Amendment of the Law

Part of the debate – in the House of Commons at 7:37 pm on 29th March 2011.

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Photo of Edward Leigh Edward Leigh Chair, Public Accounts Commission, Chair, Public Accounts Commission 7:37 pm, 29th March 2011

It is a pleasure to follow Catherine McKinnell, and her comments about the importance of apprenticeships are right, of course. I want in particular, however, to congratulate Mr Field. In the past he chaired the Select Committee on Social Security, and I was proud to serve on it with him. He gave the best speech of the debate—with the exception, of course, of the contribution from the Secretary of State; I will be in trouble if I do not say that. The right hon. Gentleman was realistic about the position we are in. I do not want to say a great deal about the structural deficit; we all know it is there, and how much it is. We all know the political imperative behind the Labour party campaign against the cuts. We also all understand that it is in the interests of the Government to play up that campaign because it makes them look stronger and more determined. It is therefore in the interests of both parties to talk about this topic in that way.

The right hon. Gentleman highlighted a point that I want to emphasise too: we have yet to turn the tide against the culture of spending and the fix of borrowing. We are going to borrow £485 billion over five years. That is more than our total public debt in 1997. The annual interest repayment on the UK debt for last year alone was £42 billion. I know the public cannot visualise what £42 billion is, but if we consider that we are spending more on simply repaying the interest on our debt than the entire amount we spend on educating our children, that should bring home the scale of the crisis facing us.

I am not a very party political person, so I am not very good at apportioning blame. We all know the last Government had to go through a massive international crisis, but we also all know that there was an underlying structural deficit that they did not deal with. The key question, however, is: what are we going to do now? I want to take as my text what the TUC has been talking about, because I would like to bring a few Opposition Members with me. The TUC asks how we are going to deal with this deficit without making cuts in public services, and it says there is £13 billion-worth of tax avoidance by individuals and £12 billion-worth of tax avoidance by corporations. Let us assume for a moment that that is true. How are we going to deal with it? If we follow the TUC line, the only way in which we can deal with it is through a radical simplification of how tax is raised and how the Government spend it.

The Chancellor made one historic announcement that has not been discussed much today, on the merging of national insurance and income tax. I urge him to continue with that theme, despite the siren voices that we have already heard, including that of a former Chancellor, who has said that it will result in winners and losers. The Chancellor must embark on this essential crusade. It may take many years, but it is vital, because simplification of the entire tax system lies at the heart of how we are going to deal with the deficit, with tax avoidance and with tax evasion.

The UK tax code has more than doubled in size since 1997 and it is now the world’s largest, recently surpassing even that of India. The only way to achieve simplicity in taxation is through a gradual move towards a much flatter rate of tax for both personal and corporate income, while eliminating the complicated system of loopholes, deductions and exemptions. Thus we would, eventually, have a system whereby we would set a single exemption for individuals, so that low-income earners would pay tax only if they earned more than a determined level of income. Many countries have already taken such an approach, including nine in eastern Europe, Hong Kong and Russia, the largest country in the world.

On defending the poor, I say to the right hon. Member for Birkenhead that it is not in the interests of the poor to have a so-called “progressive” income-based tax system. Such a system is structurally biased against them because they do not have the same access as the wealthy do to accountants and lawyers, and so cannot be instructed by them in the complex methods of tax avoidance. The poor are also caught in the poverty and unemployment trap. Many scenarios and Treasury models can be used, but it is estimated that if we had a flat tax rate of 22% with a £15,000 tax-free allowance, about 10 million of the poorest taxpayers would see their entire income tax burden disappear.

I know that people will say that the wealthy must pay more, but every time the top tax rate has been significantly reduced anywhere in the world, the wealthy have increased the proportion of tax income that they contribute. Under Mrs Thatcher’s Government, the top tax rate declined from 83% in 1979 to 40% in 1990, but high-earning individuals paid 35% of the total in 1979 compared with 42% in 1990. So it makes sense to have a much flatter rate of taxation—it makes sense for the economy and for the poorest in society, and it makes sense in terms of re-creating a sense of enterprise in the nation.

Once we dramatically simplify the tax system and get rid of all those loopholes and deductions, we will be able to explain the whole Budget process so much more easily to Parliament. At the moment, the Budget process is largely incomprehensible. I have been involved in the “Clear line of sight” project, and we want to simplify the whole process so that we know, line by line, what we are spending on behalf of taxpayers and how we are trying to get the nation moving forward again. I urge the Chancellor to be vigorous and brave in this debate.