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Children's Rights Commissioner

Mr. Hilton Dawson accordingly presented a Bill to provide for the establishment of a children's rights commissioner to promote the rights and interests of children in England; to make provision for the powers and duties of the commissioner; and for related purposes: And the same was read the First time; and ordered to be read a Second time on Friday 9 June, and to be printed [Bill 119].

3 May 2000 : Column 167

Orders of the Day

Finance Bill

(Clauses 1, 12, 30, 31, 59, 102 and 113) Considered in Committee [Progress, 2 May].

[Mr. Michael Lord in the Chair]

Clause 31

Charge and rates for 2000-01

Question proposed, That the clause stand part of the Bill.

4.30 pm

Mr. Edward Davey (Kingston and Surbiton): I rise to oppose clause 31, not only because the Liberal Democrats reject the clause, but because we reject the Government's whole strategy on the nation's income tax system. We want to use the debate both to focus on our long campaign for more investment in our schools paid for out of income tax, with which I shall deal later, and to argue that the Government's whole approach to the personal tax system lacks a coherent strategy.

The Government need to go away and think again. They should not be given statutory cover to collect income tax in the coming year unless Ministers produce on Report a new clause or clauses that address three issues. First, they must revisit their policy of never raising the basic rate of income tax. The Government might say that that was an election pledge, but they did not pledge to cut income tax, which they have done, thus depriving our schools, hospitals and public services of much-needed funds. They should reject that policy, not only in the context of funding public services, but in the context of managing the economy--to enable investment to be made at a time when the economy is growing quite strongly.

Secondly, we believe that the Government need to go away and think about how they are adding unnecessary complications to the income tax system. They promised to simplify that system, but they have done the opposite. That lays unnecessary burdens on business and on individuals, especially those who have low incomes, who are least able to understand the complexities of the system and least able to afford professional advisers to help them to fill in their tax return.

Thirdly, we believe that Ministers must design the income tax system to help to produce a fairer society. The 10p tax rate set out in the clause is a gimmick. Without more serious reform of the tax system, at the bottom and at the top end of the scale, we shall not produce the sort of social justice that Labour talks about, but has done far too little to bring about. So, there are three major charges of failure in the approach to the income tax system that the clause fails to put right.

I shall start with the charge that the Government are obsessed--in the way that the Conservatives were--with cutting the basic rate of income tax. There are three reasons why Liberal Democrats oppose the cut proposed in the clause. The first is our belief that more resources should be made available to schools.

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The Government's record on investment in education is very poor. They promised--this was a pledge in their election manifesto--that

However, assuming a spring or early summer election in 2001, the amount spent on education as a proportion of national income will have fallen by the end of this Parliament. On current projections, that spending will be 4.6 per cent. of gross domestic product compared with 4.7 per cent. in the last year under the Tories and 5 per cent. for the whole of the previous Parliament. How can the Government claim to be delivering on their education pledges when there will be a reduction in the amount that they have made available?

The Government claim that they are providing a huge largesse of £19 billion in the first comprehensive spending review, but when one looks at that figure and takes account of inflation and of double and triple counting, one finds that the figure falls to a mere £6.1 billion. When one strips out the permissions to spend, which are not real resources provided by central Government, the figure falls to just £3 billion. That is not sufficient. It is outrageous for a Government who say that education is at the top of their agenda to be spending more in the coming financial year on income tax cuts than on extra resources for our schools.

I have visited primary and secondary schools since the Budget asking how they look on the extra cheque that they have received from the Secretary of State for Education and Employment. Of course they welcome any extra funding--who would not?--but that money is filling the deficits that they have run up. It is not providing any new resources such as more books and teachers. That is not the sort of investment that people expected the Government to provide. It is no wonder that class sizes are going up.

The Government talk about reductions in class sizes for five to seven-year-olds, but the average class size in secondary schools is now higher than at any time in the past 20 years--failing education. We find that schools are having problems recruiting teachers and that the number of teacher vacancies has risen by 15 per cent. since last year--47 per cent. higher than in 1997. Are the Government happy with that? Why are they not putting resources into that key area?

In a survey by The Times Educational Supplement in January, seven out of 10 parents said that they were prepared to see income tax increase in order to fund improvements in schools. The people--the electorate--are saying to the Government that they have their priorities wrong in putting income tax cuts above the future of our children.

The second reason why we are against the income tax cut in the clause is that it constitutes irresponsible economic management. On Budget day and in the Red Book, the Chancellor tried to pretend that he was not giving so much to public services and that there was not any extra money. He was trying to massage the figures so that they appeared lower by making them opaque. Although an extra £9 billion-worth of public spending is planned not for this coming financial year, but for the year after, the Chancellor was not happy to announce it. Why? The real reason why he was not prepared to sing the

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praises of the ability to find that extra money--we believe that it was an achievement--is that he was worried about how the markets would react to greater public expenditure.

The markets are of course right to be worried about a loosening of fiscal policy represented by public expenditure increases that are not covered by taxation. That is why income tax plays a crucial role in managing the economy. If, as we believe, vital investments are needed in our schools, colleges and universities, and if that is constrained by the markets' perception of the management of the economy--the fear that fiscal policy is becoming too loose--it is surely right not to cut income tax in such an economic climate. One must ensure that the extra expenditure to be directed into our schools will be covered by taxation. It is a political and economic choice, which the Government are failing to make.

The third reason why we are against the income tax cut is that we believe that the Government are being dishonest about taxation. In fact, they have raised the tax burden substantially in this Parliament, but it is pointless to look for changes in the personal tax system to see where that increase has occurred. There has been no open, honest, up-front approach to raising taxes. The Government have found 101 wheezes, through indirect and corporation taxes, to hide the increases in the tax burden. That is plain dishonest.

The Government ought to be making the political case for extra investment in our public services. They should not rely on stealth taxes, as the Conservatives are right, in part, to criticise the Government for doing. We believe that that devalues the vocabulary of politics, and that the Government should be more honest and use the income tax system to achieve their objective.

Mr. Nigel Beard (Bexleyheath and Crayford): I thank the hon. Gentleman for giving way. He says that more tax should be raised for public services. How much more? The Liberal Democrats always make the case for raising expenditure, but what is the limit? It seems to be an indefinite amount.

Mr. Davey: The hon. Gentleman seems not to have seen the alternative Budgets that we publish every year. They set out our public expenditure plans in detail, covered by taxation. Of course, there is a limit on the amount of tax that can be taken from our electors.

Mr. Beard: What is the limit?

Mr. Davey: In each year, the amount will be different. That follows the logic of my argument.

Mr. Beard: What is the amount this year?

Mr. Davey: We published our alternative Budget this year, in which we stated that we would not go ahead with the 1p cut that is the subject of the clause, and that we would direct the resources into education, which would have meant up to £3 billion more going into education than the hon. Gentleman's Government are putting into our schools, colleges and universities. He should come over to our point of view, if he believes that education should be the top priority.

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The second reason why we oppose the Government's income tax strategy is that they are making the system far too complicated. The complexity that they are introducing has a real cost. In the business sector, the compliance costs are going sky-high, particularly for small businesses. In the personal income tax system, the costs, which are more difficult to measure, are high on individuals.

It appears from the clause that the income tax system is not particularly complicated. Three income tax rates are set out, which look relatively simple. However, when one takes into account the various income tax changes that the Government are making, one finds that there are six effective direct tax rates in the tax system. There is a 10 per cent. effective tax rate, a 20 per cent. rate, a 33 per cent. rate, a 23 per cent. rate, a 46.66 per cent. effective tax rate and a 40 per cent. tax rate.

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