Clause 15

Part of Orders of the Day — Finance Bill – in the House of Commons at 12:00 am on 10th May 1977.

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Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey 12:00 am, 10th May 1977

I rise to support my hon. Friend the Member for Norfolk, South (Mr. MacGregor) in moving Amendment No. 18 and, like him, to invite my hon. Friends to vote in support of Amendment No. 33.

The Committee cannot be too often or too forcefully reminded of the gross damage that has been done to the country and to our economy by the cripplingly high rates of tax imposed upon earned income. I endorse every word that my hon. Friend the Member for Norfolk, South said, particularly his argument that this is true of tax on earnings at all levels. However, in this debate we are concerned with those who pay tax at above the standard rate.

The rates themselves are much too high, and there is a far too low starting point for the higher rates. This has given rise to what my hon. Friend the Member for Guildford (Mr. Howell) rightly described as a management catastrophe—a catastrophe for all management groups in this country I include in those groups all those who have skills and qualifications in professions, technology, and so on. I dare say that the Minister appreciates that this pattern of taxation is really economic nonsense. There is no economic justification for it whatsoever. It reduces the nation's talents and wealth as well as the nation's capacity to create jobs. It even reduces the yield from income tax, so that there is less money available for social spending—if that is what one wishes to do with the money.

John Methven, the Director General of the CBI, was not exaggerating when he said some months ago that we are threatening to turn our country into a managerial leper colony. It will be a leper colony not just for managers but for all people with all kinds of skills because we have turned our island into an island of fiscal insanity by maintaining, notwithstanding inflation, these increasingly severe rates of direct taxation.

The amendments that we are now discussing do not go far enough to restore the position that existed in 1973. They would not remedy the damage that has been done by inflation in imposing on these people tax increases that Parliament has not authorised but that have been increased by the stealthy process of inflation. I am not saying that, in the context of this Budget, we should make these precise reliefs but that we should vote for the amendment in order to underline the urgent importance of making much more substantial progress in lightening the tax burden even more than the Government have already started to do.

6.15 p.m.

The sensible target for a top rate of tax on earned income should not exceed 60p in the pound at any level. Even that would be above the top rate applicable in the United States, France and Germany where there are also much higher starting points for the higher tax rates.

Since the oil crisis and the world recession sacrifices have been necessary, but the discriminatory way in which sacrifices have been inflicted on people vital in our economy has caused an intolerable amount of damage. No doubt the House will recall the figures that were quoted by Kenneth Bond of GEC in a letter to The Times last year when he pointed that between 1972 and 1976 a tremendous erosion had taken place in living standards. There has been at least a 10 per cent. reduction in take-home pay for skilled manual workers, 20 per cent. for managers; and for group managing directors the figure was 30 per cent.

We were told in the debate last year that the differential in earnings between manual workers and senior management had shrunk from 8 to 1 to 4 to 1 and it is now narrower than it is in the most non-egalitarian and capitalist of countries such as the Soviet Union and China. This will continue to have a grave effect on the morale of these key people, on their mobility within the country from job to job, and on their job motivation. The effect is, of course, also being expressed in the growing interest in emigration from this country.

My hon. Friend the Member for Norfolk, South cited some examples that were given in a report by the Opinion Research Centre. In order to supplement that information I refer the Committee to similar evidence produced by an inquiry conducted by the Overseas Recruitment Service and published in March 1977. It had questioned 991 people who had applied for appointments overseas in engineering, and in secretarial and medical work, as well as for jobs requiring other qualifications. It showed particularly disturbing features about the attitudes of the young. Among those aged between 31 and 50, whom the report described as being the bulk of people who were "trained, qualified and experienced", the second most important factor for wanting to leave the country was the present United Kingdom taxation system. The most important factor was the prospect of a higher salary abroad. Some 68 per cent. of those questioned put that first. We can do little about that while we are less well off than those in other European economies, but to add to that the double handicap of penal taxation is totally absurd.

The report said that the people wishing to work abroad have already reached a certain level of responsibility, have plenty of working years ahead of them in which to deploy their working talent and experience". These people are in the prime of life and have a lot to offer the country. They are people the country can ill afford to lo without.

The proportion of those complaining about the tax system, according to the survey, rose in line with income. Among those earning more than £10,000 a year, 80 per cent. gave taxation as their main reason for wanting to leave the country. That is reflected in the emigration figures. More than three-quarters of those emigrating are less than 45 years old. If one studies the pattern of those going to Australia one finds that in 1970 about 40 per cent. of them were highly skilled or professional people. In 1975 the proportion was 64 per cent. Although the numbers may not be increasing greatly, the proportion of those with skills, people we can ill afford to lose, is rising steadily.

It is this pattern of taxation that has led to some of the nonsense contained in the Bill. There is provision in Schedule 7—a schedule four pages long—to give a series of licensed loopholes for those who are lucky enough to have overseas earnings. It is full of jargon about the qualifying tests, and the newspapers have been full of comment about whether one qualifies for relief if one leaves the country before or after midnight, whether one has one's toothbrush and leaves for more than two days at a time. Just think of all the travellers in business outside this country who will be thinking at least as much about whether they can get through the loopholes designed by Treasury Ministers as about what they should be doing for their companies. This is another ridiculous consequence of our absurd rates of taxation.

We also have to consider the whole jungle of benefits in kind that have been growing as a means of escaping from high taxation. They give an interesting sideline to what is happening, because next year the P.11.D starting point for taxation of benefits in kind goes up from £5,000 to £7,500, which is just keeping ahead of the level of average earnings. That provides us with another absurd illustration.

We should be wrong to ignore what is happening to those undertaking deep-sea diving in the North Sea. Many hon. Members will have read reports that the men who undertake this hazardous work rightly receive substantial rewards, but that they are being pursued in order to have their tax status changed—to be transformed from self-employed people liable to tax under Schedule D so as to be brought within the net of taxation under Schedule E. It would not be right for me to comment on the tax status of any individual, but the reaction of these men to the imposition of the full, unqualified burden of our tax rates is one of great hostility, and they are indicating that they are likely to cease residing here for tax purposes and to cease to be available for this dangerous work. This is one of the consequences of pursuing to the limit a tax system with rates as high as they are.

In one report I have received from one of the larger diving contractor companies, it is said that they will shift their British divers to locations outside the United Kingdom and will replace them with foreign nationals. They foresee considerable difficulty in obtaining and retaining deep-sea expertise in British waters because of the imposition of these tax rates. According to the report the net result would seem to be a downgrading of available expertise and an influx of foreign nationals to do much of the work which could and should be done by British divers. It follows that the Inland Revenue stands to lose thereby considerable sums in tax revenue anyway Why in heaven's name has this country been driven into this absurd and lunatic position? It is because the hair-shirt hermits of the Tribune Group, who were here earlier, have had great success in peddling political myths to the great destruction of the economic health of this country. There are so many illusions and myths that it is worth spending a moment or two in identifying and destroying them.