Taxation (Opposition Policies)

– in the House of Commons at 3:49 pm on 14th May 1990.

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Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford 3:49 pm, 14th May 1990

I beg to move, That this House notes the Labour Party's continued commitment to massive increases in public expenditure funded by the imposition of new taxes on savings, jobs and property and increases in rates of income tax and national insurance; contrasts the Labour Party's refusal to reveal its plans for the basic rate of income tax with the Government's goal for the basic rate of just 20p; believes that Labour will be forced substantially to increase the burden of tax on many lower and middle income earners to realise their public expenditure plans; notes that Labour plans run counter to the growing international consensus on the case for low taxes; and believes that the imposition of higher taxes and new taxes would stifle enterprise, drive firms and individuals abroad and gravely weaken the wealth-creating capacity of the United Kingdom economy and create unemployment. I hunted around for a text from which I might take the keynote of my speech today, and I thought that it would be appropriate to quote a little bit of Lewis Carroll. The quotation begins "The time has come", and indeed the time has come. The quotation also reflects the way in which the Labour party is trying to delude the public about the way in which it might take decisions if it was in office.

My quotation begins:

  • "'The time has come …
  • 'To talk of many thing:
  • Of shoes—and ships—and sealing wax—
  • Of cabbages—and kings—
  • And why the sea is boiling hot—
  • And whether pigs have wings.'"
Hon. Members may recall that that little piece ended after the conversation between the Walrus and the Carpenter and there was no reply from the oysters which had been carrying on a conversation on the beach. There was no reply, because the oysters had all been eaten.

I suggest that the result of the Labour party's tax policy would be that incomes in this country were reduced to a very low level. Indeed, taxpayers would not be able to pay for the expensive policies instituted by the Labour party.

The time has come to speak of these things because many people, misguidedly, have elected to vote Labour in recent elections. The Labour party increased its number of seats in the local government elections and it is essential that we should warn the electorate and make them clear about the consequences for taxation policy of electing a Labour Government. When we talk about tax policies, we are talking about a reflection of the Labour party's priorities and philosophy in its approach to government.

Labour's dilemma is that it seeks to spend more and more money on social services, health services, and education and local government services. The Labour party promises the electorate that that spending can be achieved without an increase in taxation. Where taxation will be increased, the Labour party tries to suggest that that will be met by taxing the rich. However, we have yet to define "rich". I am sure that the right hon. and learned Member for Monklands, East (Mr. Smith) would not like me to remind the electorate that he thinks that anyone earning more than 17,000 a year is rich. The Labour party believes that by taxing the rich it can somehow pay for excessively expensive social and public services.

Income tax is now reaching down the income levels, and is continuing to do so, down to those who are on very humble incomes, which may be little more than the basic state pension. Labour will tax the vast majority of people who earn humble incomes. It will take money from those people and redistribute it to those whom the Labour party in its arrogance believes should receive more. That is the problem that has faced Labour parties in this country, in eastern Europe, in the Soviet Union or in the Third world.

Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford

The Labour party cannot carry out its very expensive programmes unless tax is raised. Only then can it carry out the demands of clause 4 of its constitution.

Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford

In a moment.

Before the hon. Member for Bolsover (Mr. Skinner) intervenes, I should like to remind him exactly what clause iv of the Labour party's constitution states, because it illustrates what the Labour party intends. The party has never been able to abolish clause Iv of its constitution, paragraph (iv) of which states: To secure for the workers, by hand or by brain, the full fruits of their industry and the most equitable distribution thereof that may be upon the basis of the common ownership of the means of production, distribution and exchange and the best attainable system of popular administration and control of each industry or service.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

The hon. Gentleman has said that the Labour party would have some difficulty financing its programme. I read the other day in a Tory newspaper that the Government are also in a serious predicament because they have to find £15 billion in this current year—not after an election—to finance their programmes. The problem for the Treasury is where to find that money. Before the hon. Gentleman goes any further, I should like to know where he would get that £15 billion from to balance the books this year. He would give us a bit of direction if he could tell us whether he has any ideas about where to get that money from, so that he can tell his right hon. and hon. Friends on the Treasury Bench. Remember the figure—it is £15 billion.

Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford

It is our very good fortune that, after 11 years of Conservative government, the Government are running a surplus on their current account. Although we cannot predict what that surplus may be in the coming year, the Treasury will have little difficulty in financing that extra £15 billion. The question is whether it would be wise to do so and whether my right hon. and hon. Friends should insist on a reduction in public spending.

Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford

My answer is that the money is already there. We do not have to raise it from anywhere.

Photo of Ian Taylor Ian Taylor , Esher

Given that the Labour party's programme involves nationalisation on a mammoth scale, which my hon. Friend has just mentioned, does he agree that not only would the Labour party be incapable of running a public sector debt repayment, but that it would be massively in debt on the public sector, which would hamper the social programmes that it wanted to put into practice? Indeed, it was because the Labour party was in such massive state debt last time it was in power that it had to cut social services and investment in public facilities in real terms.

Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford

My hon. Friend is absolutely right. Indeed, he has anticipated me, because, while discussing this point, I had wanted to highlight exactly the mess into which the Labour party got this country in 1976 when some of its friends began to realise what it was doing.

I should like to quote from the beginning of the "Public Expenditure—General Review" of 1976, the author of which was the right hon. Member for Leeds, East (Mr. Healey). The Labour Government were in serious difficulties at the time. The second paragraph of the introduction states: In the last three years, public expenditure has grown by nearly 20 per cent. in volume, while output has risen by less than 2 per cent. The ratio of public expenditure to gross domestic product has risen from 50 per cent. to 60 per cent. Fifteen years ago, it was 42 per cent. The tax burden has also greatly increased. In 1975–76, a married man on average earnings was paying about a quarter of his earnings in income tax". We are talking about low-paid people—about people on average or lower than average earnings who were paying about a quarter of their earnings in income tax, compared with one tenth in 1960–61.

The paragraph continues: On two thirds average earnings a man is paying more than one fifth, compared with less than one twentieth. Tax thresholds have fallen sharply in relation to average earnings. In other words, more poor people are paying tax and people are being drawn into tax on income levels which are below social security and benefit levels. The increase in the tax burden has fallen heavily on low wage earners, those earning less than the average contribute over a quarter of the income tax yield. This cannot be made good simply by increasing the burden at the top. If no taxpayer were left with more than £5,000 per annum after tax"— swingeing taxes on the rich— this would increase the yield by only about 6 per cent. There it is—the right hon. Member for Leeds, East spelled out from experience exactly what happens under Labour Governments. They have to tax their own people, poor people, at the lower end of the income tax levels, in order to achieve the objectives of clause Iv—to redistribute the income to those they want, engineer our country's social life and achieve their egalitarian aims, which have not altered.

Photo of Mr Ian Gow Mr Ian Gow , Eastbourne

Why has not my hon. Friend brought with him copies of the letters sent by the then Chancellor, to whom he referred, to Dr. Johannes Witteveen? Those letters were the consequence of policies consistently followed by the Labour party, which borrowed where it dared not tax and printed what it could not borrow.

Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford

If my right hon. Friend had had time to communicate with me during the weekend and had known the line of argument that I was going to take in this debate, I have no doubt that he would have sent me copies of those excellent letters that illustrate so well the point that I was making.

Photo of David Winnick David Winnick , Walsall North

Instead of dwelling 14 years in the past—perhaps he may want to go back 24 years—would it not be more advisable for the hon. Gentleman to spend part of his speech on the crippling mortgage interest rates being paid by so many of his constituents and the poll tax being levied on many people who are paying double or treble what they were previously paying? Would it not be appropriate to find time to dwell on some of the remarks by the Chief Secretary to the Treasury during the weekend, when he drew a pessimistic picture of the economy? Will not people come to the conclusion that the hon. Gentleman is devoting all his speech today to what happened 14 or 20 years ago because he is frightened of dealing with the problems caused by a Conservative Government?

Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford

The hon. Gentleman's intervention leads me nicely to my next point. It also allows me to say that, if the hon. Gentleman thinks that interest rates are too high under this Government, he should imagine what they would be under a Labour Government. They would be a great deal higher. A major problem, and one of the reasons for this debate, is to try to find out exactly what the Labour party's policies will be. The Labour party is inclined to be excessively coy with the public because it does not want the facts and its long-term aim to be known and understood, because once the electorate do so, they will not vote for the Labour party. The job of the House is to point out those facts.

The hon. Gentleman's intervention leads me to the fact that inflation is undoubtedly too high in this country; the Government, whom I support, have made a mistake. It is not, and has never been, the Government's objective to let inflation increase to this extent, but I am equally responsible, together with all Labour party members, for that dilemma. In 1987, when the stock exchange fell dramatically, many of us thought that we were in for a catastrophic slump. I was one of those who urged the then Chancellor to stoke up demand and——

Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford

I was one of them. I never heard a dissenting voice from the Opposition, and the then Shadow Chancellor of the Exchequer urged the then Chancellor to increase demand and lower interest rates. That is what happened and I have told the House what we did. We did that because we are just as anxious as Labour about the unemployment rate and Britain's productive ability, and we certainly did not wish to see a slump. We were in good company, because most of the world's central bankers, who were at that time conversing with each other on the telephone, were following that counter-cyclical policy. There is no doubt that that fed into the economy more demand than there should have been, and we are now seeing the result.

Labour's policy is to increase demand to even higher levels than those that we have at present, so that, as it continually said for eight years while unemployment was high, unemployment can be reduced. Labour certainly adopted those tactics when in office. The country should not believe that Labour's policies will be anything other than grossly inflationary, with the result that the same conditions will prevail as prevailed in 1976, when the Labour Government had to introduce a public expenditure paper.

After we have looked at what Labour proposes to spend, we shall look at what it says about how it will raise taxes to meet that expenditure. So that I am not seen to be negative or carping or over-critical of the Labour party, I shall suggest some ways in which the Conservative party can put forward constructive suggestions. After that, I hope that people who were tempted to vote Labour will never do so again.

I am deeply indebted to the shadow Chancellor, the right hon. and learned Member for Monklands, East, for his recent interview in The Independent on Sunday, because it is difficult to find out from what he says in the House exactly what he expects to spend money on. He ducks that question. The interview was helpful, because in it the shadow Chancellor explained that what he described as welfare expenditure should be funded from taxes. So far, Labour commitments in that area include £5 billion extra for the National Health Service; £5 billion more on child benefit and pensions; and £1·7 billion for overseas aid.

I would not decry an extra £1·7 billion for overseas aid, but we have to see how and when we could afford that money. We should look much more at the ways in which we can help people overseas to help themselves. We should not simply press large quantities of money on them which they are not able to use and which distract them from building up their own economy. More should be spent on overseas aid, but trade is more important than aid, and a prosperous Britain which can import goods from Third-world countries and export good-quality and low-priced goods to those countries is more beneficial than aid.

That is not the end of the Labour party's expenditure plans.

Photo of Mr Tony Banks Mr Tony Banks Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson

The hon. Gentleman is quoting the shadow Chancellor, my right hon. and learned Friend the Member for Monklands, East (Mr. Smith). Did he read the excellent recent speech by the shadow Chancellor in New York, when he said: We are also determined to maintain a responsible fiscal policy with prudent control over public finances, spending only as resources allow and as the economy can afford. Is that not the sort of well-received speech that goes down well throughout the country and internationally? Does the hon. Gentleman agree with what my right hon. and learned Friend said on that occasion?

Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford

I have no difficulty in endorsing that statement. If we could believe that that policy will be pursued by the Labour party in its general election campaign and, if successful, in office, I am certain that that kind of bromide would result in many people wanting to vote Labour. It is such bromide and argument that needs exposition today. A Conservative or Labour Chancellor could make a similar statement to that of the right hon. and learned Member for Monklands, East.

Photo of Mr Norman Tebbit Mr Norman Tebbit , Chingford

My hon. Friend should be careful, as he may be getting himself into a trap. He will have noticed that the words of the shadow Chancellor were spoken to bankers in New York and they are different from those that he speaks to representatives of the Health Service unions and those seeking more expenditure in this country. My hon. Friend could fall into a trap, because one could use a very unparliamentary word about someone who says different things in different places to try to con the voters.

Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford

I am grateful to my right hon. Friend for pointing out the issue about which I want to talk.

Photo of Tom Clarke Tom Clarke Shadow Minister (Disability)

On a point of order, Mr. Deputy Speaker. The right hon. Member for Chingford (Mr. Tebbit) has just accused my right hon. and learned Friend the Member for Monklands, East (Mr. Smith), who happens to be my next-door neighbour, of saying different things to bankers in New York from what he has said to representatives of the Health Service unions. I have been to numerous meetings with my right hon. and learned Friend and I know that he has said exactly the same thing as he said to those bankers. It is ignoble for the right hon. Member for Chingford to make such a statement, especially in the absence of my right hon. and learned Friend, and he should withdraw it.

Photo of Mr Paul Dean Mr Paul Dean , Woodspring

That is not a point of order for me. I know that the hon. Gentleman hopes to catch the eye of the Chair and, if he does so, he can return to the matter.

Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford

Perhaps I can answer for you, Mr. Deputy Speaker. The plain fact is that the Labour party is trying to obscure, and in that it is led by the right hon. and learned Member for Monklands, East.

Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford

Yes, the right hon. and learned Gentleman is leading the Labour party in obscuring what will happen under a Labour Government, but that is exactly what we must try to examine sensibly, carefully and logically, without rancour and without unnecessary political bickering.

My right hon. Friend the Member for Chingford (Mr. Tebbit) is right to point out the difficulties we get into when we listen to the right hon. and learned Member for Monklands, East. He will not tell us the truth, because no one knows the pressure to which he will be subject should he become Chancellor. The pressure will be great, because the Labour party has not said no to anyone who wants to increase expenditure. In the past 11 years, I have never noticed the Labour party going against a strike—the ambulance workers' strike, the miners' strike or the steel workers' strike—for extra pay and remuneration.

I have never heard Labour Members applauding cuts in the Health Service, the education service or local government. They have always wanted more and more expenditure. The people believe that the Labour party stands for such expenditure and that it will spend money on them and all the desirable things upon which we also want to spend money, but we know that that money must be earned first. The Labour party has no idea how to earn it.

Photo of John Battle John Battle , Leeds West

The hon. Gentleman referred earlier to the Health Service and to the amount of expenditure needed for it. This morning's edition of The Daily Telegraph contains a report of all-out war between some Secretaries of State and the Treasury. It is reported that the Secretary of State for Health is demanding £3 billion so that he can introduce the new health reforms and cover wages within his Department. Whose side is the hon. Gentleman on in the war between the Secretary of State for Health and the Treasury?

Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford

I am in favour of additional expenditure on the Health Service, if it is wisely spent and properly distributed. We have to earn the necessary money before it can be spent. The Labour party's policy is to spend first and to find a way to meet the expenditure later.

