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6.15 pm
Mr. David Heathcoat-Amory (Wells): This is the third day of the Budget debates, and already a number of unexpected and unannounced nasties are emerging from the Budget and the Red Book. I shall refer to those in due course.
The overall picture that has emerged from this and previous debates is that the Government use the rhetoric of modernisation, but in practice they have a huge, growing sum that they recycle through the state. That is best illustrated by the enduring fact that, whatever the temporary balance between taxation and expenditure, and whatever the temporary surplus or deficit, those two giant pillars of public expenditure and taxation are getting ever higher. In the coming year, the Government will break the £1 billion-a-day public expenditure barrier with no comparable improvement in efficiency.
We would argue that this entire churning mechanism, whereby ever greater sums are taken from taxpayers, filtered through the state and given back to people in benefits, allowances, reliefs and services, is itself a cause of inefficiency. Instead of people making choices and judgments about their expenditure patterns and preferences, the state makes those choices for them. That is building up into a national overhead, not only on businesses, which have to grapple with the increased complexity of the tax and benefits systems, but on everyone who is ensnared by the tax system through work or the benefits system.
All of that is well demonstrated by the short history of the working families tax credit, which was the flagship benefit or tax credit to which the Government first referred. I am afraid that the Red Book, which the Chancellor published on Tuesday, continues the by now familiar fiddle of treating the working families tax credit not as an item of public expenditure but as a tax cut. That is how it is laid out in all the tables in the body of the Red Book, even though at the back, in the small print, it is explicitly referred to as an item of public expenditure.
Page 220 refers to
Even if one does not include the working families tax credit, it is clear from that table that the burden of taxation has gone up. It was 35.3 per cent. when the Government took office in 1997--that figure comes from another table in the Red Book--and in the coming year it will rise to 36.9 per cent. As I said, if we add another 0.5 per cent. for the working families tax credit, in line with the Government's convention, we arrive at an even higher figure. It amounts to the equivalent of an extra 8p in the pound on the rate of income tax.
The story of the working families tax credit does not stop there. However justified its aims may be, the fact remains that it is creating a fearsome complexity in the zone of interaction between low incomes, the benefit system and taxation. The overall system is becoming incomprehensible. Perhaps that is why the working families tax credit is to be scrapped. After a short three-year life, it is to be no more. It will be replaced, we are told, by some other system of tax credit, as yet not fully defined. This shows that the Government have got themselves into an almighty muddle.
The Government started out with the view that taxation was not just a matter of raising revenue; it influenced behaviour. We agree with that. At least, we agree with the part of the Labour manifesto for the last general election, which stated:
Let us take another example: criminality. We all want to suppress or reduce criminal activity, but why are the Government pushing excise duties to breaking point? My hon. Friend the Member for Altrincham and Sale, West (Mr. Brady) mentioned tobacco. Tobacco smuggling has become something of an epidemic. The Government are doing nothing to suppress the smoking habit--the number of young people taking up smoking is rising--and the revenue is also being hit. The yield from tobacco duty in the current year is substantially lower than last year's yield. The Government's action is not only inducing criminal behaviour--smuggling, and gangs crossing the channel--but causing tobacco and cigarettes to be sold to young people and others in uncontrolled outlets and, moreover, hitting the public revenue. These are the economics of the madhouse.
The Government came to office promising to be tough not just on crime, but on the causes of crime. One of the causes of smuggling is the large and growing differential, in a single market, between our home taxation system and that on the continent. Rather than dealing with that cause of crime, the Government are making it worse by widening the duty differential.
Mr. Blunt:
According to a report that I have seen, the Government propose to spend £209 million on anti-smuggling measures. If the increase in tobacco duty works, it will yield only £300 million.
Mr. Heathcoat-Amory:
My hon. Friend makes an additional point to bolster my argument and I am grateful to him. All the extra civil servants and customs officers in the world will not prevent smuggling when it is so clearly advantageous to buy cigarettes at £2 a packet less on the continent and resell them in this country illegally. That is a serious and growing criminal activity. Ministers recognise that in parts of their speeches, but do nothing to tackle the root cause.
The uprating of fuel duties is a mystery. The Chancellor said in his Budget speech that he would increase the duties on diesel and petrol in line with inflation, but now that we have had a chance to examine the Budget documents it seems that they are going up by about 3.2 per cent. Inflation is not 3.2 per cent. The mystery deepens when we notice that the inflation-based increase in personal allowances is only 1.2 per cent. When it suits the Government to have a nice low uprating of personal allowances, they use an inflation figure of 1.2 per cent., but when uprating benefits the Revenue they use 3.2 per cent. We have discovered a new stealth tax and it took us only two days to find this one.
Plenty more stealth taxes are still being discovered, but the House of Commons Library has done a quick estimate. It believes that the extra revenue from that over-indexing of fuel duties will net the Treasury £472 million a year. That is practically the definition of a stealth tax. The Chancellor asserted in terms that those duties would rise only with inflation, but, to the enormous benefit of the Exchequer, they are increasing by far more than that.
My other points about the damaging effect of taxation settle on savings. The significance of the savings habit was well described by my hon. Friend the Member for Reigate (Mr. Blunt), who pointed out the importance of a vigorous savings culture to funding the necessary investment and encouraging desirable social ends. We cannot responsibly kick people off welfare and withdraw their benefits unless we encourage them to save and make saving attractive to them, but everything that the Government have done has undermined that. They have abolished personal equity plans and tax-exempt special savings accounts and have hit pensions with a continuing extra tax burden of £5 billion a year. What message does that send to the public? It says, "Don't save. The Government will always let you down."
The Government have also skewed the income tax system away from saving, particularly by low-income groups. That is not theory--it has had an effect already. The savings ratio is down from more than 10 per cent. when we left office to 5.5 per cent., which is lower than predicted in the 1999 Budget. The savings ratio is collapsing under the Government and that will have serious social and economic consequences.
Leaving that aside, I want briefly to explore the tax relationship between business and the Government. It is beyond dispute that the tax burden on business has gone up. That is clearly laid out in the Budget arithmetic--they are at it again. Stamp duty has gone up. The Government pretend that it is all paid by people with large houses, but that is completely untrue. Most is paid by the commercial sector. It is a straight business tax.
income tax credits which score as public expenditure under national accounting conventions.
That could hardly be clearer. The treatment of the working families tax credit in all the Chancellor's pronouncements and in the rest of the Red Book completely conflicts with that. It is laid out as a tax cut, most noticeably in table C7 on page 200. The reason that the Government have done that is not hard to divine: they are trying to show that they have not raised taxes.
Taxation is not neutral in the way it raises revenue. How and what governments tax sends clear signals about the economic activities they believe should be encouraged or discouraged.
I agree with that. I also believe that taxation can have damaging social consequences, and the Government must believe that as well. In the past fortnight, they have spoken of the importance of marriage. That has arisen
from the fiasco of their attempt to abolish section 28, which has at least forced them to recognise that marriage has a social value. Why, then, are they persisting in the abolition of the married couples allowance, which sends exactly the opposite signal?
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