The Conservative party has a very strong brand image. It has the brand image
We have a brand image as the party of low taxation. No doubt the hon. Gentleman will challenge me on that point, yet my hon. Friend the Member for Bridlington (Mr. Townend) spelled it out to the House : that we are absolutely determined to get taxes down. I share his confidence that we will do so before the next general election.
Mr. Graham : Does the hon. Gentleman realise that, in Scotland, an opinion poll in a respectable newspaper, the Herald , stated quite clearly that Tory party support was at a mind-boggling 13 per cent. ? Is that the brand image that they are creating for the people of Scotland and the rest of Britain ?
I am not confining my remarks to the sheer fiscal policy embodied in the Finance Bill : I am trying to draw attention to one important factor which affects the electoral prospects of the Conservative party--the need to be consistent.
The lesson from the private sector is that, for a company to be successful in selling its products, it first has to establish its brand image. I have explained that the Conservative party has a jolly good brand image. Secondly, it must advertise. It is difficult for us politicians, regardless of which side we are on, to avoid advertising. Many Members of Parliament are on television, in the newspapers or on the radio practically every day. I do not indulge in that, as I am a bit of a shrinking violet.
Thirdly, it is essential to have a consistent product. I am not saying anything about the quality of the product, but simply that it has to be consistent.
Column 941One of our difficulties in the Conservative party at the moment is that, on the one hand, we have been promising to deliver deregulation and lower taxes, and on the other hand there have been certain inconsistencies. We have to put right that aspect of our sales strategy. We have the brand image and the advertising ; let us concentrate on consistency.
Ms Eagle : I thank the hon. Gentleman for giving way. I am listening with interest to what he is saying, particularly about consistency. At the last general election, in his literature to his local electorate, he said that the Conservatives would reduce personal taxation, yet today we are discussing a Budget which increases levels of personal taxation and indirect taxation to the greatest extent since the second world war. How is that consistent, and will he apologise to his constituents for the record of the Government ?
Mr. Gill : Surely the hon. Lady does not need reminding that, in 1979, when the Conservative Government came to power, the top rate of personal taxation was potentially 98p in the pound. The only reason why it was no higher was that, if they had taken another tuppence from those people, there would have been absolutely no point in their working at all.
The Conservative party have proved in government, without any shadow of a doubt-- [Interruption.] The hon. Lady can continue interjecting from a seated position for as long as she likes, but she cannot deny that we have brought the standard rate of tax down from 33 per cent. to 25 per cent., with a commitment to reduce it to 20 per cent. We have brought the top rate of tax down from potentially 98 per cent. to 40 per cent., and everyone in the country knows it. The hon. Lady knows full well that the Conservative party were re-elected two years ago because the Opposition were offering the opposite. We can flog this horse for much longer, but I shall still cross the finishing line before the Opposition.
The Conservative party is criticised for the level of unemployment and for inadequate levels of investment. We know that there is a balance of payments deficit, and reference has already been made to the public sector borrowing requirement.
There is only one way out ; we have to trade ourselves out of trouble. That means that we have to recognise--not that we do not already--that trade, commerce and industry are the engine of our economy. We have to recognise the need to keep that engine fuelled and lubricated, and the good sense of allowing business to reinvest the biggest possible share of the profits it generates. That leads to the virtuous circle of ploughed-back profits leading to greater investment, greater competitiveness, reduced unemployment and an improved balance of payments.
I accept that it is not the way that the Opposition parties would go ; their policy has always been to tax and tax again. Our policy is to bring taxes down. On that basis, there is no need to pick winners. There is no need for Ministers or Departments to indulge in the fantasy that politicians can pick winners ; the winners pick themselves if they are allowed to plough back the profits they generate.
The dynamic of unquoted companies is refuelled by ploughing back the profits. That is because the
Column 942entrepreneur, who is invariably ambitious for the continued success of his business, recognises that its growth and development is best served by constantly improving the quality and value of its assets. There is no justification for taxing that seedcorn, which would otherwise be used to grow the business faster, bearing in mind the positive financial benefit to the whole economy of successful businesses making substantial contributions, as they do, to our national coffers by way of national non-domestic rates, pay-as-you-earn, national insurance and social security savings--quite apart from the value of wages and pensions to all those employed in those enterprises.
