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Lynne Jones (Birmingham, Selly Oak): The hon. Gentleman has talked a great deal about company taxation. Will he tell the House whether the Conservative party will oppose the decision to freeze personal tax allowances for non-pensioners?
Mr. Flight: The hon. Lady may already be aware that that is one of the items that we have put down for discussion in Committee on the Floor of the House next week. We shall make clear our proposals then. We are highly critical in principle of abandoning the Rooker-Wise principles in the area of indexation of personal allowances.
Nationally, the Budget and the Finance Bill are bad news for the British economy. Whatever the justification, they bring back "tax and spend" and the risk of returning to the path that led to the British economy becoming the sick man of Europe back in the 1960s and 1970s. Tax revenues have already increased by £100 billion per annum over the last five years and, if allowances are made for the changes in accounting, the share of GDP taken in taxation, according to the Red Book figures, will have gone up by 5 per cent. between 1997 and 2006—from approximately 35 to 40 per cent. Sadly, it is the view of most of the economists who have commented that therein lies the economic risk.
We have heard a great deal in the debate about productivity. The growth in real GDP per employee has been only 1.3 per cent. per annum on average since 1997—the worst performance since the 1950s, and half the level achieved under the Major Government. The Government say that they are not assuming an improvement in productivity growth. Indeed, the Budget and the Finance Bill will weaken the supply side further, and—at risk of overstating this—my fear is that, as with reunited Germany, a major increase in taxation and Government spending will lead to a reduction in the sustainable rate of growth and to an increase in unemployment. Only last night, someone—not a member of the Conservative party—who heads one of the main charities in this country made the point to me, without being prompted, that that was precisely his reaction to the dangers opened up by the measures in the Budget.
The scale of tax credits will reduce labour markets' ability to allocate employees to where they will be most productive. It will also discourage skills training and productivity growth, and—as the right hon. Member for Birkenhead (Mr. Field) has pointed out—be an invitation to fiddling.
Economists, doctors and the public are rightly sceptical that the increase in NHS spending—if the Government are able to deliver it; so far, they have been unable to—will succeed in improving the delivery of health care without radical reform of the system. That is our essential message. There is a danger that the extra spending will be swallowed up by inflation costs as the Government are forced to increase public sector pay. Indeed, the Government's own figures show that they expect inflation to eat up most of the extra cash. Since 1999, public sector wages have increased by 4 per cent. more than those in the private sector. Nearly half the taxation collected is not going to the NHS; it is going on tax credits.
I fear that the Government's real policy objective in increasing taxes is to bring ever more of the economy and ever more of people's lives under Government control and patronage. The biggest beneficiaries of this will be the public sector unions—the Labour party's paymasters.
9.49 pm
The Paymaster General (Dawn Primarolo): I understand from the closing remarks of the hon. Member for Arundel and South Downs (Mr. Flight) that Her Majesty's Opposition have a new way of describing their performance in the House. It is "critical in principle, but no policies yet".
I hope to deal with some of the issues raised by my hon. Friends the Members for Broxtowe (Dr. Palmer), for Dumbarton (Mr. McFall), for Waveney (Mr. Blizzard), for Wolverhampton, South-West (Rob Marris), for Caerphilly (Mr. David), for Cardiff, West (Kevin Brennan), for Dagenham (Jon Cruddas) and for Dundee, East (Mr. Luke). I also hope to deal with points made by the hon. Member for Kingston and Surbiton (Mr. Davey), the right hon. Member for Fylde (Mr. Jack) and the hon. Members for Sutton Coldfield (Mr. Mitchell), for Cities of London and Westminster (Mr. Field), for Angus (Mr. Weir), for Fareham (Mr. Hoban) and for Yeovil (Mr. Laws). [Interruption.]
I am so sorry. I was trying so hard not to forget the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith), and I intended to be suitably gentle in raising my slight disagreement with him on some points relating to North sea taxation.
