John McDonnell
Speech in the House of Commons on taxes
Mr. John Redwood (Wokingham):
This debate is about the biggest tax bill in history ever presented to Parliament and the British people. The Government have the audacity to bring before us today a claim for an extra £26 billion of taxation this year in comparison with last year. They have the audacity to field the Chief Secretary to the Treasury, who made a speech as if he were presenting a tax-cutting Budget by highlighting two or three morsels from a table that had otherwise been denuded of good dishes, for which a huge bill had been sent to the starving diners in the private sector. The Government have perfected the art of rip-off government and found 100 new ways to pillage the purses, tills and wallets of the nation, but still found it impossible to hire the teachers necessary to secure the improvements in schools, and the nurses and doctors necessary to get operations done, that we all so desperately want.
The background to the debate is a teaching profession in uproar and against the Government. I had always thought that many teachers were sympathetic to the Labour and Liberal Democrat view. It is fascinating to see that Ministers are now unable to face a teachers' conference and unable to answer criticisms coming from the teaching profession. Ministers must know that they have bungled it and that so much of the extra £26 billion that we are asked to approve in the Bill is going walkabout and being wasted. It has not gone to hospital operating theatres or classrooms where it is needed and could be better used.
This mighty Bill includes so many tax increases that the Government wished the Opposition and others had not teased out. Most people have understood the massive hit on national insurance rates, which was heralded many months ago, but we are still to count the costs. The Government told us that the shadow Chancellor was wrong to dub it a tax on jobs. We will see, but I support my right hon. and learned Friend; it is undoubtedly a tax on jobs. It is a simple rule of economics-one that even this Government cannot duck-that if one increases the price of something, the quantities that can be bought decline. In this case, the Government have deliberately increased the cost of
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labour by a swingeing increase in employers' and employees' national insurance. The result will be job losses and fewer people employed.
Mr. Love: Exactly the same argument was used about the national minimum wage. We were told that it would increase costs, yet employment has increased since the introduction of the national minimum wage. How does the right hon. Gentleman explain that?
Mr. Redwood: The forecasts that I and others made about the national minimum wage were absolutely spot on. We said that it would have a particularly damaging impact on low-paid work in manufacturing, the sector most likely to be exposed to its impact. It was in that sector area where the world market was highly competitive and where there were some people on too little money in terms of the income paid by their employer who were then exposed by the national minimum wage to job loss. We recommended not that we should leave people with inadequate sums of money for their family needs, but that we should carry on with the benefits top-up system for those in work so that jobs would not be destroyed and families had a reasonable income to live on.
The Government decided that they knew better. As a result, under this Government, there have been 600,000 job losses in manufacturing industry. It is a disgrace. The Chief Secretary regaled the House with a story, he said, of economic success. He did not mention the tragedy of manufacturing. He told the House that the Government had not yet presided over a recession. He failed to tell the House that the Government have already presided over three manufacturing recessions; boom and bust, boom and bust and now bust and bust for manufacturing. We cannot see how manufacturing can be lifted out of the mire and the gloom. Day after day, we see factory closures and job losses, statements from companies that cannot pay the bills and the transfer of massive numbers of jobs to cheaper labour markets.
Kali Mountford: The right hon. Gentleman is correct in terms of textiles and steel, where there has been a definite slow-down . But does he really want to compare that with any period of Tory government, when it was not a question of thousands of jobs going, but millions? For example, the city of Sheffield faced almost total collapse and in one year lost more jobs than the coal industry did under the Conservative Administration. Textiles fell into almost complete disarray under his Government. Would he really like to compare the records?
Mr. Redwood: It is not our task to compare the records of Governments. But if the hon. Lady wishes to draw me in that direction, she would be right to say that there was one short but unpleasant period under the Conservatives, when too many jobs were lost. Let me remind the House why that was; it was because the Conservative Government foolishly accepted the advice of Labour and the Liberal Democrats to join the exchange rate mechanism. It was because we did what the hon. Member for Bexleyheath and Crayford (Mr. Beard) now wants us to do on an heroic scale: join the euro. We joined a European exchange rate project, and
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we were told by all and sundry-including the Labour party-that it would be good for jobs and would get rid of exchange rate unpredictability. It was, of course, a disaster. The euro would be a disaster that we could never get out of.