Conservative Governments since 1979 have demonstrated that lower personal tax rates stimulate higher tax revenues. By the same token, even lower corporate tax rates would stimulate higher levels of business investment and increased competitiveness, to the long-term benefit of employment prospects and import substitution.
Finally, if the engine of our economy stalls, suddenly none of us will be going anywhere. How very much more sensible it is to ensure that the engine is kept not just ticking over, but running at peak revs to generate greater business activity, a more competitive industry and a market for the only product which 55 million people living in these islands have to sell--which is our labour.
Mr. Beith : This is an enormous two-volume Finance Bill. We should remember that the Government have had two bites of the cherry because there have been two Finance Bills in the past 12 months, which amounts to five Bills in three years. Presumably the Bill will come in three volumes next time ; the growth in the scale of legislation goes on and on.
That raises questions about how we handle finance legislation and this year there has been a change in the way in which it has been handled. For the first time in recent years, a guillotine has been imposed on the Bill. I think that the timetable has worked reasonably successfully. It would have been better if we had been able to make adjustments to the allocation of the time for debate on the clauses as we discovered what was needed. But, broadly speaking, I believe that it has worked reasonably successfully. It has certainly not presented any severe problems and need not have led to a failure to debate important sections of the Bill.
The weakness in scrutiny of the Bill does not result from the timetable ; it results from the highly complex and technical character of a large part of the Bill's content. This material does not lend itself to the sort of discussion that we usually have in the Standing Committee. It would be better handled by a Select Committee procedure in which one could question the people who actually know what the Bill is about.
We have a familiar ritual in Finance Bill Committee of hon. Members pressing Ministers about points which neither the Member nor the Minister understands fully. Each is dependent on the notes which are being passed from either civil servants or outside advisers. It is not a sensible way of discussing the most complex parts of the Bill. That is why I support the view that we should have a taxes management Bill which deals with the more complex matters and that that Bill should be handled, at least in part, by Select Committee procedure.
Column 943This Finance Bill does not contain only a lot of technical material. It contains tax increases--to which I will refer in a moment--and two new taxes. Neither of the taxes was the subject of consultation. There were no Green Papers about the feasibility of an airport tax and there were no Green Papers about the way in which an insurance tax might be introduced. It was therefore difficult to digest and consider successfully the new taxes while debating the Bill.
The very mechanism by which both taxes will be collected has been changed fundamentally between the Committee and Report stages. In the case of the insurance tax, the rate at which the tax is collected has changed, too. I welcome the fact that such adjustments were made, but they illustrate that this is not a very satisfactory way to deal with completely new taxes.
Neither of these taxes is market-sensitive. People are not able--it would not be a problem if they were--to rush out and take out insurance policies on a grand scale in order to defeat the effects of the Bill. It would have been possible to put out the proposals for consultation before they became taxes. I would have argued, as I did during debate on the Bill, that it was not a good idea to tax insurance and that the airport tax would have damaging consequences for sections of the community.
Mr. Ian Taylor : I share the right hon. Gentleman's view that greater consultation with the insurance industry might have served a purpose. Nevertheless, I would like to correct a small point that the hon. Gentleman made. Pressure from the Association of British Insurers and from Committee members ensured that, by the time we considered the clause in Committee, the Government had already clarified many of the matters to which the right hon. Gentleman referred. The clarification came before discussion in the Committee.
Mr. Beith : That is a fair point. A great deal of effort was made with considerable speed to secure changes. The hon. Gentleman and others were involved in bringing about the changes and I think that we can all claim some credit for having secured improvements in the Bill in Committee. But it does not seem to be a sensible way to introduce new taxes.
The Bill also marks the end of the Lawson reforms. A significant part of the Bill removes the indexation loss provision. It had been hailed by the former Chancellor as not only logical, but a matter of justice, that losses be treated as though inflation had not occurred. Losses were treated symmetrically with gains.
