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Mr. Quentin Davies: Clause 15 raises two issues which, as we go through the Bill, seem to be its hallmarks. The first is coherence and competence and the second is honesty or straightforwardness with the electorate.
One can make an extremely respectable economic argument for abolishing MIRAS altogether. It is a distortion of the market. The tax benefits have applied to loans taken out for one specific purpose only. That is not, however, the argument that the Government are making.
One could make an argument for taking the opportunity of this Budget to reduce the value to the borrower of mortgage interest tax relief, on the grounds that the economy is overheating and that consumption is expanding at an unsustainable rate, which is clearly what the Government believe, judging from their analysis of the economy in the Red Book. The Government would be in some difficulty over advancing such an argument because, if they were to do so, it would be logical for the general burden of the Budget to have a negative impact on consumption spending--whereas, in fact, the Budget is pretty neutral about consumption spending.
The reductions in consumer disposable income that will be caused by the reduction in MIRAS and the increase in certain excise duties will effectively be counterbalanced by the reduction in VAT on domestic fuel and additional welfare spending. The Chancellor himself, when I put the question to him in the Treasury Committee--I had to put it to him half a dozen times to get a straight answer--conceded that the Budget is virtually neutral in its effect on consumption. Some £1 billion net will be taken out of consumption which, as I pointed out to him, is only 0.15 per cent. of gross domestic product and will not have an economically significant impact.
The Budget will, however, have an economically significant effect on savings. When the economy is overheating, a sensible Budget stance would be to favour savings or to bear down on consumption, or a mixture of both. Both those directions would get the economy to the same destination. Instead, the Government have imposed an unprecedented levy on savings, by removing dividend tax credits. Therefore, the Government cannot justify the reduction in MIRAS by either of the two arguments that would give it some degree of intellectual respectability. The Government, once again, have made a proposal without a sound and convincing rationale. In short, the measure looks hasty, ill thought through and inconsistent with the rest of
the Budget. It is also inconsistent with the Government's analysis of the state of the economy, and it is incompetent. What else is a Budget with all those characteristics?
The second issue that the measure raises is that of honesty and straightforwardness with the public. The Government have given us a lot of rhetoric about being straight and honest. That sounds appealing and attractive and I applaud them for it, but in practice they fought the election criticising the Conservative Administration for introducing taxes in contradiction of their electoral pledges. However, I do not want to go back over that ground, which has been well trodden in previous debates on tax policy, because I would be out of order.
The Labour party said that it would set new standards of straightforwardness with the electorate, but the opposite is the case. It fought the election without mentioning that it intended to reduce the value of MIRAS, which was highly relevant to everybody with a mortgage. As we know, this country has a high rate of owner-occupation, largely as a result of Conservative Governments since the war and, especially, in the past 18 years. We now have more than two thirds--some 70 per cent.--of the population living in owner-occupied accommodation.
Mr. Geraint Davies:
Will the hon. Gentleman give way?
Mr. Quentin Davies:
I would be disappointed if the hon. Gentleman did not want to intervene in my speech. I would think that I was doing something uncharacteristically wrong. I am delighted that the tradition we have established is being observed, and I give way with pleasure to the hon. Gentleman.
Mr. Geraint Davies:
Did the Conservative party announce in its election pledges the two cuts in MIRAS that it introduced? If it did not--and I can advise him that it did not--is it not sheer hypocrisy that the hon. Gentleman is spouting?
Mr. Quentin Davies:
I am always flattered to be treated in these debates as if I were sitting on the Front Bench. It is a privilege to defend the record of the previous Government, whom I greatly supported in almost everything they did. The cuts to which the hon. Gentleman referred were made some years after the general election. It is one thing, when economic circumstances change considerably--as they did during the previous Parliament--to decide to make a sensible move that is explained at the time, and another to introduce measures within weeks of an election. Indeed, the Labour Government originally intended to have a Budget in the first 10 days of June, so they must have known in May what they proposed to do. They knew perfectly well that they intended to reduce the value of MIRAS, but they withheld that material fact from the electorate during the campaign.
