|Previous Section||Back to Table of Contents||Lords Hansard Home Page|
Lord Haskel: My Lords, I thank the noble Lord for giving way. If one does one's own tax return and sends it in by the end of October, the Revenue will work out one's tax. One does not have to do it oneself.
Lord Hodgson of Astley Abbotts: My Lords, the relevant date is not the end of October; it is 30th September. That is fine if one does not have overseas earnings or, for example, complicated earnings resulting from membership of Lloyd's. A substantial number of taxpayers simply cannot submit a tax return by that date.
Furthermore, the new system provides for an interim payment to be paid by 31st July each year. That has done wonders for the Government's cash flow in regard to both quantum and timing. The noble Lord, Lord Taverne, said that we on these Benches were reluctant to refer to Kenneth Clarke. I refer him to a speech of Kenneth Clarke on the Budget made yesterday in another place in which he said that the amount of money that flowed from self-assessment exceeded the wildest dreams of the Inland Revenue when it planned the introduction of that policy.
What does the taxpayer get out of this new contract? It was promised that the self-assessment system would be, and would remain, simple so that a sensible man or woman could complete the tax return without being an accountant or having a degree in astrophysics. At the beginning that proved to be the case. But now, while the Government have rigorously enforced their advantages--less work for the Revenue and improved cash flow--they have reneged on the benefit promised to the taxpayer. As the Chancellor has introduced scheme after scheme, wrinkle after wrinkle and initiative after initiative, the self-assessment system has become unintelligible.
I wish to introduce the Minister to the following little gem: Form SA151, the tax calculation guide for the year ended 5th April 2000. It is 29 pages long. I shall not detain the House by quoting extensively from it. However, I shall give two simple examples from it. Page 13 is headed:
Some will say that self-assessment does not affect many people. However, I understand that self-assessment affects something in excess of 3 million taxpayers. That number will include the cream of our business, artistic and academic talent. Is this a good way to encourage talent? Is this a good way to reward success? It is not as if that is the only example. As my noble friend mentioned in his opening remarks, the Inland Revenue is now being pursued in the High Court by a group of consultants with regard to the impact of the IR35 rules. As my noble friend said, these rules are primarily aimed at consultants in the information technology field. This country needs those skilled people desperately if we are to maintain our position in that key industry. They are very mobile people with transportable skills. Of all the industries that claim to be global--and many do--IT truly is.
Last week's Daily Mail carried a facsimile of a 40-page form that pensioners had to fill in to claim extra benefit. Taxpayers are in danger of sinking in a mass of unintelligible paper as a consequence of the Government's obsession with command and control and their belief that they can and should interfere everywhere. If we are to compete on the world stage, we need not only to minimise the tax burden, but to give taxpayers a clear, simple and credible system for tax collection. I am delighted to support my noble friend today.
Lord Brooke of Alverthorpe: My Lords, I join in the congratulations offered to the noble Lord, Lord Strathclyde, for his innovation in introducing this debate. There have long been complaints that we do not deal with the Budget adequately. I am pleased that he has had the courage to table the Motion. I hope that
The debate is a welcome opportunity to underline the Budget's key messages on what has been happening to the British economy. It gives us great pleasure to know that, as the noble Lord, Lord Stevens, who has left the Chamber, said, we now enjoy the lowest inflation for 30 years, the lowest long-term interest rates for 35 years, more people in work than ever before and the lowest unemployment since 1975. Importantly for a country of home owners and aspirant home owners, mortgages are on average £1,200 a year lower than under the previous Government. We keep our fingers crossed about the prospects for further reductions in interest rates.
All that comes against a background of the Government inheriting some underlying advantageous factors--I concede that--but also an unacceptably high level of national debt. As my noble friend Lord Tomlinson said, it stood at 44 per cent of national income. Happily, that will be reduced to 30.3 per cent in the coming year, with a net cash debt repayment of £34 billion. As the Chancellor emphasised, that is more debt repaid in one year than the total debt repaid by all the previous British Governments of the past 50 years. That is a fact.
Debt interest payments next year will be £1.5 billion lower than forecast in the pre-Budget report and substantially lower than expected in last year's Budget. In total, debt interest payments will be £3.5 billion lower than this year.
Lord Brooke of Alverthorpe: My Lords, the decision to auction the licences was anticipated and planned Government policy. Taken together with the £4 billion annual reduction in social security costs achieved through lower unemployment and 1 million more people in work under Labour since 1997, that gives a marvellous opportunity to release resources for the country's priorities. Those are the facts. Cutting debt and unemployment and achieving higher growth and earnings have yielded higher tax receipts and the chance for balanced investment in Britain's future.
