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Mr. Stephen Dorrell (Charnwood): The hon. Gentleman has laid great stress on the argument that the motion will hypothecate all the yield from the increased rates of national insurance contributions to the national health service. However, his argument is blown clean out of the water by the Red Book. The yield from the changes is £8 billion, but only £2.4 billion is being voted to the national health service.

Matthew Taylor: At the end of my speech, I shall consider the weakness of hypothecating increases. When one spends more money than the increase on a service area, one can hypothecate the rise but there is no guarantee that money will not flow out at the other end of the expenditure. I shall come to that point, because I have a proposal for the House. However, the extra sums of money raised from national insurance over the next few years will broadly link in with the extra money going into the health service.

Mr. Dorrell: Hang on a moment. The hon. Gentleman bases his argument on the principle of hypothecation, but the Red Book makes it clear that the increases in the financial year beginning next April will raise £8 billion. In the same year, according to the Red Book, we are being asked to vote £2.4 billion of that to the NHS. By my arithmetic, that leaves £5.6 billion going spare.

Matthew Taylor: I have already told the right hon. Gentleman that there is a problem with the proposed form of hypothecation. However, although the forward spending figures show a shortfall for the early years, that is reversed later on and the national health service will end up getting more money than is proposed. I agree that there is a problem with the clarity and effectiveness of hypothecation, but there is no sleight of hand in the long run because the Government are devoting more money to the NHS than they are raising through hypothecation. So the right hon. Gentleman is wrong in the long run.

The public are concerned about three things: honesty, whether their money is well spent and whether it goes to the NHS. On honesty, as I have said before, it is impossible to believe that the Government were not aware before the general election that they had to raise extra money for the NHS by increasing taxes. That is not credible because the general public knew that that had to happen. Indeed, they told the Government that they would have to raise taxes to sort out the NHS and

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overwhelmingly supported the idea. Interestingly, when the Liberal Democrats proposed such increases, we were told that the public would not support them in practice, but the Budget is phenomenally popular. It has received overwhelming public support, even among the majority of Conservative voters.

The problem, however, is that the Government were not honest. They attempted to evade the issue even to the point that while ruling out income tax rises, they were prepared to change their position on national insurance. It is only on the most extreme technical reading of the Government's position that the Chancellor can defend the Budget by saying:

It is clear that they did not set out that they would increase tax to save the NHS when they knew that they would have to. Indeed, the Chancellor's aides, before and since the Budget, said time and again that he knew all along that that would have to happen.

Frankly, had the Prime Minister explained the real position in the 1997 manifesto, the Government would still have had a clear mandate, albeit for a different purpose. Rather than saying that they would not increase income tax or have no plans to increase national insurance or raise its cap, it would have been more accurate and honest for them to say, "We will double NHS expenditure in real terms within a decade. In our first term, we will raise taxes by stealth to pay off the Tory deficit. In our second, we will raise annual taxes openly by £8 billion on jobs and incomes to secure the future of the NHS and education." They say that they have done nothing dishonest because they told people exactly what they would do, but few would agree with them.

The Government will discover at the ballot box that they have done a great disservice, both to themselves and to politics. Whatever they say at the next election, people will find it harder to believe them and, as the hon. Member for Glasgow, Cathcart (Mr. Harris) said, this is not the first time that this has happened. The Conservatives did the same thing in 1979 and, more relevantly, in 1992, when the re-election of the Conservative Government was followed by the biggest tax increases in history. The Government are eroding public confidence in the political process and politicians. Even our party is made aware of that lack of confidence, and we spelled out the true position in those election campaigns.

Nevertheless, when we knock on doors we find that there is now palpable cynicism about politicians in general. There is every reason to suppose that in tomorrow's local elections we will see an even lower turnout because of increased reluctance to vote for politicians and perhaps, although I hope not, electors turning away from mainstream political parties, in some cases towards extremes. If that happens, it will be partly because of this House.

