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Mr. Andrew Welsh (Angus): I agree with much of what the hon. Member for Kingston and Surbiton (Mr. Davey) says on a better general approach to fairer taxation and a proper rate of public investment. The debate is about three issues: the Government's approach to taxation and our tax structure in general, the proposed income tax rates and the balance between tax rates and public spending.

On the tax structure, there is little doubt that there has been a shift towards indirect taxation by the Government. According to research from the Institute for Fiscal Studies, more than 40 per cent. of the changes in the Chancellor's previous Budgets were made to indirect taxation. As hon. Members will know, indirect taxation is regressive; it hits those on lower incomes disproportionately harder. What the Chancellor gives with one hand--for example, the welcome increase in child benefit--he takes away with the other in indirect taxes.

The Government should pay particular heed to another element of the IFS report, which showed that changes in indirect taxation have had the most pronounced effect on those in lower income groups. The lowest income decile has lost almost 2.5 per cent. of its net income, compared with a 0.7 per cent. reduction for those in the highest income group.

The Scottish National party asks the Chancellor to consider reversing the trend of holding a Dutch auction on income tax funded by stealth tax hikes towards making the tax structure fairer and more transparent. The SNP recognises the need for a clear strategic shift of the tax burden from indirect to direct taxation methods. Such a review is necessary to consider new ways in which to promote transparency, accountability and simplicity in the tax system.

The Bill continues a dishonest tax policy, which was largely introduced by the Conservative party, but, like so much else, is now enthusiastically embraced by new Labour. The Government are trying to deceive taxpayers with a 1p cut in the basic rate of income tax on one hand and billions of pounds of invisible, indirect taxes on the

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other. However, I am happy to report that recent by-election results show that, in Scotland at least, the voters are becoming wise to that trick. In Hamilton and Ayr, they made it clear that the time has come for Labour to start delivering its election promises and that they are frustrated by the Government's failure adequately to address the core issues--health, education and poverty. The message, which I pass on to the Government, is that spin is not enough; substance is required.

The people of Scotland are making it clear that their priorities are for new resources for our public services, which have suffered from more than 20 years of under- investment. We in the SNP have nailed our colours firmly to the mast of fair taxes and real investment in vital public services. Today, I simply repeat our opposition to the needless cut in the basic rate of income tax proposed in the clause.

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Our public services are still in need of substantial investment, and, although the spending increases announced in the Budget were welcomed by the SNP, they are insufficient to deal effectively with the significant problems affecting our crumbling schools, hospitals and infrastructure. The additional spending must be seen against a backdrop of spending cuts in the first three years of this Labour Government.

Health spending in Scotland is due to increase by £173 million next year, but let me put that in context. Scottish hospitals are expected to be £50 million in deficit by the end of the current financial year, and nearly all trusts are expected to miss their waiting-list targets for this year. The Government's higher-than-inflation pay rises must be found from already stretched NHS budgets at a cost of some £449 million a year, which means that the additional money will just about allow the health service in Scotland to stand still, never mind move forward and provide improved services. In fact, it was reported today that Scotland's only heart transplant unit may be forced to close.

According to the Secretary of State for Scotland, Scotland will receive £86.6 million of the additional £1 billion announced for education next year. That should be seen in the context of the cuts that Labour has imposed at local authority level. Next year, local authority education funding will be £540 million lower than it was even in the last year of the Conservative Government. All that stems from the Government's taxation philosophy, and the policies that they are imposing. Any increases in education spending will be swallowed by cuts already imposed on our schools.

A total of £15.9 million is being allocated to Scotland's transport. That, too, must be seen against a backdrop of cuts in the transport budget, which next year will have £100 million less than it had in the last year of the Conservative Government. Scotland's road infrastructure clearly needs more investment. For example, full implementation of the strategic roads review in Scotland would cost £800 million a year, and the much-needed rail link between the Scottish borders and Edinburgh would cost £30 million.

In short, this is not a time for tax cuts. Spending in Scotland as a percentage of gross domestic product is even lower than when the Conservatives were in government. That is not what those who voted Labour in

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Scotland expected, but that is what has been delivered. Our pensioners must make do with a pathetic 75p increase in state pensions, and local authority budgets are being slashed year after year. The Government are pursuing a Tory tax-cutting agenda, at the expense of our nation's public services.

What is required is a longer-term strategy much more suited to Scotland's actual needs, and built on a fairer, more open, accountable tax system--something that this new Labour Government, and the Budget in particular, do not deliver. There will be a cost to the Labour party in future years.

