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5.23 pm

Mr. Oliver Letwin (West Dorset): I must begin by congratulating the Chief Secretary, who managed to occupy almost 24 minutes of the House's time so elegantly and beautifully, while saying almost nothing at all. That was, of course, forced on him by the character of the Bill.

It is odd to debate Finance Bills on Second Reading. I suppose that we are forced to do so by the conventions of the House, but, of course, no hon. Member on either side of the House would deny the necessity of having a Finance Bill. The debate on Second Reading is intended to be about the principle of the Bill, so I suppose that perhaps we ought to--[Hon. Members: "Sit down now."] Exactly, but this is not the Finance Bill that we should have liked, and I hope that the House will take my remarks in that light.

As always, I declare my interests as set out in the Register of Members' Interests but I have no idea how the remarks that I am about to make could possibly benefit them. None the less, I declare them all the same.

The background to the Bill is not quite as the Chief Secretary outlined it. It begins with a long record of taxation by stealth to pre-fund the rapid growth of expenditure. There has been a 3 per cent. increase in the tax burden measured as a proportion of gross domestic product, and that comes to about £30 billion a year.

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I apologise, Madam Deputy Speaker, for boring you by reminding you of the analysis that Her Majesty's Opposition have repeatedly made of that increase, but I shall outline that as a precursor to the latest developments.

Our complaints to date have been as follows. First, there has been no sign yet of any efficient expenditure. You may be aware, Madam Deputy Speaker, of the posters that have appeared in our streets which ask people why, given that they have paid the tax, they have not seen any extra policemen or received the operations that they expected and so on. There is sign of expenditure but no sign yet of efficient expenditure.

Secondly, we have repeatedly asserted that the rise in expenditure is ultimately unsustainable without a consequential increasing tax burden into the future. That would have the further consequence of decreasing the competitiveness of our economy.

Thirdly, we have made what I think is an undeniable argument; it is undeniable because I have not heard the Chancellor or his colleagues deny it. If expenditure is not to result in the inefficient rise in taxation in two or three years' time that the Government deny they will engage in, it must result in an inefficient cut in expenditure growth. We have said that and we have said it again, and I have been listening hard for Ministers to explain how they can increase expenditure at its current rate and then suddenly cut its growth and find that public services are delivered efficiently. As far as I know, that has never been achieved anywhere in the world and I would be surprised to find that it can be done here.

Mr. Edward Davey (Kingston and Surbiton): I had understood that the Conservative party was in favour of the Government's spending proposals. Will the hon. Gentleman therefore explain whether the Opposition would cut expenditure inefficiently or raise taxes?

Mr. Letwin: I am surprised that the hon. Gentleman, for whom I have considerable admiration, has not attended to the interesting debate between the Government and ourselves. The Government claim that the Conservatives' policy is to reduce expenditure by 2003-04 by £16 billion, although the figure varies by the day. The actual policy is to reduce expenditure, compared with Government spending plans, by £8 billion, and that would reduce the rate of growth to a sustainable level.

I make my remarks only by way of background, because we have recently moved into a new phase. There has been a clear change in the mood with which commentators greet statements by the Chief Secretary and the Chancellor. Let us imagine moving forward to 2003, and ask ourselves whether we can be as confident as the Treasury once was that there will be no slow-down and that the economy will continue to grow with the abolition of the cycle that my hon. Friend the Member for Chichester (Mr. Tyrie) alluded to implicitly. The answer is that, without any forecasting, we cannot be as certain as we once were.

If there is a slow-down, we must then ask ourselves whether the Budget and the Finance Bill that embodies it--and previous Budgets and the Finance Bills that embodied them, and the next two Budgets--are as prudent as the Chancellor and Chief Secretary now imagine them to be.

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The answer must surely be no. If there is a slow-down, all my arguments will have rather more force in three years' time. It will be all the more necessary to cut expenditure growth and the more inefficient not to do so. It will be truer that tax rises at that time will occur when the private sector can least afford them. Alternatively, the Government could choose--I doubt that "Mr. Prudence Brown" would dream of doing so because he does not have this reputation--to allow for ballooning borrowing. That is an unenviable set of choices.

