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Mr. MacShane: I do not know whether that will be possible in Committee, but I will gladly take technical advice on it. If the right hon. Gentleman--I am sorry, the hon. Gentleman, but I wait in hope--tonight pledges that he will vote with me across the Floor of the Committee on such a proposal, and on other proposals to make the Finance Bill more coherent and sensible, I hope that we can do business together. I look forward to meeting him in the Lobby after this debate.
The core questions that any Government economic statement and taxation policy must ask for our country are not those asked in stories in The Daily Telegraph, but those that arise from independent international assessments. Why have we fallen from 13th to 18th in the per capita GDP league, according to the Organisation for Economic Co-operation and Development? Why is our country's trade at its lowest this century? Why are we now 21st in the international league for investment? Why, for every pound of inward investment into the country, does £2.50 leave Britain?
Why are we now 35th in the world education league? Why, in one in five of our working-age households, does no one earn a wage? Why are a million fewer people in work now than were in work when the present Prime Minister, the right hon. Member for Huntingdon (Mr. Major), became Prime Minister? Why are one in three of our children deemed to be living in poverty compared with one in 10 in 1979?
We cannot walk 100 yd or, if the anti-Europeans prefer it, 100 m from this place, without stumbling across beggars. That is the real tribute to the economic and fiscal policy of the Government. Why have we had, in spite of that, the biggest tax increases during peacetime in our 20th century history?
Why is a typical family in Rotherham paying £600 a year more in tax than it did in 1992? Why have more homes been repossessed under the Conservatives? Why are more people suffering from negative equity--waking up each morning in their house knowing that they cannot sell it? Mrs. Thatcher made a fundamental promise-- everyone should own their own home, which would give them a stake in the economy, but that stake has turned out to be a burden on them.
Mr. Richard Alexander (Newark):
Despite the exaggerations and the curmudgeonly comments of the hon. Member for Rotherham (Mr. MacShane), I believe that we have had a civilised and interesting debate on the Finance Bill. One or two of my hon. Friends have mentioned the fact--without making any criticism--that it was a pity that more hon. Members, from all parties, had not been present in the Chamber. They said that, now we have television monitors in our rooms, it is much easier for colleagues to see what is going on, which is certainly true. But it is a pity that a wider audience outside the House should not have been able to hear the interesting contributions that have been made to our debate. People seem to think that two 15-minute slots each week are all that Parliament is about--there is a lot more to our proceedings than that, as the contributions to our debate have proved.
Despite the comments of the hon. Member for Rotherham--of course, we all make party political points as best we can--I believe that we have had a good Budget, which has now become the Finance Bill. The Budget has been much more widely welcomed in the country than either the Opposition or the so-called responsible press would have us believe.
We are debating the Finance Bill against a background of economic success and strength that no one on either side of the Chamber would have been able to forecast, even as recently as the last general election. If we had told our constituents that, by 1996, mortgage rates would be the lowest for 30 years, and inflation and the basic rate of tax would be the lowest for 50 years, we would not have been believed.
Despite the gloomy statistics given by the hon. Member for Rotherham, I believe that this country's economy is strong, and that we are entitled to say to my right hon.
and learned Friend the Chancellor of the Exchequer and my right hon. Friend the Prime Minister, "Well done, you have achieved that. You have been patient and steady, and now you deserve our thanks."
However, it is a fragile success, and my right hon. and learned Friend the Chancellor must be cautious about imposing unnecessary burdens on business because, although the economy is strengthening and business is undoubtedly confident, that confidence is fragile. We should be hesitant about penalising industry and business, particularly small business. The growth rate in the economy is almost certainly less than my right hon. and learned Friend the Chancellor had hoped for or would wish. That is understandable--all Chancellors want greater success than they have managed to achieve--but I do not resile from my earlier comment that he deserves our praise and thanks. We must be careful that we do not harm business and industry.
