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Mr. Flight: The issues that we wish to raise in relation to clause 50 are represented by amendments that were not selected. Our argument is that the clause does nothing in the area of tax policy to relieve or compensate those who have suffered most from Labour's 48 stealth taxes, equivalent as they are to a 10p increase in income tax. The categories that we believe should be compensated are savers, married people in cases where one spouse has chosen to stay at home to look after the children, and those who are retired.
The Conservative view is that it would be correct to remove the starting and basic income tax rate on savings; to abolish the 10p ordinary rate of income tax on dividends; and in particular to restore to individuals who are non-taxpayers but who are in receipt of dividends their right to claim a 10 per cent. tax credit in cash. The failure to address that is, in our view, Labour's single most unjust policy in respect of personal taxation. The issue has been raised many times and it affects 660,000 people.
People's savings have been accumulated out of income that has been taxed. It is therefore a question of principle as to whether the fruits of that taxed income should again be taxed. A further issue is the volatility in the savings rate that has occurred under the present Administration, and the economic good sense of seeking to achieve a much more stable savings rate.
On the wider issue of savings and the volatility of savings, there is a major point to be made about the Government's overall fiscal policy. They love to boast of the extent to which they have reduced Government debt, but they do not comment on the fact that personal debt has increased by almost the same amount as Government debt has gone down. They do not reveal the fact that disposable incomes have grown by considerably less than the economy as a whole--on average, by 1.7 per cent. The reason why the savings rate has more than halved is that individuals have been borrowing more in order to keep up their consumption.
The danger of this posture, especially now that we are entering much more difficult economic climate, as the Chancellor now admits, is that individuals will look to de-gear and to rebuild their net savings, quite sharply reducing their consumption in the process. That is precisely what leads to the ups and downs--the booms and busts--of the business cycle. The Chancellor is making optimistic noises about the British economy. I trust that they will prove well founded, but the Minister knows that growth in the first quarter was only some 0.3 per cent., annualised at 1.2 per cent. The evidence is that the savings rate is bouncing back up rather more sharply than is desirable. Our view is that the tax policy in relation to savings should be designed to stabilise the savings rate as far as possible.
Mr. Bercow: I am grateful to my hon. Friend for giving way, as he is an acknowledged expert on these matters. In the context of the halving of the savings ratio, which is common ground among all hon. Members, what assessment has he made of the likely impact on that state of affairs of the substitution of the inferior ISAs for the superior TESSAs?
Mr. Flight: I thank my hon. Friend for that question. As everyone knows, the main issue with ISAs is that they are too complicated. People still do not understand clearly the difference between mini-ISAs and maxi-ISAs. In terms of the savings that ISAs have attracted, the figures appear reasonably satisfactory--excepting those for recent months. The relevant figures are difficult to distil, as large sums have been transferred into ISAs from building society accounts that did not qualify in the past.
Dawn Primarolo: The hon. Gentleman is being uncharacteristically disingenuous. Perhaps he will tell the hon. Member for Buckingham (Mr. Bercow) that, as he well knows, a third more people are investing in ISAs than invested in TESSAs and PEPs together in their last and most successful year. In total, 8.5 million people
Mr. Flight: I thank the Paymaster General for those figures, but I point out that they do not tell the entire story. The preponderance of ISAs involves people who were already building society savers and who merely switched a modest cash element of their savings from outside an ISA to within one.
Let us consider also how total volumes of savings in the various good years of TESSAs and PEPs compare with those in the best years of ISAs. When the Government introduced ISAs, they admitted that their primary objective was to reduce the tax cost that was previously associated with PEPs and TESSAs. Indeed, that objective was set out in their Green Paper. Although they have been forced by the pressure of public opinion to keep the ISA level at £7,000 rather than to reduce it to £5,000, the benefits to the community in terms of tax incentives have been marginally less than those of PEPs and TESSAs.
