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Mr. Rooney: For clarity, will the hon. Gentleman tell us at what level of pensioner income the Liberal Democrats propose a tax increase?
Matthew Taylor: We have made our position clear. We believe that there should have been a 1p increase on income tax and a rise to 50 per cent. for the top rate of tax on income over £100,000 a year. The straightforward answer to the hon. Gentleman's question is that it would depend on the pensioner's income. A rise in income tax would have fallen far more fairly. Because of the Government's income tax pledge, every time they have raised taxes, the increase has fallen harder on the poor than on the rich. The figures that I presented earlier show that the rich have been even more advantaged by Government policy, compared to the poor.
Matthew Taylor: I shall give way once more, then I must move on, as I have been speaking for some time.
Mr. Harris: I am grateful to the hon. Gentleman. How does he square that claim with the fact that in the four years to 2001, the poorest 20 per cent. of households saw their income grow at exactly the same rate as the richest 20 per cent.? He should compare that with the years up
till the Labour Government were elected, when the richest 20 per cent. of households saw their income increase by 30 times the rate of the poorest households.
Matthew Taylor: If the hon. Gentleman reads my speech from last week on the Budget resolutions, he will see that I said that the two ways in which the Government have spent the money is, first, on paying off the Conservative deficit and, secondly, on measures of redistribution. However, that redistribution has been limited in its target. Low earners without children have been disadvantaged by the Government's policy. The overall tax burden has shifted against the poor, which I think is wrong. I acknowledge some of the changes that the Chancellor has made, but they have been at the expense of the investment in health and education that we believe is necessary.
The Paymaster General (Dawn Primarolo): The hon. Gentleman has been at great pains today and yesterday to quote the Treasury Committee's report on the Budget. Does he recall that one of the Committee's conclusions was that the Budget is redistributive, which the Committee welcomed? That included both the working tax credit and the child tax credit.
Matthew Taylor: I have just acknowledged the redistributive nature of the Budget, but it is not as redistributive as it could have been. Indeed, the overall policies are not as good as they could have been if the Government had not become hitched on their income tax pledge for purely political reasons. I do not think that anyone in the Treasury seriously believes otherwise. After all, the Chancellor has two hats: that of Chancellor and that of chairman of the Labour party general election campaign team in two elections. The idea that he did not know what he was doing is very hard to accept.
There is another peculiarity. The Government chose to raise employers' national insurance rather than to take the route for which we argued and adopt a new top rate of tax. Again, that decision was based on a Labour pledge, although briefings from the Chancellor's friends suggest that he would have preferred the 50 per cent. rate. However, his manifesto—after all, that is what it was—ruled that out, so he cannot take that approach. The result is a taxation policy that increases tax on employers and hits manufacturing in particular, as well as other businesses with low margins and high employment. At the same time, it does relatively little to put any cap on the consumer boom that is forcing up house prices in London and the south-east—increases that are driven not least by the many people on very high incomes in that area.
From any normal reading of the state of the economy, one would suggest damping down the consumer side but giving some help and encouragement to manufacturing, which has suffered from some 150,000 job losses in the past year and, according to the OECD, some 400,000 job losses since 1995, as well as a substantial loss of competitiveness. Of course, a disproportionate number of Labour Members represent the areas that have been hardest hit by that decline and by the current exchange rate. Again, the only possible interpretation is clear. After all, the Treasury issued press releases as recently as 1999 arguing that the reason for the cut in NICs was as follows:
- "We are cutting tax on employment . . . encouraging employment opportunities".
I shall be very brief on the further issue of importance: how the money is spent. Indeed, I think that I have said almost enough about that; I have spoken longer than I intended in order to answer questions. It is quite clear that training more doctors and nurses is a crucial target for investment if we are to have the doctors and nurses that we need for the future. It is crucial to put money into local authorities for expenditure on social security placements and supporting people in their own homes, and on nursing and residential beds, which can very quickly free hospital beds.
