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Mr. Gauke: I will give one point: the Department for Work and Pension has assessed the weekly income that is required for a lone parent with children if they are to escape poverty, and for a couple with children if they are to escape poverty, and those figures are adjusted for rent. The second figure is higher than the first figure, in terms of what the couple and the lone parent would get from tax credits. If I may press on with the subject of tax credits
Mr. Gauke: That was the point; the amount required for couples, under the tax credits system, would be greater than the amount required for lone parents. If I may move on in my remarks on tax credits
Mr. Gauke: No, I have given way. I wish to conclude with this point on tax credits: another clear difficulty with them is that although they try to address the poverty trap for people entering employment, there has been difficulty with people in low-paid employment who move up, whether they are earning more or whether they are moving from part-time to full-time work, because of the very high marginal rate. According to one figure that I have seen, since 1997, the number of people facing a marginal rate of 50 per cent. or more has increased by 874,000. I think that the Government tried to address that yesterday, to some extent, by raising the threshold of the working tax credit, but I would be grateful to learn whether more people will be caught by the higher marginal rate. I do not know whether an analysis of that has been done, but there is concern that more people might be caught. I do not wish to dwell on the administrative difficulties with the tax credits system. I am sure that if I did the Paymaster General would intervene frequently
Mr. Gauke: Indeed; the Chancellor certainly would not. None the less, there are administrative difficulties, and an official from Her Majestys Revenue and Customs who gave evidence to the Treasury Committee last week said how difficult it was for forms to be completed. I am concerned, too, about the greater user of tax credits, which the Chancellor has promoted. There is a tendency for more people to pay tax, then receive a cheque later, so there are concerns that a greater dependency culture may result. I am conscious of time, so I shall conclude.
Yesterday, the Chancellor sought a short-term tactical advantage, but he may well have made a
strategic mistake in associating himself with what was essentially a con trick. His record on the substance is not as impressive as is often claimed. He has been inconsistent on public spending, he has been incoherent on welfare reform, and on pensions he has been incompetent. The question that the country must ask is whether, given the fact that the problems that he identified in 1997 still remain in 2007, the Chancellor is the right person to tackle them. The country must face that choice in the not too distant futurethe Labour party must face that choice in the very near futureand I am not convinced that he is the right man for that challenge.
Mr. John Baron (Billericay) (Con): This is an interesting Budget, if only because there is a dispute about whether it is a tax-cutting Budget. The Secretary of State for Education and Skills, who opened the debate, certainly found it difficult to justify the Chancellors claim that it is indeed a tax-cutting Budget. Most independent economists believe that there is nothing in the Budget to correct the fact that tax freedom daythe day British taxpayers stop earning money for the Government and start to keep the money themselveshas gone from 25 May in 1997 to 2 June last year. All the evidence suggests that small business taxation has increased as well.
Let us assume for a moment that the Chancellor is right, and that this is a tax-cutting Budget, although most of us doubt that. The Budget is interesting, because we have been told for the past year that we cannot share the proceeds of growth. The Chancellor has confirmed in the Budget that we can do sowe can increase public expenditure but, at the same time, if we believe him, we can have a tax-cutting Budget. Let us at least hope that that has moved on the debate about sharing the proceeds of growth, and that we do not hear any more nonsense from the Government on the issue.
In the past 10 years, the Government have taxed too much and thrown money at unreformed public services, and that has not resulted in the improvements that we all desire. There is little doubt that the growth in public expenditure as a proportion of gross domestic product has increasedup from 37 per cent. in 1999-2000 to an estimated 42 or 42.5 per cent. this year. Extra money for public services is good in principleI do not think that anyone would disagree with thatbut not enough of those resources have reached the doctors, nurses, soldiers and police on the front line. Too much of the extra money has been soaked up without improving productivity, and Ministers cannot dispute that the cost of inflation in the public sector is running at twice the rate in the private sector.