Mr. Beard: Does the right hon. Gentleman recognise that ERM was a disaster, first, because the Government went in at far too high a rate; secondly, because they had not negotiated with colleagues in the ERM so that when difficult times came, they were not ready to bail the Government out; and, thirdly, because the ERM left cracks into which speculators could get, as happened on Black Wednesday?
Mr. Redwood: The whole thing was negotiated with partners and was welcomed broadly by the Labour Opposition at the time. The hon. Gentleman should recognise that the rate at which we went in is very similar to the rate now. He says that he wants us to go in to the euro now, so I presume that he wants us to go in at the same rate. Why is the rate that was clearly wrong and a disaster then now miraculously right? There is no right rate for the pound in perpetuity against the European currencies. Our economies are very different.
I give one piece of praise to the British economy under Labour, as well as under the Conservatives. It is great news that we run our economy with such a lower rate of unemployment than that of France or Germany. The last thing I want to see my country do as a result of this Budget and a move to the euro, as recommended by the hon. Member for Bexleyheath and Crayford, is to converge with the continent by creating the joblessness and the job destruction machine in place there. How do the Europeans do that? They do it by combining the wrong interest rate, through a rigid single currency scheme, the wrong monetary policy and very high taxation.
The burden of my criticism of the Bill and of the Government's policy is that this rip-off Government are proposing taxation that will be extremely damaging to British individuals and business. It is part of the process by which they would erode the most important competitive advantage that this country and our economy have built up-under several years of Conservative government and the first couple of years of Labour government-by keeping taxes well below those on the continent and staying well clear of monetary union, which would be a bodge and a mess on an heroic scale; a scale that would make the ERM look like a rather pleasant interlude in our economic affairs.
In his rose-tinted survey, the Chief Secretary-ignoring all of the realities facing business and hard-pressed British families-failed to mention the way in which high taxation imposed by the Government in recent years has demolished the telecoms and internet industry by taking £22 billion out of it through the auction of licences. That procedure took money out of the industry at the very point it needed to expand and make new investment. It destroyed jobs, investment and success and helped the stock market to crash.
The Chief Secretary made no reference to the £5 billion a year sandbagging of British pension funds, which has led directly to part of the stock market crash; it is one of the reasons why the stock market has fallen
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further here than in the United States. It led directly to those funds being chronically short of money. As my hon. Friend the Member for Arundel and South Downs (Mr. Flight) said, it is a disgrace that many people now face the prospect of retiring on something like half the pension they were looking forward to in 1997-98, before the tax on pension funds and before the stock market crash. That loss is a direct result of a Labour Government, who inherited the most successful pensions industry in Europe by far and thought that they could use it as a ready source of money without people noticing. If we wanted any proof that stealth taxes do enormous damage and end up costing the country rather more than they gain in extra revenue, surely it is the pension funds. It will now be extremely difficult to meet all the bills and make good the deficits and trouble created by that hated tax.
Mr. Love: Does the right hon. Gentleman accept that the imposition by the previous Government of employers' contribution holidays from pension schemes was a major contributory factor in the so-called halving of the pensioners' current incomes?
Mr. Redwood: Of course not. It was not the previous Government who introduced them. Under pensions law approved by Parliament under Governments of both parties over the years, it was reasonable for a company with more money in its fund than it needed to meet its liabilities as assessed by an independent judge or actuary to reduce its contributions while the surplus lasted. Alternatively, a firm in that position could consider increasing benefits. It could also choose some combination of the two approaches. Many funds did a bit of both, to get rid of or reduce the surplus.
There was no problem when this Government came to power. Funds were very solvent and they had the marvellous choice of increasing benefits or cutting contributions. They could also choose a combination of the two. It is under this Government that funds face the awful choice of cutting benefits or winding up the funds because they cannot find the money to pay the bills.
Mr. Beard: How does the right hon. Gentleman arrive at that conclusion? The tax introduced by the Chancellor at the beginning amounted to £5 billion a year or thereabouts, but the stock market has lost more than £100 billion in the past two years or so. Why is it the £5 billion that is having that dire effect, and not the fall of the stock market? In the contorted logic of the right hon. Gentleman's argument, how does he believe that this Government are responsible for the stock market falls around the world?
