§ 8.53 p.m.
§ Lord Saatchi
My Lords, I beg to move that. this Bill be now read a second time. It is a great privilege to introduce this Bill to your Lordships' House. I begin by expressing my gratitude to the usual channels for arranging time for the Bill, in particular to the Minister because I know that this was an inconvenient time for him. I should also like to express my gratitude to my noble friend Lord Strathclyde and to my right honourable friend the Shadow Chancellor for their support. I should particularly like to thank Dr Peter Warburton—my co-author on many pamphlets and works for the Centre for Policy Studies—for the academic underpinning of the Bill, and also Tessa Keswick, the director of the Centre for Policy Studies, for the long commitment of that body to this programme over many years. I should also say how much I have leant on the Adam Smith Institute for the development of this concept.
The purpose of the Bill is transparency. There are now over 250 tax allowances, tax reliefs, tax exemptions, tax credits, tax tapers, tax indexations, tax disregards and so on. This complex system allows governments too much scope for invisible tax increases. The old measure of taxation, the basic rate of income tax, has been overtaken by the era of "stealth" taxes. A simple yardstick of taxation is required to focus attention on the true level of tax paid.
369 In 2003, the tax burden is expected to reach £414 billion, which is 42 per cent of net national income. On this calculation, people work for the Government for 42 per cent of the year; that is, until 2nd June. So 2nd June was independence day, the first day this year when people were not working for the Government and started working for themselves and their families. Next year, that day will be 5th June. Six years ago, independence day arrived in May. Forty years ago, it came in April.
If the Bill becomes law, its three clauses will apply. Under Clause 1, the Office for National Statistics will calculate the date. Clause 2 requires the Chancellor of the Exchequer to announce the date in his annual Budget Statement. Clause 3 makes the day an annual national bank holiday. In this way the Bill takes an obscure table from page 260 in the Budget Red Book, holds it up to the light and puts it in everyone's diary. In this way it can help to simplify the system because it will reduce the scope to hide complicated tax increases in the small print.
There was a time when the public could look to the standard rate of income tax as the yardstick of whether their taxes were going up or down, but that was before the Treasury perfected its skill in cutting visible taxes on voters while raising invisible taxes elsewhere. The complications in the tax system resulting from that strategy are mind-boggling. The latest Pre-Budget Report ran to 225 pages, plus a further 323 pages in Treasury supporting documents. The Finance Bill that we examined last week ran to 459 pages and 214 clauses, taking existing tax legislation to over 7,000 pages, standing more than one foot high.
In five years the number of basic tax rates has doubled, from 15 to 38, and Tolley's Collection of Tax Manuals, which I am told is the guide to the tax system for accounting professionals, has increased from 2,529 pages to 3,293 pages and is now bigger than all the London telephone directories put together.
The charm of such a complicated tax system from any Chancellor's point of view is the scope it allows for hidden tax increases via reduced allowances. Under this structure, the Chancellor can increase the tax burden without ever announcing a tax rise. People simply wake up one day and find that they are in a higher tax bracket—oh, what a tangled web it is.
This may not be an accident. The present system enabled the Chancellor, in a recent Budget Statement, to claim:The direct tax burden for the average family falls [to] the lowest level for 30 years".That statement, exploiting the distinction between direct and indirect taxes, took full advantage of the complexity of the system and the innocence of the people.
The case for this Bill was made very clearly in a recent exchange at Question Time in your Lordships' House. Behind me one of my noble friends, by way of criticism of the Government, said that, since the Government came to power, taxes had risen by a figure in the order of £118 billion. By way of defence, the 370 Minister responded by describing the fall in the direct tax burden on the average family. Again from behind me by way of criticism, one of my noble friends asked if the figures concerning the direct tax burden did or did not include national insurance. In the meantime I believe that the noble Lord, Lord Barnett, said that he hoped that one day we could have a sensible debate about tax policy.
Such a debate is not possible when the system enables conflicting claims and statements to be made about tax levels from different sides of the political divide. In the mean time, the people at large are like the occupants of Plato's cave; they see what they think are true objects but in fact they are seeing only the shadows cast by the objects. No citizen, however intelligent—not even the distinguished Members of your Lordships' House, where there is so much expertise in this matter—can match the massed ranks of No. 10, No. 11 and the Treasury—one man against the legions of Rome.
My final point is addressed, in particular, to the noble Lord, Lord Newby, and the Minister. The Bill is not an attack on the Government—not because they do not deserve it and not because they do not present an easy target—it is politically neutral. Both sides of the debate can argue their case for lower or higher taxes; for an earlier or later date. Any political party can argue that it has good causes in mind for which it proposes more tax and, therefore, a later date. Or the reverse: that it has plans for change which will reduce tax and make the date earlier. Either way, the public will have a simple benchmark by which to measure the effects of their proposals. The result will be a dramatically more open system understood by all.
In an interview, the noble and learned Lord the Leader of the House said:We are put on this earth to change things, aren't we?He is right. Something has changed. The tax system has become more complicated and the Treasury has perfected its techniques of invisible tax raising.
