Finance Bill

§ Madam Speaker

I have selected the amendment standing in the name of the Leader of the Opposition.

§ The Chief Secretary to the Treasury (Mr. Michael Portillo)

I beg to move, That the Bill be now read a Second time.

The Finance Bill begins its passage through the House today. The House will know that managing the Bill each year requires co-operation between the parties. In the interests of good government, we must ensure that each of the inevitably complicated matters in the Bill is given time for discussion and that outside interests are given plenty of time to comment. We have always been able to do that in the House on the basis of sensible arrangements between the parties for orderly debate, but this year the Labour party will not co-operate. I have written to the hon. Member for Peckham (Ms Harman)—my opposite number—setting out a sensible scheme for consideration of the Bill and proposing the clauses to be taken on the Floor of the House and a reasonable timetable to which we can all work to ensure that the Bill can be given full consideration by the Easter recess.

That the hon. Lady has refused to enter into any understanding with me I regard as most unreasonable. The matters in the Bill are very important, and people outside the House expect us to give them careful consideration. It is extraordinary of the Labour party to block the most common-sense arrangements for doing our business. Today, I once again reiterate my appeal to the hon. Lady to reconsider her position and to make an arrangement in the interests of orderly business in the House.

The Government bring their Bill to the House because we are committed to align what the Government spend with what they receive in tax. The Bill is crucial if we are to have sound public finances. Sound public finances are essential to our national prosperity. What is more, the Government believe that it would be ethically indefensible for the Government to plan consistently to live beyond their means when every family and business in the country has had to make the sacrifices necessary to bring income and expenditure into line.

The Government have therefore set out their economic policies with great care. Over the past 18 months, we have set out our monetary policy, we have put in place the transparent arrangements that determine the considerations that lead to our decisions on interest rates; the markets can be confident about what they are. We have set out a medium-term spending strategy. We did that first in the autumn statement 1992 with the new top-down approach. We produced figures then. We followed that up in the Budget introduced by my right hon. and learned Friend the Chancellor in November with new figures that came in below the public spending ceilings that we had set the year before.

170 People know the limits of what the Government will spend. They know that the Government will stick within those limits. In the most recent spending round, we demonstrated our determination not only to hold down public spending but to reduce the plans for public spending that we had made. For 1994–95, we have made, in successive autumn statements, two reductions totalling more than £8 billion off the plans for the coming year. We have a medium-term spending strategy, and a medium-term taxation strategy. The markets know exactly how the Government will raise the revenue that is needed. They know that they can have confidence that the Government's borrowing will be reduced sharply. That confidence is reflected in today's low level of interest—the lowest since 1977.

I now want to make a statement which will, I believe, deeply shock the Labour party, as most statements of the obvious do. There is an unbreakable link between what Governments spend and what they must raise in taxes. At the last election, the contest was between a Conservative party whose every instinct is to control spending and reduce taxation and a Labour party that is dedicated to extending the role of the state through increased public spending and, therefore, to raising taxes in order to pay for that. Nothing that has happened since the last election has changed the validity of the choice that was put before the British people then, or the validity of the decision that the British people made on that point.

§ Ms Harriet Harman (Peckham)

The Chief Secretary has just been telling the House about ethics. Will he admit to the House that he misled the country on taxes at the last general election?

§ Mr. Portillo

The Government gave a pledge that they would uphold sound public finances, and we have responded in the difficult circumstances that we have faced since then in order to fulfil that pledge. I do not believe that Chancellor Kohl promised the German people that there would be a 9 per cent. reduction in industrial production. I do not believe that Mr. Gonzales promised that there would be a 22 per cent. rate of unemployment in Spain.

Governments have to cope with the circumstances that they find, and if they are good Governments they do so in accordance with their principles. The principle of this Government is that we will have sound public finances. What the Government raise and what the Government spend will be brought into line with one another.

§ Ms Harman

What this Government did was promise to cut taxes. Will the Chief Secretary admit that he misled the country in the last general election because he promised to cut taxes?

§ Mr. Portillo

We gave the most solemn pledge to the country that we would deliver sound public finances. That is what we stand by today. The hon. Lady knows perfectly well that the Conservative party's every instinct is to cut taxation, but our principle to establish sound public finances comes first. We have principles. We have priorities. We know what those priorities are and that is why we deliver policies in which people can have confidence.

§ Mr. Clive Betts (Sheffield, Attercliffe)

Does the Chief Secretary remember that in the Budget debate he said that he and his colleagues did not say at the time of the election that taxes would go up because 171 We thought that the recession was coming to an end in early 1992."—[Official Report, 1 December 1993; Vol. 233, c. 1072.] How does the right hon. Gentleman square that statement with the statement made by the Chancellor in the same Budget debate? He said: It is now clear that the recovery started in the first half of 1992".—[Official Report, 30 November 1993; Vol. 233, c.1919.] If the recovery started in the first half of 1992, why did he not manage to anticipate that during the general election and make the clear commitments on taxation that obviously he did not make at that time?

§ Mr. Portillo

I congratulate the hon. Gentleman. He has had a couple of months to think out that question. There is the small matter of the pace at which the recovery was taking place, and the hon. Gentleman was as wrong as anybody else in thinking that the recovery had begun at a rapid pace during the early part of 1992. Alas, we were disappointed, but the Government have not been afraid to take the action that is necessary.

Nothing has changed about the Labour party. Nothing has changed in the series of promises that it will spend more money, which it gives day after day. In recent times, we have heard promises from the Labour party that local councils will spend another £6 billion from the money that is rightly set aside against their indebtedness. We have heard that it will increase overseas aid by £2.5 billion. We have heared that it will increase health spending, which it wants to take up to 7 per cent. of national income. That would mean another £6 billion. We have heard that it wants to equalise the state pension age at 60 instead of 65, and the additional cost of that would be £12 billion.

There is no accounting from the Labour party to show how all those promises will be paid for, and no Labour spokesman has the self control to get up in a debate in the House or to give a radio interview and last the five minutes necessary without making some new promise about public spending. On Friday evening, I took part in "Any Questions" with the hon. Member for Oldham, West (Mr. Meacher). We had not got five minutes into the programme before he was promising us a new and highly expensive house building programme. Even the shadow Chief Secretary suffers from that marked lack of public expenditure control. One searches in vain through the wilderness of her speeches for any sign that she urges restraint on her colleagues, any sign of the cuts that she believes will be necessary. No such promises are to be found from the hon. Lady.

From top to bottom, the Labour party is characterised by its public-spending incontinence. If spending today, as a proportion of national income, is higher than we would wish, and it is, we can rely on this: it would be much higher under Labour. If the taxes that we require today, at the end of a recession, to balance the books are higher than we would like them to be, and they are, we can count on this: they would be higher still under Labour.

