Charge and Basic Rate of Income Tax for I988–89

Part of Orders of the Day — Finance (No. 2) Bill – in the House of Commons at 8:45 pm on 3rd May 1988.

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Photo of Mr John Townend Mr John Townend , Bridlington 8:45 pm, 3rd May 1988

The debate is drawing to a close, so I shall deal specifically with clauses 22 and 23.

I support these clauses, first, on the grounds of principle, and, secondly, on economic grounds. Penal levies of personal taxation, as practised by the last Labour Government, are immoral. To take 98p in the pound from any recipient is equivalent to confiscation. To take 83p in the pound from the salaries of executives, entrepreneurs and sportsmen is a disincentive. It cannot be justified on economic grounds. The only basis for it is that of envy and prosecuting the so-called class war.

What was the effect of those penal rates of taxation? A growing number of people did not pay those rates and under-declared their income. We saw the growth of the black economy. The Labour Government turned an honest country into one of tax fiddlers. Those who were not dishonest avoided the higher rates of taxation by legal means, such as by employing armies of lawyers and accountants, who converted income into capital. No hon. Member has mentioned the fact that this Government have increased the capital gains tax rate for higher tax earners from 30 to 40 per cent., thus doing away with the artificial methods of paying tax.

The penal rates of tax resulted in a growth in perks. It was ridiculous that successful export sales managers were given, not an increase in salary, but a better car. If that was not a sufficient incentive, they simply left the country and became tax exiles. What greater condemnation can there be of the Labour Government than that they drove out some of the country's best brains, top doctors, sportsmen, business men, bankers, dancers, and pop stars? At the end of the day, those high rates of tax reduced the amount of tax that was paid.

In 1979 the in-coming Conservative Government couragously sliced the top rate of tax to 60 per cent. What has been the result? More revenue has been raised by taxes and there has been a resurgence in enterprise. My right hon. Friend the Chancellor of the Exchequer, with even greater courage in his first Budget after the election, reduced the top level of tax to 40 per cent. We now have an enterprise culture for the first time in 50 years.

The wealthy, the talented and the tax exiles will start to drift back. A tremendous boost is being given to the United Kingdom. It is becoming a place where international companies are establishing their headquarters. The reputation of the City as a financial centre will be reinforced. Indeed, it is already the financial centre of Europe.

There has been a reduction of 8p in the basic rate since the Government took office, and we are committed to reducing it further. I am amazed when Opposition Members oppose reductions in the basic rate. They talk about the high level of national insurance. Under the last Labour Government the basic rate was 35 per cent., plus 9 per cent. national insurance, making a total of 44p in the pound. Is it what the man on average earnings should be paying as a marginal rate?

Reducing taxation is popular and it signifies the difference in principle between our party and the Labour party. We believe that people should be allowed to keep money and spend it as they wish, whereas Opposition Members believe in taking more and more of an individual's income and spending it as they think best. To the Labour party, the man in Whitehall knows best. To us, the individual knows best.