In response, Parliament has to change things too. We have to carry the torch for transparency, openness and simplicity. The Bill does that. Independence day will be a benchmark symbol. It will clearly reveal the direction of change and the pace of change in taxation so that people will be able always to assess whether we are going forwards or backwards.
We live in a democracy of information. The old "need to know" has been replaced by the "right to know". But knowledge of our tax system has not kept pace with this change. The least people should expect is clear information in a form they can understand. The Bill gives them that. It pays people the compliment of assuming that they are busy and have other things on their mind, so it provides them with a précis of the system—a modern form of good manners. I commend the Bill to the House.
§ Moved, That the Bill be now read a second time.— (Lord Saatchi.)371
§ 9.3 p.m.
§ Lord Vinson
My Lords, it is a great pleasure to be able to support this timely and potentially immensely important Bill and I join with others in congratulating the noble Lord, Lord Saatchi, on introducing it.
The attractiveness of the Bill is that it would help make all the talk we hear about prudence, openness and transparency a reality—a point already well made by the noble Lord, Lord Saatchi. I find it difficult to see why anyone should object to it, except perhaps those who are anxious to avoid public criticism over excess expenditure and like to play down the level of confiscation of the nation's wealth taken by tax. As the late Keith Joseph all too clearly said:Governments do not have any money, they can only spend other people's money".
Governments are trying to do too much. If you look round the world it is the lightly taxed, lower-regulated economies with clear property rights and the freedom to trade with sound money under the rue of law that are the ones prospering mightily. Every study shows that the higher the level of tax and the higher the level of government regulation, much of it of dubious necessity, the lower the level of economic activity. Tax freedom day—or tax independence day, an expression that is rather more succinct—would, by changing the public's perception and increasing their understanding of the nature and scale of taxation, bring indirect pressures to bear to reduce its damaging level and to simplify its existing framework.
Tax freedom day in the USA comes only some four months into the year and thereafter you get the benefit of working for yourself for the remaining eight months. In this country, in round terms, you work for five months for yourself and seven months for the Government. In the light of this, it is difficult to see the attractions of the EU economy, where you work for six months for yourself and six months for the government. Even so, the level of taxation in this country is too high and the Government are spending too much of other people's money.
Such is the regressive nature of taxation today that those in retirement, even with modest savings, are still caught by the tax net, whereas their neighbour, who never saved a penny throughout his or her life, is on full social security, often coupled with generous housing allowances. Our present taxation system is a positive discrimination against the saver and those who practice some degree of thrift throughout their working lives. It discourages self-reliance and greatly offends many of our citizens who deeply resent the indignity of being means tested in their old age.
The Financial Services Authority has yet to regard as erroneous the only advice that one can currently give to the lower paid, which is "Don't bother to save". The incidence of tax falls far too low on the scale of earnings and is deeply damaging to our economy and attitudes to work and savings.
Mr Peter Hain, the ever-populist politician, may give the impression that if only the rich were taxed harder this could all be put right by transferring their ill-gotten gains to the poor. But he knows, as anyone 372 who has studied the subject knows, that when you slice the top off the national earnings pyramid. it gives precious little to distribute to the base. The culprit is excessive government expenditure. The bigger it gets, the more inefficient it becomes. Much of the Government's time is spent transferring taxation from one pocket and putting it back with allowances in the other. The Treasury's own figures indicate that this transfer alone costs each taxpayer some £350 a year in administration costs.
All this is the consequence of governments—and I say governments—trying to do too much, meddling and fiddling in every corner of the economy. Instead of devising more ingenious but complex welfare benefits, they should raise thresholds so that only the middle and upper earners pay income tax, as was the rule in days gone by. But, sadly, the Government are unable to do this as, at current expenditure levels, a high universal rate of tax is inescapable.
I am privileged to be a Member of this House's Select Committee on Economic Affairs. I hope we have made some contribution to the economic debate, but membership of that committee certainly reinforces my view that excessive government at every level has led to massive complexity, not only in the benefits system but at every level of government interest. One has only to try to read the Finance Act to begin to believe that our civilisation is going daft. Even those who stand to benefit from the present complexity— those in the accountancy profession—are the first to endorse this fact. Understanding the scale of taxation would undoubtedly be helped by the concept of tax independence day as embodied in the Bill. That, in turn, would explicitly and implicitly put pressure on governments of all persuasions to be less profligate.
Basically, democracy is about voting in and out of office those who control our taxation system. I am sure your Lordships will need no reminding that it was only 200 years ago, celebrated last week, that our American colonies declared war on us, their mother country, because they were fed up with the level of taxation. The slogan that triggered it was, "No taxation without representation". Democracy becomes a farce unless it is possible to influence, through voting, the level of taxation on one's pocket, be it at local authority elections or national ones. The scale of taxation—particularly under this Government—is beginning to cause citizens, yet again, to seethe with resentment, and the Government will, in due course, pay the penalty at the polls.
