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Mr. Paterson: I am delighted that the Minister says no; I should be grateful if she would explain the measure. Labour Members were quick to criticise the Child Support Agency: hon. Members have daily received a flood of correspondence on the problems thrown up by the CSA. The Budget requires finance directors in small businesses to take on a burden similar to that of the CSA.
I come from a rural constituency where transport is a key provision. Nothing in the Budget will be good for North Shropshire. My constituency contains 98 villages. The car, the van and the lorry are basic to the functioning of the economy, and without them it does not work. It is inconceivable that a comprehensive scheme of public transport could be created in an area such as North Shropshire, where there is economic activity in every one of those 98 villages.
Lobbing a huge increase on fuel tax will not make North Shropshire businesses competitive. The Chancellor's humbug words about competitiveness come at a time when there has been a dramatic fall in the price of crude oil from $20 to $13 a barrel. It is ridiculous to impose increases to the tune of 23p a gallon: unleaded petrol is now £3.08 a gallon. We should talk in gallons, because litre is a weasel word and conceals any increase. The increase on diesel is 29p a gallon, which is even worse. Labour Members made polite reference to my tie. This tie was transported in a van burning diesel. All hon. Members are wearing goods that were carried by road. This ludicrous prejudice against motor transport is unacceptable to me as a representative of a rural constituency.
The Budget will jack up motorists' costs by £2.75 billion. To take £30 billion a year from motorists and claim that a pathetic £50 million for rural transport will help is childish. Each bus that may be aided by that little £50 million fund should bear a memorial sticker reading, "Funded thanks to the countryside march." This is clearly a panic measure introduced as a desperate attempt to obtain a press release in rural areas. It simply will not wash.
The other big issue in Oswestry market this morning was the cost of fuel. It is a crippling tax on farmers and small businesses in my constituency, and I strongly oppose it.
Finally, I want to say something about taxation. It was clear in Prime Minister's Question Time today--revealingly--that the Prime Minister has not read his own Red Book. I remind him of the words of Lord Dunrossil,
who said in the 1955 Budget debate, with admirable clarity, "all taxation is bad." We in North Shropshire have had to suffer a 13 per cent. hike in council tax because Labour Members voted for a Bill that has grossly switched funds from rural areas to northern and inner-city areas. I consider it iniquitous that Sedgefield received a 13 per cent. increase in standard spending assessment while Shropshire received only a 3 per cent. increase.
I know that others wish to speak but, before I finish my speech, I invite Labour Members who have not read it to turn to page 116 of the Red Book, which features the real bite in the Budget. There, tragically, we see taxation rising from 38.1 per cent. of gross domestic product to 40.1 per cent. in 2002-3.
Mr. Andrew Lansley (South Cambridgeshire):
I am grateful for the opportunity to speak towards the end of a debate in which forceful points have been made. I am pleased to follow my hon. Friend the Member for North Shropshire (Mr. Paterson), who has experience of the manufacturing industry--as has my hon. Friend the Member for North Norfolk (Mr. Prior).
There are Conservative Members with direct experience of manufacturing who speak with feeling and conviction about the circumstances in which industry is now being placed by the rise in interest rates, and, more particularly, the level of the exchange rate. I think that it would be wrong for us to debate the Budget without dwelling not only on the measures in it, but on the consequences for industry, particularly manufacturing industry.
Many of my hon. Friends have referred to the Chancellor's opening remarks. He said that Chancellors had a once-in-a-generation opportunity to reform tax law. The right hon. Gentleman might have referred to a once-in-a-cycle opportunity; once in a generation might be stating it a bit too strongly. This Budget, however, was characterised, both before and during its presentation, by what is colloquially known as hype--much of which was not subsequently found to be justified.
In so far as the Chancellor had a once-in-a-cycle opportunity to reform tax law, I fear that he did not take it. He took only part of the opportunity, in relation to welfare reform. I shall say more about that later. I feel, however, that, at this stage in the economic cycle--with the benefit of the dramatic increases in tax receipts that occurred both last year and this--he had a once-in-a-cycle opportunity to achieve a one-off downward shift in the proportion of gross domestic product taken in tax.
Alternatively, if it was to be taken in tax, it could have been used in a way that, in the longer term, would reduce the extent to which the public sector had to meet future obligations. Damagingly, however, there was no evidence of that--quite the reverse.
