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I heard the Prime Minister saying on the radio today that nobody will lose out because of the proposal. My hon. Friend the Member for Middlesbrough (Sir Stuart
Bell) also suggested that nobody would lose out, and that the 5.3 million people could be wrong. People do not agree with that view. They do not see the wider picture, and that perhaps their allowance has gone up in some way and perhaps the winter fuel payment will compensate them in another way. They see an increase on their tax assessments and a reduction in the money coming into their households each week. They perceive that they are being taxed by this Government even though they are the lowest-paid in our society.
The Government must overcome that perception. Saying that we will have a review starting for the pre-Budget report in November simply will not wash with anybody. It will not wash with me, because I do not agree with that approach. I want the Government to re-examine this matter and come up with something substantial rather more quickly than that to alleviate my constituents’ concerns. The only sensible option produced so far in this debate was put forward by my right hon. Friend the Member for West Dunbartonshire (John McFall), the Chair of the Treasury Committee, who said that his Committee would re-examine the issue. The Government must re-examine it; otherwise they will be labelled as the Government who are taxing the lowest-paid in our society while at the same time making concessions on inheritance tax and capital gains tax for venture capitalists. I urge my hon. Friends to look again at this issue.
Mr. Deputy Speaker: Order. Before I call the next speaker, may I say to the House that although we have a reasonable amount of time left, hon. Members will be aware that a number of other hon. Members are seeking to catch my eye, so unless contributions are reasonably short, a number will be disappointed?
7.17 pm
Mr. Graham Brady (Altrincham and Sale, West) (Con): I shall try not to speak for an unlimited period of time, Mr. Deputy Speaker, in deference to the House and in the interests of other hon. Members. It is a great pleasure to follow the hon. Member for Barnsley, Central (Mr. Illsley), whose three key points contained an important common theme: they all related to the direct ways in which taxation impacts on people’s daily lives. I strongly endorse his comments about bingo, where a clear unfairness will increasingly take away one of the few areas of social interaction for people in many communities. That matter should be addressed.
My hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) began by saying that the Finance Bill should be supporting business and consumers but is failing to do so. The hon. Member for Taunton (Mr. Browne) made an entertaining speech, in which he said that the Budget was puny and unimaginative. My take on things is that the fundamental problem is the Budget’s lack of theme and the fact that there is no theme or context to the Finance Bill either.
Stephen Hesford: Unless I have completely missed something, was not the theme the credit crunch and the need for stability? The Budget was all about a steady-as-she-goes approach within that context. That surely was the theme, and it was successful.
Mr. Brady: I am grateful to the former chairman of the Altrincham constituency Labour party for making that point; he may return to that role in the near future. He makes my point for me, because the Budget, and the Finance Bill that seeks to implement it, demonstrated a continuation of business as usual; the same procedure and approach that we have had over a number of years rolled on. Precisely what it failed to do was to respond in any significant way to changed circumstances.
The underlying assumption of the past 10 or 11 years is that a high tax burden is sustainable and that the Government can keep taking money out of people’s pockets and it will not hurt and people will not object. The assumption is that that is true for individuals and for companies. We are now starting to find—the story is the same from Labour Members—that such taxes are becoming much more difficult to justify in the difficult circumstances pertaining today when people are up against the credit crunch and worried about whether they can pay their mortgages or whether they will be in stable employment in one or two years’ time.
The only obvious concession to a new and more difficult economic situation was the six-month delay in the implementation of the fuel duty increase. That is a welcome recognition of the fact that fuel costs are rising for families and businesses, which is creating a competitive problem for UK hauliers, many of whom are competing against continental competition from countries that do not impose such a high fuel duty. However, the Budget was not clear about why the duty rise would have been unacceptable now. If it is because of the overall effect on costs for families or businesses, how will the Government respond if the same, or worse, circumstances appertain in October when they intend to proceed with the duty increase? People need some clarity about whether the Treasury accepts the principle that the costs in UK industry should not be levered up, creating an increasing competitive disadvantage for British businesses. Or was the delay just a response to short-term pressure and intended to get the Chancellor off the hook? Do the Government accept the principle that families are hurting because they have to pay increased fuel costs every week when they fill up their cars’ fuel tanks, or was the delay just a short-term fix to put off the moment of reckoning?
The same question arises in relation to the abolition of the 10p tax rate. It is welcome that Labour Members are starting to recognise that taxes cannot be increased again and again without consequences. For 11 years, taxes on all our constituents have increased dramatically. The pain has been mitigated, in many cases, by significant increases in salaries, easy credit, and rising house prices, which have given people a sense of security. It has also been mitigated by the hugely complex system of tax credits, which has reduced the impact on some groups of people.
In proposing the abolition of the 10p rate of income tax, the Chancellor—or perhaps it is the Prime Minister—has belatedly discovered the joy of simplifying the tax system. That is welcome, but simplifying taxes when raising or maintaining the overall burden of taxation means that there will inevitably be losers as well as winners, which has also been demonstrated in the changes to capital gains tax. The drive towards simplification is welcome, but it has been necessary to introduce mitigating
measures, such as entrepreneurs’ relief and the transitional arrangements, because of the damaging effects—some of which were unintended consequences—on some people.
