Taxation

Home Up

27 Jan 2000

Lord Saatchi: My Lords, I am grateful to the Minister for reminding the House that Britain's official reserves amount to 20 per cent of a day's trading. In fact, they represent 5 per cent of total trading on the global currency markets. In the light of that, and perhaps of his awareness of the survey published this week which showed that despite our strong pound and despite being outside the euro Britain is still thought of as the most attractive single place on the planet for investment outside America--in flat contradiction of government statements on that subject--does the Minister agree that it would be better if the Government would not prevaricate but say straight out that intervention to lower the rate of sterling should be utterly rejected; and that we should take the view, as do the Americans, that if we have a strong exchange rate for our currency, we should simply say "Hooray"?

3 Feb 2000

Lord Saatchi: My Lords, is it true that there exists in the Treasury a document which describes the Government's tax strategy as being to cut visible taxes on voters and raise invisible taxes elsewhere? Is it true that by manipulating a mass of complicated tax allowances, reliefs and exemptions, the net effect of all the Government's tax changes is equal to an increase of 4p in the basic rate of income tax? Does the Minister agree that this gives a new meaning to the phrase "rip-off Britain"?

17 Mar 1999

Commons. In doing so, we should always bear in mind that respect for Parliament and the safeguarding of democracy is one of the prime responsibilities of all of us who are privileged to serve in either House of Parliament.

Lord Saatchi: My Lords, I am delighted that, by an accident of history, I am following the noble Lord, Lord Weatherill, because my remarks will concern him directly and also because, in the light of what he said about the payment of the Chairmen of Select Committees, I know he will particularly appreciate what I am going to say.

All parliamentarians agree that the power of the executive has increased, is increasing and ought to be diminished. How can that be achieved? I have a proposal, which I shall try to express in a crisp form. First, according to commentators, the main virtue of the House of Lords is its independence of the executive. Secondly, according to the same commentators, the main defect of the House of Commons is its lack of independence of the executive. Thirdly, the method by which your Lordships' House is seen to demonstrate its independence is through our large and illustrious number of Cross-Bench colleagues. Fourthly, the method by which another place is supposed to demonstrate its independence is through our time-honoured and respected system of Select Committees. Fifthly, I find in Erskine May that the chairmen of Select Committees normally exercise a substantial measure of authority in the conduct of committee affairs and the practice whereby the chairmen of committees are chosen from the membership of each committee by its members is a tradition of the House rather than a requirement of Standing Orders.

Therefore, I propose, sixthly, that the best embodiment of the best virtue of this House--the Cross-Bench Peers--should be loaned to the House of Commons to serve as the independent chairmen of Select Committees. Seventhly, the result would be a boost to the Select Committee system, proving that these committees can perform, and be seen to perform, the vital task of holding a potentially over-mighty executive to account. We would all be comforted for, in the words of the Motion of my noble friend Lord Waddington, "respect for Parliament" would be maintained.

14 Apr 1999

Lord Saatchi: My Lords, I am very sorry to have missed the opening remarks from the two Front Benches and some of the earlier speeches in this debate. I apologise, and look forward to reading them in Hansard tomorrow.

Perhaps I may also congratulate my noble friend Lord Skidelsky on the timing of this debate, to coincide precisely with the 200th anniversary of the introduction of income tax into Britain. I hope that some noble Lords may have seen the excellent Inland Revenue exhibition to mark that anniversary, which showed the many fascinating twists and turns in the evolution of taxation in our country.

I also declare a special interest in this debate as the co-author of a pamphlet on taxation and public expenditure policy to be published by the Centre for Policy Studies next Tuesday, which the CPS is following with a debate on the subject in May.

For many years a simple question has troubled British governments: how to spend more money on good things such as health and education without ever-increasing taxes. Many serious attempts have been made to address that issue in the past, but most have failed. The overall tax burden has risen from below 30 per cent. of UK GDP in the 1950s to 37 per cent. in 1998, defeating many determined efforts to reduce it.

Next Tuesday will be the 20th anniversary of when my noble friend Lady Thatcher became Prime Minister. Nobody could have wished for a more forceful and determined advocate of tax reduction; yet even my noble friend, with all her unique power, was not able to achieve that goal. According to some estimates--probably depending on which side of your Lordships' House one sits--the tax burden is heading for a record 38 per cent. in the next two years.