Let me put it plainly. Labour spends more; Labour borrows more; Labour would tax more. Come rain or come shine, Labour would tax, borrow and spend more than we do. The House need not take my word for it. In "On the Record", the hon. Member for Dunfermline, East (Mr. Brown) said: The Budget decisions that the Conservatives made in the 1980s were completely unacceptable. 172 What does that mean? It means that the hon. Gentleman disagrees with the reduction in income tax from 33p to 25p in the pound; it means that he disagrees with the reduction in corporation tax from 52 per cent. to 33 per cent. Those were changes that we introduced in the 1980s, and the hon. Gentleman disagrees with both of them.

There is one honest man on the Labour Benches, although he is too honest to be on the Front Bench. I refer to the hon. Member for Dagenham (Mr. Gould), who, in that same programme, said: I think the Labour party ought to accept that we will always be likely to have a higher tax burden than our opponents, because we believe in public spending. Bravo! The hon. Gentleman spoke the simple truth. Here is a man who is not afraid of the truth—a man with whom it is a joy to have lunch. The Labour party has changed in only one respect. In the good old days of the Labour party—the days when it was led by the right hon. Member for Islwyn (Mr. Kinnock)—it used to produce a shadow Budget that showed that it would need to raise higher taxes to pay for all its promises of higher spending. Where is that old Welsh honesty that we all miss so much? It has gone out of the window.

In this Bill, the Government recognise that business cannot prosper and jobs cannot be created if public finances are under strain. That is why we have taken decisive steps to bring our finances into balance, tackling both spending and taxing: spending levels determine tax levels, so spending must be tackled.

§ Several hon. Members

rose——

§ Mr. Portillo

As my hon. Friends know, part of our deficit results from the large increases in what we have spent on health, education and social security. In each of the three years preceding 1992–93, we were spending an extra 5.5 per cent. in real terms on the health service. Did the Labour party ever say that that was too much? No: Labour, disgracefully, used individual cases to lead the public to believe that we were spending too little. Conservative Members well remember the party's scandalous, shameful behaviour over Jennifer's ear.

§ Several hon. Members

rose——

§ Mr. Portillo

Given that the Government have spent so much on health, would Labour spend more? Labour Members say that they would. Over the past five years, we have increased our spending on education by 25 per cent. in real terms. Did Labour tell us that that was too much? Did they tell us to cut back? No; they were too busy promising the earth and more. Would they now wish to spend more on education? They tell us that they would.

§ Mr. George Howarth (Knowsley, North)

Will the Chief Secretary give way?

§ Mr. Portillo

So the question for the hon. Member for Peckham to answer in her speech is this: what would Labour cut?

§ Mr. Howarth

Will the Chief Secretary give way? Mr. Portillo: What would Labour—[Interruption.]

§ Mr. Andrew Faulds (Warley, East)

On a point of order, Madam Speaker. I think that you would endorse my view, and the view of many hon. Members who are present, that it is most unusual for a senior Minister, having 173 given us this prepared gibberish, not to yield to hon. Member after hon. Member when there are valid points to be made. Would you occasionally reprimand the Chief Secretary, Madam Speaker, or ask him kindly to observe the parliamentary courtesy of giving way when an hon. Member wishes to intervene?

§ Madam Speaker

Order. The hon. Gentleman is a long-standing Member of the House—[HON. MEMBERS: "Too long."] That may be the opinion of some people but it is not mine. He happens to be my constituency neighbour so I have to be very careful. As he knows, it is up to the hon. Member who had the floor to decide whether to give way. I am sure that the Minister has taken that into consideration.

§ Mr. Portillo

Indeed, I choose to give way often and have done so several times in this debate. I gave way twice to the hon. Member for Peckham and once to another hon. Member.

I want to ask the hon. Member for Peckham where the Labour party is to make the cuts. Her party says that taxes and borrowing are too high but it has promised extra spending on education, health and overseas aid, so where are the cuts to be made? I want to know. Are they to be made in social security? The hon. Lady and her friends are opposing the Bills that would reduce social security spending. Will the cuts be in transport, in housing, in defence or in training? The hon. Lady must tell us, and if she wants to, I should be happy to give way to her. She does not want to tell us. I genuinely thought that she would get up and make her usual, fatuous commitment that the Labour party will cut unemployment.

§ Mr. Peter Mandelson (Hartlepool)

Why is it fatuous?

§ Mr. Portillo

How will the Labour party cut unemployment? It is committed to the social chapter, which we know destroys jobs. Employers across Europe want to locate their businesses in Britain because we have the lowest non-wage costs in Europe. The Labour party wants the social chapter and wants to destroy jobs.

The Labour party says that it wants to stimulate investment but what plans does it have to do so? It wants to levy a special penal rate of tax on the utilities, which are some of the biggest investors in the British economy, and that would also destroy employment. Labour says that it will put more people into work, but how? By spending more on job creation schemes, I suppose—and how would they be financed? By more taxes? The Labour party tells us that taxation is already too high, so is it going to borrow? It tells us that borrowing is also too high. If it borrowed more, it would lose the confidence of the financial markets and we should have higher interest rates, slower recovery and fewer jobs, which is why I say that the Labour party's claim is fatuous. It is not only fatuous; it is misleading, it is dishonest and it is basically ignorant.

The Liberals—

§ Mr. George Howarth

Perhaps the Chief Secretary could throw some light on a subject that is worrying many hon. Members and people outside. During the general election campaign, either the Government knew what lay ahead in terms of public finance and they therefore misled the electorate or they did not know what was to happen, in which case how can we believe the figures that they are using now?

§ Mr. Portillo

We believed, as investment analysts, banks, other Governments, commentators and politicians in the Labour party believed, that the recovery was well under way around the time of the election. If we were wrong, the analysts, the banks, other Governments and people in the hon. Gentleman's party were wrong. If we made an error, it was an error and not a matter of dishonesty. The Labour party is presenting a dishonest policy and the Liberals are not much better—

§ Mr. A. J. Beith (Berwick-upon-Tweed)

I am sorry, but the Government did not make an error; they forecast a public sector borrowing requirement of £28 billion. It surely followed that they must already have had an idea that some tax increases would be necessary for a Government whose first priority, as the Chief Secretary has said, was to bring their taxes into line with their spending.

§ Mr. Portillo

The PSBR that we forecast at £28 billion turned out to be £37 billion. We did not foresee a PSBR of £50 billion.

The measures that the Government have had to take are accounted for by the differences between those figures. The hon. Gentleman knows well that the Government's policy has been to balance spending and income over time. We have recognised that we have run a PSBR when we were in recession, in the same way as we ran a surplus when we were at the peak of the recovery. The hon. Gentleman knows perfectly well, therefore, that it was consistent to run a policy of sound public finances and to tolerate a PSBR at the very trough of the recession. That trough turned out to be deeper than we thought and we are taking the corrective action that is in the Bill.

