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Finance (No. 3) Bill

Part of the debate – in the House of Commons at 7:57 pm on 12th November 2018.

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Photo of Julian Knight Julian Knight Conservative, Solihull 7:57 pm, 12th November 2018

Thank you, Mr Deputy Speaker, for letting me speak a bit earlier than I expected. It is a great pleasure to be called so early and I will not abuse that generosity by speaking for too long, because I know that many colleagues want to speak in the debate. I just wish to cover a few areas that have come up in the debate and the Budget more generally: first, the higher rate tax thresholds, which have been mentioned by many hon. Members; secondly, corporation tax and small businesses; thirdly, debt, which my right hon. Friend John Redwood spoke about so interestingly; and, finally, fuel duty and car taxes more generally, which is pertinent to my constituency, with its 9,500 car workers.

On the higher rate tax, I was interested in what was said by Sir Vince Cable, who is no longer in his place. There is an amendment in the name of all the Liberal Democrats and it is good to see them here this evening in such numbers. The amendment mentioned the

“provision for a £1.3 billion tax cut for higher earners”.

I pressed the right hon. Gentleman to explain what that would actually mean for productivity and for what we term fiscal drag, a term first used when Gordon Brown was Chancellor of the Exchequer. It happened in the early part of the Labour Government, which came to office in 1997, and was eased over time. In 2010, it was decided, as an issue of morality, that we would also freeze the higher rate of income tax at the threshold. The reality is, however, that in the long term that has quite a damaging effect on the economy. It means that people are being brought into the higher rate of tax who really should not be there. I know that in my constituency there will be, for example, deputy headteachers, locum GPs and middle managers in local government who are paying the higher rate of tax. They would not have done so within the last generation, but they do now.

When people—this applies in the private sector as well—who pay the higher rate of tax are offered any extra work or overtime, they make a calculation: “Do I take that or do I trade that off against what my tax will be as a result of this?” If people are being charged too much tax at this marginal rate, that reduces productivity, and that, in itself, has a damaging effect on the economy. As my hon. Friend Charlie Elphicke mentioned, in 1987, the then Chancellor, Nigel Lawson, lowered the rate of tax from 60p in the pound to 40p in the pound—and guess what? We actually took more tax in as a result.

This is a fundamental point that also applies to corporation tax. Labour Members have made their views very clear in that they would like a restitution of the rate of 26% for large businesses and 21% for small businesses. However, with regard to corporation tax, the proof of the pudding is in the eating—that is, employment. As my hon. Friend Alex Chalk said, the unemployment rate in the UK is 4%. I grew up in a town in the north of England in the 1980s, when the unemployment rate was about 25%. We went through a horrendous recession in our light industrial town. We could not even dream of a rate of 4% at that time. In the EU, unemployment is 8%, on average, and it is 9% in France. My hon. Friend also mentioned Italy and Spain. Think about all those lost opportunities and lost lives through high unemployment. This beds down in communities—I have seen it for myself. The way in which we bring about a culture of work and of higher employment is fundamental to the development not just of productivity but of our society itself.