The reason why I preface my speech in this way is that my task in contributing to the debate is to make a straightforward constituency point about landfill tax and its implications for British Sugar, which operates in my constituency. It also operates in another eight major sites throughout the country, so I am presumably making the point on behalf of hon. Members on both sides of the Chamber.
Some 8 million to 9 million tonnes of sugar beet are delivered annually to those nine factories for processing. By definition, the sugar beet attracts fresh, uncontaminated soil. It is estimated that between half a million and 1 million tonnes of soil is attracted to that beet in the course of an annual operation. On-farm improvements have been made over the years, and we now have the lowest proportion of soil ever adhering to the beet, but that residual amount exists, and the Finance Bill creates a problem for British Sugar.
At present, the topsoil is conditioned and sold for a variety of uses, such as horticulture, recreational amenities and the improvement of agricultural land, but not all the soil can be used in that way. Avenues such as I have described have, of necessity, had to be found, because the topsoil cannot be returned to the farms whence the beet originated. That is due to the need to control rhizomania--the soil-borne root disease which my hon. Friend the Financial Secretary to the Treasury will know well--and the agreed pest control policy. The Ministry of Agriculture and the industry have agreed that the soil can no longer be returned to the beet-growing farms.
I therefore make a straightforward point. Until the markets that I have mentioned have been fully developed, more than half a million tonnes of soil--approximately-- still has to go to British Sugar's nine landfill sites. Obviously, British Sugar is as effective and efficient as it can be, but the tax will increase its costs and hamper its efficiency. I have been told that the costs will be between £500,000 and £1 million annually if the Bill is enacted as drafted.
I therefore urge, for one or two simple reasons, that British Sugar should be excluded from the proposed tax. The soil is uncontaminated. It is merely fresh soil which has been removed from beet, and it is being returned to soil. It is not waste. If it were returned to the farm of origin, there could be no question of it being labelled as waste, and no question of it being taxed. The present practice is a plant
hygiene measure for the control of a disease, not an industrial practice that produces waste which requires disposal.
Mr. Malcolm Chisholm (Edinburgh, Leith):
I am sorry that I was unable to hear many of the speeches in the debate, particularly the opening speeches, because the planes were delayed by fog, but I got here just in time to hear the speech by the right hon. Member for Wirral, West (Mr. Hunt). It was a significant speech that told us a great deal about the state of the Conservative party, if not a great deal about the economy.
The right hon. Gentleman was attempting to address the great internal battle within the Conservative party between the one-nation group and the other group, whatever they call themselves. His whole concern was really to reply to Baroness Thatcher's speech last week, and to score a point in that internal debate. That encapsulates the problem facing the country at the moment. Everything the Government do is driven by internal divisions within the Conservative party, and that is why they cannot address the real problems facing the country.
It was also interesting to hear what the right hon. Gentleman said about the Finance Bill. He attempted to put a one-nation slant on that and claim that it was a one-nation Finance Bill. It would be easy to demolish that argument.
One of the main features of the Finance Bill is that it is highly regressive. That is obvious when we consider its effect on different income levels. The Institute of Fiscal Studies has already done that. One of the appendices of the Select Committee report clearly shows how each income decile of the population is affected by the Budget measures in the Finance Bill. How does it affect the unemployed, for example? According to the Institute of Fiscal Studies, the income of those in the bottom two deciles will be reduced.
There are no measures in the Finance Bill to help the unemployed. The hon. Member for Stamford and Spalding (Mr. Davies) said that my hon. Friend the Member for Oxford, East (Mr. Smith) made a vacuous speech, but he presented policies to address unemployment. One of those key policies is mentioned in the Opposition amendment, which proposes a windfall tax to deal with the problem of youth unemployment.
The Conservative party derides windfall taxes, but Lord Howe, a previous Chancellor who has been involved in the internal debates within the Conservative party, advocated one on the banks in 1981, so there is no reason why the Conservative party should not support a windfall tax. What better purpose for a windfall tax could there be than dealing with unemployment? The Budget contains
no other measures to help the unemployed. The Government may claim that there will be more investment as a result of the Finance Bill, but it contains no measures to improve investment and deal with unemployment.
