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9.23 pm
Mr. Peter Luff (Mid-Worcestershire): May I say what a privilege it is to see the new Chief Secretary to the Treasury in his place? I am sure that the right hon. Gentleman will be as robust in dealing with his colleagues in spending Departments as he is in dealing with sloppy arguments in Committee or on the Floor of the House. I wish his colleagues in those spending Departments well in their negotiations during the coming weeks and months.
There are at least five reasons why the Bill should be resisted with absolute clarity and certainty. The first is the impact on the business sector. The second is the cost to the public sector. Thirdly, there is the cost to individual voters, who will pay the taxes directly or indirectly. Fourthly—this is very important—the Bill represents a massive broken promise by the Government. It should be a matter of considerable concern to the House that they have broken their promises as spectacularly as they have done by introducing the Bill. Finally, the Government are
simply proposing to pour money into the existing health system without seeking the reform of that system that is essential to ensure that it will use those additional resources effectively.To put it simply, in the past five years taxes have gone up and up, but as we all know, public services have got worse. The country deserves a great deal better, not more of the same. The Government have increased taxes with great abandon, but they are not addressing the problems in our health service with the open mind that they should have in dealing with such an important matter. I am particularly concerned that the Government seem so unprepared to learn lessons from other countries—lessons that Her Majesty's official Opposition are most anxious to learn.
Let us look at the first of the reasons why the Bill should be resisted: the impact on businesses. Under the Labour Government businesses have been hit by higher taxes, and in particular by increased red tape and regulatory burdens. In my discussions with the south Worcestershire council of the Hereford and Worcester chamber of commerce shortly after the Budget, I learned just how concerned businesses were about the Bill, coming as it does on top of all the other burdens that they now have to bear.
John Mann: What is those people's view on the reduction in corporation tax, and what is the hon. Gentleman's?
Mr. Luff: As far as I know, they have no view on that matter—but in inviting me to express mine, the hon. Gentleman has anticipated my next remarks. In that tantalising intervention he alluded to the fact that the Chancellor claims to have cut business tax. He has announced—I think I have the litany right, but I am sure that the Chief Secretary will correct me if I get it wrong—a cut in small companies corporation tax rate from 20 to 19 per cent.; the exemption of companies from corporation tax on sales of substantial shareholdings; a reduction in the starting rate of corporation tax from 10 per cent. to zero; and a cut in capital gains tax to 20 per cent. for business assets held for one year and more, and to 10 per cent. for assets held for two years and more. Is that the sort of list that the hon. Member for Bassetlaw (John Mann) sought? [Interruption.] Obviously, the hon. Gentleman broadly agrees.
That is all very well, but it is more of the smoke and mirrors—the spin—that we are used to from the Government, because the Chancellor's changes to employers' national insurance contributions will raise as much as a 3 per cent. rise in corporation tax. He gives a little with one hand and takes a great deal more back with the other. That is the fundamental point.
Employers who pay national insurance contributions on all earnings above the threshold—that is frozen at £89 a week—face a rise from 11.8 to 12.8 per cent. That is a big increase, which more than makes up for all the good things in the Budget. The hon. Member for Bassetlaw is right—there were good things in the Budget.
John Mann: Is it not the case that the main rate of corporation tax has been reduced by 3 per cent. and the rate for small companies by 4 per cent., which, with the changes in capital gains tax for any entrepreneur who sells
his business, will mean that the overall benefit for any small business will be 10, 20, 30 or 40 times the increase in national insurance?
Mr. Luff: I am glad to have flushed the hon. Gentleman out. He appears to be greatly concerned about that point. I could not persuade him with my previous argument, but perhaps I can persuade him with this one.
When the Chancellor announced his business tax cuts, of which the hon. Gentleman is so proud—it gives me great pleasure to hear Opposition Members—[Interruption.] I am sorry; they will be Opposition Members again soon, but I meant to say that it gives me great pleasure to hear Government Members boast about their desire to cut the rate of business taxation. Even if they are not succeeding in doing so, I am glad that at least they seem to want to try. When the Chancellor announced his so-called business tax cuts, he did not mention—
John Mann: Will the hon. Gentleman give way?
