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6.14 pm

Mr. John MacGregor (South Norfolk): Given the time constraints, I shall be selective and shall not go over areas that have been reasonably well discussed already. However, I should just like to say that I have not yet been able to get my mind round some of the complexities of the working families tax credit scheme and of the Martin Taylor report. Many of us have wrestled with these issues for some years, and we recognise that the objectives of the proposals are desirable. However, I have a hunch that they have been put together in haste and may be very complex. There may be a host of snags, not least the difficulties that small businesses will have trying to administer the scheme.

I should like to ask the Paymaster General about the relationship between the working families tax credit scheme and housing benefit and council tax benefit. How will it work in the round?

I want to concentrate on rural areas, which have been particularly badly hit by the Government. The rural pensioner has been badly affected by the Budget. We must also consider this year's council tax, because it is part of the tax system and has an impact on rural dwellers. In Norfolk, because of the switch of Government grant from rural to urban areas, the council tax will increase by 17 per cent. this year and will be accompanied by a considerable decline in services.

The increase in petrol tax will have a particularly adverse effect on rural dwellers, and I am strongly opposed to the Chancellor's proposal. This Budget introduced a 9.2 per cent. increase in petrol tax--6 per cent. in real terms. That increase comes after a hike in petrol taxes last year, when they were doubled. It is equivalent to 1p on income tax.

The car is often a necessity in rural areas, not least for people on lower incomes who use it to get to work. It is not possible to provide the multiplicity of public transport that can be provided in urban areas. The impact of the

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increase in rural areas will be severe, particularly on rural pensioners. The £50 million for rural transport schemes is merely a sop and will make little difference compared with the extra costs that will be incurred in rural areas. The Times comments today that for the three quarters of rural areas without a bus service, this is equivalent to little more than a wheel nut for each recipient.

Given the modern technology used in cars, their impact on the environment is much less than it was five years ago when we began the process of increasing petrol taxes above indexation.

I agree with the hon. Member for Newbury (Mr. Rendel) that the Chancellor hardly mentioned pensioners in his Budget speech. The fuel payment given to pensioners this year does not compensate for the increase in council tax and in motoring costs that pensioners will face as a result of the Budget. The rural dweller will be worse off. Yesterday, reference was made to the fact that BP has reduced petrol prices in rural areas. That reduction is because of the current lower oil prices, but they could go up again just as quickly, whereas the imposition of this extra tax is permanent. The measure is a retrograde step.

Pensioners were squeezed by last year's attacks on pension funds. Many of them suffered the loss of insurance relief on medical schemes. Agriculture and allied trades, including farm machinery companies, face serious problems because of the constant strengthening of the pound and the consequent impact on the green pound. As a result, a considerable number of people in rural areas have been made redundant. I do not think that the Budget has given rural areas a good deal, especially when combined with the council tax. That is the point that I want to stress most.

May I make a positive point to the Paymaster General about rural areas? I believe that the time has come to consider exempting church repairs and maintenance from value added tax. It has become increasingly difficult for churches, particularly listed churches, to carry out repairs and maintenance. In my constituency, many churches have tried to raise enormous sums, only to find that VAT is charged on top of that.

I very much welcome the reductions in income tax, but one consequence of those reductions is a reduction in the tax relief gained through covenant payments. That means a reduction in income. The European Parliament recently asked the Commission to improve the fiscal position of charities in relation to VAT, and I support its view. Only a modest measure would be required: I believe that, according to the most recent figures, it would cost about £25 million in tax forgone. My bishop, the bishop of Norwich, has spoken about the subject at length in the other place. I personally think that such a relief would be welcomed by many rural communities, and would be very important to our heritage.

I have mentioned rural transport. Unfortunately, I do not have time to develop my argument tonight, but I will say that we should bear in mind the additional cost to motorists. Eighty per cent. of the cost of every gallon or litre of petrol will now go in tax, and the cost to industry will continue. However much effort we devote to switching freight from road to rail--which I entirely support--the vast majority of freight will continue to be transported by road. The cost of that will be passed on to

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the consumer. At this point, I must declare an interest, as a non-executive director of Unigate, which owns a transport company.

More should be spent on the roads programme. I deeply regret the cuts in that programme, and I believe that the Government will come to regret them as well, not just for reasons of economic competitiveness but because of the impact on travellers everywhere. However much is invested in public transport, in non-metropolitan areas that investment will not displace the need for increased investment in roads. I hope that there will be other occasions for me to develop that theme. I think that soon, for economic, if for no other, reasons, the Government will be forced to find more money for road maintenance, road improvements and bypasses.

I greatly welcome the Government's reversal on the £50,000 limit for tax-exempt special savings accounts and personal equity plans. I am glad that they have responded to pressure--although, of course, we should not be too grateful, because the Government should never have suggested the limit in the first place. However, I am still worried. I note that today the Cabinet were supposed to be discussing compulsory pensions, second pensions, and so forth. I fear that the relationship with pensions has not been thought through sufficiently; I feel that the Government ought to concentrate on long-term savings.

When I heard what the Chancellor said about the savings scheme, I thought that his announcement about capital gains tax would be very welcome. I have long advocated a tapering system. When I looked at the details, however, I found that non-business assets would be treated much worse than they are under the present indexation system. If they are held for any length of time, and if inflation is higher than 2.5 per cent., there will hardly ever be any benefit in transferring to the proposed new system. That will not encourage long-term savings. Indeed, if inflation is higher than 3.5 per cent., there will never be any benefit. There will no benefit for 10 years, and no benefit thereafter. The Chancellor has missed a great opportunity to encourage long-term savings, but that could be put right by a change in some of the systems.

