HL Deb 04 May 1978 vol 391 cc356-9

3.18 p.m.

Viscount DAVIDSON

My Lords, may I declare that I have no personal interest in the Question which stands in my name on the Order Paper, which I now beg leave to ask.

The Question was as follows:

To ask Her Majesty's Government what would be the estimated cost to the Exchequer in the current financial year if the rates of tax on the bands of taxable income over £10,000 per annum were reduced by 10 per cent. and by 15 per cent. respectively.

The PARLIAMENTARY UNDER-SECRETARY OF STATE, DEPARTMENT of the ENVIRONMENT (Baroness Birk)

My Lords, the full year cost at 1978–1979 income levels of reducing the rates of tax concerned, after taking into account the proposals in the Budget Statement, would be about £255 million for a reduction of 10 percentage points and £385 million for a reduction of 15 percentage points.

Viscount DAVIDSON

My Lords, I should like to thank the Minister for that very precise estimate. Does she, however, not agree that the figures represent only about 1½ to 2 per cent. of the estimated yield from income tax in the current year, or, to put it another way, about two to two and a half days'-worth of Government expenditure? Will the noble Baroness not also agree that the citizens of this country suffer more from penal rates of personal taxation than almost any other citizens elsewhere in the world? Further, will she not agree that the very small, or comparatively small, loss to the Exchequer if these rates were to be reduced would be more than recouped by an upsurge in enthusiasm, enterprise and initiative which would be of great benefit to the economic good of this country?

Baroness BIRK

My Lords, the noble Viscount has asked quite a few supplementary questions. I think he was implying that these reductions come to a trivial amount as a proportion of the cost of the Budget. However, I do not think that one can consider them as trivial in a full year cost of £2½ billion. For example, £385 million would pay for a cut of one penny in the basic rate of tax, which would, in fact, benefit a much larger number of taxpayers.

The noble Viscount referred to a comparison between tax rates in this country and in other countries. It is extremely misleading to make simple comparisons between top rates of tax—as he has done —without considering, first, the differing tax reliefs and allowances which are available here compared with those available overseas and also the heavy additional burdens—local taxes, or social security contributions—which may be faced by overseas taxpayers.

On his last point about how penal our tax system is, we must remember that, in the most recent Budget, the Chancellor has tried to obtain the correct balance by helping those in the lower tax hands, by reducing the rate of tax from 34 per cent. to 25 per cent and by proposing substantial increases in the thresholds to the higher rates and the Investment Income Surcharge. Further, I would point out that a married couple earning £25,000 gain just over £750 from the Budget proposal and a man with a £10,000 taxable income—the person to whom the noble Viscount referred—in fact gains £277. Therefore it is very easy to exaggerate this.

In addition, my right honourable friend the Chancellor of the Exchequer has made it quite clear that, as soon as it is possible, he intends to produce relief at both ends of the tax scale. However, this must depend on the economic situation and on our productivity generally. Finally, I do not accept that taxation itself is the only ingredient that is concerned with people's rewards and incomes.

Viscount DAVIDSON

My Lords, I should like to thank the noble Baroness for one of the most comprehensive replies to a supplementary question that I have ever heard in this House. I do not think that it would be acceptable to this House if I asked many more supplementary questions. However, I should like to ask the noble Baroness whether she is satisfied at the continuing brain drain of senior management and skilled technicians from this country, which has accelerated over the past two or three years, due to the fact that improvements in tax allowances by the Exchequer always take place about two or three years after they should take place and have not kept up with the rate of inflation.

Baroness BIRK

My Lords, I do not accept the last supposition of the noble Viscount. As to his first supposition about people leaving the country, I would point out that a great many also return. They do not regard tax relief as the only thing that counts. Therefore, it works both ways.

Lord MACKIE of BENSHIE

My Lords, will the noble Baroness accept that those who can earn these high sums are extremely valuable to the country: in fact, more valuable than their per capita worth?

Baroness BIRK

My Lords, yes, they are valuable, but everyone is valuable to the country.

Baroness GAITSKELL

My Lords, does my noble friend not agree that, when noble Lords opposite say that people emigrate and there is a great brain drain, it is combining incentives with a touch of blackmail? Should we not say to them, "Goodbye and Godspeed", and not "Au revoir" or "Auf Wiedersehen"?

Lord CARR of HADLEY

My Lords, as regards this question of international comparison to which the noble Baroness referred, will she consult British companies who have to send their staff to serve in overseas subsidiaries for periods to see what those managers who have to serve in both countries have to say about the relative conditions?

Baroness BIRK

Yes, my Lords. But the Chancellor has accepted that the top rates of tax on both earned and investment income are high. He has also been quite frank about hoping to reduce them when it is possible to do so. I can only repeat that we have to get the right balance. Also—and I apologise for repeating this—other factors are involved in living abroad compared with living in this country. These also affect people.

Lord KALDOR

My Lords, is my noble friend aware that wages in Europe are twice as high as they are here? A television broadcast last night showed that some highly qualified British workers go to Germany to do the most menial jobs because their earnings are so much lower here. Will not my noble friend agree that it is a wholly unwarranted assumption that material incentives are so much more important in the top stratum of society, where jobs are very interesting and where people work for the sake of social acknowledgment and social success, than in the case of those whose work is plain drudgery?

Baroness BIRK

My Lords, I entirely agree with my noble friend; he has put it very well.