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Norman Lamb: I personally have not made any assessment. [Hon. Members: "Ah!"] Hon. Members express great surprise. I would say only that these higher rates of tax apply in many other countries and do not cause massive problems in terms of a brain drain or recruitment to public services. At the end of the day, we all have to decide how best and most equitably to raise our taxes, and the Liberal Democrats believe that the current system is not adequately progressive and we would prefer to move to a more progressive system.
Norman Lamb: I am grateful for that. I was simply making the point that with the rate that we are proposing of 50 per cent., the Government could get rid of the iniquitous proposed system of funding of top-up fees and tuition fees for students.
As I have said, many Labour Members would share our view that the tax system should be more progressive than it is. I suspect that the Minister, in her quieter, private moments may well agree. The Government are caught on the horns of a political commitment not to raise income tax, so tax is still raised but in ways that are more unfair than if it was raised by way of income tax, and which this year is hitting people on low pay and pensioners on fixed incomes very hard indeed by way of the council tax.
Richard Younger-Ross (Teignbridge): Can my hon. Friend explain the impact that the present unjust system has on areas such as Devon where we have a large number of people on fixed incomes and a large number of pensioners and low-paid people who have been penalised by the council tax? Is he aware that all parties on joint administrations in Devon have agreed that the council tax system is wrong and that they want to see a fair taxation system, and that includes the Conservative leader of Devon county council, Christine Channon?
Norman Lamb: I am in some difficulty in responding to the intervention given your comment, Mr. Gale. I simply endorse what my hon. Friend says and say that in North Norfolk, with a low-wage economy, the position is much the same.
The clause sets out income tax rates, but it does not tell us the whole story about how incomes will be taxed. As my hon. Friend the Member for Arundel and South Downs (Mr. Flight) pointed out, we must take clause 130 in conjunction with the meanness over the bands and the 1 per cent. surcharge on national insurance payable over the whole income range for the first time, which means an increase in the 40 per cent. tax rate in the Bill.
I rise to speak against the clause because I represent a constituency where an income of £35,000 a year is not huge but necessary to meet the ordinary living expenses in such an area, given high house prices, high costs of services, high council and other local taxes and the general cost of living.
The Government are making a great mistake in drawing so many hundreds of thousands of additional people into the tax net to pay the 41 per cent. taxthe combined income tax rate in the clause and the 1 per cent. national insurance surcharge. That will leave many people quite short of cash to meet their family bills over the year. People in Britain under the Conservative Government, and more recently under the Labour Government, have become used to experiencing rising take-home pay and rising spending power if they are in a reasonable job and keep that job. That is something that Members on both sides of the House usually welcome. The question that we have to ask today is whether the Government are now damaging that in a dangerous way. I believe that they are. They are reaching the point where higher taxes of a stealthy kind on people's incomes are now doing considerable damage.
What should the Government do about it? They should be more honest about the fact that they are effectively increasing income tax and review again their public expenditures to see whether they can do a better job in controlling and containing waste and unnecessary expenditure so that they do not need to put through such large increases in the tax burden. I am sure that that advice will fall on deaf ears with the Minister, but it is heartfelt and well meant, and the Labour party will discover to its dismay in the ballot box during the months ahead that this is an extremely unpopular imposition, and that the combination of the rates, bands and the national insurance surcharge is correctly perceived outside as a substantial increase in the income tax burden. When the Government use their majority to push this through today, they will do something that they will live to regret.
I congratulate my hon. Friend the Member for Arundel and South Downs (Mr. Flight) on ensuring that the clause is debated in the Chamber because this is a classic stealth tax that should be brought to the attention of the public. My hon. Friend has done that exceptionally well, as has my right hon. Friend the Member for Wokingham (Mr. Redwood). The charge that it is a stealth tax is not just a Conservative charge. If one reads the commentary after the Budget from the various accountancy firms, one is struck by the fact that
I discovered from the "Today" programme this morning not only that my constituency has the highest income of any in the countrythe highest in terms of purchasing power, that isbut that the average income in my constituency is around £30,000. A huge number of people will be paying the higher tax rate in that constituencyand there were many others on the list. Each year, the number increases. This year, as a result of the clause, it will increase by 150,000 people.
It is incumbent on the Committee to ask the Minister to be honest about this matter. If the Government want to increase income tax, why do they not put it in their manifesto, come to the House with a Budget and do it? Instead, each year, we get this salami-slicing stealth tax, which is eroding people's disposable income.
Mr. Jonathan Djanogly (Huntingdon): Having heard my right hon. and hon. Friends speak in the debate, it seems to me that income tax rates are becoming increasingly irrelevant to the concept of take-home pay. The Government have thrown the majority of people into the dependency culture. The use of tax credits has in effect rubbished the concept of tax rates in relation to take-home pay.
I had an example of that only a few weeks ago. One of my constituents, a local employer, explained to me how he had two members of staff both earning roughly the same amount of money. However, one of them was getting a lot more through the use of tax credits. He said that that destabilised the wage environment in his company because people compared take-home pay. He resented the fact that he was being used to monitor income tax and in effect to act as a benefits agency on behalf of the Government. That is why I say that overall rates are becoming increasingly irrelevant.
The same argument applies to national insurance, which now has little to do with the old stamp concept. It has simply become another way to raise income tax, with the added benefit of squeezing a bit more out of companies. Some have called it a stealth tax but I see nothing stealthy in the way most people's pay packets were hit last month. There will not be much stealth there. However, the stealthy part is the way in which comparative take-home pay is being hit in a secret way. People cannot tell what is going on.