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Mr. Levitt: Surely the rise in the tax take can be explained by the fact that fewer people are unemployed,
so more people are working and paying tax, and by the economy's success, which means that more people are paying higher rate tax.
Mr. Flight: We could debate that at length, but the hon. Gentleman knows that corporation tax is the biggest source of increased tax revenue. That is due only in part to the growth of the economy; the substantial reason for its increase is the introduction of tax liabilities, the quarterly payment and the failure to reduce the thresholds. As usual, we have had the fine spin. It told us that corporation tax rates have been reduced, but the net effect of the policies has been to increase them greatly. The key point is that the tax take is up by £28 billion, which is substantiated in all quarters and by the Red Book. Any assertion by the Government that they have not upped taxes or increased them as a proportion of national income is manifestly wrong.
The hon. Member for Kingston and Surbiton also said that spending on health and education as a percentage of national income is lower under this Administration than under the previous Government.
The hon. Member for South Ribble (Mr. Borrow) began by suggesting that his constituents had been sceptical of the Labour Government's ability to increase public spending. That is hardly surprising given the poor delivery in recent years. I advise him to be a little sceptical of the Chancellor's promises. It is clearly impossible to maintain an increase in public spending of 3.7 per cent. per annum for long without increasing taxes substantially. If the electorate are foolish enough to return this Government, they will face either a spending cut or much higher taxes.
My hon. Friend the Member for Esher and Walton (Mr. Taylor) came out with some splendid phrases. He described the Finance Bill as tired, which explained why much of the debate centred on other subjects. He said that the Government had the misfortune to draft their Budget prior to the major change in global economic circumstances in the past two or three months. In particular, he said that they should be wary of the buoyancy of corporation tax, which they predict will rise by £5.7 billion in a climate in which corporate profits are under pressure. He also alluded to our economy's problems being a result of the euro's acute weakness and the lack of confidence in it. However, he did not refer to the German poll in which 75 per cent. of people wanted to keep the deutschmark.
Mr. Ian Taylor: My hon. Friend is immensely perceptive, but I am not sure that that is exactly what I said. The euro has been a stable and strong economy if one has regard to the internal effect of the store of value of money and the level of inflation. Of course there have been problems on the external exchanges. The strength and volatility of sterling is a major issue for the Government and the country.
Mr. Flight: I think that the euro is a currency, not an economy. If my hon. Friend spoke to any of his friends in Germany and France, they would be concerned about it being weak among the major currencies, when it should be a relatively strong reserve currency. For better or worse, the relative weakness of the euro against the dollar, with sterling in the middle, has been the problem for us.
My hon. Friend was the first to say how the high levels of tax on tobacco, alcohol and fuel have led to a massive increase in smuggling. He also referred to the
common-sense argument, which prevailed in the past, that it is unwise for taxation of such staples in this country to be hugely different from that in adjacent European countries. Indeed, as Labour Members will note, under the 18 years of Conservative Government the differences were much smaller than they are today.My hon. Friend also referred to clause 103, which makes certain amendments to the climate change levy. He put it politely when he said that he had some support for the objective but doubted the means of achieving it. He referred in particular to the damage that will be done to the industrial gases industry. He also highlighted the continuing problems of IR35. If I understood the Paymaster General correctly, the measure having been passed, she is now inviting everyone to come to see her to achieve a sensible resolution of the many outstanding problems. It cannot be the Government's aim for the surviving high-tech economy in this country to be damaged by a foolish tax regime.
Attention was also drawn to the lack of anything in the Bill to implement the recommendations of the McDonald report and to end the obligation to buy an annuity at the age of 75. The Governor of the Bank of England has made it clear that he views long-term interest rates as artificially low in the yield curve owing to the distortions created by the obligation to buy an annuity. The volume of money coming on to the market from money purchase pension schemes is rising by 20 per cent. per annum, and it was about £9 billion last year. The Government have boasted of the gilts that they have bought in, but even they can see that soon there will not be enough gilts to go round to finance the annuities market.
McDonald's recommendations contain nothing that would cause a loss of revenue or constitute an additional cost, as has been asserted in recent replies, and the members of the McDonald committee will respond strongly to the Government's misapprehensions. Above all, those reaching retirement age strongly object to being obliged to subsidise Government borrowing by being forced to buy annuities at artificially low rates of interest. The effect is to lock them into bad value for the whole of their retirement.
The hon. Member for Cunningham, South (Mr. Donohoe) gave loyal support to his Government. In essence, he said that the Chancellor and the Budget were wonderful. He usefully drew attention to the problems caused by the different levels of prosperity in east and west Scotland, and sought more policing of the minimum wage legislation.
My right hon. Friend the Member for Fylde (Mr. Jack)--[Laughter.] There is something wrong with my pronunciation. I come from south of Watford. He pointed to the Chancellor's inability to resist the temptation to tweak the figures and echoed the criticism made by my hon. Friend the Member for West Dorset of the aggregates tax. My right hon. Friend usefully made the point that if the Government were seriously concerned about the environment, they would do something to protect fish spawning grounds in the mid-channel. Nothing in the aggregates tax addresses marine extraction; indeed, one of its effects will be to increase marine extraction.
My right hon. Friend referred to the iniquities of the climate change levy and the damage that it will do to the horticultural industry, which is dear to my heart. Given
the considerably greater efficiency of that industry compared with most of its European competitors, there is no logic in that measure.On another subject dear to my heart, my right hon. Friend welcomed the employee share ownership measures and the reforms of the enterprise management incentive scheme and venture capital trust rules. As I recollect, those changes adopt most of the recommendations made by the Opposition in the Standing Committee that considered last year's Finance Bill. My one plea is for those provisions to be made simpler. Such schemes are for small, unquoted companies. The legislation is so complex that those businesses will say that they cannot afford the lawyers necessary to explain and implement it. They need simpler legislation that works, not something that may be a wonderful deal, but is too complicated.
I remind the hon. Member for Coventry, South (Mr. Cunningham) that the Conservatives are modestly committed to paring back the Government's £72 billion spending commitments by a mere £8 billion, not £16 billion. I am sure that he will be pleased to know that all our sampling has told us that the Labour poster about the cuts has done us, not the Government, a great deal of good.
My hon. Friend the Member for North Dorset (Mr. Walter) made a valuable contribution by pointing out in considerable detail how excessive taxation of alcohol and tobacco has led to massive smuggling, reduced tax revenues by £5 billion and corrupted large numbers of citizens. That has all happened before. Historians among us may have heard of Parson Woodforde, a country clergyman who, like every other respectable member of society, used to buy his coffee from the smuggler. Over-taxed coffee had turned everyone into a coffee smuggler. The law of diminishing returns has not only reduced Government revenues, but vastly increased smuggling, which the Government are unable to tackle. I am sure that, had he been here, the Chancellor would have enjoyed my hon. Friend's contribution.
Many of my hon. Friend's comments were echoed by the hon. Member for Barnsley, Central (Mr. Illsley), who gave a frank and decent commentary on the Budget and expressed concern that the benefits to his constituency would be damaged by the local government settlement and the lack of health funding.
Finally, the hon. Member for Selsby--[Interruption.] The hon. Member for Selby (Mr. Grogan) gave us a fascinating exposition of clause 6. Would that the Government had followed the political incorrectness of clause 6 and acknowledged the realities of the world with the climate change levy and the aggregates tax. We welcome clause 6, which brings sanity to an industry and increases revenue. If the Government applied the same logic to IR35 and everything else, the Budget would be popular.
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