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9.9 pm

Mr. Nick Gibb (Bognor Regis and Littlehampton): There is more to the Budget than meets the eye in regard to tax increases, and significantly less than meets the eye in regard to the Government's stated objectives. First, let me say something about the handwritten contract with the people that the Labour leader drafted with his very own hand during the election campaign. The first clause of that contract said that a Labour Government would spend the money that had been used to deal with the cost of economic and social failure on education. In other words, Labour would reform the welfare state, and would use the resulting savings to boost education.

Let us see how Labour is doing in that regard. At the end of February, the Minister for Welfare Reform appeared before the Select Committee on Social Security. When asked how much he expected to be saved from the social security budget during the lifetime of the current Parliament, he said that he wished


There were no plans to reduce spending, no plans to make savings and no plans to plough cash from social security into education. That was a clear breach of the first clause of Labour's so-called contract with the people.

The objective of halting the rate of increase in social security spending had already been achieved by my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), but it is clear from the Budget that even that objective has now been abandoned. According to the Red Book, the working families tax credit will cost £420 million more than family credit in its first six months of operation, and £1.3 billion in its first full year. On top of that there is the increased child benefit and child-care tax credit, involving a total cost of £1.2 billion a year. There will be no savings in the social security budget under the present Government. There is a breach of the first clause of the contract with the people, and there is a gaping hole in Labour's tax and spending plans.

Let us cast our minds back to the economic package that Labour presented to the electorate. Apart from the windfall tax, Labour's spending programme involved no requirement to raise taxes; all its promises of increased spending on education and health could be funded by existing budgets--through efficiencies and, most significantly, savings in the social security budget. The Labour party said--and still says--that it would reduce the dependency culture, and would get people off welfare.

Let us consider the Government's objective, which will again demonstrate that there is less in the Budget than meets the eye. The introduction of the working families tax credit is clearly well intentioned, but family credit has been a very successful benefit. There has been an 82 per cent. take-up rate on the basis of expenditure. It clearly helps not only low-income couples but single parents to go to work. We have yet to be told why family credit needed to be replaced, other than the fact that it was introduced by the Conservatives.

The problem with the working families tax credits and childcare tax credits is the enormous increase in the number of people eligible for the benefit higher up

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the income scale. There has always been a big problem with changing tapering rates: as incomes rise, people begin to lose benefit. Inevitably, in any benefit system, coming off benefit will involve high withdrawal rates. The difficulty is that making withdrawal rates less steep will mean extending the tapers higher up the income scale, making more people eligible for benefit.

The purpose of lowering tapering rates is to provide more incentives to get people off benefits and into work. As a result, others are often given increased incentives to reduce work and claim benefits. That is precisely what the Government admit would be a consequence of the working families tax credit and the reduced taper of 55 per cent. The notorious table 3.3 in the Red Book points out that 250,000 more people will face withdrawal rates of 60 per cent. or more as a result of the Budget. The second objective--to reduce the dependency culture--has clearly not been met.

When the childcare tax credit is included, the increased dependency culture becomes worse. It is clear that the availability of the new benefit goes right off the income scale. A family earning £22,000 a year with one child will be able to claim the credit. That income is just above the national average. How can we reduce dependency if we give new income-related benefits to households on above-average income?

The position is worse still. A family with two children will be able to claim the benefit with an income of up to £30,000 a year, significantly higher than the average income. It is absurd to claim, as the Government do, that the benefit will cost only £1 billion a year. That figure is clearly nonsense, as even a quick glance at the examples in the separate book on the working families tax credit will show.

Example four is of a family earning £23,400, who will be able to claim £45 a week child care tax credit. That is more than £2,300 a year and most claimants will be able to receive more. Clearly, £1 billion is an underestimate. The Institute for Fiscal Studies agrees. It estimates that the cost will be some £4 billion if everyone who is entitled to the credit takes it up.