§ Mr. Paul Flynn (Newport, West)

The Chief Secretary is obviously suffering from repetitive taxing strain. Does he recall telling the country that he promised to provide —his words—an ultra-low-tax economy? Having now presided over the highest tax hike in our history, will he now resign?

§ Mr. Portillo

My aim is an ultra-low-tax economy and I believe that the British people will believe that the Conservatives are directed towards that. What should worry the hon. Gentleman is that the British people will never believe that that is the ambition of the Labour party. Members of the Labour party think that they are very clever whipping up this tax row. They think that they will make people disaffected with the Conservative Government. Well, perhaps they will, but when the Labour party has succeeded in convincing the British people that they are paying too much tax, and then the Labour party goes to the electorate and puts before the British people its plan to spend more and to tax more, I wonder whether its members will feel so clever then. I very much doubt it.

The Liberal party is not very much better. It does at least admit that it is its policy to spend more and borrow more. It gets some marks from me for frankness for that. At a time when the Government are already borrowing £1,000 million a week, however, what serious political party can propose that the solution to our problem is to borrow more money? The way to establish the low-tax economy that I and my hon. Friends want is to underpin the recovery with prudent fiscal policies. Our recovery will depend on clear, sustained determination to take difficult decisions now to 175 provide a basis for longer-term prosperity. No one will look to the Labour party for that type of determination or that type of responsibility.

§ Mr. Mandelson

If the newspaper is not too undeferential for his tastes, has the Chief Secretary read The Sun today? Very properly, it asks why borrowing is so high. Is not the answer that borrowing is so high because unemployment is costing the country £26 billion a year? Is not the reason why we have such high taxation in Britain that we have such a low level of economic success as a result of the Government's policies?

§ Mr. Portillo

We had the highest growth in the European Community in 1993 and in 1994. I gave the explanation about unemployment. The hon. Gentleman was too busy squawking, "fatuous" from a sedentary position to listen to what I was saying. I did read the leader in The Sun this morning, which made it perfectly clear that it would be worse under a Labour Government That has been the thesis throughout my speech.

The Government have received the extremely interesting report from the Treasury and Civil Service Select Committee. We shall want to respond to it in due course, but I express my gratitude to the Select Committee. I welcome its conclusion that the Chancellor was right to tighten the fiscal position further, and that not to have done so would have had adverse economic consequences—that, remember, from an all-party Committee. I am pleased, too, that the Select Committee expects expenditure restraint. I know that my hon. Friends will be interested that the Committee expects expenditure restraint to contribute significantly towards the Government's objective of reducing public spending as a proportion of national income. That is the objective of Conservative Members. That has been underlined by the Select Committee. It is not, I believe, the objective of the Labour party. Without our determination to control state spending, the tax rises that we would need would be much higher than those in the Bill.

§ Mr. Giles Radice (Durham, North)

I am sure that the Minister is aware that two amendments, supported by all the Opposition Members in the Committee, were tabled, expressing concern about the scale of the tax hikes and saying that they could put our recovery at risk. In view of his new worries about the institutions of the House, I am sure that the right hon. Gentleman would not wish to mislead the House.

§ Mr. Portillo

My interest in the institutions of the House is not new found. As I said, we shall give a considered reply to the Committee's report. It is the judgment of my right hon. and learned Friend the Chancellor of the Exchequer, and my judgment too, that the recovery is strong enough. It is broadening and sustainable, and it will be proof against the increases in taxation this year. Both our forecasts and the independent forecasts for the coming year take into account the tax increases in the Bill, and those in the previous Finance Act.

§ Mr. Alex Salmond (Banff and Buchan)

Presumably the Chief Secretary acknowledges that in colder areas of the country vulnerable groups in the community have to 176 pay more for their fuel, and will therefore be forced to pay more VAT. Why is that fact of life for those vulnerable groups not reflected in the compensation scheme?

§ Mr. Portillo

It is not reflected because there are variations in what people spend on all sorts of goods, depending upon where they live. Some people in city areas have more expensive lives to lead than people in country areas, and so on. It is simply not possible to adjust social security arrangements to take account of each and every different factor, many of which tend to cancel each other out.

The hon. Member for Banff and Buchan (Mr. Salmond) has led me on to the subject of VAT on fuel and power. That has been the most difficult decision for my right hon. and hon. Friends, yet they have supported the Government, and I thank them very much for that. I believe that our announcement that we would extend VAT to fuel and power, unpopular though it was, clearly underlines our determination to deal with the borrowing problem.

We were under no illusions about the unpopularity of the measure. It is not the Conservative party that needs convincing that increasing taxes is unpopular, and is to be avoided whenever possible. The fact that, none the less, we decided to extend the scope of VAT made it clear beyond doubt that we were absolutely serious, and that we would take the necessary action to bring the public finances under control. As a result of that confidence, both short-term and long-term interest rates fell in 1993, and the recovery gained pace, because the markets were convinced that we were in earnest about dealing with public spending and borrowing.

§ Several hon. Members

rose—

§ Mr. Portillo

I shall make a little more progress.

The amendment that has been tabled on VAT surprises me. I had assumed that by now the Labour party had given up its opposition to the extension of VAT to fuel and power. If Labour Members were concerned about that, surely the natural time to introduce an amendment was at the end of the Budget debate. That would have been a timely occasion on which to debate the issue. I cannot understand why the Labour party did not table such an amendment then. Of course, I assume that whatever the reason was, it was not just plain incompetence on the part of the Labour party.

Because of the prudent decisions that we have taken, and because of the measures in the Bill, we shall not build up such a large burden of debt to pass to our children. Without that action, the interest rate burden would have mounted inexorably, and high debt interest would have required a permanently higher rate of taxation to pay for it. We have arrested that process in time. By taking steps now to bring our public finances into balance, we have created the prospect of lower taxes in years to come. Without the firm action we have taken, and the action that we propose today, we would have been increasing taxes every year, just to pay the interest on the Government's overdraft.

Any sensible Chancellor of the Exchequer would take action to avoid that. Only one has acted otherwise—a Labour Chancellor, Lord Healey. When he was faced with a mounting debt and a mounting burden of interest, he chose to cut taxes and to leave public spending and borrowing increasing inexorably. That was irresponsible in the extreme. That action by Lord Healey—cynical and irresponsible as it was—taken in 1978–79 as the general 177 election approached, was the starting point for all the comparisons that the Labour party makes about the burden of taxation under its Government and under the Conservative Government. It was a year of shame and the Labour party ought to be happy to forget all about it.

The essential difference between the Labour party and the Conservative party is highlighted by our different attitudes to what has been described as the growth dividend. As the economy grows, the Labour party commits itself to squander that dividend on higher public spending. On the other hand, our commitment is to control spending and to pass that dividend to those who earned the money in the first place—the taxpayers. There remains today a huge gulf between the two parties in that respect. It is the same divide that faced the nation at the last general election. It is the same choice between the Labour party, which believes that the state should do more, spend more, tax more, and the Conservatives, who believe in sound public finance, the control of public spending and the shrinking of the state. My right hon. and hon. Friends—

§ Mr. Faulds

On a point of order, Mr. Deputy Speaker. Is there, in "Erskine May", any restraint of solo recitation?

