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Mr. Blizzard: Will the hon. Gentleman give way?
Mr. Davey: I am happy to do so.
Mr. Blizzard: I am grateful. Now that the Government have raised extra revenue through taxation—I understand that the hon. Gentleman may not agree with their precise method—will he say whether his party now wants to raise still more through taxation?
Mr. Davey: I am grateful for the opportunity to put our response on record. We are waiting with bated breath for the publication of the spending review later this year. We need to ensure that the Government are investing in education, the police, pensioners and other issues. I tell the hon. Gentleman and Ministers that if that spending review does not provide the resources that are necessary for those key public services, we will continue arguing for extra tax revenue to make those essential investments.
Mr. John Burnett (Torridge and West Devon): I am not in the front rank when it comes to demanding additional cash, but there is one aspect of policy on which a small amount could go along way. Our troops in Afghanistan are serving alongside American troops in an area that the United States Government have defined as a hostile fire zone. The Americans get a complete income tax exemption during the time that they are serving in a hostile fire zone. Does my hon. Friend agree that the Government should match those terms? It would not cost much in public money, but it would go some way to showing this country's appreciation for our service men, who do so much for us.
Mr. Davey: As usual, my hon. Friend makes a telling point, which deals with an aspect of taxation legislation that has not been raised in the House before. All hon. Members should welcome his remarks, which highlight the fact that our troops facing hostile action are not treated in the same way as American troops. I look forward to my hon. Friend pressing the Government in the Standing Committee to try to ensure that they put that matter right.
Mr. Iain Luke (Dundee, East): Will the hon. Gentleman give way?
Mr. Davey: No, I wish to make some progress.
If the Budget was good news for the NHS, the Chancellor's tax strategy is very bad news for UK plc. Certainly, the alternative Budget that we published before the election proposed tax rises, but they would not have clobbered business—they would have shared out the burden of paying for public services fairly among households.
I am delighted that the Treasury Select Committee, which has only one Liberal Democrat member, has today published a report that effectively backs up Liberal Democrat Members' concerns about the Chancellor's choices on taxes. I have never seen a Select Committee report that is so damning of a Chancellor's tax policy,
drawing on the views of independent expert witnesses. I refer hon. Members to paragraph 54, which discusses the national insurance rises. It says:
- "We think that the Treasury has, as yet, failed to make the case for choosing a method of revenue raising (higher employer and employee national insurance contributions) which excludes well-off pensioners and people living comfortably off unearned income from making a contribution to higher NHS spending."
Mr. Davey: I shall not give way at the moment.
The proposals on employees' national insurance contributions exclude very wealthy pensioners and very wealthy people living off unearned income, who are not being asked to contribute to the NHS. Many of those people will not understand that, and some may think it unfair, because they, too, wish to make their contribution, but the Government will not let them. It is bizarre that the Government have chosen this relatively unfair way of raising tax.
Kevin Brennan: Will the hon. Gentleman give way?
Mr. Davey: I hope that the hon. Gentleman is about to defend that unfairness.
Kevin Brennan: If the hon. Gentleman is saying that the Liberal Democrats would have raised taxation purely from households, by exactly how much would they have raised income tax in the unlikely circumstance that they had been able to do so?
Mr. Davey: I am increasingly surprised by the failure of Labour Members to read documents that we publish and place on our website, which set out our detailed policies. We argued for 1p on income tax, which would raise about £3.5 billion, and for a 50p tax rate on income above £100,000, which would raise just over £4 billion, and I refer the hon. Gentleman to one or two other tax measures described in those documents. Together, they would raise slightly more than the Government have raised through their Budget proposals, so he will have little success in pursuing his argument.