After that series of interventions, I shall remind the House what the right hon. and learned Member for Monklands, East said. He wants to spend £5 billion extra on the National Health Service, £5 billion more on child benefits and £1·7 billion more on overseas aid. That would add up to 6p on the basic rate of income tax—but that is only for starters. Labour has made numerous spending promises on education, employment and wages. All the trade unions have to be paid off with extra wages and extra remuneration—that is why they support the Labour party.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

The hon. Gentleman referred to the £1·7 billion which needs to be spent on overseas aid. I think that he said earlier that he would support spending that sort of money. I remind him that there is a relatively easy way to get the money. He knows that, in the past three years, the Government, by using various taxation measures, have allowed the top four clearing banks—Lloyds, Barclays, National Westminster and Midland—a sum of £1·9 billion to offset against other taxation liabilities because of Third-world debts. If a Labour Government decide—I hope they will—to give money equivalent to that £1–9 billion to the Third world to write off its debts, and not to bail out the top clearing banks, they will be taking a sensible and socialist step.

Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford

We are talking about two different sums of money—one that has been spent and is therefore a debt, and one that might be spent if the Labour party came to office. I correct the hon. Member for Bolsover on his statement that I am in favour of spending another £1·7 billion. I am not. I believe that we should aim to spend that sort of money if and where necessary. I have no idea whether £1·7 billion is needed or whether it is a larger or a smaller sum.

There has to be a way to write off Third-world debts. One way, as the hon. Gentleman just described, is to permit the banks to write off such debts against tax. That is a sensible way to do it, provided that we write off only sums that cannot be repaid. If we permitted Third-world countries not to repay, no one would invest in those countries, and what they need most is additional private investment—that is the engine of development in the Third world.

I shall return to the subject of Labour's tax policies, as some Opposition Members want me to do. Labour is firmly committed to increases in taxes and spending; there can be no doubt about that. That is an unpopular combination, and Labour knows it.

Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford

We have just dealt with squeezing the rich, but it would not produce the money that the hon. Gentleman wishes to spend. As increases in taxes and spending are an unpopular combination, Labour spokesmen no longer talk about high taxes. That is one of the other circumlocutions. They prefer the phrase "fair taxes". To describe the swingeing new taxes on savings —which we shall come to later—jobs and homes and the imposition of higher taxes on millions of people on middle and lower incomes as fair must count as one of the most breathtakingly cheeky fibs of the century.

At least the last Labour Chancellor had the gall to get up and tell us that he wanted to clobber us with high taxes, that he wanted to make the pips squeak and that it was jolly well going to hurt. Now, apparently, we can spend all that extra money without his help. The new model Labour party has a different tactic. It says nothing and it hopes that the voters will not ask about tax. That strategy received its baptism of fire when the Labour party gave a pledge to keep details of the roof tax under wraps until the local elections were safely out of the way. I hope that the electorate will not expect the Labour party to keep its policy on taxation under wraps until after the next general election.

On a number of occasions, when trying to discover the detail of the Labour party's plans, the shadow Chief Secretary—the hon. Member for Derby, South (Mrs. Beckett)—has urged those of us in search of a deeper understanding to spend £2·50 on her party's policy review document. I did, and I felt cheated. I want my £2·50 back. I felt entitled to read in that document something about the Labour party's new tax policy. I was astonished to find that its tax policy for the 1990s is much the same as that on which it fought and lost the last election. The review trumpets Labour's plans to abolish the ceiling on national insurance contributions, to do away with the married man's allowance, substantially to increase the burden of tax for higher earners—and to raise tax rates for many on basic rates of income tax.

That the review had merely dished up exactly the same tax policy as that which contributed so much to Labour's defeat prompts the question, what on earth did the policy group on tax do for two years? I was amazed to find that the Labour party still believes that the best way to make the poor rich is to make everyone poorer. It has learnt nothing from the 1970s, which is why we must concentrate on what it did when it was in office.

Despite the astonishingly penal tax rates, the great socialist nirvana failed to materialise in the 1970s. Living standards stagnated and, for many people, actually fell. That cannot be said about living standards under a Conservative Government. The recent report by the Select Committee on Social Services showed that, even with the recalculation of figures, the poorest of the poor had increased their income in real terms. Admittedly, it was not by as much as we had originally thought, but it was an increase. That is what is so important about Conservative policies—everybody, including the poorest in the land, benefits.

Under the previous Labour Government, an individual on just half average earnings—perhaps a shop assistant or cleaner—had a fall in real take-home pay of 0·5 per cent. Many people in the Labour party underestimate the importance of that. The person in ordinary employment paying PAYE thinks of his wage as what he takes home, not as the gross amount. He is not that interested in his tax; he is interested in his take-home pay. If the tax is so high that he takes home less money, the Labour party will find itself in trouble, and rightly so, with its trade union friends. What a disgrace—what a triumph for the Labour party—that a shop assistant should suffer a fall in his real take-home pay of 0·5 per cent.

Under the previous Labour Government, the average family man's take-home pay rose only a paltry 0·5 per cent. At the same time, the Labour Government managed to add about £170 billion, in today's terms, to the national debt. Under a Conservative Government, the national debt has been hugely reduced, so we are paying far less in interest rates. That has released money to spend on just the sort of services on which the Labour party says it wants to spend money—the NHS, education and social services. The previous Labour Government slashed capital investment in essential services such as schools, the NHS, the water industry and roads. I am sure that the electorate do not want that performance repeated.

Penal taxation erodes the wealth-creating capacity of an economy, and it is that factor that the Labour party simply does not understand. Nor does it acknowledge that wealth must be created if money is to be spent on social services.

Photo of John Battle John Battle , Leeds West

Will the hon. Gentleman give way?

Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford

No, I think not. The hon. Gentleman may make his points in his own speech, if he is called.

High levels of taxation will do nothing to raise the living standards of people on low incomes. Over the past 40 years, real changes in income distribution have largely come about as a result of Conservative policies.

Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford

Yes—through the increased ownership of homes, shares and pension rights. The driving force behind the spread of wealth in the 1980s was the extension of home ownership and the growth of financial assets among those who just 20 years ago would never have dreamed of owning their own homes or of buying shares. Conservative policies have given independence and personal wealth to individuals, rather than have the state take it from them.

The history of the past 20 years has proved that the only way to raise living standards for all is to spread opportunity and wealth. The ideology of helping the poor at the expense of those on middle or higher incomes has a long socialist pedigree, but it has never worked—and it never will. A free-market, low-tax economy provides the best guarantee of increasing prosperity and opportunity for all the people of this country. That is the policy of only one party—the Conservative party. It is an infinitely fairer system than the regulated, high-tax model that Labour wants to impose.

As we all know, economic forecasting is a notoriously difficult business. Labour and Conservative Chancellors alike have found it difficult. However, there is one economic prediction on which I would be prepared to put my money. It is that, between now and the next general election, Labour will go to any lengths to conceal the full impact of its tax policies from the electorate.

What a vote for Labour will cost very much depends on which Labour spokesman one believes. Interviewed on Sky Television, Labour's shadow Treasury team claimed that taxes will not rise under Labour. The hon. Member for Brent, South (Mr. Boateng) told Mr. Frank Bough: We don't want to put taxes up. The following week, Sky Television viewers were relieved to hear it from the horse's mouth, when the shadow Chief Secretary to the Treasury said quite emphatically: No, we are not going to put taxes up. Sadly, the leader of the Labour party is not quite so sure. He has said that some taxes will rise but that the great middle band, the huge majority, let's call them the 25p people … would be no worse off. In a later interview, the right hon. Member for Islwyn (Mr. Kinnock) spelled it out in typically forthright fashion. He said that Labour is not "intending to belt" the great majority of people.

Enter the shadow Chancellor of the Exchequer, to help clear up the mystery of who precisely will be in for a belting under a Labour Government. About a year ago, the right hon. and learned Member for Monklands, East let on that some people currently paying tax at the basic rate will pay more tax under Labour. That statement exactly contradicts the Labour leader, who has promised that those to whom he referred as "the 25p people" would be no worse off.

Labour's latest position was set out by the shadow Chancellor last March, in the Sunday Mirror:There would be more gainers than losers under Labour's plans, and that in effect, anything up to 13 million taxpayers could end up with higher tax bills if Labour came to power. In just four months, the shadow Treasury team has gone from saying that taxes will not increase to saying that 13 million taxpayers could lose out. Ask a Labour spokesman whether he wants to increase taxes and one will get any of four answers—no, yes, just a little, quite a lot.

The confusion in which the Labour party finds itself is understandable when one examines what its tax plans will mean for ordinary earners. The most comprehensive and thorough analysis of them was undertaken by the City firm CSFB earlier this year. It concluded that, under a Labour Government: Many taxpayers earning between £10,000 and £30,000 would be a lot worse off. By doing away with the married man's allowance and the ceiling for National Insurance contributions, the report notes that Labour would inevitably hit many low and middle-income earners hard. It would be a hard, not a soft belting. According to the CSFB report, a married man on just £6,000 a year would be over £4 a week worse off. A married man with two children on one and a half times average earnings would lose to the tune of £25 a week. The report concludes that, for those earning more than £17,000 a year, there will be "dramatic increases" in marginal rates.

Photo of John Battle John Battle , Leeds West

Will the hon. Gentleman give way?

Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford

The hon. Gentleman will have a chance to speak later. I should prefer to press on with my speech.

This is a serious study, produced by respected and independent economists. When pressed about the findings all that the shadow Chancellor could do was bluster and carp. Curiously, he did not even challenge the report's broad conclusions on the scale of losses likely to be suffered by many taxpayers on modest incomes. Unfortunately, Labour's ambition is to spend more and more taxpayers' money.

Photo of Nick Brown Nick Brown Shadow Spokesperson (Treasury)

I should like to challenge the report's conclusions. As he has laid his charges before the House, will the hon. Gentleman explain what assumptions underlie the calculations?

Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford

The assumptions, which can be read in the report which I commend to the hon. Gentleman, have to be based on what Labour party spokesmen have said. They have been very cautious and limited in what they have said and in what guidance they have given. However, we can read Fabian pamphlets; one was published in March. We have to take seriously what the shadow Chancellor of the Exchequer and the shadow Chief Secretary to the Treasury have said. The figures are based on those assumptions.

Unfortunately, Labour's ambitions extend far further than merely raising existing taxes: they plan to introduce a new raft of taxes. It is curious that the Labour party affected such support for the Chancellor of the Exchequer's recent Budget measures to encourage saving. The Labour party does not intend to encourage saving.

Given half a chance, the right hon. and learned Member for Monklands, East would introduce a Budget full of new taxes on savers.

Under Labour, a new tax on savings, probably set at 9 per cent., would be payable on top of the existing marginal income tax rates. For basic rate taxpayers, many of them pensioners who have built up an investment after a lifetime of saving, that would mean a tax on savings of about 34p in the pound. In addition, the existing allowance for capital gains tax would be abolished, or at least substantially reduced. There would be far heavier taxation of wealth, and personal equity plans would lose their favourable tax status.

Just as the Labour party does not trust the taxpayer with his own money, so it is deeply reluctant to let firms spend their profits. According to the so-called policy review, the fruits of cuts in corporation tax have been squandered on dividends and takeovers when they should have been invested. In reality, the 1980s witnessed an extraordinary investment boom, with firms expanding and improving capacity on a massive scale.

Investment rose faster throughout the 1980s in this country than in any other European country. In the eight years to 1989, total investment rose twice as fast as total consumption. That was an objective that the right hon. Member for Leeds, East was desperately seeking when he was Chancellor of the Exchequer. He was constantly urging more investment, but companies could not invest because there were no profits, and any profits that they made were taxed. We could expect that to happen again under a Labour Government.

Moreover, the share of gross domestic product spent on industry-funded research and development—a constant carp and a constant worry, and rightly so—rose from 0·9 per cent. before the reform of corporation tax to 1·1 per cent. in 1987. That, incidentally, is a higher proportion of the national income than in either Italy or France. So Conservative policies are working in this respect, too. Lower taxes have given firms the means and the opportunity to increase investment.

Labour's policy in these areas is consistent with its previous policies. Labour persists with the extraordinary idea that, if it were deciding how company profits were spent, the economy would be in far better shape. That is to say that politicians and civil servants will spend company's profits better than their directors and shareholders. Labour's shadow Cabinet is probably the last institution in the world, I am sure my hon. Friends would agree, that one would ask for investment advice, yet it plans to use the tax system to redirect company profits to what it regards as important areas.

Higher rates of tax would have to be introduced to pay for Labour's obsessive follies. Moreover, the tax system will be used to clobber firms that do not meet the criteria for research and development and training set by Labour. So much has been promised by the shadow spokesman on employment, who wants a compulsory levy for training on every company in the country. Labour will then spend the money as it sees fit.

To cap it all, the policy review contains heavy hints about the need to remove the £43-a-week threshold for employers' national insurance contributions, and I have assumed when making these remarks that that is what the Labour party would do.

We can see from the Fabian Society's tax reform pamphlet issued in March 1990—it must be a gravel pit from which the Opposition mine many of their intellectual ideas—what the Labour party's tax policies might be. We see the introduction of either four rates of income tax or six. The first recommendation in the pamphlet reads as follows: The present 25 per cent./40 per cent. rate structure for income tax should be replaced by a sequence of rates, which would start below the basic rate inherited from the Conservatives and rise to 50 per cent. by a series of steps. The initial rate of tax in this graduated structure should cover a relatively wide band. What that does not say is that on top of that rise would be included national insurance contributions, so to any of these figures we must add at least a further nine per cent. to produce the real rate of income tax— —

Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford

Indeed. To our 25 per cent. rate, and to obtain the proper rate of tax on most incomes, one must add 9 per cent., producing a total of 34 per cent. as the current rate of income tax. I can see no difference between income tax and national insurance contributions at this level of income. Seen in this way, 34 per cent. is a high rate and it needs to be reduced, but the Labour party's plan will increase it, for the vast majority of people.

The second recommendation in the Fabian pamphlet is: The structure of employee National Insurance contribu-tions should be made fully progressive by abolishing the upper earnings limit, by charging a zero rate on earnings below the threshold. In the case of the self-employed, Class 2 contributions should be abolished and the lower thresholds for Class 4 aligned with that of Class 1. So self-employed people had also better look out—they will have to pay a great deal more under Labour's plan.

This is as much as we can find out about what Labour's plans involve. They involve a very high level of tax and of spending. The Opposition cannot avoid taxing people on lower incomes—as well as those on higher incomes—to meet the demands that they have led their own people to believe they could meet if they were returned to office. But the Conservative party can meet these demands.

Among other things, the Labour party says that it would stop inflation—so far as I can see, this is its only policy to fight it—by joining the exchange rate mechanism. The mechanism has many merits, but it does not have the merit of being able to reduce Labour's profligate spending plans and prevent them from creating inflation. Under the ERM as it is now constructed, the Labour Government would hand over the country's policy on exchange and interest rates, in its entirety, to the president of the Bundesbank in the Federal Republic of Germany—which, by that time, would presumably be reunited with East Germany.

I believe that we should join the ERM, and, indeed, my party is committed to doing so; before that happens, however, we should renegotiate the arrangements with our European partners so that a policy-controlling body can be set up and Britain can be represented on it. That proposal would, I think, be popular with the Spanish, the French and the Italians: they too have said that they bitterly resent the setting of the exchange rate system and the policies involved in it by a single "central" banker sitting in Frankfurt, with no legal responsibility to anyone other than the Chancellor of the Federal German Republic. I do not think that we should join the European monetary system until we have sorted out who controls it.

