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Mr. Mark Field: I, too, would like to speak briefly on this point. I am sorry that the hon. Member for Wimbledon (Roger Casale) feels that the Opposition's support for this measure is somewhat tepid. In principle, we are comfortable with the measure, which is a positive step forward. The small business sector, in which I operated prior to joining the House, has not been terribly well served by this Government. It is not fair to say that there is a monopoly of good will towards the small business sector on either side of the political divide. It is fair to say, however, that, in essence, these changes, although welcome, represent only a small part of the burden faced by many small business people.

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VAT is one matter on which I have spoken previously in the House—I always felt that I was one of the worst paid pro bono for my tax-collecting skills when I dealt with VAT in my business—and it is an important fund raiser for the Government. There are great concerns, however, about the amount of time that must be spent by any small business man on the various other payroll taxes, which are not affected by the measure.

Much as I understand the Government wishing to make much of this measure, it is very small. As has been pointed out in various interventions, there will no doubt still be a great burden on many small business men in terms of having to deal with receipts for Inland Revenue purposes, if not necessarily for Customs and Excise. I would be interested, however, to receive guidance from the Financial Secretary on his comments to the effect that the whole process would be revenue neutral. Will he tell us which businesses are likely to suffer under the new provision?

6.15 pm

Mr. Boateng: I am very grateful to my hon. Friend the Member for Wimbledon (Roger Casale) for stressing the importance that the Government attach to consultation with industry, business and the relevant affected sectors. I first recall meeting him many years ago, when I was an Opposition Front-Bench spokesperson on Treasury affairs. If he was not then a parliamentary candidate, he was at least very active in Wimbledon, and he was noted, at a time when it was not as commonplace as it is now, as someone who always bothered to reach out to small businesses in his constituency and to learn and listen to their concerns. I have no doubt that that contributed to his subsequent success in 1997 and to his re-election last year. That is a lesson that the Labour party has learned, and that we sometimes had to learn the hard way in the years of opposition.

We have been engaged in a process of consultation in order to arrive at these rates. In response to the points made by the hon. Members for Fareham (Mr. Hoban) and for Cities of London and Westminster (Mr. Field), the rates are based on information from previous VAT returns submitted by all traders who would be eligible to join the scheme. The rates have been calculated on the basis of producing a broadly revenue-neutral outcome across each sector. We consulted on all these rates, talked to the sectors concerned, and, in some cases, responded to the consultation by reducing the rates proposed for an individual sector. For example, we now have two rates for construction services, instead of one. That was a result of listening to the industry and its concerns to ensure that we got it right and that we met its needs.

For reasons that hon. Members on both sides of the House have outlined, it would have been a nonsense to set a single flat rate for all small businesses. Either it would have been set so low that there would be a substantial loss of revenue, or so high that the sector would simply not opt to participate. We want businesses to have a real choice. The rate for a particular business will therefore depend on what trade sector it is in, but, clearly, there will be only one rate for each business. If a business is engaged in two or more sectors with different rates, the flat rate to be applied will be that for the main business sector based on turnover generated. The businesses and trade associations that we consulted felt

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that that was the best solution to this problem. I think that we have got it right, and we are determined to make sure that it is helpful to small businesses.

As my hon. Friend the Member for Wimbledon said, the measure should be seen as part of a wider Government commitment to support small businesses and to promote an entrepreneurial culture. No doubt there is still more to be done, and we are determined to do all that is necessary to ensure that we have a culture that promotes the creation of jobs, that helps bridge the productivity gap, and that recognises the vital role that the entrepreneurial spirit plays in creating a sound and dynamic economy.

I hope that, as a result of this debate, the enthusiasm that—as my hon. Friend pointed out—Conservative Members have so ably repressed will re-emerge. One does not often associate the hon. Member for Buckingham (Mr. Bercow) with repression in any sense of the word; his enthusiasms are normally plain for all to see. It is unusual for his enthusiasm to be as successfully repressed as it has been on this occasion. However, in the many hours that lie before us in Committee, we will no doubt draw out that enthusiasm. My hon. Friends the Paymaster General and the Economic Secretary cannot wait to have a go at drawing out—"repressions" may be going too far—the enthusiasms of the hon. Member for Buckingham. With that, I commend the clause to the Committee.