We have heard about the good progress by the NHS. Let us not be churlish about itin 10 years, there have been improvements, just as there were improvements in the previous 10 years. However, I would contend that, given the amount of money that has gone into the NHS, we have not seen the improvements that we should have seen. That is confirmed by statistics that clearly show that three quarters of the NHS spending increases have been spent on cost pressures, rather than
on improving front-line services. As a result, productivity in the NHS has fallen by up to 1.5 per cent. in each year since 1997. Labour Members might question those figures but the Chancellor himself, I am led to believe, has similarly been questioning why productivity has fallen in the NHS and has held meetings at No. 11 to discuss the matter. That proves that there is an acknowledgement, even in the Government, that productivity improvements have not been forthcoming, and that that is a concern, given the amount of money that has been put into the NHS.
Helen Jones: A number of the pressures to which the hon. Gentleman refers relate to improving wages for NHS staff and to implementing Agenda for Change. Is he suggesting that that should not have happened?
Mr. Baron: If one speaks to the Royal College of Nursing, one realises that it is not a happy organisation. The hon. Lady is aware that the RCN is campaigning vigorously against the latest wage increase, which seems to have been staggered and is below the rate of inflation. [Interruption.] The hon. Lady can intervene if she wishes. The facts do not confirm her argument that all is well with regard to salary increases. The badly managed introduction of some contracts has made for financial mismanagement as well.
Helen Jones: That is very kind of the hon. Gentleman: I am grateful. I was referring not just to this years pay rises, but to pay rises over the 10 years of the Labour Government, especially the implementation of Agenda for Change, which gave many staff in the NHS much better pay and career opportunities. I would be grateful if the hon. Gentleman answered the question. Does he think that those pay rises should not have taken place?
Mr. Baron: The hon. Lady knows the answer to that question already. The point that I am trying to make, which I suggest she is ignoring, is that the NHS should be to the benefit of patients, not just to the benefit of the staff. There is team work involved. However, the bottom line is, yes, there should have been salary increases, but productivity has fallen in the NHS.
If the hon. Lady wants an example, we need only look at NHS waiting times. Yes, the longer waits have been eliminated, but that has created a bulge in the middle, to the extent that despite the amount being spent on the NHS having more than doubled average waiting times have fallen by only five days over the past 10 years. These are not statistics spun out of central office but hospital episode statistics produced independently, and they confirm that average waiting times have dropped from 78 days to 73 days over the past 10 years.
Perhaps more worryingly, median waiting times have increased from 5.7 weeks in 1997 to 7.3 weeks last year.
Clearly, once the layers of Government spin have been peeled away, the extra money has not delivered the improvements that we all hoped to see, and that should have been delivered, given the amount of money that has been put into the NHS.
Let me put to rest the argument that is continually rolled out at the Dispatch Box that because we have seen such a good decline in cancer mortality rates, that is living proof, so to speak, that all that money is having a beneficial impact. That decline has occurred over the past 10 years, but it continues the decline in the preceding 10 years. In other words, it has made no significant improvement to the long-term decline in cancer mortality rates that has been evident for the past 20 to 25 years.
That argument needs to be challenged time and again. The statistics are available for everyone to see. If we look at the mortality rate for cancer among people under 75, we see that the proportion dying from cancer fell by 12.5 per cent. in the seven years after 1997. The comparable fall in the seven years before 1997 was 12.6 per cent., so all the extra money that has been put in has not made a discernible difference to the long-term trend in declining mortality rates.
Let me turn to taxation in general. It is evident that the Government simply do not accept the case for lower taxes. We have had 11 Budgets in which, broadly speaking, the tax take by the Government has gradually increased. Only 10 years ago, the UKs tax burden was close to the Organisation for Economic Co-operation and Development average of about 39 per cent. of gross domestic product. Since then, while across the rest of the OECD the burden has fallen to an estimated 38 per cent., in Britain it is forecast to rise to 42.5 per cent.its highest since 1986. The Government seem to take the view that public services should be micro-managed and that they know how best to spend peoples moneythat is why the tax take has gone up so much.
