§ [Relevant documents: The Third Report of Session 1997–98 from the Social Security Committee, on Tax and Benefits: Pre-Budget Report (HC 423), and the First Report of Session 1997–98 from the Environmental Audit Committee, on the Pre-Budget Report (HC 547).]
§ Mr. Deputy Speaker (Sir Alan Haselhurst)
Before I call the Secretary of State for Social Security and Minister for Women, I must announce Madam Speaker's decision that the 10-minutes rule will apply to Back-Bench speeches throughout the debate.
§ The Secretary of State for Social Security and Minister for Women (Ms Harriet Harman)
Welfare reform is at the heart of the Budget that my right hon. Friend the Chancellor unveiled to the House on Tuesday. Welfare reform is central to building a better and more successful Britain.
Under the previous Government, the welfare state was allowed to fall into disrepair, so that it acted as a brake on economic success and a lever for widening social division. The system prevented people from getting into work—writing off millions of people who wanted to work to a dead-end life of poverty and dependence on benefits. It discouraged people who were in work from getting on in their work, by imposing effective tax rates of 80 per cent. or more on people with low incomes who were trying to increase their earnings. The system imposed a cap on their aspirations. Everyone was left to foot the spiralling social security bill, which grew by £45 billion in real terms over 18 years, until it cost more than health and education put together.
1431 None of us can ignore the results of that failure when one in five working-age households has no one in work and nearly 4 million children are being brought up in poverty. Faced with that legacy, it is our duty to reform the welfare state. We are determined to make welfare work for Britain, to create a modern welfare state to help rebuild a cohesive society and a strong economy.
The Budget, delivered after just 10 months in government, is an important step along that road. It marks an entirely new relationship between tax and benefits, and between the Treasury and the Department of Social Security.
Options for streamlining the tax and benefits systems have been explored by every Government in the past 30 years, but all previous attempts have failed. This Budget marks a turning point, because we are a modern Government determined to break down barriers between Departments, and not to let turf wars get in the way of achieving our objectives.
We have a clear and modern view of how to reform welfare and tackle poverty. Next week's Green Paper on welfare reform, from my right hon. Friend the Minister for Welfare Reform, will set that out in more detail.
Welfare reform is a long-term business. It has to deliver a system that is fit for the 21st century, and will last. Although the principles from which we start are 50 years old, they are just as relevant today as they were when Beveridge first set them down: society has a responsibility to help people in genuine need who are unable to look after themselves; individuals have a responsibility to help provide for themselves when they can do so; and work is the best route out of poverty for those who can help themselves.
The principles remain the same, but the social and economic context has been transformed. The nature of work has changed, with a shift away from full-time manual work towards part-time service sector employment, and a widening pay gap between those at the top and those at the bottom.
The distribution of work has changed. Despite the fact that the proportion of people in work has remained broadly the same, there has been a growing divide between work-rich and work-poor households. The structure of families has changed. One in three marriages end in divorce, and women's lives have changed dramatically.
Fifty years ago, when William Beveridge set out his principles for the welfare state, he was applying them to a world in which most women gave up "gainful occupation" when they got married and undertook instead to perform "vital unpaid service".In the next thirty years,he said,housewives and mothers have vital work to do in ensuring the adequate continuance of the British race.That is not so in the 1990s. Women today are more likely to be mothers and workers than mothers and housewives.
Nowadays, two thirds of all married mothers go out to work, and whether they work full time or part time, their work is vital to the family income. The days are gone when women were as rare a sight in the workplace as men often are in the kitchen. Britain now depends on women's work as well as men's.
1432 The welfare system failed to adapt to those changes, and so has become increasingly outdated. The previous Government's critical mistake—one that the Opposition are no doubt still making to this day—was to fail to recognise that the world had changed and women were changing their lives. Women do not want the Government to tell them not to; they want the Government to back them in the choices that they are making—and that is what we are doing.
§ Kali Mountford (Colne Valley)
I congratulate my right hon. Friend—[HON. MEMBERS: "Give her a job."] That seems to surprise the Opposition. My right hon. Friend has often been a lone voice in the House in her support for child care strategies. Is it not a good thing that at last we have a comprehensive child care strategy that will enable women who want to work to do so?
§ Ms Harman
I thank my hon. Friend warmly for her comments. She points out the fact that the Government are changing the agenda in a way that women want—something which the previous Government failed to do.
We are modernising the system so that it goes with the grain of change—putting Beveridge's principles into practice, but in a modern setting. We are making sure that welfare works for women as well as for men, because women head the poorest families and are the lowest paid, and are also the most likely to have caring responsibilities.
We are constructing the building blocks for economic success through employment and opportunity for all, by helping people to move into work, by ensuring that work pays, and by providing help to those who cannot work.
Last year's Budget launched the biggest ever assault on worklessness and poverty, through the new deals for the young and the long-term unemployed, for lone parents and for sick and disabled people who want to work. This year's Budget goes further in helping those who want to move into work to do so, by giving more active support, by taking obstacles to work out of the system, and by making work pay.
What active support are we giving? We know that in the modern economy skills and qualifications are the key both to getting a job and to getting on in that job. That is why we are investing heavily in helping young unemployed people to improve their skills and education, through the new deal for 18 to 24-year-olds.
For lone mothers, the problem of lack of skills is even greater. Whereas the number of young unemployed people who do not have qualifications is one in five—that is serious enough—half of lone mothers have no qualifications. So today I am building on the work begun by the Select Committee on Education and Employment, for whose work I place my gratitude on the record, by announcing a new initiative to help lone parents to improve their skills and qualifications through in-work training—backed, in its original pilot phase, which will start in eight pilot areas in October, by a £10 million investment made by my right hon. Friend the Chancellor.
We are also investing a further £25 million that is needed to enable us to respond to the demands of lone parents with children under five who, although they have 1433 not been invited in to the new deal for lone parents, are coming forward and asking to use our services. The extra investment is being made to meet that demand.
§ Mr. Nick Gibb (Bognor Regis and Littlehampton)
Does the right hon. Lady believe that the pilot schemes for the new deal for lone parents have been a success, with only a 6 per cent. return-to-work rate?
§ Ms Harman
I think that I would put that question back to the hon. Gentleman, and ask whether he really thinks that we could ever go back to a time when the policy for lone parents was simply to say, "Stay on benefit until your youngest child is 16, and be written off into a life of dependence."
The pilot schemes have started, and the progress that they are making is encouraging. They are being welcomed by lone parents, and the personal advisers are responding brilliantly to the new challenge. Employers are beginning to change their shift patterns so that they can employ lone parents.
The full evaluation of the additional work gained by lone parents will be published in due course, but I must remind the hon. Gentleman that, under the Tory Government, the number of lone mothers on income support reached more than 1 million, and those mothers were bringing up more than 2 million children on income support.
As a result of the present Government's approach, and the measures that we are introducing, the number of lone mothers bringing up their children entirely dependent on benefit will start to fall—and I hope that at that stage the hon. Gentleman will have the grace to recognise that ours is a pioneering and long overdue programme.
§ Ms Harman
I shall not give way again, because I must make progress.
It is a measure of the success of the new deal for lone parents that it is now inconceivable that anyone would seriously say to lone mothers that they should stay on income support until their youngest child is 16. After just 10 months of Labour in Government, that approach is gone for ever.
It was not only lone mothers whose aspirations to work were ignored by the previous Government; so, too, were the aspirations and capacities of people with health problems or a disability.
§ Mr. Steve Webb (Northavon)
Before the Secretary of State moves on from lone parents, may I ask her a question? I welcome the additional cash for child benefit, which lone parents will receive, but does the right hon. Lady accept that there is now an anomaly, in that this year lone parents on income support will get a fiver in family premium, and in 1999 they will get the £2.50 premium on child benefit, but in 1998–99, new lone parents will get neither? Should she not now reverse the cut for one more year, and protect people who become lone parents next year?
§ Ms Harman
No, because we are persisting with the principle that we have established—that it is not family formation but household income that should dictate the 1434 amount of benefit received. We are going forward on the basis that the amount of benefit paid for children in workless households will depend on their age, not on whether there are one or two parents in the household. Lone parents and married women with children in workless households will move forward together as they get the benefit of our new investment in the children of the poorest families.
§ Mr. Phil Hope (Corby)
As a result of all the tax and benefit changes in the Budget, will not the poorest 20 per cent. be £500 a year better off?
§ Ms Harman
My hon. Friend is right. This Budget is investing more in opportunities while improving the circumstances of the poorest families with children.
It was not long ago that the aspirations of lone mothers were written off, as were the aspirations of the long-term sick and disabled. Some people have such serious disabilities or health problems that they will never work, and the Government will always support those people in a life of dignity and independence. However, 2 million people with disabilities do work, and over 1 million more say that they would like to work but are not working.
That is why we are investing £195 million to identify the best ways of helping disabled people who want to work to find work. We are piloting a new personal adviser service from October, and we will be working with the voluntary and private sectors to test a range of other innovative schemes. That has never been done before. Previously, such people were written off.
To make sure that welfare works for women as well as men, we are investing £60 million from the windfall tax to enable women whose partners are unemployed to gain access to employment programmes themselves for the first time, so that they can receive the help that they need to get back to work. For the under 25s, childless women who have unemployed partners will no longer be written off. They will be treated in exactly the same way as their spouses.
It is unbelievable that, in this day and age, these women—under 25 and with no children—should be treated as unemployable by virtue of the fact that they are married to an unemployed man. Women do not view themselves just as dependants of their partners, and this modernising Government will not treat them as such. Women with children whose husbands or partners are unemployed can also choose to join the welfare-to-work programme, but for them—as for lone mothers—the programme will be entirely voluntary.
In addition, we are helping people to move into work by taking benefit obstacles out of the system. New rules to link periods of benefit entitlement will mean that sick and disabled people and lone parents who want to work will no longer have to worry about any financial risk involved in taking a job which may not work out. Lone parents in receipt of income support before April 1998 will be able to take a job knowing that they will return to the same rate of benefit if it does not work out within three months. People who leave incapacity benefit to take a job will be able to return to benefit at whatever rate they were previously being paid if the job falls through within a year, avoiding the risk of possibly losing as much as £40 a week in benefit.
We will help disabled people to play a fuller role in their communities and to take a step towards paid work by abolishing the rule limiting voluntary work to 16 hours 1435 a week for those on incapacity benefits. As from October, disabled people who want to make a contribution to the community will no longer lose any benefit, however many hours they work on a voluntary basis.
§ Dr. Stephen Ladyman (South Thanet)
I very much welcome that statement from my right hon. Friend. Many of the disabled people who have come to see me have expressed the need to be able to return to benefit in the way that she has described. One of the barriers preventing the disabled from working is the fact that sometimes they cannot work within the normal patterns that the rest of us can cope with. Will these innovative programmes consider the possibility that disabled people might be able to make a contribution, but in a different way from able-bodied people?
§ Ms Harman
My hon. Friend makes a very important point. We must recognise that there must be more flexible benefit patterns for people whose health condition might fluctuate, and more flexible working patterns must be available from employers. We mean business about this—we are serious. We are not happy that 1 million people are simply excluded from the jobs they might want to do because they have health problems or a disability. We must be able to respond to their capacities and abilities and not simply preside over a system which continues to pay them but writes them off.
The next part of our strategy is to make sure that work pays. This Budget helps us take a further major step forward. The introduction of the new working families tax credit—I pay tribute to the work of the Select Committee on Social Security on the issue—together with the national minimum wage, will not only make sure work pays, but will bring greater rewards for work by helping lower and middle-income families with children to keep more of what they earn.
The system will guarantee a minimum income of at least £180 a week for all families where someone works full time. It will guarantee that no working family pays any income tax at all on earnings below £220 a week. It will put a stop to the penal rates of marginal tax which have meant that some low-paid employees have had to pay back more than a pound for every extra pound earned.
§ Mr. Quentin Davies (Grantham and Stamford)
Is the working families tax credit available to the self-employed? if not, why not? Is that not an irrational and invidious discrimination?
§ Ms Harman
The working families tax credit is available for people in employment, and the hon. Gentleman is right to place on the agenda further proposals to help people prosper through work, whether they are employed or self-employed. It is a major step forward, but further developments will have to be considered.
§ Mr. Archy Kirkwood (Roxburgh and Berwickshire)
I am happy to acknowledge that the Government have responded positively to most of the ideas of the Select Committee in terms of the working families tax credit. However, the biggest barrier to work identified by the Government's research is the difficulty with housing 1436 benefit. Responsibility for housing benefit is split with the Department of the Environment, Transport and the Regions, but it would help if the Secretary of State could say a word about the Government's plans for dealing with it in the future.
§ Ms Harman
We are concerned about the way in which housing benefit is operating, as we do not believe it is contributing to housing policy in the way it should. One of its problems is that it does not fit with our commitment to ensure that every part of the benefits system contains no disincentives to work—and, indeed, provides incentives. Together with the Department of the Environment, Transport and the Regions, we are reviewing the interaction of housing policy and housing benefit, and we will bring forward proposals for consultation shortly. We are well aware of the evidence to the Select Committee—and the Committee's report—which suggests that this matter needs further action.
The new disabled persons tax credit will bring greater rewards from work for people whose earnings are limited by long-term sickness or disability. Their new tax credit will be more generous than the disability working allowance that it replaces, with a lower taper and higher earnings thresholds. We are modernising the system to take account of the aspirations of disabled people in the workplace.
As part of modernising the system to take account of women's role in the workplace and their responsibilities in the home, the Budget takes a major step forward towards a national child care strategy for Britain—the key elements of which are quality, accessibility and affordability. For the first time, the Budget makes high-quality child care affordable for all families. We are providing low-income families with the cash they need to meet the costs of registered child care through the new child care tax credit. Parents will receive up to £70 a week towards the cost of their child care for one child, and up to £105 a week for two or more.
All families below an upper earnings cut-off will receive at least 70 per cent. of their child care costs, and changes to benefit rules will ensure that the lowest earners get even more. It will not just be the lowest earners who benefit—although they will benefit the most. A lone parent with two children under 11 may still be eligible for some child care tax credit even if her income reaches £30,000 a year, and a typical lone parent with one child and an income of up to £15,000 a year is still likely to be paid a full 70 per cent. of her child care costs.
Those changes, together with the announced £300 million investment in out-of-school child care, mark substantial progress in our national child care strategy for Britain. A Green Paper setting out that strategy in full will be published after Easter. I am truly proud of the progress that my right hon. Friends the Chancellor and the Secretary of State for Education and Employment and I have been able to make in delivering that manifesto promise in such a short time. We shall support parents by offering them choice backed up with opportunities, and opportunities backed up with real investment.
That is important for children, for their parents and for the economy. It is important for children because good child care can give them a head start, offering them educational and social opportunities before they start school, regardless of whether their mother works. It is 1437 important for parents because it is what they want—the waiting lists for nurseries, after-school clubs and child minders are endless—as child care helps them to support their families by working, so that they can bring up their children on income from work, not benefits, and thereby break the cycle of joblessness and social exclusion. Child care is important because Britain's economy depends on women's work—as does the welfare of their families.
What happens in the workplace is also crucial if we are to ensure that people have opportunities to work—change in the workplace must be part of welfare to work. That means ensuring greater access for disabled people and tackling discrimination through our disability rights commission. For lone mothers—indeed, all mothers—it means that we must ensure that employment is family friendly, so that women can balance their responsibilities at home and at work.
Our changes to the tax and benefit systems—supported by the changes to the national insurance system that were announced by my right hon. Friend the Chancellor on Tuesday—will increase the rewards from work for millions of working people. We shall abolish the entry fee for both employers' and employees' national insurance, cut the cost of employing lower-paid workers by raising to £81 a week the earnings level at which employers start to pay national insurance contributions for their employees, and replace the distorting step rises in national insurance rates with a new unified rate of 12.2 per cent.
Together, all those changes are crucial in ensuring that the practice of the social security and tax systems meets the real needs of men, women and children today. The principles remain true to those of Beveridge—first, that work is the best route out of poverty for people who are able to work and, secondly, that individuals have a responsibility to help to provide for themselves when they can do so.
Beveridge's third principle—that society has a responsibility to help people in genuine need who are unable to look after themselves—also remains central. By helping people to provide for themselves when they can, and by minimising and rooting out fraud and abuse, we can better help those in genuine need. We are putting that principle into practice too, which is why we acted to help all pensioners to keep warm during the winter, and provided extra help for the poorest pensioners.
§ Mr. Simon Burns (West Chelmsford)
As the right hon. Lady will remember, 40,821 duff cheques were sent out. Is she aware of the problem that is now becoming apparent—that pensioner married couples who are not on income support are receiving two cheques for £20? What will her Department do to rectify that loss to the public purse?
§ Ms Harman
The hon. Gentleman points out an error of some 40,000 payments in a programme that involved the better part of 10 million payments. The exercise was unprecedented, as the previous Government's approach to winter fuel was to tax it—not merely at 8 per cent., but at 17.5 per cent. We expect to make better progress next year—when we shall again make winter fuel payments—than we were able to do this year. I have acknowledged that there have been problems, but we shall iron them out. What is important is that, for the first time, we gave £20 to 1438 all pensioner households and £50 to the poorest pensioner households, in which the pensioners were on income support.
§ Mr. Burns
Will the right hon. Lady now deal with the second point of my question? I asked her about the new problem whereby pensioners who are married couples and who are not in receipt of income support are being sent two cheques and twice the amount of money, and not the single cheque of £20? What will her Department do to correct that problem? Many pensioners are not sure whether they should cash the cheques or return one, and they are not receiving clear advice when they ring up the Benefits Agency.
§ Ms Harman
Two pensioners who live together should receive two cheques at £10; a pensioner who lives on his or her own should receive £20. Administrative errors are inevitable when payments to 8 million pensioners are made. That is one of the reasons why we invested in a public information campaign, backed by television and newspaper advertising, which the hon. Gentleman has gone to great lengths to criticise. We want people to have the information about their entitlements.
§ Ms Harman
I have answered the hon. Gentleman's question. He is merely nit-picking. We are making unprecedented payments, which is a big change from the behaviour of the previous Government, who put tax on fuel. He has not decided whether we are paying too little or too much—he is still trying to find his role, and I look forward to the time when he has sorted himself out.
Last week, I announced nine new pilot schemes to find the best ways in which to get more automatic help to the 1 million pensioners who do not claim the income support to which they are entitled.
In the Budget, we are making an extra £1.2 billion a year available to give more support to children and to direct extra resources to the poorest children. All parents—both in work and out of work—have to bear extra costs and responsibilities in bringing up their children. Child benefit remains the fairest, most efficient and most cost-effective way in which to recognise those costs and responsibilities.
That is why, from April 1999, the Government will increase the amount of child benefit for the eldest child by £2.50 to around £14 a week. The same increase will be made to the family premium in income support, jobseeker's allowance, housing benefit and council tax benefit to ensure that low-income families also gain from the change.
As the Chancellor said on Tuesday, we can and should do even more on child benefit. If child benefit is increased in future, there is a case for higher-rate taxpayers to pay tax on it—that must be right in principle. We shall bring forward detailed recommendations for reform.
Some families need more help than others, and the case for additional support for children in poorer families is strong. However, that support needs to be provided on the basis not of family structure—whether there are one or two parents—but of the needs of the children. It is important that we provide better help when families need 1439 it most, which, as research has shown, is in the children's early years. I pay tribute to the research work carried out by the Joseph Rowntree foundation, which showed that the adequacy of benefits was a particular problem in relation to children aged up to 11, rather than to those aged 11 to 16.
That is why we are targeting extra help to the poorest families with younger children—we shall increase the allowance by £2.50 a week for children under the age of 11 in all the income-related benefits. That means that a family on income support with two children under 11 will be £7.50 a week better off.
The Budget shows that welfare reform is already happening in practice. We have set the direction, by building on principles that claim a direct lineage from the original chief architect of the welfare state. We have set the method, by applying those principles to a modern setting and by working with the grain of change in the wider society. We are making sound progress, delivering the results.
Next week, we shall publish our welfare reform Green Paper, to take forward the national debate on welfare reform for the 21st century.
This week's Budget and next week's Green Paper show that we now have a modern Government with a third way to tackle poverty and social exclusion, rejecting the right's view that one can tackle poverty simply by freeing up markets and relying on wealth to trickle down, and rejecting, too, the old left's view that one can tackle poverty simply by raising benefits. Instead, our approach, which is taken forward in the Budget, is to help people who can work to get work, so that they can look after themselves, and to free resources to invest in health and education and get better help to those who cannot work. This Budget has helped with work for those who can and security for those who cannot.
§ 5.9 pm
§ Mr. Iain Duncan Smith (Chingford and Woodford Green)
First, I must thank the Secretary of State for her courtesy in sending me a letter to outline some of the changes in the Budget. I appreciate that and I shall look at it in the next few days as those changes are implemented.
Like all Budgets, Tuesday's Budget will take time to bed down. Much of the previous Budget was welcomed at the time, but now, 10 months afterwards, a great deal of it is being rejected by many of those same pundits who welcomed it. This Budget is no different.
My right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) made clear in yesterday's debate that Tuesday's Budget amounted to a series of broken pledges. It seemed to have been conducted by a system of smoke and mirrors; there was little detail as the Chancellor glided over some of the more complex changes, preferring to say little and suggest a great deal.
As the Chancellor kept repeating, everyone supports the idea of getting people off benefit and into work. Every hon. Member is bound to accept that as a key criterion for any Government in reforming welfare. The real question that we must ask is to what extent the Budget and the changes that we have seen so far will produce that effect.
1440 For obvious reasons, I shall say nothing about the welfare reforms that are likely to come in the Green Paper—they are likely to be produced next week and we will wait to discuss them—but I find it strange that Tuesday's Budget contains a major change in the tax system, which affects social security, but we have to wait until the Green Paper is published, after the Budget, to find out to what degree those reforms have affected the Chancellor's thinking. No doubt the Minister of State will tell us all when the time comes.
The real question for the Secretary of State and her right hon. Friends is to what extent they expect unemployment to fall—she suggested that it would. Will the right hon. Lady now commit herself to a figure, a proportion or a percentage by which she envisages unemployment falling as a direct result of all the changes that she is implementing in the new deal? So far, we have had little commitment on that and if the right hon. Lady wants to give me a figure, I am happy to give way and allow her to do so.
We intend to monitor closely the pilot programmes designed to encourage disabled people back into work. There is much detail to be considered there. I shall wait to find out how that scheme progresses before deciding whether it is successful. Anything that assists disabled people to get back to work or to get more meaningful employment has to be welcomed; the question is to what degree the scheme will work and how it will be targeted. We will wait and see how it develops.
I shall deal with three or four of the major changes that have taken place.
§ Mr. Hope
I am grateful to the hon. Gentleman for giving way and I welcome the hon. Member for West Chelmsford (Mr. Burns), who has decided to take his seat on the Opposition Front Bench this afternoon—he is obviously back in favour. If the Conservative party ever reached Government again, would they repeal the working families tax credit now that a Labour Government have introduced it to help the poorest families?
§ Mr. Duncan Smith
The hon. Gentleman is back on his usual form. He has been passed information from someone on the Government Front Bench and been told, "It's your turn to intervene." The only serious question that he has been able to come up with is, "What will you do when you get back into government in five years' time?" I cannot understand why Labour Members, who have been in power only for some 11 months, are so petrified about the Conservatives getting back into power. I shall answer the hon. Gentleman's question when the Government answer how they will explain to the British public that they have reneged on every pledge that they made before the election. When we get into government next time round we will do what is necessary to put the mess right, but let us get back to national insurance reforms, which are in the Budget, rather than the nonsense in which the hon. Gentleman is engaged.