Mr. Redwood: I specifically said that I was drawing attention to the extra fall in the London stock market, as compared with other stock markets. The hon. Gentleman greatly underestimates the extent of the total fall, but his figure of £100 billion is very fortunate for my argument, which he must want to support. That amount, £100 billion, is exactly the capital fall that one would expect from a tax on companies of £5 billion a year. When the tax was imposed, the stock market tended to value company earnings on a multiple of
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something like 20. Multiplying the £5 billion taken away from companies each year by the multiple of 20 by which the stock market valued earnings, one arrives at exactly £100 billion.
I made that point when the Chancellor wanted to impose the tax. I said that he should expect a fall of something like £100 billion in the stock market, in addition to anything else that might happen elsewhere around the world. That is what happened. Much of that fall of £100 billion was directly due to the pension fund accounts. The Chancellor should have known that British pension funds have traditionally had between 60 per cent. and 70 per cent. of their investment in equities-for good reason, because they tended to do well. When the Chancellor sandbagged British business with taxation, it was bound to cause trouble.
The Chief Secretary argued that British business should be grateful for the one or two very small tax reductions in the Budget, and in previous Budgets, but I find that extraordinary too. The CBI and other bodies-none of them well known supporters of the Conservative party-have come to their own independent conclusions. They believe that the Government have imposed a massive increase in the tax burden on businesses. That imposition was achieved by sleight of hand, through the pensions and telecoms taxes that I have mentioned, and above all by changing the timing and incidence of corporation tax payments. The Government were therefore able to claim that they had made a very small reduction in the rate, while at the same time collecting far more revenue because they had changed the cash flow impact on business, which is what matters. The Government had also removed quite a lot of money from business that firms needed to pay the wage bill and to continue investing in the future.
I should have liked a different kind of Finance Bill, although I suppose that that was too much to hope for from this Government. Occasionally, Ministers say that they would like lower taxation to make us more competitive. They accept that lower tax rates can produce more revenue and attract more business, jobs, prosperity and investment. So why cannot the Government produce a Finance Bill of the kind that I would like, doing just what I have described? Why do they find all sorts of ways to clobber all the main interest groups in this country?
This Bill continues the Government's hate campaign against the motorist. It further increases the charges on motorists. It is getting to the point where people need to be very rich if they want to drive around the country, because so many of the charges are imposed on people with relatively low incomes. The aim, presumably, is to tax them off the road to allow more space for the chauffeured cars of Ministers-who do not pay their own tax on such things.
Kali Mountford: That is silly.
Mr. Redwood: The hon. Lady says that that is silly, but she may not realise that, for people who are not
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Ministers, it costs £5 a day to drive in the centre of London. That comes to £25 a week, which comes out of net income. People need large incomes to pay such bills.
Mr. Beard: Did the right hon. Gentleman have the use of a car when he was Minister?
Mr. Redwood: The hon. Gentleman asks whether I had the use of a car when I was a Minister, and I can tell him that of course I did, but the Government whom I supported did not impose these very high charges on motorists. We did not try to tax people with low incomes off the road, as this Government are attempting to do.
Mr. Laws: Does the right hon. Gentleman recall the Budget statement made by the right hon. and learned Member for Rushcliffe (Mr. Clarke) in the last Conservative Parliament? He announced that there would be charging on motorways. Does the right hon. Gentleman agree with that policy?
Mr. Redwood: No such charges were introduced by the Conservative Government. I favour charges if a new motorway, an additional facility, is financed with private money. I see nothing wrong with the Birmingham northern relief road, which I think is what my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) had in mind. That was a Conservative scheme, for which I see this Government are going to take some credit, after a bit of delay. There is at least bipartisan support for the notion that a new facility that is privately financed should result in a charge for those who use it. However, I do not think that the same applies to roads that we have paid for already, many times over, through taxes. That could only be justified if all sorts of other changes were made that improved rather than worsened the motorist's lot.
The Government have also decided to sandbag people who wish to buy properties. The stamp duty proposals are complicated and very expensive, but it ill behoves the Govt to tax people buying quite modest properties in London and parts of the south-east. It shows that they do not believe in fairness or justice around the country, as stamp duty has become a tax on anyone who needs to buy a property in the south-east and in London. As a result, many people-especially in central London-will have to pay the full 4 per cent. rate, given the very high level of house and flat prices, and the low level at which the highest rate applies. The Government should look again at the injustice around the country that their stamp duty taxes represent.
