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Sir Robert Smith: Will the hon. Lady give way?
Mrs. Lait: I am terribly sorry, I shall not give way, because I want to allow the Front-Bench spokesman time to reply to the debate.
Mr. John Whittingdale (Maldon and East Chelmsford): This has been a good debate, with a number of thoughtful and well-informed contributions from hon. Members on both sides of the House. It seems a long time ago that the Chancellor delivered his Budget speech outlining some of the measures that we have debated today. My right hon. Friend the Member for Fylde (Mr. Jack) referred to the initial burst of enthusiasm that greeted the Budget, with headlines in The Sun such as "Everyone's a winner". As he said, it did not take people long to realise that anything but that was the case.
The first flush of enthusiasm that greeted the Budget barely lasted 24 hours. Since then, enthusiasm has given way to disappointment, which in turn has been replaced
by anger as more and more details of the stealth tax increases in the Budget have gradually emerged. We were told at the time that everyone would be better off, but it did not take long to discover that many people would face tax increases not tax cuts. Once again, the reality is very different from the presentational gloss.
The new 10p starting rate of income tax, which has been referred to by a number of hon. Members, is a typical public relations gimmick. By restricting it to the first £1,500 of income, it will make only a small difference to most people's tax bills. However, by reducing the amount of income that is covered by the 10p rate and by abolishing the 20p rate, the Chancellor increased the marginal rate of income tax for a significant number of people.
According to the Government's own figures, about 4.4 million income taxpayers will have a taxable income of between £1,500 and £4,300. As a result of the Budget, the rate of income tax that they pay will rise from 20p to 23p in the pound. As the hon. Member for Kingston and Surbiton (Mr. Davey) said, the Chancellor overlooked that aspect when he made his Budget speech. It is also a direct breach of the Labour party's pledge at the last election not to put up income tax.
It is not just those 4.4 million people who have been conned by the new 10p rate. It became clear only after the Budget that savers on low incomes will also lose out. In a throwaway line in the Budget debate, the Chancellor said:
It should come as no surprise that a Government who were willing to deprive 300,000 pensioners on the lowest incomes of a tax refund of £75 a year on their dividend payments should now penalise pensioners who pay tax, albeit at the lowest level. As the hon. Member for Kingston and Surbiton said, we shall want to return in Committee to the issue of the dividend tax credits for non-taxpayers.
The chief executive of the Birmingham Midshires building society was right when he described the 20 per cent. rate on savings as "unfair and contradictory". The Chancellor should even now listen to the representations of Age Concern, the Daily Mail and the "Money Box" programme on Radio 4, which are all calling on him to put the situation right.
Married couples will also lose out from the Finance Bill. The abolition of the married couples allowance for those under 65 will cost couples almost £200 a year extra in tax. It also finally removes from the tax system any recognition of the state of marriage. In his Budget, the Chancellor said that the allowance would be replaced by the children's tax credit and, as a result, the typical family with children would be left better off. However, they will not be better off next year, as we now find that the children's tax credit will not even come in until 2001. Nor will they be better off if either partner is a higher rate
taxpayer, because they will lose the credit through the operation of the taper system. The result is the ludicrous situation in which a couple each earning £30,000 a year will receive the entire children's tax credit, while a family with only one earner on £36,000 will see it tapered away.
It does not stop there. Many married couples do not have children or, if they have, their children have grown up. According to the Government's figures, there are 6.4 million married couples who benefit from the married couples allowance but do not have children who are eligible for child benefit, and another 300,000 have children who receive child benefit but those children are aged over 16. They, too, will get no benefit from the children's tax credit and will end up paying more in tax.
The only exception is the pensioners, who retain the allowance. However, in a phrase the significance of which became apparent only after the Chancellor sat down, he said in the Budget speech that he was restricting the exception to "Today's pensioner couples". Any couples who are unfortunate enough to reach pensionable age after April next year will lose the allowance and gain no benefit at all.