I refer hon. Members to paragraph 68 of the Select Committee's report, which deals with employers' national insurance contributions. The key point that the Government are having to wrestle with is their belated realisation that business is extremely concerned about the way that it has been treated in the Budget, because it contradicts what the Government have said in the past. In the 2000 Budget, the Government cut employers' national insurance contributions, linking that to the introduction of the climate change levy. They lauded that proposal and said that it would increase employment. When my hon. Friend the Member for Yeovil questioned the Chancellor about it at the Select Committee hearing, the Chancellor failed to acknowledge his point, and simply said that changes had been made in other years that meant that the increase would not be damaging to business. I am afraid that that was sophistry, and my hon. Friend was right to point it out. We all agree that raising money for the national health service is a valuable policy objective. However, placing the burden on employers' national
insurance contributions, and thus on the basic cost of employing labour, must be bad news for the country and job creation. The Government will rue the day that they made that decision.
Mr. Wayne David (Caerphilly): Does the hon. Gentleman acknowledge that in 1999, for example, British business lost £10 billion through ill health absences?
Mr. Davey: I am sure that the hon. Gentleman is right but that does not mean that one should clobber business with extra taxes. It does not follow that doing that will suddenly create better health. The Liberal Democrats agree that there should be more investment in the health service. We have explained how we would achieve that; our method would not hit UK plc.
Mr. Weir: Does the hon. Gentleman agree that by going down the national insurance route and cutting corporation tax, the Chancellor may help companies but do nothing for sole traders and partnerships who bear the additional tax?
Mr. Davey: The hon. Gentleman makes a good point, which I hope that those on the Treasury Bench have noted.
Using national insurance contributions to find extra money for the health service might have been appropriate if the Government had combined it with significant reforms. However, they chose not to do that. They could have made the national insurance system far fairer and more efficient but they did not do that.
We set out the alternative in our alternative Budget in the general election campaign. It is raising income tax. Why did the Government not do that? Because they made a grubby political promise at the last election. They cut income tax in the previous Parliament when they did not need to do that, and they were grubbing around for a tax to raise. They chose not to raise income tax because of a manifesto commitment yet they broke such a commitment and contradicted the utterings of Ministers during the election campaign by raising national insurance. By failing to raise income tax, which would have been fairer and more efficient, the Government put grubby politics before the health of the economy. They should apologise.
Mr. Davey: I have taken many interventions and I want to make some progress.
The Bill deals with far more than national insurance. It is riddled with errors that, like the national insurance increases, break two key economic tests for tax policy: fairness and efficiency.
Let us consider the policy on income tax allowances. By freezing them, the Government have increased the tax burden on the poorest. That is a bizarre position for the Labour Government to adopt. More low-income workers will be caught by the income tax system than by the national insurance system. Where did that appear in Labour's manifesto? The Rooker-Wise amendment was a great achievement by Labour Back Benchers in the late
1970s and the proposal to freeze allowances goes in the opposite direction. Labour Members should be ashamed of that.The only defence that I have heard is that some of those affected will benefit from some tax credits. Let us debate the options. First, some people who are affected will not be eligible for the tax credits. Freezing the allowance will therefore hit some of the low paid, and low-income pensioners. Secondly, some of the tax credits are so complicated that many low-income workers will not claim them. Experience of the working families tax credit shows that. That is not a fair method of raising taxation.
Business efficiency has been hit. As my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) said, the proposals to change the tax regime for the North sea oil industry are bizarre and a breach of faith. The Government consulted the industry for many months on different changes that would favour investment and help the industry but ensure that the Exchequer got its fair share. Suddenly, out of nowhere, they make the proposal that appeared in the Budget. If the Government cannot understand why business is losing confidence in them, they should consider the way in which they treat business. They consult, then go off in a completely different direction. That is not the way to win over or to support business.
The other inefficiency in the Finance Bill is its horrendous complexity. The hon. Member for Buckingham, who is no longer in his place, referred to that at length in terms of the number of pages in the Bill; I want to talk about it in relation to one or two of its proposals. Nine pages are devoted to a minor beer duty change, which we and the breweries believe will not even achieve the Chancellor's target of reducing the price of a pint of beer in time for the World cup. Thus nine pages are taken up by a tiny measure that will not even achieve its goal.
Fourteen pages and two schedules are devoted to a minor tax relief on vaccine research, which will probably also miss its target. We shall be looking at that research. It is a worthy aim, but whether the measure will achieve it is highly questionable, because the Government are using the tax system for inappropriate measures.
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