I know exactly what the Paymaster General is facing, because it was given away in one of the detailed notes. The tapering system has been heavily constrained by the Inland Revenue, because it does not want to lose any tax revenue. However, if the Government intend to encourage long-term savings they ought to introduce a different tapering system.

I must end my speech, because of the restriction on time. Let me finally deal with the overall public expenditure position. There is no doubt that the Government have been hugely helped by the economic legacy that has been left to them--tax buoyancy, falling unemployment, the contribution to the European Union, and so forth. Even so, however, they have increased health expenditure by less than the Conservatives have in recent years, and by less than we did throughout our time in government. It is time that Labour Members started to look at the figures, and to realise that. Moreover, the Government propose to devote less to capital expenditure over the next three years than was in our capital expenditure programmes. I do not think that their priorities are right, although I welcome the constraints.

Above all, I want to make it clear--

Mr. Deputy Speaker: Order. I am afraid that the right hon. Gentleman has run out of time.

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6.24 pm

Mr. Malcolm Wicks (Croydon, North): I welcome this bold and radical Budget. I think that, in the social sphere, it will be remembered for what it says about employment and the worth of employment, and for what it says about families with children. It certainly enables me, in my Croydon constituency office, to give a better answer than I have been able to give before to mothers--some of them lone mothers--who tell me that they want to resume their careers, but that, because of child care costs, it would be monetary madness for them to do so.

The new child care credit is a major step forward, and, in some years' time, the use of credits may be seen as a great innovation which could be spread further afield. Perhaps there could be a new carers credit, for example. The provision shows that we can make the tax system more progressive, and make it serve social purposes.

I do not want to spend my limited time heaping praise on the Front Bench, however. My ministerial colleagues are easily embarrassed. Instead, I shall reflect rather more generally on three aspects of the Budget: work and the family, child benefit, and the future of national insurance.

I believe that, in retrospect, the 20th century will be seen very much as a century for women, not only in terms of civic and political gains but in terms of social and economic gains. As we approach the end of the century, women's employment patterns--with, admittedly, some significant qualifications--are becoming increasingly more like those of men, and the Budget, in a sense, institutionalises and encourages some of those developments.

The early decades of the next century, however, must deal with an even more important question. How can we achieve a better balance in the lives of both men and women--both fathers and mothers--between the world of work and the world of family, especially in relation to children? That has policy implications. I would guess that many mothers and fathers would dearly love the opportunity to spend more time at home caring for their children when they are tiny--just a few months or a few years old. New fathers, as well as mothers, will increasingly express that view.

There are implications for the income support system. We should make it clear that, however important the welfare-to-work policy is, those with children under five have an absolute right to stay at home and look after them. Perhaps we should go even further than the Budget in giving an under-fives income support premium to make that possible.

For parents in general, we should perhaps consider a parental care credit. The Budget says that those with more than one child can have up to £105 a week as a credit to help with child care costs. That is right, but I think that, given the theme of choice between work and family, we should match the sum with incentives, or at least encouragement, for parents who want to stay at home and look after their children. Sweden is a world leader in terms of parental leave. I welcome the development of a new work ethic in Britain, but we need to encourage the family and child ethic more strongly if we are to get the balance right between the social and economic spheres--between the world of the home and the world of work.

The hon. Member for Newbury (Mr. Rendel), the Liberal Democrat spokesman, was right to warn us about issues of quality of child care. There will be a great

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growth in child care. Some people will view it as a way in which to maximise profits. I do not want child care policy over the next 20 years to be driven by cases of abuse and sheer bad quality.

In a sense, we think that child care is about adults: the working mother, the working father, the politician, the policy maker. Strangely enough, it should be about the child and the needs of that child. Let us hear more about the child in this debate. Let us talk not just about quantity, but about quality.

I welcome the child benefit increase. It is a radical move. It is pro-families and a major development. I want to see more of it. I should like, in particular, a discussion on whether we should weight child benefit increases towards the youngest children--those under five; the poorest families tend to have the youngest children because of employment patterns. We should examine that.

I am pleased that the Treasury has not rushed into taxing child benefit. We should consider that rigorously and cautiously. Whose income do we tax? We say that child benefit is for mothers. Do we tax mothers? What about independent taxation, if we say, "No, we will tax the higher-paid parent"? It is an important issue. How would we do it if people assessed their own tax?

What about cohabitation? More of our children are being brought up by parents who choose--and have the right to choose--to cohabit rather than to get married. I do not believe that the tax benefit system should discriminate in favour of marriage, but it would be absurd if it ignored cohabitation and discriminated against marriage in taxing child benefit. In terms of equity and justice, I am not sure about saying to higher tax-rated single people and childless couples, "No, we are not going to increase tax on you, but we are for those who have children." That is not a pro-family policy. We should consider it with some caution.

There are some interesting straws in the wind in terms of what is being done to the lower rates of national insurance. I understand the case for that in terms of work incentives, but does it break the link between what we pay in and draw out, and what are the implications? Is merging the Contributions Agency with the Inland Revenue simply a bureaucratic measure, or does it indicate something far more substantive? We need a proper debate about that.

Some people--the economists and those who look at these matters technically--say that national insurance is now simply another form of income tax. I do not believe that that is right. There is a strong argument for a renaissance in social insurance. Many of the issues that confront modern Britain, such as the costs of long-term care for the frail elderly, can be tackled only through social insurance. They cannot be tackled through private insurance.

Let us, therefore, have a debate about the future of the national insurance scheme and let us be wary of people who say, "No. It is simply tax. Let us merge it with income tax." Social insurance is more important than that. The age-old principle of contributing to the community chest when in plenty, and drawing out when in need is a thoroughly modern concept for 21st century Britain.

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