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Lord Laidlaw: My Lords, I thank my noble friend Lord Blackwell for initiating what I believe to be a very important debate. But, looking at the red leather opposite, I might be forgiven for assuming that the issue of low taxation is not considered as important by other sides of the House as it is by our Benches.
There has been much erudite discussion and many statistics have been mentioned in the speeches made to date, and I particularly compliment my noble friend Lord Howard of Rising on his excellent maiden speech. However, I thought that I would leave the field of statistics and confine myself to talking about a personal experience in which it was possible to deliver better public services at a substantially lower cost. I think that there are some lessons there for the House and the Government.
I believe we are all in favour of high-quality public services. Yet I am still looking to find the person who pops the champagne corks and goes out to celebrate when he writes his cheque for the Inland Revenue. The problem is reconciling these two highly desirable goals: high-quality and available public services and a lower tax take. Can this Holy Grail be achieved? I believe that there are ways in which it can be improved upon,
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but certainly not as has happened over the past seven years—not by throwing more and more money at public services as the present Government have done.
Perhaps I may talk about one area in which I am involved—education. Recently in failing schools I have seen poor teachers being paid substantially more with absolutely no effect on the quality of the education delivered to the students.
In another area of public services—the national healthcare system—I recently came across a case that illustrates how we are going wrong. Over Christmas, the 89 year-old mother of one of my most senior employees went to hospital. She was left, vomiting, in a public area for 18 hours before she was seen. But before she was seen, she was asked to sign a form saying that she had been seen immediately on arrival. This Government's reliance on targets has resulted in a focus on statistics rather than on treating patients.
When people want to make major changes in public services, the usual refrain is, "It can't be done". I want to tell your Lordships about what we did in some of the American companies that I own that was supremely successful in changing behaviour. I believe that this example is relevant to the UK.
Most healthcare in the United States is delivered and provided by employers via insurance. Employees sometimes pay a monthly contribution towards that and sometimes they do not. As we all know, the demand for healthcare is insatiable. Costs continue to increase, drugs get more costly and testing becomes more extensive. It would appear that there is no end to the increase in the cost of healthcare, and those costs will continue to rise faster than the rate of inflation. That, of course, is true in the UK as well. So, along with other employers, we were facing increases in our premiums of between 20 and 35 per cent every single year.
US healthcare relies on private delivery but, in reality, it is very similar to the national healthcare system in the UK. First, all costs are pooled so that everyone pays either nothing or a standard amount every month. Secondly, there are no incentives for an individual not to use the service.
In the changes that we planned, we were committed, as is everyone in the UK, to certain basic fundamentals: first, a good service should be available at a low cost; secondly, there should be a safety net for serious illness; and the third objective was that a premium service should be available but at a super-premium price so that that subsidised the people who did not want to buy the premium service.
We tackled that problem, first, by introducing a fee of 30 dollars for every visit to a physician. This was a cost that we knew all our staff could afford. In purchasing power parity, it is perhaps equivalent to £8 in the UK. Secondly, we changed the administration cost of the scheme by introducing on-line claims so that every claimant had to make his claim through the Internet rather than going to full-time healthcare benefit administrators, whose number had increased enormously as the difficulties of making claims grew.
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What were the results? In this particular sample, we had 1,000 employees. During the year after we introduced the new scheme, there was a 60 per cent reduction in the number of claims and the employees had no additional sick days. Of course, the total cost did not decrease to the same extent as the number of claims because we covered all serious illnesses. But the total cost, as measured by premiums, decreased from 7 million dollars in 2004 to 4 million dollars in 2005.
Translating that American example into the UK idiom, the introduction of a small user tax decreased public expenditure through changing behaviour. General taxation has been, and could have been, decreased in this case but with no reduction in public services. Indeed, taking a broader view, we may even have increased the quality of the public services by allowing the providers to focus on major illnesses rather than on minor ailments. I believe that a modest charge for health services in the UK, solely for those who are in work, could result in a lowering of the cost of delivering those public services while not in any way affecting the essential national healthcare system that we value and need.
User taxes can replace general taxation in a number of cases. Of course, there are very many cases where user taxes do not apply and have no value at all. But another example that I want to give your Lordships concerns our roads in the UK. I think that our roads are a disgrace. I am sure that many noble Lords have wasted thousands of hours sitting on roads in traffic jams and have watched truck-drivers doing the same. Huge amounts of time, and thus billions of pounds, are wasted because we do not have adequate roads and, in particular, adequate motorways. Our road systems are far behind those of the Continent, even in countries such as the Netherlands and Belgium, which have an even higher density of population.
So, believing that, do I think that road users should line up outside No. 11 Downing Street with their hands outstretched, asking the Chancellor to devote more of his general taxation budget on building more roads? No, I do not. I think that the answer is for private enterprise, or a combination of private and public initiatives, to get together and build toll roads where people who need to get from A to B quickly can choose to pay the toll. Those who prefer not to pay can choose not to do so. The M6 experience surely shows that this system of user taxation can be very effective in speeding up our traffic without, at the same time, relying on general taxation.
That is another way of saying that choice by the individual is the route to better public services at lower taxation rates. In education, it can be done through the voucher system, which allows parents to choose the school that they believe is right for their child. Vouchers force schools to improve their performance and allow the good schools to expand.
Individuals, if given the right motivation through user taxes, will behave rationally. If provided with free public services, for which they have to pay nothing or apparently feel that they pay nothing, they are quite likely to make the wrong choices for the country as a whole.
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I believe that there are many areas of public services that can be reformed and that it is possible for them to deliver high quality public services but still have a lower tax take through better-considered and better-managed taxation systems. It is not through pumping more of our taxpayers' hard-earned cash into public services, but by using user taxes, where appropriate, to replace general taxation and at the same time improving management of those services, that we can make a difference.
