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Mr. Hendrick: On the concern about the low paid, why did the hon. Gentleman's party oppose the minimum wage and say that it would cost 1 million jobs, when in fact we have created 1 million jobs?

Chris Grayling: I remind the hon. Gentleman that during the years we were in government, year by year, Conservative Chancellors made a virtue of increasing the personal allowance, often above the level of indexation that was required, and of taking people out of taxation. As my right hon. Friend the Member for Fylde has pointed out, that tide is being reversed. More and more people are being caught by basic rate tax than were before.

Mr. Jack: Does my hon. Friend accept that, with their work in the field of family credit, the previous Conservative Government showed their regard for those who were in work but on low wages, and it is a tribute to that that the credit has now formed the basis of the various working families and successor tax credits that the Government have adopted?

Chris Grayling: I thank my right hon. Friend for those comments. He highlights a fair example of good Conservative practice being adopted by a Labour Government, but none of that explains why this Government have chosen to target a tax change on the

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lowest earners in society—on people with genuinely low incomes who have difficulty making ends meet. It makes no sense.

Mr. Flight: May I make the point that a father on pay of about £13,000 will pay some £2,500 in tax and get back some £2,700 in child tax credit? What on earth is the point of that?

Chris Grayling: My hon. Friend raises an important point. Too much of what the Budget does involves taking with one hand, giving back with another and creating bureaucracy in the middle, which must ultimately cost money and reduce the amount available for spending on other services, or increase the amount that people have to contribute in taxation.

This measure represents an unwelcome extra burden on the low paid. It is a second tax burden on public servants and other people who are not in particularly highly paid jobs and who will pay extra as a result of the national insurance increases. As a result of the Budget, a student teacher on £14,000 or £15,000 a year, a student nurse on the same salary, a new policeman and a new doctor will face an additional tax burden of many hundreds of pounds a year. This measure will simply increase the burden on them. It will erode a part of our tax system, the indexation process, that has been there for a generation.

Mr. Jack: Does my hon. Friend find it odd that the present hon. Member for Preston (Mr. Hendrick) is opposing the actions of the previous hon. Member for Preston, the co-proposer of the Rooker-Wise amendment?

Chris Grayling: I thank my right hon. Friend for that interesting piece of history. It is certainly food for thought for the hon. Gentleman.

I commend the honesty and commitment of the hon. Member for Birmingham, Selly Oak (Lynne Jones), who has rightly pointed out that this is an attack on people who should not be placed in that position. Her concerns are shared by Conservative Members. On this issue, I will certainly join her in the Lobby.

Mr. Tom Harris: I did not intend to take part so early in the debate, but there is nothing like Conservative crocodile tears to stir me to righteous indignation. The hon. Member for Epsom and Ewell (Chris Grayling) said that the clause represents a break with the low paid. I have no idea whether he was on the Government Benches before 1997, but it does not sit well with any Conservative Member to uphold the rights of the low paid, when the Conservative party not only opposed the national minimum wage but opposed the 10p starting rate that this Government introduced in 1997. I believe that it still opposes the working families tax credit, which is aimed specifically at some of the poorest in our society. It opposed the minimum income guarantee for pensioners, and it will doubtless oppose the pension credit.

Mr. Jack: I wonder whether the hon. Gentleman might help me to understand the logic of his argument. Why does he prefer to help the low paid through the

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10p starting rate, rather than using such resources to increase personal allowances? Under the latter method, such people would not have to pay tax at all.

Mr. Harris: I am happy to discuss that later.

Mr. David Laws (Yeovil): Will the hon. Gentleman give way?

Mr. Harris: If the hon. Gentleman does not mind, I shall continue for a while.

In a perfect world, we could raise thresholds yearly by inflation plus 10 per cent., but the fact that underpins this Budget is that the national health service was consistently underfunded for 18 years by the Conservative Government. We have taken a principled decision to raise tax in order to put into the NHS the extra money that is needed. Had the previous Conservative Government decided to freeze the thresholds, the consequences would have been far more serious. In an economy with inflation running at 10 or 15 per cent., such action would have constituted a far greater setback to the lowest paid, and to everybody else. Not only did the previous Conservative Government oppose the national minimum wage; they abolished wages councils as well.

The hon. Member for Epsom and Ewell spoke touchingly and with tears in his eyes about nurses being devastated by the freezing of allowances. He also said that, under the clause, any hope of a career for school leavers will disappear over the horizon. However, it is precisely nurses who will benefit from the Budget's general package. Thanks to this Government's handling of the economy, school leavers have been given hope of finding a job. They can find a job even in the health service.

Chris Grayling: The hon. Gentleman may not be aware of the practical consequences of tax increases for public servants in my area. It is proving increasingly difficult to recruit new teachers and health service workers, and one disincentive is the cost of living in the south-east. The more cost burdens that are added—be they increased council tax, higher national insurance contributions or adverse changes to personal allowances—the less incentive such people have to remain in public services. That is the real consequence of higher taxes.

Mr. Harris: I agree with what the hon. Gentleman says about living in the south-east, but I should point out that it is far cheaper to live there today than it was 10 years ago, simply because interest rates are a third of what they were under the previous Conservative Government. The morale of health service workers is better today than it was at any point under the Conservatives, and it is likely to improve greatly in the next 10 years, as investment in the NHS comes through.

Adam Price (East Carmarthen and Dinefwr): The hon. Gentleman is making a brave attempt at defending the indefensible, but will he address the central point that was made by the hon. Member for Birmingham, Selly Oak

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(Lynne Jones)? Freezing the allowance is an extremely regressive form of taxation that will disproportionately hit the poorest paid in our society.

Mr. Harris: I disagree. I have already mentioned several Government initiatives that will ensure that the lowest paid in our society have the best protection, even under the new regime that the clause will introduce.

In accusing the Government of attacking the lowest paid, the hon. Member for Epsom and Ewell mentioned one of his constituents. I should tell him that, before the national minimum wage was introduced, some people were being paid £1.40 an hour. To such people, it makes no difference whether thresholds have been frozen since time immemorial. They were being paid so little that work could not possibly pay. Thanks to the measures introduced by this Government, the lowest paid will continue to reap the benefits of a redistributive Budget, which are far more significant than anything that the Conservative party could have offered when in government.

Mr. Hoban: Is the hon. Gentleman aware of the view of Andrew Dilnot, director of the Institute for Fiscal Studies, that the most effective way to relieve poverty is to lift people out of the tax bracket by increasing personal allowances, rather than mucking about by introducing measures such as a 10p rate?

7.45 pm

Mr. Harris: The short answer is no, but the longer answer is that the IFS has also said that, even according to the lowest estimate, through positive economic and financial policy this Government have taken more children out of poverty than have any other Government.

Mr. Flight: Why does the hon. Gentleman describe the Budget as redistributive, given that the Prime Minister said on "Breakfast With Frost" that it is not?

Mr. Harris: The hon. Gentleman may be surprised to learn that I am not a spokesman for the Prime Minister. I am not an economist, but I can call a spade a spade, and I can tell that this Budget, like all its predecessors since 1997, is redistributive. That is why I support it, and why I will vote for the clause.

Mr. Hendrick: Does my hon. Friend agree that, in opposing the Government's proposed increases, and by talking about a Soviet-style system, the Opposition give the game away? They do not believe in state support for the health service, and the real reform agenda that they do not mention is a privatisation programme that dare not speak its name.

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