In respect of the tax positions of people who are retired and of those who will be retiring, one of the particularly objectionable aspects of the Government's fiscal policy was the removal of married couples allowance for all people who were going to retire in future. The spin was that retired people would continue to receive the allowance, but that applied only to people who were already 65 and receiving the money. Many people made their retirement plans on the basis that they would qualify for the allowance, but reached 65 this year and cannot receive it.
The Opposition propose to increase the age allowance by £2,000 a year for everyone over 65; that would more than compensate for the circumstances that I am describing. It would take 1 million retired people out of tax and benefit almost 3 million more people by approximately £400 a year. It would also be a powerful antidote to the major swing towards a means-tested society that has occurred under the current Administration. The proportion of retired people on means testing has increased from 37 per cent. to 56 per cent. It is especially demeaning for people in the latter part of their lives to have to come cap in hand for means-tested benefits. Many pensioners are paying tax and also qualify for means-tested benefits. The measures that we propose for 2003-04 would be a major swing back towards enabling people to stand on their own feet and allowing most pensioners to come out of the tax net altogether.
I want to comment now on tax and marriage and on couples in which one spouse wants to stay at home and bring up young children. We propose to restore a tax incentive for marriage and to acknowledge the importance of stability for people who are bringing up young children. We would recognise the contribution made by parents who are looking after young children or caring for elderly relatives by allowing the non-working spouse who is staying at home to transfer his or her personal tax allowance, which is now £4,535 a year, to the working spouse.
That arrangement would be worth up to £1,000 a year, depending on tax rates and full usage of the personal allowance. In particular, it would enable many people who would prefer to work part time rather than full time to do so, in order to give them more time to look after young children. Such a tax change would offer a tremendous benefit to almost 4 million married couples with children aged under 11. In more than one respect, the Government have penalised through taxation--I trust that they have not done so intentionally--married couples where one spouse wishes to stay at home to look after children.
Let us also consider widows. We are supposed to have a caring Labour Government, but the position of widows has deteriorated under this Administration. Unlike the Labour party, we propose to cancel any tax burden for widowed parents by making the continuing widowed mothers allowance and the new widowed parents allowance, both of which are worth £87.50 a week, free of tax in future.
Our concern is what the clause does not do. It merely repeats the tax bands as they were last year and does nothing to compensate the main sufferers under Labour's tax policies. We want to put on record the key areas in which the future Conservative Government would propose to use by 2003-04 the £8 billion--not £16 billion--of tax savings that we have identified, in order to do justice to the people who have suffered and to return a stable savings regime throughout the country.
Dawn Primarolo: I want to contribute very briefly to this short debate. I begin by reminding the hon. Member for Arundel and South Downs (Mr. Flight) of something that he knows well: household wealth is at a record high and the ratio of household debt to wealth has fallen. As he follows such matters very closely, he knows also that the Bank of England said in its quarterly bulletin for spring 2001 that the UK household saving ratio did not seem unusually low when adjusted for changes in inflation rates in the past 30 years. When I challenged him, he had the good grace to concede the success of ISAs in assisting people who wish to save. He also acknowledged that they were more successful than their predecessors, PEPs and TESSAs.
I am a little surprised at the hon. Gentleman, who knows a great deal about the subject, because once again his point about the tax on savings is a red herring. He tried to claim that the same money is taxed twice. He knows that that is not the case: the tax applies to earned, additional income that has not already been taxed. He slipped quickly over that point because he does not try to mislead the House. He seemed to claim that the same money was taxed twice, but I am sure that he did not mean that, because he knows that it is not so.
The hon. Gentleman made several points, and presented the Conservative party's manifesto on tax on pensions, the age-related allowance, savings and the married couples allowance. He failed to point out that 90 per cent. of the age-related personal allowances, which Conservative Members say they will provide for the over-65s, would go to the richest 30 per cent. of pensioners. Sixty per cent. of the gain would go to the richest 20 per cent. He also failed to point out that only four out of 10 pensioners pay tax. Some of our pensioners experience poverty not because they pay tax but because their income is low. The Government have therefore introduced the minimum