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Charge Of Income Tax For 1982–83

Volume 22: debated on Thursday 22 April 1982

The text on this page has been created from Hansard archive content, it may contain typographical errors.

I beg to move amendment No. 12, in page 12, line 23, after 'charged', insert—

`(i) in respect of so much of an individual's total income as does not exceed £750 at the rate of 25 per cent.;
(ii),'.
It may be for the convenience of hon. Members, so that they are not detained too late tonight, if I range slightly wider than I would otherwise in the debate on the amendment and take in some of the remarks that I might have made in the clause stand part debate.

There have been many references by my right hon. and hon. Friends this afternoon to the pledges made by the Conservative Party at the last election to reduce income tax at all levels. The Conservative Party manifesto says:
"We shall cut income tax at all levels to reward hard work, responsibility and success; tackle the poverty trap … It is especially important to cut the absurdly high marginal rates of tax both at the bottom and top of the income scale."
It is important to emphasise that, while the manifesto contained only a reference to income tax, during the course of the election campaign, in their anxiety to win the election, Conservative spokesmen gradually extended the pledge to cover not only income tax but all taxes on earnings, including national insurance contributions. It is important to have that point on the record. That pledge was made by the Chancellor of the Exchequer in a speech at Whitefield on 24 April 1979. He departed from the language in the manifesto, which referred to income tax, and spoke deliberately about lowering taxes on income, and taxes on income include national insurance contributions.

In a speech on 16 April 1979, the Prime Minister spelt out six steps to Britain's recovery. One of those steps was lower taxes on earnings. If there was any dubiety, it was dispelled by the Prime Minister in a speech on 19 April—just three days later—in the town hall, Birmingham. The right hon. Lady said:
"I say to every worker in the Midlands, to every person who goes out to earn a living: the Conservatives are on your side …. It's our intention to rebuild our industries on the rock hard and well-tested foundations of incentive and profit."
It gets better:
"We are going to do it by … making it pay to work again, by seeing that those who put their back into the job get good wages with fewer 'deductions' and more for the family to spend as it chooses."
However, as my hon. Friend the Member for Edinburgh, Central (Mr. Cook) spelt out, deductions are what matter, and they include national insurance contributions as well as income tax. It was to reduce deductions, not just income tax, that the Prime Minister made her explicit and categoric pledge during the election. It is important to get that on the record. It is not just a point of sophistry or a casuistical point. Given the judgment that must be made by Parliament and the electorate, it is vital to ascertain precisely what the Prime Minister and her colleagues promised at the election. Since the election, the Chancellor of the Exchequer and the Chief Secretary have often attempted to suggest that national insurance contributions are not a form of tax. I have heard the Prime Minister suggest on more than one occasion that it is not a tax and that the justification for raising national insurance contributions is that those in work should pay for those out of work. I should have thought that applied equally to the payment of income tax.

Far from treating national insurance contributions less and less as a tax, the Government are treating them more and more as a tax. They have destroyed much of the insurance principle that lay behind the original separation of national insurance contributions from income tax. They have destroyed a central element of the insurance principle for the short-term benefit of the relation to earnings. When earnings-related contributions were introduced by the present Secretary of State for Education and Science in the Social Security Act 1973, they were justified on the ground that they would produce earnings-related benefits. The Government have now broken that link, particularly for short-term benefits.

Partly as a result of the break in that link and of the increase in national insurance contributions, the burden of direct tax on low incomes has greatly increased. That is demonstrated by the figures that the Government were forced to give in response to questions from others as well as myself on the changing burden of taxation between the last year of the Labour Government and this year. In 1978–79 a married couple with two children on half average earnings had to devote about 12·5 per cent. of their income to tax and national insurance contributions. Today, that figure has increased by 50 per cent. There has been an increase in the real burden of taxation on the lowest paid to over 18·5 per cent. The direct tax burden on a family on three-quarters of average income has increased from 20·8 per cent. in 1978–79 to 24·7 per cent. today. As nine out of 10 families know to their cost, the reality of the Government's tax record has been not that direct taxes have gone down but that they have gone up.

9 pm

What perhaps is not appreciated sufficiently, although we may have succeeded finally in securing the understanding of Conservative Members and the people, is that, while the burden of direct tax has gone up, the burden of indirect tax has also increased. Under this Government the burden of total taxation has increased dramatically at all levels of earnings until one gets to earnings which are above twice the average, but that affects only about 8 per cent. of taxpayers.

The Conservative Party, in its election manifesto, pledged itself to tackle the poverty trap. According to the manifesto, it was especially important to cut the absurdly high marginal rates of tax at the bottom of the income scale. It is in the context of the poverty trap and the absurdly high marginal rates of tax at the bottom of the scale that the Government have produced that the case for a reduced rate band becomes very strong.

I spelt out the way in which the tax burden on the lowest paid has increased dramatically during the past four years. The Government may say in reply—this point was made by the Institute for Fiscal Studies when it put in evidence two years ago against the idea of a reduced rate band—that very few families earn only half average earnings, or £80 per week, so it is using a sledge hammer to crack a nut.

I should like to make two points in reply to points that the Minister will no doubt make and also to the calculations of the Institute for Fiscal Studies. First, when we talk about an average income of £80 per week, which is half average earnings, we mean that the wage of the breadwinner is about £69 and that he is receiving child benefit of about £11 in addition. There may be few people in Surrey, East or Cirencester and Tewkesbury who earn only £69 per week, but I warrant that in Stepney, Ashton, Edinburgh, Workington, Glasgow and all the constituencies represented by the Opposition Members there are hundreds of thousands who earn only £69 per week. I could name hundreds of my constituents in Blackburn who earn that or less, so we are talking about many people.

The second point is that the taxation of unemployment benefit and supplementary benefit will bring the income of many more families into the tax bracket where half avearge earnings are taxed. This will apply particularly where a breadwinner loses his job half-way through the year, and typically where he loses his job in the autumn. If we take into account that those who are already on low earnings are likely to be in insecure, often seasonal, employment and will lose their jobs as winter approaches, we are again talking about large numbers.

