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House of Commons

Thursday 14 October 2004

The House met at half-past Eleven o'clock

PRAYERS

[Mr. Speaker in the Chair]

Oral Answers to Questions

TREASURY

The Chancellor of the Exchequer was asked—

Income Tax

1. Mr. Gordon Prentice (Pendle) (Lab): How many people pay income tax at the top rate; and what the figure was in 1997. [190537]

The Paymaster General (Dawn Primarolo): Some 2.1 million people paid higher rate tax in 1997, compared with the current year in which 3.4 million pay it. The reason is that twice the number of people now earn more than £30,000, £50,000 and £100,000 than in 1997. In 1997, 2.6 million employed people earned more than £30,000, but now almost 6 million do so.

Mr. Prentice: I wonder how many people share my concern that the number of people captured in the higher rate tax band appears to be growing exponentially. Is my right hon. Friend aware of the forecast produced by the Institute for Fiscal Studies, which suggests that by the end of the next Parliament a staggering 4.4 million people will be higher rate taxpayers? Are we happy with that?

Dawn Primarolo: As my hon. Friend will know, the Government and Labour Members are extremely happy with the economic stability, the growth in employment and earnings and the way that tax and benefit reform has ensured that the poorest receive the most. He will also be aware that the Government have undertaken not to raise the basic or top rates of income tax within the lifetime of this Parliament.

Miss Julie Kirkbride (Bromsgrove) (Con): At what level of income does the Paymaster General consider someone to be rich?

Dawn Primarolo: I am sure that the hon. Lady will want to concentrate much more on ensuring that the poorest in our society receive support from this Government. She will have noticed from my reply that twice as many people are now earning more than
 
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£30,000, at the same time as the poorest fifth of households have been helped considerably by the Government's tax and benefit reform.

Mr. Dennis Skinner (Bolsover) (Lab): There is another way of looking at this issue. If more people pay tax in the highest band, it means that the booming economy has resulted in more people getting more wages and salary. If we added on another 2 per cent. tax for higher rate taxpayers, such as MPs, Cabinet Ministers, directors and the rest of them, we would be able to pay a pension of £150 to every pensioner. That is another way of looking at it.

Dawn Primarolo: I thank my hon. Friend, who is always challenging in the ways he tackles problems both in his constituency and in the Chamber. I am sure he would agree with me that the fact that pensioners, especially the poorest ones, are now considerably better off is yet another way of looking at this problem. The reforms that the Government have undertaken, including the pension credit, ensure that the poorest third of pensioners receive more money. My hon. Friend will note that twice as many people earning more than £30,000 is a tribute to the success of my right hon. Friend the Chancellor and his brilliant stewardship of the economy.

Mr. George Osborne (Tatton) (Con): More than 1.3 million extra people have been sucked into paying the higher rate of income tax under Labour. The Paymaster General failed to say that the main reason is that while average earnings have gone up by 39 per cent., the higher rate threshold—including the personal allowance—has gone up by only 29 per cent. Does she agree that that means that a Chancellor who promised not to increase income tax has in fact increased it for 1.3 million people?

Dawn Primarolo: That is ridiculous. I welcome the hon. Gentleman to his new post and thank him for pointing out the spectacular growth in earnings under this Government. A family with one earner on average male mean earnings of £29,300 a year has a tax rate of 20.1 per cent. That is lower than it was in 1997 under his Government and lower than in any year under his Government, right back to 1979.

Mr. Osborne: Because of the Chancellor's stealthy trick with the tax thresholds, which even the hon. Member for Pendle (Mr. Prentice) pointed out to the House, the 1.3 million extra higher rate taxpayers now include deputy head teachers, police inspectors and warrant officers in the Army. Does the Paymaster General think that it is fair that those people pay the higher rate of income tax? Indeed, does she think that they are rich?

Dawn Primarolo: The hon. Gentleman himself pointed out the vast growth in average earnings, which, as I said to the House, are doubling the number of those earning £30,000, £50,000 and £100,000, in a progressive tax system in an economy that is growing, with 1.8 million extra jobs. Those are the figures we see. The question that the Opposition have to answer is:
 
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what would they do? What are their proposals for tackling that? The only commitment we appear to have from them is that they will slash public expenditure.