Most of the last great areas of inefficiency and bureaucracy in this country are government-run, be they the social security system with its plethora of benefits or the shambles of an over-centralised National Health Service. One has only to read the appointments columns of the Guardian to see the nonsensical nature of much government employment and proof of the old adage that, "Where nobody owns, nobody really cares. It is not their money, so why bother? They can create another non-productive job".
373 When one government department starts suing another one, it is a sure sign that bureaucracy is getting out of hand. A perfect example of this is when the Health and Safety Executive recently sued the police because a policeman, doing his job, was injured when chasing a burglar across a roof. Our most senior policemen had to spend months of their time and millions of pounds in defending this case, at the end of which the judge said that it never should have been brought in the first place. Of course, nobody suffers at the Health and Safety Executive; it is not their own money that they are wasting. It turns its back and gets on with its next empire-promoting activity. A high rate of tax is ensured by that sort of nonsense.
Under this Government, the growth of bureaucracy and administration is mind-boggling. The system cannot work. The red tape in which the National Health Service is tied up has meant that between September 2001 and September 2002 more than 4,900 middle managers were recruited, which is ten times the number of doctors recruited over the same period. Something is wrong somewhere. Throughout the kingdom, the wealth-consuming sector of the economy is bleeding to death the wealth-creating sector of the economy. The more money that is taken from enterprising hands, the more there is to be misspent by governments.
I am reminded of Jefferson's inaugural speech:Tis a wise and frugal government which taketh not from the mouth of labour the bread it has earned".The market system has been described as a continuous referendum of needs and wants—people voting with their purses. Mostly the trouble is not too little government but too much. Government is not the solution; it is mainly the problem. It would indeed by better if governments tried to do less. Even the Romans 2000 years ago understood this with their expression: quis custodiet custodes?—who will judge the judges? Governments should let others do the management; they should merely set the economic and legal framework. If they did so, then tax independence day would retreat to April, where it should be.
This House now has the powers to look at the Finance Bill. Its report on this year's Finance Bill, published recently, has been widely welcomed by the professions and the Treasury. Unfortunately, our committee did not have the time to consider capital gains tax this year, but I hope that it will do so next year. That tax is a monument to the present Chancellor's desire to change a perfectly good, rational and equitable taxation arrangement by introducing yet another targeted and stepped system. One has to ask what on earth was wrong with a tax that allowed the inherent losses caused by inflation to be deducted. Now we have substituted a system of far greater complexity, and for no good cause. What a crazy way to run a country's tax structure.
There must be something wrong when citizens are invited to self-assess their tax but find that in many instances they are unable to do so accurately and have 374 to seek expensive help from the accountancy profession. There again, tax independence day would lead us along the road to reform and greater simplicity.
The economy works within a wider framework than taxation alone—one of monetary and fiscal pressures. It is well recognised that if we join the euro we will lose control of our monetary policy. We will not have a Bank of England with any meaningful task, and the good job that it has done in smoothing inflation will be handed to others who will attempt to run the European economy with a "one size fits all" interest rate which will consequently fit none. All that would be left for our Treasury would be fiscal policy, but the same checks and balances would still be useful in that event.
I am attracted to the idea that this country should let the existing MPC metamorphose into a new FPC—Fiscal Policy Committee—along the lines of that introduced in New Zealand. That would be a similar committee of wise men and economists—yes, there is sometimes a difference—who would attempt to oversee fiscal policy in a more objective way, being one removed from the immediacy of Treasury considerations. Here again, the introduction of tax independence day would be a clear and manifest marker of the consequent levels of taxes on our economy.
So all in all, anything that increases economic transparency, diminishes the power of governments and politicians and leaves more money in individuals' pockets, will help the economy prosper and flourish, hugely to the benefit of all its citizens. That is why the Bill is such a good idea, and I hope that it will receive the support it so justly deserves.
§ 9.14 p.m.
§ The Earl of Northesk
My Lords, like my noble friend Lord Vinson, I congratulate and thank my noble friend Lord Saatchi for giving us the opportunity to debate this important matter.
Your Lordships may well have noted recent reports in the media about the development of the -Bullfighter" software. Tested against the Chancellor's speeches, the programme advised him to "seek help" for his "impossibly labyrinthine prose", adding:You don't want the reader to understand anything you have to say. Your condition is irreversible".All good fun, one may think, but it does have its serious side. Straight-talking companies outperform those that communicate via what has been called a "baffling verbal fog". In respect of the management of the country's finances, many commentators have highlighted the way in which the Chancellor's penchant for complexity, his impenetrability, is corrosive to the democratic process.
The fact is that, as my noble friend Lord Saatchi has already so eloquently explained, it is extremely difficult for members of the public to decipher the "impossibly labyrinthine prose" of the Chancellor, let alone read between the lines of the bewildering deluge of initiatives, announcements, consultations, statistics and so on that spew from the Chancellor's febrile mind. By swamping public consciousness with a quagmire of gobbledegook, so it is consigned to a 375 blissful state of ignorance as to what is going on with the public finances. So, too, is legitimate debate about the Government's financial policies stifled.