It is also vital to invest in better pay and conditions for professional low-paid staff in the NHS—an issue about which the Government have made some worrying statements in the past few weeks. That investment is crucial not for moral reasons—we can all talk about the wonderful job that doctors, nurses and others do in the NHS—but for a practical and economic reason: these people are currently fleeing the NHS because they cannot afford to stay in it, especially in the areas of highest housing cost. It is impossible to deliver a better NHS if its experienced staff are leaving it and we are not training sufficient numbers even to replace them.
Finally, I should like to mention another aspect of the Government's peculiar position on tax. I gather from Ministers who argue in favour of a national insurance rise and against an income tax rise that it remains the Government's position to rule out income tax rises in this Parliament, but not further national insurance rises. That is the only logic in their position. Given that the National Institute of Economic and Social Research said today that it believes that the Government's figures could create a medium-term funding gap, the Government may have to resort to further increases.
Since the national insurance contributions Bill has not been published, perhaps the Chief Secretary will clarify what we will be asked to vote for. Will it be an enabling measure that allows further changes without more legislation, or can the Chief Secretary guarantee that a similar legislative proposal will have to be made before any such change can take place?
Matthew Taylor: The Financial Secretary says yes. I hope that she is right because that is important.
Mr. Webb: My hon. Friend mentioned the need to tackle social services problems. The money that the Government raise will be spent on social services, and the local authority national insurance bill will match that sum. Yet if social services departments do not perform, they will be fined. Does not he believe that the Government must tackle that, even if we generally welcome the extra revenue?
Matthew Taylor: My hon. Friend is right. Most social services departments spend much more than the
Government standard spending assessment. Even if the Government give extra money that is theoretically tied to social services, money is already being spent and national insurance money is being lost from elsewhere. There is therefore no guarantee that the extra money will contribute to improvements to support the elderly in the first year. After that, there will be increases.I have already argued that the matter is urgent because beds in hospitals are currently blocked. The sooner we get the money in the better. I hope that the Government have the chance to do that because the comprehensive spending review is still to come. I also hope that they will seriously consider local government problems. I fear that if they do not tackle them, the improvements in getting elderly patients out of hospital beds that they do not need and into residential, nursing or supported care will not be made as quickly as they should. The beds will not be free for other patients and the improvements in the NHS will not happen. That is the Conservative party's only chance of rubbishing the NHS and making its case for ultimately dismantling it.
Let us consider hypothecation. For many years, we have argued that it is possible to hypothecate a rise. That is now happening and we welcome it, although it was not done as honestly as we would wish. At least the Government have taken the advice. We have witnessed the popular support for the action, and that is some vindication of our argument. However, in the long run, if we hypothecate £2 billion, £3 billion or £8 billion to a budget of £60 billion, £70 billion, £80 billion or even, in future, more than £100 billion, there is no guarantee that the Treasury will not decide that it is short of money for transport, education or a new plane for the Prime Minister and grab some of it back because the NHS is no longer so high on the list.
Even if the Government remain in office, there is no guarantee that, in the long term, the money will go where they say it will. Of course, if the Conservative party is elected, there is no guarantee that the money will remain with the NHS. The Government can hide behind snatching the money, leave the provisions for national insurance as they are but use the money for other purposes.
The Chancellor ruled out the suggestion, but I urge the Government to consider hypothecating a whole income stream to the NHS so that it can have greater certainty and transparency. People would know when they paid the tax that it went straight to the NHS and that any change would help the NHS, or hurt it if the Government chose to take money away.
The two national insurance figures that the Government have published show that in 2007–08 the figures are close. Therefore, why not hypothecate national insurance? That has happened historically, and there has been a link with the NHS. Such hypothecation would provide a broad- based income stream that increased broadly in line with growth in the economy. It would give the NHS a good base, and when people paid that money they would know that it went to the health service.
The Government have chosen a route that includes an opportunity that is worth considering. The national insurance system could be reformed; people may believe that using a different tax is a better route.
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