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Chris Grayling (Epsom and Ewell): I do not want in any way to support the principle of tax increases. However, does the hon. Gentleman accept that—in contrast to the national insurance route—his argument would place an increased tax burden on, for example, a pensioner with an income of £10,000 to £12,000 a year? That burden will not occur if the Government proceed with their proposals.

Mr. Davey: The hon. Gentleman is, of course, right. However, the amount of money asked from those on modest incomes would be relatively small because, as I am sure he will accept, income tax is a proportionate tax. People on low incomes will, by definition, pay a very small amount. Most pensioners do not pay income tax, because they are protected from it by the higher age allowances. Therefore, the vast majority of pensioners would not pay under our proposals.

6.30 pm

The Paymaster General (Dawn Primarolo): I know the hon. Gentleman is aware that only four out of 10 pensioners pay tax, but is he also aware that nearly 3 million pay it at the 22p rate which, by definition, means that they are on a low income? He is proposing to hit that group of people on fixed low incomes. Only 230,000 pensioners pay the higher rate of tax. His argument about spreading the burden does not work because he would spread the burden disproportionately on pensioners on fixed incomes.

Mr. Davey: That last phrase is incorrect. We are talking not about spreading the burden disproportionately, but about asking a wider group of people to pay. I am more than prepared to admit that the Liberal Democrats would ask more people to contribute than the Government are asking. I am not hiding that fact. Indeed, I was the person who raised it in the first place; it did not require an intervention to drag that information out of me. Our proposal is fairer. The extra amount that pensioners on £10,000 would have to pay would be tiny. Extremely wealthy pensioners, however, would pay much more under our proposals.

I note that the Paymaster General did not say why wealthy people with a larger share of income from investment income—unearned income—should be protected from making an extra contribution. It is extraordinary that they are not being asked to contribute to the important endeavour to put the health service in a sounder fiscal position.

Chris Grayling: The hon. Gentleman still misses the point about the financial predicament that many pensioners face. They have retired on fixed incomes, perhaps with a small pot of savings. The income from those savings has fallen as interests have decreased to an historically low level. They have experienced yearly increases in council tax which are vastly above the rate of inflation and have no ability to increase their income. So every time another slice is taken out of their income, it is

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another handicap to them making ends meet. That would be the consequence of the hon. Gentleman's proposal. It is easy to get caught up in an attempt to deal with the very small number of high earners, but the hon. Gentleman's proposals would have an impact on lower-income pensioners.

Mr. Davey: I am glad that the hon. Gentleman mentions council tax. The Liberal Democrats are the only ones who have pledged to abolish council tax and to replace it with a local income tax. That would significantly help pensioners. They would be much better off as a result of the combination of our policies. The hon. Gentleman is right to say that many pensioners on fixed incomes are significantly hit by council tax. That is why we need to reform that pernicious tax, which his party introduced.

The second part of the Government's tax strategy in the Budget is the 1 per cent. increase in employers' national insurance contributions. We propose a new top rate of tax of 50p in the pound on incomes above £100,000, which would raise an amount similar to that in the Government's proposal. Indeed, it would probably raise more on a net basis because the Government would not have to pay the higher tax for the many people who are employed in the health service and other public services. Our proposal would liberate an equal amount or more for public service investment. In addition, it would be fairer and more efficient: fairer because it would ask those people who can afford to pay to make their contribution, and more efficient because it would not increase the costs of business.

We all know from the press reports and the analysis after the Budget how worried business is by the increase in its cost base because of the increase in employers' national insurance contributions. It is a real concern that that might hit jobs, investment and the competitiveness of UK plc. Once again, the Government have ducked out of the hard decisions. They have put a major burden on business when they had an alternative way to raise revenue. That is why I urge Members on both sides of the Committee to ask the Government to think again about their tax strategy by voting against the clause.

The Committee knows that the Liberal Democrats have been consistent on this matter since, I think, 1989. That is 13 years of consistency on tax policy. In that time, we have argued for increases. Our plans have been fully costed and we have put them before the British people a number of times. Although a majority have not voted for them, some of them have proved in opinion polls to be the most popular policies. We believe that had the Government adopted them, they would have received much greater support and would not have lost the support of British business in particular.

I do not know whether the Conservative Front-Bench spokesmen will participate in the debate, but if they do I hope that they tell the Committee how they will find the money for the NHS, our schools and our police. If they do not do that and then vote against the national insurance legislation, they are being disingenuous—indeed, dishonest—with the British people. They say that they want to back the money for the health service, but they do not will the means. Both before and after the Budget, we stood by our election manifesto proposals of June last year to show where the money would come from to pay

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for our policies. Like the Government, we think that the investment is vital. The Conservatives have yet to produce proposals on that.

Mr. Bercow: The hon. Gentleman is uncharacteristically confused. For the avoidance of doubt, I put it on the record, as has been articulated by my right hon. and hon. Friends before, that it is the position of the Conservative Opposition that although this country needs to spend more on health, it is by no means clear, through an examination of the systems of health provision across continental Europe, that that expenditure is best made on the basis of moneys raised through tax. Unlike the hon. Gentleman, who has a closed mind, my hon. Friends and I have open minds. We will explore the alternatives, see what is best and produce a credible, detailed, costed and attractive alternative to the failures of the Government, which is a damn sight better than the Liberal Democrats have ever managed.

Mr. Davey: I am delighted to have provoked the hon. Gentleman. That is what I intended to do, but he has failed to clarify the Conservative party's policy. As usual, he promised us that some day soon—or perhaps not so soon—we will hear how they propose to raise the billions of pounds.

Mr. Bercow rose

Mr. Davey: I will give way if the hon. Gentleman holds steady for a moment.

It is all right for the hon. Gentleman to say that the Conservatives will clarify their policy in a year or two, but what about the billions that are needed now for the health service? How would he ensure that the billions going into the health service over the next one, two or three years are funded? It is fine if he supports the Government's approach or our approach, but if he does not support either because he does not support a tax-funded NHS, he needs to say how the money would be found now. If he cannot, the implication is that there would be cuts to the health service in every constituency up and down the country. He has to have an alternative. [Interruption.] Conservative Members groan in their usual way, but they have to tell the people where the money would come from. Will the hon. Gentleman tell me where it would come from this year?

Mr. Bercow: The problem from which the Liberal Democrats suffer is that they have been undergoing a process of intellectual retardation without interruption for some years. If the hon. Gentleman is in the business of offering to the Committee his prescription to remedy the ills of the health service before there has been a proper diagnosis of what those ills are, I can only say that it is extremely fortunate that he did not opt for a career as a general practitioner. At the moment, large sums of money that are allocated to the Department of Health are not spent. As a consequence, treatments that could be provided are not being provided. We will do our homework. If the hon. Gentleman thinks that it is sensible, 11 months after losing the last election on the last manifesto, to be expected to produce tonight the contents of the next, that only underlines why his party is the minority party and why it will remain so.

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Mr. Davey: If the hon. Gentleman continues to perform like that, I will continue speaking and provoke him even more because it will elucidate for the Committee more information, or lack of information, about the Conservatives' position. The Liberal Democrats are engaged in a major policy review of our public services. We have already produced a consultation paper, which went to our conference in Manchester.

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