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6.15 pm

I am sorry that the Financial Secretary is not here, but yesterday she made much of the importance of certainty. She said:

"I am sure that the right hon. Gentleman will agree that what is important is certainty, and that the taxpayer knows what the tax legislation is."--[Official Report, 14 July 1997; Vol. 298, c. 26.]

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Any one-off tax increases uncertainty about the tax system. If she were here, it would interesting to hear from her what certainty there can be for companies that are privatised in future. I submit that there can be none.

Is the tax fair and equitable? No, because it falls on current shareholders, many of whom did not make excess profits having bought their shares more recently. Those who made so-called excess profits have sold their shares and so will escape Labour's punitive tax plans.

What of certainty? For the taxpayer, certainty involves carrying out economic activity under a predictable tax regime. The only people who were able to work with certainty were the Financial Times journalists who were given information about the advance corporation tax changes the night before the Budget. The Government behave in the most arbitrary, high-handed and arrogant way. Acting arbitrarily is the hallmark of this Government and of the Labour party.

The Financial Secretary is still not here, but I ask her to confirm what the Chancellor said on 2 July, when he stated:

"the tax can be paid without any impact on prices, investment, or the quality of service to customers; or, in my view, on employment."--[Official Report, 2 July 1997; Vol. 297, c. 314.]

Can she guarantee that there will be no change to quality of service and no impact on prices, investment or jobs? If there is, would she be happy to accept responsibility for those changes and the implications for her job?

The motive behind the tax is based on an old Labour instinct: the desire to tax any way that it can. When we came to power in 1979, the first question that we asked was how we could create wealth. The first question that Labour asked, which is why it is the first clause, was how it could tax wealth. Conservatives create real jobs from real wealth; Labour creates phoney jobs from taxing wealth.

Back in 1993, Labour spotted the opportunity of the windfall tax. The Chancellor gave a speech at the Institute of Chartered Engineers proposing that privatised utilities be charged what he then called a one-off public dividend on their "excess recession profits". What a thought. It is worth noting that the electricity industry alone in the past two years has raised £4 billion in taxes. The day after his speech, The Times reported:

"The amount raised by the windfall tax would be negotiated with the regulators and the utility companies, but would be expected to raise at least £1 billion."

The opportunity to raise £1 billion of lucre was irresistible to a Labour Government, and so it has grown: not £1 billion, £2 billion, £3 billion or £4 billion, but£5 billion. What a bonanza, what a prize. Did the Government consider how those profits had been earned, or the efficiency gains made by the companies since privatisation? No. Did they examine the disastrous way in which the companies had been run before privatisation? No. Is it not interesting that the Labour party does not much like talking about the times when those companies were in state ownership? Who put them into state ownership?

This Labour Government are careless, tax-driven and opportunistic, but the opportunism is highly dangerous. Those companies were privatised in good faith, yet Labour has broken that faith. Shareholders invested on the basis of market rules, but the new Labour Government are riding roughshod through any of those rules.

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The state should be party to contracts with business and individuals. As the Financial Times reported in September 1995, in a leader appropriately entitled, "Windfall tax deception":

"The windfall tax introduces uncertainty into that contract and as such abuses the power of the state."

How right it was to predict that a future Labour Government would abuse the power of the state.

Let us clear up some of the doubts expressed by Labour Members, who have justified the windfall tax by stating that we did the same in 1981 when we imposed the special bank tax on bank deposits. Our tight monetary policy of that time caused high interest rates, and deposits held on current accounts in 1981 with banks did not pay any interest. The banks made very high profits, as a result of the specific monetary policy then followed.

That is why we raised a levy of 2.5 per cent. on non-interest bearing sterling deposits. That tax applied to a well-defined set of firms, according to a tax base coherently related to the reasons given for its introduction. It was introduced at the same time as when the banks were making those profits, and not years later.

In summary, the windfall tax introduced in clause 1 is wholly iniquitous. It has no foundation and no proper precedent; it is inefficient; and it is motivated by Labour's old desire to tax rather than to create any wealth.

Mr. Stevenson: The hon. Gentleman has referred to how much profit was made and how much tax was paid. Would he care to comment on the fact that, since privatisation, Severn Trent Water has not paid a single penny in mainstream corporation tax?

Mr. Woodward: I would be more than happy to comment on that. One must look at the successes of the water companies since privatisation. [Interruption.] It is interesting to note that Labour Members are not interested in the opportunities created by privatisation. What is really interesting about those hon. Members is that they cannot bear to hear about success. The only thing they want to hear about is how they can tax, how they can screw money out of companies until the pips squeak. In the past, they went for individuals; now they are going for companies.

Those hon. Members will sadly discover in the years to come that, at the end of the day, there is no such thing as hitting companies with tax. It is individuals who will be caught by that, and it is those people who will come back in a few years time to haunt the Labour Government.

Lorna Fitzsimons: I find it absolutely amazing to hear the hon. Member for Witney (Mr. Woodward) try to give us a basic lesson in economics and economic literacy. That makes me think about some young people I have spoken to about the potential offered to them by the windfall tax. The words used so passionately by the hon. Gentleman about that tax being not fair sound like those of the playground.

The hon. Gentleman may talk about equity and sustainability, but consider the economic literacy espoused by your Government in past 18 years and the human wastage of unemployment. In my constituency, 34 per cent. of under-25-year-olds are unemployed and a hefty number of them, more than 600, are long-term

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unemployed. I challenge the hon. Gentleman to come to Rochdale to give those young people a lecture about economic literacy.

You have talked yet again very eloquently about taxation.

The First Deputy Chairman: Order. I should remind the hon. Lady that she should not use the term "you", which refers to the Chair.

Lorna Fitzsimons: I beg your pardon, Mr. Martin. As a new Member, I sometimes get carried away.

On taxation, surely the hon. Gentleman's memory is not so short-term, that he has forgotten his Government's record. In their final five years of office, they raised taxes 22 times, despite all their pledges about VAT. Therefore, I hope that the hon. Gentleman will forgive me if I or my constituents take no lectures from Conservatives about taxation.

As for the windfall tax, the shadow Chancellor's concern for pensioners would mean a lot more to the pensioners of Rochdale if he had not been a member of the Government who back-tracked on the imposition of VAT on fuel. If that Government cared so much about pensioners--

Mr. Lilley: Is the hon. Lady therefore arguing that her Government should give the same extra support to pensioners to cover the cost of the windfall tax when it is fed through to their bills as we gave to help pensioners when VAT was imposed on fuel? Does she agree with the Economic Secretary that the net effect of that extra help to pensioners was to make them--and I use her words-- "better off" than if there had been no VAT increase?

Lorna Fitzsimons: I worked in the utility sector before my election to the House. I refute utterly what the right hon. Gentleman says about the impact of the windfall tax being passed directly to consumers. Anyone who has worked in the utilities is aware of the difference between the rhetoric of the election campaign and the reality. The regulators have already made it clear in their pricing reviews that that cost will not be passed on to consumers. That pledge has been echoed by the company chairmen and their boards. Our proposal was well-trailed policy, which we advertised. We were honest about it before the general election and allowed the markets to equate our policy with the studies conducted by analysts. We eventually put that proposal to the people.

I refute utterly the claim that the cost of the windfall tax will be passed on to the consumers. The Opposition have since professed, after the election, that they care greatly for the people, but one of the principal reasons for their defeat was that, after 18 years, the people of this country realised that the Conservatives cared not a jot for them.

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