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Mr. Edward Davey: The right hon. Gentleman considers what should be the right level of taxation. Does he think that his party's guarantee that the tax burden, as a percentage of gross domestic product, should fall year on year ought to continue indefinitely, or does he think that it should stop at some point?
Mr. Dorrell: If the hon. Gentleman allows me, I shall set out what I consider to be the right approach in a moment, after I have dealt with the Government. I have been trying to elucidate their policy, as far as it can be made out. Nothing is stated in their supposedly transparent documents dealing with the future; what there is is a record.
The Chief Secretary sought to mislead the House by referring to his Government's record, but neatly omitting the first year of that record. He can challenge that if he wishes, but it is here in the document prepared by the House of Commons Library. Ministers do not normally challenge what is in Library documents, especially when the table concerned acknowledges as its source Her Majesty's Treasury, Budget 1999, HC 298. The figures from Her Majesty's Treasury show that, since the present Government came to power, the burden of taxation has risen from 35.4 per cent. to--at the end of their plans--37.1 per cent. Those are, to within a couple of percentage points, the same as the figures in the amendment.
Therefore, the Government's record, as reported either by the Treasury or by the OECD--my right hon. Friend the shadow Chief Secretary referred to that latter report--shows that, within two and a half years of their taking office, the tax burden on the British economy increased by about two percentage points, not including the cooking of the books in relation to the working families tax credit.
The Government's policy on the tax burden on the British economy, in so far as we are able to divine it--we can do that only from their record--has been to
increase it. However, that policy is fundamentally wrong, for two important reasons, the first of which is a matter of political choice--that those who elect us to the House increasingly believe that they are better able to decide how their own resources should be spent. Not only do they want to have a greater say in, and control over, their own lives, but they have long observed that, when their individual spending decisions are made by them and not made on their behalf by someone else, the results more accurately reflect their own wishes and demonstrate more efficiently used resources.Therefore, our electorate have a strong preference, based both on instinct and on experience, for the maximum share of the economy to be devoted to private individual choice, thereby allowing suppliers and consumers to balance supply and demand.
Mr. David Kidney (Stafford): Will the right hon. Gentleman give way?
Mr. Dorrell: I shall in a moment.
That is the first reason why the Government's willingness to allow the tax burden to rise is wrong.
Mr. Kidney: Will the right hon. Gentleman give way?
Mr. Dorrell: I shall in a moment; but, before the hon. Gentleman intervenes, I should like him to hear the full weight of the argument in which he seeks to intervene.
The second key reason why the Government's willingness to allow the tax burden to rise is wrong is that the economy in which Britain lives is quite simply unprecedented: an open free-trading economy in which a rising tax burden simply makes economic activity in Britain increasingly uncompetitive and impairs the wealth-creation process. If our tax burden is higher--as it now is, for the first time in living memory--than that in Germany, that is a serious competitive disadvantage for those who seek to locate economic activity in Britain.
Mr. Dorrell: The hon. Gentleman should argue the point with the OECD--I do not pretend to have read every OECD working paper--and, once he has done so, perhaps he would like to report to the House precisely which bit of the OECD's logic he disagrees with. Until then, if he does not mind, I should prefer to rely on the OECD's stated conclusions.
The OECD said that the United Kingdom's tax burden is higher than Germany's, and, moreover, that our tax burden is rising faster than that of any other OECD member. Such a situation is wrong not only because of political principle--which, I accept, is a matter of personal preference--but because it impairs the competitiveness of the British economy. If our competitiveness is impaired, not only will our capacity to deliver rising individual living standards be undermined, but--this is the critical point--the very thing that the Government say that they want to safeguard will be undermined: the quality of public services--which are paid for by taxes raised from that impaired economic base.
Mr. Kidney: I believe that the OECD figures will be found to be false, but that is not the point of my
intervention. The right hon. Gentleman is entitled to his opinion that the great British public want to keep a greater proportion of their income, but my opinion is that the great British public want to pay more for good-quality public services. However, is not the deciding factor between our views the result of the 1997 general election?
Mr. Dorrell: I have rarely heard a more spectacular own goal than that intervention. The hon. Gentleman is certainly entitled to his view--that the British people would vote to pay more taxes if given the choice--but his problem is that the Prime Minister shares my view on what one should say to the electorate. During the previous general election campaign, the Prime Minister went round telling the electorate that they could vote Labour and there would not be a tax increase. Moreover, the Chief Secretary is anxious to show that the Government have not broken precisely that pledge--although the figures that I quoted show that they have broken it in style.
