Marginal Tax Rates (Hansard, 3 February 1994)

§ 1. Mr. Hendry
To ask the Chancellor of the Exchequer what assessment he has made of the effect of the changes in marginal tax rates since 1979 on incentives.

§ The Chancellor of the Exchequer (Mr. Kenneth Clarke)
Cutting tax rates has improved incentives at all levels and has contributed to the improved economic performance of the country since 1979.

§ Mr. Hendry
I am grateful to my right hon. and learned Friend for that reply. Is he aware that in 1979 the top 10 per cent. of income tax payers contributed 34 per cent. of the total income tax take, but by 1992 that had risen to 45 per cent? Is not that the most graphic demonstration that the policies of successive Conservative Governments, in cutting direct tax levels, have dramatically improved the incentive to work and at the same time dramatically reduced incentives to avoid paying taxes?

§ Mr. Clarke
I wholly agree with my hon. Friend. In 1979, the top rate on so-called unearned income was 98 per cent. and the top rate on earned income was 83 per cent. Those penal rates drove people into tax evasion and drove them abroad. We now ensure, by rates that give greater incentive, that the better-off contribute more to the total tax revenues.

§ Mr. Skinner
Why does not the Chancellor of the Exchequer tell the real truth about what has happened since 1979? We have finished up with a £50 billion public sector borrowing requirement, we have a balance of payments deficit of well over £10 billion and likely to rise next year, we have 4 million people on the dole and now the Government have the gall to call upon working-class 1010 people to bail them out. Instead of doing that, they should tax the rich, whose percentage share of national income has increased from 35 to 43 per cent. while poor people's share has dropped from 10 to 6 per cent. Get the priorities right or get out of the road.

§ Mr. Clarke
My hon. Friend the Member for High Peak (Mr. Hendry) has just shown the total folly of the Labour party in taking the advice of the hon. Gentleman in the 1970s and imposing penal rates on the so-called rich, which had the effect of driving people into tax evasion. Bringing things up to date, in the 1980s we had the strongest run of growth in the British economy that we have had in modern times. We are now the only major economy in Europe that is growing again. Manufacturing production is up, unemployment is coming down and business confidence has never been higher. Their fear of people such as the hon. Gentleman will keep people supporting the Government in their efforts to get British recovery under way again.

§ Mr. Nicholls
Will my right hon. and learned Friend also remind the hon. Member for Bolsover (Mr. Skinner) that in 1979, in addition to all the other taxes that Labour had imposed, there was an unearned income surcharge which meant that the small earnings of poor people who had worked hard all their lives were then taxed because the money was regarded as unearned? Is that the tax on the rich that the hon. Gentleman has in mind?

§ Mr. Clarke
I am sure that it is, and the Labour party's attitude to taxation in 1970 became disastrous, punitive and counter-productive in terms of revenue. They are now trying to abandon that attitude, but I heard the shadow Health Secretary say on the radio this morning that although he had no spending promises to make at the moment, he would have by the time of the election. No doubt, by the time of election we shall have some fresh tax proposals from the hon. Gentleman.

§ Mr. Gordon Brown
Will the Chancellor confirm that, despite everything that he says, after 15 years of Conservative Government, the only people directly benefiting from the Tory tax regime are those earning £64,000 a year or more, while the burden of direct and general taxation on everybody else has increased? Is that not the £64,000 question that the Chancellor must answer? Is not his party not merely the party of broken tax promises, but the party of unfair taxation?

§ Mr. Clarke
The actual position, as the hon. Gentleman knows, is that the real income of the average earner in the country is now 40 per cent. higher than it was in 1979. Real earnings went up by 40 per cent. above inflation, whereas during the Labour party's time in office, they had completely stagnated and hardly risen at all. More than 1 million more people would be paying tax now if we still had Labour's tax regime from 1979. We have created more prosperity, we have a better tax system with higher incentives and we are on the way to strong economic growth—something which Labour could never deliver.

§ Mr. Ian Bruce
You and I, Madam Speaker, are simple people.—[Interruption.]

§ Madam Speaker
Order!

§ Mr. Bruce
We have a simple approach to such matters, Madam Speaker. Having given us all those statistics about 1011 tax rates, can my right hon. and learned Friend tell the average earner what extra money he will have in his pocket today, as opposed to 1979?

§ Mr. Clarke
If he is an average earner, he will be 40 per cent. better off—almost half as well off again, over and above inflation—than he was in 1979. He will also be living in one of the most successful and prosperous economies in Europe, where he can feel more secure about his job and see more jobs being created. That is something which Labour could never achieve consistently; we achieved it in the 1980s and we are achieving it again now.