What better way, therefore, to address this democratic deficit—for that is what it is—than to adopt the solution offered by my noble friend's Bill? In offering a straightforward and easily understood yardstick of the standing of the nation's finances in relation to personal experience, the public are empowered to make their own decisions, approving or otherwise, about the way in which tax matters are being managed and determined in their name. Freed from the "baffling verbal fog", public trust and confidence in budgetary policy are enhanced.
It is doubly delicious that we have the opportunity to consider this matter against the background of the recent intervention of the part-time Secretary of State for Wales. Taken at face value, his insistence that he had simply wanted to ask,hard questions on the issue",and thereby provoke a debate is commendable. My noble friend's Bill goes to the heart of this. In any given year it would have the entirely admirable effect of promoting public debate about the issue of tax in the round. But, whatever the views of the leader of another place, it is unlikely that my noble friend will find either the Chancellor or the Prime Minister flocking to his cause.
In that context, I was particularly struck by a remark from the Chancellor. In a recent speech to the Labour Friends of Israel, he is reported as saying:The one thing I will not talk about is the subject about which so many ministers have been talking in the past week—taxation".It is perhaps excusable for the Chancellor to want to guard his turf from part-time trespass. But surely the mood music of his comment, in keeping with the various pronouncements from Downing Street and the Treasury in the wake of Peter Hain's intervention, is that the Government really do not want taxation matters to he talked about at all.
Why such reticence? Are we not lambasted regularly with how successful the Chancellor's tenure at the Treasury has been? That being so, would not his record stand up to public scrutiny with ease? Or could it be that the heart of the current administration is so obsessed with presenting itself in a cuddly light to Middle England that it does not wish to give the oxygen of publicity to what Jack Straw has freely admitted is "a sensitive issue"? And no wonder. The Government are lavish in their condemnation of what they identify as 22 tax rises in the lifetime of the last Conservative administration. On the other hand, so far as I am aware, no member of the Government has yet felt disposed to admit to their 60 tax rises, identified as,the biggest increases in taxation in peacetime, equivalent to an extra £44 a week being taken from every man, woman and child in Britain since Blair came to power".
The culture of "tax-and-spend", far from being excised, continues to beat restlessly within new Labour's bosom. Indeed, in the Chancellor's hands, it has metamorphosed and broadened into a mantra of 376 "tax-and-spend-and-tax-again". After all, there is a very real prospect that the state of the public finances will necessitate more tax rises in the near future. Indeed, is it not revealing that the possibility of further increases in national insurance has not been ruled out?
This is not a case of concentrating on the "surface" rather than the "substance"—not, as the Secretary of State for Wales put it, an,obsession with splits and process".At the heart of the relationship between a government's tax policy and those who pay taxes is a form of contract. In terms, the nation parts with a proportion of its earnings to enable the government of the day to provide an appropriate level and quality of services. That is the deal.
Both in 1997 and 2001, new Labour contracted with the British public that, in return for paying taxes—whether or not more although, incidentally, Gordon Brown's tax take is double what it was in 1995—reformed and improved public services Mould be delivered. There may well be, as the polls have suggested in recent times, a universal willingness to espouse such a course. But, should a government seek a guarantee of popular support for it, they must offer the corresponding guarantee that the prospect of yet more taxes flooding into the maw of the Treasury will in fact deliver that improvement—that public service delivery will be energised.
Here lies the Government's dilemma. The rhetoric is worthy and magnanimous. It resonates with the brave reforming zeal that the public both want and deserve. But it bears no relation to the way in which policy has been, and is being, implemented. Legislative provision and delivery are a timid echo of the Government's oratory.
The Chief Secretary to the Treasury may maintain that:Our targets are set to reform and modernize our public services".Would that it were so. Unfortunately, the fact is that the culture of box-ticking, target-setting, bench-marking, league tables and all the other paraphernalia of the Government's policies towards public services do not constitute reform. Even worse, despite Parliament having been told in January that only 13 per cent of the Government's targets had been missed, we are now told—as I understand it, by the Chief Secretary to the Treasury—that the Government have failed to achieve or been unable to evaluate more than a third. As the Sunday Telegraph put it on 6th July:It now appears to be a Government target to reduce the number of Government targets",adding:The alleged achievement of targets—re-announced and re-reannounced—has become a shoddy substitute for real change".Too true. This is not reform; rather it is an entrenchment of the time warp in which the public services continue to languish.
377 Nor is this simply a matter of perception. In a report earlier this year the Office for National Statistics showed that almost three-quarters of the extra billions being pumped into public services, including the National Health Service, are being swallowed up by inflation-busting pay rises and ever more layers of bureaucracy. Should this sort of trend continue, it will mean that, of the £40 billion a year rise in NHS spending by 2007–08 announced by the Chancellor, only £12 billion will actually go on improving services. What of the call to arms of "Education! Education! Education!"? Perhaps, in the circumstances, "Funding crisis! Funding crisis! Funding crisis!" would be more appropriate. As revealed on the Jonathan Dimbleby programme, 90 per cent of the £2.7 billion-worth of extra funding for education has gone on salaries, pensions and national insurance contributions. I do not decry that per se, but press statements from the Department for Education stated categorically that every penny would be spent on reform.