What have the Government got against young people and families struggling to buy a property in London and the south-east? Why do the Government weep crocodile tears about the difficulties experienced by key public-sector workers trying to buy property in London and the south-east, when they are making those workers pay a stamp duty tax? Given the level of house prices over which the Government have presided, that tax is very high in some cases.
According to the Chief Secretary, this Government claim to be very good at attracting inward investment. That was true of Governments for many years. It was true under the Conservative Administration of the 1990s, and of the first years of this Labour
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Administration, demonstrating that a country did not have to be in the euro, or seeking to join it, to attract inward investment. We were told many times, when the Conservative Government were in power, that, if Britain did not pledge entry to the euro, investment would flee or be driven away. That turned out not to be true. In the early days of the Labour Government, some people in business told us that investment would flee if they did not get on with joining the euro. However, investment kept flooding in.
Britain was the preferred destination for investment for many years-at the end of the Conservative era and at the beginning of the Labour era. Now we can see a problem developing. The Chief Secretary did not refer to it, but the volume of inward investment is now lower than in the good years. Why should that be so? I think it would be surprising were it otherwise. The Government are taxing and regulating business away from this country. The process that I described in manufacturing is beginning to spread to services. Companies are not going to France or Germany to seek the euro. They are going to countries in eastern Europe or Asia, where they get more flexibility, and much lower labour costs.
That is the serious threat to the British economy. Ministers would be well advised not to ignore it or bury their heads in the sand. They should understand the process, and should be seeking to reduce the tax burden on British business. In that way, we can return to being the premier location in western Europe to attract business, rather than pricing ourselves out of the market by stealth.
In response to my requests for lower business and individual income taxes, the Labour Government will ask where the money to pay for public services will come from. The most disreputable part of the debate has been the consistent attempt by Labour spokesmen and Back Benchers in this House to claim that my hon. Friend the Member for Arundel and South Downs (Mr. Flight) and his boss, the shadow Chancellor, my right hon. and learned Friend the Member for Folkestone and Hythe (Mr. Howard), wish to cut public expenditure by 20 per cent. across the board. They have never said that: it is clearly not Conservative policy; nobody believes that we would go to the electorate with such a policy; nobody believes that we would be elected on such a policy; and nobody believes a democratic Government would ever put through such a policy. It is complete nonsense.
What my hon. Friend the Member for Arundel and South Downs has rightly said, as he explained again today, is that there are parts of government-not teachers, nurses, doctors, hospitals and important front-line services-where he, modestly, would like a fifth off the cost. I have said before, and will say again, that I should like to see more than that taken off my regional government: I would like 100 per cent. off my regional government.
Ms Meg Munn (Sheffield, Heeley): Is the right hon. Gentleman saying that his hon. Friend would want to cut 20 per cent. of waste or that he would, in reality, cut public services by 20 per cent., which is what we all believe.
Mr. Redwood: There is no way that anyone in the Conservative party has ever said, or will ever stand on a
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platform and say, that they want one fifth off public expenditure across the board. That is complete nonsense. No one has said it, no one ever would, and I hope that we can move on from such trivia.
On whether my hon. Friend the Member for Arundel and South Down would like to cut one fifth off waste, I think that he would like to cut all waste, but he is starting off by saying one fifth of waste because he knows, from watching others, how difficult it will be to get rid of all the waste that this Government have created. Billions of pounds have been wasted under the Government, who have singularly failed to cut waste in benefit fiddles or the over-provision of civil servants. They have allowed the civil service to expand to 500,000 people; I should certainly be happy to see a fifth off the civil service. The civil service is not all waste, but a fifth off would be a good start.
Mr. Cameron: My right hon. Friend makes a persuasive case for why the debate about 20 per cent. is entirely sterile. Does he agree that it is remarkable that although so much time in the House is spent bandying around the 20 per cent. figure, not one senior political journalist in this country believes that it is our policy to cut 20 per cent? They think that that is a complete joke put around by the Labour party.
