HL Deb 16 May 1995 vol 564 cc407-10

2.44 p.m.

Viscount Hanworth asked Her Majesty's Government:

Whether they consider that any reduction in direct taxation is necessarily accompanied by an increase in indirect taxation; and, if so, whether they are satisfied that this has been clearly explained to the public.

Lord Mackay of Ardbrecknish

My Lords, the Government's clear policy is to reduce the share of national income taken by the public sector, and that means reducing the level of all taxes when it is prudent to do so. However, we have also sought to shift the burden of taxation, over time, from income to spending. This allows people to keep as much of their own money as possible, to spend or save as they choose.

Viscount Hanworth

My Lords, I thank the Minister for that Answer which was nothing like I had expected. I shall leave the matter as it stands.

Lord Barnett

My Lords, as the Minister did not even attempt to reply to the Question, may I try? In fact, what the Government have done is to increase both direct and indirect taxes, so the one does not necessarily accompany the other. Because the Minister did not answer the Question, may I ask him whether he is now saying that the Government will not be increasing indirect taxes at the next Budget in order to cut direct taxes? Is he giving us that assurance?

Lord Mackay of Ardbrecknish

My Lords, I am sorry that the noble Lord thinks that my original Answer did not answer the Question. I thought that it did. The noble Lord knows more than most Members of your Lordships' House that the Chancellor of the Exchequer has to decide every year on what he needs to raise to pay for the Government's spending and at the same time has to take into account the need to keep down borrowing. He then decides on the balance of taxation and on whether he has to put up taxes—as we have had to do—in order to retain sound public finances. That is now paying dividends in the growth of our economy.

If the Chancellor is to reduce taxation he has to decide where to do so. I should, of course, point out to the House that the rules of the European Union inhibit one's scope for action on value added tax. However, we are at heart a tax-cutting party and the sooner that we can get back to doing that, the better pleased we shall all be.

Lord Clark of Kempston

My Lords, does my noble friend agree that the philosophy of the Conservative Party and the Conservative Government is to tax spending rather more than income, and that that has happened over the past few years because the amount taken by direct taxation is now a much lower percentage of one's income, bearing in mind the fact that VAT does not extend to the essentials of life such as food and transport? Does my noble friend also agree that despite some taxes being increased, the standard of living of the average family in this country has increased by 40 per cent. in real terms over the period of our government?

Lord Mackay of Ardbrecknish

My Lords, my noble friend is right that real income per head has increased by nearly £50 per week since 1979. My noble friend is also right that a balance has to be struck between direct and indirect taxes. It is well worth pointing out that the United Kingdom's standard rate of value added tax is lower than that of most of our fellow members of the European Union, and our effective rate of VAT is lower than the European Union average.

Lord Dubs

My Lords, is not the real truth that the British people are more heavily taxed now than in 1979 despite the fact that we have had a government who claim to be a tax-cutting government? Is not that the truth and is not whatever else one says about the balance between direct and indirect taxation a smokescreen to hide the truth from the people?

Lord Mackay of Ardbrecknish

My Lords, the figures are difficult to quantify because the standards of living and the incomes of the great majority of our people have increased considerably since 1979 and, of course, they have paid more in taxes. Indeed, the top 10 per cent. pay a greater share of income tax now than they did in 1979. I should have thought that the party opposite would welcome that.

Lord Hailsham of Saint Marylebone

My Lords, is it not the case that it is rather indecent for a party which is constantly demanding increases in expenditure to complain about increases in taxation?

Baroness Hollis of Heigham


Lord Mackay of Ardbrecknish

My Lords, I had refrained from making that point, but my noble and learned friend has made it for me—

Lord Graham of Edmonton


Lord Mackay of Ardbrecknish

My Lords, I hear the question "When?". I suggest that those of your Lordships who attend deliberations on the Pensions Bill will from time to time hear a cry for more expenditure. Indeed, the same cry has been heard on all other Bills on which I have served. I think that we all know that the party opposite is keen to increase expenditure on certain areas although it is pretty reticent about putting a figure on that at the moment because it realises that the British people are with the Conservatives—

Lord Richard

Look behind you!

Lord Mackay of Ardbrecknish

—as far as tax cutting is concerned. Come the next election, noble Lords opposite may find that once again they have laughed too soon.

Baroness Seear

My Lords, does the Minister agree that if we want a decent society we have to pay for it?

Lord Mackay of Ardbrecknish

My Lords, of course we agree with that. That is why government expenditure in my Department of Social Security is at £90 billion. That does not mean that we should abrogate any responsibility to try to control that expenditure on behalf of the taxpayers whose money it is.

Lord Peston

My Lords, I find it difficult to keep up with all this. Has the Minister found time today to read the Financial Times, which says that there is concern among Tory Back-Benchers that his party has deserted its core electorate and broken promises to be the champions of low taxation? The reason for that is the latest Inland Revenue figures which show that more people are paying taxes than ever before. Does not that concern him? Even if he is not worried about what the British people feel, does he not think that he should pay a little attention to the concerns of his Back-Benchers? I think the reference is to the Back-Benchers in the other place rather than those now sitting stolidly behind him.

Lord Mackay of Ardbrecknish

My Lords, of course I accept that the British people believe in paying as little tax as possible. That is why in the past 16 years we have appealed to them so successfully as a party 'which has tried to keep down taxes. However, they also, as the noble Baroness, Lady Seear, pointed out, want to ensure that we spend taxpayers' money on the kind of things of which they approve, such as some of the social security budget and other government department budgets. There is a balance to be struck. The idea that the party opposite has suddenly become tax cutters by instinct beggars belief. More people have come into taxation because we have a larger working population, and, as I said earlier, many of our people are very much better of now than they were in 1979 and so do pay more taxes.

Lord Peston

My Lords, will the Minister at least correct his last factual statement? The reason more people have come into taxation is that the Government have reduced the married man's tax allowance. That is what the Inland Revenue says. It has nothing to do with the points that he makes.

Lord Mackay of Ardbrecknish

My Lords, there is a combination of factors. The point the noble Lord makes may be one of the factors. As he has gone into these territories and thus allowed me to give this answer, perhaps I may say that today over 1 million fewer people pay tax than they would do had we maintained and indexed the tax regime we inherited in 1979.

Lord Mackie of Benshie

My Lords, the Minister has referred continually to the great majority of people being better off. Does that mean that he does not care about the minority who are no doubt worse off?

Lord Mackay of Ardbrecknish

My Lords, as I said, the great majority of our people are much better off. Most of our people are either better off or much better off. Through the social security system we attempt to cater for those people who, through no fault of their own, are without proper means and without jobs. We run a social security system that costs this country £90 billion. That is generous by anyone's standards.