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Mr. Hope: Will the hon. Gentleman give way?

Mr. Duncan Smith: No.

New Labour had an opportunity to redress the severe tax that it imposed on thrift when it taxed pension funds last July. That was a missed opportunity, because no such action was taken. It was warned at the time by the actuaries that that action was likely to lead to greater difficulties in pension funds, but it took no action at all.

All those opportunities have been thrown out. The Government chose the wrong tax to redress and so highlighted their true instincts--and will now stand condemned. They did not even offer charities a reprieve from the abolition of the ACT dividend tax credit, as had been asked for.

We can take new Labour at its word only if we reverse its words. Throughout the Budget runs the fault line of sleight of hand--do not trust what we say, trust only what happens after we say it. Labour's motto is: we cannot be trusted.

Labour failed to cut welfare bills: welfare bills, which it pledged to cut before the election are now set to rise and rise again. It has increased tax when it said that it would cut tax. It has devalued pensions and threatened pension funds in a way not seen for many years. It has lowered investment levels in Britain.

At the beginning of its term in office, Labour is already breaking promises. I wonder what it will be like when it comes to leave government in four years' time.

5.42 pm

Mr. Jim Cunningham (Coventry, South): I shall try to be brief because I am aware that many of my hon. Friends wish to speak.

The Budget is based on the long-term decision making that is necessary if we are to prevent a return to the boom and bust years witnessed under the Tory spending spree in the late 1980s. As a result of that, inflation almost doubled in two years, peaking at more than 10 per cent. in 1990. Interest rates also rose to 15 per cent., fuelling large-scale repossessions and homelessness. That spending spree led to the longest recession in the post-war era and unemployment of more than 3 million for the second time in a decade.

The Government are committed to ensuring that Britain enjoys the kind of economic success capable of delivering long-term prosperity not just for the wealthy, but for the long-term unemployed, young people and lone parents, all of whom were forgotten throughout the 18 years of failed Tory government.

The Conservatives' golden economic legacy is more a legacy of debt and failure on a massive scale. After 18 years of Conservative government, Britain had the lowest investment among Organisation for Economic Co-operation and Development countries, the lowest job creation and one in five households without a wage earner. Every Tory Budget failed to answer those problems.

Social security now consumes more than £100 billion, about a seventh of the nation's wealth, yet under the Tories there was a massive rise in social exclusion and crime.

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The Government inherited a national debt of more than £400 billion, its having doubled in the six years between 1990 and 1996. The public sector borrowing requirement was £23 billion in 1996, yet during the 1980s the Tory Government received billions through the privatisation programme. Oil and gas revenues alone totalled £80 billion, and that at a time when tax revenues rose by 43 per cent.

That debt equates to more than £26 billion a year in interest payments, or 10p on the basic rate of income tax. The Tories spent more servicing the national debt than they did on education. Under the Conservative Government, the average taxpayer contributed more than £1,000 a year to meet that legacy of debt.

The Government's commitment to sustainable and sound public finances can be seen in numerous measures undertaken since last May. The tough five-year deficit reduction plan is based on the need to encourage long-term investment, and the granting of operational independence to the Bank of England, which will provide a clear and accountable monetary framework, has already reduced long-term borrowing costs by one third of 1 per cent., which will save taxpayers around £6 billion a year.

Since the May election, the Government have twice had the opportunity to reduce corporation tax and, on both occasions, they have seized it. First, they reduced it from 33 to 31 per cent., then to 30 per cent., the lowest main rate among any of our major competitors. They also pledged not to raise that level during the remainder of this Parliament. The small business rate has also fallen, from 23 per cent. last May to 20 per cent. The changes to corporation tax will help nearly 2,800 businesses in Coventry, South alone.

The Tories failed the British people on tax, and that is why they lost so heavily at the election. They had had an 18-year history of deceiving the electorate on taxes. The tax take as a proportion of gross domestic product went up from just over 34 per cent. in 1979 to just under 36 per cent. in 1996. From 1979, the tax burden under the Tory Government was higher in every year bar one.

Under the Conservatives, so-called tax cuts were nothing more than an underhand shift from direct to indirect tax, from progressive to regressive tax, from taxing the rich to taxing the poor. The changes made by successive Conservative Governments resulted in a shift in the tax burden that penalised the poor. Between 1979 and 1997, the tax burden rose for everyone except those earning more than £64,000 a year.

