Amendment of the Law

David Ruffley Excerpts

Monday 26th March 2012 Commons Chamber

[Mr David Ruffley (Bury St Edmunds) (Con)]

I believe in low tax. Low tax fosters personal responsibility and generates the incentives that create greater wealth and greater national prosperity, in which all can share.

I therefore welcome the tax-reducing measures in the Budget, such as reducing corporation tax to 22p by 2014, so that we will have one of the lowest corporate tax regimes in the G20. I also welcome the fact that we have reduced the 50p income tax rate to 45p, as all the evidence demonstrates that lowering high marginal rates results in the rich paying more tax. In the early 1980s, when the marginal rate of income tax was 83p, the richest 1% contributed only 10% of the income tax yield, but a 40p rate generates just under a third, so the top 1% pay more tax. This is a truth that the Labour party does not understand. The third welcome measure in the Budget is the increase in the basic personal allowance. That will protect living standards at a time when the cost of living is increasing.

Colbert said that the art of taxation is to pluck the goose in such a way as to obtain the largest number of feathers for the lowest number of hisses. The Chancellor almost achieved that trick, with the exception of the pensioner tax. I believe that he will come to think that the granny tax was a mistake. Pensioners were already angry about lower annuity rates, and about lower rates of interest on their savings, which was not the fault of this Government. They also feel that their savings income should not be taxed twice. Overall, however, this was a good Budget. It was not a Lawsonian Budget, grand in its ambition and its tax-cutting sweep, but many of us believe that the Chancellor will be able to deliver that in future Budgets.

I know that some Members, including those on the Government Benches, argue that the economic circumstances are not propitious for talking about further tax reductions. They will observe that the Office for Budget Responsibility figures suggest that from 2013 onwards the prime drivers of higher GDP will be net investment and trade. We know that they are both sensitive: trade is sensitive to EU zone growth, which is inherently uncertain; and higher business investment is highly sensitive to the easing of credit conditions, yet credit has remained at stubbornly low levels in the early stages of this nascent recovery. Given all that, how can we talk about further tax cuts? We do so for the simple reason that tax reductions will get the economy going, and we can fund them by reducing public expenditure over and above the totals in the last comprehensive spending review.

Real-terms spending in this country increased by more than 50% during the Labour years. The plans in the Budget imply a real-terms reduction of 3.4% over the five years of this Parliament. There is plenty of fat in those spending numbers, therefore, and I urge the Chancellor to reopen the spending round this year, rather than wait until next year. He will find a surprising amount of support for funded tax cuts to get the economy going, financed and fully funded by further and deeper cuts in bloated public expenditure.