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Charge And Rates For 2003–04

Volume 405: debated on Wednesday 14 May 2003

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Question proposed, That the clause stand part of the Bill.

12.41 pm

As hon. Members know, the clause simply sets the basic rates of income tax for this year at 10 per cent., 22 per cent. and 40 per cent. We have already pointed out that the Government appear to be confused by their tax system. They misquoted the basic rate at 20 per cent. in the explanatory notes, when automatic indexation increases in the tax bands of 2 per cent. accompany the rates. However, we wish to speak about the clause because of the failure to deal with personal allowances and inflation: yet another stealth tax especially hits lower and middle-income earners.

When compared with our competitor countries, Britain has the lowest levels at which people start to pay tax. They will be even lower in real terms as a result of the fall in the real value of personal allowances, which have decreased from 60 per cent. of average income in 1950 to 24 per cent. today. Someone who earns only £15,000 a year—25 per cent. below average earnings—will pay tax of 22.5 per cent. of income as a result of combined income and national insurance tax liabilities of £3,388. If such an individual has, for example, two children, depending on the income of the spouse, whether they can complete the form and whether the Government can handle the administration, they may get back all or more in child tax credit and qualify for working tax credit.

Why tax people on such modest incomes in the first place? Why do a Labour Government make the rate at which taxation starts even lower in real terms? It is difficult not to conclude that the Government's concealed objective is to make people feel dependent on them for their tax credits to offset the ridiculously low rates at which taxation starts.

Has my hon. Friend also noticed that in the Bill the rate for those earning a slightly higher income and above is 40 per cent.? However, we know that the Government want to levy tax at 41 per cent., which they are doing by a backdoor means of changing the rules on national insurance. Would not it be more honest to set the rate at 41 per cent. and thus accept that the Government have broken their promise to the British people not to raise income tax rates?

I thank my right hon. Friend for his comments. The Government have already learned from the local election results that the British electorate are not stupid and that they know perfectly well that they now pay income tax at a rate of 41 per cent. if they qualify for higher rate taxes.

12.45 pm

The immediate effect of the stealth tax of freezing personal allowances will yield about £500 million per annum directly, but the knock-on effect will push more people into the higher tax rate. Data received in response to questions put by my hon. Friend the Member for Eddisbury (Mr. O'Brien) show that, according to the Government's own figures, there will be a 23 per cent. increase between 2002–03 and 2004–05 in the number of people with incomes over £34,515, rising from 3.9 million to 4.8 million. Not all those people will pay higher rate tax, because some will be pensioners, but that is nevertheless a good rough and ready measure of the extent to which the Government's income tax policies are pushing policemen, teachers, soldiers and nurses into higher rate tax brackets, as well as starting to tax them at a lower real income.

We regard this stealth tax as particularly devious and wrong. The Conservatives wish to reform and simplify the tax system when we are elected at the next election, and to take large numbers of people out of paying tax on such ridiculously low incomes.

I entirely endorse the comments of the Conservative spokesman on the impact of freezing personal allowances. It is a stealth tax that will have a significant impact on low-paid people. We wish to debate this clause because it is clearly central to the Government's Budget strategy and to the choices that the Government make about taxation. I understand that, under the procedures of the House, we cannot table amendments to the rates, so I shall make our points by speaking on the clause.

I want to start by reasserting the Liberal Democrats' belief in the principle of progressive taxation. After six years of a Labour Government, it seems extraordinary that the poorest 20 per cent. pay a higher proportion—41.7 per cent.—of their income in taxes, compared with the richest 20 per cent., who pay just 34.2 per cent. That is a regressive tax system, and we would like to see it adjusted.

Will the hon. Gentleman help me to understand his remarks by telling me what the rates and bands of the Liberal Democrats' local income tax would be?

We simply want to propose an entirely revenue-neutral system that would replace council tax—which I shall come to later—with a local income tax. If the hon. Gentleman wishes to support the council tax, which is having a dramatic effect on low-paid people and pensioners on fixed incomes, I would like to see him do so.