With examples like those populating the whole breadth of public services, taxpayers could be forgiven for supposing that their contract with the Government has been breached. Let us recall the heady days of 1997 when the Prime Minister declared in the Labour Party Manifesto:We have made it our guiding rule not to promise what we cannot deliver; and to deliver what we promise".Bringing matters up to date, Ed Crooks, writing recently in the Financial Times, remarked, really quite generously, I think,:Suspicions are growing that the government is delivering a big increase in inputs to the public services, but is achieving only a modest improvement in outputs".That view was endorsed by today's Populus poll in The Times.
It needs no spark of genius to see how this relates to my noble friend's proposition. With a no-nonsense bench-mark of a government's tax take in any given year. the public would be empowered to assess for themselves the relationship between the taxes they have paid and their experience of public service delivery. Such wholesome transparency and accountability is both welcome and desirable. It would assist people like Mr Tony Seymour from Middlesex immeasurably. Scanning the letters page of The Times recently, I was struck by a telling epigram from him. Posing the question, "What's got better under Tony?", he replies, "The chance of being a higher-rate taxpayer". That says it all really.
§ 9.25 p.m.
§ Lord Griffiths of Fforestfach
My Lords, I am delighted to support the Bill, introduced by my noble—and creative—friend Lord Saatchi. Like the noble Earl, Lord Northesk, I should like to congratulate him on so doing.
I start by recognising that every government have a legitimate right to tax. They need to provide certain public services and they need to raise taxes to pay for them. People are prepared to pay tax for public 378 services which are regarded as providing value for money. As a result, the total amount of tax raised at any time is a legitimate subject for public debate. At the same time, any government must recognise that taxation is a compulsory demand for money from people who have rightfully earned it. It is our money, and other people's money, which the Government are taking. In 2002–03, the Institute for Fiscal Studies estimated that the total revenue raised in the UK was £407 billion—almost all of which was in tax—the equivalent of £8,700 for every adult in the UK and £6,900 for every person. But as we saw recently—as was mentioned by the noble Earl, Lord Northeskeven before Mr Hain gave the Aneurin Bevin lecture in Cardiff, there was a debate. Clearly, taxation is a subject about which people feel strongly, and as a result politicians have to be sensitive.
It is against this background that the Bill can be viewed in one of two ways. Either it can be dismissed as a public relations gimmick—if it is done in that way, it would be rather self-righteous and self-serving to dismiss it—or it can be treated seriously, in a nonparty way, as the noble Lord, Lord Saatchi, has said, because it raises very serious issues.
I support the Bill for two reasons: first, simplicity and, secondly, transparency. The present tax system in the UK is hideously complex. People pay income tax, but not all income is subject to tax. Then there are allowances, reliefs, thresholds, credits and bands.
Charitable giving can be deducted. National Insurance is compulsory, except for certain categories of self-employed. VAT can be charged at a standard rate, a reduced rate, a zero rate, and certain categories of goods are exempt. There are seven kinds of indirect tax, four kinds of taxes on capital and, in addition, taxes on corporations and council tax. I doubt whether anyone has ever calculated the precise amount of tax he or she pays each year. In fact, I even doubt whether the data are available to make such a calculation.
I fully recognise that the Bill is not an attempt to simplify the structure of taxation. But it will force governments of all persuasions not merely to mention but to highlight the total amount of tax raised in any fiscal year, and then force them to present that fact to the electorate in a form that is readily understood. I can just imagine the Minister rising up and saying, "But the figure is there in the Red Book". Indeed it is. In a book of 293 pages, in the bottom part, on the left-hand side, of page 260, you find the table, you find the facts. In that sense, there is no duplicity. However, I believe that the reason why the figure should be given much greater emphasis is that the total amount of tax levied on an economy has an incentive effect. Paying taxes above an amount which is considered fair is a disincentive for people to work, to save and above all to undertake risk and entrepreneurial activity. But work, saving and taking risk are the drivers of wealth creation. The present Government believe that tax matters—they believe precisely that—which is why both the Prime Minister and the Chancellor have made such a firm commitment not to raise the top rate of income tax.
379 We know from the post-war years that keeping down taxes is a constant struggle. Here, I want to emphasise once again—and would love the Minister's response to it—that this is not a party-political issue.
I have to confess, with embarrassment, that taxes as a percentage of net national income were higher when Mrs Thatcher left office than when she assumed it. Since 1997, that ratio has been rising and, indeed, looks set to rise yet again, despite the fact that in 1996 Mr Blair was adamant that,our proposals do not involve raising taxes".I believe that forcing any government of whatever political colour to announce explicitly in their annual Budget, linked to this creative idea of a national holiday, what exactly their intended burden of tax is for the next year is a wonderful way of keeping taxes from rising.