I was the General Secretary of the Inland Revenue staff federation for a number of years and was in post at the time when the government supported by the noble Lord, Lord Hodgson, came forward with plans for introducing self-assessment. It had nothing to do with the Labour Government. It was planned by the previous government.
Lord Hodgson of Astley Abbotts: My Lords, I made it clear that the contract has been changed. The contract was that certain things would be done by the taxpayer, in return for which he would have a simple system. This Government have enforced the tax
Lord Brooke of Alverthorpe: My Lords, I shall continue with the point that I was making. I was on the inside at the time. The idea was devised as a simple tax assessment system, but the more that the Inland Revenue--not the government, which was a Conservative government--worked on it, the more they realised that they could not continue to call it that, because it would inevitably become increasingly complex.
I return to my major point of higher yields from tax receipts because of growth and more people in employment, as well as higher personal incomes. We have choices as to how to deal with the surplus. The money can be invested in our neglected infrastructure and public services, or it could disappear in general tax cuts above the not ungenerous targeted tax cuts that the Chancellor has proposed. That is the choice that I hope that the electorate will have in the near future. People will be free to make their own judgment on whether there have been unacceptable rises in personal or business taxation and whether they want more public service investment, not just in education, health, police and the Armed Forces, but also in transport and the environment. Sir Alastair Morton's report yesterday, showed what a state our transport system is in.
As voters reach their decisions, we will want to ensure that they are aware of the Government's record of success, which I have just described. They should also know that, in the words of Ed Crooks, economics editor of the FT, last Thursday:
The average corporation tax bill of a small company has been reduced by nearly a quarter since 1997. The capital gains tax taper has been increased, thereby reducing CGT to 10 per cent after four years, as the noble Baroness, Lady Hogg, so kindly acknowledged. Last week the Chancellor announced further proposals for tax reliefs for business--for research and development, for intellectual property and goodwill, for start-up businesses, for disadvantaged communities and many more. The UK fiscal regime for small businesses does not have the excessive negative influence that the Conservatives allege. It can be supportive and can incentivise. If that is not the case, why have 170,000 new small businesses been set
Where is the evidence of decline or contraction, of which we have heard so much this evening? It is certainly not in the IMF reports. Last year, the IMF was concerned that the growth in the economy could lead to a pick-up in inflation. But, in fact, that was not borne out. Now we have this year's IMF reports. My colleagues on these Benches and the noble Lord, Lord Oakeshott of Seagrove Bay, on the Liberal Democrat Benches, have dealt more than adequately with the more recent alleged warnings of the IMF.
In sum, the case has not been made for the noble Lord's Motion, other than perhaps with regard to personal taxes. And that is questionable, given the very low interest rates from which so many people in this country have benefited, particularly through mortgage repayments. When that is taken into account, the position changes significantly.
As I said earlier, the voters will pass judgment on whether or not the increases have been reasonable. They will also pass judgment on the other issues which are of central importance to them; namely, public investment, children, mothers, families and poverty. The latter was not even mentioned by the noble Lord, Lord Strathclyde, when he moved the Motion. When noble Lords opposite come to respond, perhaps they will give equal prominence to those points.
Lord Northbrook: My Lords, despite headline tax cuts, such as the reduction in the basic rate of income tax from 23p to 22p last April, under this Government overall taxes have increased. The Treasury's own figures show a rising tax burden--that is, net taxes and social security contributions as a percentage of GDP--over the course of this Parliament. According to its figures, which since November 1999 have generally been adjusted upwards, the tax burden has increased by a full 2.2 per cent. That rises to 2.7 per cent if the working families' tax credit is included as a spending increase rather than a tax cut.
In its report on the 2000 Budget, the Treasury Select Committee called for a special investigation into the Treasury's decision to count money paid out under the working families' tax credit as negative tax rather than higher public spending. It also took the Chancellor to task for using confusing figures to measure the tax burden and for basing his claim to have been fiscally prudent on relative rather than absolute tax and spending numbers.
The Office for National Statistics has also produced figures on the tax burden which are very much in line with the Treasury's numbers. They show that the tax burden rose from 35.5 to 38.4 per cent between the second quarter of 1997 and the third quarter of 2000. That is an increase of £28 billion or, as my noble friend Lord Strathclyde said, the equivalent of 10p on income tax.
