer to that if she is seriously involved in the debate.

Ms Harman : The people in the country and the hon. Gentleman's electors need to know why the Conservatives failed to tell the truth before the last election ; why they promised to cut taxes and put them up ; why they promised to be the party of sound public finances and achieved record public borrowing.

The Chief Secretary only

Several hon. Members rose

Ms Harman : I will press on for a few moments.

The Chief Secretary to the Treasury spoke at some length about the effect of the tax increases on the markets. He mentioned the tax increases on business and spoke about them at some length. He mentioned the tax increases and the effect on the incentives for the highest paid people. Yet he hardly spent any time speaking about the big issue of concern throughout the country--the effect of the tax increases on ordinary taxpayers--except to say that £10 a week in extra taxes, £500 a year extra taxes, from a Government that promised to cut taxes, is insignificant.

Mr. Tristan Garel-Jones (Watford) : The hon. Lady spoke of this Finance Bill, and of this Budget being a defining moment. Can she recall a single Finance Bill or Budget in the past decade when the Opposition's strength of feeling about that Budget has been so great that they were unable to keep the debate going in the time allotted to it ?

Ms Harman : The right hon. Gentleman makes a trivial point, which the

Mr. Garel-Jones indicated dissent .

Ms Harman : Yes ; because the issue of concern for many people up and down the country, who feel a real sense of betrayal, is how they will find the extra money they will have to pay in taxes to a Government who were specifically elected on a pledge to cut taxes.

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Although the Chancellor of the Exchequer and the Chief Secretary might try to sweep the truth under the carpet, the truth has caught up with the Tories in the newspaper headlines. Let me quote some of them :

"Tories admit : you paid less tax under Labour".

That is from The Independent on Sunday.

"Tax burden on families to hit record levels, Treasury warns ministers".

That is from the Sunday Times.

"We tax more than Labour, Tories admit".

That is from the Sunday Telegraph. From The Sun we hear : "The Chancellor can't deny the Tories are taking a greater slice of your income than Labour did".

The truth has caught up with the Tories, and people see it not only in their newspaper headlines, but in their pay packets. They see it not only in the newspaper headlines, but in their gas and electricity bills, and in their mortgage payments.

Mr. George Walden (Buckingham) : The hon. Lady has been the object of brutal--I should have thought rather hurtful--attacks by my hon. Friends about Labour spending pledges, so I should like to come to her defence by giving her an opportunity to endorse the wise, honest and frank reflections of her hon. Friend the shadow Secretary of State for Social Security, the hon. Member for Glasgow, Garscadden (Mr. Dewar), about the future affordability of the old-age pension. I am giving her a chance to endorse his sober and sensible reflections on that subject, and show herself to be realistic about future levels of public spending in this country.

Ms Harman : I endorse the comments of my hon. Friend the shadow Secretary of State for Social Security. He is anxious that we should have an open, honest and straightforward debate, which has at its heart the interests of pensioners now and in the future. That was at the core of his concerns.

The truth is catching up with the Chancellor, as nervous Tory Back Benchers mutter against him behind their hands in the Tea Room. Those who hailed him -- [Interruption.] --as a hero in November and waved their Order Papers when he sat down at the end of his Budget speech--where are they now ? Those who hailed the Chancellor as the next leader--where are they now ? The Tory Back Benchers certainly do not support the Chancellor now. The welcome party for the Budget in November has become a wake for the Finance Bill in April. The hon. Member for Bridlington (Mr. Townend), who intervened earlier, the Chair of the Tory Back-Bench Finance Committee, is one of the hon. Members who stood and waved Order Papers after the Chancellor's Budget. We know that, because he told us. In the Budget debate, he told the House proudly :

"I was one of those hon. Members who cheered at the Budget . . . I congratulate the Chancellor and the Chief Secretary on their efforts".

He looked, misty-eyed, to the future and said :

"I think that the Budget will go down as the most important of this Parliament".--[ Official Report , 7 December 1993 ; Vol. 234, c. 171 & 176.]

I agree with him. How right he was, but for rather different reasons than he expected.

Soon the congratulations turned to complaints.

Mr. John Townend rose

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Ms Harman : By 23 January 1994, the hon. Member for Bridlington, who is rising to intervene, was complaining loudly and publicly. Gone were the congratulations. Instead he was saying :

"If we lose our claim to be the party of low taxation we lose a critical asset".