In addition, if governments felt that the burden of taxation was likely to rise, then I believe that that in itself would be a strong incentive to introduce greater efficiency into the public sector, and so keep its costs down, or else to extend the role of the private sector in the provision of public services. Both those would have the effect of preventing the tax bill from rising, which, frankly, no government wish to go to the electorate to defend. Therefore, on grounds of simplicity, I believe that there is a strong case for supporting the Bill introduced by my noble friend Lord Saatchi.
But there is a second reason for supporting the Bill, and that is on the ground of transparency. We have to accept that professional politicians are not popular with the public. Opinion polls suggest that they are not respected for their integrity. Spin is seen as part of the currency of political debate. The expression "economical with the truth" was coined by a Cabinet Secretary. The very fact that the expression "stealth taxes" has stuck speaks volumes.
In the past, as my noble friend Lord Saatchi said in his opening speech, the major indicator of the burden of taxation was the standard rate of income tax. But, over recent years, this Government, in particular, have introduced endless new taxes—stealth taxes—discreetly, quietly and with ingenuity, but inevitably tucked away somewhere in one of the 7,000 pages of the Finance Bill.
Perhaps the most insidious of all forms of stealth tax is the impact of rising real incomes. When., some years ago, inflation drove people into higher and higher tax bands, the bands and allowances of individual income tax were subject to statutory indexation. If inflation rose, people did not pay higher taxes simply because prices were higher. Because there is no such indexation for real income rises, the result is that in a growing economy more and more people move into higher tax brackets.
In conclusion, I believe that the Bill is a great opportunity for honest government from all parties. It is the opportunity for everyone in this House, on all sides, to come clean with the electorate. It is an attempt to set a higher standard in public debate For those reasons, I strongly support it.
§ 9.33 p.m.
§ Lord Northbrook
My Lords, I welcome the Taxation (Information) Bill introduced by my noble friend Lord Saatchi and declare an interest as an investment fund manager. The Bill has had a good reception from the press, including the Sun.
As stated by my noble friend and other speakers, the purpose of the Bill is tax transparency. Since 1997, the Government have made a great virtue of the fact that they have not increased the basic and higher rates of direct income tax. However, they have used all other kinds of tactics and stratagems, both direct and indirect, to increase the amounts of revenue from taxpayers, including freezing allowances, increasing national insurance contributions, taxing pension funds and withdrawing grant from local councils. That is why the phrase "stealth taxes", which has now become well known, is so apt. And, finally, the public have started to wake up to what is going on.
What I like about the Bill is that it sets out a simple yardstick of taxation that will focus attention on the real level of tax paid. Clause 1(3) clearly declares that,The burden of taxation … shall take into account the net receipts from—Based on national figures, can the Minister say what is the actual tax rate for a basic and a higher rate taxpayer including all those areas?
- (a) all forms of direct taxation;
- (b) all forms of indirect taxation;
- (c) all forms of local taxation".
Over the past six years, independence day, the day of the year on which people stop working for the Government and start working for themselves, as calculated by the Adam Smith Institute, has moved from 26th May to 2nd June, as many speakers have mentioned. In contrast, in the US, as my noble friend Lord Vinson pointed out, the Tax Foundation found that independence day in 2001 was 3rd May, almost a month earlier.
The Bill will require the Office for National Statistics to calculate independence day and oblige the Chancellor of the Exchequer to announce it in his annual Budget day speech to Parliament. Independence day will become a benchmark symbol, as will the proposal of a national bank holiday.
Independence day is determined by taking total tax revenue, including direct and indirect taxes, local taxes, capital taxes and national insurance contributions as a percentage of total income. Following the conventions used in the US and elsewhere it is calculated as general government tax revenue as a proportion of net national income at current market prices. All that, as my noble friend Lord Griffiths stated, is a much simpler concept than the Budget Red Book's definition of the official tax burden as "net taxes and social security contributions as a percentage of GDP".
Independence day is a simple concept. It is a moveable feast, falling on whatever day of the year corresponds to the ratio of total tax revenues to 381 national income. The greater the tax burden, the more days must elapse before independence day is reached. The number of days from the beginning of the year until independence day represent how much of the year the average income earner spends in financing the government budget. When independence day is reached, individuals have fulfilled their obligations to the government and for the remainder of the year enjoy full discretion over their earnings. Thus in 2003, as my noble friend Lord Saatchi stated, the tax burden is expected to reach £414 billion which is 42 per cent of the net national income. On that calculation people work for the Government for 42 per cent of the year until 2nd June. Ten years ago it fell 10 days earlier, on 23rd May. Next year, as has been stated, it will fall on 5th June. In 1963 it arrived on 23rd April.