The purpose of the change is to reduce the cost of employing low-paid workers. To some degree, the changes will undermine the Government's claim to be encouraging a high-skill economy in which people have high levels of training and there are opportunities for all—the claim covers not only the low paid but those on 1441 average and just above average incomes. The Chancellor announced that employers would not pay national insurance contributions on the first £81 of an employee's weekly earnings and above that would pay a single rate of 12.2 per cent. on every pound up to £440.
The new Labour Government claim as another of their top priorities that they will turn Britain into a high-skill economy. There is a problem here—I hope that the Paymaster General, who I welcome to his position, will deal with it in his reply—as to some degree the change will clash with the pledge.
Surely by also increasing the national insurance rate, the Chancellor has directly increased the cost of employing workers who have the higher skill levels and those who would move to higher pay with on-the-job training. That could put a question mark over their employment. That fact has been recognised in the past 24 hours by a number of companies, including J. Walter Thompson, which represents an industry that is close to the heart of new Labour—it is a case of spinners in a spin—and which has said that the national insurancechanges are going to be a major cost for professional services companies.I hope that the Paymaster General will deal with that when he replies.
That problem is compounded if we take into account the impact of the national minimum wage on the Budget changes. That wage will reduce the number of people earning between £60 and £80 a week by artificially inflating weekly take-home pay. As the Deputy Prime Minister noticed many years ago, that will force more employees up into the 12.2 per cent. band, as the differentials shuffle upwards. It will represent an extra cost to employers and create another barrier to work. I hope that the Paymaster General will give us some figures and some idea of what the Government calculate will be the impact of that change, given the others implemented in the Budget.
Employers are likely to respond to the change by hiring more part-time workers so that hours worked are restricted and the new earnings totals do not breach the earnings limit. Coopers and Lybrand has predicted that the present bunching of employment at just below £64 a week will shift to £81 a week. Again, perhaps the Paymaster General could tell us what calculations he made when considering that matter and how the Government intend to alleviate that effect.
Apparently, according to old new Labour, that sort of move would have been regressive in the run-up to the election. In the past 10 months, it has been attacked endlessly, yet implemented, and I would therefore be grateful if the Paymaster General could clear the matter up.
§ Ms Ruth Kelly (Bolton, West)
Is the hon. Gentleman seriously suggesting that the previous national insurance system, which meant an entry fee for both employer and employee, was a better system than that proposed by the Government? Would he revert to that system if, by the strangest chance, the country re-elected the Conservatives?
§ Mr. Duncan Smith
The hon. Lady said "the strangest chance"; perhaps she is a little less concerned than the hon. Member for Corby (Mr. Hope). I am not trying to persuade anyone to revert to the previous position. 1442 I am simply pointing out—[HON. MEMBERS: "Ah !"] No, I am legitimately pointing out that a reform that continues what my noble Friend Lord Lawson started as early as 1988, and is seen as natural continuance, has knock-ons. It will have a major knock-on not because of what a Conservative Government would have done but because the major commitment that the Labour Government have made to the national minimum wage makes the whole thing different. The hon. Lady and her hon. Friends have to answer that question. It is not a question of the simple change, but of the shuffle-up that will take place as a result of the national minimum wage.
The working families tax credit is the Budget's flagship proposal. The Chancellor's proposal is not new: it has been around since the 1960s and does not necessarily lie along party lines. The idea of integrating tax and benefits has been adopted and opposed at different times by both main parties. Each time it has been proposed, it has been rejected, often with the assistance of Labour Members—and particularly the Secretary of State for Social Security.
One of why the reasons why the Secretary of State would have rejected the idea in the past is the old issue of wallet versus purse. She may have changed her view, but she was adamant about it before. The argument is well known among Labour Members, some of whom will no doubt rehearse it. When family credit was being debated, the arguments of the Minister for Welfare Reform were largely responsible for the change from a tax credit system to a benefit system.
The Chancellor says that he has solved the problem by allowing couples to make the decision after discussion and to tick the box. That is surely not a solution, as it simply adds complication, not only in bureaucracy but in the matter of who is to carry the main weight of decision. Perhaps the Secretary of State can tell us who will decide, in the case of a dispute between husband and wife, whose position will be pre-eminent.
Will the state take the view that the main breadwinner matters most, or that the wife should prevail? The Government will be in the position of arbiter between the two, perhaps even sitting at the breakfast table to decide who is right. Perhaps the Secretary of State can answer that point. Who will be pre-eminent? I invite her to intervene. There is no answer.
I hope that my hon. Friends will take note: the Government have launched a supposed solution, but are unwilling to answer a direct question on the main point.
§ Kali Mountford
I am somewhat bemused by the hon. Gentleman's assumptions about families. Does he at least agree that one of the problems with family credit is poor take-up? Many families suffer poverty unnecessarily. Does not this solution bring people out of poverty without the stigma of benefits, supported for so many years by the Conservative party?
§ Mr. Duncan Smith
There is no stigma. No evidence has been produced for that. In fact, when Martin Taylor was asked directly by the Social Security Committee what stigma there was, he had to admit that there was no evidence. I think that the Chairman of that Committee, the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), is nodding. It is no good trying to build up a straw man as the reason for the change: the supposed problem does not exist. The take-up is more than 80 per cent. in financial terms and 70 per cent. in numbers.
1443 Studies conducted for the Department of Social Security show that it is difficult to identify, among the 30 per cent. who do not take up family credit, whether stigma is the reason. In fact, the 30 per cent. contained many people who should not really have been identified as qualifying for the benefit. If the working families tax credit is predicated on the supposition of stigma, it is wrongly based.
The Secretary of State has not mentioned the experience of Canada and America. Canada has a benefits system that is in many ways close to ours. The WIS—working income supplement—system in Canada has failed and a benefit-based system is being reintroduced. What studies did the Government conduct on that? Perhaps the Paymaster General can answer.
Interestingly, the Government were even advised by Mr. Mendelson, who wrote the document for Rowntree, that for every $100 spent, only $6 went in the end to the objective of increasing employment. That was one reason why the scheme was abandoned. There was also a huge increase in fraud, and overall costs spiralled.
If the Government intend that the working families tax credit should shrink the benefits bill, they are clearly listening to the wrong argument, because it is much more likely to increase it. Even by their own admission in the Red Book, it will increase dependency by putting many more people on a 60 per cent. marginal rate. The Government's figures suggest that that will happen to an extra 250,000 people.
If, as the Minister for Welfare Reform said,Means-tested Benefits, which are progressively withdrawn as income rises, act as a penalty on work and on effortand are to be rejected, someone should explain why. The administrative cost to business will be increased and employers will be supplied with hitherto confidential information about household incomes. As was found in the Canadian experience, employers will know who is being cut in on the subsidy, and that leads to fraud.
If anything, stigma is increased, because more people know who is receiving the benefit. The experience in Canada and America was that that deterred people from taking it up. The Department's own figures show that the idea of stigma does not hold up. It would be nice to hear from the Paymaster General why all that evidence was chucked out.
The married couples allowance is perhaps the most devastating of the fault lines. There is a clear shift in Government policy on aspects of the family and the relationship between family and children. In further reducing the married couples allowance, the Government are sending a signal that marriage is not important to them and that they are in essence indifferent to the structure within which children are nurtured and cared for.
The hon. Member for Leicester, West (Ms Hewitt), who often features in these debates, and certainly in the Social Security Committee, claimed that marriage "doesn't fit any more" in today's society. It is revealing that she should have said that: it shows that new Labour thinks that marriage is in essence an outdated institution. The Budget 1444 confirms that and puts into practice what has heretofore been simply a theory. Ruth Lister, a former member of Labour's Commission on Social Justice, congratulated the Government because the Budgetmoves away from supporting marriage to supporting children and rightly so".There is a debate to be had about that.
The previous policy, of reducing married couples allowance, was mistaken. By the time of the general election, it was changed. The previous Government decided that the policy was wrong and that the best way forward was to have transferable tax allowances to rectify the growing burden of the change in cost to families. We set a clear direction for ourselves.
The new Government have opened the gap and said that the concept of a married couple bringing up children in a family is no longer any more than a life style choice. The Government also plan to underwrite up to 70 per cent. of child care costs, up to a limit of £100 of eligible costs for families with one child, and £150 for families with two or more children.
The Chancellor claimed that he was being prudent with a purpose. I believe that the child care scheme is anything but prudent. The Government are attempting to regulate child care. Informal networks currently provide support for children and those informal arrangements will, by necessity, change following this proposal. The state will distort the existing patterns by promoting new ones. Following the change to the married couples allowance, that sends a further stark message to parents. The Chancellor is not just indifferent: he is saying to families where parents choose to stay at home, "You should put your child into care and go out to work—and here is an inducement." In essence, the Chancellor has become a persuader for child care: he is trying to persuade all parents, regardless of their position, to go out to work.
Financially, the Chancellor has failed to address the implications of the high take-up rate. When state subsidies are offered, experience dictates that they will be taken—and taken with a will. In other words, the Government are offering subsidies for child care and, in so doing, will be both meeting and creating demand. As the Institute for Fiscal Studies said yesterday:We might see prices going up very rapidly, with the government simply finding itself subsidising profits and prices".It begins to look very much like the issue of housing benefit and the way that that tends to force up prices. I dare say that the Government will deploy the same arguments against it in their review in two years' time in an attempt to introduce a cap.
In Britain, we have a heady mix of the highest proportion of lone parents on benefit and the highest child care costs in Europe. According to the Daycare Trust, British families pay the highest child care bills in Europe. It follows that the Government are in danger of running up a substantial bill for child care.
§ Mr. Duncan Smith
I shall give way in a minute.
That bill will inevitably be passed on to taxpayers—although the Government do not want to tell them at this stage. The taxpayer will foot the bill. That reasoning is 1445 reflected by calculations from the IFS, which claims that the cost will rise as high as £4 billion—not the £1 billion that the Government have allowed for in the Budget.
The Government's calculations do not add up. Even taking only the current number of children who are likely to take up provision, the cost will rise way past the £1 billion mark. So the IFS's £4 billion figure begins to look very reasonable. In those circumstances, taxpayers would incur the equivalent of an extra 3p in the pound on the basic rate of tax. That is yet another little broken pledge that the Government have quietly hidden away while seeking to increase the burden on the taxpayer.
§ Mr. Duncan Smith
I have already given way and I shall do so again in a minute.
The details of how this credit will operate have yet to be fully spelled out. If the Government rely on a scheme in which the costs are reclaimed, the bureaucracy involved will be enormous. Such a system would have to be monitored closely to avoid fraudulent high claims.
When children are involved, it is not simply a question of life style choices; it is a question of the structure within which children are brought up. It is wrong to view children in competition with marriage in this context. It is wrong to fund a higher level of child benefit by cutting another element in the tax system: the married couples allowance.
Family structure is very important. That fact is confirmed endlessly by research both here and across the Atlantic. A little publicised British project, the national child development study, showed how the "quite remarkable" difference in family situations of children who had done well by age 23, particularly educationally, despite the worst backgrounds in terms of income and housing, was associated with the fact that almost all had stayed with two original parents. American studies have shown the same thing.
The study is not a condemnation of the fact that some children are brought up, for whatever reason, in single-parent families, but it is an observation that, where possible, the two-parent family—and, in this case, the family with married parents—provides extra balance and structure that defines a child's upbringing. In this Budget, the Government are moving in the opposite direction: they have said that there is no difference and that therefore it is simply a life style choice.
§ Kali Mountford
The hon. Gentleman began by talking about the choices that families may make. What choices did families have under the previous Government, given that their child care record was the worst in Europe?
§ Mr. Duncan Smith
I must inform the hon. Lady that this is her Budget and this is her Government. If she does not want to discuss the Budget, that is fine—but I wish she would tell the Chancellor not to bother to produce a Budget every year. The hon. Lady must understand what is in the Budget. In my view, and in the view of many commentators, this is a retrograde step that will produce greater difficulties and lower the quality of child care. 1446 It is absurd to suggest that the state should encourage parents to put their children into child care regardless of the family position, but that is what is in this Budget.
§ Mr. Duncan Smith
I have just given way, so I shall move on.
A leading liberal academic in the United States, Sarah McLanahan—who is in this country at present and has been feted by new Democrats and by new Labour—has reached exactly the same conclusion. She has spoken at length about the link between the demise in marriage and the demise in civil attitudes. In the United Kingdom, Melanie Philips has written about exactly the same concerns. The point is that the Government have chosen to move in the opposite direction. That is their position, so they must defend it and not pretend that it does not exist.
This Budget fails to redress the balance and, as a result, the situation will worsen. As my right hon. Friend the Leader of the Opposition said yesterday in response to the Budget, the Government had a chance to redress the situation. He offered the Government the opportunity to make the tax allowances transferable, but the Government have thrown that away. Therefore, the tax structure still bears down disproportionately on two-parent families, and particularly on married couples bringing up children.
In Britain, the income tax threshold for a married man with two young children fell from 101.2 per cent. of average male manual earnings to 34.9 per cent. between 1950 and 1993–94. To that extent, the burden has increased on married couples bringing up children and this Budget does nothing to rectify that situation—although it needed attention more than other measures that are in the Budget.
§ Mr. Malcolm Wicks (Croydon, North)
The hon. Gentleman raises some interesting ideas about the relationship between the state and marriage. Has he reflected on why marriage rates in this country have declined significantly in the past 18 years—arguably partly because of joblessness among young men? Has he also reflected on why, in the same period, the divorce rate in Britain has increased to the point where 40 per cent. of marriages now end in divorce? By the end of the Conservative years, Britain had the distinction—if that is the word that I am seeking, which it is not—of topping the European divorce league.
§ Mr. Duncan Smith
The hon. Gentleman always makes an interesting point. The number of marriages producing children has fallen from 81 per cent. to just under 70 per cent., so three quarters of all children will still be brought up by married parents. That is an important factor, although the number has fallen. The hon. Gentleman has supported my argument. I had hoped that this Government would do something about the problem of divorce rates. The experience is by no means unique to Britain—it is even worse in the United States. The problem is not quite so bad in parts of Europe, but that is changing. It is time for Government to act. The point is that the Government should have addressed that issue in the Budget, but they have moved in the opposite direction and are likely to exacerbate rather than ameliorate the problem.
1447 Families have funded benefits and the expansion of the welfare state through higher tax. The Chancellor has reduced the married couples allowance partly to buy off his Back-Bench critics and partly to redress the changes to lone parent benefit for which he voted in December. It is worth addressing that point. The Prime Minister denied that that would take place. He told the House that the leaked stories that appeared in The Guardian were "wrong", but the stories about child care credit turned out to be very accurate. The articles about redressing the lone parent benefit changes also reflect the final package that appeared in the Budget.
According to the IFS, the Budget changes do not just redress the balance politically but go some way towards redressing it financially. It claims:many existing single parents with children under the age of 11 will be more than compensated for the cuts in lone parent benefits".The measures have a political element that has gone unmentioned. The child benefit increases amount to a cynical move fuelled by political pressure and they are not necessarily part of a rational package of welfare reforms.
On Tuesday, the Chancellor proclaimed that he had found a new faith in the increases in child benefit. Notwithstanding his desire to tax or means test them, suddenly he discovered this great element. New Labour has never publicly expressed faith in such rises. However, under fierce criticism, the Chancellor suddenly claimed:Child benefit remains the fairest and most efficient and cost-effective way of recognising the extra costs and responsibilities borne by all parents. Raising it allows us to do more for mothers who choose to be at home, working at home bringing up children."—[Official Report, 17 March 1998; Vol. 308, c. 1107.]If this is such a valuable benefit and raising it at the suggested rate is vital to creating a fairer society, why did the Chancellor fail to mention whether the increase will now be index linked and made annually throughout the Parliament?
Will the Secretary of State guarantee that no further cuts will be made to the married couples allowance, that no cynical device will be used in future and that it will be held at least at its present level?
New Labour says one thing and does another. This is a spin doctors' Budget. They have enjoyed it from start to finish. They have done their level best to spin and they continue. Labour claims that we should take it at its word, but we can do that only if we look at its words and reverse their meaning. The soundbite and sentence become the weather vane in the opposite.
New Labour came to power claiming that the tax burden on middle England was too high and that it had no plans to increase taxes. New Labour also claimed that it would encourage savings and security in retirement. How many of my right hon. and hon. Friends remember those words that were thrown at them during the election? New Labour has broken every one of those pledges.
Both objectives have been undermined by new Labour's economic policy. The Government's own figures in the Red Book reveal that taxes are set to rise and savings are set to fall. That does not reflect the fears and aspirations of working men and women throughout 1448 Britain. Instead, it reflects the step-by-step betrayal of the golden economic legacy left to Labour by the previous Government. It is breaking trust with the British people.
§ Mr. Duncan Smith
New Labour had an opportunity to redress the severe tax that it imposed on thrift when it taxed pension funds last July. That was a missed opportunity, because no such action was taken. It was warned at the time by the actuaries that that action was likely to lead to greater difficulties in pension funds, but it took no action at all.
All those opportunities have been thrown out. The Government chose the wrong tax to redress and so highlighted their true instincts—and will now stand condemned. They did not even offer charities a reprieve from the abolition of the ACT dividend tax credit, as had been asked for.
We can take new Labour at its word only if we reverse its words. Throughout the Budget runs the fault line of sleight of hand—do not trust what we say, trust only what happens after we say it. Labour's motto is: we cannot be trusted.
Labour failed to cut welfare bills: welfare bills, which it pledged to cut before the election are now set to rise and rise again. It has increased tax when it said that it would cut tax. It has devalued pensions and threatened pension funds in a way not seen for many years. It has lowered investment levels in Britain.
At the beginning of its term in office, Labour is already breaking promises. I wonder what it will be like when it comes to leave government in four years' time.
§ Mr. Jim Cunningham (Coventry, South)
I shall try to be brief because I am aware that many of my hon. Friends wish to speak.
The Budget is based on the long-term decision making that is necessary if we are to prevent a return to the boom and bust years witnessed under the Tory spending spree in the late 1980s. As a result of that, inflation almost doubled in two years, peaking at more than 10 per cent. in 1990. Interest rates also rose to 15 per cent., fuelling large-scale repossessions and homelessness. That spending spree led to the longest recession in the post-war era and unemployment of more than 3 million for the second time in a decade.
The Government are committed to ensuring that Britain enjoys the kind of economic success capable of delivering long-term prosperity not just for the wealthy, but for the long-term unemployed, young people and lone parents, all of whom were forgotten throughout the 18 years of failed Tory government.
The Conservatives' golden economic legacy is more a legacy of debt and failure on a massive scale. After 18 years of Conservative government, Britain had the lowest investment among Organisation for Economic Co-operation and Development countries, the lowest job creation and one in five households without a wage earner. Every Tory Budget failed to answer those problems.
Social security now consumes more than £100 billion, about a seventh of the nation's wealth, yet under the Tories there was a massive rise in social exclusion and crime.
1449 The Government inherited a national debt of more than £400 billion, its having doubled in the six years between 1990 and 1996. The public sector borrowing requirement was £23 billion in 1996, yet during the 1980s the Tory Government received billions through the privatisation programme. Oil and gas revenues alone totalled £80 billion, and that at a time when tax revenues rose by 43 per cent.
That debt equates to more than £26 billion a year in interest payments, or 10p on the basic rate of income tax. The Tories spent more servicing the national debt than they did on education. Under the Conservative Government, the average taxpayer contributed more than £1,000 a year to meet that legacy of debt.
The Government's commitment to sustainable and sound public finances can be seen in numerous measures undertaken since last May. The tough five-year deficit reduction plan is based on the need to encourage long-term investment, and the granting of operational independence to the Bank of England, which will provide a clear and accountable monetary framework, has already reduced long-term borrowing costs by one third of 1 per cent., which will save taxpayers around £6 billion a year.
Since the May election, the Government have twice had the opportunity to reduce corporation tax and, on both occasions, they have seized it. First, they reduced it from 33 to 31 per cent., then to 30 per cent., the lowest main rate among any of our major competitors. They also pledged not to raise that level during the remainder of this Parliament. The small business rate has also fallen, from 23 per cent. last May to 20 per cent. The changes to corporation tax will help nearly 2,800 businesses in Coventry, South alone.
The Tories failed the British people on tax, and that is why they lost so heavily at the election. They had had an 18-year history of deceiving the electorate on taxes. The tax take as a proportion of gross domestic product went up from just over 34 per cent. in 1979 to just under 36 per cent. in 1996. From 1979, the tax burden under the Tory Government was higher in every year bar one.
Under the Conservatives, so-called tax cuts were nothing more than an underhand shift from direct to indirect tax, from progressive to regressive tax, from taxing the rich to taxing the poor. The changes made by successive Conservative Governments resulted in a shift in the tax burden that penalised the poor. Between 1979 and 1997, the tax burden rose for everyone except those earning more than £64,000 a year.
The Conservative Government repeatedly broke election pledges on VAT. In 1979, they claimed that they would not increase VAT, but, after the election, in the first Parliament, VAT almost doubled from 8 to 15 per cent. In 1992, they again promised no more increases in VAT. The then Chancellor claimed that there would be no need to increase the scope or rate of VAT, but, by 1993, the Government had extended its scope to include domestic fuel. That was a particularly cruel move, which hit most severely the elderly and the poor, who spend a greater proportion of their income on gas and electricity than do the well-off.
The Tories were returned to power in 1992 with a commitment to maintain existing tax levels, but they introduced 22 new taxes. The typical family paid an extra £2,000 a year in 1997 compared with 1992. The Tories may criticise the Chancellor's changes to the married 1450 couples tax allowance as a hidden tax rise, but, after 1992, the Tories themselves reduced the married couple's allowance, costing the average family £500 a year.
The Tories criticise the change to mortgage interest relief at source as a hidden tax, but their reductions in mortgage interest tax relief from 25 to 15 per cent. after 1992 cost an extra £600 per year.
The Tories criticise the increase in road fuel duty as harmful to rural communities, where people are dependent on cars, but it was the Tories who introduced bus deregulation, which greatly reduced rural services, and it was they who raised duties year on year.
The Tories in opposition still display a hypocritical approach to taxation. The Labour party in government has upheld its commitment to create a tax system that is not only fair but seen to be fair. The poorest 20 per cent. of families with children will gain an average of £500 a year.
VAT on domestic fuel will be reduced to 5 per cent.—the lowest level possible. In opposition, it was Labour Members who prevented the Tories from increasing it to 17.5 per cent.
The working families tax credit is an attempt to tackle the unemployment and poverty trap that flourished under the Tories. The tax credit will guarantee that working families earning less than £220 per week will be taken out of income tax liability altogether. It will particularly benefit the 4 million children in Britain who live in households below the poverty line, as will the pledge to increase child benefit by up to £2.50.
Through the implementation of the windfall tax on the privatised utilities, £3.5 billion was taken from the huge profits that went into lining the pockets of Tory fat cats. That will fund the new deal to tackle social exclusion among the young, long-term unemployed, lone parents and people with disabilities. It will also provide funds for the much needed investment in our schools following the maintenance backlogs that grew under the Tories. The Government have provided a total of £2.3 billion in extra funding for education since the election on 1 May.
Changes to national insurance will make British workers more competitive, especially low and middle-income earners. The change in national insurance will make thousands of people in Coventry, South better off.
This is a step on the long road not only to modernise Britain for the years beyond 2000 but to create a fairer and more equitable society.
§ Mr. David Rendel (Newbury)
The Liberal Democrats believe that the Chancellor has, in general, moved in the right direction in his Budget this year. The problem is that he has not moved far.
During the debate, other hon. Members have had—and will have—an opportunity to comment on the Budget more broadly, but I shall confine my remarks mainly to my spokesmanship area, which is social security. I shall make just one exception on a constituency matter.