Much of the Budget is about putting right some of the many catastrophic and ill-thought-through measures in the Government's first Budget last July. The hubris with which the dynamic new Chancellor launched his July Budget has been matched only by the humiliation that the Government, and the Paymaster General in particular, have faced since that Budget. A host of new measures have been required to put matters right.

Ending the repayment of tax credits led to the abolition of foreign income dividends, which meant having to abolish advance corporation tax and to introduce a new method of paying corporation tax which, even with the changes, still places an enormous cash flow burden on British industry over the next four years. Those measures combined will cost companies £20 billion over that time--money which would otherwise have been available for investment.

Labour was elected on the clear understanding that it had no plans to increase tax. There is an abundance of quotes to prove that. Before the election, the Prime Minister said:


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    In August 1996, he told the Daily Express:


    "Our proposals do not involve raising taxes".

The Chancellor of the Exchequer said before the election--to the authoritative source of GMTV on 8 April 1997:


    "There is no black hole for the Labour Party because we have got no public spending commitments that require extra taxes".

Ministers are trying retrospectively to rewrite that commitment. They say that they promised not to raise only the basic and higher rates of income tax. Just like a dishonest salesman pointing to the fine print of a contract, they say that the British electorate should have known that they would raise taxes and that the commitment was to do just with the rates, but my understanding was that there was a commitment not to raise tax and that the specific commitment on rates underlined that more general agreement and commitment. It did not narrow that general commitment. Why would people feel safe to vote Labour, with its track record of tax and spend, if they thought that the only commitment was not to raise rates and that Labour was free to implement a range of other tax increases, which would, in the same way, reduce take-home pay and spending power?

This Budget is the Government's second tax-raising Budget. As well as enormous tax hikes on business, income tax rises accompany the erosion of the married couples allowance, and there are enormous expenditure tax rises in the cost of petrol. The Government have now outrageously promised to raise taxes on child benefit.

The Budget has increased tax, spending and the dependency culture. By doing so, it has breached Labour's commitment not to increase tax, not to increase spending and to reduce the dependency culture. The Government's honeymoon enabled them to get away with the tax hikes in their previous Budget. It will not do so this time.

9.18 pm

Mr. Michael Fallon (Sevenoaks): I declare the interests that are recorded in the Register of Members' Interests.

For the second day running, more people have been ready to attack the Budget than the Government have been able to marshal to defend it. The real test of the Budget is not the headlines that the Government have managed to engineer this week or the hype that preceded it, but whether unemployment falls as a result.

Rebadging family benefits, relaunching child care initiatives and rejigging national insurance contributions are all meaningless unless more people are working and fewer people are claiming benefit as a result. I hope that the Paymaster General will accept that. I challenge him to produce the figures from the Treasury--the estimated falls in unemployment as a result of the Budget for the coming financial year, next year and the first full year of the working families tax credit. If he cannot produce those figures tonight, that will tell us a story. It is no use having a Budget entitled "Making Work Pay" if there is no more work in the first place. Whether or not this Budget makes work pay is highly questionable. What is certain is that it does not make more work possible.

By contrast, our Budgets did just that. A whole series of Budgets, including those in which my right hon. Friend the Member for South Norfolk (Mr. MacGregor),

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the former Chief Secretary to the Treasury, played such a notable part, helped to produce more work. They gave us the best record of job creation in Europe and brought about a flourishing new and small business sector.

The Government have already reversed that trend. Right from the start they have hammered job creation. They have put on business a huge new burden of corporation tax and have levied the new windfall tax. They have attacked pension funds and discouraged long-term investment. This Budget has added yet more taxes on business.

The changes in national insurance contributions will hit high-skill companies. As my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) elegantly said, the increases in stamp duty will damage businesses involved in commercial property or asset sales. There are other tax hits, notably on the insurance industry, and the full impact of others is only just coming to light. Next year, business will face the impact of the national minimum wage on wage differentials right up the pay scale. It will also face the first new costs of the social chapter legislation.

