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Mr. Bercow: I have no desire to distract attention from the agenda of big-ticket items on which my hon. Friend is rightly focusing his attention, but would he agree that a modest additional point might be that increasing public information about the taxes that we pay would act as an incentive for their simplification and reduction by the Government of the day?
Mr. Sayeed: I understand what my hon. Friend says, but the system is so complex that I doubt that we could persuade many electors or constituents to read the detail necessary to understand the range of taxes that are levied these days, let alone the new taxes added to them. I believe that we must go for root-and-branch surgery of the tax system, for the reasons that I have suggested.
There is clear evidence that a reduction in tax rates leads to greater tax revenues for the Treasury. That effect is called the Laffer curve effect, and it happened in this
country, the United States and New Zealand when the top rates of taxation were substantially reduced during the 1980s.My proposals would clearly create winners and losers. Winners would not complain, so we would not have to worry about them, but we would have to worry about the losers. Unless ameliorating action were taken, those at the lower end of the income scale--who either pay very little tax or no tax at all--would face a significant reduction in purchasing power. However, I believe that we also need to simplify the benefits system radically. We should do so in a way that would have the overall effect of making nobody worse off than under the current system, but would also ensure the improved take-up of benefits.
My initial thoughts--and I stress that they are initial thoughts--are that we should replace all current social security benefits and state pensions. The state would then pay to each household receiving benefit a sum of money that ensured that the poorest families did not lose out because of the increased income and sales taxes that they would be liable to pay under a flat-rate tax proposal.
That payment would be tapered. It would start from a point that equals the purchasing power received from the current benefit. The next point is somewhat complicated--it is easier to draw it out on a graph than to describe it in words, but I will try. The payment would end at a "break even" point, at which losses from a flat-rate tax on currently untaxed earnings and spending equal the gains from a lower tax on already taxed earnings and spending. I assure right hon. and hon. Members that if they draw that graph, they will see that it provides a taper that gives the incentive for people to climb out of poverty.
Mr. David Taylor (North-West Leicestershire): I am fascinated by the hon. Gentleman's analysis. Will he acknowledge that the introduction of a taper would create bureaucracy and difficulties not unlike those associated with the present, relatively progressive, forms of taxation in the income tax sector of the economy? Is the hon. Gentleman flagging up his first Budget in the Administration led by the hon. Member for Buckingham (Mr. Bercow) in about 2025 or 2030?
Mr. Sayeed: I am rather too old even to contemplate taking part in my hon. Friend's first Administration.
The hon. Gentleman has got it wrong. The proposal would reduce bureaucracy. I suggest that he gets a piece of graph paper, takes some figures and works it out--that will make my point easier to see. Clearly, bureaucracy would still exist but there would be less of it and it would be less complicated. We would not be in our current position, in which 5 million families are eligible for children's tax credit but only 2.9 million take it up.
Although the exact level of payments would be a political decision, such a transparent system would unlock wasted and uncollected resources. Administration costs would be cut and the annual social security fraud bill of £7 billion a year would also be reduced.
I do not underestimate the enormity of the task of devising or moving to a new system. However, I firmly believe that we cannot afford to lose sight of the huge opportunities that such a radical shift would offer and,
most importantly of all, the threats to the United Kingdom's long-term prosperity that may arise if we do not make such a move.Let me conclude with a quotation from Adam Smith:
- "Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things."
8.38 pm
Mr. Derek Twigg (Halton): There has been some lamentable opposition to the Budget, not least from the Leader of the Opposition. We have seen what a mess the Conservative party is. The conference at the weekend set the style and showed the difference that exists between the two parties. That was confirmed today--the Conservative party wants to be a tax-cutting party for the rich, whereas we want prosperity and stability and to ensure that public services are invested in and developed.
This is a Budget for stability--we can see that in the investment in public services. It is also a Budget for families. Importantly, it is a redistributive Budget. "Redistribution" is a word that we should use more. The Budget will contribute to the continuation of the redistribution for which the Government have been responsible over the past few years.
