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The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord McIntosh of Haringey): My Lords, the answer to that question is, "has the noble Baroness, Lady Noakes, stopped beating her husband?". The assumption behind that question is that low taxes discourage poverty, whereas high taxes encourage poverty, which of course is clearly not the case.
I have had some difficulty in finding a word to describe this debate that would be acceptable to your Lordships, because I found great discord between the views of the Conservative Back Benches and what it is possible for the Conservative Front Bench to say. This is clearly an election debate; I expected it to be that. The noble Lord, Lord Blackwell, is a serious thinker in the Conservative cause, and what he says and what his Centre for Policy Studies says are clearly taken seriously by the Conservative Party. The noble Lord, Lord Saatchi, confirmed the political nature of the debate by giving us a preview of at least one of the Conservative Party election broadcasts, for which we are grateful, because we can do a textual analysis, and what is called in the Labour Party a "rebuttal" will be made that much easier.
What we have here is a focused debate; focused on the formulation proposed by the noble Lord, Lord Blackwell, of an economic modelwhich I call an ideological casefor low taxation, but which has not in fact come down to earth. It did not relate to the choices that the people of this country will have to
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make at the next election, whenever it comes. That is confirmed by the inability, which I quite understand, of the noble Baroness, Lady Noakes, to commit herself in advance to what her party will say. I can be sure that some, if not all, of the views expressed by her Back Benches will not find expression in a Conservative Party manifesto. There are good reasons for that, which I will set out in a minute.
Before I do that, I want to echo what was said by the right reverend Prelate the Bishop of Worcester. It struck me as extraordinary that we should have a debate about the economic and ideological advantages of lower taxation that had virtually no reference to or discussion about what taxation was for. It came from the right reverend Prelate, the noble Lord, Lord Shutt, and, to a certain extent, the noble Lord, Lord Marlesford. It certainly came from the noble Lord, Lord McKenzie. To discuss the virtues of lower taxation without discussing why we have taxation at all is "Hamlet" without the prince. We have to set out our stand of what taxation is for and what we understand to be the taxation regime in this country.
The primary aim of taxation policy is surely to raise sufficient revenue for government to pay for the public services that the people demand while keeping the overall burden of tax as low as possible. The United Kingdom is a lightly-taxed economyno one gave figures to rebut thatand the Government are committed to it remaining so. The noble Lord, Lord Marlesford, acknowledged that. The noble Lord, Lord Newby, after thinking about it carefully over Christmas, said that our levels of taxation were not too high. We have a taxation regime that aims to play its part in making and keeping the United Kingdom the most competitive place for international business. It encourages innovation, productivity and competitiveness, acts as a spur for investment and economic growth, corrects market failures and supports our social policy objectives.
There's the rub, because a Conservative manifesto is not likely to say what Back-Benchers here have said about social services, education, health or law and order. The noble Lord, Lord Skidelsky, is entirely right: the Conservative Party is trapped. It does not know whether its ideological pursuit of lower taxation will allow it to cut expenditure on the public services, which the people of this country have now shown in two elections that they want, and will show again that they want. They were denied quality public services under a Conservative government. The Conservative Party is trapped, because it cannot openly advocateeven though some speakers today have donecuts in social services, education, health or law and order, even if they are dressed up as encouraging private individuals to make their own provision for those public goods.
That is a position that the Conservative Party finds it impossible to get out of. It will try to get out of it in the next week or so by saying that there is £80 billion of waste in public expenditure that can be got rid of, which will enable them to do wonderful things. The argument about waste is the most difficult argument for an opposition to make, particularly in the light of the very thorough, effective and demanding review
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that Sir Peter Gershon has carried out of public expenditure in this country, and the conclusion that he has come to, which is that,
That is the situation that Mr David James and the Conservative Party will have to answer, if they are to have any credibility, rather than a basic and visceral claim that there is waste in public services. Of course there is waste in public services; there is waste in private industry as well. There is always waste, and good managers can always find it. We have been doing so; we have been doing the work and we know how difficult it will be.
That is not to say that there are not advantages in a lightly taxed economy. Such an economy meets our economic and social policy objectives. It ensures that the taxation regime stays up to date and flexible to meet the demands imposed by globalisation. It keeps business taxes as low as possibleagain, no one has sought to claim that they have risen under this Governmentwhich means that the right incentives are in place to reward entrepreneurship and risk-taking, and to promote productivity, competitiveness, economic growth and investment. For personal taxes, it means that the right incentives are in place to reward work and effort. Tax credits can be used to assist hard-working families and reduce child poverty, and tax relief can be used to foster our social policy objectives by assisting and promoting investment in disadvantaged areas.
I did not even see any eyebrows rise when I said that the economy was lightly taxed, but it is. By 200506, households will be on average £800 a year better off in real terms, following personal tax and benefit measures introduced since 1997. Pensioner households will be on average £1,350 a year better off in real terms. The tax-GDP ratio stood at 35.7 per cent of total output in 200304, down from a peak of 38.9 per cent in 198485. The tax-GDP ratio in 200405 is estimated at 36.2 per cent of GDP, about the same as that in 199798, and although it is projected to rise by around two percentage points of GDP during the forecast period, it is still well below the highs of nearly 40 per cent of GDP reached in the mid-1980s. When the noble Lord, Lord MacGregor, looks back at a high-tax economy, as he attempted to do, he should look at the figures in the most recent Pre-Budget Report. The UK total tax burden is well below the average for both the EU15 and the EU25, and we have a lower standard rate of VAT than 20 of the other 24 EU countries. The noble Lord, Lord Newby, acknowledged that.