The reform was widely welcomed at the time, but it transpired that the then Chancellor, Lord Lawson, had not appreciated the incredible scale of future losses to Revenue which could result. Those losses amounted to some £3 billion--a much larger figure than anybody outside Government seems prepared to acknowledge. Indeed, so sacred has the £3 billion figure become that it was used in debate today by the Chief Secretary, who accused the Labour party of carving a further £3 billion hole in public finances by criticising the removal of the indexation loss provision.
I do not accept that figure. If such a huge hole can be driven in public finances, the problem should be addressed by more specific measures, not by the total removal of the reform. If, as the Government make out, the major threat of lost revenue comes not from individuals but from
Column 944companies creating and using shelf companies and subsidiary companies to offload capital gains and thereby evade tax, the problem should be addressed specifically instead of overturning what was generally thought to be an important and valuable reform.
Mr. Stern : I am very interested in the points that the right hon. Gentleman is making, but I wonder whether he will accept that in the past specific anti-avoidance measures have not necessarily proved effective. For example, I draw his attention to Labour's development land tax, which contained numerous anti-avoidance measures, all of which had the effect of simply bending the market rather than stopping the avoidance of tax.
Mr. Beith : That is a fair point, but I do not think that it needs to apply to the logical way of dealing with gains and losses. I am always suspicious of arrangements which allow the Government to benefit from inflation--in which it is to the Government's advantage to see a fairly high rate of inflation. Too many things in our system have encouraged Governments to tolerate and stimulate inflation in the past.
Mr. Gill : Before the right hon. Gentleman moves from the subject of capital gains, I invite him to consider that, potentially, capital gains might this year be worth about £3.3 billion to the Exchequer, but, by the time all the reliefs and allowances are subtracted, capital gains will net £1 billion. That is a quite serious situation. What does the right hon. Gentleman think about the cost to the nation of the accountants, solicitors, consultants and tax experts who have been employed in the process of reducing potential capital gains of £3.3 billion to a net £1 billion ? Would not all those brains have been better employed in the productive sector of the economy to boost Britain's productivity and create better and more competitive products to sell on world markets ?
Mr. Beith : The hon. Gentleman undoubtedly has my sympathy on that point. But I fear that the same accountants and tax advisers will now be engaged in finding new ways of dealing with this law. What could be more helpful to them than to produce a Finance Bill of these dimensions ?
It is impossible for taxpayers to know what to do about their tax positions when they are confronted with complex provisions. I fear that the Government's choice of such complex legislation has added to the huge industry which the hon. Gentleman understandably believes might be more profitably and productively directed elsewhere in the economy. I wish that we could achieve the objective that he sets out.
I turn to what I believe to be the main point of the Bill. The Bill is supposed to deal with the mess which the Government have created. It is supposed to deal with the public sector borrowing requirement which has resulted from the recession being so deep and prolonged. Together with the earlier Finance Bill, the legislation involves the biggest tax increase in modern times. It provides a calendar of tax increases which will carry us through this tax year and into the next.
For example, there is an 8 per cent. and 17.5 per cent. value added tax on fuel. The Government should say now that they will not go to 17.5 per cent. VAT. They will not even help by providing measures which will ease people's problems in confronting fuel bills.
Column 945I have an Energy Conservation Bill which is due to be considered on Friday. Having said initially that they were in favour of the principle of the Bill, the Government have tabled more than 200 amendments in an attempt to block one of the measures which would help people to cut their VAT bills by using less fuel. The hon. Member for Esher (Mr. Taylor) is one of the culprits in this ludicrous attempt to block a very sensible measure.
The calendar of tax increases continues with the extra 1p on national insurance contributions. That is a particularly unfair way of extracting extra taxation because it starts at a lower level of income than income tax and stops at a low level. It imposes no additional taxation on those with higher levels of income and, as a result, it is borne most heavily by those with lower income levels. It is not a fair way of dealing with the Government's financial problems.
The Bill also includes the freezing of personal allowances and the reduction in mortgage interest tax relief and the married couple's allowance. Of course, I have argued for a phasing out of mortgage interest tax relief and have usually been bitterly attacked by the Conservatives for doing so. However, they are now doing the job for us and doing it more drastically than I had proposed because their plans will attack existing mortgage holders and are not being phased in for new mortgage holders.
