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 Joel Barnett Mr Joel Barnett , Heywood and Royton 12:00 am, 3rd May 1976

The hon. Member for Guildford (Mr. Howell) certainly used the right word at the end, if only at that point. Even when he makes what he thinks are good jokes, he is always very melancholy about it, and I hope that he will forgive us for not laughing at his jokes since he does not laugh himself.

What I like about the hon. Gentleman is that he started off wanting to have his cake and eat it. He told us about various areas in which he wants to cut taxation, and he could not forbear from telling us also about the borrowing requirement. I shall come back to that presently. What the hon. Gentleman obviously did not do, however, was listen to his right hon. and learned Friend the Member for Surrey, East (Sir G. Howe), because he spent a good deal of time at the beginning of his speech talking about the pay policy and suggesting that it was not an open policy at all, whereas his right hon. and learned Friend welcomed the greater openness of the pay proposals. That was very different, I may say, from the instant reaction of the right hon. Lady the Leader of the Opposition, and perhaps the hon. Member for Guildford was trying to curry favour with her by agreeing that he did not like it either.

In a very interesting remark at one point, the right hon. and learned Member for Surrey, East told us that he would not be dogmatic about incomes policies. We know the reason for that. One has only to look at the right hon. and learned Gentleman's hon. Friends on the Front Bench and below the Gangway to find it. But he still went on to complain that consultation with the trade unions did not affect more than 50 per cent. of the workers. My hon. Friend the Member for Redcar (Mr. Tinn) intervened to say that the right hon. and learned Gentleman had consistently blamed the trade unions for all our problems and that he was now implying that the trade unions were not responsible. My hon. Friend the Member for Tottenham (Mr. Atkinson) also intervened to ask the right hon. and learned Gentleman what was the alternative if he disagreed with pay policies. There was total silence. That is typical of the two speeches from the Opposition Front Bench today. Not one constructive comment has been made.

The nub of the criticism from the Opposition has been the burden of taxation. That has also been referred to by a number of my hon. Friends, who have frequently said that the level of taxation is not too high and that it is not as high as in many other countries. While I agree with some of the things my hon. Friends say, and I accept that that is true statistically, I am bound to accept that we have a very high and steeply progressive rate of personal taxation. Personally, I would like to see it somewhat lower, but I do not apologise for the fact that we have a progressive rate of income tax, because since the war we have not experienced the same rates of growth and output as many other countries. The demands for public services are as persistent as demands for fairer taxes, and the fairest method of paying for those public services is by progressive income tax. The former Chancellor of the Exchequer, Lord Barber, tried a policy of higher public expenditure and lower taxes, and we are still paying for that policy.

If it is right that we should have a progressive tax system, it is also right to recognise that inflation has reduced the thresholds for higher rates of tax as well and that many middle managers have been hard hit. I hope that those who demand substantial tax reductions in that area, even where the cost would be comparatively small, will recognise that there are millions at the lower end of the income scale who also have been hard hit and that the cost of even a moderate relief for them would be high. Nevertheless, the effect of fiscal drag at what might be called the lower end of the higher income level is plain to see.

My right hon. Friend therefore thought it right to include some relief for higher incomes amongst his conditional reliefs for all taxpayers, and given a satisfactory pay settlement he proposes to raise by £500 the starting point for the higher rate of tax and for each of the next four thresholds. But there will be no change in the starting point for the rates from 65 per cent. to 83 per cent. In this way, the maximum benefit from the higher thresholds would be reached at a taxable income of £8,500. It would then be the same at higher levels of income.

Some Opposition Members feel that those proposals do not go nearly far enough. Some of my hon. Friends say that they go too far. To those who claim that the higher rate relief is unnecessary, I would say that the facts dispute that claim. The effects of inflation on those enjoying the higher thresholds cannot be denied, and when coupled with sharply-rising progressives rates of tax on incomes of over £4,500, which is one and a half times the earnings of the average worker, the effect is compounded.

Families who used to pay tax on income at the basic rate now find themselves, because of inflation, paying tax at the rate of 40 per cent. or 50 per cent. on incomes which are no larger in real terms. The same is true of the higher of the income scales, and some lightening of the income tax scale at these levels is now accepted by most people. It will not be paid for by the effect of inflation. That is not the intention. It is a compromise in an attempt to offset the fall in the real value of the take-home pay of middle managers, for example, and the need for continued restraint by every section of the community.