§ [Relevant documents: European Community Document No. 9561/87, Annual Economic Report 1987–88 and the unnumbered document, Annual Economic Report 1987–88 (final version as adopted by the Council).]
§ Mr. SpeakerI repeat that a large number of right hon. and hon. Members seek to participate in the debate. Because there is no limit on speeches, it would be helpful if Privy Councillors, who may be called earlier than other hon. Members, set a good example.
§ Mr. John Smith (Monklands, East)The Budget which was presented to the House yesterday is an outrage. It is immoral, wrong, foolish, divisive and corrupting. As its full import began to sink in towards the end of the Chancellor's statement yesterday, I looked across at Conservative Members. A significant number did not wave their Order Papers or cheer the Chancellor on. Quite a number looked askance or troubled, and a few even looked concerned because they knew that what was happening was not right.
Let us never forget that, in a country where there are still millions of people, young and old, thrown on the scrap heap of unemployment, where our Health Service is on the edge of collapse and where we have a growing underclass living in ever deepening drabness and despair, it is not right to slash the rates of tax for the highest paid and redistribute the tax collected to the tune of £2 billion and give it all—every penny piece—to those whose earnings and wealth have already been ostentatiously increased in recent years. No Budget in this century has more savagely redistributed the proceeds of taxation towards the super-rich. There is a simple rule about this Budget: the more you earn, the more you gain; the more you have, the more will be given unto you.
A married man who earns £200,000 a year—not a fanciful figure in modern Britain—gains £33,314, over £640 each week. That is enough. I remind Conservative Members, to keep open the hospital ward in Wales which the Queen Mother opened and which is now closing because of the shortage of funds.
1117 When the Budget is stripped of its frills and when its contents are disentangled from its frequently misleading packaging, it is clear that the percentage of GDP raised in tax hardly changes from last year to the coming year. Last year it was 38 per cent.; this year it will be 37.9 per cent. —a fall of merely 0.1 per cent. It is worth recalling that 10 years ago in 1978–79 the proportion was only 33.9 per cent.
Of course income tax rates have been cut in the Budgets of the Tory years, but our people know only too well that income tax is but one of the taxes that they pay. They pay VAT, which was doubled in this Government's first Budget, excise duties and national insurance contributions — a special extra tax now on those who earn under £16,000 a year—which went up from 6.5 per cent. to 9 per cent. in the Government's earlier Budgets.
The Budget is essentially about the redistribution of the same proportion of tax, but that redistribution goes from the rest of us to the highest paid. Ten million of our fellow citizens whose pensions, benefits or incomes are so low that they do not even reach the lowest rung of the income tax ladder, gain no benefit from the Chancellor's cut in the basic rate announced yesterday.
Another 2.5 million people who will be covered by the new social security system, to come into force a few weeks from now, have a cut in the tax rate read straight across to a cut in income support or in housing benefit. For a person on family credit in receipt of housing benefit and receiving £100 a week, the 2p cut in the tax rate will mean a gain of 2p a week or £1.04 throughout the year. I observe in passing that their poverty does not mean that they do not pay the huge increases in indirect taxes which are the hallmark of the Government's tax policies. So many of those who are facing the greatest difficulties get no help from the Budget.
If we look to the higher ranges, the beneficiaries soon become apparent. The married man on five times average earnings, a salary of £64,000, will save £129 each week from this Budget alone—more than will be provided in income support for five people under 25 when the new social security system is implemented. For that same man on five times average earnings, the reduction in his income tax since 1979 amounts to £182 weekly—more than the total income tax rate for two married couples, each with three children. The top 10 per cent. of households in Britain get 50 per cent. of the concessions provided by the Chancellor. The bottom 50 per cent. get only 10 per cent. of the gains.
§ Mr. Tony Marlow (Northampton, North)Will the right hon. and learned Gentleman give way?
§ Mr. SmithI shall do so in a second. No wonder there was, and I hope is, some sense of shame among a few Conservative Members. I doubt whether I shall reply to the points raised by the hon. Member for Northampton, North (Mr. Marlow), but I shall give way to him.
§ Mr. MarlowI am grateful to the right hon. and learned Gentleman for giving way. The tragedy is that he has forgotten that taxation is not about punishing people. It is about raising revenue. Those people whom the right hon. and learned Gentleman is banging on about being in the higher tax brackets have been able to employ advisers and have sought tax shelters. By getting those tax shelters, 1118 many have paid little tax. The probability is that, after my right hon. Friend's Budget yesterday, those people at whom he is aiming will pay more tax than ever before.
§ Mr. SmithIt is interesting to hear the comforting illusions of Conservative Members. The hon. Gentleman knows perfectly well, because he can look it up in the Red Book, that there is a cost to reducing the top rate of tax from 60 per cent. to 40 per cent. It is spelt out clearly for a full year —more than £2 billion. That is the cost of paying the rich in the way that the Chancellor has done. It is a bitter irony that the total to be committed in tax forgone in a full year— the very £2 billion to which I have just drawn the attention of the hon. Member for Northampton, North—to pay for the massive cuts in higher rates is what the Labour party has been campaigning for as the additional money to be spent on our National Health Service.
When the Chancellor had so much money to spend, why did he choose to ignore the pressing needs of the National Health Service, which is in acute crisis, as the professionals repeatedly tell us? Is it because he does not believe that the money needs to be spent on the National Health Service? Is it that he felt that he did not have the money available because of financial stringency or other pressing priorities? Is it because he felt that the NHS was not a priority favoured by the electorate?
It cannot be for any one of those reasons. We know that the money is desperately needed by the National Health Service. We know from the evidence of the Budget itself that the money was available. We know from opinion poll after opinion poll that spending on the National Health Service was the public's top priority. I know of only one opinion poll in which people said that they were in favour of tax cuts as opposed to funding for the NHS; it was an opinion poll of Conservative Members.
Let us examine briefly the evidence of the needs of the National Health Service. Evidence is available from a wide variety of sources, but it all points to the same conclusion about the Health Service. Every piece of evidence that I am about to cite comes from one of two sources — the British Medical Association or the Royal College of Nursing. [HON. MEMBERS: "A vested interest."] I should hope they have a vested interest. They have a vested interest in the National Health Service; we all have a vested interest in the National Health Service. It is a vested interest which I am proud to declare and even more proud to fight for, which is what we shall do during these debates.
This very month, the BMA's central committee for hospital medical services produced a report that gave a chilling description of what its chairman, Mr. Alexander Ross, describes as
a nationwide crisis in the acute hospital sector".The report contained the results of a survey conducted by the BMA district representatives on regional committees throughout the country. Let me list some of their conclusions. They found that in England and Wales as a whole, 5,300 hospital beds had been closed in the year to December 1987. Anxious to be scrupulously fair, they excluded 30 per cent. due to the implementation of so-called strategic plans and 11 per cent. due to rationalisation measures. That leaves 59 per cent., or 3,100 beds closed permanently due to short-term financial restrictions. In addition, 2,800 beds have been temporarily closed for varying lengths of time over the same period.1119 It is bad enough to lose so many beds in one year, but the picture looks even worse when we examine the statistics relating to the cancellation of clinical sessions. On a grossed-up basis on an examination over a three-week period, it was discovered that 900 operating theatre sessions had been; put another way, 300 operations each week are not being carried out because of financial restrictions.