Before the taxation of unemployment benefit was agreed, those who lost their jobs half-way through the year, having been earning approximately £70 per week, would have dropped out of taxation altogether because their total taxable income during the year would have been less than their personal allowance as married men. Therefore, someone earning up to £90 per week for half the year who was declared redundant in the autumn would have paid no tax at all. If someone earning £90 a week on gross earnings of, say, £100—the maximum of this example—becomes unemployed half-way through the year, his total taxable earnings for the whole year will work out at half average earnings, because his unemployment benefit of £41 a week will now be taxed by the Government. Thousands of people who previously would not have been within this tax bracket, which the IFS and the Government dismissed as a piece of statistical imagination, will be brought into it because of the taxation of unemployment benefit.

As my hon. Friend says, those people's disposable income will also be greatly affected by the delays in paying rebates until the end of the year.

Most people do not need highly paid economists to tell them that the Government are proving a very costly experience for them. The Government have not only raised the tax levels but they are telling working people to take less in wage increases.

Indeed, they are, but the Government use highly paid economists to try to suggest that our case on behalf of our constituents is a figment of our imagination. Sad to say, the IFS fell into that trap when it suggested that only about 10,000 families would benefit from a reduced rate band of 25 per cent.

The case for a reduced rate band has been discussed many times. A feature of the taxation system throughout the 1950s and part of the 1960s was not one reduced rate band but three. Indeed, a reduced rate band was reintroduced by the Labour Government in 1966, abolished in 1970, reintroduced by the Labour Government in 1978, and abolished by the present Government in 1980. It has been given great consideration by Parliament over many years. It was last discussed during the Committee stage of the 1980 Finance Bill, when much of the discussion centred on evidence submitted by Mr. C. N. Morris, of the IFS, about its operation.

The IFS said that pound for pound it was better to spend the cash that one would spend on a reduced rate band to raise personal allowances, which would take more people out of taxation than would the reduced rate band. In short, it said that there was confusion between the marginal rate of tax and the average rate, and that what mattered, except for a small group, was not the marginal rate but the average rate, and that people's position would be no different with a marginal rate of 25 per cent. on a small band of their income rather than 30 per cent. The IFS also claimed that only about 10,000 families would benefit from a reduced rate band. When that evidence was discussed, the hon. Member for Gateshead, West (Mr. Horam) described it as not a fiscal study but fiscal sorcery. On that occasion, if no other, he was fairly close to the mark.

I concede to the IFS and those who are held in high regard by the Opposition, such as David Piachaud, that the case against the reduced rate band is respectable and needs to be considered. However, it has been well answered by a submission by Christopher Pond and Clive Playford, of the Low Pay Unit, who took issue with the IFS evidence. They said that the argument that it was better to spend the cash on personal allowances rather than on the reduced rate band was
"true only at a single point in time. In any one financial year it is always more beneficial to the low paid to have an increase in allowances than the maintenance of a lower rate of tax. But if such allowances are not fully index linked then the following year part, if not all, of the value of the increase in allowances will have been eroded by inflation. The reduced rate band, on the other hand, will remain as a structural feature of the tax system."
Exactly the situation that the Low Pay Unit predicted in its evidence has now arisen. There has been a failure fully to index not only last year but, for the reasons given by Labour Members, this year. That failure fully to index has increased the burden of taxation by 50 per cent. in real terms for those on the lowest incomes.

It is in the context of that failure, which we regret but can do nothing about, that the case for a reduced rate band to provide some amelioration in the tax burden for the lowest paid becomes overwhelming. When the reduced rate band was abolished by the Government in 1980, the full year's costing given in the Red Book at that time was a saving of £901 million. I dare say that the Minister will give the Treasury's present estimate of the cost. Sadly, the Government, this year as last year, refused to provide the Opposition with a tax ready reckoner before the Budget. It does not lie in the mouth of the Chief Secretary or the Minister to cavil at the cost of amendments that the Opposition are forced to make when they refuse to provide the information, as they did in answer to a parliamentary question from me before the Budget.

Moreover, the Government have failed to publish their own tax ready reckoner, which they traditionally publish after the Budget. My own calculation—and I shall be interested to hear the Minister's—is that if the cost of abolishing the lower rate band in 1980–81 was £900 million, the cost of restoring it today may be £1,100 million to £1,200 million. The Minister will no doubt ask the question that he asked of my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon): where is the money to come from? I will provide an answer to that, but I also make one other point. In these debates on the Finance Bill, given the procedures and the procedural straitjacket within which we operate, there is no opportunity for the Opposition to put forward their alternative Budget or their studied Budget judgment. That is why my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) had to put forward that considered judgment outside rather than inside the House of Commons.

Our job in the course of these debates is to criticise the Government, constructively we hope, and to allow the Committee to judge whether the Government are standing by their promises, rather than to state what we would do in the alternative. That applies to personal allowances where, if the Government had stuck to their promises, the bill would have been the £2,000 million that they were suggesting should be paid.

Where might the money come from? Again, Opposition Members have dealt at length and with great eloquence which the way in which the tax burden on the rich has been reduced while that on the poor and on everybody else in work has been increased. I shall not go over that. In answering the question that the Minister will pose about where the money will come from, I want to deal with the cost of these enormous and gratuitous increases in tax payments to the rich, the cost that has fallen on the country, in order to reduce the burden of taxation on single Cabinet Ministers from 52½ per cent. to 46 per cent., and those who are married with two children from 50 per cent. to 44 per cent. It is the cost of those reductions and the reductions for those with higher incomes.

