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Mr. David Heath: I would not dream of giving the hon. Lady a lecture on tax. Does she agree that the people who did the best out of the years of Conservative Government were those who earned the most? Would it not be slightly more equitable for her Government to agree with our policy that those who earn the most, perhaps more than £100,000 a year, should pay a little more to help those who need the most support?
Lorna Fitzsimons: I accept that that intervention was meant well, but I do not think that the effect of Liberal
Democrats' proposal would have been as the hon. Member has described. The flat rate on the expandable penny would have been imposed across the board, albeit on income tax. The point about the windfall tax is that it is a tax on the excess profits of the utilities. It will redistribute that money to the people to whom the hon. Gentleman referred. After 18 years, and after studying the books, we should take every opportunity possible to provide young people--the very people the Conservative Government ignored and denied such opportunity--with a lifetime's chance.
Mr. Stevenson: I am fascinated by the obvious conflict between the views of Conservatives, and possibly the Liberals, and Labour Members. If the windfall tax will be so damaging, can my hon. Friend help me by explaining why American electricity companies and French utility companies are queuing up to buy British utility companies?
6.30 pm
Lorna Fitzsimons: If the windfall tax were going to be as damaging as the hon. Member for Grantham and Stamford (Mr. Davies) suggested, people would have divested themselves of the shares and there would have been a downturn in the market. Conservative Members like to think that they are economically literate, but this pantomime debate means nothing to the people in our communities, in the City or in the companies which Conservative Members profess to care about.
It is even more amusing to see Conservatives claiming the people we now represent for their own. The fact is that they had 18 years in which to prove that they cared about pensioners and young people; Conservatives cannot now blame the Labour party for the fact that they squandered all the receipts from oil and gas and from the privatisations.
The Conservatives, who lay claim to economic literacy and competence, were responsible for the two worst recessions this country has ever known, yet they lecture us on the subject of economics, and they make speeches full of parliamentary gimmicks. If the windfall tax, on the other hand, were merely a gimmick, all the agencies and people at grass roots level who are so enthusiastic about it would not be so energised by the possibilities that it opens up to them--possibilities of enacting policies for which they have been lobbying and about which they have been dreaming for the past 18 years. As a result of this initiative, people are coming together in partnerships for action.
The challenge is to create sustainable opportunities for young people. I understand the Liberal Democrats' concern to ensure that that is a sustainable opportunity, and I shall take at face value their worries about short-termism. We Members of Parliament must act as ambassadors in our constituencies, ensuring that the money is used to best effect. This one-off injection of resources for much-needed programmes must be used in a way that makes it sustainable.
There is a lot of rhetoric about the transfer of skills; with the much-needed revenue from the windfall tax, we are in a position to give it meaning. We can prepare young people and lone mothers for the world of work. Whereas they used not to benefit from training opportunities, they
will now be given skills matched to the needs of manufacturing industry. Many manufacturers in Rochdale say that they have a skills gap, not at the bottom but in the middle posts, for which they cannot recruit the right people. The jobs exist; now we need to give young people the skills to take up those jobs and make them lasting.
I have welcomed the windfall tax and I continue to welcome it. It is one reason why 1 May was so historic a victory. The shareholders and pensioners whom Conservative Members claim will be so damaged by the tax voted in a Labour Government, knowing full well that the windfall tax, our advertised policy, would follow. Those people want fairness, equity and sustainability in our economy. They want opportunities for the young. Pensioners feel great sorrow about the lack of opportunities for the young people of today. People with pension plans or shares in those companies can see the benefits of the windfall tax, and they welcome it.
There is no division between pensioners and young people over this matter. Many young people have no work at all--they can hardly afford to hold shares. In constituencies like mine, there is no division over the windfall tax. On the contrary, there is a unity of aspiration. People voted for a Government who would look for solutions. Sometimes those solutions involve imaginative but hard decisions.
I ask hon. Members of all parties to join us, after this pantomime debate is over, in the work that is to be done. [Interruption.] I call this a pantomime debate because some of the speeches made today have been pure pantomime--
Lorna Fitzsimons:
Well, the Chamber has certainly resembled an amateur dramatics workshop at times.
No matter which party we belong to, we all have a moral responsibility to make sure that young people are given good working opportunities. Regardless of the rhetoric used by Conservative Members in the debate, I encourage them all to go as ambassadors to their communities and to ensure that the programmes resulting from the windfall tax are sustainable and practical. Given this one-off golden chance, we are all duty bound to put it to good use in the service of those 250,000 young people.
Mr. Lilley:
This has been a brief but genuinely educational debate--educational for the Labour party, which has been informed of a few principles of economic literacy and of the real argument against this tax. It has been educational for us, too, as we have heard revealed the true motives behind the tax: Labour's desire to wreak delayed vengeance on the privatisation process and to attack success.
