Budget Resolutions

John Penrose Excerpts

Monday 1st November 2021 Commons Chamber

[John Penrose (Weston-super-Mare) (Con)]

I want to refer to the comments made by my right hon. Friend the Member for North Somerset (Dr Fox), my parliamentary neighbour, on the level of tax because, at the end of the Chancellor’s speech, there was an extremely welcome departure, in a genuine tax cut, from the fears that my right hon. Friend expressed. It came in the form of a reduction in the universal credit taper rate, but that is effectively a tax cut. It is particularly welcome because it is targeted, laser like, on the least well-off and the lowest paid. That is genuinely a levelling-up measure because it means that the lowest paid can retain more of their earnings. It is a cut of not just 1% or 2%; the rate has been cut right down by 8% to 55%. It is a huge levelling-up measure and extremely welcome to any red-blooded, tax-cutting Conservative.

Such a measure has an impact not just on tax cutting and levelling up, but on work incentives. One of the people I admire most in the Conservative party’s long and illustrious history is Nigel Lawson. When he cut top rates of tax from somewhere around 90%, as bequeathed to us by the Labour party, to 40% or 45%, he said that there was a point about work incentives, and that we could not expect people to work their socks off, only to have the Government swipe it all because the Government believe that they can spend the money better. He was right.

Of course, if that is right for the best paid, the high earners, the most well-off, it must also be right for the least well-off. Therefore, the tax cut that I am describing—the reduction in the taper rate for universal credit—is particularly welcome because of its effect on the work incentives of the least well-off in our country. That is often glossed over, but is essential for us all to remember.

That is also fairer. As a result of the Budget measures, our system is a great deal fairer than it was. The Government have effectively reduced taxation on the least well-off from 63% to 55%, but we can—I hope we will in future—go further. If we look at the effects of other taxes, which have been in place for many years, we see that taxes on earned income are roughly between 20% and 45%, but on dividends, they are between 7% and 38%—lower than the taxes on earned income. On capital gains, taxes run between 10% and 20%, again lower than on earned income. Taxes on property gains run between 18% and 28%, once again lower than on earned income. As a result, I believe that this is a vital step in what I hope will be the beginning of a long journey towards a Nigel Lawson-esque tax system that says, “It should not matter whether you are getting money from your earnings, from unearned income or from benefits; they should all be treated the same as income.” This is a proud Conservative idea, the principle first enunciated by Nigel Lawson. This is something that we own, and we should be fearless in putting it across.

[Liam Byrne]

I want to clarify that point, because it is potentially quite significant. The characteristic of a Lawson-esque tax system is, of course, that capital is taxed at the same rate as income. Is that what the hon. Gentleman is advocating?

[John Penrose]

I am indeed advocating that all income should be taxed equally. It is a Lawson-esque idea; the right hon. Gentleman is absolutely right. The reason why it is so essential, and why Nigel Lawson had this right, is that the whole point of it is that it creates work incentives for everybody, because they know they are going to be treated fairly. It also means that we have a system that has legitimacy, because it does not matter who has the best lobbyists or the best campaigners; everybody knows we have a nice, simple, flat, straightforward tax system, and everybody knows where they stand. Nigel Lawson was right about this.

I hope that the Chancellor’s Budget speech last week was the first step in what I think will be a long and difficult but ultimately incredibly worthwhile journey in that respect. I hope that this is the beginning of something important, something exciting, and something that is ultimately fairer and more just but also economically far more literate, because it creates a situation where it always pays to work, it always pays to save and it always pays for people to try to get themselves out of benefits by taking extra hours if they possibly can. It creates a situation where those work incentives are always there.

[Several hon. Members rose—]