The BMA quotes the remarks of its consultant members who took part in its survey. Those remarks are perhaps more revealing than the bare statistics that I have cited. A consultant in Wales said:
Everyone is gloomy and sad because the old ideal of providing the best service has been lost and the new one of cutting all possible corners and taking all possible risks in the name of the great god efficiency and savings just doesn't seem to make our hearts beat faster. Everyone is taking to the practice of doing the bare minimum.From one end of the country to the other, the devastating evidence emerges that our National Health Service is in acute crisis.
§ Dame Elaine Kellett-Bowman (Lancaster)Is the right hon. and learned Gentleman aware of the tremendous difference between bed usage in one part of the country and another, and, indeed, in different parts of the same area? For example, in Lancaster, which is top of the league in the north-west, bed usage is 115.19 per cent. whereas in Salford it is only 97.46 per cent. Is it not important to improve bed usage and the use that we make of the money that we are given?
§ Mr. SmithAll that I am doing is to report to the House the evidence of the consultants who work in the National Health Service. With the greatest respect to the hon. Lady, I think that they might know a little bit more about the National Health Service than even she does. Their evidence was that more than 3,000 beds were closed in England and Wales over the past year. I am happy to accept that evidence. Do the Government deny it? We can either believe the Government, who caused the problem, or the Health Service professionals, who are fighting for a future for their own service. I know which the nation will believe.
There is one great source of comfort about the crisis in the National Health Service. It is not a crisis which arises from a lack of skills or commitment among those who work so hard for us in the Health Service. If that were the problem, the crisis would be grave and the prognosis could only be despairing. Mercifully, the problem is of a different kind: it is principally financial and can therefore be solved financially.
What makes the Budget all the more mistaken, wrong-headed and morally faulted is that the money is available. The money was there, but the Chancellor chose to spend it on what he thought were more important priorities than our National Health Service. In the months leading up to the Budget, we have argued that new funds are desperately required. The Chancellor could have spent the £2,000 million that we advocated by simply removing the tax concessions for the rich. The plain fact of the matter is that the Chancellor chose not to do that. So all those who work in our Health Service and depend on it have got their answer.
It is not good enough for the Chancellor to claim that money is not provided for the Health Service in a Budget. 1120 He can announce an extra spending programme any time he likes. He could have done it two months or two weeks ago. He could do it today or two weeks hence. He should announce it now because the crisis is now.
I remind the Chancellor that my right hon. Friend the Member for Leeds, East (Mr. Healey), in his Budget of 1978, not only announced an extra allocation of funding for the NHS, but, as the Royal College of Nursing pointed out in its excellent submission on the Budget, he specified what it was to be spent on: reductions in waiting lists, a number of new staff posts, enough cash to enable newly built hospitals to be opened and the provision of 400 new kidney machines.
§ Several Hon. Membersrose—
§ Mr. SmithI know that this does not go down well with Conservative Members. They do not like to be told the truth about the crisis in the National Health Service. I know that they like the truth about the last Labour Government even less. In that Budget, my right hon. Friend the Member for Leeds, East allocated 400 extra kidney machines to the Health Service.
The fight to save the National Health Service will go on. It must go on. The fight to obtain for it the resources that it needs will be maintained until it eventually succeeds. We know that there is another danger facing the National Health Service, apart from the financial crisis. Many Conservative Members see the financial crisis in the NHS—
§ Mr. Tim Smith (Beaconsfield)rose—
§ Mr. John SmithI shall not give way.
They see in the financial crisis of the NHS a new opportunity to attack its basic principle and what they correctly divine as its Socialist basis. For many years, they have been forced to accept a Health Service funded on the principle that it is paid for when people are well so that it is available without financial inquiry when it is needed. Since the second world war, the NHS has lifted a burden of worry from the backs of the ordinary people of this country and provided our nation with a unique and especially effective method of providing life-long medical care and attention for everyone in our community, irrespective of income, wealth or status. That is why the Health Service is deeply rooted in the interests and affections of our people.
For a long time, on the grounds of political prudence, Conservatives said little, whatever they thought privately. The Prime Minister herself told us in words that seem very hollow now that the NHS was safe with her. Now, like sharks sniffing blood in the water, the enemies of the NHS are circling round ready to strike at what they regard as a Socialist extravaganza.
They claim that the Health Service costs too much and that it is inefficiently administered. Let me give just two replies. All the evidence suggests that the NHS is far superior in terms of administration costs to any private health care system in this country or abroad. Conservative Members who admire the private medical system in the United States should bear in mind that we spend 5 per cent. on administration in the Health Service and the Americans spend 22 per cent. on administration in their private, bureaucratic system.
On two central questions, this Budget—
§ Mr. John Butterfill (Bournemouth, West)Does the right hon. and learned Gentleman agree that there are 1121 profound regional variations? Will he accept that Sir Brian Thwaites, the chairman of Wessex health authority—my region —said that there is no crisis in Wessex? In the Boscombe general hospital, the unit cost per patient is £546. That compares with an average in London of over £1,000 and a cost in Hackney of £1,300. Surely there is a big difference in administrative costs somewhere.
§ Mr. SmithIt just so happens that on the first page of the submission from the BMA there is a quotation from a consultant in Wessex. I shall tell the hon. Gentleman what that consultant said:
At present the acute services have an open ended and expanding remit. They are expected to cope with everything and anything demanded of them. The boundary of their area of responsibility must be drawn if no more money is forthcoming, but this in itself begs more questions than there are answers.That is the evidence from Wessex, the part of the country to which the hon. Member for Bournemouth, West (Mr. Butterfill) referred.The Chancellor's first priority should have been to secure our Health Service. That done, he should then have turned his sights towards the creation of a stronger, more competitive, more balanced economy. The Government seem to believe that because a short-term boom raised the level of economic growth in 1987, Britain has somehow turned an economic corner. Time will soon tell us how lasting or, alternatively, how evanescent is a rate of growth boosted by an easy credit society and the lowest levels of personal savings for more than four decades.
We know already that the deteriorating balance of payments is the most serious constraint on economic management, apart from the Prime Minister, in the years immediately ahead of us. Despite the massive contribution of North sea oil during the years of this Government—over £60 billion in extra revenue to the Goverment—and the even more important cover in terms of freedom from balance of trade and balance of payments constraints, here we are, moving towards the edge of the decade, only eight years or so after reaching oil self-sufficiency, heading into balance of payments problems again. The historians will ask what we did with North sea oil, because it looks as if we will face the 1990s without the beneficial changes in society and our economy that a proper investment of those riches would have secured.