On the social security proposals, we welcome the Government's efforts to give some of the poorest in our society the opportunity to find paid employment. We have always welcomed that, and welcome the changes in the Budget that will help it. We welcome the Chancellor's attempts to make work pay. We welcome the fact that take-up of working families tax credit is expected to be higher than the take-up of family credit.
1451 However, the holes in the Government's proposals are unwelcome. As my right hon. Friend the Member for Yeovil (Mr. Ashdown) said on Budget day:there is still a suspicion that some of the detail is being shaped by political gimmickry rather than by practical good sense."—[Official Report, 17 March 1998; Vol. 308, c. 1124.]In my speech, I hope to highlight the areas where the Liberal Democrats are pleased that the Government have acted, as well as the dangers that we see in the continuing power of soundbite over policy, for the Budget does all too little for the groups of people who cannot work, or who through individual choice do not work.
I particularly welcome two aspects of the Budget. The first is the long-overdue changes to national insurance contributions. It is undoubtedly helpful, especially to businesses, that the allowances for employee and employer national insurance contributions should be aligned with the allowances for income tax. That is something for which the Liberal Democrats have pressed for some years, and it is all the more welcome for that.
The second change that I particularly welcome will affect many fewer people, and will not be worth all that much to those whom it does affect. Nevertheless, because it embodies an important principle, it is worth highlighting today. The Chancellor has extended the additional personal allowance to women whose husbands are incapacitated. There is no reason why, in the modern world, husbands who care for their disabled wives should receive such an allowance, while wives with disabled husbands do not.
The idea that women suffer no personal financial loss by caring for a disabled husband should have been confined to the 19th century rather than to the 20th and 21st. It would be interesting to know whether the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) agrees with us on this issue. I may have missed something, but so far all I have heard from the Conservatives on that change is a deafening silence. If the hon. Gentleman wishes to intervene to tell me whether he supports the Government and the Liberal Democrats on that change, I shall give way, as I am interested to know. [Interruption.] I suspect that he has not yet made up his mind, as he now says from a sedentary position that he will write to me later about it.
It has taken a long time for the Labour party to accept the Liberal Democrat position. After all, the change was proposed as an amendment in Standing Committee during consideration of the Finance Bill in 1996. On that occasion, the hon. Member for North Warwickshire (Mr. O'Brien), speaking for the Labour party in opposition, refused to support an amendment tabled by my hon. Friend the Member for Gordon (Mr. Bruce)—despite the support that we now appear to have from the Government—which would have had the same effect as the Chancellor's announcement on Tuesday. The hon. Gentleman said that Labourwould be giving out the wrong signals if we introduced changes in the Finance Bill that assisted spouses of disabled people."—[Official Report, Standing Committee E, 13 February 1996; c. 279–80.]Assisting the spouses of disabled people would send "the wrong signals". That is not the way to speak or think of some of the most disadvantaged people in our society. I am glad to see from the reaction of hon. Members on 1452 the Government Benches that they tend to agree with us, and not with their spokesman on that occasion. We on the Liberal Democrat Benches are delighted that the Labour party has at last seen the error of its ways.
In contrast, however, there is one other aspect of the Budget on which the Government have, conspicuously, not seen the error of their ways. The abolition of lone parent benefit, due to come into effect in April this year, will mean that payments to current claimants will be frozen, and new claimants will face an immediate cut. What will happen to those who do not want to take paid jobs but who want instead to stay at home to look after their children? Will they face poverty, hunger, no opportunity and no hope? The Liberal Democrats have opposed the cuts in lone parent premium, for we realise that some lone parents want to stay at home to look after their children, but under this Budget, some lone parents do not do paid work, so do not get anything.
How totally illogical to break the bounds of Conservative tax policy and introduce an entirely new allowance for mothers married to an incapacitated husband, while cutting lone parent benefits purely on the excuse that there was a rigid and unbreakable pledge to stick to Conservative policy. There is no logic behind that. There is no excuse.
What about pensioners? I may be mistaken, but I do not think I heard the word pass the Chancellor's lips even once during his Budget speech. Labour sings sweet tunes when talking of the need to tackle poverty, but what of the over-80s, who are some of the poorest in our country? Have they been forgotten? Are they unimportant? Are they to be treated merely as having ended their working life? The Liberal Democrats have proposed a £5 premium for the over-80s. It is a targeted policy, well aimed, to help the poorest, including many who are eligible for income support but who, for one reason or another, do not claim it. Pensioners do not work, so in the Budget pensioners do not get anything.
The stress on welfare in work does, however, have welcome advantages for those fortunate enough to be covered by the Chancellor's plans. First, there will be a £1.4 billion cash injection into the working families tax credit. That is welcome. Secondly, the working families tax credit will have a much reduced taper compared with the present system of family credit. That is welcome, too. Thirdly, there will be a welcome tax credit for child care. On that, I am opposed to the view held by the hon. Member for Chingford and Woodford Green. That is one of the few Budget measures for which the Chancellor deserves unreserved praise. However, none of these welcome changes is dependent on the introduction of the working families tax credit; on the contrary, the changes could have been combined with the current system of family credit.
The one advantage that is specific to the working families tax credit is that it is likely to promote a higher take-up among those who qualify than did family credit. In general, a stigma surrounds benefits: people are thought to be failures if they rely on welfare handouts. Liberal Democrats believe that family credit was successful in combating poverty, but acknowledge that some people who may need it have suffered and gone without it because of that stigma.
We hope that working families tax credit will break that stigma by rewarding work and by assisting those who want to stay in employment, but several disadvantages 1453 should be recognised. The devil will be in the detail and in the design of the system. The Chancellor says that couples will have the option of receiving the tax credit through the pay packet or through the Post Office, but we remain unconvinced that that will stop a transfer of resources from the purse to the wallet.
Family credit is paid direct to the mother; working families tax credit will give couples a choice. There will be little difficulty in a family if the man and the woman have a good relationship, and share and understand each other's needs. Whichever partner is chosen to receive the tax credit, the money will be passed to the partner who will spend it on behalf of the family. However, there is a danger that selfish husbands or fathers who do not want to share or to give the tax credit to their wives will refuse to do so. They will say, "Why give my wife the tax credit? She's received family credit for years." They will think that it is time for them to keep hold of the money through their pay packets, so that they have more to spend down at the pub.
Sadly, in the families in which it is most important that the non-working partner receives the money to spend on the family's needs, it is least likely that the non-working partner will have a say in the matter. The opportunity for choice, on which the Chancellor is relying, may be more apparent than real where it is most necessary. Nothing could be more damaging to children.
§ Mr. Duncan Smith
I am listening carefully to the hon. Gentleman. Is he assuming that if the main breadwinner does not agree, the tax credit will stay in the wage packet instead of going to the non-breadwinner, or does he wish, like me, that the Government would explain the matter?
§ Mr. Rendel
I was tending to assume that that may happen. I should be delighted if the Government assured us that a detailed mechanism will be introduced to overcome the problem, although it seems clear from the remarks of the Secretary of State that, so far, they have not found such a mechanism. That worries me.
There are other anxieties about the working families tax credit. The Chancellor must ensure that this country does not suffer from the high number of frauds that have occurred in the United States, with employees and employers colluding over the amount of working families tax credit that is due. It would be wise for the Government to study carefully the Canadian Government's experiences with working families tax credit before introducing one. I understand that the Canadian scheme has been withdrawn, mainly because it was a disincentive to work for more people than the ones for whom it was an incentive.
The Institute for Fiscal Studies report, published yesterday, takes the Budget as a whole and shows that, although 1.1 million people will have an increased incentive to work despite still suffering from an average marginal tax rate of 71 per cent., 2.8 million people—more than twice as many—will suffer from a decreased incentive to work. The policy has advantages, so that may not be a reason for not going ahead with the policy, but it must be considered, and the Government have not properly dealt with it. If the figures are accurate and the Government do nothing to address the problem, the working families tax credit, which was intended to boost 1454 their new deal programme, could become the main cause of its failure. Liberal Democrat Members hope that those disadvantages will disappear as further details emerge. We wait with interest.
I must add a further warning about the Budget. The Government are right to introduce a tax credit for child care, but the quality of the child care provided must not be compromised. There should be a recognised standard, such as a kite mark, and such provision should be registered by the Government. The future of our nation's children is too important to allow child care provision to be driven by nothing other than market forces.
On behalf of my Newbury constituents, I want to mention the need for rural public transport to be high on the agenda. The £50 million that the Government have promised is a start, but that is all it is. The Government must ensure that the money is not the end of the matter, and not merely an attempt to appease the countryside marchers; it must be the beginning of much more investment in the infrastructure of rural Britain. I warn the appeasers, if that is what they are, that an appeaser is one who feeds the tiger hoping that it will eat him last.
My hon. Friend the Member for Somerton and Frome (Mr. Heath), whom I am pleased to see in the Chamber, said yesterday that the Budget had bypassed Somerset. We in Newbury know all about bypasses, and some are welcome. But the £50 million for rural transport will be spread thinly if that is all that it receives. I hope that I shall not have to echo my hon. Friend's remarks when the money is allocated, and say that the Budget has also bypassed Newbury—that would not be a welcome bypass.
There are good things in the Budget. Much of it heads in the right direction; indeed, it picks up ideas that have long been part of Liberal Democrat thinking. We welcome that, but where the Chancellor needed to be bold, he was timid, tentative and grudging. Let us hope that the Budget is merely a small first step, and that he will accelerate down that road next year.
§ 6.6 pm
§ Mr. Terry Rooney (Bradford, North)
The hon. Member for Newbury (Mr. Rendel) mentioned bypasses; my hon. Friend the Member for Shipley (Mr. Leslie) would not forgive me if I failed to say that the Bingley bypass should be included in the roads programme next month.
Before I was elected to the House, I spent 10 years as a welfare rights advice worker. The job gave a great deal of satisfaction, but brought me face to face with an awful lot of misery and pain. Between 1980 and 1986, my case load went through the roof, because I was dealing with the casualties of the previous Government's economic policies: all that they faced was a lifetime on benefit.
In 1986, that started to change. For the next three or four years, I spent my time telling people that they would be worse off if they worked, which was a tragedy for me, for them and for the nation. That is not sound economic policy.
§ Mr. Rooney
If the hon. Gentleman wants to intervene, I shall gladly give way. He does not want to intervene, because, as usual, he does not know what he is talking about. 1455 The Social Security Act 1988, which introduced family credit and changed many rules, compounded the problems. For example, the children of people on family income supplement were entitled to free school meals, but that entitlement was removed under the new family credit. Before the hon. Member for West Chelmsford (Mr. Burns) gets excited, I point out that, yes, there was a notional adjustment in the value of the benefit, but it went out of the window the week after the benefit was introduced, because no account was taken of it. That was a major cost to people on low incomes who moved from unemployment into work. As a result of the way in which local government finances were handled in the 1980s and early 1990s, the price of school meals went up far in excess of inflation year on year. People also face the cost of child care, especially in school holidays. Lone parents with two or three children have enormous costs during the six-week summer holiday and have no assistance whatever.
In 1996–97—the last year of the Conservative Government—725,000 people claimed family credit. That was only 70 per cent. of those entitled. For whatever reason, 30 per cent. of the relatively poor families who are entitled to family credit did not claim it: £400 million was not claimed. It is the children who suffer as a consequence. The beauty of the working families tax credit is that there will be a 100 per cent. take-up, because it will be paid automatically. There may be no stigma attached to family credit, but 300,000 people who were entitled to it did not claim it.
The 725,000 people who received family credit in 1996–97 were getting an average of £57.04 a week. The tragedy is that their average gross wage was £112.81 a week. That is an indictment of the low-wage economy, and shows why we need the national minimum wage that the House voted for last week. Even on that miserable average wage of £112, people were paying £170 a year in tax. They were getting £57 a week from the state in family credit, but they paid £170 a year in tax and a massive £340 in national insurance. That bill will be halved as a result of the changes that the Chancellor has introduced; and quite right, too.
Why do high earners on the top rate of tax need incentives to go to work, whereas unemployed people do not? Why is a 97 per cent. marginal rate of tax for the unemployed valid, but a 40 per cent. tax rate for higher earners is not? That argument is nonsense. There should be incentives across the board, and it is about time they were directed more at poverty than at affluence.
The Labour party manifesto made much of our welfare-to-work proposals. In the 10 months since we came to power, that programme has unfolded. Welfare to work has two fundamental principles: one is that all those who can work should work, and the other is that work should pay.
I am pleased to say that I attended the launch of the new deal for my local authority area on Tuesday morning, when 170 employers turned up. They have signed up to the new deal. Employers and claimants are enthusiastic about it, and everyone will benefit from it. It was a superb event.
Welfare to work, the new deal and the national minimum wage interlock with the measures taken in the Budget to get people back to work. The aim of those 1456 measures is to bring dignity and respect to those families, and to provide them with an income that is commensurate with their family needs and circumstances, rather than the misery pay that they received during the Tory years.
I shall comment on the Chancellor's tax credit scheme for the disabled. For many years, disabled people in work have received the disability working allowance. The system is an absolute disgrace, because the allowance is claimed by 13,400 people—the vast majority of disabled people do not know about it, and even those who do have difficulties because it is complex, so they do not bother to claim. Under the new deal, there will be £185 million for people with disabilities who want to work. They should be allowed to work, and the money should be available to support them.
Child benefit has been frozen. The most valuable support that we can give to families with children has always been child benefit. That is why it was introduced in the mid-1970s, when we did away with the old child tax allowances and the family allowance. It is a tribute to the noble Baroness Castle. I hope that the increase in child benefit this year and next year will continue year on year. It will do more than anything else to relieve child poverty. That increase is the most radical aspect of the Budget.
I welcome the Budget and am very glad to support it.
§ Mr. John MacGregor (South Norfolk)
Given the time constraints, I shall be selective and shall not go over areas that have been reasonably well discussed already. However, I should just like to say that I have not yet been able to get my mind round some of the complexities of the working families tax credit scheme and of the Martin Taylor report. Many of us have wrestled with these issues for some years, and we recognise that the objectives of the proposals are desirable. However, I have a hunch that they have been put together in haste and may be very complex. There may be a host of snags, not least the difficulties that small businesses will have trying to administer the scheme.
I should like to ask the Paymaster General about the relationship between the working families tax credit scheme and housing benefit and council tax benefit. How will it work in the round?
I want to concentrate on rural areas, which have been particularly badly hit by the Government. The rural pensioner has been badly affected by the Budget. We must also consider this year's council tax, because it is part of the tax system and has an impact on rural dwellers. In Norfolk, because of the switch of Government grant from rural to urban areas, the council tax will increase by 17 per cent. this year and will be accompanied by a considerable decline in services.
The increase in petrol tax will have a particularly adverse effect on rural dwellers, and I am strongly opposed to the Chancellor's proposal. This Budget introduced a 9.2 per cent. increase in petrol tax—6 per cent. in real terms. That increase comes after a hike in petrol taxes last year, when they were doubled. It is equivalent to 1p on income tax.
The car is often a necessity in rural areas, not least for people on lower incomes who use it to get to work. It is not possible to provide the multiplicity of public transport that can be provided in urban areas. The impact of the 1457 increase in rural areas will be severe, particularly on rural pensioners. The £50 million for rural transport schemes is merely a sop and will make little difference compared with the extra costs that will be incurred in rural areas. The Times comments today that for the three quarters of rural areas without a bus service, this is equivalent to little more than a wheel nut for each recipient.
Given the modern technology used in cars, their impact on the environment is much less than it was five years ago when we began the process of increasing petrol taxes above indexation.
I agree with the hon. Member for Newbury (Mr. Rendel) that the Chancellor hardly mentioned pensioners in his Budget speech. The fuel payment given to pensioners this year does not compensate for the increase in council tax and in motoring costs that pensioners will face as a result of the Budget. The rural dweller will be worse off. Yesterday, reference was made to the fact that BP has reduced petrol prices in rural areas. That reduction is because of the current lower oil prices, but they could go up again just as quickly, whereas the imposition of this extra tax is permanent. The measure is a retrograde step.
Pensioners were squeezed by last year's attacks on pension funds. Many of them suffered the loss of insurance relief on medical schemes. Agriculture and allied trades, including farm machinery companies, face serious problems because of the constant strengthening of the pound and the consequent impact on the green pound. As a result, a considerable number of people in rural areas have been made redundant. I do not think that the Budget has given rural areas a good deal, especially when combined with the council tax. That is the point that I want to stress most.
May I make a positive point to the Paymaster General about rural areas? I believe that the time has come to consider exempting church repairs and maintenance from value added tax. It has become increasingly difficult for churches, particularly listed churches, to carry out repairs and maintenance. In my constituency, many churches have tried to raise enormous sums, only to find that VAT is charged on top of that.
I very much welcome the reductions in income tax, but one consequence of those reductions is a reduction in the tax relief gained through covenant payments. That means a reduction in income. The European Parliament recently asked the Commission to improve the fiscal position of charities in relation to VAT, and I support its view. Only a modest measure would be required: I believe that, according to the most recent figures, it would cost about £25 million in tax forgone. My bishop, the bishop of Norwich, has spoken about the subject at length in the other place. I personally think that such a relief would be welcomed by many rural communities, and would be very important to our heritage.
I have mentioned rural transport. Unfortunately, I do not have time to develop my argument tonight, but I will say that we should bear in mind the additional cost to motorists. Eighty per cent. of the cost of every gallon or litre of petrol will now go in tax, and the cost to industry will continue. However much effort we devote to switching freight from road to rail—which I entirely support—the vast majority of freight will continue to be transported by road. The cost of that will be passed on to 1458 the consumer. At this point, I must declare an interest, as a non-executive director of Unigate, which owns a transport company.
More should be spent on the roads programme. I deeply regret the cuts in that programme, and I believe that the Government will come to regret them as well, not just for reasons of economic competitiveness but because of the impact on travellers everywhere. However much is invested in public transport, in non-metropolitan areas that investment will not displace the need for increased investment in roads. I hope that there will be other occasions for me to develop that theme. I think that soon, for economic, if for no other, reasons, the Government will be forced to find more money for road maintenance, road improvements and bypasses.
I greatly welcome the Government's reversal on the £50,000 limit for tax-exempt special savings accounts and personal equity plans. I am glad that they have responded to pressure—although, of course, we should not be too grateful, because the Government should never have suggested the limit in the first place. However, I am still worried. I note that today the Cabinet were supposed to be discussing compulsory pensions, second pensions, and so forth. I fear that the relationship with pensions has not been thought through sufficiently; I feel that the Government ought to concentrate on long-term savings.
When I heard what the Chancellor said about the savings scheme, I thought that his announcement about capital gains tax would be very welcome. I have long advocated a tapering system. When I looked at the details, however, I found that non-business assets would be treated much worse than they are under the present indexation system. If they are held for any length of time, and if inflation is higher than 2.5 per cent., there will hardly ever be any benefit in transferring to the proposed new system. That will not encourage long-term savings. Indeed, if inflation is higher than 3.5 per cent., there will never be any benefit. There will no benefit for 10 years, and no benefit thereafter. The Chancellor has missed a great opportunity to encourage long-term savings, but that could be put right by a change in some of the systems.
I know exactly what the Paymaster General is facing, because it was given away in one of the detailed notes. The tapering system has been heavily constrained by the Inland Revenue, because it does not want to lose any tax revenue. However, if the Government intend to encourage long-term savings they ought to introduce a different tapering system.
I must end my speech, because of the restriction on time. Let me finally deal with the overall public expenditure position. There is no doubt that the Government have been hugely helped by the economic legacy that has been left to them—tax buoyancy, falling unemployment, the contribution to the European Union, and so forth. Even so, however, they have increased health expenditure by less than the Conservatives have in recent years, and by less than we did throughout our time in government. It is time that Labour Members started to look at the figures, and to realise that. Moreover, the Government propose to devote less to capital expenditure over the next three years than was in our capital expenditure programmes. I do not think that their priorities are right, although I welcome the constraints.
Above all, I want to make it clear—
§ Mr. Malcolm Wicks (Croydon, North)
I welcome this bold and radical Budget. I think that, in the social sphere, it will be remembered for what it says about employment and the worth of employment, and for what it says about families with children. It certainly enables me, in my Croydon constituency office, to give a better answer than I have been able to give before to mothers—some of them lone mothers—who tell me that they want to resume their careers, but that, because of child care costs, it would be monetary madness for them to do so.
The new child care credit is a major step forward, and, in some years' time, the use of credits may be seen as a great innovation which could be spread further afield. Perhaps there could be a new carers credit, for example. The provision shows that we can make the tax system more progressive, and make it serve social purposes.
I do not want to spend my limited time heaping praise on the Front Bench, however. My ministerial colleagues are easily embarrassed. Instead, I shall reflect rather more generally on three aspects of the Budget: work and the family, child benefit, and the future of national insurance.
I believe that, in retrospect, the 20th century will be seen very much as a century for women, not only in terms of civic and political gains but in terms of social and economic gains. As we approach the end of the century, women's employment patterns—with, admittedly, some significant qualifications—are becoming increasingly more like those of men, and the Budget, in a sense, institutionalises and encourages some of those developments.
The early decades of the next century, however, must deal with an even more important question. How can we achieve a better balance in the lives of both men and women—both fathers and mothers—between the world of work and the world of family, especially in relation to children? That has policy implications. I would guess that many mothers and fathers would dearly love the opportunity to spend more time at home caring for their children when they are tiny—just a few months or a few years old. New fathers, as well as mothers, will increasingly express that view.
There are implications for the income support system. We should make it clear that, however important the welfare-to-work policy is, those with children under five have an absolute right to stay at home and look after them. Perhaps we should go even further than the Budget in giving an under-fives income support premium to make that possible.
For parents in general, we should perhaps consider a parental care credit. The Budget says that those with more than one child can have up to £105 a week as a credit to help with child care costs. That is right, but I think that, given the theme of choice between work and family, we should match the sum with incentives, or at least encouragement, for parents who want to stay at home and look after their children. Sweden is a world leader in terms of parental leave. I welcome the development of a new work ethic in Britain, but we need to encourage the family and child ethic more strongly if we are to get the balance right between the social and economic spheres—between the world of the home and the world of work.
The hon. Member for Newbury (Mr. Rendel), the Liberal Democrat spokesman, was right to warn us about issues of quality of child care. There will be a great 1460 growth in child care. Some people will view it as a way in which to maximise profits. I do not want child care policy over the next 20 years to be driven by cases of abuse and sheer bad quality.
In a sense, we think that child care is about adults: the working mother, the working father, the politician, the policy maker. Strangely enough, it should be about the child and the needs of that child. Let us hear more about the child in this debate. Let us talk not just about quantity, but about quality.
I welcome the child benefit increase. It is a radical move. It is pro-families and a major development. I want to see more of it. I should like, in particular, a discussion on whether we should weight child benefit increases towards the youngest children—those under five; the poorest families tend to have the youngest children because of employment patterns. We should examine that.
I am pleased that the Treasury has not rushed into taxing child benefit. We should consider that rigorously and cautiously. Whose income do we tax? We say that child benefit is for mothers. Do we tax mothers? What about independent taxation, if we say, "No, we will tax the higher-paid parent"? It is an important issue. How would we do it if people assessed their own tax?
What about cohabitation? More of our children are being brought up by parents who choose—and have the right to choose—to cohabit rather than to get married. I do not believe that the tax benefit system should discriminate in favour of marriage, but it would be absurd if it ignored cohabitation and discriminated against marriage in taxing child benefit. In terms of equity and justice, I am not sure about saying to higher tax-rated single people and childless couples, "No, we are not going to increase tax on you, but we are for those who have children." That is not a pro-family policy. We should consider it with some caution.
There are some interesting straws in the wind in terms of what is being done to the lower rates of national insurance. I understand the case for that in terms of work incentives, but does it break the link between what we pay in and draw out, and what are the implications? Is merging the Contributions Agency with the Inland Revenue simply a bureaucratic measure, or does it indicate something far more substantive? We need a proper debate about that.