§ Mr. Deputy Speaker (Mr. Geoffrey Lofthouse)

I am sure that the hon. Gentleman realises that that is not a point of order. I have no doubt that if there is such a restraint, he will go and find it.

§ Mr. Portillo

The Labour party has raised the stakes on taxation. It has convinced the people of the country that high taxation is something that it does not want. Labour Members think that they are sitting pretty today. I predict that they will rue the day. Come the next general election, no one will believe that the Labour party will reduce taxes. People will vote for the party that stands for the reduction of taxation, and the Conservative party believes in that.

The Budget and the Finance Bill provide the means of controlling public spending and setting our public finances on a sound footing. The Bill gives effect to the measures in the Budget, and I commend it to the House.

§ Ms Harriet Harman (Peckham)

I welcome the Chief Secretary to the debate about taxes, because, while the whole country has been talking about taxes over the weekend and since then, the Chief—

§ Mr. Deputy Speaker

Order. May I draw it to the attention of the hon. Lady that she should move the amendment?

§ Ms Harman

I beg to move, That this House believes that the Finance Bill is not an acceptable and effective measure because it fails to make any proposal to repeal section 42 of the Finance Act 1993, which imposed value added tax on domestic fuel. [Interruption.]

§ Mr. Deputy Speaker

Order. There is not much point in asking the hon. Lady to move the amendment if I cannot hear her.

§ Ms Harman

I welcome the Chief Secretary to the debate about taxes, because, while the whole country has been talking about taxes over the weekend and since then, the right hon. Gentleman has been noticeably absent. While the Chancellor and the Financial Secretary to the Treasury have been running around television studios 178 trying, unsuccessfully, to rescue the tattered reputation of the Government, the Chief Secretary, uncharacteristically, has been nowhere to be seen. It seems that he is ever available to make speeches to right-wing groups of Conservatives.

§ Sir Peter Hordern (Horsham)

On a point of order, Mr. Deputy Speaker. I understood that the hon. Lady was going to move the amendment.

§ Mr. Deputy Speaker

I have already pointed out to the hon. Lady that she should move the amendment and I would be obliged if she would.

§ Ms Harman

May I point out to the right hon. Member for Horsham that the amendment—[Interruption.]

§ Mr. Deputy Speaker

Order. We shall have order, whether I take points of order or not. The Chair will decide whether or not the hon. Lady is in order or out of order. That decision can safely be left to the Chair.

§ Mr. Robert Sheldon (Ashton-under-Lyne)

On a point of order, Mr. Deputy Speaker. You will know that, of course, it is perfectly in order to move the amendment at any time during the speech.

§ Mr. Deputy Speaker

The right hon. Gentleman is quite right.

§ Mr. Ian Taylor (Esher)

On a point of order, Mr. Deputy Speaker. Is it not in order that you remind the hon. Member for Peckham (Ms Harman) to move the amendment, because she forgot to table it last time? [Interruption.]

§ Mr. Deputy Speaker

We will have less frivolity, and get down to serious business.

§ Ms Harman

People outside the House of Commons are not interested in procedural points to disrupt debate; they are interested in the increases in taxes that they will face from this lying, hypocritical Government, and they are interested in the VAT which the Government have insisted on. The hon. Member for Esher (Mr. Taylor) will have an opportunity to vote with his constituents against VAT on gas and electricity.

Although the Chief Secretary to the Treasury is ever available to make speeches to right-wing groups, he has been available nowhere, it seems, to talk about the Finance Bill. He could hardly bring himself to discuss the contents of the Bill today. While his colleagues prepare for the next day's battering from a now furious Tory press, he has been watching his back in preparation for the next leadership election. That is why he has been so silent. It is no wonder he has not wanted to be seen talking about the Finance Bill: the Bill destroys once and for all the Conservatives' central claim that theirs is the party of low tax.

That is the claim that was presented to the British people as the principal reason for voting Tory at the previous election. That claim is now dead, for now the very same party has imposed 12 major tax increases in just one Bill, 20 tax rises in 20 months, and the largest tax demand in peacetime history. It is no wonder Tory Back-Bench Members are worried—taxes to the left of them, taxes to the right of them, into the valley of taxes Ministers are leading them.

Within two hours of the supposedly tax-cutting Chancellor making his Budget speech on 30 November, 179 taxes began to rise—this year, next year, the year after, the year after that and the year after that as well. The Tories' five-year plan is tax upon tax, year after year.

As the claim to be the party of low tax is destroyed, so too is any claim to the trust of the British people. The Conservative manifesto invited the electorate to trust the Tories as the only party that understands the need for low taxation". But now the Government have been forced to admit that, whether it is tax on what one earns or tax on what one spends, one will pay more. The Prime Minister promised the British people that he could be trusted not to increase VAT, but the Government have been forced to admit that people are already paying twice as much VAT as they paid in 1979. He promised not to put VAT on gas and electricity, and now he intends to do just that. The Prime Minister promised that he could be trusted to make reductions in the rate of tax, year on year. But, in a parliamentary answer that the Financial Secretary gave me, the Government have been forced to admit that taxes on income have not only been raised but are now higher than they were in 1979.

§ Mr. Simon Burns (Chelmsford)

Does the hon. Lady accept that it is quite extraordinary to many people both in the House and outside that she should be lecturing on credibility and trust, given the economies with the truth and the innuendos and smears that she practised as shadow health spokesperson in the previous Parliament?

§ Ms Harman

That is a disgraceful diversion, and an attempt to distract attention from what the Government are doing to the hon. Gentleman's constituents on taxation. The hon. Gentleman is too cowardly to stand up and protect them against what the Government are doing.

§ Mr. Nigel Forman (Carshalton and Wallington)

I am trying to follow the hon. Lady's argument on tax matters, which is central to her speech. If she really is sincerely complaining about rates of tax under the Government, which rates of tax would her party cut if it were in office?

§ Ms Harman

I am complaining about tax increases from a Government who promised to cut tax, tax increases to pay for high unemployment, and tax which hits hardest those who can least afford it.

Perhaps the hon. Member for Carshalton and Wallington (Mr. Forman) should be reminded of what he said in his election address to his constituents, and perhaps he will vote with us against the Finance Bill. He said: The burden of income tax has been reduced and only the Conservatives promise further reductions"— [HON. MEMBERS: "Which taxes would you cut?"] We would stop VAT on gas and electricity.

§ Several hon. Members

rose—

§ Ms Harman

I shall not give way for a while.

