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Mr. Pearson indicated dissent.
Sir Michael Spicer: The hon. Gentleman shakes his head, but today the underlying rate of inflation has risen to 2.7 per cent.--0.2 percentage points above the target. To be fair to the Government, the target is not vague; they have enshrined it in law. It is a legal target, with which the Monetary Policy Committee has to comply, and towards which its interest rate policies must be directed.
When representatives of the MPC appear before the Select Committee again, I shall certainly ask them, "Why are you bringing down interest rates when there are strong indications--in the labour market, they have been there all along--that inflation is moving upwards again? It is the MPC's duty not to lower interest rates, but to raise them."
Most commentators would at least accept the fact that interest rates, which are still relatively high, will not come down very fast in the near future. Indeed, on the basis of today's evidence, they will rise. There is therefore a serious question mark against the present forecast for GDP, especially as manufacturing industry is in the middle of a bad recession.
I do not know what the unemployment figures will show tomorrow, but it would come as no surprise to many hon. Members if they began to register an upward movement, or at least were higher than the Government expected.
As I have said, it is fair to ask whether the GDP figures represent an accurate forecast. If they do not, and GDP is lower than forecast, that puts even more of a question mark against all the forecasts, including those by the Government, of taxation as a percentage of GDP. To me, at least, it would be a serious matter if taxation were to rise as a percentage of GDP.
That may be a serious matter to me, because philosophically, that is where I come from. I cannot understand, however, why the Government are so coy on the subject. The right hon. Member for Ashton-under- Lyne was, in a sense, enunciating a policy of higher taxation. He said, "Find out people's capacity to be soaked, and then get them."
Mr. Sheldon:
I must defend myself. I simply said that, whatever the level of taxation was, the principle that I enunciated applied. Within that principle, taxation can be low or high. The important point that I made was about the cost of getting people back to work when they considered themselves disadvantaged by the costs involved in earning a living. I was saying that, through taxation or in some other way, that must be taken into account.
Sir Michael Spicer:
Perhaps I did not understand the right hon. Gentleman; perhaps I was caricaturing his view--but I do not think that I was caricaturing the view that is held, by and large, within his party. There are certainly hon. Members sitting around him--although not directly behind him, where we see the hon. Member for North Durham--who think that the Government's job is to find out what the capacity for tax is, to tax people and then to spend and distribute the money. That is what socialism is all about.
What happened to the real socialists? There are lots of them. Where are they all? They will come out of the woodwork at some point. What is the Government's problem? They would be cheered by their Back Benchers if they were truthful and said, "Actually, we are a socialist Government, and that means that we shall put up taxes and expenditure."
That is what socialism is all about. That is what people vote for or against at general elections. That is why most of the time they vote Conservative, and why they will go on voting Conservative in the future--because, basically,
they do not like that approach to life. None the less, it could be seen as perfectly reasonable. Indeed, it has gone on for thousands of years. [Laughter.] The idea of taxing people has an honourable parentage. I suppose that it has its basis in the work of Rousseau. That may not date back a thousand years, but the idea also goes back to Aristotle and various other philosophers who had the idea of taxing people and distributing wealth. People had their reasons for that--so it is a mystery to me why the Government are confusing themselves, and trying to confuse the public, about taxation.
One fact, if nothing else, will emerge from the debate: there is a common position among members of the Treasury Committee that taxes are rising. It is up to the Minister to stand up at some point and tell us why.
Mr. Radice:
Will the hon. Gentleman give way?
Sir Michael Spicer:
Of course I shall give way to my boss.
Mr. Radice:
There is a common position that, taking all three Budgets into account, the tax burden, in terms of tax receipts as a share of GDP, will rise over the period. That is right, but there is also a common position thatthis year's Budget cuts taxes. I hope that the hon. Gentleman--whom I was about to call my hon. Friend--agrees with that, because it is what the Select Committee report said, and he did not vote against it. Nor did he vote against the Committee's general approval of Government economic strategy, about which we have heard little.
Sir Michael Spicer:
The Opposition are wise to keep very quiet when they are getting something through that they thought they might not get through. In this case, it was a massive achievement; it made sense to keep very quiet when we accepted the consensus that taxes would go up in the next three years. That was a significant statement, and it was worth sitting quietly and not stirring up matters too much.
My view is that it has still not been fully determined whether taxes have gone up in the Budget. I am willing to concede that there may have been some comeback on the swingeing wave of taxation that was introduced in previous Budgets and from which we shall suffer. It is extraordinary that the Government do not accept that taxes are going up. Even the hon. Member for North Durham distanced himself from the Government and said that they must answer for themselves. I hope that they do, but at the moment they are still trying to maintain the myth that taxes are not going up when everyone accepts--the Treasury Committee included--that they are.
