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Mr. David Cameron (Witney): That mistake is frequently made, Mr. Deputy Speaker. Indeed, taxation has thrown my hon. Friend the Member for Tatton (Mr. Osborne) and me together because we both live in the same part of west London during the week and, to avoid paying two congestion charges, we travel to work together, saving on pollution.
I should draw the House's attention to my declaration in the Register of Members' Interests. I am a consultant to Carlton televisionthe media company where I worked for seven years before being elected to the Houseand I am a non-executive director of a company called Urbium, which owns bars and restaurants. I say that without any sense of shame.
I do not say that the Government have got it all wrong on the economy. Giving independence to the Bank of England was the right step, and it has had a positive effect. I repeat what I said in an intervention, I think, on the speech made by the hon. Member for Wimbledon (Roger Casale). Our economy has been growing for almost 10 years, and credit for that should go to the last Government and the current Government.
I do not say that everything in the Budget is wrong. The abolition of bingo taxation and the pension changes while people stay in hospital are hugely positive, and I support them, but, overall, this is the wrong Finance Bill for this time. The real test for a Chancellor of the Exchequer is not to make popular decisions when things are going well, but to make the right decisions when things start to go badly. The great tragedy is that prudence has gone out the window, perhaps just when it will be needed most. For the first few years, the present incumbent was prudent and careful; now he seems to be taking great risks.
I shall explain why I believe that this is the wrong Finance Bill by answering four questions. First, why are taxes going up when the economy is in a fragile state? There is no doubt that taxes are going upone has only to read to page 257 of the Red Book, but when one gets there, one finds that taxes are going up by more than £30 billion in the current year. Predominantly, those increases are in national insurance and income tax, so consumers are being hit hard in the pocket at a time when the economy is fragile. There can be no doubt that the economy is fragile. As has been pointed out, the current savings ratio is very low, and the economy has been propped up by consumers borrowing a great deal of money and spending in the high street. We have a many-speed economy: manufacturing has been in recession for many quarters, the property market is much more fragile than it has been, and one has only to listen to Government forecasts for economic growth to understand the extent of that fragility, because those forecasts keep being downgraded, particularly for the current year. The Government are therefore putting up taxes at a time when the economy is fragile.
Secondly, why are taxes going up when public service reform has not been implemented? I remember the Chancellor writing that great article in The Sun in which he said that there would be not another penny for the national health service until it had been reformed. Today, however, an extra £200 million has been spentand much more besideswithout there being a statement in the House, in a deal to try to get support for the Government's Bill tomorrow. I do not say that the extra money invested in public services has not led to any improvements. It has led to improvements: one cannot physically spend that much money without some improvements. In my constituency in Oxfordshire, however, the police service in the Thames Valley has not a single extra policeman compared with 1997, because it cannot retain them.
On the national health service, the last time I looked, my local trust had a shortage of more than 400 nurses. As for education, I have been inundated with letters from primary and secondary school teachers talking about having to deficit-budget this year, having to cut back and having to reduce the number of classes and increase class sizes. I therefore cannot see the level of improvements about which Labour Members have spoken. We are therefore putting up taxes at a time when the Government have given no proof that that money is being spent properly.
Thirdly, why are taxes being put up nationally when taxes are going up so sharply locally? All Members, I am sure, have spent time during the last month canvassing for the local elections. On virtually every doorstep in west Oxfordshire, the council tax and the 17 per cent. increase that people were having to pay, was raised. When people look in their pay packets this month, however, they will see a substantial increase in national insurance contributions and one of the most regressive taxes, which hits the low-paid significantlythe restriction of allowances. Taxes are therefore being put up nationally and locally at the same time.
Fourthly, if taxes are going up locally and nationally, why is debt going up so rapidly in this country? We are now at the end of a 10-year cycle of economic growth, yet this yearone would have thought that, at the end of a period of growth, one would be paying back debtthe Chancellor is to borrow £24 billion. If we add up the planned public sector borrowing requirement over the next four years, he will borrow £81 billion. That is a huge amount of debt to amass when one is predicting, as he is, economic growth of 3 per cent. next year and 3 per cent. the year after. When growth is on that scale, one should not borrow at that level. As my hon. Friend the Member for Tatton said clearly, the Government completely misunderstand the role of macro-economic and micro-economic policy.