There is another particular need for the Bill. At one time the public could consider the standard rate of income tax as the yardstick of whether their taxes were going up or down. But that was before the Treasury honed its skill in cutting direct taxes while raising invisible taxes elsewhere. Full disclosure as in the Bill will mean that governments cannot hide from the political consequences of their overall tax actions. The scope for stealth taxes will be reduced. The hidden effects of what is known as fiscal drag will be exposed, as mentioned by my noble friend Lord Griffiths.
Fiscal drag, as has been stated, is the result of governments not increasing tax allowances in line with inflation or earnings growth, so that everyone is moved up into higher tax brackets. For example, the personal allowance is now £4,615. Over the past 50 years the threshold has dropped lower and lower in relation to average earnings. Today the primary earner in a marriage would require an allowance of £10,000 per year to enjoy the same degree of protection from tax as a married man in 1950. Meanwhile the requirement to pay tax has reached down to a very low level. Of the 3.6 million people of working age earning less than half the national average wage, virtually all of them pay tax to the Government. As my noble friend Lord Vinson stated, would it not be much simpler to raise the allowances?
The complexity of the tax system means that political statements can be made which, though themselves true, do not portray the whole picture. As my noble friend Lord Saatchi stated, we should consider the words of the Chancellor in his recent Budget statement. He said:The direct tax burden for the average family falls … [to] the lowest level for 30 years".That statement, which exploited the difference between direct and indirect taxation, took full advantage of the complexity of the tax system and the general level of public ignorance of these matters.
The Financial Times concluded that the Chancellor,had reduced Budget transparency to a new low".Important tax changes had been omitted from the speech. Statistics have rarely been quoted on a consistent basis. The Budget documentation has been filled with political point scoring rather than factual 382 analysis. There has been a continued tendency to classify the collection of revenue as anything other than taxation. For example, the present system enabled the Government to misclassify tax credits as a tax reduction in the UK national accounts and reduce the official tax burden accordingly. That stratagem enabled the Government to declare that the tax burden is falling, while the Office for National Statistics, the House of Commons Library, the Institute for Fiscal Studies and the OECD said that tax was rising.
This is a most welcome Bill, which, as has been stated, is politically neutral as it obliges the Chancellor of the party in power to be more open about taxation generally. I very much welcome its introduction.
§ 9.41 p.m.
§ Lord Newby
My Lords, I agree with part of the aims of the Bill, but I disagree fundamentally with the means by which they are being pursued. I completely agree with the noble Lord, Lord Griffiths, that coming clean with the electorate about taxation should be a government responsibility. I fear that this Bill would not force or require a government to come clean with the electorate because it deals with only one side of the equation. It talks about taxation; it says nothing about how the taxes are spent. The question for a citizen is not simply, "How much am I being taxed?" but, "What do I get for it?" If every adult is currently taxed an average £8,700 per annum, what he or she wants to know as a good consumer is, "What do I get for that £8,700 and is it value for money?"
The Bill simply would not enable people to do that calculation in their own mind because it is completely silent on the question of public expenditure. That is why the approach that we on these Benches have been pursuing for a number of years is to send each household a citizen's tax contract each year. That would show in simple terms how much tax is being raised, what services are being delivered and what changes have been made over the previous year. It would oblige central government to provide the kind of information about expenditure and taxation which local government already sends out with council tax bills. We believe, as does the noble Lord, Lord Saatchi, that people have a right to know how their taxes are being raised but also how they are being used and why. That would be a different approach from Clause 1 in the noble Lord's Bill.
Clause 2 deals with the question of an additional annual holiday. I am not against holidays at all. I am very much in favour of additional annual public holidays, but perhaps I may make an alternative suggestion. My favourite candidate for an additional public holiday would be a Europe day to mark the fact that the success of the EU means that young men and women of Europe no longer face the risk of a premature death through another European civil war. That is something worth celebrating. If the noble Lord, Lord Saatchi, would like to come forward with a Bill to that effect, I would be an enthusiastic supporter of it.
383 The problem in my mind with the current plan for a public holiday is that the underlying premise is that taxation, and therefore public expenditure, is of necessity a bad thing. It celebrates having seen off taxation for the year. The celebrations would be even greater if the day was brought forward—regardless of the consequences on the quality of public services. That is an extraordinary approach.
I simply do not believe that the measure of a successful and civilised society is its ability constantly to reduce taxation and, with it, expenditure. I believe that it is a measure of a successful and civilised society that it provides opportunity to every citizen—for example, by providing a universal education system free in large measure; and security to every citizen, not least by having a first-class health service and police force available to everyone. Those cart be provided only through general taxation.
The noble Lord, Lord Saatchi, says -that once one reached independence day, people would stop working for the Government and start working for themselves and their families, and would thereby gain their independence. What he fails to realise is that it is because of the expenditure that is possible only because of taxation that many people have any independence at all. For example. it is an attendance allowance that underpins my mother's independence—to be able to stay and live at home. It is a subsidised university education which, subject to the A-level results next month, will give my son a greater degree of independence than I could provide for him.
