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We have slipped to 67th in the world league table on simplicity, so 66 countries now have a simpler and more rational tax system than we do—including Cambodia.
The length of the direct tax code has doubled—1,000 years of tax law doubled in a little under 10 years. This year’s Finance Bill might even see us overtake India and give us the longest tax code in the world.
This was not a budget for business. It is true that we welcome some of the changes made to the taxation of large businesses. We have been examining the case for a reduction in the headline rate of corporation tax, funded by scrapping some of the complex reliefs that have multiplied under the Chancellor. Last week, we called on him to do that and he has responded, but, frankly, the impact will be limited when set against £50 billion in extra business taxes levied since 1997. Overall, taxes on business will be up by £1 billion next year.
The Chancellor may have taken some of our advice on large companies, but he has headed in the opposite direction on smaller companies. He has raised rates and made the system more complicated, so we will be voting against his proposals on small business. After 11 Budgets, six rate changes and a cycle of continuing revolution worthy of Chairman Mao, never mind Stalin, he is almost back where he started on small company taxation, except that small businesses will be paying more tax in a more complex and unstable system.
Small businesses employ 58 per cent. of private sector workers, which is more than 12 million people. Those businesses are not only a crucial source of enterprise and innovation, and the big companies of the future, but the bedrock of our local communities. The people who will lose out in a big way because of this Budget are hairdressers, newsagents, caterers and small retailers, who are already struggling with falling living standards and rising inflation.
Some 10,000 small local shops have closed since 2000. How many struggling suburban high streets will face further decline as a result of this tax hit? How many more village shops and local post offices will face closure? The Chancellor claims that new allowances mean that businesses that invest will not lose out, but how can a small suburban post office shell out thousands of pounds in investment to make up for the Chancellor’s tax grab?
The Chancellor has delivered a double whammy with a new tax hit on contractors through managed service companies. David Frost of the British Chambers of Commerce has said:
“This is a substantial rise and will hit those looking to grow their business.”
Paula Tallon of Chiltern tax advisers has summed it up:
“Small companies are getting thumped again.”
This was not a Budget for enterprise and competitiveness. With the thumping that business has received from the Chancellor in higher taxes, a more complicated tax system and a massive increase in regulation, it is no wonder that business investment has slipped below 10 per cent. of GDP for the first time since records began, that productivity growth has stagnated in Britain, that we have dropped from fourth to 10th in the world league table on competitiveness, that the UK grew more slowly last year than 21 other members of the EU, and that unemployment rose more quickly in Britain last year than anywhere else in the developed world.
This was not a Budget for saving and pensions, either. The Red Book contains the melancholy news that the savings ratio has virtually halved since the Chancellor’s first Budget, in which he dealt a body blow to savings in Britain with his £100 billion raid on pension funds. That was followed by recurring and damaging instability in pensions tax, culminating in the predictable mess that he made this year of pensions term assurance.
The Chancellor announced new money for those who have lost their pensions, which we welcome, but he failed to point out that that would be spread over 60 years. The net present value of the new money was barely a third of the figure that he announced with a flourish on Budget day. Ros Altmann’s verdict was:
“Today’s announcement does nothing for most of those who are struggling without their pensions today...This is typical Gordon Brown—trying to get good headlines when the reality is not good. People are still suffering.”
This was not a Budget for education. The promised bonanza for education spending has turned out to be a modest increase of just less than 2.5 per cent. Over-hyped announcements on spending cannot disguise the scandal that one in six young people leave school unable to read, write or add up properly and that 100,000 14-year-olds have the reading age of a seven-year-old.
Rob Marris (Wolverhampton, South-West) (Lab): If it is all such doom and gloom, how can the hon. Lady explain 2.5 million more jobs and the fact that the United Kingdom has gone from seventh to second in GDP per capita in the G7? Is it really all such doom and gloom? I do not think so.
Mrs. Villiers: We are lagging. We are 22nd out of 27 members of the EU in terms of growth, and unemployment grew more quickly in this country last year than anywhere else in the developed world.
Truancy is at record levels. Those children have spent almost their whole education under a Labour Government, who have failed them.
This was not a Budget for the NHS. For the second year in a row, the NHS barely got a mention. With junior doctors facing unemployment and emergency departments and maternity units threatened with closure across the nation—Labour Members know the situation very well—the question everyone is asking is: where has all the money gone? How can this Chancellor have spent so much and achieved so little? He has wasted money on an industrial scale. He has spent £4 trillion of taxpayers’ money, which is money earned by hard-working men and women up and down this country. Now, after years of falsely accusing us of wanting to cut spending on public services, he has finally seen the light. He is raising public spending but more slowly than the growth rate in the economy. He is sharing the proceeds of growth.
