Amendment of the Law

Part of the debate – in the House of Commons at 1:35 pm on 21 March 2007.

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Photo of Menzies Campbell Menzies Campbell Leader of the Liberal Democrats 1:35, 21 March 2007

Once again, I am struggling to match the intellectual rigour of the previous speech. I am pleased to congratulate the Chancellor as he celebrates his 11th and, as we must assume, last Budget. He is now comfortably the longest serving post-war Chancellor, and that in itself is a remarkable feat. I congratulate him warmly. I also note with some relief his expression of suitable reverence for the record of Mr. Gladstone.

Sadly, this Budget does not quite live up to the auspicious nature of the occasion. We have seen, over the years, the Chancellor's capacity as a conjuror to use sleight of hand to produce proposals that seem attractive on the face of it but which, examined in a little more detail, are discovered to be rather less attractive than they first appeared. We have had seven years of booming, but often wasted, public sector spending. This is the Budget of a Chancellor ready to move on—a wait-and-see Budget from a wait-for-me Prime Minister.

The Budget has not done enough for the hard-working family that is increasingly struggling with the rising cost of living; for the young couple who have finally got on the housing ladder, but are now fearful that the next interest rise may push them off it again; or for the nurse, police officer or firefighter whose reward for service to their communities has been to see their income squeezed by a burden of taxation higher than that imposed on the richest in this country.

The Chancellor had the opportunity today, in this final Budget, to show that he was listening to the people of Britain, but he has delivered a Budget of missed opportunities. He had the chance to build a fairer Britain, but he has ignored it. He had the chance to create a greener Britain, but he shunned it. And he had the chance to shape a prudent Britain by saving billions of pounds on Government waste, but he has avoided it. He has spurned all those opportunities.

The Chancellor has instead concentrated, perhaps not surprisingly, on his own political succession. But I have a warning for him of a vision of the Prime Minister springing up from his political coffin, like Dracula, to confront the Chancellor. A stake through the heart may seem excessive, but he should beware. As the Americans say, "It isn't over till it's over."

To be fair, I must add that this Budget is set against the backdrop of a reasonably strong economy. Growth remains stable and unemployment remains low. I acknowledge that Britain has a reasonably strong economy. We have supported investment in public services through an increase in taxation from the 1997 base, and we supported independence for the Bank of England. I hope that the Chancellor in turn will be generous enough to point out that those were Liberal Democrat policies, which he derided in opposition but adopted in government.

I talked about the Chancellor's sleight of hand—and I refer the House to page 13 of the Red Book, and item 15. The Chancellor told us as he sat down, to waves of applause, that he would cut the basic rate of income tax from 22p to 20p. On the face of it, that is a Liberal Democrat proposal and a welcome one. But if one looks carefully, one sees that the revenue to justify that reduction will be obtained from the abolition of the 10p rate. To fund the reduction, income tax will be increased for many taxpayers. One could say that we will be asking the poor to subsidise the rich. That is an example of the sleight of hand that the Chancellor has demonstrated in the past.

The sad fact is that despite a reasonably strong economy, the wealth gap between rich and poor is greater today than it was under Margaret Thatcher. By introducing loopholes in the capital gains tax regime, the Chancellor has allowed the wealthiest individuals to minimise their tax bills.

An example of that is the Chancellor's proposals on inheritance tax. They are obviously welcome, but he did not point out that the number of estates valued at more than £2 million that pay inheritance tax has fallen by nearly 10 per cent. since 2001. That tells us that the rich find ways of avoiding paying inheritance tax, and we are entitled to look for some recognition of that by the Chancellor, and for some willingness on his part to take steps to deal with it.

I am afraid that the Chancellor has proved to be every bit as susceptible as some of his Conservative predecessors to giving tax breaks to our richer citizens at the expense of our poorest. The lowest-earning fifth of UK households still pay a greater proportion of their income in tax than the highest earning fifth. This Budget was an opportunity to rebalance the tax system in favour of the less wealthy, but the Chancellor has refused to take it.

With a proper, full approach to raising green taxes, the Chancellor could have helped to encourage a change in environmental behaviour. Of course his proposals on vehicle excise duty are welcome, but they fall far short of what is required. I listened to his speech with care, but I did not hear him say anything about aviation. Do the Government believe that the right hon. Gentleman's recent imposition on aviation has had a significant—or even a discernible—environmental effect? We also need to know whether the proposals apply only to new motor cars, or are retrospective.

This should have been a tax-cutting Budget. It should have cut the tax burden on the low and middle-income families who need it most. That is what one should do with the proceeds of green taxation. That is the true moral case for tax cuts, and it is a matter of regret that the Chancellor has not chosen to act on it.

Of course, taxes have been raised significantly since 1997. Neither I nor my party is persuaded by the case for raising them further. The Chancellor must resist the temptation to tax and spend. Indeed, he should seek to save in order to spend.

Large sums of public money have been wasted on unnecessary and unpopular measures, but now the Government are planning to waste more. We should recall that the war in Iraq has cost more than £5 billion so far, and that is quite apart from the human cost that is emerging. We know that the President made the decisions on Iraq, while the Prime Minister made the case for the war, the Chancellor signed the cheques, and the Conservatives voted it through.

Secondly, identity cards will cost at least £6 billion, and some estimates put the cost as high as £18 billion. That money should be invested in the police and security services. Thirdly, we are already committed to spending £76 billion on the decommissioning of the existing generation of nuclear power stations. Building a new series of nuclear power stations—something to which the Government appear to be committed—will simply add to that bill. The Government should not be wasting taxpayers' money in that way.

The announcements in the Budget were made against the background of an increasingly unbalanced economy. Britain's accumulated private household debt has now reached a total of £1.2 trillion. Any decline in the housing market would be devastating, for millions of families and for the economy as a whole. Moreover, the burden of servicing that accumulated debt is also rising. The average cost of debt repayment in relation to income is now close to the level experienced during the debt crisis under the previous Conservative Government.

The Chancellor talks about the fiscal rules, but he should take steps to restore their credibility. He should have established an independent fiscal authority, as advocated by the Institute of Fiscal Studies. We should have an independent assessment of the economic cycle on which the Treasury bases its figures. The Chancellor simply should not be allowed to mark his own examination papers.

Some questions arise from the Budget statement that need to be answered. The public are entitled to know the effect of the Budget on their tax bills, and on the overall state of the economy. Will the Chancellor confirm that it raises the tax burden on lower and middle-income earners? Why has he failed to combat rising levels of personal debt, or to set up an independent system of assessment for fiscal policy? And why, in his 11th and final Budget, has he not rebalanced the tax system properly, with proper tax cuts for lower and middle-income earners? Those are questions of crucial importance, and the Chancellor should answer them.