One of the reasons that the rates in clause 130 remain the same as last year's rates is that the Government have orchestrated a £2 billion tax hike through the council tax. They have failed adequately to fund nationally agreed pay rises, pension increases, national insurance increases and new requirements on services imposed on local authorities. We support those requirements, but they have not been adequately funded. The result has been an average increase in council tax that is four times the rate of inflation. The impact of that on pensioners on fixed incomes is severe and cannot be supported. I would have thought that many Labour Members would see that such a regressive system needs to be reformed. The regressive nature of local taxation is even worse than that of national taxation. The poorest fifth of households pay 7.1 per cent. of their income in local taxes, compared with the richest fifth, who pay just 1.8 per cent.

Income tax is self-evidently based on the ability to pay. The Liberal Democrats' preference for a 50p rate for income over £100,000, which is in line with much of Europe and the state of New York—there is hardly evidence there that it leads to a brain drain—and which I suspect is supported privately by many Labour Members, could initially provide funding to cut council tax by £100 per household this year and get rid of the iniquities of tuition fees and top-up fees, which act as such a disincentive to students on poor incomes.

I thoroughly endorse the hon. Gentleman's comments on council tax. However, the US tax system has substantial allowances against income, including interest payments, so it is not entirely accurate to say that there is an effective 50 per cent. rate of income tax. The net effect on higher earners generally comes out at about 40 per cent.

I thank the hon. Gentleman for those comments; he may well be right. I am sure that he knows more about it than I do, so I am happy to accept his comments. None the less, the fact remains that the overall tax system in Britain is highly regressive and, with the impact of the increases in council tax, it is having a severe effect.

In years past, I have had opportunities to gauge the disparities or otherwise between the taxation levied by different states, so will my hon. Friend take it from me that the precedent in the United States, whether it be federal, state or city tax, is according to the ability to pay—an important principle that we should not forget?

Absolutely. That is in great distinction to the system that we have in Britain with a system of local taxes, which, self-evidently, is not based on ability to pay.

How does the hon. Gentleman work out that someone on a higher income paying 40 per cent. income tax on practically all his income and then paying lots of other taxes out of net inc ame, is on an effective tax rate of 31 per cent? That sounds like Liberal Democrat arithmetic.

As I understand it, the figures have all been properly assessed and are based on parliamentary answers,so they have been accepted as factual.

The hon. Gentleman's attempted response to my right hon.

Friend the Member for Wokingham (Mr. Redwood) will not suffice. Simply to say that the facts have been checked but that he cannot trouble us with them now is not good enough. What assessment has the hon. Gentleman made of the probable impact of the level of income tax at the higher rate and the increase in national insurance charges on the prospects of recruitment and retention in the police force, the teaching profession and the NHS?

I personally have not made any assessment. [HON. MEMBERS: "Ah!"] Hon. Members express great surprise. I would say only that these higher rates of tax apply in many other countries and do not cause massive problems in terms of a brain drain or recruitment to public services. At the end of the day, we all have to decide how best and most equitably to raise our taxes, and the Liberal Democrats believe that the current system is not adequately progressive and we would prefer to move to a more progressive system.

To return to the funding of students in further and higher education, about which the Conservative party has also raised concerns, although I am not sure about the funding of its proposals—

Order. The Chair has been extremely tolerant of the debate so far, but we are now moving far away from income tax.

I am grateful for that. I was simply making the point that with the rate that we are proposing of 50 per cent., the Government could get rid of the iniquitous proposed system of funding of top-up fees and tuition fees for students.

As I have said, many Labour Members would share our view that the tax system should be more progressive than it is. I suspect that the Minister, in her quieter, private moments may well agree. The Government are caught on the horns of a political commitment not to raise income tax, so tax is still raised but in ways that are more unfair than if it was raised by way of income tax, and which this year is hitting people on low pay and pensioners on fixed incomes very hard indeed by way of the council tax.

Can my hon. Friend explain the impact that the present unjust system has on areas such as Devon where we have a large number of people on fixed incomes and a large number of pensioners and low-paid people who have been penalised by the council tax? Is he aware that all parties on joint administrations in Devon have agreed that the council tax system is wrong and that they want to see a fair taxation system, and that includes the Conservative leader of Devon county council, Christine Channon?

