Orders of the Day — Finance Bill

Part of the debate – in the House of Commons at 12:00 am on 3rd May 1976.

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Photo of Mr John Pardoe Mr John Pardoe , North Cornwall 12:00 am, 3rd May 1976

I am glad the hon. Gentleman asked that question. The answer is that we did so at some length in the debate on the Budget proposals. I and my right hon. Friend the Leader of the Liberal Party made it clear that in principle we supported the Government's proposal. That proposal is a recognition of the fact that, as a result of the increased power of various pressure groups, including the trade unions, and the decline of the power of Parliament, parliamentary representative democracy is sick almost to the point of death. We put forward proposals for resurrecting it and for trying to do something about the monopoly bargaining power of these pressure groups.

I should like to raise with the Chief Secretary a matter which I mentioned in my speech on the Budget proposals to which I did not receive an answer. What is the real value of the bait which the Chancellor has, in my view, properly offered to the trade unions? The increases in personal tax allowances, which are conditional upon the pay policy, are in essence trifling. Even if they are passed by this House on subsequent Government amendments to the Bill, they will still mean that too many low-paid people and too many people who are not paid at all—those who are living on benefits of one kind or another—will have to pay income tax.

For instance, the present allowance for a married man is £955. If we add the £130 which the Chancellor is proposing, that will go up to £1,085. At present, supplementary benefit on the long-term scale for a married couple is £21·55 a week, which works out at £1,121 a year. On the basic mathematics, someone on supplementary benefit will still be within the income tax net. That cannot go on. Yet, if we are to advocate lower thresholds and, therefore, higher allowances, we shall be asked whether we want to increase the borrowing requirement. I can almost hear the Chief Secretary saying that now. Of course we do not want to increase the borrowing requirement, but that is not the only possible way of dealing with this matter. The permanent answer to high taxation is lower public expenditure, but we are not debating that matter today.

What about increasing taxes on expenditure? There is ample evidence in the constituencies and in the mailbags of all hon. Members—we cannot deny it—that people would rather pay their taxes on expenditure than as a deduction from income in their pay packets each week. There may be other arguments which we should put to them to the effect "You want to do this, but it is not a good thing to do." However, no Government in recent years have argued that case very strongly.

Some indication of what I am getting at is given in Table 9 on page 19 of the Financial Statement and Budget Report. That shows, for instance, that income tax in 1975–76 raised a total of about £15,000 million. If this House did nothing at all, if we did not change a dot or comma of any financial legislation, the revenue this year would be about £17,970 million. If we do nothing at all, the Government will receive £2,900 million more in income tax than they did last year.

Parliament made no decision about that. In my view, Parliament should make a decision about it. It may be that we would come to the conclusion that in our wisdom, and with the advice that the Government may give us and all the arguments they may put forward, it is right that they should achieve that kind of revenue. But it is better to have the matter put forward in a proper way. We can then choose and the Government will have to make a public choice whether they should get this extra revenue which they need to balance the books—they do not quite balance—by raising the rate of taxation or raising the rates of different bands of taxation, or whether they wish to bring down the threshold, as they have done as a result of inflation but without telling anybody that they have done it.

Indexation is essential if Parliament is to re-establish its control. I ask the Chief Secretary: what about a lower band of taxation? I suggest that 35 per cent. is hideously high for anyone to come into the income tax net. We ought to think seriously about, say, 20 per cent. to 25 per cent. as an introductory band. I am not suggesting that we should go back to two or three lower bands—that is a complicated procedure—but 35 per cent. is very high indeed as a starter. We all know that income tax is too high at almost every level of income. Some Labour Members below the Gangway may not accept that. They believe that a lot of people in our society can easily pay more income tax. That is not true. The level of tax is too high for the poor and for the rich.

The Conservative Party may pretend that it would be much better at dealing with this problem. However, it does not have history on its side. Still, the Shadow Chancellor of the Exchequer lectured the Chancellor of the Exchequer about many matters, including subsidies. The right hon. and learned Gentleman said that subsidies were an iniquity. I agree that subsidies are a useless way of trying to solve the problems which have confronted Governments over many years. But subsidies did not begin with this Government. The Opposition, when they were last in Opposition between 1964 and 1970, attacked subsidies. We all remember the attacks that they made in those years. Total Government subsidies were running at about £574 million, and they rose to £900 million in the last year of the then Labour Government.

Did the Conservative Government cut subsidies? Of course not. They found that it was impossible. Indeed, far from cutting them, they increased them enormously, particularly the subsidies mentioned by the Shadow Chancellor. I thought that the Conservatives had got around to leaving out the dirty word about nationalised industry subsidies. I thought that they might have too much of a conscience to mention that matter. However, when we look at what happened regarding subsidies to the nationalised industries during the 3½ to 4 years that the Conservatives were in power, we find that they rose astronomically. Total subsidies rose from £900 million in 1970 to £1,526 million in 1973. The same was true of public expenditure and of the borrowing requirement. It is a case of the pot calling the kettle black.

In order to cut expenditure and taxation generally, which would be the only real solution to the problem, we need to rethink the whole question of what the State should do and what we should be left to do for ourselves. That will require extremely radical policies and—I say this to the Conservative Party—a political settlement which ensures that we have a Government for long enough to carry them out It will take a very long time to carry them out. It is no use thinking that it can be done in 3½

to 4 years, because then we should have another bout of collectivism all over again. If the Opposition are serious about wishing to revise the boundaries between what the State and the individual do, they will have to go for political reforms which will make it possible.

Such a policy would undoubtedly arouse great controversy in this House. There would be great differences about it. But there are some matters about which we should all be able to agree. Some of those matters were touched on by the hon. Member for Gravesend (Mr. Ovenden), who spoke this afternoon on behalf of the widows. I agree with the view that the assortment and variety of allowances which we have allowed to build up over the years have no rhyme or reason. No Government have ever come to us and tried to defend the levels of any of these allowances. They go on from year to year, adding a bit here and a bit there, and there is no rhyme or reason to them.

Are these allowance necessary? Most of them are necessary only because of the high rates of taxation which we have allowed to envelop us over the years. Many hon. Members may have been attracted by the proposal in the Economist this week—that total income is £100 billion and that if we taxed that at 17 per cent. we should get £17 billion, which is what we are getting by all this paraphernalia of allowances, varieties of rates and so on.

I do not go as far as the Economist, because I think that there are much greater complexities than it has allowed for in a simplified version. But there is a very reasonable case for looking seriously at the level of allowances. For instance, in 1974–75 the single person's allowance cost the Revenue £1,875 million in revenue forgone. The married person's allowance cost £3,615 million, the wife's earned income relief cost £960 million, and the child allowance in that year cost £1,150 million. Those allowances alone total £7,600 million, which compares with revenues in that year which were not anything as high as they are now. The total tax on income in 1974 was £12,000 million and the total tax on expenditure £11,000 million. It might seem terrible to scrap all these allowances, and so it would be unless we offered a quid pro quo of much lower rates of tax and a much more effective anti-poverty programme.

It is nonsense for Government Members to think—and I know they think it because I did once also, but I am now admitting the error of my ways—that this progressive system of taxation has done very much to bring about equality in this country. It has certainly not tackled the poverty problem. We have far too much poverty in Britain and we are tackling it inadequately.

It would be far better to go for a much simpler tax system and deal with poverty through larger cash grants—grants in the form of family allowances, not family tax allowances.