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Budget Resolutions and Economic Situation

I am grateful to be called to speak in the debate. I remind the House of my declaration in the Register of Members’ Interests. I shall comment on the Budget and the Government’s record of stewardship of Treasury matters. I shall say something about tax simplification, inflation and monetary policy, and I shall conclude with some observations on inheritance tax and the environmental element in the Budget. The Budget was difficult to judge because part of the picture was missing—that is, the now receding outcome of the comprehensive spending review, originally scheduled for this summer, and now forecast in detail for the autumn. Until we can put the tax raising and spending parts of the economy together, it is difficult to know how good the claims of the Chancellor were yesterday. We know that effectively there will be a squeeze on public expenditure, and if the Government will not pay for certain services, individuals may have to provide those themselves. That, from their standpoint, would be the equivalent of a further tax. The Chancellor was also silent on one tax rise that we know is definitely coming and which will arrive from 1 April—the likely 5 per cent. increase in council tax across the United Kingdom. Many hard-working families will see a real departure of money from their balance before any of the changes announced by the Chancellor can affect their personal budgets. This has been the silent tax throughout the time the Labour Government have been in power, in that above-inflation increases in council tax have happened year in, year out. Not just hard pressed families, but many pensioners are struggling to pay their council tax. And they will have had little relief from the telephone directory-size Lyons report. There was another element missing from the Red Book. I hope the Financial Secretary will give some thought to remedying that in future. Over the Chancellor’s period in office, there have been many, many changes to the tax system, but no evaluation is ever provided as to whether they have produced any net benefit to the economy. For example, the Government have spent over £1.5 billion on reliefs to the British film industry. When I tabled parliamentary questions asking for some kind of evaluation, I was referred to the film industry’s own reports on its overall progress. We have no indication from the Treasury of how many starts on new British films have occurred as a result of the umpteen tax changes that have affected the film industry. With £1.5 billion of taxpayers’ money put into one industry alone, I should have thought that some kind of assessment should be available. I remember a small tax change some years ago whereby the rate of VAT on children’s car seats was reduced, with the claim that that would somehow improve children’s safety. I applaud that aim, but where was the evaluation of whether the expenditure of £5 million of the public’s money ever gave us anything by way of improved safety? A more controversial area is the ending of the payable tax credit as regards pension provision—a major change during this Chancellor’s stewardship of Treasury matters that was initially a £5 billion reduction in the amount of money going into pension funds. There has been much debate and argument about it. I, for one, would be interested to see a Treasury appraisal of that major change in the way in which pensions are funded, but nothing has appeared. If I had time, I could go through nearly every tax change that the Chancellor has made, for which there has been no impact study or evaluation to find out whether it worked. Yesterday, the Chancellor patted himself on the back in relation to his own perception of his economic stewardship. Before we consider his latest Budget, we should reflect for a moment on his track record. Personal tax allowances—much has been said about the personal tax content in this Budget—have, by and large, been increased by the rate of price increases, not earnings. As a result, the Chancellor has accumulated the equivalent of another 7p in the pound in tax take—an increase in revenue equivalent to £29 billion during his lifetime as Chancellor. That fiscal drift has also meant that another 1.5 million people are now in a higher-rate tax bracket. I acknowledge that economic growth and increasing earnings account for part of that, but an awful lot of it has to do with fiscal drag. As for the tax bill for households, in 1997 the average household spend was 33.6 per cent. of income; now, it is 38.3 per cent. One can go on looking at other areas. For example, while house prices have doubled, stamp duty thresholds, with the exception of the lower band, have not changed. The revenue in that area has increased by a staggering 582 per cent. In terms of investment in the economy, the percentage of gross domestic product invested in pensions when this Government came to power was 6 per cent.; now, it is significantly lower. The savings ratio has fallen from 10 per cent. to 5.3 per cent. Total debt in the economy is up by 160 per cent., at £1.3 trillion. Public spending as a share of GDP has, over the lifetime of the Government, increased from 34.7 per cent. to 44.9 per cent.—an increase of 7.5 per cent. In the United States, our economic rival, public expenditure has increased by 2.4 per cent.; in Germany, the figure is 1.7 per cent. The cost to business of compliance with the multiplicity of the Chancellor’s tax changes since 1997 is estimated by the British Chambers of Commerce at an additional £40 billion. Looking at Government debt, in 2001 the Chancellor announced that debt over the next five-year period was to be £28 billion; by 2006, that had risen by an additional £129 billion—a £101 billion overspend. Now this Budget, by contrast with the situation that was announced in the pre-Budget report for borrowing, contains a further £8 billion. I would say to the Financial Secretary that Treasury forecasting is very much in need of a review as regards its accuracy. If we go back through the Red Books, we see an increasing difference between what was promised and what was delivered, particularly on the key measure of Government borrowing. Having given a different perspective on the Chancellor’s tax record, I turn to some specific issues. Let me first acknowledge the activities of one person who was not mentioned in the Chancellor’s plaudits yesterday—the Paymaster General, who is continuing to provide support for the tax law rewrite exercise. That started during my time in the Treasury, and I am pleased that the Government have continued it over the past 10 years. The Treasury has also introduced some important anti-avoidance measures whereby those who wish to avoid tax must get Treasury approval in the first instance. Against that more open and transparent operation of the tax system, may I say to the Paymaster General, through the Financial Secretary, that perhaps the time has come to start learning some of the lessons that have come out of the tax law rewrite exercise? I have been involved in its steering committee for the past 10 years. Many good ideas about sensible reforms in the operation of the tax system have come out of that exercise, but sadly its remit does not allow those measures to be implemented because they would require a change in tax law.