Judging from the plans set out in its Red Book, the new Labour Government have decided to raise tax, just as the previous Conservative Government did. These habitual responses to economic difficulty illustrate the problem. Faced with the legitimate need to maintain sound public finances, successive British governments, both Labour and Conservative, have chosen to raise the overall burden of taxation. That has been going on for 40 years.

Most British governments since the Second World War have been elected on a promise to keep taxes down; yet most left office with taxes higher than when they came to power. The tax burden has gone up, whichever party has been in government. It is not as though this steady increase has achieved a noble purpose. There has been a remorseless increase, in communities all over Britain, of the linked problems which are now commonly described as social exclusion: poor housing, poor public health, low standards of education and high rates of crime. The tax and benefits system is supposed to make things better, through the redistribution of income and wealth. Instead, it makes things worse by reinforcing the very conditions that lead to social exclusion. At the same time, we are paying more tax than at any point in our peacetime history, which in itself inhibits the economic growth and job creation which could form part of the solution to the problems of social exclusion.

At the end of the day, the terrible problem at the heart of the present system never goes away. We have all grown painfully familiar with it. Taxes always seem to be going up, yet there never seems to be enough money to spend on health and education. We saw that again in the latest NHS crisis last winter.

International economic comparisons help to explain this phenomenon. They suggest that a higher tax burden is associated with weaker economic performance and less money to spend on public services in the long run. These comparisons are indicative of a negative relationship between government size and full employment and between high tax rates and full employment.

The dynamic effect of a low tax burden on an economy is illustrated by the position in the United States. The US government taxes only 28 per cent. of national income; but, instead of finding this insufficient to meet its spending needs, the independent US congressional budget office expects that the US economy, from a 28 per cent. tax burden, will generate a budget surplus over the next 10 years of a staggering 2,400 billion dollars, while we struggle to avoid budget deficits with a tax burden of 38 per cent.

Calls for modernisation of the tax and benefit system are not new. The question that arises is: why has it never happened? There is one simple explanation. It is not because our political leaders are oblivious to the need. On the contrary, there is almost universal agreement about what the problems are and the urgency of tackling them. Rather, a national culture has emerged which stops political leaders taking the required action.

British politicians have become paralysed by fear of public reaction to fundamental reform of our system of tax and benefits. Every action that is proposed is always analysed in terms of winners and losers, short-term effects and precise calculations of personal financial advantage and thereby political advantage.

Unless we change our political culture, we shall never change the dependency culture which has been inadvertently created. Agreement is needed that we are on the wrong path and that we must change to a different one. Yet there is little sign of such an agreement on the horizon. On the contrary, the political position is exactly as it has been for many years. My noble friend Lord Skidelsky touched on that in his opening remarks.

The right always said that one should cut tax, and the only way that it could think of to do that was by cutting public spending. The left always said that tax served a moral purpose and that it would be cruel and uncaring to cut public spending. So that was it: stalemate. The tax burden went up, whoever was in office. That is why it is no longer sufficient to change politicians; we need to change to a new path. We need a bold and radical approach.

The true battleground for reform at the start of the 21st century is not the National Health Service or the education system but the tax and welfare payments system. Until the UK embraces a fundamental reform of that system, it will stagger under the weight of an ever-increasing tax burden and will struggle to make adequate resources available to public health or education. If opinion polls are any guide, there is enormous public support for the reallocation of government expenditures towards front-line healthcare and primary and secondary education. Yet this transformation has proved elusive, even for a Government with a massive parliamentary majority.

Incremental reform of the existing tax, national insurance and benefit systems over the past 30 years has created a highly complex and contradictory framework of transfer payments between government and individuals. All attempts to unravel the wasteful and unintended features of the transfer system, such as the unemployment and poverty traps, have been half-hearted and piecemeal. In 1999 the problems loom as large as ever and the human and financial costs of large-scale benefit dependency are still escalating.

The current system of taxation and transfer payments is a horse designed by a committee which has been in standing session for 200 years. The outcome is an ungainly beast of burden. The time is ripe for fundamental reform.

Back Up