The insurance tax will bear heavily on people who need to insure, especially because of the impact of crime in the cities. The increasing cost of premiums will mean an especially unwelcome addition to their bills at a time when we should be encouraging people to be insured against risk.
The airport tax will inflict particular hardship in the highlands and islands, where air journeys are often matters of urgency and not the luxury that they are in other parts of the country--they are the only way of getting somewhere quickly. The burden will be unfairly and unevenly distributed.
Where are these taxes going ? They are not being used for investment or being spent on education. The Conservatives have not become converts to the view that high taxation is needed to improve public services ; their view is that taxes are needed to pay for the mess that they have made. Under the Conservatives, taxes are high, but not because of the provision of better public services--they are high because of the mismanagement of the economy and of the prolonged and deep recession.
Mr. Forman : I cannot let the right hon. Gentleman's last remark pass without making an observation. He asked where the taxes were going and said that they were not being used for education. Spending per pupil is the right measure to use. I believe that education spending is now at the record level of about £30 billion across the United Kingdom, so he cannot sustain his argument.
Mr. Beith : The increase in expenditure arose from commitments made immediately before the election, not from the policy now being pursued by the Government. It is perhaps worth pointing out that state and local authority-run schools are having their budgets squeezed so that the Government's favoured projects--grant-maintained, opted-out schools--get extra assistance. Anyone who works in a school can provide ample evidence
Column 946that schools are attempting to do a difficult and demanding job without sufficient resources. That is why we believe that it is essential to secure improvements in education spending. We told people during the election campaign that, if necessary, we would increase taxes in order to secure those improvements.
Mr. Clive Betts (Sheffield, Attercliffe) : Has not the Liberal party's policy altered slightly ? Instead of arguing for 1p on tax for education, the latest suggestion is 1p off income tax. That is very different.
Mr. Beith : The hon. Gentleman is correct. The Conservatives have increased taxes by the equivalent of 7p in the meantime and we have to bear that in mind. If we could possibly secure the additional spending without a further increase in taxation, we would of course do so because I fear that the overall effect of the new taxes will be to put recovery at risk. The Government have increased taxes by much more than we contemplated and, as the Chancellor admitted in his meetings with the Governor of the Bank of England, there is a risk that the increases will stall recovery. I certainly hope that we do not have to retain taxes at this level but that we can make use of some of the taxation to increase expenditure on education. The Conservative party has become a high tax party for reasons of mismanagement, whereas the Labour party, curiously, appears to want to be seen as the low tax party. It is actively saying that taxes will be lower under Labour. The hon. Member for Blackburn (Mr. Straw) is trying to prove that point with the council tax figures and, at various points in our recent debates, it has seemed that that is what members of Labour's Front Bench wanted to argue.
The Chief Secretary was bitterly criticising Labour Front Benchers for their expensive amendments to the Bill, but I examined the amendments that we discussed yesterday. After a great deal of debate about how much Labour wanted to increase spending and investment in infrastructure, I found that Labour was seeking to afford relief of £100 a year to a company that built a railway. That is a derisory figure. Labour had tabled the amendment in question because it wanted to debate an issue without committing itself to a great deal of expenditure.
The Labour party is entitled to take whatever view it likes, but I believe that many voters who have traditionally voted Labour will tend to think that, if the party is not about getting better public services and, in some cases, having to pay a bit more tax for them, it is not about very much at all. It is very hard to imagine how one is to get people committed to a political cause in opposition to the traditional Conservative view if they are not offered the prospect of better public services and if it is not accepted that it may cost more in taxes to get those improved services. The Labour party may prove to be right, but I beg to differ.
Mr. Nicholas Brown : In fairness to the right hon. Gentleman's case, he should point out that, at the previous election, we offered modest tax increases funded by those most able to pay. We also offered modest improvements in public services, so we have not strayed quite as far from our agenda as the right hon. Gentleman suggests.