Some people—the economists and those who look at these matters technically—say that national insurance is now simply another form of income tax. I do not believe that that is right. There is a strong argument for a renaissance in social insurance. Many of the issues that confront modern Britain, such as the costs of long-term care for the frail elderly, can be tackled only through social insurance. They cannot be tackled through private insurance.
Let us, therefore, have a debate about the future of the national insurance scheme and let us be wary of people who say, "No. It is simply tax. Let us merge it with income tax." Social insurance is more important than that. The age-old principle of contributing to the community chest when in plenty, and drawing out when in need is a thoroughly modern concept for 21st century Britain.
§ Mrs. Jacqui Lait (Beckenham)
I will not follow the hon. Member for Croydon, North (Mr. Wicks) by concentrating entirely on social security issues, but I begin 1461 by saying how much I support the principle of getting people into work. The Conservative Government did much to encourage them. I hope that the Government's changes will not be subverted by some of the adverse effects that I expect will come about.
I should like to concentrate on the child care credit and to ask the Paymaster General to answer some questions it; many questions have arisen in my mind. My hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith) produced some calculations. Families who earn up to £14,000 would receive child care benefit of approximately £40 a week. On that basis, he suggested a ballpark cost of £4 billion; my calculation is a bit higher.
The Prime Minister and the Secretary of State for Social Security and Minister for Women have said that the benefit would extend to families with incomes of £30,000. For those who are on incomes of between £15,000 and £30,000, there will be, again according to my calculation, a £20 a week average benefit for child care, which comes to £1.5 billion, on top of the £4 billion—if that figure is right; as I have said, I think that it is on the low side. Will the Paymaster General give some indication whether those calculations are right? I welcome the fact that it will take two years to introduce that credit, because I suspect that it will take the Treasury two years to calculate it all.
Because the Government have hyped that benefit, many families expect 70 per cent. of £100 or £150, depending on the number of children they have, somehow to emerge in their pay packets. Most of them do not realise the effect of the 55 per cent. taper and many will be disappointed when they realise how little they will receive. I suspect that they are likely to feel cheated.
As people are rational, they will organise their affairs in such a way as to maximise the amount of child care credit that they will be able to claim. That will increase the cost yet further. Will the Treasury tell me whether that has been calculated in its estimates? Indeed, child carers will also provide to the sum that is the maximum that they can receive from the tax system. We saw it happen with rest care homes. We will see it happen with child care, too. Has the Treasury examined that?
This is a small, but crucial point. The credit is not being introduced for two years. One of the reasons for that is that it will take a long time to increase the child care provision. Is the Paymaster General aware that the loan guarantee scheme is not available to people who wish to set up nursery schools providing a curriculum? Department of Trade and Industry rules specifically exempt those who set up schools providing a curriculum. That includes nursery schools. A change there would be one way in which to increase the amount of provision. I hope that he will consider making such a change.
The hon. Member for Croydon, North made many of the points that are crucial in relation to the interrelationship between child benefit and income tax. I will not go any further, other than to say that I support his comments about the disincentive effect of taxing child benefit. It would be absurd to tax what is, in effect, a tax relief.
My right hon. Friend the Member for South Norfolk (Mr. MacGregor) referred to the effect of the petrol increases. I will not go down that particular line, but I point out that, for many pensioners, the move to public transport, if it comes about, will involve even greater costs 1462 than people envisage. For example, those who are a bit dodgy on their pins will need porters in railway stations. They will need conductors on buses. In pedestrianised areas, they will need buggies to get around. All that costs money—additional money. I do not think that most people realise that when they talk about providing extra public transport.
I consulted businesses in Beckenham about what they wanted from the Budget. Most of them wanted business burdens to be reduced. There are few signs that the Budget will do that. Administrative burdens have gone up. We have made much of the effects of the working families tax credit. The help for small businesses, particularly the new Inland Revenue payroll offer, will send shivers down the spine of most new businesses, I suspect. It comes in the category of, "I'm from the Government. I am here to help." What will be the effect on companies that offer payroll services? In effect, will this be unpaid—and therefore unfair—competition and put those companies out of business?
I understand that the Chancellor said that he wants to reduce red tape. There was not much evidence of that. I am a member of the Deregulation Committee and I am not impressed by the volume of legislation that is coming through for us to deregulate. I hope that we will see a lot more coming through if the Government truly wish to reduce the burdens on business.
In my opinion, the big issue that has been entirely glossed over and in which I have taken a long-standing interest is smuggling and bootlegging. Those of us who have been on many long holidays buying wine in France know all about smuggling and bootlegging. We are also learning about the effect of the tobacco tax on smuggling and bootlegging. I notice from the Red Book that, despite the increases in this Budget and the previous Budget, the Treasury is expecting only a small increase in excise this year and that is due to fuel prices. All those painful increases in alcohol and tobacco taxes are having no effect. Meanwhile, the industry of smuggling and bootlegging is expanding exponentially.
Dave West, who runs the tobacco warehouse at Adinkerke—I thank the Tobacco Alliance for arranging my visit to that warehouse—has a turnover of £107 million on tobacco alone. Since December last year, the amount of cigarettes sold has increased from 5 per cent. of sales to 50 per cent. An increase of 20 per cent. on cigarettes will mean that that percentage will go up. The percentage for handrolling tobacco has not gone down.
We are seeing the effects of those sales nationally. They are undermining the rule of law and damaging the health of the nation. In Ashford, young drinkers were disrupting the town centre because they had access to cheap French beer. In Guildford, French beer caused youngsters to damage the cathedral precincts. In Beckenham, I have had complaints about a smaller shop selling duty-free alcohol. Sales of handrolling tobacco papers have increased by 63 per cent. since 1990. In Calais, there are 66 warehouses providing cheap tobacco and alcohol.
The big city gangs are now involved, and there is evidence of firearms being used in the Kent area. Protection rackets are emerging, and the police are investigating links to terrorism. 1463 In January 1995, the current Financial Secretary to the Treasury, then in opposition, said:The illegal entry of alcohol cannot be regulated by our health policies or controlled by our legitimate methods of dealing with alcohol consumption."—[Official Report, 23 January 1995; Vol. 253, c. 65.]We have a French alcohol tax, a Belgian tobacco tax and we are not in control of our own excise duty tax.
§ Yvette Cooper (Pontefract and Castleford)
I welcome the Budget. It is the first Budget I can remember being described as a Budget for children, a Budget for women and a Budget for poor families. According to the Institute of Fiscal Studies, not one Budget under John Major treated poor families better than rich families.
The Conservatives presided over a growth in poverty, particularly child poverty—that is the most shocking. One in three children are being brought up in poverty. What did the Conservatives do? They stood by while child benefit fell from 4.5 per cent. of average earnings to 3 per cent. of average earnings. In response, the Labour Government have put up child benefit by the biggest real increase since 1978. As a result of the Budget, we have given families—some of the poorest families in the country—an extra £500 a year on average. I wish that the Opposition would welcome that because it is one of the most important things that we can do to tackle child poverty.
It is worth making it clear why the Government can do that and why they can make these changes. We can do so because the Chancellor has already taken action to sort out public finances, which were in a mess at the time of the election. Under John Major, national debt doubled—
§ Mr. Ruffley
Will the hon. Lady concede that, in the Red Books published by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), it was projected that the PSBR would be zero at the turn of the century?
§ Mr. Deputy Speaker
Order. Before the hon. Lady replies, I remind her that we do not use proper names but refer to hon. Members by their constituencies.
§ Yvette Cooper
The PSBR projections of the right hon. and learned Member for Rushcliffe (Mr. Clarke) were remarkably inaccurate every time. Previous Red Books show that, over the past four years, the total PSBR was about £60 billion higher than it should have been according to the previous Government's projections. The projections of the new Labour Government have been surpassed by the tough actions taken by the Chancellor to sort out the problem of public finance. Last year, the public finances were £23 billion in the red. Now, we are 1464 looking at only £4 billion and that is because of the tough action taken by the Government. It is worth remembering the position of the Opposition on the Finance Bill.
§ Mr. Ruffley
Will the hon. Lady concede that all the tough but necessary action and tax increases designed to bring down the deficit under the Budgets of my right hon. and learned Friend the Member for Rushcliffe were opposed by the Labour party? What does she have to say about that?
§ Yvette Cooper
The hon. Gentleman should look at the report of the Finance Bill Committee last year. His party opposed all the significant measures to sort out the public finances in the previous Budget. That makes my point. Had the Conservatives continued in office, they would have been significantly more in the red than we are today. They opposed the windfall tax and all the measures that my right hon. Friend the Chancellor took to cut borrowing. They opposed the changes to advance corporation tax and the changes to sort out the state of the public finances.
A Conservative Government would not have been able to increase child benefit or to introduce the child care tax credit. They would not have been able to give help to low-income working families. It is not so much that they did not want to, but that they could not afford to because their borrowing would have been considerably higher.
We now have the chance to make work pay. We no longer need to tolerate the absurdly high marginal tax rates faced by far too many people on low incomes. For every extra pound earned by a dinner lady on a salary of £63 a week, more than a pound would be taken away because of the way in which national insurance contributions work. That is ludicrous and it is a good reason for getting rid of the 2 per cent. entry fee for national insurance. It is also a good reason for introducing the working families tax credit. The working families tax credit is not only more generous, but it changes the tapers. It changes the rate at which money is taken away from people. Also, people will no longer find that tax is being taken on one hand while benefits are being given with the other.
§ Yvette Cooper
There will be 400,000 more families in receipt of extra help to make them better off, so that they will have a guaranteed minimum income of £180 per week. I think that that is worth while, and I am ashamed that the hon. Gentleman does not.
The Budget contains other measures—it is not simply about making people better off once they are in work, but about helping them into work. One of the Budget's most significant provisions, which the House should not underestimate, extends the benefits of the new deal to partners of the unemployed.
As the new deal was being introduced in my constituency, our local youth service was asked to conduct a focus group of some 18 to 25-year-olds who might be eligible to participate in it to discover their attitudes to 1465 work, training, education and the Employment Service. The results were fascinating—until one looked at the small print, and discovered that most of the women in those groups, because they were not receiving the jobseeker's allowance, were not eligible to participate in the new deal. The youth service had included them in the group because they were actively seeking work and wanted jobs.
For too long, the benefit system has trapped women who want to work by denying them access to training, education and help—it has dismissed and ignored them. The Budget's equal treatment of women is an extremely important change.
As my right hon. Friend the Secretary of State for Social Security and Minister for Women said, another significant feature of the Budget is the £10 million for a pilot programme that will provide education and training for lone parents. Although it does not look like much money, it could prove to be a significant factor in raising children out of poverty.
Skills and qualifications are a greater factor for lone parents in determining whether they work than they are for other people. Statistics show that 87 per cent. of people with degrees are in work, and that 88 per cent. of lone mothers with degrees are in work. At the other end of the skills spectrum, 52 per cent. of people with no qualifications are in work, and 47 per cent. of mothers with no qualifications are in work. However, only 22 per cent. of lone parents with no qualifications are in work.
Qualification levels are, therefore, immensely important in determining whether lone parents work. Child care—extremely important though it is—is not the only factor in lone parents' ability to work. We must also give women an opportunity to gain the education and skills that they need—not only to get their first job, but to get their next job, and the one after that.
This morning, the Employment Sub-Committee took evidence from various groups working in child care and with lone mothers. They all agreed that the most important next step in the new deal for lone parents is to improve availability of child care and education.
The Budget represents an important new deal for women—it is a very important Budget for women. By my calculations—on the basis of calculations in the Red Book—the Budget, on average, will benefit women five times more than it will benefit men. That is not a sexist point—
§ Yvette Cooper
It is a reflection of the fact that women are more likely to be in poverty, and that women are more likely to be looking after children in poverty. Women are the ones who are denied child care and the chance to work, and they are the ones who are lower paid once they are in work. Conservative Members do not realise that fact, which is testament to the fact that, for the past 18 years, they have done so little for women and children in poverty in the United Kingdom.
The Budget is remedying the inaction of the past 18 years. It is part of Labour's commitment to women, to children and to families in poverty. It is a chance to start turning things round.
§ Mr. Christopher Fraser (Mid-Dorset and North Poole)
Although—as we all know—the Government inherited the strongest economy in a generation, Labour's first Budget, last year, raised taxes. Let us not forget that that Budget raised 17 taxes, or that a typical family is now £800 per year worse off because of that Budget. The increases were imposed despite the Labour party's pledge in the general election campaign that there would be no tax increases.
Last year's Budget will be remembered as one that shook to the core all those who were saving for their retirement. The raid on company pension funds hit workers, shareholders and consumers alike, and was regarded as a betrayal by the prudent and the responsible. We now learn from the Red Book that, for 1998, the Chancellor forecasts a sharp drop in personal savings. That was hardly surprising after he placed a tax on savings and pensions.
We all accept that one way in which to control consumer spending is to raise interest rates—which is what the Chancellor and the Bank of England have done. However, the effect of higher interest rates has been to raise the value of the pound. Our exports have become more expensive, and so—as is demonstrated by the fall in manufacturing output for five consecutive months—exporters and manufacturers are heading towards recession.
As if that were not bad enough, businesses now face new taxes, to the tune of—according to the Confederation of British Industry—£22 billion. Now the Chancellor wants businesses to cope with the administration and arbitration of the new working families tax credit scheme. Businesses have to take over where the Benefits Agency will no longer be responsible.
In my work with the Small Business Bureau, I have become only too well aware of how worried small businesses are about the future. They prospered under a Conservative Government, but look to the future with some hesitation. Small businesses will judge the Budget's success on whether it enables the Bank of England to maintain current interest rates, or—dare I say it—even to cut them. They expected the Chancellor to unveil measures to satisfy the Bank of England that no more interest rate rises would be necessary.
On the evidence, has the Chancellor done enough to encourage the Monetary Policy Committee to hold rates? We shall see. For how long will the Chancellor be able to continue shrugging his shoulders and blaming the Bank of England for the difficulties that high interest rates are causing to the wealth-creating sector?
Businesses employing high-paid workers will suffer also from the reform of national insurance. How will that impact on their productivity and job security?
The Budget's success in my constituency of Mid-Dorset and North Poole will be judged not only on what it has done to British business, but on how it affects married couples, people living in the rural parts of my constituency and pensioners. Many of the people in those groups were looking forward to the much-talked-about 10p starting tax rate, yet—two Budgets into this Parliament—there is still no sign of it, and no date when it might apply.
My constituents will be entitled to feel that the Chancellor has let them down. The Labour party will have to learn the difference between being in opposition— 1467 when it promised the earth—and the hard world of government, in which it is held to its promises. Indeed, the never-never is a feature of the Chancellor's policies—he is living on tick. He has, for example, introduced an immediate rise in fuel duty, which will not be offset by proposals that are purported to benefit my constituents until autumn 1998 or, in some instances, until next year.
I welcome, of course, the Chancellor of the Exchequer's recognition that the tax and benefit system has disadvantaged those with children—but what has he done to deal with the disadvantages of those who want to stay at home to look after their own children? He has created a huge disincentive for mothers in two-parent families to stay at home, yet he has created an entirely opposite incentive for lone parents.
The Chancellor—by introducing the 12-week linking period—is undermining benefit cuts to lone parents, maintaining lone parents' benefits at current levels and continuing the same culture of dependency. He has also created an incentive for lone parents to take short-term work, so that they will not lose their entitlement to higher benefit rates. Therefore, the new deal for lone parents is already struggling. Those added incentives will further prejudice lone parents' return to full-time work.
What has the Chancellor done to encourage stable married life? How does he reconcile a reduction in the married couples allowance with his statement thatFamilies are the bedrock of a stable and healthy society"?—[Official Report, 17 March 1998; Vol. 308, c. 1106.]
How can the Chancellor's pledge that the Government will reduce welfare spending be reconciled with the fact that the Budget has increased the cost of welfare in the United Kingdom? He can justify it by tinkering, tapering and sleight-of-hand. The indications are that—because of the Chancellor's reforms—welfare spending will rise by £10 billion over the life of this Parliament.
Who will pay for that spending? The taxpayer will pay. The fact is that—because of this Budget alone—250,000 families will face higher marginal tax rates. Moreover, they face a third increase in the cost of petrol since May, when Labour won the general election. In rural constituencies such as mine, and that of my right hon. Friend the Member for South Norfolk (Mr. MacGregor), such price increases are crippling.
As a sweetener, we were promised that £50 million would be spent on rural transport. That equates to £1 per person spread over three years. How can that make a difference to the country? How much of it will Dorset enjoy?
The huge increase in duty on fuel is Treasury motivated and represents a further tax on the countryside. Has the Chancellor learnt nothing from the strength of feeling demonstrated by the countryside march recently when 250,000 country people filled the streets of London seeking better recognition of their problems?
How do I answer the pensioners in mid-Dorset who have contacted me in the past few days? They have received no additional help from the Budget, yet they will have to cope with the huge increase in fuel prices. Many of them cannot live without a car, living where they do, and must somehow make their pensions stretch further to cover the increase.
1468 It is cold comfort for them that at some stage, £50 million will be spent on community transport projects that have yet to be defined. It is also cold comfort for them that the smallest and cleanest cars will attract a lower rate of road tax. Many of them are still driving old faithfuls—cars that they have had for some time which do not benefit from the latest technology.
During the election campaign, the Chancellor told pensioners:All Labour's proposals will protect and improve the quality of life of pensioners.After 10 months in government, Labour has not fulfilled that promise. Pensioners face increased costs and lower private pensions following the abolition of advance corporation tax. Many of them pay more in council tax, thanks to the extravagance of Labour-controlled local authorities and, in Dorset, the equally damaging Liberal Democrat councils.
Perhaps media reports are accurate when they tell us that the Prime Minister intervened to soften the blow of some of the Chancellor's proposals—but what did he do? He spoke to the Chancellor—but for whom? Was it for industry, the middle-income taxpayer, the stay-at-home mother and the pensioner? I suggest that it was not.
The success of the Budget, which in many ways is better than I had expected, hangs on future growth, yet we still have higher interest rates and we are soon to have a minimum wage. I wonder what the impact will be on the golden economic legacy that the Chancellor has inherited and to which many of my hon. Friends have referred.
The Chancellor should remember that the Budgets that are cheered the loudest are often regretted the longest. I fear that he will live to regret a significant part of the Budget that he presented on Tuesday and that the country will rue the day that it was announced.
§ 7.1 pm
§ Ms Ruth Kelly (Bolton, West)
I am grateful for the opportunity to speak in this important debate. A Liberal Democrat Member described the Budget as timid. I disagree. On Tuesday, we witnessed one of the most radical shake-ups of the welfare state, not just in a generation, but perhaps since the war. Just 50 years ago, Beveridge set out to conquer the five evils afflicting our society: want, disease, ignorance, idleness and squalor. Looking back in 50 years' time, we may say that the past 12 months have seen the first real attempt to rebuild the edifices of the welfare state which had gradually been eroded by 18 years of Tory rule.
In May 1997, we inherited an economy in which one in five families of working age had no one in work, one in three children lived in poverty and inequality was as great as it had been a century earlier. When my right hon. Friend the Prime Minister assumed the mantle of government, he said that the new Labour Government should be judged on its success in narrowing inequality, alleviating poverty and creating a more just society. This Budget is an important step towards doing just that.
Last July, my right hon. Friend the Chancellor introduced the first pillar of reform—the new deal for the unemployed, a £3.5 billion programme to put young and long-term unemployed people back into work. The Budget represents the second pillar of reform to attain 1469 those aims—the establishment of the principle that work should pay and the introduction of the new working families tax credit, which is an assault on in-work poverty and a measure for families with children.
I want to consider the detail of the new working families tax credit, a measure which will ensure that lower and middle-income working families with children keep more of what they earn. It will ensure that no family earning less than £220 a week will pay any tax at all and any family with a full-time worker will be guaranteed a minimum income of £180 a week. It represents a radical change and ensures that the Budget genuinely helps the poor and those with children.
Not everyone agrees, however. Opponents of the tax credit argued before it was introduced that it would do nothing for the poor. Indeed, only a week ago the right hon. Member for Hitchin and Harpenden (Mr. Lilley), the shadow Chancellor, issued a press release saying,Changing family credit into a Working Families Tax Credit will redistribute income between men and women without altering the household income by a single penny.That has definitively been shown to be untrue. The Institute of Fiscal Studies argued that it wasa Budget for lower-income families with children…It has been a long time coming, but this is a genuinely redistributive Budget.I am delighted to be able to tell my constituents in Bolton, West that a couple earning £200 a week—a typical starter wage for someone moving off unemployment and into work—will be £23 a week better off as a result of the Budget and that, on average, families with children will gain about £250 a year.
Let me also consider some of the arguments raised by the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith). His main point was that the working families tax credit would tend to take money out of the purse and put it into the wallet, and that a tax credit would mean that the money would be paid to the working man, whereas a benefit paid to the mother would be more likely to help children. I disagree. I was pleased to note that the Budget did not shift the balance significantly away from the woman, as the shadow Chancellor recently suggested. Indeed, under the new system, families will be able to elect to whom the payment is made—and, of course, it will be more generous.
The shadow Chancellor argued that a new tax credit could put additional burdens on business. Again, that is not true. Under the new system, the Inland Revenue will merely issue a different tax code to the employee based on family income. That will involve no hassle, no intrusion into privacy and no stigma.
The hon. Member for Chingford and Woodford Green mentioned the experience in the United States and Canada. I am pleased to be able to respond to some of the points that he raised. The experience in Canada, which was discussed in the recent Joseph Rowntree Foundation report, is very different from the experience that we shall have in Britain as a result of the working families tax credit. The report argues that such a scheme was not successful in Canada because the culture there did not value work above unemployment and society did not want to use the system to discriminate in favour of people who wanted to work their way out of poverty and into better career opportunities.
1470 In respect of the United States, only yesterday, Jeffrey Liebman, a respected United States public policy expert, wrote in the Financial Times:The working families tax credit combines the best features of the UK's family credit and the United States' Earned Income Tax Credit. In replacing the family credit with the new tax credit, the Government has ensured that the reform will be accomplished without abandoning independent taxation of spouses or the payment of benefit at frequent intervals through the year and without reducing the share of household resources controlled by women.The United States has had 23 years of experience with tax-based work credits which shows that such programmes can have important benefits. Recent research there indicates that the earned income tax credit offset almost one third of the rise in inequality that occurred in the United States in the past 20 years. Moreover, the proportion of lone parents who work increased from 73.7 to 82.1 per cent. since 1993, when President Clinton included a large increase in the earned income tax credit in his first Budget.
I also do not agree that paying money through the tax system will fail to reduce the stigma associated with family credit. The working families tax credit is likely to have important psychological benefits, being resented less by taxpayers and by the recipients, who prefer to have a smaller amount withdrawn from their pay packet than to claim benefit. By reducing the associated feelings of dependency and cynicism, the measure is likely to increase take-up, further alleviating in-work poverty.
Another drawback of the old family credit system is that it runs together with other means-tested benefits such as housing benefit and council tax benefit, which taper off quickly as incomes rise, as the right hon. Member for South Norfolk (Mr. MacGregor) pointed out. As a result, some families are trapped in poverty. Some find themselves in the scandalous situation of losing more than a pound in benefit for every extra pound that they earn. The poverty trap is aggravated by the low starting rate of tax, with 45 per cent. of people on family credit paying tax as well.
