Orders of the Day — Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 6:08 pm on 23 March 1987.

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Photo of Mr William Clark Mr William Clark , Croydon South 6:08, 23 March 1987

Not under a Labour Government, because the difference between the two is the privatisation money. I presume that there will not be any privatisation money under a Labour Government, which means that 4 per cent, of GDP is £16 billion. I remind the hon. Gentleman that before the Labour Government went to the IMF the 9 per cent, borrowing requirement would, in today's figures, mean overspending of about £36 billion. That is the size of the problem that we face. The borrowing requirement must affect interest rates which we have seen fall by one point. I believe that they will go even lower.

I advise right hon. and hon. Members who advocate an increase in the borrowing requirement to consider the present cost of the national debt. It costs us nearly £18 billion a year to service it. What could we do with that £18 billion if we were paying it in interest? In simple terms, the country is paying £30,000 a minute in national debt. There are 60 minutes in an hour and 24 hours in a day, and every minute we are paying £30,000. I hope that my right hon. Friend's target for the borrowing requirement is zero. If we raise £5 billion from the sale of BP, the current borrowing requirement of £4 billion will be reduced to nearly zero.

I know that the hon. Member for Walton does not care for the capital society. However, during the past seven years, with the sale of property to council house tenants, we have created a true property-owning democracy — [Interruption.] It is all very well for Opposition Members to grin about that, but they should talk to some of the 63 per cent, of people who are owner-occupiers. Former tenants are delighted that they have had the opportunity to buy their council houses. Opposition Members should talk to the 8·5 million small shareholders and savers, not to people such as Mr. Sainsbury or Mr. Robert Maxwell. The small shareholders want a stake. It is all very well for Opposition Members to say that, with nationalisation, we all had a stake and were all shareholders. I should like to know what dividends I have ever received from, for example, British Rail, in which I am supposed to be a shareholder. I have not received any dividends from that but if I invest in British Telecom I receive dividends from that investment.

We should continually remind people that overseas assets are a great boon to our economy and produce between £4 billion and £5 billion worth of invisibles for our balance of payments. They have increased from about £20 billion to £110 billion today. I am sure that economic pundits will agree that, in time, with the great build-up of overseas assets as oil revenue reduces, invisible earnings from our overseas assets will increase.

I welcome the mention of personal pensions. However, I issue a warning about occupational pension schemes. They should be increased. Nothing is better, when a person retires, than that he or she should have some income apart from the state retirement pension, because that gives them far more independence. However, if the Labour party were to form an Administration, they would force the institutions—the pension funds—to repatriate overseas assets and capital and divert that capital into what is known as a national investment bank. We have all seen the investment policies of previous Labour Governments. For example, there was not much money left after their investment in De Lorean. The same was true of the groundnut scheme and there was absolute, complete and utter disaster over Gambian eggs. If pension funds are forced to invest money in non-profitable ventures, through the national investment bank, their declining actuarial value will jeopardise the pensions of today's occupational pensioners. I remind the House that between 11 million and 12 million people have occupational pensions. If the Labour party had its way and upset actuarial valuations because of bad investment, those 11 million to 12 million people might not receive the pension that they were expecting.

I welcome the fact that another boost has been given to the age allowance in personal taxation. I also welcome the blindness allowance and the increase in the thresholds. I remind the House that they have increased by about 22 per cent, in real terms since 1979. However, I advise my right hon. Friend the Financial Secretary that the threshold is far too low. Even after the Budget a married man will start to pay tax at 27p in the pound as soon as he has earned £73 in a week. That is far too low. We should increase that threshold as soon as possible because the national average wage is now £195 a week. The target should be aimed so that a person starts to pay tax only after earning at least half of the national average wage.

As has been mentioned by some of my hon. Friends, the higher rates of tax are far too high. I welcome the fact that the top rate was reduced from 75p to 60p in the pound. However, at one time one paid 33p in the pound at the tax threshold. In the next tranche, when one's income had increased, the uplift was 40p. Then it was 45p, 50p and so on. The difference between 33p and 40p was a seven point jump. Now that tax is down to 27p in the pound, the jump from 27p to 40p is too steep and we must even it out. We cannot do so in this Budget, but in the lifetime of the next Parliament when the Conservatives will again introduce four or five Budgets our target should be for a rate of tax of 15p in the pound for those on half the average wage — £100 — 20p in the pound for those on the average wage—£200—and then increase the tax in tranches of five points each. That would provide a much more progressive payment for taxpayers.

I would not have a top rate of income tax higher than 50p in the pound in the long term. The United States of America acts as a magnet because of its salaries and research and development facilities, especially in the universities that liaise closely with private enterprise, which are particularly attractive to academics and scientists. In addition, the United States has a top rate of tax of 28p in the pound, so if we maintain our top rate at this high level there will be a tremendous brain drain.

I welcome the Chancellor's announcement of one VAT annual return for businesses with a turnover below £250,000. A small business is invariably a one-man business, probably with a wife or son helping. The first concern is to build up the business and the administrative burden of VAT is intolerable.

I agree with my right hon. Friend the Member for Worthing (Mr. Higgins) and my hon. Friend the Member for Woking (Mr. Onslow) that we should reconsider the question of capital gains tax on life insurance funds. If capital gains tax is paid on life insurance funds, there will be an element of retrospective taxation, because at present many life insurance funds have an in-built capital gain on which they do not pay tax. If CGT must be paid, presumably it will also cover past gains.

A Labour Government would reimpose the 2p reduction in income tax, but I do not suppose that they would touch the age or blindness allowances. I remind Labour Members that the low paid will benefit from the reduction of 2p in income tax on average by about £3 a week. Some pensioners pay tax, so why should they not have the 2p reduction? The Budget has given mortgage payers a 2p reduction in income tax, amounting to about £3 a week, and through reduced interest rates they could save a total of £4 or £5 a week.

I do not know whether this is constitutionally right, but if the Opposition will not co-operate in passing these tax changes, may I suggest to my hon. Friend the Minister that we have two Finance Bills? One would deal with the 2p reduction in income tax and the age and blindness allowances, and the other with everything else. In that way we could quickly pass the former, so that there would be no inhibition on the date of the general election, which I hope will be in September. Something should be done to prevent the chaos that could be caused if the Opposition do not co-operate, so that after 5 April 1987 those receiving dividends know how much tax they must pay.