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Mr. Edward Davey: Does the hon. Gentleman agree that some borough councils in the south-east of England--indeed, in London--lose out from the current area cost adjustment system? One of the most authoritative analyses of reforming the ACA explains that reform would make it possible to provide some councils, such as my own council of Kingston, with significant grant increases. The analysis specifically stated that ACA reform would enable £2 million extra to be provided to Kingston council. Does the hon. Gentleman therefore accept that changes to the ACA would not only create both gainers and losers, but that the gainers and losers would be in various parts of the country?
Mr. Kidney: I currently have in my sights those who benefit from the area cost adjustment. I shall, in a moment, make some suggestions on how the ACA might be improved--although some of those suggestions might not be attractive to the hon. Member for Reigate, who did not seem to favour bidding, which I shall deal with later in my speech.
Most people realise that, in one way or another, the system of distributing central grant to local government is flawed. I think that there would have been a change in the system were it not for the fact--which was just emphasised by the hon. Member for Kingston and Surbiton--that there are so many possible ways of changing the system that the Government have found it difficult to separate a clear leader from the pack of possibilities. That is why a lengthy and detailed review is currently taking place. In answer to a written question recently, the Government said that they expected to consult publicly about possible choices early next year.
One improvement would be to build on the success of systems that recognise extra need or innovation, such as the modernisation fund for capital spending and the standards fund for education spending, and reduce the variations in the basic distribution of grant between local authorities. A more radical suggestion that could be considered on another occasion would be to allow local government to raise more of its income and become less dependent on central Government grants.
Mr. Nick Gibb (Bognor Regis and Littlehampton):
I certainly do not agree that the Government deserve a bouquet. However, there is a pattern to their approach to public spending and taxation involving deception, breach of promise and obfuscation.
Before the election, Labour had a problem: people did not trust Labour on tax or believe in its ability to keep public spending under control and maintain stable public finances. At the same time, Labour was making huge political capital from claiming that there was insufficient spending on the health service and education. So Labour, and the leader of the Labour party in particular, made a commitment not to raise taxes at all. There are numerous quotes from the Prime Minister and other Labour Members, including the Chancellor of the Exchequer, to the effect that Labour's spending plans involved no increases in taxation. They said that all their plans for extra spending could be funded from savings in the £100 billion a year social security budget. There are a number of quotes from the Prime Minister who said in July 1994:
Far from cutting social security spending, it has risen by some £38.2 billion over the three years of the spending review--about as much as the increases in health and education put together. Because of that failure, the Government have been raising huge amounts of extra taxation. They have imposed tax increases by stealth.
One of the many great legacies of Margaret Thatcher's period in government is that no Government since 1979 have been able to increase the basic rate--or any rate--of income tax; so all tax increases have been through back-door methods, by stealth. The present Government are the masters of that.
The Conservative party has pledged low and honest taxation, so we will help people by revealing how much tax is being raised by other methods--from taxes on petrol, whisky and food--so that people in a mature democracy can make a conscious and informed decision about the level of taxation that they want to pay and the level of spending that goes with it.
Mr. Love:
The hon. Gentleman talks about low and honest taxation. Perhaps he can tell us about low and honest public expenditure and say where the Conservatives would make savings to create that low taxation.
Mr. Gibb:
I shall come to that point in a moment. The Conservative Government got social security spending
There has been the £5 billion-a-year pensions fund tax from the ending of the repayment of dividend tax credits. The quarterly corporation tax payments will raise between £2 billion and £3 billion a year from business over the next four years. The fuel escalator has been increased to 6 per cent., and there have been two increases in one year. Now, £8.50 of every £10 spent on petrol goes in tax. There have been huge stamp duty increases, the abolition of MIRAS, the abolition of relief for home income plans and the abolition of the married couples allowance, even for those who turn 65 after next April. There have been increases in the landfill tax and in insurance premium tax. All of this amounts to some £40.7 billion of extra taxation over this Parliament--this from a Government who said that they had no plans to raise taxes at all.
When Labour Members are challenged, they respond by claiming that, during the election, they did not say that they would not raise taxes at all, but that they had no plans to raise income tax. However, Labour gave the impression that the promise extended to taxation as a whole, since all their attacks on the Conservatives were about "22 Tory tax rises". None of those 22 tax rises was an income tax rise--they were all non-income tax rises.
The reality was that the Government's promise extended only to income tax--but they have not even fulfilled that promise. The abolition of MIRAS and the married couples allowance means that people will pay more income tax. A married couple will pay £200 more income tax a year as a result of the Government. A newly retired couple will pay £500 more income tax than they had expected. Now, the Government's promise is diluted further--they promise only not to raise income tax rates. It all sounds like an unscrupulous salesman selling a defective product and referring to the small print of the contract.
The spinning that Labour is so good at has been applied to the public accounts. The Government claim that, despite raising an extra £40.7 billion in taxation, the burden of tax is falling. That is a huge sum of money, and it is simply not credible to say that the Government can raise that sum and not raise the burden of tax. The way in which this is presented in the Red Book is disgraceful. A series of deceptive presentations and absurd assumptions have been allowed to be put into the Red Book, such that it is almost becoming a meaningless document unless it is translated by the Library or by specialists.