Nor does it help the low-paid. According to the tables produced by the Institute of Fiscal Studies, those in the first two deciles lose, those in the third decile gain by 5p a week, and those in the fourth decile gain by 35p a week as a result of the Budget. That is after all the punishment suffered by those sections of the population through increases in indirect taxes, such as VAT on fuel and increases in income tax.
Since 1992, low earners have been punished by many increases in income tax. Let us consider the position of a man on half average earnings. The proportion of his income that is paid in tax has increased by 33 per cent. since 1992, and now, according to the Institute of Fiscal Studies, he will gain only 35p a week. The widening of the 20p band helps no one earning under £7,000 a year. That is why the suggestion by the Labour party to introduce a 10p band starts to deal with the problem of those on very low pay, as do other measures that we propose, such as a minimum wage. There is nothing for those on low incomes in the Budget.
The middle income earners whom the Conservative party hopes to win back are not helped much, either. On average, the typical family has lost £800 since the last election. The Finance Bill may enable those families to recover about £130. That is why it was called the "7p up, 1p down" Budget.
The great mass of those on middle incomes have been punished since the election and throughout the period of Conservative Government. One of the great myths is that the Conservative party reduced the tax burden on those people, but it is clear from the total tax burden and the proportion of income that relates to tax and national insurance contributions that middle income earners are also paying more under the present Government.
It is important that we should not isolate the basic rate of tax. Of course, that is what the Government try to do. In the advert in the Sunday Times on the last day of last year, which set out all the supposedly wonderful achievements of the Government, the Prime Minister pointed to the basic rate of income tax, but there are many other ways of increasing income tax apart from raising the basic rate.
Since the general election, the married couple's allowance has been reduced, as has mortgage tax relief. Personal allowances were frozen twice in 1993, and the unfreezing now does not make up for that. The increase in national insurance contributions is the same as an increase in income tax from the point of view of the taxpayer. The great majority of middle income earners gain very little from the Budget. Only those at the top of the income scale gain anything significant. The Bill is highly regressive on income tax. Those higher up the income scale retain a bigger proportion of their earnings.
The Finance Bill also starts the process of getting rid of inheritance tax, which is still a Government objective. As I asked in the Budget debate, how can the Conservative party seriously say that it is better to spend £285 million a year on raising the inheritance tax
threshold way beyond the reach of inflation than to spend that money on reducing VAT on home heating, although a little more expenditure would be necessary to get that down to 5 per cent.?
The Minister has sent someone to check my figure of £285 million. I agree that it is slightly puzzling, because the Budget press release gave lower figures for the cost of inheritance tax next year, but the full year cost of that change is £285 million. I am told that the reason for the discrepancy between the two figures is that the tax is not collected until six months into the year. If there is a technical explanation, no doubt the Minister can give it, but how can that money possibly be justified in such a tight Budget situation?
The hon. Member for Coventry, South-West (Mr. Butcher) would like to get rid of capital gains tax, which is another Government objective. Those are the Government's priorities and they illustrate more than anything else the cruel and regressive nature of their tax regime.
Of course, it is not only the regressive nature of the Finance Bill that is significant; the other obvious fact is that the tax reduction is very small compared with the tax rises since the last election. That is because the economy has not improved to an extent that would allow genuine tax reductions. The £3 billion in tax reductions--it is not as much as we were led to believe--was achieved through cutting public expenditure; not one small tax reduction is due to the success of the economy.
The key problems in the Finance Bill are the high levels of borrowing and the low levels of growth. It is significant that, in the 14 economic points that the Prime Minister put to the nation in The Sunday Times on 31 December, he did not mention growth. How could he, when we have now plummeted to the second lowest level in the European Union? That is slightly better than our position since 1979, over which period we have been the lowest, but that is not something for the Government to boast about.
