Budget debate and motion on windfall tax (2nd day)

- Thursday, 3rd July 1997

 

Rt Hon Peter Lilley MP

Dawn Primarolo: I can assure the hon. Gentleman that I was not about to bring my remarks to a close.

 

The new deal for the unemployed fulfils our manifesto commitment, and it will be paid for by the windfall tax on the privatised utilities. The Chancellor made it clear yesterday that after full consultation with the regulators, there is a clear judgment that the tax can be paid for without there being an impact on prices, investment, service standards or the employment prospects of those currently in the utilities. Indeed, the Public Accounts Committee has made it clear that in the case of the water companies, which have made profits totalling 7.4 billion, and in the case of the regional electricity companies, which have made profits of 8.7 billion, the profits were in excess of the level that the respective director generals have judged it reasonable to allow in the future.

 

The Budget contains a popular set of proposals that people have accepted. It provides opportunities for the unemployed, and assists lone parents back into full-time employment by helping them with child care provision. Some Opposition Members have complained that we have not invested enough in child care. That is rich coming from them, when, for 18 years, the Conservative Government presided over the worst investment in child care, denying people access to quality provision.

 

A successful economy needs stability, low inflation, strict control over Government borrowing, and openness. My right hon. Friend the Chancellor has set a target of 2.5 per cent. underlying inflation, and the Bank of England is responsible for setting interest rates. Strict control over Government borrowing and public finances is essential for stability. The Budget introduces new rules, under which the Government will borrow only to finance investment, and which include deficit reduction.

 

The Government are committed to building their reputation on trust and openness. They have opened the books to independent checks, and will continue to do so.

 

Mr. Lilley: Will the hon. Lady tell us how many of the 17 tax rises introduced in the Budget she had the honesty and openness to trust her voters with before the election?

 

Dawn Primarolo: We have stuck to our promises. Our manifesto made absolutely clear our intention to invest in industry and infrastructure, and to plan for the future.

 

Openness has never been a hallmark of the previous Government. We hope that, in the exchanges between Front Bench Members in the coming years, our openness will help the Opposition to understand the direction that the Government are taking, even if they cannot grasp it now.

 

We have undertaken a major reform of the corporation tax system, providing a low-tax environment for companies, encouraging quality long-term investment, and maintaining an attractive environment for inward investment. We have cut the basic rate of corporation tax from 33 per cent. to 31 per cent. from April 1997, and the rate for small companies from 23 per cent. to 21 per cent.

 

Let me make it clear that there is no attack on pensioners or pension funds. Opposition Members are engaging in scaremongering. Tax credits for pension funds and United Kingdom companies are abolished from Budget day. The abolition of credits removes the distortion which encourages the payment of dividends rather than the reinvestment of profits. Many pension funds have large surpluses totalling nearly 50 billion, so they can absorb the loss of tax credits and improve company performance as a result of encouraging long-term investment.

 

The measure is good for pensions and pensioners, not bad for them. Furthermore, the existence of pension fund contribution holidays demonstrates that there is scope to absorb the measure. People should understand that our reforms will benefit pension funds.

 

 

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