Orders of the Day — Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 9:24 pm on 10th March 1999.

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Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells 9:24 pm, 10th March 1999

Will the hon. Gentleman forgive me for not doing so? I would normally give way, but I want to answer some of the points raised in the debate, including his. I am short of time and the Paymaster General has to speak as well.

Two weeks ago, the Prime Minister went to Milan to speak to the socialist convention, where he lectured his European Union colleagues on how they should adopt the United States business practices of low taxation, fewer regulations and less Government interference. That is what he said, but it is not what he does—instead, he is converging on the wrong economy. If he really believed what he said, why does he not have a convergence programme with the United States? Instead, we are converging with the European Union economies. The EU is increasingly a high-tax, high-cost, high-regulation, high-unemployment zone, yet it is that disease which the Prime Minister invites this country to catch all over again. It is hardly surprising that his remarks were greeted with amused contempt by his colleagues, who pointed out—if not to him then certainly to each other—that he was telling them to adopt the US model while doing the opposite in his own country, as demonstrated by yesterday's Budget.

Increased regulation is not the only problem. My right hon. Friend the Member for South Norfolk (Mr. MacGregor) complained about additional complexity in the tax system. Take stamp duty: the Chancellor inherited two rates of stamp duty, but now we are to have four. The right hon. Gentleman said, completely misleadingly, that the measure was all about householders and that only those who buy expensive houses will pay the additional rate—but most stamp duty is paid by the commercial sector, so it is the firms and enterprises that the Chancellor says he wants to help which will pay the additional taxation. The same is true of corporation tax; the Chancellor inherited three bands of corporation tax, but now we are to have five. The story is the same on income tax; the right hon. Gentleman inherited three bands, but now we are to have five. Massive additional complexity is being built into the tax system with which the Chancellor expects people to comply.

The much-leaked l0p rate of income tax is advanced as a means of tackling poverty, but if the Government were really interested in tackling poverty, they would take people out of taxation altogether, because a l0p tax band is not a good way to help people on lower incomes. If the Government are serious about helping people on the bottom of the income scale, they should reverse the disgraceful decision to end the repayment of dividend tax credits to non-taxpayers—a matter we debated a few months ago. There are 300,000 non-taxpaying pensioners who, from April this year, will not be able to reclaim those dividend tax credits. They are among the most disadvantaged people in the country, yet the Government have decided to do nothing to help them.

Instead, the Government are bringing in a 10p rate of income tax, but, as my hon. Friend the Member for Banbury (Mr. Baldry) pointed out, abolishing the 20p band, which the Government are doing simultaneously, pushes people upward into the higher 23p band as well as downward into the new l0p band. That has been spotted by commentators outside the House, and David Major, a partner in Deloitte and Touche, is quoted in today's newspaper as saying: There may be an illusion that he has given something away with the l0p band…What he has done is to abolish the 20p band to more than pay for the l0p band. There we have it—another example of stealth taxation. The Chancellor says that he will bring in a tax credit for children, but he will do so a full year after he abolishes the married couple's allowance. Therefore, for a full year he has the benefit of the money from abolishing one allowance before giving some of it back to some people by introducing a measure of greater complexity in a future Budget.

We have also heard about the relentless increase in indirect taxes, especially excise duties on tobacco and fuel. My hon. Friend the Member for East Yorkshire (Mr. Townend) raised the issue of tobacco smuggling, which has become epidemic and results in lost revenue of at least £1.5 billion a year, perhaps more.

It is noticeable that the Budget report now estimates that the revenue from tobacco will be £7 billion next year. However, last year's pre-Budget report estimated that the revenue would be £8.9 billion, so nearly £2 billion in revenue has suddenly disappeared. I think I know where it has gone: it has gone overseas or been lost through smuggling. In giving his reasons for increasing tobacco taxation, the Chancellor referred to the importance of dissuading young people from starting smoking. However, if they buy tobacco from uncontrolled outlets in clubs, pubs and car parks, they are more likely to take it up.

When in opposition, the Prime Minister was fond of saying that we should be tough on crime and tough on the causes of crime. The cause of this crime is the Government's widening even further the gap between our rates of duty and those of continental Europe. It is a particularly odd policy move from a Government who are committed in principle to tax harmonisation in Europe— indeed, the Paymaster General, who is about to reply to the debate, chairs a Committee on tax harmonisation. Yet the Government are doing the opposite at home: they are disharmonising and making the gap bigger.

Another example is fuel duties. I agree entirely with my hon. Friend the Member for Tiverton and Honiton (Mrs. Browning) who said that increased fuel duties are particularly unfair on the rural motorist for whom a car is not a luxury, but a necessity. The rural motorist was abandoned long ago by this Government. My hon. Friend the Member for North Shropshire (Mr. Paterson) highlighted another serious problem. He has done a tremendous amount of work raising the profile of this issue, so the Government are fully aware of it.

Quite simply, the British haulage industry is being rendered uncompetitive in European terms as a result not of anything that it has done, but of something the Government have done to it. The Government are erecting a green smokescreen: under the guise of an environmental measure, they are piling tax upon tax. That is bad not just for the haulage industry directly but for manufacturing industry as a whole, because all manufactured goods must be transported.

The Government's policy is particularly destructive because they have singled out diesel for special increases. Diesel is the fuel of industry—if the Government do not know that, someone should have pointed it out. We are talking not about the private motorist but about British jobs—particularly those in constituencies with a heavy manufacturing bias. Diesel is to increase by another 12 per cent. Even the low-sulphur diesel, to which the Chancellor said that he would give an "additional tax advantage", has increased by 10 per cent. If the Chancellor is considering any more special tax advantages, I hope that he will think again. I do not want a tax advantage if it means an extra 10 per cent. rate of duty.

The haulage industry must not only try to pass on some of the costs to the rest of British industry—and thereby make it uncompetitive—but must face competition from abroad. We have the most expensive fuels in Europe and there is a smuggling problem in northern Ireland. I tabled a parliamentary question asking whether the Government had estimated the amount of fuel that is being smuggled across the border by criminal gangs and paramilitaries. They replied that no estimate had been made. That is not good enough. We are talking about colossal sums of money which induce criminality. The tobacco and fuel tax increases are certainly bad for individual taxpayers, for industry, for competitiveness, for employment and for the rule of law—and, in the longer term, they are bad for the Revenue as well.

I turn briefly to the overall impact of the Budget. My hon. Friend the Member for Wycombe (Sir R. Whitney) raised, quite rightly, the prospect of a manufacturing recession. The Budget report records that manufacturing output will fall this year by between 1 and 1.5 per cent. That is not only a technical recession, but a severe one. My hon. Friend also said that he does not believe the Government's growth forecasts. They, too, are optimistic. Almost all outside commentators estimate growth to be well below Government estimates, not only this year but next year. That would make any manufacturing recession even worse.

The hon. Member for Harrow, West (Mr. Thomas) spoke eloquently in favour of an energy tax, but, if that is introduced, it will be another hit on manufacturing industry. He may have put forward a good environmental case, but he entirely overlooked the industrial damage that will be caused.