9.15 pm

It is interesting that although the Government made it plain before the general election that they would cut taxation for the rich as well as the poor—they have kept that promise and a good bit more—they have suddenly become coy about the cost of the tax cuts to the rich. On 8 April the hon. Member for Ealing, North (Mr. Greenway) asked the Chancellor of the Exchequer
"by what percentage the basic rate of income tax could be reduced if the top rate were raised to its 1979 level."
The Chancellor replied:
"The re-imposition of an 83 per cent. top rate of income tax would finance a reduction of less than one quarter of 1p in the basic rate."
He went on in a supplementary answer to say:
"Any attempt to whoop up envious onslaughts on the higher paid could generate …negligible revenue."—[Official Report, 8 April 1982; Vol. 21, c. 1077.]
At best, that reply was seriously misleading and, in my judgment, verging on the mendacious.

The Library's estimate of the cost of reducing the basic rate by 1p in 1982–83 prices is £950 million. One quarter of that is £237 million. My hon. Friend the Member for Oldham, West (Mr. Meacher) asked the Chancellor on the same day:
"What is the total annual cost at current prices of changes in taxation of the higher rate—and higher rate thresholds— of income tax, capital transfer tax and capital gains tax made in his last four Budgets, apart from the cost of any adjustments to these taxes to maintain the real burden at the levels which obtained in 1978–79."—[Official Report, 8 April 1982; Vol. 21, c. 449.]
He was told that the cost was £740 million in a full year.

There is more to that because when the Library checked with the Inland Revenue about the composition of that answer it was told that £5 million of the total was for capital transfer tax, because, even after all the giveaways, capital transfer tax had not been indexed at 1978–79 levels. I find that surprising, but we shall accept it for the moment.

The Inland Revenue also said that capital gains tax concessions had cost only £90 million above indexation. Of the full cost of £740 million, £655 million was the cost to the tax concessions made to the rich above the need to index, at the higher rates and on higher thresholds. But, by sleight of hand, the Treasury omitted to mention the cost of the investment income surcharge, which applies only to those on higher rates. That is another £210 million. On the Treasury's own figures, the cost of the concessions to the rich, above those necessary to maintain their real value as at 1978–79, is not £237 million, as the Chancellor intimated on 8 April, but £865 million.

Both the Financial Secretary and the Chancellor have a serious duty to explain to the Committee how they gave an answer that was so clearly at variance with the facts also provided on that day.

Can my hon. Friend the Member for Blackburn (Mr. Straw) tell me how many families benefited from the changes? The Government said that only 10,000 families would benefit from the lower rate band. We wish to know how many families at the top end benefited.

I can tell my hon. Friend that 93 per cent. of taxpayers earn twice average earnings or less. Those who receive substantial benefits—those earning five times average earnings or more—represent 2 per cent. or 3 per cent. of all taxpayers.

I have known the hon. Gentleman for many years and I know that he would not mislead anyone, or wish to do so. In my question I was tackling the principle that is adopted by Opposition economic spokesmen, who have consistently led the public to believe that by restoring the high levels of taxation in the early part of 1979 they would release large sums of money that could be used to reduce the burden on those paying taxation at the lower rates. I do not know whether the hon. Gentleman's figures are right or wrong, but they make no difference to my argument. I have a duty to tell him that he must say where the money should come from to finance some of the tax cutting that he is talking about.

The Chancellor of the Exchequer told the hon. Gentleman that the figure was £237 million, which in my judgment is not a negligible revenue, bearing in mind that we receive letters from DHSS Ministers telling us that they cannot allow the unemployed some tiny concession because it would cost £2 million. At the same time £237 million is described as negligible. However, it appears that the actual cost to the Treasury is £950 million, which is exactly the cost of reducing income tax by 1p in the pound, which is a substantial thing to do if that is what a Government want to do.

My hon. Friend has brought to the Committee's attention a major area of consideration. It seems that £700 million is unaccounted for, although that has been denied in Parliament. That is what we shall have to pay to meet the demands of the better off in our society. I hope that the Minister will address himself to this issue if to no other. He should respond to my hon. Friend's argument and withdraw the statements that he and his right hon. and hon. Friends have made in denial of my hon. Friend's assertions.

I hope that the Minister will bear in mind my hon. Friend's intervention.

When the Government were in Opposition they complained that the then Labour Government were practising the politics of envy. That was a charge which had little evidence to support it. It was really an aggressive and assertive defence of massive and growing inequalities in our society. It was the Conservatives' attempt to justify those inequalities. They always forgot to mention the sin of avarice, which is a far deadlier sin than that of envy. The Government have unquestionably practised the politics of greed. They have done so without shame.

The Government have torn up their taxation pledges to the poor. They have transferred the burden of taxation from the rich to the poor and they have made the divisions in our society far greater rather than less. These policies have hardly been the one nation politics of Disraeli, which the Government are proud to claim, let alone the moralities of St. Francis of Assisi, to which we were all treated when the Prime Minister crossed the portals of No. 10 on that dismal day three years ago.

The acceptance of amendment No. 12 would go some little way to putting some fairness into the unfair tax system that the Government have created, and some way to reducing the burden of taxation on the poor. It is in that spirit that I commend it to the Committee.

I shall be brief, but I have one or two points to make on this important issue.

People are paying tax who should not be doing so. I give one example. I received a letter from a constituent who is a widow, working as a home help, but who is receiving no widow's benefit because her husband became ill and was unable to work for the last 14 years of his life. She has an unemployed son of 17 living at home. She earns £59 a week and pays £9 a week in tax. She pays a further £4 in national insurance, together with a superannuation payment. She takes home a total of £42 a week. She is perhaps paying more tax than she should, but she is still within the tax band.

It is nonsense that in this day and age a person earning £59 a week and paying rent—her rent rebate is being reduced by the Government.—

Be fair. Surely my hon. Friend knows that his constituent must pay towards the 60 per cent. increase for Sir Michael Edwardes. He must have his £95,000 and if she does not contribute towards it, how will he get it?

I find it difficult to accept my hon. Friend's slightly sarcastic standard of fairness. It would be grossly unfair if this woman were taxed to pay for that.

