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Mr. Harris: The Conservatives cannot challenge my hon. Friend's comments, because they have refused to explain their plans for the NHS. That makes me extremely suspicious—

The Temporary Chairman: Order. I ask the hon. Gentleman to come back to the clause.

Mr. Harris: Thank you, Mr. Benton.

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The clause is necessary. It will not harm the lowest paid in our society, and certainly not as much as it could have under previous policies. I am delighted to commend it to the Committee, and I shall cut my losses there.

Mr. Hoban: It is a pleasure to follow the hon. Member for Glasgow, Cathcart (Mr. Harris). It enables me to address some of his comments about how the money will be spent—an issue to which I shall return in a moment.

It is right to note that the number of higher rate taxpayers has increased by 50 per cent. since this Government took office, and like my hon. Friend the Member for Epsom and Ewell (Chris Grayling) I have spoken to constituents who are concerned about that. One constituent who wrote to me recently was horrified to discover that her husband had just breached the 40 per cent. threshold. She felt that his was not the sort of job that one would expect to incur tax at a 40 per cent. rate. Her point was that incomes that are low in the context of the area that I represent are getting caught in the 40 per cent. tax bracket. Of course, the freezing of personal allowances next year will exacerbate the problem. People who get reasonably small pay increases may well cross from the basic rate tax bracket to the higher one, and from the 10p starting rate to the higher rate.

The drift of people towards higher tax rates is a consequence of the freezing of the personal allowance—a point that all hon. Members should take on board. It impacts on incentives to work. It impacts on whether people can leave low-paid jobs to improve themselves and meet their aspirations for themselves and their families.

We need to be careful when we explain to those constituents who will slip into the higher rate tax bans exactly why personal allowances will be frozen in 2003–04. The hon. Member for Glasgow, Cathcart said that the money will go to save the NHS. I remember that in last week's debate on the national insurance paving motion he said that the money would be allocated to saving the NHS. If he had read the Red Book, he might have discovered that in fact the surplus on the Budget will increase over the 2003–04 financial year, as a consequence of the actions taken by the Government in the Budget. That is shown in table 2.4 and I am glad to see that the hon. Gentleman has his copy in front of him.

Table 2.4 states that the surplus on the previous Budget was £4 billion. In the current Budget, that surplus will increase to £7 billion—an increase of £3 billion. The cost to taxpayers of the freezing of personal allowances in 2003–04 will be £0.7 billion, so we will penalise the low paid and all those who will slip into a higher rate tax bracket simply to expand the Government's surplus. The money will be spent not on saving the NHS but on increasing the surplus that will be available for the Chancellor to release in later years. There is no apparent reason why personal allowances should be frozen for that financial year and it is difficult, therefore, for the hon. Gentleman to claim that it is being done to save the NHS. That argument is not reasonable.

The Chancellor will hit the very people—the low paid—he has set out to help in so many of his Budgets, simply to increase the surplus. If personal allowances are frozen, lower paid people who receive pay increases may start to pay the starting rate of tax or the basic rate of tax. It is a retrograde step. No party has a monopoly on

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compassion and Labour Members should consider the impact of an unnecessary tax increase of £0.7 billion on the very people they seek to help.

Roger Casale: The hon. Gentleman said that he was trying to explain the measure to one of his constituents, but he should explain to the Committee how he can speak on behalf of low paid people who will, he says, be adversely affected, and at the same time speak for a party that did nothing in government to help poor and vulnerable people. In fact, the Conservatives pushed millions of people and families into poverty. In opposition, his party has opposed every measure that the Government have taken to redress that wrong.

Mr. Hoban: I am staggered, because to my recollection the Conservatives did not oppose measures such as the Tax Credits Bill. In government, we took steps—as my right hon. Friend the Member for Fylde (Mr. Jack) outlined earlier—to alleviate poverty. We are now considering the record of this Government and the impact that this measure will have on the lower paid.

The freezing of tax allowances will also have an impact on the people whom the Budget did not help. Many childless couples and single people will have lost out through the 1 per cent. increase in NI contributions, and many of them are on relatively low incomes. The uprating of the personal allowances would have mitigated some of the impact of that tax increase. Those people will not benefit from the tax credits that the Government have introduced and they will be hit twice—by the increase in NI contributions and by the freezing of personal allowances. The Government are making a double dip into the pockets of childless couples and single people. Given that this tax increase is not necessary to fund public spending increases in 2003–04 and in subsequent years, the Government should take this opportunity to protect the interests of those who will suffer from this measure. The Government should recognise that there is more than one way to help those who are most in need.

