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Ms Keeble: Does the right hon. Gentleman accept that, since the general election, the rate on index-linked Government bonds has decreased from 4 per cent. to 2.5 per cent., which, in the real world, means that the
price of building a hospital has reduced by about £1 million? That is the real world of inflation and interest rates.
Mr. Jack: That bears out the point that I have been making--that the previous Government were set on reducing inflation, and that the present Government have continued in the same mould.
Finally, I reiterate the point made by my hon. Friend the Member for Wycombe (Sir R. Whitney). The reduction in borrowing for which the Government take all the credit had started under the previous Conservative Government. The fact that the new Government inherited our spending plans, combined with the strength of the economy and rising tax revenues, is the reason that borrowing has reached the present level.
The position on inflation and borrowing, which has been good news for the economy, has been achieved at a price. Although interest rates are now falling, we should always remind our citizens that they have paid a price for the Labour Government's approach on interest rate setting. Taking into account MIRAS reductions, the average mortgage of £40,000 now costs some £32 a month more than it did at the time of the general election. That payment, by those people, is a price that will haunt the Government when they go to the ballot box.
Setting interest rates is not a scientific activity; it requires real-world touch and judgment. I am disappointed that, in the Queen's Speech, there is no hint that the Government have considered reviewing section 11 of the Bank of England Act 1998. That section says that
The fact that Barclays bank, in its forecasts, talks about unemployment rising by 500,000 in the next three years may be a sign of the real-world damage of the lack of sensitivity and touch. That is where my right hon. and learned Friend the former Chancellor got it right. He listened to what the real world was saying. The one thing lacking from those who currently set interest rates is a large dollop of real-world common sense.
It should be incumbent on the Government to produce a review of section 11 of the Bank of England Act 1998, to see whether it might be modified to give the Bank--if its independent stance is to be maintained--an opportunity to take into account wider issues. Another part of the 1998 Act gives the Chancellor the opportunity to intervene if situations merit such intervention. The
Bank should be able to take into account the facts that we shall miss the growth forecast; that we have the biggest trade gap ever; and that, if the growth forecast is 1 per cent. adrift, another £7 billion of borrowing will be needed.
The Queen's Speech gives us no clues as to the Government's philosophy on, and approaches to, taxation. Previous Treasury documents contain a lot of waffly nonsense about fairness in the tax system, without defining "fairness". We get the idea that it has something to do with spending more public money and redistribution, but we do not know the Government's tax philosophy.
The previous Government made things clear. They aimed at a policy of low marginal rates; they aimed to encourage work--an objective that the present Government claim to share. However, I am not sure where the Government stand on overall tax policy.
In the "Financial Statement and Budget Report" for July 1997, tax receipts were forecast to be £382 billion. In the latest Treasury publication, for the financial year 2001-02, that figure has increased to £390 billion. The present Government have introduced 17 new forms of tax increase. Their total extra tax take in the 1999-2000 tax year will be an additional £7.135 billion, and all the data clearly show that tax, as a percentage of GDP, is rising under this Labour Government.
What statistical evidence is before the House that sets out the Government's philosophy and approach towards tax? I do not know, but it is about time that the Chancellor of the Exchequer and his ministerial colleagues produced the evidence. We need to know what the Government are doing. We are not certain whether they are trying to broaden the tax base. There are signs that taxes on aggregates, pesticides and car parking--small taxation measures that will produce £200 million, £300 million or £400 million in the winnowing of extra tax--are the way in which the Government will proceed. We certainly know that they will continue with the tax assault on the motorist. This will be done to maintain the only thing that we know about Government tax policy--the maintenance of the basic and the higher rates of tax.
It is about time that the Chancellor of the Exchequer made a clear speech on his tax philosophy. Apart from more tax in cash terms and as a percentage of gross domestic product, we are seeing a growing reliance on Inland Revenue tax as a source of revenue for the economy. In 1998-99, 55.7 per cent. of revenue will come from that source. It is important that we understand where the Government are going in that respect.
More people are paying tax under the Labour Government, even against the background of a start in an increase in unemployment. The previous Government tried hard to take people out of paying tax but the Labour Government have not made clear their objectives.
On many occasions, the Government have advertised the introduction of the 10p tax. It is Labour's big idea to try to give an incentive to work through the tax system. Again, unfortunately, the Government have not come clean. They will not tell us what the 10p tax will look like in reality. Let us explore some of the real-world implications. A 10p tax to replace the 20p tax would cost roughly £10 billion. I do not think that anyone on either
side of the House would suggest that the Government have £10 billion to spend on a 10p tax, so let us look at the proposal in another way.
If the Government decided that they wanted to spend on the introduction of a 10p tax the equivalent of 1p off the basic rate of tax, that would mean spending £1.8 billion. If, at the same time, they scrapped the existing 20p band, we would find that the Government could afford a 10p rate of tax on the first £1,400 of taxable income. That is a far less exciting prospect than all of the blandishments about a 10p tax.
It is interesting to recall the number of ways in which the 10p tax proposal has been recycled. In November 1992, it was advertised as a measure to "maximise the rewards from work". By the time that we reached the March 1998 Budget it was advertised as follows:
Mr. Jack:
My hon. Friend makes a telling point. He is illustrating another key technical feature, which again the Chancellor of the Exchequer has not talked about. There is a crucial interaction, for example, with the married couple's allowance, which will cause great problems. The result would be that those on a 10p rate would not get the benefit of it. It is about time that the Government came clean and set out clearly the framework of the proposed tax.
I appreciate that the Chancellor of the Exchequer cannot tell us exactly about the timing of any tax change, but at least he should be honest with the British people and stop conning the people into believing that everyone will benefit from a 10p rate of tax. That will not happen. The right hon. Gentleman should make it clear whether he will restrict the 10p rate, for example, to those who are on basic rate or to those who are currently on the lower rate. Let us make it clear and let us stop, once and for all, the endless recycling of the same announcement, which so typifies much of what the Government do.
"the objectives of the Bank of England"
are
"to maintain price stability, and subject to that"--
as the right hon. Member for Llanelli said--
"to support the economic policy of Her Majesty's Government, including its objectives for growth and employment."
The fact that the Bank's most important objective is to maintain price stability is one of the main reasons why interest rates have not been used more sensitively. Although interest rates have an important long-term effect on inflation, they also have a profound short-term effect. In the short term, the effect of interest rate decisions was to drive up sterling, decimating the prospects of manufacturing industry and sending agricultural activity well and truly into recession.
"When it is right for the economy, I will introduce a 10p starting rate of tax".--[Official Report, 17 March 1998; Vol. 308, c. 1104.]
That was with no other blandishments. By 23 April, we are told:
"When it is economically right to do so, and so that work pays more, we will introduce the 10p starting rate of income tax."
Mr. Oliver Letwin (West Dorset):
My right hon. Friend is making a most interesting point. Does he agree that there is another slight oddity about the 10p rate of tax in addition to the oddities that he has mentioned? It is that the Chancellor of the Exchequer has brought it about through the working families tax credit that those who would be affected by the 10p marginal rate will be paying a 69p per cent. marginal rate in any event.
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