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Lord Newby: My Lords, I am very interested that the noble Baroness declines to do so.

Baroness Noakes: My Lords, perhaps the noble Lord is practising for the time when we are again in government, but I remind him that it is not normal for the Official Opposition to respond to such debates.

Lord Newby: My Lords, it is incumbent on any political party that will face a general election campaign in effect 10 weeks from now to tell us the
 
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basis on which it will fight the most important aspect of its campaign; that is, to tell us what its taxation policy comprises. If, as is the case, 10 weeks from Easter—which will be the effective start of the general election campaign—two consultation papers on taxation have yet to be published, how on earth will voters know, in advance of the general election campaign, what the Conservative Party policy is? It may not be appropriate for the noble Baroness to explain that today; I would be very happy if the shadow Chancellor did it next week—

Lord Sheppard of Didgemere: My Lords, if the noble Lord intends to enlighten the electorate, will he confirm that the shaking of the head from his Benches earlier means 55 plus 1 per cent for national insurance?

Lord Newby: My Lords, I am very happy to do that. If I am not interrupted, I shall have time to tell the House what our policy is. I shall move to it straight away. I have two minutes and therefore I shall speak very quickly.

The overall aim of our tax proposals is to make the system fairer and simpler—no one will disagree with that. There are two principal components: first, we would abolish council tax and replace it with a local income tax, which by definition more accurately reflects an individual's ability to pay. To answer the question posed by the noble Lord, Lord McKenzie of Luton, regarding the previous economics debate, our definition of "income" for local income tax purposes will be the same as the definition of "income" for income tax purposes. Secondly, we would ask the richest 1 per cent of the population to pay 50 per cent of their income in tax on income over £100,000. Local income tax would be paid by those with incomes up to £100,000, not above. Therefore, 50 per cent would be the top total tax rate. There are three specific purposes in doing that. It would result in no top-up fees; no payment for personal care; and a cut in local taxes. Beyond those tax changes we would impose upon ourselves the discipline that any increase in expenditure must be met by a reduction in a programme or function elsewhere. We therefore propose to scrap the DTI, child trust funds and the ID card proposals to help fund our expenditure priorities, and not rely on spurious efficiency savings.

The level of taxation and the uses to which tax revenues are put are issues that lie at the heart of the political debate. Sometimes it is argued by those who do not vote that their abstention is caused by the fact that all politicians and their policies are indistinguishable. Today's debate has demonstrated that that is definitely not the case when it comes to taxation. The forthcoming election will give voters the chance to decide which of the visions for taxation set out today commands the greatest support.

Lord Sheppard of Didgemere: My Lords, if the answer regarding the figure of 56 per cent is yes, did I misunderstand?

Lord Newby: Yes, my Lords.
 
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6.53 p.m.

Baroness Noakes: My Lords, today my noble friend Lord Blackwell made a powerful case for a low-tax economy. I have to confess that before Christmas I had unseasonal thoughts towards my noble friend as he in effect set my Christmas Recess homework. However, given the range and quality of speeches made today, I withdraw all those thoughts. The debate has been a very great success and I pay tribute to him.

We have also had the privilege of hearing a powerful maiden speech from my noble friend Lord Howard of Rising. He showed what a depth of business experience he can bring to our deliberations. I look forward to hearing him speak in many other debates, especially debates involving the economy.

I agree with my noble friends who pointed to the sparsity of noble Lords on the Benches opposite. That is rather a good indication that the Labour Party has no interest in low taxation; rather, it aims to tax as much as it can get away with and then spend or redistribute as much as it can get away with. Labour believes that once it has secured money in the Government's coffers through taxation, it is then its money to spend as it wishes. My noble friend Lord Saatchi brilliantly laid out the genetic traces of that in the Labour Party.

Our beliefs are quite different. We believe that we should pay as little tax as is necessary to support essential expenditure, and that so far as possible people should choose how to spend their money—a case espoused by my noble friend Lord Laidlaw. We also believe that taxation never ceases to be taxpayers' money and that it should be spent as carefully as taxpayers spend their own money.

We have heard today from several noble Lords about the economic arguments for low taxation. I am not an economist and I say simply that for me those arguments are compelling. In economic terms high taxes are self-defeating because they lower economic growth, drive enterprises abroad and do not produce better public services. I simply agree to disagree with the noble Lord, Lord Newby.

Before this Government came to power Mr Blair said,

"we've no plans to increase tax at all",

but that was spin. What he really meant was, "We have no plans to increase tax in a way that we think you will notice". Since then, we have had the 66 stealth tax rises, as several of my noble friends, especially my noble friend Lord Steinberg, pointed out. But, of course, the tax-paying public do eventually notice that Gordon Brown's hand is in their pocket for longer each year. Tax independence day—the day that taxpayers start working for themselves rather than the Chancellor—was six days later last year than in 1997. I expect that it will be even later in 2005. It is no comfort that our tax freedom day is a few weeks ahead of that in the euro-zone because it is a good seven weeks later than it is in the US. On the basis of the Pre-Budget Report figures, the average household will pay £6,500 more tax this fiscal year than in 1996–97.
 
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As several of my noble friends have already pointed out, most commentators now agree that the Chancellor will meet his golden rule only with the help of tax increases in a Labour third term. Since your Lordships' House last debated this issue just before Christmas, the news has been solidly in one direction—that of exposing the Chancellor's fragile finances. My noble friend Lord Trenchard has already related that by the end of November the Chancellor had racked up borrowing of £33 billion, which makes his latest prediction of borrowing for the year of £34 billion look fanciful. The small print of the Pre-Budget Report shows that for the next financial year both council tax and income tax receipts will rise by 8 per cent—way above the rate of inflation. So if we do not get new taxes or tax rate rises next year, we shall certainly do so after that, if there is a Labour third term. The Chancellor's figures show the tax/GDP ratio rising from 35.6 per cent last year to 38.4 per cent in 2009–10. If anyone in No. 1 Horse Guards Road thinks that that will be achieved without new taxes or tax rate rises, I would like to know what they are on.