The Budget is a further attack on poverty, of which there is a great deal in areas such as Halton. Many families suffered for many years under the Tory Government. We are at last seeing money going to the poorest, who will also receive help in terms of jobs and education.
It is clear that the Conservatives do not have a thought-out policy. Today, The Sun published an interesting editorial stating:
- "We fear shadow chancellor Michael Portillo's economics do not stack up, however. First he scraps plans to guarantee lower taxes. Then he says his is the party of lower taxes . . . Then he promises more on schools, more camps for asylum seekers and more on hospitals."
The Sun also discusses the issue of giving the country back to the people. It states:
- "No matter what Hague says, he was allowing his new speechwriter to flirt with extremism."
Today's Budget will set the scene for the next few years. People will see that it will benefit them and improve their lives. It is clear that people do not want the Tories to get their hands on public services--they know what would happen.
Today, my right hon. Friend the Chancellor announced that the rate of inflation is the lowest since 1963. We have the lowest mortgage rates for some time. My right hon. Friend said that, between 1979 and 1997, the average mortgage rate was about 11 per cent., but that it is 6.3 per cent. at present. That figure is important. During the late 1980s and the early 1990s, people were paying
tremendous mortgage rates--for many ordinary families that meant an extra £200 or £300 a month from their earnings. The rates have come down considerably, which will help and benefit families. We shall reap that benefit at election time.Inflation is down. It is important that the Chancellor set the figure for next year at about 2.5 per cent. If the inflation rate is too low, the danger is that interest rates may be affected. I do not want interest rates to stay as they are or to rise; I want them to come down so that they benefit manufacturing industry in my area.
I especially want to refer to the Chancellor's important announcements about the regions and about help for the older industrial areas in the cities. Runcorn has a long-established chemical industry; it is very much an industrial area. The measures on tax and the help for regeneration are most welcome.
I welcome the greater flexibility in the powers of regional development agencies. That is clearly needed, because the Treasury held the reins of the RDAs too tightly. That flexibility will ensure greater investment and prosperity in the regions, and more jobs will result. However, more can and will be done to ensure such investment. Regions such as the north-west must receive a bigger slice of the cake. London and the south-east are overheating--there are jobs by the thousand and prosperity is growing much faster than elsewhere. We need that regeneration.
The Chancellor mentioned City institutions. It is time that they looked beyond London and the south-east to ensure that investment is made in the regions. Yesterday, a report on banks noted that they do not appear to support small business start-ups or to help existing businesses to continue and to avoid bankruptcy. It is important to tackle the way that banks support business development.
I welcome the Chancellor's comments and the announcements he made on the regional agenda and about regeneration. That is especially important. I welcome the extra help for youth unemployment, especially for those young people who have difficulties in getting work because of social problems, drug problems and so on. In areas such as mine, where there is a large drug problem, the extra resources announced by the Chancellor can be used to deal with that situation. Young people can get back into the labour market only if they receive support and specialist advice on a one-to-one basis. Again, it is a Labour Government who are delivering that.
I am delighted that the Chancellor is doing more for lone parents. My constituency has a high ratio of lone-parent families, and it is good to see that my right hon. Friend is delivering for them. On the working families tax credit and the children's tax credit, I agree with my right hon. Friend that we must ensure that money gets to the families who need it most. Of course, most pressure is put on family earnings and expenditure when the children are younger, so it is right that he is targeting those families. I am especially pleased with the increases that he has mentioned today, because I reckon that, on a rough estimate, they will benefit more than 50 per cent. of the families in my constituency. That is a phenomenal figure. Thousands of families will receive extra resources, helping parents and their children. It is clear that this is a Budget for the family--we are seeing that investment.
I welcome what my right hon. Friend said about cars and the fact that more cars, especially new ones, will qualify for the reduced rate of vehicle excise duty. That will be most welcome for people in my constituency.
I want briefly to return to the children's tax credit. We can help families in many ways, but there is no perfect way to do so. There have been large increases in child benefit, but the children's tax credit will be especially helpful. I hope that it will be implemented as soon as possible and that it will run smoothly.