Question put and agreed to.

Clause 23 ordered to stand part of the Bill.

Clause 26

Charge and rates for 2002–03

Question proposed, That the clause stand part of the Bill.

Mr. Edward Davey: I and my colleagues wish to debate this clause because it goes to the heart of the Budget strategy and the choices that faced the Chancellor and his team in preparing the Bill and the Budget. We agree with the Government that extra resources are needed for the national health service and for public service investment in general—in our schools, police forces, transport system and care homes. There is a long list of where investment is needed, and there is some agreement that services, particularly the health service, have been deprived of essential investment for far too long. It is our understanding from the analysis in the Wanless report and from the brouhaha and trumpeting of the Budget that it is the Government's intention to find extra resources. We are delighted that, at long last, they have admitted that and have found the money.

It is interesting that we are debating a clause that introduces the income tax charge and rates for 2002–03. On the same clause in previous Finance Bills, I and other Liberal Democrats have argued the case for extra investment in our public services, such as the health service and schools. We have led the debate and the political argument for extra resources funded by fair taxation. In previous Budgets, we have argued for the rates to be higher than proposed or to reverse the cuts that have been proposed in previous Finance Bills. We did that to try to ensure that precious resources were available for investment in public services.

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This year, the debate is slightly different, because the Government have found the resources in another way. The debate on this clause is about how we should find the resources and about which taxes should be increased so that we can put money into public services. As is well known, the Government have chosen to do that by increasing employees' and employers' national insurance contributions, and we differ from them on that point. We accept their objective of increasing investment, but we are concerned about their tax strategy and about the taxes that they have chosen to increase.

Although we are forced by the procedures of the House to vote on clause stand part, we would ideally have liked the clause to contain a proposal to put up the basic rate of income tax by 1 per cent. to fund education investment. There should also be a new top rate of tax of 50 per cent. on incomes of more than £100,000 a year to raise the resources that are needed for the investment that we have talked about. Unfortunately, the procedures of the House do not allow us to table such amendments, so we have to signal our intentions by voting on clause stand part. That is what we have done in previous years, and our approach is totally consistent with that.

Why are we suggesting a different tax-raising strategy from that adopted by the Government? If one compares the proposal for an increase of 1p in the basic rate of income tax with an increase of 1 per cent. in employees' national insurance contributions, we believe that it becomes clear that the income tax rise is fairer and more efficient. It is clear from the analysis carried out after the Budget by the Institute for Fiscal Studies and others that the rise in employees' national insurance contributions involves a narrower net and imposes a burden on a narrow group of people. It excludes pensioners and those who live off unearned income or who have substantial unearned income.

Most pensioners would not pay the extra penny on income tax. They are not income tax payers, because of the age allowances. However, pensioners with substantial incomes would pay the extra penny in the pound and the wealthiest pensioners would pay the most. We are willing to argue the case that, if pensioners are wealthy, they should contribute as well. We believe, like the Government, that the poorest pensioners and those on modest incomes should be protected, and they would be protected under Liberal Democrat proposals just as they are under Government proposals. However, the wealthier pensioners would escape under the Government's proposals but not under ours. We do not see the justification for the Government's approach. In the Budget debate and on Second Reading, we asked them to justify why wealthier pensioners were excluded, but justification came there none. That means that we must debate the issue again tonight.

More serious for the Government—I am sure that Labour Back Benchers, in particular, feel this—is the fact that those with a significant unearned income are excluded from the rise in employees' national insurance contributions. They are not being asked to contribute any more towards the health service, and that is difficult to understand. We agree with the Government that resources must be raised to turn round the years of underinvestment and underspending in the health service, so we should surely ask the better-off in society to make their contribution. However, the Government's Budget strategy deliberately excludes some of the wealthiest people in

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society, and that is why we stand firm in saying that a 1p increase in income tax is the best approach. It would ensure that everyone, particularly those with the greatest means, would be asked to contribute to a service that is provided to people equally and according to their need.

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