Until March 2000, Ministers refused to admit that taxes were rising. But finally in that month the Government admitted that the burden of taxation had risen. The Prime Minister's official spokesman, Alastair Campbell, stated that that was the case. Figures published by the OECD in 1999 show that, compared with the rest of Europe, Britain has the fastest-rising tax burden (taxes as a percentage of GDP) and that, for the first time in a generation, now pays more tax than Germany.
How have those tax increases taken place? The Government decided that it would be far easier to operate by stealth--by jacking up indirect taxes and reducing allowances--than by altering the basic and higher rates of tax. For example, in July 1997, as the noble Lord, Lord Oakeshott of Seagrove Bay, among others, mentioned, the abolition of ACT robbed pension funds of a figure estimated to be in the region of £5 billion a year, rising to £6 billion next year.
However, because the measure was difficult to understand, few pensioners made a fuss about it. Only now has it become apparent that those operating some pension schemes will have to ask for increased contributions from members. Most companies are asking for a 10 per cent increase, but Tesco recently asked for 15 per cent. Otherwise, businesses may not be able to afford to pay their workers' pensions.
Stamp duty has been picked on as an easy way to raise money. The highest rate has increased from 1 to 4 per cent in gradual stages since 1997. Fuel duty escalators have been raised well above the rate of inflation--in the case of unleaded petrol, from 36.8p per litre to 46.82p between November 1996 and March 2001.
With regard to direct taxes, the hiking of national insurance rates is a key example. When this Government came to power, the upper earnings limit on which national insurance was chargeable stood at £23,660 per year. That figure has been increased gradually to £29,900--a rise of 26 per cent. The most recent rise in this Budget was 7.5 per cent--almost three times the rate of inflation. It has been estimated by accountants that that change will mean that up to 1 million people earning more than £30,000 a year will pay approximately an extra £200 per year, raising £200 million for the Treasury. That type of stealth tax will affect people such as top nurses and senior teachers. The Shadow Chancellor stated that at least 9,000 policemen, 23,000 teachers, over 20,000 NHS workers and other hard-working, middle-income workers will have to pay more national insurance every week.
Exactly the same has happened to Class 4 contributions for the self-employed. However, there is a further twist. In 1996-97, Class 4 contributions were set at 6 per cent on profits or gains between £6,860 and £23,660. As a result, the maximum levy was £1,008. The upper limit has also now increased to £29,900. Last year, the lower limit went down to £4,385. I do not have a figure for this year. The final bad news is that the Class 4 rate increased to 7 per cent during that period. Therefore, the maximum annual Class 4 rate is now £1,786--an increase of 77 per cent since 1997.
Another way in which the Government have been able to gather tax by stealth is by cutting allowances. Mortgage tax relief was restricted; then it was abolished in March 1999. The married couples allowance has been abolished for those born after 1935.
The House of Commons Library has published figures which show that a typical working family is more than £600 a year net worse off after all Labour's tax and benefit changes. Of that figure, £400 comes from the loss of dividend credits, £326 from the abolition of MIRAS, and £300 from getting rid of the married couples allowance. The Chancellor believes that his tax increases have hit only the super-rich. The example to which I have just referred assumes that a man has an income of approximately £25,000 and his wife £18,000. It shows that ordinary, hard-working people are being hit.
Moving on to business taxation, we hear much the same story as we do in relation to personal tax. We welcome the cuts in corporation tax which have taken place since 1997, as we do the cut in basic rates of income tax. However, we do not welcome the raft of extra taxes and costs to businesses.
Recently, the CBI estimated that the cost to businesses of the red tape and taxes introduced by Labour since May 1997 is £32.3 billion. That includes taxes of £5 billion a year and £12.3 billion in red tape over the present Parliament. Those taxes include the windfall tax on utilities; record levels of fuel duty (the highest in the EU); the abolition of tax credits on dividends, as previously mentioned; changes in the timing of corporation tax payments; increased taxes on company cars; and the climate change levy, which alone will bring in £1 billion a year to the Government.
The impact has been particularly severe on small and medium-sized businesses, as confirmed by recent figures from the Institute of Chartered Accountants. The figures show that the cost to micro and small businesses of complying with new legislation more than doubled between 1999 and 2000. For micro businesses, the average cost of implementing new legislation rose from £1,700 in 1999 to £3,600 in 2000. For small businesses, the cost rose from £4,700 to more than £8,000.