The Government have so constructed things at a time of great uncertainty that, if the worst predictions are to be proved true, they will be faced in three years' time with the prospect of raising taxes at the worst possible moment, cutting expenditure when it would be least efficient to do so, or with ballooning borrowing, which is never efficient.

The problem is not that the Bill aggravates the situation, which is why I congratulated the Chief Secretary; in truth, the Bill does not do much at all. The problem is that it does nothing to address the underlying problem that the Government have built up in successive Budgets and Finance Bills.

Ms Sally Keeble (Northampton, North): In the scenarios that the hon. Gentleman paints for three years' time, he does not seem to hold out a hope that his party will be in government.

Mr. Letwin: Dear me; I shall pass over that comment in the spirit of last year's proceedings, in which we engaged in serious economic and fiscal debate. Conservative Members intend to keep the debate at that level. [Interruption.] I think that we had such a debate. I hope that the Paymaster General agrees, because we saved her from the disaster of a double tax relief regime that would have squeezed multinational companies out of the country for ever. The nation should be a little grateful to us. We were not alone in that. The Confederation of British Industry and many others also played a part. We helped her to become the saviour rather than the destroyer of British industry.

Let me deal with one item, which I am inclined to describe as the only real measure in the Bill. It took the Chief Secretary 19 minutes to reach it and he spent two and a quarter minutes on it. That is odd because it occupies 33 of the 108 clauses and is the only major new tax in the Bill. Why did he do that? He has the awesome might of the Treasury behind him. Presumably scribes have been working for weeks on his great speech. He could have mounted a defence of the magnificent new measure, but instead we got 19 minutes of silence on it, two and a quarter minutes of febrile meanderings and a complete refusal to deal with the serious matter raised the hon. Member for Somerton and Frome (Mr. Heath). As usual, the question was not quite on the mark because the problem is worse than it implied. Nevertheless, the Chief Secretary should have given a proper reply, but was unable or unwilling to do so.

Why so little attention to the measure? The reason must be that the aggregates tax is a text-book example of everything that is wrong with the Government's fiscal approach. It is, as the Chief Secretary suggested, like its famed predecessor, the climate change levy.

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The Financial Secretary to the Treasury (Mr. Stephen Timms): Good.

Mr. Letwin: That is the official view. That will not, however, be the opinion of most people who have to pay it. Moreover, the levy and the aggregates tax share the feature of the Holy Roman empire which was not holy, Roman or an empire: the climate change levy is not about climate change and the aggregates levy is not about aggregates.

Its first feature is that it is a tax, which marks it out as a true measure of the Government. It is, of course, a stealth tax. In fact, it is probably the stealthiest of taxes. If the aggregates tax were a tax on aggregates and calculated or designed to have the slightest effect on their extraction, it would at least be declaring what it was about. Its name would suggest that purpose. However, the Treasury has distinguished economists, including micro- economists, working for it. They know, and must have told Ministers many times, that an aggregates tax will have no such effect.

Instead, the tax will have two other effects. First, it will raise the amount that it costs to extract aggregates, and hence reduce the sum that people are willing to pay for the land from which the extraction occurs, so it is a tax on land. Secondly, it will raise costs at the other end, on production for construction, so it is a tax on construction. However, the Bill does not refer to a construction tax or a land tax. Why not? [Interruption.] My hon. Friend the Member for Chichester is right: because there are echoes of development land tax. The last thing that the Government want to do is admit that they are imposing a tax on land or construction, because those would be unpopular, so they have devised an immensely ingenious idea--they have gone to the middle of the value chain and called the levy an aggregates tax, which sounds like an environmental measure.

The Chief Secretary let the cat out of the bag, however. Why not delay the implementation of the tax until it has been redesigned by the ingenuities of the Financial Secretary, who managed so to contort himself that by the end all those affecting climate change do not pay any climate change levy, but everybody else does? He could have designed a system that would induce those who are affecting climate change to affect their production of energy. In due course, the Chief Secretary, the Financial Secretary or another member of the Government who is inclined towards prestidigitation could have come to the House and announced a weird and wonderful scheme that exempted from the aggregates levy those extracting aggregates in such a way that they ended up, nevertheless, extracting fewer aggregates. For the moment, however, we have a classic stealth tax. It is a tax on land and construction, so the Government want to introduce it before any of the things that I have described have happened.