The working families tax credit--the replacement for family credit--is now, to a large extent, accounted for as a reduction in tax, rather than as public expenditure. That has the effect of reducing the key figure in the Red Book--on net taxes and social security spending; the figure that people always turn to to assess whether the tax burden has risen. The remaining element of the working families tax credit--which is accounted for as spending--is not included in the social security line, but is further down the table in "Accounting and other adjustments."
When commentators come to judge the Government's record on social security spending, they will see an artificially reduced figure.
The Government now accept that there have been increases in social security spending, which means that they have abandoned their claim to be decreasing it. They say that it is increasing by 2 per cent. a year in real terms. However, if one adds back the £5 billion a year of working families tax credit, the increase amounts to 3.2 per cent. from 1998-99 onwards. That figure comes from the House of Commons Library.
By contrast, the same Library produces figures for the Conservative years--including the two years of Conservative spending plans adopted by the Labour Government--up to the time of the working families tax credit, which show that social security spending fell by 0.2 per cent. a year from 1995-96 to 1998-99. As a consequence of the Government's plans, social security spending will rise to £118.5 billion by 2001-02.
Another hugely deceptive device used by the Government in the Red Book is the table on pages 112 and 113, headed "Budget Measures". This used to be used to provide a summary of the effect of the tax changes in the Budget. One could then look at the total at the bottom to see the overall effect. The Government have included in the list several items of public expenditure and classified those items of expenditure as a tax cut. Nowhere else in the public accounts are those items listed as tax cuts. For example, item 22, entitled "Sure Start Maternity Grant", a £20 million expenditure plan, is included as a £20 million tax cut. The £100 winter allowance is a £640 million public expenditure plan but it is listed as a £640 million tax cut. That makes the whole Red Book completely meaningless.
The Government have used many sleights of hand in presenting the public finances. We have already heard about current versus capital expenditure. One wonders whether such a distinction can be of any use, because little of Government capital spending generates any income and because of the difficulty of assessing what is investment: is teachers' pay an investment for the future or revenue expenditure?
The Government have ruthlessly talked of the surplus on the current budget, giving the impression that they are running a budget surplus, when in fact they are running a deficit. For example, the Red Book lists a so-called surplus on the current budget of £2 billion, £4 billion, £8 billion, £9 billion and £11 billion in the years from 1999 to 2004, but the same table--B5 on page 151--shows an overall deficit of £3 billion, £3 billion, £1 billion, £3 billion and £4 billion in those years.
In any interview or article, the Government trot out the current budget figures--total revenue less current spending--in a deliberate effort to mislead and obfuscate. The classic example is how the Government spun the lower growth forecast in the March 1999 Budget. The June 1998 comprehensive spending review report mentioned a current surplus of £7 billion, £10 billion and £13 billion, adding up to £30 billion over three years, despite the fact that there was a deficit in those three years.
The Chancellor spoke of a £30 billion current surplus, but the growth forecast was revised downwards in December 1998, and in the March 1999 Budget we saw
the effect of the lower growth figures on the public finances. Lo and behold, instead of the £30 billion current surplus being reduced, as one would expect, it is now talked of as a £34 billion current surplus. How can that be? The Red Book shows a current surplus of £2 billion, £4 billion and £8 billion, which adds up to only £14 billion, but if one adds in the next two years, with a surplus of £9 billion and £11 billion, the total comes to £34 billion. The Government are now including five years instead of three, which is totally deceptive--why not six or 10 years?--and undermines the Chancellor's credibility.
I have been trying to get to grips with what is going on. I tried to clarify the effect of all the Government's tax measures by tabling a written question using almost the same words as the now Home Secretary did in 1981 when he was a humble Back Bencher. I asked how much tax, including income tax, national insurance, VAT and council tax, was paid by different types of typical households such as single people or married couples in different income groups.
That question was answered fully and honestly every year under the previous Government, but the current Government said:
When I asked for the figures on the basis of such assumptions, I received the same brush-off. When I asked for a list of the assumptions used to answer the question since 1981, I was told that they were part of advice given by civil servants to the previous Government that was not available to the public. That is absolute nonsense. I asked for a list of facts, and it is disgraceful that those facts have not been forthcoming.
Clearly, the Government are frightened to reveal the figures. For all their protestations about freedom of information, the Government know that including their stealth taxes--most of which are indirect--in figures for the tax burden will show that that burden has increased hugely.
"A large social security budget is not a sign of socialist success but a necessary consequence of economic failure."
In October 1996 he said:
"Our priorities should be to re-order public spending so that we are spending less on welfare and more on areas like education."
He made the pledge, commitment or vow to which my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) referred.
"Estimating the impact of indirect taxes is imprecise as spending patterns vary widely between households with the same composition and income."--[Official Report, 16 April 1999; Vol. 329, c. 388.]
The problem was ever thus, but the Conservative Government made reasonable and sensible assumptions and gave the figures.
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