Three main issues have cropped up today. The first concerns who will ultimately pay for the tax. The second concerns whether the tax is right in principle: does it set a bad precedent, and is it not wholly irrational? Thirdly, the fact remains that it constitutes a rearguard attack on privatisation.
It has been said that to tax and be loved is given to no man, but the Chancellor clearly thought that he had found a way of doing both. Someone will have to pay in the end, though. It is deceitful to pretend otherwise. It is our--initially not terribly popular--duty to point out that
truth, and to ask again: who will pay? It was Lenin who said that the whole essence of politics concerns who will pay and who will gain. The same applies here. We expect from the Minister an explanation of who he thinks will ultimately pay. Will it be some mythical, non-existent entity? No; we know from the Minister's own advisers that individuals have to pay in the end--so he must tell us who they are. We know that, if the tax is passed on to households, the average cost will approach £300. If it hits pension funds--because it is not allowed to be passed on in higher costs--it is the pensioners of today and tomorrow who will have to pay.
It is no good saying that the share prices have risen somewhat since the Budget. The simple fact is that share prices and dividends would be higher without the tax than they are with it.
Secondly, there is the issue of principle. Retrospection is wrong in principle, as my hon. Friend the Member for Grantham and Stamford (Mr. Davies) eloquently argued. The reason is that retrospective taxes cannot be planned for. If Governments come along after the event and take away money that has been earned and deployed without the knowledge that a tax was going to be imposed, planning becomes impossible.
The only possible exception is when an unanticipated tax is applied to unanticipated profits. That, in effect, is what happened in 1981, when a tax was applied to a profit arising at that time out of the actions of the Government, before people had time to spend or deploy the profit in another way.
Clearly, the longer the Government go back, the more damaging retrospective taxes are. The windfall tax goes back more than a decade; it is frighteningly bad in principle, and sets a dangerous precedent. The windfall tax will undoubtedly reduce the revenues from future privatisations. Anyone buying shares in future issues will think that the Government may well impose a high tax if the company from which he is buying does well, as he hopes it will.
The process is irrational: it is a temporary tax to finance a permanent need. There will therefore be a temptation to make the tax permanent. If, as the Chancellor says, the tax will genuinely not affect customers, investment, jobs and pension funds, why are the Government proposing that it should be temporary? Why are they not proposing that it should permanently meet the costs of their continuing programmes to help young people into work, for which--as everyone who has contributed to the debate has accepted--there is bound to be a continuing need?
Today's debate has helped to reveal the real motivation of many Labour Members: to carry out a rearguard attack on the privatisation process. The hon. Member for Workington (Mr. Campbell-Savours), who is not currently in the Chamber, admitted that he was wrong about the benefits of privatisation, but said that he wanted to tax those who were right about them. He wanted to tax those who had invested in privatised companies in the expectation--which turned out to be correct--that privatisation would bring about a large increase in the efficiency and profitability of those companies.
One benefit of privatisation has been the generation of extra tax revenues. Before the privatisation programme started, the nationalised companies were losing £50 million a week of taxpayers' money. Since privatisation, those companies have been paying
£60 million a week in corporation tax. The taxpayer has rightly and properly benefited from that success, and we should all welcome that. It seems irrational to suppose that they should pay a double dose of tax for that success.
The principal argument for the tax has been that the shares were undervalued at the time of issue. I was a humble and junior Minister at the time, but I can say from my experience in the Treasury that we wanted and needed every penny that we could get of the revenues from the privatisations of those companies. We certainly did not deliberately let them go at a price significantly below their market value. We took professional advice from officials within the Treasury and we took the best professional advice that money--a lot of money--can buy in the City. There was a range of opinions: in the only privatisation in which I was involved, I argued for a higher share price than the officials advised. But to suggest that there was a difference of 100 per cent. between the real value and the price set is nonsense.
The value could be set only on the basis of past experience. We did not know the future; we did not have perfect foresight, but had to relate the price to past profits. It would be logical to relate the relative undervaluation--if there is one--of the price at issue to some multiple of past profits, but not future profits. It is the very success of the privatisations--the fact that they exceeded our expectations--that created bigger profits.
What about Jaguar? I cannot remember whether the Paymaster General was around at the time of its flotation. Was he around at that time? Was he involved in it? Was that flotation underpriced? Did it sell at a premium? Did the Paymaster General benefit? Should he pay us a sort of voluntary windfall? Was the price a sign that the management had deliberately undervalued the company for some extraordinary reason?
BP was the first privatisation; it was started by the previous Labour Government at the behest of the International Monetary Fund. A majority of the shares were held by the Government, who sold some. A profit was made and the shares are now at a much higher price than they were when they were sold off by the previous Labour Government. Indeed, some Labour Ministers have holdings in the company. Based on the principle that present holdings should be taxed for the gains previously made by people who now have nothing to do with the company, presumably a large tax should be paid on those holdings. It is lucky that we know about those holdings--although we nearly did not.
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