Mr. Laws: I considered not taking part in the debate, but so enlivening has it been that I cannot resist the opportunity. We have heard several contrasting contributions from Conservative Members. We started with the hon. Member for Epsom and Ewell (Chris Grayling), who expressed his concern about the effect of the change on people on very low pay, and then we ended with the hon. Member for Fareham (Mr. Hoban), who expressed his concerns about higher rate taxpayers.

Mr. Hoban: I wish to correct the impression that the hon. Gentleman is giving to the Committee and to casual readers of the daily—

Roger Casale: The Daily Mail.

Mr. Hoban: No, but I nearly said the Daily Record, which is a completely different newspaper. I meant to say the daily Hansard report. I did not speak only about higher rate taxpayers. In fact, I devoted much of my remarks to the impact on lower rate taxpayers.

Mr. Laws: Those who read the hon. Gentleman's comments in Hansard tomorrow will see the slightly different emphasis that he placed on the matter compared

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with the hon. Member for Epsom and Ewell. We do not need to look to the future to judge the Conservatives' priorities, because we have their record in government over a long time when they placed the reduction of the basic rate of income tax and, to some extent—they will be pleased to hear me say this—the upper rate of income tax as a priority over raising the personal income tax threshold or introducing a lower rate of tax such as the 10p rate. That is on the record in their Budgets and in the memoirs of Lord Lawson, who specifically deals with that issue and states his preference for reducing the basic rate of tax—a less progressive measure—as opposed to increasing the personal tax allowance.

Mr. Flight: Is it a good thing that another 1 million people, or 50 per cent. more, have been brought into the higher tax band? That band will now include people such as teachers and doctors.

Mr. Laws: I am delighted that the hon. Gentleman has raised that point, because he will know that raising the personal tax allowance, as opposed to cutting the basic rate of tax or introducing a 10p tax rate, has been the policy of my party. I sought to contrast the present views of the Conservatives on freezing the tax threshold with the views that they held in office. Perhaps the hon. Gentleman will tell us—if the Conservatives have a tax strategy at the moment—whether they would still focus on reducing the basic rate of tax or on the more progressive measure of increasing the personal tax allowance.

Chris Grayling: The hon. Gentleman is devoting most of his remarks to the history of the Conservative party in government. I remind him that the Conservatives maintained indexation and, indeed, on several occasions increased the thresholds by more than the rate of inflation. Today we are talking about a Labour Government who have abandoned indexation and I suggest that he devotes his remarks to that topic.

8 pm

Mr. Laws: I am grateful to the hon. Gentleman, but I did not want to mention the occasions when the Conservative Government froze the level of the personal income tax allowance—something that he has criticised this evening. I do not want to be drawn even further into the quandary that is Conservative policy on taxation and the health service, so—lest hon. Members feel that I am not being equitable in my criticisms—I shall move on to discuss the Government's position with regard to the personal income tax allowance.

The Government should take no pride at all from freezing the personal income tax allowance. As has been stated, that is a less progressive reform of the tax system than the 10p rate that the Government introduced. The hon. Member for Glasgow, Cathcart (Mr. Harris) said earlier that many people are on such low incomes that they do not pay a significant amount of income tax and that therefore they have been influenced more by the minimum wage and tax credits. That is true, but the Government's reforms of the personal tax system—in the past few years they have reduced the basic rate and introduced a 10p rate—contrast with the proposal to freeze the personal allowance, which is clearly regressive rather than progressive.

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Why has the change been introduced in this Budget? It has not been introduced primarily to bolster the Government's surpluses, as the Government are projecting significant borrowing on their Budget accounts, on the old Conservative basis. I believe that the Government chose to freeze personal income tax allowances because they had made a commitment in two general election campaigns not to change the basic rate of tax. As a consequence, they had to find other ways to increase the tax burden.

As I have said, the freeze on personal income tax allowance is regressive, and the rise in employers' national insurance contributions will hit jobs. The changes are also unfair, as the Government have also increased employee national insurance contributions. That is a tax on jobs from which many wealthy people are exempt as, although they could afford to pay more tax, they may not be in work.

For all those reasons, my party opposes freezing the personal tax allowance.

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