The following regulatory, administrative and tax-collecting areas are also costing companies money. First, the annual administrative costs of the Working Time Directive are estimated to be £2.3 billion. Secondly, the working families' tax credit, which employers must administer on behalf of the Government, has set-up costs of £100 million and a further £240 million per year in ongoing costs. Thirdly, while the Conservative Party has accepted the policy of the national minimum wage and therefore its financial costs, there will still be an administrative burden of £674 million. Fourthly, the student loan repayment scheme is the other main payroll burden that the Labour Party has introduced for employers to administer. It has an annual cost of £359 million.
Importantly, those tax-cutting policies are linked to public spending savings and can be made irrespective of measures in the latest Budget. The Conservative Party is not planning to cut public spending. We wish to restrain the rise in public spending to within the growth rate of the economy as a whole.
In summary, the Government's current strong financial position is to a considerable extent the result of the higher level of taxation that has been imposed since they came to power. The danger, were they to get a second term, is that if the economy weakened to below 2.5 per cent growth for a long period, the Government would still be stuck with expenditure commitments that would wash away the surplus. The IMF's warning about the dangers of the planned record levels of public expenditure may come back to haunt the Government.
First, we certainly agree that it is extremely valuable to have such a debate in the immediate aftermath of the Budget. We are grateful to the Conservatives for using one of their debate days for that purpose, but we hope that next year their example will be followed by the Government. This important subject should be dealt with in government time, not that allocated to one of the opposition parties.
Secondly, we obviously agree that taxation has risen during the Government's lifetime, although, if one excludes this year's windfall revenues from the sale of the telecoms licences, the proportion of taxation to GDP, at 38 per cent, is hardly at an historically high level for this country or particularly high when compared with our nearest neighbours across the Channel.
Thirdly, I agree with the noble Baroness, Lady Hogg, who said that the Government might have done better had they acknowledged at an earlier stage that the effects of their fiscal policy would be to raise taxes. Instead, they pretended for a couple of years that the opposite would result. In our view, such activity tends to reduce the credibility of the Government and of the political class as a whole.
Fourthly, we agree that there has been a lack of transparency in some of the tax changes. At least, tax changes and tax increases have been introduced that are not understood by, although they affect, large numbers of people. The removal of the dividend tax credit for pension funds is the classic example. There was a sense that the Chancellor of the Exchequer was looking for taxes that he could raise that would barely be noticed and that he did not want to introduce headline tax rises, although that would at least have the merit of being immediately understandable.
Finally, we agree that the increasing complexity of the tax system is a burden that it would be better to reduce. The noble and learned Lord, Lord Howe, and the noble Lords, Lord Stevens of Ludgate and Lord Hodgson, referred to that. As we saw in our recent debate on the Capital Allowances Bill, we hope that your Lordships' House might have a part to play in that regard in future.
That, I am afraid, is it; those are my areas of agreement with the noble Lord, Lord Strathclyde. The tenor of his speech was that there was something seriously wrong with the levels of tax and of expenditure. A feeling emanated from his speech rather than a raft of specific proposals, but that tenor was undoubtedly there. The implication was that either tax or expenditure should be cut. The noble Lord, Lord Blackwell, was more specific. He said that in many cases, expenditure was an unnecessary bad. Unfortunately, he did not explain that or give examples of an unnecessary bad, although we got the general message. That attitude from the Conservative Front Bench is surprising because expenditure on health, education and pensioners under this Government as a proportion of GDP is less than it was during the Major years. The Conservatives make a mistake. They seem to think that John Major got it wrong, although they no doubt supported his approach at the time. Their other comment on expenditure--William Hague said this in another place--is that the Conservatives would meet the Labour Party's health and education plans. In the main areas of expenditure, the Conservatives are not planning to make cuts at all; they plan to maintain the levels that the Government have set.
The Conservatives have produced plans to save approximately £8 billion. They were referred to by the noble Lord, Lord Northbrook. I am sure that the noble Lord, Lord Saatchi, will set them out in more detail. I hope that he will not object if I get my retaliation in first, before he speaks; the timetabling of our debate means that I have no other option. The problem with the £8 billion figure is that, when it is examined in detail, the proposed cuts are found to be either dubious or downright bogus. I shall give just two examples. The largest saving involves a £1.8 billion reduction in the cost of running the Civil Service. Staff numbers in the Civil Service are already falling dramatically and its real cost is also falling. Furthermore, the majority of staff in the Civil Service who remain are either collecting taxes--presumably, the Conservatives are in favour of that--or are in departments in which the Conservatives have pledged not to cut expenditure. The idea that there are huge billion-pound expenditure cuts to be made in the Civil Service seems to us to be highly implausible.
