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Mr. Tyrie: In countries where the tax burden has risen very fast--for example, in continental Europe--growth performance has been most desultory. In countries where the tax burden has been kept down, long-term economic growth has been outstanding. The United States is the best example and, as I mentioned in an earlier intervention, the United Kingdom is another example. Growth performance has been remarkable, and part of the reason is that the tax burden has been kept down.

Mr. Bruce: It is not worth allowing the hon. Gentleman to intervene for such a predictable comment. It is not as simple as that. I do not suggest that the level of the tax burden does not matter or is not a legitimate matter for debate. It is, and we have taken part in that debate. We have a relatively low tax burden, but we also have seriously underfunded public services. There is a genuine debate about where the balance should rightly be struck. Although France and Germany are currently experiencing difficulties--we should be concerned about that, because they are our trading partners--over 30 and 40 years they have sustained higher long-term growth and a higher tax burden. It may not be unconnected to note that they used the yield on their economies to invest in quality public services, which are substantially superior to our own.

I am not prejudging what is a matter for legitimate debate. However, it would be helpful if we could agree about the basic situation without spending too much time on academic theorising as to the niceties of exact definition--a direction in which I fear that the argument has strayed.

We regret the Budget's impact on the tax system's complexity, and we have articulated our concerns about the 10p tax rate. We do not dissent from the basic

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argument that that tax, and the overall tax changes related to national insurance, will help to reduce the tax burden on people on lower incomes. Our argument is about whether that is the most efficient way to help those people and whether more could be achieved through a better targeted and more accurately costed proposal, such as the one that we have made. These are legitimate points for debate and genuine discussion.

Our Budget proposals involve an element that the Government do not appear to be prepared to acknowledge--the 50 per cent. tax rate on earnings above £100,000 a year. Given the other allowances that the Government have abolished, that 50p rate could have been used to raise the personal allowance to £5,600. The result would be that 2.5 million people could be taken out of taxation altogether, and the take-home pay of full-time workers on low wages would be boosted significantly.

We think that Labour Members should regard that as desirable, and we ask them to accept that there is a genuine difference between our parties on how the reforms should be targeted to benefit the groups of people that we all want to help. Our proposal is more radical and far-reaching than anything in the Bill.

Although the Chief Secretary seemed deliberately to fail to grasp the implication of my earlier intervention, perhaps Labour Members will be able to connect with my argument if I couch it in terms of the minimum wage. If it is considered that a minimum wage is necessary and that people are not to be expected to work for less, is it not reasonable to aspire to put that wage out of the tax bracket altogether? It is ridiculous that people in full-time work earning the minimum wage should pay tax and also qualify for housing benefit and other benefits.

The sooner the minimum wage is taken out of the tax bracket, the better. In his Budget speech, the Chancellor of the Exchequer said that that was an aspiration, but we consider that he is going more slowly than he needs to with that reform.

The Financial Secretary to the Treasury (Mrs. Barbara Roche): Will the hon. Gentleman explain how what he has said is compatible with his party's opposition in Committee to the national minimum wage? Liberal Democrat Members at that time argued for a regional minimum wage.

Mr. Bruce: It is perfectly compatible. We share with the Government a recognition of the need to tackle the problem of low wages, but our approach in the Committee considering what became the National Minimum Wage Act 1998 was different. The Government wanted a national minimum wage, but we considered that significant regional variations could and should have been taken into account. Interestingly, many of us took the view that the old wages councils dealt with that problem, as they were able to take account of different industries and different regional factors.

We are worried that the national minimum wage is too blunt an instrument, but we agree with the Government that there is a need to reduce the tax burden on people on low incomes, and that very low incomes should be boosted to more acceptable levels. We believe that the aspiration should be to put people on the national minimum wage outside the tax bracket altogether. That is what the Chancellor says he is aiming for, but, unless he

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finds a more radical approach, he will take two or three Parliaments to achieve it. If he is looking for a radical approach, he should talk to us: we are still a radical party, not frightened to propose radical policies.

The introduction of the 10p tax rate seems to have trapped the Chancellor in another of the anomalies that arise whenever changes to the tax system are introduced. We now have the absurd situation where people who earn a lowish wage will benefit from the reduction from 20p to 10p on £1,500 of their income. The 10p tax rate is a worthwhile reduction that justifies the claims being made. However, if that same income is derived from the savings of, for example, a pensioner with a small nest egg, it qualifies for a 23 per cent. tax rate. The Chancellor does not accept that, for people on low incomes, it makes no difference whether income is obtained by people of working age going out to earn it or by people who have made some provision for a retirement nest egg and depend on it but do not get the same benefit. The cost to the Treasury of extending the 10p rate to savings for the first £1,500 would be about £85 million. When I asked the Chancellor about that at Treasury questions, I was surprised that he was so contemptuous of the argument. He accused me of being irresponsible with Exchequer funds. Chancellors lose billions easily, so it is reasonable to ask the Treasury to consider £85 million for a reform with a particular purpose.