I will not take time with the fiscal rules, as there was no effective criticism of our performance in achieving them. However, I want to say something about the effect of taxation on lower-paid families and better-off families. A strong economyit is universally agreed that that is what we havemeans that all groups gain from a rise in living standards. Since 1997, there has been a real increase of 22 per cent for a single-earner couple on male mean earnings with two children, and of 19 per cent for
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the same couple without children. That gives the lie to what the noble Lord, Lord Blackwell, said about poor people being hit by taxes.
By April 2005, nearly 17.9 million householdsmore than 70 per cent of householdswill have gained as a result of personal tax and benefit measures introduced since 1997. As a result of those measures, around 80 per cent of households with children and 95 per cent of pensioner households will have gained by April this year. Some 4.6 million households will have gained as a result of the introduction of working and child tax credits, compared to the system of children's tax credit and working families' tax credit that the Conservative government had. Let us not think that tax credits are entirely an invention of the Labour Government. The direct tax burden on a single-earner family on average earnings with two children will be 20.4 per cent in 200506, 0.5 percentage points lower than in 199798.
What does that mean for low-paid workers? Single parents working part-time and earning the national minimum wage£4.85 per hourwill not pay income tax or national insurance contributions if they work up to 18 hours per week. If they work 22 hours per week, they will be paying just £3.27 per week in income tax and NICsan average direct tax burden of 3 per cent. That is not quite like the dramatic examples given by the noble Lord, Lord Saatchi.
These parents are eligible for far more in tax credits than they pay in tax. A single parent working 22 hours per week at the national minimum wage earns £106.70 per week and is eligible for working tax credit of £56 per weekseventeen times more than their income tax and NICs bill. A couple without children and with annual earnings of £10,500 receives more through working tax credit than they pay in income tax and NICs.
I welcome the comments of the noble Baroness, Lady Noakes, that any tax cuts from a Conservative government would not benefit the richalthough that contradicts comments from the Benches behind her. But the noble Lords, Lord Blackwell and Lord Saatchi, cannot argue that our changes bring more to the rich. That cannot be sustained by the facts.
Regarding moderate and high earning families, a couple with two children and one parent working, with earnings of up to £18,000 per year, will receive more through child tax credit and child benefit than they pay in income tax and national insurance. A dual earner couple with two children and a joint income of up to £34,500 per year and with maximum eligible childcare costs, £200 per week, is eligible for more tax credits than the second earner pays in income tax and NICs.
No-one has referred to the fact that in that context you have to consider the effect of the tax system on whether work is worth while and how it makes work pay. The disincentive to work under the Conservative tax system was such that it has been possible for us to increase employment in this country by 1.8 million over the past seven-and-a-half years. We are committed to making work pay, the reform of the tax
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and benefit system to improve work incentives and reduce tax burdens, especially for those on low incomes. If anyone says that there are more people paying tax now than there were in 1997, indeed there are. There are more people paying tax because there are more people working and able to pay tax. That is the benefit of the tax system that we have.
What is the alternative from the Conservative Party? I pay tribute to the noble Lord, Lord Newby, who tries hard. In the last two minutes of his speech he set out what he would agree were marginal changes to the tax policies of this Government, to which he has occasionally paid credit. But, for the Conservative Party, the position is enormously more difficult, because, as the noble Lord, Lord Skidelsky, said, it is trapped. It is trapped, not only because the Conservatives cannot specify the tax cuts or the savings in public expenditure that they want, but because they have consistently committed themselves to higher public expenditure.
Let us consider Mr David Davies, who on 6 October, said that police numbers would increase by 5,000 a year over and above the level that the party inherited. He said that the party was aiming for target of 40,000 extra police. That would cost £2 billion. Mr Davies, again on 6 October, said that within the first month a Conservative government would start their new prison building programme, announcing plans to create 20,000 extra prison places. That would cost £580 million. I am being very selective here. Regarding scrapping tuition fees, Shadow Education Secretary Tim Collins on 8 September, promised an extra £2.1 billion investment in higher education. Let us "net" that out and say that it would be only £1 billion in extra expenditure. A Conservative Party document on social housing in October 2003 said that the Conservatives would use the proceeds to provide new social housingas many as 15,000 new homes a year. Being very modest, let us say that it would cost £1 billion.
There are so many examples, that I could provide a complete list that added up to £15 billion, without even mentioning the patients' passport for private care, which would cost £1.2 billion. David Willets' proposal at the Conservative Party Conference on 6 October to link pensions to earnings would cost £2.9 billion. Mr Willets again proposed a lifetime savings account which would cost £1 billion. Tim Collins at the Conservative Party Conference promised 600,000 school places, which would cost £2.9 billion. From the sublime to the ridiculous, the Conservatives would spend £17 million on scrapping fishing rod licences and £46 million on retaining Type 3 frigates.
It is not credible. It does not add up. It cannot be made to add up. We have heard nostalgic and moving references, including to Immanuel Kant in 1709, Lord Camden in 1766 and Edmund Burke, all of whom thought that taxation was coercion, as the noble Baroness, Lady Noakes, said. If we want to provide the standard of public life that is not of private affluence and public squalor, but that the people of this country have come to expect, have the right to expect and are determined to continue to expect, the
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nostrums which have been expressed today will not satisfy the people of this country at this election or at any election.
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