Mr. Beith : I endorse what the hon. Gentleman says. Modest improvements were offered, and some increases, which were not terribly well targeted, were also mentioned. As a result of that experience, the Labour party has now
Column 947decided that it dare not do the same again ; it has decided that one must tell people that taxes will be cut, whatever one anticipates will really happen. The Government have proved that it can be done, but I hope that it cannot be done on a regular basis, that the Conservatives will not get away with it again and that the Labour party, were it to attempt so foolish a course, would not get away with it. One has to be honest with people and tell them that better public services may mean higher taxes.
Mr. Brown : I am not sure that I need to be advised by--of all parties--the Liberal party to be honest with people. The great crime that the Labour party committed was to be honest about its tax policies before the general election. The Conservatives told lies about our tax policies and, as we now discover, also told lies about their own. It is a painful issue for me and my party and we do not need to be reminded of it by the right hon. Gentleman. The fact that we are not keeping a running tax and spending total in opposition to the Government's ever-changing tax and spending policies does not mean that we shall not put our case clearly and precisely before the electorate at the next general election, exactly as we did last time.
Mr. Beith : Let us wait and see. There is an interesting argument about how parties position themselves before elections. We certainly intend to go into the next election as we did into the previous one, telling people the truth if we believe that taxes might have to be increased. However, we do not know what the level of taxes will be when the next election campaign starts. We do not know whether the Conservatives will succeed in knocking 1p or 2p off income tax at the last minute, having taken a huge amount in taxation out of people's pockets in the meantime.
The Chief Secretary made much of inflation being low and retail prices holding, but he must recognise that it is in part a consequence of the slowness of recovery. Retailers are holding prices because they have to-- they will not stay in business if they increase prices. The phenomenon of the continual sale has been evident in our high streets for a considerable time. In fact, there have been two phenomena in our high streets : the first is the continual sale and the second is the empty shop.
Very few of us represent constituencies in which high streets are not well supplied with empty shops or with shops on short leases to charities and in which the remaining retail premises are having to live by sales. While that is good news for the consumer, it poses the hidden risk that inflation will increase sharply if we ever reach the stage where retailers can start to recoup some profits. Smaller retailers in particular cannot go on indefinitely as they are : they are struggling to stay in business and make a living.
Inflation is a problem that will return and interest rate policy has to take account of that. I counsel those who think that a further 0.5 per cent. cut in interest rates at any moment will get the recovery moving to bear in mind the fact that there is a danger further down the line and that the efficacy of further interest rate reductions can easily be exaggerated. I am not saying that we could not achieve another small change at some point in the coming months, but we have to be careful, and we should not get over-excited about its effects.
Of course, any reduction would be offset by the effect on pensioners and those living on limited capital whose spending power has already been severely cut. Many of
Column 948them were dependent on the rather high rates of interest that prevailed when they decided to move into a sheltered housing scheme, for example, and assumed a level of income that has not been maintained.
The Chancellor thinks that the Bill has put right public finances once and for all. Nobody believes that. The Treasury Select Committee poured cold water on that somewhat grandiose suggestion. But the Bill has changed once and for all the idea that the Conservatives can be relied on to hold down taxes or to keep their promises. When they promised to cut taxes, they knew that there would be a huge borrowing requirement, estimated at £30 billion, so they cannot have been serious even when they made the promise.
This is the longest Finance Bill ever. For taxpayers, its length is like that of the supermarket till receipt ; the longer the piece of paper the bigger the bottom line, and the greater the cost to them. And what are taxpayers getting in return ? They are getting years of neglect of the education system, of the transport system, of manufacturing industry and of the energy efficiency of our housing stock. When the Government are eventually bundled out of office they will leave an economy sadly ill- equipped for the future.
Mr. Forman : As I listened to the Opposition speeches, I was reminded, slightly irreverently, of the parallels between what goes on in the House and what goes on at the opera. One parallel is the fact that it is never over until the fat lady sings.
Mr. Forman : We look forward to hearing the less than fat lady, indeed the slim and svelte lady, the hon. Member for Peckham (Ms Harman), singing to the House and to the country fully and frankly about the various commitments of the Labour party--commitments that have already, by implication, mounted up to spend more, to tax more and to borrow more.