The Chancellor who was hailed as a hero is now blamed for failure. I notice that the Chief Secretary praised the previous Chancellor fulsomely ; however, he did not praise the current Chancellor--no doubt because he wants to be the next one himself. Although the Tories have lost for ever their claim to be the party of low tax, they remain true to their instinct for unfair tax. No doubt the Chief Secretary is hoping to take advantage of the lack of credibility that the Chancellor now has. As The Sunday Times delicately put it, the Chancellor's reputation is

"in the gutter along with the Prime Minister's popularity". Although the Tories have completely abandoned their fixity of purpose for low tax, they remain true to their instinct for unfair tax.

Mr. Townend : This is an important Budget. It is a Budget that would not have appeared under a Labour Government ; a Budget that sets out a strategy to reduce the public sector borrowing requirement to zero. I stand by what I said : if the Conservative party in the long term becomes a party of high taxation, we are finished--but we will not become the party of high taxation. It is our policy to reduce taxation. I forecast that, by the next election, taxes will be down again.

Ms Harman : The hon. Gentleman has failed to ask himself who increased the public sector borrowing requirement in the first place. The Chief Secretary to the Treasury was wrong to say that this Budget and the Government's taxation policies are fair, because the Tories are unfair when it comes to tax. When they gave out tax cuts in the 1980s, they gave most to the richest.

Now that it comes to panicking and taking them back, they take most from middle and low-income families. The top 1 per cent. of earners, with incomes of more than £120,000, had 30 per cent. of the tax cuts, but are paying only 4 per cent. of the tax rises. Only those on £64, 000 a year or more are paying less tax than they would have been in 1979. Everyone else is paying more.

The growing burden of taxes on spending hits hardest those who can least afford it. This year, a family on average earnings will pay £1, 140 in VAT--nearly 6 per cent. of its income. That is nearly twice as much VAT as it paid under the last Labour Government, and the Chancellor has said that his instinct is to extend VAT still further.

While the Government clobber those on middle and low incomes, they fail to close the tax loopholes that allow the super-rich to get away without paying their fair share of tax. Some £110 million in tax-free executive share options has gone to the directors of privatised electricity and water companies alone. That is just one of the many tax loopholes which the Government have failed to close in the Bill.

Mr. David Willetts (Havant) : If the hon. Lady is so keen on closing tax loopholes, why did she vote against the clause that dealt with the abuse whereby people were paid in gold bars ? Why did the Labour party oppose ending that abuse ?

Ms Harman : The hon. Gentleman could not know about our objections to that clause, because the guillotine

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prevented debate. Our objection was that the Bill did not go far enough in closing that tax loophole, and we tabled a new clause that went further than the one which the Government finally and reluctantly presented.

The Tories' priorities were clearly demonstrated in Committee. There was not an empty seat on the Tory side when we discussed the rights of accountants, whereas glazed eyes and cynical disinterest greeted the points raised about how tax affects ordinary people. Tories argued heatedly among themselves when we debated the effect on top rate taxpayers of changes in capital gains tax, but they showed indifference when we debated how the lowest earners will suffer from tax rises.

The Tory members of the Finance Bill Committee well represented their party's true interests. They spoke animatedly and at length when they had financial vested interests as directors or consultants to commercial organisations, but were silent as their Government put up taxes and made a mockery of their election addresses.

We did not, however, have silence from the hon. Member for Dover (Mr. Shaw), who, unfortunately, is not here today. The Chair of the Committee had to rebuke him three times for shouting. He was protesting that it was out of order for me to remind the Committee that he had promised to cut the taxes of his Dover constituents. The truth has finally caught up with the Tories. People are dismayed at the extra taxes they must pay, and angry because the Government are throwing good money after bad. It is not as if the tax increases will fund a transformation of the national health service, the modernisation of our railway system or investment in education. People know that, while the Tories are raising taxes, they are cutting public investment. Since 1979, investment in schools, hospitals and transport has been cut by more than a quarter as a percentage of gross domestic product. Those tax increases are to pay not for investment in the future but for the Tory mistakes of the past.

What the Government have not lacked in the past is public money : £118 billion in North sea oil receipts have been wasted ; and £55 billion in privatisation receipts have been squandered to pay for the dole queue. Unemployment now costs every family in the country the equivalent of £20 a week. Every unemployed person costs £9,000 a year in benefits and lost taxes. Since 1979, unemployment has cost the nation £280 billion, and the Government are now taking money out of people's pay packets and taxing pensioners' fuel bills to pay for their borrowing to finance the dole queue.