The relatively high growth record was a very transitory phenomenon and all predictions for next year are way below the 3 per cent. that the Chancellor has talked about. The Treasury Select Committee has thrown doubt on that figure, Goldman Sachs has said that it will be 1.75 per cent., Professor Minford has said 2 per cent., and others have said that it might be 2.5 per cent. All the growth predictions show a declining trend. The growth target has not been achieved, which is why revenue is in trouble this year and why that trend will continue next year.
There are other factors at work, to which the Treasury Select Committee refers in its report. I have had time only to flick through the report, in which the Committee addresses other questions. The disappointing growth figures do not account for all the shortfall in revenue, and there are other factors at work which we must investigate closely. For example, income tax revenue is much less than was expected. It is suspected that that is because people many in work are in low-paid and casual jobs. They are not paid high wages, and therefore cannot contribute to income tax. The Government must be aware of that.
Value added tax receipts are also down. Income tax has decreased by £4 billion-plus, and VAT is down by £5 billion-plus, on the Government's predictions. That is related to the very poor performance of consumer
spending in the past year--which is not surprising when we consider the job insecurity and the low rates of pay that are endemic in our economy.
The Prime Minister did not focus on growth and borrowing; instead, he tried to present what he regarded as the successful features of the economy. Next year, we shall see the Government adopt two basic strategies-- if Government Members can stop squabbling among themselves long enough to carry them out. The first will be to reduce the basic rate of income tax by some method, irrespective of whether it is in the economic interests of the country. That must be achieved, and the Government hope that people will be deceived by a reduction in the basic rate of income tax and forget the rise in national insurance contributions and other allowance changes that have taken place. That is one strategy.
Another strategy will involve the presentation of very selective economic facts as exemplified by The Sunday Times advertisement. They will be quarter truths or, in many cases, 1 per cent. truths. For example, the Prime Minister stated that Britain has the lowest unemployment of any major European country. In saying that, he insulted Sweden, Norway, Denmark, Portugal, Switzerland, Austria and the Netherlands, to name but a few. All those countries have lower unemployment than Britain, but obviously the Prime Minister does not regard them as major European countries.
There is another example of the kind of selective presentation we shall see from the Government. In the advertisement I mentioned, the Prime Minister referred to how Britain exports more cars and televisions than any other European country. I have not checked that; I hope it is true. However, we know about Britain's general trade performance.
To be charitable to the Prime Minister, the figures showing the plummet in British exports of about £1 billion between October and November were not released at that stage, but we knew that we had the biggest trade deficit in three years, and we knew that our share of world trade was at its lowest ever level. It has declined steadily since the Government came to power.
Finally, the Prime Minister boasted about inward investment. My hon. Friend the Member for Oxford, East (Mr. Smith) said that inward investment is falling, and that it is still less than outward investment. However, the level of inward investment has not been too bad-- thank goodness we have had some investment.
Of course, the Prime Minister failed to mention the dismal failure of investment in the economy as a whole. It is only 1 per cent. this year, in spite of the Government's prediction last year of 6 per cent. That is in line with what has happened for the past 17 years, and we are 22nd out of the 24 OECD countries in terms of investment. That is the underlying problem upon which all the other problems of low growth and poor public finances are based. Unless the Government address the investment problem in the way that the Labour party is prepared to do, there will be no solution to the economic problems confronting this country.
It is interesting that the hon. Member for Coventry, South-West said that he wants to get rid of capital gains tax. Would it not be far more constructive and creative to use capital gains tax to encourage investment, so that those who have held shares in a company for a long time have a low rate of capital gains tax, while those who sold
their shares quickly have a high tax rate? Let us use the tax system to encourage investment. An increase in first-year capital allowances is another obvious way of doing that.
The Finance Bill meets the needs of very few people in this country, and it certainly does not address Britain's underlying economic problems. We shall want to examine many details in Committee. There are a few welcome developments. The change in executive share options obviously resulted from the Labour party's campaign and the proposed new clause that we tabled last year. We hope that the Government will also adopt some of the proposed new clauses and amendments that we have tabled this year.
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