Mr. Redwood: I think that we should move on. I agree with my hon. Friend that that figure is not taken seriously outside the House, and the Government demean themselves by resorting to such statements.
Mr. Love: It is the easiest thing in the world to say that we will cut all waste. However, the only way in which anyone can validate such a statement is by looking back at previous experience. I sat on the Public Accounts Committee for three years, during which time it scrutinised the expenditure of the previous Government. I could go into examples of housing benefit, over-expenditure on the national insurance computer system and lots of other problems that arose in public expenditure. Can the right hon. Gentleman honestly say, on the basis of that experience, that the electorate could have any confidence that the Conservatives would be able to cut out waste?
Mr. Redwood: Having had considerable ministerial experience, I do not for one moment believe that an incoming Conservative Government could cut out all waste, or even most of it. But they could do a much better job of curbing and reducing waste than the present Administration. In fact, the present Administration have made the job much easier for an incoming Conservative Government because their waste is so monumental. Huge sums go into the machine, but very little of value extra comes out. It is like going shopping. When I go to a shop, the only two things that interest me are whether it has the goods I want to buy and whether they are at the right price. Can I get the quality and the price that I want?
Mr. John Randall (Uxbridge): Come to my shop.
Mr. Redwood: I am not sure that I am allowed to advertise my hon. Friend's shop in this place, but I am sure that things are very good in Uxbridge.
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What I want to know is whether the shop has the right goods at the right price. In the Labour shop for public services, the answer is no. The goods are not available-one has to wait 15 months for an operation, and the school results are not good so one cannot get the quality that one wants. The price is astronomical, as we can see in the Bill before us. What do the Government do, then? They do not satisfy us by increasing the supply and quality or reducing the price. On the contrary, they lecture us, saying that it is wonderful news that although they do not have the operation that we want in the hospital and that we cannot have it for 15 months, they are delighted to tell us that they have taken a huge extra sum from our pay packets and are spending it somewhere in the health service, although they cannot tell us where and although it will not provide the operation. If my hon. Friend's shop were not as good as it is and were unable to supply me the goods I wanted at the price I wanted, and if he gave me a lecture saying that I would nevertheless be delighted to know that he had forced a levy on his customers, had spent it and had no clue where the money had gone, I would not go back to his shop, and I would have some pretty unprintable things to say about what it had done. Yet that is Labour's public service shop-no service, huge bills and endless arguments about how the Government have spent a huge sum, for which we ought to be grateful.
Mr. Beard: Does the right hon. Gentleman honestly believe this travesty? Indicators for the health service all show improvements over the past two years. Primary school literacy and numeracy have gone up unbelievably. Schools and hospitals recognise that big changes are happening. The right hon. Gentleman seems to fall into the trap that his whole party falls into by trying constantly to talk down services while ignoring the real indicators of improvement.
Mr. Redwood: Some schools have done well, and some have done a bit better. However, if the hon. Gentleman examines the overall record, he will see that the health service has gone backwards and that more people are waiting longer in pain without the treatment that they want. [Interruption.] I speak as I find in my constituency; my constituents would not want me to say that everything is wonderful in our local health service when it is far from so. Far too many people are waiting too long for treatment that they ought to receive either immediately or very quickly.
The transport system is in chaos. The underground is far worse than it was five years ago and is not able to provide the transport needed at a time when the congestion charge stops all but the rich from travelling by car. There is chaos and dislocation on the railways after a back-door renationalisation that has backfired, costing the Government and the taxpayer a fortune, and which is delivering a worse service than the Government inherited in 1997.
I have more government than I want, more government than I need, and more government than my constituents and I can afford. The Government are not delivering. Public services are not getting better, and in many cases, such as transport, they are getting a lot worse. In Labour's public sector shop, the price goes ever upwards, the goods are either not available or of an inferior quality, and there is no choice. I will vote against
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the Bill with relish. It is a Bill from a rip-off Government who are charging us far too much for a lousy range of public services, a Government who are unable to tell us where all the money goes and how it is wasted. I look forward to supporting my right hon. and learned Friend the shadow Chancellor and my hon. Friend the shadow Chief Secretary in the Division Lobby. When we return to power, they will undoubtedly be able to deliver more for less than this wasteful rip-off Government have done.