I welcome the point made today on drugs. As I have said, my constituency has a particularly difficult drug problem. There may be several reasons for that problem, but it causes crime, nuisance and concern to my constituents. It is not uncommon or irregular for constituents to visit me to complain about drug dealing, its effects and the people who tear into the houses where drugs are being sold. It is sometimes difficult for the resources to be put in place, but they clearly have an important part to play in attacking that problem. I am sure that my constituents will welcome the fact that that is happening. I am pleased that the money will go directly to the crime partnerships and police commanders in the area. That will certainly produce a more co-ordinated approach and more resources will be put into tackling the drug problem in areas such as mine. I also welcome that part of the Budget.
We have talked a great deal about savings. I asked the Library to produce a document on savings. Even with TESSAs--tax-exempt special savings accounts--new savings did not increase massively under the Conservatives. Often, with tax benefits and ways of earning better rates of return, people who tend to save anyway put their money into such schemes. I am not sure whether, in recent years, there has been a significant amount of savings. The drop in savings has gone on for a considerable time. There is no easy answer to that problem, but it would be silly to suggest that it is any worse under this Government; it is a social issue. People want to save, but they need an incentive, and my right hon. Friend has dealt with that in his Budget statement.
The Chancellor announced new expenditure for schools and hospitals. Those specific areas mark the dividing line between Labour and Conservative Members. He announced massive extra expenditure on hospitals, especially for acute services, which will be most welcome to my constituents. It is interesting that the Labour Government want to invest in and improve the health service so that it provides a better service, but the Conservative party wants to privatise the health service.
As we heard earlier, some Conservative Members think that they must go some way down the privatisation route. The leader of the Conservative party, the shadow Chancellor and the shadow health spokesman talk about extending private insurance and giving people incentives, but they do not come out and say that they want a more privatised health service, with less public provision. That is what Conservatives Members want, given the way in which they react when they talk about the issue. We all know that the poorest, the least well-off, will suffer badly as a result. The Tories are actually saying that they are abandoning any hope of providing a publicly funded health service that is free at the point of use. The electorate will not wear that; they want a party that is committed to investing in and providing a quality service, ensuring that people get the health care that they deserve.
It is no use pretending that changes will happen overnight, but some people might have thought that they would take place quickly. However, the investment is now being made and we are beginning to see the results. We need more nurses, so I welcome my right hon. Friend the Chancellor's decision to put more money into recruitment. It takes about three years to train nurses, so we shall see the benefits of that decision in a year or two.
The dividing line is clear: one either wants a publicly funded health service with the Labour party or a service that will gradually be privatised by stealth under the Conservatives. They should be open and honest about their policy and say exactly what they want to do. They should not hide behind their current remarks on the extension of private health insurance.
I welcome the fact that money will go directly to schools. When the money comes from bureaucracies, such as Whitehall or councils, money can be lost on the costs of administration. Schools want to use the money in whatever way they wish. They should be able to decide whether to spend it on new teachers, books, new equipment or investment in the school's infrastructure, which are all crucial.
I have spoken to head teachers recently and they have told me that never has so much money come through to the education service as has happened in the past year or two. They have been able to spend that money and, in my area, some of it has gone on two new classrooms. In addition, the building of a brand new primary school, for which we have waited 11 years, is just about to finish. It has been built under a Labour Government.
Education standards have risen. In the primary sector, Halton has had some of the best improvements in the key stage 2 results, whereas 40 or 50 per cent. of children were written off under the Conservatives. The Labour Government are willing to invest in education and to develop the service.
What is the Conservatives' panacea? They merely want to reintroduce grammar schools as a means of dealing with educational standards. However, we all know that standards are raised by having resources, quality teachers and quality leadership in schools. It is pleasing that my right hon. Friend the Chancellor is devoting more money to the recruitment of teachers. Anyone who has spoken to head teachers will know that recruitment has been a problem.
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