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Mr. Fallon: While my hon. Friend is on the subject of the morale of Labour Members, would he care to
comment on the news that the German Finance Minister has had to resign for attacking business and championing tax harmonisation? Is not that an example that might be usefully followed here?
Mr. Whittingdale: It is a good precedent, but if it was followed by the Government there would not be very many Ministers left.
My right hon. Friend the Leader of the Opposition did a superb job on Tuesday in highlighting some of the obvious flaws in the Chancellor's Budget, but he was handicapped by having to rely only on the actual speech delivered by the Chancellor. As we have come to expect from the Chancellor, he spent much time highlighting measures such as the £20 million start-up funding for high-tech venture capital funds, but he made no mention of the £240 million increase in national insurance contributions for the self-employed, a measure that we discovered only when we looked at the Red Book. It is in there under the heading, "Increasing Employment Opportunity". The Chancellor talked a lot about the new starting rate of 10p, which was rightly described by the hon. Member for Bath (Mr. Foster) as perhaps the biggest gimmick in the Budget. We discovered later that it will apply to only the first £1,500 of income. The raising of the rate on the next £2,800 of income from 20p to 23p was not mentioned by the Chancellor at all.
Mr. Caplin:
I do not wish to stop the hon. Gentleman in full flow, but I consulted Hansard this afternoon on that point and my right hon. Friend the Chancellor told the House in his speech on Tuesday that income tax rates would be 10p, 23p and 40p.
Mr. Whittingdale:
That is correct, but the hon. Gentleman confirms that the Chancellor did not say that the 20p rate will, from this Budget, be abolished. It would have been nice to hear that from the Chancellor's lips, instead of having to read the Red Book to discover it.
The Chancellor told us that the married couples allowance would be replaced by a new children's tax credit. However, as my hon. Friend the Member for Guildford (Mr. St. Aubyn) pointed out, he glossed over the fact that the married couples allowance will disappear next year, but the children's tax credit will not be introduced until 2001, with the result that families will have a full tax year without either relief. Even when the children's tax credit arrives, it will cost the Exchequer £1,400 million compared with £2,050 million taken in tax as a result of scrapping the married couple's allowance.
Pensioners were told that they would keep the married couples allowance. It transpires, however, that that will be the case only for those who reach retirement age before April next year. If one's children have grown up, and if one is unfortunate enough to have a 65th birthday after April 2000, one will be hit by the full tax increase with no corresponding benefit.
The Chancellor also made no mention of the 11 per cent. rise in duty on diesel, a measure that is a kick in the teeth for the British haulage industry. It will put at risk more than 53,000 jobs.
The Chancellor and the Prime Minister have tried to pretend that the Government are cutting tax. As my right hon. Friend the Member for Richmond, Yorks (Mr. Hague) said yesterday, and as my hon. Friends the
Members for Aldershot, for Surrey Heath (Mr. Hawkins) and for Hertford and Stortford (Mr. Wells) have said today, the truth is precisely the reverse. As a result of the Chancellor's three Budgets, an extra £7.1 billion will be taken in tax this year, an extra £10.5 billion next year and an extra £9.3 billion in the year after that. According to the House of Commons Library, the total increase in tax as a result of the Labour Government's actions will amount to more than £40 billion.
As my right hon. Friend the Member for Fareham (Sir P. Lloyd) pointed out, the tax system will also be made far more complicated. The Chancellor has built on what he did last year to capital gains tax. He has made it so complex that most people believe that he will have to correct his changes in due course. This year, he has made direct taxation more complicated. The one group of people in the community who really will gain from the Budget will be the accountancy profession.
There were some notable omissions in the Chancellor's Budget. There was no help for savers, despite the fact that the savings ratio has fallen by more than 30 per cent. in just two years, a point highlighted by my hon. Friend the Member for Hertford and Stortford.
Mr. Caplin:
Will the hon. Gentleman give way?
Mr. Whittingdale:
If the hon. Gentleman will forgive me, I shall not, as time is moving on.
It is a direct consequence of the Government's attack on savings that the ratio has fallen. The Government have taxed pension funds and scrapped personal equity plans and tax-exempt special savings accounts, which will be replaced with an unattractive and inferior product. It is hardly surprising that billboards all over London are telling people to put their money into a PEP or a TESSA during the next three weeks before the Government abolish them.
Instead of encouraging saving, the Government have introduced, for the first time in 20 years, differential tax rates for earned income and savings income. I shall not use the phrase "unearned income", because the truth is that savings accumulate as a result of extremely hard work by people up and down the country. In future, the new 10p tax rate will apply only to earned income. The old 20p rate will still apply to savings income.
My hon. Friend the Member for Arundel and South Downs (Mr. Flight) pointed out that the Budget speech contained nothing to relieve charities of their extra tax burden as a result of the abolition of dividend tax credits. Nor was there anything to reverse the most mean and spiteful measure introduced by the Government--tax on dividend income of non-taxpayers. That measure will cost more than 600,000 people on the lowest income an average of £75 a year. Despite all the reassurances from Ministers during last year's Finance Bill Committee, and despite protests from pensioners up and down the country, the Government are going ahead with that measure. The hon. Member for Dudley, South (Mr. Pearson) thought that pensioners would be disappointed that nothing had been done to correct that. They will not be disappointed; they will be very angry indeed.
