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Lord Goodhart: My Lords, in the absence of my noble friend Lord Newby, perhaps I may be allowed to take his place. I intend to speak briefly. The main problem demonstrated by this Budget is a refusal to face the fact that the tax changes introduced by the Government over their term of office have, to a large extent, been regressive rather than progressive. That has been due largely to the Government's refusal to recognise that income tax could and should be used effectively when taxes are needed. Undoubtedly income tax is the fairest of taxes. It is a simple tax, and it is understood by all. But the Government have stuck to their promises not to raise taxes at any level, which is entirely wrong.
The highest rate of tax in this country is 40 per cent. That rate affects people with earnings in the middle £30,000s and includes people who are in no sense rich. It includes people who are at senior levels in the teaching profession and, in some cases, at senior levels in the nursing profession. Once that level has been reached there is no further increase whatever in the rate of tax for those who have much larger incomes and who could afford to pay much more.
We propose that there should be a higher rate of tax at 50 per cent for those with incomes over £100,000. I believe that anyone would recognise that someone with an income of £100,000 is clearly well off and well into the higher levels of income. People in that category--many Members of your Lordships' House, including myself are among them--could afford to pay more in so far as their incomes exceed £100,000.
At the other end of the scale, we have always pointed out that a greater benefit to those with lower levels of income would be achieved by removing the 10 per cent rate and replacing it with a zero rate. Increasing the personal allowance would take more people out of the tax system altogether and would be more effective in helping those at the lower levels of the income scale than having a lower introductory rate. We believe that the Government's commitment at the previous election that they would not raise the rates of income tax was a serious error that has prevented them from using a most effective tool in making taxes more
The second main criticism of the Budget is quite different. Once again we are faced with a Budget--this year containing exactly 300 pages--that achieves very little. As someone whose legal practice has included a certain amount of tax work, it has always seemed to me that broad simplicity is desirable, rather than fiddling with taxes--a little bit here and a little bit there--to achieve minor improvements.
It is clear that many matters like venture capital allowances or extra allowances for share options and so on are ineffective in economic terms. If something is worth doing, it is worth doing under a neutral tax scheme. If tax concessions are needed, it is doubtful whether that is an effective economic use of the money. We have far too many fiddly little bits and pieces when we should look for something a great deal simpler. Consider, for example, the tax avoidance schemes created by the business enterprise scheme introduced by the previous government. I believe that some of the schemes introduced by the present Government also lead, perhaps on a smaller scale, to that kind of problem.
A Budget of this kind is yet another example of the justification for splitting the Finance Act into two Acts: one for setting the rates and what needs to be done year-by-year on a regular basis, and one for dealing with the more technical aspects. I believe that this is a missed opportunity to simplify the tax system, or at least to avoid complicating it, and a missed opportunity to make our tax system more progressive than it is now.
We are in the fourteenth year of a top income tax rate of 40 per cent. I believe that that has been of inestimable value to this country. In European terms, it has made us a tax haven, something that is deeply resented by some other EU countries, particularly the socialist Government of France. I believe that this country owes a deep debt of gratitude to my noble friend Lady Thatcher, when she was Prime Minister, and particularly to my noble friend Lord Lawson for introducing that in his 1988 Budget.
New Labour was elected on a self-denying ordinance not to dim that jewel in the Tory inheritance and it has stuck to that ordinance. However, so far the Chancellor has failed to indicate whether he will renew such a pledge in the manifesto. It is not on the pledge sheet. We shall be interested to see whether the noble Lord, Lord Goodhart, has succeeded in making a late change to the manifesto, or perhaps the manifesto already says what he wants.
I remind your Lordships that the last time a Labour government were in power, they left with a 98 per cent top marginal rate tax and that rate of tax came into effect at a threshold in today's prices of slightly over £78,000 a year.