Other proposals relating to the £8 billion figure are extraordinary. Apparently, a saving of £200 million would be made because the Conservatives do not propose to set up regional assemblies. The Government may or may not be in favour of setting up regional assemblies, but it is clear that they will not be set up within the planning period that is covered by the public expenditure plans. There is not £200 million to save in those plans in the first place. The truth is that the Conservatives will either have to cut expenditure on core public services or keep taxes at their current levels. They cannot have their tax cake and eat it.
I turn to the Government. As my Liberal Democrat colleagues have already explained, we can just about forgive the Chancellor of the Exchequer for trumpeting the strong position of the economy and of public finances. He has been operating in relatively benign times but one can hardly blame him for handling a good card well. However, the Government face two major uncertainties, which several noble Lords have discussed this evening.
The first relates to the outlook for future growth. We know, from every passing day, that the economy in the USA is weakening quite rapidly. The economy in Japan is equally depressed. This has serious implications for us in terms of trade and investment. Although some economists writing about the proportion of trade to the USA or Japan suggest this is relatively small, I am not so sure. For example, we see in terms of investment that Motorola has decided to cut 7,000 jobs. It is almost certain that some of those job cuts will fall in the UK.
When growth falls--if it does--the Chancellor will have a difficult choice to make between cutting expenditure, raising taxes or increasing borrowing. At that point we shall have a real chance to assess the Chancellor's true worth in difficult times.
The longer term uncertainty relates to the level of public expenditure and public services. Total departmental expenditure is planned to rise by 8 per cent per annum in money terms over the period 1999
As my noble friend Lord Taverne made clear, we on these Benches are unambiguous in believing that a civilised and productive society is more likely to be achieved under a European than an American model. I was interested to hear the noble Lord, Lord Stevens, say that we should go down the US route but protesting that we have to protect the weak and poor. I wonder whether he really believes that the US model adequately supports the weak and poor in the US--I certainly do not.
All noble Lords will be relieved to hear that I do not intend to read the full text of the Liberal Democrat alternative budget. However, having criticised everyone else, it is only fair to set out some of the main points in it. First, we are committed to having no stealth taxes. If we are to persuade people to be cheerful taxpayers, they need to know exactly where any changes in taxation are going to be spent.
Secondly, the tax changes that we propose are all hypothecated; to provide help for the poorest and better public services; to provide long-term care for the elderly; to provide more doctors, nurses, teachers and policemen. We explain how we will raise the taxes to do it. For example, we say we think we will need a 50 per cent tax rate on the highest earners.
Thirdly, we will review the Barnett formula. This has been a slightly contentious issue within the Liberal Democrats, not least among some of our Scottish colleagues. It is very difficult in reality to argue against expenditure based on need.
Fourthly, as my noble friend Lord Taverne said, we are committed to join the euro and to set an exchange rate target to enable us to do it. In these ways we believe we can build and win the argument for a fair level of taxation that provides high quality services for all, encourages investment in people and physical capital and provides a sustainable basis for economic growth and social progress. To echo the noble Lord, Lord Islwyn--here we stand, we can do no other.
Lord Saatchi: My Lords, it is a great honour for me to wind up for our Benches on this debate because it has been stimulated by the Leader of the Opposition, my noble friend Lord Strathclyde, and because of the distinguished speeches we have heard from key members of the House this afternoon. I hope that any
The noble Lord, Lord Harris of High Cross, said that he came today both to bury and to praise the Chancellor. I am here strictly on burial duty. The theme of the burial service was provided to me by the noble Lord, Lord Woolmer, because he said it was basically a question of trust. I begin on that theme by taking the words of the Chancellor in his Budget Statement:
The truth emerges in a document published at almost the same time as the Chancellor was speaking--the Red Book. The figures shown in Table C10, page 195 have been referred to by other noble Lords. The Government's own figures document the increase in the tax burden under them from 35.2 to 37.7 per cent. To find the full truth of what has happened with taxation under this Government one has to turn to the last page of the notes to the accounts for the full story. It is the hiding place for creative accountants throughout the ages. The noble Lord, Lord Barnett, purported to give my noble friend Lord Strathclyde a lecture in corporate finance. If I may return the compliment, what one finds in this note on the last page is that these public accounts do not conform with generally accepted accounting principles. My noble friend Lady Hogg has also pointed that out. If they did conform with generally accepted accounting principles, Table C10 would be inaccurate because it would understate the tax burden by 0.5 per cent. It is 38.2 per cent--the full 3 per cent increase under this Government.