The Secretary of State for Energy answered that question honestly the other day by remarking that North sea oil revenues were spent on unemployment. He was, of course, correct. The tragedy is that the money was not spent on employment—not just on creating jobs now to reduce our still appalling totals of unemployment, but on jobs for the future based on new skills and new technologies.
Now that North sea oil is declining in volume and may, for all we know, decline in value, the problem is less easy to solve. However, it remains urgently on the national agenda and one of our top priorities should be to see how to build a strong, competitive industrial economy that can sustain growth, not in episodic spurts or election-oriented booms, but powerfully, continually and steadily. In the context of our present position it can be put quite succinctly: how do we convert short-term boom into long-term recovery?
One would have thought that to a sensible Government, the opportunity provided by a Treasury awash with revenues was obvious. This is the time to invest 1122 those resources in new technology, new science-based industries, education and training and research and development. This should be the opportunity to create in these islands the best educated and trained work force in western Europe by a sustained and energetic commitment, starting with the Government and spreading throughout the whole of our society, to utilise that unique resource —the skills of our young people — so that they can found our economic security in the 1990s.
This should be the opportunity to end the neglect of research and development in the public and private sectors and in the universities and industry. If that is not soon corrected, Britain will limp into the next decade well behind the leaders in the technologies of the future. All those are opportunities which could have been seized. But, sad to say, the Government prefer tax cuts for the rich investment in those crucial areas.
Is not our economy hopelessly unbalanced in two crucial respects: the balance between the public and private sectors and between the economic regions, the north and the south? Throughout the 1980s, under the perverse set of priorities which constitute Thatcherism, investment in public services and facilities has been deliberately and continuously run down. We have the worst public investment record of all the OECD countries. That is why we have outdated and inadequate hospitals and schools, crumbling inner cities, industrial wastelands, decrepit commuter trains, leaking water courses, collapsing sewers, and roadways in a perpetual state of deterioration.
It is difficult to digest the information in a parliamentary answer which said that 80 per cent. of all the buildings used by the NHS were built before 1918 and only 7 per cent. have been built since 1965. No reckoning seems to be made of the costs in economic efficiency of muddling through with an inadequate and antiquated infrastructure. For too long now the myth has been perpetuated that public spending is intrinsically damaging to the economy. The truth is the opposite. Public assets are essential to produce a modern and competitive economy as well as a decent society. Transport, basic utilities and modern and proper housing are all crucial to the effective functioning of a civilised society. Ought we not now to be putting thousands of unemployed people to work to repair, improve and modernise the rapidly declining housing stock in which so many of our fellow citizens are forced to live?
When we look at the yawning and widening gap between the north and south, which the present Government do not even acknowledge to exist — so blind are they to the realities of life in many parts of modern Britain—we see social injustice and economic waste combined in spectacular fashion. On a recent visit to the north-east of England—to Bishop Auckland and the Wear valley — I was astonished to discover that companies seeking to bring work to county Durham—where unemployment rates go up to 20 per cent.—were having to be turned away because there was no money left to build new factories for incoming industry.
I quote from the Financial Times of 7 March which said:
North East England, which has one of the worst unemployment problems in Europe, has run out of factory space for inward investors or existing businesses that want to expand.The report goes on: 1123A West German company is fighting an English business for the last sizeable factory available in County Durham. Each project would create 100 jobs. Last week another would-be incomer from elsewhere in the UK was told there was no room in Hartlepool, a town where male unemployment is the region's highest at 26.8 per cent. The company is going elsewhere.The writer reports:with the current winding up of the two new towns in the region, Washington and Aycliffe — Peterlee and tight control of local authority spending, responsibility for building advance factories has fallen almost entirely on English Estates North, the Government's commercial property developer. It too is constrained by tight spending limits of £20 million in the current year, all spent, and £13.5 million in 1988–89.It must be a crazy country in which the Government will not even finance a proper building programme for companies that are competing to occupy factories in areas of high unemployment.
§ Mr. Nicholas Budgen (Wolverhampton, South-West)Is it not the case that English Estates has been erecting factories at such a low rate of return that the private sector cannot now compete with it? Is it not the case also that English Estates has run out of subsidies from the taxpayer and that, as a result of distorting the market, it has become impossible for anyone to get a factory there?
§ Mr. SmithWhatever the hon. Gentleman's analysis of the cause of the problem, the solution is perfectly clear —give some more money to English Estates so that it can build more factories for companies to occupy. Would it not make much more sense to spend the money on building factories than on paying unemployment benefit for people who could work in the factories? Sometimes I wonder when the light will ever dawn on some Conservative Members. However, we will try with patience and determination to bring those economic facts of life constantly to their attention. After the wanton and senseless destruction of regional economic policy, I should not be surprised. Anything can happen in the north of England.
Why have the Government not used the resources in this Budget to start a revival of economic activity in the regions? Why cannot there be development agencies for the English regions as there are for Scotland and Wales, to act as a catalyst for economic regeneration and to harness the talents and assets of those communities—not only for the sake of their own advancement but to contribute to the economic wealth of our nation?
It is increasingly necessary to break down the north-south gap that is dividing this nation. When we see the right hon. Member for Henley (Mr. Heseltine) moving in on a subject, we should adjust our political seismometers carefully. There is something stirring in the Tory undergrowth, and it probably has something to do with the coming leadership struggle in the Conservative party. It is also probably something to do with a recantation of some policy for which the right hon. Gentleman was previously responsible. None the less, he speaks for many when he opposes the urbanisation of large parts of the south of England by the unrestrained operation of market forces in which the Conservative party places such touching faith.
Foreign commentators simply do not understand—this was emphasised to me only the other week by a CSU Minister in Bonn—why any Government would allow 1124 such a division of a country to take place and not have a programme of encouraging industry and employment where such a programme is passionately desired, but rather seek to force such a programme on areas where it is bitterly resisted.
§ Mr. Ian Taylor (Esher)Will the right hon. Gentleman give way?
§ Mr. John SmithI am not giving way to the hon. Gentleman.
We could start a programme tomorrow to combat the north-south divide, but it would need the Government to lead it. Regrettably, they would not do so. Let us not hear from them ever again that such a programme cannot be undertaken because the money is unavailable. The money was available but they chose not to spend it.
The Chancellor has turned his back on investing in the country's long-term future in favour of rewarding in the short term his party political supporters of today. It is not that he can be unconcerned about the state of the economy. If there were only a few worries, as he pretends, why has there been the continued, comic farce over who runs the Government's exchange rate policy? Is it the Prime Minister or is it the Chancellor? Some day the Chancellor might tell us. We do not know whether we can rely on what he said in his Budget Statement about exchange rate policy because it has not yet been either contradicted or corroborated by the Prime Minister, who so often chooses to intervene in such matters.