Mr. Luff: I will deal with one intervention at a time. If when I have finished, the hon. Gentleman is not satisfied with my answer, I shall happily give way to him a third time.
Let me make this point: a company that does not make a profit does not pay corporation tax, but it does pay national insurance contributions. That is tremendously important. For struggling businesses, new businesses, or businesses facing short-term difficulties, the national insurance contributions increases are far more damaging than any corporation tax increase, and any NIC cut would be far more beneficial than any corporation tax cut. The hon. Gentleman should remember that even in the brave new world created by the Chancellor, many businesses find life tough. That is why the national insurance contributions increases are so serious for business.
John Mann: The hon. Gentleman suggests that the cuts in corporation tax are illusory. They are real cuts that any business person can see—real cuts, year on year, for anyone who runs a business. That is why there are so many more successful businesses, and 1.5 million people back in work. For anyone running a business, the key issue of certainty centres on interest rates. Are not current interest rates the lowest since the 1960s? Is not the cost of borrowing money for a business, small or large, lower than ever? Is that not the reason for the increased profitability in the small business sector in the past five years?
Mr. Luff: I ought to invite the hon. Gentleman to make his own speech, because that was a long intervention. I suspect that you would rule out a discussion on interest rates policy, Mr. Deputy Speaker—I am glad to see you nod in agreement, Sir.
I agree that not everything is a problem in the modern British economy. I am glad that not everything that the last Conservative Administration put in place has been squandered by the incoming Labour Government. I fully agree that we have enjoyed a sustained period of growth over many years—much longer than the Government have been in office. That is excellent news, but it does not justify swingeing increases in business taxation, which are disguised in the Bill and have been condemned by the business sector.
I am worried that the Government are not prepared to assess the implications of the changes for employment. They were happy to boast about the impact of reductions in national insurance contributions accompanying the climate change levy, and their beneficial effect on employment, but now they are increasing national insurance contributions, that willingness to calculate has disappeared entirely. The CBI estimates that companies will pay £4 billion more in tax because of the 1 per cent. increase in national insurance from next April, which comes on top of the additional £6 billion a year net in extra taxes that has been imposed on the business sector and the £5 billion-worth a year of extra red tape. Those burdens are beginning seriously to impede companies' ability to win orders and create jobs.
Mr. Luff: It is no good the hon. Gentleman shaking his head in disbelief. Ernst and Young, in its ITEM—independent Treasury economic model—club report for spring 2002, said:
- "Many companies will be taking another look at headcount before the increase in payroll tax comes in next April".
- "The risk is that employers, already under pressure from high labour costs, and in many cases unable to pass costs on to the consumer"—
- "will take another look at staffing levels before next April. An extra 1 per cent. on the wage bill may not seem much but it adds up to £3.9 billion in a full year, 12 per cent. of the corporation tax bill. For many companies, an extra 1 per cent. on labour costs may prove to be the last straw".
The Bill's impact on the public sector concerns the whole House. There are, for example, about 1 million NHS workers in England alone; the 1 per cent. rise in employers' national insurance contributions will increase the cost of employing them by about £200 million. In my constituency, that is of particular concern to general practitioners. In south Worcestershire, the settlement for our primary care trust was not generous, as the area was split up to form the new trusts that replaced the old primary care groups.
Pay settlements for ancillary workers in surgeries impose a burden on GPs' budgets, and on top of that, those doctors have to pay a 1 per cent. increase in national insurance contributions. Local GPs are wondering what economies they will have to make in the running of their surgeries and what reductions in service they will offer my constituents—their patients—as a direct result of the increase in national insurance contributions and other factors of the Government's making. There are therefore genuine concerns about the Bill's impact on the quality of the service provided by the NHS in my constituency.
