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Mr. Mark Hendrick (Preston): Will the hon. Gentleman tell us why, when the Government's proposal was introduced in the Budget, the Liberal Democrat Front-Bench spokesman described the 1 per cent. increase on employees' national insurance contributions as not being a tax? In fact, he asserted that income tax should have been raised by 1 per cent. However, when it comes to employers, the Liberal Democrats describe the increase as a tax. Why is it a tax on employers when it is not a tax on employees?
Dr. Harris: I regret that the hon. Gentleman was not able to provide me with the direct quotation, but I shall set out again the position of those on the Liberal Democrat Front Bench. We recognise that national insurance contributions are a form of payroll taxation. Our position is clear in that we believe that income tax is a preferable way of raising money for the health service, and we said that to the electorate at the last election. We were clear about introducing a top rate of 50 per cent. on income of more than £100,000, and that would cover unearned income and wealthy pensioners. The Government's proposal excludes the wealthiest third of pensioners from contributing to the extra money that the health service needs.
We must now decide how we want the money for the health service to be raised. Five years ago, we would have supported such a measure and we still want money to go into the health service. However, because the Government will put extra burdens on business through the national insurance contributions paid by employers, the amendments reflect our disappointment that the Government did not take the alternative open to them and apply a top rate equivalent to income tax through national insurance contributions on incomes of more than £100,000.
Dr. Harris: I thought that I had answered the hon. Gentleman's question.
Mr. Hendrick: Is the hon. Gentleman saying that the Liberal Democrats would much rather that pensioners paid income tax at an extra 1 per cent. than businesses paid 1 per cent. towards the health costs of their employees?
Dr. Harris: We have been clear that wealthy pensioners who can afford it—
Matthew Taylor (Truro and St. Austell): Rupert Murdoch.
Dr. Harris: Not only Rupert Murdoch, but other newspaper magnates, should, when they become
pensioners, contribute to vital public services according to their ability to pay. I have answered the hon. Gentleman's question. He is saying that people such as Baroness Thatcher and Rupert Murdoch should not pay for the health service. Given that one of them was partly responsible for reducing it to its present state, that is charitable of him.
Matthew Taylor: My hon. Friend may want to go a little further and point out that the Labour party's policy is not only that Rupert Murdoch and Baroness Thatcher should not contribute extra tax to the NHS, but that low-paid employees on as little as a few thousand pounds a year should pay extra. So those on very high incomes do not pay extra, but those on very low incomes do. That is an odd policy for the Labour party to pursue.
Dr. Harris: I direct the hon. Member for Preston (Mr. Hendrick) to page 46 of the Library research paper on the Bill, which shows the curve of the percentage of income paid in national insurance contributions according to gross income. Under the Government's plans, those earning £600 a week will pay 9 per cent. and those on £2,000 will pay around half that. That is no one's definition of progressive. People on around that earnings limit should make a significantly increased contribution to public services.
Labour Members may be embarrassed that they do not have as progressive a policy as they might and will end up supporting a tax on businesses in their communities in preference to asking the better-off to pay more. That is hard to defend. We have clearly stated our position. A progressive form of taxation through asking the better-off to contribute is far preferable to asking business to do it, as are the Government.
Mr. Christopher Chope (Christchurch): I say at the outset that we shall oppose the amendments. They position the Liberal Democrats to the left of Labour, and if they want to establish those credentials there are better ways of doing it than by tabling such amendments.
I am confused about how the amendments fit in with the Liberal Democrats' alternative Budget. When that was published on 8 April, they pledged to increase the rate of income tax by 1 per cent. for all income up to £100,000. As I understand it, the amendments would not increase by 1 per cent. national insurance contributions for employees in the range of earnings between £35,000 and £100,000, but increase to 50 per cent. the burden on employees earning more than £100,000.
Matthew Taylor: I do not know if the hon. Gentleman did his own research or got someone else to do it, but it was pretty poor. We proposed 1p on the basic rate plus a new 50 per cent. rate—a 10 per cent. increase—on earnings of more than £100,000. Combined with the Government's 1p national insurance rise, the amendment would replicate that, and that is its purpose.
Mr. Chope: I am grateful to the hon. Gentleman for explaining that. The Paymaster General and I were under the impression that the alternative Budget was expressed in terms that would cause a lot of confusion.
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The idea of imposing a 50 per cent. marginal rate of tax on individuals earning in excess of £100,000 is obscene these days. Political parties on the continent—most recently in France—are campaigning to reduce the burden of taxation. They realise that it directly affects the willingness of individuals to participate in the economy and, in particular, their ability to attract the most able employees. It will be very damaging for our economy if we burden employees with penal tax rates of 50 per cent. for those earning more than £100,000.
