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Mr. Luff: The Financial Secretary to the Treasury is honourable and decent. If she listens to the purpose of new clauses 3 and amendment No. 2--and of the new clause proposed by the Liberal Democrats--she will realise that her task of asking the House to reject them is unpleasant and unsavoury. The purpose of new clause 3 is simply to ensure that those who earn less than the income tax threshold do not have to pay income tax. Who can argue with that? The Financial Secretary may say that the clause is technically flawed, or that it needs to be rethought. However, the principle that underlies it must be one with which the whole House agrees.

Amendment No. 2 would ensure that savings income is liable to taxation at the new 10p lower rate, not the 20p rate. Both measures would have a disproportionate advantage for those on low incomes, particularly for pensioners. I hope that the Minister will think carefully about what she is to say later.

In the post today, I received a document that I did not recognise. As far as I can tell, it must be a Government briefing document for Labour Members, as it is headed "DSS Key Messages on Welfare Reform June 1999".

Mr. Leslie: Read it; it is very good.

Mr. Luff: Reading it is exactly what I intend to do. It states:

"The Government's central aim is to make the welfare state fit for the next century."

Some new Labour waffle follows, then the document says that the Government aim to

"promote work for those who can and security for those who cannot."

On pensioners, it adds:

"Most help for those with most need. Giving more help to the severely disabled, to poor pensioners and to children."

How will the measures on which the Government are insisting tonight help poor pensioners?

The document goes on--particularly amusingly--to say:

"Providing for the future with new stakeholder pensions and encouragement that those who can save should do so."

What encouragement do the measures on which the Government are insisting give to those who want to save?

Later, the document lists all the marvellous things that the Government claim to have done to help pensioners--the minimum income guarantee; the winter fuel allowance referred to by the hon. Member for Croydon, Central (Mr. Davies); free eyesight tests; and the reduction in VAT on fuel. There is no mention of much more--the abolition of mortgage interest relief at source and the implications for home income plans; the abolition of married couples allowance for new pensioner families; and the higher rates of fuel duty that are crippling poor pensioners in many rural areas. The Financial Secretary will have to defend the position of making poorer pensioners pay income tax or pay it at higher rates than is acceptable.

I invite the Financial Secretary to think carefully about the consequences of rejecting amendment No. 2 on the taxation of savings. The estimates of independent analysts suggest that accepting this amendment would cost just £85 million, and £55 million of that advantage would go to people of pensionable age. I cannot believe that the

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new Labour Government, who publish such documents to send to their Back Benchers, intend to reject these measures. I am sure that the Financial Secretary, whatever she says, will, in her heart, know that the Opposition are right.

11 pm

Mr. St. Aubyn: The Government's mantra that we hear so often--that they govern for the many, not the few--will have a hollow ring tonight. The 300,000 people we are discussing are the few. They are vulnerable, and many are old. They are also the few because they believe in being self-reliant. It was significant that the hon. Member for Croydon, Central (Mr. Davies) emphasised the benefits that this group of people may be entitled to as a result of the Government's measures. Some of them may welcome those benefits, but others take pride in the fact that they have managed to provide for themselves up till now, and that is how they intend to carry on. As a result of the Government's proposal, those people will lose a significant amount of income.

In the debates on this issue this year and last year, Labour Members argued that this group of people could change their investment strategy, and that, if they switched to bonds, they would not suffer income tax. The difficulty with that approach is that inflation, even at the present low rates, eats away at such savings. In the long term, the only way to protect the value of an income through a savings plan is by investing in shares. We learned today that the average income in this country has now reached £20,000 a year. I read that, 25 years ago, it was only £2,500. People who, at the start of their retirement, took the Government's advice and put all their retirement savings into bonds may have had their standard of living severely curtailed compared with what they might have achieved if they had kept their savings in shares.

What is the point of a Government tax strategy that encourages the old, the vulnerable and the weak to put their small amount in the least sensible form of savings? Surely that goes against the whole thrust of modern thinking. We should encourage people to care and provide for themselves. We should foster the self-help culture. The Government are penalising the people who have provided for themselves through thick and thin, and who have wisely invested in shares to protect some of the value of their savings.

The other argument that was advanced in Committee this year and last year was that those people could put their money into ISAs. If they were to do that, they would get a double whammy. Not only would there be an element of taxation on their share income in ISAs but, because the amounts involved are very small, the management charges for running those funds would eat into the net income or into the capital. One way or another, they would suffer greatly compared with the situation they were in before the Government came to power.

Perhaps the Minister could tell us in passing what proportion of ISAs has been invested in stocks and shares and what proportion has been invested in cash ISAs. We could judge from that how successful the Government's new initiative has been.

We have already heard the ghost of the hon. and learned Member for Dudley, North (Mr. Cranston) hovering over the debate. I remember the surge of

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optimism among Conservative Members during the Committee stage of last year's Bill when he addressed the Committee with enthusiasm, urging the then Paymaster General to make concessions. We thought that the Government were at last listening to the needs of the few as well as the mantras of the many. Unfortunately, however, that particular Paymaster General has disappeared from the scene. He has not been in the Chamber for quite a while. I fear that he has been sent to Coventry, if not to Coventry, North-West.

Mr. Bercow: My hon. Friend presents an irresistible temptation. Does he agree that, at the end of the speech of the hon. Member for Croydon, Central (Mr. Davies), it was no clearer than it had been at the beginning whether he thought that the Solicitor-General had since experienced an apostolic conversion and come round to supporting the Government's view, or whether--secretly, and smothered in guilt--he still believed what he had said a year ago from the Back Benches?

Mr. St. Aubyn: Unlike my hon. Friend and me, the Solicitor-General is a lawyer, and none of us really knows what he believes. I wish that he were here to tell us. In his absence, however, I think that the Financial Secretary owes us an explanation. Why have the Government stalled at the last fence? Why have they failed to treat this section of our community fairly? I feel that they should pause, and consider the negative signal that the measure will send to other savers.

Dr. Vincent Cable (Twickenham): I want to say a little about amendment No. 2, which Liberal Democrats tabled along with Conservatives. It relates specifically to discrimination between different kinds of income earned and unearned, and the 20p rate. Let me summarise what I consider to be the central reasons why that is an adverse development.

The first reason has, in part, already been summarised by the hon. Member for Grantham and Stamford (Mr. Davies). It introduces a great deal of complexity into the system. We are talking not merely about the distinction between earned and unearned income, but about the distinction between different types of savings income. Different rates now apply to dividend and fixed-interest income; different rates apply to fixed-interest deposits, as opposed to annuities, which stem from another kind of interest income. There is no economic, equity-based or administrative reason for that; it just happened to emerge from a very complex, badly-thought-out piece of legislation. That is why we are pressing our amendment, which relates specifically to the certification process that will make things much easier for low-income pensioners.

Another point has not been mentioned, although it is important. The Government have unintentionally reintroduced the old tax principle that unearned income is in some sense less worth while than earned income. It used to be a principle of taxation that those with rentier income were somehow less worthy than those who were working. That principle had been scrapped, but now it is returning in disguise. Although it may have been reintroduced unintentionally, it is very unhealthy, and not compatible with the ideas that I thought that new Labour stood for.

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