Order. I remind hon. Members again that this is a debate about income tax levels, not council tax.

I am in some difficulty in responding to the intervention given your comment, Mr. Gale. I simply endorse what my hon. Friend says and say that in North Norfolk, with a low-wage economy, the position is much the same.

I declare my interests as they appear in the Register of Members' Interests.

The clause sets out income tax rates, but it does not tell us the whole story about how incomes will be taxed. As my hon. Friend the Member for Arundel and South Downs (Mr. Flight) pointed out, we must take clause 130 in conjunction with the meanness over the bands and the I per cent. surcharge on national insurance payable over the whole income range for the first time, which means an increase in the 40 per cent. tax rate in the Bill.

I rise to speak against the clause because I represent a constituency where an income of £35,000 a year is not huge but necessary to meet the ordinary living expenses in such an area, given high house prices, high costs of services, high council and other local taxes and the general cost of living.

The Government are making a great mistake in drawing so many hundreds of thousands of additional people into the tax net to pay the 41 per cent. tax—the combined income tax rate in the clause and the 1 per cent. national insurance surcharge. That will leave many people quite short of cash to meet their family bills over the year. People in Britain under the Conservative Government, and more recently under the Labour Government, have become used to experiencing rising take-home pay and rising spending power if they are in a reasonable job and keep that job. That is something that Members on both sides of the House usually welcome. The question that we have to ask today is whether the Government are now damaging that in a dangerous way. I believe that they are. They are reaching the point where higher taxes of a stealthy kind on people's incomes are now doing considerable damage.

What should the Government do about it? They should be more honest about the fact that they are effectively increasing income tax and review again their public expenditures to see whether they can do a better job in controlling and containing waste and unnecessary expenditure so that they do not need to put through such large increases in the tax burden. I am sure that that advice will fall on deaf ears with the Minister, but it is heartfelt and well meant, and the Labour party will discover to its dismay in the ballot box during the months ahead that this is an extremely unpopular imposition, and that the combination of the rates, bands and the national insurance surcharge is correctly perceived outside as a substantial increase in the income tax burden. When the Government use their majority to push this through today, they will do something that they will live to regret.

I welcome you to the Chair, Mr. Gale.

I congratulate my hon. Friend the Member for Arundel and South Downs (Mr. Flight) on ensuring that the clause is debated in the Chamber because this is a classic stealth tax that should be brought to the attention of the public. My hon. Friend has done that exceptionally well, as has my right hon. Friend the Member for Wokingham (Mr. Redwood). The charge that it is a stealth tax is not just a Conservative charge. If one reads the commentary after the Budget from the various accountancy firms, one is struck by the fact that almost every firm pointed to this stealth tax. Tax partners at accountancy firms, including Mr. Warburton, a senior tax partner at Grant Thornton, have said:
"Because the increase on tax bands has been very modest, there has been a stealth rise…The rate bands are only going up by about 1.7 per cent, while earnings have gone up by about 3 or 4 per cent."
Of course, that will have a serious effect on people and their incomes. Because:he tax-free allowance for people under 65, which is normally increased in line with inflation, is staying at £4,615, KPMG, another accountancy firm, has estimated that it will cost the average taxpayer £95. 'Those are serious increases at a time when people are already facing increases in council tax, national insurance and so on.

1 pm Grant Thornton has also said:

"This is a classic case of fiscal drag. More people are drawn into the higher tax bracket and pay the top rate on a rising proportion of their income."

We need to ask ourselves: what is the point of a higher tax rate if more and more people are drawn into it? The higher tax rate was originally designed for the people with the highest incomes in society but now, as my hon. Friend the Member for Arundel and South Downs pointed out, people in the education system, the health service and police service are paid far beyond that.

I discovered from the "Today" programme this morning not only that my constituency has the highest income of any in the country—the highest in terms of purchasing power, that is—but that the average income in my constituency is around £30,000. A huge number of people will be paying the higher tax rate in that constituency—and there were many others on the list. Each year, the number increases. This year, as a result of the clause, it will increase by 150,000 people.

