Cost of Living

Debate between Edward Leigh and Albert Owen

Wednesday 16th May 2012 Commons Chamber

[Mr Edward Leigh (Gainsborough) (Con)]

It is a pleasure to follow the right hon. Member for Croydon North (Malcolm Wicks). We all know that he has not been very well recently, but he gave a fantastic speech and we wish him well. I join him in a lot of what he said about promoting family life. He made some interesting comments about the desire of women to have more children—my wife and I would have liked to have had more children, but perhaps six is enough—and about child benefit, and I will say a bit about waste in Government spending in a moment. I support child benefit as we have always had it, because not only is it the most popular benefit, but there is no fraud, error or means-testing to it and it works. So much of the waste in government is down to excessive micro-management of benefits. That is why I, like the right hon. Gentleman, believe in child benefit as we have always understood it. Many middle-class people may be under heavy financial pressure and we should recognise in the benefits system the cost of children, although I suppose I must declare an interest, as people might say, “Well, he would say that, wouldn’t he?”

What I really want to discuss today is something that perhaps not many others—certainly not many Opposition Members—will be talking about. This debate is about the cost of living, but the greatest burden on families is the burden of government, and heavy and wasteful Government spending. Total Government spending increased under the previous Labour Government by 55% in real terms over the 13 years. We hear a lot from the Labour party, and indeed from the Government, about how we are now trying to correct that. Indeed, it is in the political interest of both the Labour Opposition and the Government to exaggerate what the coalition is doing to try to rein back a disastrous financial situation. Let us just imagine what would happen if a family’s spending increased by more than half but there was a paltry increase in the real wealth coming into that household. This coalition Government’s spending cuts from 2010 to 2015 will amount to only 3% of Government spending, so let us not get too excited when the Labour party tells us that these “horrendous cuts”—up to now there have been no cuts in spending; there have been cuts in the deficit, but no cuts in spending—have produced the dire economic situation we are in.

The Office for Budget Responsibility, an independent body, forecasts that for the coming year almost 41% of all output in our country—all that hard-earned money, from people slaving away in offices, factories and services—will go to the Government. That is more than the figures for America, Australia and Canada. We have heard a lot about the European Union in the past week—we have heard about its difficulties, its waste, its over-taxation and its overspending—but even many EU countries have a lower tax burden than Britain. Such countries include Ireland, Greece, which is apparently the basket case of Europe, and Spain; they all tax their economies less than we do. We are in a dire situation and we have to address it.

The Government expect to borrow a staggering £126 billion this year—imagine an ordinary family having to borrow such a proportion of their total spending every year. I take a particular interest in this because I firmly believe that we can deliver the same outputs for people in effective public services with very much more efficient inputs. I believe that big government is always accompanied by big waste.

[Albert Owen]

When the hon. Gentleman said that other European countries tax less, was he talking about the total tax take, including from industry, or just about personal taxation? As I recall it, personal taxation is significantly higher in the Republic of Ireland than in the United Kingdom.

[Mr Leigh]

I am talking about total taxation, which is the important thing to understand. I know that it is difficult to compare countries. For instance, we often talk about Italy being a basket case in terms of Government borrowing, but private borrowing is very low in Italy. We have to address this problem by considering the total taxation of all output, because that is what is of interest to efficiency and an efficient Government.

As I was saying, big government is accompanied by big waste. I am sure that many hon. Members were shocked, as I was, by a National Audit Office report in January—or rather by a report of reports; I am sure that everybody in this House avidly reads what the NAO says every week. This report was published in January, so it was not an attack on the previous Labour Government; it relates to now and the situation this minute. It is about this apparently hard-hitting, right-wing Government who are cutting left, right and centre, and persecuting the people—that is the charge against the Government; I would not say anything like that, of course. The report suggests that there is waste, at the moment, of more than £31 billion across government. Hon. Members may recall that Philip Green carried out an efficiency review, after which he said:

“You could not be in business if you operated like this. It would be impossible.”

His review identified, among other things, £700 million in saving on the Government telephone bill alone. In the past two Parliaments, the Public Accounts Committee conducted more than 400 hearings on waste. Such hearings are carrying on in this Parliament, as they will in the next Parliament and the Parliament after that. Nobody can tell me that enormous opportunities to cut waste do not remain.