§ Several hon. Members

rose—

§ Mr. Deputy Speaker

Order. The hon. Lady has made it quite clear that she is not giving way. These are not the football terraces.

§ Ms Harman

The Chief Secretary claimed last year—the right hon. Gentleman could confirm the point: 180 Over time, we have shifted the tax burden away from direct taxes".—[Official Report, 26 April 1993; Vol. 223, c. 734.] But that is not what they have done. They have put up direct as well as indirect tax. The tax bill on the earnings of a typical family will be higher from April than it was in 1979. The Chief Secretary still refuses to own up to that deceit. Instead, he lectures us about morality and ethics. Perhaps we should not be surprised.

§ Mr. Rod Richards (Clwyd, North-West)

Will the hon. Lady give way?

§ Ms Harman

I will not give way.

The Chief Secretary has a history of brazening out extravagant claims, for it is he who promised the British people that he was committed not just to a low-tax economy—that was not good enough—not even to a very low-tax economy, but to an ultra-low-tax economy. With an unbridgeable gap between what he says and what he is doing—that is the real gap at issue—perhaps you should turn off the television cameras, Mr. Deputy Speaker, so that the country cannot see what is going on.

§ Mr. Quentin Davies (Stamford and Spalding)

As the hon. Lady now wishes to present herself as a champion of low taxes, does she regret that the Labour party opposed all the reductions in direct tax rates, income tax and corporation tax which we have brought about over the past 15 years? Will she apologise for the Labour party opposing those reductions?

§ Ms Harman

The hon. Gentleman should remember that we did not vote against widening the 20 per cent. ban when we considered the previous Finance Bill, but I am grateful for his intervention, because it allows me the opportunity to remind his constituents and his colleagues of what he said in his own election address. It was a good one. He said: We are absolutely committed to continuing to bring down taxes. What garbage. It is no wonder Conservative Members want to end the televising of Parliament. Having been exposed for putting up VAT and putting up national insurance, the Government continue to claim—one last claim—that theirs is the party of low income tax.

§ Mr. Graham Riddick (Colne Valley)

Will the hon. Lady give way?

§ Ms Harman

I am going to press on. [HON. MEMBERS: "He is on the list".] As my hon. Friends say, the hon. Gentleman is on the list.

In his new year message, after the Budget, the Prime Minister said: The Conservative party remains … the party of low income tax. Last Tuesday, in the House of Commons, he contradicted my right hon. and learned Friend the Leader of the Opposition and said: standard rates of tax under the Conservative party have dropped dramatically since the Opposition were in government".—[Official Report, 18 January, 1994; Vol. 235, c. 703.] But the Treasury's own figures, which were given to me in a parliamentary answer from the Financial Secretary—the hon. Gentleman will agree with me—show that the income tax bill for a family with a mortgage will be higher from April than it was in 1979. We know what the Government have done. They have reduced headline income tax rates, but they have cut tax allowances, and that is how they have 181 put up tax bills. So their claim to be the party of low income tax is now exposed as being as fraudulent as all the other claims.

After all the broken promises and the betrayal of trust, the Prime Minister, the Chancellor and the Chief Secretary offer not a word of apology to the people of this country. What they offer is only evasion and excuses—the same kind of evasion and excuses which they have been dishing out since the election: "The recession went on longer than we expected," or, "Well, it depends what you call a political promise," or, "It is all outside our control." When confronted with the Treasury's own figures on tax increases, the Chancellor brazens it out and calls it "piffle".

With that record, the Chief Secretary's speech 10 days ago when he was whingeing about cynicism was a disgrace. Despite that record of betrayal, he demands respect from the British people. He believes that he and his colleagues are blameless victims of that terrible cynicism. The Chief Secretary tells us that it is all the fault of the British people—the new enemy within. It is all of them —all the British people. The public, he says, lack moral fibre. The Government do not lack moral fibre—not this honourable Government!

§ Mr. Riddiclk

Will the hon. Lady give way?

§ Ms Harman

I will not give way to the hon. Gentleman on moral fibre. I do not think that he has anything to tell the House about that.

The Chief Secretary says that leaders should be afforded respect whatever they do. Otherwise, he tells us, the country will not work so well. He wants us to turn off the television cameras so that the ignorant electorate cannot jump to so many wrong conclusions. The discredited and dishonest electorate have betrayed a decent and upstanding Government. The Tory party is not the party of low tax —it is the party of low excuses.

§ Mr. Portillo

rose

§ Ms Harman

Here comes another excuse.

§ Mr. Portillo

No, not at all. I have listened to what the hon. Lady has said about my speech. Not a single comment that she made was accurate, and every one was a distortion. I do not want to get into a great discussion with her now, but the hon. Lady would be on stronger ground if she quoted what I said and argued against that, rather than parodying what I said. It shows her to be on weak ground, not strong ground.

§ Ms Harman

I must apoligise, as clearly I have been very hurtful to the Chief Secretary.

The Tory party is not the party of low tax—it is just the party of low excuses. In the case of the Chief Secretary, the excuses are not just low, but ultra-low. As the Government run out of excuses, all they can say—the Chief Secretary said it again this afternoon—is that they did not intend to put up taxes.

The Prime Minister says, "I very much regret that we had to put up taxes," and, "It was not our intention," and, "I did not wish to do it." The Chancelloor tells us about his instincts, but I am not sure that I want to know about them. He tells us that his instincts are for low taxes. The Chief Secretary tells us that the Conservative party believes in low taxes.

Those people who hold the great offices of state can offer nothing but their instincts and their aspirations. 182 Ministers of the Crown have opened their hearts and told us of their hopes. This is truly, as the former Chancellor of the Exchequer, the right hon. Member for Kingston upon Thames (Mr. Lamont) said, a Government in office but not in power. A party which has been in government for 14 years begs to be judged not on its record but on its instincts. However, no one will take those instincts seriously and they count for nothing, because the Tories cannot deliver on their promises. They cannot deliver on their pledge of low tax, because they have failed on the economy.

After 14 years, the Tory economics of leaving everything to the markets have failed. Their economic failure has torpedoed their tax plans. They have presided over 14 years of our economy falling behind and of low growth. They have allowed our economy to sink into the deepest and longest recession since the war. They have presided over the destruction of one third of this country's manufacturing employment. They have landed Britain with a deficit in manufacturing trade for the first time in history. The party which says it stands for sound finance —whatever that means from this Government; the Chief Secretary has said it again today—is borrowing more than any other Government since the war.

It is in the face of that failure that the Government are putting up taxes in the Finance Bill. The higher taxes are not for better hospitals—they are cutting capital investment in the health service. The higher taxes are not for better railways—they are cutting investment in British Rail. The higher taxes are not for better training—they are cutting employment programmes.

The higher taxes are to pay the price of economic failure, and they are to deal with the cost of nearly 3 million unemployed people. With £9,000 being spent for every one person who is unemployed, that means that this country is spending £25 billion of public money a year on unemployment—two and a half times more than it was under Labour in 1979. That is where the money goes.