It is incumbent on the Committee to ask the Minister to be honest about this matter. If the Government want to increase income tax. why do they not put it in their manifesto, come to the House with a Budget and do it? Instead, each year, we get this salami-slicing stealth tax, which is eroding people's disposable income.

Having heard my right hon. and hon. Friends speak in the debate, it seems to me that income tax rates are becoming increasingly irrelevant to the concept of take-home pay. The Government have thrown the majority of people into the dependency culture. The use of tax credits has in effect rubbished the concept of tax rates in relation to take-home pay.

I had an example of that only a few weeks ago. One of my constituents, a local employer, explained to me how he had two members of staff both earning roughly the same amount of money. However, one of them was getting a lot more through the use of tax credits. He said that that destabilised the wage environment in his company because people compared take-home pay. He resented the fact that he was being used to monitor income tax and in effect to act as a benefits agency on behalf of the Government. That is why I say that overall rates are becoming increasingly irrelevant.

The same argument applies to national insurance, which now has little to do with the old stamp concept. It has simply become another way to raise income tax, with the added benefit of squeezing a bit more out of companies. Some have called it a stealth tax but I see nothing stealthy in the way most people's pay packets were hit last month. There will not be much stealth there. However, the stealthy part is the way in which comparative take-home pay is being hit in a secret way. People cannot tell what is going on.

This Government said that they would not increase income tax and I believe that they are still saying it. In practice, they are deceiving the British people as to what is going on.

My hon. Friend makes an extremely important point. Does he not think that, if we have a society where people do not know what their tax rates are, and where what they receive in their pay packet bears no relationship to the job that they are doing, it is a huge demotivation to increase their skills and productivity and to take the whole economy forward?

I thank my hon. Friend for making that important point. This area needs a lot more study, because there are many implications from mixing the dependency culture with income tax and with corporation tax. Companies are viewing the three together. There is a new mind-set coming into play that, whichever way I look at it, works to the negative. I agree with my hon. Friend's point.

My anxiety is that the Government are plundering the pockets of the people but, to put it mildly, it is not at all clear to t1 e people that they are getting a fair return for that which is levied upon them. I say in all candour to the Paymaster General that she has a responsibility to abandon the insider mentality that is increasingly characterising both the decision making and defensive pronouncements of Ministers.

It is natural that Ministers will think, "Let us just increase tax a bit. It will not cause appreciable harm. People may not notice. We seem to have been able effectively to con them thus far and it may boost our finances somewhat." My warning to the hon. Lady is that the legendary patience and stoicism of the British people when confronted with additional imposts could soon be wearing thin, if it has not already done so. I invite her to reflect on a number of considerations.

My ho a. Friend talks of the legendary patience of the British people. However, I have noticed that they are growing very impatient with the council tax increases. Of course, with the fuel tax increases, their patience broke and there was a tax strike.

One of my hon. Friend's great qualities is his prescience and it has not failed him on this occasion, for he has precisely anticipated my thought process. The reaction to the incidence of exorbitant council taxes could soon be mirrored in a public reaction to the incidence of exorbitant direct taxation flowing from the Treasury and the Inland Revenue.

The hon. Lady has a responsibility to reflect on a number of considerations. First, at what point does the incidence of higher taxation both on individuals and on the corporate sector threaten to undermine individual incentive and competitive industrial performance? If we have not reached that point, we must be very near to it. In the light of the Chancellor's downgraded forecasts for the performance of the economy in the years to come, it would be sensible for her and her colleagues to take stock of the consequences of that burdensome taxation. That is the more powerful a consideration in the light of the fact—which no amount of Treasury casuistry can gainsay—that over the past six years we have sacrificed two thirds of the competitive tax advantage that we have enjoyed relative to other member states of the European Union.

The second consideration on which the hon. Lady should reflect seriously and which she should discuss with her colleagues is the likely incidence, to which I referred in my intervention on the hon. Member for North Norfolk (Norman Lamb), of higher tax rates, fiscal drag and national insurance contributions on people working in key posts in the public sector. One cannot continually clobber those upon whom we critically depend for the effective discharge of public services without there being an impact on recruitment and retention. In the words of the late Enoch Powell, that point is so blindingly obvious that only an extraordinarily clever person could fail to see it.