All that is worsened by the Government's callous disregard for the effect of the high pound on industry. Indeed, they encouraged the current level of sterling. By taxing pensions and hitting savings, the Government have fuelled consumption and brought about a two-speed economy. They would have done better to have genuinely acknowledged the pain now being felt right across British manufacturing industry. We did not hear much concern from the Chancellor on Tuesday. Indeed, in the section on risk assessment in the Red Book we find the chilling idea that, if the Government are wrong in some of their forecasts


This is not a game for manufacturing industry.

I warn the Government now that the Budget will further unbalance the economy and may well push manufacturing industry into recession. If it does so, it will be a recession entirely of the Government's making. It will be the Brown recession. We have a Budget that puts up taxes, puts up the cost of business and fudges welfare reform.

I should like now to deal with some of the detailed points that have been made by hon. Members on both sides of the House. I begin with a glaring omission from the Budget statement and, indeed, from the Red Book which the hon. Member for Bury, North (Mr. Chaytor)--in an extremely elegant and well-argued speech--picked out: there is nothing in the Budget for pensioners. In the entire Red Book, only six lines are addressed to pensioners, and three of those simply repeat the announcement made in the pre-Budget report. Pensioners are the forgotten people in the Budget.

We should also not forget that pensioners use petrol, and that pensioners will be paying more in fuel tax. Pensioners pay council tax, and they will now be paying more council tax. Pensioners have been ignored in the Budget.

Pension schemes seem to have been further disregarded by the Government. The Under-Secretary of State for Social Security, the hon. Member for Southampton, Itchen (Mr. Denham) has wisely left the Chamber. He was present, last week, at a dinner at which the chairman of the Association of Actuaries said:


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    do even greater damage to the confidence and willingness of employers to provide pension schemes--particularly small employers."

So pensioners have been damaged by the Budget.

My hon. Friend the Member for West Dorset (Mr. Letwin) touched on the savings issue, which was not simply an example of the Government bungling yet another scheme--although Ministers have had, of course, to back down on their retrospective and penal attempt to restrict to £50,000 the savings of those who have scrimped and saved for 10 years now. We can note other features of the Government's handling of the matter.

First, we have had no apology from the Government, in withdrawing that proposal, for the damage that they have done to confidence in public and national schemes.

Secondly, we still have a new lower limit. Although it is true that the limit is not £50,000, will the Paymaster General confirm that the current annual limit of £10,800, taking personal equity plans and tax-exempt special savings accounts together, will be reduced to £5,000?

Above all, we know from the bungling of the savings scheme Labour's true instinct. Labour did want to tax those who have worked hard and saved hard. Today, I should like the Paymaster General to tell the House what type of assurance he can give--on even his own individual savings account scheme--that the Government will not come back again, in a few years, to penalise exactly that type of tax-free exemption.

It is becoming apparent in the technical press that the changes to capital gains tax have not been universally welcomed. Given low inflation, many people would have been better off under indexation than they will be under the new lower rate.

Perhaps the Paymaster General will address himself to some of the problems--if I can call them that--that are emerging with his 30-day rule. The Government suggest that any capital gain will have to be made over 30 days rather than overnight. How will that apply--City advisers are asking--to married couples? What if the husband sells shares and the wife purchases them within 30 days? Will they still lose their exemption?

Will the various packages that are being mooted in the City allowing people to hedge against market movement in those 30 days be allowed or not?

I now turn to the working families tax credit, a proposal that was admirably dissected by my hon. Friend the Member for Havant (Mr. Willetts) last night. Like the Institute of Fiscal Studies, we reserve judgment on whether it will be an incentive or a disincentive. As one of my hon. Friends said, the jury is still out on that question.

Perhaps the Paymaster General will clear up the shambolic performance of the Financial Secretary last night and clarify two or three key points. First, will women have a veto? If he does nothing else tonight, I hope that the Paymaster General will answer that specific question. It is no use saying that it is a matter for the partners to elect. We want to know whether, if the man is the main earner, the woman will have a veto. If she does, will the Government help to publicise it and make it clear so that women know where they stand?


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