The Chief Secretary to the Treasury admits that the Conservatives are not the party of low taxes, but says that, first and foremost, they are the party of sound public finance. But they are not, any more than they are the party of low tax. As the Chief Secretary was forced to admit, today's figures show that this year's borrowing has topped £45 billion, which is the highest PSBR in UK history. It is more than was ever borrowed by the last Labour Government. Last year, central Government borrowing amounted to 7.5 per cent. of GDP, compared with only 5 per cent., which was the highest level of borrowing as a percentage of GDP under the last Labour Government. Moreover, for the first time since records began, the Government have broken the golden rule on Government borrowing

Mr. Portillo : The hon. Lady's figures do not compare like with like.

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Ms Harman : I am comparing like with like. I am not comparing investment in the nationalised industries but looking at central Government borrowing, excluding local council borrowing. That 7.5 per cent. of GDP that the Government are borrowing is entirely accounted for by what they are spending. But they are not investing. For the first time since records began, they have broken the golden rule on Government borrowing, which is not to borrow more than they publicly invest. More than half the PSBR now finances current expenditure. How can that be "fixity of purpose" from "the party of sound public finance" ?

The Government have failed on public finances, because they have failed on the economy. People can see with their own eyes what is happening in the economy. I admire the brass neck of the Chief Secretary, who, in one and the same speech, says, "We are entitled to put taxes up and breach our election promises, because we got it entirely wrong about the economy in 1992 and thought that a recovery was coming, but it was not. But, actually, a recovery is coming now." Why should anyone believe anything that the Government say about the economy ? People believe what they see with their own eyes.

Mr. David Nicholson (Taunton) : The hon. Lady draws attention to the cost of unemployment. I hope that she accepts that Conservative Members want to reduce the cost of unemployment and the unemployment figures. Why does she not refer to the drop of 250,000 in the unemployment figures in the past 15 or 16 months ? Why does she not answer the point made by my right hon. Friend the Chief Secretary that, in all the countries of Europe currently or previously under socialist Governments--Spain is currently under a socialist Government, and France had a socialist Government until recently--unemployment is higher? What magic solution does the British Labour party have which those countries have ignored ?

Ms Harman : We remember only too well the Government saying that unemployment was a price worth paying. It is simply no good the hon. Gentleman saying that it is worse everywhere else, because people know from their experience that the British economy is falling behind. Comparable figures on growth, employment, manufacturing output, exports and skill levels--all important economic indicators of the underlying strength of the economy--show that the Tories have allowed this country to fall behind.

Since 1979, our growth rate has been lower than that of the US, Japan, Canada, France, Germany and Italy. Those are the countries to which we should compare ourselves, whereas the Chief Secretary compares us only with Spain. While, since 1979, employment has grown in those countries, it has shrunk here. Since 1979, we have had the lowest rate of export growth of any major industrialised country. We have the lowest levels of skills of any major industrialised country.

The Conservative party said that it stood for low taxes, and put taxes up. The Conservative party said that it stood for economic confidence, and devastated our economy. The Conservative party said that it stood for sound public finance, and hit record public borrowing. The Finance Bill has shown the Conservative party to be not the party of low taxes, not the party of economic confidence, not the party

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of sound public finances--just the party in office but not in power ; a party for which the question of competitiveness means competing leadership candidates.

After this Finance Bill, no one will trust the current Chancellor again. He did not tell the truth at the election. He made promises that he could not keep and then denied that he had made those promises. He did not tell the truth about tax increases and would not tell the truth about living standards. He is still not telling the truth about the economy, but the truth has caught up with him, no matter how he has tried to evade it.

People do not want to hear any more fairy tales from the Government--they want to know the truth. They can trust Labour--[ Laughter. ] The Labour party has told them the truth about the economy and taxes, and they know that. They can trust Labour to take action to ensure growth, to tax fairly and to invest wisely. People know that, through the Conservative Budgets, they are paying the price of past Tory failures. They know that, for the future, they can look to Labour.