As my right hon. Friend the Member for Richmond, Yorks (Mr. Hague) forcefully mentioned at Prime Minister's Question Time, table 3.3 of the Red Book, on page 48, tells us that an increase of a quarter of a
million in the number of families with high marginal deduction rates occurred as a consequence of the Budget. I know that the Prime Minister was told the best figure to offer, and talked about the marginal deduction rate of 70 per cent. or more, where two thirds of people have the effective marginal deduction rate reduced. None the less, paying 60 per cent. or more as an effective tax rate is a high figure for 1 million-plus families, an increase of 250,000 families. As a consequence of the Budget and of the withdrawal of benefit, they are brought into a situation, effectively, of welfare dependency and relatively high marginal tax rates.
Dawn Primarolo:
Does the hon. Gentleman accept that he is missing the point, because all those families will be better off as a result of the working families tax credit and child care tax credit? He has not made any reference to that at all.
Mr. Lansley:
The Financial Secretary is being uncharacteristically ungenerous to me, in that I had only started, and was certainly planning to come on to the working families tax credit.
I make no bones about it: it has to be proven whether the working families tax credit is an improvement on family credit, but, when one makes the comparison, one has to take into account the fact that the working families tax credit and the child care credit in particular, which goes alongside it, are going to consume--well, the Financial Secretary will know the numbers, I hope, better than me, as the Red Book is in her name. I will not do her the injustice of suggesting that she did not read it before she published it.
We are talking of £2.5 billion extra in total costs, including tax credits, going through this system. There is every possibility that, if £2.5 billion were expended even through the family credit system, it would have lifted many of those families out of some of the poverty trap consequences of the interaction between family credit and housing benefit. I do not dispute her point that those families will be better off. However, I hope that she will not dispute the fact that many of them will, as a consequence of the withdrawal threshold and the withdrawal of credit over £90, effectively pay quite a high marginal rate of tax as their earnings increase.
Dawn Primarolo:
There have been many references by Conservative Members to the Institute for Fiscal Studies. Will the hon. Gentleman welcome the fact that the institute agrees with the Treasury, and that the Chancellor's Budget proposals have reduced the number of people who face very high marginal rates of tax--that is, above 70 per cent.--by over two thirds, reducing the worst effects of the poverty trap?
Mr. Lansley:
I am sorry that I did not explain myself. I thought that I had made precisely that point. Far from missing that point, I had acknowledged that, as table 3.3 shows, the number of families affected by 70 per cent.-plus marginal rates of tax has been reduced by two thirds.
However, I also make the point, which is made in the same table--which the Financial Secretary published--that, at the 60 per cent. rate of withdrawal, the figure goes up from 750,000 to more than 1 million. Therefore, one has to take those two points together and balance them. It would not be reasonable to take one without the other.
May I characterise the Budget overall? When I had an exchange with the right hon. Member for Bishop Auckland (Mr. Foster)--he will forgive me if I have got his constituency wrong--
Mr. Derek Foster
indicated dissent.
Mr. Lansley:
Good. I would not like to commit an indiscretion and get the constituency wrong.
When the right hon. Gentleman was speaking, he was kind enough to give way to me. The impression I gained from his answer was that he felt that the Budget had gone well.
When talking about the work of Finance Ministers, a French Finance Minister said that the art was to pluck the goose with the least amount of hissing. The impression I got from the right hon. Gentleman was that he felt that the Chancellor had got away with plucking the goose with relatively little hissing. I must remind him that all past evidence suggests that the goose does not hiss straight away; it can take time. The right hon. Gentleman ought to consider the Budget carefully and remember the old saying, which is a bit of a cliche, that the Budget that is cheered on the day is the Budget that people are sorry about some time later.
I shall trespass on the patience of the House further, if I may, and refer again to table B8 on page 116, which my hon. Friend the Member for North Shropshire (Mr. Paterson) also mentioned. It is significant that the tax burden will rise, and the table shows an increase from 38.1 per cent. of GDP to 40.1 per cent. by 2002-03.
Two other rather more significant political facts are also to be gleaned from that table. First, the bulk of the increase occurs between 1996-97 and 1998-99. We are now in the throes of a substantial increase, by more than 1.5 percentage points, in the amount of GDP taken in tax, at a time when total GDP has been growing relatively strongly--certainly in the early part of that period, although less so now.