I also believe that we should do the opposite of what the Labour party proposes, and abolish capital gains tax altogether. It is inconsistent with the operation of an "enterprise culture", and with the aims of those who advocate investment in new industries and the taking of risks, to ask people to give the Treasury 40 per cent. of what they have earned over the years in which they have run a business when they sell that business.

Capital gains tax also impacts on many other forms of savings and earnings. It is a pernicious tax, but the Labour party intends to concentrate on—and, indeed, increase —such taxes of which most PAYE taxpayers know nothing. The Fabian Society pamphlet recommends a Labour Government to raise CGT and abolish inheritance tax. In effect, the Labour party intends to introduce a wealth tax, which will have an impact on anyone who owns anything—pictures, motor cars or shares.

There are many ways in which we should try to control inflation, and I am not sure that we should not begin to try some of Labour's proposals. I am appalled, for instance, by the way in which banks have pressed credit on everyone. They have a strange, lemming-like policy: they got themselves into a mess by lending huge sums to Third-world countries, for example, and they are doing the same kind of thing now.

Times of inflation are times of national difficulty, when it behoves the banks to cut down on credit as part of a national policy. It also behoves trade union leaders and members to hold back on wage claims. I think that a person taking out a mortgage should put down a 10 per cent. deposit from his savings, and that down payments should be made on nearly every hire-purchase transaction in the high street. This week's retail sales figures suggest that we cannot avoid considering such measures if we are to defeat the current inflation rates. Surely is it prudent and sensible Conservative policy to tell people, "First you must save, and then you must have the income against which to borrow." Otherwise, there will be inflation in the home as well as in the nation.

I believe that the next Conservative Government should again examine the possibility of merging the social security and tax systems. That, in my view, would bring about a fairer structure, which would be clear to everyone. It could be done without a vast increase in public expenditure, as was revealed by our late colleague, Sir Brandon Rhys Williams, in pamphlets issued after his death. I also think that a new Conservative Government should abolish the distinction between earned and unearned income.

In times of inflation, we should consider the enforceable bank deposit. The right hon. and learned Member for Monklands, East agrees with that, but my right hon. Friends in the Treasury reject it, on the grounds that it cannot be put into effect without a system of exchange controls. Let me point out that the Dutch Government are taking such action, and that it dries up the credit available in the high street very quickly.

I should like to see those programmes in the Conservative manifesto for the next election. Let us contrast them with Labour's promises of higher income tax, corporation tax, taxes on savings, taxes on wealth and increased capital gains tax. Value added tax would probably reach huge proportions under Labour, which has never spoken of lowering the current rate of 15 per cent.

Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford

Yes, we doubled it, but Labour has not talked about lowering it.

Labour would undoubtedly be forced by its followers, and by its promises, to spend more on health, education and social services. Let me remind hon. Members, however, how much the present Government are spending on those items: because of the wealth that Conservative policies have produced, the amount represents well over half our total expenditure. That would not be possible under a Labour Government, who would be forced to spend more and more money that they did not have.

Unemployment will rise under Labour with the decline of productivity and our ability to compete. The trade gap will widen. It is, of course, much too wide now—that is one of our major problems—but under Labour matters would become far worse. If it narrowed at all—as it did under a past Labour Government—that would be because of a fall in production, which would lead to a reduction in imports because no one would have the money to buy them. That is the sort of equilibrium that Labour would introduce.

As I said at the beginning of my speech, the Labour Government would find themselves in the same position as the Walrus and the Carpenter: with no oysters—no taxpayers—left on the beach.

Photo of Tom Clarke Tom Clarke Shadow Minister (Disability) 4:47 pm, 14th May 1990

I have often had the opportunity to listen to speeches by the hon. Member for Hertford and Stortford (Mr. Wells) in debates on overseas development and aid. I must say that I enjoyed those speeches much more than I enjoyed today's. The hon. Gentleman sounds all the better for not being given a bit of encouragement by the Whips.

It is not surprising that we should debate this subject today, given the hammering that the Conservative party received in the local elections.

Photo of Mr Nicholas Bennett Mr Nicholas Bennett , Pembroke

What about Wandsworth and Westminster?

Photo of Tom Clarke Tom Clarke Shadow Minister (Disability)

Despite what the hon. Member for Hertford and Stortford said, public expenditure there was used to subsidise the poll tax. That represents no victory for Thatcherism, so let us not pretend that it does.

The debate constitutes an attempt to deflect public attention from the poll tax and from inflation. Having seen the latest huge inflation figure, people are asking what on earth this 11-year experiment has been about, for we are worse off than when we started. High interest rates have also come as a great blow, not only to house owners—important though they are; we have seen the effect on their voting habits in mid-Staffordshire and elsewhere—but to those who run small and medium-sized businesses. They have derived no comfort from the hon. Gentleman's speech, or from the comments of some of his right hon. Friends when they visited Scotland recently.

The hon. Member for Hertford and Stortford talked about the problem of debt but did not deal as long as I would have liked with the problem of multiple debt and poverty for many people in many parts of Great Britain. My aim in seeking to catch your eye in this debate, Mr. Deputy Speaker, was to submit that any taxation policy that does not take on board the issue of poverty in society will not work and will not carry with it the moral conviction that the British people would expect of any fair taxation system. I do not believe that the Government's approach to taxation is fair, so I am not surprised that the hon. Member for Hertford and Stortford did not deal with it. It is not simply a matter of broken promises, although broken they were, or the fact that the average family pays more taxation.

Photo of Tom Clarke Tom Clarke Shadow Minister (Disability)

I shall give way only once because many hon. Members wish to speak and I do not want to dominate the debate.

Photo of Mr Nicholas Bennett Mr Nicholas Bennett , Pembroke

I am grateful to the hon. Gentleman. He claims that people pay more income tax. Is he aware that, if income tax rates had remained at their level on 3 May 1979 under the last Labour Government, at 33p in the pound, a man on average earnings with two children would pay £1,000 a year more now?

Photo of Tom Clarke Tom Clarke Shadow Minister (Disability)

Such a man would be fully aware that to concentrate on income tax alone—as the hon. Gentleman suggests—ignoring indirect taxes, VAT, prescription charges and the poll tax would be to turn on its head the reality of the past 11 years.

I am happy to respond to the point made by the hon. Member for Pembroke (Mr. Bennett) about comparing. What has happened since 3 May 1979? I shall add to the hon. Gentleman's examples. The average gain for a taxpayer earning less than £5,000 a year is £110 a year, whereas for a taxpayer on an income of more than £70,000 a year it is £36,060 a year, or £693 a week. Where is the fairness in that? Given the unfairness of the Government's policy, it is no wonder that the hon. Member for Hertford and Stortford and his hon. Friends have said hardly a word in defence of that policy. How could they? Where is the support for it? How can one defend a taxation policy that has meant that the nation's wealth has not been fairly shared?

Because incentives matter, investment in the manufac-turing sector has declined, and we are paying for it.

Photo of Tom Clarke Tom Clarke Shadow Minister (Disability)

I said that I would give way once and I have done that. I hope that the hon. Gentleman will catch your eye later, Mr. Deputy Speaker.

Because of the Government's unfair taxation policy and the lack of investment in essential industries, unemployment is growing. I shall talk mainly about the problems in my region of Strathclyde. I do not complain about the fact that the hon. Member for Hertford and Stortford did not refer to Strathclyde, although he might have chosen other examples that showed the poverty among the unemployed, pensioners and single-parent families. The comments the other day of the chairman of the Conservative party about single parents did not sound fair to me.

The disabled and those who earn low pay under the Government also have problems. Many of them, especially young people, do not now receive the protection that they had under the wages council system. Because we do not have a fair taxation policy, because social services are not properly supported and because we are hitting at social security, great problems are created for carers, ethnic minorities and young homeless people in Strathclyde and elsewhere. Many young homeless people who leave care cannot find homes or jobs or are earning low wages. It is unacceptable that the Government's taxation policy does not address their problem.

I thought that it was right in our debate on taxation to draw the attention of the House to the poverty theory, which has been exposed as a fraud but nevertheless is still perpetrated by the Government. They tell us about the "trickle down" effect. We saw in the recent. devastating report by the Select Committee on Social Services—which the hon. Member for Hertford and Stortford did not mention—that the poorest people are worse off since the 1988 social security reforms.

Far from a "trickle down" effect, we have heard of an important statistical error, which was acknowledged a day or two before the Easter recess in a written reply, as though it did not matter. It does matter, because that "statistical error" has had a considerable bearing on the Government's taxation policy and social security policy, in the absence of a strategy to deal with poverty in Strathclyde and elsewhere. In taxation, as elsewhere, the Government ignore the views of not only the Opposition parties but voluntary organisations, churches and others who are at the receiving end, who know what this hardship means, who see poverty as a reality day after day and who rightly object to a "statistical error" being treated in such a flimsy way.

The "statistical error" meant that the poorest 10 per cent., instead of enjoying an increase of 8·4 per cent. compared with an average increase of 4·8 per cent.—according to the Prime Minister and her Ministers—received a miserable 2·6 per cent. compared with 5·4 per cent. for the rest of us. We cannot sweep that under the carpet. Those figures and the Prime Minister's attitude to taxation influenced matters such as child benefit, which has been frozen year after year, and single payments, which have been abolished, the introduction of the notorious social fund and its loans instead of grants, and "cash limits" at local offices which have no regard for the poverty of applicants seeking succour.

Housing benefits were slashed. Hon. Members will know from their surgeries that elderly people and disabled people came to us in tears complaining not only about the Government's taxation policy, but the Government using the taxation system to subsidise the rich and ignore the poverty of the poor. On top of that, there was the poll tax, without reasonable rebates. The hon. Member for Hertford and Stortford is mistaken if he suggests that people did not pay attention to that in local and other elections. The "statistical error" was crucial in terms of poverty. I would have expected to hear about it in the hon. Gentleman's lengthy speech. Imagine what would have happened if a similar error had been made and there had been a miscalculation over mortgage tax relief. That would have been regarded as completely unacceptable.

Although it was perhaps not what Conservative Members intended, the House should take this opportun-ity to analyse what is happening in society and the reasons why poverty is being allowed to continue. In Strathclyde, 42 per cent. of unemployed people have been unemployed for more than a year and 27 per cent. for more than two years. I regret to say that the anti-poverty strategy of my colleagues in Strathclyde regional council, to which Labour was re-elected with an overwhelming majority, is not reflected in any of the Government's priorities. The number of people defined as being in poverty in Strathclyde has doubled in the past 10 years. About 22 per cent.—nearly one quarter—of the Strathclyde population receive income support or are partners or dependants of income support claimants.

The problems of individuals, families and communities have not been addressed in the debate so far. Why are we not listening to organisations such as the Child Poverty Action Group which, incidentally, pointed out the error in the statistics long before the Government got round to announcing it themselves? Why are we not crying out for a solution to the debt problem—not the debt problem of 14 or 16 years ago but the debt problem that families in Britain are experiencing today? Nothing in the Government's taxation or social policies is aimed at helping them.

At the weekend, the Prime Minister made a speech in Aberdeen.

Photo of Tom Clarke Tom Clarke Shadow Minister (Disability)

This time she did not say, "We in Scotland," nor did she move a vote of thanks to the Scottish electorate. She could not have been expected to do that, given the hammering that the Conservative party received when the people of Scotland exercised their right to vote. Mr. Ewen Macaskill, a distinguished commen-tator in The Scotsman, said this of the Prime Minister's speech in Aberdeen: There was one telling moment when she reflected once again the view held by an alarmingly large number of English Conservative MPs—namely, that England is subsidising Scotland. Does not that tell us everything? Not only do we have a policy of unfair taxation under this Government; we have a Government led by a Prime Minister who is determined to create divisions in our society. I must tell her that such divisions are no more acceptable in Scotland than they are elsewhere. We take no solace in the fact that, so far from trickling down, the wealth of Great Britain is trickling up. The poor are suffering and there is poverty in every part of Britain. Poverty remains the blight on our society.

It is because I have every confidence in the policy of the next Labour Government on taxation, as on other matters, that I look forward to the British people having an opportunity to offer their indictment of the Government's policies. I am sure that they will do just that.

Photo of Mr Jeremy Hanley Mr Jeremy Hanley , Richmond and Barnes 5:02 pm, 14th May 1990

The previous speech was fascinating, in a debate in which Opposition Members have been invited to set out their taxation policies. The hon. Member for Monklands, West (Mr. Clarke) did not mention Labour's policies at all. He gave us the history of the past 10 or 11 years in a speech that was half baked and inaccurate. The hon. Gentleman refused to allow interventions—perhaps because they might have drawn him on the subject of the debate.

I should like to refer to some research that has been carried out into Labour's taxation policies. The research has not been easy, because it is well known that the Labour party is trying as hard as possible not to mention its policies in case they get shot down. In the case of those of their policies that do not deserve to be shot down, Opposition Members are trying hard not to let us know what they are in case we happen to pick them up and run with them over the next 18 months. Believe it or not, on issues such as environmental protection, energy conserva-tion and the promotion of better recycling, the Labour party has some sensible policies. But being fit to be wombles does not make Labour fit to govern.

Let us examine the policies that we have been able to discover. The first is the phasing out of what was the married man's allowance. I do not know whether Labour Members are up to date on that. It is no longer the married man's allowance; it is the married couple's allowance. Because the Government have been forthright enough in their taxation policies to introduce almost complete equality between men and women through separate taxation for women, the married couple's allowance can now be allocated between a man and a woman if the income of the two suggests that that would be the best thing for them. Perhaps the Labour party has missed that fact.

Photo of Mrs Alice Mahon Mrs Alice Mahon , Halifax

Would the hon. Gentleman care to comment on the poll tax and the several and joint liability clause, which is most unfair, as many married women have no income whatever?

Photo of Mr Jeremy Hanley Mr Jeremy Hanley , Richmond and Barnes

The hon. Lady seeks to draw me into a debate whose subject does not appear on the Order Paper. The motion refers to the Labour party's taxation policies. I should willingly argue the case for a community charge that is more broadly based than the old rating system any day of the week, but today we must address ourselves to the Labour party's taxation policies.

As I was saying before I was gracefully interrupted, many married women with husbands on lower incomes than themselves will lose if the married couple's allowance is abolished. That surely cannot be right. If the Labour party looks at the matter again, it will realise how unpopular such a measure would be. But given the policies of some Labour-controlled authorities, I suppose that the Labour party could be accused of being anti-family. Perhaps Labour Members do not want people to be married. Perhaps they do not want to introduce legislation that encourages the family unit.

