Nigel Lawson

The way to a strong economy is to boost incentives and enterprise. And that means, among other things, keeping income tax as low as possible. Show less «

It is now nine years since my predecessor, in his first Budget in 1979, reduced the top rate of income tax from the absurd 83 per cent. that prevailed under Labour to 60 per cent. where it has remained ever since. At that time, this was broadly in line with the European average for the top rate of tax. It is now one of the highest. And not only do the majority of European countries now have a top rate of tax below 60 per cent. but in the English-speaking countries outside Europe - not only the United States and Canada, but in Labour Australia and New Zealand, too - the top rate is now below 50 per cent., sometimes well below. (Speaking in 1988) Show less «

The reason for the worldwide trend towards lower top rates of tax is clear. Excessive rates of income tax destroy enterprise, encourage avoidance, and drive talent to more hospitable shores overseas. As a result, so far from raising additional revenue, over time they actually raise less. By contrast, a reduction in the top rates of income tax can over time result in a higher, not a lower, yield to the Exchequer. Show less «

Despite the substantial reduction in the top rate of tax in 1979, and the subsequent abolition of the investment income surcharge in 1984, the top 5 per cent. of taxpayers today contribute a third as much again in real terms as they did in 1978-79, Labour's last year; while the remaining 95 per cent. of taxpayers pay about the same in real terms as they did in 1978-79. After nine years at 60 per cent., I believe the time has come to make a further reduction in the top rate of income tax. At present there are no fewer than five higher rates of income tax; 40 per cent., 45 per cent., 50 per cent., 55 per cent. and 60 per cent. I propose to abolish all the higher rates of tax above 40 per cent. This major reform will leave us with one of the simplest systems of income tax in the world, consisting of a basic rate of 25 per cent. and a single higher rate of 40 per cent. And, indeed, a system of personal taxation in which there is no rate anywhere in excess of 40 per cent. I believe that 40 per cent. is an acceptable top rate of tax. (Speaking in 1988) Show less «