Charge of Income Tax For1983–84

Clause 12 – in the House of Commons at 3:35 pm on 25th April 1983.

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Photo of Mr Robert Sheldon Mr Robert Sheldon Shadow Chief Secretary to the Treasury 3:35 pm, 25th April 1983

I beg to move amendment No. 1, in page 8, line 10, after `charged', insert—

  1. '(i) in respect of so much of an individual's total income as does not exceed £750 at the rate of 25 per cent.;
  2. (ii)'.
Today we are starting the normally lengthy process of the Committee stage of the Finance Bill, first on the Floor of the House and then at somewhat greater lenght upstairs in Committee. We shall be discussing the various tax changes and our attitude to them in so far as we are able to table amendments that fall within the rules of the House.

One thing that I find particularly disturbing in all the tax changes that we have witnessed under this Government is the way in which the division in the tax system has increasingly mirrored the division in the class system. I am not referring just to the concessions to the higher rate taxpayers on investment income surcharge, capital transfer tax and capital gains tax, even though those reliefs have been without parallel in our recent economic history.

The Government have gone even beyond such actions. The taxation of unemployment and other benefits introduced the novel principle that no recipient of welfare payments could make a claim on any assessment to income tax after a period which was proposed as 30 days but, after the efforts of my hon. Friends and myself, was extended to 60 days. In that period, the schedule D taxpayer has hardly begun to formulate his income tax liability. The bureaucrats' decision was to be final, even if proof of the mistake were to be provided. The hasty, even impetuous action here contrasts strongly with the dilatory nature of the Government in dealing with tax avoidance and tax havens.

The evidence published by the Government shows that they have been attacking those who have been on strike and are going on strike by witholding their tax refunds. That was one of the measures introduced by the Government to use the tax system to bring about changes in the way that people receive their tax refunds. As a result, two tax systems have been devised for the two classes in our society —or, as some of the remaining Tories on the Government Benches might call it, two tax systems for the two nations in our country.

It is the workers' money, paid in advance under the PAYE system, that the State impounds. How different is the treatment meted out to those on schedule D, who pay their taxes much later, can appeal against unfair assessments and can claim reliefs on expenditures that are not even considered under the tax system devised for the employee. Increasingly, a rigorous attitude is being applied to one class of our society and an increasingly relaxed attitude to the other. Such actions cannot be without severe social consequences of which we should be aware.

In the period before the general election, the Chancellor of the Exchequer said in a press conference on 18 April 1979: Tax cuts are Tory … We shall raise, and raise substantially, the level at which people start paying income tax". Only seven days later, on 25 April, the Prime Minister said: We will cut the tax on work. We will cut the tax on savings. We will cut the tax on extra skill and effort". The Government came to power with two articles of dogma. One was sterling M3—we know what happened to that—and the other was the reduction in taxation. I shall put those dogmas into perspective by referring to the most interesting book by the hon. Member for Bath (Mr. Patten), entitled "The Tory Case". On page 118, he says: Conservatives have been smitten from time to time by this sort of enthusiasm"— the enthusiasm for tax cuts.

Too much significance has been attached to tax reforms and tax reduction. Under successive Labour Governments, taxes have certainly been raised to levels which have in some cases been penal and which may have both depressed and distorted some ecomonic activities. Yet to have placed tax cuts so frequently at the top of the agenda has deterred many Conservatives from exploring and articulating the full breadth of the Tory view of the world. It has also made the Conservative Party appear periodically as though all it cares about is money, because it thinks that is all that voters care about. There is a whiff of political bribery about this, the reduction of politics to the figures on a bank statement or a PAYE slip. Great political parties have more to offer than a credit card company. I am not sure whether the Government have much more to offer than that, but we need to compare the aspirations, which were so clearly set out, with their achievement. In particular, we must consider the Government's belief that reductions in taxation, and in particular income tax, would recreate the market economy. The idea was that the rich would provide the jobs and the tax reliefs would supply both their incentive and their reward so that the good old 19th century would be recreated. The lower-paid were promised lower taxes but in their case the promise failed to materialise.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

People actually believed them.

Photo of Mr Robert Sheldon Mr Robert Sheldon Shadow Chief Secretary to the Treasury

They did indeed, and they have come to rue their acceptance of what was said by the Conservative party before it took office.

As a result of all that, taxation on high incomes was reduced to encourage the rich, and tax increases on the rest were, in some way, not meant to discourage them. But the reductions in taxation on high incomes were also intended to reduce tax avoidance. After all, it was the Chancellor of the Exchequer who claimed that the many marketed schemes for avoiding tax of the Rossminster kind that were being introduced, were a consequence of high taxation. I note that tax havens are flourishing as never before and the ingenuity of our financial markets is being exercised no less than previously. What is different is that the enthusiasm to control them is rather less than that shown by the last Labour Government.

The main feature of the British tax system is the low threshold and the high level of taxation at that threshold. It is a system unequalled anywhere in the world. In the United States there has been for many years a steady progressive income tax, moving up in as little as two per cent. steps, starting at 14 per cent. In Western Europe the initial rates of income tax range from seven per cent. in France to 21 per cent. in Belgium. There, too, there is a progressive system of income tax. When the Chancellor of the Exchequer took control of our economic affairs, more than 4 million of our citizens paid tax at the rate of only 25 per cent. Many more received benefit from the combined rates of tax of 25 per cent. and the next rate of tax at 33 per cent.

In the last year of the Labour Government in 1978–79, a married couple would start to pay tax at the rate of 25 per cent., then at the rate of 33 per cent., higher up at 40 per cent., and at higher rates beyond that. That is clearly not a smooth progression, but it was a move towards one. Those who believed that the Government intended to have a basic rate of 25 per cent. might justifiably have thought that the reduced rate band might have been increased from its starting point then of £750; that they could have achieved their stated objective of obtaining a standard rate of income tax of 25 per cent. by retaining the lower rate band and extending it upwards, rather than doing what they did, which was to abolish that 25 per cent. rate. Had they proceeded in that way, it would have had not only the advantage of redeeming a promise that is unlikely ever to be redeemed by the Government; it might also have had the advantage of helping the lower paid.

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If the Government were serious in wanting a basic rate of 25 per cent., they had either that alternative or they could have kept the reduced rate at 25 per cent. and brought the basic rate down year by year to approach that threshold level. By abolishing the 25 per cent., they showed, first, that they did not care much for those on lower incomes and that the main help would go to the wealthy in our society — a conclusion which did not surprise us and, secondly, that a 25 per cent. goal was a goal not for the least well off but for the people whom they have always had very much in mind, the entrepreneurs in society who would transform our economic position.

In his Budget statement on 26 March 1980, the Chancellor of the Exchequer said: At every income level, taxpayers now retain a significantly larger share of their incomes, which they are free to spend or save as they choose. I intend to do more in the future,"— it is always in the future— but at a time when output is falling and we are making further heavy cuts in public expenditure I cannot afford to protect income taxpayers fully from the effects of inflation. This, then, must be a year of consolidation.At first sight, that would suggest increases in the personal allowances which fall some way short of the rise in prices during 1979, but this would have a number of undesirable effects. It would lower the starting point of income tax in real terms, compared with a year ago. It would increase the number of taxpayers. It would narrow the gap between tax thresholds and the main social security benefits, and it would impose particularly heavy burdens on those with the smallest incomes. All those effects would be most undesirable.Given the limited scope available, I have considered how to avoid these consequences. I mean to do so by adopting an alternative approach. I propose to increase the main income tax allowances by 18 per cent. or so, which is in line with the rise in prices and in conformity with the indexation requirement of the 1977 Finance Act. This will bring substantial relief to all taxpayers. But in order to afford this, I intend to remove the lower rate band of taxation, levied at 25 per cent. on the first £750 of taxable income."—[Official Report, 26 March 1980; Vol. 981, c. 1474–5.] That was done not on the basis of any theoretical justification — there is no need for Conservative Members to suggest that—but purely to meet particular problems in 1980, when, to their surprise, the Government were unable to meet their commitment to a reduced rate of taxation and even to implement the Rooker-Wise amendment. What they did was to raid the reduced rate band in order to provide money for the Rooker-Wise amendment. It was worse the following year because they had no reduced rate band to raid any more, so they ratted on the Rooker-Wise amendment.

Until 1963, we had three reduced rate bands. They were then at the rates beginning at 1s. 9d. in the pound, and there was a reduction for all taxpayers on earned income. That was before the unified tax system. At that time, there were three rates of tax below what was regarded as the basic rate of tax. The first was 7 per cent., the second 16·5 per cent. and the third 24 per cent. The standard rate was 30 per cent. In 1963, one of those rates of tax was removed and there remained reduced rates at 15 per cent. and 23 pere cent. Even in 1969, we had a reduced rate of 23 per cent.

It is sensible and right that we should have a progressive system of taxation and a steady progression through the tax bands. The national insurance contribution is an outstanding example of an indefensible flat percentage rate which ceases to operate on high incomes but is a real burden on the less well off. In addition to that nonsense, we plunge the less well off taxpayer into paying tax at 30 per cent.

As recently as 20 years ago, therefore, we had a reduced rate band as low as 7 per cent. That former practice is operated by the most industrialised western countries. In last year's debate on the reduced rate band, the Financial Secretary to the Treasury said that about 3·5 million people had incomes at the old reduced rate of 25 per cent. in 1978. As some form of justification he said that that will give a little special help to a large number of people who do not particularly need it".—[Official Report, 22 April 1982; Vol. 22, c. 505.] Who are those people? According to the Financial Secretary to the Treasury, they were 1·1 million pensioners, 1·4 million part-time and full-time working wives and 500,000 people under 21. We should remember that those people did not "particularly need it". Those people receive the lowest incomes and there is no justification for taxing them at 30 per cent. just because they are pensioners or wives or have committed the error of being under 21. Why should those categories, who are the lowest earners, be marked out for an increase in taxation from 25 per cent. to 30 per cent. because the Chancellor decides that they "do not particularly need it"?

The Chancellor completely fails to understand that it is precisely those categories who find the extra money essential. They are the most disadvantaged groups and appreciate most the small differences in their income. The Chancellor decided that he would give lashings of relief to the highest paid by reducing the higher rates of tax. Those with the greatest capital would benefit from alterations to capital transfer tax and capital gains tax reliefs, but the modest reduced rate was to be withdrawn. Rarely in our fiscal history has there been such a stark contrast between what is given to the rich and what is taken from the poor.

The Chancellor has had his difficulties with increases in taxation. It would be wrong to conduct this type of debate without mentioning our dear old friend the tax and prices index. Since the Government took office, the retail price index has increased by 66 per cent. and the tax and prices index has increased by 69 per cent. The tax and prices index was produced to show how successful the Government have been, but it has failed to make that clear.

One of the arguments that the Chancellor has advanced against reduced rate bands is that he is conscious of the need to reduce the number of civil servants. That is a laudable general aim if it can be done while retaining notions of fairness and efficiency in the public service. When he tells us that he wants to reduce the 1,300 civil servants who are employed as a result of there being reduced rate bands, our response is that, if that can be done, equitably we should like to know more.

However, we observe that the Chancellor has increased by 3,000 the number of civil servants to administer the tax on the unemployed and people who are on strike. The Government impound their money but allow the flagrant tax avoidance which I have already mentioned. We have witnessed the new assault on claimants and the problems at Oxford where great wrongs were done to those people who were unfortunate enough to be the target of the campaign to prove the existence of scroungers. Civil servants can be provided for those matters, but fairness is less important than saving civil servants. Money can be found for new Civil Service jobs to deal with DHSS claimants and the unemployed while the larger fish wallow in the deeper waters which the Government have not surveyed.

It has been argued that it is better to help the low paid by raising thresholds than by the lower rate of tax. No one can doubt that any taxpayer can be removed from tax liability most efficiently by taking him out of tax. The problem was put clearly by the low pay unit, from which I can do no better than quote. I am grateful to it for its work in making people aware of some of the Government's actions and some of the problems that face people on low pay. It says: In any one financial year, of course, it is always more beneficial to the low paid to have an increase in allowances than a lower rate of tax. But the following year part, if not all, of the value of the increase in allowances will have been eroded by inflation. Many of those who had been let out of the tax net will be drawn back in. The reduced rate band, on the other hand, will remain as a structural feature of the tax system, continuing to benefit the low paid long after the increase in allowances has been eroded and forgotten.The importance of taking a larger time-scale than a single year in assessing the importance of a reduced rate band can be seen clearly if we consider what has happened to the structure of income tax over the past three decades. The Library kindly produced some figures for me which show clearly the way in which the threshold, as a percentage of average manual earnings, has decreased year by year. I entirely accept that that has gone on for a long time. The interesting thing is the way in which, under this tax-cutting Government, the threshold has fallen substantially. When the Government came to office, people started paying tax at 38·8 per cent of average manual earnings. That has fallen to 34·7 per cent. as a result of this year's Budget. Therefore, there has been a year-by-year reduction of the tax threshold. That affects people who pay tax on small incomes.

What has happened? The low paid were not compensated, as the Chancellor and many other Conservative Members claim, by being taken out of tax as a consequence of forgoing the lower rate bands. Instead, they were brought into tax at a lower level and at a higher rate. That is one problem from which they suffer, and which the low pay unit highlighted in its documentary evidence to the House.

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When the reduced rate band was withdrawn in 1980, the Government's future intention was unclear. Since then we have seen an increase in the burden of taxation. During the debate we shall probe and explore the Government's intentions and decisions. We have many amendments to move on the Floor of the House and in Standing Committee, which will show that the Government's tax-cutting activities are directed at the wealthy members of our society, but that the Government are increasing the tax burden on a large proportion of people, especially the lowest paid in the community.

Photo of Mr Richard Wainwright Mr Richard Wainwright , Colne Valley

At the start of this annual fixture, I shall raise some matters that relate closely, not only to this amendment but to most of the other amendments that we shall discuss today and on two further days this week.

First, I hope that hon. Members on both sides of the Committee accept that for many years income tax has been collected from people who depend on pensions, social security benefits and other welfare benefits, and that, therefore, one pocket is robbed by the taxman while the other must receive benefits to keep that person going. It is unfortunate that the Committee is once again reduced to the stupidity of considering one form of Government action without discussing the reciprocal form. Liberal Members believe that during debates such as today's, and while tax is hitting many people with small incomes, the Department of Health and Social Security should be represented continuously on the Front Bench. The rules of order should enable a full discussion of benefits to take place in the debate on tax statutes. I accept that that is an unrealistic hope for this year, and throw in the point in the expectation that more reasonable arrangements will be made in the future.

I now come down to earth and consider how respective amendments are treated by Treasury Ministers. I intend to be the first to point out, as I have done for several years past, that we completely reject, as must every one with common sense, the Government's childish attempts to have a false system of scoring. Sooner or later each summer, a Treasury Minister stands up and, with a crow of triumph, says that he has calculated on his abacus the accumulating total cost of all the Opposition parties' amendments, which shows what prodigal fellows we are, how reckless we are of the Queen's revenue, and how lacking we are in a sense of financial responsibility.

I shall be the first hon. Member to say that this is an away match for us, and is not on a wicket of our choosing. We are debating the Government's Finance Bill, not, unhappily, an alliance Budget, nor a Budget from another segment of the Opposition. As any observers with common sense can see, the proper rules are that if an amendment is defeated, the putative cost of that amendment should no longer be considered. Each Opposition amendment must be taken as a cost item on its own, and there is no accumulation.

If irreverently minded people ask whether there is a record of the total cost of comprehensive Budget proposals from the alliance, I refer them to the alliance Budget, which was published well in advance of the Chancellor's effort. It was thoroughly costed and arrived at a modest total compared with the astronomical total from the Labour segment of the Opposition. That is our view about the scorekeeping, and we shall stick to it. [Interruption.] I do not suppose that the Daily Mail will keep to it.

A sad aspect of this year's debate, as of those of the past few years, is the dual disadvantage that afflicts Treasury Ministers. They are completely out of touch with the psychology of the ordinary citizen — the person who works by hand or by brain, or in most cases a combination of both— about taxation. Treasury Ministers inhabit a fantasy world, entrenched behind their feudal majorities, or the feudal majorities to which they have fled in preparation for the general election. They have a wholly imaginary concept of the reaction of the ordinary worker to the pay-as-you-earn system. Their fantasy is shared by President Reagan and others who call themselves "supply siders", and who share the Prime Minister's naive belief that a reduction in the rate of tax on a reasonable week's pay—I am not talking about low pay—is automatically followed by a great surge in effort, imaginative business decisions and risk-taking. They believe that there is much untapped wealth and effort to be unlocked by reductions in tax for the comparatively well paid.

However, that fantasy is disproved. There is no firm evidence to support it as a general contention, and it is regrettable that that is the figment of Treasury Ministers' imagination.

Photo of Frank Field Frank Field , Birkenhead

Would my hon. Friend—[Interruption.] Ministers seem to delight in picking up whether an Opposition Member calls another his hon. Friend or the hon. Gentleman. Would the hon. Member for Colne Valley (Mr. Wainwright) care to reflect on the pamphlet written by the Secretary of State for Transport before the previous general election, in which he suggested that to increase effort one must raise the rate of tax?

Photo of Mr Richard Wainwright Mr Richard Wainwright , Colne Valley

I am grateful to the hon. Gentleman, who is certainly my hon. Friend. My range of friendships in the House varies according to the subject being debated. I make no apology for that, and it is not one of my worst failings. I do not trouble to conceal it and, without being carried too far by the hon. Gentleman's shrewd intervention, may I say that I entirely agree with him. There is no firm evidence for the view that the harder it becomes for people to acquire money for a longed-for home comfort, or for some addition to their way of life, the harder they will work. One pays one's money and takes one's choice between those theories, but I am wedded to neither. I am more concerned with fairness in taxation than with exploitative theories that begin with the rather mean attitude: "How can we so tax this citizen that we shall get the most work out of him and the most revenue for the Government services?"

As to the reduced rate band of income tax, I plead a reasonably consistent record. As a relatively new Member, I strongly opposed the final abolition of the last reduced rate band. I have said in the House that I regarded the tax system as more civilised in the days that I well remember as an accountant when there were no fewer than three reduced rates. I was always taught that the more gears a motor car has, the smoother the ride although more effort is involved if the car has four forward gears and more work has to be done with the gear lever and the pedals. Most motorists, given the chance, would welcome a larger selection of gears rather than having the entire mechanism depending on one gear ratio. Income tax begins to impinge on pay in Britain at the highest level anywhere in the civilised world, except Australia, if that country qualifies.

Photo of Mr Ralph Howell Mr Ralph Howell , North Norfolk

How does the hon. Member for Colne Valley (Mr. Wainwright) square his criticism of the high rate with the fact that the Liberal party is proposing an even higher rate for commencing income tax payments?

Photo of Mr Richard Wainwright Mr Richard Wainwright , Colne Valley

That interjection entirely defeats my comprehension. There is no proposition from my party for a higher rate of income tax. I repudiate the insinuation that the hon. Member for Norfolk, North (Mr. Howell) has introduced.

Photo of Mr Richard Wainwright Mr Richard Wainwright , Colne Valley

No. I have made the position quite clear. Nobody, whether they be earning the salary of a nationalised chairman, a bingo promoter or a low-paid cleaner for a local authority ought to have to start their score with the income tax man at anything like 30 per cent. on the first bit of their taxable income. That is a crude imposition, the psychology of which is disastrous. When young people first commence work—if they are lucky enough to get employment at present — their first introduction to the income tax system is at an appallingly high rate. They begin their life as taxpayers with the firm but correct impression that income tax is an impost that starts at almost a third of one's taxable earnings. Attitudes towards income tax become the gossip of the canteen, the youth club and the sports club, on a 30 per cent. basis.

Photo of Mr Richard Wainwright Mr Richard Wainwright , Colne Valley

In those circumstances, is it any wonder that avoidance, and in many cases evasion, becomes a relatively respectable peccadillo that is condoned even in respectable society because the initial rate is so harsh?

Photo of Jack Straw Jack Straw Shadow Spokesperson (Treasury)

It is true that the young person starting work sees his income tax deduction as just under one third. Overall, the deductions from his pay packet amount to 39 per cent. including national insurance contributions. I am sure that the hon. Member for Colne Valley (Mr. Wainwright) is aware that that deduction has risen by 7½p in the pound. That figure has resulted from the abolition of the reduced rate band which added 5p in the pound and the increase in the national insurance contribution of 2½p. The tax liability has substantially risen under the Government.

Photo of Mr Richard Wainwright Mr Richard Wainwright , Colne Valley

The figures quoted by the hon. Member for Blackburn (Mr. Straw) are spot on. His mention of the national insurance contribution reinforces my earlier contention today that Ministers from the Department administering national insurance should be in attendance. There is little point in putting these matters to Treasury Ministers, who are skilled in the art of saying that that is something for their colleagues in the other Department. My point is serious and I look forward to an Administration—who knows what political label they may have — who treat the House in a civilised and modern way by bringing together Ministers from the relevant branches of our fiscal system when we are discussing this subject.

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As to the reduced rate, an essential limb of Liberal policy is that the starting rate of income tax should be substantially lower. There should be a differential of at least five points in the scale for the first slice of taxable income.

Like the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) I am in no way moved by the smart statisticians who point out with some academic glee that the people most affected by this savage impost on the first slice of taxable income are youngsters or working wives. That is a transient phenomenon. I look forward to a time when the people on the lowest level of taxable pay will not be so low paid as are youngsters at present.