The Chief Secretary to the Treasury (Mr. Stephen Timms): Given that the hon. Lady says that our public spending projections are consistent with her third fiscal rule, will she commit her party to match them?
Mrs. Villiers:
We will certainly match the announcement on education. As for the rest, we want to wait for your comprehensive spending review. You must produce the
CSR, and we will produce— [Interruption.] I apologise, Mr. Deputy Speaker. When the Chief Secretary produces the CSR, we will produce our spending plans.
This Budget was not about economic stability. It was not about the environment. It was not about bringing people out of poverty. It was not about jobs and enterprise or competing with China and India. It was not about schools or the NHS. It was not about tax reform. It certainly was not about tax cuts. This Budget was all about politics. It was a tax con, not a tax cut. It was a continuation of the spin and dissembling that have characterised the new Labour project from the day that the Chancellor and the Prime Minister first dreamed it up. It was a cheap political sleight of hand and the British people have not been taken in by it. They know that if they want change, they will have to vote for change, and for a change of Government, not just a change of Prime Minister. I believe that one day very soon, they will.
11.36 pm
The Chief Secretary to the Treasury (Mr. Stephen Timms): We have had a memorable Budget and an interesting debate, and I thank all those who have contributed to it over the past four days.
The Budget contained personal tax reductions for families and pensioners and to help make work pay, tax simplification and reform to boost businesses, new UK leadership on climate change, and, crucially, additional resources to invest in public services and Britain’s future competitiveness.
The package of £2.5 billion worth of reductions in personal taxation to offer more support for families with children, for pensioners and to make work pay, is funded within a broadly fiscally neutral Budget. My right hon. Friend the Chancellor, at the outset of his speech, made the position clear:
“Let me be absolutely clear...changes that I make today will be broadly neutral for the public finances and overall”. —[ Official Report, 21 March 2007; Vol. 458, c. 819.]
The Conservative party did not understand it, but everyone else certainly did.
Tony Lloyd (Manchester, Central) (Lab): Does the Chief Secretary realise that while the attack on the Chancellor’s Budget by both the Liberal Democrats and the Conservatives was almost entirely political, it is nevertheless frightening for those on low household incomes to be told that they will lose money because of tax changes? Can he confirm that, in constituencies such as mine, which have many poor families, no household will lose out because of the Budget?
Mr. Timms: I cannot say that. I can say, however, that most households are better off. Let me quote what the Institute for Fiscal Studies has said:
“The income tax and NI package has been cleverly designed to limit the number of losers”.
Indeed, the gains are particularly concentrated in the lowest income deciles. Our policy is to give extra help to families, to do more to lift children out of poverty and to protect the position of pensioners, and that is what the package does.
Mr. Gauke: Given that the Chief Secretary has quoted the Institute for Fiscal Studies, will he also confirm that it said that 3.5 million households will be worse off as a consequence of the tax changes in the Budget?
Mr. Timms: What I can confirm is that there are more gainers than losers in every single income decile, and that the position set out by a number of speakers in the debate was very misleading.
Mrs. Villiers: Will the Chief Secretary confirm that a single person without children who earns less than £18,000 a year will be worse off as a result of the Budget?
Mr. Timms: No, that is certainly not necessarily the case. The hon. Lady should support the Budget; under its measures, 200,000 children will be lifted out of poverty. The Budget also strengthens incentives to work, building on past progress—there have been 2.6 million more jobs since 1997.
Mr. Binley: Will the Chief Secretary give way?
Mr. Timms: I will not give way for the moment. In terms of what I was talking about, the increase in the national minimum wage this October to £5.52 per hour will further help.
There was also a fiscally neutral package of simplification and reform of the corporate tax system to boost businesses and growth. [Interruption.] It was a fiscally neutral package. I am glad that the reduction in the main company rate has been broadly welcomed. The increase in the small company rate is balanced by the new £50,000 investment allowances.
Mr. Timms: I will give way one more time, after which I will make some progress.
Adam Afriyie: I thank the Chief Secretary for giving way. Will he confirm that a 16 per cent. increase in corporation tax on small businesses is indeed a tax increase?
Mr. Timms: But that change is offset. [Interruption.] Small businesses that invest will pay less tax as a result of the package. Figures released today show— [Interruption.] They show that there has been a big increase in business investment, which the Budget will strengthen further. Also— [Interruption.]
Mr. Deputy Speaker (Sir Alan Haselhurst): Order. I am sorry to interrupt the right hon. Gentleman, but the House should let the debate finish in a dignified manner. The Chief Secretary is winding up the debate; let him be heard.
Mr. Timms: Thank you, Mr. Deputy Speaker.