Take-home pay has fallen for the first time in over a decade this year and that is not to be forgotten, but in relation to the public sector my hon. Friend will be aware that this is the first time in the history of this country that benefits-included average take-home pay in the public sector is higher than in the private sector. That says little for our productivity.

That is indeed a bad sign, and a worrying portent of the likely development of the two economies of the private and public sectors in the months and years to come.

I will give way once more, but as you will readily discern, Mr. Gale, I am itching to make my third point. Whether the Committee is itching to hear it is of course another matter.

Has my hon. Friend made any calculation of the amount of churning that will result from the clause? The state will be paying those who work in the public sector, who will then pay it back with tax. My hon. Friend may not be able to answer my question, but perhaps the Paymaster General will.

I am grateful to my hon. Friend for the deft shoe-shuffle with which he ended his intervention. He is absolutely right. If I were a Minister, I would feel it incumbent on me to provide the answer. I am not, so it is not; but it is the Paymaster General's responsibility to give a satisfactory reply. What merit is there in an arrangement whereby the middle man takes the money and gives it back again, with all the bureaucracy that such a process entails? It would have been sensible to take account of those considerations in policy formulation at the outset.

My third point is very simple. It is easy for Governments to think—as my party did when in office—in terms of sums raised and inputs made, while focusing far too little on outputs. I have noticed, not just in the Paymaster General's words but in those of her right hon. and hon. Friends, an increasing tendency to stick to the brief and to assume that the House and, more important, the country can be fobbed off with a continuing regurgitation of statistics relating to what is being raised and spent.

That is understandable, but misguided. Let me say in all sincerity that, ultimately, the public are not much interested in hearing from any of us about inputs. They are interested in outputs, and if the words that they hear from Ministers about the level of inputs do not resonate with them because they are not reflected in local service delivery, they will come to regard Ministers' pronouncements first with cynicism and then with contempt.

The fact that the Government are spending £50 million an hour makes it incumbent on Ministers to demonstrate that improved services on a substantial scale are resulting from that level of expenditure of the public's money. The effect of the higher taxes is very real and painful for those—often on modest incomes—who must pay them, while the effect of the Government's increased expenditure, often poorly distributed and untargeted, is much less beneficial. The pain is clear, but the gain is frequently either insubstantial or nonexistent.

Does my hon. Friend think that the ministerial reluctance to speak from the heart rather than sticking to the brief is connected with the fact that Ministers are benefiting greatly from the increased taxes? We see that in the ministerial travel bill, the ministerial drinks bill, the ministerial entertainments bill, the ministerial aides bill and the ministerial press support bill. I think that that is where a lot of the money is going, which may explain why Ministers are not prepared to say much here. They know that they are robbing the British people for no good reason.

My right hon. Friend is usually right, and he is right on this occasion. I believe that money raised from the taxpayer should be used for the taxpayer's benefit. I bear the Paymaster General—who trounced me in Bristol, South in 1992, but with whom I have enjoyed cordial relations ever since—no personal ill will, as she knows; but I do not want her, or her colleagues, to benefit at the centre from increased imposts on the public. I want the British people to benefit, and above all I want my Buckingham constituents to benefit. They are not currently doing so. They are getting restless; they are increasingly angry; they are about to vent their spleen on the Government, and their reaction will be mirrored nationwide.

1.15 pm

I am grateful to the right hon. Member for Wokingham (Mr. Redwood) and the hon. Member for Buckingham (Mr. Bercow) for giving me the benefit of their views and advice. Both made it clear that it was for political parties and individual Members of Parliament to decide on the policies that they advance, and to take responsibility for them.

I was greatly encouraged by the reference of the hon. Member for Buckingham to the 1992 general election campaign in Bristol, South, when he was my very able Conservative opponent. On that occasion he put to the people of Bristol, South the views that he and the right hon. Member for Wokingham have advanced today. He is right: the voice of the people of Bristol, South was pretty substantial. There was an 8.5 per cent. swing to Labour. While I greatly enjoyed the campaign, I am sure that the hon. Gentleman is more safely tucked up in Buckingham now than he would ever have been in Bristol, South.

