Clause 26 — Charge and rates for 2002–03

Orders of the Day — Finance Bill – in the House of Commons at 6:15 pm on 8th May 2002.

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Question proposed, That the clause stand part of the Bill.

Photo of Edward Davey Edward Davey Shadow Chief Secretary to the Treasury, Shadow Minister (Olympics and London)

I and my colleagues wish to debate this clause because it goes to the heart of the Budget strategy and the choices that faced the Chancellor and his team in preparing the Bill and the Budget. We agree with the Government that extra resources are needed for the national health service and for public service investment in general—in our schools, police forces, transport system and care homes. There is a long list of where investment is needed, and there is some agreement that services, particularly the health service, have been deprived of essential investment for far too long. It is our understanding from the analysis in the Wanless report and from the brouhaha and trumpeting of the Budget that it is the Government's intention to find extra resources. We are delighted that, at long last, they have admitted that and have found the money.

It is interesting that we are debating a clause that introduces the income tax charge and rates for 2002–03. On the same clause in previous Finance Bills, I and other Liberal Democrats have argued the case for extra investment in our public services, such as the health service and schools. We have led the debate and the political argument for extra resources funded by fair taxation. In previous Budgets, we have argued for the rates to be higher than proposed or to reverse the cuts that have been proposed in previous Finance Bills. We did that to try to ensure that precious resources were available for investment in public services.

This year, the debate is slightly different, because the Government have found the resources in another way. The debate on this clause is about how we should find the resources and about which taxes should be increased so that we can put money into public services. As is well known, the Government have chosen to do that by increasing employees' and employers' national insurance contributions, and we differ from them on that point. We accept their objective of increasing investment, but we are concerned about their tax strategy and about the taxes that they have chosen to increase.

Although we are forced by the procedures of the House to vote on clause stand part, we would ideally have liked the clause to contain a proposal to put up the basic rate of income tax by 1 per cent. to fund education investment. There should also be a new top rate of tax of 50 per cent. on incomes of more than £100,000 a year to raise the resources that are needed for the investment that we have talked about. Unfortunately, the procedures of the House do not allow us to table such amendments, so we have to signal our intentions by voting on clause stand part. That is what we have done in previous years, and our approach is totally consistent with that.

Why are we suggesting a different tax-raising strategy from that adopted by the Government? If one compares the proposal for an increase of 1p in the basic rate of income tax with an increase of 1 per cent. in employees' national insurance contributions, we believe that it becomes clear that the income tax rise is fairer and more efficient. It is clear from the analysis carried out after the Budget by the Institute for Fiscal Studies and others that the rise in employees' national insurance contributions involves a narrower net and imposes a burden on a narrow group of people. It excludes pensioners and those who live off unearned income or who have substantial unearned income.

Most pensioners would not pay the extra penny on income tax. They are not income tax payers, because of the age allowances. However, pensioners with substantial incomes would pay the extra penny in the pound and the wealthiest pensioners would pay the most. We are willing to argue the case that, if pensioners are wealthy, they should contribute as well. We believe, like the Government, that the poorest pensioners and those on modest incomes should be protected, and they would be protected under Liberal Democrat proposals just as they are under Government proposals. However, the wealthier pensioners would escape under the Government's proposals but not under ours. We do not see the justification for the Government's approach. In the Budget debate and on Second Reading, we asked them to justify why wealthier pensioners were excluded, but justification came there none. That means that we must debate the issue again tonight.

More serious for the Government—I am sure that Labour Back Benchers, in particular, feel this—is the fact that those with a significant unearned income are excluded from the rise in employees' national insurance contributions. They are not being asked to contribute any more towards the health service, and that is difficult to understand. We agree with the Government that resources must be raised to turn round the years of underinvestment and underspending in the health service, so we should surely ask the better-off in society to make their contribution. However, the Government's Budget strategy deliberately excludes some of the wealthiest people in society, and that is why we stand firm in saying that a 1p increase in income tax is the best approach. It would ensure that everyone, particularly those with the greatest means, would be asked to contribute to a service that is provided to people equally and according to their need.

Photo of Chris Grayling Chris Grayling Conservative, Epsom and Ewell

I do not want in any way to support the principle of tax increases. However, does the hon. Gentleman accept that—in contrast to the national insurance route—his argument would place an increased tax burden on, for example, a pensioner with an income of £10,000 to £12,000 a year? That burden will not occur if the Government proceed with their proposals.

