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Mr. Hayes: Another example of the Chancellor being bogged down by assumptions about the old economy was the section of his Budget speech dealing with share ownership. He talked about share ownership with a maximum value of £100,000 for up to 15 employees. That will allow small firms to stay small rather than allow medium firms to grow bigger. The Chancellor needs to understand that, when he cuts capital gains tax, many of the dot.com companies' life cycles may be only two to five years, so reducing it to 10 per cent. in four years is not good enough.
Mr. St. Aubyn: I am grateful to my hon. Friend for anticipating my next point. The other day I visited a firm in my constituency called Lionhead, run by a gentleman called Peter Molyneux, who before that had started a company creating some of the world's most successful computer games. Having sold on that business, which grew from employing two to 500 people in the Guildford area, he started the new company, developing some exciting computer games. He made exactly that point to me.
In an industry such as computer games, which now has a turnover in Britain which exceeds that of our film industry and has the potential to grow many more times over if it is treated correctly, the penal rates of capital gains taxation, and the regime that will still apply after the Chancellor's announcement this afternoon, mean that many businesses like that of my constituent's, without his dedication to wanting to see Britain succeed in this critical part of the economy, will be sited overseas.
As computer games will soon be sold over the net--there will be no shop to go to, they will simply be downloaded--they can be sold from any part of the world and there is a tax competitive global market here. Yet our Chancellor completely failed to spot the fact. Here in the new millennium he does not understand what the new economy means.
The Chancellor's concession on capital gains tax will cost him £250 million in the coming year, but his additional revenue in the short term from capital gains tax in the same year will go up by an extra £1 billion. He is taking four times more in extra capital gains revenue than he is giving back with his pettifogging concessions. The result again will be that, while he has revenue in the short term from capital gains, as he will have revenue in the short term from stamp duty, in the long run he will undermine the economy's ability to generate any valuable tax revenue at all in the areas where our economy must compete as a soundly based service economy.
We need to consider comprehensive tax reform for the future. Our structure of capital taxation--capital gains tax, inheritance tax, stamp duty--is decades old. Indeed, some of it is centuries old. We need thorough-going reform, which the Chancellor lacks the courage to deliver, even if he had the imagination to realise that it was necessary.
The Chancellor's attack on savings in the past three years has created the problem that an increasing number of people choose to spend the gains that they make through investment and houses rather than reinvesting it, saving it and passing it on.
If the changes have to occur, we must begin by applying a great deal more honesty than the Chancellor displayed this afternoon. He attacks the tax cheats in our economy; perhaps we should consider the person who has done most to cheat the taxpayer: the Chancellor with his billions of pounds in stealth taxes.
Ms Chris McCafferty (Calder Valley):
I shall be brief because I realise that other hon. Members want to speak. I congratulate my right hon. Friend the Chancellor on his Budget. In reading the very small print on the last page of the Budget document, I am especially delighted that the Chancellor has listened to hon. Members from all parties who supported a reduction in VAT on sanitary products to 5 per cent. The 250 hon. Members who signed my early-day motion on the subject will applaud the Chancellor's sensitivity in acknowledging that those products are not luxury items and his understanding that the measure helps not only women but families, especially poor families. Perhaps it is a pity that the Chancellor missed the opportunity to announce the measure himself.
As was previously mentioned, the campaign to reduce VAT on sanitary products began in the 1970s after the failure to categorise them as essential items in the family
budget. Many Members of Parliament who were involved in that campaign are still in the House. In the 1980s, Shirley Williams, now Lady Williams, held a campaign on the issue, and in the early 1990s my hon. Friend the Member for Vauxhall (Kate Hoey), who is now a Minister, led another campaign. A petition that contained 500,000 signatures was presented to Mrs. Thatcher in the 1980s, but it was completely ignored.
Despite all efforts, previous Chancellors have refused to right the glaring wrong. My right hon. Friend has recognised that while VAT on sanitary products is a female issue, it is also a family issue and a poverty issue. A family with a mother and two teenage daughters on a low income or benefit cannot avoid the expense of sanitary products. They are not like bread or jam; women cannot decide, "I'll skip it this week."
Today's measure is fair and lowers the cost of a necessity. It sends a message to women that the Government will continue to work towards equality in the tax system as well as in the workplace and in society.
Mr. Owen Paterson (North Shropshire):
It is a pleasure to follow the hon. Member for Calder Valley (Ms McCafferty) and I am touched that so many hon. Members have stayed behind to hear what I have to say.
The Budget is typical of the Chancellor. His description of the economy and the colour of his language made a marked contrast with the reality of what we find buried in the Red Book and the reality that I see on the ground in Shropshire. The Shropshire economy is in crisis. My pig farmers are emigrating to Saskatchewan, dairy farmers are applying to get out of dairy farming and get rid of their quota at the rate of 10 or 12 a week, high-tech businesses write to me about the iniquitous imposition of IR35--which was not mentioned in last year's Budget--and the director of a construction business has already clocked up 9,000 miles this year in a pursuit of payment, made ludicrous by the fact that he has to present an identity card carrying his picture to get paid. There has been a £30 billion explosion of tax on business and extra regulation has cost £5 billion. The average family is £600 a year worse off and, pertinently for a rural area, the average car owner is £900 a year worse off.
