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Budget Resolutions and Economic Situation

Surely the obvious answer is that it is best to think those things through in advance. That is not the only example. The film subsidy tax relief scheme had exactly the same problem. Before that, there was company tax incorporation, which had to be reversed, and reversed back again. There is a fundamental lack of thought about the practicalities of many of the schemes, which is ultimately very wasteful. The main taxation measures that the Government introduced were in relation to the environment. The Liberal Democrats certainly support the principle of environmental taxation and would like to see more active use made of it. However, it was striking that on the day before the Budget, the Environmental Audit Committee, which is an all-party Committee, criticised the Government for allowing environmental taxation to fall as a share of gross domestic product. That is at a time when, as we were reminded this morning, carbon emissions targets are not being met. Of the specific measures, we support the very modest increase in the taxation of what are called Chelsea tractors. Frankly, the research of the RAC, for example, suggests that, in order to have an impact and to change behaviour, the differential needs to be about £1,000 rather than £200. None the less, the measure is a move in the right direction. We welcome, in principle, the increase in the climate change levy. It is a clumsy tax, based simply on the manufacturing sector. We have argued for a more broadly based carbon taxation system, but since we support the principle of environmental taxation, we do not disagree with what the Government are trying to do. Given that the Government claim to be really using environmental taxation, I am perplexed about why there is nothing whatever in the Budget on the aviation sector. Interestingly, air passenger duty, which is the one tax mechanism that the Government have, has been frozen. Why is that? There are many ways in which the Government could do something, through environmental taxation, to curb emissions in the aviation sector, but they have done absolutely nothing. The question is, why? The major weakness of the Budget relates to the big opportunities that were missed. One question—this is a slightly technical point that I raised with the Chancellor in Treasury questions—is why the Chancellor missed the opportunity of the lowest real interest rates for 300 years to refinance large parts of the Government debt. The Government have rolled out a programme—they describe it in the Budget—for more active use of the gilts markets, but reputable economic advisers and former members of the Monetary Policy Committee have pointed out that billions could have been saved if the Treasury had been quicker off the mark in taking advantage of the market opportunities. A more fundamental point is that there is absolutely no indication of where the Government are heading in terms of the long-term reform of local government finance. That is important because, as we all know, council tax is highly regressive. That completely undermines the basic objective that the Chancellor is trying to achieve: greater fairness and equity throughout the tax system. There is a lot of anger among pensioners about the loss of the £200 rebate, but that, in itself, is a symptom of a bigger problem. The tax is not perceived as fair or legitimate, and it needs to be reformed so that it is linked to people’s ability to pay. Moreover, the local government tax system produces only 25 per cent. of local revenue, which is not consistent with the approach of local decentralisation of which the Government claim to be in favour. We have had no indication of where the Government are heading. The Chancellor also missed the big opportunity of giving us an indication of where the Government are heading on pensions policy. There was a report in the Financial Times on the day before the Budget of a blazing row about the matter that was supposed to have taken place between the Prime Minister and the Chancellor. I do not believe everything that I read in newspapers, but the article seemed singularly plausible because it argued that the Prime Minister had asked the Chancellor what he was doing about the Turner report. The Turner report’s key recommendation was on how to create a system with a decent level of state pension to get away from mass means-testing, which has all the disincentive effects at which the right hon. Member for Darlington hinted. Turner offered a way forward, but we know that the Chancellor is passionately opposed to it. There is a fundamental division in the Government on not just pensions policy, but the fundamental question of the best way of dealing with poverty and redistribution. There is a question whether we should use complex benefits, or general measures such as those proposed by Turner on pensions. I do not doubt the Chancellor’s commitment to social justice because he clearly believes in it passionately. However, he has created a highly complex system of benefits that causes big disincentives. At the end of the day, the system has proved to be wholly ineffective because all the evidence about income and wealth distribution suggests that that problem is getting worse and certainly no better.