The main reason why I shall recommend my right hon. and hon. Friends to support this amendment in the Lobby is to do with the point of structure, that by getting a reduced rate restored and, it is to be hoped, in a year or two getting two reduced rates restored to the scale, as there used to be, a lasting improvement will be made to the actual structure of income tax instead of raising the threshold, which is similar to building castles on the sands, which look magnificent for an hour or two and then the tide comes in and they might as well never have been erected.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

As the hon. Member for Colne Valley (Mr. Wainwright) is asking for protection of the lower paid in the structure of income tax, what status has the 44 per cent. income tax proposal under the negative income tax system that his party propose? Is that an agreed policy position with the hon. Member's Social Democratic colleagues in the alliance?

Photo of Mr Richard Wainwright Mr Richard Wainwright , Colne Valley

Mr. Weatherill, I am quite sure that I should not just risk, but incur, your wrath if I were to quote at any length from the manual on combined tax and benefit systems. The manual is available at the modest price of £1 and is written in the most limpid prose. [HON. MEMBERS: "Answer the question."] It is a little hard being called upon to answer, amidst a zoo-like and growing volume of noise, which would make it impossible for any hon. Member, even the late Sir Gerald Nabarro, to be heard. The full costings in this volume pose hypothetical rates of income tax that have nothing to do with the present system and will be bound up with a system of benefits with no valid comparison with the present.

I trust that the hon. Member for Workington (Mr. Campbell-Savours) and others will read the book. Whether or not they agree with it — it is published by the Women's Liberal Federation—their education will be substantially advanced.

The Committee is discussing the first foundation stones of a reconstructed system of taxation, and the amendment provides one of those foundation stones. As the improvement will be structural and of lasting value compared with the transient benefits of the Government's proposal in the Finance Bill, I shall recommend my hon. Friends to vote for the amendment in the Lobby.

Photo of Frank Field Frank Field , Birkenhead

I am pleased to speak after my hon. Friend the Member for Colne Valley (Mr. Wainwright). I call him that again, although no doubt it will inspire the Treasury Bench to make some delightful comments. However, I should like to try to answer the question put to my hon. Friend, which he did not answer. The proposals put forward by the SDP-Liberal alliance—

Photo of Frank Field Frank Field , Birkenhead

I think that they were put forward by both. There are two sets of measures and they are very similar. It is proposed that those now on low incomes shall gain substantial help. According to the examples given in the documents, those not on low incomes will be asked to pay at the marginal rate of 44 per cent. If we intend to move income and wealth towards those at the lower end of the scale, others in society will have to pay for it. No party that was serious about changing the living standards of the poor should pretend that that can be bought without any contribution from the rest of society.

Photo of Mr Richard Wainwright Mr Richard Wainwright , Colne Valley

I am grateful to the hon. Gentleman for his remarks, but at the risk of coming very near to the limits of order, I must point out that the whole nature of the scheme put forward by the Womens Liberal Federation is that every taxpayer would also receive a cash benefit. I hope that I have made it clear that talk of a particular tax rate is wide of the mark, unless one allows for the fact that under this scheme every taxpayer would also receive substantial tax credits.

Photo of Frank Field Frank Field , Birkenhead

I give way to my hon. Friend the Member for Workington (Mr. Campbell-Savours).

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

Does not my hon. Friend agree that the Liberal party has whetted the appetite of people with the intention of gaining their support, but that it is now apparently seeking publicly to dissociate itself from the document? We still want to know the status of the document. Does it represent Liberal policy and will Liberals propose a level of 44 per cent. as the basic rate of income tax?

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

Order. We are debating the official Opposition's amendment, not Liberal policy.

Photo of Frank Field Frank Field , Birkenhead

I am grateful, as always, for your guidance, Mr. Weatherill. My last word on the matter is that I welcome the proposals, because anything that presents a real challenge and seeks to win the votes of the poor can only be good for the poor. The sooner we have a real market economy for the votes of the poor in this country, the better.

I have two sets of reasons for supporting the amendment. Indeed, I have both general and specific reasons for supporting it. I hope that I am a constructive Member of Parliament, arid I support the amendment because it represents one way in which the Government can help to redeem their election pledges. All of us who fought the last election are aware that the Conservative party won many votes by saying that if it was returned to power it would cut taxation. That is an important pledge to give, and at the end of my speech I shall want to address my Front Bench on the sort of plans that we should put forward at the next election, offering similar proposals.

However, let us look at the position of those who thought that their taxes would be reduced under this Government. For those on low income, the tax burden has risen, and more of those on low incomes are paying tax. In addition, those — whether rich or poor—who have families pay more tax now than they did in 1979. That was the position at the end of the 1974–1979 Government. Although I am criticising the Government, the Opposition must be careful to ensure that we do not face the same charges at the end of a Labour Government.

I hope that the Government will support the amendment, because it represents one way in which we can help the Government to go to the country with some of their election pledges fulfilled. It deserves our support, because it favours the low paid. It will be said that it is all very well to propose such measures but that we have failed to mention where the money is to come from. Perhaps I can suggest where the money should come from. In the first Budget of 1979, higher rate taxpayers gained tax reliefs totalling £1,560 million. Those reliefs have operated every year since then. Therefore, the richest 4 per cent. of the population have gained about £6 billion from this Government. Thus, if any Minister should say that there is not enough money available, I suggest that there is a lot of money to be clawed back from that group. It was given tax incentives because the Government believed that a reduction in the tax burden on the rich would lead to growth. They have certainly fulfilled their pledge to reduce the burden of taxation on the very rich, yet while the richest have picked up £6 billion in tax cuts, 2 million jobs have disappeared. Therefore, the Government's policy does not seem to be an effective strategy for growth. I repeat—the money is available.

Why will this amendment help the low paid? Part of the reason has been sketched in both by my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) and by the hon. Member for Colne Valley. I shall set out how it can help the low paid. In the debate on low pay held the other month, on a Friday, the Minister made a valid point. He said that in any one year, the most effective way of helping the low paid was to raise the thresholds and thus to take the low paid out of tax. However, if one considers the tax burden over the period of a Parliament, changes that alter the structure of taxation—as the amendment seeks to do by reintroducing a reduced band of tax—help the lower paid if the Government give a commitment that the thresholds will be indexed.

It is important to draw a distinction between the snapshot of the tax system, which shows who gains in any one year, and the moving picture, which shows who gains help over a Parliament, or a decade or more. The most effective way of helping those on low incomes is to have not just one reduced tax band, but a whole series. The amendment would reduce the amount of tax that those on poverty incomes have to pay to the Exchequer.

Another reason for supporting the amendment is that it will help those who are caught in the poverty trap. It clearly does not abolish the poverty trap at a stroke if we allow people to pay the first £750 of their taxable income at 25 per cent., but it reduces the marginal rates of tax of many of those who are caught in it. As the hon. Member for Colne Valley has said, if one was set on considerably reducing the effect of the poverty trap, one would have to produce a whole series of reduced rates of tax, and I would support that.

The Opposition in particular should take incentives to work much more seriously. Perhaps for good reasons, my hon. Friends have tried to play down the issue, but it is important. Those on low incomes pay a considerable amount of them to the Exchequer. Some people are lucky enough to pick up jobs. The unemployment queues are not static and there is a slow turnover all the time. Those who have been on benefit and who compare that with the wage that they are being offered and the net reward of working 48 hours a week, often have some pertinent comments to make. Unless we pay more attention to the real grievances of low wage earners about their contributions to the Exchequer, we shall find that we have given them a very effective rod with which to beat us in future. One negative effect of failing to take such matters seriously is the backlash from many of those who earn low incomes and who are against the whole idea of the welfare state.

4.30 pm

I have three reasons for believing that the amendment is important. First, in the long run it would be the most effective way of reducing the tax load for people on low incomes. Secondly, it would help to lessen the effect of the poverty trap. Thirdly, it would increase rather than lessen incentives to work.

I shall address my next comments to my colleagues on the Opposition Front Bench. I confess to being disappointed at how modest this proposal is. I hope that we shall fight an election with proposals more radical than merely reintroducing a rate of tax of 25 per cent. on the first £750 to taxable income. However, to be radical one must break the financial corset which every Chancellor of the Excheqer wears when he draws up a Budget, and which is caused by the many tax concessions given in a year. Over 50 per cent. of personal income is exempted from tax, and if we are committed to cutting tax as well as to taking large numbers of people out of tax altogether, we must claw back the lost revenue from what I call the tax benefit welfare state. We cannot do that immediately. We cannot take away tax benefits on which people have calculated major expenditure but we can apply a cash ceiling policy with a clear commitment that, as the revenue to the Exchequer increases, we shall cut tax rates, raise the tax threshold and introduce many more than one reduced tax band.

If we are serious about presenting an alternative to the electorate for reducing the tax burden, we must have a more radical proposal than that suggested in the amendment. I agree that the amendment would help the low paid by reducing their tax burden and by lessening the effects of the poverty trap. It would, to a small but important extent, increase the incentive to work. For those reasons, I support the amendment.

Photo of John Horam John Horam , Gateshead West

For good reasons the alliance did not propose to reintroduce a reduced rate of tax. We think that in 1983 the emphasis should be on reducing industrial costs and on stimulating the economy by means of a capital programme. We do not think that a reduction in personal taxation is the right priority. But there are also arguments against a reduced rate band in any Budget. I am sure that those arguments will be expressed by the Treasury today.

The 25 per cent. rate proposed by the Labour party would result in about 3½ million people paying tax at that rate rather than at the standard rate, but only a small proportion of them would be full-time adult workers with family responsibilities. If is fair to say that in one year it is better to try to lower the threshold, as the Government did in the Budget, that to introduce a reduced rate band.

Having said that, I agree that there are arguments against what I say, as expressed by my hon. Friend the Member for Colne Valley (Mr. Wainwright) and the right hon. Member for Ashton-under-Lyne (Mr. Sheldon). For those structural reasons I believe that the alliance is right to support the amendment.

It is right in principle, in the light of the taxation framework, to support the progressive principle. We should not surrender that without a fight. In 1960—not so long ago—people started paying tax at the rate of 7p in the pound and the basic rate impinged on the ordinary person only when he was paid about 30 per cent. above the average. That position has been totally transformed and today a person starts to pay tax at 30 per cent. when earning about 41 per cent. of average earnings.

It was brought to my attention, by one of the excellent briefs with which we are familiar from the low pay unit, that the Prime Minister once said: We pay the highest rate of income tax at the lowest level of income of any country in the EEC. That is the measure of Socialism—the effect on the poorer people of this country."—[Official Report, 29 March 1977; Vol. 929, c. 293.] That is even more vividly so today after four years of Conservative rule.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

We are referring to higher rates of tax. To what extent does the SDP accept the principles outlined in the document produced by members of the Liberal party?

Photo of John Horam John Horam , Gateshead West

That document was produced last week and I am not aware that any member of the SDP has thought fit to comment on it. I have no doubt that we shall make our position clear in due course, but it is a little early to comment on a matter of such considerable complexity. We shall also produce proposals of our own, which will be similar in spirit to those produced by the Liberal party.

Photo of Mr Leon Brittan Mr Leon Brittan , Cleveland and Whitby

Will that be a matter for the Prime Minister designate or for the leader of the alliance in the election campaign?

Photo of John Horam John Horam , Gateshead West

We are having a serious debate and that was a flippant remark. I am sure that the problems will be resolved in due course.

Apart from wanting to support a progressive element in taxation and not wishing to surrender that principle lightly, as the Government have—the Prime Minister should show chagrin about that—we must bear in mind the total tax burden. I managed to extract from the Government the admission that, even including the last Budget, if one expresses the increase in the total tax burden as an increase in the standard rate of taxation since the Conservatives came to power, the tax burden has risen by the equivalent of 7p in the pound. That is not because of an increase in the standard rate, because that has been reduced; it is not because of a change in the tax threshold.

The increase in taxation is as a result of the near doubling of VAT, a substantial increase in that hidden tax, the national insurance contribution, and the abolition of the reduced rate band. Those three elements have led to a huge increase in the tax burden under the Conservative Government. It is as large an increase as anyone could imagine and it conflicts completely with what the Conservatives said about taxation before they came to power. Moreover, much of the money gathered from taxation is wasted because of the enormous unemployment from which we are suffering. That is a particularly tragic consequence of this Government's economic policies.

In complaining about the tax burden, I do not rest my argument on any theoretical ideas about incentives that operate one way or another. No one, even after all the academic studies, can be exactly sure of the argument. I rest my case simply on the hardship that the tax burden creates for people on average and below average incomes.

Anyone who represents a constituency such as mine will be aware that the high levels of taxation are paid by people on very low incomes, and that is where the hardship strikes. There is a growing burden of hardship on those least able to bear it. That is why I am wholly prepared to support even this amendment, inadequate though it is, against the Government's tax policies.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

I join my hon. Friend the Member for Birkenhead (Mr. Field) in calling for a radical programme on taxation. Indeed, in many ways the document produced by the Liberal party is extremely radical. I support much of what I have read of it. I am surprised that the representatives of both the Liberal party and the SDP have sought to dissociate themselves from the comments in that document. It may be that they are prisoners of Conservative electorates and know that it would be politically suicidal to go into the next general election with a 44 per cent. tax band wrapped around their necks which they would have to justify to those Conservative electors.

The people who wrote that document should perhaps be members of the Labour party, because they were well aware of social problems and the needs of the underprivileged in society. I am surprised that the Liberal party, which always presses its position in terms of a radical political front, has sought not to express openly its support for that document, much of which is perfectly acceptabel to radical elements in society.

Photo of Mr Richard Wainwright Mr Richard Wainwright , Colne Valley

As well as appearing much more naive than I am sure he is, the hon. Gentleman is just plain inaccurate in suggesting any wish to dissociate ourselves from the 63 pages of carefully argued, revolutionary changes in the benefits and tax systems. This will be followed by another substantial document from the SDP under the distinguished leadership of Mr. Dick Taverne. The hon. Member for Norfolk, North (Mr. Howell) tried to make some play of this issue before he left the Chamber, but it will be apparent to hon. Members that my attitude is simply governed by the fact that a debate on an amendment to a Tory Finance Bill to introduce a reduced tax rate band is emphatically not the time — [Interruption.]I am not at all surprised to see you nodding, Mr. Weatherill. This is not the time for an explanation of a closely argued policy that would require a lecture from someone more succinct than myself of at least an hour to explain the elements of the scheme.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

I am sure that the hon. Gentleman will accept that a debate on the low paid and the effects of the lower rate band on low-paid people needs an answer from the Liberal party about its position on the low paid. I understand that this document is part of the debate taking place within the Liberal party about the sort of taxation system that it seeks to implement. I assure the hon. Gentleman that libertarian Socialists will not be as eager to reject that document as so-called libertarian Liberals. I hope that the Liberal party in the country is aware of what I am saying—

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

Order. It would perhaps be more appropriate if we touched on these matters in the debate on clause stand part rather than on this amendment.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

Thank you, Mr. Deputy Speaker. The desperate need of the Government to cut taxes by raising the threshold and not introducing a lower rate band in an election year and at the same time maintaining their financial strategy intact, provided for many of us one of the more amusing aspects of this year's Budget statement. The Government's attitude to the contingency reserve — a key component in Budget strategy—seems to have shifted. Last year, they allowed a contingency reserve of £2·4 billion. This year, it has been reduced to £1·1 billion. When Labour-controlled local authorities take that sort of action they are accused of raiding the reserves or robbing the piggy bank of local government moneys, yet when the Government do it they refer to it as fine tuning of the economy.

4.45 pm

Such manipulation of the statistics in conjunction with an upward revision of oil revenues from £6 billion in 1983–84 to £8 billion announced in the Budget statement—despite the fall in oil prices—are the two components that I understand have been used to fund the tax reductions and other minor concessions that have been included in this year's Budget.

All the statistical juggling was based on an alleged PSBR of £7·5 billion at the time of the Budget. We were told that that was in line with the medium-term financial strategy. But last Thursday a bombshell was dropped when it was suddenly discovered that the PSBR had been grossly underestimated and that it would be £9·5 billion —[Interruption.] If the Chief Secretary is saying that that is not correct, perhaps he will intervene and explain what has happened to the PSBR. Has it moved from £7·5 billion at the time of the Budget statement to £9·5 billion according to statements by Treasury officials last Thursday? The right hon. and learned Gentleman made a sedentary interruption; perhaps he would like to clarify the position.

If he does not, I must proceed on the basis of my figures. I must presume that I am correct and that the PSBR has been underestimated by £2 billion. This seems to be a question, Mr. Deputy Speaker, of, "Now you see it, now you don't." Its change depends on whether it is convenient for Ministers to recognise and admit it or whether it is better for them to deny it for other political reasons. Perhaps, Mr. Deputy Speaker, it is part of what is called the resolute approach—

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

Order. I remind the hon. Gentleman that at present we are in Committee, and that therefore I am the Chairman.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

I apologise, Mr. Weatherill. I should have known better. As I was saying, it is a good example of the resolute approach. The Government are resolute in their determination to fix the figures, so long as the recipients are the better off. Indeed, it is clear from the Budget that once again the better off will benefit.

When the Government find that they are wrong, the better off will not be required to pick up the bill. Measures such as the one embodied in the amendment take the whip. Measures such as the introduction of a 25 per cent. tax band cannot be introduced because the lower paid will pay. Indeed, the large number of people paying the standard rate of income tax will have to pay for the miscalculation derived from the Goverment's obsession with ensuring that the higher paid and better off gain the principal benefits from their annual Budget strategy.

The Government may deny it, but in every one of their five Budgets the rich in society have paid less while the low paid and those paying the standard rate of income tax have picked up the bill. The rich have been well insulated by the Government from the real world. Even their present Budget increased by 14 per cent. the income of the higher paid person before he comes into the higher tax rate bands. A married couple on £40,000 per annum are £490 better off directly as a result of that Budget. A person who earned one tenth of that amount—£4,000 per annum—was only £104 better off. So, for 10 times the income, one gains four times the tax benefit. That is the measure of the Government's understanding and sympathy for the worse off in society.

According to the Child Poverty Action Group's most recent release headed The poor pay more in tax while the rich pay less", people on five times average earnings—£860 a week—will pay £58·30 less per week in tax. Those on average earnings—a little less than £170 per week—will pay £2·30 more in tax and insurance. The tax and insurance for poorer families on three quarters of average earnings—£130 a week—will rise by £2·30 a week. The tax and insurance for the poorest in society—I am glad that the hon. Member for Croydon, South (Sir William Clark) has entered the Chamber, because I am sure that he will find my comments interesting—on 50 per cent. of average earnings at about £85 a week will increase by £2·70 a week. That is a 100 per cent. increase in tax liability.

Hundreds of millions of pounds have been given away to the better off in society. Since 1979, the richest 1 per cent. of taxpayers have reaped 27 per cent.—more than one quarter — of all tax concessions given by the Government. The hon. Member for Sowerby (Mr. Thompson) is following my words closely. I hope that he will go back to his constituents and publicly point out these dreadful figures. They represent a betrayal of the Government's honourable position with the electorate. The Government have never gone to the people and admitted the statistics to which I have just referred. Those statistics are correct, and the hon. Member for Sowerby knows it.

The richest 10 per cent. of taxpayers have reaped 60 per cent. of all the tax concessions given by the Government since 1979. That is an appalling development. The richest 20 per cent.—they are mostly Conservative supporters; very few are Labour supporters — have reaped 70 per cent. of all tax concessions given by the Government. Does not the hon. Member for Sowerby feel ashamed to be a member of a Government who have treated those on the lowest incomes so shabbily and who have so blatantly set out to protect the higher earners in society?

Our people are suffering. They are not benefiting from a Conservative Government. That is why we have tabled an amendment which, even at this late stage of the proceedings to turn the Budget into legislative form, might stir the Government's conscience into introducing a measure to rescind what they have done and providing fairness and equality in the treatment they mete out to the various groups in society.

The Institute of Fiscal Studies calculates that a company director earning £45,000 per annum has gained a £120 a week rise in real take-home pay under the present Government. He has gained in tax relief alone more than many of my constituents earn. Do not the Government feel ashamed? Do not they feel a responsibility to provide for greater equality? Did not the Government promise in their election manifesto of 1979, to which I shall refer in a moment, to provide for justice and fair play, or do they believe that it is fair and reasonable to help only the better off in society? At the same time that a man earning £45,000 a year gained a £120 a week rise in real take-home pay, the average unemployed man, if one takes into account the removal of earnings-related benefit, is £15–30 a week worse off. What a gross injustice. One could go on for hours about the position of those people but I shall not do so because so many of my hon. Friends wish to speak. [Interruption.] Government Members may be amused but the public and the country will know that, during the proceedings on this amendment, not one Conservative Member rose to his feet to defend the Government because it would be impossible to do so.

My constituents are paying. The low paid and those not earning vast amounts are the ones who are required to pay the astonishing bill to fund the substantial reductions in taxation for the better off in society. My constituents in the north—I am sure that it is the same for people all over the United Kingdom—wish to see their taxes reduced. They believe that, if it costs £900 million to introduce a reduced rate band of 25 per cent., the Government have a duty to reverse the tax concessions to which I have already referred with a view to ensuring that the money is available. I am told that, procedurally, the Government still have the right to change the construction of the Budget and to bring forward a measure to reverse the tax benefits that they have given to the better off in society and to introduce a 25 per cent. band which will help many of my hon. Friends' constituents.

