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There will be those on the left for whom the change does not go far enough. They think that this crisis is a good opportunity to increase the rate to 60p, 70p or 80pthe rates they were used to in previous periods of government. However, there are others on the Labour Benches who understand that in a globalised and footloose world economywhether we like it or not, we have to live with itit is all too easy for people with money, talent, capital or high incomes to say, I wont base my activity here any more, Ill base it somewhere elseIll go to Dublin, the Bahamas or Asia, because the Governments in those jurisdictions really want talented people and new businesses. There are jurisdictions that wish to give a home to businesses that might otherwise have been located in London or Britain. That is the danger that we now face.
In other respects, the Government claim to believe that putting a tax up means having less of something. For example, they are busily increasing the tax on gas-guzzling cars because they want fewer of them. They are also increasing the tax on drink, because they want people to drink less. Probably only the ministerial drinks cupboard will be well stocked at the new duty rates, because public spending is still in free flow, whereas other people are expected to rein back, which we are told is good for their health. The Government believe that increasing duty on tobacco means that people will smoke less and that fewer cigarettes will be sold.
Mrs. Jacqui Lait (Beckenham) (Con): I am paying careful attention to my right hon. Friends argument. I wonder whether he would like to think back to the introduction of the single market and to what happened to the UK, with wine and tobacco coming into this country through smuggling, and whether, despite the drop in the value of the pound, the change in duty may be yet another way of increasing smuggling.
Mr. Redwood: It could well be. As hon. Members will know, the drinks industry in particular is extremely unhappy about the change. At a time when the industry is struggling to maintain licensed premises and its general business, the Government are being far from helpful in their tax policy.
My point is about the consequences of tax changes. In all the areas that I have mentioned, the Government quite rightly say that if they increase tax on something, there will be less of it, so why do they not think that the same applies to working hard? If we increase the tax on working hard, will there not be less of it? Will people not either do less or go somewhere else to work hard where the Government do not take so much money? The Governments proposed increases in taxes on doing things, such as drinking, smoking and so on, and on larger vehicles are in conflict with their wider statement about their wish to have a reflationary Budget.
If the Budget were genuinely about reflation, surely it would be best to lower taxes on things made in Britain that people might buy. We would not increase the costs of owning an expensive vehicle if we wanted to sell more expensive vehicles nor would we increase the taxes on drink if we wanted more people to work or even just survive in jobs in the drinks, entertainment or hospitality industry. There are contradictions at the heart of the Governments policy.
Mr. Newmark: Another point that my right hon. Friend might want to address is the fact that the increases are regressive, because they hurt the poorest people in society, who spend a larger proportion of their wealth on things such as drinking, smoking and driving. A second point is that such increases do not really change behaviour, which is what the Government are trying to do, but are just an extra means for the Government to try to fill the black hole in their public balance sheet.
Mr. Redwood: That is absolutely right. Just as there is a contradiction between the Governments tax policy on the one hand and their so-called reflationary policy on the other, because some of their taxes will clobber jobs and business, so there is a conflict between their reasonable wish that people on lower incomes should have a better deal and the tax policies that they are pursuing.
The most regressive tax in the Budget is the fuel escalator. A lot of people on modest incomes need to use a car. They need to buy fuel, but often they cannot afford to buy the more fuel-efficient vehicles that better-off people can afford. The Government are deliberately targeting people on low incomes to pay more tax as some kind of penalty.
At a meeting earlier today, I heard about some of the plans for the water industry that I think may have the Governments approval. The implication was that we will have to pay more for our water because the Government want to raise revenue by selling off licences for extraction. We await the legislation enabling them to do that on a big scale, but they are doing it already on quite a big scale to pay the costs of the Environment Agency.
If that is a serious proposition, it is an even clearer example of what I and my hon. Friend the Member for Braintree have just describedthat those on the lowest incomes will face the biggest proportional increase in the price of a basic requirement that the Government believe should be rationed by price.