Mr. Mark Lazarowicz (Edinburgh, North and Leith) (Lab/Co-op): When my right hon. Friend considers future taxation policy, will she also consider the merits of moving further along the road of using environmental taxation? If she does so, she may be able to reduce tax rates below even those that the Government have so far been able to achieve.

Dawn Primarolo: I thank my hon. Friend for his support for the climate change levy, which was implicit in his question. Just in case the Chancellor did not hear his early Budget representation, I shall certainly make sure that those views are brought to my right hon. Friend's attention.

Dr. Vincent Cable (Twickenham) (LD): The Paymaster General knows that we disagree with both her and the Conservatives over the top rate of income tax and believe that it would be fair and practical to have a top-rate marginal tax of 50 per cent. on earnings over £100,000. As she believes that there are significant economic disincentives for a higher marginal rate of tax, will she explain the findings of the Pensions Commission, published this week, that four in 10 pensioners—a growing proportion—are now paying marginal rates in excess of 50 per cent., and that a quarter of them pay marginal rates in excess of 75 per cent.? Is there not massive inconsistency in the Government's thinking on the matter?

Dawn Primarolo: I am sure that the hon. Gentleman will welcome the pension credit reducing the 100 per cent. marginal rates that existed previously. Much as I respect the hon. Gentleman, the real problem with the Liberal Democrats is that they advocate one particular proposal to raise funding to cover all their expenditure—which it will not—thereby fundamentally undermining the very economic stability that ensures that people are earning more and are in employment, and that we have a stable economic framework.

Third World Debt

2. Mr. Laurence Robertson (Tewkesbury) (Con): If he will make a statement on the progress being made towards writing off third world debt. [190538]

The Chancellor of the Exchequer (Mr. Gordon Brown): I can report to the House on progress at this month's World Bank meetings and the International Monetary Fund meetings that I attended and chaired on behalf of the United Kingdom.

We decided to extend debt relief for an additional two years, making possible a debt write-off of more than £100 billion, and the decision was also made to examine in detail the British plan to match 100 per cent. bilateral debt relief by, for the first time, 100 per cent. multilateral debt relief, paid for by contributions from donor countries and, potentially, by receipts from IMF gold.

The House will also want to know of discussions I held at those meetings that led me today to instruct the Bank of England to freeze with immediate effect the
 
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assets of JTJ, the terrorist group that publicly admitted involvement in the murders of Kenneth Bigley and five other hostages and has perpetrated a range of terrorist acts across Iraq. Following our discussions, we are working with international partners to deny JTJ access to funds across the world. We must do all in our power to ensure that there is no hiding place for terrorists and no hiding place for those who finance terrorism.

Mr. Robertson: I thank the Chancellor for that answer. The whole House will welcome what he announced in the second part of his reply.

May I draw the right hon. Gentleman's attention to the situation in Ethiopia? The UK has helped that country through debt relief and through contributions; in fact, we are increasing contributions to Ethiopia. However, the amounts that we are able to give are only a fraction of what the country has to pay in servicing its remaining debt, which is about £2 billion. Will the Chancellor, therefore, redouble his efforts to persuade the rest of the international community to speed up debt relief to Ethiopia?

Mr. Brown: I thank the hon. Gentleman for his initial remarks. I believe that our outlawing of that terrorist organisation will be welcomed by everyone in the House.

On Ethiopia, I appreciate that the hon. Gentleman has a long-standing interest as secretary of the all-party group on Ethiopia and that he is very much involved in looking at the problems of Africa as a whole. He will, therefore, be interested in the proposal that we put to the IMF and the World Bank. Half the debts of Ethiopia are multilateral debts; as a result, it has not benefited as much as it might have from bilateral debt relief and, as he says, the remaining debts are in the order of £2 billion or more. Our proposal to reduce multilateral debt relief will be of particular benefit to Ethiopia.