Since 1979 the Government have handed out to the rich in society nearly £3 billion in tax concessions. Higher rate concessions to the better off now total £1,745 million. The reduction in investment income surcharge amounts to £330 million. The business start-up scheme accounts for £160 million. I can see some merit in that scheme and I have argued against it only with regard to the abuses that may arise if it is implemented in certain ways. Retirement annuity relief amounts to £110 million; capital transfer tax concessions amount to £190 million; capital gains tax concessions amount to £335 million. In total, nearly £3 billion has been handed out to a select few in society.

We could have spent that money in many other ways. To give one example, that £2,870 million is equivalent to the sum involved in increasing child benefit by £5 a week for every child in the United Kingdom. It would have been much fairer and far more just if the Government had sought to distribute the £3 billion by raising child benefit in that way. That would have had an immediate effect on the budgets of millions of low-paid families, as would the 25 per cent. tax band that is being proposed in the amendment. That proposal would equally help low-paid families, including those who are paying tax on their benefits.

5 pm

When the next Labour Government set about their annual assessment of what should be introduced in the Budget, having consulted the trade unions, they should set civil servants a task that I hope they would finish in a short time — to examine every amendment that the Government have made to tax law which has been of benefit to the better off in society. The next Labour Government should then reverse every one of those amendments, if necessary, and introduce a Budget and a Finance Bill that would restore justice to the tax system, in the form in which it stood when the Labour Government were defeated in 1979.

The British people will not be satisfied until they know that there is justice in the tax system. I am sorry that the hon. Member for Colne Valley (Mr. Wainwright) has left the Chamber. It may be that in the document which he and his alliance colleagues have sought to dismiss, there lies a route towards a more just tax system. At the same time, work is going on in the Labour party on new tax systems. The hon. Member for Gateshead, West (Mr. Horam) will recall that when he left the Labour party he said that he had done so because he felt that he should be objective and should be free to be objective. I remain a member of the Labour party. I am proud to be a Labour Member, and I, too, retain my objectivity. If the hon. Gentleman and his associates in the alliance produce a document which may have within it some plausible and reasonable suggestions, I shall examine it reasonably and objectively. That, perhaps, is the difference between the hon. Gentleman and his colleagues and myself. I feel that I can retain objectivity without shifting my political position and joining another political party.

Photo of Mr William Clark Mr William Clark , Croydon South

It is unusual to hear an hon. Member move a vote of thanks to himself.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

The truth is that the past four Budgets have included innumerable measures that have been exclusively of benefit to the better off in society, and they all need reversing. The Government have done immeasurable damage to the British economy. They have looted its wealth to fund the better off. The Government have gone to great lengths to try to conceal the damage they have done to the economy and to our prospects of economic expansion. Even in the depression of the 1930s the British economy progressed more than it has done under this … Government. Their favourite but totally false excuse is that their appalling record is all to the oil crisis and the world-wide economic depression. Yet since the oil crisis, despite our coal, and gas and oil from the North Sea, prices and unemployment in Britain have risen by more than in almost any other major industrialised country. And output has risen by less. With much poorer energy supplies than Britain, the others have nonetheless done much better". They found that possible because they did not have our Government and did not have to suffer from their mistakes. [HON. MEMBERS: "Hear, hear."] My hon. Friends acclaim the words that I have just uttered. They are words that we can use justifiably against the Government. They appeared in the manifesto that the Conservative party published at the time of the 1979 general election. It seems that the accusations that it levelled in that document are just as accurate and applicable now. The manifesto stated: We shall cut income tax at all levels to reward hard work, responsibility and success; tackle the poverty trap; encourage saving and the wider ownership of property; simplify taxes".

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

Order. We are again going rather wide of the amendment. The hon. Gentleman is advancing arguments that would be more appropriate in a clause stand part debate.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

As always, Mr. Weatherill, I bow to your greater judgment. I merely draw attention to the famous words that appeared in the Conservative party's manifesto—which no doubt will be re-rendered during the next general election campaign — to show how blatantly and cruelly the Government have failed to keep their promises to the British people, including the promise that they would reduce taxes. The amendment gives them the opportunity to reduce taxes for many in society. All the millions who pay tax would be affected. Conservative Members will have the opportunity to vote with the Opposition tonight.

Photo of Mr Willie Hamilton Mr Willie Hamilton , Central Fife

My hon. Friend the Member for Workington (Mr. Campbell-Savours) got worked up, quite rightly, about the Government's behaviour since they were elected in 1979. He should not be surprised by that behaviour. That is what the Government were elected to do. Their job was to look after the wealthy and to penalise the poor. That is what conservatism is all about.

During the 1979 election campaign I warned the British people of what might happen. I said that there could be no doubt that a Conservative Government would cut public expenditure—that has been disproved—and that, if they cut public expenditure, they would cut the services for which that expenditure was raised, and that has happened.

My hon. Friend the Member for Workington and others have referred to the enormously increased taxation burdens, especially on the poor. The story of deprivation of those people does not end there. Probably the most important part of their income is what we continue to call the social wage—education, housing and health. These services are paid for in large proportion out of progressive taxation. All these services have been cut by the Government. At the same time, the taxation burden on the lower paid has increased substantially since the Government were elected.

The greatest betrayal of the British electorate by the Government has been the way in which they have increased, rather than decreased, taxation, particularly for those who generally form the poorest sections of our community.

I recall the Minister who will reply saying two years ago that no person could prove that he was paying more tax than he paid when the Conservatives were elected. He had to eat those words then and he will probably have to eat them again today. The facts are undeniable. Millions of people are paying more today than they were then in both tax and national insurance contributions, and there can be no doubt that the latter is a tax; it is a poll tax. Taking those two into account, millions of our citizens, especially the poorer, are paying more. The poorer are paying a bigger proportion of their income in direct taxation than they did, and that is a direct betrayal of the promise on which the Conservatives were elected.

An example was given to me a few days ago of a nurse who, having been in the NHS all her working life, from the very inception of the service, now receives an NHS pension of £190 a month, of which she pays £70 in taxation, leaving her £30 a week net — that after 45 years of dedicated service to the community. That is the measure of the Government's attitude to taxation problems.

The Chancellor of the Exchequer said that he would relieve the tax burden on everybody, but the figures produced by the Child Poverty Action Group show the reverse to have been true. The only people to benefit—and they have benefited substantially from successive Conservative Budgets since 1979 — have been those earning more than £20,000 a year, not many of whom vote Labour. It is in their interest to vote Tory, and that is why Conservative Governments over that period have pandered to them when talking about incentives.

There is, however, no evidence that the incentives given to those people by way of enormous tax concessions have resulted in higher industrial production. On the contrary, the evidence is in the opposite direction. The more concessions they are given, the less hard they work, taking the evidence from the official statistics of industrial production or anywhere else. As has been said, there is no evidence one way or the other to show that tax concessions or tax penalties increase or reduce incentives. There is a great deal of conflicting evidence, so much so that nobody can come to a firm conclusion on the matter.

The Prime Minister made a statement that has been quoted in the House of Commons before and will certainly be quoted at the next general election, and I feel that I must put it on the record again now. In 1977 the right hon. Lady said: We pay the highest rate of income tax at the lowest level of income of any country in the EEC. That is the measure of Socialism—the effect on the poorer people of this country".—[Official Report, 29 March 1977; Vol. 929, c. 293.] I have watched the right hon. Lady since she entered Parliament and seen a wonderful transformation come over her. In 1977 she was blaming everything on a wicked Socialist Government. There was no question of a world crisis then. When we were facing problems of increasing world unemployment and so on, it was all due to the inefficiency and incompetence of the Socialist Government, and the fact that we had the highest rate of tax at the lowest level of income in the EC was blamed on the Socialists.

5.15 pm

Today, after three and a half years of the right hon. Lady's Prime Ministership—as a result of the abolition of the reduced rate band by her Government; indeed, by her as the First Lord of the Treasury—the starting rate of tax is still higher in Britain than in any EC country, and by a wide margin. Moreover, with the exception of Italy and Greece, Britain has the lowest tax threshold. However, in those countries tax becomes payable at 16p and 7·6p in the pound, respectively, compared with our starting rate of 30p in the pound. That is why we are not being excessively generous in saying that it should be reduced to 25 per cent., as it was before the Conservatives came to office. Contrary to the Prime Minister's earlier protestations, her Government have increased the starting rate and reduced the level of income at which people start paying tax.

I am interested to see the hon. Member for Folkestone and Hythe (Sir A. Costain) and my hon. Friend the Member for Workington in their places, because we three are members of the Public Accounts Committee. If there is one group of people which engages the activities of the snoopers in the Civil Service, it is not those who are benefiting substantially from the black economy, where we lose £4 billion a year. The Government cannot find the bodies to produce the investigators to chase those people. But almost overnight they can find nearly 1,000 people to go after the DHSS cheaters who are getting away with perhaps 50p or £1 a week.

The hon. Member for Folkestone and Hythe knows what I am talking about because the facts are on the record. We have tried to ascertain from the various Government Departments which would be the most effective deployment of Civil Service labour — investigators chasing recalcitrants in the black economy or snoopers chasing DHSS recipients. By a thousand miles, the most effective deployment of investigators would be in the black economy. Yet when we ask Treasury witnesses about that, they reply, "It is not our business. Each Government Department—the Inland Revenue, DHSS and so on— has responsibility to deploy its labour as they think fit". No guidance is given by the Treasury on the most effective use of labour in that respect.

Photo of Sir Albert Costain Sir Albert Costain , Folkestone and Hythe

I cannot see what the remarks of the hon. Gentleman have to do with the amendment, but, as the Chair has allowed them, I hope I may be permitted to intervene. The hon. Member for Fife, Central (Mr. Hamilton) and his hon. Friend the Member for Workington (Mr. Campbell-Savours) were in the United States with me a fortnight ago. During our visit we compared the top rates of taxation there and here, and they then remarked on the enormous increases that the Socialists made, giving us the highest rate in the world. It seems that both hon. Gentlemen want to return to that.

Photo of Mr Willie Hamilton Mr Willie Hamilton , Central Fife

I would be out of order if I pursued that point. On another occasion I should be happy to do so.

The point that I was making is relevant to the amendment. It is estimated that the result of implementing the amendment would be about £900 million a year. As a result of the Government's refusal to appoint more investigators, the black economy is getting away with about £4,000 million, which is four or five times the cost of the amendment. I hope that the Government will not ask, "Where will we get the money from?" If they do, the answer is simple. If the Treasury Ministers issued a directive to the Inland Revenue to employ X number of extra investigators, almost overnight the Government would get well over the cost of the amendment.

Photo of Mr Leon Brittan Mr Leon Brittan , Cleveland and Whitby

As has been made clear, the amendment is a proposal by the official Opposition to reinstate the lower rate band at a cost of about £850 million in a full year, but inevitably, as is customary on such occasions, the debate has ranged wider into all sorts of nooks and crannies of our economic policy, going well beyond the tax system. I hasten to assure you, Mr. Weatherill, that I shall not attempt to follow all those paths and diversions, but some things that have been said need correction, particularly what has been said about the tax thresholds and where they stand in real terms today compared with 1978–79.

For the financial year 1983–84 the tax thresholds will be 6 per cent. higher in real terms than those for the financial year 1978–79. That correction needs to be made. In the debate hon. Members have referred to the Government's tax record in many aspects. It is not appropriate for me in answering the debate to give a picture of the overall position, which was covered both in the debate on the Budget and in the debate on the Second Reading of the Finance Bill.

Photo of Mr Leon Brittan Mr Leon Brittan , Cleveland and Whitby

I ought to proceed further. In that debate I was able to put the matter into broader perspective and to explain the Government's record. My right hon. Friend the Financial Secretary went into the matter further when he wound up. I showed that the percentage of income going on income tax — I am distinguishing that from income tax on national insurance contributions — was lower than in 1978–79 for people on three quarters of average earnings and above.

Photo of Mr Robert Sheldon Mr Robert Sheldon Shadow Chief Secretary to the Treasury

Will the right hon. and learned Gentleman give way?

Photo of Mr Leon Brittan Mr Leon Brittan , Cleveland and Whitby

I must proceed. The right hon. Gentleman must contain himself and allow me to develop the subject a little further. I shall give way at the appropriate moment.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

On a point of order, Mr. Weatherill. Is it not the custom when the House is in Committee for Ministers to give way at the Dispatch Box more liberally than at other times?

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

Order. The custom is that the Minister gives way if he wishes to do so.

Photo of Mr Leon Brittan Mr Leon Brittan , Cleveland and Whitby

And he will. However, the right hon. Gentleman must contain himself for the moment. I was going to say that the picture as a whole—

Photo of Mr Leon Brittan Mr Leon Brittan , Cleveland and Whitby

The right hon. Gentleman asks, "What does it mean?" The answer is perfectly simple.

Photo of Mr Robert Sheldon Mr Robert Sheldon Shadow Chief Secretary to the Treasury

I am not sure why the Minister refuses to give way when I am seeking to clarify a figure. He said that in real terms the threshold had increased. That seemed to be a response to a statement that I made that, as a percentage of average earnings, the threshold had in fact decreased. Does the right hon. and learned Gentleman accept that?

Photo of Mr Leon Brittan Mr Leon Brittan , Cleveland and Whitby

The right hon. Gentleman must not allow himself to get so excited by his own statements. The position is perfectly simple. If one takes the figure for the tax threshold and indexes it in the sense of increasing it to take account — [Interruption.] If the right hon. Gentleman does not want to hear the answer, there is no point in his intervening. He asked what I meant and I am explaining. I shall not answer his question unless he is prepared to listen to the answer. What I said was—[Interruption.] If the right hon. Gentleman continues muttering, I shall proceed with the rest of my speech. If he wants to hear the answer, he will have to keep quiet. [Interruption.] The right hon. Gentleman obviously does not want to listen to the answer to his question, so I shall continue with the rest of my speech. He is continually muttering. He is a sufficiently experienced Member of the House not to engage in such nonsense. The explanation is simple, if the right hon. Gentleman will listen for a moment. It is that if one takes the figure for the threshold and indexes it in accordance with the increase in inflation, one reaches another figure. The figure for the tax threshold for the financial year 1983–84 is 6 per cent. higher than the figure that I have just described. That is the answer to the right hon. Gentleman's question, whether he likes it or not.

I was going to say that, as was made perfectly clear, the percentage of income going on income tax is lower than in 1978–79 for people on three quarters average earnings, but with regard to national insurance contributions, there is a different outcome. As I explained on Second Reading, most people think that the increases in benefits in real terms that have taken place are desirable and so have had to be paid for.

In that debate I went on to say that, in addition, we have to take into account the fact that when we were able to reduce the tax burden it was felt—rightly, I believe—that priority should be given to reducing the tax burden on industry rather than on the individual. That was reflected in the reduction of the national insurance surcharge from 3½ per cent. to 1 per cent. I said that this year, however, we can make an improvement for the individual. It is for that reason that the allowances have gone up to the extent that they have.

Perhaps most important of all, I said that real net earnings—the take-home pay—are substantially higher than in 1978–79 for taxpayers at all levels. That is why it is not particularly surprising that real tax payments have gone up—it is because real gross earnings have gone up so much. There is no mystery about that. I shall forbear from extending this discussion further and proceed soon to the reduced rate band. One could compare what has occurred with what occurred under the Labour Government and still more with what would occur under a Government committed to the Labour party's present proposals. That would widen the debate much further.

Photo of Jack Straw Jack Straw Shadow Spokesperson (Treasury)

We are only too delighted to make comparisons between the Labour Government and this Government because the Labour Government's record stands up well to examination. Does the Minister accept that the measure that the Government use and publish for living standards, which is real personal disposable income per head, has gone down by 3 per cent. under the Government but went up 12 per cent. under the Labour Government?

Photo of Mr Leon Brittan Mr Leon Brittan , Cleveland and Whitby 5:30 pm, 25th April 1983

That is not necessarily the most illuminating figure because it takes account of all sections of the community whether they are retired, unemployed, in receipt of income or not. When talking about people paying tax, the figure for real gross earnings is a fairer indication, and the figure that I gave for that is correct.

The main subject—it ought to be the only subject—of this debate is the proposition that a lower rate band should be introduced. Very little of the debate has concentrated on the arguments in favour of that. In fact, only one argument has been advanced to support the proposition. The suggestion that it would be a cost-effective way to use the money that would be involved has not received much support. The hon. Member for Gateshead, West (Mr. Horam) put it very fairly when he pointed out the limited benefit of a change of this kind compared with the expenditure of a comparable sum on increasing the tax allowance.

In many ways, the case was extremely well put by the right hon. Member for Llanelli (Mr. Davies), when he was a Treasury Minister. He said: A reduced rate band, as distinct from an increase in the tax threshold, would not give most help to those on the smallest incomes. For the man on the tax threshold complete exemption for a few pounds is worth more than a lower rate of tax on a larger band of income which he has not got. If the cost of the reduced rate band had to be met by keeping the tax threshold lower than it would otherwise be, it would widen the poverty trap by enlarging the overlap between tax liability and entitlement to means-tested benefit. If having a reduced rate band is at the expense of having less of an increase in allowances, it will not benefit people at the lower end of the scale as much as an increase in allowances."— [Official Report, 3 March 1977; Vol. 927, c. 747–48.] That is exactly the position, as my hon. Friend the Minister of State explained in considerable detail in the debate on low pay.

It is for precisely that reason that at this stage it is desirable that any money available to assist those at the lower end of the tax scale should be used to increase allowances rather than to introduce a reduced rate band. As my hon. Friend the Minister of State said, if the money were used to introduce a lower rate band it would give less benefit to the lowest paid single people and less benefit to all married men. The effect of introducing a lower rate band would be to improve the financial position of most single people and working wives at the expense of the lowest paid single people and of all married men. In other words, low-paid families with children, whom the lower rate band is intended to help, would be better off with an increase in the tax threshold. That is why it is far better to spend whatever money is available to assist those at the lower end of the tax spectrum on an increase in thresholds. Whether it is argued that we should introduce a larger increase in the threshold or whether it involves jobbing backwards the other way, the result is the same because for any given sum of money a choice must be made and no amount of fudging or blurring will avoid that decision.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

Does the Minister accept that we are not really arguing the merits of a 25 per cent. reduced rate tax band as against increases in thresholds? We are arguing that the money that was available was not spent on a 25 per cent. rate band but on reducing the tax burden on the richer members of society. Will the Minister address himself to that?

Photo of Mr Leon Brittan Mr Leon Brittan , Cleveland and Whitby

The hon. Gentleman may find my arguments uncomfortable, but he cannot say that we are not debating whether there should be a reduced rate tax band because that is precisely the subject of the amendment. The hon. Gentleman's point is not relevant because I am not talking about alternatives involving help to other sections of the community, incentives for those at the upper end of the scale, and so so. I am assuming a situation in which one wishes to help the lower paid, and in that situation the best way is to increase the allowances and not to introduce a lower rate band. If progress could be made in that direction over a period of years, there might be room at a later stage for a lower rate band. At the moment, however, it is clear that a lower rate band would not represent the best use of resources available to assist the lower paid. If the money were available, the same sum could finance personal allowances about 5 per cent. higher than are now proposed. The equivalent threshold increase would take about 340,000 single and married people out of tax, but the introduction of a lower rate band would take no one out of tax. For those remaining in the tax net, a threshold increase would give greater proportionate benefit to those with the lowest incomes than to basic rate taxpayers generally. The introduction of a lower rate band does least for those people because those in the lower rate band would receive less benefit than those with higher incomes in the basic rate band.

To be fair, those who were prepared to address themselves to the important but comparatively narrow question whether a lower rate band was the most effective way to help the lower paid accepted that it was not the best way and that in any given year an increase in allowances was better. The argument therefore shifted to the proposition that a structural benefit could be secured for the tax system in this way. The document from the low pay unit, to which reference was made, virtually argues that threshold increases would be eaten away by inflation but that a lower rate band would remain as a structural feature of the system. The suggested distinction between structural features and changes in allowances gives greater permanence to a particular structure created by the introduction of a particular rate band than is justified by the whole history of our tax changes over the past generation. Changes in allowances and in the various rate bands have been made with great frequency, so it is not a question of being able in some way to entrench the position of the low paid by making a change of this kind, which actually benefits them less than would an increase in the allowance threshold.

In every case, it is a matter of the policy and direction that Governments wish to pursue. If Governments of whichever political complexion wish over a period to assist the low paid and the community as a whole by steadily increasing the allowances, they are well able to do so. If they wish to do otherwise, the existence of a lower rate band will in no way impede them. A false contrast has been made between the permenance of one feature of the system and the impermanence of another. It is generally conceded that greater assistance is given to the low paid by an increase in allowances than by introducing a lower rate band. There is, therefore, no justification for pretending, on so-called structural grounds, that a lesser benefit would be enshrined for a longer period as a result of such a change. For those reasons, therefore, irrespective of how much assistance should be given and how much assistance the Government can afford to give, I ask the Committee to take the view that the proposed change would not be in the interests of those on whose behalf it is put forward.

Photo of Mr Robert Sheldon Mr Robert Sheldon Shadow Chief Secretary to the Treasury

That was a very disappointing response in a number of respects.

Photo of Mr Leon Brittan Mr Leon Brittan , Cleveland and Whitby

The right hon. Gentleman clearly wrote that opening sentence before hearing my response.