In addition to being more generous than the old family credit system, the new working families tax credit means that families will keep more of the money that they earn. People can now earn up to £90 before losing benefit, and then they lose it at a slower rate. The amount of benefit withdrawn from working families as income increases will reduce from 70 per cent. with family credit to 55 per cent. under the new system. Even taking the interaction of the new tax credit with other means-tested benefits into account, once it is in place only 250,000 families will lose more than 70p in the pound for every extra hour worked, compared with almost 750,000 at the moment. That is good for work incentives, encouraging people to work longer or to get better-paid jobs. The working families tax credit will particularly help women, creating opportunities for those who had previously been barred from taking them by the lack of high-quality available child care. The child care tax credit will meet up to 70 per cent. of child care costs, up to a limit of £100 for one child or £150 for two or more.
Conservative Members have said that this is a political Budget because we are helping single parents and those in poverty. I agree. There is a political motive. We have to attack in-work poverty. We have to get people back into jobs and we have to open up opportunities—
§ Mr. John Swinney (North Tayside)
I am grateful for the opportunity to speak in this debate. Welfare has dominated the debate so far. I welcome the Chancellor's attempts to attack the poverty and benefit trap that has affected the lives and circumstances of many people. There are many details in the proposals. As some positive action is taken, further anomalies will be created. It is important to watch the detail of how the proposals are formulated to ensure that progress is made on the Chancellor's aims.
The consequences of raising the entry point for employers' national insurance contributions have been mentioned. I am concerned that the changes could lead to an increase in part-time employment, particularly after the introduction of the national minimum wage. I welcome the increase in child benefit. We await the publication of the Green Paper to find out how the measures announced on Tuesday fit in with the Government's other proposals on welfare.
I should like to reflect on the effects of the Budget on Scotland and on the people of my large rural constituency. It did not properly address the economic circumstances in Scotland and contained specific measures that will be particularly damaging to our economy. I was disappointed by the continued fixation with the spending plans and targets of the previous Government, despite a dramatically improved revenue position.
The Government have boxed themselves in through their economic policy since the election. The clear result is a macro-economic approach that damages Scotland's economy. Micro-economic tinkering has been insufficient to remedy the mistakes of 18 years of Conservative Government and one year of new Labour Government.
The Chancellor should not need me to tell him about the nature of the Scottish economy. However, even with a Scottish Member in the hot seat at the Treasury, policy appears still to be dominated by the prevailing economic conditions in the south-east of England.
Does the Chancellor not recognise the export-oriented nature of much of Scotland's industry, or the importance of rural industries in the manufacturing sector, both of which have been hit by the dual policy of high interest rates and the strong pound? The Chancellor has awarded control over interest rate policy to a committee—with no Scottish voice or membership—that has increased interest rates five times since the election.
High interest rates may be necessary to address the overheating of the south-east of England, but they are disastrous for the Scottish economy. Time will tell whether the Chancellor has done enough in the Budget to prevent the Monetary Policy Committee from increasing interest rates further. When the Scottish economy is growing more slowly than the economy of the rest of the United Kingdom, the Chancellor has taken a great risk.
§ Mr. Swinney
No. I have only 10 minutes and I want to make progress.
The folly of high interest rates has been compounded by the decision to proceed with yet another above inflation hike in fuel duties. That is another Conservative 1472 policy continued by the Labour Government. It is ironic that the Conservatives should complain about a higher than inflation increase in petrol duty when they presided over similar measures several times during the 1992–97 Parliament.
The people of rural Scotland will not be easily fooled by the Chancellor's soft words on a review of rural petrol prices. We have heard a lot about that before. Some of the analysis that I have seen from the Western Isles council and the Highland council shows that prices for rural drivers are between 20p and 50p a gallon higher than those for urban drivers. Every time that rural drivers fill up their petrol tanks they may pay £3 or £5 more than those in some other parts of the country. The additional cost of that increase alone is estimated at £60 each a year.
The reduction of petrol prices in rural areas by BP has already been mentioned. It would be churlish of me not to welcome that. However, the Government must take action to reinforce the decisions of private companies to ensure that essential car users—all rural drivers are essential car users—are properly protected. My hon. Friends and I will vote against the increase. I hope that others will join us.
The Chancellor has submitted himself to formidable public expenditure constraints, inherited from the previous Government. The straitjacket that he has adopted was mirrored by the language that he used on Tuesday. I suspect that his words brought a smile to one or two of the remaining Thatcherites in the House. He said:A substantial fiscal tightening has been achieved…my budget will lock in this tightening for 1998–99."—[Official Report, 17 March 1998; Vol. 308, c. 1099.]The reality of the Budget is spending cuts and poorer services when revenues are rising far beyond even the Chancellor's expectations.
Some spending rabbits have been pulled out of the hat, including £500 million for transport. On closer examination, the majority of that appears to be for the London underground, which has attracted more than £10 billion of public resources in the past 10 years.
The Scottish public expenditure totals have been boosted by an extra £70 million for health, education and transport. However, in real terms, public expenditure in Scotland will fall by more than £0100 million next year. As a direct result of the Budget, real terms spending on local government in Scotland will fall by a further £15 million, while industry and enterprise—a critical area when we are trying to motivate the Scottish economy to higher levels of growth—will lose £1.5 million. That is the real story of the Chancellor's spending plans. None of it takes into account the effect of higher than expected inflation on the Chancellor's public expenditure estimates. If we take away the gloss and look through the mirrors that were cleverly presented by the Chancellor, there is a continuing real-terms crisis in the public services on which our public depend.
The Conservatives' spending targets have been retained by the Labour Government and have failed to address the real crisis in many aspects of our public services. I heard one Conservative Member on Tuesday bemoan the fact that, as a result of the Chancellor's Budgets, individuals will see not their income tax bills but their council tax bills going up. I can only pose the question: who on earth did the new Labour Government learn that little trick from if it was not the Conservatives?
1473 The Budget has failed to make a difference for Scotland. The Chancellor had an historic opportunity on Tuesday, with public finances in a much healthier than expected condition. The coffers were fuller, but the Government failed to tackle the genuine public spending crisis. Public debt has been slashed, revenues have soared, the war chest is growing, but the Chancellor still lumbers on with a tightening of public expenditure totals of which the Conservatives would have been proud. People voted for political change at the general election, but I suspect that many of them are wondering when on earth it will come.
§ Mrs. Helen Brinton (Peterborough)
I add my congratulations to those already offered to the Chancellor and the Treasury team. Those of us on the Government Benches who were listening in the Chamber on Tuesday were delighted with all the Budget's good news on its central themes of encouraging and rewarding work, supporting families, women, children and business, and providing more money for education and health. The Conservative party kept waiting for the bad news, but it did not materialise. Despite the desperate attempts of Conservative Members today, they have failed totally to dampen the enthusiasm with which the Budget has been received by people not only in my constituency but in theirs as well.
That is not, of course, to say that no more can be done. We have talked a lot about welfare reform in this debate, to great effect, but I shall concentrate my remarks on environmental aspects. There, too, there was much good news. I welcome the measures to improve public transport, reduce VAT on some energy-efficiency measures—even if those still apply only, as yet, to a proportion of homes—and the favourable treatment of road fuel gases. I note that further measures relating to aggregates and water pollution are up for consideration. I hope that there will be others, encouraging innovation and environmental technologies in which our country could be a leader.
I welcome the setting up of the task force under Sir Colin Marshall, with its crucial remit to investigate the use of green taxation aimed at reducing industry's energy consumption. I welcome, too, the inclusion of an assessment of the environmental impact of tax measures in the Red Book, which show how the Budget will reduce greenhouse gas emissions and improve local air quality. I wonder, however, whether we can go further.
I should like to reiterate one of the key recommendations of the first report of the Environmental Audit Committee, of which I am a member. The report was published a couple of weeks ago. It was our view that the complexities of environmental tax reform require the setting up of a special advisory body to examine the overall impact of green tax proposals. Such bodies, indeed, already exist in different forms in other countries. I hope that the Government will consider that. Obviously, it will be for them to decide on the precise constitution and powers of such a body. My other remarks are related to my constituency, although they have a similar thrust.
Peterborough is one of the four environment cities in the United Kingdom. Our environment city trust has recently completed an audit of energy consumption across the city. The results will be published shortly. However, 1474 I can say to you that, following a discussion with the director, Richard Dean, the audit has revealed that, whereas the potential saving on industry use of lighting is quite minuscule, for combined heat and power it is enormous. We could make, I am told, great energy savings at no cost to business, which is what I hope we all want. I shall be very glad to turn over the evidence to the new task force if so required.
The trust is also working on a waste audit—a life-style analysis of waste materials in the city. That will provide a factual basis for assessing the impact on business of tax changes and will identify areas where savings in waste management could be made. Through the green business forum, we are also planning a transport audit of the use of different forms of transport. We are waiting only for funding; the sums will be small.
Only through those and other forms of investigation of particular environmental measures will it be possible for us to make a rational and fair assessment of their impact and, indeed, of their likely success as measured against properly defined targets. I say to you that the overall target—
§ Mr. Deputy Speaker
Order. The hon. Lady is using the word "you". Will she try to use correct parliamentary language?
§ Mrs. Brinton
Many apologies, Mr. Deputy Speaker.
The Government's overall target on greenhouse gas emissions is a cut of 20 per cent. by 2010. That is an aim of which we should all be proud. It is an ambitious target, and to many of us involved in environmental matters inside and outside Parliament, it seems that, although an excellent start has been made, time is short and of the essence. Everyone will have to work together very hard to gain acceptance for an organised and concerted approach to environmental tax reform.
§ Mr. Philip Hammond (Runnymede and Weybridge)
My right hon. and hon. Friends who have spoken in this debate, yesterday and on Tuesday have covered many of the vital areas of the Budget. They have identified our practical concerns about the operation of the working families tax credit—a laudable attempt to deal with a long-standing problem, but one which we believe is fraught with many difficulties.
My right hon. and hon. Friends have drawn attention to the high price that the Government are paying for eliminating the very high marginal deduction rates which some families on low incomes have hitherto suffered. The price that the Government are paying is an increase in the number of families who will suffer marginal deduction rates of 60 per cent. or more. As we all know, an effective tax rate at 60 per cent. is a powerful disincentive to work. The jury must be out on whether the net effect of the Government's quite laudable efforts to remove those very high marginal deduction rates will be positive, overall.
My right hon. and hon. Friends have also drawn attention to the Chancellor's failure to address the central, immediate problem facing the British economy: the very high level of sterling, which is decimating our manufacturing industry. That problem is faced not just by exporters, as the Chancellor suggested in his Budget speech, but by all manufacturers, as they deal with 1475 increased import penetration. The Budget statement says that the Government's objective is to see sterling at a competitive rate in the medium term, but I can tell the Paymaster General—other hon. Members who have talked to businesses in their constituencies will also be able to tell him—that, unless something is done in the short term, there will be no manufacturing industry left to benefit from that competitive exchange rate in the medium term.
Time is short, so I shall address a few specific issues arising from the Chancellor's statement. There is a continued confusion in Government policy over subsidies for employment. The welfare-to-work programme is at the centre of the Government's policy platform, and it is dependent, at least in part, on the principle of paying employers subsidies to employ workers.
We have also seen in the Budget the introduction of a £75 a week subsidy for the employment of the long-term unemployed. Both those measures are based on the principle that, at the margin, employment is sensitive to the cost of wages and the other costs of employment.
Yet, at the same time, the Government are telling us that the national minimum wage will not destroy jobs. Essentially, that statement depends on the premise that at the margin employment is not sensitive to wage costs. That is the contradiction at the heart of Government policy.
If the Minister of State, Department of Trade and Industry, the hon. Member for Makerfield (Mr. McCartney), is correct, and employment is not sensitive at the margin to wage costs, the Government should stop subsidising jobs now, because that is throwing money away. However, if he is wrong, the Government had better start quantifying the cost of the national minimum wage and its effect on unemployment.
In introducing his changes to employers' national insurance contributions, the Chancellor said that he wouldcut the costs of hiring at the wage levels where most new jobs are created."—[Official Report, 17 March 1998; Vol. 308, c. 1103.]However, at the same time, the Government, through the national minimum wage, are increasing the cost of hiring at precisely that level. Confusion abounds.
The changes to employers' national insurance contributions may be neutral overall, but they have significant sectoral and regional impacts. The increased contribution is a payroll tax on all those earning more than about £450 a week. The tax falls initially on the employer—I doubt whether the Chancellor would have dared to raise employee national insurance contributions 2 per cent. above the present ceiling, or to raise income tax rates by 2 per cent.—but, ultimately, the effect of any tax on employment costs must fall on the employee in the medium term, as pay rates come to be negotiated.
That payroll tax will hit firms employing highly paid workers, such as those in the technology and financial services sectors—professional firms offering the kind of highly paid, highly skilled work that the Government seek to encourage. The tax will also disproportionately affect firms in London and the south-east, where wages are higher than elsewhere, so employees there are more likely to be remunerated at the rate of £450 a week or more. That is another breach of the Prime Minister's promise not to raise taxes on the middle-income earners of middle England.
1476 The Chancellor, rightly in my opinion, drew attention to the impact of very high marginal deduction rates, which are effectively high marginal tax rates. He has sought valiantly to address some of those issues through his reforms of tax and national insurance for the lowest paid.
However, there are other areas of the economy in which very high marginal rates apply, and I shall draw attention to a couple of those. Although, in the short term, the changes in corporation tax will produce a negative effect on the cash flow of the corporate sector overall, they are none the less welcome because of the reductions in rates. I also welcome the Government's decision to exclude from the instalment payment system companies defined as medium sized.
I am disappointed, however, that that definition includes only companies with profits of up to £1.5 million. The Chancellor wants to encourage growing businesses. He said so in his speech. Yet I submit that what the United Kingdom economy desperately lacks is a large enough sector of prosperous medium-sized companies. We have many small companies and we have world-class large companies, but we have nothing equivalent to the German Mittelstand companies—that great body of medium-sized, often family-owned companies that have contributed so much to the growth and success of the German economy.
Yet in the United Kingdom, the current corporation tax system presents companies whose profits are between £350,000 and £1.5 million with marginal rates of corporation tax higher than the mainstream rate. If the Chancellor can take the lesson of the disincentive of high marginal rates on board when he is dealing with the benefits and national insurance systems, I hope that he can take on board the same issue when he considers corporate taxes.
Stamp duty is another subject which has received relatively little attention so far in the debate. In his first Budget, the Chancellor introduced additional steps in stamp duty tiering, and on Tuesday he increased the rates for property selling at more than £250,000, and also for that selling at more than £500,000—[Interruption.]
The Government Deputy Chief Whip, from his seat on the Front Bench, laughs. He is thinking about houses, and wondering whether I am thinking about my house or my hon. Friends' houses. However, the duty applies not only to houses but to factories, shops and warehouses—business assets and institutional property owned by pension funds. It is an attack on the liquidity of the institutional property sector, and on property and assets held for the benefit of productive business throughout the country.
We now have a grotesque set of distortions to the operation of the property market. At £250,000, the marginal rate for the additional pound achieved in selling a property is a staggering 250,000 per cent. At £500,000, the marginal rate of tax for the additional pound is 500,000 per cent. That is plain silly; clearly it will spawn a whole avoidance industry, which cannot be what the Chancellor wanted.
It cannot be good for the country as a whole to develop the stamp duty system as a serious revenue raiser, for which it was not designed. That will have a serious negative effect on the operation of the institutional property market and on the supply of property available to businesses to rent for productive purposes. That, in turn, will increase their costs.
1477 Finally, I would like to say a brief word about the so-called green taxes in the Budget, especially those on petrol and landfill—
§ Dr. Stephen Ladyman (South Thanet)
Thank you, Mr. Deputy Speaker; I am grateful to be given the opportunity to contribute to the debate today, especially as the Minister on the Front Bench today is my hon. Friend the Paymaster General. On behalf of my constituents, I have made representations to my hon. Friend over the past few months about individual savings accounts and personal equity plans, and when I heard the Budget I was most grateful to find that those representations had borne fruit and that the Government had recognised the problems.
I have been receiving telephone calls in my constituency office over the past two days from people saying, "At long last, we have a Government who really mean it when they say that something is out for consultation, and who really listen when people make representations." Long may that continue.
It is typical of the Conservative party that when we listen to representations we are accused of doing U-turns, and when we do not listen we are called stubborn and arrogant with power. That is typical of the way in which Conservatives have addressed the issues over the past 11 months.
Listening to the debate, not only this afternoon but over the past two days, I have been struck by how detached the Conservative party seems to have become from reality. Conservative Members have obviously been told what to say—presumably by their public relations people, whom I shall not call spin doctors because I know how odious the employment of doctors has been to the Conservatives over the past 18 years. They have been told to refer to their golden legacy. That legacy is as mythical as golden goose eggs.
Conservatives constantly refer to the high level of the pound without pointing out that it was their failure to increase interest rates before the election that caused the need to increase them after it.
The Leader of the Opposition began his remarks after the Budget by saying that the Opposition would support some of the tax reforms for business, but, by yesterday, he was saying that he opposed tax reforms for business. Opposition Members have been told to say constantly that this is not a business-friendly Budget, but they cannot offer an explanation for why the stock market is breaking all records.
I do not want to pick on any individual Opposition Member, but I was struck by the comments of the right hon. Member for South Norfolk (Mr. MacGregor). He began by telling us that he did not understand the working families tax credit and, because he did not understand it, that it could not work. That was a strange argument. He then talked about the effect of petrol prices on rural communities, but forgot to point out that the escalator to increase petrol prices above the level of inflation was set by the previous Government at 5 per cent.
§ Mr. Ruffley
The hon. Gentleman is wrong to say that there is some equivalence between the 1478 increases announced by the last Conservative Chancellor and those announced by the current Chancellor. The two increases announced in last July's Budget have taken place over the few months since then, and that is in no way equivalent to what was factored in by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke). The hon. Gentleman is plain wrong—will he apologise?
§ Dr. Ladyman
I do not accept that I am wrong. The previous Administration introduced the escalator with a great deal of pride and claimed it as some testament to their environmental credibility.
The right hon. Member for South Norfolk raised the question of church repairs. He seemed at one point to be calling for higher income tax so that there would be more covenant income, but he failed to point out that rural churches are suffering as a result of the level of VAT on repairs, which was introduced by the Government of which he was a member.
That is typical of the unreality of the Conservative party in this debate. Opposition Members have failed to mention people, which is what this Budget is all about. It is about people who have ambitions. Even unemployed people and those who have been out of work for a long time have ambitions. They may not be big ambitions, like those of hon. Members, but they are important to them. Someone on a fixed-benefit income is unlikely to be able to achieve those ambitions. This Budget is about getting those people back to work and recreating their ability to fulfil their ambitions.
I have been impressed by what the Chancellor has done in the Budget and I have tried to put it into some context. Slipping off message for a moment, having spent most of my life working for the Labour party in one form or another, I know that the old debates in the Labour party were about creating work, full employment and fighting unemployment. It is only recently that what some call old Labour started talking about benefits. No one has ever told me that the Jarrow marchers marched for increased benefits—they marched for increased work. My right hon. Friend the Chancellor has reverted to the old traditions of the Labour party to create full employment, and he is to be congratulated. He is not new Labour or old Labour—he is older Labour.
It is easy for Opposition Members to put down the fact that my right hon. Friend has provided £50 million for rural transport, but it is £50 million more than the Conservative Government ever made available. They closed down bus services with their deregulation policy. The money will go a long way towards helping rural constituencies. It is not the full picture, but it is at least a start.
Encouraging zero-emission vehicles and clean vehicles is close to my heart, as a company is to build a factory in my constituency where zero-emission vehicles will be produced. The Chancellor has commented on the differential between duties on certain types of clean fuel and petrol. I ask him to look at the possibility that hydrogen—which is needed to drive fuel cell-based vehicles—could be included in that differential. The Chancellor should look also at VAT regulations in respect of investments in taxis and buses where those vehicles are powered by zero-emission engines and clean engines. The Chancellor may be able to encourage investment in clean technology over and above the measures in the Budget.
1479 I very much agreed with the comments of the hon. Member for Beckenham (Mrs. Lait) on bootlegging. I have a tremendous problem with bootlegging in my constituency. Just last week, I found a young man lying outside the door of my constituency office, vomiting. He could not have been older than 14. I put him in my car and took him home to face the wrath of his parents. He would have been drinking bootlegged beer, which is creating a tremendous social problem in my constituency. The police tell me that it is becoming a major problem. The Chancellor must try to improve security and controls on bootlegging, and he has said that he is willing to consider that. The more he does in that area, the better.
§ Mr. Archy Kirkwood (Roxburgh and Berwickshire)
The longer I serve in the House, the more I think we should look carefully at how we introduce Budgets in it. This Budget is particularly complicated and technical, and it is slightly bizarre and daft that the Chancellor has to get involved in so many different issues and, in one great splurge, release his plans—having been in Budget purdah—on an unsuspecting world, which makes it difficult for those of us who follow these things, particularly technical issues such as social security, to cope with them adequately.
I pay credit to the Government; the Chancellor was wise to make his pre-Budget statement in November. It assisted those of us who are interested in the areas he said he was looking at and it made the work of the Social Security Committee easier. Our third report has direct relevance to this debate and I hope that hon. Members will get a chance to look at the detail of the important matters we investigated.
The Paymaster General is to wind up the debate. He is a man with influence on budgetary matters. Perhaps the Modernisation Committee should examine whether we should have an annual uprating statement, including a technical amendment of taxes Bill, and then leave some of the other complicated issues—such as working families tax credit—to be dealt with in a more consultative and deliberative way. I welcome what the Government have done in so far as it relates to low-income working families.
I want to deal with some of the matters that I think require further attention if these reforms are to be implemented successfully. It is important that, in moving to working families credit, we build on the successes of family credit. I remember the difficulties that arose when family credit was introduced in 1986, especially in terms of take-up, but the benefit now has a good record, not only in rates of take-up but in effective administration. In 1996–97—the most recent year for which figures are available—91.9 per cent. of new family credit claims were paid within five days. Moreover, 91.3 per cent. of assessments were accurate. By benefits standards, that is hard to beat. Those hard-won standards ought also to apply to the new working families tax credit.
I propose that, so that we know clearly what is going on, and because statistics are out of date—it is sometimes two or three years before they are made available—the 1480 Government consider setting an annually published target for take-up of working families tax credit. Everyone, including me, assumed that the working families tax credit would automatically have a higher take-up, but—if I understand the fine print—it will have to be applied for. If so, we may be going back to what happened with family credit in 1986, which would be a great shame. I hope that the Government will be alive to that and consider take-up rates as a matter of urgency.
The Paymaster General is the most appropriate Minister to whom to address these comments and I am sure that the Secretary of State for Social Security will thank me for doing so. The technology with which the Benefits Agency works is obsolete and inadequate to meet the demands that the changes proposed in the Budget will bring. It is no use waiting for the millennium bug—or some other excuse—before renewing the equipment; is now 10 or 12 years out of date and badly needs updating. If we do not take this opportunity to do so, we shall ask the impossible of those Benefits Agency staff who will have to implement the administrative changes and it will be unfair if we then expect them to get the new benefit right first time.
The Social Security Committee has set itself the task of examining the implementation of the measures proposed in the Budget, especially working families tax credit. The Treasury Committee will, of course, examine them, too, and we shall study with interest its investigations and recommendations after direct examination of Treasury Ministers.
I think that the adverse effect of the Budget on small employers and the self-employed has been underestimated. I was not convinced that Martin Taylor, who otherwise did a very good job, spent enough time considering that problem in enough detail. We shall have to return to that matter.
The Secretary of State for Social Security gave me half an assurance that she, in concert with her colleagues in the Department of the Environment, Transport and the Regions, was doing more about housing benefit. I understand the necessity for that. If housing benefit is left as it is, it could, for many of the families that we hope will be assisted, soak up the whole financial benefit derived from working families tax credit.