The most obvious example of that involves motorists in London. Only extremely rich people are now able to drive regularly during the day in central London. Motorists have to pay £8 a day out of their taxed income to use the road, as well as meeting all the fuel duty, vehicle excise duty and other costs incurred in running a car. In addition, fuel use in London is especially high because the regimes of the Government and the previous Mayor have made travelling around London freely extremely difficult, which increased the amount of fuel burned and therefore the cost for Londoners.
There is a strange conflict in this Labour Budgetthe party that wishes to be the party of the people is actually clobbering the people, and the poorer people are, the more they get clobbered by specific taxes on things that they have to buy. The other dilemma is that a Budget that wishes to be reflationary contains a series of tax proposals that are anti-enterprise and anti-business, and that target specific sectors of the business community especially severely.
The Budget papers also reveal a further development in the Governments surveillance and control activities that is far from welcome. One thing that is doing the most damage to the Governments reputation among the wider electorate is their complete compulsion to control every aspect of our lives. They want to eavesdrop, carry out surveillance and impose cameras on us; they
want to inspect and audit us, and they assume that everyone is doing wrong until they can prove otherwise. I am afraid that the Bill is another example of that.
The tendency is not confined to the Home Office and the hapless Home Secretary. What I have described is also being done by the Chancellor of the Exchequer and his junior Ministers. The Bill has some tough clauses strengthening the powers of Revenue and Customs to intrude on lives and business and individual records, even when they have no reason to suspect that the people involved are criminals. The proposals will give people a very nasty feeling: they will make the relationship between state and citizen that much more unpleasant and put everyone on edge. They will also create extra cost and harassment of a kind that is very unpleasant.
I believe that the Government, in their own interests, should revisit the proposals before the Bill is finalised. Opposition Members have drawn attention to the problem. We do not like the proposals, and think that many of our law-abiding constituents will find them very irksome and unpleasant. Above all, however, the proposals that I have described do damage to the Government, because they reinforce the view that the state is all-bossy and wishes to be all-knowing. The Government seem not to trust anyone at all, but to believe that every taxpayer will be up to no good unless they take extremely draconian control.
I suspect that the Governments approach is the result of two things. First, it is the result of politics, because some Labour Members believequite wronglythat all successful people are tax fiddlers who must be hounded out and purged. Secondly, it is the result of the Governments theory that they will one day find the crock of gold containing all the billions that the rich have been hiding all these years. The fact that they have not got to grips with the cash before means that it will be an easy, soft option for filling the hole in the accounts.
I am afraid that I have news for the Government. I am sure that the intelligent Ministers realise that there is no such crock of goldif there were, Governments over the generations would have found it by now. It does not exist: to get out of the colossal deficit that is the centrepiece of and background to the Budget the Government either have to impose a lot more tax on everyone, or exert much better control over public spending.
The Bill, like all too many of its predecessors over the past decade, is an enormous piece of work. It is 433 pages long, with 61 schedules and 126 clauses. This becomes a burden in itself. How can business people, who are worried by the recession, trying to preserve the jobs of their work force and desperately trying to sell a bit more product and raise the quality of their service, be expected to get their heads round 433 pages of changes to tax law, some of which are extremely complicated? If they do not do so, however, the Government will say, There you are. These people arent serious. They are not good directors and managers of businesses. They did not understand page 417 and they should have done. They will then use the new draconian powers to call people in for questioning, or worse. It is not fair to impose so much on people when they are desperately worried about the state of the markets and the state of their companies.
One problem that I fear the Government will have to revisit is that of revenue collapse. I said earlier that I was not a doom-monger. I do not think that we will stay
in recession for ever; I think that, at some point, easier money works. However, I do think that this will be a very deep and long recession by post-war standards; it looks as though it is going to be the longest and deepest by quite a long way.
In my experience, the Treasury always gets the figures wrong both ways: it always underestimates the amount of revenue that will come in when the economy is growing a bit faster than it expects, and it always overestimates the amount of revenue that will come in when the economy underperforms. I fear that its models are not revealing just how big a drop in revenue there will be. There must, for example, have been a catastrophic drop in stamp duty, because there are so few housing transactions and because house prices are now 20 per cent. or more below the peak levels. There will also have been a very big drop in corporation tax. We know that some of the largest profit-makers of yesteryear were the banks, and that the biggest banknow a state-owned entityhas managed to lose £24 billion instead of making billions. Corporation tax revenue must be well down.