§ Mr. Portillo

What would the Opposition cut?

§ Ms Harman

The Chief Secretary asks what we would cut. We would cut unemployment. We want a nation at work, not a nation on benefits.

The higher taxes are to deal with the problems of high unemployment and low growth that the Government have created. The taxes are the price that the country is paying for a Government who believe that unemployment is a "price worth paying". The tax rises will not solve Britain's economic problems—they will just take the Government's economic failure one step further. The Government have raised taxes because of their economic failure, but the tax rises threaten to make the problem worse.

Even Ministers are admitting that the tax rises will slow the recovery, and that the recovery will be checked. Instead of a panic Budget which put up taxes, there should have been a Budget which took immediate action to address the real causes of the deficit that the Government have created. The Budget should have taken action to promote growth and cut unemployment, and to encourage investment in our industry, our infrastructure and our people.

The Chief Secretary thinks that cutting unemployment would be "fatuous". We wanted a Budget which would have released the £4 billion of capital receipts from council house sales. It is not fatuous to put building workers back to work and to take them off the dole. We wanted a Budget which gave an incentive to firms to hire the long-term 183 unemployed. It is not fatuous to put the long-term unemployed back to work. We wanted an extended capital allowance to help industry with investment, and we wanted genuine action to modernise our infrastructure. We did not get that, and in consequence we will continue to have a weak economy.

Having been driven off its claim to be the party of low tax, the Conservative party cannot resist one further fundamental Tory instinct. Government Members have not been talking about that instinct tonight, but it is the real Tory instinct—the instinct for unfairness. Tonight, we ask the House to vote against VAT on gas and electricity because it breaks a clear election promise and because it hits hardest those who can least afford it.

The compensation scheme is wholly inadequate. All Government Members will find that even their poorest pensioners will have to pay some of this new tax. Is that what they want? Is that what they promised their constituents? Is that fair?

The hon. Member for Gloucestershire, West (Mr. Marland) wrote in a letter to one of his constituents that he would vote against VAT on gas and electricity if only he had the chance. Tonight he has that chance. His constituents will notice that he is not in the Chamber. But he has the chance to vote tonight.

The choice for Conservative Members is this: they can vote with these discredited Ministers or they can vote to honour the promises that they made to their constituents and the pledges that their Prime Minister made to the country. If they do not take the chance tonight to get rid of VAT on gas and electricity, their constituents will never forgive them.

To add to the unfairness of VAT on gas and electricity, the new taxes on spending are grossly unfair. The tax on insurance hits hardest people who live in poor, high-crime areas. They will have to pay up to seven times more of this tax than people in affluent areas.

Let us take the airport tax—the tax on holidays. It is neat, is it not, that the Conservatives have made an exemption for small aircraft? The Chancellor presented it as an exemption for the Scottish islands, yet 90 per cent. of those who go to, from and between the Scottish islands do not travel on planes which qualify for the exemption. Only 10 per cent. of them will escape the tax. It is a badly targeted exemption if it fails to help 90 per cent. of those who travel to the Scottish islands.

My hon. Friends suspect that there is another group who can expect not to pay the airport tax. It is not Scottish farmers or crofters, but millionaires with private jets. Who are the people who will be exempted? They are people such as John Latsis, Li Ka Shing and Asil Nadir—if he ever flew back to this country: all Tory donors, all private jet owners, all exempt from the tax.

The truth is that the Chancellor's exemption is not protection for crofters but protection for Tory donors. There is one thing that demoralised Conservative Members of Parliament can still hold to. There is one thing that we can rely on Tory Chancellors for. We can rely on them, when they put up taxes, always to ensure that there are loopholes for their friends.

The Tories have also increased direct taxes in the most unfair way possible. A family on half average earnings will pay more tax after April. They will spend more than they 184 would have done in 1979. A family on average earnings will pay more tax after April than now and more than they paid in 1979, but a family on £100,000 will pay £1,000 a week less tax than in 1979.

Even as the Finance Bill imposes new unfair tax increases, it fails to end tax abuses by the wealthiest. The truth is that this is a Government who look to the most wealthy when they want to give away tax cuts but turn to ordinary people and their families when they put taxes up.

We shall oppose the Finance Bill, not only because it breaks election promises but because it is deeply unfair. The Chief Secretary complains about the cynicism that he says bedevils Britain. That cynicism has not arrived from nowhere. It has not arrived from outer space. It is not some virus or some new British disease, as the Chief Secretary calls it. It is the Tory Government who have made people cynical about politics. It is the Prime Minister who has brought shame on No. 10 Downing street. It is Tory Chancellors who have brought contempt on No. 11 Downing street.

No wonder that a Tory activist confided to The Daily Telegraph: When you go out and canvass you are hampered by the fact that everyone thinks the Prime Minister is … slippery". The Sun described the Prime Minister as weak and mediocre, surrounded by unprincipled spivs and chancers. I agree with the Chief Secretary on one thing. The deceit and duplicity of the Tories have taken their toll. People are demoralised. They have lost confidence. It is not that the Chief Secretary has discovered it: his Government have created it.

As the events of the past few days have shown, the Finance Bill marks an historic moment in British politics. Let us make no mistake about it: it is a decisive turning point against the Conservative party. The pledge of tax cuts has been betrayed. The promises of low taxes have been broken. The integrity of the Conservative party lies in tatters. It has nothing left. No one will believe it if it ever says again that it is a party of low tax. No one will ever trust the Tories on tax again.

§ Mr. Michael Stern (Bristol, North-West)

On a point of order, Mr. Deputy Speaker. I listened carefully to the speech of the hon. Member for Peckham (Ms Harman). [HON. MEMBERS: "He was not here."] I have been here throughout. [Interruption.]

§ Mr. Deputy Speaker

Order. How can I be expected to deal with a point of order if I cannot hear it?

§ Mr. Stern

I deliberately refrained from intervening in the speech of the hon. Member for Peckham so that I could hear her speech more clearly. Despite your invitation at the beginning of her speech, and despite Madam Speaker's selection of the Opposition amendment, I genuinely believe that at no point was that amendment moved.

§ Mr. Deputy Speaker

That is a matter for the Chair. The Chair was satisfied.

§ Mr. John Biffen (Shropshire, North)

The hon. Member for Peckham (Ms Harman) formidably indicted practically every clause in the Finance Bill. She made it clear that in her experience it was one of the most unacceptable pieces of legislation that she had ever encountered. If that it true—I take her words—the prospect 185 of the Bill being fiercely debated in Committee is assured. It is a Bill of massive proportions. My right hon. and hon. Friends in the Government owe it to the public outside and to the parliamentary process, if it seems that the Bill will be filibustered or impeded so that it will not receive proper consideration from beginning to end, to table an early timetable motion. That is the only way in which there can be proper consideration of the Bill in circumstances which are not of the making of my right hon. Friends, but which are certainly detrimental to the public interest in our affairs.

