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Income Tax

5. Mr. John Smith (Vale of Glamorgan): What recent representations he has received on future income tax policy; and if he will make a statement. [11330]

The Financial Secretary to the Treasury (Mr. Paul Boateng): My right hon. Friend the Chancellor receives a number of representations on future income tax policy from a wide range of organisations. Changes to the tax system are considered as part of the Budget process.

Mr. Smith: I thank my right hon. Friend for his reply. Given the crucial role played by small businesses in economic growth and job creation, especially in Wales, does he have plans to extend the 10p income tax rate to those very small businesses that are vital to the economy?

Mr. Boateng: My hon. Friend has a keen interest in the creation of employment opportunities in Wales, and my right hon. Friend the Chancellor will no doubt take his remarks as a Budget representation. The principles that underlie the Government's tax policy are very much based on encouraging work, savings and investment. The action that we have taken to cut the basic rate to 22p and to introduce a new 10p starting band makes work pay, which can only be good news, not just for Wales, but for the whole country.

Mr. Mark Field (Cities of London and Westminster): Does the right hon. Gentleman stand by the commitment in the Labour manifesto not to increase national insurance contributions during the lifetime of this Parliament?

Mr. Boateng: The commitment that we made in the manifesto was clear: it was a commitment not to raise the basic rate or top rate of income tax. The hon. Gentleman knows full well that no such commitment was given about national insurance contributions. He will also know that the Government simplified the national insurance system and made it easier and less of a burden for employers. That is good for employment and good for employers.

Business Taxation

7. Mr. Mark Hoban (Fareham): What estimate he has made of the impact of recent changes in businesses taxes on the manufacturing and service sectors. [11332]

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Mr. Boateng: The Government keep all taxes under review and decisions will be made as part of the normal Budget process. Measures to build opportunity and prosperity for all were set out in the "Financial Statement and Budget Report", which can be found in the House of Commons Library.

Mr. Hoban: According to a recent survey by the Recruitment and Employment Confederation, job losses have increased every month for the past five months; permanent job placements have fallen every month for the past six months. Will the right hon. Gentleman therefore assist the work that the Bank of England has done today to reduce the interest burden on businesses by pledging that the Government will not increase the tax burden on British business?

Mr. Boateng: We have the lowest unemployment rate for 25 years. The Government cut corporation tax by 3 per cent., so it is the lowest in United Kingdom history. We cut corporation tax for small companies from 23p to 20p. We have become the party of business and job creation. If only Opposition Members had learned that, they would not be where they are today.

Mr. Nigel Beard (Bexleyheath and Crayford): Does my right hon. Friend agree that both the manufacturing and service sectors of business in Britain will benefit from Government policies to enhance and encourage enterprise? How does Britain compare with its international competitors as an enterprise culture?

Mr. Boateng: We have the lowest corporation tax rate in the European Union. Hon. Members on both sides of the House will recognise that our new proposals on capital gains tax mean that we have a more attractive regime than that in the United States. By every possible indicator, this country is at the forefront of enterprise culture, which is entirely due to the measures introduced by the Chancellor since 1997.

Mr. David Lidington (Aylesbury): Has the Minister not recognised that statistics from his own Department show that this country's engineering output was down by more than 6.5 per cent. last year? For many engineering companies and others, the bill for the climate change levy far outstrips any compensatory rebate in national insurance. The Confederation of British Industry is telling the Minister that companies have to put people out of work so that they can afford to write cheques for his energy tax. Will he give a commitment to review urgently a tax that is already costing the country engineering jobs that we can ill afford to lose?

Mr. Boateng: The hon. Gentleman's righteous indignation is not borne out by the facts. The tax of which he complains was engineered by Lord Marshall, the former president of the CBI. It enables us to deliver our Kyoto obligations and has been widely welcomed by industry as a contribution to ensuring that we have a sustainable environment. Across manufacturing and service industries, it is revenue neutral. The hon. Gentleman's allegation is without foundation.

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Terrorist Funds

9. Mr. Harold Best (Leeds, North-West): What estimate he has made of the value of funds held by suspected terrorist organisations in UK financial institutions. [11334]

The Chancellor of the Exchequer (Mr. Gordon Brown): The UK has currently frozen 38 bank accounts containing more than £70 million or $100 million of assets. We continue to examine the lists provided by other countries.

Mr. Best: Will my right hon. Friend consider taking control of funds apparently amassed for terrorist activity and using them for another purpose—for example, providing aid and assistance to the victims of terrorism around the world?

Mr. Brown: My hon. Friend makes a point about what happens when funds are frozen. When frozen, such funds do not automatically become the possession of the United Kingdom Government, otherwise there would be many representations for the use of such funds.

As regards our international development responsibilities, which is what concerns my hon. Friend, we have not only increased our overseas development budget by 45 per cent., but put in an extra £60 million for Pakistan and Afghanistan. We stand ready to meet further international obligations in relation to refugees and the population in Afghanistan, and we will make further proposals for the Finance for Development conference that will take place in Monterrey in Latin America next year.