Mr. Tom Harris: I disagree very strongly with the hon. Gentleman's conclusions. This Government have done more than any other to make sure that their manifesto commitments are precisely enacted. I challenge the hon. Gentleman to tell the House where, in the 1997 or 2001 manifestos, Labour says other than that it would

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not increase the basic or higher rates of income tax. Nothing in the proposal before the House today contradicts anything in those manifestos, and that is because this party is the honest party of government.

Matthew Taylor: It is very difficult to publish a full list of everything that one will not do, but it is fairly common in a manifesto to concentrate on the things that one will do. It is clear that the Government knew that they were going to introduce a very large increase in tax for the NHS, and they declined to put that in the manifesto. That may be the hon. Gentleman's view of complete and utter honesty, but he will find, on the doorstep, that his electorate disagree with him.

We have seen an increase in tax on incomes broadly equivalent to a 1p increase in the basic rate of income tax, plus another penny on the rest of income tax. The difference that the Chancellor seeks to set out between the national insurance increase and the income tax increase that he has ruled out is nothing but a fig leaf, and frankly that leaves him unpleasantly exposed.

The issue for a Labour Government, however, is worse than that. In his latest excuse, the Chancellor struggles to argue that his measure protects pensioners, but of course it does not protect pensioners as a whole. The great majority of pensioners—two thirds—pay no tax. The measure protects pensioners who are in the fortunate position of having a large income, many of whom live off large investments. At the same time, the policy increases tax for some people on very low incomes—the people whom the Labour party has traditionally sought to defend. Multi-millionaire pensioners have never been particularly high on Labour's list of priorities, so it is a little surprising to find that they are now a higher priority than some of the very poorest in this country, who work and try to earn an income.

Mr. Terry Rooney (Bradford, North) rose

John Mann rose

Matthew Taylor: I shall give way in a moment, but first I want to give figures to support my case.

The Treasury's own figures for changes in the overall tax burden in Labour's first term show that, taking all taxes into account, tax on the poorest quintile of households in the country rose 3 per cent., from 38 to 41 per cent. The rise for the highest quintile was only 1 per cent., from 36 to 37 per cent. The net result is that a 2 per cent. gap favouring the richest has risen to 4 per cent. since Labour took office.

John Mann: I want to clarify an extremely important point about the Liberal Democrats' policy on pensioners. There is a new group of relatively wealthy pensioners—those workers, many of them ex-miners, who are to receive compensation for industrial injury and asbestos-related conditions. In my constituency, there are 7,500 such people, and there are many more in other constituencies. They will receive a significant amount of capital, from which they will earn income, and they will also receive a small occupational pension from the National Coal Board. Some of them may move into taxation. The hon. Gentleman speaks of rich pensioners. I would say that those whom I described, a significant

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group, are getting deferred earnings. They are being paid because of employer errors in the past or poor management. Is the hon. Gentleman suggesting that they should be taxed?

Matthew Taylor: The problem is that if such people were 55, had been involved in an industrial accident, had received a pay-out and had the sort of income that the hon. Gentleman describes, they would be asked to pay a tax increase, but if they happened to be 65, they would not. It has always been the view of the hon. Gentleman's party and ours that people should pay according to their means and their ability to pay. Of course their real costs must be taken into account, but I do not see the differentiation.

I pick on the argument because it is the one that the Chancellor is using to defend his position. In order to hold to their income tax pledge while in effect introducing an income tax rise, Labour has picked a slightly different form of tax, which has a peculiar effect. A pensioner with an income of £100,000 a year—a retired chief of a conglomerate, perhaps Rupert Murdoch if he happened to live and pay taxes in this country—would pay no extra tax towards the NHS, but somebody working part-time on less than £5,000 a year would be subject to a tax increase.

In terms of equity and fairness, that seems a peculiar choice for the Government to have made, were it not for the fact that they are trying to use it as a fig leaf so that they can say that they stuck by a policy, when anyone with common sense knows they have not. They might as well have admitted it, because the public agree with the policy that they have followed. The public do not make the distinction that the Government think they do, so the Government might as well have said to people, "We did not tell you the truth before the election, but we do believe that this is important for the NHS, so we're spending your money even without your permission." That is exactly what has happened.

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