---

Finance (No. 4) Bill

I do not want to ruin my argument and I do not want to lose any support that I might have from my friends on the Opposition Benches by recommending a tax on particular Labour politicians. The trouble is that there is always a huge temptation for anyone with a high income—a politician, an entertainer or a business man—to listen to the advice provided by chartered accountants. They will say, quite rightly, ““Oh dear, why is a successful chap like you””—a successful chap like, for instance, my hon. Friend the Member for Dover (Charlie Elphicke), who doubtless has a very large income—““paying all this tax, when you could be setting up a small company and paying about 11%?”” In the past I have argued for a much flatter, ideally flat, rate of tax throughout earned income, but now I will be even more radical, and suggest that there is an increasing case for transposing that to small company income. I am not privileged to serve on the Treasury Bench, and I do not have teams of civil servants to advise me. I constantly come up with ideas such as this during Finance Bill debates, and I can produce figures, but I do not know whether they are correct. I have been told that a flat-rate tax of 22% with a £15,000 allowance would result in a reduction of £63 billion in tax revenue in the first year. Although I believe that the extraordinary savings that would be made through the ending of tax avoidance might well enable us to claw that back, there is no point in my simply going to the Library and then coming up with figures. I see that the Minister is busily scribbling down every one of my pearls of wisdom at this precise moment. It would be really nice if, rather than just saying at 10 or 10.30 tonight ““I thank my hon. Friend the Member for Gainsborough for making such an interesting speech””, he wrote to me in the next week or two, when he has the necessary leisure, telling me—on the basis of the Treasury model—how much of the cost of avoidance could be saved through the adoption of a much flatter, or ideally a flat, rate of taxation, under which it would increasingly not be worth people's while to try to shift their income from one pot to another. Is that, in fact, such a radical idea? Has it been tried out anywhere else? Well, of course it has. As I have said, the size of the UK tax code has more than doubled since 1997. The present situation is absurd. The Chancellor is doing his best, but whereas 15% of taxpayers will pay a higher rate in 2012, only 3% paid it in 1978. Graphs showing the rise and fall in people's incomes according to whether they have one child or more feature extraordinarily sudden and tremendous blips because of the child benefit clawback from people who earn more than £50,000 a year, of which I have been very critical. I do not know whether this is correct, but I have been told that a family with three children and an income of between £50,000 and £60,000 faces an additional effective marginal tax rate of 24%, on top of income tax and national insurance. I cannot believe that the Chancellor wanted to impose such a sudden, steep burden of taxation on middle-income taxpayers. Many Members favour helping people on very low incomes. I happen to believe that the best way of helping poor people is not to churn more and more tax and benefits in their direction so that they have very high marginal tax rates—as high as 73% in the case of those who increase their earnings if they earn less than £10,000—but to take them out of tax altogether. Let me say to my Liberal friends that the one good thing that they have done in recent years is to present that argument, and I think that they have made their case. An extraordinary burden has been placed on people on lower incomes, who have been taxed far too much far too early. I believe that my idea of a flat rate of tax is not such a radical or bad idea but one that could appeal across the spectrum, and I urge my hon. Friends on the Treasury Bench to consider it carefully. Otherwise, every time the Chancellor seeks to tamper with the screws and the bolts on the Titanic to ensure that those watertight compartments do not just reach halfway up the forward decks but reach the top so that the thing does not sink, he will produce a Budget that sounds good on the first day but will be unpicked and unpicked. I think that, rather like John Bright, the Chancellor needs to see that shining light on the horizon. He needs to say ““This is my strategy, this is my philosophy, this is what I want to do. I want to say to the British people that ultimately I will take pretty much the same share of the cake as has been taken in recent years.”” We all know that, for all Mrs Thatcher's reputation for being such a right-wing radical Prime Minister, it was only after many years that, by an almost infinitesimal margin, she gradually reduced the extent of the state's take from ordinary people. It may be impossible for the Chancellor to make a great deal of difference in those terms, but he can say ““This is my strategy. I want to be upfront and fair to the British people, so that they know exactly where they stand. If you have an income of £300,000, I will take a third of it: I will take £100,000. If you have an income of £100,000, I will take £33,000—and so on across the spectrum.”” Then there will not be all the hillocks and valleys and clawbacks and allowances and churning of benefits and taxation. I am, in a sense, sympathetic to the philosophy behind what the Chancellor has been trying to do with child benefit. Why should middle-income earners pay tax at a certain level and then be handed it back in child benefit? I agree with the Chancellor that that is absurd. However, he got himself into a dreadful mess by taking the appalling step that meant that the moment there was one higher-rate taxpayer in a family, all that family's child benefit vanished. I thought that that was very unfair on a family in which one person worked and another, usually the wife or female partner, wanted to stay at home and look after the children. I am not suggesting that such an arrangement is better or worse than the other form of family life, but I believe that it is simply unfair, which is why I have argued for a marriage tax allowance. I will do a deal with the Chancellor. I will give up my campaign against his reduction in child benefit and my campaign against his continued failure to introduce a marriage tax allowance, despite what he said in his manifesto, if he will say to me ““I will get rid of all these allowances, and introduce a greatly simplified tax system which is fair and equitable for all classes of people.”” I agree that there should not be a tax system that distorts people's choices. I agree that any attempt to influence behaviour through the tax system, whether it affects marriage, children, mortgage tax relief—as in the old days—or, now, charitable giving, will produce perverse incentives. It will cause people to adjust their behaviour to reduce their tax bills rather than doing what is right, and I want people to do what they feel to be right. I want the state to be open, fair and upfront about what it is going to take, and I want the Chancellor to come to the House and say in his next Budget ““This is my strategy, and this is my belief.”” I accept that—bravely, courageously, with great difficulty, and in the face of an enormous amount of bad publicity over the last three weeks—the Chancellor has taken the first essential steps towards getting rid of those allowances, and I am prepared to stand by him. I am prepared to be unpopular over the granny tax, because I can see where he was coming from. The Chancellor considered it absurd for people to be paid that allowance. Although it was apparently very popular, when there was talk of abolishing it, no one remembered that it had been introduced by Winston Churchill in 1925. I am prepared to be unpopular by supporting the Chancellor on all those issues if he is prepared to enunciate his philosophy of creating a fairer and simpler tax system. That is a fair deal, I think.