There is one tax in the Finance Bill that dare not speak its name. It hangs like a black thundercloud over our economy. A withholding tax of 20 per cent. on financial savings may be introduced. It hangs like a thundercloud because the Government will not say that they will prevent such a tax. The proposition is on the table through a European Commission directive. It was discussed at the informal summit of Finance Ministers at ECOFIN last week, and it was not rejected.
I had the honour of asking the Deputy Prime Minister a question last Wednesday. I can think of three reasons why it was strange that he did not have the faintest idea what a withholding tax was. First, if such a tax were
introduced, it would be of enormous significance to the City of London. Financial services, direct and indirect, account for 25 per cent. of our GDP. That is more than the 23 per cent. accounted for by manufacturing industry, which is likely to shrink further as a result of the Government's policies. Financial services represent a higher proportion of GDP than the entirety of our manufacturing industry. The Deputy Prime Minister did not know that this tax may be imposed on our financial sector. There is no question what the effect would be, because it would be exactly the same as it was when it was imposed in New York. The whole of the bond market there moved across to London--from where it would move straight to Switzerland were this tax to be imposed in this country. It is strange that the Deputy Prime Minister did not have the faintest idea of what this tax is about, given that it is so important.
The second reason for surprise at the right hon. Gentleman's lack of knowledge is the fact that a withholding tax was due to be discussed at ECOFIN in Dresden last Saturday. Other Cabinet Ministers also did not have the faintest idea about this tax--I bumped into one yesterday, but I shall not reveal who it was, because it would not be fair. The significance of that is that it has not been discussed in Cabinet. It is of great concern that the Government are giving mixed assurances on a matter that is of such vital importance to a sector that accounts for 25 per cent. of our GDP without having discussed it properly in Cabinet.
The third reason why the Deputy Prime Minister should have known what was going on is that, in the past few months, Ministers have been giving mixed, but sometimes firm, assurances on this matter in the House of Commons. In the Treasury Committee, I asked the Economic Secretary:
In a way, she was supported by the Chancellor in his evidence to the Treasury Committee, which is published in its fourth report. He began on good form. I asked him:
"Does that mean you would veto any tax regime which included a withholding tax?"
She answered:
"We would not accept a directive that required Member States to introduce a withholding tax."
I said:
"That means you would veto any such regime."
She replied:
"That is correct."
That was a serious answer by a Treasury Minister to the Treasury Committee. Were the Government to give way on this matter, and were there not to be a veto, the Economic Secretary's position would be extremely difficult to maintain--I wish that she were here to hear me say that, as she has been present for most of the debate. She told the Treasury Committee that the Government would veto the withholding tax if it were necessary to do so.
"Will you be vetoing the withholding tax if it is necessary to do so when it comes to finance ministers on 17 April?"
The Chancellor said:
"We will take whatever action is necessary. I have said before that we are not prepared to introduce the withholding tax in Britain".
20 Apr 1999 : Column 754
So far, so good. He went on:
I replied:
"We are fully appraised of the national interests in this matter and I do not think you and I would be in disagreement about that."
"Except that I cannot actually hear you saying you will veto the tax."
We went on like that for a bit, and then I said:
"Are you going back on what your economic secretary said when she said, 'That is correct'?"--
which was in answer to the question I had put to her about a veto. The Chancellor said:
"Of course I am not going back on it. In many ways, I think the statement I am making is the strongest that can be made."
Again, so far, so good. He gave a firm assurance on the matter. He then said:
"I think you are misunderstanding me. I am saying we will take whatever action is necessary to protect our position in this matter."
I asked whether that included the veto. He replied:
"That includes taking whatever action is necessary."
I again asked:
"Does it include the veto?"
To which he replied:
"It may on certain occasions include the veto; it may not".
It is a serious matter when senior Ministers, including the Chancellor of the Exchequer, give mixed signals on a tax that would cause untold damage if it were imposed on this country. It is serious because a Minister is on record as saying that a specific action would be taken, and the Chancellor has said that he would do everything necessary to prevent such a tax being introduced, but that he might or might not use the veto. When it came to the ECOFIN discussions last Saturday, according to the reports of the meeting, the Government seemed to back away from any confrontation on this matter. The issue was deferred for two or three weeks, and no pronouncements were made to reassure people who are extremely worried about this tax, because it would cripple much of our financial sector, which is the strongest in the world bar none. It is stronger than New York and any other financial capital in the world. It is the great British success story.
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