The Budget also addressed the challenge of climate change and the increasing pressure on natural resources. I wish to highlight the international aspects of the Budget statement. There will be a new international environmental transformation fund, with a first allocation
to tackle deforestation in the Congo rainforest, and we intend to host an international conference this year on global carbon trading, at which we will want to build on London’s pre-eminence in that area. Taken together, the Budget will deliver 6 million tonnes of carbon savings while strengthening UK leadership in the very important international decisions on climate change.
The Budget will equip the UK for future challenges with new investment. The hon. Member for Chipping Barnet (Mrs. Villiers) was unwilling to commit her party to match our public spending projections set out in the Red Book. [Interruption.] Yes, we have; the total envelope of projections was set out in the Red Book. The hon. Lady has declined to match that, and I will return to that point.
The Opposition have said that the Budget is all smoke and mirrors; that point was made in tonight’s debate. I am pleased to be able to say that the public have seen through that false claim. What the Budget does is clear, so it is no surprise that a poll in The Independent tomorrow morning shows a precipitate decline in the Tory party’s lead.
Of course, the context for the Budget—the reason why it was possible—is the remarkable transformation that there has been in the UK economy over the past decade. Before 1997, we had the least stable economy in the G7 on the inflation measure. Since then, we have been the most stable on every single measure. UK gross domestic product per capita used to be the lowest in the G7; now it is the second highest. This year, growth is forecast to be higher in the UK than in any other G7 country, and employment in Britain is now above 29 million for the first time ever.
It is not necessary just to take my word for all of that. Let us look at what the International Monetary Fund said in its report last month on the UK economy. It referred to a
“decade-long record of strong and steady macroeconomic performance”,
“growth of real GDP per capita was higher and less volatile than in any other G7 country”.
Such comments were never made when the Conservative party was in charge. Locking that stability in, avoiding any risks to it and sticking to our fiscal rules are immovable constraints around which the Budget has been constructed.
I am pleased that we have had the opportunity to address sharing the proceeds of growth—although I thought that more Conservative Members would talk about that. The first thing that we need to say about their proposed third fiscal rule is that the renewal of public services that we have witnessed over the past decade would have been completely impossible had it been in place. To insist that, whatever the circumstances, public spending must always and irrevocably fall as a share of GDP is utter folly. That was the policy of the Tory party in 1992. Its manifesto said:
“We believe that government should not gobble up all the proceeds of growth...our policy is therefore to reduce the share of national income taken by the public sector.”
It is the same policy now as then—I do not know whether the shadow Chancellor wrote it—and one would think that the Tories would have learned from
the failure of their policy in the early 1990s. It put public services on their knees, and it would do the same again if it were tried once more.
The leader of the Conservatives has indicated that he envisages the proceeds of growth being split 50:50. That would mean reducing spending in 2010-11 by £31 billion, below the projection in the Red Book. Perhaps the hon. Member for Chipping Barnet will tell us later whether that is what she envisages.
Dr. Nick Palmer (Broxtowe) (Lab): Does the Chief Secretary not agree that, in fairness to the Conservatives, we should accept that they would like to reduce taxes, but that unfortunately, because their policies always lead to increased unemployment, they never have the money to do it?
Mr. Timms: My hon. Friend is absolutely right about the record of Conservative Governments and the disastrous impact on public services in the UK.
We had a number of interesting speeches during today’s debate. The hon. Member for Hertford and Stortford (Mr. Prisk) asked me how many pages there would be in Tolleys tax guide by next year. The Finance Bill, which will be published on Thursday, will be a single volume, and I am sure that he will be able to work out the impact on Tolleys. The hon. Member for Twickenham (Dr. Cable) helpfully acknowledged, as he generally does, the sound condition of the economy, but his characterisation of the impact of the £2.5 billion personal tax reduction package was very unfair.
In this Budget, the Government have set out their approach to building Britain’s long-term future, locking in this decade-long record of strong and steady growth that has so transformed the country’s economic prospects.
Mr. Timms: I shall give way once more, and then I must make some progress.
Mr. Jim Devine (Livingston) (Lab): I am very grateful to my right hon. Friend for giving way. He talks about building Britain. Is he as astonished as I am that, whereas we are reducing income tax by 2p in the pound, the Scottish National party want to increase it by 3p? That would destroy Britain.
Mr. Timms: My hon. Friend is absolutely right. That policy makes no sense at all, and I know that his views will be endorsed across Scotland.
As I was saying, we will lock in this decade-long record of strong and steady growth that has so transformed the country’s economic prospects, enhance fairness through the Budget, lift another 200,000 children out of poverty, take 600,000 pensioners out of tax altogether, secure UK competitiveness in investment and employment, build on the record number of people in jobs in Britain today, lead on the worldwide effort to secure a global carbon market, address the challenges of climate change, and invest for Britain’s future, particularly in education and in science.
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