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In the four hours or so for which I have been listening to the debate, my hon. Friend the Member for Ludlow and others have shown that they have great experience and knowledge of the world of business. My hon. Friends the Members for Northampton, South (Mr. Binley), for Beverley and Holderness (Mr. Stuart) and for Ludlow have demonstrated that they can operate in, and make a success of, business, thereby creating employment and generating wealth for our country. Is it any surprise that when the Government started in 1997, they said, “We’re on the side of small business”? As part of their promise, the Government said that there would be an annual debate on small business on the Floor of the House, but is it surprising that that promise was abandoned long ago? Obviously, the only people who know anything about
small business and the operation of the enterprise society are the people on the Conservative Benches, and that has been demonstrated in this debate.
The most intellectually stimulating contribution from a Conservative Member this evening was that of my hon. Friend the Member for Gainsborough (Mr. Leigh). He set out his own alternative Budget, which would involve raising the starting point for paying tax to £15,000 in income. That would take 13.5 million people out of tax. It would also raise the starting point for the 40 per cent. rate to £47,000. That is an aspiration, and it should be a policy for the Conservative party. I am delighted that so many members of our Treasury team are present on the Front Bench, including the shadow Chancellor.
In my remarks I shall concentrate on the issue of air passenger duty. We do ourselves a disservice in the House if we do not show that we are in tune with the concerns of the people out there. There have been full-page advertisements in our popular press over recent weeks expressing concerns about air passenger duty, particularly the increase, which is provided for in resolution 13. The increase will result in an extra £1 billion for the Treasury. What I find particularly offensive is that the increase is retrospective. It goes back to 1 February and therefore breaks new ground for Budget resolutions. That is one of the reasons why, in an Adjournment debate that I was lucky enough to secure I described it as unconstitutional.
Anyone travelling by air after 1 February has to pay the extra tax, regardless of when the flight was booked. That means that people who booked their flights for the coming spring holiday in, say, October or November, find that when they go to the airport they have to pay extra because of the retrospective legislation. Most of the adverse tax consequences are being borne by individuals. I am sure they will find a way of getting their own back against the Chancellor and this ghastly Government when the next election comes.
However, there is a significant group of people who do not have that protection. They are the package tour operators. They have taken a financial hit of some £44 million because regulations under the European package holiday regulations prohibit them from passing on the increase to their customers. That is outrageous. Because of the impact on the package holiday industry, when the Conservative Government introduced air passenger duty they gave about one year’s notice of its introduction, to deal with those involved in the package holiday business. I am delighted that the package holiday industry is taking the Chancellor to court on the matter, and I wish it well.
Air passenger duty is offensive not just because it is retrospective. It is a good little earner for the Chancellor. He has presented it as a green tax, but we know that it is no such thing. As a result of the change announced on 6 December, there will be savings of about 0.3 million tonnes of carbon per year by 2010-11. Let us compare that with the latest figures that I have for how many million tonnes of CO2 are emitted by China, India and the United States—2,700 million tonnes, and rising by 10 per cent. a year or
more. By comparison with that, 0.3 million tonnes by 2010 will hardly change the planet. However, it will provide another £1 billion for the Chancellor’s coffers, and we will do the people who are concerned about the matter a disservice if we allow the Chancellor to present air passenger duty as a green tax. It certainly is not. It is just a revenue-raising measure, and an unfair one at that.
Fortunately, the demand for aviation is inelastic. That means that however much we charge in taxes on aircraft flights, people will not be deterred from using aircraft. That has become apparent from discussions that have been taking place in the House on the European emissions trading scheme and the proposals to extend that to aircraft. If aircraft carbon were charged at £20 a tonne and average load factors of 70 per cent. prevailed, the result would be increases in the cost of an air journey of between £3 and £25. The growth in aviation by 2020 would be 135 per cent. rather than 142 per cent.: in other words, air travel would be double plus one third. There would be a minimal impact on the large growth in aviation. Why? Because of the inelasticity of this particular economic activity.
The number of passenger journeys from United Kingdom airports is set to increase from 228 million in 2005 to 490 million by 2030. I think that that is jolly good news, because it shows that all those people will be able to enjoy an improved quality of life. They will be able to enrich their experience by travelling and seeing the world. That probably applies to their children as well. Other Members, like me, will have children who, over the coming Easter holidays, will fly to the continent to engage in school exchanges and become more familiar with foreign languages. Why should we think it a bad thing for those children to have the enriching experience of travelling abroad by plane? Why should we tax hard-working families in this way?
Each year, United Kingdom aviation produces 36 million tonnes of carbon dioxide. At a market price of £10 per tonne, which I think is the current basic market price, aviation would have to contribute £360 million a year to meet its environmental carbon costs. But air passenger duty already yields £1 billion, and the increase proposed in resolution 13 would double that to £2 billion. Far from this being an effort to make the aviation industry pay its environmental costs, the industry will be charged more than five times those costs.