I am happy to, but I am sure that you would like me to speak about clause 130, Mr. Gale. I was being polite to Members.

Will the Paymaster General reflect on the fact that the difference between the 1992 election and subsequent general elections is that in 1992 the Labour party told the public ir, advance that it would increase taxes and they rejected it, whereas in 1997 and 2001 it did not tell them and then proceeded to increase taxes?

The huge difference between the election in 1992 in Bristol, South, as in the country—

Order. This is an interesting exchange, hut it is totally irrelevant to the clause.

I was enjoying myself, Mr. Gale, as no doubt were Opposition Members, but you are right to return me to clause 130.

The clause imposes income tax for 2003–04. The starting rate of 10p that we introduced in 1999 means that around 3 million lower earners continue to pay about half the marginal tax rates that they would otherwise pay. We have kept our promise not to increase the basic or top rates of tax, which remain at 22p and 40p.

Will the hon. Gentleman allow me to make a little more progress? I want to reply to a couple of points that he made. The right hon. Member for Wokingham was right—the figures do not add up—and I should like, in a spirit of friendship and generosity, to explain why that is. I shall be happy to give way to the hon. Gentleman later.

At 22p, the basic rate is at its lowest for 70 years. As Opposition Members said, the tax rates are complemented by measures designed to make work pay and to eliminate poverty. With effect from April, the Government have introduced child tax credit and working tax credit. Those new credits represent the biggest-ever investment in families, with some £13 billion to be spent on child tax credit alone. Child tax credit is paid not through the wage packet, but directly to the main carer, normally the mother.

As the hon. Member for Buckingham said, the income tax rates are also part of our commitment not just to macro-economic stability but to sound public finances. That applies particularly to policies enabling us to make a sustained investment in public services. Prudent management of the economy has allowed us to increase public services without raising income tax rates.

We have already outlined our ambitious plans to increase investment in the national health service, matched by reform, by 7.2 per cent. a year after inflation for the next five years. That will be financed by the increased national insurance contributions to which the hon. Gentleman referred, which is entirely in line with the Beveridge tradition.

Before the hon. Gentleman asks me to give an example, I shall give it now and then give way to him. Compared with 1997, by 2008 there will be 66,500 more nurses, 20,000 more doctors, 44,000 new therapists and about 100 new hospitals. To return to the example of Bristol, South, the difference between 1992 and now is that unemployment is down from some 15 to 17 per cent. to under 3 per cent.; people can also see real improvements in a health service that was so badly starved of money for such a long time.

I am extraordinarily grateful to the Paymaster General. I shall be candid: I had hoped to tip her into the proverbial pit, but for her to do that herself before I had the chance to do so is generosity on a truly grand scale. Does she not realise that what she has done is to commit precisely the sin—regurgitating statistics about inputs—of which I was., accusing her a few moments ago? Why does she not answer the very straightforward and practical question that the Chief Secretary has twice refused to answer in the past four weeks: why does the increase in clinical activity in the national health service represent only a tiny fraction of the increase in expenditure on it?

Without wishing to try your patience, Mr. Gale, by entering into a discussion on the national health service, I should point out that the hon. Gentleman well knows that giver., the resources put into the NHS to date, there has been a significant increase in activity. I will not try your patience by listing them all now—

No, I shall stay in order despite the hon. Gentleman's invitation. Through the increase in national insurance over the next five years, there will be substantial continuing investment in the NHS.

I am happy to give way to the hon. Gentleman, but I should point out that clause 130 is only about the actual rates of tax. I shall let him make his point, and then I shall return to being in order.

I thank the Paymaster General for giving way—I shall be brief. How can she square her comments about the NHS with Government statistics that clearly show that during the past three years, expenditure on it has risen by £9 billion—an increase of approximately 24 per cent.—yet hospital treatments have risen by only 1.5 per cent. and hospital admissions have actually fallen by 0.5 per cent.?

