Orders of the Day — Finance Bill

Part of the debate – in the House of Commons at 6:01 pm on 14th January 1997.

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Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury) 6:01 pm, 14th January 1997

As the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) said, the Bill deserves one cheer for being shorter than previous Finance Bills. That is a move in the right direction, although a Bill of 111 clauses, 17 schedules and 219 pages is hardly abridged, and from the consultations that I have had, I understand that it is pretty inaccessible in parts, even to experts.

My constituents have pointed out some of the effects that the Budget will have on them. The cut in spirits duty was welcome, although it merely reversed the damage of two years before. I represent a constituency that contains, on its current boundaries, three distilleries, two of which are closed, and on its new boundaries nine more distilleries, so the state of the Scotch whisky industry is of genuine concern to me.

The industry is a major exporter and an important employer of skilled men—it is mostly men—in rural areas where alternative employment does not exist, and it has experienced serious difficulties. Those involved welcome the fact that the Chancellor has acknowledged the serious damage that he did when he put 50p on a bottle of whisky two years ago. I hope that he will be able to go further and eliminate the anomaly whereby spirits are taxed much more heavily than wine. I have always regarded it as odd that we tax our home-produced spirits much more heavily than the predominantly imported wines, even as a matter of trading policy. That is remarkable discrimination against home production.

Education is an extremely live topic in my constituency. The Government have acknowledged that the tax changes will mean that local authorities face further squeezes. We have all had representations to that effect. In Scotland, education at school level is delivered almost entirely by local education authorities, despite the best endeavours of the Scottish Office Education and Industry Department to persuade schools to opt out.

It is no good for Ministers to say that they are in favour of nursery education and then to create a local government settlement that has made it impossible for us to continue to expand nursery education in the past year, despite the fact that under Liberal Democrat leadership we have substantially increased provision over the past 10 years.

The introduction of nursery vouchers has exacerbated the problem and actively penalises local authorities that have taken the greatest lead in expanding nursery education in the past few years. I shall certainly make representations against that discrimination against local authorities that have been pursuing a policy that the Government claim to support, while in fact they divert money to the expansion of private nurseries at the expense of nurseries that are already provided by the local authority.

The hon. Member for Stamford and Spalding (Mr. Davies) made much of the anomalies in our attempts to get people back to work and of the difficulties in the benefit system. The Liberal Democrats proposed a low-income benefit that would remove some of the anomalies and help people to get back to work by enabling them to take benefit with them and not to lose benefit if the job turned out to be only temporary. At the moment, there is a clear disincentive for people who are offered short-term jobs and are not prepared to take the risk of being off benefit altogether if the job does not last for more than a few weeks.

The Government may take the view that the general fall in unemployment is a justification for a substantial cut in funding for the administration of the various unemployment benefits and jobseeking initiatives. That would be unfair. A successful job club in my constituency, in an area where, contrary to the national trend, unemployment has increased, has now been told by the Employment Service's area manager that it will be either closed or substantially cut, in spite of its handling more people and having more success in finding them work than many comparable job clubs.

The argument is that there will be a saving, because people will be encouraged to claim money to seek jobs from their homes. As an additional service for people who are unable or unwilling to travel to a centre, that would be a welcome development, but as a substitute for the support and advice and access to telephones and newspapers that are available in a job club it is in no way an improvement; it is a cost-cutting measure that will work against the Government's true interests, because at the precise moment when jobseeker's allowance is requiring more people actively to seek work to qualify for benefit, the Government are cutting the very service that people would use in those circumstances. The Government should at least take account of local circumstances, which they clearly have not done with the job club in Huntly.

Transport and the roads budget are also matters for concern. In rural areas, public transport is limited and the potential for further development is virtually non-existent, so the ownership of private cars is a necessity rather than a luxury, yet the Government have pursued policies that have unfairly discriminated against people living in the rural parts of constituencies such as mine.

The Government have increased fuel tax without any corresponding measure to switch from a tax on use to a tax on ownership. They could, as we proposed, have reduced vehicle excise duty on high-efficiency cars—perhaps those under 1500 cc with catalytic converters—to a nominal amount of £10 or £20, which would have meant that people paid the extra tax only when they used the fuel rather than paying high tax simply for the privilege of owning a car that is essential for getting about. I continue to commend that notion to the Government.

It is nothing to do with the macro-management of the economy but a blatant matter of choice that the Government have decided to invest substantial sums in motorways in central and southern Scotland which were not justified on their own traffic criteria, and have cut the promised bypass and road improvements in my constituency, despite the fact that we have had the greatest population increase and growth in traffic of any part of the United Kingdom, and certainly of any part of Scotland.