Photo of Mr Robert Sheldon Mr Robert Sheldon Shadow Chief Secretary to the Treasury

Not at all. Unlike the Chief Secretary, I am always happy to listen to arguments and to respond to them during a debate. I do not come wholly prepared as the right hon. and learned Gentleman frequently does. That is why I have to take him back to what he said during the debate about the way in which, according to him, real thresholds had increased.

No one argues with the figures used by the right hon. and learned Gentleman, but those figures are no response to the debate, any more than are his comments about the threshold as a percentage of average manual earnings, and that is what this debate on the reduced rate band is about. It is about what happens to the ordinary person seeing the reduced rate band being filched from him and the money from that being used to pay for those who are rather better off.

The answer is to be seen clearly in the two Budget decisions in 1980 and 1981. In 1980, the Government filched the reduced rate band to pay for the Rooker-Wise uprating of the thresholds. In 1981, they had no reduced rate band to filch, so they did not increase the thresholds. That is the straightforward history of it.

When this Government came to office, they had a threshold of 38·8 per cent. of average manual earnings. As a result of this Budget, it is more than four percentage points below that figure. The threshold for people on the lowest incomes has reduced by four per cent. during the period in office of the present Government.

Photo of Mr Robert Sheldon Mr Robert Sheldon Shadow Chief Secretary to the Treasury

I shall give way to the Chief Secretary in a moment. He is teaching me a lesson that I never hoped to learn. He will know that I always give way to other lion. Members. It is only courteous to do that. It helps argument, and it makes sure that we deal with topics as they arise and avoids the necessity of hon. Members making set speeches which they have prepared in advance. With that little homily in mind, the right hon. and learned Gentleman may now intervene.

Photo of Mr Leon Brittan Mr Leon Brittan , Cleveland and Whitby

I am always grateful to the right hon. Gentleman for his homilies. All hon. Members find them equally valuable on every occasion that they are given.

The percentages given by the right hon. Gentleman are not quite accurate. He said that tax thresholds were 34·7 per cent. of earnings in 1978–79 and 38 per cent. of earnings this year. I do not know whether that was meant to be a reference to male earnings in all occupations or only to manual earnings. On all male occupations, the figure of allowances in relation to average earnings shows a 1 per cent. reduction in 983–84 from that in 1978–79, and it is 6 per cent. higher in relation to average financial year prices.

Photo of Mr Robert Sheldon Mr Robert Sheldon Shadow Chief Secretary to the Treasury

The Library, which produced the figures for me, described them as Threshold as a percentage of average manual earnings Perhaps I did not make that: sufficiently clear. It was 38·8 per cent. in 1978–79 and 34·7 per cent. in 1983–84.

Photo of Mr Leon Brittan Mr Leon Brittan , Cleveland and Whitby

Then will the right hon. Gentleman accept—

Photo of Mr Robert Sheldon Mr Robert Sheldon Shadow Chief Secretary to the Treasury

I hope that the Chief Secretary will allow me to complete my sentence. He knows my record in these matters, and I am delighted to retain it. I wish to point out that average manual earnings and average earnings are a little different. The income scales for those on non-manual earnings have done rather better than manual earnings. But those are the figures supplied to me by the Library.

Photo of Mr Leon Brittan Mr Leon Brittan , Cleveland and Whitby

I merely wished to suggest to the right hon. Gentleman that it would be helpful if, with his customary fairness, he expressly conceded that in relation to average earnings of all occupations we are talking about a 1 per cent. reduction. That is a significant change. It is of little service to debate to pretend that the only people working are those engaged in manual occupations.

Photo of Mr Robert Sheldon Mr Robert Sheldon Shadow Chief Secretary to the Treasury 5:45 pm, 25th April 1983

I am delighted to accept figures that I have not seen before. They show that, as a result of this Budget, the deterioration in average earnings is not as big as I feared but nevertheless exists. There is a deterioration in the threshold of 1 per cent. It is rather less than that for manual earnings, but there is a deterioration. I am happy to accept the right hon. and learned Gentleman's word when he produces these figures.

The hon. Member for Folkestone and Hythe (Sir A. Costain) apparently visited the United States with a view in part to discovering how the American tax system operates. He mentioned those at the highest levels, and we shall come to them in a subsequent debate. However, in the present debate we are discussing the lower levels of taxation. The hon. Gentleman will be aware from what he learned during his visit that Americans have not only reduced rate bands but a series of them. They start at 14 per cent. and go on to 16 per cent., 18 per cent., 20 per cent., 22 per cent., and so on. If the hon. Gentleman cites the American example as one that we should follow, he is asking for more than one simple reduced rate band because he lauds a system which provides for many more rates of tax at levels lower than that which we have.

Photo of Sir Albert Costain Sir Albert Costain , Folkestone and Hythe

I assure the right hon. Gentleman that I did not go to America to learn about the tax system there. I paid United States tax for a number of years. One of the right hon. Gentleman's hon. Friends talked about this Conservative Government giving money to the rich. I was pointing out that the Socialist Government gave the highest priority to taxation but, instead of giving money to the rich, concentrated on getting our taxation system at the higher level on some equality with that of the United States.

Photo of Mr Robert Sheldon Mr Robert Sheldon Shadow Chief Secretary to the Treasury

That debate will come in due course. The matter relevant to the present debate is the lower rate bands, and the experience of the United States points to a rather different conclusion from that presented to us.

In a very impressive speech showing how the poverty trap was helped by the reduced rate band, my hon. Friend the Member for Birkenhead (Mr. Field) spoke of the relief to the higher tax payers and pointed to the large sums of money which had gone to them and which ought in fairness to have gone to those in the greatest need and those who would be assisted by a reduced rate band.

My hon. Friend made three arugments which the Chief Secretary did not take sufficiently into account. First, he advanced the argument, which the right hon. and learned Gentleman did not mention, that the reduced rate band helped those in the poverty trap. Of course it does not abolish the trap, but it helps, and we should like to see more happening there. One of our problems about the poverty trap is the high marginal rates of taxation. My hon. Friend pointed out fairly that the reduced rate bands reduced the marginal rates of tax of those caught in the poverty trap—which is why it assists—and he added a comment about the increase in the incentive to work.

I expected that argument to produce a more encouraging response from the Chief Secretary, speaking as he does so often about the need for incentives and bearing in mind that these are people to whom incentives are very real. When we take into account the cost of earning a living, the cost of transport and the cost of canteen meals, it becomes arguable whether it is worth while taking on a part-time job, which is what we are talking about in respect of a great many people. It is a narrow difference that makes them decide whether to take these jobs. The reduced rate band can be the final matter that can make that decision for them.

My hon. Friend the Member for Workington (Mr. Campbell-Savours), in a notable speech, attacked the hon. Members for Gateshead, West (Mr. Horam) and for Colne Valley (Mr. Wainwright) about the Liberal document. I have not had an opportunity to read it, but, in so far as it probably rests upon interest, concern and affection for a tax credit system, perhaps I should point out the disadvantages of that line of action. I was against a tax credit system when we had a Select Committee on the subject because it removed, almost for ever, the opportunity to have a reduced rate band. The tax credit system depends on an enormous length of a single basic rate of tax. Without that long range, covering about 97 per cent. of the population all paying tax at one basic rate, the principle upon which the tax credit system was based would be unworkable. I strongly opposed that trend to fixing it in amber for as long ahead as one can consider. I also opposed other matters, such as the fact that it would deal with only four out of the 44 benefits that operated at that time.

There were a number of other matters, but that was an important element. If the hon. Member for Colne Valley is continuing along that line—

Photo of Mr Robert Sheldon Mr Robert Sheldon Shadow Chief Secretary to the Treasury

I am glad to see that he is not, but I know that several members of the SDP are interested in the tax credit system, starting with the hon. Member for Farnworth (Mr. Roper). However, it is a line of action that I would strongly oppose, and the hon. Member for Colne Valley seems to be implying that he would oppose it as well.

As my hon. Friend the Member for Birkenhead said, the reduced rate band involves a small amount of money. We are suggesting a level of 25 per cent. on £750. My hon. Friend sees this as the beginning of a series of ranges of reduced rate bands. Before going too far in that direction, I should like to see the results of the computerisation of the Inland Revenue, to see how far one can have such refinement of the tax system. In principle, I see nothing to disagree with in what my hon. Friend said. He is showing the road ahead, if that can be done within the principles of the system that is being carried out by the Inland Revenue in its computerisation exercise.

Photo of Frank Field Frank Field , Birkenhead

My right hon. Friend may recall that I commented that if the Labour party were to content itself with introducing a modest reform such as a reduced band tax rating of 25 per cent. on the first £750 of taxable income, we should have to get to grips with the loss of taxable income by way of the tax benefits granted by Chancellors. May we have my right hon. Friend's thoughts on this, as a person who might be a member of the next Labour Government in a Treasury position? If we are to offer real changes in the tax system and a real shift in the burden, taking a large number of people out of tax and promising cuts in the rate of tax as well, we must bring all income into tax to make that possible.

Photo of Mr Robert Sheldon Mr Robert Sheldon Shadow Chief Secretary to the Treasury

I should be happy to respond to my hon. Friend, who always introduces interesting and important matters. However, I can spot the signs a long way off, Mr. Leadbitter, and I know that I should not receive any encouragement if I were to proceed in this direction. Suffice it to say that my hon. Friend and I shall be happily engaged in discussing these interesting matters in the next Labour Government. The differences between us will be small indeed at the end of the day.

This beginning of the Finance Bill Committee stage on the Floor of the House has been interesting because it has introduced a theme to which we shall constantly be referring. That is the way in which the Government differentiate so markedly between the advantages that they give to the better-off and the disadvantages that they allow for those at the lower end of our income scale. Because of this and because of the importance that attaches to the amendment, I ask my right hon. and hon. Friends to join me in the Lobby.

Question put, That the amendment be made:—

The Committee divided: Ayes 170, Noes 245.

Division No. 128][5.55 pm
Abse, LeoEadie, Alex
Adams, AllenEllis, R. (NE D'bysh're)
Allaun, FrankEnglish, Michael
Alton, DavidEnnals, Rt Hon David
Archer, Rt Hon PeterEvans, loan (Aberdare)
Ashley, Rt Hon JackEvans, John (Newton)
Ashton, JoeField, Frank
Atkinson, N.(H'gey,)Flannery, Martin
Barnett, Guy (Greenwich)Foot, Rt Hon Michael
Benn, Rt Hon TonyFord, Ben
Bidwell, SydneyFoster, Derek
Booth, Rt Hon AlbertFraser, J. (Lamb'th, N'w'd)
Boothroyd, Miss BettyGarrett, John (Norwich S)
Bottomley, Rt Hon A.(M'b'ro)Golding, John
Bradley, TomGraham, Ted
Bray, Dr JeremyGrant, John (Islington C)
Brown, R. C. (N'castle W)Grimond, Rt Hon J.
Buchan, NormanHamilton, James (Bothwell)
Callaghan, Jim (Midd't'n & P)Hamilton, W. W. (C'tral Fife)
Campbell-Savours, DaleHarman, Harriet (Peckham)
Carter-Jones, LewisHarrison, Rt Hon Walter
Cartwright, JohnHart, Rt Hon Dame Judith
Clark, Dr David (S Shields)Haynes, Frank
Clarke, Thomas (C'b'dsre, A'rie)Heffer, Eric S.
Cocks, Rt Hon M. (B'stol S)Home Robertson, John
Coleman, DonaldHomewood, William
Concannon, Rt Hon J. D.Hooley, Frank
Cook, Robin F.Horam, John
Cowans, HarryHoyle, Douglas
Crowther, StanHuckfield, Les
Cryer, BobHughes, Mark (Durham)
Cunningham, G. (Islington S)Hughes, Robert (Aberdeen N)
Cunningham, Dr J. (W'h'n)Hughes, Roy (Newport)
Dalyell, TamHughes, Simon (Bermondsey)
Davidson, ArthurJanner, Hon Greville
Davies, Rt Hon Denzil (L'lli)Jay, Rt Hon Douglas
Davis, Terry (B'ham, Stechf'd)Johnson, James (Hull West)
Deakins, EricJohnston, Russell (Inverness)
Dean, Joseph (Leeds West)Jones, Barry (East Flint)
Dewar, DonaldKaufman, Rt Hon Gerald
Dixon, DonaldKerr, Russell
Dobson, FrankLamond, James
Dormand, JackLeighton, Ronald
Duffy, A. E. P.Litherland, Robert
Dunnett, JackMabon, Rt Hon Dr J. Dickson
Dunwoody, Hon Mrs G.McCartney, Hugh
McKay, Allen (Penistone)Rowlands, Ted
McKelvey, WilliamSandelson, Neville
MacKenzie, Rt Hon GregorSever, John
Maclennan, RobertSheldon, Rt Hon R.
McWilliam, JohnShore, Rt Hon Peter
Marshall, D(G'gow S'ton)Silkin, Rt Hon J. (Deptford)
Marshall, Jim (Leicester S)Silverman, Julius
Mason, Rt Hon RoySkinner, Dennis
Maxton, JohnSnape, Peter
Meacher, MichaelSoley, Clive
Mikardo, IanSpearing, Nigel
Millan, Rt Hon BruceSpriggs, Leslie
Mitchell, Austin (Grimsby)Stewart, Rt Hon D. (W Isles)
Mitchell, R. C. (Soton Itchen)Stoddart, David
Morris, Rt Hon A. (W'shawe)Stott, Roger
Morris, Rt Hon C. (O'shaw)Strang, Gavin
Newens, StanleyStraw, Jack
Oakes, Rt Hon GordonTaylor, Mrs Ann (Bolton W)
O'Brien, Oswald (Darlington)Thomas, Dafydd (Merioneth)
O'Halloran, MichaelThorne, Stan (Preston South)
O'Neill, MartinVarley, Rt Hon Eric G.
Orme, Rt Hon StanleyWainwright, E.(Dearne V)
Owen, Rt Hon Dr DavidWainwright, R.(Colne V)
Park, GeorgeWardell, Gareth
Parker, JohnWatkins, David
Pitt, William HenryWellbeloved, James
Prescott, JohnWelsh, Michael
Price, C. (Lewisham W)Whitlock, William
Race, RegWigley, Dafydd
Radice, GilesWilley, Rt Hon Frederick
Rees, Rt Hon M (Leeds S)Williams, Rt Hon A.(S'sea W)
Richardson, JoWilliams, Rt Hon Mrs (Crosby)
Roberts, Albert (Normanton)Wilson, Rt Hon Sir H.(H'ton)
Roberts, Allan (Bootle)Wilson, William (C'try SE)
Roberts, Ernest (Hackney N)Woolmer, Kenneth
Roberts, Gwilym (Cannock)Wrigglesworth, Ian
Robertson, GeorgeYoung, David (Bolton E)
Robinson, G. (Coventry NW)
Rooker, J. W.Tellers for the Ayes:
Roper, JohnMr. George Morton and
Ross, Stephen (Isle of Wight)Mr. Lawrence Cunliffe
Adley, RobertBulmer, Esmond
Aitken, JonathanBurden, Sir Frederick
Alexander, RichardButcher, John
Alison, Rt Hon MichaelCarlisle, John (Luton West)
Ancram, MichaelCarlisle, Kenneth (Lincoln)
Arnold, TomCarlisle, Rt Hon M. (R'c'n)
Aspinwall, JackChalker, Mrs. Lynda
Atkins, Rt Hon H.(S'thorne)Channon, Rt. Hon. Paul
Atkins, Robert (Preston N)Chapman, Sydney
Baker, Nicholas (N Dorset)Churchill, W. S.
Banks, RobertClark, Hon A. (Plym'th, S'n)
Beaumont-Dark, AnthonyClark, Sir W. (Croydon S)
Bendall, VivianClarke, Kenneth (Rushcliffe)
Berry, Hon AnthonyClegg, Sir Walter
Best, KeithCockeram, Eric
Bevan, David GilroyColvin, Michael
Biffen, Rt Hon JohnCormack, Patrick
Biggs-Davison, Sir JohnCorrie, John
Blackburn, JohnCostain, Sir Albert
Blaker, PeterCranborne, Viscount
Body, RichardCrouch, David
Bonsor, Sir NicholasDickens, Geoffrey
Boscawen, Hon RobertDorrell, Stephen
Bottomley, Peter (W'wich W)Douglas-Hamilton, Lord J.
Boyson, Dr RhodesDover, Denshore
Braine, Sir Bernarddu Cann, Rt Hon Edward
Bright, GrahamDunn, Robert (Dartford)
Brinton, TimDurant, Tony
Brittan, Rt. Hon. LeonDykes, Hugh
Brooke, Hon PeterEden, Rt Hon Sir John
Brotherton, MichaelEdwards, Rt Hon N. (P'broke)
Brown, Micbael (Brigg & Sc'n)Eggar, Tim
Bruce-Gardyne, JohnElliott, Sir William
Bryan, Sir PaulEyre, Reginald
Buchanan-Smith, Rt. Hon. A.Farr, John
Buck, AntonyFell, Sir Anthony
Budgen, NickFenner, Mrs Peggy
Finsberg, GeoffreyMeyer, Sir Anthony
Fisher, Sir NigelMills, Iain (Meriden)
Fletcher, A. (Ed'nb'gh N)Mills, Sir Peter (West Devon)
Fletcher-Cooke, Sir CharlesMiscampbell, Norman
Fookes, Miss JanetMoate, Roger
Forman, NigelMonro, Sir Hector
Fowler, Rt Hon NormanMontgomery, Fergus
Fox, MarcusMoore, John
Fraser, Rt Hon Sir HughMorgan, Geraint
Fraser, Peter (South Angus)Morris, M. (N'hampton S)
Fry, PeterMorrison, Hon C. (Devizes)
Gardiner, George (Reigate)Morrison, Hon P. (Chester)
Gardner, Sir EdwardMudd, David
Gilmour, Rt Hon Sir IanMurphy, Christopher
Glyn, Dr AlanMyles, David
Goodhew, Sir VictorNeale, Gerrard
Goodlad, AlastairNeedham, Richard
Gorst, JohnNelson, Anthony
Gow, IanNeubert, Michael
Gray, Rt Hon HamishNewton, Tony
Griffiths, E.(B'y St. Edm'ds)Oppenheim, Rt Hon Mrs S.
Griffiths, Peter (Portsm'th N)Page, Richard (SW Herts)
Grist, IanParris, Matthew
Grylls, MichaelPawsey, James
Gummer, John SelwynPeyton, Rt Hon John
Hamilton, Hon A.Pink, R. Bonner
Hamilton, Michael (Salisbury)Pollock, Alexander
Hampson, Dr KeithPorter, Barry
Haselhurst, AlanPrentice, Rt Hon Reg
Hawksley, WarrenPrice, Sir David (Eastleigh)
Hayhoe, BarneyProctor, K. Harvey
Heddle, JohnRaison, Rt Hon Timothy
Henderson, BarryRathbone, Tim
Heseltine, Rt Hon MichaelRees, Peter (Dover and Deal)
Hicks, RobertRees-Davies, W. R.
Higgins, Rt Hon Terence L.Renton, Tim
Hogg, Hon Douglas (Gr'th'm)Rhodes James, Robert
Holland, Philip (Carlton)Rhys Williams, Sir Brandon
Hooson, TomRidley, Hon Nicholas
Howe, Rt Hon Sir GeoffreyRoberts, Wyn (Conway)
Howell, Rt Hon D. (G'ldf'd)Rossi, Hugh
Hunt, David (Wirral)Sainsbury, Hon Timothy
Hunt, John (Ravensbourne)St. John-Stevas, Rt Hon N.
Irvine, RtHon Bryant GodmanShaw, Giles (Pudsey)
Johnson Smith, Sir GeoffreyShelton, William (Streatham)
Jopling, Rt Hon MichaelShepherd, Colin (Hereford)
Kaberry, Sir DonaldShepherd, Richard
Kellett-Bowman, Mrs ElaineShersby, Michael
Kershaw, Sir AnthonySilvester, Fred
Knox, DavidSims, Roger
Lamont, NormanSkeet, T. H. H.
Lang, IanSmith, Tim (Beaconsfield)
Latham, MichaelSpeed, Keith
Lawrence, IvanSpeller, Tony
Lawson, Rt Hon NigelSpence, John
Lee, JohnSpicer, Jim (West Dorset)
Le Marchant, SpencerSproat, Iain
Lennox-Boyd, Hon MarkSquire, Robin
Lester, Jim (Beeston)Stanbrook, Ivor
Lewis, Sir Kenneth (Rutland)Steen, Anthony
Lloyd, Peter (Fareham)Stewart, A.(E Renfrewshire)
Loveridge, JohnStokes, John
Luce, RichardTapsell, Peter
Lyell, NicholasTaylor, Teddy (S'end E)
McCrindle, RobertTebbit, Rt Hon Norman
Macfarlane, NeilThomas, Rt Hon Peter
MacKay, John (Argyll)Thompson, Donald
McNair-Wilson, M. (N'bury)Thorne, Neil (Ilford South)
McNair-Wilson, P. (New F'st)Thornton, Malcolm
McQuarrie, AlbertTownend, John (Bridlington)
Madel, DavidTownsend, Cyril D, (B'heath)
Major, JohnTrippier, David
Marland, Paulvan Straubenzee, Sir W.
Marlow, AntonyViggers, Peter
Marten, Rt Hon NeilWaddington, David
Mather, CarolWakeham, John
Mawby, RayWaldegrave, Hon William
Mawhinney, Dr BrianWalker, B. (Perth)
Maxwell-Hyslop, RobinWalker-Smith, Rt Hon Sir D.
Mayhew, PatrickWaller, Gary
Walters, DennisWickenden, Keith
Warren, KennethWiggin, Jerry
Watson, JohnWolfson, Mark
Wells, Bowen
Wells, John (Maidstone)Tellers for the Noes:
Wheeler, JohnMr. John Cope and
Whitelaw, Rt Hon WilliamMr. Tristan Garel-Jones.
Whitney, Raymond

Question accordingly negatived.

