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1.49 pm
Mr. Steve Webb (Northavon) (LD): When my hon. Friend the Member for Twickenham (Dr. Cable) responded to the Chancellor's Budget statement last week he began in characteristically generous fashion. I propose to do the same. He begin by saying that
- "the Chancellor's finest hour came in his first week in office in 1997, when he made the Bank of England independent."—[Official Report, 17 March 2004; Vol. 419, c. 340.]
I welcome aspects of the Budget that have had relatively little attention, including potential simplification of tax treatment of pensions. Sweeping away eight different tax treatments must in principle be right. We have quibbles about the detail, but the idea of a simple method of assessing tax relief for pensions is a step in the right direction. We welcome the proposal, for which Liberal Democrats have long pressed, that people should be able to draw a pension and carry on working for the same employer, perhaps part-time, with no penalty. That seems entirely right and is very much in the spirit of flexible retirement, whereby retirement is not a cliff edge but a process. Those are the sort of things that we have wanted for some time. That sort of change needs to be allied with action on age discrimination, which, yet again, is sadly lacking in the Government's programme this year. Even so, one out of two is not too bad.
I want to focus on what I used to think was a Labour value: fairness. If Budgets are about tax, a Labour Budget ought surely to be about fair tax, yet this one failed to do anything to redress the fact that the poorest people in our society pay higher and higher proportions of their income in tax, while the highest earners pay smaller proportions. People simply cannot believe that the poorest in our society pay a bigger proportion of their income in tax, and not merely more than the national average but more than the richest pay. What sort of tax system can possibly lead to that?
The Office for National Statistics has produced estimates of the proportion of income taken in tax from the poorest 10 per cent. in society. In 1996–97—these are the figures inherited by the Government—the poorest 10 per cent. paid 44 per cent. of their income in tax. That is astonishing. Who would have thought, however, that five years later, under a Labour Government, 44 per cent. would have risen to 53 per cent? That is incredible. What, meanwhile, has happened to the richest tenth? They paid 33 per cent. of their income in tax, and they still pay 33 per cent. The lowest income earners in society are therefore paying a bigger proportion of their income in tax. How can that be right?
The Chancellor put his finger on one reason for that in his Budget speech. He mentioned council tax and how unfair it is, and he said that he would do something about it. Liberal Democrats thought that he might actually do something about it—that he had heeded not only our warnings, at last, but those from other organisations, which say that it is time the council tax was replaced by a fair tax related to ability to pay. Local taxes make a major contribution to the heavy tax burden of the lowest paid and pensioners. Out of the 53 per cent. of their income that goes in tax, 12 per cent. goes in local tax after rebates: even after council tax benefit has been taken into account, the poorest people in our society pay 12 per cent. of their income in local taxes. How can that possibly be sensible?
In a Budget debate, it is appropriate to look at what has happened to our tax system over the longer term. Over the past couple of decades, direct taxes, which relate to people's ability to pay, have gone down. The standard rate of income tax was 33 per cent., I think, when Mrs. Thatcher came to power, and it has fallen by a third. National insurance rates have gone down and come back up again, and are broadly what they were about two decades ago. As a result, the overall balance
is that direct taxes, which reflect what one can afford to pay, have gone down, but indirect taxes have shot up. VAT has more than doubled. The balance of the tax system has therefore shifted. Those on lower incomes pay more tax, while those on higher incomes pay less. Who in this Chamber thinks that that is fair?
Mrs. Patsy Calton (Cheadle) (LD): Mr. Blair.
Mr. Webb: My hon. Friend suggests from a sedentary position that the Prime Minister might feel that it is.
The Budget was a missed opportunity to reduce the tax burden on those who are least able to pay. What did we get from the Chancellor? We got a pre-election bribe of £100. According to his spending plans, that £100 is not factored into any future spending plans. We can therefore assume only that it is intended to keep him going up to the next Budget. Britain's pensioners do not want to have to wait for the annual rabbit from the hat that the Chancellor produces at the end of his Budget to get headlines. Pensioners deserve more respect than is shown by their having to wait for the annual gimmick to get a decent income. They should have a decent income as of right, and we should have a fair local tax system, under which that £100 would not have been necessary.