With both the capital gains tax regime and the abolition of the 10p rate, I hope that a new understanding is developing on both sides of the House that there is a limit on how much it is fair or sensible to tax people, and that that limit has been reached if not exceeded.
Much has also been said about how proper consultation could have helped on the capital gains tax issue. That brings me to my final issue, because I wish to congratulate the Treasury on its sensible and detailed consultation on the proposed tax change to aviation duty. The changes will come into effect in autumn next year, but the paving measures are in this Finance Bill. The intention is to move from air passenger duty to aviation duty. The consultation document released in January was a serious and thorough exploration of the options and some of the difficulties arising from the proposal. I suspect that by now, with the consultation drawing to a close on Thursday of this week, Ministers will have begun to arrive at some conclusions. It will be clear, for example, that applying aviation duty to freight could lead to significant problems for the UK air freight industry. It could lead to significant job losses, especially in some parts of the country, such as the area around East Midlands airport. It could lead to the diversion of air freight from UK airports to near continental airports, and that will not save any emissions. Instead, it will increase road haulage and the environmental impact caused by the transhipment of freight by road. It will also transfer thousands of British jobs to other EU competitor countries, and that will clearly not be beneficial to the British economy.
The document also goes into sufficient detail about some of the other difficulties that might arise. The first obvious answer is to exempt freight-only flights, but not all flights carrying freight are freight-only flights. Passengers and freight are often carried on the same aircraft.
The second conclusion that is difficult to escape is that applying a distance criterion to aviation duty discriminates in favour of short-haul routes and against longer haul routes. Short-haul routes tend to give rise to the most emissions, which are concentrated during take-off and landing. Therefore, mile for mile, applying a distance criterion has a perverse effect.
Thirdly, the inability to apply the charge to movements other than those that originate at UK airports would encourage the use of aviation hubs outside the UK. All the same aviation would take place, so there would be no environmental benefit. People would take short-haul flights from UK airports to Schiphol or Paris to transfer to their long-haul flights. All that that would achieve is to damage Britain’s strategic economic interests by undermining UK hubs.
Fourthly, the duty could have a damaging effect on regional airports. It could therefore increase the pressures on and congestion at Heathrow and other airports in the south-east of England.
Fifthly, an up-front charge, unrelated to demand and the number of people on board a flight, would make it much harder to establish new long-haul routes from
regional airports. I have a particular interest in Manchester airport, which is very close to my constituency. When long-haul services from regional airports are established, they often depend on relatively low volumes of use in the early stages, and putting a charge on the flight when the service is first inaugurated could render them uneconomic and uncompetitive, and might also lead to a diversion of traffic to the more congested airports in the south-east.
Sixthly, basing the duty on the maximum take-off weight of the aircraft provides no incentive to invest in cleaner aircraft. Furthermore, while the shift to a duty based on air movements rather than passenger numbers is superficially attractive, the change could lead to higher emissions rather than lower emissions for all the above reasons. Given that the whole of aviation will, we hope, be included in the European emissions trading scheme within a relatively short period of time—that ought to cover the environmental costs of the industry—we are not talking about a provision that will have an environmental benefit. In fact, the new tax might defeat many of the objects that it purports to achieve.
Finally, the proposals might actually breach international law. They might be contrary to the Chicago convention and the EU-US aviation agreement. For all those reasons, I hope that the Government will learn something from the numerous problems in their application of tax policy and tax changes in recent months. I hope that they will reflect on the fact that where they have not consulted, they have come unstuck. They have had to engage in some embarrassing changes in policy. They have had to execute some U-turns and have looked unprofessional and unco-ordinated in doing so. When they have engaged in some consultation but have not taken proper account of its findings, they have had further difficulties.
In this case, the Government are consulting. They have given themselves a reasonable time. They do not need to finalise the details of the duty regime until this autumn in order to give the 12 months’ notice that they have promised the industry for implementation in November 2009. They have time to think again and to consider the implications of what they are doing. I strongly urge them to do so.
7.32 pm
Mr. Russell Brown (Dumfries and Galloway) (Lab): It is a pleasure to follow the hon. Member for Altrincham and Sale, West (Mr. Brady).
The top priority of the Budget was to ensure the country’s economic stability not only for today but for tomorrow and into the future. The Budget sets out a number of measures to support the economy and families while preparing the nation to meet all the challenges of the future. Those challenges and the steps taken to deal with them include tackling child poverty by increasing housing benefit disregard, child benefit and child tax credit; promoting enterprise by improving access to finance; improving access to housing though more shared equity for key workers and first-time buyers; and tackling climate change by increasing incentives to go green.
After the Budget debates, the official Opposition voted specifically against measures on alcohol duty and vehicle excise duty. By voting against those measures,
they voted against the funding that enables the increases in child tax credit and child benefit, as well as the extra winter fuel payment for this year.
