I will do my best to abide by your ruling, Ms Clark—you probably want me to do more than my best.
Reference has been made to the fact that an historic event is taking place elsewhere in Parliament. I am sure that my colleagues will represent the Democratic Unionist party very well, but I have to attend this important debate. As a Unionist, I would have loved to see the President of the Irish Republic giving a speech to both Houses of Parliament with King Billy looking over his shoulder—I understand that King Billy is somewhere behind him while he gives his speech. Even better, tomorrow a republican will sit down to dinner with the Queen.
Things have changed in Northern Ireland, but the debate on the 50p rate has not changed. It is again a political football between Labour and the Conservatives. I want to make something clear at the outset. I do not wish to engage in a debate with some kind of class motive, or from the point of view of bashing the rich by imposing taxation on them. My party and I believe in lower taxation. Our record in Northern Ireland, where we have very limited power over taxes, has been one of keeping tax low. My basic philosophy, which may differ from that of some on the Opposition Benches, is that we should allow people to keep as much of their income as possible and to spend it as they see fit. That is the first point I want to make.
4.30 pm
My second point is that we can become distracted from the crux of the argument by the accusation that this is a bit of a cynical exercise—after all, for all the time the Labour party was in power it kept the tax rate at 40% and only put it up on the last day. The essence of the argument then becomes not whether we should have a higher rate of taxation for those who are better off, but whether this is some kind of political stunt which, as the hon. Member for Redcar (Ian Swales) said, can be milked week after week and headline after headline, but has no real substance. If we allow the debate to rest at that level, we miss a number of important points.
Any taxation policy must be predicated on two things. The economic impact on the policy is very important, but equally important is the political context in which the policy is introduced. If the Government cannot see beyond the fog of the amount of money the policy brings in and how, or whether, it helps to deal with the deficit—two points I will come on to later—to the political context, they are sadly out of tune with the people across the United Kingdom.
There is something to be learned from the experience in the Irish Republic. The austerity measures there have been much harsher than those in the United Kingdom, yet there has not been the same groundswell of opposition. One reason for that is that it was in much more desperate straits, but there was also an understanding that, to use the phrase that gets bandied around time and again, the policies ensured that they were all in it together: they were applied across the broad spectrum of society.
The hon. Member for Redcar talked about some of the tax policies introduced that have hit the rich more than the poor—capital gains tax and a number of other changes—but the truth is that people look at the headline issue. The headline issue in this context is what has been happening to income tax. Those on middle incomes have found their income being squeezed. Tax bands have not increased with inflation, so more people have been pulled into the 40% rate. At the lower end of the scale—I do not want to wander into welfare reform—welfare reforms have had an effect on the poorer groups in society, and the wage freeze has had much more of an impact on people on lower incomes. There is a belief that we are not all in this together.
A cynicism has developed as a result of ignoring the political context in which this policy change has been introduced. In the Budget the Chancellor told us that the years of austerity will last until 2020 and maybe beyond. Given that, it is important for the country that if people are to be told that difficult fiscal times still lie ahead, they understand that the burden of those difficult times is going to be shared. The hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) explained why he had not gone for an immediate change in the new clause: it cannot be done at this stage of the Bill. He has called for a review, as have the official Opposition, so that there could be some indication that Parliament is not ignoring the appearance of a gap when it comes to the burden sharing of the ongoing austerity measures. I have no doubt, given the level of debt and of ongoing annual borrowing, that there are difficult decisions to be made. However, if the Government really believe that, it is surely in their interests to show to the broad spectrum of the population that no one will be excluded and that there will be no privileged groups when it comes to dealing with this issue.
The argument from Conservative Members is that this is a necessary measure to deal with the deficit. “After all,” they say, “if we bring the rate of taxation down at the top level, fewer people will flee the country, fewer people will try to avoid tax through fancy schemes, and people will be given an incentive to work harder. As a result, we will bring in more money.” The first thing to ask is how accurate that assessment is. There are two ways of looking at it. The hon. Member for Carmarthen East and Dinefwr talked about the Laffer curve and the point at which tax take can be optimised. If it were as simple as getting a formula and saying, “That is exactly the rate at which we will maximise tax revenue,” I suppose the Chancellor could sit down and coldly calculate the rate of taxation that should be set.
The truth is—this is why economists get these things wrong so often—that there is no exact science. If we are making predictions and we have to feed into an economic model assumptions that may or may not be right, the outcome can be radically different from what was originally expected. If we look at the elasticity of tax income, we see that the variations are large. Some estimates put it as inelastic whereas some put it at quite elastic. The Treasury have settled for somewhere in between, but let us bear it in mind that it is an estimate. It is not exact. The variations are large, so one cannot say with any degree of certainty that in theory the tax take should go up and that this is therefore a good policy which helps to reduce the deficit.
The additional thing contained in the figures is the behavioural aspect. Whether we are talking about the way in which people will try to avoid tax or the number of people who will not flee the country, as opposed to the number who did flee the country in the past, we are introducing a huge element of uncertainty, because we cannot accurately predict the way in which people will respond in certain circumstances. There are so many factors that will influence their behaviour.