For many people in this country, it is the positive intervention of the state through public expenditure from which they benefit which makes their lives worth living. I do not want to appear a kill-joy, but I simply cannot support the Bill.
§ 9.47 p.m.
§ Lord McIntosh of Haringey
My Lords, on its own terms, the Bill has already been a great success. The noble Lord, Lord Saatchi, sought column inches—including, as the noble Lord, Lord Northbrook, said, those in the Sun—and he has achieved them. I made sure that I received the relevant press cuttings in my briefing for this debate. The noble Lord, Lord Saatchi, has had a great triumph, on which I congratulate him sincerely.
Having said that, it is of course not my duty to respond to the debate. Indeed, it would have been somewhat difficult for me to respond to it, because the noble Lord, Lord Saatchi, began by saying that this is not a party political matter and would apply to all Chancellors. However, the contributions from his four Back-Bench colleagues were entirely attacks on the Labour Government, with a little leavening from the noble Lord, Lord Griffiths, about the Bill. Everyone else made speeches that presumably come from the Adam Smith Institute. It gave me great pleasure to hear the noble Lord, Lord Northbrook, 384 repeat exactly the same phrases as had been delivered by the noble Lord, Lord Vinson. I therefore assume that they came from the same source.
§ Lord McIntosh of Haringey
My Lords, Hansard will show that the same speech was made by two Members in a single debate, which is an interesting commentary on a practice politely called in the Companion, "extended reading notes".
Having said that, I think it my duty to say something about the Bill, although I cannot say anything about the debate. As has been said, the Government already publish estimates of the tax/GDP ratio in Budget documentation. That is the most commonly used measure of the tax burden, used by organisations such as the OECD, making international comparisons easier and bringing the UK into line with international practice.
The publication of an additional tax burden series that was calculated as a proportion by 365th parts of net national income, rather than GDP, would simply complicate matters. In addition, the capital consumption data that feed into net national income are notoriously unreliable, making international comparisons based on net national income much more difficult. So we do what is right and the Bill suggests that we do what is wrong.
The concept of the day on which the burden of taxation may be said to be discharged— the tax freedom day—is also debatable and hypothetical. Some unkind people would call it a gimmick. Of course, it does not represent what it claims to. Individuals and businesses do not stop paying taxes on a particular day during the year, nor do they stop using the services.
I should be interested to know whether the noble Lord, Lord Saatchi, was suggesting that on 3rd June, after tax freedom day, his beloved taxpayers would stop using schools, hospitals, the police service and the defence service, which are provided by their taxation. That is a totally artificial idea. It is also a had idea because the provision of an extra holiday, particularly at a time of year when there are already many holidays, would be extremely damaging to the economy. The introduction of an extra day's holiday would result in a potential loss of output, an inevitable cost and disruption to industry, and could cost businesses up to £2 billion per year. Many employees have contractual rights to paid bank holiday leave or overtime pay for bank holidays. It would create uncertainty for business and individuals, who would not know on what date the tax freedom day would fall.
As a generator of column inches in the press, the Bill is a triumph. As a piece of argument, it does not deserve consideration. I agree strongly with the noble Lord, Lord Newby, that a civilised society makes collective provision through collective taxation for the services that we all need and use. The Government do not seek to oppose a Private Member's Bill, nor shall 385 we oppose the Motion for a Second Reading. However, I hope I have made it clear that we do not support the Bill.
§ Lord Saatchi
My Lords, I am most grateful to all noble Lords who have spoken in this debate, and particularly to my noble friends Lord Vinson, Lord Northesk, Lord Griffiths and Lord Northbrook.
My noble friend Lord Vinson said that governments try to do too much; my noble friend Lord Northesk that they are too reticent about the true cost of taxation; my noble friend Lord Griffiths that they are too willing to exploit rising real incomes; and my noble friend Lord Northbrook that they are too ready to exploit the complexity of the system. I agree with all of them.
In presenting the Bill, I was hopeful that if its three clauses were in place and political debate were centred around this date, one of its advantages would be that it would expose the philosophical gulf between the parties. Nothing could have underlined the truth of that more than the closing remarks of the noble Lords, Lord Newby and Lord McIntosh.
It is clear that the Labour Party and the Liberal Party have a completely different view of taxation and its function. They do not agree with the great founders of liberal democracy—Rousseau, Locke and Jefferson, all of whom took the view that freedom from the state was a vital aspect of civilisation.
I am most disappointed by the Minister's reply. Had I been advising the Chancellor about the Bill, I would have taken a different line. I would have told him that one of the Government's problems seems to relate to trust. That seems to be what most of the commentators are talking about these days. Today the Government and the Chancellor had a wonderful opportunity to show that in a crucial area of British public life—that is, taxation—the Government have nothing to hide, could be trusted and were prepared to be totally open and transparent with the people. I regret that that advice was not given to the Chancellor, or, if it was, he did not take it.
I am most grateful to all noble Lords who have spoken in this debate and I urge your Lordships to give the Bill a Second Reading.
§ On Question, Bill read a second time.