Order. I will allow the right hon. Lady to respond, but I should be grateful if the Committee would return fairly swiftly to tax rates.

I will do exactly as you ask, Mr. Gale. Of course, as the hon. Gentleman knows, when the national health service has been starved of resources and does not have enough beds, doctors, nurses, therapists and other support workers, it takes time to put those people in place to provide treatment. We are now reaching a critical point, whereby such staff are in place and the NHS is going from strength to strength.

I turn to the specific issues raised by hon. Members. The hon. Member for Arundel and South Downs (Mr. Flight) referred to the indexation of personal allowances. The freezing of them came into effect in April 2003, and cost the basic rate taxpayer 36p a week. As I said, that will help to fund annual real growth in national health service spending—something that the electorate desperately wanted and supported when this Government announced it; and of course, most pensioners over 65 are protected. Those aged 65 to 74 benefit from above-inflation increases in personal allowances, as do the over-75s. The Conservatives repeatedly froze income tax allowances when in power, but they did not use the money to invest in public services; they used it to pay for their economic failure.

None the less, the freezing of personal allowances is a tax increase on low-paid workers. Will the Paymaster General give a commitment that it will not be repeated during this Parliament?

If the hon. Gentleman will allow me, I shall first respond to a few more of the points that I need to deal with. I will deal later with his completely incorrect assertion about the position of the lowest 20 per cent. of earners vis-à-vis tax, as he is indeed very wrong.

The hon. Member for Arundel and South Downs and other Conservative Members referred to the increased number of higher rate taxpayers. To use again the example of Bristol, South, one excellent thing for the constituents whom I represent is that they now have jobs and can contribute to public services through national insurance and the tax system—something that the very high level of unemployment under the previous Administration denied them. We have increased the basic rate limit by inflation to maintain its value. As I said, that is in contrast with the previous Government, who froze the basic rate limit.

I would have expected Conservative Members to applaud the increase in the number of taxpayers, because it is a sign of a healthy economy—of more people getting into work and getting paid more. For the period 1997–98 to 2002–03, mean male average earnings increased by 25 per cent., and average full-time earnings for men and women increased by 26 per cent. Full-time earnings for the top 10 per cent. of men and women increased by 27 per cent., but prices went up by 13 per cent. Employment has increased by nearly 1.5 million since the spring of 1997. The number of people in work is at record levels—something that the previous Administration never achieved.

The right hon. Member for Wokingham and some of his colleagues referred to the use of national insurance. The reason why they keep on referring to the increase as a stealth tax escapes me. We announced that we would increase national insurance by 1 per cent., and we said that all the money would be spent on the national health service, which it is. If Conservative Members are saying that they would cancel that rise as well making, according to the hon. Member for Arundel and South Downs, a 20 per cent. cut across the whole public expenditure sector, they need to concentrate not on what this Government are doing but on how to explain to the electorate that there would be fewer teachers, fewer nurses and fewer doctors.

As I have just referred to the hon. Member for Arundel and South Downs, I should give way to him; that would be the polite thing to do.

I thank the Paymaster General for giving way. She said that all of the 1 per cent. national insurance charge is being devoted to health service expenditure, but I distinctly recollect that approximately half is for the health service, with half going towards tax credits. Would she care to comment on that? Secondly, I repeat that she should not indulge in what she knows to be Labour party misrepresentations. She should instead be concerned by, and take note of, factors such as the 50 per cent. increase in the cost of the central civil service, whose numbers are rising from 450,000 to 529,000. She should also consider ways in which Government expenditure on unnecessary bureaucratic costs might be reduced. That is what I was talking about, rather than Government spending overall.

All of the 1 per cent. national insurance rise is devoted to the national health service. If the hon. Gentleman refers to last year's national insurance legislation, which provided for that, he will discover that I said that repeatedly and that it is on the record. Indeed, the figures demonstrate that fact; the rise is not being used for anything else.

