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8.34 p.m.

Lord Harris of High Cross: My Lords, in a debate on the Motion to give thanks for the gracious Speech, I should at least start on an amiable note. It is not difficult to express great pleasure and satisfaction at the larger number of speeches we have heard, not least the two notably impressive maiden speeches.

As another Cambridge man, I must confess to sharp disappointment with the speech of the noble Lord, Lord Eatwell. When I heard him condemn the Queen's Speech as lacking in new ideas, my mind raced back to the time when the Labour Government were in office and we had such new ideas as the national plan, the National Enterprise Board, incomes policies, and the selective employment tax. We had a succession of new ideas which the noble Lord might think best forgotten, like some of the other schemes. I prefer the old ideas like enterprise, incentive and freedom of choice. I do not think that the Government should make any apology for working those quite hard.

The noble Lord, Lord Eatwell, seemed hypnotised by macro-totals of investment. They worried him a great deal. We had a different view from the noble Lord, Lord Skidelsky, which I rather favour. In any event, to say that investment was higher in 1979, if that were true in aggregate terms, would tell us nothing of the merits of that policy compared with the present policy. The essence of investment is the quality of it, not its quantity. We can now look back and say that a great deal of investment in 1979 was being sunk in failing industries--motor cars, docks, coal mines, the steel industry and all that.

The noble Lord, Lord Barnett, took up a point I have heard frequently from people whom I respect both on the Labour side and in business. It is that our entrepreneurs tend to look for shorter pay-off periods for their investments. They look to get their money back in two, three or four years, whereas the Germans and notably the Japanese are more patient and work to five, 10 or even longer time horizons.

I believe, or at least strongly hope, that this deficiency is perhaps the consequence of the much more marked financial instability we have suffered in this country where inflation has undermined longer-term planning leading to fevered expectations of future consequences among businessmen who think that they should get their money back as quickly as possible. For my part, I strongly applaud the Government's dogged commitment to stable monetary policies against inflation. I prefer them a great deal to the monetary excess that we had in the latter part of the 1980s.

Perhaps from the Cross-Benches I may redress the balance on the Tory record. I think it has received too little acknowledgement, not least from the Opposition

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Benches, who have been among the main beneficiaries of its historic achievement. I phrase that in terms of the signal triumph since 1979 in purging the socialist virus from our economy and polity. That is rather strong language, but if noble Lords ponder it they will realise that in the past 15 years or so we have had nothing less than an historic overthrow of the prolonged post-war "Butskellite" consensus, in which I myself at one time had some belief--that myth of the state's superior competence compared with competitive markets.

Despite some backsliding, the heirs to Thatcherism have not entirely given up, to judge by the Queen's Speech. Thus I can commend strongly only one sentence which reads:

    "My Government will reduce the share of national income taken by the public sector".

That sounds quite promising, but it rather prompts the question: what has been their record? What has happened in the recent past? The best source of statistics for this purpose is provided by the time series of the Annual Blue Books for the years 1979 to 1993. I have extracted a great deal of statistical detail, but I shall oblige noble Lords by summarising and distilling it in the following precise conclusion.

Over the period of 14 years from 1979 to 1993, government spending has continued to rise in real terms. But, as a proportion of a faster rising national income, government spending fell marginally from 47.5 per cent., on my calculation, in 1979 to 45.5 per cent. That is a modest reduction. It is highly unimpressive if we recall the large savings by the Exchequer on subsidies to nationalised industries and proceeds from privatisation.

Anyway, what should we say about a situation where approaching half of the nation's annual production is commandeered by politicians? It is certainly a long way from M. Jacques Delors' latest fevered jibe against the Prime Minister that his economy is based upon "an excess of laissez-faire". Yet last month, one of my favourite bishops and a near namesake, the right reverend Prelate the Bishop of Oxford--to whom I addressed a warning, and have his permission to speak in his absence--wrote an astonishing article in The Times. The headline read:

    "Praise be to taxes, the sign of a truly civilised society".