Lord Vinson: My Lords, we are all indebted to the noble Lord, Lord Blackwell, for introducing this timely debate. As an original founder director of the CPS, it is wonderful to see the flag still flying so strongly. Taxation lies at the heart of politics. On the day following the Chancellor's Autumn Statement, the headlines in the newspapers and the general tenor of the BBC's announcements were, "Chancellor promises a give-away budget". Nowhere did I hear the balancing argument, "Whose money is it anyway?".
It was a great French philosopher, Frederic Bastiat, who I believe put his finger on the matter nearly two centuries ago when he said,
This Government's budgets are a perfect example of bribing the electors with their own money. As other noble Lords have shown, that in itself would not be so bad if the money were spent efficiently and to good purpose. Alas, that is far from the case. We on this side of the House certainly recognise that the Government are too big; they are spending too much; they are wasting too much; and they are taxing too much.
Of course, the champions of high state expenditure support their case by the undeniable moral argument that the national tribe has a sense of duty to support the poor, the sick, the disabled, the elderly and the less fortunate members of society. However, the point comes when those creating the wealth for such moral purposes begin to say that enough is enough. It cannot be said too often—it has been said many times tonight—that governments do not have any money. Inescapably, one person's handout is another person's tax hike.
Of course, to have conspicuous compassion with other people's money looks wonderful, but there is an equal and opposite rational moral argument; namely, that charity begins at work. Without resource, charity may have heart but it cannot have substance; thus the creation of wealth—or some would say the creation of worth—is the key to compassion. High tax levels indisputably damage that process. There is a limit to the number of feathers that can be plucked from a goose before it starts to hiss.
It was Ronald Reagan who perceived that the moral high ground has two claimants. He said,
"I'm sure everyone feels sorry for the individual who has fallen by the wayside or who can't keep up in our competitive society, but my own compassion goes beyond that to the millions of
- unsung men and women who get up every morning, send the kids to school, go to work, try and keep up the payments on their house, pay exorbitant taxes to make possible compassion for the less fortunate, and as a result have to sacrifice many of their own desires and dreams and hopes. Government owes them something better than always finding a new way to make them share the fruit of their toils with others".
It is for those reasons that this debate lies at the heart of politics. We on this side share no less compassion than others, but we recognise that wealth creation, the means to do good rather than just feel good, depends fundamentally on human motivation. The more the state spends, the greater the paradox that Aristotle thought of many years ago. He said,
or to put it in modern English, "Where no one really owns, no one really cares".
Worldwide we have evidence that once government spend greater than some 30 per cent of GNP—this relates to some of the early work carried out by the noble Lord, Lord Skidelsky, which has been mentioned—economic inefficiency accelerates and ultimately the means to do good is frustrated by ever-falling productivity. That is exactly the state that this country has now reached. The wealth-creating sector is beginning to be bled white by the wealth-consuming sector.
The moral argument for low taxation is indisputably proven by the facts. The state does not necessarily know best when it comes to taking decisions, and when one talks about the state one must recognise what the state really is—as that great economist, Arthur Marshall, said:
"Do you mean a state governed by people all wise, all far-seeing, totally impartial and balanced in their judgments, or do you mean a state run by people like you and me?".
As the state is administered by people like you and me, it is far better to let decisions be taken in the first place, at first hand, by people like you and me.
"It is the highest impertinence and presumption . . . in kings and ministers to pretend to watch over the economy of private people . . . They are themselves always, and without exception, the greatest spendthrifts in the society".
The Dome and the new Scottish Parliament beautifully illustrate his point.
It is one thing to help those who are in special difficulties or in real need, but when the state collects taxes to provide many of its citizens with services which they are perfectly capable of obtaining for themselves, they perpetrate a grave deception on such taxpayers. As mentioned earlier in the debate, shuffling an individual's earnings from one pocket to another via state administration is inherently inefficient and morally degrading.
Income maintenance today is no longer simply a matter of how much is paid out by the state in welfare benefit. What the state takes away in taxation is equally important. This is a development of the utmost significance that has the deepest moral and welfare implications, but government today is still conducted as if there were no such problem. Ever higher levels of taxation mean that the citizen begins to serve the state rather than the state serving the
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citizen. All of us must be ever cautious of the self-aggrandisement of power by politicians, a point so well made by the noble Lord, Lord Saatchi.
You have to be a pretty na-ve soul to claim that government provision of education and health and other welfare services is more efficiently organised than private provision would be. It requires very little inside knowledge of the workings of government bureaucracies to show the falsehood of this belief. This side of the House believes that government should regulate but not necessarily administrate. We believe in letting citizens take their own choice and, for the future, the best way to help those in need is probably through vouchers that give them the right to choose private rather than public provision. We believe in giving power back to the people by decentralising services.
One further point I want to make is on the importance of savings. The higher people are taxed the less they will save. The savings ratio in this country has collapsed and many who should save, and need to save for their retirement, no longer do so because they perfectly sensibly ask the question, "Why bother?".
In my village at home there are a number of instances of good citizens who have been thrifty all their lives, but whose standard of living in retirement is infinitely less than those who have never saved a penny, either through ill-fortune or over-expenditure, but are now fully supported by the state giving them a higher standard of living than those who have saved. This inherent unfairness is all too clear to see. But this perverse situation could be rectified by raising the level at which savings income is disregarded when citizens are means tested for support, and not least by raising overall the tax threshold so that millions caught in the tax trap are freed from it and from the disincentives to work.
Neither of those desirable goals can be achieved unless overall state expenditure is halted and then reduced. The moral case for lower taxation is irrefutable. I hope this debate will further that purpose.
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