Photo of Edward Davey Edward Davey Shadow Chief Secretary to the Treasury, Shadow Minister (Olympics and London)

The hon. Gentleman is, of course, right. However, the amount of money asked from those on modest incomes would be relatively small because, as I am sure he will accept, income tax is a proportionate tax. People on low incomes will, by definition, pay a very small amount. Most pensioners do not pay income tax, because they are protected from it by the higher age allowances. Therefore, the vast majority of pensioners would not pay under our proposals.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury) 6:30 pm, 8th May 2002

I know the hon. Gentleman is aware that only four out of 10 pensioners pay tax, but is he also aware that nearly 3 million pay it at the 22p rate which, by definition, means that they are on a low income? He is proposing to hit that group of people on fixed low incomes. Only 230,000 pensioners pay the higher rate of tax. His argument about spreading the burden does not work because he would spread the burden disproportionately on pensioners on fixed incomes.

Photo of Edward Davey Edward Davey Shadow Chief Secretary to the Treasury, Shadow Minister (Olympics and London)

That last phrase is incorrect. We are talking not about spreading the burden disproportionately, but about asking a wider group of people to pay. I am more than prepared to admit that the Liberal Democrats would ask more people to contribute than the Government are asking. I am not hiding that fact. Indeed, I was the person who raised it in the first place; it did not require an intervention to drag that information out of me. Our proposal is fairer. The extra amount that pensioners on £10,000 would have to pay would be tiny. Extremely wealthy pensioners, however, would pay much more under our proposals.

I note that the Paymaster General did not say why wealthy people with a larger share of income from investment income—unearned income—should be protected from making an extra contribution. It is extraordinary that they are not being asked to contribute to the important endeavour to put the health service in a sounder fiscal position.

Photo of Chris Grayling Chris Grayling Conservative, Epsom and Ewell

The hon. Gentleman still misses the point about the financial predicament that many pensioners face. They have retired on fixed incomes, perhaps with a small pot of savings. The income from those savings has fallen as interests have decreased to an historically low level. They have experienced yearly increases in council tax which are vastly above the rate of inflation and have no ability to increase their income. So every time another slice is taken out of their income, it is another handicap to them making ends meet. That would be the consequence of the hon. Gentleman's proposal. It is easy to get caught up in an attempt to deal with the very small number of high earners, but the hon. Gentleman's proposals would have an impact on lower-income pensioners.

Photo of Edward Davey Edward Davey Shadow Chief Secretary to the Treasury, Shadow Minister (Olympics and London)

I am glad that the hon. Gentleman mentions council tax. The Liberal Democrats are the only ones who have pledged to abolish council tax and to replace it with a local income tax. That would significantly help pensioners. They would be much better off as a result of the combination of our policies. The hon. Gentleman is right to say that many pensioners on fixed incomes are significantly hit by council tax. That is why we need to reform that pernicious tax, which his party introduced.

The second part of the Government's tax strategy in the Budget is the 1 per cent. increase in employers' national insurance contributions. We propose a new top rate of tax of 50p in the pound on incomes above £100,000, which would raise an amount similar to that in the Government's proposal. Indeed, it would probably raise more on a net basis because the Government would not have to pay the higher tax for the many people who are employed in the health service and other public services. Our proposal would liberate an equal amount or more for public service investment. In addition, it would be fairer and more efficient: fairer because it would ask those people who can afford to pay to make their contribution, and more efficient because it would not increase the costs of business.

We all know from the press reports and the analysis after the Budget how worried business is by the increase in its cost base because of the increase in employers' national insurance contributions. It is a real concern that that might hit jobs, investment and the competitiveness of UK plc. Once again, the Government have ducked out of the hard decisions. They have put a major burden on business when they had an alternative way to raise revenue. That is why I urge Members on both sides of the Committee to ask the Government to think again about their tax strategy by voting against the clause.

The Committee knows that the Liberal Democrats have been consistent on this matter since, I think, 1989. That is 13 years of consistency on tax policy. In that time, we have argued for increases. Our plans have been fully costed and we have put them before the British people a number of times. Although a majority have not voted for them, some of them have proved in opinion polls to be the most popular policies. We believe that had the Government adopted them, they would have received much greater support and would not have lost the support of British business in particular.

