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Mr. John Burnett (Torridge and West Devon): Let us not start on capital gains tax.
Mr. Davey: My hon. Friend is wise to say that, as the rates are even more complicated. Just in terms of income tax, the Government have made the tax system far too complicated. Many people--small businesses, representatives of pensioner groups, the various tax professional bodies--are perturbed by what is going on. They see the tax system as an asset of this country, and realise that it needs to be managed carefully. By making it more complicated, one reduces and devalues the asset. In an era of self-assessment, when we should be moving in the opposite direction, the Government are making a huge error by complicating the tax system.
4.45 pm
First, the Government should reduce the number of rates. They could start by cutting the 10p rate to 0 per cent., paying for it with a higher rate on incomes above £100,000. People on those higher incomes can afford the professional advisers to assist them in filling out the forms, but pensioners and others on lower incomes cannot. If the Government want complexity, better that it should be at the higher than at the lower end. That would mean that we could simplify the Finance Bill by doing away with clause 32, which introduces a 10p rate on income from savings.
The Government could also look again at a proposal that I made during the Report stage of last year's Finance Bill to help pensioners with no income tax liability who, under current legislation, are required to fill out self- assessment forms. Thousands of pensioners who are not liable to income tax have to worry about tax returns and the Government have to pay for the bureaucracy. It is ludicrous that the Government should be making the tax system more complicated.
The Government should also push ahead with some of the reforms contained in the Taylor report which the Government rightly commissioned in their first year in office. That report considers how to integrate national insurance contributions with the income tax system. However, the Government have implemented only some of the reforms suggested by Mr. Taylor and his colleagues.
Mr. John Bercow (Buckingham): The hon. Gentleman is right to inveigh against the Government for the tax
system's increased complexity, but I hope that he will not use that as a cloak to advocate higher income and other tax rates, given that the Liberal Democrats' notion that a 1p increase in the basic rate of income tax as the means by which to finance all their spending commitments has been comprehensively discredited. By how much does the hon. Gentleman believe that the top rate should be raised, and what overall increase does he propose in the already burdensome level of business taxation?
Mr. Davey: I am rather surprised by the hon. Gentleman's intervention. He usually follows what is said with great care and does his homework with respect to other party's policies, but in this case he has failed to do so. I just mentioned that we advocated a 50 per cent. rate on incomes above £100,000, and I told the hon. Member for Bexleyheath and Crayford (Mr. Beard) that, before the Chancellor's Budget, we published an alternative budget detailing all our tax proposals. The hon. Gentleman should pay more attention.
If the Government want to tackle the problems of complexity, they should consider some of the proposals from bodies such as the Institute of Chartered Accountants, which asks that some principles should underlie the direction of income tax and personal tax policy more generally. Its recent document contains 10 tenets and argues for a code of fiscal simplicity, perhaps to go alongside the Government's welcome code for fiscal stability, setting some real objectives to ensure that, year on year, the overall tax system is made more comprehensible for the ordinary personal taxpayer and the compliance costs for the personal sector are reduced.
Mr. Burnett: Liberal Democrats will doubtless praise parts of the Finance Bill. On the whole, we are pleased to see the advent of the tonnage tax. But is my hon. Friend surprised that the Finance Bill has 44 pages on the introduction of the tonnage tax?
Mr. Davey: My hon. Friend makes a good point. We debated that matter at some length on Second Reading. The Bill is littered with extra complexities. My point on clause 31 is that the Government are not reducing the complexity of the income tax system. They promised simplicity, but they have failed to deliver that.
I shall outline my final reason for our opposition to the clause. The Government have argued long and hard, before and after the general election, that they believe in social justice. They argue that their reforms of the tax and social security systems are meant to promote social justice. Yet clause 31 provides for a tax cut, which will benefit the richest 20 per cent. of our population fifty times more than the poorest 20 per cent.
A 1p cut in income tax gives far more to the wealthiest in our society. Perhaps it would be more acceptable if the Government had accompanied it with some sort of package to help the poorest pensioners and those who are less well off. However, the cut is accompanied by an increase of 75p a week in the basic state pension. It is therefore not surprising that pensioners throughout the country are incredibly dissatisfied with the Government. They do not believe that the Government are fulfilling the promises that they made to pensioners at the last election.
Mr. Bill Rammell (Harlow): To clarify matters, will the hon. Gentleman remind us of the Liberal Democrat
commitment in the party's general election manifesto on raising the basic pension? Was not it to increase the basic pension in line with prices--that is, by 75p a week?
Mr. Davey: Again, I am surprised that hon. Members have not read our most recent publication, which is our alternative Budget. The proposals in the current Finance Bill were not in the Labour party's manifesto; all our current proposals did not appear in our manifesto. Time moves on. I am more than happy to take on the hon. Member for Harlow (Mr. Rammell) about that subject. Liberal Democrat Members and our colleagues on these Benches are determined to push the case for pensioners and for an increase in the basic state pension that is far greater than a measly 75p a week. Large increases should be made in the pensions of the most elderly people, the over-75s and the over-80s. We should target resources at the most elderly people, who need our support.
Mr. Rammell: Will the hon. Gentleman give way on that point?
Mr. Davey: No, I shall not. Let us consider the wider community. The Government claim that the 10p tax rate, which the clause reaffirms, somehow helps the lowest paid. Yet every independent commentator, from the Institute for Fiscal Studies to the Institute of Chartered Accountants, can readily show anyone who is able to do basic arithmetic that cutting the 10p rate to 0 per cent. and setting a larger personal income tax allowance directs far more resources at the lowest paid.
Again, the Government make a political mistake. They take the rhetoric of the Conservative party and play a political game with our income tax system. If they were more interested in social justice, they would focus resources, not rhetoric, on the lowest paid.
Mr. Bercow: Despite the hon. Gentleman's rude remarks about me, I always enjoy listening to his speeches. A few moments ago, he said that relatively well-off wage earners had access and a desire to use accountants' services to minimise their tax burden. What assessment has he made of the likely use of those accounting services as a result of the proposed introduction of his 50 per cent. top rate, which would damage the tax take? While he deals with that point, will he confirm that because he believes that any cut in the basic rate of tax always disproportionately benefits higher wage earners, regardless of the basic rate of tax, he would always oppose any reduction in it?
Mr. Davey: It has never been the Liberal Democrats' position to oppose any reduction in income tax. The key issue that we must debate as politicians is the balance between tax and expenditure and whether we believe that the people we represent have the services that they want. If the hon. Gentleman asked his constituents who use the health service and the state education system, and have to rely on the police services and the emergency services whether they were satisfied with public services, the answer would probably be no.
We need to invest in the public services to achieve the quality that exists in some of our continental neighbour countries and other parts of the western world. There is appalling underinvestment in some of our public services. Public servants are trying their very best to provide
quality services and, because the previous Conservative Administration and the Government have failed to make that investment, my party favours putting investment ahead of tax cuts.
Mr. Davey: We would not proceed with the cut from 23 to 22 per cent. under the clause. I do not think that I could make that clearer for the hon. Gentleman. He also mentioned the accountancy profession. It advocates some of our policies, which would make the tax system far simpler. If they could be implemented, the relatively few taxpayers who would have to face the 50p rate that we propose would not present a problem.
Liberal Democrats reject the clause. We ask the Government to reconsider their income tax strategy and introduce proposals that would deal with the issues that we have discussed this evening: the need to ensure that investment in public services is put ahead of tax cuts; the need to make our tax system more comprehensible, simple and easy to use for the average citizen in an age of self-assessment; and to produce an income tax system that promotes social justice.
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