First we were told that there was no dispute and that they were both working in harmony towards the same objectives. Then there was, apparently, what was quoted as a "healthy argument". We heard that the Chancellor's friends were active in the Lobby, stressing one day his anger or irritation, and the next day his resolve or bitterness—even that he was contemplating his personal future in some detail. The truth is that an idiotic Punch and Judy show took place over who runs the shop. From what I read of interest rate policy this morning, it seems that Judy has slaughtered Punch. She may go on beating him, beating him and beating him again—because in the Punch and Judy show that is the present Government, Judy always wins.
It seems that interest rates will not come down, but that means that our economy will be run on the basis of high exchange and high interest rates. How on earth will British industry compete in what will be a very difficult international market place in the years ahead? God forbid that we should return to the follies of 1980–81, when an absurdly overvalued exchange rate helped to eliminate 20 per cent. of British industry within a year or two.
Perhaps it is indelicate of me to refer to those difficult years. In a terse parliamentary answer that the Chancellor gave when he was a junior Minister at the Treasury, when he was asked how the exchange rate was determined he replied with one word — "Markets". He has since changed his mind. It all seems to be different now, unless, of course, one takes the view that one cannot buck the markets. Perhaps it is the Prime Minister who has stayed constant to the true faith and the Chancellor who has slipped behind. I am sure the Chancellor finds those notions unappealing today.
§ Sir Peter Tapsell (East Lindsey)Is that not rather an artificial argument? Do not markets in fact pay some attention to interest rates?
§ Mr. SmithI was trying to work out in as kindly and gentle way as I could who is running the Government's exchange rate policy. That is a little harder to divine than the effect that interest rates have on the market. But as it is an important area of policy, and as it is unclear who in the Government is responsible, the subject is worth inquiry and that gives the Chief Secretary the opportunity to tell the House a little more about that aspect.
The Chancellor spoke yesterday about the management of the economy, but he has failed dismally to take the action that could give it the long-term, supply-side strength. But then, we were told that the Budget was about tax reform. The Chancellor billed himself, rather immodestly, as the tax reformer of the century. How can anyone claim to be a tax reformer when he cuts the top rate of tax from 60 to 40 per cent. but leaves an upper earnings limit for national insurance contributions of £16,000 per year?
We shall have in this country a combined tax and insurance system that will start at 30 per cent., move up to 34 per cent., drop again to 25 per cent. when one reaches £16,000, and then increase again to 40 per cent. Is that supposed to be some kind of logical and cleverly designed, sensibly constructed policy for income tax rates and national insurance contributions?
We know perfectly well why the Chancellor did not reform also national insurance contributions. It was because he did not want to remove the privilege enjoyed by people earning more than £16,000 a year, who do not have to pay anything in excess of the existing national insurance contributions even though the rest of the community earning below that figure has to pay its full whack.
Let us see how the Chancellor scores in terms of being a Budget reformer. There were five major areas of tax abuse that we invited him to tackle because we knew that the vast majority of people in this country pay their tax under the PAYE scheme, where there is not much room for manoeuvre. But there is another group of people—those who pay if they like. They are the people hiding in the tax shelters. The Chancellor says that he has removed some of those shelters. It was about time that he did something about them, in the light of the evidence that we have recently received. But no sooner has one tax loophole been filled than a few others will be found to have been left open.
I refer, for example, to the business expansion scheme. Not much has been done there to close loopholes. There has been no reduction in the amount that individuals can invest. We know that in the case of Park Hotels, for example, the cost was financed almost entirely through the business expansion scheme. We know that all the income from those who lived there came from DHSS benefits, and that the huge increase in the value of the property will be totally free of capital gains tax. Is that the sort of enterprise that should be encouraged and rewarded in Britain?
We know that not only is such activity being allowed to continue but that there are new BES rules for rented accommodation which will provide a huge tax shelter for profiteering landlords. That is happening at the same time new restrictions are being introduced that will shove up the rents for the very people who will inhabit the properties financed by taxpayers through the business expansion scheme.
Why did we hear nothing about bed and breakfasting whereby rich individuals and institutions can wipe out 1126 losses for capital gains tax by the device of selling shares in the evening and buying them back the following morning? Why are such artificialities allowed to erode the basis of our taxation system? Why are we not in this Budget plugging these important loopholes? If the Chancellor had done that, he could have earned some credit for being a reforming Chancellor.
But the Chancellor tells us that independent taxation is his marvellous innovation. His plan for independent taxation is basically a con. We shall see not the abolition of the married man's allowance, but, basically, its renaming as the married couple's allowance. We shall not see, except in form alone, the independent taxation of men and women. The clue to it all was given in the cost of £500 million. Why does it cost that sum? Because we stop disaggregating the investment incomes of husbands and wives. It is so that those can be added together that it costs so much.
Capital gains tax is another area of concern again; we find that windfall benefits are given to those who make large increases in capital gains. The Financial Times was wise to counsel further consideration of the independent taxation scheme so that we might get a proper system that genuinely respects the privacy and individuality of women—a desirable principle which we should seek to attain.
As we look through the Budget, we find that what is constructed behind a facade of tax reform is a major redistribution of income and wealth through the tax system. The Government took £2,000 million that could have been spent on the Health Service and gave it to the rich. That is why at its core there is a fault in this Budget, a moral fault. It is a massive political miscalculation. The Chancellor has revealed in all its vulgarity and unfairness the Thatcher vision of society, in which unfairness, inequality and injustice march side by side. The decent majority will react to what they have seen in the Budget. It is a Budget too far. It is the beginning of the end of Thatcherism.
§ The Chief Secretary to the Treasury (Mr. John Major)Contrary to what the right hon. and learned Member for Monklands, East (Mr. Smith) said, this Budget is about tax reform. Yesterday, my right hon. Friend the Chancellor of the Exchequer introduced a package that cut six rates of income tax to two; that introduced independent taxation for wives; that reformed the taxation of capital gains; and that introduced a single rate of inheritance tax. It represents the most sweeping reform of personal taxes this century and leaves us with no single rate of personal taxation above 40p in the pound. [HON. MEMBERS: "We have heard all this."] Hon. Members are about to hear it again, because it is a good story and I shall keep telling it until they understand it.
The centrepiece of my right hon. Friend's proposals was a promise redeemed: the reduction of the basic rate of income tax to 25p. He has linked that with a comprehensive reform of higher rates. Taxes have been simplified and reduced. The right hon. and learned Gentleman is indignant because he would have preferred to spend more and raise the effective rate of tax. When asked a question by one of my hon. Friends, the right hon. and learned Gentleman responded like one of Pavlov's dogs—"You know the answer: spend more." That is the universal answer of the Labour party: whatever the problem, spend more and to hell with the taxpayer.
