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Provisional Collection of Taxes

Motion made, and Question,

put forthwith, pursuant to Standing Order No. 51 (Ways and Means motions), and agreed to.

2 Jul 1997 : Column 317

Mr. Deputy Speaker: I now call on the Chancellor of the Exchequer to move the motion entitled "The windfall tax". It is on that motion that the unified Budget debate will take place today and on succeeding days. The remaining motions will not be put until the end of the Budget debate next week, and they will then be decided without debate.

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Budget Resolutions and Economic Situation


Motion made, and Question proposed,

4.49 pm

Mr. William Hague (Richmond, Yorks): On a personal level, I congratulate the Chancellor on his fortitude in delivering his speech and doing so within the space of one hour with only the assistance of water. I could congratulate him more enthusiastically if all of the contents of the Budget had been delivered to Parliament first, as we discussed earlier today.

We were told by the Prime Minister and the Leader of the House that what was printed in today's Financial Times had all been speculation. Was it not remarkable that the Chancellor opened his speech by saying that he had a five-year deficit reduction plan and the headline in the Financial Times today was:

It is extraordinary that there was such speculation and that it turned out to be so well founded. It is extraordinary, too, that the speculation referred to the abolition of the dividend tax credit and that is exactly what the Chancellor announced in the course of his Budget speech. They must be remarkable journalists at the Financial Times, who not only dreamt that a senior member of the Government had told them something, but dreamt exactly accurately what that senior member of the Government might have told them.

It is extraordinary in the view of the Opposition that Government sources revealed those measures in advance. It is to be hoped that the Government will now come to realise that Budget leaks can affect the movements of billions of pounds and the savings of millions of people. They should have a thorough investigation and they should report the results of that investigation to the House.

The Chancellor also opened his speech by saying that he would be bound by strict rules, which he would adopt for the rest of this Parliament. We could be forgiven for noting that all Labour Governments have started with strict rules with which they were going to bind themselves throughout the Parliament and all have ended up abandoning them.

There are some things in the Budget that we will certainly welcome: the cut in taxation for small companies is most certainly one of them. There are some things the details of which we will have to consider as our debates on these matters become clear. But one thing about the Budget is very clear. When the Prime Minister said before the election:

he did not mean a word of it.

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This is a tax-raising Budget. When the Chancellor says that he is tightening fiscal policy by £5¾ billion, he means that he is introducing a tax-raising Budget; and the changes to advance corporation tax and the changes to MIRAS amount to tax rises that, before the general election, the Labour party denied it would introduce. Not only did the Prime Minister say, on 21 September last year:

but, on 2 August, he said:

    "Our proposals do not involve raising taxes . . . If we have any such proposals we will make them clear before the next election".

Why were these proposals not made clear before the general election? On 8 January this year, he said that

    "the programme of the Labour party does not imply any tax increases at all".

If that was true, why have these tax increases been announced today?

We can be relaxed about some things. Measures such as 2 per cent. on stamp duty for houses worth over half a million pounds will be of concern only to a small number of rich people such as the Prime Minister. Many people can relax about that, but other people will have to pay for the Labour party having broken its election promises in the Budget. The changes to MIRAS will add to insecurity, destroy confidence in the housing market and make people much more wary of buying and selling homes. Those are not my words--they are the words of the Prime Minister a year ago. He said that restrictions to MIRAS would

Can he honestly say that he gave the country an accurate idea of what he would do on this subject, if and when he came to power? Labour Members have never been in sympathy with home ownership, and they are clearly not going to start being in sympathy with it today.

In this Budget, the Government have broken a central election promise, trying to comfort their supporters by saying that there will be a £1.2 billion increase in health service spending. But last year there was a £1.6 billion increase in health service spending.

As we look at this and future Budgets produced by the Labour Administration, we must always remember that rarely, if ever, have a Government had such cause to be grateful to their predecessors when it comes to the economy. The previous Government, and my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) as Chancellor, left the economy thriving. The Government should note that the man who said that was Lord Healey on "The World at One" this afternoon. Every serious commentator agrees: we have bequeathed to this Government the strongest set of economic circumstances in the lifetime of my generation. We have left them the longest period of sustained low inflation for 50 years, the lowest mortgage rates for 30 years, the lowest taxes of any major European country--although Labour has now begun to increase them--the lowest unemployment of any major European country, the best record on job creation and the highest sustained growth shown by any major European economy.