As a result of the cuts in the higher tax bands, some people receive more per week from the Government in tax handbacks than that woman earns, and she has to keep herself and her family. That is what the Government are doing.

I cite that case as an example, but in my constituency there are many like her, and many on even lower incomes, because many are unemployed. On the housing estate in which she lives, which has a population of 39,000, more than 30 per cent. are unemployed. They receive less than that woman, but at least she has a job.

The woman is a home help, doing what most people consider to be a useful service. However, she is paying more in rent because she is not receiving the same amount of rent rebate. She is paying higher bus fares because the Government have imposed on local authorities the need to meet increased transport costs. She is paying increasingly higher prices for many other things, including electricity. She is trying to handle all these increases on £42 a week. It is a disgrace that anyone shold be asked to live on such a low income. She says that she does not know how she will manage. If she does not pay the electricity bill because she does not have the money, the electricity board will disconnect her supply. She will be without electricity, and that is not unusual in my constituency.

Labour Members are constantly reminded of similar examples. Conservative Members may say that we have nice, comfortable incomes. That is true, but week after week we come into contact with people who have incomes near the poverty level. They have incomes which Conservative Members could not live on even if they tried. They have no idea of what it means to live on such low incomes. Conservative Members spend as much in one night taking their wives to a restaurant for dinner as that woman receives to handle her budget for one week.

Moreover, the Government are imposing on that woman a 4 per cent. limit on the rise in her income. That is what the Government's tax policies are all about, and that is why I shall vote for the amendment.

9.30 pm

The amendment relates to the 25 per cent. lower rate band which the Opposition suggest should be restored. It has proved to be a peg for the hon. Members for Glasgow, Cathcart (Mr. Maxton) and Blackburn (Mr. Straw) to debate wider issues. I would rather debate the peg—[HON. MEMBERS: "What about the wider issues?"] I should like to debate the wider issues that relate to the suggestion that has been made by the Opposition. As the Opposition have put those wider issues at the forefront of their case in support of the amendment, it is only right that we should judge whether the amendment has any effect on the wider issues.

The hon. Member for Blackburn said that we have refused to give figures about the costs of various tax changes about which Labour Members have inquired. I know that there is a convention not to give estimates before the Budget, but since then I have answered literally hundreds of detailed questions and have given vast quantities of information in tabular form which the Revenue has prepared with great care and at great cost so that hon. Members can be informed about all aspects of costs, percentages or changes.

The hon. Member for Blackburn has been supplied with copious information. He has got everything that he wanted. We have done all that we possibly can. It is therefore wrong for the hon. Gentleman to complain about the service that he has received. Had he tabled a question about the amendment, I could have told him that as drafted it would cost the PSBR £620 million in 1982–83. In a full year, the cost would be £770 million. I imagine that the hon. Gentleman would like to include the lower rate band for an earning wife. That was a feature of the reduced rate band in 1978–79. In that case, the PSBR cost this year would be £730 million, and the full-year cost would be £900 million.

The Opposition have had a good day. My right hon. and learned Friend the Chief Secretary replied to a debate on an amendment that would have cost £2,080 million. They have also asked for another £900 million in a full year, bringing the total to £2,980 million. Therefore, we are touching on £3 billion in one day.

Throughout the long nights of the Finance Bill Committee I intend to keep a tally of the cost of the Opposition amendments. By the time we get to the end of the Committee proceedings, I imagine that the figure will be slightly higher.

I shall say nothing more about how these proposals are to be financed. My hon. Friend the Member for Northampton, North (Mr. Marlow) asked those questions of the Opposition, hut, as The Guardian is quick to point out, we do not get sensible answers.

If we had £900 million in a full year to use, what would be the best way to spend it? In pursuit of the objectives of the hon. Member for Blackburn to help those at the bottom of the scale, where life is tightest and taxation pinches hardest, we should like to create the maximum help. I have a witness for saying that raising the thresholds would be best. That witness is the right hon. Member for Llanelli (Mr. Davies). When he was a Treasury Minister he said on 3 March 1977:
"A reduced rate hand, as distinct from an increase in the tax threshold, would not give most help to those on the smallest incomes. For the man on the tax threshold complete exemption for a few pounds is worth more than a lower rate of tax on a larger band of income which he has not got."—[Official Report, 3 March 1977; Vol. 927, c. 747.]
That is just right.

The hon. Member for Blackburn quoted figures that were stated in the Institute for Fiscal Studies paper by Morris and Warren. Admittedly, that was in 1980, but those figures are still valid as a matter of principle. The figures in the table prove that at the lowest rates of income that attract tax people are worse off and the benefit such as there is from transferring money from the allowances to a reduced rate band—revenue neutral, for the sake of the argument—benefits people slightly higher up the scale and not those at the bottom of the scale.

The most helpful thing that one can do for the people about whom the hon. Gentleman was talking is to let them out of tax. The more one can let them out of tax, the better. Therefore, I am surprised that the hon. Gentleman puts his name, and gives his support, to an amendment that does not let such people out of tax, but which includes more people in tax than would be necessary if the alternative course of raising the allowances that my right hon. and learned Friend the Chancellor of the Exchequer has taken were followed.

There is another point. The Opposition's amendment would concentrate the advantage on people equally, whether they were married or single. I am not sure that it is not better, in trying to use the £900 million to the best advantage, in the hypothetical sense, that we should seek to apply it more to married couples and families than to single people. That is another advantage to be derived from using the money to increase the allowances rather than to introduce a reduced rate band.

The Financial Secretary cannot play around with how he would spend the hypothetical sum of £900 million when he has told the House that he is against spending it. The House has voted against amendments tabled by the official Opposition to increase the tax thresholds. It voted against them on advice from the Dispatch Box. If the Financial Secretary will agree to use his influence with the Chancellor of the Exchequer to accept those amendments on Report, we shall seek to withdraw our amendment now.

