Finance Bill

Debate between Edward Leigh and Mark Field

Monday 1st July 2013 Commons Chamber

[Sir Edward Leigh (Gainsborough) (Con)]

The hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) has waxed lyrical at some considerable length about the iniquity of the Government’s seeking to reduce the higher rate of tax, but the question that kept occurring to me was this: if she and her colleagues felt so strongly about this, why were the Labour Government quite happy to keep a maximum higher rate of tax of 40% for their entire 13 years in office?

[Mark Field]

I should just correct my hon. Friend: there was one month in that 13-year period when the rate was different. Does he agree, however, that it would be interesting, if the Minister were minded to accept the new clause, to see a full analysis of that 13-year period?

[Sir Edward Leigh]

I was going to go on to say that the Labour Government lasted 13 years, and that it was only in the last month that, under the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), they felt so strongly that they had to impose a 50% rate.

This is an important point. For their first 10 years, that Labour Government were led by Tony Blair. When he and Lord Mandelson were planning for that Government, they made a conscious decision not to replicate the old-fashioned language of class warfare that we have heard so much of today. They made a conscious decision that, if the Labour party was ever to regain the trust of the British people and regain power after 18 years in opposition, it would have to reach out to the centre ground. One of the principal ways in which they did that was to commit themselves, before getting into government, to accepting the spending plans of the then Chancellor of the Exchequer, my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke), now the Minister without Portfolio. They accepted his spending plans and made it absolutely clear that they would not raise the higher rate of tax during their term of office. That was a very sensible thing to do.

In truth, the only possible justification for raising the higher rate of tax above 40% is a political one. It is political because it appeals to the argument, which we have heard repeatedly today, that a right-wing, vicious, unpleasant Tory Government are only helping millionaires. At first sight that might seem quite an attractive argument for the Labour party to adopt in opposition, but if it is so attractive, why did the right hon. Tony Blair, when he was in opposition and planning for the greatest election landslide in Labour’s history, not follow it? He did not follow it because he realised that it was nonsense economically and, ultimately, nonsense politically.

[Sir Edward Leigh]

I do not know why we are bothering to give the Labour party this friendly advice. Why are we trying to help it, when it is so obvious that its approach is increasingly to remain in its comfort zone on tax?

The speech we just heard was littered with the word “millionaire”. It is the old language of Denis Healey, going back to the 1970s, when they wanted to tax the rich until the pips squeak. It does not impress anybody, and one reason for that is that people think it is fundamentally hypocritical. The point has been made again and again: the Labour party is not making any commitment to reverse the changes. If Labour Front Benchers really felt so passionately about this matter, they could say now from the Dispatch Box that it is iniquitous and make an economic case against it.

Throughout the speech that we have just heard there was virtually a complete absence—a desert—of economic facts and justification on how much money would be raised. All we heard, constantly, was the mantra about millionaires getting richer. The truth is that the top 5% pay 25% of taxation. There is no evidence—Tony Blair understood this—that if we tax them more we will increase tax revenues for the Exchequer. All we would be doing is increasing avoidance. It is bad economically, bad politically and it does not make sense.

[Mark Field]

My hon. Friend has hit the nail on the head. I am afraid that the impulse has been a political one. If there was any understanding of economics on the Labour Front Bench—perhaps there was in the brief glimpse in 1996 and 1997 to which he referred—those Front Benchers would understand the Laffer curve and its operation and that reducing headline tax rates will bring in rather more money. That was the case in the 1970s and 1980s, as was mentioned earlier in the debate, and I am sure that it will prove to be the case again when we look at the numbers in the year ahead.

[Sir Edward Leigh]

We are all familiar with the Laffer curve and the point made by my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg). When taxes were reduced in the late 1970s and the 1980s, revenue increased. There is no economic case whatsoever for having a 50% tax rate. The only case, and I think it is very poor, is a political one. What I am seeking to argue—I do not know why I am seeking to help the Labour party—is that it impresses nobody.

One good point was made in the many interventions we heard from the Opposition side, and from the Government side: why are the Government dragging more people into the higher rate of tax at all? That is a fair point, and it leads me to an argument I have made many times: if we want to improve tax revenues and get more fairness in the tax system, we should move as much as possible towards a flat rate of tax. We have the longest tax code in history. If a Chancellor of the Exchequer on Budget day takes with one hand and gives with the other, and if has his little schemes to help investment or job creation, all he is doing is creating perverse incentives. A much better way of creating a modern, progressive and successful tax system would be to have as flat a rate of tax as possible, as is being done increasingly around the world. It is ridiculous that a deputy head teacher of a primary school, for example, has to pay a higher rate of tax. I think that shows some of the problems the country is in economically.

I do not want to repeat all the old arguments about who got us into this mess, but perhaps I will be forgiven for saying that unfortunately we have to pay our way, and the Government are therefore between a rock and a hard place. It is absurd to be dragging more people into higher rates of tax; what we should be trying to do, across the House, is to flatten the tax base and make it much simpler, much more coherent and much more understandable, so that people know that there is, to all intents and purposes, a single rate of tax. It does not matter whether they earn £30,000, £300,000 or even £3 million a year—they will be paying 35% of it in income tax. If we had such a modern tax system, it would generate a huge surge in productivity. The only people who suffered would be the chartered accountants, thousands of whom might lose their jobs; I pity the chartered accountants. I want to try to generate a modern, progressive tax system where people know that as they work harder they can increase the money coming into their family. If we are going to have a sensible debate as opposed to one based on party politics, these are the sorts of arguments that we should making. It is sad that we do not have the courage to do so.