I agree with the hon. Member for Croydon, North (Mr. Wicks) that the quality of child care is an essential issue. As a second order question, I think that someone should examine the future on-costs for local authorities of registering child minders and child care facilities.
We shall also need to consider the wallet versus purse issue. The hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) was not right in very much of what he said, but he was right to draw attention to some of the difficulties in judging to whom the girocheque should go. Giving evidence to the Social Security Committee, Martin Taylor made much of the importance of the psychology of paying the benefit through the wallet rather than the purse. We will all have to be careful and monitor exactly how choices about the payments are made so that we can ensure that the full benefits of these changes are realised.
On part-time work, I think that a new watershed may be created by the 16-hour qualifying period. Many of my constituents are part-time workers in the knitwear 1481 industry. There may be consequences if we create such a huge watershed. We shall also have to watch that situation carefully.
I believe that the proposal to protect the rights to national insurance benefits for those who earn between £64 and £81 a week will create a three-tier system. First, there will be those who earn less than £64. Secondly, there will be those who earn between £64 and £81, who will receive credits, although I do not know how people who appear on the payroll at £70, for example, will be identified so that they can be credited. Will it be the employer's responsibility to notify the Inland Revenue that they have suddenly come on to the payroll at that rate? Thirdly, there will be those who earn more than £81, who will receive full national insurance benefits. That is another important matter needing careful examination.
Again, I agree with what the hon. Member for Croydon, North said about the future of child benefit. The Select Committee, on which I serve with the hon. Gentleman, will want to examine that question and contribute to any consultation. I also agree with what he said about the contributory principle—but perhaps we shall learn more about that when the Green Paper is published next week.
The Budget is welcome in so far as it relates to welfare to work, but I fear that the Government may be ignoring people who are excluded from the world of work, particularly rural low-paid pensioners. I also believe that the Government's macroeconomic stance is creating difficulties for manufacturing industry, especially exporters, who are suffering because of the high value of the pound.
Some of the points that have been made about disadvantage in rural areas also need further consideration, but I welcome the Budget in so far as it relates to the incentive to get people back to work. However, we must ensure that there are enough jobs, as there is no point trying to get people off benefits and into work if there are no jobs for them to go to.
§ Kali Mountford (Colne Valley)
I am very pleased to be able to speak in this debate on what I believe to be a stonking good Budget which will herald a turning point in our economy. It will restructure the economy and the tax and benefits system, and it will refocus benefits for everyone, especially the poorest in our communities. Moreover, the Budget is non-judgmental; it does not distinguish between people according to the size and shape of their families; nor does it exclude people from work and assume that people who are workless are workshy.
I represent a largely rural constituency and I must tell the House that the poverty that people in rural communities face is worse than that almost anywhere else. It is unhelpful of Conservative Members not to recognise the benefits to rural communities that the Budget and other measures will bring. My constituents who live in villages are far from urban centres where most of the help resides, including voluntary organisations, the Employment Service and social services. Few of those agencies have outposts in villages. Evidence shows that fewer and fewer resources are available in villages, which are literally crumbling under the strain.
1482 What of the poorer people in those communities? People who live in my village—
§ Kali Mountford
I am sorry, but time is short—although I am grateful that the hon. Gentleman is interested in what I am saying.
People who live next door to me, for example, have great difficulties accessing the resources that are available to people in urban areas because there are so few buses. The village along the road had its bus service cut so dramatically that the residents had to form a bus action group to press for the reintroduction of the rural bus.
I think that £50 million will go a long way towards helping with that, but let us not forget the £500 million that is being made available for all public transport. Conservative Members have said that that is too little, too late, but I do not remember Conservative Chancellors of the Exchequer making such resources available. They took the dogmatic approach that the private sector will reap all—it certainly reaped my bus services. Hon. Members may think that bus services are not important, but for my constituents they are, as they are the access to everything else. For young people who can now get a pass for the bus service and so access the new deal, it could be the turning point in their lives.
Since September, the number of young unemployed people in my constituency has almost halved, I am pleased to say. Only 150 are left without work. We are already seeing the effects of economic restructuring to enable people to get access to work. There is money for research and development, money to encourage people to invest in the long—and not the short—term and money so that we can have a more stable economy. All of those developments will help small businesses in my constituency and elsewhere to make long-term investments to provide jobs.
In another debate, I said that the new deal would be an important part of the strategy to encourage small businesses to take on young people so that their businesses can grow. Few young people in my constituency still need the new deal, so I am particularly glad about its extension to other people who need it at least as much, in particular lone parents. The new linking rules for benefits for lone parents and people with disabilities are welcome indeed. They will take away the fear of trying out a job.
A couple of weeks ago, I met someone at my surgery who had recently found herself a job. She is disabled and had pointed that out during the job interview, but everyone agreed that she would be suitable and she was given a date to start. Sadly, on her first day she was unable to perform her first task because of her disability and her immobility, so it was amicably agreed that she should not even start the job. I was disappointed that the firm took that decision and I hope that we can reverse it in the near future. Knowing that there was no fear of her losing benefits if she tried the job for a time to find out whether it could be redesigned to suit her needs might have helped both her and her employers.
Sometimes it is difficult for employers to imagine how someone with severe disabilities can fit into the new style of working to which they are being introduced, but, with a little imagination, people can often find ways of fitting 1483 the job to the person with the disabilities rather than trying to make that person fit into an old style of working. The change will be a magnificent improvement for people such as my constituent.
A major step forward is the fact that we are focusing on children instead of the family structure. I have long argued that children are the most important consideration when we make decisions on tax, benefit and work. It is wrong to design child care strategies to suit the needs of parents or employers. I have made many mistakes by encouraging people to take particular styles of child care only to find that they do not suit their families. It is about time that we considered a strategy that suited the child.
I was disappointed to hear the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) suggest that, by introducing this child care strategy and help for parents, we would be doing children a great disservice. We have been doing them a great disservice for many years and it is a disgrace that this country has the worst record on child care in Europe.
To assume that making child care available is doing some disservice to children and to make a moral judgment on families who choose to take up such services says a great deal about our attitude to families. They have made their decisions about partners and whether they will be married. Many people make decisions against their best wishes. Partners die, or leave, and people are often left with complex family structures. Are we to make a moral judgment about such people?
In spite of those complex family structures, people still need to work because a lifetime on benefits is abhorrent. Are we to say that if people go out to work their children will be less well served than the children of their neighbours who are fortunate enough to have stayed in one marriage and who do not need both partners to work—a rare family these days as less than one third of families are like that? The majority of families probably need access to some child care at some point. Should we tell them that their children will be so ill served by that system that they should not make that choice and that a lifetime in poverty on benefits is preferable? I hope not.
My children have been in child care at times—I hope that they are in pretty decent child care right now—and I would like to think, or in fact I know, that they are well-rounded and lovely people and have not had any disbenefit from that experience.
There is plenty of evidence to show that children in child care, especially those who go to nurseries, benefit a great deal. The IQ of some children who have been in child care builds up, although immediately they come out of that constructive environment it often tapers off because the stimulation is no longer available. In those early years, stimulation is good for children and I very much welcome the pilot programme of early excellence centres that will bring together all sorts of child care elements. Working in partnership is a good way forward and will provide the best for our children. I hope that the whole House agrees with me on that.
§ 8.6 pm
§ Mr. David Ruffley (Bury St. Edmunds)
I think that it was the late fain Macleod who said that the Budgets that were cheered loudest on the day looked the worst six 1484 months down the road. Conservative Members believe that this Budget is one such. It is a triumph of style over true substance and the most over-hyped Budget in the history of modern politics. It was distinguished by grandiloquent language. We heard that the Chancellor is the "people's guardian" and talk about this being a once-in-a-generation opportunity to modernise tax and benefits. Such terms and style of language are ridiculous.
§ Mr. Ruffley
My hon. Friend is right. It is language as ridiculous as a Chancellor who borrows someone else's children for a cheap photo opportunity the weekend before the Budget.
This Budget set up great expectations; we contend that the people will be disappointed because it fails three tests by which it should be judged. The first relates to the welfare and tax proposals. No doubt, the aim is to increase incentives to work and the number of jobs, and to reduce the welfare budget, but it will fail.
The second test relates to the delivery of stable macro-economic management; the Budget will fail to do that. It will not be able to sustain the rates of growth that are necessary and desirable for our country.
The Budget also fails the third test, which is to deliver on new Labour's promise not to increase the tax burden on middle Britain.
The Labour party is very keen to invoke the words of the Institute for Fiscal Studies. Paul Johnson—not the Conservative commentator, but the deputy director of the IFS—said that Labour's welfare proposals certainly do not represent "a major reforming package".
The working families tax credit is essentially a rebadging of family credit under the Conservative Administration. But it is much more expensive, as it goes higher up the income scale. We cannot see how it can possibly deliver cuts in total Government expenditure. It may be classified as other than social security spending, but it will result, as night follows day, in a greater liability for the British taxpayer.
No Labour Member has made any serious attempt to answer the questions about wallet versus purse. We hope that the Minister will answer the questions posed by Conservative Members.
The child care proposals are of interest to a party—the Conservative party—that introduced a disregard for child care in 1993. We are certainly not against child care in principle, and it is a calumny for Labour Members to suggest that we are. But we have real concerns about the package proposed in the Budget.
The IFS and Mr. Paul Johnson are also concerned. He says thatthe long-term costs could run into billions".There is no sensible forecast in the Red Book of the ultimate cost of the proposals.
We are concerned about the nannies and grannies who do valuable care work in the home for no pay. They will not be favoured by the proposals. Money for child care will be claimed for services rendered by registered child carers, but not for work done by volunteers. The Conservative party has an excellent solution to that: the transferable tax allowance. Many of my constituents would have liked that to be in the Budget.
1485 The state-registered nature of the child care allowable under the proposals amounts to nothing less than the nationalisation of child care. [Laughter.] Labour Members may scoff, but they must understand that incentives will be provided for those whose children are currently cared for by nannies, grannies or other relatives to buy child care at the state's expense, and that must be an undesirable outcome. The proposals, together with the cut in the married couple's allowance, show that the Budget is not especially a Budget for the family.
The proposals are meant to provide work incentives and encourage people back into the labour market, but the Labour party has not even begun to deal with the critical question of what is the chief determinant in creating jobs. Mr. Kaletsky in The Times pointed out that the true determinant is economic growth, not packages and tax incentives of the kind set out under the welfare proposals.
The Budget also fails the test of proper macroeconomic management that delivers stable economic growth, which is the real determinant of jobs. The fact that the Chancellor departed from the long-established convention of opening the Budget statement with a proper detailed analysis of the macroeconomic environment and outlook was telling. He skated over the issue, and the reason is no surprise: he did not dare to address the issues of the high pound and high interest rates.
Nothing in the Budget does anything to address those two central problems for the real economy. It is no coincidence that the high pound is going even higher. As speculators fear an interest rate rise on the back of the Budget, they are buying sterling and pushing up its value. The Budget has failed in that respect, too.
Labour Members always ask what we would have done differently, to ensure that the pound and interest rates were not so high. I am happy to tell them. The bad economic management since 1 May has destroyed the golden economic legacy, primarily through the transfer of control of monetary policy to the Governor of the Bank of England. Under a Conservative Administration, there would not have been a Monetary Policy Committee packed with people who do not understand monetary conditions or the real economy.
I am sorry that the hon. Member for Bolton, West (Ms Kelly) is not in her place. She would certainly have joined us in calling for confirmatory hearings for nominees to the Monetary Policy Committee, as then we might have had a bit of common sense on that body. The net result of mismanagement since 1 May and the Budget proposals is that we face a recession. All the serious commentators say that there is a serious risk.
The Red Book shows us why. Consumer spending is set to fall, with the tax burden rising, the balance of payments surplus turning to deficit and the savings ratio falling. I remind Labour Members to look at page 116 of the Red Book. They will discover—
§ Mr. David Drew (Stroud)
My hon. Friend the Member for Bolton, West (Ms Kelly) referred to this as a radical Budget, and I am only too happy to concur, except that I would add that it remains within a well-rehearsed set of themes announced on numerous occasions by my 1486 right hon. Friend the Chancellor. I want to re-rehearse those themes quickly, to set the context, before coming to the substance of my speech.
The themes are stability, with low inflation; fiscal rectitude; ending boom and bust; reducing our indebtedness; fairness, the centrepiece of which is the welfare-to-work strategy, with the evolution of a national anti-poverty strategy now locked in place; help for business, with increased transparency and clarity in the way in which we shall offer help, and a taxation structure that adds to the benefits of long-term investment and rewards entrepreneurship as well as giving specific help and advice; and, last, but not by any stretch of the imagination least, a concentration on the rebuilding and, indeed, enhancement of public services.
My right hon. Friend the Secretary of State for Social Security gave us a sense of the excitement of our getting to grips with a proper, integrated national child care strategy. That has been universally welcomed by the child care organisations.
I want to discuss the implications for child care in rural and semi-rural areas. I was interested to hear the hon. Member for Bury St. Edmunds (Mr. Ruffley) calling the proposals the nationalisation of child care. They are anything but that, because they allow flexibility in rural and semi-rural areas, where there is little competition or even a monopoly of care. Women in particular, and parents in general, need to know that their children are in safe hands. That can be assured only if there is quality child care provision, with genuine investment and appropriate regulation. I am pleased to see that that is a key part of the Government's proposal, from which rural areas stand to gain as much as urban areas.
I shall restrict my remarks to two of the Opposition's lines of attack. The first concerns their environmental allegations in regard to the petrol tax escalator. I remind the Conservatives that they initiated the petrol tax escalator when they once claimed to have environmental credentials. The Conservatives' torch logo is appropriate, as it sums up how out of touch they are with the environment. Perhaps the colour of that logo should change from blue to brown, as the Conservatives have no credibility left on the environmental front.
We welcome the fact that the Government are trying to do something about one of the most damaging pollutants and prevent the depletion of the quality of our environment. It is tough, and we must rely on a carrot-and-stick approach. We must talk to our constituents and rationalise: we must explain that they cannot have it both ways. However, I believe that people are genuinely beginning to get the message; they are realising that they will not see an improvement in the environment if they continue to use their cars whenever they want.
I served on the Committee that examined the Road Traffic Reduction (United Kingdom Targets) Bill, and the Opposition spokesman, the hon. Member for Christchurch (Mr. Chope), did his best to filibuster and block that legislation. The Opposition should understand that people want to see those measures put into effect at the earliest opportunity. They are prepared to make sacrifices so long as there is a reward. We can provide that in the form of the carrot, by rebuilding our public services, including our bus and rail services. That will not be easy; the Budget has made a start, but we must go further.
1487 The Budget contains other measures that affect the environment. My hon. Friend the Member for Nottingham, South (Mr. Simpson) talked at considerable length yesterday about the reduction in value added tax on the installation of home insulation materials, so I shall not go over the same ground. The Government have increased landfill tax, and we have pledged to examine other difficult issues. For example, we shall consult about the impact of a carbon tax on business, industry and commerce. We shall consider how we can introduce a sensible environmentally sensitive tax regime that is both fair and comprehensive.
We must recognise that we are moving inexorably towards some form of green taxation. Although Labour Members welcome that, we do not wish to put the Chancellor of the Exchequer in an impossible position: we must take the nation with us. However, there is a clear demand for such taxation, as people know that the alternative is worsening health, the depletion of resources and an increase in pollution and associated dangers for them and their children.
The Opposition's second line of attack stems directly from their petrol tax accusations. It concerns principally the people who live in rural areas, of whom I am one. I am proud to represent the constituency of Stroud. We must appreciate that the rural economy is extremely complex and does not rely simply on the motor car—although that is an important feature of rural life. One must ask why Conservative Members did not argue against all the previous increases in petrol tax. They did not recognise the impact of that tax in terms of poverty, loss of services and the fact that people could not travel to find work.
We shall address those issues. We must find other means of enabling people to get to work—or, more particularly, we must provide work in rural areas. I am pleased to see that teleworking is a fast-growing industry. There are some dangers in that field in terms of low pay and poor conditions, but people may choose the type of work they do, when to work and when to be with their children. Teleworking provides tremendous opportunities and people do not have to use their cars to travel to work. That is one way of addressing a very difficult problem.
My remarks have been sparked partly by the speech last night of the hon. Member for Cotswold (Mr. Clifton-Brown)—who is near me geographically, if not politically. He launched a full-frontal attack on what he considered to be the Government's failure to assist public services in the county of Gloucestershire. That is total and absolute gall on his part. Although it is only a start, we have begun to turn around education in Gloucestershire this year. All our schools have received a budget increase of between 1 and 2 per cent. That is not a huge amount, but it is better than cut after cut, which head teachers grew used to under the previous Government. They are now much more confident that the present regime understands what the schools want and will finance them properly.
The hon. Gentleman's attack on health and bed blocking in my authority was also totally unjustified, because we are dealing with problems caused by the previous Conservative Government. It is totally unjust to claim that we do not care about public services. We will rebuild public services and we shall see this country into the next century with the quality services that it deserves.
§ Mr. Steve Webb (Northavon)
There are many elements in the Budget that I welcome warmly. I shall touch on three of them before moving on to what I consider to be an important omission.
The first measure that I welcome particularly—I have argued for it for many years—is the sensible reform employer national insurance contributions. It has always seemed anomalous that, when employee contributions were more or less sorted out, the previous Conservative Government did nothing about employer contributions and allowed the entry fee and the absurd tiered structure to remain.
This Government sensibly produced a pre-Budget consultation document, to which the Liberal Democrats responded. In our response, we argue that employer national insurance should be restructured, perhaps with a uniform rate above the lower earnings limit. Except for the fact that the Government have raised the lower earnings limit, they have done precisely as we recommended. We warmly welcome the move, which we regard as a sign of a responsive Government. We are grateful for that.
Secondly, we welcome the closer alignment between income tax and national insurance contributions, by merging the Contributions Agency with the Inland Revenue and aligning thresholds. We wonder whether that presages an eventual integration. I shall be interested to hear from the Paymaster General whether the Government have decided that the contributory principle has a future and that those basically direct taxes will eventually be merged. I hope for a response to that question, but I do not expect one.
The third element of the Budget that I welcome sincerely is additional money for the poorest children. I welcome very much the provision of extra money on the rates of child premiums for income support, for children under 11. It is sensible that that measure focuses on younger children who have the greatest need. However, I part company with the Chancellor on one point. He said:The case for additional support for children in poorer families is strong, but that support should be on the basis of the identifiable needs of children, not on whether there happens to be one parent rather than two."—[Official Report, 17 March 1998; Vol. 308, c. 1107.]The evidence is clear that one-parent families on income support are much poorer than two-parent families on income support. When measured by all the yardsticks of deprivation—such as durables, debt and all the things that affect quality of life—lone parents on income support are poorer than two-parent families on income support, and therefore require extra, rather than the same, help. We welcome additional money for all poor families on income support, but, on the Chancellor's own argument that support should be on the basis of the identified needs of children, lone parents continue to have a case for additional money.
As I said in an intervention during the Secretary of State's speech, it is regrettable that, in 1998–99, we have the anomaly that new lone parents will face the cut that was so controversial, whereas in 1999 all families with children will, essentially, get the money back.
It is a particular misfortune to become a lone parent in 1998–99 and to have to get by for a year without that £5 of family premium. It would cost the Government 1489 relatively little, even at this stage, to defer that cut. One element of that cut is still before the other place, and I hope that the Government will take the opportunity to defer it. Then we shall really believe that they are concerned about all poor children in poor families.
I welcome much of the Budget, but there is one important omission, which is housing costs. The words "rent" and "housing costs" do not appear in the Budget. Yet an important table on page 36 of the Government's first consultation document issued last July, "The Modernisation of Britain's Tax and Benefit System", lists the aspects which, according to research commissioned by the Department of Social Security, are barriers to people leaving benefit. The cost of child care is on the list, but in sixth position. After wage worries, second and third on the list come fears about losing help with council tax and with housing costs—mortgages and rents. That has been clearly identified by DSS research as stopping people on benefit moving off benefit into work. Regrettably, there was nothing in the Budget for that cause.
The working families tax credit with extra cash will help to some extent, but as soon as a person with a mortgage of £100 a week, which is not implausible, works 16 hours a week, he will have to find all that money from his net pay, quite apart from child care and all the other costs. That is a huge disincentive, which the Government have not even shown signs of reviewing.
The Government are reviewing housing benefit, which we welcome. During the past 10 years, rents have shot up hugely more than inflation and, like mortgages, rents are a huge burden on the low-paid. I should like to see—I speak in a personal capacity—social rents, and private rents for that matter, brought down. That is a slightly old-fashioned notion, but, as most people in the local authority and social rent sector are on low incomes, cutting rents would be a well-targeted universal subsidy. Universal subsidies are not as popular as they were, but, from a welfare-to-work point of view, it is much more effective to give people lower rents and enable them to obtain work, than for them to have high rents that they cannot afford when they take jobs.
To summarise, there are many welcome things in the Budget, but one important omission is the treatment of housing costs—rents and mortgages. It is regrettable that the matter was not considered in the round. The Budget measures on welfare to work—the working families tax credit, and so on—were not integrated with housing. The minimum wage will help, as will lower starting rates of tax or a higher allowance, the tax credits and the national insurance reforms, but everything should be taken together. Let us bring in housing costs. Let us not suffer from departmentalitis, whereby, because a matter comes under another Department, it is considered separately six months later. Let us include housing and have a comprehensive response to the problems of the low-paid. I shall then be able to welcome the Budget even more whole-heartedly than I already do.
§ Mr. David Chaytor (Bury, North)
I, too, welcome the Budget, particularly its emphasis on making work pay, the steps that it has taken to reform the appalling anomalies within the welfare state that we have inherited, its support for families and its new help with child care, the new 1490 investment for public services, particularly schools and hospitals, and the various measures that will support small businesses and job creation.
Those measures will be welcomed by my constituents in Bury. For too many years, thousands of them have suffered from chronic levels of low pay, from too little full-time work and too much part-time work, and from the absence of child care. The increase in child benefit will be appreciated by the 27,000 families in my constituency, particularly as one in nine are lone-parent families.
My local authority in Bury has one of the lowest levels of per capita funding for children in primary and secondary schools of any local authority in Britain. Therefore, the new investment in schools will be particularly welcome. Equally, our hospital has one of the lowest levels of per capita funding of any hospital trust in Britain. The new money for reducing waiting lists will be significant.
The Budget is in marked contrast to the successive Budgets of the Tory years, which served simply to reinforce inequality, progressively to disfranchise more and more families and young people, and to exclude increasing numbers of people from mainstream society. I am proud that my Government, through the Budget and the new deal, are starting to rebuild hope for the next generation, whereas the previous generation saw nothing but exclusion and the progressive eradication of its opportunities.
The significant changes to national insurance, the introduction of the working families tax credit and the tax credits for child care will help to transform the lives of many of my constituents, particularly women who are struggling to combine work and child care, or women who have been excluded from the labour market for too many years simply because of the limited availability of child care.
Within my general welcome for the Budget, I wish to raise one or two specific points, which I should be grateful if my hon. Friend the Paymaster General could mention when he replies.
First, I have to agree with one or two Conservative Members about the unfortunate absence of any reference to pensioners, either in the Chancellor's speech on Tuesday or in the Budget report. We understand and welcome the important help with fuel costs that was given to pensioners before Christmas, and we know that the pensions review will be published in the first half of this year. Clearly, this is not the time to make major changes to the pension system. Nevertheless, it would have given some hope, confidence and comfort to the nation's pensioners had there been some reference to them, even a simple one to the forthcoming review, in Tuesday's speech or in the Budget report.