I shall now deal with individual measures in the Budget. Many groups in the community have been hit badly by the Budget. House purchasers were hit twice over by the abolition of mortgage interest relief and the
increase in stamp duty. Those measures come at a time when the housing market is unsettled, and there was a fall of 0.5 per cent. in house prices last month.
As my hon. Friends the Members for Guildford and for Beaconsfield (Mr. Grieve) have pointed out, the real burden of the increase in stamp duty falls not on house purchasers but on business. Commercial property is an enormously important asset in the economy, contributing about 10 per cent. of gross domestic product. Yet the increase in stamp duty will immediately reduce the capital value of commercial properties, making it harder for companies--especially small and medium-sized companies--to secure loans to meet their needs. The hon. Member for Cambridge (Mrs. Campbell) made an interesting point when she noted the measure's damaging effect on high-tech companies dealing in intellectual property rights. That again is a direct consequence of the Budget.
Business faces a new threat in the form of an energy tax. The Chancellor claims that it will be revenue neutral, as he intends to cut employers' national insurance contributions. My hon. Friend the Member for Beaconsfield pointed out that it is vital that he makes it so, but the fact that it will impact most severely on manufacturing industry just when it is in recession and facing huge competition from overseas has been ignored. The additional encouragement for energy efficiency is welcome, but hardly likely to offset the extra burden that the tax imposes. Because it is levied downstream rather than upstream, it cannot affect the type of energy consumed and is likely to result in little environmental benefit. Its effect on the competitiveness of British industry is potentially devastating. The most likely consequence of its introduction is more business closures and lost jobs.
In one area, the Chancellor did not raise tax. He froze duty on beer, wine and spirits. That was a belated but welcome recognition of the huge damage done by the smuggling of alcohol into Britain from abroad, which is a direct result of the enormous differential in duty rates. A freeze will do little good. The present level of duty led to a 25 per cent. increase in smuggling last year alone. On the Government's own figures, that led to a revenue loss of £220 million, a figure which will go on increasing unless something is done. My hon. Friend the Member for Surrey Heath pointed out the effect that that will have on the brewery in his constituency. The hon. Member for Sittingbourne and Sheppey (Mr. Wyatt) recounted his experience of the differentials.
The smuggling and loss of revenue resulting from differential alcohol duty rates pales into insignificance compared with that resulting from tobacco duties. The Chancellor ignored that and increased the rate of duty by a further 5 per cent. That means that the tax on a packet of cigarettes has gone up by 62p under this Government. A packet of 20 now retails at £3.82 compared with less than £2 in France. Last November, the Government estimated the loss of revenue from smuggling at £1 billion. On Tuesday, only four months later, the Chancellor provided a new estimate of £1.5 billion, which is still only half the amount estimated by the industry.
Of course, the Minister will point out that the escalator in duty was introduced under the previous Government. However, there is now overwhelming evidence that it is
not working. Tobacco is now smuggled not by opportunists filling their vans, but by organised crime, which has discovered that more money can be made from smuggling tobacco than from hard drugs. Smoking is no longer declining, and a worrying number of young people are taking up the habit. The ability to prevent under-age smoking is being undermined because those who are refused cigarettes at the corner shop can now get them for half the price in the pub car park.
The Red Book shows that despite the increases in duty, revenue from tobacco duties was £8.4 billion in 1997-98, is estimated to have been £8.3 billion in 1998-99 and is forecast to be £7 billion in 1999-2000. We have only to consider the experience with hand-rolling tobacco to see what is likely to happen. While consumption has grown steadily, the proportion taken by UK duty-paid hand-rolling tobacco has fallen year on year, so that more than 70 per cent. of the market is now non-UK duty paid. We are in real danger of the same thing happening in the market for cigarettes.
The Budget measure that has caused most anger, particularly in my constituency, was mentioned by my hon. Friends the Members for Christchurch (Mr. Chope), for Ludlow (Mr. Gill), for South Holland and The Deepings (Mr. Hayes), for Beaconsfield, for Poole (Mr. Syms), and for Arundel and South Downs. The hon. Member for Brent, North (Mr. Gardiner) said that it was synthetic anger but that merely demonstrates that he represents an urban constituency. I refer to the increase in road fuel duties.
I have no doubt that the Minister will say again that the road fuel escalator was introduced by the Conservative Government, but the Labour Government have increased it and brought it forward so that we shall have had three increases in two years. We introduced it when road fuels were cheaper than on the continent. We now have the highest petrol prices in Europe and perhaps the world. The Chancellor has made the escalator steeper, yet for many people, especially in rural areas like mine, there is no alternative to the car. Those people are an easy target for the Chancellor, who is much more interested in raising money than cutting emissions.
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