Many anomalies flow from the proposal. For example, if two married people each earn £60,000, they would pay tax at the 40 per cent. rate, but if one of them is at home looking after the children while the other earns £120,000, £20,000 of their earnings would be subject to the 50 per cent. marginal rate of tax. That would not be fair.
Matthew Taylor: As the hon. Gentleman is questioning the Liberal Democrat position, will he clarify whether he intends to oppose the employers' national insurance rise? If that is the case, and as he does not agree with an alternative way to raise the money, does he accept that the NHS will not get the extra money? Are the Conservatives now opposing extra money for the health service?
Mr. Chope: I thought that the hon. Gentleman was here for Second Reading when we alone among the Opposition parties firmly declared that the Bill was bad and voted against it, unlike his party which supported it. We are against the Bill. The NHS is already wasting a great deal of money, as the figures suggest. It is worth repeating what I said on Second Reading. Stuart Emslie, a senior civil servant, has said that the NHS in England alone is estimated to be wasting between £7 billion and £10 billion from a budget of £54 billion as a result of, for instance, fraud. We want to see the reforms. The Government continue to say that they will invest more money in the health service and that that will be accompanied by reform, but we have seen no sign of that and yet they still inflict the higher imposts.
Matthew Taylor: So that we are absolutely clear on this: the Conservatives are against extra money for the health service, reformed or otherwise.
Mr. Chope: That is a travesty of what I said. The hon. Gentleman might disagree, but people can make their own judgment by reading the Official Report. It is obvious that I did not say what he claims because otherwise he would not have felt the need to intervene again to put words in my mouth. I have given way three times to him and it is clear that he realises that he is on the losing end of the argument.
I agree with the Liberal Democrats that the burden on employers will damage the economy. I am not prepared to accept, however, that the solution is to impose a high burden of extra taxation on those who earn more than £100,000 a year, which is not so unusual in London and the south-east. It will damage our economy if we send out a signal to the ablest and the best entrepreneurs in the world that we are no longer an entrepreneurial society and wish to penalise people by imposing higher rates of tax. One of the best things achieved by Margaret Thatcher's Government was the reduction of the penal high rates of personal taxation.
The Paymaster General (Dawn Primarolo): This is already developing into an interesting debate as we watch the fisticuffs between the Liberal Democrats and the Conservatives about some of the finer points of deciding how funding for the national health service should be raised. In the case of the Conservatives—this is not such a fine point—the argument is about whether that funding should be raised in the first place.
I say to the hon. Member for Oxford, West and Abingdon (Dr. Harris) that he is wrong on every count, and I should like to explain briefly to him the reasons why. He started by saying that the Liberal Democrats were against the measure because it was imposed by stealth. He also said that it was not good for business, even though the amendments are only about employees, and that it does not raise money in the fairest way. He went on to argue that there was a more progressive approach for raising money for the national health service.
In this Committee of the whole House, the Government lay before hon. Members a judgment. First, the national health service needs more resources after sustained underinvestment for a long period, and those resources have to be considerable and guaranteed for a period. Secondly, the approach to how that money is raised must be taken on the fairest basis that can be achieved. Thirdly, the Government pinned their decisions on the basis of the Beveridge principle. I have to say to the hon. Member for Oxford, West and Abingdon that his amendments are neither progressive nor fair, which indicates the folly of trying to tinker with a little bit of the system, rather than looking at the whole system and how it is to be managed. Indeed, it could be argued that his amendments would introduce taxation by stealth. What he said that he was seeking to achieve is not what his amendments would deliver.
First, the amendments would mean that people who earn less than the upper earnings limit would still pay the extra 1 per cent. on all their earnings. Secondly, those whose earnings are between the upper earnings limit and £100,000 a year would pay the extra 1 per cent. only on a part of their income. I assume that a drafting error was made in relation to the amendments' implied reference to people who earn £100,000 a week: I assume that they were intended to refer to people who earn £100,000 a year. I will be generous to the Committee and assume that that was the intention.
The amendments would also ensure that those who earn £100,000 pay 11 per cent. on their first slice of income up to the upper earnings limit, but nothing at all between the upper earnings limit and £100,000. People would then pay 10 per cent. on £100,000 and more. I do not know what definition of the word "progressive" the hon. Member for Oxford, West and Abingdon is using, but that is not a progressive system.
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