Mr Major’s Parliamentary Answer on Income Tax – 7 June 1990

Below is the text of Mr Major’s response on Income Tax made on 7th June 1990 in the House of Commons.

Mr. Riddick To ask the Chancellor of the Exchequer by how much the basic rate of income tax has been reduced since 1979; and what are his future plans for the rates of income tax.

The Chancellor of the Exchequer (Mr. John Major) The basic rate of income tax has been reduced from 33 per cent. in 1979 to 25 per cent. in 1990. Moreover, the borrowing requirement, which was a deferred tax liability, has given way in the past three years to a Budget surplus. It is our objective to reduce the basic rate of tax to 20p in the pound, but only as soon as it is prudent and sensible to do so.

Mr. Riddick Will my right hon. Friend confirm that every time the Government have reduced the basic rate of income tax, the Labour Opposition and the Liberal Democrats have bitterly opposed the reduction? Is not it the case that had Labour still been in power we would still have a basic rate of 33p in the pound? Will my right hon. Friend confirm that, were he to adopt the policies and commitments in the Labour party’s policy review document, the basic rate of income tax would have to be massively increased for everyone? Has not the Labour party always been the high-tax party and will not it always be?

Mr. Major My hon. Friend makes his point entirely clearly. I am not sure that is wholly true to say that the Liberal Democrats have invariably opposed the tax decreases. I think that there was an occasion when they chose not to do so. My hon. Friend is being generous when he suggests that if a Labour Government were in power at the moment we should have a tax rate of 33p in the pound. It might well be noticeably higher. When, in due course, we get round to the detailed costing that Phillips and Drew has already attempted, we may be able to illustrate that it would be higher.

Mr. Beith Will the Chancellor explain what he meant when he said that it was not prudent to achieve his objective of an income tax rate of 20p in the pound this year? Is he admitting that he is using the level of income tax as a tool of economic and fiscal management? Will not all Governments have to do that?

Mr. Major The answer to the hon. Gentleman is that of course I am, as we have done and as I shall continue to do.

Mr. Arbuthnot Is not it right that the Government have greatly increased personal allowances, so taking out of tax many people at the bottom of the income scale? Does not that give the lie to Opposition parties, which suggest that they are the only people who care about those on lower incomes?

Mr. Major That is entirely true. By almost any measure – there are a variety that one can use – there has been a considerable increase in personal allowances at the bottom end of the tax scale. That is desirable. It is a deliberate act of policy and, of course, it has kept many people out of tax who otherwise would have been in the tax net.

Mr. Nicholas Brown This question seems to have been tabled as a direct attack on the Chief Secretary to the Treasury and I hope that the Chancellor will repudiate it. He will recall the Chief Secretary saying on BBC’s “On the Record” on 13 May that the prospect of tax cuts at the moment does not look very good, that these things are always uncertain, but there is very little room for manoeuvre. Will the Chancellor explain to the House why, after 10 years of Conservative Government – a Government who have declared that a further reduction in income tax is their main objective – there is now very little room for manoeuvre? Will he confirm to the House that it is highly unlikely that there ever will be enough room for manoeuvre to enable 24 out of 25 taxpayers to pay income tax at a basic rate of 20p in the pound?

Mr. Major Whatever else may happen in this Session of Parliament, the hon. Gentleman just won the palm for brass-necked cheek in his comments of the past few moments. There is no dislocation whatever between the comments of my right hon. Friend the Chief Secretary and those that I made at the Dispatch Box a few moments ago. One significant difference that is reflected in what the hon. Gentleman chooses to call the tax burden is that this Government tax honestly for their expenditure and do not tax for some, borrow for the rest and leave later generations to repay. When the borrowing requirement of the hon. Gentleman’s party is taken into account, the tax burden in 1979 was sharply higher than it is today.

Mr. Irvine Does my right hon. Friend agree that the Government have shown in the past that reductions in income tax stimulate economic growth and lead to an increase in overall revenue? Will my right hon. Friend take that very much into account when making his tax plans for the future?

Mr. Major I can assure my hon. Friend that it is ever close to my mind that that virtuous relationship exists. As he may know, the top 5 per cent. of taxpayers will pay 30½ per cent. of total income tax this year compared with 24 per cent. in 1978–79 when the top rate of tax could have been as high as 98 per cent.