Finance Bill debates are always occasions for going down memory lane. Today has been no exception. Practically all the debate has concentrated on what has happened in the past. Not much has been said about what will happen in the period between now and the next election. The Bill marks the beginning of a phase of consideration of the economy that will dominate the next two or three years and will be central to what will be debated and resolved at the next general election.

I should like to share with the House a passing thought inspired by the speech of my right hon. Friend the Chief Secretary. He talked about the Denis Healey Budget of 1974, which cut taxes in a situation in which that was clearly damaging—[HON. MEMBERS: "1978."] I am sorry, 1978.

§ Dame Elaine Kellett-Bowman (Lancaster)

It was just before the election.

§ Mr. Biffen

That is right. I remember it well. Whatever the year, it was before an election.

The events are clearer in my imagination than the pedantry of dates. The Budget came after a narrow Labour victory and portended a somewhat enhanced Labour victory. I remember it well because it bore all the hallmarks of the measures against which my right hon. Friend has reacted. But the Opposition of the time did not oppose it; they thought that it was not the time to be seen to oppose tax cuts. It was left to my hon. Friend the Member for East Lindsey (Sir P. Tapsell) and to me—like two rednecks below the Gangway—to divide the House, earning ourselves the irritation of the Whips and an approving editorial in The Times. It was a sort of morning star of Maastricht to come. I say that to emphasise that we would be unwise to assume that there is a puritanical attachment to truth and analysis in connection with Budgets during the heady days leading up to elections.

Having said that, I hope that we have learnt something from the events of the past two or three years. It is now clear that my right hon. and learned Friend the Chancellor of the Exchequer has presented a Budget that includes massive increases in taxation. Nobody disputes that. Those increases are wholly merited, and I would have gone even further. The increases are wholly merited because they mark a very substantial reduction in the borrowing requirement, which I believe is my right hon. and learned Friend's utmost priority. From now on, as we begin to take advantage of the recovery—which of course will be affected by the tax increases, but which is reasonably well established and which my instinct tells me will continue —one question will increasingly characterise the political situation: how should the political world use the resources that are created by the recovery? Without doubt, our first priority should be to continue to reduce borrowing.

186 Thereafter, we shall have to make the tantalising choice between reducing taxation and accommodating further public expenditure increases.

I hope that my right hon. and learned Friend will not become too enthusiastic about any one of the courses that are available to him. Although we are discussing a combined spending and revenue-raising arrangement in a new form of debate, it is spending that determines taxation rather than vice versa. Of course, there is an interplay between the two, but hon. Members would be profoundly foolish if they though that they could walk away from dealing with the prime importance of accepted and legitimate public expenditure and the undertaking of collective responsibilities that are accepted by the ' Conservative party and many of its opponents. One always looks for an opportunity to reduce spending, but between now and the next election the underlying thrust of expenditure, certainly in health and education, is likely to be sustained and to intensify rather than to diminish.

I make that point as a check on rhetoric about what is available for tax cuts. Of course, one would like tax cuts, but my experience of them over many years is that they are tax redistributions. Revenue has increased in almost every sector except income tax, where it has been reduced. That has become the flagship of fiscal policy. I can understand the political attraction of that, but it seems to me that, when it came to the point of increasing the poll tax so that it would yield more than the local government taxes that it replaced—again, as part of the master strategy to reduce income tax—a certain amount of political misjudgment was involved; I put it no higher than that. Such realities will control us over the next two or three years.

Welfare spending is of enormous significance in our total budget. I believe that, sooner or later, changes in welfare spending will be forced on the House by the Borrie report or some other mechanism. Those changes will have to be made on the basis of the private sector being able to take over the running of a substantial part of a service which would otherwise and historically have been the responsibility of public expenditure. We have achieved that with retirement pensions and there are other sectors where it can be achieved. In my view, however, we are talking about a developing, almost Fabian-style policy, not one of substantial cuts delivered in a short time.

We should take pride in the fact that we have been successful in eliminating great sectors of expenditure on industry from the Budget. The most important part of that policy has been the privatisation of various public utilities so that their programmes are privately, and not Exchequer, financed. If expenditure on those programmes were superimposed on today's levels of public spending, that would present a formidable challenge.

I say to my hon. Friends and to my right hon. and learned Friend the Chancellor in particular that we need to be very careful to ensure that the idea of public sector involvement in industrial activity does not return via an unexpected route—Brussels. I have no hesitation in, and feel no shame about, putting the proposition that the growth in our European Union budget sits ill alongside the constraints that we try to place on our domestic economy. That creates new centres of fiscal patronage, which are then tapped, usually by local authorities, outside what ought to be the overriding determination of a national Treasury. I see that on the horizon as something that could become a factor in adding to the difficulty of ensuring prudent financial control in the years to come.

187 As we come to the next general election, I have no doubt that we are now moving back into a position from which a Conservative Government can move forward by encouraging a relationship between spending, revenue and borrowing that is defensible and can be properly understood by the public. When the parties are compared, the issue will be not about the promises of the past but about the promises for the future and the extent to which the Opposition parties will try to cap spending, make other alterations or relate the consequences of their policy on the known national budget.

Above all, the comparison of the parties will revolve around the extent to which politicians preach easy options. The easiest option is economic growth. That is the option that is reminiscent of the 1960s. The election of 1964 was fought on the belief that, through the national plan and the centralised allocation of resources, we could claim a much higher performance than would otherwise be the case. The events of the 1960s showed the shortcomings of that policy.

I feel, and live with, great charity towards the Opposition, especially the shadow Treasury team. I am sad that they are still trapped in the time warp of the 1960s. The hon. Member for Dunfermline, East (Mr. Brown) is a great proponent of economic growth, saying that we would be able to do away with unemployment that is created by a Tory Government—by which he means, created by a low level of economic activity. That is reminiscent of the past. The hon. Gentleman has much charm, but being a child of flower power and the 1960s is no guarantee of effectiveness at No. 11.

§ Mr. Robert Sheldon (Ashton-under-Lyne)

Of course the right hon. Member for Shropshire, North (Mr. Biffen) views the 1960s differently from me. He lost an election in the 1960s and I won one. I think that that has coloured his attitude to that time.

I find it rather surprising that the Chief Secretary to the Treasury hardly mentioned the Bill, even though it is the largest Finance Bill that I have ever seen, running to two volumes. There seems to be an inverse relationship between the size of the Finance Bill and the amount of time that the Chief Secretary spends in explaining it.