The second of the Labour party's taxation plans involves the abolition of the upper earnings limit on national insurance contributions and the conversion of the lower earnings limit into one allowance. My hon. Friend the Member for Hertford and Stortford (Mr. Wells), who so brilliantly introduced the debate and so thoroughly covered the subject, referred to that policy. Let us assume that Labour kept national insurance at 9 per cent. Although there is no basis whatever for such an assumption, because it would be consistent with Labour's announcement of what it intends to spend on the National Health Service for it to increase national insurance to 11 or even 15 per cent. The present upper limit of £16,900 is quite low, given the salaries that are common in industry today—especially with productivity bonuses added into pay. Many people would face a very large increase even if national insurance were kept at 9 per cent.

The third of the Labour party's personal taxation plans involves the introduction of a supplementary tax on investment income. Greatly to their credit, the Conservative Government have stopped calling unearned income unearned income. It is now called investment income and it is considered perfectly honourable to receive income from saving money. There are differences of opinion on both sides of the House about speculation and hon. Members have differing attitudes to the making of capital gains through investment. No one would deny, however, that from the point of view of the national economy, it is better to save money than to spend it.

As far as we can tell, the Labour party would not distinguish between income from forms of speculation and income from deposits. Yet again we could have an investment income surcharge. It might be introduced for sums of more than £2,000 with a surcharge of 15 per cent. We might have figures similar to those which we had before—perhaps on a sliding scale, at 15, 20, 25 or perhaps even 40 per cent. I can well remember the giddy heights that investment income surcharge reached. On top of the 98 per cent.—the top rate of taxation on investment income under the Labour Government—a further surcharge of 5 per cent. was added, making taxation of 103 per cent. on those with high investment incomes.

Nevertheless, on the more modest level of investment income, such as that represented by pensioners, children with savings, inherited sums of money, or those receiving interest payments through banks or building societies, Labour would introduce an investment income surcharge and try to treat all investment as dirty money once again. Part of this Government's success has been in attracting investment to the United Kingdom from abroad. We have tried to attract people to invest during periods of high interest rates. There are now twice as many depositors as borrowers. The high interest rates do as much to encourage saving as to penalise debt.

The fourth aspect of the personal taxation plan that can be gleaned from the Labour party is to increase the top rate of tax from 40 per cent. to 50 per cent—and once national insurance is included, the top rate will be 59 per cent. I am told that that would raise £3 billion, so it seems most attractive. However, if that is meant to be an attempt to raise money to pay for Labour's highly inflated programmes, Labour must be mistaken.

The Labour party tries to claim that, under this Government's taxation policies, all the benefits have been given to the rich instead of to the poor. However, that is not right. For example, if we analyse the top 5 per cent. of taxpayers, under the last year of the previous Labour Government, that top 5 per cent. contributed 24 per cent. of income tax revenue. At the moment, the top 5 per cent. contributes 29 per cent. I believe that the figure will soon be 30 per cent. In other words, the wealthiest in our society are contributing more income tax.

Therefore, this Government's income tax policies are fairer and more sensible because they raise more money. The Labour Government taxed revenue away and removed the incentive to work and people's desire to invest in Great Britain plc. If a supermarket manager reduces his prices, he sells more goods. The same applies to tax. As tax rates have been reduced, the yield to taxation has been greater. This Government have been more sensible and fairer than the previous Labour Government. They have also managed to expand expenditure in every area of government. By increasing taxes, the Labour Government had to reduce expenditure and the International Monetary Fund came to bale them out.

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

If that is the case, what is stopping the Government from achieving the 20p standard rate of income tax referred to in the motion?

Photo of Mr Jeremy Hanley Mr Jeremy Hanley , Richmond and Barnes

The 20p level remains the Government's stated policy. However, that level would be wrong in present circumstances. The hon. Member for Berwick-upon-Tweed (Mr. Beith) criticised the Government two years ago when a slump was threatened after black Monday. I believe that he criticised us at the time for not going far enough. Certainly the Labour part said that we had not put enough back into the economy. It was clear that what we put into the economy then, through reductions in interest rates and tax cuts, helped to fuel inflation.

Therefore, if tax rates were reduced to 20 per cent. now, that might encourage another spending spree just when we are trying to restrict retail sales. However, 20p remains a Government priority. Anyone outside the House, even someone with no economic brain, would understand that 20 per cent. income tax is more likely to be achieved by this Government than by a Labour Government.

The fifth part of Labour's personal taxation plan involves the introduction of a new series of income tax bands. As yet, they are unspecified, but it is probably true that they would start below 20 per cent.—perhaps at 19 per cent. It is unlikely that the bands would exceed 50 per cent. to start off with although of course we must add on national insurance to those figures. The Labour party claims that the tax burden would therefore increase only for the highest paid. However, that is most unlikely to be the case, particularly if indexation is stopped at the higher levels. If we add all the various figures together, more people would enter the higher rate bands, particularly with the restriction on mortgate interest tax relief that Labour would introduce.

The Leader of the Opposition said that the mid-£30,000 to £40,000 level would be the first to be hit. However, that is wrong. As I said, if the married couple's allowance is abolished, all married women, who can use that allowance for the first time, will be hit.

Photo of John Battle John Battle , Leeds West

What about the poll tax?

Photo of Mr Jeremy Hanley Mr Jeremy Hanley , Richmond and Barnes

Rather like a parrot, the hon. Member for Leeds, West, (Mr. Battle) is trying to divert attention from the Labour party's income tax plans.

With regard to what the hon. Member for Leeds, West chooses to call the poll tax, the nearer we get to a general election, the closer men on average earnings might get to Labour's taxation policies. A consideration of next year's community charge in comparison to this year's charge—when for example the charge for boroughs throughout London will be so much lower, the nearer we get to a general election, the closer we will get to the increase in taxation that Labour is bound to introduce. That could mean £1,000 to £2,000 per person or per family. I believe that in comparison with Labour's income tax policies, the community charge is a welcome relief.

Photo of John Battle John Battle , Leeds West

The poll tax is a form of taxation. However, many people cannot understand why women who do not work are charged the poll tax because of the regulation that states that husbands are responsible for their partners.

That applies to such an extent that disabled women receiving a disability pension must pay the full whack of the poll tax. How is that a fair tax system?

Photo of Mr Jeremy Hanley Mr Jeremy Hanley , Richmond and Barnes

I am sure that you would bring me to order, Mr. Deputy Speaker, if I tried to explain that. However, for the sake of good order, if all married women were exempt from the poll tax, the rates would have to rise commensurately higher for everyone else. Therefore, the benefit to a couple would be almost wiped out immediately. The hon. Member for Leeds, West is talking nonsense.

Photo of Mr Christopher Butler Mr Christopher Butler , Warrington South

Is not the community charge a very interesting indicator of how the Labour party would act in government? The local authority in my consituency of Warrington is Labour-controlled, and Cheshire county council is run on a Labour budget. We have experienced an increase in the community charge, which translates into an increase in the rates—if they still existed—of 52·3 per cent. this year. Is not it true that the Labour party is a high spender locally, just as it would be nationally?

Photo of Mr Jeremy Hanley Mr Jeremy Hanley , Richmond and Barnes

My hon. Friend has made a most effective point. I am sure that the people in west London who have learnt what living under Labour means, are now living under Conservative-controlled authorities for the reasons given by my hon. Friend the Member for Warrington, South (Mr. Butler).

I have gleaned more information about Labour's personal taxation plan. For example, the personal allowance would be converted into a zero rate band so that, when it is uprated for inflation, all taxpayers would gain the same amount. That sounds like a pleasant policy that would benefit those at the bottom rather than those at the top. However, the cost would be about £1·4 billion and it seems that two thirds of the people who would be affected by the change are already on the basic rate of tax. While one third are on the higher rate, two thirds of people on average incomes would be hit.

It seems that Labour would continue mortgage interest relief at the single rate, probably equivalent to the basic rate of relief that it inherited, and that higher rate relief would end. That would probably gain Labour £0·5 billion. However, that would also throw more people into higher rates.

Labour also apparently intends to restrict tax avoidance by high income earners by setting a minimum proportion of income that would have to be paid as tax. That has some attractions, and I do not dispute that it would be an interesting way of continuing this Government's drive to reduce tax avoidance. This Government have been stronger than any Government in trying to catch people who avoid tax. Therefore, I have no argument with that policy.

Labour would apparently also reduce the threshold for capital gains tax. That is yet another savings disincentive. As my hon. Friend the Member for Hertford and Stortford said, Labour's policy is anti-savings. The Labour party seems to be trying to cane those whom, for some reason, it disapproves of for earning money through investments. Reducing the capital gains tax threshold would hit London as a financial market, to the benefit of markets in other countries. There is little doubt that investment into the United Kingdom would begin to dry up. In fact, the existence of a Labour Government would probably encourage that in any event, and I have already mentioned that Labour would introduce investment income surcharges.

As the hon. Member for Leeds, West has mentioned the poll tax with unfailing regularity, let us look at exactly what Labour would put in its place. The Labour party would value properties and houses for its roof tax or would introduce a local income tax and a property tax combined. In either event, it would value properties. Would that be the forerunner of a full-blown wealth tax? I doubt whether a Labour Government could resist introducing a wealth tax, under which occupational pensions would be taxed. A whole range of so-called "wealth" would be taxed in addition to income tax. Gifts and inheritances would be taxed at the point of receipt. People would be hit for saving and then passing on their money. That would be another disincentive to saving.

I have managed to find some of Labour's corporate taxation plans. They include the abolition of the uniform business rate. Labour Members referred to that time and again during the local elections, saying that business rates should be set locally, not centrally. I remind them that the uniform business rate was introduced to try to redistribute wealth throughout the country.

All that I heard from representatives of both Opposition parties during the previous general election campaign was that there was some sort of north-south divide. However, when the Government introduced the uniform business rate, which, I am sure it is true to say, is a form of social engineering, which moves money from the south to the north and encourages employment in the north, they were criticised for doing so.

To an extent, the uniform business rate could be said to discourage employment in the south where unemployment rates are so low——

Photo of Mr Jeremy Hanley Mr Jeremy Hanley , Richmond and Barnes

The hon. Gentleman has not been here for most of my speech. He has just come in, but perhaps he would like to warm up with an intervention.

Photo of Mr Allen McKay Mr Allen McKay , Barnsley West and Penistone

As the hon. Gentleman is talking about the uniform business rate and businesses as a whole, does he agree that it would be far better if industry in the north received the benefits now rather than having them phased in over the next 20 years?

Photo of Mr Jeremy Hanley Mr Jeremy Hanley , Richmond and Barnes

I am glad that the hon. Gentleman admits that there are benefits to the north. Any benefits to the north must be paid for by businesses in the south, which is why it is only right that the scheme should be phased in gradually. Phasing in is not only sensible, but humane. It is wholly sensible to help the small businesses in the south in that way. The hon. Gentleman has let the cat out of the bag by agreeing that the uniform business rate brings benefits to the north.

Photo of Mr Jeremy Hanley Mr Jeremy Hanley , Richmond and Barnes

I am sorry, but I cannot give way again. I have already given way about seven or eight times——

Photo of Mr Jeremy Hanley Mr Jeremy Hanley , Richmond and Barnes

Well, this is the last time.

Photo of Mr Allen McKay Mr Allen McKay , Barnsley West and Penistone

I am grateful to the hon. Gentleman for giving way. It is not a case of letting the cat out of the bag, because Labour Members have always accepted that some benefits will come to the north. However, although the north benefits in that way, it loses per person on the poll tax. If the hon. Gentleman wants me to go into that, perhaps I shall catch your eye later, Mr. Deputy Speaker.

The leaders of the chambers of commerce and industry in the north are saying that those benefits will not accrue purely and simply because of the time that it will take for the balance to take effect.

Photo of Mr Jeremy Hanley Mr Jeremy Hanley , Richmond and Barnes

The hon. Gentleman has not added much to the argument. He has said merely that chambers of trade and various trade bodies would like the benefits to the north to flow more quickly. The fact remains that it is this Government's policy that has produced those benefits and that they are now coming through. The hon. Gentleman is simply saying that he is impatient to receive those benefits more quickly. That is fine, because I am sure that, if the Government are retained in power, they will bring the benefits forward more quickly than at the moment, but for now they must be cautious in their economic policy.

As part of its corporate taxation plans, the Labour party has stated that it would reinstate capital allowances, which were an absolute nightmare of a system. I concede that certain allowances for the film industry would be welcome and are deserved, but to reinstate capital allowances lock, stock and barrel would be a reversal of progress. The Labour party has also said that it would withdraw the tax breaks that are offered to private landlords through the business expansion scheme. That scheme was introduced to try to help the homeless, by providing an incentive to create the properties that would house the homeless. I am therefore surprised that the Labour party wants to ditch that policy.

The Labour party also states that it would stimulate research and development, education and training, and regional economic development through tax incentives or allowances. That sounds great, but I am afraid that we would also see a jobs tax. I know that the stated 0· per cent. payroll tax was conveniently removed from Labour's policy as soon as there was an uproar when it was announced. That statement has now been dropped from public display, but I am absolutely certain that it would be back as soon as the general election was over.

The Labour party seems to be full of ideas that will not be disclosed until Labour is elected. I wonder how much of its policy it can try to keep secret. The list that I have given has been gleaned from a copious amount of work by many people, but the bottom line is found in the one positive statement that we have heard from an Opposition Treasury spokesman, the hon. Member for Islington, South and Finsbury (Mr. Smith). His summary of the major taxation changes that the Labour party would introduce included lower rates of VAT on recycled materials, energy-efficient goods and insulation materials and higher rates on packaging that cannot be recycled. That is great in itself, but it is not a taxation policy for the nation as a whole.

The hon. Gentleman also stated that there would be additional allowances against corporation tax to encourage the reduction of pollution. Great—we all agree with that. He stated that there would be a grading of car tax, with owners of small cars paying less than the present £100 and owners of large cars paying considerably more. That idea has been mooted by Conservative Members as well. Although it would be a nightmare to administer, it is nevertheless part of the great taxation plan of the hon. Member for Islington, South and Finsbury.

The hon. Gentleman also stated that there would be an increase in the leaded-unleaded price differential. Who invented the differential between leaded and unleaded petrol? This party in government created that differential so successfully that the Labour party is now choosing to pick up one of the jewels in our crown——

Mr. Nicholas Brow:

indicated assent.

Photo of Mr Jeremy Hanley Mr Jeremy Hanley , Richmond and Barnes

I note that the hon. Member for Newcastle upon Tyne, East (Mr. Brown), who is sitting on the Opposition Front Bench, is nodding.

The hon. Member for Islington, South and Finsbury also said that there would be zero VAT on catalytic converters and lower taxes on sales of new cars that are fitted with such converters. I am sure that that will be the case when converters are in general use. Indeed, the Government have agreed a policy for changing to catalytic converters. The hon. Gentleman also said that there would be higher duties on company cars to raise an additional £500 million. I remind him that this Government have increased taxation on company cars as a benefit in kind by 350 per cent. in the past four years. Surely the Labour party will give us some credit for trying to remove that perk.

I have set out some of Labour's policies, and as we have seen, the Labour party has three major plans. It plans heavier taxes, higher taxes and more taxes. If one adds up all the spending promises from Labour's Front-Bench team, one realises that there is no way in which they can achieve them other than by those three policies.