Lord Lawson, in what I think was the most important economic speech in the past 20 years, said that the role of macro-economic policy should not be, as it was in the 1960s and 1970s, to try to demand-manage the level of unemployment: it should be about controlling inflation and giving stability. He said that micro-economic policy, which in the 1960s and 1970s was all about controlling inflation using such things as price controls, income policies and wages boardsthank God that they have goneshould promote high levels of employment and growth and improve the supply side.
The Government are getting both policies wrong. Their macro-economic policy will not provide the stability that we need because we are borrowing and taxing to a great extent while the economy is fragile. I agree with my hon. Friend the Member for Tatton about their micro-economic policy and, like him, I have conducted a survey. Every business one speaks to says that there are huge quantities of red tape and many new taxes and costs. They are not all the Treasury's faultI give Ministers thatbecause one of the biggest complaints is about the increases in employers' liability insurance and professional indemnity insurance, much of which is due to no win, no fee litigation. However, the Treasury has done nothing to address those problems.
My survey showed that 85 per cent. of businesses were spending more time on regulation than they did in 1997; almost half spent five or more hours a week. When the Government think about their Budget and how they raise taxes, they must consider whether they are making it easier for businesses to grow and employ people. We will have a sustainable high level of employment if we make it easier for one person to employ another. Representatives of small businesses, especially very small businesses, who visit my surgery tell me that they have no ambition to grow any more because the Government treat them like benefit offices, because the pay-as-you-earn regime is so complicated, because of the gold plating of European Union directives and because of all the extra costs and requirements that are piled on them. The Government should concentrate on those issues but they have instead produced an incredibly long and complex Finance Bill with 447 pages, 214 clauses and 43 schedules, despite the fact that most people agreed that the Budget was fairly dull.
The one message that should be taken from the debate is that it is wrong to raise taxes on the scale that the Government propose at a time when the economy is fragile. The Chancellor's reputation is well past its peak. If his forecasts prove to be wrong once again, businesses in our constituencies will pay dearly for his mistakes.
We have had an illuminating debate in which well-informed and thoughtful contributions from right hon. and hon. Members have thrown light on the dark recesses of the Finance Bill and the Chancellor's Budget. Far from being a Budget of enterprise and fairness, as the Chief Secretary claimed, it and the Bill will be deeply damaging to enterprise and business and unfair to the people in this country who are least able to bear the Chancellor's tax hikes.
Fascinatingly, the hon. Members for Sheffield, Heeley (Ms Munn), for Colne Valley (Kali Mountford) and for Newcastle upon Tyne, North (Mr. Henderson) told us about support for small businesses in their regions, and I salute them for raising that point. They suggested that the 447 pages of the complex Bill would diminish regulation and help such businesses. However, they managed to make their speeches without referring to the Chancellor's proposals for regional pay bargaining, although that is hardly a surprise.
We shall not forget the intervention made by the hon. Member for Glasgow, Maryhill (Ann McKechin) during the speech made by the hon. Member for Angus (Mr. Weir), who spoke for the Scottish National party. Amazingly, and perhaps to the surprise of her constituents, she suggested that Glasgow is outside the United Kingdom. We had not realised that she supported the agenda of the hon. Member for Angus.
By contrast, all who were in the Chamber when my right hon. Friend the Member for Fylde (Mr. Jack) made his speech would have been struck by his clear and incisive critique of the Bill. We must hope that his experience and wisdom will, for once, make the Government listen. Assuming that the Bill receives its Second Reading, we hope that they will amend it in Committee so that it reflects and benefits from his outstanding contribution. We hope that they will join his parallel universe rather than carrying on in theirs.
Yet again, the Government have produced a Finance Bill that provides the detail that the Chancellor was reluctant to mention in his Budget speech when he had to admit to the House that he had got all his figures wrong. At the end of November he was forced to admit that his forecasts on growth were wrong, his forecasts on revenue were wrong, his forecasts on borrowing were wrong and his forecasts on his deficit were wrong. On Budget day he was back at the Dispatch Box to admit yet again that his forecasts on growth, delivered barely four months ago, were wrong; that his forecasts on revenue yet again were wrong; that his forecasts on borrowing yet again were wrong; and that his forecasts on his deficit yet again were wrong. But it did not stop there.
