Ministerial Speech - Taxation

- Tuesday, 10th March 1998

 

Rt Hon Peter Lilley MP

Madam Speaker I have selected the amendment in the name of the Prime Minister. 4.23 pm

 

Mr. Peter Lilley (Hitchin and Harpenden) I beg to move, That this House deplores the fact that the Government broke its pledge not to raise taxes by raising 17 taxes in its first Budget; notes that, although the full impact of many of these taxes, such as the Pensions Tax and higher business taxes, was not immediately apparent to the public, these taxes will undermine Britain's economic success and people's retirement incomes in the long term; and urges the Government not to introduce any further hidden taxes in the forthcoming Budget. With the Budget only a week away, I am sure that the House will not expect Ministers to give us details of their tax plans today. Hon. Members are becoming used to the fact that the House is the last to be informed of any Government policy. But we expect Ministers to answer for the hidden taxes that the Government have introduced so far—hidden taxes on pension funds, savings and business, not to mention extra taxes on motorists, students, smokers and home owners. Before the last election, Labour had to convince a sceptical electorate that it had changed. It said that it was no longer the party of tax and spend. It claimed to have undergone a conversion, so it invoked biblical language to persuade people that it was genuine. The Prime Minister, in messianic mode, told his conference: I vow that promises we make on tax, we will keep. This is my covenant with the British people. Judge me upon it. New Labour, Old Testament. When the Prime Minister said, We will not increase taxes at all", people believed him. The Chancellor of the Exchequer took a high moral tone. He said: We will not make promises we will later break, we will not say one thing before the election and another after. Above all, we will be straight with the British people about tax.

 

The Chief Secretary to the Treasury (Mr. Alistair Darling) Does the right hon. Gentleman agree that the promise we made was that we would not increase the top or basic rate of income tax?

 

Mr. Lilley I was quoting the Prime Minister, then Leader of the Opposition. According to a report in the Financial Times on 21 September 1997, the right hon. Gentleman said at a meeting in Birmingham a few months before the election: We have no plans to increase tax at all. 332 If the Chief Secretary wishes to dissociate himself from the Prime Minister, he should have done so before the election, not afterwards. As I was saying, the Chancellor also took a high moral tone. He said: We will not make promises we will later break, we will not say one thing before the election and another after. Above all, we will be straight with the British people about tax. That is why at the General Election we will spell out quite clearly our tax plans, so the British people know what we intend to do. There will be no lies, no deceit. When he said, Apart from the Windfall Tax, Labour's plans do not require any extra taxes", people felt that they could believe him. They did not realise that the Chancellor intended to impose hidden taxes—taxes that he had hidden from the voters before the election and which he hoped would be largely invisible after their implementation.

 

Dr. George Turner (North-West Norfolk) The right hon. Gentleman says that the Labour party said that it would spell out to the electorate what its tax promises were. As a candidate I know that they were explained in the manifesto on which I fought and won my seat. Can he cite a single promise from that manifesto—not from newspaper reports or cuttings—that the Government have broken?

 

Mr. Lilley I was quoting from a speech by the Chancellor given just before last year's Budget—I will be addressing the same audience tomorrow. He said that he would spell out clearly the Government's tax plans so that the British people would know what they were. When did he spell out clearly to people with pensions that he planned a £5 billion annual tax on their pension funds? When did he spell out to business men that he planned £22 billion of extra taxes on the corporate sector? When did he spell out to savers that he would impose the savings tax that we debated last week?

 

Mr. Ivor Caplin (Hove) Will the right hon. Gentleman give way?

 

Mr. Lilley No, I will get on because I have many questions to which the Chief Secretary may wish to reply. When did the Chancellor spell out to home owners that he would tax their mortgages by cutting relief even while interest rates were rising? When did he spell out to students that he would impose a pay-as-you-learn tax on higher education? When did he spell out clearly to motorists, especially rural motorists, that he would raise extra taxes on petrol? Those are the questions that the Chief Secretary must answer today. The Government think that they can get away with deceiving the British people, betraying their pledges and concealing the cost. The cost will come through and then the facts will be clear. They will not get away with it: the facts will not let them; we will not let them; and the British people will not let them.

 

Mr. Darling The right hon. Gentleman will find a clear reference in our manifesto to the fact that we intended to review corporation tax. And does he accept 333 that the previous Government, of which he was a member, were committed to a real increase in road fuel duties every year?