The Government say regularly that they are presiding over strong public finances. The noble Lord, Lord Barnett, described this as a very sound and strong economy. From where do those strong finances come? They appear on page 188 of the Red Book at Table C4, where one sees a £16 billion surplus for this year. From where did the £16 billion surplus come? Was it perhaps--as the noble Lord, Lord Brooke, said
I hope that the Minister will not say that the surplus arose from the higher tax receipts from the formerly unemployed. I believe that the Treasury will shortly be producing figures to refute that. No; it is because out of this modestly growing economy, one item is miraculously growing much more rapidly. That figure cannot be found in the Red Book, of course, but the IFS worked it out for us.
Government tax receipts are growing by 4.6 per cent a year; they have done so since the Government came to power. That compares with 1.8 per cent during the 18 years of Conservative government. That 4.6 per cent a year is double the rate of growth in the economy, and there lies the true economic miracle of this Government. Taxes growing twice as fast as GDP, twice as fast as inflation, twice as fast as people's earnings. How has that happened?
It happened because the Government took full advantage of the complexities of the tax system to which my noble and learned friend Lord Howe referred. First, there has been a staggering proliferation of tax rates; the number of basic rates has doubled from 15 to 38. Tolley's Standard Tax Manual--the bible of tax accountants--increased to 3,293 pages in three years. Other noble Lords referred to the complexity of the tax calculation guide, the size and complexity of the Finance Bill and so forth.
The result is that the Government, with all that apparatus, are now in a position where they first tax people on low incomes; they then means test their incomes to satisfy themselves that they are in need; they then offer them benefits to restore their income back to what it was before they paid the tax; and, finally, they tax the benefits. As a result, 56 per cent of pensioners are now means tested--a record--and any pensioner, as my noble friend Lord Hodgson said, who wishes to claim the Government's new minimum income guarantee has to complete a 40-page form. Is it any wonder that out of 500,000 eligible pensioners, only 82,000 have attempted the feat? Age Concern described it as,
As the social security Minister, the noble Baroness, Lady Hollis, had to agree in response to a Question in your Lordships' House yesterday, people do not know that MIG (minimum income guarantee) is an income support benefit. What do the Government believe poor pensioners think MIG is? Perhaps a Russian aeroplane.
The result of all that complexity is what my noble and learned friend Lord Howe called the "mounting anxiety" about lack of transparency, also referred to today by the noble Lords, Lord Newby and Lord
We are in a position to solve the mystery of fiscal buoyancy to which I referred. According to a Written Answer in another place, £2.6 billion of the surplus comes from the underclaiming of complex credits and benefits and £5.7 billion, according to the Independent Financial Advisers Tax Action Group, comes from the underclaiming of complex tax allowances. If we add to that the £3.4 billion the Government admitted to underspending on health and education, we shall have found £11.6 billion of the £16 billion surplus. In other words, three-quarters of the surplus comes from the fact that the Government have over-claimed tax, underpaid benefits and underspent on health and education. The bottom line is that the growth of real household disposable income--the amount left to spend after tax and inflation--has slowed to a feeble 1.6 per cent during this Labour Government compared with an average 2.5 per cent under John Major's administration and 2.9 per cent under Margaret Thatcher.
After all that, do the Government have a surplus? Will it be for Britain, as it will be for the US, 5 trillion dollars over 10 years? No. We have heard a lot about the repayment of government debt. The noble Lord, Lord Tomlinson, was excited that the Chancellor had repaid £34 billion of debt. As he said, the Government were keeping debt under control. It is true that on Table C4, page 188, we find the repayment of the £34 billion to which the noble Lord, Lord Tomlinson, referred. But perhaps I can point out an extraordinary fact. In the year after the repayment of the £34 billion, the Government again start to borrow. These are the extra borrowings: £1 billion, £10 billion, £11 billion, £12 billion. I added those up and according to my maths, that comes to £34 billion. Mr Micawber himself would be amazed. So here we have a Chancellor who repaid £34 billion one day and borrowed it again the next. No wonder he put VAT on spectacles; it was so nobody could see what was actually going on!
I shall pass over the notes I had on the IMF, which would only involve swopping selective quotations from the report, and my noble friend Lord Strathclyde dealt with that. I close briefly by saying this. Would it not be more relaxing for the Benches opposite if the Government were more open? The noble Lord, Lord Newby, on the Liberal Democrat Benches, was open. Liberal Democrats differ profoundly from us, as the noble Lord, Lord Taverne, said. He said that Liberal Democrats believe in high taxes because they believe that that is the route to better public services. Conservative Benches are open; we believe in low tax. We believe in the parable of the good Samaritan. We believe that low tax means more freedom and choice for individuals; it means higher tax revenues in the long run.