He declared:

    "Taxes are a good thing and paying them is a spiritual matter".

Even supposing that taxes make bishops feel better, what generalisation can we make about the effect of taxes on the real economy?

My starting point is that, with very few theoretical exceptions set out in the text books, all taxes in varying degrees damage economic welfare. I would, if there were time, challenge anyone to think of a really good tax--let us say, one that yields significant revenue; that positively benefits the economy; that is easy to collect; and that is so acceptable to the victims that they do not try to dodge it or shift the incidence on to someone else.

Lord Richard: Tobacco?

Lord Harris of High Cross: My Lords, I did not want to get drawn into the matter of tobacco as chairman

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of FOREST. I must tell noble Lords that when a tax is imposed directly to reduce consumption, one consequence may be an increase in smuggling. As noble Lords may know, there is now a big development in smuggling, which hits domestic production and employment and even to some degree, marginally, tax revenue.

In brief, my assertion is that all taxes on incomes inevitably tend to blunt incentives, thereby damaging employment, savings and investment. That is a very moderate statement, a very moderate form of judgment. High income tax inevitably encourages avoidance and evasion, thereby reducing the yield from the tax.

Taxes on low incomes inevitably reduce the gap between net earnings (take-home pay) and social benefits. Therefore inevitably, at the margin at any rate, they encourage voluntary unemployment and the black economy.

The truth is that we cannot know the full tally of the damage which this mountainous ragbag of taxation produces. So taxes on the present scale should not make the right reverend Prelate the Bishop of Oxford feel more spiritual. Indeed, some of us might rather join in Milton Friedman's prayer, which is to thank heavens we do not get all of the government that we are made to pay for.

The right reverend Prelate justified his eulogy of high taxation with the well-worn arguments about the old, the sick and the young, followed by a far-fetched analogy with "the way the early Church looked after the poor". Leaving aside the rather important distinction between coercive taxes and voluntary giving, how much of the £260 billion that was spent last year by party politicians (and much more this year by the way) is remotely concerned with the right reverend Prelate's welfare agenda of poverty? The noble Lord, Lord Skidelsky, gave us some figures to the effect that something like £120 billion of the £260 billion was devoted to entitlements of one kind or another. But the noble Lord acknowledged that that co-exists with a situation which the noble Lord, Lord Bruce, paraded where large numbers of really urgent cases for assistance are neglected and left unsatisfied because we have a preference for--it has been an ideological preference on the Labour side, at any rate until recently--universal rather than selective benefits.

The truth is, despite the words of the noble Lord, Lord Bruce, that this century has seen a transformation in average standards of living. If half their incomes were not confiscated by taxes, most families could pay their own way in welfare, with the added boon of choice in pensions, schools, health care, housing and so on. Instead, we have seen a massive shift of spending power over half the economy away from individual preference to an unholy mixture of criteria.

The original motive was very splendid. It was to help those who could not help themselves. But, if I may say so after watching closely the party-political battle over the past 50 years, since 1945 the dominant motive has increasingly become nothing more elevated than what I now call short-term scavenging for votes to win

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elections, as was practised most blatantly and disgracefully by the Labour Party in 1974 and by the Tory Party in 1992.

I conclude with a positive proposal. This stealthy collectivisation of incomes would never have been possible without the war-time trick of picking private pockets through pay-as-you-earn taxation. Therefore, to concentrate minds, and also perhaps to concentrate government spending in the long run, I commend strongly to Her Majesty's Government--and even to the reborn Labour Party--a last major act of denationalisation: nothing short of the re-privatisation of incomes. Let us follow the American example of self-assessment and put an end to deduction of earnings at source. If Chancellors had to collect income tax direct from citizens, we could expect a livelier debate on the scale and purposes of state spending and state taxing. One result, I confidently predict, would be a principled pruning of the proper agenda of government action for the 21st century.

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