Mr. Richard Ottaway (Croydon, South): There could be no clearer contrast between the approaches of the Scottish National party and of the Liberal Democrats. Although I did not agree with a word of what was said by the hon. Member for Angus (Mr. Welsh), at least I was clear about what he stood for. However, when the hon. Member for Kingston and Surbiton (Mr. Davey) was asked what I considered a perfectly clear question--how much more would the Liberal Democrats like to be done in terms of public expenditure and taxation?--we were given no clear answer. The hon. Gentleman said repeatedly that we should know about that, because it was in Liberal Democrat manifestos and other publications. I must confess that I have never seen a Liberal Democrat Budget proposal, a Liberal Democrat manifesto or a Liberal Democrat policy document. Perhaps the Liberal Democrats will include me in their distribution lists in future, so that I have some idea of what they are talking about.

Mr. Edward Davey: The Liberal Democrats publish their alternative Budgets at press conferences, which are often attended by a gentleman from Conservative central office. Can the hon. Gentleman tell us when, during the present Parliament, the Conservative party has published its tax and spending proposals as the Liberal Democrats have, and what spending cuts the Conservatives propose to meet their tax guarantee?

Mr. Ottaway: We have not published a tax and spending programme. We will do so before the next election, but one thing is for sure: we will campaign on a tax-cutting agenda because, if a party has the will and commitment to cut taxes, it can do so. That is what will differentiate the Conservative party from the other three parties that are represented here today.

Mr. Davey: Which of the public expenditures will the Conservative party cut to pay for those tax cuts?

Mr. Ottaway: First, I do not accept that we have to cut spending to cut tax. Secondly, we will let the hon. Gentleman know in due course and with absolute clarity exactly what our plans are. He said that the Conservative party was obsessed with tax cuts. Frankly, it is a worthy objective to reduce taxation.

Mr. Beard: Why is tax cutting such a worthy objective if it puts in jeopardy the national health service and state education for the coming generations?

Mr. Ottaway: I do not accept that we have to reduce expenditure on the health and education services to cut

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taxes. It is a worthy objective because Britain lives in a competitive world and, as we will find out in the next debate on IR35, it is Britain's competitive position that creates the prosperity that pays for the health service and education.

Mr. Beard: When the hon. Gentleman's party was in government, it pursued an economic policy of competing internationally on the lowest costs. The present Government's policy is to compete through high added value and a highly skilled population, which demands high spending on education.

Mr. Ottaway: I do not quarrel with that, but I do quarrel with the hon. Gentleman's assumption that the previous Government worked on the lowest possible cost. That is not true and he does not have the evidence to prove it.

Basically, at heart, those who oppose the clause want the Government to tax more and to spend more. That is the clear position of both parties. The hon. Member for Angus accused the Government of engaging in a Tory tax-cutting agenda. Nothing could be further from the truth.

The Committee would benefit from examples of tax-raising measures since May 1997. In the July 1997 Budget, mortgage tax relief was restricted to 10 per cent., stamp duty was increased for property transactions of more than £250,000 and payable tax credits on dividends were abolished. It introduced the windfall tax, abolished relief for private health insurance for the over-60s, increased road fuel duties by 6 per cent. in real terms, and tobacco duties by 5 per cent. in real terms.

The 1998 Budget abolished advance corporation tax and introduced the quarterly payment of corporation tax, restricted the married couple's allowance to 10 per cent. from April 1999, increased stamp duty again for property transactions of more than £250,000, increased tobacco duties by 5 per cent., and road fuel duties by 6 per cent. and advanced the date of the road fuel duty increases.

The 1999 Budget abolished the married couple's allowance for the under-65s from April 2000, abolished mortgage tax relief, increased insurance premium tax from 4 to 5 per cent., increased stamp duty for property transactions of more than £250,000, increased tobacco duties by 5 per cent., and road fuel duties by 6 per cent. It advanced the date of the tobacco and fuel duty increases, extended employers' national insurance contributions to all taxable benefits in kind from April 2000 and increased company car taxation.

This year's Budget increased tobacco duties by 5 per cent. in real terms, increased stamp duty on property transactions over £250,000, introduced the aggregates tax from April 2002 and increased tax on wine by more than the rate of inflation. There have been no fewer than 26 tax increases since the 1997 general election, so the next time that Labour Members start hollering about 22 tax increases--most of which are fabrications--under the previous Government, I suggest that they take a close look at my list and the 26 tax increases over the past three years.

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