I am looking forward to hearing what Mr Blair says when he is asked the question—which he will be during the forthcoming general election period—about tax rises, because Treasury Ministers have thus far wriggled and squirmed whenever they have been asked the question, and they have refused to deny that taxes will rise. During the previous general election period Mr Blair was asked whether any reasonable person would not suppose that the Government proposed to increase national insurance contributions. He said: "They shouldn't". But, of course, that is exactly what the Government did.

The rest of the world has noticed that the UK's tax burden is rising, and that the UK is no longer the place of choice for investment. We used to be a low-tax economy with flexible labour markets and light regulation, but all of our hard-won advantages created during the previous Conservative government's term of office are disappearing, and unsurprisingly we have taken a dive in the international league tables for competitiveness. My noble friends Lord Lamont, Lord MacGregor and Lord Trenchard comprehensively drew attention to that.

We believe that the United Kingdom must regain its competitiveness to attract inward investment, and tax is a key element of that. My noble friend Lord Marlesford has already referred to the EU's tax harmonisation agenda, which would destroy our ability to use our tax system to compete internationally. We have genuine fears that despite the so-called "red line" in the EU constitution, this Government have protected us too little from the designs of Europe to achieve tax harmonisation by stealth, because the euro-zone is a high-tax, high-spending zone, and tax harmonisation in any degree can only be bad for our economy.

I will now address the broader aspect of the case for lower taxation. No natural law says that the state should have a share of an individual's income. The state must legislate, backed by the threat of imprisonment, to take the money; it is essentially coercive. The length of Finance Acts, which are now 600-plus pages and rising,
 
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underlines the facts that individuals do not hand over the money voluntarily. Society accepts that harm can be done to an individual by taking his money in order to meet the wider needs of society. Implicit in acceptance of the coercive act of taxation is a requirement that tax is spent wisely. That is why in any debate about taxation we cannot separate taxation from spending. The ability to tax carries a corresponding duty to achieve value for money. If a government do not spend their citizens' money well, they lose their moral authority to take the money in the first place. The good that they do with the money should always be greater than the harm done by taking it away from an individual. Expenditure that does not outweigh that harm should not be undertaken.

Measuring good and harm is extraordinarily difficult, even in the corporate sector, as my noble friend Lord Kalms pointed out. That has certainly borne a lot of the harm. He has his own ideas for highlighting the amount of that harm, which are interesting. We know that expenditure that does not add value cannot be justified. Unfortunately, that is what we have seen in spades with this Government, as several of my noble friends, including my noble friend Lord MacGregor, have amply demonstrated. The Chancellor took our money and spent it on public sector jobs which have not added value. We now have a Civil Service the size of Sheffield, and in health and education administrators have increased faster than front-line professionals. To add insult to injury, these public sector jobs are stacking up future public expenditure in the form of pension promises that exceed private sector norms and will therefore be value-destroying in the future.

The productivity of the public sector is dire. No independent studies have shown anything but a loss of public sector efficiency since 1998. The very best result is that the public sector has been getting worse in terms of efficiency by around 1 per cent each year, and most of the studies have shown much worse figures. A recent study for the European Central Bank showed that if we performed at the level of the best, we could spend 16 per cent less; at current levels of expenditure that amounts to £80 billion a year. That can be compared with the £20 billion savings announced by the Chancellor as part of the Gershon review, already described today as "unambitious". The bottom line is that this Government have not spent taxpayers' money wisely. That is why we believe that they have forfeited their authority to tax people at current levels, let alone the increased levels that are promised down the line.

Our policies are for lower taxes. My honourable friend Oliver Letwin will soon be announcing our expenditure plans, which will show how we, unlike the current Government, will spend money wisely and achieve value for money. Importantly, they will show how we can start the journey towards being a low-tax economy. I am sure that the noble Lord, Lord McKenzie, will be interested, since he flatteringly devoted most of his speech to our policies. Based on what the noble Lord, Lord Newby, said in his speech, he too has an interest. As the noble Lord helpfully pointed out, we are consulting on the
 
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options for lower taxation. Inevitably, there are more good ways of reducing taxes than will be capable of being accommodated in the first instance, which is why we are consulting widely. We will be setting out our plans for that in good time for the next election, but tonight is not the time to set out those plans.

Let me be clear. When we talk about lower taxes, we are aiming at tax cuts not for the rich but for the many. I hope that the right reverend Prelate the Bishop of Worcester will be reassured by that. Some noble Lords have related what we are considering, which includes taking more people out of the tax net through higher personal allowances, reducing council tax and, as my noble friend Lady Seccombe and my noble friend Lord Steinberg have pointed out, stopping the iniquity of inheritance tax being a tax on ordinary people's homes. There are other options, such as those outlined by my noble friend Lord Vinson in relation to savings income. Those too are important.

I shall be interested to hear the Minister's views on the benefits of a low-tax economy. When he replies, I hope that he will deal with one simple question—do the Government believe that poverty is best dealt with by high taxation or low taxation? Put another way, is it better to use high taxes to make the rich poorer, or to use low taxes to help the poor to become wealthy? His answer to that question shall reveal a lot.

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