House of Commons Hansard Debates for 20 Apr 1999 (pt 20)

Mr. Sheldon: That is exactly what I am arguing for. Such expenses cannot be wholly allowable for income tax, but they have to be recognised and must receive some understanding and some concession in respect of the way in which these matters are raised or are to be considered.

People who are not in work have to accept a whole range of such costs when they come into work, as my hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cousins) rightly points out. For example, when my constituents add up the cost of travelling across the Pennines against remaining on benefit, they might say that working is not worth their while. We have to make it worth their while. I regard travel expenses as legitimate and, although they should not be taken wholly into account in relief from tax, there should be some understanding of the problems that people face.

The Scottish National party has joined the Liberal party in wanting to refuse the 1p reduction in income tax, in order to use that 1p for expenditure. It is difficult to persuade people that tax increases will lead to increased spending; we find them rather sceptical about that,

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because, before they will accept tax increases, they need to be confident that the taxes will be used for the purposes that they support. The relationship between taxation and the particular expenditure that people want is based on a trust which many do not have. In present terms, that is the case for relating taxation to expenditure in certain very limited circumstances.

Anyone who has served in the Treasury has a visceral feeling about hypothecation; the road fund licence still casts its shadow 70 years on. An important weakness of hypothecation is that it does not take account of changing patterns of priorities in expenditure. In a moment of weakness, one might hypothecate a tax and regret it subsequently, because an element of expenditure has become less important than it was when the tax was introduced.

There is, however, one instance in which the objections to hypothecation are met--the national health service. One thing is clear to me: the cost of the NHS will rise ever faster than the rate of inflation or even growth in the economy. That is because the population are ageing--there are also other reasons--and, as wants are met, those of health will perhaps become the major area of increasing expenditure.

The time is coming when we shall need to think more about either private medicine, which I do not favour, or a special NHS tax. As I have said about health, one certain aspect is that demand will increase into the indefinite future. People may be more willing to accept an NHS tax--rather than other taxes, which disappear in the vast generality of public expenditure--if they can see the direct consequences of that expenditure. The time has surely come when the introduction of such a tax ought to be explored sensibly and not rejected out of hand, which it always is.

Mr. William Ross (East Londonderry): I am greatly interested in what the right hon. Gentleman has said about hypothecated tax, particularly in relation to the NHS. Given the willingness of all Governments eventually to cheat on any hypothecated tax, does he agree that, if such a tax were introduced for the NHS, the NHS would have to be funded in perpetuity from one tax that would be clearly targeted on that item of expenditure, with no subsidies from other forms of taxation?

Mr. Sheldon: The hon. Gentleman discusses a particular form of a tax; I am putting the general point that this matter needs to be explored sensibly. Demand for the NHS will increase and people do not have confidence that the money that they have to give up to spend in taxes is going on the purposes on which they want it to go. In this particular instance, a closer relationship between taxation and expenditure is called for.

I welcome the Finance Bill as I have welcomed the Budget. My right hon. Friend the Chancellor has tackled two of the major distortions of our tax system. They have been known for many years; he had the courage and the resolution to deal with them.

6.45 pm

Sir Michael Spicer (West Worcestershire): It is always a great pleasure to speak after the right hon. Member for Ashton-under-Lyne (Mr. Sheldon); I have always respected him. In the mid-1970s, I kept him up all night

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when he was a Treasury Minister and we were fighting each other--not physically, but across the Floor of the House--on Finance Bill Committees. He was involved with the development land tax.

I want to dwell for a moment on the idea of taxable capacity, to which the right hon. Gentleman referred. I may have misunderstood him, but the effect of what he said seemed to be that we should work out someone's taxable capacity and then tax him to the hilt, according to the definition that had been established for him. That is not my idea of a tax; at least, I would draw the line very much lower than the right hon. Gentleman probably would. Taxation should be minimised and used as sparingly as possible, and people should be allowed to keep as much as possible of the money that they have earned so that they have an incentive to work and invest. Perhaps that is why he is on that side of the House and I am on this side.

I return to the central question of taxation, which has been troubling the House throughout the evening, although there is common ground. We are almost unanimous that, taking into account the accumulated effect of all the Budgets introduced by this Government, taxes will go up over the next three years. Even the hon. Member for North Durham (Mr. Radice), the Chairman of the Select Committee on the Treasury, distanced himself from the one organisation that apparently does not agree with the proposition that tax is going up--the Government.

The hon. Gentleman was very fair on this matter. He is a powerful and highly respected Chairman--I hope that I have not done his career, which is beginning to burgeon, enormous harm--who has the command and respect of the Committee. He has tried to produce as fair a report as he can in the circumstances. It is remarkable--mystifying, to be honest--that the Government are sticking to the position that taxes are not going up.

Proof that the Government are sticking to that position comes from the Committee itself. When the Chancellor appeared before us, he was quite clear. I asked:

"Would you not accept that the net effect of your three budgets over the next three years has been to raise taxes"?

He answered:

"No, I do not accept that".

The Government are still maintaining the position that taxes are not going up over the next three years, even if all the Budgets are compounded, so it is worth spending a little time trying to draw from them either a confession that they are wrong or further justification for their perpetuation of this extraordinary myth. The public will rumble to it, and soon. As has been said, it does not matter too much to the taxpayer whose taxes are going up when a tax was announced; what really counts is the fact that it is going up.

Evidently, one has to go over this ground again and, to begin, I shall raise with the House certain relevant matters which have not been mentioned in the form that I wish to use. First, no one has yet mentioned the Committee's general acceptance of the fact that, if one compounds all the Budgets, one finds that taxes are going up over the next three years. Its report says that

"the Red Book . . . publishes a table . . . which lists the impact of pre-announced changes which are due to come into effect over the next three years. These pre-announced changes amount to a tax