With regard to lone-parent families, I understand the Government's point about separating out the issue of need and the issue of family structure, saying that need, not family structure, should be the basis of public support. I have tried hard to agree with that, but I simply cannot accept that the needs of a two-earner family paying the higher rate of income tax are equal to those of a lone-parent family. I cannot believe that the difficulties of bringing up and caring for children are the same for two parents as for one. I welcome the fact that the Government have responded to the previous changes in the Social 1491 Security Bill last December. Most lone parents will be pleased with the measures announced in the Budget, but, in line with the comments of the hon. Member for Northavon (Mr. Webb), I appeal to the Government to keep under review the question of need and lone-parent families.
Similarly, I welcome the fact that my right hon. Friend the Chancellor has flagged up the future status of child benefit in terms of taxation. But, again, I simply cannot justify that the child benefit received by two-earner families, paying the highest rate of income tax, should not be subject to tax, yet the lone-parent benefit was taken away last December. I hope that if it is finally decided that child benefit should be subject to taxation, the revenue from that taxation will be earmarked for further help for the poorest families in Britain, many of whom will be lone-parent families.
Another important technical point concerns the merger of the Inland Revenue and the Contributions Agency. That is one of the most profoundly important measures in the Budget because of the changes that it flags up to the future financing of the welfare state. I hope that there will be a lively debate on the continuation of the contributory principle under a merged bureaucracy. I also hope that, whatever happens to the contributory principle, it concentrates our collective mind on the harmonisation of tax and national insurance rates and thresholds and, in particular, flags up the enormous anomaly of the national insurance threshold. I appeal to hon. Members to ask themselves how they can justify the fact that, above £22,000—or thereabouts—a year, one stops paying national insurance? That is one of the most regressive features of our tax system, and, sooner or later, a Government will have to address it.
My major point concerns environmental taxation, about which my hon. Friends the Members for Stroud (Mr. Drew) and for Peterborough (Mrs. Brinton) have already spoken. I add my voice in support of the green tax measures in the Budget, particularly the increase in landfill tax, the cut in VAT on energy-saving materials and the various changes to road fuel duty and vehicle excise duty. Those measures are important and positive, but are comparatively limited in terms of their effect on greenhouse gases or traffic reduction.
To meet our Kyoto targets, there is scope for other measures, such as taxing employers' car parking spaces; urban road pricing; heavier taxation on dirty and fuel-inefficient vehicles, and taxing out-of-town retail parking spaces. I look forward to the forthcoming White Paper on the integrated transport strategy, which will, I am sure, deal with some of those points.
I particularly welcome the Chancellor's decision to investigate industrial and commercial energy taxation. It is critical that we carry industry and commerce with us in moving towards green taxation, and to demonstrate the value of green taxes, not only the cost savings to business, but the potential for growth in energy efficiency and environmental technologies. I look forward to other developments such as, for example, water pollution charges, following the recent Department of the Environment, Transport and the Regions consultation paper. 1492 Not only does green taxation help to conserve the natural resources on which our future health and prosperity depend, but, in the main, green taxes are cheap and easy to collect. They are difficult to avoid and serve to legitimise the whole concept of taxation. That legitimisation is sorely needed following the disastrous record of the previous Government in encouraging tax evasion and introducing taxes that were widely considered unfair and inefficient.
Most important, as we have seen already, green taxes enable the Government to cut taxes in other areas, most notably labour and wealth creation. That is already happening under our Government. It started to happen under the previous Government, and it is happening across Europe. It needs to be extended further as part of a general policy of shifting the burden of taxation away from goods and processes that are intrinsically good and towards those that are intrinsically bad.
I welcome the achievements on green taxation so far, but there is much further to go. I draw the House's attention to two documents published recently. The report of the Environmental Audit Select Committee contains a wealth of evidence from different sources on the state of green taxation. It rehearses most of the arguments in favour of green taxation. I hope that, over the next few months, the Government will take careful note of it when framing the 1999 Budget. I urge all hon. Members who have an interest in this issue to give their support to early-day motion 1108, which relates to the—
§ Mr. Oliver Letwin (West Dorset)
I am profoundly grateful to be able to speak while our Whips have vanished from the scene, as—perhaps unusually for an Opposition Member—I think that some aspects of the Budget are admirable. It is an immensely tough Budget in terms of the fiscal balance that it establishes. In fact, it outdoes most Conservative Chancellors in that respect. Other aspects that should be welcomed include the general principle of transferring from one form of benefit to a tax credit.
Alas, I do not think that the welcome for the Budget can be unreserved, as the transfer of taxation to the corporate sector, which will be discussed on Monday, will, I think—only time will tell—turn out to have been grossly misjudged and will contribute to what is already a far more severe recession in the manufacturing sector than the Treasury's models recognise. Throughout the past 25 years, the Treasury's models have been notoriously inaccurate in these respects.
I shall concentrate on a matter on which my hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith) began to elaborate. The Budget has a most important effect—one that I very much doubt that the Government intended. I am delighted to be able to speak about this in the presence of the Paymaster General, because, presumably, he was the Minister responsible for the most welcome U-turn. I presume that he was responsible for ensuring that individual savings accounts would not involve a retrospective breach of the trust of those who had engaged in tax-exempt special savings accounts and personal equity plans. If the Government 1493 were able to make that welcome U-turn, perhaps, under the Paymaster General's inspiration, they will be able in subsequent legislation—or even in the next few days, if one is to indulge in one's wildest dreams—to alter their position on the matter to which my hon. Friend referred.
I am speaking of something that is far more important to the children—at whom in great part, as many hon. Members on both sides of the House have referred, the Budget is aimed—than the money involved in the child care tax credit. Many issues were raised about the practicalities of the child care tax credit. The jury is out on that. We shall see what happens to mothers, to registrations, and whether it is used as a mechanism for simply increasing family income. If that happens, the predictions of the Institute for Fiscal Studies may come true, and there may be a £3 billion or £4 billion cost, as opposed to the £1 billion asserted by the Treasury.
Be that as it may, I regret to say that the child care tax credit is just a matter of money. How could I possibly say that anything is just a matter of money in relation to a Budget? This Budget intends to have—and does have—profound social effects. It is intended to create incentives, one of which I warmly welcome—the incentive for people to work. If the Chancellor were asked for his proudest achievement of the Budget, he would presumably tell us that it was to create a greater incentive to work. That admits immediately that the Budget's main point is its social effects and the effects on social incentives. If that is the case, it is not the money with which we should be most concerned but the social effect.
Anybody on the Conservative Benches has to admit that, until the last day of the previous Administration, the Conservative Government—much more out of oversight than intention—gradually tilted the balance, I regret to say, against marriage. Many of us, including my hon. Friend the Member for Chingford and Woodford Green, preached against this throughout the time of the previous Government and regret it. However, that is not a reason for the present Government to repeat and amplify the mistake that we made. Any hon. Member who has children will agree that the sad truth is that the most important thing—above money and poverty—for children is how they live in their family.
I do not wish to moralise about this. It is a dreadful error for politicians to moralise. Perhaps we on the Conservative Benches stand convicted from time to time of having moralised too much. If the Chancellor genuinely believes—I think that he does—that his Budget is intended to achieve social effects, he must believe that it is right for the tax system to be viewed from the point of view of the social effects that it is likely to have. That means that the Government have to make a conscious choice about the society that they are trying to tilt towards through the tax system. If that is the case, it is undeniable that the Budget quite specifically militates against marriage.
It is no part of my purpose to argue in religious or moral terms for the institution of marriage. My argument is a practical one. It is about children. There is ample evidence—I do not think that the Secretary of State for Social Security would deny this, as her Department has evidenced this in its own work, and the Select Committee has reiterated it over many years—that, by and large, children prosper more when marriages stick together. It has been shown over many decades that although the 1494 divorce rate is alarmingly high, marriage is a better means of keeping parents together than any known human institution.
A Budget that starts from a series of mistakes made by a previous Government—perhaps from mistakes made over the previous 100 years—allied to social trends that have gradually undermined marriage, and that unnecessarily amplifies those mistakes for a small gain of roughly £1 billion by reducing the married allowance, and further amplifies them by making it easier for people to enter partnerships and still enjoy reasonable incomes for their children, unconsciously and unintentionally does gross damage to the structure of our society. If I am right that that is not what the Government intend, it can be easily remedied at little cost. If I am wrong, however, and that is part of the Government's intention, they should say so—and 30 million, 40 million or 50 million would howl them down.
There has been a tremendous reaction against ideas that were prevalent in the 1950s and 1960 that suggested that there was no difference between partnerships that stuck together and those that did not—hence, between partnership and marriage. That is a dated idea, because the modern view—the Labour party much prides itself on speaking about modernity—is that marriage is a glue that sticks society together, holds families together and helps children.
The Minister should admit either that the effect to which I have referred is not what the Government intended and that they will reverse it, or that it is what they intended and try to make an argument for what most hon. Members, even in this thinly populated Chamber, would find difficult to defend.
§ Mr. Jonathan Shaw (Chatham and Aylesford)
All hon. Members would agree that the remarks of the hon. Member for West Dorset (Mr. Letwin) about marriage and children were sincere. Having spent 10 years in social work, I agree that children prosper if families remain together. It is regrettable when parents split up because it has a detrimental effect, but for families on low incomes the pressures and strains of having insufficient resources to pay their way add to discord between couples and ultimately may lead to a marriage or relationship breaking up.
One of the positive measures in the Budget is the working families tax credit, which provides child care support for families.
I wish to focus on three areas—the main welfare to work and social security measures and two related issues. In my 10 years in community and social work, I endeavoured to assist people living in poverty and disadvantage to achieve change. Indeed, that is why I entered politics and joined the Labour party. I welcome and applaud the Budget. It provides essential solutions to tackling deprivation, and it will enhance the lives and opportunities of many people and families.
The new deal was introduced last July. Its proposals have been met with considerable enthusiasm in my constituency, especially among employers and young people. We recently launched the Medway towns new deal in the House, at which I was pleased to see the chairman of Gillingham football club. The Budget's proposals are the next crucial step after the new deal in 1495 helping to tackle poverty. The key test for the Labour Government is to turn back the tide of poverty that has crept over the country in the past 18 years.
Being on benefit should not mean that someone must live in poverty. My hon. Friend the Member for Bury, North (Mr. Chaytor) referred to pensioners, many of whom live in poverty. That is particularly true of those who served in the war, who now have only a couple of ha'pennies to rub together. That is an indictment of us all. I was pleased to hear my right hon. Friend the Secretary of State reiterate that not everyone will be able to work and take advantage of the Budget's proposals. People with disabilities should not feel guilty about being on benefit; they should be secure in the knowledge that we value them as equals.
Being trapped on benefit is a real existence for many people, and in my previous work I saw the manifestations of that, which were eloquently described by my hon. Friend the Member for Bradford, North (Mr. Rooney). In constituencies such as mine, in which unemployment is about 5 per cent., there are pockets of unemployment where the rate is twice as high, and that has applied for far too long. As economic prospects improve for the majority, little seems to change for such people.
I recently attended a business breakfast, at which we were again launching the new deal. An employer said, "To tackle deprivation, surely all we must ensure is that the economy continues to improve." That is right, but if everyone is to benefit, especially those communities about which I am speaking, the necessary structures must be put in place, which is what the Budget aims to do.
It is not simple to get people back to work: a number of measures must be used. Shaming people and telling them to get on their bikes, which we heard many years ago, will not work. That only alienates people and defeats the desired objective.
We must also have a change of culture. It is hardly surprising that young people from the second or third generations of a family that has not experienced work have little aspiration other than the dole queue. I recently travelled to London on the train and spoke to two 18-year-olds from my area who had no expectation other than benefit. Indeed, they were surprised that I felt that they should be looking for an alternative life style. Perversely, they argued, albeit wrongly, that they were better off on benefits.
My hon. Friend the Member for Bradford, North eloquently stated that, tragically, many families are better off on benefit. The communities on the estate where those 18-year-olds live have been increasingly excluded and deprived. Many parents on such estates feel that they have not been able to offer themselves as a role model because they have been unable to work. I do not condemn them, but we must provide opportunities for parents so that as their children grow up they see that the aspiration to, and expectation of, work are the norm and do not say when they are 18, "We're better off on benefit."
The Budget's tax and benefit proposals will enormously assist low-income families and those on benefits and will effect the change in culture that I have described and provide opportunities.
The current family credit system has many faults, and there is a stigma attached to it. People have to fill in reams of paper when applying for it, and there is an 1496 unsatisfactory take-up rate. People generally prefer not to be in receipt of welfare benefits. The Chancellor's proposals will give more cash help to 400,000 families and will break the benefits link, as the credit can be paid through a wage. That is a far more dignified way of assisting low-income families. I look forward to hearing whether it will be paid through the purse or the wallet.
Child minders and nurseries were part of my responsibilities when I worked in social services. There are many unregistered, and therefore illegal, child minders. They do not necessarily have a wanton desire to flout the law and put children at risk: they are neighbours and friends, particularly in poorer communities, who act together to support one another. There is a massive shortage of good-quality child care. The working families tax credit, coupled with the improved child benefit, will allow parents to work and will be an income and a regenerator for poorer communities, because money spent on child care will remain within those communities. I welcome the debate on who should receive child benefit and who should be taxed on it.
Another 50,000 child minders are required. That would put further pressure on local authorities' registration and inspection units.
§ 9.1 pm
§ Mr. Robert Walter (North Dorset)
I shall take a different approach from other hon. Members, although my right hon. Friend the Member for South Norfolk (Mr. MacGregor) referred to the matter that I shall raise. The Budget is very unfriendly to those who live outside urban Britain. It is an attack on the countryside, and shows Labour's lack of understanding of rural issues and rural problems. My argument has nothing to do with country sports: it is about the people who live and work in rural Britain.
Britain's hard-hit farmers were left stunned by a Budget that offered them little or no comfort. I declare an interest as a farmer. The Budget did nothing to tackle the overall impact of the strong pound on agriculture and although the Chancellor acknowledged the problem, he did nothing to address it.
The deputy president of the National Farmers Union, Mr. Tim Bennett, said:Agriculture continues to be one of the worst hit industries affected by the strength of sterling. It will bring little comfort to many struggling family farms whose incomes have been cut by a half on average last year.Farmers remain seriously concerned about the strength of sterling, which is forcing up their costs and drawing in cheap imports, with catastrophic effects on market prices.
Farmers can draw little comfort from the Red Book. Under "Changes from previous plans" in the section on the public finances, it shows that spending by the Ministry of Agriculture, Fisheries and Food was down £140 million in 1997–98, and is down £50 million for 1998–99. Apart from the special circumstance in the Department for Education and Employment, they are among the largest reductions in spending plans.
Hon. Members may think that the changes to capital gains tax have little to do with farming. The retirement relief on capital gains tax is to be phased out over five years from 6 April 1999. That is bad news for anyone who is contemplating retirement from farming after April 1999, as it is for the disposal of any smaller business. 1497 The Chancellor has chosen not to synchronise the withdrawal of retirement relief with his reductions in the rate of capital gains tax.
The proposed changes will ultimately result in people being unable to retire because they will have to use their money differently. That is contrary to intentions announced in the House by the Minister of Agriculture, who is seeking European Union support for an early-retirement scheme. He is asking Brussels for money for early retirement, yet he is allowing the Chancellor of the Exchequer to remove one of the most advantageous early-retirement schemes available to farmers. Farmers who want to retire are not helped by the increases in stamp duty. It is not only large farms that are worth £250,000 or £500,000; they and smaller farms will now be affected by the 3 per cent. rate of stamp duty.
Farming, market gardening, forestry and timber production have been excluded from the new enterprise investment scheme and from the venture capital scheme.
The Chancellor announced with some glee that he was reducing the mainstream rate of corporation tax to 20 per cent. Most farmers do not run their farms as corporate bodies. Farmers are individuals, so their businesses will not benefit from the reduction, and they will still pay the 23 per cent. rate of income tax.
Labour Members have suggested that the increase in petrol tax is in line with increases introduced by the previous Government. We have had two increases in petrol duty in just 10 months, whereas the previous Government did not increase petrol tax twice a year.
Drivers in rural areas—mothers who take their children to school and those who drive to work out of necessity rather than by choice—will suffer immediately as a result of the increase in petrol prices.
The deputy president of the NFU said:Farmers will be heartened to hear the Chancellor acknowledge the need of rural communities—particularly with the announcement of a £50 million fund for rural transport—but they will be waiting to see that acknowledgement translated into tangible benefits.Britain's rural parishes will have to bid for cash from this £50 million fund, which seems ridiculously small if it is to have a sensible effect. The Times suggested:If the three quarters of rural communities without any bus service at all share Gordon Brown's promised £50 million investment in rural transport they will end up with little more than a wheel nut each.I contend that £50 million is not much spread across the country.
Let us take a typical couple with two children and a mortgage, living in one of the shire counties of rural Britain. Such a couple will be about £1,000 worse off as a result of the measures introduced by the Government in two Budgets. There are the increases in petrol duty, which I have already mentioned; there are the increases in mortgage interest rates, which, as we know, result from high interest rates that led to a rise in the value of sterling; and, of course, there are the increases in council tax, which in my county amount to a minimum of 12 per cent. in any district year on year. That represents an 11 per cent. decline in the disposable income of the typical couple whom I have cited.
The Government have demonstrated their insensitivity to the needs of rural Britain. They have hit rural industry, especially agriculture. In the first year of the current 1498 Administration, agriculture has become £2 billion worse off, and the Budget has done nothing to redress that. In fact, in many of our rural industries and communities, it has made the position much worse.
§ 9.9 pm
§ Mr. Nick Gibb (Bognor Regis and Littlehampton)
There is more to the Budget than meets the eye in regard to tax increases, and significantly less than meets the eye in regard to the Government's stated objectives. First, let me say something about the handwritten contract with the people that the Labour leader drafted with his very own hand during the election campaign. The first clause of that contract said that a Labour Government would spend the money that had been used to deal with the cost of economic and social failure on education. In other words, Labour would reform the welfare state, and would use the resulting savings to boost education.
Let us see how Labour is doing in that regard. At the end of February, the Minister for Welfare Reform appeared before the Select Committee on Social Security. When asked how much he expected to be saved from the social security budget during the lifetime of the current Parliament, he said that he wishedto slow the rate of increase in social security spending.There were no plans to reduce spending, no plans to make savings and no plans to plough cash from social security into education. That was a clear breach of the first clause of Labour's so-called contract with the people.
The objective of halting the rate of increase in social security spending had already been achieved by my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), but it is clear from the Budget that even that objective has now been abandoned. According to the Red Book, the working families tax credit will cost £420 million more than family credit in its first six months of operation, and £1.3 billion in its first full year. On top of that there is the increased child benefit and child-care tax credit, involving a total cost of £1.2 billion a year. There will be no savings in the social security budget under the present Government. There is a breach of the first clause of the contract with the people, and there is a gaping hole in Labour's tax and spending plans.
Let us cast our minds back to the economic package that Labour presented to the electorate. Apart from the windfall tax, Labour's spending programme involved no requirement to raise taxes; all its promises of increased spending on education and health could be funded by existing budgets—through efficiencies and, most significantly, savings in the social security budget. The Labour party said—and still says—that it would reduce the dependency culture, and would get people off welfare.
Let us consider the Government's objective, which will again demonstrate that there is less in the Budget than meets the eye. The introduction of the working families tax credit is clearly well intentioned, but family credit has been a very successful benefit. There has been an 82 per cent. take-up rate on the basis of expenditure. It clearly helps not only low-income couples but single parents to go to work. We have yet to be told why family credit needed to be replaced, other than the fact that it was introduced by the Conservatives.
The problem with the working families tax credits and childcare tax credits is the enormous increase in the number of people eligible for the benefit higher up 1499 the income scale. There has always been a big problem with changing tapering rates: as incomes rise, people begin to lose benefit. Inevitably, in any benefit system, coming off benefit will involve high withdrawal rates. The difficulty is that making withdrawal rates less steep will mean extending the tapers higher up the income scale, making more people eligible for benefit.
The purpose of lowering tapering rates is to provide more incentives to get people off benefits and into work. As a result, others are often given increased incentives to reduce work and claim benefits. That is precisely what the Government admit would be a consequence of the working families tax credit and the reduced taper of 55 per cent. The notorious table 3.3 in the Red Book points out that 250,000 more people will face withdrawal rates of 60 per cent. or more as a result of the Budget. The second objective—to reduce the dependency culture—has clearly not been met.
When the childcare tax credit is included, the increased dependency culture becomes worse. It is clear that the availability of the new benefit goes right off the income scale. A family earning £22,000 a year with one child will be able to claim the credit. That income is just above the national average. How can we reduce dependency if we give new income-related benefits to households on above-average income?
The position is worse still. A family with two children will be able to claim the benefit with an income of up to £30,000 a year, significantly higher than the average income. It is absurd to claim, as the Government do, that the benefit will cost only £1 billion a year. That figure is clearly nonsense, as even a quick glance at the examples in the separate book on the working families tax credit will show.
Example four is of a family earning £23,400, who will be able to claim £45 a week child care tax credit. That is more than £2,300 a year and most claimants will be able to receive more. Clearly, £1 billion is an underestimate. The Institute for Fiscal Studies agrees. It estimates that the cost will be some £4 billion if everyone who is entitled to the credit takes it up.
Much of the Budget is about putting right some of the many catastrophic and ill-thought-through measures in the Government's first Budget last July. The hubris with which the dynamic new Chancellor launched his July Budget has been matched only by the humiliation that the Government, and the Paymaster General in particular, have faced since that Budget. A host of new measures have been required to put matters right.
Ending the repayment of tax credits led to the abolition of foreign income dividends, which meant having to abolish advance corporation tax and to introduce a new method of paying corporation tax which, even with the changes, still places an enormous cash flow burden on British industry over the next four years. Those measures combined will cost companies £20 billion over that time—money which would otherwise have been available for investment.
Labour was elected on the clear understanding that it had no plans to increase tax. There is an abundance of quotes to prove that. Before the election, the Prime Minister said:We have no plans to increase tax at all".1500 In August 1996, he told the Daily Express:Our proposals do not involve raising taxes".The Chancellor of the Exchequer said before the election—to the authoritative source of GMTV on 8 April 1997:There is no black hole for the Labour Party because we have got no public spending commitments that require extra taxes".Ministers are trying retrospectively to rewrite that commitment. They say that they promised not to raise only the basic and higher rates of income tax. Just like a dishonest salesman pointing to the fine print of a contract, they say that the British electorate should have known that they would raise taxes and that the commitment was to do just with the rates, but my understanding was that there was a commitment not to raise tax and that the specific commitment on rates underlined that more general agreement and commitment. It did not narrow that general commitment. Why would people feel safe to vote Labour, with its track record of tax and spend, if they thought that the only commitment was not to raise rates and that Labour was free to implement a range of other tax increases, which would, in the same way, reduce take-home pay and spending power?
This Budget is the Government's second tax-raising Budget. As well as enormous tax hikes on business, income tax rises accompany the erosion of the married couples allowance, and there are enormous expenditure tax rises in the cost of petrol. The Government have now outrageously promised to raise taxes on child benefit.
The Budget has increased tax, spending and the dependency culture. By doing so, it has breached Labour's commitment not to increase tax, not to increase spending and to reduce the dependency culture. The Government's honeymoon enabled them to get away with the tax hikes in their previous Budget. It will not do so this time.
§ Mr. Michael Fallon (Sevenoaks)
I declare the interests that are recorded in the Register of Members' Interests.
For the second day running, more people have been ready to attack the Budget than the Government have been able to marshal to defend it. The real test of the Budget is not the headlines that the Government have managed to engineer this week or the hype that preceded it, but whether unemployment falls as a result.