But what do the Government believe in? They preach low tax, but they practice high tax. Oh what a tangled web it is; what anguish for all. Would it not be better to be more like the noble Lord, Lord Desai, who said, "Our party is not a party of lower taxation and I am proud of that"?
Lord McIntosh of Haringey: My Lords, the noble Lord, Lord Strathclyde, deserves to be congratulated twice: first, on following the example of the Labour Party in Opposition in choosing to use an Opposition debating day immediately after the Budget to debate the Budget. That is what we did ourselves and what we said they should do. We feel that it is the right thing to do. It is responsible Opposition.
Secondly, above all, the noble Lord is to be congratulated on his miraculous timing, to which the noble Lord, Lord Tomlinson, has already referred. Fancy having the debate on the day on which claimant unemployment goes below 1 million for the first time for 26 years--that from a party which, in 1979, fought an election campaign (the noble Lord, Lord Saatchi, will remember it well) which had a whole group of unemployed actors, most of them hiding their faces so their shame could not be seen by their friends, saying, "Labour Government is not working". Why was Labour Government not working, according to the noble Lord, Lord Saatchi? Because in the period 1975 to 1979 unemployment had risen from 1 million to 1.1 million. What happened after Labour Government did not work, according to the noble Lord, Lord Saatchi? The claimant count peaked at 3.09 million, a rate of 11 per cent, in July 1985 and reached 3 million again in December 1992. My noble friend Lord Islwyn had his figures exactly right on that.
What will the noble Lord, Lord Saatchi, advise the Conservative Party to do in terms of posters for the coming election? Will it be the same people, perhaps with two-thirds of them cut off? Will it be an exposition of the figure that I gave? I wait with great fascination to see how the spin doctors of Smith Square deal with this minor problem. And I congratulate again the noble Lord, Lord Strathclyde, on his timing. Although he has followed my advice, bearing in mind the Budget and the quality of the response by the Opposition to the Budget, I would have thought as many as four times before leading with my chin in the way that the Opposition have done today.
It cannot be denied, and nobody has tried to deny, that the Budget was delivered against the background of a strong and stable economy. That cannot be taken for granted-- although there were examples during the last American Presidential election of attempts to take it for granted-- because that strong and stable economy results from decisions that we have taken since coming to office to avoid a return to the stop-go cycles of the past.
This Budget takes no risks with that hard-won economic stability. I believe that the noble Lord, Lord Taverne, would have liked us to take more risks earlier in this Parliament, but we did not. Having increased by 3 per cent last year, GDP is forecast to increase by 2¼ to 2¾ per cent in each of the next three years; inflation is forecast to be 2¼ per cent this time next year, and on target at 2½ per cent by the end of next year; and household finances are strong, net financial wealth having risen by 26 per cent since the spring of 1997.
The noble Lords, Lord Strathclyde, Lord Blackwell and Lord Boardman, referred to the saving ratio. They noted that the forecast has been revised downwards since the Pre-Budget Report. In part, the levels of confidence in the present economic climate of low inflation may have reduced the need for households to save for precautionary purposes. As consumer spending growth slows, as is widely expected, the ratio is forecast to rise to 4¾ per cent this year, 5 per cent next year and 5¼ per cent in 2002. Long term savings on pensions and ISAs are still robust--a more important consideration than many others. Lower net saving is not funding an unsustainable boom, as in the late 1980s. The savings ratio is important. However, the validity of our policies has been confirmed by the Bank of England's quarterly bulletin.
Public finances remain sound, and they meet the Government's two fiscal rules. The golden rule states that over the economic cycle the Government will borrow only to invest, not to fund current spending. The noble Lord, Lord Haskel, is quite right to suggest that the effect of that is that one can never entirely get rid of economic cycles; but we have succeeded in moving the cycle. On a cyclically-adjusted basis, the surplus on current budget remains positive throughout the forecast period. The average surplus since 1999-2000, which, on the Government's provisional judgment, is the start of the current cycle, also stays positive, remaining above 1 per cent of GDP over the next five years. So the Government are firmly on track to meet their first fiscal rule, even in the most cautious case.
The golden rule alone does not limit the amount of borrowing that the Government can undertake for investment. I was puzzled by the noble Lord, Lord Boardman's, gallant defence of a return to cash accounting. I do not believe that he meant it. However, it is important to limit the amount of government borrowing to a stable and prudent level. Excessive levels of borrowing cause debt to rapidly build up and add to the burden of debt interest payments.