The Chancellor said in the Budget that he was providing a better deal for families and children, but he certainly did not for one type of family. Couples who have divorced or separated, with one person paying maintenance, will also have to pay a lot more. Some 300,000 taxpayers will lose relief on the maintenance payments that they make for their children, costing each on average about £220. For some, the figure will be considerably higher. Those who separated before March 1988 can currently get tax relief at the higher rate of 40 per cent., but from next year they will receive no relief at all. Many parents paying maintenance already resent having to pay large amounts as a result of the actions of the Child Support Agency, as hon. Members know. For those parents, that Budget measure will be another blow. When the Chancellor was asked about it in an interview after the Budget, he did not even know about it, despite its appearing in his own Red Book.
Home owners will also pay more tax under the Finance Bill, as a result of the abolition of mortgage interestrelief. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) described that as removing a massive distortion from the tax system. However, according to the Government, it is not a taxation measure at all. Instead, we are told that it represents a reduction in public spending. That conveniently overlooks the fact that, in the last Parliament, the reduction in mortgage interest relief was cited by the Labour party as one of the alleged 22 Tory tax rises.
In the Budget speech, the Chancellor said that the allowance was worth on average £2.50 a week. Most people are mystified as to how he reached that figure. In fact, it is worth about £4 a week and, in total, about 19 million home buyers will pay a total of £1.9 billion extra in tax each year.
Those who buy homes worth more than £250,000 face the extra costs of the increase in stamp duty. Last year, 45,000 residential transactions would have been affected. Some would say that those who can afford a house worth more than £250,000 can afford to pay the increase. However, in the south-east, in constituencies such as mine and that of my hon. Friend the Member for South Dorset
(Mr. Bruce), £250,000 does not buy a mansion. The increase will affect many people with families who aspire to buy a bigger home.
Business will bear the brunt of the stamp duty increase. Some 65 per cent. of total receipts from stamp duty on transactions of more than £250,000 comes from commercial property and land transactions. The measure will put up the cost of commercial property, and that will hit businesses. Even more seriously, it will have a direct impact on commercial property values, making it harder for small and medium-sized firms to raise loan finance.
My hon. Friend the Member for West Worcestershire (Sir M. Spicer) spent some time on the threat posed to the City of London by the possible withholding tax. Rightly, he expressed astonishment that the Deputy Prime Minister appeared, only last week, to be totally unaware of that proposal, which puts at risk 10,000 jobs. My hon. Friend suggested that that might imply that the matter had not been raised in Cabinet. I very much hope that he was wrong. It is, perhaps, more likely that the Deputy Prime Minister was otherwise engaged when the matter came up, possibly looking at tigers or examining a coral reef.
Whatever the explanation, my hon. Friend was absolutely right to say that the proposal represented a huge threat to one of the most successful component parts of our economy. If it goes ahead, the Eurobond market will be permanently lost to the UK because it will transfer to Switzerland. For that reason, when this proposal was first made in the 1980s, the then Government made it clear that it was utterly unacceptable.
We heard a fascinating account from my hon. Friend the Member for Chichester (Mr. Tyrie) of the negotiating tactics that Lord Lawson employed to put a stop to that absurd measure. As a result of that action, the proposal was dropped by our European Community partners, but the Government have refused to make the same commitment this time. Instead, weasel words have allowed the other countries of Europe to believe that we are prepared to compromise on this matter.
"The tax rates on savings will remained unchanged."--[Official Report, 9 March 1999; Vol. 327, c. 188.]
Not many people picked up that line at the time, and those who did probably thought that they had misheard it, but it was no mistake. People whose income is derived from a small amount of savings will not enjoy a 10p starting rate: they will continue to pay 20p in the pound on their savings income. As the hon. Member for Gordon (Mr. Bruce) said, as a result of that, almost a million pensioners will get no benefit from the 10p rate.
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