Orders of the Day — Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 8:29 pm on 10th March 1999.

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Photo of Tony Baldry Tony Baldry Conservative, Banbury 8:29 pm, 10th March 1999

The Budget is a crucial time because there is nothing more fundamental in the state than what the state takes and what the state returns and redistributes. Therefore, it is important for democracy and good governance that what happens in the Budget is reasonably transparent. This Budget is deliberately opaque. Its opaqueness is such that, the day after the Budget, the Prime Minister and my right hon. Friend the Leader of the Opposition are still involved in a lengthy wrangle about whether the burden of taxes has increased or decreased. That must be a matter of fact that could be resolved fairly easily.

Those who turned on BBC Radio 4 news this morning at the first opportunity—6 o'clock—would have heard the commentator on the business news confirm that, so far as the BBC is concerned, taxes are going up and will go up substantially each year for the next four years as a consequence of the Budget. That view is clearly confirmed by the House of Commons Library, but the fact that it is still a matter of dispute is a reflection not only on the Government, who persist in putting up taxes, but on the way in which the Budget has been presented. Different tax years have been confused, some measures that have been introduced will not be implemented for two years and we have had to try to compare the various figures, so it is not surprising that there has been a fair degree of confusion.

The Government are somewhat embarrassed by all that, because the Prime Minister said before the general election that the Labour party had no plans to increase tax at all. However, only last week he had to acknowledge that the tax burden will increase over this Parliament. The tax burden has already increased substantially during this Parliament—Labour's first two Budgets increased taxes by more than £40 billion. This Budget includes a substantial number of new taxes, the impact of which upon individuals, couples and families is not immediately obvious. Mortgage interest relief has been scrapped, the married couples' allowance has been abolished, company car taxes and stamp duty have gone up and petrol tax has gone up yet again.

In a number of ways, the delivery of the Budget was intended to obfuscate. For example, yesterday, the Chancellor made much to all of us in the Chamber of the fact that the bottom rate of income tax will be lowered to l0p, but there was no mention at all of the scrapping of the 20 per cent. band. People earning the maximum allowed at the basic rate of income tax will pay slightly more tax next year, despite the introduction of the 10 per cent. band. They will pay up to £141 extra tax because the 10p rate will apply only to the first £1,500 earned in excess of personal allowances. The 23 per cent. basic rate of income tax will be extended to cover earnings between £1,501 and £28,000.

At first sight, those measures looked like good news for those on lower pay, but the Chancellor forgot to tell us that he was scrapping the 20 per cent. band. When one looks at the facts, they are somewhat different from the spin. The 10 per cent. rate was trumpeted as the centrepiece of the entire speech, but the ending of the 20 per cent. rate went unannounced. It was simply abolished by omission—glided over as if it had never been.

Although attention is intended to be drawn to the 10 per cent. bottom rate of tax, no adequate attention was given to the fact that the upper earnings limit on national insurance will rise by more than 18 per cent., thus cutting take-home pay over the next two years. For most people there is little difference, whether in respect of tax or national insurance contributions, and many people will see more of their pay absorbed by national insurance contributions.

The Chancellor hailed the introduction of the children's tax credit as a reasonable quid pro quo for scrapping the married couples' allowance in April 2000, but the children's tax credit will not be introduced until 2001. That is a further example of the Chancellor confusing different years and seeking to give the impression that he is being generous, but all the figures show that the position is somewhat different and millions of households—couples with children, couples with a mortgage—will suffer a loss.

Pages and pages of the Budget were devoted to various schemes intended to help business, but many are so complex that an aspirant entrepreneur will find himself surrounded by eager officials from the new Small Business Service and accountants explaining the joys of tax breaks for investment and for research and development. There is also the offer of computers from the capital modernisation fund, but businesses in my constituency in north Oxfordshire want to be left alone by the Government and a substantial reduction in regulation.

I am prepared to lay a wager with Ministers on the Treasury Bench that an independent poll taken a year from now in a patch such as my constituency would show that very few businesses had contacted the Small Business Service or had been able to take advantage of any of the specific measures in the Budget.

Those businesses are really concerned about the general burdens on manufacturing industry and the manufacturing base and what they see as an ever-increasing army of health and safety officials, building regulations inspectors and VAT men who are only doing their job. They are concerned about the working time directive and all the new burdens on business that the Government have introduced from unnecessary European Union directives.

The self-employed are concerned about the substantial increases in their national insurance contributions, which were not properly highlighted by the Chancellor. Many businesses are set up by people who start off as self-employed, so that measure is a real disincentive to them.

It will be interesting to see which, if any, of the various specific measures announced for business come to fruition. Good window dressing and good headlines on Budget day made an impact, but, six or nine months down the line, few of those measures will have made much impact for British business.

The measures in the Budget are intended as spin. The various programmes on enterprise took up seven pages of the Chancellor's speech, but the announcement that he was ditching mortgage interest relief at source took only seven lines. He will give a little more than £290 million through the programmes referred to in those seven pages, but he will take away £1.4 billion by scrapping MIRAS.

Ministers must accept that, although at first sight this looks like a giveaway Budget, it is in fact very complicated. Business people and those involved in enterprise cannot be motivated if they cannot see incentives. I predict that those who will benefit more than anyone else will be chartered accountants: they will have a field day as a result of a Budget which, when it is analysed in years to come, will be seen not as a giveaway but as a Budget which continued to hike up taxes and tried to hide that with spin and obfuscation. It would have been so much better if the Government had sought to cut taxes—