During the general election campaign, the Labour party was so anxious to disagree with the conclusion of the hon. Gentleman and to agree with the one that I hold on voters' preference on taxation that Labour misled the electorate about the implications of electing a Labour Government.
The two reasons that I have given--first, that people want to have lower taxes; secondly, that, in a globalised economy, the competitive interests of the British economy require lower taxes--make it important for our tax policy to be based--this answers the question asked by the hon. Member for Kingston and Surbiton (Mr. Davey)--precisely on the tax guarantee given in my right hon. Friend the Leader of the Opposition's document, "The Common Sense Revolution". That states not that the tax burden would be lowered annually--that is not what the guarantee says--but that, by the end of the first Parliament of the next Conservative Government, the tax burden will constitute a lower share of national income than it does on the day that that Government are elected.
In a competitive environment, tax competition is not an expression of opinion, but a fact of life--it is not something that the House is able to legislate away. In a globalised economy, we have no choice but to deal with tax competition. Unless we want to turn ourselves into the Albania of the future, we have no choice but to engage in tax competition. We want to trade in the marketplace, where tax rates are a key determinant of the competitiveness of the British economy.
Mr. Davey: My question was: at what stage does the right hon. Gentleman think that, in his world of tax competition, the tax burden as a percentage of gross domestic product will have reached the optimum level? Does the burden have to decline inexorably, to nought, or, at some stage, will the tax burden as a percentage of GDP reach the right level?
Mr. Dorrell: My right hon. Friend the shadow Chief Secretary referred to the fact that the principles of the competitive economy were first elucidated, in the 1770s, by Adam Smith. The competition process has continued in the intervening 230 years, and I do not think that it will halt in the foreseeable future. The hon. Gentleman is asking me to define the end of the process, but the process will never end. The competition process is an inevitable part of a competitive economy. As long as the British economy participates in a global economy, there will be
intense, relentless and unavoidable pressures to reduce the tax burden. I believe that to be true for the foreseeable future.
Mr. Geraint Davies: How seriously can we take Conservative Members' tax guarantee when, the last time that they made a tax guarantee, we ended up with 22 additional Tory taxes? Does the right hon. Gentleman agree with the right hon. Member for Huntingdon (Mr. Major), the former Prime Minister--his former leader--who said that the tax guarantee will necessarily lead to swingeing public expenditure cuts? The right hon. Gentleman's position is impossible.
Mr. Dorrell: I am grateful to the hon. Gentleman for asking his second question, as it takes me neatly to the second heading in my speech--to state directly the implications of the tax guarantee for public expenditure, and particularly for public services. I attach considerable importance to that subject.
In my time as Health Secretary, I was often told that my attitude to the requirement relentlessly to bear down on the tax burden--my attitude today is the same as it was when I was a Cabinet member--was inconsistent with my commitment to the maintenance and development of the national health service on the basis that health care should be available according to need rather than ability to pay. Over the past weekend, I have been told that again, by the hon. Member for Witney (Mr. Woodward). I am sad that he should have quoted that wholly flawed logic--I believe that it is profoundly mistaken--as one of the reasons for letting down his electorate.
The logic is mistaken for two key reasons. First, it is simply innumerate to conclude that it necessarily follows that, because the national health service accounts for 6 per cent. of public expenditure, and public expenditure as a whole accounts for about 35 per cent. of national income, the 6 per cent. must fall if the 35 per cent. falls. If taken together, health and education account for barely a third of all public expenditure. If we mean anything at all when we say that health and education are priorities, surely to goodness we mean that those two spending programmes are more important than many others in the total accounted for by public expenditure, and that we envisage that health and education will take a rising proportion of that share of the economy devoted to public expenditure.
So long as the two numbers concerned are roughly 12 per cent. for health and education and around 35 per cent. in total and, so long as those two totals remain as far apart as they are, it is little better than pusillanimous to say that we are unwilling to face up to the implications of the assertion that health and education are priorities and to make choices elsewhere in the public expenditure programme. It is an old description of the art of politics that to govern is to choose. That is what Governments are there for, in the context of this fiscal policy debate--to make judgments about what they can afford to raise in taxation, given the constraints that I have described, and then to make choices about where priorities lie in the use of that expenditure. It is, I repeat, pusillanimous to say that we cannot deal with our priorities in the context of a declining share of national income taken in tax.
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