The tax burden of air passenger duty is disproportionate, and its impact on the environment is minuscule. Less than 1 per cent. of aviation’s 36 million tonnes of carbon will be saved. I welcome the realisation in my party that this is not a green tax, and I welcome the publication of the discussion document “Greener Skies: A consultation on the environmental taxation of aviation”. I welcome the assertion that
“The doubling of APD rates... has attracted controversy due to the short notice and retrospective nature of the increase on passengers who had already booked their flights.”
Sir Nicholas Winterton: And paid for them.
Mr. Chope: And paid for them, as my hon. Friend says. I welcome the statement that the controversy
“has refocused attention on more fundamental shortcomings in the design of APD. In particular as a per-passenger tax it is not directly linked to the carbon content of the flight. As a result it provides no incentives for airlines to use more fuel-efficient aircraft or to increase seat-occupancy rates. It also excludes the fast-growing air freight sector.”
I welcome, too, what the document says about the Financial Secretary to the Treasury. It points out that he admits that APD
“is a blunt instrument as far as the environment goes... It is not even the best tax instrument actually to deal with the effects of aviation... In narrow terms it’s not specifically a tax that is designed for environmental ends.”
It also quotes the Government’s 2003 aviation White Paper as saying
“Because of its blunt nature, APD is not the ideal measure for tackling the environmental impacts of aviation.”
“Together with the fact that the tax increase announced in the PBR was not offset by reductions in tax elsewhere, these deficiencies help to undermine public support for APD as an environmental tax and feed suspicions”—
I would put it more strongly than that—
“that it is simply designed to raise revenues for the Treasury.”
I commend my hon. Friend the shadow Chancellor for that consultation document and his incisive analysis of the defects of APD. When I last heard him speak, I was left in some uncertainty as to whether we would be voting against resolution 13, but I hope that in the light of what he says in the document and our concern about retrospective legislation, he will join me and others in the No Lobby when we vote on it.
Let me refer to the way in which the Budget has covered up the work of Sir Michael Lyons. His commission was set up in July 2004 to consider the whole issue of how we pay for local government. After almost three years, he reported in a way that many of my elderly constituents would find encouraging. He said that 1.8 million people, mainly poor pensioners, are unable to get the full benefit of the council tax rebate and that as a result there is an enormous extra burden on those poorer members of our communities. He suggests that we should bring in new measures to help those people, who are paying £1.8 billion a year more than they should be because of the inefficiency of the council tax rebate system.
Sir Michael came forward with the radical idea—I hope that it will be taken up by my hon. Friend the shadow Chancellor—of raising the upper capital threshold for entitlement to council tax rebate to £50,000.
Sir Nicholas Winterton: Minimum.
Mr. Chope: Indeed, as a minimum. He goes on to say that over time it could be abolished altogether.
If the Chancellor had adopted that recommendation from the Lyons report, we might have been able to take seriously his assertion that the Budget was fair and designed to help pensioners and those who are worst off in our society, but of course the report was an embarrassment to him, which is why it has been suppressed. I am concerned that so many people, even some of my hon. Friends, are not yet familiar with
Sir Michael’s radical and helpful proposals, which would particularly help hard-pressed pensioners with very high council taxes.
Bob Spink: What does my hon. Friend think that his hard-pressed and long-suffering council tax payers, particularly the elderly, would make of the proposals to remove council tax capping or to make additional charges for waste collection, or the proposed tourist tax?
Mr. Chope: They would be rather less enthusiastic about those proposals; indeed, they would think that they smacked of being additional stealth taxes. They would also note with concern that the Lyons report says that in today’s terms a local income tax would result in the basic tax rate going up by 7.7p in the pound.
My last point about Sir Michael Lyons’ report is that he suggests the option of helping households that pay an unacceptably high council tax. Paragraph 174 of the executive summary proposes “a circuit-breaker rebate” to ensure that no householder pays more than a set proportion of income in property tax. I have long argued in favour of such a system. An enormous number of pensioners are, for want of a better expression, in council tax poverty. People are described as being in fuel poverty if they pay more than 10 per cent. of their income towards the cost of their fuel. However, many of my constituents pay much more than 10 per cent. of their net income towards the costs of council tax. They are, therefore, in council tax poverty. Limiting the percentage of income that was attributed to council tax would be a helpful mitigation. Of course, the Chancellor took up none of those suggestions in the Budget, because he is more interested in filling his coffers and deceiving the people.
If we were in any doubt about the Chancellor’s abuse of the English language, let us consider just two things that he said in the Budget speech. He said that
“the amount of cash that can be saved tax-free from £3,000”
“by 20 per cent. in April next year to £3,600.”
In his last sentence, he stated that
“I will from next April cut the basic rate of income tax”.— [Official Report, 21 March 2007; Vol. 458, c. 825-828.]
“Next April” is later this week. The Chancellor deliberately used language that must have given the impression that we were considering April this year rather than April next year. No wonder that the quality of education in our country is declining so rapidly when the Chancellor sets such a poor example from the top. “Next” means next, not the year after “next” or the April after next. If the Chancellor becomes Prime Minister, I hope that he will pay greater heed to the English language and, in so doing, to the need to increase public confidence in the straight talking of politicians.