The Conservative Government repeatedly broke election pledges on VAT. In 1979, they claimed that they would not increase VAT, but, after the election, in the first Parliament, VAT almost doubled from 8 to 15 per cent. In 1992, they again promised no more increases in VAT. The then Chancellor claimed that there would be no need to increase the scope or rate of VAT, but, by 1993, the Government had extended its scope to include domestic fuel. That was a particularly cruel move, which hit most severely the elderly and the poor, who spend a greater proportion of their income on gas and electricity than do the well-off.

The Tories were returned to power in 1992 with a commitment to maintain existing tax levels, but they introduced 22 new taxes. The typical family paid an extra £2,000 a year in 1997 compared with 1992. The Tories may criticise the Chancellor's changes to the married

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couples tax allowance as a hidden tax rise, but, after 1992, the Tories themselves reduced the married couple's allowance, costing the average family £500 a year.

The Tories criticise the change to mortgage interest relief at source as a hidden tax, but their reductions in mortgage interest tax relief from 25 to 15 per cent. after 1992 cost an extra £600 per year.

The Tories criticise the increase in road fuel duty as harmful to rural communities, where people are dependent on cars, but it was the Tories who introduced bus deregulation, which greatly reduced rural services, and it was they who raised duties year on year.

The Tories in opposition still display a hypocritical approach to taxation. The Labour party in government has upheld its commitment to create a tax system that is not only fair but seen to be fair. The poorest 20 per cent. of families with children will gain an average of £500 a year.

VAT on domestic fuel will be reduced to 5 per cent.--the lowest level possible. In opposition, it was Labour Members who prevented the Tories from increasing it to 17.5 per cent.

The working families tax credit is an attempt to tackle the unemployment and poverty trap that flourished under the Tories. The tax credit will guarantee that working families earning less than £220 per week will be taken out of income tax liability altogether. It will particularly benefit the 4 million children in Britain who live in households below the poverty line, as will the pledge to increase child benefit by up to £2.50.

Through the implementation of the windfall tax on the privatised utilities, £3.5 billion was taken from the huge profits that went into lining the pockets of Tory fat cats. That will fund the new deal to tackle social exclusion among the young, long-term unemployed, lone parents and people with disabilities. It will also provide funds for the much needed investment in our schools following the maintenance backlogs that grew under the Tories. The Government have provided a total of £2.3 billion in extra funding for education since the election on 1 May.

Changes to national insurance will make British workers more competitive, especially low and middle-income earners. The change in national insurance will make thousands of people in Coventry, South better off.

This is a step on the long road not only to modernise Britain for the years beyond 2000 but to create a fairer and more equitable society.

5.51 pm

Mr. David Rendel (Newbury): The Liberal Democrats believe that the Chancellor has, in general, moved in the right direction in his Budget this year. The problem is that he has not moved far.

During the debate, other hon. Members have had--and will have--an opportunity to comment on the Budget more broadly, but I shall confine my remarks mainly to my spokesmanship area, which is social security. I shall make just one exception on a constituency matter.

On the social security proposals, we welcome the Government's efforts to give some of the poorest in our society the opportunity to find paid employment. We have always welcomed that, and welcome the changes in the Budget that will help it. We welcome the Chancellor's attempts to make work pay. We welcome the fact that take-up of working families tax credit is expected to be higher than the take-up of family credit.

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However, the holes in the Government's proposals are unwelcome. As my right hon. Friend the Member for Yeovil (Mr. Ashdown) said on Budget day:


In my speech, I hope to highlight the areas where the Liberal Democrats are pleased that the Government have acted, as well as the dangers that we see in the continuing power of soundbite over policy, for the Budget does all too little for the groups of people who cannot work, or who through individual choice do not work.

I particularly welcome two aspects of the Budget. The first is the long-overdue changes to national insurance contributions. It is undoubtedly helpful, especially to businesses, that the allowances for employee and employer national insurance contributions should be aligned with the allowances for income tax. That is something for which the Liberal Democrats have pressed for some years, and it is all the more welcome for that.

The second change that I particularly welcome will affect many fewer people, and will not be worth all that much to those whom it does affect. Nevertheless, because it embodies an important principle, it is worth highlighting today. The Chancellor has extended the additional personal allowance to women whose husbands are incapacitated. There is no reason why, in the modern world, husbands who care for their disabled wives should receive such an allowance, while wives with disabled husbands do not.

The idea that women suffer no personal financial loss by caring for a disabled husband should have been confined to the 19th century rather than to the 20th and 21st. It would be interesting to know whether the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) agrees with us on this issue. I may have missed something, but so far all I have heard from the Conservatives on that change is a deafening silence. If the hon. Gentleman wishes to intervene to tell me whether he supports the Government and the Liberal Democrats on that change, I shall give way, as I am interested to know. [Interruption.] I suspect that he has not yet made up his mind, as he now says from a sedentary position that he will write to me later about it.