Rebadging family benefits, relaunching child care initiatives and rejigging national insurance contributions are all meaningless unless more people are working and fewer people are claiming benefit as a result. I hope that the Paymaster General will accept that. I challenge him to produce the figures from the Treasury—the estimated falls in unemployment as a result of the Budget for the coming financial year, next year and the first full year of the working families tax credit. If he cannot produce those figures tonight, that will tell us a story. It is no use having a Budget entitled "Making Work Pay" if there is no more work in the first place. Whether or not this Budget makes work pay is highly questionable. What is certain is that it does not make more work possible.
By contrast, our Budgets did just that. A whole series of Budgets, including those in which my right hon. Friend the Member for South Norfolk (Mr. MacGregor), 1501 the former Chief Secretary to the Treasury, played such a notable part, helped to produce more work. They gave us the best record of job creation in Europe and brought about a flourishing new and small business sector.
The Government have already reversed that trend. Right from the start they have hammered job creation. They have put on business a huge new burden of corporation tax and have levied the new windfall tax. They have attacked pension funds and discouraged long-term investment. This Budget has added yet more taxes on business.
The changes in national insurance contributions will hit high-skill companies. As my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) elegantly said, the increases in stamp duty will damage businesses involved in commercial property or asset sales. There are other tax hits, notably on the insurance industry, and the full impact of others is only just coming to light. Next year, business will face the impact of the national minimum wage on wage differentials right up the pay scale. It will also face the first new costs of the social chapter legislation.
All that is worsened by the Government's callous disregard for the effect of the high pound on industry. Indeed, they encouraged the current level of sterling. By taxing pensions and hitting savings, the Government have fuelled consumption and brought about a two-speed economy. They would have done better to have genuinely acknowledged the pain now being felt right across British manufacturing industry. We did not hear much concern from the Chancellor on Tuesday. Indeed, in the section on risk assessment in the Red Book we find the chilling idea that, if the Government are wrong in some of their forecastsmonetary policy would probably be behind the game.This is not a game for manufacturing industry.
I warn the Government now that the Budget will further unbalance the economy and may well push manufacturing industry into recession. If it does so, it will be a recession entirely of the Government's making. It will be the Brown recession. We have a Budget that puts up taxes, puts up the cost of business and fudges welfare reform.
I should like now to deal with some of the detailed points that have been made by hon. Members on both sides of the House. I begin with a glaring omission from the Budget statement and, indeed, from the Red Book which the hon. Member for Bury, North (Mr. Chaytor)—in an extremely elegant and well-argued speech—picked out: there is nothing in the Budget for pensioners. In the entire Red Book, only six lines are addressed to pensioners, and three of those simply repeat the announcement made in the pre-Budget report. Pensioners are the forgotten people in the Budget.
We should also not forget that pensioners use petrol, and that pensioners will be paying more in fuel tax. Pensioners pay council tax, and they will now be paying more council tax. Pensioners have been ignored in the Budget.
Pension schemes seem to have been further disregarded by the Government. The Under-Secretary of State for Social Security, the hon. Member for Southampton, Itchen (Mr. Denham) has wisely left the Chamber. He was present, last week, at a dinner at which the chairman of the Association of Actuaries said:Significantly, employers' confidence in the stability of the pensions tax regime has been dented. I must warn the Government that further tax changes which are made without consultation will 1502 do even greater damage to the confidence and willingness of employers to provide pension schemes—particularly small employers.So pensioners have been damaged by the Budget.
My hon. Friend the Member for West Dorset (Mr. Letwin) touched on the savings issue, which was not simply an example of the Government bungling yet another scheme—although Ministers have had, of course, to back down on their retrospective and penal attempt to restrict to £50,000 the savings of those who have scrimped and saved for 10 years now. We can note other features of the Government's handling of the matter.
First, we have had no apology from the Government, in withdrawing that proposal, for the damage that they have done to confidence in public and national schemes.
Secondly, we still have a new lower limit. Although it is true that the limit is not £50,000, will the Paymaster General confirm that the current annual limit of £10,800, taking personal equity plans and tax-exempt special savings accounts together, will be reduced to £5,000?
Above all, we know from the bungling of the savings scheme Labour's true instinct. Labour did want to tax those who have worked hard and saved hard. Today, I should like the Paymaster General to tell the House what type of assurance he can give—on even his own individual savings account scheme—that the Government will not come back again, in a few years, to penalise exactly that type of tax-free exemption.
It is becoming apparent in the technical press that the changes to capital gains tax have not been universally welcomed. Given low inflation, many people would have been better off under indexation than they will be under the new lower rate.
Perhaps the Paymaster General will address himself to some of the problems—if I can call them that—that are emerging with his 30-day rule. The Government suggest that any capital gain will have to be made over 30 days rather than overnight. How will that apply—City advisers are asking—to married couples? What if the husband sells shares and the wife purchases them within 30 days? Will they still lose their exemption?
Will the various packages that are being mooted in the City allowing people to hedge against market movement in those 30 days be allowed or not?
I now turn to the working families tax credit, a proposal that was admirably dissected by my hon. Friend the Member for Havant (Mr. Willetts) last night. Like the Institute of Fiscal Studies, we reserve judgment on whether it will be an incentive or a disincentive. As one of my hon. Friends said, the jury is still out on that question.
Perhaps the Paymaster General will clear up the shambolic performance of the Financial Secretary last night and clarify two or three key points. First, will women have a veto? If he does nothing else tonight, I hope that the Paymaster General will answer that specific question. It is no use saying that it is a matter for the partners to elect. We want to know whether, if the man is the main earner, the woman will have a veto. If she does, will the Government help to publicise it and make it clear so that women know where they stand?
§ Mr. Rendel
On that point, if the woman has a veto, what will it do to her marital relations if she tries to use it?
§ Mr. Fallon
Absolutely. That is the tangle that the Government are getting into. It is something that we need to know.
1503 Secondly, perhaps the Paymaster General could answer the question from my hon. Friend the Member for Grantham and Stamford (Mr. Davies). if the working families tax credit is such a good idea, why are the self-employed exempt from it? Why does it not apply to them? The Secretary of State for Social Security was asked that six hours ago and she could not answer it because the Treasury has not told her yet. That is the Muppet show to which the Department of Social Security has been reduced. Not only is the Secretary of State unable to give us the answer, but she cannot express a view on whether or not it is right to extend the tax credit to those who are self-employed.
Thirdly—and this is a trickier question so perhaps the Paymaster General will be able to get his mind around it—how will the working families tax credit be classified in terms of expenditure? Let me quote from the Red Book:The net cost of WFTC is split between 'accounting adjustments' in GGE, and 'other receipts and accounting adjustments' in GGR…whether or not any or part of WFTC should score in the Control Total has not been decided.Perhaps the Paymaster General can assist us on that point.
While we are on the subject of the Red Book, perhaps the Paymaster General can enlighten us on another matter. What has happened to the privatisation programme, which appears to have come to a grinding halt? Under the Conservative Government it was running at around £4 billion a year. In the current financial year, it brought in £2 billion from sales that we arranged. For 1998–99, it is forecast to raise £0 billion. We now learn from the Red Book thatThe Government has not announced any specific sales for 1998–99 or subsequent years.Is privatisation now off the agenda? What has happened to the sale of London Underground or the immediate review of the Post Office that was promised? What has happened to the "National Asset Register" that was launched in a great fanfare last November? Under the previous Government, asset sales were running at £3 billion or £4 billion a year. Why are they now forecast to come to an end?
Finally, perhaps I can turn to the much trailed code for fiscal stability. You will share my concern, Mr. Deputy Speaker, that the document entitled "Budget 98" was published the day before the Budget, and, worse still, was publicly launched in the newspapers. Let us be very clear. Only a Labour Government would need a code for fiscal stability, given the mess that we inherited in 1979. The code presented on Monday fails the test of seriousness required of any code.
The code is not in the "Budget 98" publication. There will merely be two clauses in the Finance Bill requiring the Chancellor to publish a code by next December. He has taken the power to modify the code if the Treasury requires that. The code is supposed to be binding on the Government, but they are allowed to modify it. The code will be limited to the relationship between taxation and 1504 expenditure; it will not cap taxation. It will not and cannot stop this Government continuing to increase the overall burden of taxation.
§ Yvette Cooper
Does the hon. Gentleman accept that the previous Government doubled the national debt? Is that what he means by fiscal stability under the Conservatives?
§ Mr. Fallon
The hon. Lady knows that the national debt tends to rise in times of recession. We had it on track to descend without the additional tax increases that the Government have introduced.
§ Mr. Fallon
No. I want to leave the Paymaster General plenty of time to grapple with my questions.
As we have the pleasure of the Paymaster General's company, perhaps we could subject the Budget to the Robinson test. At the Labour party conference last October, the Chancellor said:A Labour Chancellor will not permit tax reliefs to millionaires in offshore tax havens.There was not much about offshore trusts in the July Budget. There is not much about them in the Red Book. We did not hear a great deal about them on Tuesday.
Back in December, in an article that described him as a "deeply hurt Robinson", the Paymaster General said:Indeed, I could show you internal Treasury documents to show that I have been working against my own financial interests on this policy. You will be pleasantly surprised.We doubted it then and we certainly doubt it now. The only changes proposed to offshore trusts affect those set up before March 1991 and those to be set up by non-domiciled settlers. Will the Paymaster General confirm that, after the changes, he will still be entitled to tax-free income from the dividends on the shares that are held offshore in a trust on his behalf? The man who wanted to cap everybody else's tax-free savings at £50,000 and who is now to limit them to £5,000 a year will still be entitled to keep his millions offshore, tax free.
The Budget fails the Robinson test. Indeed, it fails every test. It puts taxes up; it pushes industry further into recession; and it postpones serious welfare reform in a muddle of rebadging, brochures and public relations. The Budget fails the country and the Government in the intentions that they set before the electorate. For those reasons, we shall oppose it on Monday night.
§ The Paymaster General(Mr. Geoffrey Robinson)
One point on which I can respond positively to the hon. Member for Sevenoaks (Mr. Fallon) is that the ultimate test of this and all our Budgets—and all the measures that we intend progressively to introduce in a great programme of reform that Conservatives signally failed to undertake during their 18 years in office—will be the management of the economy and the stability that we are setting out to achieve. I therefore say right at the beginning of this winding-up speech that everything we have done since we took office in May has been done with achieving that stability in mind, very precisely to avoid all the errors of previous Governments—both Labour and Tory—that took 1505 the economy and the country through the inevitable cycle of stop-go and all that meant to individuals and companies caught up in it.
Such a cycle is the most damaging thing for small companies, to which many Conservative Members have paid tribute. It is the most damaging thing for families. It is the most damaging thing to the economy of the nation. That is why, on the very day we took office, the Bank of England was granted operational independence. That is why we set in hand a series of changes that, so far from being piecemeal, were successive parts of an overall plan to take the emphasis away from paying dividends in the corporate sector to investment and long-termism. That is why we abolished tax credits.
That is why the second, logically following Budget—unlike what the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) seems to think, the Budget was part of an overall plan—neatly dovetailed to accommodate what practically can be done. I shall come to some of the practical problems in which Conservative Members are seeking refuge. As they realise that the principles of reform, progressive reorganisation and welfare and the incentives to work are things with which they must agree, they seek to take refuge in a series of pettifogging details that we shall have plenty of time to sort out over the next 18 months before the changes are introduced.
In the context of long-termism, we turn to savings. We know the Conservative party's appalling record through the 1980s, when the country had the misfortune to have it in office. We had a negative saving ratio for five years on the trot in the mid to late 1980s.
§ Mr. Robinson
There is a long way to go before it becomes negative. The hon. Gentleman must realise that the forecasts are there, they are Conservative forecasts and they are in the Red Book. I am very well aware of them. Has he the slightest idea of the difference between the projection and the negative rate that the Conservative Government achieved for five successive years in the 1980s? They are not at all comparable.
Let us talk about the individual savings accounts programme and what has been said about it. The new savings plan has been widely welcomed by every product-producing institution in the City of London. It has been welcomed by the Association of British Travel Agents, by Marks and Spencer and by areas of the retail industry that are intending to introduce the cash ISA to reach the half of the population that did not save at all and was untouched by the Conservative Government's PEPs and TESSAs.
Conservatives complain when we publish a document on which we have decided to consult; the next moment they say that the results of consultation are not what they expected. We know what consultation meant when they were in government: it meant that they had made their minds up, would not listen to reason and would not respond to the points that were put to them. That, of course, is why in the end they suffered ignominious defeat at the hands of the electorate in May. We have listened; we are a Government who consult. That surely is another factor that emerges from the way in which we are approaching the whole budgetary process.
1506 Let us take, for example, the industrial energy arrangements on which Sir Colin Marshall has agreed to lead an investigation for the Government. We have not rushed in with detailed, absolute proposals. On the contrary, we are proposing to consult and to listen to what is said in that consultation process. So it was with ISAs.
§ Mr. Hammond
Does the hon. Gentleman accept that the confusion and uncertainty over the future of PEPs, TESSAs and ISAs has permanently damaged the saving ethic of the middle classes?
§ Mr. Robinson
That is the most ridiculous thing that has been said from the Conservative Benches all evening. The savings plan has been welcomed; we are confident that it will be a great success. I have had nothing but a welcome for the new proposals and a determination to see them fully taken up.
The hon. Member for Sevenoaks asked what we can say about the proposals for the new ISA in respect of the amounts and the duration of the tax relief arrangements. I can give him an assurance of the sort that has not been given by a Government before. He knows that it was an open secret in financial circles that the Tories themselves were planning a cap on the exponential growth of both TESSAs and PEPs, especially PEPs.
We are the first Government to have given a commitment covering 10 years, and that commitment puts in place the certainty that the savings community needs. Yes, we shall review the arrangements after seven years, but the commitment to 10 years is absolute. Yes, those savings will continue to enjoy at least the present levels of tax relief. Again, this is the first time that any Government have given that undertaking, and we do it precisely to avoid the sort of uncertainty that underlay PEPs and TESSAs. Conservative Members know that that is true.
Yes, we have said that the amounts that we envisage for the 10 years will remain as they are, and will not be reduced, although they may be reviewed. We have made that clear. Indeed, in the latter stages of the consultation—[Interruption.] They will not be reduced. If the right hon. Member for Wells (Mr. Heathcoat-Amory) does not understand what I am saying, I am sorry for him. It is a bit late in the evening, and we understand.
In the consultation period, it was put to us that to get the cash element of the new ISA, which was so important to us, off the ground, an increase in the first year, directed towards that cash element, would be welcome. We therefore made an increase for the first year—from £5,000 to £7,000—in the latter stages of the consultation, and it has all been extremely well received.
The hon. Member for Sevenoaks asked what we were doing about privatisation. I can tell him this: we shall not have any more of the rip-offs that the Conservative party allowed and we shall not have any more fat-cat millionaires—[HON. MEMBERS: "Like you."] We shall not. As Conservative Members have understood, the whole capital gains tax structure is geared towards those who undertake to make their business assets work hard to increase their capital gain. That is precisely the aim.
§ Mr. Robinson
I shall—not that the hon. Gentleman has been heard much in the debate, but as it is him, I shall give way in a moment.
1507 There will be a statement tomorrow on the London underground and I advise hon. Members to attend. It will be most instructive for them to see what progress we are making, especially in avoiding the sort of traps that the Conservatives fell into. The hon. Member for Sevenoaks should take note of the arrangements that my right hon. Friend the Deputy Prime Minister will unveil.
A review of the Post Office, too, will shortly be announced, and the hon. Gentleman will see that we are also making progress there—progress on a balanced set of relationships between the public and the private, which avoids the Conservatives' mistakes.
§ Mr. Howarth
I am grateful to the Paymaster General for giving way to me, despite the fact that I have not been able to participate in the debate as much as I would have liked. He will not be allowed to get away with the assertion that the taxpayer did not get due value for money out of rail privatisation. The assets did not achieve a better market value because investors were put off by the Labour party's threats to take the assets back into national ownership.
§ Mr. Robinson
The hon. Gentleman will probably regret that intervention on reflection, but I am pleased that he made it because it enables me to clarify one point of distinction about rail privatisation that is worth making. I think that the Conservatives, slow and painful though the process was, came to learn the error of their ways in some respects, and their treatment of Railtrack avoided some of the worst aspects of their earlier privatisations. However, that did not stop the Tory Government making a hopeless mess of the rolling stock companies. Because of the definition that we used, ROSCOs were not drawn into the windfall tax, but there is every reason for thinking that they should have been. Even the hon. Member for Aldershot (Mr. Howarth) cannot feel terribly proud of them, even on commercial terms, let alone in terms of the national interest.
We are pressed for time and I shall make progress as quickly as I can. The hon. Member for Sevenoaks said that there was nothing in the Red Book about the code for fiscal stability, which is an important element in our approach to the economy. Our approach is totally different from that of the Conservatives; it is long term and principled, unlike the short-termism that characterised the Conservative Government.
That short-termism led to our taking office with accelerating interest rates, because action was not taken—
§ Mr. Robinson
Absolutely. Where has the hon. Gentleman been for the past four years? He must have been living somewhere else. It is an acknowledged fact that the previous Chancellor of the Exchequer refused, for purely electoral, party political reasons, to increase interest rates when he should have done, and that inflation 1508 was accelerating, which is why, on our second or third day in government, my right hon. Friend the Chancellor had to take steps.
§ Mr. Robinson
I shall be delighted to give way in a moment. I should point out to Opposition Members—as they fight each other to clamber to the Dispatch Box—that the code for fiscal stability was published in November. If it escaped the attention of the hon. Member for Sevenoaks—who probably did not hold his present position on the Opposition Front Bench then—I shall arrange for him to receive a copy.
§ Mr. Fallon
If the Paymaster General is now happy with the level of interest rates, is he equally happy with the high value of sterling?
§ Mr. Robinson
The hon. Gentleman raises a fundamental question. Conservative Members may not like it, but they must realise that they got into a mess and produced the two biggest recessions in this country's economic management since the war. We have to go for stability—stability is vital to big and small businesses. Our exporters are having a tough time, but other countries have come through these periods. If we were to give in to short-term pressures at this stage—when we could go for long-term sustained stability and growth—we would be making precisely the same mistake as the Tories. [Interruption.]
§ Mr. Robinson
I am grateful for your help, Mr. Deputy Speaker, although I have to say that I had not noticed the hon. Gentleman misbehaving. He was probably behaving normally.
§ Mr. Robinson
The hon. Gentleman must sit down. I have answered his question. If he does not understand it by now, he never will, and he is in for a long period of having to learn about economic management. The sooner he learns—for his own sake—the better. The Government are committed to a long-term stable economy that will avoid the stop-go policies that damaged so many businesses, put so many people into negative equity and broke so many hearts. Shadow spokesmen must learn; there is no short cut on this, and we intend to see it through.
Many right hon. and hon. Members have taken part in what has been a good debate. On the whole, it has been well attended. That is still the case. There has been a tendency for Conservative Members—with one notable exception—to say that the problem is that the detail of the administrative arrangements has yet to be put in place. The hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) made a series of points on that matter and would not pretend to offer him a detailed answer 1509 tonight. If he reflects, he will agree that a major change of this kind is bound to impose a great strain on the administration of the affairs to which it relates. We cannot pretend that it will not cause problems, but the question each of us must answer is whether the reforms are principled and going in the right direction. Are they intended to get many people out of dependency and into work? Should they provide that incentive?
The Budget is essentially about children, mothers and families, and the hon. Member for West Dorset (Mr. Letwin) made a remarkable speech in that context. The family credit system was worked through a number of great teething difficulties and if our priorities and principles are right, the same will occur with these reforms. The support that we can expect from both sides of the House will be welcome.
The hon. Member for West Dorset spoke in the absence of Whips—they are present now. He was right to have the courage to say that he welcomed the Budget. He said that it was going in the right direction and that it was based on correct principles, even though he had doubts as to whether, in a certain respect—essentially the question of married couples and the institution of marriage—we had got it wrong. We thought about that long and hard. If circumstances have changed in a way he does not approve of, I understand, but Governments must deal with the reality of any given situation, and it was against that background that we took our decision.
My hon. Friends the Members for Bradford, North (Mr. Rooney) and for Chatham and Aylesford (Mr. Shaw) have detailed personal experience of the problems associated with the less well-off in society. My hon. Friend the Member for Bradford, North instanced the perverse effects of the Conservative reforms on school meals and on child care. My hon. Friend the Member for Chatham and Aylesford spoke about two 18-year-olds whom he met on a train, both of whom had come to the conclusion that work did not make any sense for them and that they were better off on benefits. If that is the attitude—I think that that culture has been inculcated among far too many youngsters and the less well off—it is clear that we must do something about it.
To that end, we are proposing, as hon. Members on both sides of the House know, to introduce the working families tax credit, which is, I think, largely the reason for the fairly positive endorsement of the Budget by Liberal Democrats. The hon. Member for Newbury (Mr. Rendel), who speaks for the Liberal party on these matters, made a good contribution.
We also heard from the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), who speaks with the authority of the chairmanship of the Social Security Committee. We pay tribute to that Committee's work and I take this opportunity to thank Martin Taylor for the excellent service that he rendered the House in writing the initial report. The hon. Member for Northavon (Mr. Webb) posed particular questions to which I shall ensure he receives answers—as I shall for all hon. Members who have raised points of detail on which they would like us to reply.
The Liberal Democrat attitude shows both an attention to detail and a breadth of view. That was demonstrated when the hon. Member for Newbury said that he was particularly pleased that the personal allowance would be granted to women who are caring for disabled husbands. 1510 That change did not attract much attention, but it exemplifies the Budget's bias in favour of children, women and families, which marks a wholly new departure in social welfare reform as we move from a dependency culture to a system under which people are paid to work. People who want to work will have that opportunity and we want to ensure that the motivation for that is properly rewarded.
§ Mr. Ruffley
Conservative Members have consistently asked about the wallet versus purse argument in respect of working families tax credit, which is a big issue for many of our constituents. What is the Government's response to the basic criticism of their proposal?
§ Mr. Robinson
As the Conservative party continued to make child benefit payable to the mother, it clearly endorsed the policy that we have embedded into every measure that the Chancellor unveiled on Tuesday—we want the maximum amount to go to the children, who are at the centre, through the mother, so that families benefit. I can assure the hon. Gentleman that when we go into the details of how the tax credit will work and how we can achieve our objectives, that will be absolutely at the forefront of our concern. [Interruption.] Time is pressing, and the points made by a number of other hon. Members need replies—if I can find time, despite the sedentary interjections of the hon. Member for Chingford and Woodford Green, I shall be pleased to answer them.
I entirely agree with what the hon. Member for Beckenham (Mrs. Lait) said about deregulation. I ask her to reflect on the thought that what she proposed might entail much paperwork, as I fear is often the case at the centre of Government. Deregulation units do not always achieve exactly what they set out to do.
§ Mr. Robinson
I really cannot—it is too late now. No doubt there will be other occasions on which we can discuss the matter, as well as the hon. Lady's personal experience in the exponentially growing business of smuggling—hers is a particular sphere of experience, but it was interesting to hear about.
In the last moments of this debate, I must mention the speeches of my hon. Friends the Members for Bolton, West (Ms Kelly), for Colne Valley (Kali Mountford) and for Pontefract and Castleford (Yvette Cooper)—all new Labour women Members of Parliament who paid tribute to the fact that we have got this about right. Indeed, I think that my hon. Friend the Member for Pontefract and Castleford said that the Budget would benefit women five times more than men. I am not sure whether that appears in our briefing, but if not, well done; I am pleased to use the statistic in my contribution to the debate.
We inherited a situation caused by the Conservatives, who doubled the national debt. We were in a cyclical deficit and a structural deficit and had accelerating interest rates—all because of their failure to act. In the interim, we have acted. We have set in place an economic and social reform framework that will stand this country in good stead and I commend it to the House.
§ It being Ten o'clock, the debate stood adjourned.
§ Debate to be resumed tomorrow.