The Bill includes two new taxes—on air passengers and on insurance premiums—but they did not get a mention. It is rare that a Chancellor of the Exchequer or Chief Secretary comes to the House with two new taxes but fails to mention them. When I was a Treasury Minister, I made it a principle that new taxes should be introduced at a low rate. That was a sensible policy. One ought to get the structure right and then jack it up. If a rate is low now, we must not be under the misapprehension that what we have is some minor tax about which we do not need to bother too much. In fact, it will be fertile ground for future Chancellors of the Exchequer seeking to raise money for the Treasury.

What we have been discussing repeatedly is tax rates —a very limited issue. In 1991 and 1992 the Conservative party captured the agenda. The issue at the last election should have been—indeed, the issue at any election should be—the future development of the country, a society caring for its weaker members and the prosperity of the 188 people. At the last election the issue was no such thing. It was not even the economy, not even general taxation. It was the small difference in income tax as applied to certain people. We were talking about pence or, sometimes, a very few pounds, and 90 per cent. of people were not going to be affected very much.

What we are seeing now is the nemesis. It has come late, but it has come certain. The views of the Chancellor of the Exchequer and of the Conservative party are now being explained away because of their problems.

We ought not to be talking about expenditure against tax. That is not the only way of looking at the situation. Even less should we be concerned with tax rates against expenditure. What we ought to be talking about is revenue against expenditure. It is true, of course, that expenditure has to be covered by revenue. But revenue includes a multitude of things. It involves growth, investment and the cost of unemployment as well as tax rates. These are the matters that ought to have concerned the Chancellor in his preparation of the Budget, and ought to have concerned us all at the time of the last election and thereafter.

I hope that the Chancellor of the Exchequer is not satisfied with the increasing value of the pound against the deutschmark. He ought to be concerned not just about exporters but about the whole of manufacturing industry. I believe that he manifests some slight movement away from the hostility towards manufacturing industry that clearly existed throughout the 1980s. The right hon. and learned Gentleman seems to have a slightly more open mind, and I congratulate him on that.

Manufacturing industry must be given a chance. I can hardly ever make a speech without mentioning the 30 per cent. of middle-sized manufacturing firms that were lost to my constituency as a result of the problems that arose between 1979 and 1981. What we have lost can never be recovered, but the Chancellor could deal with some of the problems by doing more for manufacturing industry. My hon. Friend the Member for Peckham (Ms Harman), whose speech hon. Members—at least, Opposition Members—enjoyed, dealt very adequately with this matter.

In the 19th century, income tax—this single aspect of the taxation system—was regarded as the great engine of revenue. Historically, however, income tax was a tax on the middle classes. It was based on taxable capacity and was raised on income after the exclusion of certain expenditures. The most important of those expenditures was the cost of maintaining a wife. Until the 1930s, women gave up their jobs when they got married. Their reliance on their husbands' support was acknowledged through the married woman's allowance. The children's tax allowance was in exactly the same category. It acknowledged that the family's expenditure had changed seriously upon marriage. The justification was that it applied to the middle classes. A working-class woman in my constituency left her child with her mother and went to the mill. In the case of the middle classes, the birth of a child resulted in a distinct drop in income as the woman ceased working.

In the case of family allowance, Beveridge excluded the first child. Why? Because the first child does not cost very much: it does not eat very much, and it does not need extra housing. But that was a middle-class concept. The working-class concept now, as it was shortly after Beveridge, is that the first child results in an enormous drop in the family's income. This is the reason for the children's tax allowance, and it is the reason for child benefit. These benefits are crucial to people whose income 189 has undergone such change. It has always been accepted that expenditure such as that to which I have been referring is part of the cost of running a family.

As people are given personal allowances, so they should receive allowances for essential expenditure. In addition to the cost of keeping a wife and a child, there is the cost of earning a living. Here we have seen fundamental changes. Earning a living now involves costs that people did not have to meet in the past. There was a time when people in my constituency and elsewhere earned their living in the mill down the road or in the pit down the street. A man would dress up in his muffler and take a butty with him. The cost was either zero or negligible.

Things are different now. Making a living now costs a great deal of money. Many people live 20 or 30 miles from their places of work and have to meet the cost of transport. People in my constituency often travel on the motorway in order to earn their living. Many must have motor cars. Of course, sensible people try to modify their expenditure, but their costs are still very high. They can no longer turn up in a muffler and looking dirty; they must look presentable. They may work in dirty situations, but they clean up before going home. Also, extra expenditure is involved in the provision of clothing and meals.

The tax system makes no provision for such costs. As someone who has dealt with these matters, I understand why. The Inland Revenue's fear is that if the dam were to burst, the flood could not be stopped. However, these matters can be dealt with, and this is something that we need to think about.

There is no doubt that the Exchequer could not go into too much detail in this respect, but something could be done. For the best part of 100 years we had the earned-income allowance—a concept rather different from what we know today. Anyone with unearned income has capital, providing security. It is very comforting for a person to know that there will always be income derived from that capital. Thus it was that unearned income resulted in higher tax than was paid by a person in danger of losing his job next week. This was a very reasonable arrangement.

After the second world war, people had the benefit of knowing that their jobs would be secure for a very long time. But, parallel to that, there were high levels of inflation, and capital security was not as great as it had been. It was in those circumstances and with that justification that the Government removed the earned-income allowance. However, the time has come to restore it in some way, as capital has enormous advantages again. The security of income arising from capital is very great indeed, as is the insecurity of earning a living—quite apart from all the costs.

The restoration of the earned-income allowance in some form would also be a great advantage to the Department of Social Security as earning a living is so expensive. It costs a person so much to be in a job 30 miles away that it is better for that person to draw whatever benefits are available. This is why I suggest the provision of some allowance against working expenses.

There is no doubt that most of this country's taxes are regressive. We have flat-rate duties on petrol, tobacco, and so on. People pay the same amount of tax regardless of their earnings. There have been two main exceptions. One is value added tax, which, generally, has been neutral as a result of zero rating but has probably been slightly regressive. The other is income tax. There is no question 190 but that was the true, great, progressive tax. One does not need to believe, as I happen to believe, in greater levels of social equality to appreciate that there are certain reasons for that tax. The people with the broadest shoulders should carry the broader burden. That was accepted not just by Labour, Conservative and Liberal Governments, but by the people, who understood that theory. Now the Government are trying to reduce that one progressive tax—the fair tax. Their policy is a disgraceful error and it is shameful. The rate of the income tax will always be politically divisive, but the principle behind that progressive tax should not be subject to party-political argument.

When it was introduced, VAT was something near to a neutral tax, but it will become a regressive one. That, too, is wrong. My hon. Friend the Member for Peckham was right to launch her attack on that tax. It is the most important aspect of the changes introduced in the Bill, and I hope that it will be reconsidered.

Under the Government, the incentive effects of reductions in the higher rate of income tax have been held sacrosanct. I happen to believe that those effects are nonsense. If one goes to extremes, I accept that such an effect might result, but within the limits of 40 per cent. or 60 per cent. rates, it is hard to tell whether there is any incentive effect.