The Leader of the Opposition has said that the huge majority of taxpayers will not be any worse off, but that does not stand up to any form of scrutiny. Research by Credit Suisse/First Boston has shown that by the removal of the married man's allowance, which is now called the married couple's allowance and the removal of the national insurance contribution upper limit, a married man without children, earning £6,000 per year, would be £4 a week worse off. The report suggests that those earning more than £17,000 a year would suffer dramatic increases in marginal rates.

As my hon. Friend the Member for Pembroke (Mr. Bennett) said earlier, if the tax rates of the previous Labour Government had been indexed to today's prices, they would mean that a person on average income would be paying £1,000 more per year in taxation than under this Government.

The Government have been fair to all. By reducing the rates of tax at the top, they have provided an income so that people at the bottom end of the social scale, such those in need of improved health and pensioners, can be protected and have the money that they so desperately require. Under Labour Governments, higher taxes drive away investors and the means to be able to support the economy, to build hospitals, housing estates and prisons —a Labour party demand. Therefore, the Labour party's taxation policies are cynical and Labour's silence is shaming. The report, "Labour's new policies: the complete guide", describes the hon. Member for Newcastle upon Tyne, East as a good House of Commons type with competent, aggressive style in debate. Up and coming. Therefore, I hope that the hon. Gentleman will show the House that he is up and coming, that he will stand up, be honest and set out his party's income tax policies.

Photo of Mr Jeremy Hanley Mr Jeremy Hanley , Richmond and Barnes

I shall willingly give my hon. Friend the report, which sets out a potted history of some of the leading lights, and then happens to mention that none of them has said anything about taxation. I hope that the hon. Gentleman will prove the truth of the report by coming clean on Labour's policy. If he does, he will remain an Opposition spokesman.

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury) 5:30 pm, 14th May 1990

One would not think from the remarks of the hon. Member for Richmond and Barnes (Mr. Hanley) that the Government have increased the overall level of taxation above that which they inherited and shown themselves to be a Government of high taxation. The changes that they have made have been in the structure of the tax system, and a number have been seriously to the detriment of the least well-off in our society.

The hon. Gentleman also needs to talk to some of his hon. Friends about the impact of the uniform business rate. Not only are the potential benefits of the uniform business rate for the north delayed to such an extent that they show no likelihood of an early influence on the location of industry, but the system is hedged about in such a way that any firm that considers moving in or from the south will lose protections to such an extent that it is not likely to move. The uniform business rate system is not likely to achieve the claimed benefits of a shift from the south to the north. That message is coming quite clearly, not just from the Opposition, but from Government Members.

I hope that it is not unkind of me to intervene in this exchange between two other parties about taxation policy. Any such exchange is made that much more difficult in the light of President Bush's recent public disclaimer of his earlier, well-known and dramatised pledge that there would be no new taxation. He said: Read my lips—no new taxes". Will anybody ever again believe a politician talking about a tax promise after President Bush so publicly disavowed his?

When talking about tax proposals and promises, as way of introduction we must look a little more closely at the basis of the argument advanced by the hon. Member for Hertford and Stortford (Mr. Wells) on the Government's behalf. To argue about taxation policy without making any reference to the fundamental change involved in the poll tax, or community charge, is misleading. The poll tax has hugely shifted the burden of paying for local government services through a form of taxation that has an extremely severe impact on large numbers of people on modest incomes and some on low incomes. It redistributes money in the direction of the most well-off in our society.

There have been enormous gains under the poll tax system for those who previously paid high rates because they are wealthy and live in large and expensive houses. There are many people on low incomes who face enormous increases in personal taxation because of the impact of the poll tax. They are paying hundreds of pounds a year more than they previously did per family or household in order to meet this frightening new tax. I can genuinely say that I have never seen such extensive distress in my constituency surgeries as that tax introduced—certainly not from any change in the taxation system that has occurred in the 16 or 17 years that I have been a Member. That is a part of the background that Conservative Members cannot deny or disavow.

Conservative Members must also take into account the difficult position in which the Government finds themselves over the pledge of 20p income tax referred to in the motion tabled by the hon. Member for Hertford and Stortford. It was perhaps unfortunate that he tabled his motion last week before the Chief Secretary to the Treasury appeared on television at the weekend to say that, after all, the Government would not be able to manage it, and there was no prospect of the 20p pledge being implemented this side of a general election. He said that, not because the Government have suddenly found that they cannot meet the bill, but for a quite different reason. It may turn out that, if privatisation revenues fall, as they look likely to do in the shambles of electricity privatisation, that the Government cannot make the books balance. But that is not the present reason. It is one of general economic management and the fear of inflation.

At the time of the Budget, the Chancellor made much of the idea that fiscal policy could not involve fine tuning of the tax system and it was inappropriate to try to combat inflation by adjustments in the tax policy. However, that is precisely what the Government are doing. They have a declared objective of reaching 20p in the pound income tax, but they are currently engaged in an adjustment and saying, "Sorry, we cannot do it, because if we do, we think that, just as last time when we cut taxes there was a big increase in demand, so there will be if we do so again, and, as a result, inflation will get worse." I am glad that the Government have got the message at last, and I wish that the previous Chancellor had got the message.

I wonder what the Government would do if they ever attained their objective of 20p in the pound income tax. That is their policy goal and presumably, having reached that point, they do not make any further changes in income tax levels—up or down—so how do they cope with the circumstances in which they now find themselves when they are under threat of severe inflation? How do they make adjustments to cope with inflation when we are in the exchange rate mechanism of the European monetary system if they cannot use the taxation level for that purpose?

In the European monetary system, the interest rate weapon will increasingly be used at the behest of the system as a whole to preserve the exchange rate parities in the system. Therefore, it will be necessary to use other instruments to deal with domestic inflation. The Financial Secretary shakes his head, but it will come to that. He will have to look for other instruments to deal with domestic inflation. The limitations of interest rates for that purpose are already apparent in the difficulties in which the Government find themselves. They cannot put up interest rates any more at present, because it would be so politically unpopular, but sooner or later they may find themselves obliged to do so. However, they are under much greater political restraint than ever before because of the huge burdens borne by many home buyers and small businesses.

Photo of Mr John Butcher Mr John Butcher , Coventry South West

I think that the House would welcome a comment from the hon. Gentleman about whether the Social and Liberal Democrats still believe in supply side economics. If recent evidence shows fairly conclusively that reduction of the top rates of income tax not only increases the total tax take to the Treasury, but the proportion paid by the better-off, surely that is a philosophy very much in line with the old-style Liberal economists of the last century. Bearing in mind the fact that the reduction in interest rates pumps in proportionately more purchasing power than does a reduction in taxation rates and the phenomenon that I described adds to the budget surplus, surely that is also non-inflationary. I am not trying to interrupt the hon. Gentleman's flow, but I think this is a useful opportunity to let us know how the thinking of the Social and Liberal Democrats is going.

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

Part of the hon. Gentleman's thesis was wrong. Reductions in personal taxation at a time of much greater credit liberalisation generated demand and created the severe inflationary pressures that we are now experiencing. The Government, and Chancellors appear-ing before the Select Committee on the Treasury and Civil Service, have admitted that. However, I agree with the hon. Gentleman that the high levels of personal taxation that existed under previous Governments and the absurd levels of 98 per cent. taxation on investment income were wholly inappropriate, and it was right to get away from that level. I have been talking about the economic judgments that Governments must make. It remains the case that, in deciding to make a cut in standard rate at the time that he did, the previous Chancellor took part in a series of miscalculations that have left us with our present inflationary problems.

I still do not understand why the Government disavow the use of the taxation system as a means of regulating inflation at a time when they are engaged in precisely that. Again and again Conservative Members have told me that it is their intention to reduce the basic rate of income tax to 20p in the pound. They are not doing so, because they believe that they will create more inflation if they do. Let us have a little more clarity on that.

The object of the debate is to try to tease out Labour's taxation policy. We must leave some time for that important task, because not much progress has been made on it so far. If the experience of the local elections is anything to go by, Labour will continue its policy of saying as little as possible. Its alternative to the poll tax was unstated, or at least confused, throughout the election campaign. It was to be some combination of a property tax and banding to take account of income. The combination never became clear.

It seemed to many people—including, I suspect, some Labour Members—to be an unnecessarily expensive as well as a confused tax because it involved two mechanisms —the valuation of property and the assessment of income. That leads me to wonder why Labour does not adopt our proposal for a local income tax, which seems an eminently more sensible procedure. Labour's habits of silence were well illustrated during the local election campaign, when it could not tell us its alternative to the poll tax.

Photo of John Battle John Battle , Leeds West

Will the hon. Gentleman give way?

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

I will gladly give way to the hon. Gentleman, in the hope that he will tell me something about this matter.

Photo of John Battle John Battle , Leeds West

I am puzzled by hon. Members who say that there is some difficulty about two concepts being held together. Under the rating system, linked to the benefits system of rebates, two different systems worked and interacted.

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

Yes, but I do not see why, in seeking to assess revenue for local authorities, we should go to the trouble of valuing property all over the country, which is not a particularly good guide to income, while at the same time assessing income and then trying to combine the two assessments. The old system was not particularly good, but the poll tax is infinitely worse. It is possible to have a system that is better than either, and I do not understand why Labour does not want to do so. I suspect that it is part of the policy of not saying what it proposes to do.

The Budget discussions also revealed ample evidence of that. In the immediate prelude to the Budget, the shadow Chancellor produced a two-page typed statement containing the Labour party's alternative to the Budget. On reading that, one would suppose that it might be possible to have lower inflation, a lower trade deficit and no significant increases in taxation for most people. The statement was noted more for its brevity than for anything else, and I suspect that it too was part of a policy of not really saying anything very much.

I have known the right hon. and learned Member for Monklands, East (Mr. Smith) for many years, and I think that that is his line. He may well have ideas about what he wants to do, but he does not propose to tell anybody just now, because people will only disagree with him and make trouble, and it is far easier to take office with no commitments at all. After all, parties have done that before.

Labour's attempt to claim economic credibility rests on the belief that the right hon. and learned Gentleman will be as strict and successful in containing public spending and inflation as he has been in containing his weight since the illness from which we were all so pleased to see him make such a good recovery. How he manages to do it while attending all the City lunches and dinners that he is supposed to attend I do not know. He has been extremely successful in self-discipline. The belief that he can somehow extend that discipline over the entire breadth of the Labour party seems wholly misguided. It is leading to a situation in which Labour would be unprepared for government even if there were some real prospect of it reaching government.

The right hon. and learned Member for Monklands, East has led many of his hon. Friends to believe that all sorts of laudable objects can be achieved without significant pain or difficulty, except to a few rich people whom Labour assumes will not vote for it anyway. Some of the richest houses at which I call during by-election campaigns are the ones in which I have located the Labour votes. The problem of a party that has not prepared itself for the most difficult decisions of government seems especially well illustrated by a letter that appeared in The Independent this morning. It is signed by the right hon. Member for Chesterfield (Mr. Benn) and 11 of his hon. Friends. It states: In your leading article last Monday (7 May) you refer to an interview published in the Independent on Sunday with Labour's Shadow Chancellor, John Smith, explaining various proposals of the Shadow Cabinet. This interview detailed a number of policies which have not been adopted by the Labour Party, including Exchange Rate Mechanism entry in order to pursue a deflationary policy, and the dumping of our commitment to full employment. Later, the letter states: Such policies would place a Labour government on a collision course with both the trade union movement and the electorate. The right hon. Member for Chesterfield and his 11 hon. Friends who happened to be around when the letter was signed are clearly unprepared for some of the measures that the right hon. and learned Member for Monklands, East hopes to implement in the name of a Labour Government. Those 12 hon. Members say that they are not Labour policies, but there may be more than 12. If there is any possibility at all of a Labour Government after the next general election, there is not much chance of a Government with a majority of more than 12, and I suspect that that group of hon. Members or others will display their unpreparedness for such policies in no uncertain terms and will make it impossible for the right hon. and learned Gentleman to go on with a series of policies that are being kept under wraps until Labour comes to office. Even if it were a potentially useful electoral device, the policy of silence on taxation cannot prepare a party for any kind of effective government. It will certainly not assist in the taking of some difficult decisions.

Until the recent local govern-ment elections, government for my party seemed a rather remote prospect, but my party has been prepared to say what it believes. It has set out in detail its policy on local income tax and on tax reform. It will cost the hon. Member for Hertford and Stortford £1 more to buy our document on the subject, because there is a great deal more in it. I am sure that, when he looks at our policies, in more detail, he will not ask for his money back.

They include things that he says he favours, such as the integration of the tax and benefits systems and an attempt to introduce a citizen's income system as part of a more effective attack on poverty than can be achieved merely by tax allowances and benefits which depend on take-up, let alone by a level of child benefit, which is being deliberately eroded by the Government.

During discussions on the last Budget, we said that we were prepared to bring forward a number of those measures in order to tighten the fiscal stance this year because of the inflationary pressures that are so apparent in the current year. The hon. Member for Hertford and Stortford is right to put this matter on the Parliamentary agenda and to try to open up a more public discussion on tax policy for the future. I hope that, before the end of the debate, we will learn just a little of what Labour has in mind.

Photo of Mr Ian Gow Mr Ian Gow , Eastbourne 5:46 pm, 14th May 1990

I am happy to follow the hon. Member for Berwick-upon-Tweed (Mr. Beith), who, I suppose, could be described as the shadow Chancellor of the Exchequer for the Liberal party. I noted with keen interest his observation that an income tax rate of 98 per cent. was unsustainable and indefensible. During the notorious Lib-Lab pact, the hon. Gentleman and his party supported a Government who imposed upon the British people precisely that level of taxation.

That comes as no surprise to any hon. Member, because the previous leader of the Liberal party instructed the delegates to the Liberal party conference before the last general election to go back to their constituencies and prepare for government. His predecessor at the 1979 general election promised to lead the Liberal candidates towards the sound of gunfire. From the Liberal party, we have a never-ending series of myths, and hon. Members who want further examples of mythology should commit to memory from tomorrow's Official Report the speech by the hon. Member for Berwick-upon-Tweed.

The House should be grateful to my hon. Friend the Member for Hertford and Stortford (Mr. Wells) for initiating this most important debate. Its importance is underlined by the presence on the Back Benches of the hon. Member for Newham, North-West (Mr. Banks) who I hope will shortly catch your eye, Mr. Deputy Speaker. The hon. Member for Newham, North-West is very perspicacious. He is in his place on this important occasion, but the importance that he attaches to the debate is not, alas, shared by all his right hon. and hon. Friends.

The subject of taxation cannot be divorced from the subject of spending. What should be the level of spending by Governments and how that spending is financed is at the heart of this debate. It is perfectly true that, from 1974 to 1979, there was a dramatic increase in public spending, but there was also a dramatic increase in taxation. Even the increase in taxation, however, was insufficient to meet the vaulting spending plans of the then Government. Even that Government did not dare to impose sufficient taxes to meet spending. They tried to borrow to bridge the gap between spending and revenue, and when they were unable to borrow enough to bridge the gap, they resorted to the printing presses. Those vaulting spending plans and the subsequent inability to raise the money to finance them would be reproduced if ever there were another Labour Government.