The hon. Gentleman seems to want to have it both ways. We have increased the allowances. This is a hypothetical question. If the Chancellor of the Exchequer now had a further £900 million available, I am arguing about whether it would he best invested in a further increase in allowances or a reduced rate band. I am sorry to say that that money is not available to him. However, I do not want to shirk the point of principle that has been raised by the Opposition in the amendment.

Finally, I shall refer to the question of the so-called poverty trap and the advantages of a reduced rate band or otherwise in relation to the starting rate of tax for those who increase their income to the point where they first reach the tax level. In this country we have a high initial rate of tax at 30 per cent. Admittedly, it was higher in the past, when it was as high as 35 per cent. in some years. It is one of the unusual features of our tax system. However, it is not unique, as the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) said earlier today. I believe that Australia has a higher starting threshold, and possibly one or two other countries as well.

The arguments about the poverty trap are not greatly affected by the proposition that there should be a reduced rate band of £750 over and above the allowances. Incomes in that range which would pay tax within the reduced rate band are very low. It may be of interest to the Committee if I quote the part of the Institute for Fiscal Studies paper by Morris and Warren which analyses the people who were in the reduced rate band between 1978 and 1980 which we abolished in 1980.

Their estimate—I make it clear that I am only quoting their work, which I believe to be reputable and sound—is that there were about 3½ million people in that band. Of those 3½ million people, they estimated that there were 1,130,000 pensioners or people without occupations, 1,220,000 wives working part time, 160,000 wives working full time, and 510,000 under 21, making a total of over 3 million of the 3½ million people who were not heads of families and breadwinners. Of the people who were solely dependent for maintaining themselves or their families, there were about 130,000 single people and 300,000 married men.

Thus, the evidence suggests that people in this range of income are few in relation to those whose sole source of income it is. Many of the people in this band of income either derive income from other sources, or are married and therefore their husbands have other sources, or perhaps are young people who are still living at home. The effect of reducing the tax rate from 30 per cent. to 25 per cent. within this £750 range of income will give a little special help to a large number of people who do not particularly need it, whereas the effect of increasing the allowances would help people who need it more.

I return to the question whether women in part-time work are in need. For most women, part-time jobs are taken on to earn not pin money but desperately needed cash for their family income.

I want to ask the hon. Gentleman one question. Does he accept that, with taxation of unemployment benefits, a large group of people who lose their jobs during the course of the year and then have to rely on taxed unemployment benefit will now come into the tax bracket that we are discussing?

On the hon. Gentleman's first point, I did not say "women"—I said "wives". I was talking about working wives whose husbands also work. By corrupting it to women, the hon. Gentleman implied that they were sole earners. That is not the essence of what I was saying.

9.45 pm

When people fall into a given range of low income, whether as a result of low wages or unemployment benefit or a combination of both, as the hon. Member for Blackburn (Mr. Straw) rightly said, those people will be in low ranges of income in total. The Opposition amendment raises the question whether it is better to try to help them through the rather blunt instrument of the tax system—not the social security system—by increasing allowances, or by introducing a reduced rate band. I suggest that, on all the three tests that I have described so far, the answer is, as Morris and Warren said:
"We have found little substance in any of the arguments in favour of the reduced rate band. It does not help the low paid. It does not significantly increase incentives either for those in work or as between those in work and those out of work. Few of those who were in the reduced rate band were in the poverty trap and few of those who were in the poverty trap were in the reduced rate band. The wide basic rate band is one difference between the British income tax system and those of other countries which is actually worth preserving."
The expert evidence, therefore, does not support the Opposition. I add as a throw-away line that the Opposition's suggestion would be more complicated, harder to understand and would require many extra Inland Revenue staff to administer.

I have one further point to add to the discussion about the alternative to the threshold. The hon. Member for Blackburn asked my right hon. and learned Friend how many people were let out of tax by the Budget. As he fairly said, there can be no doubt that on the day before the Budget there are a number of people paying tax who will be let out of tax the day after. The figures that my right hon. and learned Friend gave were for those who paid tax during the tax year 1981—82. There will be 500,000 fewer paying tax during the tax year 1982–83. One can take any date in the year as a base. A person is either a taxpayer or not. Taking like with like, there will be 500,000 fewer taxpayers in 1982–83 than there were in 1981–82 as a result of my right hon. and learned Friend's proposals.

The hon. Member for Blackburn returned to the theme, about which we shall no doubt hear a great deal more, that the Budget increases the proportion of tax on some people in the middle range of incomes assuming that they satisfy certain conditions about the increase in their earnings—whether they are working, pensioners or whatever. The figures that the hon. Gentleman quoted were accurate. I have given him many figures in answer to parliamentary questions. He can quarry through them as much as he likes, but he is chasing the wrong fox. It will run a little, but it is not the real one. The real fox is the question "Are people better or worse off?" [HON. MEMBERS: "They are worse off'.) I shall give the figures. In 1978–79, the average weekly earnings for a single person after income tax were £70·67. In the year just past, they were £112·06—an increase of 58 per cent. For married people, the increase was 54 per cent.

I have not quoted figures for national insurance, but the difference would be marginal. Those increases must be compared with the far smaller increase in the retail price index. As I said in the Budget debate, simply concentrating on the proportion of tax and national insurance from one year to another ignores the real question whether people have greater disposable incomes. The Opposition should concentrate on that instead of making bogus points.

For those reasons, and because the Oppostion amendment provides no help for people where the shoe really pinches, I ask my hon. Friends to reject the amendment.

The only people making bogus points have been the Government in trying to place a smokescreen around the clear, categorical promises that they made at the general election to reduce direct taxation and deductions from wages on all levels of income. The Opposition have been asking exactly the right question. How has the burden of taxation changed in the last four years? As my hon. Friend the Member for Walsall, North (Mr. Winnick) said, we have not gone around the country saying that we propose major increases in social programmes and lower taxes. It was the Conservatives who on every hustings in the last election said that taxes would be lower, but they have ensured that taxes have become higher except for the very rich.