The second fiscal rule--the sustainable investment rule--states that public sector net borrowing as a proportion of GDP will be held over the economic cycle at a stable and prudent level. Other things being equal, net debt will be maintained below 40 per cent of GDP over the economic cycle. The ratio of public sector net debt to GDP has been reduced from 44 per cent in 1997 to 31.8 per cent this year. It is forecast to further fall to 30.3 per cent in the coming year and remain at about 30 per cent in the following four years. I can confirm that my noble friend Lord Woolmer was right in giving comparable figures.
In every one of the next five years, adjusting for the economic cycle, the Budget locks in the tough fiscal stance set out in both Budget 2000 and the Pre-Budget Report. That is an important point to remember when we come to consider the IMF judgments. Because of that, the Government have been able to repay the debt. The noble Lord, Lord Boardman, is right that a significant part of this year's debt repayment has been the spectrum receipts. However, it is important to note that the spectrum receipts have been used to repay debt, not for current expenditure. As a result of the repayment of debt, debt interest payments are lower. They are forecast to be £3.5 billion lower in the coming year. That money will be available for schools, hospitals and other spending priorities. Because we have succeeded in reducing unemployment and, therefore, reducing social security costs, additional resources of £4 billion per year are available for front-line public services.
Between 1979 and 1997--and I say this in the presence of the noble and learned Lord, Lord Howe--42p of every additional pound spent went to debt interest and social security. Now, the figure is only 16 per cent, leaving more than 80p of every additional pound to go direct to front-line public services. The noble and learned Lord, Lord Howe, said that the Chancellor was entitled to a modest degree of self-satisfaction for that. I believe that he is entitled to a good deal more than modest self-satisfaction, although he would be the last person to feel it or to show it.
The Motion that we are debating today includes references to the summary of the IMF board's discussion of the IMF staff report on the UK's 2000 Article IV consultation, from which the noble Lord, Lord Taverne, and many others have presented selective quotations. I shall not read out the entire report; that would be devastating. In their report and summary of the board's discussion, published on 28th February, the IMF directors praised the current UK expansion as,
I take seriously the comments made by the noble and learned Lord, Lord Howe, and the noble Lords, Lord Stewartby and Lord Newby, about the risks to the world economy, particularly in the United States and Japan. As they will know, the forecasts for growth in the world economy have already been revised downwards since the Pre-Budget Report to take into account the weaker than expected growth in the fourth quarter of last year. The forecast is in line with the views of external forecasters, including the IMF.
The UK uses a lower estimate of trend growth for forecasting public finances to act as a buffer against unexpected downturns. We still remain on track to continue to meet the fiscal rules, even in the cautious case, which is 1 per cent below the central case. Of course there are risks--no one can deny that--but it can legitimately be claimed that we recognise those risks and did so in the way we framed the forecast.
I turn to what is emotively called "the tax burden". We had a curious debate on the subject. The tax:GDP ratio is not dependent only on government measures; it is dependent on the strength of the economy. If the noble Lord, Lord Saatchi, believes that that is an admission, he is welcome to it. It is self-evident. As the noble Lords, Lord Blackwell and Lord Brooke, recognised--apparently the noble Lord, Lord Stevens, did not--if there are 28 million people in jobs and unemployment is at its lowest rate for 25 years, fewer people are on benefit and more people pay tax. Should we apologise for that? Should we apologise for the fact that tax receipts benefit from that? I see no reason to apologise for economic success.
I am not pleased with that comparison; it is the last year I shall be able to use it because the previous government's forecasts go no further. But as the noble and learned Lord, Lord Howe, and others applauded the previous government on the basis of their forecasts rather than on their achievements, I believe that it is therefore legitimate to quote their forecasts back to them.
Finally, in the light of the fact that Budget projections show a steadily falling tax:GDP ratio over the next three years, what are we to think about the attack on the tax burden? The tax burden is a crude measure. The same percentage could encompass policies of social justice or social injustice, proper provision for public services or what my noble friend Lord Islwyn rightly called private affluence and public squalor.
What matters to people in this country is not the macro measure but the fact that, compared with indexation, households will be on average £590 a year better off from measures introduced over the Parliament (£150 a year better off from this Budget and £240 a year better off from all the measures taking effect this year). Families with children will be on average £1,000 a year better off as a result of measures introduced over this Parliament as a whole. Finally, the direct tax burden on a single-earner family on average earnings with two children will be at its lowest level since 1972. I do not think that God loves me, but under those circumstances I am a cheerful taxpayer--"Canon Barnett" had it entirely right!