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Mr. Deputy Speaker (Mr. Michael J. Martin): With this, it will be convenient to discuss amendment No. 28, in page 10, line 14, leave out '1998-99' and insert '2003-04'.
Mr. Heathcoat-Amory: The clause will reduce mortgage interest relief from April next year. It is a tax-raising measure. There are other specious excuses attached to it, but, in essence, it is a way of raising another £900 million in the next financial year--1998-99--rising to £950 million in the following year. The 10.7 million people who have borrowed money to buy their homes will be affected directly and adversely.
There was nothing about that in the Labour manifesto. We knew that the Government were bringing forward an emergency Budget to implement the windfall tax, but there was no hint that they would also raise taxes on petrol and diesel, which we have dealt with, on pension funds, which we shall deal with tomorrow, and on home owners and all those with mortgages.
The tax is being imposed at a time of rising interest rates. We have had three interest rate rises since the election. The Chancellor has given away the power to fix interest rates, but the responsibility for monetary policy rests with him. There is speculation that a fourth rise may be imminent. The cost of higher interest rates so far on the average borrower is £20 a month. That will rise once more if the Bank of England raises interest rates again. On top of that additional burden on borrowers caused by interest rate rises, the cut in mortgage interest relief will add nearly a further £10 a month for someone with a loan of £30,000 or more--which is the majority.
One of the spurious reasons brought forward for this tax increase is that it is said to be a way of dampening down a housing boom. It is true that house prices in the south-east are rising strongly, but that supposed boom has not yet reached my constituency or many parts of the north of England. If the economy is in danger of being destabilised by a housing boom, the Chancellor should cut this interest relief immediately. Instead, it is to take effect from 6 April next year. If that is his aim, it is not very clever to have such a long delay between the identification of the supposed need and the implementation of the policy.
The restriction on mortgage interest relief is also probably regressive. It is commonly supposed that any such restriction hits the better-off disproportionately.
That is no longer the case, because the tax rate allowable has already been restricted to 15 per cent. The time is long past when the main benefit was enjoyed by the well-off or those paying higher rates of income tax.
The Institute for Fiscal Studies has observed that, proportionately, the bottom 10 per cent. in income are damaged as much as the richest 10 per cent. That adds to the picture that is already building up that the entire Budget is regressive. That has also been observed by the IFS. Taking into account all the tax changes, particularly all the increases in indirect taxation, the poorest 10 per cent. have suffered the most. We hear about the concern of new Labour for the disadvantaged and the least well-off, but that is not carried through in the Budget, which has the reverse effect.
In the opinion of the IFS, the restriction in mortgage interest relief to 10 per cent. will damage the poorest. That is somewhat of a surprise. The IFS says:
We conclude that this measure is a tax-raising measure--no more, no less. It is one of 17 tax increases that we have noted in the Budget. Our amendments push the relief restriction to beyond the next general election, so that, if the Labour party were to choose next time to fight on a platform of that further restriction, the electorate would have a chance to vote against it accordingly.
Liz Blackman (Erewash):
On the heralding of the measure in our manifesto, can the right hon. Gentleman tell us whether the previous Government heralded in their 1992 manifesto the subsequent reduction in MIRAS?
Mr. Heathcoat-Amory:
The point that I was making, which I notice the hon. Lady did not dispute, was that if the measure has a macro-economic rationale, it is undermined by the fact that the suppression of the alleged housing boom will not take place until the boom is all over. Therefore, by implication, she agrees with me about that.
I do not know whether the hon. Lady attended our earlier debates, but we had some predictably barren exchanges about various tax increases in various Parliaments, during which it was established beyond doubt that, even if one accepted that we put through 22 tax increases--which we dispute--it compares with 17 that her Government have already brought forward in their first few months of office. We noted that if the Government continue at their present rate, there will be well over 100 increases before they face the electorate again. She would therefore be most unwise to get into any competition about who has put through the most tax increases.
Sir Teddy Taylor (Rochford and Southend, East):
I have always tried to avoid making political points, particularly about Budgets, because I appreciate that Governments have a difficult job in trying to balance the books. Although I am sure that the Labour party and its members have the best of intentions, I hope that the Minister will bear it in mind that their policies--sadly, probably because of one of those strange coincidences--often seem to hit the poorest hardest of all.
In Southend-on-Sea, where I live, house prices have risen for what we could call the up-market houses in the small number of up-market areas. On the other hand, there has hardly been any price increase at all for houses of £50,000 and less--and there are many of them. In some areas, there has actually been a fall in house prices.
The sad fact is that the Government's proposal will have the same impact on a house owner, regardless of whether the house is worth £200,000, £300,000 or only £40,000. It will therefore make no difference to someone who is on a high salary or has lots of money, but have a rather devastating effect on those on low incomes who have a low-priced house.
The second worry is that the measure comes after several increases in interest rates. It worries me hugely that, because of the collapse of confidence in currencies in other EC countries, it seems that the Governor of the Bank of England will be constantly putting up interest rates, causing more difficulty and problems for those on low incomes.
With successive rises in interest rates and the mortgage interest relief proposal, there is a real danger that, once again--I believe in 1998 or 1999--there will be a serious problem of falling house prices and rising unemployment. I hope that the Government will be reminded that that is a real problem. It is not a conspiracy of the Labour party; it has been forced on us--sadly--because of circumstances outwith our control.
I have seen horrific examples of misery among people in my constituency who are dealing with negative equity. If we create negative equity once again, which we shall if we continue to pile burdens on home owners, we shall be making a grave mistake. I hope that the Government will think carefully about whether reducing MIRAS to 10 per cent. is a mistake, especially bearing in mind the interest rate increases, which will continue.
In general, I feel rather depressed about the economic situation. When the previous Government were in office, everyone made the great mistake of being too optimistic and of feeling that, somehow, everything was going okay. There is a real danger concerning the value of the pound, which seems likely to rise further simply because, as the Governor of the Bank of England told the Treasury Committee, there is a lack of confidence in the currencies of countries preparing to join the euro. In addition, although we might find that unemployment figures look better because of the special work force scheme that is being introduced, unemployment could rise again.
If we have such a problem with unemployment at the same time as several rises in interest rates and a hole in the tax arrangements, we could be in danger of making
a bad problem worse. That is why the amendments tabled by the official Opposition to delay the reduction are wise and prudent.
"Losses at the bottom end of the income distribution are larger than one might first expect, which reflects the low incomes of mortgagers in these poorer groups making their proportionate losses relatively large. These groups are mainly the short-term unemployed, for whom income support does not cover the increase in their mortgage payments. It would be possible to compensate this group by changing the income support rules to cover their mortgage interest payments, as is the case for the longer-term unemployed."
We wait to see whether the Government will act to prevent that regressive effect, by bringing forward changes in the income support rules. If they do not, we can conclude only that they do not mind the regressive nature of the measure or of the Budget as a whole.
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