HC Deb 03 March 1994 vol 238 cc1062-3
8. Ms Eagle

To ask the Chancellor of the Exchequer what assessment he has made of the impact of the Government's tax policies on the economic well-being of the poorest 10 per cent. of wage earners.

Mr. Kenneth Clarke

The real income of a family with two children at the lowest decile of male earnings has risen by almost 24 per cent. since 1978–79.

Ms Eagle

Will the Chancellor confirm that after his massive tax hikes of the next two years, the bottom 10 per cent. of people will pay 25 per cent. of their gross income in taxation? After the tax cuts of the 1980s, one third of which went to the top 1 per cent. of super-rich, with the bottom 10 per cent. receiving little or nothing, how can the Chancellor justify making the poorer taxpayers carry the can for his Government's economic failures?

Mr. Clarke

Of course, most of the bottom 10 per cent. in terms of income do not pay income tax at all. Their incomes are largely affected by changes in benefits, in which the Government have been extremely generous in recent years. For example, we have given more than £1 billion of extra help since 1988 for poorer families with children. For that reason, figures comparing the actual overall effect on lower deciles of the population are misleading if they leave out the substantial increases in benefit that the Government continue to provide.

Mr. David Shaw

Will my right hon. and learned Friend confirm that the best way of helping people on low wages to get real wage improvements in future years is by Britain having a successful economy in which high added value is what we seek for our industries and our service sector?

Mr. Clarke

I agree entirely. That is why, during the 1980s, the living standards of low wage earners went up by a quarter after we came to power. During the period when Labour had been in power, real income for the same group of people had risen by only 4 per cent.

Mr. Nicholas Brown

The Chancellor is effectively confirming to the House that the Conservative party is the party not of low taxation but of regressive taxation. Returning to the original question, which my hon. Friend the Member for Wallasey (Ms Eagle) asked, what is the moral justification for taxing citizens of ordinary means, particularly those with family obligations, rather than clawing money back from the beneficiaries of the 1988 top rate tax reductions?

Mr. Clarke

The justification is that it increases the revenue received and retains the skills of those people in this country. By giving people the necessary incentives, we get the economic performance that we got in the 1980s compared with the economic performance that we got in the 1970s when the Labour party had put the top rate up to 83 per cent.

Mr. Quentin Davies

Is it not the case that the average direct tax burden in this country during the 1970s Labour Government was higher on the scale than at the highest point of the direct tax burden during the whole of this Government up until now, and prospectively under the new tax arrangements?

Mr. Clarke

It is also the case that the percentage of total gross domestic product taken by income tax and national insurance has dropped from 18.5 to 16.5 per cent. under the Conservative Government. We are a party of low taxation and, most spectacularly, we have reduced the marginal rates of taxation to 40 per cent. at the top and to 25 per cent. for the standard rate and introduced a new lower band of 20 per cent. for the very lowest wage earners. We have no intention of giving way to pressure from the Opposition to put those rates up again.