I do not know whether the Conservative Front-Bench spokesmen will participate in the debate, but if they do I hope that they tell the Committee how they will find the money for the NHS, our schools and our police. If they do not do that and then vote against the national insurance legislation, they are being disingenuous—indeed, dishonest—with the British people. They say that they want to back the money for the health service, but they do not will the means. Both before and after the Budget, we stood by our election manifesto proposals of June last year to show where the money would come from to pay for our policies. Like the Government, we think that the investment is vital. The Conservatives have yet to produce proposals on that.

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

The hon. Gentleman is uncharacteristically confused. For the avoidance of doubt, I put it on the record, as has been articulated by my right hon. and hon. Friends before, that it is the position of the Conservative Opposition that although this country needs to spend more on health, it is by no means clear, through an examination of the systems of health provision across continental Europe, that that expenditure is best made on the basis of moneys raised through tax. Unlike the hon. Gentleman, who has a closed mind, my hon. Friends and I have open minds. We will explore the alternatives, see what is best and produce a credible, detailed, costed and attractive alternative to the failures of the Government, which is a damn sight better than the Liberal Democrats have ever managed.

Photo of Edward Davey Edward Davey Shadow Chief Secretary to the Treasury, Shadow Minister (Olympics and London)

I am delighted to have provoked the hon. Gentleman. That is what I intended to do, but he has failed to clarify the Conservative party's policy. As usual, he promised us that some day soon—or perhaps not so soon—we will hear how they propose to raise the billions of pounds.

Photo of Edward Davey Edward Davey Shadow Chief Secretary to the Treasury, Shadow Minister (Olympics and London)

I will give way if the hon. Gentleman holds steady for a moment.

It is all right for the hon. Gentleman to say that the Conservatives will clarify their policy in a year or two, but what about the billions that are needed now for the health service? How would he ensure that the billions going into the health service over the next one, two or three years are funded? It is fine if he supports the Government's approach or our approach, but if he does not support either because he does not support a tax-funded NHS, he needs to say how the money would be found now. If he cannot, the implication is that there would be cuts to the health service in every constituency up and down the country. He has to have an alternative. [Interruption.] Conservative Members groan in their usual way, but they have to tell the people where the money would come from. Will the hon. Gentleman tell me where it would come from this year?

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

The problem from which the Liberal Democrats suffer is that they have been undergoing a process of intellectual retardation without interruption for some years. If the hon. Gentleman is in the business of offering to the Committee his prescription to remedy the ills of the health service before there has been a proper diagnosis of what those ills are, I can only say that it is extremely fortunate that he did not opt for a career as a general practitioner. At the moment, large sums of money that are allocated to the Department of Health are not spent. As a consequence, treatments that could be provided are not being provided. We will do our homework. If the hon. Gentleman thinks that it is sensible, 11 months after losing the last election on the last manifesto, to be expected to produce tonight the contents of the next, that only underlines why his party is the minority party and why it will remain so.

Photo of Edward Davey Edward Davey Shadow Chief Secretary to the Treasury, Shadow Minister (Olympics and London)

If the hon. Gentleman continues to perform like that, I will continue speaking and provoke him even more because it will elucidate for the Committee more information, or lack of information, about the Conservatives' position. The Liberal Democrats are engaged in a major policy review of our public services. We have already produced a consultation paper, which went to our conference in Manchester.

Photo of Joe Benton Joe Benton Labour, Bootle

Order. The hon. Gentleman can continue his party competition outside the Chamber. I should like us to return to clause 26.

Photo of Edward Davey Edward Davey Shadow Chief Secretary to the Treasury, Shadow Minister (Olympics and London)

I am grateful for that remonstration, Mr. Benton. I was just trying to help Mr. Bercow, but of course I will return to the matter in hand. The Committee will be pleased to learn that I was just coming to a conclusion.

The Government did not adopt our proposals for income tax increases instead of national insurance increases simply because of the little card that they had at the 1997 election. It is about grubby politics, and not about what is best, fairest and most efficient for this country, and I deeply regret that.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

In advancing his views, Mr. Davey often talks a good talk, but he does not always follow through. It is a regular claim of the Liberal Democrats that they thought of an idea first, but when looking at this Government's investment, particularly in the health service, we find that we have, at every point, invested more than the Liberal Democrats wanted, and more than would have been yielded by their 1p on income tax or any of their other little ruses.

