Pre-Budget Report

If the Government were really serious about VAT reform, they would be considering the VAT on home improvements, which is one of the obvious areas that could change the picture. The Liberal Democrats believe that there should be a significant, but permanent tax cut for low-paid workers; we have suggested the equivalent of £16 billion to £18 billion, which is in the ballpark of the Government's tax proposals. We propose that that should be paid for by people higher up the income scale. Of course, the Government have put forward what they regard as a redistributive element—the new top rate of tax, which will be 45p in the pound. I have taken an intervention that suggested that that will raise a lot of money, so I shall repeat that the Institute for Fiscal Studies says it will raise no revenue. We should know that, because for many years when we had a similar proposal, the Government told us that it would raise no money. They are now putting this forward, apparently aware of the consequences of their own arguments. It will raise no money for the following reason: why would people with a high income pay a 45 per cent. marginal rate of tax on it when they could convert it into capital and pay 18 per cent.. as any tax accountant would tell them to do? Why would they not persuade their employer to give them relief from higher income tax and put it into a pension pot that, again, will accrue relief from the higher rate tax of 45 per cent? Those are the obvious measures that any Government who are serious about income distribution need to address.