Question proposed, That the clause stand part of the Bill.

Photo of Robin Cook Robin Cook , Edinburgh Central

Clause 12 gives the Government authority to continue to collect income tax for a further temporary period of one year. Let me put the Financial Secretary's mind at rest by saying that it will not be part of the Opposition's case to criticise the Government for failing to find that they could do without income tax for a further year. Nevertheless, this central clause, which provides for the major tax collected in our kingdom, gives us the opportunity to explore the Government's tax record over five Finance Bills and five Budgets. It is also, this year, a clause that includes some extraordinary proposals on the higher rate bands, about which I want to say something later.

The starting point for this debate must necessarily be the starting point for the payment of tax at a rate of 30 per cent. That is the highest rate of taxation anywhere in the world, with the possible exception of Australia. It is also 5p higher than the rate that the Government inherited from the Labour Government. That is a strange outcome to five Finance Bills and five Budgets from a Government who put a commitment not to increase taxes, as they have done, but to reduce taxes at the centre of their claim to power. Their commitment was stated with characteristic vigour and confidence by the Prime Minister at her adoption meeting in April 1979 when she told her audience—the Finchley ConservativesTaxes must and taxes will come down. That statement was asserted with all the confidence of a modern Newton who had discovered that taxes were subject to the laws of gravity. Unfortunately, the Government have discovered that taxes need not, and stubbornly will not, come down. I notice that, just as the Prime Minister stated the case with characteristic vigour, the Chancellor stated the truth of the matter with characteristic understatement in his Budget broadcast. He said: Over the last few years I've not been able to cut income tax as much as I would have liked. The Chancellor does not do full justice to the horror of his record. Far from not having reduced income tax as much as he would have liked, he has not reduced it at all. He has increased taxes of all types.

I am delighted that the Financial Secetary to the Treasury is to respond to the debate as I should like to take up some of what he said at the close of the Second Reading debate. I should especially like to take up his surprising statement that, after two years of answering the questions of my hon. Friend the Member for Blackburn (Mr. Straw), he had concluded that he had given the wrrong answers and that instead of adding child benefit to earnings as he has done in the past few years—[Interruption.] With respect to the Financial Secretary, he was not asked to do anything with child benefit. If he examines the questions that my hon. Friend the Member for Blackburn tabled, he will find no reference to child benefit, far less any instructions about how to use it in the calculations. The Financial Secretary said that instead of adding child benefit to earnings, as he has done, for the calculations, he should have been deducting it from income tax. That has not the slightest impact on the net income of the households concerned but it has the convenient effect, to which the Financial Secretary referred, of producing a marginal drop in the proportion of income tax that they pay. My hon. Friend the Member for Blackburn would like to take that matter up later but there are a few points which I should like to offer at this stage.

If the Financial Secretary insists on that as the new method of calculation I must warn him that it has one embarrassing consequence that he might wish to ponder. The new method of calculation is devastatingly flattering to the Labour Government's record. The Financial Secretary referred to a two-child household on 75 per cent. of the average wage. As he stated, during the five years in which the Conservatives have been in power, the proportion of income that such a household must pay in income tax has decreased from 8·6 per cent. to 8·1 per cent. In 1976–77, the year in which child benefit was first introduced, such a household paid 13·8 per cent. of its income in income tax. That fell to 8·6 per cent. in 1978–79 — under a Labour Government. Therefore, under the Labour Government, the amount of such a household's income paid in income tax fell by 10 times as much as it has fallen in the four years of the present Government. If the Government had sustained that rate of decrease, child benefit would exceed the tax deductions of such households by now. By the Financial Secretary's new form of calculation, the household would pay zero proportion of its income in tax. I suspect that that household would find the result puzzling, as it would still be paying income tax.

6.15 pm

As the Chief Secretary of the Treasury candidly pointed out when he replied to the previous debate, that calculation omitted national insurance contributions. When we add such contributions and deduct child benefit, as now instructed by the Financial Secretary, we find that even with the deductions in child benefit from the total tax burden, the total tax burden has increased from 15 per cent. in 1978–79 to 17·1 per cent. in 1983–84. Therefore, even if we accept that the new form of calculation and the answers that have been given in the past two years are water under the bridge, we are still left with the awkward fact for Conservative Members that the percentage deducted in national insurance and income tax from a family on below average income is higher than under the Labour Government. The primary reason for that is the dramatic increase that the Government have made in the national insurance contribution. It is plain that they have chosen to shift the tax burden from income tax to national insurance. That shift is regressive, because poor households start paying national insurance contribution at a lower level of income tax and because well-off households cease to pay national insurance contributions on incomes above £255 a week.

This year, the Chancellor has chosen not to increase the top ceiling by the full amount. It is now £10 less than it might have been under the legislative formula. That means that he has protected the well-off from the full burden of the increase in national insurance contributions while he has imposed them remorselessly on lower-paid households. Wriggle how they may, Conservative Members cannot avoid the obvious fact that income tax is higher than when they took office. National insurance contributions have soared since the Conservatives took office and now produce almost as much revenue as income tax. VAT has been doubled. I know that they have not doubled the zero rate but they have doubled almost every other one. Moreover, the revenue from North Sea oil has approached flood tide. The Government receive 20 times as much revenue from North Sea oil as did the Labour Government in 1978–79. The public may ruefully reflect on the fact that they are paying this generous tax bill for public services which have sharply reduced in quality.

Against that background, we should consider the one small group of the nation that is now paying less tax than in 1978–79. They belong to the top 4 per cent. of income earners and qualify for the higher rate band. As the burden on the rest of us has increased, the burden on that 4 per cent. has been lightened. This clause continues that process. Moreover, it is those in the higher rate band who benefit most from the uprating of the basic rate threshold. To the super executive who earns £30,000 and pays 60 per cent. income tax, the value of the uprating of the basic rate threshold is worth precisely double its value to the low-paid household that pays tax at the standard rate. This clause proposes, in addition to that, another specific increase in the higher rate threshold. Nor is that increase the rate of inflation. If Conservative Members were anxious to prevent the burden of income tax from increasing on the higher rate payers, it is necessary simply to increase the higher rate threshold by 5 or 6 per cent. That would keep pace with inflation. They have not done so. Under the clause they propose an increase of 14 per cent., which will bring about a further reduction in the real tax burden on the richest in our community.

The extent to which the distribution of relief has been arranged to favour the wealthy is clearly seen by comparing the number of those who will drop out of the higher rate bands with those who will drop out of taxation altogether. With the increase in the basic rate, 750,000 fewer people will pay the basic rate compared with what would have happened had the basic rate threshold merely been indexed. When that is set against 25 million taxpayers, we see that about 3 per cent. of taxpayers will drop out of taxation. The reduced number of those who pay at the higher rate is out of all proportion to that figure of 3 per cent. At the bottom of the scale, those taxpayers who currently pay tax at the marginal rate of 40 per cent. will decline in number from 360,000 to 280,000 — a drop not of 3 per cent. but of 25 per cent. In the top higher rate band, the number of taxpayers who pay a marginal rate of taxation of 60 per cent. will shrink from 55,000 to 45,000—a drop of 18 per cent., compared with a drop of only 3 per cent. in the basic rate. The number of those who pay a higher rate of tax will drop from 850,000 to 650,000—a reduction of 23·5 per cent. That reduction is a full 20 per cent. more than the reduction achieved in the standard rate arising from the increase in the basic rate threshold.

The effect of those changes is profound and will reduce the proportion of taxpayers paying a higher rate of tax from 4 per cent. to only 3 per cent., so that 97 per cent. of all taxpayers will pay precisely the same basic rate of 30 per cent. irrespective of their income. That is a grotesque outcome, and an offence to reason and to the concept of a progressive tax system. Its grotesque nature goes even further because some taxpayers are liable to an effective tax rate well in excess of 30 per cent., although they are not at the top of the income tree but at the bottom. They are caught in the poverty trap just over the basic rate threshold. For them, each pound of increased income triggers off not only a 30p liability in tax, but the loss of benefits amounting to well over another 30p. They include especially those households whose income is so low that they are eligible for family income supplement, but who, nevertheless, have a sufficiently high income to make them liable to pay tax at the basic rate of 30 per cent.

For the wage earner in that category, each additional pound of income means that he will be liable to pay 30p in income tax and 9p in national insurance contributions —compared with 6·5p under the Labour Government—and suffer a loss of 50p in family income supplement. That totals 89p and is his effective rate of tax. If, as is likely in such a household, its head is a council tenant, it will face a further 20p to 30p drop in rent and rates rebates, giving it an effective tax rate of more than 100 per cent.

There are 130,000 households in that category. One of the massively unjust ironies in the history of the Government's stewardship of our tax affairs is that, since they slashed the upper rates of tax in the 1979 Budget, the only households in our tax system which pay an effective rate of tax of 80 per cent. or more are among the poorest taxpayers. Yet the consequence of the Budget on that group of 130,000 households is that only 10,000 households—less than 10 per cent.—will be taken out of the poverty trap. That means that 10,000 households will be taken out of the poverty trap, compared with the 200,000 who will be taken out of the higher rate bands under the clause. No wonder that the Permanent Secretary to the Treasury, when he gave evidence to the Select Committee about the poverty trap, said that the poverty trap was not very high on the list of priorities. Plainly, it is not. The high priority of this Government is to help the rich.

However, matters could have been different. The cost of the concessions in this clause is £255 million in a full year, which represents one tenth of all the costs of uprating thresholds for the top 4 per cent. That £255 million could have been used for other purposes. It could have allowed us to grant the long-term rate of supplementary benefit to those who have been unemployed for more than a year, which would have cost only £150 million. It could have enabled us not to swindle the pensioners of the 2 per cent. that they will lose because of the new method of calculating the uprating, which would have cost only £200 million. It could have enabled us to increase child benefit by a further 45p, which would have cost £250 million. That increase would have been the most effective way of cutting the poverty trap, and of taking out of the poverty trap those who at present pay marginal rates of taxation in excess of 80 per cent.

In practice, far from increasing child benefit by such an additional amount, the Government have increased it by only 11 per cent., while at the same time they have increased the thresholds of the higher rate bands by 14 per cent. They have chosen to distribute the money available in a way that promotes the greatest inequality by giving the most advantage to the smallest number—the most wealthy. Had that been done against a background in which the tax burden was stable, it would still have been the wrong priority. When it is done against a background in which taxes on everyone else have been increased, it becomes deeply repugnant. For that reason, the Opposition will vote against this offensive clause.

Photo of Mr Richard Wainwright Mr Richard Wainwright , Colne Valley

This Finance Bill, and the four previous Finance Bills, are a weary catalogue of increasing burdens of taxation on the ordinary people of Britain, which involves a cynical betrayal of repeated and emphatic promises to reduce taxes when the Government were campaigning for election in 1979. But of all the clauses of betrayal and of burden, clause 12 most startlingly exhibits the perversity that besets the Government in tax matters.

Clause 12 once again sanctifies the rate of 30 per cent., extending throughout almost the entire range of income tax payers until we reach the most privileged. As was said in the previous debate, the 30 per cent. rate impinges upon the first pound of taxable income even for those who must also rely on state benefits to stay alive. When one considers how comparatively recently income tax was regarded as a fairly progressive tax—although never as progressive as many of us would have wished—it is appalling that the 30 per cent. rate has now become the standard affliction for almost all taxpayers.

Another serious aspect of this clause is that it understates by 8·75p in the pound the burden of direct taxation on most incomes. For the reasons that I mentioned earlier this afternoon, there is a parallel impost for which the Treasury manages to escape direct responsibility—the 8·75p of a normal employee's national insurance contribution. In debating this clause most hon. Members will have in the forefront of their minds a basic rate of 38.75p rather than the 30p that is printed in the clause. Furthermore, there are different rules for the cut-off of the national insurance employee's contribution. It all adds to the confusion. It is important to know how much the Government's increase in the burden of taxation on the ordinary people of this country amounts to.

6.30 pm

My hon. Friend the Member for Gateshead, West (Mr. Horam) received an answer on 7 April stating quite explicitly in Treasury language that the standard rate of income tax for the average family with two children is today 7p more than when the Government came to power. All the Government's increases in taxation are interpreted in terms of the basic rate. If we funnel together every Conservative increase in taxation during the past four years and express it by the basic rate of income tax, we see that the Government have increased taxation by 7p in the pound for the family on average earnings with two children and by about 8p in the pound for many people earning three quarters of average earnings. The electorate will be led to keep that fact firmly in its mind when the election campaign begins.

The system of levying income tax, which is encapsulated in clause 12 and others in the Bill, is out of date. A more sensible and intelligent approach to taxation and benefits was raised earlier in the debate, although discouraged by the occupant of the Chair. Hon. Members have been assured by the highest authority in the computer world that it would be virtually impossible to make serious structural alterations in our income tax and national insurance benefit systems until approximately 1988–1989 because the programmes have been half-written, and computerisation, after many delays, is said to be moving forward in such a way that to revolutionise the system before the present computerisation is complete would set it back for many years and possibly risk a breakdown in the tax collection system.

Since there is a period—a window—before these matters can be finalised, it is high time that we addressed ourselves more seriously than hitherto to combining the tax and benefit system and presenting to the citizen more reasonable instruments of Government that would enable a fuller take-up of benefits and a fairer tax than clause 12 provides. A need is felt on all sides of the Chamber for a system of income tax and of benefits that is simpler to understand and to administer, which ensures a fuller take-up of benefits and gives far less colour and excuse to tax evasion. The mere fact that a small fraction of the earning community receives an income tax form in any one year is the biggest invitation to tax evasion that any Government could devise. The Government say, "We are not asking what you have earned, whether you have been planting wallflowers for your neighbour, cutting his hedge, painting his house or playing the accordion at his daughter's party. We ask that only every five years. In the meantime, good luck to you." A system that enables a fuller take-up of benefits could, by the same method, greatly discourage tax evasion. Furthermore, there is a need, which has been eloquently developed in the debate, to take the edge off the poverty trap and for a tax system that treats men and women equally and conforms with the general principles against discrimination or an undue accent on marital status.

In commenting on this clause, each of the possible ways out of these dilemmas should be considered on its own and we should not be bandying about mere labels. In addressing my mind to the subject, I was put off when some people referred to a social dividend and when others referred to reforming income tax by means of some type of basic income guarantee. Tax credit systems have been referred to in the debate. It would be better to consider each set of proposals — there will be proposals from most of the political parties — on their merits. One system referred to earlier was that published by the Women's Liberal Federation, although it is not a universalist approach. It neither offers nor attempts to offer universal subsistence allowances for everyone, as some tax credit schemes do. That is why the cost of that scheme is relatively modest compared with many others. Whatever improved version is settled upon, until computers enable us to make big changes any change is bound to be some improvement on the primitive method of levying income tax at the basic rate of 30 per cent. on all ordinary people, regardless of their circumstances, as is the case in this clause. I condemn the clause.

Photo of Mr David Stoddart Mr David Stoddart , Swindon

We should be indebted to my hon. Friend the Member for Edinburgh, Central (Mr. Cook) for his devastating exposure of the Government's taxation policy and how they have managed to make the poor pay additional tax while allowing the already rich to get away with it. The Government are operating a system of Robin Hood in reverse by making the poor pay for the tax reliefs of the rich. That is precisely what has happened under the present Government, and I am quite sure that it was intended to happen.

During the last general election, my opponent visited factories in Swindon — some of which have unfortunately closed, with the consequent loss of jobs and of tax income to the Exchequer—and told the people, "This horrible Labour Government are taking money out of your pockets so that they can waste it on public expenditure." The Conservative candidate said, "Put us in and we will ensure that you can keep more money in your pockets to do with it as you wish. At the same time, we will ensure that your public services will remain as good as they ever were."

Under this Government, people have less money in their pockets to spend as they wish, as was promised by the Tory Government and Prime Minister. At the same time, the public services have been undermined. The education system has been undermined and there are fewer teachers. The social services have been undermined as benefits have been reduced, in some cases in real terms. The ordinary people who elected the Conservative party to power on the promise of decreased taxation are now paying more in tax and, at the same time, enjoying worse public services.

What is worse, many people who were paying tax under the Labour Government no longer pay tax because they are unemployed. Under this Government, 2·5 million additional people do not pay tax, because they do not have the opportunity to do so. The Government's policy has put them out of work.

Many firms, including construction firms, decided to support the Government's policies because, they thought, they would be better off under a Tory Government. They thought that they would pay less tax, yet they are now bankrupt as a result of the Government's policies. They rue the day that they voted for the Conservative party. I trust that they have learnt their lesson and that, whether the election be in June, October or next year, they will ensure that they do not inflict the same Government on us as we have had for the past four years.

The Government have broken every promise that they made to every section of the community, with the exception of the very rich. The rich have been given tax reliefs and have had increases in income which, in the present context, are obscene. It is obscene that people earning—or at least getting—about £200,000 a year should receive under this Government tax reliefs amounting to about £200 or £250 per week. The vast majority of people in Britain will never earn £250 per week gross — let alone net — in their lives, yet this Government's policy has been to allow obscene over-consumption, while permitting 4 million people to be unemployed.

Do the Government want to go to the country and boast about their achievements? They have no achievements to boast about. They cannot even boast about taxation reductions, yet that was their major policy at the last election. Let us consider what some Conservative Members said at the time. On 1 May 1979—two days before the general election—the right hon. Member for Finchley (Mrs. Thatcher), now the Prime Minister, gave the following promise at Bolton: for the politicians the task is clear. It is to provide the incentive through lifting tax burdens. It is to make it pay to work. Instead of being lifted, the tax burden on the ordinary people of our country, who produce the nations wealth, has increased beyond measure. However, large reductions have been made in the taxes of those who are already rich. What is the Government's excuse for playing Robin Hood in reverse? They say that those who have the money will invest in British industry. That is the argument they always use. They say that they must give incentives so that those people will invest. However, investment has fallen by 30 per cent.—virtually in inverse ratio to the amount of additional tax relief given to those so-called investors.

6.45 pm

On 24 April 1979 the right hon. and learned Member for Surrey, East (Sir G. Howe), now Chancellor of the Exchequer, said: we shall lower taxes on income at all levels to encourage people to work harder, train for skills"— that is what he said, yet we have the lowest number of apprenticeships in our history— and accept more responsibility at work. What a way to go to the electorate! What falsity! What a thing to do to the electorate! The Government promised them one thing and then did the reverse. I do not know how the Government have the gall to suggest that, if they go to the electorate in June, they will return them to power. The electorate are not as daft as that. They are beginning to understand the sleight of hand the Government have practised on them — [Interruption.] Does the hon. Member wish to intervene? I believe that something was said about inflation. The Government claim to have reduced inflation to 4·3 per cent., but they have reduced it only from the increased level that they managed to achieve. They inherited an inflation rate of, I believe, 8 per cent. from the Labour Government. They then managed to increase it to 22 per cent. as a result of the measures that they introduced, notably in their first Budget. They doubled value added tax and levied swingeing increases in other taxes. In addition, they greatly increased prescription charges, which now stand at £1.40, as opposed to 20p when the Labour Government were in office. Therefore, the Government cannot claim any credit, even for the reduction in inflation. They increased inflation in the first place, and they have now managed to reduce it again.

I shall gladly go into the Lobby to support my right hon. and hon. Friends' opposition to the clause. As I have said, the Government have conned the people of this country for a long time. It is about time that the people and the Committee understood the Government's philosophy. That philosophy is to make the ordinary people of this country pay throught the nose for the betterment of the Government's friends, who sustain them both in and out of office.

Photo of Mr Dafydd Wigley Mr Dafydd Wigley Leader and Party President, Plaid Cymru

I shall be critical not only of the Government, but of the Opposition.

Photo of Mr Dafydd Wigley Mr Dafydd Wigley Leader and Party President, Plaid Cymru

I can live well without them.

All who advocate higher public expenditure should say where the revenue is to be found. It is easy to criticise income tax or value added tax without explaining how the money can be raised to meet necessary expenditure programmes. From an economic and social view I believe in the need for a higher level of public expenditure. Some of the extra money needed can be raised through the public sector borrowing requirement to stimulate the economy, but not all can be obtained in that way. More money must come from taxation, but in a manner very different from that proposed by the Government, and one that is fair to those on lowest earnings. We should not be afraid of advocating taxation if we believe in the expenditure programmes that are necessary.

Today about 3·5 million people are unemployed, at a cost of £17 billion a year. That means that £5,000 or more a year is the cost of each unemployed person. If it is possible to bring those people back into work by paying them £6,000 or £7,000 a year to take the jobs that need to be done, we should not shrink from paying the bill. If it is necessary to raise an extra 1p or even 3p in the pound from income tax—that is the most progressive form of taxation—to bring unemployed people back to work, we should be willing to pay it. We should provide the apprenticeships. We should allow people to do the social work, the much needed work on the roads and houses, hospitals, clinics, schools and universities. We should be willing to pay the home helps, the nurses and the others who could do all the work that needs to be done. If that costs an extra 1p or 3p in income tax, we should be willing to pay it.