The second feature that debates in the House have in common with opera is the fact that one frequently has to suspend one's disbelief. I certainly had to suspend mine somewhat when I listened to the hon. Member for Peckham and I am glad to have the opportunity to say a few pithy words about her speech.
The hon. Lady seemed to clothe Labour in the garb of a party of low taxation. She spent much time berating us for having put taxes up in the previous two Budgets. Yet let us examine the record of the most recent Labour Government--one has to go back a long way to find a Labour Government, but I must tell younger Members that there was one between 1964 and 1970 and another between 1974 and 1979. Older Members of the House--not you, of course, Madam Deputy Speaker--will recall that the burden of taxation was higher when both those Governments left office than it was when they came in.
The hon. Member for Peckham also seemed to say that, if the Labour party came into office it would be the party of low borrowing. She made a specious comparison concerning the public sector borrowing requirement, which the Chief Secretary to the Treasury challenged from a sedentary position. She took a definition of the PSBR that
Column 949was wholly unknown to the Treasury when there was a Labour Government and considered central Government borrowing alone. That definition of such matters may be used on the continent, but it happens not to be the definition traditionally used in this country. The hon. Lady contrasted it with the equivalent figure for central Government borrowing under the present Government--at least she was comparing like with like--and cast our position in what from her point of view was a favourably unfavourable light.
However, the Treasury works on the assumption that all public borrowing, whether it is done by local authorities--hence all the debate about capital receipts--by the remaining nationalised industries, or sometimes even by what are called quangos, counts towards the total of public borrowing. That is because in a sense a public guarantee stands behind all that borrowing. If the hon. Lady had drawn that comparison, her figures would have come out differently.
Mr. Ian Taylor : Does my hon. Friend conclude, as I do, that the hon. Member for Peckham wished to exclude local government debt because the bulk of it is incurred by Labour authorities that have never lived up to their responsibilities and tried to reduce the debt problem ?
Mr. Betts : Is the hon. Gentleman aware that, under the current rules on local authority borrowing, local authorities can borrow only for investment, not for current expenditure, and that all that borrowing has to be approved by central Government, who must therefore share the responsibility ? Is he aware that, when the Prime Minister was Chief Secretary to the Treasury, he produced a report on behalf of the Government advocating that certain elements of local authority expenditure, directly connected with their raising of taxation, should not count as part of the PSBR ? Such a case is arguable, even by Conservative Members.
The hon. Member for Peckham also sought to cast her party as the party of low and responsible spending. That same refrain has recently been taken up in the context of the local elections by the hon. Member for Blackburn (Mr. Straw). However, I could not help noticing in the newspapers recently that the shadow health spokesman, the hon. Member for Sheffield, Brightside (Mr. Blunkett) had made one vivid commitment--that the Labour party's aim would be to increase tax-financed spending on the health service to 7 per cent. of GNP. That is a nonsensical indicator. The great thing about spending on health is not only that it should increase but that it should be cost- effective, and that we should get the maximum possible patient care for whatever money the nation can afford at the time. Finally, and rather incredibly--this goes back to my theme of the suspension of disbelief--the Labour party has
Column 950made a stab at presenting itself as the party of low inflation and responsible management of the economy, were it ever to be in government. Yet again, I could not help noticing a recent commitment to a statutory minimum wage of £4 an hour, which I have not heard officially denied by the hon. Member for Dunfermline, East (Mr. Brown).
The Labour party claims to be the responsible party of low inflation. However, I cannot help noticing that, over the past two years or so, for the duration of this Parliament and slightly longer, every time that it has been prudent and possible for the Chancellor of the Exchequer of the day, on the advice of the Governor of the Bank of England, to cut interest rates --after all, they have fallen substantially, from 15 per cent. to 5.25 per cent.--the Labour party's response, either from the Leader of the Opposition or from the shadow Treasury spokesman, has been, "Not enough ; it should have been a point more." As a policy that could be presented credibly to the markets as a policy of low inflation, that beggars belief. On all those counts--taxation, borrowing, spending and the safeguarding of the nation's finances in terms of controlling inflation--one has to suspend one's disbelief when one listens to Labour party spokesmen, so the experience has a great deal in common with a night at the opera.