Mr. Elliot Morley (Scunthorpe) (Lab): Is it not also the case that it undermines the Conservatives’ green claims to vote against VED changes that are based on emissions and the fuel use of cars? This is surely the kind of route that we want to follow in being more thoughtful about how we apply green fiscal measures. Although I welcome what is being done in the Budget, there is an awful lot more that we could do.
Mr. Brown: I agree wholeheartedly with my right hon. Friend. I thought that we were at a stage in this House where we were all 100 per cent. behind making progress on green issues. Clearly, as he has pointed out, there was a fundamental flaw on this occasion.
The Conservatives voted against the Budget measures that raised money, but not against those that increased spending. That equates to a £10 billion black hole in their economic plans on top of the £10 billion in unfunded tax pledges. Support in the Budget included the additional one-off payment in 2008-09 of £100 alongside the winter fuel payment for the households of those aged over 80, and of £50 for the households of those aged over 60. That will benefit about 9 million households. The increase in the first child rate of child benefit to £20 a week from April 2009 reinforces our Government’s commitment to child benefit as a foundation of financial support for all families. The increase in the child element of the child tax credit of £50 a year above indexation from April next year will further help low to middle-income families.
The public will see through the reckless unfunded promises made by the official Opposition, whose opportunism showed through when the Leader of the Opposition called for the 10p rate to be restored. Now there seems to be confusion, because they refuse to say what their policy is. That is typical of the reckless and irresponsible approach that they take to issues of taxation and spending. It was precisely that reckless approach to public finances that saw the last Tory Administration inflict on hard-working families across Britain interest rates at levels that reached 15 per cent. We would never wish to return to those days.
More than a third of the Bill is concerned with measures designed to simplify and modernise the tax system. That will help businesses to be more productive and the UK to remain internationally competitive in these difficult times. The 2008 Finance Bill will implement the business tax reforms announced in the 2007 Budget. The Bill will further promote access to financial resources for small and medium-sized enterprises through reforms in the enterprise investment scheme and the enterprise management incentive scheme.
The Bill implements the capital gains tax reform announced in the pre-Budget report towards the end of last year. That includes the introduction of the flat-rate capital gains tax of 18 per cent. and a 10 per cent. entrepreneurs’ relief on the first £1 million of lifetime gains. The Bill will also reform the North sea fiscal regime, particularly focusing on the tax treatment of assets. Petroleum revenue tax will also be reformed.
Having mentioned petroleum, I want again to put on record my thanks that the Chancellor saw fit to delay the fuel duty increase that had been proposed for
earlier this month. I know that there is likely to be a proposal from some in this House to introduce a fuel price regulator. I hope that my right hon. Friend the Chancellor will be in a position fully to explain why such a proposal is unmanageable.
As I am talking about fuel, I also want to mention an issue that blights many who live in rural communities—household heating oil. Those people are among the hardest hit. I know from a recent discussion with my hon. Friend the Minister for Energy that we need seriously to consider a number of issues, including social tariffs, which would alleviate some of the problems that many households face.
Looking to the future, as a nation we need to set our minds to the ever-increasing price of crude oil. It has taken us a long time to reach the price of $100 a barrel. It is not uncommon to see some of the major oil companies saying in the press and the media that oil will cost $200 a barrel in the next two or four years. If that is the case, we all need to consider the issue seriously now rather than waiting until it happens.
Mr. Brady: On that point, does the hon. Gentleman agree that if oil continues to increase in value in the way that he suggests, it would be folly to proceed with future increases in fuel duty?
Mr. Brown: I thank the hon. Gentleman for his intervention. The current and the previous Chancellor have obviously watched the increase very carefully in recent years. If the price of crude oil was seriously to increase, and crept up towards $200 a barrel, we would need to look at the issue in its entirety. It is for all of us seriously to consider where we are going as a nation, and whether we will be held to ransom by oil producers. The Organisation of Petroleum Exporting Countries is not at present considering increasing output; if it did, the price of oil would fall, so we are, to a certain extent, being held to ransom.
On the reduction in the basic rate of income tax from 22p to 20p announced in last year’s Budget, and the abolition of the 10p rate, we should not forget that more than 600,000 pensioners will be lifted altogether out of paying income tax. That is a major issue for some pensioner households. Earlier, I intervened on the hon. Member for Taunton (Mr. Browne); he has not stayed around to hear the end of the story that I told him, but I am sure that he will read Hansard enthusiastically tomorrow. I told him that within two or three weeks of the Budget last year, a number of colleagues and I met the then Chancellor of the Exchequer, now the Prime Minister, to discuss various aspects of the Budget. Obviously, there was a lot that was good in it, but I took the opportunity to raise certain issues.
I represent an area that is renowned, north of the border at least, for having a low-wage economy and very low household incomes. I thought that the abolition of the 10p tax rate would bring severe hardship to a number of households. In recent weeks, we have read in newspapers, seen on TV and heard on the radio that many households and individuals will be adversely affected, including women pensioners under 65, those who have retired early on the grounds of ill health, and wage-earning households where there is an income of under £18,000 and no recourse to tax credits to offset some of the loss.
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