If the Financial Secretary really wishes to ask his question and not simply give cash figures for increases in the past four years he must give figures to show that there has been a real improvement in living standards for the average family, taking account not only of income tax but of national insurance and the other hidden taxes that people have had to face in council rents, fares, gas charges and the rest. Translated into those real terms, we find that the family on average earnings had £110 per week in 1978, £115 per week in 1979 but £108 per week in 1982—a reduction of 1·1 per cent. The reduction in living standards for those on half average earnings was 5 per cent., while for those on 10 times average earnings there was an increase of 44 per cent. So the Financial Secretary has come up with the wrong answer even to his own question.

The Financial Secretary quoted the comments of my right hon. Friend the Member for Llanelli (Mr. Davies) in 1977 to the effect that raising the thresholds would be best. We all agree that that would be best, but the best has not been done by the Government. Therefore, we have had to consider a second best. The Government may have raised the thresholds this year, but they have raised them by less than the amount by which they would have had to raise them if they had raised them last year, which they failed to do. The failure to raise thresholds over the lifetime of this Government is one of the reasons for the dramatic increase in the tax burden on the poorer section of society. The Financial Secretary said that the most helpful solution would have been to let such people out of tax altogether. Of course that would have been the most helpful solution, but, far from letting the poor out of tax, the Government have brought them into an ever-increasing tax burden which has already risen by 50 per cent.

Perhaps the hon. Gentleman did not hear me say a short time ago that half a million people have been let out of tax by the Budget.

Of course I heard, but that is compared with last year. We are concerned at what has happened over the lifetime of the Government.

The Chief Secretary says that that is not what the debate is about. However, the Chief Secretary often says that the Government should be judged on what happens not even in one Parliament but in two. Here he is trying to suggest that he only started last year. The truth is that in 1978–79, those on half average earnings were paying 12½ per cent. of their income in deductions and now they are paying over 18½ per cent. That is a dramatic increase in the burden of taxation. The Government have done nothing for taxation of the poor except to make it worse.

We do not believe that this is the best thing to do but we certainly believe that when this Government have refused to agree to our other amendments it is better than doing nothing. When the hon. Gentleman is working out his little tally, he should be aware that we certainly saw this amendment as an alternative to the last. To accumulate the cost of the last amendment and this one is to make a mockery of any serious discussion about the burden of taxation and the burden that should fall on the country as a whole.

The hon. Gentleman failed to mention one further point in his reply. I mentioned the extraordinary discrepancy between the Chancellor's claim that the reimposition of an 83 per cent. top rate of income tax would finance a reduction of less than one-quarter of 1p in the basic rate of tax, which is about £237 million. Information based on Inland Revenue figures, but elaborating that given to my hon. Friend the Member for Oldham, West (Mr. Meacher), shows that the total cost of tax giveaways to the very rich over and above that needed for indexing purposes was £865 million—at least three times as much.

The hon. Member for Ealing, North (Mr. Greenway) was given full notice by me. I would refer to his question which is why he was here in the Committee. He may have told the Financial Secretary that it was coming up. In any event the Financial Secretary had a duty to reply to the point which I raised, to explain how the House has been given the impression, to quote the Chancellor, that
"envious onslaughts on the higher paid could generate … negligible revenue'.
That was exactly what he said on 8 April, yet when we flush out from the Government the true figures this "negligible revenue" turns out to be £865 million from income tax and another £90 milion from capital gains tax.

We want an answer to this discrepancy. If we do not receive the answer tonight, as I suspect, we shall certainly continue to pursue it.

I must apologise to the hon. Gentleman. I should have given him the answer. It is very simple and straightforward. The question of my hon. Friend the Member for Ealing, North (Mr. Greenway) was, what was the value of the concessions in the 65 to 83 per cent. range? The answer was £230 million. He did not ask what was the cost of the changes in the other rate bands—the 40 per cent., 45 per cent., 50 per cent. and 60 per cent. rate bands. That accounts for the difference of £655 million.

The Financial Secretary has even got the original question wrong. The original question was by what percentage the basic rate of income tax could be reduced if the top rate was raised to its 1979 level. One has to assume that if the top rate is raised the other rates are raised with it. [HON. MEMBERS: "Why?"] Because the whole sense of the question by the hon. Member for Ealing, North was, what would be saved if the burden of taxation on the higher paid were brought back to the level that obtained in 1979? That is exactly what the hon. Gentleman asked in his supplementary question when he spoke of all the things that can be financed by raising taxation to the level that prevailed when the Government came to office. It was in response to that question that the Chancellor suggested that

"Any attempt to whoop up envious onslaughts on the higher paid could generate … negligible revenue."—[Official Report, 8 April 1982; Vol. 21, c. 1077.]
That "negligible revenue" turns out to be about £865 million. Even £237 million is not negligible by any stretch of the imagination.

This debate has been concerned with the burden of taxation which the Government have imposed, particularly on the poorest in our community. The amendment seeks to relieve some of that burden on the poorest in our community in circumstances where the Government have refused to relieve that burden through the better course of raising the level of personal allowances. In that spirit, I commend the amendment to the Committee.

Question put, That the amendment be made:—

The Committee divided: Ayes 183, Noes 249.