I understand the urgency with which the hon. Gentleman puts his case. We know that, as a result of all the problems in Ethiopia, life expectancy is little over 40. We know that, despite all the attention that has been given to Ethiopia, there are only 2,000 doctors for 70 million people. We know, too, that one in five infants dies before the age of one. It is, therefore, urgent that we do more both on overseas aid and on wiping out the debts that arose from a previous regime. I hope that we can work together on solving that problem.

Mr. Andy Reed (Loughborough) (Lab/Co-op): I am sure that we will all be delighted to hear that multilateral debts will at last be tackled because this country has taken a lead on our bilateral debts and it is necessary for other countries to follow us. What progress has the Chancellor been able to make on the international finance facility, which will not only increase the money available, but involve the other international partners that we need to bring in? We need to look beyond the original heavily indebted poor countries. He knows that many other low-income countries would benefit from debt relief, so what progress has he made on that?

Mr. Brown: On my hon. Friend's last point, our proposal for 100 per cent. multilateral debt relief will extend beyond the 37 HIPC countries to what are called
 
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International Development Association-only countries. Such countries do not have high debts, but have problems because of some of their debts.

In addition, we have been gaining support for the international finance facility. More than 40 countries are supporting our proposal. A report has been done for the World Bank and the IMF and a report is being done for the United Nations. The matter will be on the agenda when we chair the G7 in Britain next year. I hope that we will receive support from not only international organisations and national Governments, but campaigning organisations—I know that my hon. Friend has played a big part in helping that to grow. The proposal for the international finance facility has been helped by our decision in the spending review to set a timetable for raising overseas development aid to 0.7 per cent. I hope that the Conservative party will change its policy that would lead to massive cuts in such aid because it would be completely unacceptable.

Sir Peter Tapsell (Louth and Horncastle) (Con): Does the Chancellor now regret his missed opportunity to become the managing director of the International Monetary Fund?

Mr. Brown: The managing director of the International Monetary Fund, Mr. Rato, is a very good friend of mine. He used to be the Finance Minister for Spain. He is doing an extremely good job and was supported by the United Kingdom. I know that the hon. Gentleman is interested in what happens to gold, so I can tell him that Mr. Rato is now supervising an investigation into the possible off-market disposal of IMF gold so that we can raise sufficient money to write off the multilateral debts that are owed to the IMF. Some 15 per cent. of multilateral debts are owed to the IMF, so I hope that the hon. Gentleman will be able to support the sale of gold on this occasion.

Mr. Wayne David (Caerphilly) (Lab): Does the Chancellor share my view that development aid is not administered by the European Union as effectively as it could be?

Mr. Brown: Both sides of the House should have a common opinion of the problem that we face. Although 90 per cent. of our overseas aid goes to the poorest countries in the world and we use untied aid so that it can go to help the poor directly, less than 50 per cent. of the European Union's overseas aid budget goes to the poorest countries in the world, with the result that only €3 per head goes to Africa and €0.3 per head goes to Asia—the two poorest continents in the world. We propose to release €1 billion from the EU external aid budget so that the money can go to the poorest countries in the world. I am asking the overseas aid Commissioner, who has not given total support to my proposal for the international finance facility, to tell his successor that he should seriously consider increasing the amount that the EU gives for debt relief, getting money to the poorest countries and supporting our proposal for an international finance facility, which is now receiving support throughout Europe.

Mr. Roy Beggs (East Antrim) (UUP): I congratulate the Chancellor on the action that he has taken to date,
 
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and the international leadership that he has given, to write off third world debt. What support from overseas aid has been given to the Cayman Islands and other islands in the Commonwealth that have been devastated this summer by hurricanes?

Mr. Brown: We have given money to the Caribbean countries and we are giving additional support as a result of what has happened over the past few weeks. Such countries with debt burdens that are unmanageable and unpayable are part of the process through which we are writing off debt. Although we talk about Africa and Asia as the poorest continents, there are Caribbean countries that need their debts writing off. I hope that we can get all-party support for moving forward on that, but difficult decisions must be taken. We must invest more of our overseas aid budget into debt relief and win support from other countries for the international finance facility. I tell the shadow Chancellor that the process would be helped if all political parties supported an increase in the international development budget instead of calling for massive cuts to it.

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