That implies that the Budgets of last July and of yesterday are impacting in the short term to increase taxes substantially, yet there is no offsetting reduction in the tax burden that will come later. As successive Budgets come along, and the Chancellor feels that he has to assuage the demands, not least by Labour Members, for public expenditure, we shall find that the tax burden continues to rise beyond the figures in the table.
There is a second interesting point in the table. When we look at the disaggregation between different kinds of taxes, we see that the biggest increases are not in corporation tax. As we know, there have been changes in corporation tax and large cash flows out of industry in tax because of the consequences of changes in ACT, but also some offset through the reduction in the main rate.
The biggest increases as a proportion of GDP are in income tax, which increases from 9.5 per cent. at the beginning of the period to 11.1 per cent. at the end, and in excise duties, which rise from 4.1 per cent. to 4.8 per cent. That is pretty significant, because for the poor benighted goose--that is, in this context, the personal sector that pays taxes--it is through income tax and excise duties that the pain of taxation is felt.
Over the next two or three years, we shall find that it is in precisely those areas of personal taxation and excise duties that the public will begin to feel the costs beginning to flow through to them, and they will not be remotely sanguine about the Chancellor's Budgets.
The Chancellor has gone for a Budget designed in the main to make everybody feel good. It is a "feel-good Budget", because it would be difficult to object to help for families as the centrepiece of a Budget. However, over time, that feel-good factor will be translated, in the individual personal circumstances of families, into a judgment about whether they will lose in the long run, and whether they blame the Chancellor for the changes in their personal disposable income. Labour Members will learn painfully, as the Conservative party learned in government, that it is not the spin doctors who get one into or out of trouble, but performance, economic management and outturns.
At the heart of the Budget is the problem that such things will turn out badly for the Chancellor, not least in that people's net disposable income will not in future reach the levels they had hoped for.
The Chancellor talks of suppressing wage inflation and trying to hold down increases in wages. No doubt that will happen, as many people will be chasing fewer jobs when the jobs market is depressed by the recession in manufacturing, the impact of the national minimum wage and other factors. Moreover, the Chancellor will take a greater proportion of whatever money they earn.
It might be interesting to consider the Labour party manifesto, as Labour Members have so much to say about it. The manifesto states:
Like many Opposition Members, I was worried that the Chancellor seemed to take it for granted that, in the long run, taxing child benefit for higher earners would be the right thing to do. A strong point was made earlier in the debate about the character of child benefit and the fact that it was introduced to replace a tax allowance. Therefore, by extension, the idea is illogical that child benefit received by higher-rate taxpayers should be taxed away, as the benefit was designed to replace a tax allowance that recognised, in the benefit system, the cost of looking after children. The benefit also reflected the value that all stratums of society place on bringing up children.
Undermining the universality of those benefits would be regrettable. There are few instances in which a single benefit can so readily and generally be targeted against those sections in society where costs fall, where poverty or financial hardship arise, and where, very often, child benefit plays a particularly valuable part in family incomes and in ensuring that sometimes relatively low-earning wives of high-earning husbands have an addition to their income that is expressly available to them, for spending on their children.
The shift from family credit to working families tax credit has already been dealt with in the debate, so I shall not dwell on it. However, if it is the centrepiece of the Budget and a key welfare-to-work policy, two questions arise.
First, how can the Government present a Budget containing such a major measure, but not present that measure within the context of the Government's overall welfare reforms? Why has not the Government's Green Paper on welfare reform been presented either before or with the Budget, so that we might understand whether--somewhere in the structure of their welfare reform--there are elements to off-set significantly increased welfare expenditure and extension of dependency to higher-earning families? If the measure falls within the context--as I should certainly hope that it does--of wider welfare reforms promoting self-provision and acting to stem otherwise longer-term growth in liabilities in the welfare budget, we were not told about it. That is a pity.
Secondly, how will the measure--particularly the child care tax credit--impact on demand for work? As has already been briefly mentioned in the debate, it is not at all obvious that the measure's consequence will be to enable many women to look for work who were previously unable to do so for financial reasons. There are several reasons for that consequence.
First, a substantial part of the measure's impact may be to persuade currently working mothers that it is better to take part-time rather than full-time employment because of the extent to which additional earnings will be clawed back with withdrawal of the credit.