There is a strong caseindeed, almost a moral casefor lower taxation. Evidence the world over has shown that where Governments reduce the tax burden on their countries, over the medium and longer term that increases the prosperitythe growth ratemore than making up for the short-term shortfall in receipts through the initial tax cut. Hon. Members, especially my hon. Friends, must not be afraid to make the case for lower taxes. Tax cuts create a bigger economic cake from which the Government can take their honest share and help the less fortunate in society. I am sure that we all want to achieve those ends, but it is a question of how we do it. I suggest that the best way of creating increased prosperitythe bigger economic cakeis to lower taxes.
As I said, there is evidence across the world for that, but to find it we need only look across the Irish sea. Throughout the 1990s, liberalisation of the corporation tax laws in Ireland created a huge economic dividend that cannot be ignored. There we have a concrete example of a country making a determined cut in its tax rates and increasing prosperity over the medium to longer term. Real national income per head rose from less than 65 per cent. of the EU average at the beginning of the decade to rough parity by the end of ita phenomenal achievement. During that period, unemployment tumbled from a high of 17 per cent. to
about 4 per cent. The Irish Republic massively increased its share of inward investment from the EU and from US companies, while the UKs share remained about the same. This is not just wishful thinkingthere is concrete evidence to suggest that cutting taxes can create that bigger economic cake over the medium to longer term for the benefit of the whole of society, especially its more vulnerable elements.
At the moment, we have a British Government who are going the other way. In the past 10 years, they have marched in the wrong direction against the trend of lower taxation that has been evident across much of Europe as a whole. There is no shortage of statistics in this regard, and I suppose that one can always bend an argument to ones own way of thinking by choosing the right ones. Nevertheless, the bottom line is that if we are to reach a relatively independent assessment of the tax burden on individuals in this country, a good and objective measure is tax freedom daythe day each year on which the average British taxpayer stops working for the Government and starts working for himself. Back in 1964, tax freedom day fell on St. Georges day, 23 April. In 1997, it had reached 25 May. Last year, it was 2 June, and our forecast suggests that by next year it could be as late as 3 or 4 June.
Perhaps most worrying of all is the increasing burden of corporation tax. I accept that there has been a 2 per cent. cut in the main headline rate, but I am fearful of the effect that the Budget will have on small businesses. There is little doubtand there can be little disagreementthat the tax take from small businesses under this Budget has increased. The increase from 19 per cent. to 22 per cent. by 2010 for small businesses gives the lie to the Chancellors claim that this is a Budget for enterprise and prosperity.
The importance of small businesses to the UK economy should not be underestimated. More than 4 million small businesses make up over 99 per cent. of all enterprises in the UK. The Small Business Service has estimated that small businesses provide 47 per cent.nearly halfof UK non-government employment, and 38 per cent. of the UKs turnover. Meanwhile, research by the Federation of Small Businesses shows that small firms created a phenomenal number of jobs550,000 or over half a millionin the second half of the 1990s, compared with just 200,000 jobs created by large companies. These people are not fat cats or multinational businesses. Mostly, they are entrepreneurs who have an idea and are willing to risk their own money to get it off the ground. Small businesses are often the lifeblood of our local communities and high streets in constituencies up and down the country. Over time, many of them grow and contribute even more to the economy.
Were the Chancellor really determined to encourage prosperity and enterprise, he would not target tax increases on small businesses. He has claimed that the £50,000 capital allowance will result in many small businesses paying less tax, but we simply do not know whether that will be true. Many small businesses will not be able to take up that allowance, particularly in the service sector, which has done so much for the economy in the past. Many economists are still crunching the numbers, but the early indications are that netting off the introduction of a capital allowance
will still mean that the Treasury takes hundreds of millions of pounds away from small businesses and into the Exchequer.
Nor should we forget the effect of bureaucracy. Allowances and credits might be good for business but they also generate more bureaucracy for firms. It is far simpler to give companies a cut in the tax that they pay, and let them make their own decisions about investments in research and development. According to the Federation of Small Businesses, the average small business already spends about 28 hours a week filling in forms for the Government. The Budget will add to that while increasing the burden of direct taxation. When I am out and about in my constituency, I am told by entrepreneurs that that is a growing problem, and that they have to spend a disproportionate amount of time filling in forms rather than concentrating on running their businesses. That bugbear has just been increased further by the Budget.