Just a fortnight after the Budget we saw further failures in the Chancellor's supposed powers of forecasting. Official statistics showed that public sector net borrowing in the year to the end of March surged to £25.2 billion compared with the £24 billion figure that the Chancellor forecast in his Budget speechmore than £1 billion out in the space of just two weeks. It is hardly surprising that official and highly respected independent bodies are queuing up to contradict the Budget's central arithmetic. The Office for National Statistics has contradicted the Chancellor's borrowing figures and released lower than expected growth figures. The OECD has questioned the Chancellor's future growth predictions. The ITEM Club has warned that the Chancellor's numbers are "wildly optimistic". Indeed, its analysis suggests that the Treasury will need to raise £10 billion in additional tax revenues to cover the shortfalla shocking £170 per head of UK population. The National Institute of Economic and Social Research has predicted that public sector net borrowing will approach £40 billion in 200506 compared with the Government forecast of £23 billion.
If that is right, the Chancellor will be forced to explain yet again to the House how he got it so wrong and put up taxes again. As a result of the failures of this increasingly discredited Chancellor, there will already be more pain tomorrow unless we take action during the Bill's passage to end Labour's agenda of tax and spend and fail, as devastatingly demonstrated in the typically broad and deep speech of convincing cogency delivered by my right hon. Friend the Member for Wokingham (Mr. Redwood).
There have been five Budgets and 53 tax rises under Labour. This Finance Bill adds even more to that list, the damaging effects of which were brought to light so ably by my hon. Friend the Member for Witney (Mr. Cameron) in a well-targeted speech. They include a 35 per cent. rise in red diesel duty for farmers, an extension of the IR35 stealth tax and above inflation increases in car tax. We have had six Budgets and 60 tax rises under Labour.
Let us consider the Bill's specific provisions, which the Chief Secretary certainly did not. He was long on words, giving wave after wave of assertions, but there was a complete absence of detail even when pressed. In his attempt to support his own Finance Bill, he was an evidence-free zone. Last year the Government encouraged sole traders to incorporate by introducing lower corporation tax rates for small companies. The Government were fully aware during last year's debate on the Finance Bill that the interaction of lower
Normal taxpayers who relied on the Government's legislation in good faith will be affected. Not only is the Treasury treating them like tax avoiders, but it is trying to introduce the anti-avoidance legislation in such a way that the individuals concerned will have to submit two self-assessment returns for this tax year properly to reflect their tax affairs. So those individuals who were encouraged by the Government to incorporate will be left with the increased burden of corporate regulation, no tax incentives and considerable complexity in self-assessing their tax affairs.
Do the Chief Secretary and the Paymaster General recall the Red Book strapline just a month ago? Is this the way in which to build economic strength and social justice? Hidden away in the Budget press releases is the first admission by the Government that our national tax system is heading for major conflict with the European Court. However, this Finance Bill seems to be taking an interesting route. Certain clauses seek to limit the application of European law. The Government's lack of clear direction in the application of European law and the protection of the UK tax system is becoming increasingly worrying. What is clear beyond doubt is that the apparent conflict between UK and European law is creating significant uncertainty for British business.
The Bill includes 83 clauses and 17 schedules that attempt to modernise stamp duty, a modernisation that leaves us with the worst of all options. Stamp duty is retained to be applied to securities transactions and certain partnership transactions; stamp duty reserve tax is to be applied to securities transactions, and a new taxstamp duty land taxis to be applied to land transactions. We now have three taxes with different rules, all of which are complex and have to be mastered by taxpayers. The Government have also missed the opportunity to reform stamp duty for home owners and remove the iniquities of the market. Following the abandoned consultation exercise, the Government have included in a raft of legislation clauses that will dramatically change the stamp duty treatment of leases on the assumption that businesses ignore commercial factors and lease property instead of buying it to avoid tax. According to Inland Revenue figures, that would increase the stamp duty burden fourfold for leases over 10 years and eightfold for leases over 25 years. It is not just big businesses that will be adversely affected. A large number of small and medium-sized businesses will experience a significant impact, which was so ably highlighted and dissected by my hon. Friend the Member for Boston and Skegness (Mr. Simmonds) in an authoritative and compelling speech.
The Government of course argue that they have introduced the threshold of £150,000, which will insulate small and medium-sized businesses from the increased tax burden. However, that threshold will not exempt a 25-year lease with an annual rent of £10,000, nor will it exempt a 10-year lease with an annual rent of £20,000. Such leases are certainly not uncommon for smaller businessespubs, for instancethat have made the commercial decision to seek longer-term leases to allow greater security and longer-term business planning. That trend will be eroded by the tax increase, as highlighted by my hon. Friend the Member for Tatton (Mr. Osborne), who spoke for his constituents and, as a Member representing a neighbouring constituency, mine as well.