To make my second broad point, I again speak as the parliamentary adviser to the Institute of Chartered Accountants in England and Wales. Hon. Members who read the briefing material that the institute supplied to the Standing Committee will know that its main argument this year, on behalf of most people in the profession, did not concern matters of detail. I confess that the institute was somewhat exercised about what was then clause 241, which the Government wisely, and with all-party approval, withdrew. However, the institute's main point concerned the interminable and unacceptable length of the Bill, its opacity and the fact that it is inherently too complicated. That argument comes from the practitioners, who have earlier been described as cashing in on the benefits of complexity and opacity in financial legislation. If even they make that point, one must admit that it is an altruistic and sensible statement, which the Government should heed.
Mr. Stern : My hon. Friend should not be blinded by the strength of his support for the institute that briefs him. As a practising chartered accountant, I assure him that it is possible to have it both ways.
Mr. Forman : I have no doubt that clever professionals tend to have things both ways. I refer not only to the accountancy profession but to other walks of life ; I have no doubt that the same is true of lawyers and doctors. I stand duly corrected by my hon. Friend the Member for Bristol, North-West (Mr. Stern) ; perhaps I should call him my hon. and learned Friend on such matters.
I have a serious point about fiscal policy in the medium to longer term. It is a point that I made on Second Reading in broad terms and I do not apologise for going back to it because I believe that it bears repetition. In the medium to longer term, by which I mean in the next Parliament, when we shall still be on the Government Benches and the
Column 951Opposition will still be over there, we shall need further to broaden the tax base. That is a very important point. At the same time--this is the concomitant point--we shall need to lower our rates of tax, especially in terms of income tax and VAT. Those are the two sectors in which I should like to see lower rates of tax. In case Opposition Members think that they must suspend disbelief when they hear me say that, I shall explain briefly how those lower rates of tax could be achieved. On income tax, hon. Members will know that the cost of tax allowances, or tax expenditures, is colossal. The Government are to be commended for making a small range of attacks on those tax expenditures in this and previous Budgets. That trend should be continued.
What hon. Members may not know so well is that, were a future Chancellor or, indeed, the present Chancellor, who I hope will do this in a future Budget, to take the bold decision dramatically to extend the base of VAT so that it covered all forms of consumer expenditure--a point that I have argued on the record on previous occasions--it would be perfectly possible, as I shall show when I give hon. Members the figures, to move to a standard rate of VAT of 15 per cent., instead of 17.5 per cent. as it will be from April next year. At the same time, it would be perfectly possible to introduce a starting rate of VAT on the real essentials of 8 per cent., which would be analogous to the multi-rate structures that our partners in the European Union have.
It would be possible to make such a change in such a way by broadening the base and by cutting the rates so that some of the items now covered at 17.5 per cent. would be covered at 8 per cent., which would constitute a cut in the rate of VAT. Other items that are now zero-rated or exempt would come in at 8 per cent. The standard rate would come down from 17.5 to 15 per cent. The net effect of that package, when run through the Treasury model, as she is called, would be a net gain to the Exchequer in the current tax year of between £5 billion and £10 billion. That would be very useful revenue for my right hon. and learned Friend the Chancellor in his efforts further to close the public sector borrowing requirement.
Ms Eagle : Will the hon. Gentleman remind the House why the rate of VAT went up from 15 to 17.5 per cent in the first place ? If he does not care to do that, I remind the House that the reason was the gross waste of public money that the poll tax and all the disasters that accompanied it represented in terms of losses to the Exchequer.
Mr. Forman : The hon. Member for Wallasey (Ms Eagle) is being very kind ; she is intruding into private Tory grief on this point. I do not wish to rake over the coals, to mix my metaphors. She, I and the House know that the reason for the increase was that the party got into a bit of a mess over what was called the poll tax. It was wise, timely and necessary for the then Chancellor, my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), to switch the burden to VAT. However, that is not to say that one cannot take a different view of those matters as the years go by.
We have a better alternative in the shape of the council tax, which is an improvement on the poll tax in many respects. What is more, as we manage the nation's finances prudently in future, as we have done in the past, it should be possible to make the rather bold reforming changes to the tax structure that I have just sketched out.