Photo of Mr Ian Gow Mr Ian Gow , Eastbourne

I shall give way to the hon. Gentleman in a moment. He knows that there is no speech that I shall make in this House when I will not give way to him.

Should a Labour Government be elected, the same gap between spending and revenue will emerge and it will be met in the only way possible, by the printing presses. I shall now give way to the hon. Gentleman, whom I almost call my hon. Friend.

Photo of Mr Tony Banks Mr Tony Banks Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson

That is probably the most complete demolition job that has so far been done on me in this House.

I cannot blame the hon. Gentleman for concentrating on what he would consider to be the downside of the Labour Government's economic record. Will he also accept, however, that, during that period, the unemploy-ment rate was conspicuously lower that it is now, that the balance of payments in trade in manufactured goods was healthy and not in deficit as it is now——

Photo of Mr Tony Banks Mr Tony Banks Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson

Yes, my hon. Friend is right. Interest rates were considerably lower than they are now and inflation on a downward turn. In the interest of fairness, I am sure that the hon. Member for Eastbourne (Mr. Gow) will be prepared to put that side of the argument.

Photo of Mr Ian Gow Mr Ian Gow , Eastbourne

I shall make my speech in my own way, subject to my earlier undertaking that I shall, of course, give way to the hon. Gentleman if he seeks to intervene again.

I am glad that the hon. Member for Newham North-West referred to inflation and I am glad to have the opportunity to comment on it in the presence of my hon. Friend the Financial Secretary, who I hope will shortly be my right hon. Friend the Financial Secretary. I shall give way to my hon. Friend if he wants to intervene on my analysis about inflation—I give him the same undertaking as I gave the hon. Member for Newham, North-West.

Only Governments can cause inflation, and only Governments can cure it. It follows 11 years and more after my right hon. Friend the Prime Minister became First Lord of the Treasury that those who sit presently upon the Treasury Bench, and only those—I suppose that the Financial Secretary might say that my right hon. Friend the Member for Blaby (Mr. Lawson), who no longer sits on that Bench, bears some responsibility in the matter, so perhaps I should say, only those who have been or are on the Treasury Bench—are responsible for the present level of inflation.

Inflation is a disease of money and it can be ended only by a monetary cure. It is a matter of deep regret to me that, 11 years and more after a Conservative Government came into office, we have inflation at 9·4 per cent. and probably rising. I hope that the Financial Secretary and his colleagues in the Treasury will re-learn the lesson that some of us thought that they had learnt—that only a strict monetary policy will control the evil of inflation. When I say "control", it is a misuse of language. I have noticed that some of my right hon. and hon. Friends now refer to the control of inflation, but that was not the undertaking given in the manifestos of 1983 and 1987. Those manifestos referred to the goal of the Government as stable prices, which is zero inflation.

It is possible through the proper use of monetary policies to abate and eliminate the evil of inflation. During the lifetime of this Government, we have had inflation down to 2·5 per cent., but that was still 2·5 per cent. too high. If one can bring inflation down from 26·9 per cent. —the highest level under the Labour Administration—to 2·5 per cent., one can certainly get it down from 2·5 per cent. to zero. That should be the policy of my hon. Friend the Financial Secretary, and it should be the policy of the Labour party when it comes to submit its policies to the electorate.

The Labour party, however, will not make that commitment to the elimination of inflation, which was a commitment made by the Conservative party in 1983 and 1987. The Labour party will not do so because it does not believe in honest money and sound finance. If Labour party policies are ever implemented, I fear that there will be a dramatic increase in taxation, a dramatic increase in spending, a massive fall in confidence in sterling—even the Labour party will then be obliged to put up interest rates —and a diminution of confidence in this country. Many of the ablest people will leave the United Kingdom to seek freer countries.

Photo of Mr Geoffrey Finsberg Mr Geoffrey Finsberg , Hampstead and Highgate

My hon. Friend is making one mistake by constantly referring to "when" the Labour party produces its policies, as if he really believes that it will produce those policies in time for them to be costed, so that the electorate can see the folly into which they are being led.

Photo of Mr Ian Gow Mr Ian Gow , Eastbourne

My hon. Friend may well be correct. Hitherto, the Labour party has sought to conceal, and will continue to seek to conceal, the reality of what will happen. I have predicted what would happen if a Labour Government were ever to be elected. It is the duty of Conservative Members, which is why I am grateful to my hon. Friend the Member for Hertford and Stortford, to fill some of the gaps that are clearly and deliberately left by the Labour party.

A policy of high taxation and high spending brings with it dangers for the British people. I have been in this place for the twinkling of an eye, but nothing has happened in the past 16 years to lead me to believe that Governments are able to spend money more wisely and effectively than other people. The policies of my right hon. Friend the Prime Minister, however, have had a significant effect, because, when the hon. Member for Newcastle upon Tyne, East (Mr. Brown) comes to give the view of the official Opposition, even he will not say that the Labour party will go back to 98 per cent. levels of taxation on income.

When the hon. Member's party left office, that was the level of taxation, but he will not say that his party will go back to that level. Why? Because my right hon. Friend the Prime Minister has moved the centre of British politics to the right and has occupied the middle ground, dragging with her—with considerable reluctance, it is true—even some Labour Members. I do not want to be unfair to the hon. Member for Newham, North-West, but if he had his way, and if he were ever to be a Treasury Minister, he would not be satisfied with a 98 per cent. tax on income —he would want to go above 100 per cent. Some Labour Members feel a deep sense of envy and think that the purpose of taxation is not to raise revenue—although they frequently raise revenue with higher rate taxes—but to pursue the politics of envy.

Photo of Mr Tony Banks Mr Tony Banks Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson

The hon. Gentleman must realise that, for people with certain levels of income, in particular those caught in the poverty trap, marginal rates of tax can be 100 per cent. We have to get people out of that trap. Is the hon. Gentleman not aware that the percentage of gross domestic product that is paid in taxes, adding indirect and direct taxes together, is more under the present so-called low-tax Government than under the Labour Government in 1978–79?

Photo of Mr Ian Gow Mr Ian Gow , Eastbourne

Mercifully, the economy is more buoyant now. The hon. Gentleman is wrong, because the average taxpayer is paying considerably less tax now. If the Opposition's policies were introduced, the burden of taxation would massively increase.

The House of Commons is the right place to discuss the central issues of how much Government should spend and how the money should be raised to cover that expenditure. The danger to Britain would be if we returned to a Government with precisely those vaulting spending ambitions that the Labour Government had in the past and to a similar increase in the burden of taxation. If we were massively to increase spending and taxation the prospects for this country, for fuller employment and for higher living standards would all be put at risk.

I congratulate my hon. Friend the Member for Hertfordshire and Stortford, and I commend his opening speech.

Photo of Mrs Alice Mahon Mrs Alice Mahon , Halifax 6:01 pm, 14th May 1990

What I find most galling about the setpiece of pure Tory party propaganda that we have today heard is that it appears to take most of its evidence from Fabian Society pamphlets—Conservative Members have the advantage over most Opposition Members who do not read them—or from the fantasising of two obscure Americans, Keating and Franklin, who produced what is probably an expensive report, the Credit Suisse/First Boston report, which made a number of assumptions about Labour policy that are wrong and deliberately misleading. They assume that they know what would be in Labour's first Budget and also what would be in the next four or five. I would be interested to know if they considered Tory plans for 1997, should we be so unlucky as to have the Conservatives elected to government again. The report also omitted the fact that Labour would be applying the Rooker-Wise indexation formula to higher rate thresholds and hands of tax. To pretend that we would not is absolute nonsense.

Let us consider the Government's tax record. I am not surprised that Conservative Members do not want to examine that, because, despite all their claims to be the party of low tax, they are not. The truth is that the overall burden of taxation has increased considerably under the Conservative Administration for those in the lower income groups.

In 1979, a married man with two children on average earnings paid 35 per cent. to the state in income tax, national insurance, rates, value added tax and other indirect taxes. By 1989, a worker on average earnings paid 37·3 per cent. to the state. At the lower end of the income scale, for a married man with two children earning half the average wage, the tax bill has risen from 2·5 per cent. to 7·1 per cent. since 1979. I admit that it is not all doom and gloom under the Tories. If a married man with two children earns 20 times as much as the national average —roughly £5,000 a week—his total tax bill has been reduced from 74·3 per cent. to 38·5 per cent.

Thanks to the excellent work of the Select Committee on Social Services, which exposed the bogus definition of poverty, we know that the Prime Minister was not correct in her much-publicised comments that helping the wealthy gradually trickles down to the poor—she was trying to justify helping the wealthy. I recommend that Conservative Members read that report if they doubt what I am saying.

Opposition Members have never been in any doubt about the results of the Government's tax policies. Of course the rich have got richer and the poor poorer. Hon. Members only have to use their eyes to study the position in the regions. How can we make sense of policies that allow the highest paid director in 1989—William Brown of Walsham Brothers—to pay himself more than £2 million in salary a year, or policies that mean that a 19-year-old student on a Business and Technician Education Council course, studying for more than 21 hours a week, and living with her unemployed parents, should lose her only income once she reaches the age of 19? Her income was only £27 a week. I know of such a case. Her parents were receiving income support and child benefit until she reached the age of 19, then every penny was withdrawn. Yet the same policies mean that she is expected to pay 20 per cent. of her poll tax.

I am glad that the hon. Member for Hertford and Stortford mentioned credit controls, he made quite a good case for them. If we are discussing the Government's record during the past decade, we should consider their record on debt. The National Consumer Council recently published a report that showed that on average consumers now owe twice as much as they did 10 years ago, and that the number of households that have difficulty in paying their debts has risen sharply. A staggering 2 million households have difficulty paying some sort of debt, and some half a million have multiple debts including mortgages and rents. That speaks volumes about a party that claims that home ownership is such a success story. I do not think that the right hon. Member for Mole Valley (Mr. Baker) can mirage that issue away.

The hon. Member for Hertford and Stortford based his assumptions about Labour policies on that doubtful document by two Americans, yet there has not been a success story in America for the vast majority of the people. Under Reagan, the tax burden was shifted from the rich to the poor. A study by the Urban Institute, whose members include prominent Republicans as well as Democrats, showed that, between 1980 and 1984, the poorest 20 per cent. of the population suffered a 7·6 per cent. decrease in disposable income, the next 20 per cent. up the scale suffered a decrease of 1·7 per cent. and the 20 per cent. at the top of the scale increased their income by 8·7 per cent. It is worth mentioning what has happened in America because much of what the hon. Member for Hertford and Stortford said was based on the Credit Suisse /First Boston report.

Photo of Mr Jeremy Hanley Mr Jeremy Hanley , Richmond and Barnes

If the hon. Lady is denying what my hon. Friend the Member for Hertford and Stortford and I said, which we believe to be the fruits of research into what the Labour party has told us about its policies so far, will she tell us what Labour's income tax policies are? We are waiting to hear if our research has been proved wrong.

Photo of Mrs Alice Mahon Mrs Alice Mahon , Halifax

If the hon. Gentleman is patient, he might hear something that will do him some good.

In America, similar policies of reducing taxes to reward the rich led to problems similar to those in the United Kingdom. Nobody denies that the Americans invested the millions that they received from tax cuts, as did the wealthy in Britain, but in neither case did they invest in wealth-producing assets. They went for short, speculative gains, which have not done either country any good.

The trickle-down approach in America failed just as spectacularly as it did in this country. We all remember President Bush's election pledge: Watch my lips—no new taxes. He is now faced with a projected federal deficit of more than $150 billion. He has recently signalled that he intends to preside over a budget reduction package that will include taxes, despite all that we heard during the run-up to the election—unless he again gets away with watering down the Gramm-Rudman Act, which would enable him legally to introduce an even larger budget.

The hon. Members for Hertford and Stortford and for Richmond and Barnes (Mr. Hanley) should concentrate on the Government's taxation record before taking to task those trying to put forward a fair programme of taxation. We believe in taxation because we believe in the redistribution of wealth. We certainly would not have introduced the poll tax. Hon. Members should deal with that issue, but they do not want to talk about it. They should think about the high interest rates that the Government are using as a one-club weapon to avoid tax increases. That has harmed economic activity. Manufacturing in my constituency is suffering because firms cannot afford to borrow with the cost of money being so high.

Conservative Members should concentrate on the skills shortage and the crisis in education. They should concentrate their minds also on the explosion of poverty. They may be proud of their tax policies, but the poor and those on low incomes are not happy with Tory tax policies. The Labour party is proud of its policy review and its aims. I am sure that we will have magnificent achievements. My right hon. and hon. Friends will propose policies that will be properly costed, and the electorate will believe them.

Photo of Peter Lilley Peter Lilley The Financial Secretary to the Treasury 6:12 pm, 14th May 1990

I congratulate my hon. Friend the Member for Hertford and Stortford (Mr. Wells) on securing this debate, on his excellent motion, and on the superb speech with which he introduced it and with which he demolished the Labour party's tax programme. The debate has been embellished by contributions from my hon. Friends the Members, for Richmond and Barnes (Mr. Hanley) and for Eastbourne (Mr. Gow). Their speeches, together with that of my hon. Friend the Member for Hertford and Stortford, will merit reading and re-reading throughout the country.

It was a generous idea to give the Opposition the opportunity to explain their policies. They have had that opportunity, but so far they have refused to take it. Labour Members have not once explained their party's tax policies. It is manifest that they are ashamed of them. They have exercised their right of silence for fear of incriminating themselves, and we well understand why. We shall have to wait to hear whether the hon. Member for Newcastle upon Tyne, East (Mr. Brown) will continue that policy. It is noteworthy that he is saving his speech until the end of the debate so that there will be no opportunity to comment on it.

The Government have always made clear the principles on which our tax policy is based. Our record of implementation demonstrates them in action and we have set clear targets for the future. Our principles are to reform taxes so that they are simpler; to remove unwarranted reliefs; to plug loopholes; to broaden the tax base; and ultimately to reduce marginal rates because they affect economic activity. Our record demonstrates a successful reform of the taxation of companies, of personal income, of capital, of inheritance, of husbands and wives and of savings. We have abolished seven major taxes and several minor ones. Our targets are progressively to reduce the burden of public spending and thereby tax as a share of national income, and to reduce the all-important basic rate of income tax to 20p as and when it is prudent to do so.

The Labour party is under an even greater obligation than we are to spell out its tax policies because they will impose an increased burden. People have the right to know how much extra tax they will have to pay, who will pay it, which taxes will be raised and what new taxes will be introduced. That obligation is recognised by many Opposition Members who have been distinctly unhappy with the evasiveness of their Front-Bench spokesmen during recent months. The hon. Member for Kingston upon Hull, East (Mr. Prescott) made it an issue in the deputy leadership election little more than a year ago. He said: We must learn the lesson from the last election when our tax policy was a mess. It is not credible for Labour to suggest our policies can be financed on a programme of low taxation. It can't and the electorate know it can't. We need to argue our case not duck the issues. We shall learn later whether the Front-Bench spokesman argues the case or ducks the issue. I fear that the Opposition will continue to take as their motto, "Mum's the word." Indeed, they became quite angry on Second Reading of the Finance Bill when I suggested that those in the press who criticise Treasury Ministers for going into pre-Budget purdah might direct their fire at the Labour party for going into post-Budget purdah. However, they seem determined to remain there, at least until the next election.