There are two reasons why Treasury Ministers should consider my proposal. First, last year's Budget abolished the tax refund to non-taxpaying dividend holders or recipients. The then Paymaster General told my hon. Friend the Member for Twickenham (Dr. Cable) and an all-party delegation that he intended to seek a solution. His promise disappeared with his demise. The problem with Ministers is that they do not pass on their promises to their successors. People are still angry about what the Government did and promised to put right. My proposal would provide some recognition that the Government understand that pensioners with small savings deserve consideration.

Secondly, financial institutions say that it is difficult to pass on the full benefit of the latest interest rate cut to borrowers because of their concern about the lower rate for savers. Many of them have not passed it on. If the Government were to introduce this tax change, it would benefit savers by ensuring that they did not pay tax on such earnings and make it easier for financial institutions to pass on the benefit of lower interest rates to borrowers. It would help both parties. It is a small change of real benefit to many people.

Mr. Gardiner: I am grateful to the hon. Gentleman for the unpartisan way in which he makes his remarks. He mentioned the fiscal regime and how it meshes with monetary policy. He alluded to a key plank of the Government's fiscal policy, the abolition of advance corporation tax and the fiscal tightening, which his party called for after the general election, of £5.3 billion. However, his party rejected that fiscal tightening. The new deal money from the windfall tax was rejected by his party. He must explain how he would produce the effects of such a fiscal tightening.

Mr. Bruce: The hon. Gentleman got confused between the windfall tax and the ACT changes. They add up to £10 billion, which is a substantial tax change. We said

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clearly that a fiscal tightening was needed, but it should have been targeted to take the heat out of inflationary pressure by aiming not at businesses but consumers. The Chancellor chose not to do that. I do not intend to unravel what might have been done two years ago, because the opportunity has been lost. However, he will know, as the House will know, that the Liberal Democrats consistently produce a fully costed manifesto and annual alternative Budgets that explain exactly what different measures we would introduce and where we would derive the income from. We have been complimented on them by external bodies. The Institute for Fiscal Studies said at the election that they were a reasonable presentation of our priorities and how they would be paid for. We are proud of that, and we intend to continue that process.

Our motion contains a reference to the duty on sparkling cider, which we voted against after the Budget statement. The sparkling cider industry is small. It involves relatively small numbers of people, but it is a long-established home industry in the west country of England. It is now subjected to a 400 per cent. tax increase in a single year. It seems to us unreasonable that small businesses should be expected to absorb such an increase as a result of some irrelevant complaints about Italian wine manufacturers. How on earth anyone could presume that people cannot tell the difference between Lambrusco and Somerset cider, I really do not know. It is absurd that we should force people out of business. The cider manufacturers are in no doubt that the consequence of the tax change will be an end to the industry. Their businesses will cease, the income will be lost and people will be put out of work. It is an unjustified change.

A more important measure in the Budget was the change in the fuel tax, which has already been mentioned in today's debate. The Liberal Democrats accept the basic principle of green taxation, or using taxation to encourage environmentally beneficial behaviour. However, certain conditions need to be attached to such taxation. It should not be used as a back-door way of increasing revenue. It should be used specifically to achieve behavioural changes. The revenue should be used clearly to offset taxes in other areas.

The Government have simply banged up the tax on petrol and diesel, with no corresponding offset apart from a minor one for small cars, and have put the revenue straight into the general exchequer. There is very little difference between that and the Conservatives' putting 5 per cent. on domestic fuel and, after the row, claiming that it was an environmental tax and introducing a whole load of benefits for those affected. They had to give half the revenue back to try to allay the outrage that was engendered. The Labour Government will not be able to continue the policy unless they think it through much more carefully.

The Liberal Democrats' proposal on petrol was to abolish vehicle excise duty on fuel-efficient cars below 1600 cc. That would have given people the clear message, "If you do not want to pay the extra tax on petrol, switch to a smaller car and you will not pay vehicle excise duty." People would have known that, if they drove a gas-guzzler, they would pay, but, if they drove a fuel-efficient car, they would get money back. They would know what to do and make their behavioural switch.

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Many haulage contractors have no such viable alternative, partly because the Government have not thought through what alternatives people are supposed to use. I should be interested to hear the Government's answer to those in the industry who say that switching to low-emission, fuel-efficient trucks and benefiting from the lower vehicle excise duty will not offset the cost of the escalator. I am assured by haulage contractors in my constituency that, even if the Government paid the entire cost of converting vehicles and abolished vehicle excise duty, the contractors would still be in an uncompetitive situation.

In anticipation of the Minister's reply about corporation tax rates and the whole package, I tell him that most haulage companies say that, to pay tax, a company first has to make a profit. Two major haulage companies in my constituency have gone into liquidation in the past three months and most others say that they are shedding labour by between 20 and 50 per cent. I have heard from other companies that they will relocate part of their business nearer their markets in the south of England. Ministers should be aware that the manager of one company in my constituency pointed from his office window to a yard where there were 30 articulated vehicles and told me that no duty had been paid to the Exchequer of the United Kingdom for any of those trucks in rural Aberdeenshire, because all of them contained diesel that had been bought in continental Europe. He also told me that, as he had good contacts elsewhere, he could cut his duty costs by a further 20 per cent. simply by contracting Irish haulage companies. However, he was not prepared to do that because he wanted to support his local contractors. Those are real problems, facing real companies, and the Government must acknowledge that they need to think those matters through more than they have done so far.

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