The depression of the past three or four years, from which Britain has suffered so much more than other countries, has been worse for the people who are in no position to tackle it. The people who suffer most are at the end of the job queue. They carry the recession on their shoulders. We should try to share that burden more evenly. I do not say that that justifies the income tax structure that operates today, but we should face it and not go for the easy argument and say that we will cut taxation.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

Does the hon. Member for Caernarvon (Mr. Wigley) agree that it is not fair that people at the bottom end of the income scale should have to pay the extra 1p or 2p in taxation? Should not the emphasis be on the people who are in receipt of the Government's £3 billion in concessions? Surely the Welsh nationalists have a national platform to which the Labour candidate in the hon. Gentleman's constituency can address himself at the next election. The national platform deals with reflation. Does the hon. Gentleman have a reflation policy?

Photo of Mr Dafydd Wigley Mr Dafydd Wigley Leader and Party President, Plaid Cymru

If the hon. Member for Workington (Mr. Campbell-Savours) had been listening, he would have heard me say that there is a need for a greater public sector borrowing requirement. That need does not extend to the £40 billion expenditure programme that he advocates. If we have to pay bills of that magnitude, we shall have to raise taxation.

I have made it clear that I criticise the Government's taxation structure. It is iniquitous to bring down the top level of taxation from 84 per cent. to 60 per cent. There is no justification for that. People on higher incomes should bear a greater proportion of the tax burden that may be necessary to bring people back to work.

We must take people out of the poverty trap. I know about it because I discuss it with my constituents on low wages. I know about widows with a minimal income and lollipop ladies who have to pay tax on a pittance. We must raise the threshold. Income tax thresholds have changed enormously since 1948–49 when income tax bit at over 100 per cent. of the average industrial wage. Today it bites at half that level. There is certainly room for reform.

The Government have failed to reform the income tax system. That is my first criticism of the Government. There is a need for reform, but the Government missed the opportunity. They failed adequately to deal with the tax threshold. They tried to avoid indexing it at one time. They have failed to overcome the poverty trap. The position of widows and others on low incomes is causing great hardship. The Government have also failed to face discrimination against women. In opposition, the Conservatives said that there was a need to reform the tax system. They have failed to reform it.

The Government's attempt to create incentives through income tax has failed. Their idea was that bringing down the top income tax rates would trigger new incentives, bring people into work and cause new investment. Instead, there has been a massive surge in unemployment. The money that has gone into the few pockets that have benefited has not been used for investment to create jobs. Much of the money has gone overseas. There has been a massive increase in investment overseas. I do not believe that by playing with the 84 per cent. level the Government can create incentive. Young people at lower levels of income need to be given an incentive. The Government have failed to provide that incentive.

The Government have also failed to shift the burden of taxation from the poor to the rich. Reducing the top level of taxation to 60 per cent. and retaining a cut-off in the national insurance contribution maximum rate is iniquitous.

We are now paying higher taxation with nothing to show for it. If people saw something for their tax and believed that they were receiving something worth while in return they would be willing to pay it. I agree that we should not ask people on the poverty line for even an extra 1p or 2p, but many of us have not been hit by the recession—including hon. Members. We could pay a marginally higher tax level to help those who bear so much of the burden. I am surprised that that argument does not appeal to the hon. Member for Workington.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

That is not what the hon. Gentleman said before.

Photo of Mr Dafydd Wigley Mr Dafydd Wigley Leader and Party President, Plaid Cymru

The hon. Member for Workington cannot have been listening. We shall oppose the clause because of the balance and the change from 40 per cent. to 60 per cent., but— my goodness—we need something more radical if we are to use the taxation system to bring people back to work.

Photo of Mr Douglas Jay Mr Douglas Jay , Wandsworth Battersea North

My hon. Friend the Member for Edinburgh, Central (Mr. Cook) made an excellent speech.

I want to ask the Financial Secretary one question. The real mistake which the Government made and which has dogged their budgetary policy for the past three years was the huge reduction in income tax which they gave to the very rich in their first Budget in 1979. What was the purpose of that huge reduction in tax to the very rich which is now costing us about £1 billion a year?

The purpose cannot be that described by the Chancellor at that time. The Chancellor's supposed reason for that reduction was that it would create such an incentive for the biggest earners that there would be a huge uprush in investment, production and productivity throughout British industry. In this regard, the Government have done us a service. We have had an interesting economic experiment. We had the largest tax reduction ever known for the purpose of increasing industrial production, and in the subsequent three years we have seen the largest fall in industrial production in any country this century.

7 pm

The lesson is in some ways more telling. From 1940 to 1951, when we had the highest direct taxation on earned incomes in living memory, we also had the highest increases in production for 50 years. Incidentally, President Reagan has had a similar experience in the past two and a half years. He also made a large reduction in taxation on the very rich to give incentives to growth in the economy, but the economy immediately slowed down as a result.

To the Government's credit, by giving us the benefit of this experience they have ensured that no one will ever again be able to argue that we can transform our economic ills by huge reductions in direct taxation. Had the Chancellor studied the 1954 Radcliffe commission report on profits and income, he would not have fallen into this error. That commission undertook the most extensive inquiries to discover, not by theory but by answers, the reactions of people to changes in taxation. That Royal Commission, which did not consist of politicians or people with preconceived ideas, came to the firm conclusion that there was no evidence whatever that general reductions in income tax, whatever their other merits, would suddenly produce an uprush in production through incentives.

There is another moral to this huge tax gift to the rich, and it is relevant to what was said by the hon. Member for Caernarvon (Mr. Wigley). We are sometimes asked how a Labour Government would pay for improvements in social services and other aspects of the economy. I agree that some of those improvements would have to be paid for by tax revenue. However, the reversal of these wholly unnecessary tax concessions to the highest earners would immediately make available a considerable tax revenue.

So that this not very intelligent question is not put again, I should in passing mention two other sources of revenue from which these extra benefits can be obtained. The first is the £15 billion a year that is now spent on unemployment. If unemployment were brought down, we could use that £15 billion for more productive purposes. In plain English, we could pay people to do useful work instead of paying them to do nothing.

There is another source that would come near to achieving the £30 billion or £40 billion mentioned by the hon. Member for Caernarvon— the additional national income that would be available if we ran our economy anywhere near its full physical capacity of manpower and plant. Heaven knows, we now have a GDP of close on £300 billion a year, and we are probably running the economy at 20 per cent. below capacity. Therefore, from the extra revenue available from existing taxes if the economy were run at its full capacity, we could obtain another £20 billion or £30 billion.

I hope that no more time will be wasted on this foolish question of how extra services will be paid for at higher levels of employment. As the Financial Secretary cannot now argue that the purpose of the original tax reductions on the rich was to stimulale the economy to faster growth, I hope that he will explain the motive for those reductions.

Photo of John Home Robertson John Home Robertson , Berwick and East Lothian

There is generally one fairly sure way of knowing when the Government do not have a good story to tell, and it can be seen in the Chamber tonight. It is that Conservative Members do not turn up to face the music At present we have in attendence one Minister, one Parliamentary Private Secretary and one Whip. A few minutes ago there were two Whips, but that was because it was the change of shift. It is clear that the Government realise that they do not have a good story to tell, as a result of which Conservative Members do not dare come to the House to face the music.

It may be thought rash of politicians, in the run-up to a general election, in any way to criticise cuts in income tax, but there are two provisos. If we are to cut income tax, first, it should be done fairly and, secondly, we must ensure that the consequences are fair. In other words, we should cut income tax for those in greatest need—the people on the lowest incomes—rather than discriminating in favour of those on the highest incomes. We should also ensure that we are fair on those who depend on publicly funded services.

I represent a constituency in the rural south-east of Scotland. There are two key economic factors about that area. Like all rural areas throughout the United Kingdom, my constituency of Berwick and East Lothian is heavily dependent on public investment and public services — roads, transport, incentives to industry, pensions, education and so on. However, all those things on the public expenditure side of the tax question have in one form or another been cut by the Government, as a result of which my area has suffered.

Like most rural areas, particularly in Wales and Scotland, my constituency is an area of low incomes. It depends heavily on service industries — the public services in particular — and on agriculture. Let me analyse the effects of the Government's decisions on income tax levels for areas of low income.

I am indebted to my hon. Friend the Member for Blackburn (Mr. Straw) for the information that he has obtained from the Financial Secretary. We have heard the Financial Secretary protest already that he does not think that the information he gave is correct. When a Minister does not agree with his own parliamentary answers, perhaps he should follow the Economic Secretary—the hon. Member for Knutsford (Mr. Bruce-Gardyne)—and give up. I understand that the hon. Gentleman will not even stand at the next general election.

The Financial Secretary's figures show that in 1983–84, a married man with two children, on 75 per cent. average earnings—about £129£23 per week—will pay 38·1 per cent. of his income in income tax, national insurance, VAT and indirect taxation and a further 4·3 per cent. in local authority rates. That has happened under a Government who are supposed to have cut taxation, but who demonstrably have not done so.

In 1978–79, the last year of the Labour Government, the comparable figures were 35·32 per cent. on central taxation—about 3 per cent. less than now—and 3·83 per cent. on local taxation. That is about 1 per cent. less than he is paying now. A citizen on 75 per cent. of average earnings—low paid in any terminology—is now worse off and pays more of his income in tax. He will now lose 42·4 per cent. of his income in taxation, whereas under the Labour Government he lost 39·15 per cent., which itself was too much.

It is outrageous that taxation on the low paid should have increased. In 1979 a family on average earnings of £172 a week paid 41·54 per cent. in taxation — the figure is now 44·4 per cent. Even for someone on double the average income the percentage taken in taxation has increased. Who is benefiting from the cut in income tax? Taxation for people on five times average earnings has fallen by 6·5 per cent. For those on 20 times average earnings—£3,464 a week—the percentage of income taken in taxation is down by 18·7 per cent.

My right hon. Friend the Member for Battersea, North (Mr. Jay) said that the Government had cut taxation for those people on the pretext that they would be encouraged to invest more and thus improve the state of the economy. I believe that such a policy is unnecessary. I am in business as a farmer and I know that people are already being encouraged to invest by other means. I know from personal experience and from the experience of other farmers in my constituency that it is extremely easy to avoid paying a great deal of tax simply by investing in machinery. It is right that people in business should be encouraged to invest because that is the way to get industry back on its feet, but, for goodness' sake, what is the point of encouraging people to have more money in their pockets? The effect of cutting the higher bands of income tax is to put more money into people's pockets and to increase their standard of living. What good will that do for British industry?

The Government have been exposed and the absence of their supporters from the Chamber tonight shows that the Tories know that they have been found out. I see that the hon. Member for Chichester (Mr. Nelson) has entered the Chamber. I suspect that he has done so to find out when the next vote will be. The actions of the Government are quite despicable. I do not know how the Minister will defend his position, but I look forward to hearing from him.

Photo of Mr John Maxton Mr John Maxton , Glasgow Cathcart

Having heard my hon. Friend the Member for Berwick and East Lothian (Mr. Home Robertson) speaking about those in rural constituencies, I should like to take the opportunity to make a case for those living in urban constituencies. A good question for a Member of Parliament to ask is, "What effect does a tax change or a change in economic policy by the Government have on my constituents?"

Although few Scottish Conservative party Members are present—I see the Under-Secretary of State for Scotland in his place—I think that most of them would agree that my constituency represents the totality of the Glasgow population. It ranges from one housing development with an unemployment rate of 30 per cent. to some of the biggest and best housing schemes in Glasgow and the west of Scotland in the Newlands area of the city. Between them is a range of better council housing and lower middle class privately owned housing and privately rented property. Despite that, few of my constituents will benefit from the increases in the top tax bands. Many wealthy people, in Glasgow terms, live in my constituency, but few of them will benefit from the tax changes.

7.15 pm

Unemployment has increased dramatically since the Government came to office. Despite the claims that are sometimes made by the Government, those who have lost their jobs in the steelworks, the car factories and other factories which have closed down and laid workers off in the west of Scotland, are worse off today than in 1979. Those who do not pay tax and do not perhaps come into this argument are worse off today than in 1979.

A large percentage of those in work in my constituency are worse off today than in 1979. They are paying more in direct taxation—that has been spelt out in speech after speech — and, in addition, higher VAT than in 1979. Today, VAT is almost double what it was in 1979. We shall return to that argument later, but I wish to make the point now that the poorer in our society—those whose indirect taxation has increased—are also those whom the increase in VAT has hit hardest. The Government claim that VAT is not paid on essentials, but the poor must buy clothes—which are VAT rated—as are furniture, kitchen utensils and so on. The poor must pay more for their essentials. One of the anomalies of our society is that the poorer one is, the more one has to pay for the goods one buys. The poor are paying more in VAT and in taxation. They are generally being hit hardest by the Government.

Photo of Mr David Stoddart Mr David Stoddart , Swindon

My hon. Friend is right to say that the poor have come off worse in terms of personal taxation, but we are in danger of forgetting another form of taxation —fuel tax. My hon. Friend will recall that in 1980, 1981 and 1982 the Government deliberately levied a 10 per cent. tax on fuel. That has hurt poorer people; in particular, the elderly, the sick and the disabled.

Photo of Mr John Maxton Mr John Maxton , Glasgow Cathcart

My hon. Friend is correct. I did not wish to go into all the things for which the poor must pay more because I did not know, Mr. Armstrong, how far you would let me go down that road. My hon. Friend is correct in what he said about fuel.

The Government have insisted on rent increases for council house tenants well above the rate of inflation. Prescription charges have risen—a subject to which we shall return later—which is another increase in indirect taxation. That again hits the poorest hardest. The Government may say that many people have their council house rents paid for them and do not pay prescription charges, but those who just come into the tax bracket must pay their own rents. They have had to pay rent increases and the increased travel and fuel costs. They face higher inflation simply because they must always shop at the most expensive shops. They cannot afford to store their foodstuffs or to buy in bulk in the way that a person who owns his own car and can go to the super stores can. The poorer people in our society cannot afford to do that, so, in effect, they always pay more for everything that they purchase. That is one of the inequalities in our society that we should eradicate.

I agree with the hon. Member for Caernarvon (Mr. Wigley) that if we are to have higher public expenditure—we are committed to a programme of higher public expenditure—we shall have to pay for it. Some of the money will be found by increased borrowing, but some will have to come from higher taxation. My right hon. Friend the Member for Battersea, North (Mr. Jay) said that savings could be made by cutting unemployment. I would add defence cuts to the list. Increased productivity and higher taxation will, of course, produce extra revenue. We shall have to face the problem—certainly initially—of raising some of the extra money that will be required from taxation.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

Does my hon. Friend accept that it is not for hon. Members to propose, as did the hon. Member for Caernarvon (Mr. Wigley), that the lower paid should pay an extra 1 per cent., 2 per cent. or 3 per cent?

Photo of Mr John Maxton Mr John Maxton , Glasgow Cathcart

My hon. Friend the Member for Workington (Mr Campbell-Savours) anticipated my next point.

The issue to which we must address ourselves is, "Who will pay higher taxation?" If the burden of taxation is to be increased, we must increase direct, not indirect, taxation. Conservative Members and their friends may think that they bear the burden of direct taxation, but the fact is that direct taxation is always fairer. Indirect taxation, as a percentage of income, means that the poorer contribute the most taxation to the state. If the burden of direct taxation is increased, the better off will pay.

We must ensure that personal allowances increase much more dramatically so that we take many more people out of taxation. We shall then be able to introduce increases in taxation rates to raise the money that we require. The extra taxation must come from the top, not the bottom, of the earnings scale.

If there is a 3 per cent. or 4 per cent. increase in taxation for those earning £10,000 a year and more, all hon. Members will be included. Our incomes may not be so high—many may think that they should be higher—but we are in the top 5 per cent. to 10 per cent. of salary earners. That is certainly so if our allowances are taken into consideration. However, we do not come anywhere near paying more than the basic rate of taxation. I do not believe that to be right when we are receiving an income of about £14,500 a year. I think that we should pay more in taxation. We are among the better off in society. We receive an income which allows us to lead a reasonably privileged life. We have more privileges than most of our constituents—certainly most of mine. I state publicly—I shall do so in the election campaign when that comes in May of next year—that I am prepared to pay more taxation if that means that others who are unemployed or low paid will get a better deal in society. That is what creates a Socialist society and that is what it is all about.

My right hon. Friend the Member for Battersea, North said that the Government's taxation policy is morally and economically wrong. It does not solve our economic problems. The experiment of giving more to the better off has shown that it creates the investment that Britain desperately requires. It is a policy that does not increase the level of demand in our society. If more is given to those at the bottom end of the earnings scale, there will be expenditure within local economies. This will be beneficial to small shopkeepers and will help to ensure the survival of services that are desperately needed.

British industry will benefit most from the policy of giving more to the least well off. If more is given to the wealthy or the better off, they will invest it abroad or buy luxury items that are of little value to them or anyone else. If we invest at the bottom end of society, the money will be spread evenly throughout the country and new jobs will be created in each locality. There is an old saying that money is like dung. In a heap it simply stinks, but if it is spread out evenly over the fields it brings forth fruit.

Photo of Mr Stanley Thorne Mr Stanley Thorne , Preston South

I shall he brief. I am motivated by the comments made before the 1979 general election by Conservative spokesmen. For example, the Prime Minister said a couple of days before the general election that it should be the job of the next Government to lift tax burdens. Many felt that that was an encouraging sign and they decided on that basis to vote for the Conservative party. On 24 April 1979 the right hon. and learned Member for Surrey, East (Sir G. Howe), who was appointed Chancellor of the Exchequer, said: We shall lower taxes on income at all levels to encourage people to work harder. In some ways that was an unfortunate choice of words on his part. The Government have failed to lower taxes and they have ensured that more people are unable to work at all, never mind harder. During the general election campaign there were about 1·25 million unemployed but the right hon. and learned Gentleman's Government—he has contributed a great deal to them—have managed to multiply that by at least three.

On 22 April the right hon. and learned Gentleman said: Personal taxation at all income levels must be substantially reduced. On 21 April — obviously someone was writing his speeches pretty regularly at the time—he said: We have absolutely no intention of doubling VAT. We are all well aware of what has happened. I, too, am indebted to my hon. Friend the Member for Blackburn (Mr. Straw) for bringing together such a tidy parcel of information by means of his questions to the Treasury. I am sure that the Treasury will not want to deny responsibility for the answers that he has received or to question the accuracy of the information that he has obtained.

Photo of Mr Stanley Thorne Mr Stanley Thorne , Preston South

That does not surprise me. I think that it was Disraeli who talked about lies, damned lies and statistics. Some of the information may have emerged in that context.

Personal tax burdens have increased for everyone earning less than £550 a week. My hon. Friend the Member for Glasgow, Cathcart (Mr. Maxton) believes that Members should pay more tax. Surely he does not think that we are in the £550-a-week bracket. We are certainly capable of contributing more, but I would not start with my hon. Friend the Member for Cathcart. Others are clearly more eligible—for example, those on £50,000 a year, who are now paying £24 less a week in taxation. It might be useful to start a little higher in the salary scale than £14,500.

Those on lower incomes are worse off. For example, a man earning £80 a week pays £6·05 more whereas a man earning £120 a week pays only £7·04 more. That trend is clear, particularly when one considers those living on low fixed incomes; for example, a couple have lost from their pension £1·42 a week. The Conservatives have shown great care for certain sections of the community; company directors on £45,000 a year are £120 a week better off.

7.30 pm

In a debate in the House on national insurance contributions, between 1974 and 1979, I failed, I am glad to say, to support an increase proposed by the Labour Government. The Conservatives, on the other hand, have had to increase contributions to pay for the longer dole queues, a fact which concerns me more than the proposals of the then Labour Government. Had the present Government been prepared to use increased taxation to provide employment, increased national insurance contributions would have been unnecessary.

The overall tax burden has gone up by 7p in the pound, and the inescapable conclusion is that financing expenditure is a class matter; the poorer sections are called on to make the biggest sacrifices to provide health, education and other services. Under the Conservatives, the wealthier have become richer, and I hope that at the next general election we will show the electorate exactly what Tory policies meant in 1979 and what they are likely to mean in future.

I applaud the work done by my hon. Friend the Member for Blackburn. The facts must be brought into the open. I am sure that the Labour party at Walworth road will be concerned to produce a leaflet giving the truth about Conservative action on taxation so that the people may know exactly who has been responsible for their lower living standards. When we have the opportunity to tax wealth and consider all other aspects of public revenue, including borrowing, using pension funds and the other financial mechanisms that will be at our disposal, we shall quickly stop the present outflow of capital, currently running at about £8 billion a year. That is an important factor in financing the needs of the community. Regrettably, it is unlikely that we shall succeed in removing clause 12, but I hope we shall at least maximise our opposition to it.

Photo of Austin Mitchell Austin Mitchell Opposition Whip (Commons)

The clause raises the higher rate tax threshold by 14 per cent., which at first sight seems fair in that the threshold for paying tax at all was raised by a similar amount. But the two cases are not comparable, for the obvious reason that already the Government have concentrated massive tax cuts on those at the higher end of the tax scale, particularly—as my hon. Friend the Member for Swindon (Mr. Stoddart) pointed out—and unreasonably and unfairly, in their first Budget, on those right at the top. Those people have already benefited substantially. It is unjustifiable that they should do so again in the way they propose under the clause. After all, they are benefiting in the name of an incentive philosophy which is totally unproved. It is a mythology believed by the Government, without any research or evidence to back it. It is nothing but a belief that they and their people who will benefit from cuts in taxes will stimulate incentive. The incentive theory is just an excuse to benefit them and their friends. Indeed, rationally there is an argument for increasing the burden of taxation on them—to make them and their friends work harder—rather than cutting taxes in the way they have in their Budgets.