Secondly, the measure may create circularity within communities, in which substantial benefit is derived from looking after one another's children rather than one's own children. Everyone registers as a child minder; everyone receives their £150; and everyone claims back their £105. We might create some rather closed circles of people taking in, as it were, each other's washing, but not create any net external benefit to the economy.
I do not dispute that families with children will derive financial benefits from the process by virtue of the taxpayer subsidy, but that does not mean that some of the claimed benefits for the wider economy will necessarily be achieved. Even if, as a consequence, a larger active population seeks work, it does not follow that the number of jobs available in the economy and the number of people entering work will increase.
Let us remember how the process works. If labour supply in the marketplace increases, demand is normally stimulated by a reduction in the price of labour. Yet we know that, by the time the measure is introduced, the Labour Government will have introduced a national minimum wage. Thus the price of labour will not be able to adjust downwards in order to encourage employers' demand for it. Employers may find that more people are seeking work, but that it is not necessarily in their economic interest to take those people into work. The net consequence will be rises in unemployment, not necessarily rises in employment.
I shall quote again from the Labour manifesto, just to see whether I can keep irritating the Labour party:
The right hon. Member for Dunfermline, East has reduced his expectations for the trend rate of growth. I shall not bore the House with the figures--suffice it to say that the rate is predicted to go down to 2 per cent. or below in 1999, compared with well over 3 per cent. in the early part of 1997.
A whole page of the Red Book is devoted to an apologia for the Government not achieving the investment-led growth they were anticipating. Business investment is predicted to fall from a 7.75 per cent. increase in 1997 to 4.5 per cent. to 5 per cent. in 1998, to 3 per cent. to 3.5 per cent. in 1999 and to 2.5 per cent to 3 per cent. in 2000. Far from investment driving forward, it will not sustain the economic cycle. The Treasury is making its excuses for the trend rate of growth not being higher. It says that the level of investment in capital productivity is not sufficient to achieve it.
I conclude with two specific points. The first relates to health spending; it is something of a pedant's point. It is very strange that the Government have found that, towards the end of the financial year, principally as a result of demand-led expenditure not coming up to predictions, £1.5 billion will be left over.
The proper way for the Government to proceed would be to reduce public borrowing in this financial year by £1.5 billion. Then, if they wanted, they could raise public spending next year above the pre-existing control total by £1.5 billion. It is a bogus manoeuvre to carry forward the money from 1997-98 to 1998-99. All they are doing is pretending that there will be less public spending next year and more public borrowing this year--which they will be able to reduce next year. It is a device to massage the figures for the Government's benefit--a bogus device.
I am pleased to see an Education Minister on the Government Front Bench. Yesterday afternoon, not exactly under cover of darkness but under cover of the Budget, the Government pushed out an announcement on Oxford and Cambridge college fees. I have the honour to represent two Cambridge colleges. The Government's decision was regrettable. From 1999, it could take more than 8 per cent. of the value of the addition to college fees, year by year, from the additional grant.
The Government talk about excellence, and announce a university challenge based on research excellence, but they hit at part of the independence of colleges in Cambridge and Oxford that has been at the heart of the maintenance of standards and excellence in those two fine institutions. It is a disappointment to Cambridge university. It will also be a disappointment to many in the House and beyond. It is a pity that the Government chose so transparently to push the measure out at a time that suggested that they were ashamed of their plan.
"How and what governments tax sends clear signals about the economic activities they believe should be encouraged or discouraged."
The Chancellor's past two Budgets have sent us a very clear message: he wants to discourage profits. Profits will take the pain of the Budget, because of the disadvantages of the ACT change to cash flow, which will be hit hard. Presumably, because of his reduction in the married couples' allowance, the Chancellor wants also to discourage marriage. By his own admission, if he wants to tax something, he wants to discourage it.
"An explicit objective of a Labour government will be to raise the trend rate of growth".
It struck me that, when the right hon. Member for Dunfermline, East (Mr. Brown) was responding to the Budget in the debate on 30 October 1996, he criticised
the then recovery because it was not investment-led or manufacturing-led, but was too much consumption-led. Yet we have the same now. There is a failure in investment, and a failure to support manufacturing so that it can lead the recovery on the part of the Government.
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