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Public Services (Finance)

Volume 129: debated on Thursday 10 March 1988

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10.

To ask the Chancellor of the Exchequer what assessment he has made of the relative effects on the level of resources available for financing public services of (a) reducing taxes on higher income earners with the aim of stimulating economic activity and generating higher revenue in the longer term and (b) devoting the same amount of money as would be preempted by such tax cuts directly to expenditure on those services; and if he will make a statement.

The success of the Government's economic strategy, of which reductions in income tax are an important part, has created increased resources both for the provision of priority public services and for higher living standards in general.

I thank the Minister for that answer. Is it not true that a Government-commissioned report by Stirling university could find no basis for assuming that cuts to higher tax earners would lead to any incentives? Further, is it not true that a reduction of 40 per cent. on higher income earners would cost the Exchequer £1·7 billion, a sum that would go far towards supplying the underspend of the National Health Service and would more than fund the package of proposals made by the Association of London Authorities to meet the crisis in this capital city? Is it not time that the very rich were asked to forgo their luxuries in order to meet the needs of the majority of the population?

The truly substantive point is the extent of revenue raised by the Exchequer in order to finance precisely those public services that the hon. Lady cares about. The proportion of total income tax paid by the top 5 per cent. as risen from 24 per cent. in 1978–79 to 29 per cent., despite the substantive cuts in the top rates of income tax in earlier Budgets.

Will my right hon. Friend explode the myth peddled by the Opposition that cutting taxes and increasing public expenditure in certain targeted areas are alternatives? In a thriving economy such as ours they are not alternatives, particularly when we have lower taxes which create more wealth and result in more revenue to the Treasury.

My hon. Friend is correct. I share his view that worthwhile public expenditure is important. That is why this year we have been able to increase public expenditure on programmes by £4½ billion. The revenue to finance that depends on a successful economy, and it is our judgment that past reductions in income tax have helped to make the economy successful, and that has financed that public expenditure.

What research has the Chief Secretary undertaken to show whether a top rate of income tax of 60 per cent. is a disincentive to the quantity and quality of work undertaken, as opposed to remuneration for it?

On the general point, the hon. Gentleman will recall that during the period when we had excessively high rates of income tax a clamour arose when many skilled people such as surgeons, doctors and others left the country. That was a clear illustration of what happens with unduly punitive tax rates.