§ Mr. Robert N. Wareing (Liverpool, West Derby)What does the Minister think the rich will do with the money? Will they not spend it?
§ Mr. MajorThe hon. Gentleman may or may not have been part of the football hooligan behaviour yesterday, but if he was, I hope that he will not repeat it today.
The right hon. and learned Gentleman made a different speech from that of his predecessor, the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), who last year claimed that we could afford neither higher spending nor lower taxes. The Opposition saw last year's increase in spending as a pre-election boom which could not be sustained, and they predicted that the Budget's tax reductions would be reversed after the general election. Now they have their answer. Spending is up again and taxes are down again, and the right hon. Member for Sparkbrook has wisely moved on.
The right hon. and learned Member for Monklands, East agrees that his right hon. Friend was wrong on all counts, for his message today is that the economy is so successful that we can afford both to raise spending and to reduce taxes. It is a pity that he has not examined our plans more closely because that is precisely what we have done. We have raised spending by £2.5 billion, allocating an extra £4.5 billion to programmes. The right hon. and learned Gentleman does not appear to have noticed that. We have reduced taxes by £4 billion. The right hon. and learned Gentleman disapproves of that. We are repaying debt of £3 billion into the bargain. The right hon. and learned Gentleman should be shamefaced about that, because it is his party's debts that we are repaying.
§ Mr. David Winnick (Walsall, North)Has the Minister seen the article in The Daily Telegraph today entitled,
Smiles on the faces of the rich"?Has he noticed how much some millionaires will gain—from £10,000 to £44,000 a year extra—as a result of the tax reduction? Does he not consider that it is an affront that the richest in the community should gain so much while the National Health Service and other essential services are so desperately in need of cash?
§ Mr. MajorIf the hon. Gentleman had waited a few moments, he would have heard me deal precisely with those important matters because I know that they are of concern to him and the whole House. It is a matter that I shall deal with at some length.
§ Mr. Kenneth Hind (Lancashire, West)Will my right hon. Friend confirm that, despite all the criticism about the 40 per cent. rate, by increasing the thresholds my right hon. Friend the Chancellor of the Exchequer has taken 750,000 low-paid people out of tax?
§ Mr. Dennis Skinner (Bolsover)He is only a barrister.
§ Mr. MajorThe hon. Gentleman says that my hon. Friend is only a barrister. What he would say to the right hon. and learned Member for Monklands, East, who is a distinguished and learned Queen's Counsel, I have not the faintest idea.
The fact is that my right hon. Friend the Chancellor, for the second successive year, has produced a fiscal hat trick of more spending, lower taxes and less debt. It is a hat trick that no Labour Chancellor could ever have produced.
§ Mr. MajorI shall give way in a moment.
I may not admire the Opposition's judgment, but, by golly, I certainly admire the right hon. and learned Gentleman's cheek. After nine years of denouncing the economic policies that have made this Budget possible he now has the brass neck to lecture the House on how he would have used the room for manoeuvre that the Chancellor has obtained. I must tell him that if we had followed the policies he advocated, we would never have had that room for manoeuvre in the first place.
§ Mr. John SmithThe Treasury is awash with money.
§ Mr. MajorThe right hon. and learned Gentleman says that the Treasury is awash with money. How does he think that happened? I shall tell him. It happened because of the success and growth of the economy. He referred to a short-term boom. That was his expression. Eight successive years of growth and he thinks that it is short-term boom.
Over the past few hours, the right hon. and learned Gentleman has made several claims about the effect of the social security reforms and he touched on that again today. I know that he feels deeply about this and I shall turn to it. Unfortunately, most of the claims made by the right hon. and learned Gentleman were wrong. In cash terms, 88 per cent. of claimants will either receive more benefit or remain unaffected as a result of the reforms on 1 April. That is 7.5 million people, compared with the 1 million people whose benefit will not be increased.
As the right hon. and learned Gentleman knows, there will be full cash protection for the poorest, so that, in April, no one on income support will receive less weekly cash benefit than they receive under supplementary benefit.
§ Mr. DarlingWill the Chief Secretary explain how a married man with two children, earning £115 a week gross, will lose 32p in benefit as a result of the tax changes? How can he say, therefore, that there will be no loss as a result of both the Chancellor's announcement yesterday and the announcement of the Secretary of State for Social Services earlier this year? Surely the poor are losing while the rich are gaining.
§ Mr. MajorIt is extremely difficult to explain how people can lose when there is cash protection of social security benefits, a substantial reduction in income tax and an increase in the thresholds.
§ Ms. Marjorie Mowlam (Redcar)rose—
§ Mr. MajorIf the hon. Lady listens, she may learn something and I may give way to her later as a reward for her listening.
For most of the vulnerable groups, there are substantial gains. The majority of sick and disabled people will gain from the reforms. Of those, about half will gain £5 a week or more, and 80 per cent. of families not in work will gain. Sixty per cent. of lone parents, many of them divorced, separated or in difficulties, will gain or be unaffected. Well over one quarter of all lone parents will gain by over £5 a week. Despite the right hon. and learned Gentleman's mischief over the social security reforms, that is the fact of the matter.
I wish to add a further fact that the right hon. and learned Member for Monklands, East might not find palatable. The social security reforms add £400 million to public expenditure on benefits in 1988–89 and the social 1129 security programme as a whole will increase by £2 billion next year, on top of the £2 billion added this year. Those are the largest cash increases in any individual programme, and they have been made against a background of falling unemployment.
All those social security benefits directed at the poor and the disabled have been increased in value since 1979. We have targeted extra help specifically where it is needed, so our reforms provide more help for the sick and disabled, poor families and lone parents. It is against that background, not the mischief perpetrated by the right hon. and learned Gentleman, that we must see the Budget.
§ Mr. Nigel Griffiths (Edinburgh, South)Will the Chief Secretary admit that over 300,000 pensioners on housing benefit will lose their benefit entitlement altogether because they have £6,000 or more in savings and that there will be no transitional protection?
§ Mr. MajorThe hon. Gentleman must understand that the cut-off point for other benefits, which he expressly failed to mention, was moved from £3,000 to £6,000 and that one in three households is at present receiving housing benefit. There is far more assistance under housing benefit now than there has ever been.
Opposition Members who are clearly not interested in hearing rational debate, have been inventive in finding reasons for opposing tax cuts. Some of them have claimed that cutting taxes will damage the balance of payments. The right hon. and learned Gentleman said that we should have used the money to boost what he calls investment. The hon. Member for Berwick-upon-Tweed (Mr. Beith) has formed a new Lib-Lab alliance on that point with the right hon. and learned Gentleman, but their concerns about investment are misplaced. As the forecast published yesterday shows, investment is expected to rise by 9 per cent. in 1988, not because we are pumping taxpayers' money into industries to which the market will not lend, but because our policies have created an environment in which businesses have the resources and confidence to invest and they are doing so.