The consequence of the policies of the Conservatives has been that the tax burden on the mass of the population has risen substantially. Indeed, the personal tax burden has gone up for everyone earning less than £550 a week. Those earning average wages of £160 a week are now paying £7·95 a week more in direct taxation than they were under the last Labour Government. Those at the top end of the income scale, with £50,000 a year and more, have benefited from the Conservatives; anybody earning £50,000 a year is now paying £24 a week less in taxation. That is the incentive policy of this Government.

All the others — those on low earnings, average earnings and even on double average earnings — have had an increased tax burden as a result of Conservative Budgets. Whereas in April 1978 there were about 60,000 families in the poverty trap, currently, as a result of the slight alteration in the last Budget, there are 122,000 families in the poverty trap; in other words the numbers have doubled. Meanwhile, anybody earning £50,000 a year pays £24 a week less in taxation.

The promises were clear and unequivocal at the start of the life of this Government. When Leader of the Opposition, the present Prime Minister said in Bolton on 1 May 1979: for the politicians the task is clear. It is to provide the incentive through lifting tax burdens. It is to make it pay to work. The present Chancellor of the Exchequer said in 1979: We shall lower taxes on income at all levels to encourage people to work harder, train for skills, and accept more responsibility.". What the Government have done is increase the tax burden on the mass of the people and belie those promises. I see the Financial Secretary laughing cynically. He knows how cynically those promises were made and how cynically they have been betrayed.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

I was not laughing at anything the hon. Gentleman was saying or about the seriousness of his point. I was laughing because the same brief has gone to hon. Gentlemen opposite and he did not know that what he was saying had been quoted already.

Photo of Austin Mitchell Austin Mitchell Opposition Whip (Commons)

It is a pity that the brief did not go to the Financial Secretary and his colleagues at the Treasury, where we find the economics of Lincolns Inn Fields, which have been destroying the nation's economy, while cynically betraying the promises which they appear not to have known they made in the first place. Those promises were clear and unequivocal and it is right that we on these Benches should reinforce them for the benefit of the Treasury, which has betrayed them over the years. Those promises have been kept for only a small section of the community—namely, those earning over £50,000 a year —so we must ask why there are two nations when it comes to incentives. Why is there one law for those earning £50,000 a year and more, who benefit from the "incentives" — who, we are told, will work harder if their taxes are cut, as they have been, by the equivalent of £24 a week—whereas for the rest of the population there is a law which says, "Your taxes will be increased but that will not harm your incentives."? Why must we have that two-nation philosophy?

Photo of Tom Clarke Tom Clarke , Coatbridge and Airdrie

I have found my hon. Friend's speech excellent so far, and because I did not have the privilege of hearing the speeches to which he referred, and as he has permitted some interventions which has meant my concentration being interrupted, perhaps he will tell me who made the speeches, where they were made and what the speakers actually said.

Photo of Austin Mitchell Austin Mitchell Opposition Whip (Commons)

I am grateful for the opportunity to reinforce my point. The Chancellor of the Exchequer said on 22 April 1979: personal taxation at all income levels must be substantially reduced. That was not just for those earning £50,000 a year or more.

Photo of Mr David Stoddart Mr David Stoddart , Swindon

My hon. Friend has just been criticised by the Financial Secretary for referring to a brief that many of us have received. Does my hon. Friend think that it is much better that many Opposition Members have quoted from that brief whereas throughout the debate today there has been no contribution from Conservative Back Benchers? Is it not better that we should repeat our charges, legitimate as they are?

Photo of Austin Mitchell Austin Mitchell Opposition Whip (Commons)

The difference between the two sides is that we have a better brief and there are more people on the Opposition Benches to repeat it. Conservative Members have done enormous damage to our economy by standing up at the Dispatch Box and by loyally repeating a brief that bears no relation to reality. We are talking about promises and performance. The people will come to judge the political reality. The promises have been betrayed in the Government's performance. A proviso should have been put into everyone of those promises that they would apply only to those earning £50,000 or more a year. The Chancellor of the Exchequer should recollect the promise that he gave before the Government came to office. He said: Every Labour Govermnent put taxes up … Every Conservative Government gets taxes down. The next Conservative Government will be equally true to our record. That is for those earning £50,000 a year or more, but for the rest of the population that promise has been betrayed because taxes as a proportion of their earnings have gone up. That has been the cruellest deception of the British people.

That is not the only reason for opposing the raising of the higher tax thresholds. Another reason is the disproportionate benefit given to a small proportion of the population. The clause removes 25 per cent. of the higher rate taxpayers from the higher band. However, only 3 per cent. of the lower-paid workers are taken out of the tax net by the corresponding concessions at the bottom end of the tax scale. Even in numerical terms rather than percentage terms, 10,000 families have been taken out of the poverty trap by the Budget but 200,000 families will be taken out of the higher bands of taxation by the clause. Is that justice? Is it equity? Is that fairness to the different sections of the population?

The cost of the clause is £255 million in a full year. In other words, one tenth of the overall distribution of money through threshold changes goes to the wealthiest 3 or 4 per cent. of the population. That shows the Government's sense of justice.

The tax system is already inadequately progressive. Its progressivity is pathetic compared with the tax systems overseas. It would be one of the aims of a Labour Government to make the tax system fairer and more progressive so that wealth pays its share, as it should. The measure makes it less progressive.

Without the clause, the number of units in the higher tax ranges would increase by about 150,000. It would only be about 5 per cent. of the tax-paying population even then. More important, the £225 million could be used in all sorts of other ways to benefit sections that are more directly in need than this. It could be used to increase child benefit by 50p. There would be no better reform or means of attacking poverty than such an increase in child benefit.

The clause is unnecessary because it represents the end of a policy that has already failed — the policy of stimulating the economy by tax cuts to the better off. If one thing has been demonstrated by three to four years' performance of the Government, it is that tax cuts to the better off do not stimulate the economy in the way that the Government claimed that they would. Perhaps that is the Government's greatest failure.

The Government sit there, a Government of busted flushes and empty dreams, waiting in their sinking craft for the tide to change. The wind in their sails that they have been waiting for could have come from two sources. It could have come from the huge incentives that their tax cuts gave to stimulate production and activity, but that did not happen. The money has been shipped abroad at record levels. It has not gone into production and investment in British industry. It has certainly not been a stimulus to the economy. Alternatively, the wind could have come from the other great hope that has also been vitiated —the fallacious belief that when one gets inflation down, somehow, miraculously, economic activity begins to pick up and, as day follows night, as soon as inflation goes down, the whole economy revives without the state having to intervene or organise, without the Government having to do anything, to plan or arrange for it or make any of the difficult decisions that are necessary for growth expansion and development.

7.45 pm

Those two busted flushes have been the basis of the Government's philosophy. Neither has worked or can possibly work. That is why the ship is now becalmed and sinking slowly and why the Government are pathetically having to tell us that they are waiting for recovery in the American economy to lead this economy out of the doldrums into which the Government have plunged it. If the medicine were going to improve the economy and be the stimulus and if the hard discipline were going to bear fruit and if there were to be any growth or expansion, why, since we have gone into the depression harder and deeper than any other economy, are we not leading the way out of it? Why are we sitting there waiting for the American economy to pick up and lead us out of the depression? That is typical of the failure of the Government's hopes and dreams. That is why I reject the clause, which represents a philosophy that has already demonstrably failed.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

The hon. Member for Preston, South (Mr. Thorne) said that the facts must be brought out about the relative tax burdens within different groups of society and that we must compare the Government's inheritance with the present proposals. I intend to do just that in my answer to the debate.

After my right hon. and learned Friend the Chancellor of the Exchequer's five Budgets, rates of income tax as a percentage of income are lower than they were in 1978–79 for those on three quarters average earnings and above. The hon. Members for Glasgow, Cathcart (Mr. Maxton) and Caernarvon (Mr. Wigley) felt that direct taxation was too low. The fact is that as a percentage of earnings income tax is lower than when we came to office.

The hon. Member for Edinburgh, Central (Mr. Cook) asked me about a question tabled by the hon. Member for Blackburn (Mr. Straw). The hon. Gentleman asked the Chancellor of the Exchequer if he will publish in the Official Report tables showing the amount … and the proportion in the percentages of personal income"— the hon. Gentleman then referred to different types of tax— at 75 per cent … of average earnings, and child benefits where appropriate". — [Official Report, 3 December 1981; Vol. 14, c. 188.] In other words, he added child benefit to average earnings.

There are two ways to make the transition from child tax allowances to child benefit and to calculate whether people are better or worse off after the change. The hon. Gentleman suggested that we should put income tax paid on the top of the fraction and earnings and child benefit on the bottom. If he thinks about it, he will realise that the right way to do it is to put income tax minus child benefit on the top and earnings on the bottom. When there were child tax allowances income tax was reduced by those allowances so to compare like with like one must reduce the income tax by the child benefit.

I put it to the hon. Gentleman in an even more cogent form. Let us suppose that in 1978–79, when we still had child tax allowances, those allowances had been abolished at the stroke of a pen and child benefit substituted for them. For a family on three quarters average earnings with two children the child allowances were worth £1·27. If child benefit of £1·27 per week had been substituted for that, the whole Committee will agree that that would have made not the slightest difference to the family's income.

According to the method of calculation used by the hon. Member for Blackburn, the tax burden on that family would rise from 14·7 per cent. to 16·1 per cent. of earnings. Yet it is clear from the example that I gave that in fact there is not the slightest difference. That is why the hon. Gentleman was wrong. He was wrong because he put down the wrong question. We hesitated to answer the question simply because we wondered whether we should be brave enough to suggest a correction to the question. In the event, we did not do so, and we were right.

Photo of Jack Straw Jack Straw Shadow Spokesperson (Treasury)

The Financial Secretary correctly quoted my question but he did not mention the fact that I first asked it in November 1981 and it was first answered on 3 December 1981. Moreover, the same question was answered on four further occasions. If he now objects so much to my question, why did he not mention his objection in the debate this time last year when we discussed exactly the same figures? Why, too, did he not raise the objection, as is so often the case when hon. Members ask questions, when the question was answered on 3 and 10 December 1981?

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

It is a perfectly respectable method of comparison, except when one is trying to compare a period in which child tax allowances were in force with one in which child benefit was in force. But for that change, I should have had no difficulty with the hon. Gentleman's statistical suggestion.

Photo of Jack Straw Jack Straw Shadow Spokesperson (Treasury)

I am grateful to the Financial Secretary, but his right hon. and learned Friend the Chief Secretary devoted half a column to small print notes in his answer on 10 December 1981, including a reference at note 6 to the way in which child benefit had been calculated. Why was there no note pointing out the problem that the Financial Secretary now raises in making comparisons for a period during which child tax allowance had been phased out?

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

Clearly, I do not know the details of every one of the myriad answers given to Opposition Members on income tax questions. It is the duty of Treasury Ministers to answer the questions put to them, and that we have done. To be held responsible for not pointing out that it was the wrong question is stretching our tolerance, helpfulness and patience almost too far.

I am happy to tell the Committee, however, that for the person on three quarters average earnings the percentage taken in income tax has fallen by 0·5 per cent. and for the person on full average earnings it has fallen by 1·1 per cent. compared with 1978–79.

Photo of Robin Cook Robin Cook , Edinburgh Central

To complete the picture, will the Financial Secretary confirm the figures that I gave in opening? On this basis of calculation, following the introduction of child benefit, will he confirm that in the last three years of the Labour Government the burden of taxation on the same household fell not by 0·5 per cent. but by 5·3 per cent?

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

I am coming to the comparison of the two periods, but I must establish the facts. Rates of tax as a percentage of income have fallen, but if one adds national insurance contributions, they are higher than they were in 1978–79 for those on less than two and a quarter times average earnings. I concede that. As my right hon. and learned Friend the Chief Secretary said earlier, personal allowance thresholds have risen by 6 per cent. in real terms since 1978–79. Moreover, contrary to the suggestion made by the hon. Member for Edinburgh, Central, when the new rate comes in, child benefit will be higher than it has ever been before.

I should point out to the hon. Member for Swindon (Mr. Stoddart) that as a result no one who has remained on the same percentage earnings over the period is worse off.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

No, I will not give way. The hon. Gentleman keeps jumping up and down like a jack-in-the-box, but I must explain this. So much nonsense has been talked about the effect of the Government's tax policies on people with average earnings and ordinary incomes that the Opposition should have the facts. Under the Labour Government, real gross earnings rose by 2·25 per cent. Since the Conservatives came to office, real gross earnings have risen by 7·75 per cent. Therefore, if taxation is lower and earnings have kept pace with prices and there have been large increases in earnings, it follows that no one who has remained on the same percentage of average earnings can be worse off. The Opposition make blanket accusations, but those are the facts of the matter.

Photo of Jack Straw Jack Straw Shadow Spokesperson (Treasury)

The debate concerns the burden of taxation and thus the percentage of income taken in taxation. Does the Financial Secretary accept that, if we include national insurance contributions in calculating direct taxation, as the Chancellor said that we must in the debate on his first Budget on 12 June 1979, the proportion of direct tax as a percentage of income has increased under the Government for all levels of income up to twice average earnings?

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

The hon. Gentleman should listen to what I say. I admitted that about two minutes ago. He is wasting the time of the House by not listening to what I say. In fact, he got the figure wrong. I referred to two and a quarter times average earnings. I hope that he will listen before interrupting again.

The hon. Member for Colne Valley (Mr. Wainwright) and the hon. Member for Edinburgh, Central talked about the poverty trap. I have not the precise costings, but the Labour party's plan for increased social spending is in the region of £15 billion a year extra and that of the alliance is about £3 billion or £4 billion extra. At the same time, they talk about the poverty trap.

I must make it clear to both hon. Members that the reason for the poverty trap is that successive Governments have indexed benefits in line with earnings but have indexed tax thresholds in line with prices. For that reason, the gap has got smaller and smaller between the level of benefits and the point at which tax becomes payable, when the threshold is crossed. To pay for those benefits, it has been necessary to hold down taxes. In other words, if any Government want seriously to deal with the poverty trap, as the present Government do, the first move not to make is to propose massive increases in social spending which then have to be got back from people either by increasing income tax or lowering the thresholds or by increasing the national insurance contribution, thereby making the poverty trap worse.

8 pm

That simple lesson does not seem to have been learnt by those who set themselves up as amateur solvers of the problem of the poverty trap. The only way to deal with the poverty trap is to get more resources. If those resources are committed to making the trap worse before starting, a poor fist will be made of solving it.

Photo of Mr Richard Wainwright Mr Richard Wainwright , Colne Valley

The Financial Secretary said that there were simple reasons for the poverty trap. That illustrates the point that I have tried to make several times, which is the absurdity and the disgraceful result of Treasury Ministers looking after one side of people's accounts and the DHSS looking after the other side, with very little mutual consultation about the effect on families. Does not the hon. Gentleman realise that the main cause of the poverty trap is the tangle of 43 different means tests, each lacking in logic, which eventually result in these disgraceful conditions in which a rise of £50 a week does a man no good?

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

I do not know whether the hon. Member for Colne Valley is suggesting that the Treasury should take over the determination of social security benefits and rates or that the DHSS should take over the determination of taxes, but neither would be a good solution. We are wiser to stay as we are.

I must remind right hon. and hon. Members that the more widely and indiscriminately benefits are spread, as so many hon. Members seem to spread them in their election planning, the more the poverty trap is deepened, because the resources required can be made available only by increasing income tax.

The hon. Member for Gateshead, West (Mr. Horam) said that a 7p — last year it would have been 9p —reduction in the basic rate of tax would be necessary to return to the same real tax payments on average at three quarters of average earnings. That is correct statistically. It depends on which category one considers — single, married or married with two children—and the figures are set out in the answer to a parliamentary question which I am sure that the hon. Gentleman has before him.

There has been a much greater rise in real gross earnings under this Government than under their predecessors—7·75 per cent. as against 2·25 per cent. In itself, that is very good — we all want people to improve their standard of living—but the higher real earnings go, the more tax is automatically paid under a progressive tax system. A person gets into the higher rates the higher his real income is. That is the first point that must be taken into account. Secondly, it would be an absurd way to help those on three quarters of average earnings or even average earnings to concentrate on doing it by reducing the rate of tax. That is much the most expensive way of helping them, because it helps other taxpayers to a greater extent since they have higher incomes.

It is much better to increase the allowances, and that is what my right hon. and learned Friend did in his Budget. To reduce the rate of tax is the most expensive and worst way of doing what has been suggested, and it is merely a statistical quirk that, to help them, that is the sort of rate of tax reduction which is necessary.

The question put to me by the hon. Member for Gateshead, West covered all taxes—national insurance contributions, income tax and indirect taxes. National insurance contributions are up, and they have put up some people's marginal proportion of tax more than it was before. That is because we have to pay for the retirement pension.

In the last year for which the Labour party had to provide for the retirement pension, £7·5 billion was spent. The estimate for the retirement pension in the coming year is £14·6 billion. That is an increase of £7·1 billion. Unemployment benefit has gone up on the same basis from £0·6 billion to £1·8 billion, which is an increase of £1·2 billion. However, that is a tiny figure compared with the increase that has to be found for the retirement pension.

If right hon. and hon. Members want to see the pension price-protected and we have an increasing number of pensioners, we must be prepared to meet the bill. The hon. Member for Caernarvon and the hon. Member for Cathcart tacitly admitted that we have to be prepared to find that money, and that is why the national insurance contribution has had to go up.

I was also asked about the higher paid and the reductions in higher rates which my right hon. and learned Friend made in 1979. Hon. Members seem to approach this subject as though the 1978–79 rates of income tax for the better off were right, that they were the starting point and that they were written in letters of gold as infallible. The Government do not accept that. We do not say that we have cut the higher rates of taxes from what they were or what they should have been. We say that the higher rates of taxes brought in by the Labour party were absurd, if not obscene.

The Labour Government introduced a 98 per cent. marginal rate for income tax. Hon. Members know perfectly well what people thought about those tax rates at the time. There is no doubt what the people who had to pay them thought. They decided not to stay. They went overseas. Contrary to what one hon. Member said, he knows that few if any overseas countries have higher rates of income tax at anything like the levels which his right hon. and hon. Friends tried to bring in here.

If we want to keep good managers here and if we want to see the industrial recovery beginning to get under way, one of the great services that we can perform is to keep these people here by not subjecting them to the penal taxation of the Labour party, with its doctrine of spite and envy.

Photo of Jack Straw Jack Straw Shadow Spokesperson (Treasury)

When the Chancellor of the Exchequer wept tears for people who had become tax exiles, he mentioned such people as Engelbert Humperdink and Mr. Michael Caine as being likely to return when the Conservative party came to power and reduced income tax to 60 per cent. Have these people returned? Has Michael Caine returned from tax exile during this Government's period in office?

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

I would not dream of discussing the affairs of individuals, and I do not know either of the individuals to whom the hon. Gentleman refers. I do not think that his intervention contributes much to our debate.

Let us take this point a little further. I have tried to answer the points made by the right hon. Member for Battersea, North (Mr. Jay). In a full year, not increasing the higher rate band, as was suggested in an amendment that was not called, would yield £280 million a year. If indexation was all that happened to the higher bands, a full year would yield a further £155 million. I shall take the bigger figure, so that I am not accused of manipulating the argument. That figure of £280 million would be enough to take ⅓p off the basic rate of income tax. It would be enough to increase personal allowances by 1·75 per cent. more than they already have been by the Budget. If we did that, there would be an increase of 16p a week for a single person, for a married couple an increase of 25p a week, for an elderly single person 21p a week and for an elderly married couple 33p a week, on the basic rate. Those are the improvements that it would be possible to effect for the vast mass of the population. The Labour party, in talking about the higher rates being paid by only 3 or 4 per cent. of the population, concede that from this source—even if we drive people to the point of wanting to go abroad —we do not produce anything like the resources that are necessary to deal with our serious problems.

An amendment that was not called would bring 350,000 extra taxpayers into the higher rate. Higher rates yield in real terms more money than they did in 1978–79. The threshold for the higher rates is 8·5 per cent. below the threshold for 1978–79 in real terms and the threshold for the 45 per cent. rate is 4 per cent. below the threshold then. That can hardly be described in the terms that have been used by the Labour party. Since 1979, as the Committee knows, there have been no changes in the relative rates as between the different bands and the basic rate.

I should like to question the figure that I have used to show what could be done if the amendments had been made and there had been no increase in the higher rates. The right hon. Member for Stepney and Poplar (Mr. Shore) published his shadow Budget not long ago and talked about lowering the threshold for the higher rate band of 45 per cent. He did not mention the 40 per cent. higher rate band, and I wonder what he will do with that. He said that he wanted to recoup most of the cuts that the Tory party had made. The right hon. Member is not noted for being on the extreme Right of the Labour party, but that is what he wanted to do. Presumably even he, living in his dream Socialist world, has realised that to go back to 1978–79 rates of income tax would be a disaster, so he has not said that he will do that. Therefore, we would not even get the £700 million to help with our problems that would be yielded if we went back to the rates of 1978–79.