The hon. Gentleman says that he does not disagree with the Government that extra money is needed for the NHS, but he disagrees about the method of investment, and he focuses tonight on income tax rates. He says that he would have liked to table amendments to raise the 22p tax rate to 23p and to increase to 50 per cent. the tax on annual incomes of £100,000 or more. What is extraordinary is that he tabled an amendment, which was not selected, to put an extra 1p on the 22p rate, but he tabled no amendment on a 50 per cent. rate for incomes of £100,000 or more.

Chris Grayling, who intervened on the hon. Gentleman, made the point, which the hon. Gentleman did not seem to understand, that because of the freezing of allowances, pensioners on higher incomes will be contributing, but when we consider the distribution of income among the small number of pensioners who pay tax on their fixed income, we see that the vast majority would be hit by the 1p rise in the 22p rate which the hon. Gentleman advances.

As we have said a number of times, the Government's view is that ever since Beveridge, the national insurance system has depended, rightly, on the principle that people contribute while in work for the benefits and services that they need when they cannot work—a sound principle that is being continued by this Government.

Photo of Chris Grayling Chris Grayling Conservative, Epsom and Ewell 6:45 pm, 8th May 2002

I suspect that this point is symptomatic of the Liberal Democrats' ability to change their story according to circumstance, but is the Minister aware that the 1p on income tax to which she refers was, at the last general election, designed to be spent entirely on education? I am therefore slightly at a loss as to how Mr. Davey relates that 1p to the health service tonight.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I am grateful for the hon. Gentleman's prompting. I was going to come to that point next, but I also wanted to make a point about savings. The hon. Member for Kingston and Surbiton talks about pensioners who have savings, but he makes no proposals in his speech or in any of the documents that the Liberal Democrats have produced to change the taxation rates on savings, which would be an issue for pensioners.

The point made by the hon. Member for Epsom and Ewell is also very interesting. The Government have specifically said that the rise in the national insurance rate will directly contribute to extra spending in the five-year plan for the NHS. The Liberal Democrats have put together a package of amendments on tax, and they spend the money everywhere. They do not match the extra spending that the Government are giving to the NHS; nor do they match our spending on education. Those amendments are just convenient little soundbites in which the Liberal Democrats fail to do precisely what they have implored the Government to do—be direct about what tax is being raised and what it will be spent on.

The Liberal Democrats then come up with the most extraordinary proposition. Income tax is an annual tax; it has to be renewed annually. Those who vote against this clause seek to prevent the Government from setting any rates for income tax, at a cost to the Exchequer of £102 billion this year and £117 billion next year. The hon. Gentleman needs to decide how he wishes to engage in this debate. My right hon. Friend the Financial Secretary said earlier that much of the Liberal Democrats' engagement in debates is not designed for a sensible discussion of the way forward; it is designed so that they can give the soundbites that will go into their "Focus" magazines to misrepresent the true choices facing the people of this country.

The Government say that a comprehensive health service, free at the point of need, will be funded through the Beveridge principles. We also say that we need more investment in our public services, and with all the work that we have undertaken to build a stable economic framework for growth and for sustainable public services, what is required now is a freeze on allowances and the setting of the tax rates this year at 10p, 22p and 40p again, as we promised at the election.

We said that we would use the tax credit system to help those in greatest need, to recognise the burdens and extra expenses of having children and to ensure that revenue is put aside for sustained investment, year on year, in the NHS to give us the first-class service that we need. It is about time that the Liberal Democrats stopped playing around with their 1p and faced up to the true magnitude of the investment in our public services that is necessary to make them first class. On that basis, I commend the clause to the Committee.

Photo of Edward Davey Edward Davey Shadow Chief Secretary to the Treasury, Shadow Minister (Olympics and London)

That was a disappointing reply from the Paymaster General, who chose not to mention the fact that 60 per cent. of pensioners on low and modest incomes would not be hit by our proposals. She could have told the Committee that under parliamentary procedures it is impossible to table an amendment to increase the rate of income tax.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

Perhaps the hon. Gentleman could explain why he tabled an amendment to increase 22p to 23p, even though it was not selected for debate.

Photo of Edward Davey Edward Davey Shadow Chief Secretary to the Treasury, Shadow Minister (Olympics and London)

The amendment was included on the Order Paper so that people could be clear about our policy. Having taken advice from the Clerk, I knew when I tabled it that it was not selectable; I hope that that answers the Paymaster General's point. We want to get our policy on the record. Unfortunately, parliamentary procedures prevent some amending of expenditure and tax Bills—I am very much against those procedures—which means that one has to try to make one's point in other ways, which is what we did. The Paymaster General therefore does not have a strong case.