I understand the right hon. and learned Gentleman's concerns about that, because memories of short-term balance of payments crises are seared into the collective conscience of all those, including the right hon. and learned Gentleman, who had the misfortune to serve in Labour Cabinets or in Lib-Lab alliances with the then Labour Government. The deficits run up by the Labour Government of up to 4 per cent. of GDP were four times as large as the prospective deficit that my right hon. Friend has forecast for 1988. The income from our huge stock of overseas assets should mean that there will be no problem in financing that deficit.
It is hardly surprising that we should have a current account deficit when growth in the United Kingdom economy is far stronger than that of most of our trading partners. During our period of office we have had a cumulative balance of payments surplus of almost £20 billion; all Labour ever had were deficits. The right hon. and learned Gentleman is seeking a return to the bad old days of short-term demand management, of so-called tinkering and fine tuning.
§ Mr. Stuart Holland (Vauxhall)rose—
§ Mr. Deputy SpeakerOrder. I understand that the hon. Member for Vauxhall (Mr. Holland) will be seeking to catch my eye later. Perhaps he will save his speech for then.
§ Mr. MajorI doubt whether the hon. Gentleman's speech will improve with the keeping.
Our approach is different. We set fiscal policy in a medium-term context. That medium-term approach has rescued our finances from the batterings of five years of Labour government. Frankly, it is a colossal cheek for the right hon. and learned Gentleman, as a member of the party that wrecked our economy, to criticise the Government who have rebuilt it.
The right hon. and learned Gentleman told us a great deal today about the National Health Service. He also told us how the right hon. Member for Leeds, East (Mr. Healey) increased spending on the NHS in one of his Budgets. That is quite right—I believe that it was the 1978 Budget. However, the right hon. and learned Gentleman did not tell us how that right hon. Member for Leeds, East cut the capital programme by one third in 1976 because the country was almost bankrupt.
The Labour party's view of the NHS is simplistic. Labour Members are utterly clear about what needs to be done and they would happily admit it. They say quite simply, "Give the National Health Service more money." [HON. MEMBERS: "Hear, hear."] Opposition Members say, "Hear, hear," but that fragile consensus in the Labour party begins to break down on the question of how much more. The hon. Member for Peckham (Ms. Harman) suggested £200 million. The Leader of the Opposition, the right hon. Member for Islwyn (Mr. Kinnock), upped that to £1.3 billion. The right hon. and learned Gentleman now pitches his demand between £1.7 billion and £2 billion. So it is accelerating.
§ Mr. SkinnerTell us what the Government have given.
§ Mr. MajorI shall tell the hon. Gentleman precisely what we have given—an extra £1 billion this year, an extra £1 billion next year and an extra £1 billion in the following year, the largest increases that the NHS has seen. On top of that, there is the product of the cost improvement programmes, the income generation schemes and the increased efficiency. We have produced that money.
§ Mr. A. J. Beith (Berwick-upon-Tweed)Does the Chief Secretary think it reasonable to compare that figure with the 8 per cent. rise in prescription charges? Does he agree that it must be deflated to conform to the rate of inflation in the Health Service, expressed in the Government's increase in prescription charges?
§ Mr. MajorThe hon. Gentleman neglects to mention the fact that those resources feed into the National Health Service to help increase resources for patient care. The hon. Gentleman and I must both pay prescription charges, but the vulnerable do not pay prescription charges. That is why the hon. Gentleman and I pay an increase greater than the rate of inflation. I should have thought that he would have found that acceptable. We are providing that money to the National Health Service because we care about the NHS at least as much as the Labour party does. We care about its efficiency as well as the resources that are put into it.
§ Mr. Dafydd Wigley (Caernarfon)The Chief Secretary said that there may be £1 billion next year and £1 billion the following year for health, if needed. If the review of the Health Service shows, as has been suggested by representatives of the royal colleges, that there is a need 1131 for some £2 billion, will he confirm that he has that money in his contingency reserve and that he can make it available without disrupting his Budget strategy?
§ Mr. MajorThere are two aspects to the important point that the hon. Gentleman has just raised. What I said about an extra £1 billion was not that I will provide an extra £1 billion next year, but that I have already provided it, docketed it, annotated it and put it in the accounts for next year and for the year after. That money is already provided in the accounts. We shall review the question of mainstream funding for the National Health Service again in the next public expenditure round.
On the hon. Gentleman's other point, which clearly relates to the nurses' pay review body, we have made it absolutely clear that we expect to receive the report in April. We will consider the report speedily and make our decision on it speedily. The House and the health authorities will know our decision on it, and the extent to which we may be able to assist in its funding, before the end of April. We shall deal with that matter speedily, but I can go no further than that today.
I should like to make another point absolutely clear so that there is no doubt among Opposition Members. Despite the scaremongering in which Opposition Members indulge so frequently, I reaffirm to the House yet again that the principle of access to medical care irrespective of ability to pay is not at risk now, is not at risk in the review and will not be at risk at any stage in the future.
§ Mr. MajorI should like to make a further point about the National Health Service. The right hon. and learned Member for Monklands, East and his hon. Friends have talked at some length in recent months about the position of the nurses. I remind the right hon. and learned Gentleman that a typical nurse would be paying over £40 per month more in income tax if we had stuck with the income tax regime that the right hon. and learned Gentleman supported; nor would that nurse have had a review body on pay, because that too was a Conservative initiative.
I said a few moments ago that this Budget is about tax reform and tax reduction. I believe that the case for both is overwhelming on economic grounds, on fiscal grounds and on practical grounds.
§ Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)Before my right hon. Friend leaves the subject of the Health Service, he said that patients' access to the National Health Service is not at risk. Can he explain why hospital wards and, indeed, some hospitals are being closed because they do not have sufficient money? Does that mean that if access is at risk the extra funds will be found?
§ Mr. MajorMy hon. Friend is being uncharacteristically mischievous. The principle that I enunciated was that access to medical care, irrespective of ability to pay, is not at risk. I reaffirm that principle, and events will show it to be justified.
The reductions in tax rates in this Budget reduce the marginal rates faced by over 99 per cent. of taxpayers. Allowances have been raised by precisely twice the amount 1132 needed for indexation, which especially helps those on modest incomes. As a result of the changes made by my right hon. Friend, personal allowances are now over 25 per cent. higher in real terms than they were in 1978–79.
Taken together, the reduced tax rate and the increased allowances mean that the married man on average earnings will find himself better off by about £5 a week as a result of this Budget. That is equivalent on its own to a pay increase of £370 a year and means that a pay rise of less than 2 per cent this year would maintain living standards. Anything higher would materially raise them.
§ Mr. Ian Gow (Eastbourne)As nurses and others outside are listening carefully to what my right hon. Friend is saying about cuts in direct taxation, will he give way to the Shadow Chancellor so that he can tell the House and the nurses by how much be would diminish the tax thresholds and what the standard rate of tax would be if he became Chancellor?