 

Mr. Lilley During the election campaign, I warned people with pensions that Labour might be planning to abolish tax credits, and that that would hit them. The Times reported the then shadow Chief Secretary as saying: there was no basis for the Tories' claims. They were desperate talk intended to frighten. I will give way to the Chief Secretary if he wishes to explain that. Since the election, the Chancellor has dropped the Chief Secretary from his circulation list—what a shame that the Chancellor did not send him his "no lies, no deceit" speech about taxes before the election. Labour thought that people would not understand the changes that it was making to taxes on dividends. Labour hoped that people would not recognise that money was being siphoned out of their pension funds until they retired and found that their pensions were smaller than they expected or, if they had already retired, until they found that their pensions did not rise as much as they hoped. The last person who thought he could get away with robbing pensions was another Labour Member of Parliament and business colleague of some absent Treasury Ministers, Robert Maxwell—the original bouncing Czech. That is why I dubbed the July Budget the Robert Maxwell memorial Budget at the time. The Chancellor cannot claim that this back-door tax was foisted on gullible new Ministers by Treasury officials. All the evidence suggests that it was cooked up in opposition. It was concealed from the electorate—and even civil servants were not consulted until the last minute. That is why the tax has stumbled like a drunken man from one change to the next. The Paymaster General was supposed to have brought his immense business expertise to bear on it. All 1 can say is that if this is the best example of his work, he is not worth the money he is not paid.

 

Ms Ruth Kelly (Bolton, West) Does the right hon. Gentleman agree that tax credits on pension funds were a gross distortion of the tax system? Will his party reinstate those tax credits if it returns to power?

 

Mr. Lilley Of course I do not accept that the credits were a distortion. On the contrary, the imputation tax system was the least distorting form of tax. I am glad that the hon. Lady accepts that we will form the next Government. I cannot tell her how many of the Labour party's messes we will restore because I fear that there will be many more on top of this.

 

Mr. Caplin Does the right hon. Gentleman accept that the UK has the lowest rates of corporation tax?

 

Mr. Lilley The changes introduced by the Government reduce the rate but increase the tax take by £8 billion during this Parliament. We reduced the burden of tax on business, and my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) can vouch for that. 334

 

Mr. Jonathan Sayeed (Mid-Bedfordshire) Will my right hon. Friend confirm that, if a company issues a false prospectus and its directors ask for support on the basis of promises that they have no intention of keeping, those directors go to gaol? What does he think should happen to the Labour party, which asked for, and got, the support of the people on the basis of false promises?

 

Mr. Lilley In politics, the penalty is usually inflicted by the electorate—as we ourselves have been known to find out. What is particularly appalling about Labour's pensions tax is that it threatens a great Conservative success. We encouraged people to build up personal and occupational pension funds. As a result, Britain has more money invested to pay for future pensions, not just than any other country in Europe but than all the other countries in the European Union put together. It is criminal to put that at risk, as this tax does. Faced with the charge that the tax was being levied at the expense of pensioners, the Government have come up with the most preposterous defence. They claim that the tax is unique. It might raise £5 billion at the expense of pension funds, but the Financial Secretary said that that would be good for pensions, good for pension funds and good for pensioners. In short, she thinks that taxation is good for people—except for the Paymaster General, for whom it is too good. [HON. MEMBERS: "Where is he?"] He is probably in Guernsey. The Chancellor flatly denied that the pensions tax would have an impact on the value of pensions, but the Government Actuary said otherwise. He concluded: The tax changes resulting from the July 1997 budget … potentially affect all forms of contracted-out pension funds. He calculated that pension contributions need to go up by some 12 per cent. For most members of pension schemes, that is equivalent to more than 1 p on their income tax. Labour raises taxes whereas we cut them.

 

Mr. Steve Webb (Northavon) Will the right hon. Gentleman confirm that he was a member of the Cabinet when Mr. Lamont first cut the tax credit on dividends and raised £1 billion by doing so?

 

Mr. Lilley Surely the hon. Gentleman recognises that the then Chancellor introduced a target 20p rate of tax and aligned the tax credit with it at that time. The pension tax will come through gradually, but the extra petrol tax was slipped in overnight. By introducing an extra rise in July, slapping on 4p per litre and accelerating future increases, the Chancellor pocketed a cool £730 million of extra tax. If he jacks up petrol taxes yet again next week, there will have been three such new tax rises in 16 months. Many people have no choice but to pay that extra tax. For most people in rural areas, driving is a necessity, not a luxury. The trouble is that the Government simply do not understand the countryside. They do not care about people who live in rural areas and they do not realise that they need to be able to plan for the future. If the Chancellor wants to regain respect for his party in the countryside, he should drop his plans for yet another petrol tax hike next week. 335

 

Mr. Geraint Davies (Croydon, Central) Will the right hon. Gentleman give way?