Division No. 130]

[10.01 pm

AYES

Adams,AllenBuchan,Norman
Allaun,FrankCallaghan, Rt Hon J.
Anderson,DonaldCallaghan,Jim(Midd't'n & P)
Archer, Rt Hon PeterCampbell Ian
Ashley, RtHonJackCampbell-Savours,Dale
Ashton,joeCanavan,Dennis
Atkinson,N.(H'gey,)Cant, R. B.
Barnett,Guy(Greenwich)Carmichael,Neil
Barnett, Rt Hon Joel(H'wd)Carter-Jones,Lewis
Bidwell,SydneyClark, Dr David(S Shields)
Booth,RtHonAlbertCocks, Rt Hon M.(B'stol S)
Boothroyd,MissBettyCohen,Stanley
Bray, Dr JeremyColeman,Donald
Brown, Hugh D.(Provan)Conlan,Bernard
Brown, R. C.(N'castle W)Cook, Robin F.
Brown, Ron(E'burgh, Leith)Cowans,Harry

Cox,T.(W'dsw'th, Toot'g)Marshall,DrEdmund(Goole)
Craigen, J. M.(G'gow, M'hill)Martin,M(G'gowS'burn)
Crowther,StanMason, Rt Hon Roy
Cryer,BobMaxton,John
Cunliffe,LawrenceMaynard, Miss Joan
Davidson,ArthurMeacher,Michael
Davies, Rt Hon Denzil(L'lli)Mikardo,Ian
Davis, Clinton(HackneyC)Miller,Dr M.S.(E Kilbride)
Davis,Terry(B'ham,Stechf'd)Mitchell,Austinf(Grimsby)
Dean, Joseph(Leeds West)Morris, Rt Hon J.(Aberavon)
Dewar,DonaldMoyle, RtHonRoland
Dixon,DonaldMulley,RtHonFrederick
Dobson,FrankNewens,Stanley
Dormand,JackOakes, Rt Hon Gordon
Douglas,DickO'Neill,Martin
Dubs,AlfredOrme, Rt Hon Stanley
Dunnett,JackPalmer,Arthur
Dunwoody, Hon Mrs G.Park,George
Eadie,AlexParker,John
Eastham, KenParry,Robert
Edwards, R.(W'hampt'n S E)Powell,Raymond(Ogmore)
English,MichaelPrice, C.(Lewisham W)
Ennals, RtHonDavidRace, Reg
Evans, loan(Aberdare)Radice,Giles
Evans, John(Newton)Rees, Rt Hon M(Leeds S)
Field,FrankRichardson,Jo
Flannery,MartinRoberts,Altan(Bootle)
Fletcher Ted(Darlington)Roberts, Ernest(Hackney N)
Foot, RtHonMichaelRoberts,Gwilym(Cannock)
Ford,BenRobertson,George
Forrester,JohnRobinson, G.(CoventryNW)
Foster,DerekRooker, J. W.
Fraser, J.(Lamb'th, N'w'd)Ross, Ernest(Dundee West)
Freeson,RtHonReginaldRowlands, Ted
Garrett, John(NorwichS)Ryman,John
Garrett, W. E.(Wallsend)Sever, John
Gilbert, RtHonDrJohnSheerman,Barry
Golding, JohnSheldon, RtHonR.
Graham,TedShore, RtHonPeter
Hamilton,James(Bothwell)Silkin, RtHon J.(Deptford)
Hamilton, W. W.(C'tral Fife)Silkin, Rt Hon S. C.(Dulwich)
Hardy, PeterSilverman,Julius
Harrison, RtHon WalterSkinner,Dennis
Hart, RtHonDameJudithSmith, Rt Hon J.(N Lanark)
Hattersley, Rt Hon RoySoley,Clive
Haynes, FrankSpearing,Nigel
HomeRobertson,JohnSpriggs,Leslie
Homewood,WilliamStallard,A.W.
Howell, Rt Hon D.Stoddart,David
Hoyle,DouglasStott,Roger
Huckfield,LesStrang,Gavin
Hughes,Mark(Durham)Straw,Jack
Hughes, Robert(Aberdeen N)Summerskill,HonDrShirley
Hughes, Roy(Newport)Thomas,Dafydd(Merioneth)
Janner,HonGrevilleTilley,John
Jay, RtHonDouglasTinn,James
John,BrynmorTorney,Tom
Johnson, Walter(Derby S)Urwin, RtHonTom
Jones, Rt Hon Alec(Rh 'dda)Varley, Rt Hon Eric G.
Kaufman, Rt Hon GeraldWainwright, E(D'earneV)
Kerr,RussellWalker, Rt HonH.(caster)
KilfedderJamesA.Watkins,David
Kilroy-Silk,RobertWeetch, Ken
Lamborn,HarryWelsh,Michael
Lamond,JamesWhite,J.(G'gow Pollok)
Leadbitter,TedWhitehead,Phillip
Leighton,RonaldWhitlock,William
Lewis, Arthur(N'ham NW)Wilson, Gordon(Dundee E)
Litherland,RobertWilson,William (C'try SE)
Lofthouse,GeoffreyWinnick,David
Lyon,Alexander(York)Woodall,Alec
McCartney,HughWoolmer,Kenneth
McDonald,DrOonaghWright,Sheila
McKelvey,William
MacKenzie, RtHonGregorTellers for the Ayes:
McNamara,KevinMr. George Morton and Mr. Allen McKay
McTaggart,Robert
McWilliam,John

