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7.30 pm
I pause on three points of my own in the analysis. First--in this instance, the Chancellor and his Treasury team have been entirely consistent--a move has been slipped into the Budget that is completely in accord with the message of the Budget, which is, "Clap today and pay tomorrow." It is inevitable that the costs of the proposals have not yet fully sunk in, and that is because most people receive an annual statement of their mortgage liability in the spring. Their repayment period is adjusted accordingly. That does not apply to every mortgage, but there are many people who do not yet know what has hit them.
Secondly, Labour is claiming, and the Chancellor is calculating and betting on, a benefit of £950 million in a full year. The Chancellor should reflect on the implications of the three hikes in interest rates on the cost of MIRAS itself. By increasing the interest rate three times, there has been a rise in the cost of MIRAS. My personal calculation is that it has amounted to a loss of £225 million to the Exchequer. The Chancellor has already given away about a quarter of the benefit that he is claiming.
Thirdly, we have not taken into account all the changes that will bear on the ordinary person or ordinary householder, to use the Government's terms. In addition, there is the indirect impact of the changes in advance corporation tax on pensions and the need to contribute to pensions. There is also an indirect impact on local authorities and council tax. In some instances, there will be an impact on stamp duty. There are other changes that will take place indirectly in the second round.
Mr. Ivor Caplin (Hove):
I apologise for missing the start of your speech. You raised on three occasions,
The Second Deputy Chairman of Ways and Means (Mr. Michael Lord):
Order. "You" and "your" are not words that the hon. Gentleman may use, because they refer to the Chair. The Chair is not involved in these matters.
Mr. Caplin:
I am sorry, Mr. Lord.
The hon. Member for Daventry (Mr. Boswell) has said on a number of occasions that there have been three interest rate rises since 1 May. Perhaps he will reflect on why there was no interest rate rise in the first part of the year, which every economic forecaster said there should be so as to control the economy generally and specifically in terms of house purchase.
Mr. Boswell:
It is interesting that, after the election result was known, it became clear from the price series for April that the outgoing Chancellor, my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), hit his inflation target precisely in April. We were accused during the general election campaign of not having hit that target. It seemed that inflation would be 2.6 per cent., but we reduced it to 2.5 per cent. It has now risen to 2.9 per cent. because of the direct impact of the Budget.
As for monetary policy at that time, I think that my right hon. and learned Friend the Member for Rushcliffe is to be commended on making his own judgment. I am surprised that the hon. Member for Hove (Mr. Caplin) appears to concur with the view of the Bank of England in the second half of last year, when it demanded an interest rate rise. My right hon. and learned Friend resisted that demand, and I believe that he was right to do so. These are now matters of history, and it is plain that some of the difficulties imposed by the Chancellor are that he has increased taxes and spending in the Budget as well as indicating a relaxation of the inflation target, which is an extremely bad signal to send.
We have a focused tax relief which is intended to give practical help to all sorts of home owners. It is neither regressive nor regionally skewed. It costs £2.3 billion annually, which in cash terms was very much what it was about 25 years ago. It is not very far out of the ball park of about 1p on income tax. Our complaint is that the Government are aggravating the effects of their hits on higher interest rates on the householder with a tax hit that is entirely of their own making.
The Government's action is likely to have little effect in cooling any alleged boom in house prices, which is by no means universal. The conclusion of the Halifax building society in its latest house price index is that there is no need for any specific Budget measures aimed at curbing an allegedly "booming" housing market. I know, of course, that that must be a matter of judgment.
In fairness to the Government, I do not think that they have made their proposals on that basis. We on the Opposition Benches want to protect the home owner by providing, through the amendment, for no cut in mortgage
interest tax relief to take effect unless and until interest rates are reduced to the historic low levels enjoyed by borrowers on 1 May.
I agree that present signs suggest that it might be rather a long wait before we reach that happy state again. It will be a long wait, because already the Chancellor has shown a readiness to relax his inflation target and a propensity in various ways to favour increased taxation. In my judgment, he is preparing the way for higher spending. Faced with that somewhat bleak picture, we owe it to home owners to offer them some protection, as afforded by the amendment.
To quote the Government, all that we are discussing amounts to a matter of trust. I have changed my spectacles recently, a move that has been of great benefit to my performance at the Opposition Dispatch Box, but I still see nothing in the Labour party's manifesto, with either old or new spectacles, that amounts to a pledge to increase taxes that are paid by home owners.
I have recently shared with the House of Commons a letter from one of my constituents, a Mr. Morrison, and I shall now share it with the Committee. He confirmed my apparent myopia when recently he wrote:
There has been, therefore--I regret to have to tell the Financial Secretary--a material breach of trust. I invite Ministers on the Treasury Bench to absolve themselves and their colleague by giving some belated explanation of what took place. Tonight, I also invite them to repair the damage that they have caused by at least committing themselves--I hope that the Financial Secretary is listening--to no further reduction in mortgage interest tax relief. Better and more immediately, I invite them to accept our amendment on behalf of the home owners whom, sadly, they have set out to damage.
Mr. Campbell-Savours:
I shall be brief, as I had not intended to speak, but having been provoked by the Minister five minutes ago, when he failed to answer my perfectly reasonable question, I feel compelled to do so.
The whole debate begs a question that no Opposition spokesman has answered from the Dispatch Box. I pressed the shadow Chancellor several times to answer a very simple question. He refuses point blank to do so. What would the Conservatives have done if they were in government? Would they have raised interest rates? Would they have raised taxes? Would they have done a little of both? Or would they have done nothing at all?
I asked the other day whether the Conservatives accept that the economy is overheating. Everyone tells me, tells us, tells the Government, that the economy is overheating. The only people who have trouble mouthing those words are Opposition spokesmen. The reason, of course, is that
if they were to do so, it would mean that they, were admitting that the economy was not in a particularly balanced state at the time of the general election.
The reality is that we faced up to our responsibilities the moment we knew what the problems were. I believe that there was almost a conspiracy of silence during the general election campaign, from all sides in the political debate, about what would happen post-Budget. Indeed, the Tory party was part of that conspiracy. I do not remember the Tories telling us at any stage during the election campaign what they intended to do about MIRAS after the election. We all knew that they would remove it.
I challenge any Opposition spokesman to come to the Dispatch Box today and tell us in all honesty that it was not the Conservative party's intention to interfere with MIRAS after the general election. Perhaps it would be better if a member of the then Cabinet were to do so, because I understand that the Cabinet of that time considered the issue of MIRAS. I give way to the hon. Gentleman--
Mr. Campbell-Savours:
Not him, he was not in the Cabinet--I am asking the right hon. Member for Hitchin and Harpenden (Mr. Lilley), who was a member of the Cabinet at that time, whether the issue was discussed in the Cabinet sub-committee.
"I phoned Mr. Brown prior to the election concerning future fiscal policies. He informed me that no planned reduction in MIRAS would take place and I should look at the Labour Party manifesto, which did not include such measures."
I am afraid that I have still not had any explanation from those on the Treasury Bench about those assertions. It could be that Mr. Morrison got through on a bad line and was misheard. It could even be that someone got into the headquarters or office of the Chancellor and decided to impersonate him. Or, of course, it might not have been a planned hit on mortgage rates at all: it could have been a panic cut imposed at a later date when interest rates were already humming on their upward path.
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