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Finance Bill

That is an extremely important and powerful point, which brings me to my next case study—the Republic of Ireland. The Republic of Ireland has made some mistakes on monetary policy and control in the past few years, and it has had an equally bad, or perhaps even worse, version of the credit crunch. It was made worse partly by the Irish joining the euro, which meant that they did not have the flexibility on the exchange rate that the United Kingdom, mercifully, still has. However, what one cannot take away from Ireland is its phenomenal success in turning a country well below the European average in terms of income per head and general prosperity into one well ahead of the European average. The prime reason for that was not EU subsidies—those were quite small and mainly went into agriculture, which did not do that well—but the low tax rates that the Irish bravely set. By setting very low rates on income and corporate profits, they issued a huge invitation. Many Irish people who had gone abroad to seek their living because they did not like the high tax rates decided to go back to their home country, and many businesses decided that Ireland was the right place to set up business within the European Union as a whole. Because the Irish had the courage to set those low rates, there was an explosion in tax revenues, which meant that they could spend more on public services, and an explosion in jobs and profitability. In this Budget, the Government are inviting a future Government, perhaps, to go in exactly the opposite direction. They are saying that it is right to raise the marginal tax rate from 40 per cent. to 50 per cent. on higher-earning people, to change the tax arrangements on personal allowances in an adverse way, and to tamper with the pension reliefs which were put in place some time ago and which people thought indicated a stable framework for long-term saving. Pensions are, by definition, very long-term investment and savings projects, and it is very disruptive to make such changes. Taken together, those three things will clearly have a disincentive effect. Treasury Ministers should tell us rather more about what work they have done. Why do they think that we are so different from Britain in the 1980s, which proved that the way to tax the rich is to make rates competitive? Why are we so different from Ireland in the '90s and early noughties, which proved that when there are lower rates there are a lot more rich people, and that they are taxed rather more? It is true that the figures that I have mentioned conceal two different trends. First, competitive rates mean that there are more rich people in the country, so in that sense there is a little trick in my figures. However, it is also the case that the rich people who are already in the country are more motivated to get richer. They make that extra commitment, work those extra hours and set up that new business, because they think it more worth while taking a risk with their money. They put their money to work rather more successfully and often, so, as my hon. Friend the Member for Braintree (Mr. Newmark) rightly reminded us, more activity is generated. I should like the Treasury to explore its rationale with us a little more. My party is rightly saying that this is a tax trap. We have no wish to posture or go around saying that we want to be a soft touch on the rich at any time, and particularly not at this juncture in our fortunes.