NOES

Adley,RobertGardiner,George(Reigate)
Aitken,JonathanGardner, Edward(S Fylde)
Alexander,RichardGlyn, Dr Alan
Alison,RtHonMichaelGoodlad,Alastair
Ancram,MichaelGow, Ian
Aspinwall,JackGrant, Anthony(Harrow C)
Atkins,Robert(PrestonN)Gray, Hamish
Atkinson,David(B'm'th,E,)Greenway,Harry
Baker,Kenneth(St.M'bone,)Grieve, Percy
Baker, Nicholas(NDorset)Griffiths, E.(B'ySt.Edm'ds)
Banks,RobertGriffiths,PeterPorfsm'thN)
Beaumont-Dark,AnthonyGrist, Ian
Bendall,VivianGrylls,Michael
Bennett, Sir Frederic(T'bay)Hamilton,HonA.
Benyon,Thomas(A'don)Hamilton,Michael(Salisbury)
BenyonW.(Buckingham)Hampson,DrKeith
Berry,HonAnthonyHaselhurst,Alan
Best,KeithHavers, Rt Hon Sir Michael
Bevan,DavidGilroyHawkins,Paul
Biffen,RtHonJohnHawksley,Warren
Blackburn,JohnHayhoe,Barney
Body,RichardHeath,RtHonEdward
Bonsor,SirNicholasHeddle,John
Boscawen,HonRobertHenderson,Barry
Bottomley,Peter (W'wich W)Hicks,Robert
Boyson,DrRhodesHill,James
Braine,SirBernardHogg,HonDouglas(Gr'th'm)
Bright,GrahamHolland,Philip(Carlton)
Brinton,TimHooson,Tom
Brittan,Rt.Hon.LeonHordern,Peter
Brooke,HonPeterHowell, RtHon D.(G'ldf'd)
Brotherton,MichaelHowell,Ralph(NNorfolk)
Brown,Michael(Brigg &Sc'n,)Hunt,David (Wirral)
Bryan,SirPaulHunt,John(Ravensbourne)
Buck,AntonyJenkin,RtHonPatrick
Budgen,NickJessel, Toby
Bulmer,EsmondJohnsonSmith,Geoffrey
Burden,SirFrederickJopling,RtHonMichael
Butcher,JohnKaberry,SirDonald
Cadbury,JocelynKershaw,SirAnthony
Carlisle, John(Luton West)King, Rt Hon Tom
Carlisle,Kenneth(Lincoln)Knight, MrsJill
Chalker, Mrs.LyndaKnox,David
Chapman,SydneyLamont,Norman
Churchill,W.S.Lang,Ian
Clark, SirW.(CroydonS)Langford-Holt,SirJohn
Clarke,Kenneth(Rushcliffe)Latham,Michael
Colvin,MichaelLawrence,Ivan
Cope,JohnLawson,RtHonNigel
CorriejohnLeMarchant,Spencer
Costain,SirAlbertLennox-Boyd,HonMark
Critchley,JulianLester,Jim(Beeston)
Crouch,DavidLewis,Kenneth(Rutland)
Dean, Paul(North Somerset)Lloyd, Ian(Havant & W'loo)
Dickens,GeoffreyLloyd, Peter(Fareham)
Douglas-Hamilton,LordJ.Loveridge,John
Dover,DenshoreLuce,Richard
du Cann, Rt Hon EdwardLyell,Nicholas
Dunn,Robert(Dartford)McCrindle,Robert
Durant,TonyMacfarlane,Neil
Dykes, HughMacGregor,John
Eden, RtHonSirJohnMacKay, John(Argyll)
Edwards, Rt Hon N.(P'broke)McNair-Wilson,M.(N'bury)
Eggar,TimMcNair-Wilson, P.(NewF'st)
Eyre,ReginaldMadel,David
Fairbairn,NicholasMajor,John
Fairgrieve,SirRussellMarland,Paul
Faith,MrsSheilaMarlow,Antony
Farr,JohnMarten,RtHonNeil
Fenner, MrsPeggyMates,Michael
Finsberg,GeoffreyMather,Carol
Fisher, SirNigelMaude, RtHonSirAngus
Fletcher-Cooke,SirCharlesMawby, Ray
Fookes, MissJanetMaxwell-Hyslop,Robin
Forman,NigelMayhew,Patrick
Fowler, Rt Hon NormanMellor,David
Fox,MarcusMiller,Hal(B'grove)
Fraser, Peter(SouthAngus)Mills,Iain(Meriden)
Fry, PeterMills, Peter(WestDevon)

Miscampbell,NormanRoberts, M.(CardiffNW)
Mitckell,David(Basingstoke)Roberts, Wyn(Conway)
Monro,SirHectorRossi,Hugh
Montgomery, FergusRost, Peter
Moore,JohnRoyle,SirAnthony
Morris, M.(N'hamptonS)Sainsbury,HonTimothy
Morrison, HonC.(Devizes)Shaw, Giles(Pudsey)
Morrison, Hon P.(Chester)Shelton,William(Streatham)
Mudd,DavidShepherd,Colin(Hereford)
Murphy,ChristopherShepherd,Richard
Myles, DavidShersby,Michael
Neale,GerrardSilvester,Fred
Needham,RichardSims,Roger
Nelson,AnthonySmith,Dudley
Neubert,MichaelSpeed,Keith
Newton,TonySpence,John
Onslow,CranleySpicer, Michael(S Worcs)
Oppenheim, Rt Hon Mrs S.Squire,Robin
Page, Richard(SWHerts)Stainton,Keith
Parris,MatthewStanbrook,Ivor
Patten,Christopher(Bath)Stanley,John
Patten, John(Oxford)Steen,Anthony
Pattie,GeoffreyStevens,Martin
Pawsey, JamesStewart, Ian(Hitchin)
Percival,SirIanStokes,John
Pink,R.BonnerStradling,Thomas,J.
Pollock,AlexanderTaylor, Teddy(S'end E)
Porter,BarryTemple-Morris,Peter
Prentice, Rt Hon RegThomas, Rt Hon Peter
Proctor, K. HarveyThompson,Donald
Raison, RtHonTimothyThorne,Nieil(IlfordSouth)
Renton,TimThornton,Malcolm
Rhodes James, RobertTownend, John(Bridlington)
RhysWilliams,SirBrandonTrippier,David
Ridley,HonNicholasvan Straubenzee, Sir W.
Rifkind,MalcolmVaughan,DrGerard

Viggers,PeterWickenden,Keith
Waddington,DavidWiggin,Jerry
Wakeham,JohnWilkinson,John
Waldegrave,HonWilliamWilliams,D.(Montgomery)
Walker, B.(Perth)Winterton,Nicholas
Wall,SirPatrickWolfson,Mark
Waller,GaryYoung,SirGeorge(Acton)
Walters,Dennis
Ward,JohnTellers for the Noes:
Watson,JohnMr. Selwyn Gummer and Mr. Tristan Garel-Jones.
Wheeler,John
Whitney,Raymond

Question accordingly negatived.

Clause 18 ordered to stand part of the Bill.

To report Progress and ask leave to sit again tomorrow— [Mr. Britton.]

Committee report Progress; to sit again tomorrow.