Because the Opposition are not very forthcoming, we have the right to reconstruct, from the evidence available, the tax policies that it appears they will introduce. We can draw on three sources of evidence—first, their policy statements made before they went into pre-election purdah; secondly, their voting records on tax changes over the last decade; and, thirdly, their record when in government. Those sources combine to paint a clear picture of a party committed to high spending, requiring high taxation that will mean most people on average incomes and above paying more, and that will impose significantly higher marginal tax rates on a substantial minority.

Let us consider some of the Opposition's specific proposals and we must make no bones about this—for tax changes. They include the upper earnings limit, investment income surcharge, the higher rate of income tax and the basic rate of income tax. The first proposal is to abolish the upper earnings limit on national insurance contributions and impose a 9 per cent. tax surcharge on 3 million people on all incomes above £18,000 a year. In his article in the Independent on Sunday,—which I commend to my hon. Friends—the right hon. and learned Member for Monklands, East (Mr. Smith) was frank about that. He said: They say 'you are going to hit people earning about £18,000 by making them pay this extra amount'. I say 'Yes I am'. There is no reason to doubt the right hon. and learned Gentleman's word. A party that has as a central revenue-raising item a surcharge on employers' national insurance contributions—the notorious tax on jobs that my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) had the privilege of abolishing—would have no compunction about abolishing the upper earnings limit.

The second proposal is the restoration of a special supplementary tax on savings—the investment income surcharge that was also abolished by my right hon. and learned Friend the Member for Surrey, East. There is some doubt whether the plan is to restore a 15 per cent. surcharge, as previously existed, or to impose a 9 per cent. charge on all savings income—the hon. Member for Newcastle upon Tyne, East is nodding—mirroring national insurance contributions. The Opposition voted against the abolition of the 15 per cent. surcharge, but it appears that a 9 per cent. tax on all 20 million savers who pay tax is now in vogue. Either way, it will be a tax on savings when we need more savings, not less.

It would bear most heavily on the elderly, retired, and those who would suffer most from the effect of Labour's inflationary policies in wiping out their lifetime savings.

As to the top rate of income tax, on a number of occasions, Labour's spokesmen have affirmed that it would be raised to a maximum of 50p in the pound—or 59p in the pound including the national insurance surcharge. In his revealing interview in the Independent on Sunday, the right hon. and learned Member for Monklands, East described that rather menacingly as an exercise in moderation. It is not clear why anyone should rely on Labour's promise not to raise tax rates if it came to power. I wonder whether the hon. Member for Halifax (Mrs. Mahon), who called for redistribution, believes that a top tax rate of 50p in the pound is high enough.

Photo of Peter Lilley Peter Lilley The Financial Secretary to the Treasury

Of course I will give way—my hon. Friend the Member for Eastbourne (Mr. Gow) set an example.

Photo of Mr Tony Banks Mr Tony Banks Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson

It was a fine example to follow. I may say to the young Minister that it is all very well Conservative Members complaining about the Labour party not spelling out what it intends to do, but when my right hon. and learned Friend the shadow Chancellor does exactly that, Conservative Members will respond, "We do not believe what you say." We cannot win in that situation, can we?

Photo of Peter Lilley Peter Lilley The Financial Secretary to the Treasury

There is some suspicion, because Labour's voting record in Parliament indicates otherwise. Labour Members voted not only against the reduction of the top rate of income tax from 60p to 40p, but from 83p to 60p. Labour's record in government, too, belies the "exercise in moderation" to which the right hon. and learned Member for Monklands, East referred. When in government, Labour raised the top rate of tax from 75p to 83p, and the overall top rate was increased to 98p in the pound, on income from savings. Labour deliberately took that action, to "squeeze the rich until the pips squeak"—to use the inelegant words of the right hon. Member for Leeds, East (Mr. Healey).

Photo of Nick Brown Nick Brown Shadow Spokesperson (Treasury)

Is it the Financial Secretary's view that the entire process of Labour's policy review was just some kind of charade, for the purpose of presenting a pleasant face to the electorate, and that we do not mean a word of it? If that is the Minister's view, he should say so, rather than just imply that it is.

Photo of Peter Lilley Peter Lilley The Financial Secretary to the Treasury

There is an element of charade in Labour's policy review, and there is an important reason for some doubts lingering in the minds of not only my right hon. and hon. Friends but of people in the country at large, as to whether the conversion of the Labour party is sincere. The reason for those doubts is that Labour has never admitted that it was wrong. There is more joy in heaven over one sinner who repents than at 99 just men who need no repentance. Never has a Labour Member stood up and said, "We were wrong. We are sorry. We have changed, and we now have a different policy." Until Labour disowns both its voting record and its record in government, doubts must remain about the policies that it presents.

I would expect any changed policy to be accompanied by a recognition that the previous policy was wrong. However, if Labour maintains a dual allegiance to its previous record and to its new, temporary policies concocted before a general election, it must expect the man in the street to hold some suspicions.

When Labour was in power, it deliberately raised top rates of tax, but not, it would seem, to acquire a great deal of extra revenue. The consequence of that action was that the top 5 per cent. of this country's richest people, who at the beginning of Labour's period of office paid 29 per cent. of our income tax revenues, paid only 24 per cent. of them by the end of Labour's term of office. That is scarcely in tune with the redistributive aims of at least the hon. Member for Halifax.

Photo of Mr Frank Haynes Mr Frank Haynes , Ashfield

I do not know where the Minister got his brief, but he is wandering about all over the place. I wonder whether he holds constituency surgeries, as do I and my right hon. and hon. Friends. I held a surgery on Saturday, and people came in to complain about the taxes that they have to pay, even when they are in a very low income group. I could cry at some of the problems that they have as a consequence of the present Administration. The Minister keeps harping on about what Labour's policy will be if it gets into power. Don't worry, lad. Labour will get in next time. When it does, taxes will be based on people's ability to pay. That is what it is all about—so let the Minister put that in his pipe and smoke it.

Photo of Peter Lilley Peter Lilley The Financial Secretary to the Treasury

I am grateful for that constructive contribution from the hon. Gentleman, who has just wandered in.

The main issue affecting both the hon. Gentleman's constituents and mine is not the top rate of income tax, which falls directly upon no more than 1·7 million people, but the basic rate. Neither Labour's policy review nor the statements of Opposition figures give clear guidance. My hon. Friend the Member for Hertford and Stortford made clear, as did my hon. Friend the Member for Richmond and Barnes, the conflicting statements made by Opposition Members. If today's debate serves any purpose, it is to achieve clarification from Opposition Members as to whether it is Labour's intention to raise the basic rate of income tax.

The right hon. and learned Member for Monklands, East acknowledged in his recent interview that the tax reforms he proposes will not be "revenue-neutral." He was clear about that. The right hon. and learned Gentleman admits that the yield from implementing just one of them would be absorbed by just one of Labour's pledges. We have yet to see the Opposition spell out and cost all their pledges. They promised to do so in the foreword to the very document that the hon. Member for Newcastle upon Tyne, East suggested as a reliable guide. But the shadow Chief Secretary has said that she disowns the promise made by the Leader of the Opposition in his foreword to cost Labour's policies before the general election. Labour has now gone back on that promise and said that it will not cost them until afterwards. That is another reason why we have doubts about the reliability of Labour's spokesmen.

In the absence of clear statements by members of the Opposition Front Bench, and as they have not taken the opportunity today to stand up and say whether they will raise the basic rate, we must refer again to Labour's voting record and its record in government. The voting record of Labour Members is clear. They voted against every cut in the basic rate that we have introduced in this and previous Parliaments. They voted against a reduction from 33 per cent. to 30 per cent. in 1979; 30 per cent. to 29 per cent. in 1986; 29 per cent. to 27 per cent. in 1987; and 27 per cent. to 25 per cent. in 1988. On each occasion, the Opposition said that they would prefer to use potential revenues from income tax to increase public spending.

One can believe that, because one knows that that is where Opposition hearts lie. When in government, and after some ups and downs, Labour ended up with a basic tax rate 3p higher than that which applied when they were first elected. If we were simply to uprate in line with inflation the tax allowances that Labour left behind for a Conservative Government, and if we had maintained the same tax rates, the average man would be paying over £1,000 a year more income tax.

That underestimates the true burden of public expenditure under Labour. A large part of its programme was financed not by tax but by borrowing. Borrowing is nothing more than deferred taxation. The equivalent value today of the deferred tax burden that Labour was incurring, year in and year out, was equivalent to about £2,000 per household in the last year of that Labour Government.

Photo of Peter Lilley Peter Lilley The Financial Secretary to the Treasury

I am afraid that it is not as simple as the hon. Member for Newham, North-East suggests— [Interruption.] I meant to say Newham, North-West.

Photo of Mr Simon Coombs Mr Simon Coombs , Swindon

Will my hon. Friend confirm that, such was the Labour Government's inability to control public expenditure, that in 1976, although they raised personal and corporate taxes significantly that year, they had begun the year by assuming that the public sector borrowing requirement would be £2·7 billion? As it turned out, by the end of the year the PSBR had reached £9 billion.

Photo of Peter Lilley Peter Lilley The Financial Secretary to the Treasury

My hon. Friend is absolutely right. It is difficult to forecast the public sector borrowing requirement, but happily we often make the mistake of underestimating our surpluses.

The overall impact of the Labour party's policies is clear: a higher burden of taxation, higher taxation of the average man in the street and, most of all, a substantial increase in marginal tax rates for large numbers of people. At last we know what supply side socialism means. It is the exact opposite of what the rest of the world did during the supply side revolution of the 1980s. During that period, countries from India to America, from Japan to the Ivory Coast, reduced their top rates of tax and their rates of tax generally because they believed that marginal rates of tax were important for efficiency, growth and the prosperity of the economy.

Photo of John Battle John Battle , Leeds West

If the result of this week's meeting is that Congress and the President of the United States decide to do a U-turn and raise taxes to fund the trade and budget deficit, will the Government here do likewise?

Photo of Peter Lilley Peter Lilley The Financial Secretary to the Treasury

I am grateful to the hon. Gentleman for making that point; it reinforces what I said earlier. We had to raise the tax burden to deal with the deficit that we inherited from Labour. I do not intend to comment on the United States Government's predicament. If, however, the hon. Gentleman is suggesting that deficits cannot be sustained and have to be financed, there is a great deal of force in what he says.

The hon. Gentleman's colleagues do not seem to recognise the damage that can be done by high rates of tax, not just to individuals but to the health of the economy as a whole. The Labour party specifically denies that they cause damage. The hon. Member for Dunfermline, East (Mr. Brown) said: I find that there is no respectable evidence … There is nothing at home or abroad that can justify the ideology of incentives"—[Official Report, 26 April 1988; Vol. 132, 231.] That was said in the context of cutting the basic and the top rates of tax. The hon. Gentleman is happy to ignore the evidence of common sense and experience that has convinced the rest of the world that taxes must be reduced.

We are in competition with countries throughout the world that are endeavouring to reduce taxes. I do not believe that the electorate, both because of family budgets and their recognition of this country's needs, will vote for a party that is as committed as the Labour party clearly is to raising marginal tax rates and clobbering the British people, and therefore the British economy.

Photo of Nick Brown Nick Brown Shadow Spokesperson (Treasury) 6:32 pm, 14th May 1990

Like the hon. Member for Eastbourne (Mr. Gow), I am grateful to the hon. Member for Hertford and Stortford (Mr. Wells) for tabling his motion. I am sorry that he feels that he has been cheated twice. He feels that he has been cheated by the Labour party's headquarters in Walworth road, which seems to have provided him with a different copy of the policy review from the one that the rest of us have. If that is the reason why he has been misled, I am sorry. I am also sorry that he may have been cheated by his own party's Whips Office.

We respect the hon. Gentleman's views on the Third world and overseas aid. Given his special interests and his luck in the ballot, I should have thought that he would choose a subject for debate that related to the Third world and overseas aid. This is a partisan motion. Nevertheless, it has provided me with an opportunity to respond to the matter of substance. I did not expect to have such an opportunity until after the next general election.

The motion has no ground in fact. It is the sort of contemptible motion that one associates with Liberal party councillors. It suggests that the Labour party is committed to massive increases in public expenditure". I do not know why the hon. Gentleman believes that public expenditure increases would be massive. Many Opposition Members believe that there ought to be substantial increases in public expenditure, but we are not committed to them, because we know that they cannot be achieved.

The motion states that the Labour party would impose new taxes on savings, jobs and property". We do not intend to invent new taxes to cover any of those matters. We shall no doubt adjust the present tax rates, but we do not intend to introduce new taxes.

The motion goes on to say that the Labour party would increase the rates of income tax. That is a fair point; I shall have more to say about it later. However, the Labour party's policies will be directed at those who pay the top rates of income tax. Those who pay income tax at the standard rate have nothing to fear from our policies.

The motion goes on to state that the Labour party would increase national insurance. That is a bit rich, coming from the party that in 1979 suggested that it would do exactly the opposite and then increased the rate from 6·5 to 9 per cent. If we increased national insurance, it would be only a question of removing the ceiling. We do not suggest any further increase in national insurance charges. the policy review document suggests nothing of the sort.

The motion also says that the Labour party is refusing to reveal its plans for the basic rate of income tax and contrasts that with the Government's goal of basic rate of just 20p. When we set goals we are told that they are vague promises, that we should be unable to achieve them and that we are not to be believed. When the Government set goals and do not achieve them—some Conservative Back Benchers have said that they ought not to be achieved at the moment—that is laudable. Why are our goals derided as dishonest while the Government's goals are praised? It is unusual for the hon. Member for Hertford and Stortford to be so partisan.

The motion goes on to say that Labour will be forced substantially to increase the burden of tax on many lower and middle income earners. We shall do nothing of the sort. Our taxation policies are designed to increase the wealth of the low-paid, not to diminish it. It is a bit rich for the Conservative party to say that, when only last Thursday it was condemned by the Social Services Committee, an all-party Committee, for having produced misleading statistics relating to those on low incomes. In its report the Select Committee said: It is now clear that those on lowest incomes gained least in the period 1981–85. We await with interest the publication of the new tables on Households Below Average Income to see whether this trend continued to 1987. The blame lies with the Conservative Government. It is wrong for them to try to palm that off on us.

The motion notes that Labour plans run counter to the growing international consensus on the case for low taxes. That is wrong. Our taxation policy is more in harmony with what is happening in Europe and among the developed countries of the world than the narrow and restrictive tax policies, with only two bands, that are being pursued by the Government. Only one person in 25 pays the top rate of income tax. For everyone else, regardless of their earnings up to the top rate threshold, there is only one rate of tax. That is not what happens in the rest of Europe and that is not what we propose. If criticism is to be directed at anyone, it ought to be directed at the hon. Gentleman's own party, not at the Labour party.