6.41 pm

Mr. Christopher Gill (Ludlow) : I thank you for calling me so early in the debate, Madam Deputy Speaker. Traditionally, I have stood up on Third Reading of the Finance Bill to draw to the attention of Ministers one of the greatest absurdities of our tax system--the means by which we apparently raise far more money than we need. I shall explain what I mean by quoting from the Red Book and the published analysis of public expenditure. This year I can do so only on the basis of the figures for last year. I have, on several previous occasions, made a similar sort of speech, but the Treasury has now shot my fox and no longer publishes appendix D to the analysis of expenditure from which I gleaned much of my information. I can talk only about 1992-93, when the outturn of the six inland revenue taxes--income tax, corporation tax, petroleum revenue tax, capital gains tax, inheritance tax and stamp duty--amounted to £76.1 billion. For the same year, according to the public expenditure analysis, Cmnd 2219, published in January 1993, the 47 reliefs and allowances against the same six inland revenue taxes totalled £75.8 billion. The net to the Exchequer was almost the same as the allowances that had been made against those six taxes.

I draw two conclusions from that. The tax system is still being used for the purposes of social engineering. If that were not the case, the standard rate of income tax, instead of being 25p or 20p in the pound, would be half that figure. Having made a similar speech on four successive occasions and never having been challenged on that point, I think that I am entitled to believe that I am right. Mr. Portillo indicated assent .

Mr. Gill : I thank my right hon. Friend.

As we have more time this year than is customary to discuss Third Reading of the Finance Bill, I should first like to say to the right hon. and hon. Members who served on the Finance Bill Committee that the thanks of the House are due to them for all the hard work, effort, time and concentration that they have put into bringing to the House the 453 pages of the current Bill.

I also want to congratulate my right hon. Friend the Chief Secretary to the Treasury on his positive, robust and

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lucid exposition of Government economic policy. I also welcome today's news on the public sector borrowing requirement, which my right hon. Friend said was £4 billion better than originally forecast for the 12 months just ended.

To Opposition Members, I say that the economic indicators for the British economy are good. Interest rates are at their lowest since 1972. The inflation rate in the year 1993 was the lowest for 30 years. Exchange rates are competitive, and have therefore stimulated greater export volumes. Unemployment is trending downwards. The housing market is improving, and there are welcome signs of increasing optimism and activity in the manufacturing sector. I shall concentrate my remarks on the wealth-creating sector of our economy, and the interface which that has with the Treasury. I also have one or two words of advice for the Conservative party. I wish to talk about the role of Government in the context of today's debate on the Finance Bill.

In that context, the role of Government is threefold. First, the Government must resolutely set their face against adding overhead costs to businesses. Secondly, they must work hard at removing the obstacles to wealth creation that have become enshrined in legislation. Thirdly, they must create the conditions in which business can prosper. In order for business to prosper, we need a fiscal policy that stimulates investment and business activity, and gives an incentive to people who invest and work in business.

Mr. Beith : In view of the hon. Gentleman's first point, is he satisfied with what the Government have done on statutory sick pay ? Many people in business feel that an unreasonable burden has now been placed on them.

Mr. Gill : I shall turn to that point immediately, and shall not keep the right hon. Gentleman in suspense one moment longer. That was exactly what I was about to talk about--the importance of controlling costs on businesses.

We want to minimise the cost burden on businesses, which is why we set our face against the social charter and rejected it. But later tonight, as the right hon. Gentleman knows, the draft Maternity Allowance and Statutory Maternity Pay Regulations come before the House. Their effect will be to reduce the rate of reimbursement for administering and paying statutory and maternity pay benefits from 104.5 per cent. to 92 per cent. By any reckoning, that adds costs to businesses.

It is necessary to contain the bureaucratic burden on businesses. Without a shadow of a doubt, the Government are committed to deregulation. They are soon to bring a deregulation Bill to the House for Report and Third Reading. Consequent on that, a Committee on deregulation will be established in the House. The public expectation is that there will then be a bonfire of controls. But the Finance Bill before us is 453 pages long. It looks as though we are in the business of telling people to do as we say, not as we do. I was interested to read a snippet in this morning's edition of The Daily Telegraph :

"Senior Treasury officials are struggling to restore morale after a confidential staff survey uncovered widespread discontent over the way the organisation is run. Staff complained of . . . too much bureaucracy."

My right hon. Friend the Chief Secretary may feel caught

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in a pincer movement between myself and his officials, who all say that it is vital that we reduce the burdens of bureaucracy. I invite my hon. Friend to consider just one lesson from the private sector. Any successful business man will know that, to sell a product successfully, one first has to establish a brand image. Opposition Members may say otherwise, but that is the fact of the matter, and you cannot take it away from us. [Interruption.] I am talking to you now.

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