The police are another interesting example. Today the Home Office announced that three constabularies in the west midlands, including West Mercia police, would get an extra £900,000 to help in the fight against terrorism, which would mean an extra £300,000 each. I am sure that that figure will be dwarfed by the increase in the national
insurance bill for the West Mercia constabulary alone; the Lord giveth and the Lord taketh away. It was ever thus, I suppose, but the impact is serious and will impose a further burden on a service that had to raise its council tax precept by 33 per cent. to achieve an acceptable level of policing in my constituency.Those changes, coupled with the changes in income tax, will have a direct impact on ordinary people—the voters themselves—not just the businesses or public sector services that employ them. A nurse consultant on £34,000 a year will be £26 a month worse off from next year, a police inspector on £37,000 a year will be £30 a month worse off, and an employee earning £20,000 a year will be £15 a month worse off. Those increases in personal taxation directly break the Government's promises to the people of Britain in the election campaign. That is an important point. For a Government, within a year of an election, to bring forward legislation that directly contradicts the promises that they gave to the people at that election should be a cause for shame, not for pride. However, that is what this Government have done.
On 22 May 2001 the Prime Minister was interviewed by Jeremy Paxman, who asked him:
- "I am merely asking why you could give this guarantee"—
- "last time but you can't give it this time and whether any reasonable person wouldn't suppose that you therefore propose to increase national insurance contributions."
The previous Chief Secretary, who is now the Secretary of State for Work and Pensions, was asked on the Dimbleby programme:
- "You say that you won't rule it out because you can't afford to. Do you also accept that as far as voters are concerned, National Insurance is regarded as a tax on income?"
- "Well, certainly it comes out of the wage packet."
I am glad to see that the hon. Member for Streatham (Keith Hill), the Government Deputy Chief Whip, is in his place. On "Your Call" on Sky News on 4 June 2001, he said:
- "We have no plans to raise any kind of so-called stealth taxes. Gordon Brown has made it perfectly clear that we have absolutely no plans to raise the ceiling on National Insurance."
I should add that I have great affection for the Government Deputy Chief Whip, who made possible an important bypass in my constituency, for which I shall always be in his debt, as will the people of Wyre Piddle—but I will not labour that point for fear of upsetting the hon. Gentleman any further.
Then there is the reform of the health service itself. The Government are effectively hypothecating their national insurance increases for the health service. I have said already that they have had a closed mind about the reforms that are necessary in the health service to make sure that it can use the moneys effectively.
I now have four questions for whichever Minister will wind up the debate. I am not entirely sure which of the two present that will be, but I am sure that whoever it is will do it extremely well. By the time of the next election, spending on the NHS will have increased by 70 per cent. in real terms since 1997. Does the Minister think that the NHS will have improved by 70 per cent. in that period? When patients in Britain are dying of diseases that they would not die of if they lived in other European countries, why did the Chancellor tell Mr. Wanless not to consider any of the ways of administering health care that have proved more successful elsewhere?
Next, can the Minister explain why despite the fact that NHS spending has increased by nearly one third since the Government came to office, the number of people waiting to get on the NHS waiting list has increased by 113,000? During Prime Minister's questions my right hon. Friend the Leader of the Opposition asked:
- "By the time of the next general election when health spending in Britain has reached the European average, will we have European standards of health care?"—[Official Report, 24 April 2002; Vol. 384, c. 328.]
I remain unconvinced by my experience that the Government are making effective use of the spare resources that exist in the private health sector in my constituency. I remain concerned that some of the problems of the health service have been created directly by the policies introduced by the Government. The question of social services beds, which was referred to by the hon. Member for Oxford, West and Abingdon (Dr. Harris), is crucial. The burdens imposed on the caring sector have been huge, and have contributed directly to delayed discharges from hospitals in Worcestershire. Those problems could have been avoided not by spending money but by having a more friendly and sensible regulatory regime.
The Bill should be resisted, for the five reasons that I have set out. There is the impact on business, the cost to the public sector, the cost to voters, the broken promises and the Government's failure to reform the health service appropriately to ensure that money is spent appropriately. I am sad that the Government have not seen the error of their ways, and I hope that the House will vote to oppose the Bill on Third Reading in a few minutes' time.
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