Those were not accidents of the economic cycle; they were a direct result of the policies pursued by Conservative Governments--policies obstructed, denigrated and opposed by Labour.

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The World Economic Forum has described Britain as the envy of continental Europe,

That is the truth about the British economy today, and we shall hold the Government to account for their stewardship of that unrivalled inheritance.

Central to this Budget, as the Chancellor has made clear, is the so-called windfall tax. In last year's Budget debate, the current Chancellor declared:

That would be true if ordinary families did not pay bills for gas, electricity, water or the telephone; if ordinary families did not own shares; or if ordinary families did not invest in pension schemes. If all those things were true, I suppose the right hon. Gentleman would be right.

The Chancellor has said that the windfall tax will have no impact at all on prices, investment or anything else that he could care to mention. He is looking for a free lunch from the windfall tax, and he will find that it is not available. He should make it clear in this debate that pensioners will be compensated for any increase in their fuel bills. He should make clear whether low-income families will receive an increase in income support to cover their extra costs.

I know that the Chancellor would like to think that the windfall tax will be paid by businesses, not by individuals, but he is a well-read man. He must have read the standard work on tax, "The British Tax System", which declares:

Surely the Chancellor agrees with that. The author, after all, is Professor John Kay, business guru to the Prime Minister himself.

The Chancellor would like to think that the windfall tax will be paid by the so-called fat cats, by stripe-shirted speculators in the City. But it will not be. Such people sold up and took their money long ago. It is the current shareholders who will foot the bill. Far from taxing excess profits, the Government are taxing the people unlucky enough to be holding the parcel when the music stops. The Chancellor says that he wants to put fairness back into the tax system, but what is fair about taxing people on a windfall that someone else made in the past?

Billions of utility shares are held by ordinary men and women through pension funds and insurance policies. Anyone with a pension, anyone with an insurance policy, anyone who is working hard to build up a nest egg for the future, will be hit by the windfall tax. It is a savings tax by another name.

The Chancellor has claimed that that change has already been discounted by the City. Up to a point it has, but that means that the prospect of billions of pounds of extra tax has already done lasting damage to the shares in which millions of people have invested for the future.

The Chancellor has made much of the electoral mandate that the Government claim for the windfall tax, but few people can have forgotten the outrage of Labour

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spokesmen and spin doctors during the general election campaign when we exposed the £1½ billion privatisation black hole in the Labour party's finances, which the right hon. Gentleman now seeks to fill with these taxes.

    "There's no black hole for the Labour party",

said the Chancellor, during the general election campaign: Labour had changed; they would embark on a programme of privatisation. "We'll privatise everything", the Sunday Telegraph was told.

Where were those measures in today's Budget? Sure enough, as we predicted, some of the tax increases in the Budget have had to be brought out to fill the £1½ billion black hole which, indeed, was there in Labour's plans. The Chancellor may have filled the black hole in his finances, but he has blown a new black hole in the credibility of the Labour party.

The Chancellor's next tax increase was the change to dividend tax credits--advance corporation tax--on the ground that, if you do something that people do not understand very well, they will not notice it and you will get away with it. But for many people, their pension is the single biggest saving that they will ever build up, and every word that we heard today about advance corporation tax was another hammer blow against pensions and savings--another savings tax from the Government.

Pensions are one of our great success stories. The United Kingdom has built up more than £650 billion in pension funds--more than those of all the other European Union countries put together. We understand why the Chancellor has gone for ACT. It is one of the most complicated taxes known to man. It is a tax strategy which halves the blame for him, but doubles the pain for everyone else.

The change means that pension funds will be able to claim less tax back, so their revenue will be lower, their growth will be lower, pensions will be smaller and pensioners will be worse off. Taken together with the damage resulting from the windfall tax, the Budget delivers a double whammy against pensions. The bills for the decisions announced today will be paid by millions of hard-working people, many years down the line. It is a smash and grab raid on pension funds in this country, and it is a cynical betrayal of the millions who have built up pensions and now see them devalued.

I welcome the Chancellor's assurance about how charities will be affected by the changes to ACT, but how will those changes interact with the new minimum funding requirements for pension funds? What impact will they have on investment? He says that they will help investment, but if businesses are obliged to dip into their funds to top up company pension schemes, they may end up cutting the very investment that the Government want to encourage.