8.15 pm

The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) got it right earlier this afternoon when talking about the cost of the reduced rate band. That would cost £850 million in a full year, but the right hon. Gentleman called that a small amount of money. However, one would not get anything like that sum of money from the amendments that the Labour party is suggesting. It calls £850 million a small amount of money, but the right hon. Member for Stepney and Poplar would not get half that with his suggestions. The whole thing is a sham, and the whole of the debate has merely been a means to stir up class hatred and envy. That is the only weapon that the Labour party has left.

Photo of Robin Cook Robin Cook , Edinburgh Central

I follow the Financial Secretary by beginning with a reference to my hon. Friend the Member for Preston, South (Mr. Thorne). My hon. Friend said that we may not be successful in defeating the clause. I am sure that my hon. Friend will agree that if we are defeated in the Division, it will not be because of the preponderance of the numbers on the Government Benches throughout the debate. We have had eight speakers from the Back Benches since I sat down at the beginning of the debate. Not one of them was from the Conservative Benches. There was not even an intervention in any of the provoking speeches made by Opposition Members or by the Financial Secretary.

However, 245 hon. Members of the governing party voted in the last Division. There are 245 hon. Members littered somewhere about the precincts of the Palace who have not had the gall or the guts—let us be charitable and say application — to come to the Chamber, and contribute to a debate on why their Government are proposing to treat the higher paid so leniently when they have increased the taxes on the lower paid. There was some talk about a brief being passed round. If the Tories had been given the brief from which the Financial Secretary spoke, I am not surprised that none of them came to the Committee to share it with him.

The Financial Secretary made attempts to exculpate himself from the criticisms that I and my hon. Friends put to him. Let us start with how one treats child benefit in the calculation of a tax burden. It is worth recording that the whole point of the change from tax allowances to child benefit was to alter the nature of child support from a tax allowance, which favoured the better paid, to a cash payment that was designed to give income into the hands of the wife. That was why the change took place.

It is bizarre to say, some eight years after that change, that we should continue to regard that payment, introduced as a cash income, as a form of tax allowance. In effect—

Photo of Robin Cook Robin Cook , Edinburgh Central

If the hon. Member for Beaconsfield (Mr. Smith) wishes to intervene, I shall happily give way. At least he will break the record of himself and his colleagues of not having spoken in the debate if he can find it in himself to a make a point that is of relevance to the debate. If not, he will do better to continue to run between the Financial Secretary and the official box bringing replies than to yell, "Rubbish," from a sedentary position and interrupt those seeking to contribute to the debate.

Over the past eight years child support has increased. It increased markedly between 1976 and 1979. The Financial Secretary said that child benefit is at its highest real level. It is precisely 5p better in real terms than in 1979, and even that calculation assumes that we write off the 50p increase in child benefit which was due in November 1979 and which the Government refused to implement the moment they took office. If we allow for that, child benefit is lower than it was in November 1979.

Between 1976 and 1979 there was a real increase in child support— a switch from tax allowance to child benefit. Conservative Members seek to argue that that increase in child support should now be predicated as a tax allowance in order to produce the statistical reduction in the tax burden in their period in office.

I must remind the Financial Secretary of what I think he said in confirmation of an intervention that I made. If we take that same basis of calculation, the Labour Government in their last three years in office did 10 times better than the Government have achieved in four years in reducing the tax burden on the very household on which the calculation has been based. If he wants to introduce a calculation that shows that the Labour Government did 10 times better than they have done—if that is the best that they can do to defend themselves—the Committee can only conclude that they have a threadbare case.

That threadbare case is not covered by the Government's resort to another fallback position as they retreat trench by trench. The Financial Secretary fell back on the last ditch justification that no one is worse off as a result of the Government's tax policies. The Committee is entitled to remember that 1·7 million British citizens are indubitably worse off because under the Government they have no earnings, having joined the dole queue. Moreover, they are distinctly worse off as a result of the Government's tax policies because they are now liable to tax on their unemployment benefit, which was not previously the case. Indeed, if we want a contrast between the Government's tax priorities in favouring the rich and their willingness to tax the poor, we can reflect upon no clearer illustration than the fact that this year the Treasury will derive more tax from the taxation of unemployment benefit than from capital transfer tax after the cuts of the past three years. There will be more revenue from the unemployed than from the owners of wealth.

Having put that point to the Financial Secretary, I am bound to deal with quotations that were made during the debate. My hon. Friend the Member for Grimsby (Mr. Mitchell), in an impressive cameo performance, recited several quotations from the last election when it was said that taxes would be cut. In my opening speech I quoted the Prime Minister, at her adoption meeting, saying: Taxes must and taxes will come down. A cut in taxes was promised to the electorate. At no stage during the last election did anybody say, "Taxes might mount, but, what the heck, incomes might keep ahead." That is what the Government are now driven to claim.

The electorate were promised a cut in taxes, but, whatever else might have happened, that cut in taxation has not occurred. Nor has there been a rise in income, as the Financial Secretary would wish to have us believe. It is true that those in work, particularly those in skilled jobs, have had an increase in gross earnings and that some have had an increase in net earnings, but we find that in the past four years the real personal disposable income of the nation as a whole has fallen by 2 per cent. while under the Labour Government it rose by 12·1 per cent. That is the true comparison if Conservative Members want to defend their tax record by reference to income after tax has been deducted.

The Financial Secretary made an extraordinary claim about national insurance contributions. We were told that national insurance contributions had to rise because of what the Government have done for pensioners. The Financial Secretary gave us some gross cash figures which had not been inflated for inflation. He compared £7·5 billion in pensions under the Labour Government with £14·6 billion in the current year. If we inflate the first figure for inflation since 1978–79, the comparison is between £12 billion and £14·6 billion. I concede that that is a real increase of about 18 per cent. It reflects the fact that there are more pensioners, not that there has been an improvement in the value of pensions.

Another major area of contrast between the Government's performance and that of the Labour Government is that the Labour Government achieved a major improvement in the real value of pensions by linking them to earnings. They achieved that without the mounting increase in national insurance contributions that the Government have imposed upon those in work. On the contrary, in their first year in office the Government smashed that link with pensions, making sure that pensions did not rise in step with earnings, as they have failed to do over the past four years; yet they increased national insurance contributions over and above the level that the Labour Government found sufficient to pay for it.

One simple explanation is that the Government have been using national insurance contributions as a covert substitution for income tax. That is why, two years ago, they found themselves obliged to cut the Treasury's contribution to the national insurance fund. If it were really the case that the mounting burden of the national insurance fund required those increases in contributions, why were those mounting demands on the fund consistent with a reduction in the Treasury's contribution to the fund from income tax?

If we review all the Government's defences during the debate against the charge of having increased the tax burden and failed to discharge their fraudulent prospectus to the electorate in 1979, we find that each argument falls as it is examined. One is left with the Government nakedly defending a decision which purely reflects their political prejudice to make an exception to the general rule in the case of the wealthiest income earners who have benefited from tax cuts.

The Financial Secretary closed by saying that if we were not to go ahead with the increases in the higher rate thresholds, it would make little difference to the mass of the population. When I first contested a parliamentary seat I stood against a candidate who is now one of the nation's 17 noble dukes. In debate he would defend his personal wealth on the basis that, if it were divided per head of the population, it would buy each person only two cigarettes. Therefore, he said that it was perfectly justifiable that he should continue to keep that wealth.

Photo of Robin Cook Robin Cook , Edinburgh Central

The result was creditable, given the way in which the dice was loaded. I think that I shall have the last laugh. I thought at the time that that was a remarkably improvident way in which to spend such wealth. I could find more useful and viable ways in which to spend it.

Precisely the same is true of what the Financial Secretary to the Treasury proposed to do with the money that will be saved by carrying the amendments that were not selected. I outlined some ways in my opening speech. With that money, we could extend the long-term rate to those who have been unemployed for more than one year. We could avoid having to cheat the pensioners of the 2 per cent. of which they have been defrauded. Moreover, with that money, we could increase child benefit by another 50p, thereby seriously reducing the poverty trap. All those things would be worth doing. They would all reduce poverty. Time and again Ministers have told us that we cannot afford to do those things, but here is the money.

I find it offensive that, having found the little pot of £280 million, it should be proposed to give it to the 4 per cent. of our nation who are wealthy and now pay a marginal rate of tax that is less than the effective tax rate of those who are caught in the poverty trap. My right hon. and hon. Friends share that feeling of offence and repugnance. That is why we shall vote against clause 12. In doing so, it is unfortunate that we shall be obliged to vote against the first two lines which provide the authority to collect income tax. We have no quarrel with those two lines. Our quarrel lies with the remaining 15 lines. It is significant that the bulk of clause 12 concentrates help on the wealthy after the Government have increased the tax burden on the other 96 per cent. of the population, especially those who are caught in the poverty trap. That proposal is repugnant. That is why we shall now vote against clause 12.

Question put, That the clause stand part of the Bill:

The Committee divided: Ayes 248, Noes 179.

Division No. 129][8.30 pm
Adley, RobertButcher, John
Aitken, JonathanCarlisle, John (Luton West)
Alexander, RichardCarlisle, Kenneth (Lincoln)
Alison, Rt Hon MichaelCarlisle, Rt Hon M. (R'c'n)
Ancram, MichaelChalker, Mrs. Lynda
Arnold, TomChannon, Rt. Hon. Paul
Aspinwall, JackChapman, Sydney
Atkins, Rt Hon H.(S'thorne)Churchill, W. S.
Atkins, Robert (Preston N)Clark, Sir W. (Croydon S)
Bagier, Gordon A.T.Clarke, Kenneth (Rushcliffe)
Baker, Kenneth (St. M'bone)Cockeram, Eric
Banks, RobertColvin, Michael
Beaumont-Dark, AnthonyCope, John
Bendall, VivianCormack, Patrick
Benyon, Thomas (A'don)Corrie, John
Benyon, W. (Buckingham)Costain, Sir Albert
Berry, Hon AnthonyCranborne, Viscount
Best, KeithCrouch, David
Bevan, David GilroyDickens, Geoffrey
Biffen, Rt Hon JohnDorrell, Stephen
Biggs-Davison, Sir JohnDouglas-Hamilton, Lord J.
Blackburn, JohnDover, Denshore
Blaker, Peterdu Cann, Rt Hon Edward
Body, RichardDunn, Robert (Dartford)
Bonsor, Sir NicholasDurant, Tony
Boscawen, Hon RobertDykes, Hugh
Bottomley, Peter (W'wich W)Eden, Rt Hon Sir John
Boyson, Dr RhodesEggar, Tim
Braine, Sir BernardElliott, Sir William
Bright, GrahamFaith, Mrs Sheila
Brinton, TimFarr, John
Brittan, Rt. Hon. LeonFell, Sir Anthony
Brooke, Hon PeterFenner, Mrs Peggy
Brotherton, MichaelFinsberg, Geoffrey
Brown, Michael (Brigg & Sc'n)Fisher, Sir Nigel
Browne, John (Winchester)Fletcher, A. (Ed'nb'gh N)
Bruce-Gardyne, JohnFletcher-Cooke, Sir Charles
Bryan, Sir PaulFookes, Miss Janet
Buchanan-Smith, Rt. Hon. A.Forman, Nigel
Buck, AntonyFowler, Rt Hon Norman
Budgen, NickFox, Marcus
Bulmer, EsmondFraser, Rt Hon Sir Hugh
Burden, Sir FrederickFraser, Peter (South Angus)
Gardiner, George (Reigate)Morrison, Hon C, (Devizes)
Gardner, Sir EdwardMorrison, Hon P. (Chester)
Garel-Jones, TristanMurphy, Christopher
Gilmour, Rt Hon Sir IanMyles, David
Glyn, Dr AlanNeale, Gerrard
Goodhew, Sir VictorNeedham, Richard
Goodlad, AlastairNelson, Anthony
Gorst, JohnNeubert, Michael
Gray, Rt Hon HamishNewton, Tony
Griffiths, E.(B'y St. Edm'ds)Oppenheim, Rt Hon Mrs S.
Griffiths, Peter (Portsm'th N)Page, Richard (SW Herts)
Grist, IanParkinson, Rt Hon Cecil
Grylls, MichaelParris, Matthew
Gummer, John SelwynPawsey, James
Hamilton, Hon A.Peyton, Rt Hon John
Hamilton, Michael (Salisbury)Pink, R. Bonner
Hampson, Dr KeithPollock, Alexander
Hannam, JohnPorter, Barry
Hastings, StephenPrentice, Rt Hon Reg
Hawksley, WarrenPrice, Sir David (Eastleigh)
Hayhoe, BarneyProctor, K. Harvey
Heddle, JohnRaison, Rt Hon Timothy
Henderson, BarryRathbone, Tim
Heseltine, Rt Hon MichaelRees, Peter (Dover and Deal)
Hicks, RobertRees-Davies, W. R.
Holland, Philip (Carlton)Renton, Tim
Hooson, TomRhodes James, Robert
Howe, Rt Hon Sir GeoffreyRhys Williams, Sir Brandon
Howell, Rt Hon D. (G'ldf'd)Ridley, Hon Nicholas
Hunt, John (Ravensbourne)Roberts, Wyn (Conway)
Hurd, Rt Hon DouglasRossi, Hugh
Irvine, RtHon Bryant GodmanSainsbury, Hon Timothy
Irving, Charles (Cheltenham)St. John-Stevas, Rt Hon N.
Johnson Smith, Sir GeoffreyShaw, Giles (Pudsey)
Jopling, Rt Hon MichaelShelton, William (Streatham)
Kaberry, Sir DonaldShepherd, Colin (Hereford)
Kellett-Bowman, Mrs ElaineShepherd, Richard
Kershaw, Sir AnthonyShersby, Michael
King, Rt Hon TomSilvester, Fred
Knox, DavidSims, Roger
Lamont, NormanSkeet, T. H. H.
Lang, IanSmith, Tim (Beaconsfield)
Latham, MichaelSpeed, Keith
Lawrence, IvanSpeller, Tony
Lawson, Rt Hon NigelSpence, John
Lee, JohnSpicer, Jim (West Dorset)
Le Marchant, SpencerSpicer, Michael (S Worcs)
Lennox-Boyd, Hon MarkSproat, Iain
Lester, Jim (Beeston)Squire, Robin
Lewis, Sir Kenneth (Rutland)Stanbrook, Ivor
Lloyd, Peter (Fareham)Stanley, John
Loveridge, JohnSteen, Anthony
Luce, RichardStevens, Martin
Lyell, NicholasStewart, A.(E Renfrewshire)
Macfarlane, NeilStokes, John
MacGregor, JohnStradling Thomas, J.
MacKay, John (Argyll)Tapsell, Peter
McNair-Wilson, M. (N'bury)Tebbit, Rt Hon Norman
McNair-Wilson, P. (New F'st)Thomas, Rt Hon Peter
McQuarrie, AlbertThompson, Donald
Madel, DavidThorne, Neil (Ilford South)
Major, JohnThornton, Malcolm
Marland, PaulTownend, John (Bridlington)
Marlow, AntonyTownsend, Cyril D, (B'heath)
Marten, Rt Hon NeilTrippier, David
Mather, Carolvan Straubenzee, Sir W.
Mawby, RayVaughan, Dr Gerard
Mawhinney, Dr BrianViggers, Peter
Maxwell-Hyslop, RobinWaddington, David
Mayhew, PatrickWakeham, John
Meyer, Sir AnthonyWaldegrave, Hon William
Mills, Iain (Meriden)Walker, B. (Perth)
Mills, Sir Peter (West Devon)Walker-Smith, Rt Hon Sir D.
Miscampbell, NormanWarren, Kenneth
Moate, RogerWatson, John
Monro, Sir HectorWells, Bowen
Montgomery, FergusWells, John (Maidstone)
Moore, JohnWheeler, John
Morgan, GeraintWhitney, Raymond
Morris, M. (N'hampton S)Wickenden, Keith
Wolfson, MarkTellers for the Ayes:
Young, Sir George (Acton)Mr. Douglas Hogg and
Younger, Rt Hon GeorgeMr. David Hunt
Adams, AllenHome Robertson, John
Allaun, FrankHomewood, William
Archer, Rt Hon PeterHooley, Frank
Ashley, Rt Hon JackHoram, John
Ashton, JoeHoyle, Douglas
Atkinson, H.(H'gey,)Huckfield, Les
Bagier, Gordon AT.Hughes, Mark (Durham)
Barnett, Guy (Greenwich)Hughes, Robert (Aberdeen N)
Barnett, Rt Hon Joel (H'wd)Janner, Hon Greville
Benn, Rt Hon TonyJay, Rt Hon Douglas
Bennett, Andrew(St'kp't N)John, Brynmor
Bidwell, SydneyJohnson, James (Hull West)
Boothroyd, Miss BettyJohnston, Russell (Inverness)
Bottomley, Rt Hon A.(M'b'ro)Jones, Barry (East Flint)
Bradley, TomKaufman, Rt Hon Gerald
Bray, Dr JeremyKerr, Russell
Brown, R. C. (N'castle W)Kilroy-Silk, Robert
Brown, Ron (E'burgh, Leith)Lamond, James
Buchan, NormanLeighton, Ronald
Callaghan, Jim (Midd't'n & P)Litherland, Robert
Campbell, IanLofthouse, Geoffrey
Campbell-Savours, DaleMabon, Rt Hon Dr J. Dickson
Canavan, DennisMcCartney, Hugh
Carter-Jones, LewisMcDonald, Dr Oonagh
Cartwright, JohnMcKelvey, William
Clark, Dr David (S Shields)MacKenzie, Rt Hon Gregor
Clarke,Thomas(C'b'dge, A'rie)McTaggart, Robert
Cocks, Rt Hon M. (B'stol S)McWilliam, John
Coleman, DonaldMarshall, D(G'gow S'ton)
Concannon, Rt Hon J. D.Marshall, Jim (Leicester S)
Cook, Robin F.Martin, M(G'gow S'burn)
Cowans, HarryMason, Rt Hon Roy
Craigen, J. M. (G'gow, M'hill)Maxton, John
Crowther, StanMeacher, Michael
Cryer, BobMikardo, Ian
Cunliffe, LawrenceMillan, Rt Hon Bruce
Cunningham, G. (Islington S)Mitchell, Austin (Grimsby)
Cunningham, Dr J. (W'h'n)Mitchell, R. C. (Soton Itchen)
Dalyell, TamMorris, Rt Hon A. (W'shawe)
Davidson, ArthurMorris, Rt Hon C. (O'shaw)
Davies, Rt Hon Denzil (L'lli)Morton, George
Davis, Terry (B'ham, Stechf'd)Moyle, Rt Hon Roland
Deakins, EricNewens, Stanley
Dean, Joseph (Leeds West)Oakes, Rt Hon Gordon
Dewar, DonaldO'Brien, Oswald (Darlington)
Dixon, DonaldO'Halloran, Michael
Dobson, FrankO'Neill, Martin
Dormand, JackPark, George
Duffy, A. E. P.Parker, John
Dunnett, JackParry, Robert
Dunwoody, Hon Mrs G.Penhaligon, David
Eadie, AlexPrescott, John
Ellis, R. (NE D'bysh're)Price, C. (Lewisham W)
English, MichaelRace, Reg
Ennals, Rt Hon DavidRadice, Giles
Evans, loan (Aberdare)Rees, Rt Hon M (Leeds S)
Evans, John (Newton)Roberts, Albert (Normanton)
Field, FrankRoberts, Allan (Bootle)
Flannery, MartinRoberts, Ernest (Hackney N)
Ford, BenRoberts, Gwilym (Cannock)
Forrester, JohnRobertson, George
Foster, DerekRobinson, G. (Coventry NW)
Fraser, J. (Lamb'th, N'w'd)Rooker, J. W.
Freud, ClementRoper, John
Garrett, John (Norwich S)Rowlands, Ted
Golding, JohnSever, John
Graham, TedSheldon, Rt Hon R.
Grimond, Rt Hon J.Shore, Rt Hon Peter
Hamilton, W. W. (C'tral Fife)Silverman, Julius
Harman, Harriet (Peckham)Skinner, Dennis
Harrison, Rt Hon WalterSmith, Rt Hon J. (N Lanark)
Hart, Rt Hon Dame JudithSnape, Peter
Haynes, FrankSoley, Clive
Heffer, Eric S.Spearing, Nigel
Spriggs, LeslieWellbeloved, James
Stewart, Rt Hon D. (W Isles)Welsh, Michael
Stoddart, DavidWhite, Frank R.
Stott, RogerWhitehead, Phillip
Strang, GavinWhitlock, William
Straw, JackWigley, Dafydd
Taylor, Mrs Ann (Bolton W)Willey, Rt Hon Frederick
Thomas, Dafydd (Merioneth)Williams, Rt Hon A.(S'sea W)
Thorne, Stan (Preston South)Wilson, Rt Hon Sir H.(H'ton)
Tilley, JohnWilson, William (C'try SE)
Tinn, JamesWoodall, Alec
Varley, Rt Hon Eric G.Woolmer, Kenneth
Wainwright, E.(Dearne V)Young, David (Bolton E)
Wainwright, H.(Colne V)
Walker, Rt Hon H.(D'caster)Tellers for the Noes:
Warden, GarethMr. James Hamilton and
Watkins, DavidMr. Allen McKay.
Weetch. Ken

Question accordingly agreed to.

Clause 12 ordered to stand part of the Bill.