§ Mr. MajorI am always exceedingly happy to accommodate my hon. Friend and, of course, the right hon. and learned Gentleman, if he wishes to rise in his place to respond to that attractive invitation, but he shows no inclination to do so.
§ Mr. Galbraithrose—
§ Mr GalbraithI was interested in what the Chief Secretary said about access to care being free at the time of need. Can he give us a guarantee that in the review there will be absolutely no charges applied in the National Health Service for access to general practitioners or to anyone else? Can he also tell us how that equates with the Government's new policy of charging for dental checks and eye examinations? How does that equate with free access at the time of need?
§ Mr. MajorThe hon. Gentleman will have to wait on all those matters, which will be the result of the review. One thing that I might usefully say to the hon. Gentleman, who I understand, is a surgeon —[HON. MEMBERS: "A brain surgeon."] Yes, I understand that he is a brain surgeon. I am pleased to hear that. I have something to say to the hon. Gentleman, with which he may agree. He will recall that some years ago, towards the end of the 1970s, many of his colleagues, who were distinguished surgeons, were leaving the country to go abroad to Canada, America, New Zealand and elsewhere, precisely because of the rate of taxation and their small net incomes. Changing the upper tax rates will stop that drain, which will materially help the National Health Service.
§ Mr. GalbraithThe right hon. Gentleman is quite wrong. What stopped my colleagues going to places such as Canada was that Canada refused to let them in. It has absolutely nothing to do with income tax rates.
§ Mr. MajorI am not sure that the hon. Gentleman does not add to my point rather than detract from it, as he sought to do.
The point about a low tax environment — [Interruption.] If the right hon. and learned Member for Monklands, East wished to intervene, he had his opportunity a moment ago.
Moreover, a low tax environment helps create new jobs—genuine jobs that are not for ever dependent on state expenditure or subsidy year after year, with the consequent 1133 high taxation, but not a word of that found its way into the right hon. and learned Gentleman's speech. The Labour party claims that it wishes to improve living standards. If that is true, how ironic that Opposition Members invariably seek to do so by supporting high wage claims that cost jobs, and opposing tax cuts that help create them.
The right hon. and learned Gentleman disliked the reduction in basic rate tax, but he was positively apoplectic at the reductions in upper rates, as were many of his hon. Friends, despite the fact that anyone who cares to examine the matter knows that low tax economies work better than high tax economies.
The right hon. and learned Gentleman also referred, in an entirely class-conscious way, to what he refers to as "the rich". Let us examine who the gainers predominantly may be from the tax changes that my right hon. Friend has made. Of those gaining from the abolition of the higher rates above 40 per cent., about two thirds have incomes that are not in the "super rich" category but are under £40,000—less than that of, for example, the Leader of the Opposition. They include scientists, surgeons, doctors, engineers—they are the meritocracy, not the outstandingly rich or the privileged. It is those people we wish to help, for whom we wish to provide incentives and whom we wish to keep in this country.
§ Mr. Tam Dalyell (Linlithgow)The right hon. Gentleman has just mentioned scientists. How does he deal with the worry of the Royal Society that about 10 per cent. of its members are going abroad and that the drain of top scientists from this country is something that should worry us all?
§ Mr. MajorThe hon. Gentleman, representing the aristocracy, makes the point clearly. It is precisely because we want to keep those people, who are so valuable to this country, that we are seeking to change the tax rates to give them greater rewards so that they will stay here.
§ Mr. GalbraithWill the right hon. Gentleman give way?
§ Mr. MajorI have given way twice to the hon. Gentleman, and that was once too many.
On the subject of redistribution, the other point that is clear to all except the Opposition is that, since 1979, the real revenues paid by the top 5 per cent. of taxpayers have risen by a third and those paid by the other 95 per cent. have been reduced. That is what has happened up to and including my right hon. Friend's changes of yesterday. But the Opposition's stance is admirably clear. They believe in high taxation, not because it raises more revenue—it does not—or because it improves the quality of public services—it does not—or because it leads to economic success—it does not. They believe in high taxes for their own sake, whatever the damage to the economy.
§ Mr. John SmithWill the Chief Secretary explain why the Government maintain the upper limit on national insurance contributions? Why is it right for a person earning £18,000 a year to pay less by way of tax and national insurance contributions than someone on 16,000?
§ Mr. MajorIt is enlightening that the right hon. and learned Gentleman should ask that question, because the Labour party spent the first two weeks of the last general election campaign denying that it was going to lift the upper earnings limit on national insurance contributions. 1134 So it is interesting that the right hon. and learned Gentleman now places on record the fact that the Opposition will lift the upper earnings limit on national insurance and carry national insurance charges right through the scale. If that is their policy, everyone earning more than £15,800 a year will be losers, and I hope he will accept that that is now the Labour party's position.
The Government last cut the top rate of tax in 1979. Despite that, the top 5 per cent. of taxpayers now contribute 29 per cent. of income tax revenues, compared with the 24 per cent. they contributed when they were subject to the right hon. and learned Gentleman's penal rates.
That trend mirrors what happened after my right hon. Friend reformed corporate taxes two or three Budgets ago. Companies now contribute a higher proportion to our revenues than when they were subject to higher rates. They are also investing in and moving to this country, rather than disinvesting from and leaving it. That is the other advantage of lower tax rates. They are doing that partly because we have one of the lowest corporation tax rates in the industrialised world.
Reducing tax rates is not merely a bizarre fetish of this Government—
§ Ms. Hilary Armstrong (Durham, North-West)The Chancellor told us yesterday that no one would pay more than 40 per cent. tax. Had he forgotten about the 500,000 people whose marginal tax rate, after yesterday, will he between 70 and 90 per cent. — the group included in what we call the poverty trap? Will the Chief Secretary tell us what he will do to take those people out of that marginal tax rate?
§ Mr. MajorMy right hon. Friend specifically said that no one will face a personal tax rate in excess of 40 per cent. The underlying point that the hon. Lady made is one to which there is no solution, as successive Governments have found. The more benefits we provide, the worse the poverty trap becomes for many people. If there were a solution, I would have taken it when I was a Minister in the DHSS. I could not find one. If the hon. Lady will offer me one, I shall willingly take it to my right hon. Friend the Secretary of State for Social Services.
§ Mr. Robin Cook (Livingston)May I offer the Minister an immediate solution: not to proceed with the changes on 11 April, which will double the number of families who are subject to a deduction rate in excess of 70 per cent.? How does he justify that doubling when the top 5 per cent. have a cut of a third in their tax rate?
§ Mr. MajorFirst, I suspect that the hon. Gentleman's numbers are wrong. Secondly, he will know that, before the social security reforms, it was quite possible to have a marginal tax rate of well over 100 per cent. We have lessened that poverty and employment trap substantially with the changes that we have made. If more people are now in the trap, that is entirely a result of increasing levels of benefits, as the hon. Gentleman knows.
