Taxation (Hansard, 1 May 2002)

§ The Earl of Northesk
asked Her Majesty's Government:
What changes in the burden of taxation have occurred since 1997.

§ Lord McIntosh of Haringey
My Lords, estimates of net taxes and social security contributions as a percentage of GDP are available in Tables C10 and C23 of Budget 2002.

§ The Earl of Northesk
My Lords, I thank the Minister for that brief Answer. But are the Government sanguine that one change that has occurred is that the poorest 10 per cent of people now pay a record rate of between 50 and 63 per cent of their income in tax?

§ Lord McIntosh of Haringey
My Lords, the changes that have taken place over the past five years in the tax paid by the different deciles of the population in terms of income are very much to the credit of this Government. This is the first period of five years, or any comparable period, in which the net income of the poorest 20 per cent of the population has increased by as much as the net income of the top 20 per cent; in other words, in which the differentials have not increased.

§ Lord Newby
My Lords, the whole House will be fascinated by that answer. Will the Minister accept that the burden of taxation paid by the bottom 10 or 20 per cent of the population has risen, and risen more quickly than that of the top 10 or 20 per cent of the population, during the lifetime of this Government? Will he also accept that the principal reason for that is that the Government ruled out at the start the fairest form of taxation—if an increase in taxation had to be made—namely, income tax?

§ Lord McIntosh of Haringey
My Lords, I am sorry that the Liberal Democrats are following in Conservative footsteps by being more interested in what they call "tax burdens" than in the real income which results from the income and taxes. I should have thought it was more appropriate for them to look at the real prosperity of this country and at the way in which the poor have been lifted out of poverty. The direct tax burden on a family on average earnings with two children this year will be 19.9 per cent lower than it was in 1997 or in any previous year since 1979.

§ Lord Saatchi
My Lords, perhaps I may refer the Minister to page 12 of the Red Book, where it says that a person on 50 per cent of median earnings—about 10,700 a year—will pay an additional£1.65 a week in tax. Why are the Government raising the tax paid by people who are below their own official poverty line?

§ Lord McIntosh of Haringey
My Lords, the noble Lord, Lord Saatchi, produced a very interesting 687 pamphlet called something like, Why should the poor pay taxes?, which I read with very great interest. The noble Lord's solution of course would be to increase the tax threshold, the effects of which would be to make poor people a little better off but rich people very much better off. I doubt that that would recommend itself to the people of this country.

§ Lord Hooson
My Lords, does the Minister appreciate that the Liberal Democrat emphasis on direct taxation is that it is levied on the people who can afford to pay, whereas indirect taxation applies equally to the poor and the rich?

§ Lord McIntosh of Haringey
My Lords, that was not my criticism of the question of the noble Lord, Lord Newby. My concern was that he was interested in the concept of a tax burden—in other words, the percentage—rather than in the real earnings after tax of poorer people in this country. It is that on which this Government pride themselves.

§ Lord Roberts of Conwy
My Lords, does the Minister believe that the current and anticipated burden of taxation will encourage or discourage economic growth in this country, which is much needed by all classes?

§ Lord McIntosh of Haringey
My Lords, the Government have made it clear in the projections in the Red Book that over the next few years there will indeed be an increase in what is called the "tax burden". But that will be in order to compensate for so many years of neglect of our public services. It is because of the neglect by the party opposite of our public services that we have to do this. The people of this country understand that and welcome it.

§ Lord Phillips of Sudbury
My Lords, does the Minister not know that on the night following each successive Budget, the City has been awash with champagne? Does he not accept that the fastest growing widening of income differentials in recorded time has meant an exacerbation of the problems of housing exclusion, of public sector recruitment and of social resentment? Does he deny that?

§ Lord McIntosh of Haringey
My Lords, I do not move in the same City circles as the noble Lord, Lord Phillips. Nobody offered me any of the champagne. If he has any to spare, perhaps he will share it with the poorer people of this country who have benefited by this Government's policies. We need only to look at the results of the policies of this Government in terms of direct taxation since 1997. As a result of the personal tax and benefit measures introduced since that time, on average, by October 2003, households will be £740 a year better off; families with children will be £1,200 a year better off; pensioner households will be £1,150 a year better off. I think we can put up with a bit of champagne swilling for that.

§ Lord Elton
My Lords, perhaps I may redirect the Minister's attention to the poorest 20 per cent, about 688 whom the noble Lord, Lord Newby, addressed a question and to which the Minister replied by commenting on the condition of the average taxpayer. I remind him that my noble friend Lord Saatchi referred him to people on below average earnings, and he gave an answer based on my noble friend's pamphlet. Perhaps I may ask again whether people in the lowest 20 per cent of earnings are now paying more in tax than they were last year.

§ Lord McIntosh of Haringey
My Lords, it is the fact—this was my answer to the noble Lord, Lord Newby—that the people in the poorest 20 per cent of this country are as much better off under this Government as the people in the top 20 per cent. It is the effect of the tax and credit structure that is more important than theoretical argument about the tax burden. That is the point I was trying to make by reference to the poorest 20 per cent of the population.

§ Earl Ferrers
My Lords, will the Minister be kind enough to answer my noble friend's question? Are the poorest 20 per cent of people worse off now than they were 12 months ago?

§ Lord McIntosh of Haringey
My Lords, that was not the question. But the answer is no.

§ Lord Northbrook
My Lords, can the Minister say why the Government have been so inconsistent in their tax policy? On the one hand they cut corporation tax and raised even more revenue, and on the other they increased direct taxation like the national insurance upper earnings limit by 28 per cent. Would it not be better to cut direct taxation as well as corporation tax?

§ Lord McIntosh of Haringey
My Lords, that is an argument that might not result in champagne swilling around the City! The question I was being asked by the noble Lord, Lord Roberts, related to the effect on our economic prosperity. One element that is widely recognised as being contributory to our economic prosperity is the extent to which we have been able to cut corporation tax—after all, it is a tax on success rather than a payroll tax: it is a profit tax—and particularly the ways in which we have been able to encourage small businesses.