HC Deb 11 November 1982 vol 31 cc657-8
8. Mr. William Hamilton

asked the Chancellor of the Exchequer if he will make a statement on the recent report made by the Institute of Economic Affairs concerning taxes on low pay.

The Financial Secretary to the Treasury (Mr. Nicholas Ridley)

The problems described in the report derive from the policies of successive Governments to provide benefits to alleviate poverty and hardship at a reasonable cost. We are deeply concerned to improve incentives, at all income levels, and for this reason we are determined to reduce the burden of income tax as soon as circumstances permit.

Mr. Hamilton

Does the hon. Gentleman agree that it is a disgrace that the lowest paid workers in Britain pay a higher marginal rate of tax on their income than those who are very much better off? Does he not recognise that that problem particularly affects National Health Service workers, who are now being starved into submission by the Government? Is it not outrageous that low-paid workers are treated in that way?

Mr. Ridley

I agree with the hon. Gentleman that it is a real and serious problem, and it is being studied by the Select Committee on the Treasury and Civil Service. It is because of the level of benefits, which we have successively tried to maintain, that tax levels are so high, resulting in the phenomenon known as the poverty trap to which the hon. Gentleman refers.

Mr. Forman

I welcome my hon. Friend's initial answer, but does he agree that there is now an overwhelming political case for raising thresholds at the earliest opportunity?

Mr. Ridley

The Government have always made it clear that they would like to raise thresholds. Although there is an overwhelming political case for doing so, we must have regard to the economic case as well.

Mr. Foulkes

Would not the lower paid in the United Kingdom be able to pay less if the Chancellor and his colleagues pursued the tax dodgers, individual and corporate, who go over to the Channel Islands and the Isle of Man to avoid paying United Kingdom tax? When will the Government take action on that tax evasion?

Mr. Ridley

The Government have done a great deal to improve compliance with tax rules, but it would also help the problem if when arguing and voting in the House the official Opposition would always bear in mind the need to contain expenditure.

Mr. Cockeram

Has my hon. Friend studied the proposals that were made when the Conservative Party was in Opposition to institute a tax credit scheme—sometimes called negative income tax—to help to solve the problem of low pay and, at the same time, the problem of the jungle of social security benefits?

Mr. Ridley

Yes, Sir. I am sure my hon. Friend will agree that such resources as are made available for the relief of poverty and hardship should be targeted as closely as possible to ensure that they achieve their objectives, unlike the proposals that were put forward this morning by the SDP, which seeks to replace the carefully targeted benefits with a blanket benefit, at an extra cost of £4½ billion.

Mr. Horam

Not true.

Mr. Cook

Is the Minister aware of the parliamentary answer last month which showed that under the present Government the tax burden on the very poor has increased by 17 per cent. while the tax burden on the very rich has fallen by 6 per cent.? Will he explain to the House what social objective is served by his tax policy of making the poor pay more so that the rich need pay less?

Mr. Ridley

The hon. Gentleman knows that the two do not equate. He would be wise to take into account the fact that if one damages the earning capacity of the economy one will make the plight of the less well off worse.