 

Mr. Lilley No, I wish to make progress. We must hope that the Chancellor makes a better fist of next week's Budget than he did of last July's. As millions of mortgage holders and business men have been finding out, that Budget was seriously misjudged. In his Budget speech, the Chancellor argued that higher taxes were needed to cool consumer spending. Then, far from taxing consumers and spending, he piled the bulk of his extra taxes on business and savings: £22 billion of extra tax on the corporate sector over the course of this Parliament; taxes on pensions; and taxes on PEPs and TESSAs. Despite his own arguments, he left consumers largely unchecked and the Bank of England has been raising interest rates every since. Businesses have had the worst of both worlds: higher taxes and higher interest rates, leading to an overvalued pound, clobbering exports, hitting manufacturing, and putting jobs at risk. Does not the Chancellor realise that taking £22 billion from industry leaves it with that much less to invest and create jobs? Do not Labour Members realize—they must see evidence of it in their constituencies—that the Chancellor has brought manufacturing industry to the brink of recession? They may not be able to see that, but we can. Labour is bad for business and we shall defend business against Labour's tax rises. The Chancellor cannot claim that he opened the books and found that he needed all that extra tax—so much that he had to break his solemn pre-election pledges. On the contrary, he opened the books and found that we had left him with a golden economic legacy. The Budget deficit is falling even faster than my right hon. and learned Friend the Member for Rushcliffe forecast in his last Budget. That should mean that borrowing can be eliminated with less of a rise in the tax burden than anticipated, but instead the Chancellor has been deliberately adding to it. According to the Government's own figures, the Chancellor now plans, by the turn of the century, to take nearly 3 per cent. more of national income in taxes than in the last year of the Conservative Government. That is equivalent to nearly 10 extra days of tax paying in the course of the year. In the last year of the Conservative Government, taxpayers had to work from 1 January to 10 May to pay off their dues to the state—10 May was tax freedom day. Thereafter, every penny that they earned was their own to spend, give, save or invest as they chose, but under the Labour Government, people will have to work until 20 May to clear their taxes. They will have to do 10 more days of hard labour. That is the price of Labour's plans. Labour Members cannot claim that it does not matter because the bulk of the taxes fall on businesses, not individuals. All taxes are paid by ordinary people, through higher bills, lower pensions or less take-home pay. As Professor John Kay, a new Labour business guru, says: There is no such thing as a tax on firms: the effective incidence of all taxes is ultimately on individuals. 336 All taxes fall on individuals, but not all individuals pay taxes—indeed, not all Treasury Ministers pay taxes, or not as much as they should, according to the Chancellor, who said: It cannot be right that the decent hard-working majority, paying their share of tax, should watch a minority abusing the system, using scams, loopholes and dodges; distortions in the tax system which must be eliminated.

 

Mr. Simon Burns (West Chelmsford) Where is the Paymaster General?

 

Mr. Lilley In Guernsey. It is true that on Friday the Treasury announced that it was cracking down on offshore trusts. It said that a tax loophole would be closed to prevent wealthy individuals from bringing their trusts onshore to avoid capital gains tax. That is all well and good, but the new policy fails the Robinson test: it leaves the Paymaster General in the clear. He is still a tax-free zone. While the rest of us have to work for an extra 10 days a year to finance the Government, he keeps his £12 million offshore to finance his retirement. It seems that the only tax that the Chancellor will not raise is a tax on his hon. Friend the Paymaster General. In his pre-Budget report, the Chancellor reaffirmed his promise to introduce a 10p starting rate of income tax. We now learn from the newspapers that he may defer it—how typical of Labour. The Government drive ahead with raising taxes in defiance of their pledges, but hold back on the one tax cut that they promised. Let there be no doubt where we stand on a lop tax rate. Any reduction in tax is welcome, especially after the hidden tax rises that we have had from the Government so far. We shall hold the Chancellor to all his promises on the 10p rate. Does he recall his pre-election pledge, when he said: We would ensure that all lower and middle-income families receive the full benefit of the tax cut"? Will he guarantee that he will not claw back the benefit of the 10p rate from basic rate taxpayers by starting the basic rate at a lower rate of income or by cutting allowances? It is bad enough that the Chancellor has broken his promise not to raise taxes; it would be a disgrace if he did not carry out one of his few tax-cutting commitments in full. The Government were elected on the basis of the most solemn pledges—

 

Mr. Darling The right hon. Gentleman is urging my right hon. Friend the Chancellor to reduce the starting rate of income tax to 10p, but in today's Financial Times he said that he was against that measure.