Mr. Watson: Is that a different £100 to the £100 that the Liberal Democrats promised to cut off council tax bills at the recent Brent, East by-election?
Mr. Webb: The hon. Gentleman will find that the £100 proposed by the Liberal Democrats in our last alternative Budget was not just for pensioners but for all council tax payers, as part of the transition to a local income tax. If he is saying that he supports that transition to a fair local tax system, he and I are probably of one mind.
Mr. Watson: To clarify matters, I will send the hon. Gentleman the "Focus" leaflet from the Brent, East by-election, in which the Liberal Democrats said that they would cut council tax bills by £100. If that was not a bribe, what is?
Mr. Webb: I have just pointed out that the £100 from the Chancellor will not continue beyond one year. The departmental spending plans are for £475 million for one year, then a general election, then nothing. That looks a bit like a bribe. We want to cut the burden of local taxation on those least able to pay, every year, through moving to a local income tax system. That has been our consistent policy for a long time.
There was something odd about the way in which the Chancellor presented the argument for the £100. He was saying, "Because council tax is such a burden on pensioners and others, we will put in £100 this year." But this was the year in which we were told that the Government had given extra largesse to local authorities and in which increases in council tax would be far lower. Why, therefore, if the £100 is needed now, was it not given last year, when council tax went up far more than it did this year? Well, of course, the answer is that that was two years before the election, not one.
The Chancellor not only offered the £100 but planned a 7 per cent. council tax rise for next year. Is not that a classic example of giving with one hand and taking with
the other? For someone paying council tax of about £1,000, the 7 per cent. will be about £70, so it will not be long before the increase that has just been given is taken away.
The Chief Secretary to the Treasury (Mr. Paul Boateng): Will the hon. Gentleman tell the House how those least able to pay will benefit from the £934 average council tax per dwelling this year charged by Liberal Democrat councils, which compares with £818 for Labour councils and £1,008 for Conservative councils?
Mr. Webb: It is sad when a senior Treasury Minister must resort to such implausible comparisons. [Hon. Members: "Answer."] I will answer the question. Council tax fills the difference between what councils spend and what they get from central Government, which determines about three quarters of the amount. We all know that the Government have reordered grant allocations to favour, as I recollect—I am a bit hazy—urban authorities or Labour authorities. As the National Audit Office found when it looked at last year's large council tax rises, when grants went up substantially, council taxes did not have to increase by so much.
Mr. Willetts: Does the hon. Gentleman agree that one reason why the Chief Secretary's figures were so misleading was that he did not allow for different bands and different composition of properties in different areas? If he looks at the average band D council tax in relation to control of different local authorities, he will get a rather different picture.
Mr. Webb: The hon. Gentleman is right. In my local authority area, the average house is in band B, but that is not reflected in the figures that are normally quoted, which can be used to support almost any argument. The truth is that council tax is an unfair tax. The Chancellor acknowledged that in coming up with a one-off gimmick at the end of his Budget statement. The real answer, though, is a decent pension for pensioners and a fair system of local taxation.
Let me say something about staff cuts at the Department for Work and Pensions. What has not been mentioned so far, although I think the hon. Member for Havant (Mr. Willetts) alluded to it, is that the Department employed 97,000 people in the Government's first year in office, whereas it will employ 130,000 in the current year. The number of staff has risen by a third, and we are expected to applaud the Department for making tough choices in reducing it by about a quarter. Why has staffing risen so much, given that the Department is always telling us that unemployment is down and fewer lone parents are on income support? Surely that should mean that the Department needs fewer people to administer all the benefit claims.
As the hon. Member for Havant said, the fact is that the Government have made the system so complicated that numerous people are needed to do all the sums. Moreover, the Government highlight the claimant count in relation to unemployment, while glossing over the fact that the number of people claiming disability-related benefits is on the increase. Many young people who are not included in the claimant count may not be
in paid employment but are economically active in some other way. The Government claim that everything in the garden is rosy, but that does not translate into less administration for the Department because there are an awful lot of people on benefits to whom they do not refer.
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