The next element of stealth is a classic example of the Government's method of proceeding. I almost admire it and have grown almost to love it, but the nation will not admire or love it. The tax is introduced under the rubric that it is fiscally neutral. That is a wonderful phrase. Every time the Government introduce a tax, they say not only that it is environmentally beneficial when it is not, but that it is fiscally neutral. How is it fiscally neutral? There is an offset on national insurance contributions. That is the Government's favoured methodology.

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If the Chief Secretary is willing to come to the Dispatch Box to contradict me and give the House an assurance, I will withdraw what I am about to say. Let him promise that in succeeding years there will not be a rise in that tax without an exactly concomitant decrease in national insurance contributions, and I will withdraw my assertion. I see no sign of movement. I predicted that I would see no such sign because it is precisely the Government's intention to create an addition to the tax base that will enable them in due course to extract more from their land and construction tax than they have relieved from national insurance contributions. When that happens, there will be few people in the House who will remember this debate because very few people want to attend a debate about so boring an item as the Finance Bill. The Chief Secretary did his best to make sure that the Members in the Chamber would leave so that they would not remember some years from now that he had not responded to my assertion.

The fact is that the tax is a device. As I said, I have come almost to love it because it is so widespread and so brilliant. Yet, oddly enough, it is now so transparent that it is not as brilliant as it once was. In due course, this land and construction tax will rise inexorably with little or no concomitant decrease in national insurance contributions. It is therefore a stealth tax in every dimension. It is stealthy because it is not about the item that it says it is about; it is stealthy because it is about other items that it does not say it is about; it is stealthy because it says it is fiscally neutral but it will actually go up; and it is stealthy because, in the end, this is a Government who depend on stealth taxes to raise large sums to fund ultimately unsustainable public expenditure programmes.

There is a worse problem. It is parallel to what happened last year with the brilliant device of double tax relief, the proposals on which had to be withdrawn. The Government have made an error, which I suppose comes from haste, and they--and more to the point, the nation--will come to rue that error. For a long time, we in this country have taxed natural resources in public ownership. The petroleum revenue tax is the classic example. None of us on either side of the House has an objection in principle to such a tax.

I am sure that the Chief Secretary advisedly used the term "taxing the use of natural resources". I am sure that he or the person who wrote his speech meant that term, but a precedent is being set which I doubt the Chief Secretary or the Chancellor intended. If they did intend it, they are a great deal less benign than I am inclined to give them credit for being. So far as I am able to determine, there has never been a tax on privately owned natural resources. This is a departure. We are talking about land that, in most cases, is in private ownership. A private operator comes along and extracts natural resources, having paid a market price for the land, so that it can deliver a product to private sector users engaged in construction. At no point in the chain are we dealing with a national resource in the sense of one that is in public ownership. The tax that is being applied is therefore an intervention in the marketplace. Once one starts down that route, there is no limit.

The following are not covered by the tax: coal, lignite, slate, shale, soil, vegetables and organic matters, anhydrate, ball clay, barytes, calcite, china clay, feldspar, fireclay, flint, fluorspar, fuller's earth, gems, gypsum, metal ore, potash--we do not have much of that in

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the UK--rock phosphates, sodium chloride, talc, spoil and waste by-products, by-products of continental shelf drilling, spoil from roads, stone used for dry-walling, armourstone, rock and stone not crushed.

I hesitate in reading out the list, because I see the Financial Secretary's eyes lighting up. He no doubt has it in mind to introduce a series of fiscally neutral measures, taxing each and every one of those commodities in due course. With the aggregates tax, he and his colleagues have opened the barriers to exactly such taxation. I said that they did not mean to do so, and I hope that that is true. It is a horribly inefficient and complicated way of extending our tax base. It involves a new series of taxes, each with its own complexities.

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