We also need to factor in a big reduction in dividend tax revenue. The banks accounted for a high proportion of dividends being paid; I think that they paid about a quarter of all the dividends on the all-share index in 2007. Some will now be paying little or no dividend, while others will find themselves in straitened circumstances, so there will be nothing like as much dividend income coming in from one of the big sectors. I suspect that some of the other cyclical sectors will also suffer big reductions in pay-outs and, therefore, in tax revenue.
Mr. Syms: My right hon. Friend is right; there might be a reduction in dividends from banks, which is why manufacturing industry could be important. There is a story running on Sky at the moment that there are problems with Tata and the negotiations over Jaguar Land Rover. That will certainly be important for the west midlands and for much of British industry. Perhaps we ought to have a statement on that.
Mr. Redwood: That is a very helpful idea. Jaguar is another example of the conflicting attitudes in the Budget document, which contains tax increases that will hit people who buy those cars. Perhaps that will put some people off buying them. Perhaps that is a good thing; perhaps that is what the Government want. But why, then, should we consider subsidising a car maker to make vehicles that the Treasury is trying to prevent people in Britain from buying by taxing them off the road? That is another muddle that shows the conflict in the Budget between its reflationary intention to get people back to work and to retain jobs in companies such as Jaguar, and its spiteful intention to change behaviour and to increase revenues through tax increases.
My advice to the Government is that this should be a Budget about reflation, and this is therefore not the right Finance Bill before us today. In order to have a successful and well-based reflation, they need to be kinder to businesses, individuals, enterprise and jobs than they have been in these tax measures. Many of the proposed increases will make that recovery more difficult, and could drive people abroad and result in things happening that they do not wish to happen. They will also increase the amount of subsidy that they will have to pump into some of the companies that will suffer as a result of their tax measures.
I do not believe that the Government will get a big reflationary push out of the fact that they are raising so little revenue when considering their costs relative to their expenditure. Treasury Ministers and I will strongly disagree on how to do that: I would reduce spending, while they would increase taxes. The Government need to tell us this evening how they would fill this black hole if they were to stay in government, because it is quite obvious from this Finance Bill that they have not put in place the range of taxes and the right tax breaks necessary to do so. To make it a little more difficult for themit is a very difficult problem, because they have created an enormously complex problem for themselvesI would say that simply putting tax rates up will not necessarily be the way to fill the hole, even if they wish to carry on spending at this rate, because they are reaching the point at which revenues could be reduced because of a disincentive effect.
Mr. William Cash (Stone) (Con): My right hon. Friend and othersI see in his place my hon. Friend the Member for Braintree (Mr. Newmark)have pursued the level of public debt, about which my right hon. Friend has just made some very powerful points. Is he conscious of the fact that the Treasury Committee report, which came out only a short time ago as the minutes are dated Tuesday 6 May, does not appear to tackle the true level of our Budget problems, as the amounts specified appear to be largely geared to what the Government said, which at least the three of us are quite convinced are hugely less than they should be?
Mr. Redwood: I agree with my hon. Friend. In providing the background to my comments I stated why I believed this to be the wrong Finance Bill as it does not tackle the magnitude of the problem. It is not just about the gap between the revenues and the spending of this year and next year, which is the main background to the Bill, because as my hon. Friend implies, the stock of debt is also important.
If the Government had to account in the way they make large private companies account, they could not get away from the fact that the gross liabilities of the state are more than £4.5 trillion. Pensions have to be included, as do the debt obligations and risks of the banks, the private finance initiative and public-private partnerships, Network Rail and the mortgage banks. Indeed, the lot has to be included if we are to have honest and accurate treatment, and if a finance director of a large company fails to do that, he goes to prison. It is quite simple. I know that they operate under different rules, but the markets out there are adjusting and they do not believe the figures that the Government are providing them with, so we are not seeing the beneficial impact on market responses that the Government want. I think that the Government would have more credibility and instil more confidencesomething we desperately needif they came up with a more honest set of figures that we could all use and view as broadly right.