The noble Lord, Lord Goodhart, explained that the Liberal Party would like a much higher rate of tax and went on to refer to the 50 per cent rate. His party may be aiming to try to attract some of those voters who have been disappointed that new Labour has to some extent proved to be new Labour. However, I do not know whether the electoral arithmetic will be particularly attractive.
Lord Lawson of Blaby: My Lords, I thank my noble friend for giving way. I am grateful for his remarks about me, but he pointed out that the pledge given at the previous general election has not so far been reiterated. I am sure that it will be. However, does he not agree that the doubt is highly undesirable and that until it is cleared up it is necessary that the Prime Minister and the Chancellor of the Exchequer are probed and pressed at every opportunity in order to make the position clear?
Lord Marlesford: My Lords, I totally agree with my noble friend. The Government may believe that the presence or absence of such a pledge will make relatively little difference to the result of this general election. However, perhaps I may point out to them that if they do not renew that self-denying ordinance, they may, if re-elected, be tempted to return to the bad old days of bad old Labour and the absence of that pledge will have a considerable effect on the next election.
The Bill may not be as bulky as the Chancellor's efforts last year but none the less it is a very full Finance Bill. That is evident from the Minister's introduction. It runs to 300 pages in 111 clauses and 33 schedules. Despite that, like the noble Lord, Lord Goodhart, I do not propose to detain the House for long.
As the Minister pointed out, a large part of its content, the 34 clauses of Part II as well as seven schedules, is taken up with the aggregates levy. It seems to me that this is a classic example of the Chancellor's approach to taxation; an ill-formed proposition with generous dollops of tinkering, obfuscation and complication, all to no good effect. As my honourable friend Oliver Letwin commented in another place:
That should force us to contemplate how much more coherent the regime of the levy could have been had it been scrutinised in greater detail by your Lordships; that is to say, had my noble friend Lord Saatchi's House of Lords Financial Powers Bill been on the statute book.
That contention is all the more persuasive on the basis of some simple arithmetic. The Chancellor delivered his Budget speech on 7th March. Today is 10th May. The Government have had no difficulty in progressing the Finance Bill through another place within that timescale; within two months.
That provokes two conclusions. First, despite the earnest efforts of my honourable friends so to do, some doubt must attach to how effectively it has been scrutinised. This argues fiercely in favour of your Lordships being afforded a proper bite at the cherry. Secondly, and possibly more importantly, there can no longer be any justification whatever in the future for offering up the Finance Bill for debate in this House in the moribund backwaters of parliamentary time.
As your Lordships will be only too well aware, both those ambitions lie at the heart of my noble friend's Bill. Indeed, I emphasise that we on these Benches intend to pursue this strenuously not on our own behalf but in the interests of strengthening Parliament and of giving taxpayers a fairer deal than the somewhat shabby offering of stealth taxes amounting to £36 billion over the life of this Parliament that they have at the moment.
No doubt we shall have the opportunity to put my noble friend's proposition on to the statute book in the future. In the meantime, I take this opportunity to hark back briefly to the historical approach of this House; that is, to make a few general observations about the state of the economy. The Government are adept at crowing about their management of the country's finances. The Minister waxed lyrical yet again today. Sound-bite mantras drip effortlessly from the tongue to explain the miracle of Labour's conversion to economic competence--no more boom and bust and the like.
A particular assertion--and the noble Lord made it again today--is the Chancellor's claim to have repaid £34 billion-worth of debt. And yet, according to the Treasury's own figures, no sooner has this debt been repaid than the Chancellor avers his intention to borrow exactly the same sum; £34 billion.
It seems to me that there is another curious coincidence here; namely, that the current debt of British Telecom all but matches that £34 billion. Why is that significant? Because of the £22.5 billion which the Chancellor raked in from the auction of 3G spectrum. In effect, a large proportion of the debt repaid, far from emanating from the fruits of sound economic policy, is derived from what, in terms albeit also with hindsight, was little more than an unwarranted windfall tax.
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