View from the House - A tax system based on clarity and simplicity.

One client’s tax allowance is another one’s loophole. A couple of years ago, the Government decided it was no longer going to allow people to get away with avoiding employers’ national insurance by paying bonuses in gold bars and coffee beans.

All that does is encourage ingenious employers to find other benefits in kind where the loophole has not been properly closed.

In preparing their programme for the General Election, the Tories are focusing on cutting taxes (even though the national debt has soared to record proportions). The Tories have been setting the agenda on taxes for years, seeking to set the rules for other parties while not necessarily abiding by them themselves.

So Labour, still smarting from John Smith’s budget at the last election, are terrified to suggest they would increase taxes. This means their undoubtedly sincere committment to health and education is weakened by the lack of significant increases in money.

Liberal Democrats have taken a different and disciplined approach. We have developed the idea of hypothecation or earmarking of taxes in a number of ways.

So a penny on income tax, if necessary, is the identified source of extra money for education. Squeezing out abuses from profit-related pay would fund our ‘Helping Hand’ programme which includes replacing income support and family credit with a unified low-income benefit to ease the transition back to work.

An extra u350m for health services to address the funding crisis, recruit additional doctors and nurses and reduce waiting lists will be paid for by ending the loopholes in employers’ national insurance contributions on benefits in kind. To this will be added the yield of u200m from an increase in tobacco duty of 5p on a standard packet of cigarettes to allow us to abolish the charges for dental check ups and eye tests.

The estimated yield from closing these loopholes is based on Treasury figures and independent tax consultants. We hope the companies involved will find the change more acceptable if they know that the money is going directly to protecting and improving the National Health Service rather than disappearing without trace into the Treasury maw.

Also in our programme, the yield of new taxes designed to adjust the balance in our tax system, in other words to have a dynamic effect, will be used entirely to reduce taxes elsewhere.

We are proposing a new 50% tax rate on earnings over u100,000 all of which will contribute to harmonising employee national insurance and income tax thresholds and raise the level at which people start paying tax – taking an additional 750,000 current taxpayers out of tax altogether.

Our carbon tax proposal is designed to discourage pollution. The yield of this will be used to reduce employers national insurance contributions – the tax on jobs – and VAT providing offsetting benefits for everyone.

The idea is we tax what we don’t want – pollution; and cut taxes on things we do want – jobs and wealth creation.

Simplicity, clarity and targeting is the name of the taxation game.

Malcolm Bruce is the Liberal Democrats Treasury spokesman and MP for Gordon.