Mr. Brian Binley (Northampton, South) (Con):
My right hon. Friend touches on a point of confidence, which seems not to be understood by members of the Government. The fact is that small businesses are all about survival nowadays, so they need their confidence
improved in order to improve the position of the economy generally. However, their confidence will not be improved as long as the Government produce Budgets and Bills of this kind. Am I right in my thinking, and is there a way to get this through to the Government, who are so stubborn on this particular point as on so many others?
Mr. Redwood: I think that the answer to my hon. Friends first question is Yes, he is absolutely right, while the answer to his second question is No, there is no chance of getting the message through to the Government. That task proved too much for the Chief Secretary, who I believe has been the worst Chief Secretary on record because she has not for one minute during her time in the Treasury succeeded in controlling public expenditure. I wonder how she dares to draw her salary, frankly, as she makes no attempt to control public spending.
What I think we need in this Finance Billand I hope my right hon. and hon. Friends will seek to achieve it as the Bill makes progress in Committeeis this. We need a Finance Bill that says to the Revenue and Customs not Toughen your powers, but Understand that these are very difficult times, as businesses have other priorities. While crooks should not be allowed, there is a need to be understanding and to work sensibly with business; otherwise, more jobs will be lost and more orders will be cancelled.
I think we need the Finance Bill to be amended to say that we are going to try to optimise tax revenues by having competitive tax rates on business and incomes, not by plucking them out of the air for other reasons. We need to recognise that our corporation tax level is no longer competitive and that the Government now wish to set uncompetitive income tax rates. I think that we should try to tease out and clarify the Governments thinking on what they are trying to do with their increased taxes on drinks, cars, fuel and so forth. Are they trying to tax the poor? That seems to be what they are doing. Are they trying to reduce activity in those areas? That seems to be what they are doing. How does it square with what we were told was meant to be a reflationary Finance Bill?
We need a lot of change in this Bill. I think that it is not a good Finance Bill for our current economic circumstances. The Government believe that they can get away with the borrowing in the short term, but if they were a decent Governmentif they were interested in the long-term success, strength and stability of this countrythey would realise that the gap between spending and revenue is simply too big.
Mr. Brooks Newmark (Braintree) (Con): I am delighted to follow my right hon. Friend the Member for Wokingham (Mr. Redwood). When it comes to Finance Bills, he is indeed primus inter pares. He spoke almost note-free for, I believe, 45 minutes. That shows the breadth and depth of the experience that he brings to the House, and I could not disagree with a word that he said.
I used to be in business. Although I have now wound down my interests, I draw the Houses attention to the Register of Members Interests, which makes it clear that I retain a couple of interests from my previous life.
Grant certain duties, to alter other duties, and to amend the law relating to the National Debt and the Public Revenue, and to make further provision in connection with finance.
I want to say a little about borrowing and debt. When the Prime Minister became Chancellor, he made great play of two important rules: the golden rule and the sustainable investment rule. The first said We must keep the debt-to-GDP ratio at about 40 per cent., which is an important benchmark. The second said We must not invest and then borrow more; investment and borrowing must balance over the economic cycle.
The Government and the former Chancellor, now Prime Minister, set great store by those rules for a long time. As we have heard today, the Prime Minister talked a huge amount about ending boom and bust. In fact, he thought, like Canute, that he alone could hold back the tide of the economic cycle, and end boom and bust. When history is written, however, it will show that the Prime Minister whom we have today led the biggest boom and the biggest bust that we shall have seen for nearly a century. It was only a year ago that we saw public sector net debt at 2 per cent. of GDP. Twelve months later, we pick up the Red Book and note that the budget deficit will be around 12 per cent. of GDP. That is a 10 per cent. leap, and represents a huge change from what the Government were saying a mere 12 months ago.
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