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Lord Newby: My Lords, I also congratulate the noble Lord, Lord Blackwell, on initiating such a timely debate. Taxation and how tax revenue will be spent will, as always, be central to the forthcoming general election campaign. I also congratulate the noble Lord, Lord Howard of Rising, on his maiden speech. I am just sorry that I could not agree with much of it.

The debate has been broad enough to encompass the largely theoretical and the completely pragmatic, but the central question raised by the noble Lord,
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Lord Blackwell, is absolutely central to the type of society that we want to live in. Perhaps that is why there has been reference to such a wide range of philosophers, from Aristotle to Beatrice Webb. Incidentally, nearly all of them lived in an age when life was nasty, brutish and short—not a standard of life or form of society to which many in your Lordships' House would today wish to return.

If I were the noble Lord moving the Motion on the Order Paper, I would want to draw attention to the case for the lowest level of taxation consistent with high-quality public services for all. I suspect that that is the question that most individuals would ask when considering the optimum level of taxation. It is a question of appropriateness, to use the word of my noble friend Lord Shutt. But to take the noble Lord, Lord Blackwell, on his own terms, I shall consider a number of questions from what is probably an unreconstructed Liberal Democrat point of view.

Are taxes in the UK today too high, on both economic and moral grounds? That is the nub of the case presented by the noble Lord, Lord Blackwell. What would be the consequences of his proposals, and those of the Conservative Party, on taxation? Finally, what do we believe in, as regards changes that might usefully be made to the structure of taxation?

First, I address the economic arguments behind the question whether taxes are too high. I believe that the level of taxes at the moment does not prove a major disincentive to individuals and companies. There is little evidence to suggest that they do. Certainly, the marginal tax rates for high earners in this country are less than in a number of the more successful European economies. For example, it is interesting that Finland, which has a top tax rate of 53 per cent, was recently selected by the International Institute for Management Development in Lausanne as the most competitive developed country in Europe. Even in Sweden, with a tax take at 54 per cent of GDP and a top tax rate of 56.5 per cent of GDP, growth remains steady. Although businessmen grumble about both personal and business taxes, they accept that they have world-class public services and that the government there have moved with the times to reform them, to make them more efficient and effective.

Some noble Lords have blamed low growth in Germany and elsewhere in Europe on tax levels, but I believe that that is extremely simplistic. I strongly share the view expressed by the noble Lord, Lord Skidelsky, that there is no straightforward correlation between taxation and growth over a wide range of tax levels. That view is supported if one considers the tiger economies of India and China. I do not agree with the noble Lord, Lord MacGregor of Pulham Market, that we could beat the competition in consumer goods in China and India by reducing taxation. Our future as a successful economy lies with high-value added goods and services, not in a race to the bottom with those countries. In sum, I do not believe that the level of taxation is hindering economic growth.

What about the moral case? We have heard some fascinating arguments about morality and taxation, and I wish that I had time to engage with the right
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reverend Prelate the Bishop of Worcester at greater length on the issue. The noble Lord, Lord Blackwell, argued that the current level of taxation has debased moral responsibility, by which I believe that he must have meant that the level of taxation today has had that effect, compared with the level in the later years of the previous Conservative government. That is an immensely simplistic view. One can argue about whether the overall level of moral responsibility now is less than it was before the Labour Government put taxation up. That is in itself an extremely dubious assertion—but then to argue that it is also due to the rising level of taxation is not in my view credible. Nor do I believe that this Government are more corroded, in Burke's sense, than their Conservative predecessors. I would love to have time to pursue that matter, using case studies from members of both governments and politicians from a much longer historical period.

We then heard a series of arguments that taxation equated to dictatorship and that freedom was in inverse proportion to taxation. At best, I believe that that is only half the argument. What about freedom from want, treatable illness, fear of attack and ignorance? Without taxation, and without an element of redistributed taxation, those freedoms would simply be out of reach for a very large proportion of society. That being so, I find simply unsustainable the statement made by the noble Lord, Lord Vinson, that the moral case for lower taxation is irrefutable.

Where I do agree with the noble Lord, Lord Blackwell, is that taxation is too complex, and regulation even more so. If anything, it is regulation that is becoming a disincentive to economic activity rather than the level of taxation. A number of examples have been given as to why that might be the case. I also believe that public services could be run more efficiently. There are a number of ways in which that might be done—one of them being if they were much less rigidly controlled from the centre. To that limited extent, I agree with the noble Lord, Lord Saatchi, that there are far too many central targets. However, I am not sure that I would go all the way with him in saying, in effect, that there should be no targets for achievement set for public servants. I cannot believe that that is how he runs M&C Saatchi.

I was also extremely interested in the suggestion made by the noble Lord, Lord Laidlaw, about user taxes. Certainly in one respect at least—namely with regard to road user pricing—I have a lot of sympathy with what he says.

What about the specific tax proposals of the noble Lord, Lord Blackwell? As one would expect from the noble Lord, they are extremely thoughtful and undoubtedly have a logic. Raising the personal tax allowances has long been a Liberal Democrat aspiration, but the reason why it is an aspiration and why we have never made it a firm manifesto commitment with a set timetable for implementation is simply the cost. Equally, his other change would be to reduce taxation. That would be quite desirable, other things being equal. In fact, would it not be great if we could just abolish altogether a raft of taxes? But the problem is the cost—and here I fear that the noble Lord runs into difficulties.
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On paper, allowing public spending to grow at 0.5 per cent less than GDP looks a relatively modest aspiration. But to argue that that degree of savings—which amounts after five years to £30 billion a year—can be achieved by reducing waste and inefficiency, as the noble Lord suggests in his CPS pamphlet, is a mirage.

The Government are trying to achieve very substantial efficiency savings already via the Gershon process. In previous debates, I have drawn the attention of the House to some of the more dubious proposals in Gershon. I do not believe that it will be successful to the extent that the Government believe it will be, nor do I believe that the James review will be any more successful in yielding credible efficiency savings on a grand scale. What the James review may do is to scrap whole programmes, which, although we might disagree with the specifics, is at least the honest way in which to reduce government expenditure. It is the great weakness of the noble Lord's approach that he does not advocate a similar proposal.

The noble Lord is, however, a significant step ahead of the official Conservative Party position, in that he has spelt out exactly which taxes he is in favour of cutting, and how. The Conservatives have set themselves a sterner public expenditure test—namely, to keep public expenditure growth at 1 per cent less than the growth in GNP over the course of the economic cycle, but we have not yet the faintest idea of how the Conservatives intend to do that. Perhaps the noble Baroness, Lady Noakes, will tell us in her wind-up speech.

Unlike the proposals of the noble Lord, Lord Blackwell, we do not know what tax cuts the Conservative Party supports. Over recent months, the Conservatives have produced a series of options papers. The one on income tax and national insurance thresholds, for example, gave five options, costing between £0.2 billion and £6.7 billion per year. Another came out yesterday, and two more are to come. People are being invited to help the Conservatives with the consultation by telling them how much tax they would like back. None of those options, incidentally, has the other side of the equation attached. Could the noble Baroness let us know when we will know the outcome of those reviews?

Baroness Noakes: No, my Lords.

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