Direct Taxation (Hansard, 2 March 1995)

§ 2. Mr. Jenkin
To ask the Chancellor of the Exchequer what assessment he has made of the relationship between reductions in direct taxation and the performance of the economy; and if he will make a statement.

§ The Chief Secretary to the Treasury (Mr. Jonathan Aitken)
It has long been our assessment that high direct taxes damage the performance of the economy. That is why substantial reductions in direct taxation have been made since 1979 and why we hope to make further reductions when it is prudent to do so.

§ Mr. Jenkin
Is it not evident that countries whose Governments take a higher proportion of the national wealth in taxation than our Government tend to have slower growth rates? Have we not achieved a major structural shift in competitiveness, to the advantage of the United Kingdom, by holding down the share of wealth that is taken by the Government, unlike many of our European competitors whose Government expenditure now exceeds 60 per cent. of gross domestic product?

§ Mr. Aitken
I am grateful to my hon. Friend for stressing the importance of the connection between tight control of Government expenditure and good economic growth and competitiveness. He was right to make the point that the share of output spent by our Government is lower than that of any of our major European competitors. I should also note that, as we are a world trading nation, we must keep up the pressure to maintain tight control of Government expenditure because the ratio of Government expenditure to gross domestic product in other competitive nations, in areas such as the Asian Pacific region, and even in mature economies such as the United 1167 States of America and Japan, is still lower than it is here. We are, however, winning the prize in relation to our European competitors.

§ Mr. Malcolm Bruce
Why is only one of the Chancellor's five wise men forecasting that he will achieve his inflation targets by the end of this Parliament? Does the Chief Secretary think that that may be because they anticipate irresponsible and premature tax cuts that prejudice the national economy for short-term political advantage?

§ Mr. Aitken
I shall not second-guess any wise men, whose forecasting record has not been any more impeccable than anyone else's sometimes, but I reject the notion that some irresponsible activity is going on in the Treasury and that it will lead to higher inflation. My right hon. and learned Friend the Chancellor has shown his determination by a series of moves to keep inflation tightly under control and we will continue to do that.

§ Mr. Anthony Coombs
Does my right hon. Friend agree that we welcome progress so far, but it is precisely those developed countries such as Japan, Switzerland and the United States of America that have the lowest proportion of taxation as a proportion of gross net product—it is below 30 per cent.—and the best unemployment figures? In the past 15 years, fresh progress has been made in the United Kingdom to reduce the tax burden on a direct basis. Does my right hon. Friend agree that we need to get the total tax burden below 30 per cent. of GNP to match the achievement of those other countries?

§ Mr. Aitken
My hon. Friend makes a good point. As I said in my first answer, Britain is doing well in relation to some of our European competitors, but if one looks around the world one finds that we have some way to go, both in terms of taxation reductions and of Government expenditure reductions, to maintain our momentum of competitiveness. We are doing well. The trend of Government expenditure and taxes is aiming to come down, but we must keep that pressure up.

§ Mr. Andrew Smith
Following the publication on Tuesday of the report and study by Oxford and Warwick universities showing that no connection exists between the performance of companies and of the economy and the tax breaks given on executive share options, will the Chief Secretary give a commitment to tax those options as income? Does he not understand that the public are sick and tired of being taken for a ride by the excesses of some people in privatised boardrooms, and that it is not enough for him, the Prime Minister and his right hon. Friends to call this distasteful? The public want action and they want it now.

§ Mr. Aitken
The hon. Gentleman's continual attempts at bogus indignation on this point are synthetic. If a company is successful and the executives of that company are performing well, there is no reason why they should not receive good rewards. Like everyone else, however, the Government are opposed to and critical of corporate greed, wherever it materialises. We reject the continued attack on share options that, in many companies, are well earned and well deserved, as are the rewards. I do not agree with the hon. Gentleman that all share options 1168 should be regarded in a hostile and negative light just because there are a few abuses. That is not the correct stance.