Why is that issue important, given that this is a debate on the cost of living? This is not some anorak issue in which only accountants or economists should be interested. Every taxpayer in this country should be interested in what is going on in government at the moment, because the public sector is funded from the pockets of ordinary people and ordinary firms—many of them small, struggling firms—across Britain. Spending money in such a way means that the public and firms are being hit by a double-whammy, as prices are inflated by wasteful government spending, and firms have less of their own money to invest and families have less to spend. That situation is not fair.

We have mentioned the complexities of the benefits system and discussed child benefit. In addition to a hugely wasteful government system, Britain suffers from a horrendously complex tax system. Our tax code is now the longest in the world. Do a Conservative Government find that satisfactory? Our tax code has recently overtaken India’s in length and has doubled in size since 1997. Our horrendously complex tax system may have allowed the previous Government to keep many of their taxes a secret, but it has led to Britain being ranked 89th in the world, behind Nigeria and Zimbabwe, on the burden of government regulation in a recent World Economic Forum report. That simply is not good enough. I know that my friends on the Treasury Bench are doing their best, but they are not trying hard enough. They have to do better, because ordinary people and ordinary firms are paying for all this.

That complexity is structurally biased against ordinary workers and small businesses, because they lack the resources to investigate all the available loopholes. According to the Centre for Policy Studies, the effective marginal tax rate for some people on low incomes is as high as 96%. We know that, because we have done all these studies; the right hon. Members for Croydon North and for Birkenhead (Mr Field) served with me on the Select Committee on Social Security for many years, and for many years the right hon. Member for Birkenhead has campaigned on the issue of the trap for ordinary people, particularly those at the bottom of the heap, of paying marginal tax rates of 96%. We are crushing our own people, and not just with the waste for which we are responsible in our own spending. We oversee that waste in this House of Commons—we are responsible for it; nobody else out there is responsible. We crush our own people under a hugely wasteful system of government inefficiency and with increasingly complex taxes and benefits.

The rich do not suffer from that. The marginal tax rate for top-rate taxpayers is just 57.8%—the very richest do not even pay that. They do not even pay 57%. With the benefit of having successful and hugely expensive accountants, they are paying 10% or 15%.

In the most recent global competitors report by the World Economic Forum, three of the four biggest problems facing UK businesses were identified as tax rates, tax regulations and inefficient Government bureaucracy. Let me set out what I believe we should have in the Government. Apparently we are going to have a reshuffle soon. What we need are Ministers—the Prime Minister has to check on their performance—who are, like a non-executive director on the board of a private company such as Tesco, obsessed not by policy but by efficiency. We have three excellent Ministers sitting on the Front Bench—the Secretary of State for Transport, the Minister of State, Department of Energy and Climate Change, my hon. Friend the Member for Wealden (Charles Hendry) and the Minister of State, Department of Health, my right hon. Friend the Member for Chelmsford (Mr Burns)—as well as our Whip. I am sure they are doing these sorts of things every day, but much more could be done. I hope the Whip is listening to all the kind comments I am making about the Ministers. I sincerely believe that this is one of the most important things the Government could do.

An obvious conclusion to reach, given what I have said, is that the tax system should be simplified. That would reduce costs and simultaneously be likely to increase revenues. As I have argued again and again, this is not necessarily a market-driven, right-wing point of view, because the lower-paid would benefit from it. The natural conclusion of such simplification would be a much flatter rate, or even a flat-rate tax system. Such a system has been successfully introduced in places as diverse as Serbia, Hong Kong and Russia. When I was in Russia recently, I spoke to a young entrepreneur. The flat-rate tax in Russia is 13%. How extraordinary that the former Soviet Union now has a more entrepreneurially based system than we have—a flat-rate tax of 13% in a large economy such as Russia.

There is a precedent for such an approach in this country. When the Thatcher Government more than halved the top tax rate, the proportion of income tax revenue paid by the highest earners rose. As I said in our debates on the Budget, I welcome what the Chancellor of the Exchequer did in cutting the top rate from 50% to 45%; indeed, I think it should be cut from 45% to 40%. Such people do not bury their money in the ground. If they are taxed less, there is more entrepreneurship and more of them stay in this country. They earn more and give more, and less effort is spent on tax evasion and tax avoidance.

As important as tax reform is, the key to Government finance is a reduction in spending. If we spend less, we can tax less—it is that simple. There is nothing inherently good about Government spending, although Ministers from parties on both sides of the House have apparently congratulated themselves on how much they have spent on the health service and education. They congratulate themselves on spending inefficiently what other people earn.