All parties might claim to be the party of small business, but the important thing to entrepreneurs is hard cash. It is easy to talk about cutting bureaucracy, but hard to do something about it. Entrepreneurs are fed up of hearing both main parties simply talking about cutting bureaucracy; they want hard evidence that the Government are serious about helping small businesses. Small businesses are fed up to the back teeth of the Government claiming to be the party of small business but failing to deliver and only increasing the tax burden.
I would like to hear a promise of tax cuts for small businesses. My back-of-an-envelope calculations suggest that if a Government promised a 1 per cent. cut in small business corporation tax for each year of a term, by the end of the five-year term a 5p cut in small business corporation tax would cost the Exchequer only about £1.2 billion. In the great scheme of things, that is not a lot of money, but it would create such good will for the Government of the day.
This was a disappointing Budget. Whether or not it is tax-cutting is disputable: only time will tell. What we do know is that too much money is going into unreformed public services, and that small businesses will suffer as a result of the Budget. That will be to the long-term detriment of this country.
Mr. Peter Lilley (Hitchin and Harpenden) (Con): I apologise for having been absent from the Chamber for a while. I had to attend a meeting of the trustees of the Parliamentary Contributory Pension Fundon behalf of Members who are present, of course.
It is a pleasure to follow my hon. Friend the Member for Billericay (Mr. Baron). I am indebted to him, as is the whole House, for the devastating figures that he gave showing that, after 10 years and a doubling of public expenditure, the waiting time for operations in the national health service has declined by only five daysfrom 78 days to 73and that the median waiting time has actually increased. I predict that those figures will not be mentioned in the winding-up speeches, but I hope I am wrong.
The newspapers told us that this would be the last Brown Budget. In fact, it was the first instalment of the first Osborne Budget and the last instalment of the last
Lawson Budget. It was the first instalment of the first Budget of my hon. Friend the Member for Tatton (Mr. Osborne) because it was he who advocated the cut in the corporation tax rate which the Chancellor has made, and it was the last instalment of Nigel Lawsons last Budget because he set out his ambition to establish a simple two-rate taxation structure with a top rate of 40p and a bottom rate of 20p.
As you will remember, Mr. Deputy Speaker, when Nigel Lawson made that announcement in his Budget speech it produced uproar. For the first time in history, the Budget debate had to be suspended by your predecessor and could not continue until Labour Members had calmed down, such was their horror at the prospect of an income tax system with just two rates, 40p and 20p.
I wonder whether those who were so appalled then were among those who cheered yesterday when their own Chancellor announced, rather implausibly, that that had been his long-term ambition too. Perhaps they dwelt on the subject overnight. That may explain why only one Labour Back Bencher is present today to support the final instalment of Lord Lawsons Budget, whichin that respect, at leastConservative Members welcome.
In short, this sounded like a Conservative Budget with Conservative tax cuts, coming from a tax-raising Chancellor. Let us be clear about this, however: Conservative Budgets cut not only the rates of tax but the burden of tax, and this Budget increased the burden of tax. We should take account not just of the measures on page 209 of the Red BookBudget measures which themselves increase the overall burden of taxationbut of those on page 210, which show all the measures introduced since the last Budget but not included in this Budget. Then we see that the total burden of taxation is rising by £2.5 billion this year, and by £3 billion in the subsequent year. This was a tax-raising Budget of the sort that we have come to expect from a Chancellor who taxes by stealth.
The Chancellor has achieved the illusion of cutting taxes while increasing the overall tax burden largely by scrapping measures that he himself introduced. He introduced the 10p starting rate; now he has scuppered it. He said that he was halving the rate of tax imposed on the working poor; now he has doubled it. He reintroduced allowances on capital expenditure; now he is reducing them. He reduced the corporation tax rate on small companies; now he is raising it.
The Chancellor of the Exchequer spent his first four Budgets marching his troops up the hill towards a 10p tax band, a 20p small business rate and capital allowances for manufacturing. Now he has marched them back down again, leaving all that behind. He has been describedby my hon. Friend the Member for Tatton, I thinkas the Prince of Wales waiting to be King. Actually, he is the Duke of York, who marched his troops to the top of the hill and marched them down again.
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