The motion also states that new taxes would stifle enterprise, drive firms and individuals abroad"— although we are trying to do exactly the opposite— and gravely weaken the wealth-creating capacity of the United Kingdom". When one examines the recently published investment and growth figures, one realises that the Government ought not to direct such a charge at us. The motion also states that the Labour party would create unemployment. Our goal is exactly the opposite.

I intend to set out the Labour party's taxation policies and to deal with the matters of substance that have been referred to in the debate. Our taxation policies are set within the context of our overall economic and social programme. It would be bizarre if they were not. In the overall management of the economy, our objective is to achieve steady and balanced growth, to control inflation, to restore a reasonable equilibrium in the balance of payments and at the same time to sustain the highest possible levels of employment. Our taxation policies are designed to serve those ends. As well as being compatible with those overall economic objectives, our taxation policy is also compatible with the Labour party's social objectives. Our overriding social objective is fairness; by that we mean the redistribution of the tax burden from those least able to bear it to those most able to.

So it was fair of the hon. Member for Hertford and Stortford to say that some taxes will go up: so they will. For others, they will go down. The Labour party does not intend to divorce its taxation policy from its public spending programme, nor do we intend to undermine the role that taxation, direct and indirect, plays in the overall management of the British economy. Taxation will play its part in the achievement of the Labour party's overall economic objectives.

Before going on to give Conservative Back Benchers the details that they claim to crave, it would be helpful if I reiterated the statement on public spending made by my hon. Friend the Member for Derby, South (Mrs. Beckett) in the debate on public expenditure on 13 February: First, the Opposition reject the simplistic view that there is always, and in every circumstance, merit in reducing public spending as a percentage of national income … We are determined to make only the most limited of firm spending commitments—those that we must and can afford. Beyond that, we shall set out the direction of public investment and the priorities and choices of a Labour Government, emphasising throughout that we will not spend more than the country is earning or can prudently afford … Our priorities are clear: immediate relief for those who have suffered most —the pensioners and families with children—and the fostering of much-needed investment in our future".— [Official Report, 13 February 1990; Vol. 167, c. 178.] Conservative Back Benchers ask what this is going to cost. In a special focus on meeting the challenge— Labour's economic policy—Goldman Sachs produced an analysis as follows: Thus the Labour Party has already committed itself to spending at least an additional £3·3 billion on improved pensions and child benefit in its first year of office. I would not quarrel with those figures, which show the commitment implied in the two spending priorities.

Photo of Mr Ian Gow Mr Ian Gow , Eastbourne

I think I heard the hon. Gentleman say that a future Labour Government would not spend more than the country was earning. May we take it from that that it would not be the policy of a future Labour Government to have a public sector borrowing requirement?

Photo of Nick Brown Nick Brown Shadow Spokesperson (Treasury)

The hon. Gentleman implies that we should not borrow to pay for revenue expenditure. If, on the other hand, he suggests that we should not borrow for much-needed investment in the economy, with a clear return over time, I cannot give him the assurance that he seeks. If he is saying that we should not borrow to meet revenue commitments, he is following what I am saying most realistically. I hope that that is a good enough answer for him.

What I have said does not mean that the Labour party has no other spending priorities; Conservative Members have pointed out some of them. Of course we have—they are set out in our policy review documents and in statements by the relevant Opposition Front-Bench spokesmen for the shadow spending Ministries; but, as the hon. Member for Eastbourne (Mr. Gow) pointed out, the real issue is how far an Opposition can go when making detailed public spending decisions and detailed decisions on taxation rates given that the economic circumstances that we shall have to face are not those that prevail now but will be those that prevail at the time of the next election.

The Labour party has set out its public spending priorities, beyond the two firm and clear commitments that my hon. Friend the Member for Derby, South has given. Those priorities will take their place in the public spending round after the next Labour Government come to power. As long as our commitments are carefully costed and tightly controlled, there does not seem much point in conducting a hypothetical shadow public spending round at this stage. Our objectives are clearly stated and our timetable depends on the overall strength of the economy that we shall inherit from this Government after the next election.

If Conservative Members are reluctant to acquiesce in this approach, I have searched the archives to find information that will help me to convince them. I looked for an authority whom Conservative Back Benchers might respect, and failed, but I found some quotations from speeches made by the shadow Chancellor in 1979, before the last election. The right hon. and learned Member for Surrey, East (Sir G. Howe), now deputy Prime Minister, made a number of specific commitments on behalf of the Conservative Opposition at that time, and I am sure that it would interest the whole House if I reviewed them. After all, this debate is about the taxation policies of the Opposition, and it seems unnaturally restrictive to concentrate on the policies of the present Opposition—we ought to have a look at what the Conservatives were saying when they were in our position. They have no right to complain about that, because they are always harking back to the era of the previous Labour Government when they attack us. So we should review what the then shadow Chancellor said, if only as an awful warning to us all.

In his speech at Oxford on 7 April 1979, the then shadow Chancellor said: Every Labour Government puts taxes up … every Conservative Government gets taxes down. The next Conservative Government will be equally true to our record. Of course, that was not true. Taxation as a share of gross domestic product has risen substantially under this Government. They inherited a rate of about 34 per cent.; since 1981 the gross tax take from the economy has been between 38 and 39 per cent.

Again in April of 1979, refuting charges made by the then Labour Government, the shadow Chancellor condemned what he called Labour's dishonesty. He said that there were a number of inexcusable errors in Labour's televised party election broadcast on Friday, which I would like to correct. He went on to say that the Conservatives had absolutely no intention of doubling VAT. Granted, he held out for just over a year, but that was not quite the same as disclaiming any intention. I suppose that the lawyers might have got him out of that, but I doubt whether the electorate would have.

The shadow Chancellor also said: We do not claim to be able to work a miracle cure to solve all the problems of the economy … We want to raise living standards without stoking inflation. That brings to mind the later objective of zero inflation, to which the Government of course said that they were committed. They did not add that they were going to put a 1 in front of the zero for the foreseeable future.

At his press conference on 18 April 1979 the shadow Chancellor said: The next Conservative Government will cut, and cut substantially, the basic and higher rates of income tax. We shall raise, and raise substantially, the level at which people start paying income tax. It took nine years for him to honour that pledge to higher rate taxpayers; for lower rate taxpayers no mention was made of the 2·5 per cent. national insurance increase, which came much earlier than the tax cuts.

By 1982–83, the total tax burden had risen, not fallen. In Pentlands, the right hon. and learned Gentleman said: Creating secure jobs: the Conservative way … it's high time for a fresh approach, in Scotland as well as in the rest of the United Kingdom. The next Conservative Government will give Scotland that new approach. We must make sure the next five years are not as bad as the last. The electorate in Scotland have delivered their own verdict on that.

Dealing with the pace of change and the pace at which commitments would be honoured, in an article in The Times of 13 August 1978, the shadow Chancellor said: I am very anxious to avoid the impression of the instant arrival with the instant decision and the instant solution. I know where I want to go and I am determined that we should go there at a steady pace. The House will recognise that as authentic stuff. He continued: Of course we should want to alter the whole climate as soon as possible, not least because the benefits will be some time a-coming. That is why we are talking about three to four years. When Labour hon. Members talk about the pace, Conservative hon. Members say that that is not allowable; however, they made precisely the same points when they were in opposition.

My right hon. and hon. Friends will no doubt ask, "Where did that policy all end? Where did the former shadow Chancellor's pledges get him?" By December 1980, Ian Aitken was writing under the headline Sir Geoffrey complains of being hampered by election pledges. That report—in The Guardian in December 1980—said: The Chancellor of the Exchequer claimed last night that his mini-Budget was the direct result of pledges and commitments made by the Conservative party before and after the general election. He told sceptical Tory backben-chers that he now found himself, surrounded by road blocks created by these undertakings … he is understood to have told the private meeting that the Government was now `pushed out against the frontiers of our pledges'. It all ended in tears. By 1983, the financial section in The Guardian was saying in a leader article: how the Tories failed to keep their tax promises". The article pointed out that wealth had not been redistributed in the way in which the Conservatives had said that they intended. That is an awful warning to those who make promises before general elections and cannot keep them afterwards. The Labour party has been careful about its detailed pledges—careful to ensure that it does not make any more promises than it can sustain. It is setting out a broader programme, which we hope to achieve if circumstances allow. It is right for us to do that.

The article in The Independent on Labour tax policies, to which reference has been made, sets out a number of charges under the headline Labour's half-baked conversion on tax". The headline bears no relationship to the content of the article. One charge is that The threshold for high-rate tax will no longer be raised in line with inflation, so that in real terms the starting point for higher tax will be lowered. That is what the Government did in the previous Budget, and it is precisely what we have not said that we will do. In fact, we have not said where the tax bands will be placed.

We have set out our parameters carefully. We have said that the top rate of tax will be 50 per cent. It is right for Conservative Members to say that we have pledged to eliminate the national insurance threshold for people earning more than £30,000—or whatever the national insurance ceiling is. That will mean that some people are paying more. That change will take some people up to 59 per cent. That is the top rate of taxation that endured for the entirety of the chancellorship of the deputy leader of the Conservative party, and for most of the chancellorship of the right hon. Member for Blaby (Mr. Lawson). If is is such an iniquity to return to a rate that is only slightly less than that which endured for all that time, why did the Conservative party not rise up and insist that for most of the 1980s such a rate was reduced rather than sustained?

The hon. Member for Hertford and Stortford had a chance to move a motion on economic affairs. It is a poor and desperate attack that does not tell us anything, except about the people who launched it. Why do Conservative Members find it necessary to attack the Labour party for something that it is not going to do? After 10 years of Conservative government, why do they not try to show the party's economic achievements? Why do they not table a motion about the inflation rate, at 10 per cent.; about the growth rate forecast by the Government, at 1 per cent., which will put us bottom of the growth league; about the Government's forecast for negative growth in investment in the 1990s; about interest rates, praising the Government for the highest interest rates in Europe; about another Government record—the record trade deficit, which was £21 billion last year and last month the second highest ever, at £2·2 billion; about unemployment, which is now signposted for an upturn; about social justice, which is something not to be found in the Conservative party's tax policies; and, to top it all, why do we not have a motion about the electoral success of the poll tax and its widespread popularity?

Those are the real issues that are involved in the management of the economy. The Conservatives dare not have a debate in their own time about any of them, so they must attack us. They cannot even attack us fairly; they must do so unfairly, and on spurious grounds.

Photo of Mr Anthony Coombs Mr Anthony Coombs , Wyre Forest 6:55 pm, 14th May 1990

I thank my hon. Friend the Member for Hertford and Stortford (Mr. Wells) for giving us this opportunity to examine the vague and vacuous taxation policies of Her Majesty's Opposition. My hon. Friend quoted Lewis Carroll, and I shall quote Edmund Burke, who said: It is a general popular error to imagine the loudest complainers for the public to be the most anxious for its welfare. It is interesting to note that members of the Labour party dress up their taxation policy in terms of social justice and fairness. High-tax high-spending policies have had precisely the opposite effect. Most people would agree that high-tax, high-spending policies reduce incentives, enterprise and growth, and therefore reduce the chance of jobs in many constituencies. They prevent growth, and therefore the additional finance that the Government have made available for public services. Most important of all, those policies damage the interests of the people in the lower-paid groups whom the Labour party purports to represent.

Not only did the previous Labour Government increase tax rates to 83 per cent.—and 98 per cent. for investment income—for the wealthiest in society, but, because they did not uprate tax allowances in line with the inflation that they had created, 1·8 million more lower-paid people were paying tax when they left office than when they came into office. If we compare that with the Conservative Government's record, we find that 1·2 million lower-paid people are now not paying tax who were paying it under the previous Labour Government.

When we examine the Labour party's proposed tax policies, we must bear two things in mind. First, in the three years between 1974 and 1977, the Labour Government increased the amount of tax payable by an average household with an average income from £389 a year to £876 a year. Secondly, if we compare the share of income tax paid by the top 5 per cent. of earners in 1976 —when the Labour Government were in power, with their high-tax and high-spending policies—with 1989, with the Conservative party's low-taxation policies, we find that that top 5 per cent. have increased their proportion of total tax from 25 to 29 per cent. The top 10 per cent. of earners now pay 40 per cent. as opposed to 35 per cent. of the total tax take, whereas the lowest 50 per cent. of wage earners pay only 16 per cent. of the total tax take. That is hardly unfair.

Let us extend that argument to the amount of wealth held by various proportions of the population. In 1971, again under a high-tax regime—just after the Labour government of 1966–70 has left office—the top 1 per cent. of wealth owners, including pensioners, had 21 per cent. of the total wealth. By 1987, the figure had dropped to only 11 per cent. The top 5 per cent. earned 37 per cent. in 1971 and now earn only 24 per cent. The top 10 per cent. earned 49 per cent. in 1971 and now earn 35 per cent.

Because a low-taxation, high-incentive society gives more people more opportunities to climb the ladder and create wealth, it creates a more even distribution of wealth. That is why a high-incentive——

It being Seven o'clock, proceedings on the motion lapsed, pursuant to Standing Order No. 13 (Arrangement of public business).

7 pm

Photo of Mr Max Madden Mr Max Madden , Bradford West

On a point of order, Mr. Deputy Speaker. I wish to raise a point of order, notice of which I gave to the Chair earlier this evening and to the Home Office an hour or more ago. I understand that immigration officers and police officers are at this moment searching for 33 young Chinese people, including a girl who is eight and a half months pregnant, who arrived in the United Kingdom 10 days ago. I understand that they were in possession of visas to enter Canada and, for reasons which are not known, the airline refused to take them to Canada, and they were left in Britain.

Photo of Mr Harold Walker Mr Harold Walker , Doncaster Central

Order. What is the point of order for me?

Photo of Mr Max Madden Mr Max Madden , Bradford West

My point of order is that the British Government professed their outrage at the massacre in Tiananmen square last June. These young people fled China because of that massacre and are now being——

Photo of Mr Harold Walker Mr Harold Walker , Doncaster Central

Order. What is the point of order?

Photo of Mr Max Madden Mr Max Madden , Bradford West

They are now threatened with deportation from Britain to Panama, which I do not think is well known as a place of haven and stability. My point of order is that I would urge that no action be taken to arrest, detain or deport these young people until we have——

Photo of Mr Harold Walker Mr Harold Walker , Doncaster Central

Order. I understand the hon. Member's concern, but, that has nothing to do with my responsibilities to the House and the Chair.

Photo of Mr Max Madden Mr Max Madden , Bradford West

Indeed, Mr. Deputy Speaker. I should like a statement from the Home Secretary to the House later tonight——

Photo of Mr Harold Walker Mr Harold Walker , Doncaster Central

Order. It has taken the hon. Member a long time to get to that matter. I have not received a request for a statement to be made. No doubt the hon. Member's comments will have been heard by those on the Treasury Bench.

Photo of Mr Max Madden Mr Max Madden , Bradford West

When I contacted the Home Office earlier tonight, I asked for a Home Office Minister to be present when I raised my point of order at 7 o'clock. I was assured that efforts would be made to have such a Minister present——

Photo of Mr Harold Walker Mr Harold Walker , Doncaster Central

Order. The hon. Member must recognise that these are not matters for me. I have no responsibility for them.