 

Mr. Lilley I certainly did not. On the contrary, I said in the document reported in the Financial Times that we would support the reduction but that we thought that the Government would introduce it in a way that merely clawed back higher up the income scale and, that in that case, it would not be a genuine tax cut. That is the point that I have been making while the right hon. Gentleman has not been listening. The right hon. Gentleman should get his interventions right and ensure that he is on sounder ground than he has been so far. The Government were elected on the basis of the most solemn pledges not to raise taxes, but they say one thing and do another. Before the election, the Chancellor said that he wanted to encourage investment, yet he is siphoning £5 337 billion a year from Britain's biggest source of investment capital. The Prime Minister said that he wanted pensioners to be cherished and valued to the end of their days. If so, why is he plundering their pension schemes? So much for the giving age; it is more like the give and take age: they take and we give.

 

Mr. Geoffrey Clifton-Brown (Cotswold) Is it not precisely those people on low income who will be hit by the changes in advance corporation tax credits? Their pensions will be lower and their savings in the form of PEPs and TESSAs, on which they were relying for their old age, will be less, so they will become a greater burden on the state.

 

Mr. Lilley My hon. Friend makes a good point. The Government have actually reduced the reliefs available to low-income savers and reduced the system that we set up so that it is attractive only to upper rate income tax payers. The one thing of which we can be sure is that Labour Budgets mean higher taxes. When the former right hon. and learned Member for Putney, David Mellor, said that dogs bark, cats miaow and Labour puts up taxes", he did not just mean old Labour. Old Labour was honest about raising taxes. New Labour introduces hidden taxes. Old Labour taxed wealth. New Labour taxes by stealth, and it is a racing certainty that there will be more taxes in the next Budget. In just 10 months we have had a pensions tax, a savings tax, a student tax, more business tax, higher petrol tax, higher tobacco tax, higher mortgage tax and the highest ever council tax. The Government have broken their promises, abandoned their vows and cast aside their covenants, but they cannot escape the judgment of the British people. Labour cannot be trusted on taxes. 4.46 pm

 

The Chief Secretary to the Treasury (Mr. Alistair Darling) I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof: commends the Government for honouring its election promises not to increase the top or basic rate of income tax, to reduce VAT on domestic fuel to five per cent. and to introduce the levy on the windfall profits of the privatised utilities; approves the Government's determination to put in place a fair tax system, to encourage investment and long-term sustainable growth; believes that Britain's interests lie in the pursuit of sound economic policies that will benefit the many and not just the few, and which are in the long-term interests of the whole country; and urges the Government to reject any return to the boom and bust policies of the past which resulted in the 22 tax rises imposed by the previous administration.". As regards the judgment of the British people, within recent memory the British people have shown which party they trust to form the Government of this country. The Labour Government are delighted to be having this debate, even if to a large—

 

Mr. Lilley Will the right hon. Gentleman give way?

 

Mr. Darling I shall certainly give way a little later. The Labour Government are delighted to be having this debate, even if it is, to a large extent, a re-run of the general election. That is not surprising because, in many ways, the 338 Conservative party has still not come to terms with its defeat. It cannot accept that it lost the last election because it lost the trust of the country. No one believed the Conservatives then, and no one believes them now: nothing has changed. I shall demonstrate that proposition by looking at two winning manifestos. No doubt Conservatives will remember the first one—

 

Mr. Lilley rose—

 

Mr. Darling I shall give way because I wonder whether the right hon. Gentleman remembers what was in the Tory manifesto of 1992. It said that the Conservative party wanted to continue to reduce taxes as fast as it could. But during the last Government's term of office a typical family—this afternoon Conservative Members have been professing concern about families and people on lower incomes—paid an extra £2,000 in tax. How does the right hon. Gentleman justify that?

 

Mr. Lilley Is the right hon. Gentleman going to apologise to the British people for what he said before the election, which has been rebutted and refuted since?

 

Mr. Darling I shall come to our manifesto in just a minute. The Conservatives fought the 1992 election explicitly on tax, and they won. We all remember the pollsters and the so-called double whammy. The Conservatives won the election because they fought it on tax; indeed, they tried to fight the last election in 1997 on exactly the same grounds, but they failed because they had been condemned by their very own actions. We also remember the then Prime Minister saying in March 1992: Low tax opens doors…High tax slams the doors on the hopes that are common to all. There have been a lot of slamming doors in the course of the last few years.

 

 

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