Understandably, people are extremely angry that, a week before the Budget, the Scottish Office managed to launch a public consultation on a major road improvement on the A92 between Aberdeen and Ellon in my constituency, only to announce a week after the Budget that it would not proceed. The only consolation, although the reply that I have received from the Minister is confusing, is that it would appear that he is prepared to continue the consultation about the route, while saying that there is no firm date on which money will be made available for the upgrading that has been long promised and many times postponed. That is regrettable.

Having identified matters that affect my part of the country, although they clearly similarly affect many others, I must deal with the general thrust of Government policy. No doubt we will deal with the details of the Bill in Committee, but I give Ministers notice of one or two details that will be dealt with there and to which I hope they will give some consideration.

The first is the taxation of insurance, which has already been mentioned. I am sure that the Minister will be well aware that the proposal to tax some insurance policies at 4 per cent. and others at 17.5 per cent. is creating an anomaly that many people, particularly small travel agents, regard as unfair and discriminatory, especially as Customs and Excise accepts that there is no widespread tax avoidance by travel agents. If someone buys a holiday from a travel agent and buys an insurance policy at the same time, as would be likely because the two are related, they will pay 17.5 per cent. tax on the premium but only 4 per cent. on the policy from the insurance broker next door. If consumers are wise, they will find a way of doing that and insurance brokers will no doubt take advantage.

Many small travel agencies, which have legitimately sold insurance as part of a holiday package and have not been trying to profiteer, will be discriminated against and will lose a significant and valuable part of their business. The Government should consider whether that is fair and whether it was their firm intention.

I welcome the Government's decision to bring into line the three-year rule on back payment and collection of VAT. There is no argument on the principle, but I suggest that those areas of the public sector in which unjust enrichment does not apply be exempted. As I understand it, some public sector organisations, particularly trusts and organisations in the health service and in other sectors, have been relying on this rule and may now find their hopes of recovering tax in that way removed. Again, I ask the Government to consider that matter during the passage of the Bill.

The central issue in the debate is what the Budget and the Finance Bill do. There was an extraordinary exercise in the week after the Budget. Apparently, the Chancellor of the Exchequer and the Financial Secretary each said the opposite of the other. Indeed, in spite of repeated questioning from me in the Treasury Select Committee, the Chancellor would neither admit nor deny that the net effect of all the tax changes next year will be to increase the overall level of taxation, yet that appears in black and white in the Red Book. Page 12 makes it absolutely clear that, according to Government calculations, the Budget's tax and national insurance measures will reduce taxes by £735 million, but the previously announced excise duty increases, which take effect in the same tax year, amount to £1,085 million.

Three figures are given in the Red Book—I shall take the median—and it is recognised that the Budget will increase council taxes throughout the country by about £800 million. The net effect is that people will pay tax to the tune of £1,050 million more in the current year than they did last year, which is equivalent to £41 per taxpayer. Those facts are in the Government's own book, yet the Chancellor of the Exchequer is not prepared to admit that taxes will go up next year. It seems extraordinary that he should present the information in such clear-cut terms, but then deny that that is what his publication states.

The other issue that is worth drawing to the attention of the House, for those hon. Members who have not yet read the Select Committee report, although the issues have not merely been raised there, is that one or two measures in the Budget are effectively, as the report describes them, "a sleight of hand"—an attempt to make the figures look good without delivering any significant improvement in the budgeting.

Ministers make two contradictory speeches. Depending on the audience, they say that they are eye-wateringly tough on bringing public expenditure under control, or—to the party conference and Mr. Dimbleby—that they have increased spending on the health service, education, local authorities and anything else one cares to mention more than any previous Government. That makes the average citizen understand that there is some confusion within the Government about exactly what is happening. The Government are finding ways to massage the presentation of the figures—for example, by presenting the sale of Ministry of Defence houses as a negative spend whereas it is just a sale, a capital receipt. It is just one more tranche of the sale of the family silver. The sale of the student loan book is in exactly the same category, as is the reduction in the reserve account. We all accept that reserve accounts can reduce as one gets closer to them because the uncertainty is reduced, but the scale of the reduction is nevertheless such that it is arguable that the reserve account is not now enough to cover any unexpected contingencies that might arise.

In the circumstances, those measures amount to giving the impression of a tight spending round without applying the pain where it really matters, and evidence to the Select Committee reinforced that. It is presenting the figures in a different way.

Incidentally, the total figure is almost exactly what the French Government managed to secure by a similar mechanism from their telecommunications pensions measures. The British Government are doing exactly the same as the French Government to try to make the public sector borrowing requirement meet the Maastricht criteria.