The Budget demonstrated the need to raise revenues for essential investment in public services. It also demonstrated that that would not deflect the Government from the path we had specified in previous years of encouraging enterprise, modernising the tax system and creating new opportunities for business. With the changes in national insurance, we have sought to achieve a balance that is as fair and equitable as possible—an approach that recognises the interconnected interests of business, the individual and the community in devoting the proper amount of investment to our health service.
In a speech on 27 April, the president of the British Chambers of Commerce told that organisation:
- "Now any of us in business know that we get what we pay for. If we want a world class health service in the UK we need to pay more. The advance of medical science, new treatments, more advanced drugs mean costs are increasing.
The question is not whether we need to pay more".
Lynne Jones: Will my right hon. Friend give way?
Dawn Primarolo: I will give way later. I should like to make some progress first.
Sickness and loss of working days cost business employers some £10 billion or more a year, and cost society as a whole £23 billion. The hon. Member for Buckingham (Mr. Bercow) mentioned the Budgets of Lord Howe of Aberavon. I remind the House that the first of those Budgets cut public expenditure by £4 billion, raised VAT to 15 per cent. and later to 17.5 per cent., froze child benefit and froze the real value of pensions. During their 18 years in office, the Conservatives also raised national insurance contributions from 6.5 per cent. to 10 per cent.
The hon. Gentleman raised other issues, including one on which a number of speakers have concentrated. I refer to the complexity of the Bill, and its size. I must point out that 152 pages contain tax-relieving measures—I do not want to detain the House at this hour, but I would be happy to read out each clause—and 160 pages contain measures to simplify the tax system. More than 200 pages of legislation have been repealed. More than 300 pages—60 per cent. of the Bill—have been published in advance of the final decisions or have been consulted on. Therefore, the idea that there has not been consultation is simply ridiculous.
Many hon. Members raised the issue of complexity and the need to have a responsive tax system. There were references to the tax law rewrite, and the importance of making our legislation simple and of ensuring that it is clear. It was interesting that the hon. Member for Kingston and Surbiton complained that measures to help small brewers were too complex and a waste of time, but that a measure on film makers was too simple and therefore open to abuse. On the one hand, he complained about targeting—
Mr. Edward Davey: May I put it on the record that I called for the film tax relief to be totally abolished?
Dawn Primarolo: Indeed, the hon. Gentleman did. I understand that he is not a fan of the film industry, but he criticised a simple measure and a complex measure too.
Loan relationships, derivative contracts and FOREX have been widely consulted on. Three different sets of reforms were brought together in the Bill. The research and development tax credit, a boost to R and D in industry, was widely consulted on before it was put into the Bill. Again, the measures on substantial shareholdings and intellectual property rights were widely consulted on before they were put into the Bill.
Lynne Jones: I support the decision on R and D tax credits. I am sure that few hon. Members, particularly Labour Members, would disagree with the need to raise revenues for greater investment in the health service and other public services, but there is concern that the freezing of personal tax allowances adds to the complexity of the tax and benefit system, particularly for poor people,
and that raising employers' national insurance is a tax on jobs. Why have the Government concentrated on taxing jobs rather than taxing affluence?
Dawn Primarolo: My hon. Friend will have heard the Chancellor explain that the decisions on national insurance were to ensure that all those who contribute to that insurance scheme for the national health service pay a fair share. I am at a bit of a loss to understand why she believes that the Government should shy away from giving money through tax credits to the very poorest in society. I am also surprised that she does not recognise that over 1 million jobs have been created in the economy while this Government have been in office.
A number of hon. Members referred to North sea oil. I know that we will return to that not only on the Floor of the House, but in Committee, but the Government believe that the current North sea fiscal regime fails to strike the right balance between promoting investment and taking an adequate share of profits for the nation from that resource. We believe that introducing reliefs on capital investment alongside the reviews of royalty payments provide the necessary commitments to future investment.
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