As I said, reducing high tax rates, with which the Opposition disagree, is not merely a fetish of this Government. The Socialist Government in India and the Labour Governments in Australia and New Zealand are all cutting taxes substantially—
§ Mr. HollandNot in Germany.
§ Mr. MajorThey are doing so because it has been accepted by those in government, Socialist and non-Socialist alike, that high tax rates are inefficient for raising revenue, and damaging to the economy. Only the British Labour party, excluded from power for so long, does not recognise that. Until it does, it will stay where it deserves to be—in opposition and out of government.
Penal tax rates do not encourage effort, risk-taking or wealth creation. They only encourage tax avoidance, tax evasion and emigration.
§ Mr. MajorI have given way enough.
Lower marginal tax rates will reward effort and enterprise, and give an incentive to invest in productive areas of the economy.Does the right hon. and learned Member for Monklands, East agree with that? Was he listening to it, and would he understand it if he was? Probably, the answer is no, but those were the words of the New Zealand Labour Finance Minister, when he announced a reduction in the top rate of tax from 66 per cent. to 48 per cent. He was right, we are right, and the right hon. and learned Gentleman was wrong.
§ Mr. MajorI shall not give way.
We cannot insulate ourselves from the worldwide trends towards lower tax rates. We cannot hope to keep the best talents in this country—the best entrepreneurs, surgeons, electricians and scientists—if the price of their success is 60p in the pound here as against 28 cents in the dollar in the United States, 29 cents in Canada, 49 cents in Australia and 48 cents in New Zealand. That is why it was right to cut tax rates in the Budget. Opposition Members who disagree with that must explain to the sick and unemployed why they want to cling to a tax regime that offers low rewards to those who can most help them and encourages such people to seek rewards overseas.
The right hon. and learned Member for Monklands, East had a lot to say about our policies but was shifty about his—in so far as he has any. He knows what he is against, but I am not sure that he will tell anyone what he is for — if he knows. It is clear that the Opposition would reverse many, if not all, of these tax reductions. We now know that they would abolish the upper earnings limit on national insurance, thereby severely damaging anyone earning more than £15,000 a year. We know what they tried and failed to hide during the general election—that they would abolish the married man's tax allowance and reduce the income of 6 million households. They tried and failed to conceal that, and lost the election because of it.
If the right hon. and learned Gentleman wants to be credible, he needs to do more than merely carp at us. He needs a policy of his own, but he and his party lack one. If they have one, will he tell us—he failed to do so—whether the Opposition will reverse the reduction in the basic rate of tax in the Budget? Will they reverse the threshold increases? Do they still hold to moving tax up to 29p in the pound, which was their general election position? I am happy to give way to the right hon. and learned Gentleman on that. Answer comes there none. [HON. MEMBERS: "Answer!"] This is perhaps the first time in the whole debate that the right hon. and learned Gentleman has been silent. So perhaps at least we can be grateful for that.
1136 But there is one area where the right hon. and learned Gentleman and I might conceivably agree and that is that there is a converse to lower tax rates. If it is not right to have penal tax rates then neither can it be right to have many special reliefs which the better off can exploit to reduce, or even eliminate, their tax bills. The great majority of wage and salary earners, with modest investment incomes, including small private shareholdings, do not really have the option of exploiting tax shelters.
Most of those on higher incomes pay their taxes in full as well. But, for a small minority — a very small minority—the present tax system means that, while the nominal tax rates for which they are liable is high, the actual tax rates they pay can be very low. That can, of course, be wholly within the law, but it is also wholly unfair. Far too many people have been able to avoid far too much tax by utilising tax shelters. I agree with the right hon. and learned Gentleman: I believe in low taxes. But I also believe those taxes should be paid.
But tax avoidance on a large scale is an inevitable consequence of a tax regime which gives the highly paid and the better-off incentives to invest in tax planning. That point has been very well put by others:
It would be stupid not to recognise the lesson of recent history; taxpayers just will not pay ridiculously high marginal tax rates. The system invites abuse if it attempts to impose such a burden.Not my words, but those of Paul Keating, Labour Treasurer in Australia in the 1985 Budget. He recognised the basic truth that tax shelters are the product of punitive tax rates. It is right that, in a Budget where we are bringing tax rates down, we should take measures that start to remove those shelters.Nor should the amount of tax paid depend on how one is paid — whether in cash or through a benefit in kind. Therefore, in this Budget we are tackling the most criticised tax shelter—the present tax regime for forestry — and the most widespread perk — the company car. Both these measures will make a significant contribution—
§ Mr. SkinnerWhat about Ministers' cars?
§ Mr. SkinnerI have no company car. I have a bike with 531 tubing.
§ Mr. MajorAs my right hon. Friend the Member for Shropshire, North (Mr. Biffen), the former Leader of the House, once remarked, we grammar school boys must stick together.
Both these measures will make a significant contribution to making the impact of the tax system fairer. But a real assault on tax shelters is possible only in an environment which does not encourage them to flourish—and that is a low tax environment.
My right hon. Friend's significant reforms have not been confined to income tax alone. He has overhauled the tax treatment of capital gains, ended the injustice of taxing notional pre-1982 gains and reduced the distortion of taxing a higher rate taxpayer's gains at 30 per cent. but the same taxpayer's income at 40 per cent. He has announced a drastic restructuring of inheritance tax. The four rates of tax have been reduced to one single rate and the threshold has been increased. As a result, 20,000 more estates, most 1137 of them people with modest home ownership values, will pay no tax at all next year. My right hon. Friend the Financial Secretary to the Treasury and my hon. Friend the Economic Secretary will expand on these changes later in the debate.
All these reforms mean that there will be no personal tax rate higher than 40 per cent. in the system. This is a total transformation from the days of 98 per cent. marginal rates on investment income, 83 per cent. on earned income and 75 per cent. on capital transfers. Those days are gone—and gone for good.
These measures alone would represent a catalogue of substantial reform. But there is one other area I must single out, and that is the reform of the tax treatment of married women. Frankly, the present system is utterly outdated and widely accepted as such. But while there has been a long-standing clamour for some reform, there have been differing views on what reform there should be—and the result has been the perpetuation for too long of an unacceptable status quo.
The proposals that my right hon. Friend announced yesterday will end, at long last, the present unfair and widely resented tax regime for married women, and remove absurd and unjustifiable penalties on marriage from our tax system. They will provide the privacy and independence that women have long sought. They have been widely — until today, almost universally — welcomed.
In all this there is one dissentient voice, that of the right hon. and learned Gentleman. Perhaps Labour's attitude is best summed up by the fact that, when he chose to unveil his Budget thoughts, there was not one word about the tax treatment of women in an article of 1,500 words—and this was not to the Financial Times, not to The Economist, nor even to the New Statesman—but to Woman's Own.