HC Deb 09 July 1987 vol 119 cc505-6
9. Mr. Tom Cox

asked the Chancellor of the Exchequer what plans he has to seek to reduce the present rate of standard income tax; and if he will make a statement.

The Chancellor of the Exchequer (Mr. Nigel Lawson)

I aim to reduce the basic rate of income tax to 25p in the pound as soon as I prudently can.

Mr. Cox

While I note that reply, is the right hon. Gentleman saying that the Government's commitment, about which we now hear repeatedly, to regenerate and rebuild confidence in our inner cities is real? He must be aware that it will take substantial sums of money to do that, and it is certainly the wish of the general public that that money should go into our inner cities and the social fabric of our country rather than on tax concessions to the wealthy. Will he tell the House exactly what is his commitment to the inner cities and social fabric of the country?

Mr. Lawson

The hon. Gentleman's question betrayed two failings on the part of the Labour party to understand the facts of life which, I believe, cost it dear at the last general election. The first is that he referred to the basic rate of income tax as a tax on the rich. He totally fails to understand that that is a marginal rate of tax on millions and millions of ordinary working people, many of whom are earning incomes well below the average. Getting the basic rate of income tax down for them is something of the first importance—it is not simply a tax cut for the rich.

The second thing the hon. Gentleman fails to understand is that the achievement of all the things that we seek to achieve in the public sector must be secured by growth in the economy. Lowering the rate of income tax and creating a more dynamic economy and greater incentives in the economy is the crucial part of the way to get a stronger economy that will enable us to do more for the inner cities, among other things.

Sir William Clark

Does my right hon. Friend agree that the continuation of the reduction in the standard rate from 33p to 27p to 25p is welcome to all taxpayers, whether rich or poor? Indeed, it affects people who are retired. Does he further agree that when we get down to 25p as a standard rate of tax, the next jump to 42p in the pound will be far too high, and that it should come down at the same time as the 25p is achieved?

Mr. Lawson

I am grateful to my hon. Friend for his consistent support for the policy that we have been pursuing of bringing down the rates of income tax and raising thresholds. We shall continue to do that as and when circumstances permit. I shall certainly consider the question of the jump from the basic rate to the first higher rate, but it is interesting to note that, in the United States, the new tax reform package, which has gained a number of plaudits in this country, has a basic rate of 15 per cent. and then rises to 28 per cent. That is a gap similar to the one about which my hon. Friend has spoken.

Mr. Pike

Does the Chancellor accept that the tax cut in the basic rate has really been a con job on the majority of ordinary people? Is it not a fact that the tax cuts have not benefited the very low-paid and people living on state benefits, and that the majority of people on average earnings are paying more in VAT and national insurance and are worse off in taxation terms than they were before the cut in basic tax?

Mr. Lawson

On the contrary, the very low-paid have done particularly well under this Government as a result of the introduction—for the first time in this country—of reduced rates of national insurance contributions for employees and for those who employ them. That has helped those at the lower end of the wage spectrum, especially.

As for con jobs, the only con job that I can recall was when the Labour party sought unsuccessfully to conceal the fact that it planned to abolish the married man's tax allowance.

Mr. Boswell

Is my right hon. Friend aware of the healthy worldwide trend towards lower and less penal tax rates? Does he agree that that has considerable relevance to the level at which we set our own basic and additional rates?

Mr. Lawson

My hon. Friend is right. That international context is both very striking and something that we do have to take into account. It is something that I have to take into accont in deciding what is appropriate and necessary for this country. Indeed, the consensus about the need to bring down income tax is one that is now shared by all those in charge of the major economies of the world. It is only the Labour party in this country that is determined to put up income tax—at least it was at the last election. I do not know whether it still is. This revisionism that the hon. Member for Dagenham (Mr. Gould) is going in for is bewildering us. But it was only the Labour party—atleast until very recently—that was determined to put up income tax.