The Chancellor will regret the measure that he has announced on ACT--his attempt to hide his tax increases today. He is using some of the money produced by it to reduce VAT on fuel, but can he confirm during this debate that his timing of that measure means that the reduction in VAT will feed through into smaller increases in the state pension, so that he can claw back from pensioners some of what he has given away?

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In the Chancellor's eagerness to announce new taxes, he has confirmed--although, of course, it was confirmed for him by his press office this morning--that tax relief on private health insurance for the over-60s is to be abolished. After the windfall tax and advance corporation tax, that is a savings tax in yet another form, which will affect 600,000 pensioners.

That is an utterly vindictive way in which to raise extra money for the Treasury. Moreover, it is likely to prove counter productive, because industry estimates suggest that up to 200,000 people could cancel their policies. How will that help a Government trying to meet their commitment to get 100,000 people off the waiting lists?

The Chancellor also announced his welfare-to-work scheme. We agree with the scheme's objective. Indeed, it is hard to think of a more worthy objective and we shall want to look carefully at the details of some of the proposals. I remind the Chancellor that the last Government had a welfare-to-work programme and it worked: unemployment among the under-25s has fallen by 100,000 a year every year for the past four year--400,000 in the past four years. We did that without a windfall tax, a tax on prices or a tax on pension funds.

Unemployment in Britain today is among the lowest in the major European economies. That is what a policy of flexible markets and welfare reform has already yielded. We now have a policy of subsidy and, whatever its social benefits, the Chancellor is likely to find that job subsidy schemes often cost more than they save. The reasons are obvious: first, money is spent on people who would get jobs anyway; secondly, money is spent creating jobs that are not created at all but where employers simply destroy the jobs of people who are not eligible for the subsidy; and, thirdly, money is spent creating jobs that turn out to be only temporary. Business men have admitted that they could easily use the scheme to take on the unemployed, employ them for as long as the subsidy lasts and then replace them with another round of subsidised employees.

The Chancellor is, therefore, likely to find a great deal of disappointment in the scheme that he has put before the House today. If the Labour party believes that reducing the cost of employing people by a £75 a week subsidy will increase the number of jobs, it must accept that increasing the cost of employing people with a minimum wage and a social chapter will destroy jobs.

Labour's welfare-to-work policy directly contradicts its industrial policy. The Department for Education and Employment will be busy trying to create jobs while the rest of the Government will be busy destroying them. Worse still, their make-work schemes will be temporary and limited to a certain number of jobs, while the minimum wage will be permanent and could affect millions of jobs. As the Deputy Prime Minister once admitted, any silly fool knew that a minimum wage would affect the number of jobs available. From the way in which the Government have gone about their business over the past two months, clearly not every fool knows that it will affect the number of jobs available.

What is on offer from the Government is temporary job creation but permanent job destruction--not welfare to work but work to welfare. They say that they want to put more people back to work, but they are now departing from the policies that have already put more people back to work in Britain than in the rest of Europe.

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We welcome some aspects of the Budget. I mentioned the change to the tax rate for small companies. We also welcome the Chancellor's continued use of tax for environmental purposes, although we want to scrutinise the small print carefully. We would prefer to use environmental taxes to provide the right incentives, but to reduce the tax burden elsewhere, as we did recently with the landfill tax, the revenue from which was used to reduce the national insurance rate for employers.

The Chancellor is using environmental taxes as another vehicle by which to raise the tax burden overall, without producing compensating reductions elsewhere. He calls it a "green Budget", but it is actually still a red Budget which increases taxes on the people of this country.

The Chancellor has produced a Budget, some aspects of which we welcome, but most aspects of which we shall need to question or oppose. It is a tax-raising Budget which breaks the central promises on which the Labour party fought the last election. It flies in the face of the Prime Minister's assertion that no tax increases would be needed. Boxed in by the Prime Minister's commitment, the Chancellor has had to grub around for tax increases which he hopes nobody will understand or notice. The windfall tax is a gimmick for the short term, whereas we needed measures to serve our recovery for the long term.

The Budget is full of missed opportunities. What has it done for families who want to save or invest? What has it done for families who want to work hard and keep most of their earnings? What has it done to simplify the tax system, to help pension funds or to ensure that the strongest recovery in decades is long lasting?

The Chancellor should be warned that the real judgments on the Budget will be passed over the years to come. In future years we will want to know, and the country will want to know, what the Government have done with the best economic inheritance in decades. They had better be ready to be held to account for that.

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