Mr. Shaun Woodward (Witney):
Given that the hon. Member for Croydon, Central (Mr. Davies) has accused my hon. Friend of hypocrisy--
Mr. Deputy Speaker:
Order. The hon. Gentleman did not accuse another hon. Member of hypocrisy, because I would have stopped him if he had. He accused a political party of hypocrisy, and that is different.
Mr. Woodward:
I am grateful for the correction, Mr. Deputy Speaker. When the Prime Minister was Leader of the Opposition, he mentioned the blows dealt to home owners by cuts to MIRAS in a speech to the Labour housing conference on 5 March 1996. He said:
Mr. Davies:
It is disturbing that the Prime Minister could have forgotten about such a speech a few months later when he was framing the Budget. I shall not use the word hypocrisy because I would be ruled out of order, but such behaviour has a sad tendency to undermine the public's confidence in the integrity of the political process. We owe it to ourselves, our constituents and this place to try to make our actions consistent with our announced precepts.
Mr. Geraint Davies:
Does the hon. Gentleman agree that the Prime Minister made those remarks in the context of the highest levels of negative equity that we have seen and of more repossessions than the highland clearances? It would have been silly to cut MIRAS then, but we are now in a different situation, with the economy overheating and the housing market fast recovering. Therefore, a marginal touch on the brake is sensible and consistent with that contextual change, and the intervention by the hon. Member for Witney (Mr. Woodward) was wrong.
Mr. Quentin Davies:
There are two answers to that. The first is that the Prime Minister made the remarks to which my hon. Friend the Member for Witney (Mr. Woodward) has rightly drawn the House's attention within a year of the election. It is not plausible to suggest that the context is now so different, unless the hon. Member for Croydon, Central (Mr. Davies) wants to argue that the mere fact that Labour has come to power, and the consequent prospect of irresponsible management, have undermined confidence in the financial markets, so interest rates have to go up. The second point is that it is not open to the hon. Gentleman to argue for the cut on general principles. If it is a general principle to avoid distortions in the economy, that would be true this year, last year, 10 years ago and in 20 years' time. Therefore, by definition, the Prime Minister should have made that point clear when he was Leader of the Opposition. It is in the nature of principles that they are constant, so that point could have been no less a principle in 1996 than it is now.
The public will not be fooled. They will remember all Labour's rhetoric when it said, "The Tories put up taxes, but we will not." The public will know that that was fundamentally false. They will remember all the rhetoric from the Labour party about honesty in public life and they will see the shabby contrast between that rhetoric and the reality. They will not forgive the Labour party, and nor should it be forgiven.
Mr. Woodward:
The hon. Member for Croydon, Central is clearly not acquainted with the facts. By 1996, negative equity had changed significantly. Is he aware of the remarks made in 1995 by the then shadow Chief
Mr. Davies:
My hon. Friend is remarkably well informed about the Labour party's unattractive record on the whole matter. I was about to say "dishonourable", Mr. Deputy Speaker, but you would have ruled me out of order. It is indeed unacceptable to use one form of language to describe a measure introduced by a Conservative Administration, and to use a completely different form of language to describe exactly the same phenomenon when it appears under a Labour Government. The reduction in MIRAS either is or is not an increase in taxation. It is certainly a reduction in the disposable income of mortgage borrowers--there can be no conceivable doubt about that--but, while we understand the use of the phrase "an increase in taxation", those who use it must be consistent, and continue to refer to an increase in taxation when they themselves take such action. I do not think that anyone can quarrel with such logic, and it is sad that the Labour Government are not willing to follow it through.
6.45 pm
"the effect . . . was to add to insecurity, to destroy confidence in the housing market and to make people much more wary of buying and selling homes."
Does my hon. Friend have a view on hypocrisy in the light of that comment, which was made only a year ago?
"two Tory tax increases . . . These latest tax hikes hit as the Tories continue to argue".
I find it odd that the Labour party could describe such measures as tax increases in 1995, but does not acknowledge that the measure that it is now introducing is undoubtedly a tax increase. Moreover, I do not think that it was in the manifesto.
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