We stand ready to work with all other countries to increase the international development assistance that is available so that we can eliminate poverty around the world, meet our international development targets on education and health and achieve satisfactory debt relief.

Mr. Andrew Robathan (Blaby): While pursuing the funds of the murderous terrorist organisation that attacked the tallest buildings in New York, will the Chancellor pursue the funds of the murderous terrorist organisation that attacked the two tallest buildings in London—Canary wharf in 1996 and the NatWest tower, or tower 42, in 1993? That organisation is called Sinn Fein and it is inextricably linked to the IRA.

Mr. Brown: The list of named terrorist organisations includes the Real IRA, and we are taking action in relation to it.

September 11

10. Ms Claire Ward (Watford): What assessment he has made of the impact of the events of 11 September on the forecast level of funding of (a) defence and (b) public services. [11337]

The Chief Secretary to the Treasury (Mr. Andrew Smith): It is too early to estimate the likely costs of military operations and other relevant measures, but as my right hon. Friend the Chancellor has made clear,

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the Government will meet the costs of measures related to our response to international terrorism while continuing to deliver our spending plans within our fiscal rules.

Ms Ward: I thank my right hon. Friend for that reply. Will he give an assurance that he will listen carefully to all requests from our military in these difficult times, and to our right hon. Friend the Secretary of State for Defence? Despite Opposition calls for tax cuts and reductions in public services, will my right hon. Friend give a commitment to a 5 per cent. increase for all our public services in years to come?

Mr. Smith: As we have made clear, because we planned our public spending on prudent and cautious assumptions and strengthened the public finances, we can say confidently that we will meet our international obligations while honouring our spending plans, which Conservative Members want to cut. On the commitment to our military, as the Chancellor made clear, the cost of military and humanitarian action will be met. When we give our forces a job to do, we support them.

Mr. Edward Davey (Kingston and Surbiton): If it is too early to publish an assessment, will the Chancellor and the Chief Secretary give the House an undertaking that they will prepare and publish such a study when the pre-Budget report is made at the end of this month? If the study shows that taxes need to rise to underpin the public finances, will the Government give an assurance that they will use only a fair tax, not regressive stealth taxes, to put the public finances right?

Mr. Smith: I can assure the hon. Gentleman that the relevant information that is available will be published in the pre-Budget report. Any additions to the departmental expenditure limits will be reported to Parliament through the supplementary estimates procedure, in the usual way. I will not be drawn down the path of speculation, however tantalisingly he invites me. Those are matters for the pre-Budget report, the Budget and, in due course, the spending review.

Mr. Harry Barnes (North-East Derbyshire): If the events of 11 September require growing expenditure on humanitarian aid, military action, tackling world poverty and the economic consequences, is not it time to acknowledge that we are playing a new ball game? Should not we re-examine Labour's general election commitment to no income tax increases? Should not we begin to consider progressive taxation? Democratic socialism is often an answer to many problems.

Mr. Smith: I am sure my hon. Friend agrees that democratic socialism is about keeping our promises, and we will keep each and every promise that we made in our manifesto.

Mr. John Bercow (Buckingham): Given that money raised in taxes to pay for defence and public services should be spent on defence and public services, and that the Chief Secretary has a duty to ensure that Departments get what they need and use what they get, is not he ashamed of the scandal of the past four years and the fact that the Ministry of Defence, the Department for Education and Skills and the Department of Health failed

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to spend no less than £5 billion that was allocated to them—money that would have paid for 60 new Challenger tanks, the salaries of an extra 20,000 teachers and a further 70,000 heart by-pass operations?

Mr. Smith: This is my first opportunity to congratulate the hon. Gentleman on his appointment and his well-earned promotion to the shadow Cabinet.

The Opposition cannot say at one and the same time that the country cannot afford our spending plans and that they want more to be spent. On the Ministry of Defence, thanks to the sound management of the economy and the prudent and cautious basis on which we planned public expenditure, the Government are increasing the real resources available to our forces, which the previous Government cut. As a result of the spending review, the MOD budget is going up from £23.570 billion to £24.980 billion by 2003–04. There could be no clearer proof that we are backing our armed forces and the MOD.

The hon. Gentleman refers to the underspends. The way to plan military, health and education expenditure is to plan properly for the future and allow end-year flexibility so that Departments can properly work out expenditure from one year to the next, without the ridiculous end-year spending surge that occurred in the past. The figure for the MOD was 0.3 per cent.

Mr. Speaker: Order.

Kevin Brennan (Cardiff, West): Does my right hon. Friend agree that, because of the prudent management of the economy, we are in a flexible position and can afford to proceed with our plans for public services, even if there is a downturn following 11 September? Does not that contrast with the previous Government, who brought Britain to the brink of bankruptcy?

Mr. Smith: Indeed. Having exercised you with the length of my previous response, Mr. Speaker, I shall keep this one brief. The answer to my hon. Friend is yes.

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