The Paymaster General and the Financial Secretary share an antipathy to "Focus" newsletters, which have been effective in Brent and Bristol, where Liberal Democrats made net gains last Thursday—[Interruption.]

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

What irritates us so much is the fact that, in many of our constituencies, Liberal Democrats campaign locally on not increasing taxes and cutting public services, but in Committee their representatives have the audacity to argue exactly the opposite.

Photo of Edward Davey Edward Davey Shadow Chief Secretary to the Treasury, Shadow Minister (Olympics and London)

There are some areas where council tax—an unfair tax supported by the Government and the Conservatives who introduced it—is too high and hits pensioners. Our Liberal Democrat colleagues around the country are right to campaign both to replace council tax and to cut it. In the House, we have argued for increases in fair taxes that spread the burden of the cost of paying for public services, and we shall continue to do so. That proposal is now before the Committee, which should consider whether it supports increases in the health service budget funded by an inefficient, unfair mechanism or increases funded by a fair and efficient method. I advise Committee members not to support the clause, and urge them to join the Liberal Democrats in the lobby to vote for a fair and efficient way of raising money for our health service.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 452, Noes 53.

Division number 227 Orders of the Day — Finance Bill — Clause 26 — Charge and rates for 2002–03

Aye: 450 MPs

No: 52 MPs

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Abstained: 1 MP

Abstaineds: A-Z by last name

Question accordingly agreed to.

Clause 26 ordered to stand part of the Bill.

Photo of Eric Forth Eric Forth Conservative, Bromley and Chislehurst

On a point of order, Mr. Benton. Presiding, as you are, in the Chair so superbly, you may well not yet have heard the rumour that has been circulating over the past couple of hours, and which has also reached the media, that it is possible that the Secretary of State for Transport, Local Government and the Regions may seek to make a statement later this evening. That would be a welcome development, were it to be true. You will appreciate the slight difficulty that that would appear to cause: as we are in Committee under your excellent guidance, could you advise the Committee what procedure might be available, were the Secretary of State to make his expected statement and therefore come to the House at last and be accountable for his actions over the past few months? Such guidance would be very helpful not only to the Committee, but perhaps even to the Secretary of State.

Photo of Joe Benton Joe Benton Labour, Bootle

As the right hon. Gentleman knows, the House is in Committee. It is therefore inappropriate for me, as Chairman of the Committee, to comment on any of the issues that he raises in his point of order. It is not for me to express an opinion as to what might happen after the Committee has finished. I say simply that I know nothing of the matter to which the right hon. Gentleman refers. I am here as Chairman of the Committee of the whole House considering the Finance Bill, and I cannot rule on the matter.

Photo of William Hague William Hague Conservative, Richmond (Yorks)

Further to that point of order, Mr. Benton. Respecting your position as Chairman of the Committee considering the Finance Bill, but noting that you represent the authority of the Speaker in the House of Commons at this moment, may I ask you to relay two questions from me, and from other Members, to the Speaker?

First, would it not accord with all precedent in the House for a Minister wishing to alter, withdraw or correct a previous substantive statement in the House to seek to do so in some way in the House? Is it not extraordinary, therefore, that the Secretary of State for Transport, Local Government and the Regions should do so in a statement made solely to the press, and then slink from the Chamber this afternoon while Members were pressing him to come here?

Secondly—

Photo of Joe Benton Joe Benton Labour, Bootle

Order. I think I have already ruled on this. I am happy to convey the right hon. Gentleman's wishes to Mr. Speaker, but I cannot do more than that, and I am sure that Mr. Speaker will have heard about this himself by now. I now propose to return to the Finance Bill. The Question is—

Photo of Andrew MacKay Andrew MacKay Conservative, Bracknell

Further to that point of order, Mr. Benton. It was quite correct, I am sure, for you to point out that you are chairing a Committee of the whole House. You mentioned the possibility of the Secretary of State's coming here at 10 pm. There are suggestions in the Lobby and elsewhere that there will be a statement at 10 pm, but, as you know, in Committee the debate on the Finance Bill can continue until any hour. Is there a facility that allows the Secretary of State to come here at 10 pm in those circumstances?

Photo of Joe Benton Joe Benton Labour, Bootle

I made no reference to time, or to a statement. If and when a statement is appropriate, the right hon. Gentleman will know in due course.

I do not propose to take any more points of order on this matter. I ask Members to leave the Chamber quickly and quietly.