11.22 pm
Mrs. Theresa Villiers (Chipping Barnet) (Con):
It gives me great pleasure to sum up the debate this evening. The Secretary of State for Trade and Industry and my hon. Friend the Member for Hertford and Stortford (Mr. Prisk) began the debate robustly, as one
would expect. My hon. Friend spoke about competitiveness and the Budget’s impact on small businesses. He raised a range of themes, to which I shall revert throughout my speech.
The hon. Member for Coventry, North-West (Mr. Robinson) began by defending the Chancellor’s sanity and proceeded, slightly oddly, to express some significant reservations about two of the centrepieces of the Budget. Even the Chancellor’s friends appear to have reservations about what he produced in the Budget.
The hon. Member for Twickenham (Dr. Cable) spoke about a range of important issues, including the key fact that the value of take-home pay is now falling in this country. People’s weekly wage packet buys them less and less and the retail prices index is at its highest for 16 years.
The hon. Member for Blaydon (Mr. Anderson) recognised that the Opposition’s concerns about the loss of the 10p band had merit. He spoke with passion and commitment about education and the schools in his constituency.
My right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) produced an analysis of huge insight. The time available makes it impossible to do it justice. He spoke of the benign global economic conditions that the Chancellor has enjoyed and commented on the Chancellor’s making a dreadful mess of public finances. He welcomed the Chancellor’s recognition that we were right and said that we should share the proceeds of growth.
The hon. Member for Coventry, South (Mr. Cunningham) spoke about his support for restoring the link between pensions and earnings. My hon. Friend the Member for Gainsborough (Mr. Leigh) talked about the importance of efficiency savings in Government and made a strong plea for progress towards lower taxes.
The hon. Member for City of Durham (Dr. Blackman-Woods) expressed her concerns about the Government’s misconceived planning gain supplement. My hon. Friend the Member for Northampton, South (Mr. Binley) spoke with verve, energy and passion about small business.
My hon. Friend the Member for Beverley and Holderness (Mr. Stuart) delivered a devastating critique of the Treasury’s record on the environment. My hon. Friend the Member for Ludlow (Mr. Dunne) spoke at some length about a range of issues, including sideways loss relief and the Budget’s impact on enterprise. My hon. Friend the Member for Christchurch (Mr. Chope) expressed his grave concerns about the tax rises that the Government have introduced.
This was not a tax-cutting Budget. The Institute for Fiscal Studies has calculated that 3.5 million families will be worse off because of it. Page 279 of the Red Book reveals that tax will be up by £2 billion once all the Budget measures kick in, on top of the £2.4 billion in tax increases already trailed this year in the pre-Budget report and other measures. The Chancellor has raised taxes 99 times since his first Budget 10 years ago and the IFS tells us that the average family is paying £5,600 more tax a year in real terms. The
Chancellor is about as credible on tax cuts as the Prime Minister on weapons of mass destruction.
This Budget was a tax con, not a tax cut. It did not cut taxes on income. Page 208 of the Red Book shows that the £8 billion cost of cutting the basic rate will be more than offset by a £7 billion increase from scrapping the 10p band and a £1 billion increase from raising the national insurance limits. The overall impact of the income and national insurance contributions changes means that working families will be paying £340 million more tax on their income next year.
It is not the rich who are being hit—not the guys in the City who are paid £22 million. People earning between £5,000 and £18,000 will pay more income tax. Nurses, cleaners, care workers, police community support officers, shop assistants, catering workers: those are the sort of people who are losing out. The Budget involves a transfer of the burden of tax from those on middle incomes to those on low incomes. This is the Budget that Labour Back Benchers cheered, by the Chancellor who claims he wants to tackle poverty.
The Chancellor seems to think that hitting the poorest with a higher income tax bill is not a problem, because tax credits soften the blow. What he is saying, in effect, is, “I’ll take away more of your money, but you can have some of it back if you wade through these 72 pages of forms and explanatory notes on tax credits.” The Budget will drive more people into the benefits system and into dependency.
Let us look at the tax credit system that people are being driven into. We support the use of tax credits—[Hon. Members: “Ah.”]—but the tax credit system is broken, with £2 billion lost through fraud, nearly a million people underpaid and 2 million overpaid, meaning that half the payments in the system are wrong. Thousands of the most vulnerable people in our society are in desperate straits, driven into the hands of loan sharks when faced with huge overpayment bills that they cannot afford.
The Budget’s increase in the tax credit withdrawal rate will leave many low-income families facing marginal tax rates of 70 per cent. or more as they struggle to lift themselves out of poverty. There are more people in deep poverty now than there were when the Chancellor gave his first Budget 10 years ago. Figures released today show the incomes of the poorest 20 per cent. falling and poverty increasing. How right the right hon. Member for Darlington (Mr. Milburn) was when he said that poverty has become “more entrenched” under Labour.
This Budget was not about tax reform. No Budget can claim to be simplifying when it increases dependency on highly complex tax credits. There are, it is true, some modest steps in the Budget towards tax simplification. We have put the issue at the top of our agenda and it is good news that the Chancellor has been pulled along in the wake of my hon. Friend the Member for Tatton (Mr. Osborne), but these limited reforms cannot make up for the continual meddling and instability that has characterised our tax system since the Chancellor’s first Budget.
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