If I may, I shall deal with the second point made by the hon. Member for Arundel and South Downs. I can only go on the newspaper reports about, and the direct quotes from, the hon. Gentleman himself and the right hon. Gentleman the Leader of the Opposition. If I were to engage in propaganda devised by the Labour party, I would opt for something more spectacular—but I do not need to, as I can merely report the words that have come from the hon. Gentleman's mouth.

1.30 pm

I shall now deal with the points raised by the hon. Member for North Norfolk (Norman Lamb). He asserted—[Interruption.] I shall answer the hon. Member for North Norfolk, who has waited patiently; I may give way to the hon. Member for Buckingham later.

The hon. Member for North Norfolk asserted that the poorest 20 per cent. of households pay 40 per cent. of their annual income in tax. He bases that assertion on a publication from the Office for National Statistics, "Effects of Tax and Benefits on Household Income". However, the hon. Gentleman wants to forget—conveniently—some crucial and substantial facts that did not appear in that publication. The first is that the latest figures for 2001–02—the figures used by the hon.

Gentleman—do not include any measures that the Government have introduced to help low-income households, which came into effect from April 2002.

Some of the excluded measures are the working tax credit, the child tax credit and the baby tax credit, the above-inflation increases in the basic state pension in April 2002 and 2003, and the increase in the minimum income guarantee for pensioners to match the increase in earnings. The article does not take into account the working families tax credit, which, following OECD guidelines, would reduce income tax payments for those in receipt of the benefit. Taking all the measures announced between 1997–98 and 2001–02, independent research by the Institute for Fiscal Studies shows that households in the bottom two quintiles have experienced the greatest proportion of real income gains over the five-year period.

What of the assertions of the hon. Member for North Norfolk about council tax and the proposal that a 50 per cent. rate for those earning £100,000 or more will somehow pay for a £100 reduction of council tax—and just about everything else that the Liberal Democrats want to fund? It is interesting to recall that the Liberal Democrats wanted to increase public spending last year, but this year they want to cut council taxes. It seems that they want to fund whatever is fashionable. However, the hon. Gentleman's figures are wrong. The 50 per cent. rate on £100,000 would raise—the Treasury confirmed, when asked—an income of about £4.5 billion. That is the net take when the whole United Kingdom—England, Wales, Scotland and Northern Ireland—is costed. However, when the £100 deduction on council tax is calculated, the Liberal Democrat figure applies only to England.

As the hon. Member for Buckingham said, it is difficult to take people seriously when their figures do not add up. It is also difficult to take them seriously when it is clear that they read the papers every day to find out what might be in vogue and then shape their policies around it. As confirmed by the hon. Member for Truro and St. Austell (Matthew Taylor), who speaks as the Liberal Democrat shadow Chancellor, the Liberal Democrats now believe that the Government are making the correct and necessary investment in public services. The direct tax burden on a single-earner family on average earnings and with two children will be 20.1 per cent., which is lower than in 1998 or any previous year since 1997, so it is irritating to hear the hon. Member for North Norfolk and party asserting that such people are paying more tax. That does not sit well with the facts.

Does the Paymaster General have any concerns about the impact of this year's council tax increases—four times the rate of inflation—on low paid and pensioner households this year?

Of course I have concerns about impacts on lower income households. I shall not try your patience by listing the figures, Mr. Gale, but the Government were generous with the local government settlement on council tax this year. However, many Liberal Democrat authorities chose to increase local taxes on a large scale, so for the hon. Gentleman to stand in his place and claim that his party is concerned—when his councillors are not—is simply not a coherent position. I know that the Liberal Democrats like to be all things to all men and women—even depending on which ward, let alone which city, people live in—but when they are in the House, they should be more consistent in their suggestions. For the party that massively raised council taxes to suggest that it is now someone else's fault is not fair, correct, or accurate. I hope that the hon. Gentleman will not persist.

Clause 130 is a modest clause and I have explained the effect on tax rates in detail. I have answered the many and varied questions put to me at the Dispatch Box. Before I sit down, may I say that for the rest of the proceedings I shall confine myself to the clauses—and not with questions unconnected with them—if that is how you would like me to proceed, Mr. Gale? I commend the clause to the House.

Question put and agreed to.

Clause 130 ordered to stand part of the Bill.