It has taken a long time for the Labour party to accept the Liberal Democrat position. After all, the change was proposed as an amendment in Standing Committee during consideration of the Finance Bill in 1996. On that occasion, the hon. Member for North Warwickshire (Mr. O'Brien), speaking for the Labour party in opposition, refused to support an amendment tabled by my hon. Friend the Member for Gordon (Mr. Bruce)--despite the support that we now appear to have from the Government--which would have had the same effect as the Chancellor's announcement on Tuesday. The hon. Gentleman said that Labour


Assisting the spouses of disabled people would send "the wrong signals". That is not the way to speak or think of some of the most disadvantaged people in our society. I am glad to see from the reaction of hon. Members on

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the Government Benches that they tend to agree with us, and not with their spokesman on that occasion. We on the Liberal Democrat Benches are delighted that the Labour party has at last seen the error of its ways.

In contrast, however, there is one other aspect of the Budget on which the Government have, conspicuously, not seen the error of their ways. The abolition of lone parent benefit, due to come into effect in April this year, will mean that payments to current claimants will be frozen, and new claimants will face an immediate cut. What will happen to those who do not want to take paid jobs but who want instead to stay at home to look after their children? Will they face poverty, hunger, no opportunity and no hope? The Liberal Democrats have opposed the cuts in lone parent premium, for we realise that some lone parents want to stay at home to look after their children, but under this Budget, some lone parents do not do paid work, so do not get anything.

How totally illogical to break the bounds of Conservative tax policy and introduce an entirely new allowance for mothers married to an incapacitated husband, while cutting lone parent benefits purely on the excuse that there was a rigid and unbreakable pledge to stick to Conservative policy. There is no logic behind that. There is no excuse.

What about pensioners? I may be mistaken, but I do not think I heard the word pass the Chancellor's lips even once during his Budget speech. Labour sings sweet tunes when talking of the need to tackle poverty, but what of the over-80s, who are some of the poorest in our country? Have they been forgotten? Are they unimportant? Are they to be treated merely as having ended their working life? The Liberal Democrats have proposed a £5 premium for the over-80s. It is a targeted policy, well aimed, to help the poorest, including many who are eligible for income support but who, for one reason or another, do not claim it. Pensioners do not work, so in the Budget pensioners do not get anything.

The stress on welfare in work does, however, have welcome advantages for those fortunate enough to be covered by the Chancellor's plans. First, there will be a £1.4 billion cash injection into the working families tax credit. That is welcome. Secondly, the working families tax credit will have a much reduced taper compared with the present system of family credit. That is welcome, too. Thirdly, there will be a welcome tax credit for child care. On that, I am opposed to the view held by the hon. Member for Chingford and Woodford Green. That is one of the few Budget measures for which the Chancellor deserves unreserved praise. However, none of these welcome changes is dependent on the introduction of the working families tax credit; on the contrary, the changes could have been combined with the current system of family credit.

The one advantage that is specific to the working families tax credit is that it is likely to promote a higher take-up among those who qualify than did family credit. In general, a stigma surrounds benefits: people are thought to be failures if they rely on welfare handouts. Liberal Democrats believe that family credit was successful in combating poverty, but acknowledge that some people who may need it have suffered and gone without it because of that stigma.

We hope that working families tax credit will break that stigma by rewarding work and by assisting those who want to stay in employment, but several disadvantages

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should be recognised. The devil will be in the detail and in the design of the system. The Chancellor says that couples will have the option of receiving the tax credit through the pay packet or through the Post Office, but we remain unconvinced that that will stop a transfer of resources from the purse to the wallet.

Family credit is paid direct to the mother; working families tax credit will give couples a choice. There will be little difficulty in a family if the man and the woman have a good relationship, and share and understand each other's needs. Whichever partner is chosen to receive the tax credit, the money will be passed to the partner who will spend it on behalf of the family. However, there is a danger that selfish husbands or fathers who do not want to share or to give the tax credit to their wives will refuse to do so. They will say, "Why give my wife the tax credit? She's received family credit for years." They will think that it is time for them to keep hold of the money through their pay packets, so that they have more to spend down at the pub.

Sadly, in the families in which it is most important that the non-working partner receives the money to spend on the family's needs, it is least likely that the non-working partner will have a say in the matter. The opportunity for choice, on which the Chancellor is relying, may be more apparent than real where it is most necessary. Nothing could be more damaging to children.


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