In previous Budgets we were promised that extra money would be spent on services, but I do not know where it has gone. It has not filtered through to my part of the country. West Mercia police force, which gained 405 officers under the Tories, has lost 78 since the Government came to power. It applied for 36 under the new scheme but has been given only 18, so we are 60 down. The fire brigade is 47 per cent. underfunded by central Government and has to be bailed out by council tax raised by the council. On education, spending on a primary pupil in Shropshire is £2,220, but £3,396 in Southwark. On the national health service, people were turned away from urgent treatment during the Christmas period and there are patients in my constituency who are not being given beta interferon. Above all, my constituents resent the £1,000 million or more that the
Government are spending on themselves--Parliaments, Assemblies, reviews, special advisers and general hangers on.
Mr. Hayes:
I interrupt my hon. Friend to prevent him from becoming even more distressed about the plight of his constituents. The Government recognise the problems in areas such as his and the Cabinet Office report on rural areas says that the rural economy is in crisis. But does he agree that we heard nothing about how the Government will address that countryside crisis?
Mr. Paterson:
My hon. Friend is absolutely right. We heard nothing at all about the rural economy and that report says that Shropshire's average income is 22 per cent. less than the British average.
Some threatening figures are tucked away in the Red Book. The savings ratio is dropping from 5.75 per cent. to 5.5 per cent. That accounts in part for the unnecessarily high interest rates that we have suffered over the past couple of years, which have made the pound even stronger against the pathetically weak euro and damaged agriculture and small business. Tax and social security contributions as a proportion of gross domestic product are also increasing from 36.9 to 37.3 per cent., and it is obvious that the Government have not controlled social security spending. Benefits are set to increase from £93.3 billion in 1998 to £104.5 billion. If we throw in the working families tax credit--which we should, according to the Organisation for Economic Co-operation and Development method of computing--that amounts to £110 billion.
Extra taxation and regulation have led to an explosion of the black economy, which can be glimpsed in the collapse of tobacco duty. The take has dropped from £8.2 billion last year to £5.7 billion this year. The most obvious manifestation of the increase in the black economy is the large number of anonymous white vans in the country. I should very much like to know Ministers' estimate of the size and the rate at which the black economy is growing.
Turning to legal road users, £36 billion is taken from them in taxation each year, but only £6 billion is spent on roads. For every £10 of fuel, £8 is tax. Of every £8 of tax, only £1.50 is put back. The Automobile Association estimates that £12 billion needs to be spent on the roads and Shropshire, my own patch, has a £100 million backlog of road repairs. That represents a stark contrast with the United States, where about £50 billion is raised in tax and £49 billion spent on the roads. In an area such as mine, the car is the basic means of getting around and two thirds of people in Shropshire drive to work in a car. The price of petrol has been increased by 8.6p a gallon today and the vehicle excise duty changes assume that drivers have the choice of running a smaller car. That is not necessarily so in a rural area as people's very jobs probably depend on having a larger car or a van. In a rural area, tax changes have no marginal impact. People must drive: their jobs depend on it. Taxation simply reduces their spend, and makes every business less competitive.
The most dramatic manifestation of that is the road haulage industry, which I have mentioned before. As of this morning, diesel was 65p a litre; it is now 67p a litre. Let us compare that with the equivalent of 35.5p in
Belgium, 36p in Luxembourg and 37p in Spain. This morning, vehicle excise duty was £5,750; on a 40-tonne lorry, it has been reduced to £3,950. Apparently, the BBC reports that the road haulage industry is ecstatic, but I do not think so, because the difference between us and the rest of the continent is still marked. VED is £358 in Luxembourg, £328 in Spain and £308 in Portugal.
I have been present for most of the debate, but I slipped out earlier to talk to the man who was cited in last year's infamous KPMG report as one who was happy with the current haulage taxation regime. He has calculated that, although VED improvement and changes in fuel duty make him £61,472 better off, he is still worse off by £1,367,788 running a business based in the United Kingdom rather than one in Luxembourg. There is a vast difference between the benefits of lower social costs and corporation tax in this country, and the gains from cheaper VED and fuel duty in Luxembourg. He says of the Budget:
We are looking at another Longbridge here. There are 2 million people in haulage, distribution and goods vehicle manufacture. Although a cap has been imposed and we have been held to the rate of inflation on fuel, it is estimated that 26,000 haulage jobs will go, along with 27,000 associated activities. My constituent Mr. David Yarwood, who runs a business called Greyroads Ltd, has injected a little Shropshire common sense into the situation. He says:
The allowance to 44-tonne trucks today is a clear breach of Labour's manifesto. On 4 February 1997 the Prime Minister, then Leader of the Opposition, said:
It is clear that there is no environmental gain: 97 per cent. of goods are carried by road, and if they are not carried by British hauliers they will be carried by foreign hauliers. Figures issued by the Library today show an astonishing increase from 155,000 foreign vehicles leaving the country in the third quarter of 1997 to 220,000 leaving it in the third quarter of 1999. We have the road damage and the pollution, but everything else goes abroad: the corporation tax, the VAT and all the other benefits.
I don't think it helps at all. We're still not competitive against a European haulier who comes here with cheap diesel, ridiculous VED and no vignette or road tolls. I will still continue to move my vehicles abroad.
I warned of this last year. I do not take any pleasure in reporting to the House that that haulier has since reduced his trucks from 100 to 75, and reduced the number of his employees from 160 to 125.
We must look on the bright side. It can now be only a matter of time before the government realises they too could soon be joining the out of work hauliers, then perhaps this country could get back to some sort of normality.
This is an entirely stupid policy. If we add the loss in cabotage to the loss of international business, the loss represented by fuel bought abroad and the cost of job losses, we find that the difference to the Exchequer is £1.1 billion.
This cannot make sense and a Labour government will not agree to heavier lorries.
That was a manifesto pledge, and it is even in the Government's White Paper. That shows that the Government do not understand the environmental impact of their policies.
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