Taxation and Public Spending

Part of the debate – in the House of Lords at 5:14 pm on 14 March 2001.

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Photo of Lord Harris of High Cross Lord Harris of High Cross Crossbench 5:14, 14 March 2001

My Lords, I very much enjoyed the contrasting opening speeches from the three main parties. I especially enjoyed the sparkling performance of the noble Baroness, Lady Hogg. I wish she had more time to tell us the extent to which this almost comically Scottish-dominated government favours the Scottish electorate. I thought that required further examination.

My view runs rather more radical than to that of the Front Benches. I come not only to bury Gordon Brown but also to highly praise him. From the vantage point of the IEA back in 1957, it was not only on taxation that the record of both governing parties inspired little confidence. As the noble Lord, Lord Barnett, may remember, those were the days of monopoly trade unions, protected state industries, incomes policies, central planning, multiplying subsidies, universal welfare, budget deficits and, of course, the consequent inflation.

The earliest brief stand against ever rising government spending was in 1958 when the then Chancellor, Peter Thorneycroft, with his Treasury colleagues, Enoch Powell and Nigel Birch, resigned over a mere £50 million. Today that would be equivalent to £1 billion. That was "super Mac's little local difficulty", if I remember correctly.

If the Thatcher Government's demolition of union monopoly released new Labour from the TUC's inflationary grip, it was the 1979 Budget of the noble and learned Lord, Lord Howe of Aberavon, which put tax-cutting high on the political agenda. With his first Budget he reduced personal taxes.

Yet although Gordon Brown has not followed that example, nevertheless, with two cautions, I would give him high praise--higher praise than most post-war Chancellors, save possibly the noble and learned Lord, Lord Howe, whose Budget was particularly important.

My first caution is that the full credit does not properly belong to Mr Brown and his advisers alone, since--as other noble Lords have said--he has built on the unacknowledged Tory legacy of stability bequeathed by his predecessors, the noble Lord, Lord Lamont, and Kenneth Clarke.

My second caution is that Gordon Brown's outstanding inflation record over, so far, four years, has been achieved only by abdicating control of monetary policy to the Bank of England. Since I was among the first in this House warmly to applaud that bold departure, I might be permitted to remind the House of a certain irony. When the first majority Labour Government under Mr Attlee came into power in 1945, they could not wait to nationalise the Bank of England. That was among the first steps that they took. Here we are 50 years on when new Labour has, in effect, privatised the Bank of England; restoring that key power to Threadneedle Street.

My reason for wishing to bury the Chancellor--as well as to praise him--is that he looks to be in serious danger of fulfilling the political adage that all success tends to end up in failure. To explain that danger it is necessary to ask why Gordon Brown's Monetary Policy Committee was what the noble Lord, Lord Healey, would have called "a jolly wheeze". It is generally agreed that, since Keynes, successive Chancellors, irrespective of party, have been under incessant pressure to cure recessions or win elections by stimulating the economy with lower interest rates or taxes. The logic taught by Milton Friedman was that expansionary monetary or fiscal policies were like drink, with the good effects coming first to be followed by a nasty hangover some time later.

The value of the Monetary Policy Committee is simply that it removes the bottle from the reach of chronic tipplers. In short, it depoliticises monetary management. But on Friedman's logic, the removal of one weapon from the Chancellor's political armoury exposes the tax system all the more to manipulation for party advantage. Unfortunately, Mr Brown has shown himself no less inclined than the worst of his predecessors to yield to the temptation to fiddle with taxes. Here we have a born interventionist and social engineer, with a missionary--even Messianic--zeal to cure the ills of the world, with his hand not only on the tiller, but in the till.

To return to Friedman, increased government spending, like inflation is politically popular in the short run. But gradually, cumulatively, it raises costs, blunts incentive and, above all, it discourages every-day economy. Not even an Aberdonian spends other people's money as cautiously as he spends his own. And Mr Brown does not even come from Aberdeen. Indeed, he comes from nearer Glasgow where I am told they all have holes in their pocket.

Part of the technique of Mr Brown has been so to complicate the tax system, with perpetual, fiddling changes, that only experts can work out exactly what he has been up to. Accordingly, like others, I rely on the Institute for Fiscal Studies--many years ago, the noble Lord, Lord Taverne, played an important part in its development--to tell us that the Chancellor has raised taxes altogether by £24 billion to bring the total above £380 billion a year. As a proportion of national income, that represents an increase of 2.5 per cent to 40 per cent next year. That is different from some other figures, but I stick with the IFS calculations.

The lesson I would draw from the Chancellor's mixed record is that he is no more to be trusted with unchecked discretion over taxes than his predecessors could be trusted with control over interest rates. My proposals for reform are therefore twofold. First, as I have long argued, the Monetary Policy Committee should now be instructed to lower its average annual target for inflation from the present 2.5 per cent. That would still be sufficient to reduce the value of money by more than 80 per cent over the average expectation of life today--from £1 to 20p over some 80 years. As the present inflation rate is nearer 2 per cent, a reasonable programme would be to shave the target down by perhaps 0.5 per cent every four years to give us the boon of stable money and lower interest rates in 10 or 15 years.

My second reform would be to depoliticise the tax system by creating an independent taxation policy committee alongside the Monetary Policy Committee. Its task would be to review the Chancellor's Budget proposals, in advance of them being delivered to Parliament, against a target of reducing the total burden of taxes from 40 per cent of GNP to Colin Clark's safe figure of 25 per cent of GNP over a similar period of, say, 15 years.

Once launched, the expectation of stable money and lower taxes would bring earlier promise of unheralded prosperity, individual responsibility and consumer freedom to choose more leisure and that gracious living for which many new Labour and other Members of the House provide such an enviable example.