Orders of the Day — Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 5:37 pm on 16th March 1988.

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Photo of Mr Bruce Millan Mr Bruce Millan , Glasgow Govan 5:37 pm, 16th March 1988

The Chief Secretary has done his best to defend yesterday's Budget but he has not made much of a job of it and I am not really surprised, because this a Budget which is indefensible where justice, fairness and morality are concerned. I have listened to many Budgets in the House but have never before felt the sense of outrage that I felt yesterday in listening to the latter part of the Chancellor's speech and the announcement that he made then about the reductions in the higher rates of taxation, in particular.

I find it nauseating to see hon. Gentlemen on the Government Benches, all of whom will do well out or this Budget, and some of whom who will do extremely well out of it, waving their Order Papers in the air, when in the past few weeks the same hon. Gentlemen have voted for the social fund — an attack on the poorest members in our community — voted to freeze child benefit, voted to reduce housing benefit, voted for attacks on the unemployed and, of course, voted for the iniquities of the poll tax as well.

Anticipating what the Chancellor was likely to say yesterday, I had the perhaps naive feeling that he would cover his tax reductions for the better off with a figleaf of additional expenditure on the National Health Service. I had not appreciated the depths of cynicism to which the Government have now sunk. Not a penny is to go to the NHS. Yet it is agreed by all who have examined the matter that there is a real and major crisis in the Health Service. That is the finding of studies by the British Medical Association, the Royal College of Nursing and the all-party Select Committee on Social Services.

That Committee recommended, very modestly, that at least £1 billion should be put into the NHS over the next two years—in addition to the figures in the White Paper on public expenditure—to make up even a part of the £1·9 billion by which the NHS had been underfunded during the past few years. In all the polls held before the Budget, public opinion made the NHS its top priority.

The excuse cannot be given this year that no money is available. Plenty of money is available, but it has been devoted overwhelmingly to the better-off. It is a scandal that £2 billion of that in a full year is paying for the elimination of the higher rate of tax, above 40 per cent. The money, or even half of it, could have been spent on improving the NHS and other aspects of the social services, and on more general improvements.

The Chief Secretary pretended that there was a direct correlation between the highest rates of income taxation and economic performance. That is an odd view, as we see by comparing the economic performances of Japan and the United States in recent years. The top rate of taxation in Japan is 60 per cent., while in the United States it is only 33 per cent. There is no such correlation. Similarly, there is no proven correlation between reductions in the higher rates of taxation and increasing effort on the part of those who benefit.

It is odd that those at the top end of the income range should be provided with incentives through the reduction of their taxation burden, while the poorer sections of the community are provided with incentives by being screwed down even further. But that has been part of the Government's policy over the past few years. High tax rates may encourage excessive salaries. Some grotesque salaries have been paid to directors and, in some instances, to completely useless people in the City of London. It will be interesting to see whether, having received all these concessions, they will volunteer reductions in their salaries, but I do not believe that they will. We are simply giving large sums to the least deserving members of the community.

I have always entertained a certain scepticism about the independence of taxation for women, believing that to move to a completely independent system without doing an injustice to some members of the community—sometimes deserving—would be a very difficult task. The general argument for independent taxation of women was that it was a redistribution to make the whole system fairer. The typical Opposition proposal was that the abolition of the married man's allowance would make possible considerable increases in child benefit. The Chancellor, however, has done exactly the opposite. On the one hand, child benefit has been frozen. On the other, the proposals will overwhelmingly benefit the better-off.

The present wife's earned income allowance has been converted to a wife's income allowance, earned or unearned, and the disaggregation of investment income is also proposed. The proposals will make no difference to the vast majority of couples who have no income other than earned income, with husband and wife both earning. Certain earners will experience a marginal difference, but on the whole they will be those who are already on high incomes and paying the higher rates of taxation.

It is the disaggregation of unearned income that will have the impact. The husband's unearned income, such as investments, will be switched to the wife. For unearned as well as earned income, separate higher rate thresholds are being created. For those at the top end of a total income scale, the threshold for higher rates of tax has been effectively doubled. The benefits to the rich of such so-called reform of the taxation of married couples are potentially immense. The £500 million, or whatever will be the cost of the reform, will go overwhelmingly to the rich.

The position is even worse than that. It has not been sufficiently noted that one part of the reform will provide for the business expansion scheme to be dealt with independently for husband and wife, so that the £40,000 investment allowed under the present arrangements will be increased for the very rich taxpayers to £80,000 a year. That is a massive benefit. The Chief Secretary talked about plugging loopholes, but the business expansion scheme has already been diverted into all sorts of activities that most of us would consider at best neutral, and in many cases positively harmful, for the economy as a whole.