23/01/2012 09:01 GMT | Updated 23/01/2012 09:03 GMT

David Laws, Former Liberal Democrat Cabinet Minister, Says Tax The Rich

The highest earners should pay more tax to cushion the squeeze on low-income households, former coalition Cabinet minister David Laws said on Monday.

The Liberal Democrat MP, who remains close to Deputy Prime Minister Nick Clegg, called for a reduction in tax avoidance and a crackdown on "reliefs and allowances" that most benefited those on the highest incomes.

He said there was no money for net tax cuts but that there was an argument for making the system "more progressive".

Citing research by the OECD, he said that the government should increase the average rate of tax paid by the highest earners rather than marginal rates.

He has previously called for the 50p top rate of income tax for those earning more than £150,000 to be regarded as "temporary".

Speaking at the launch of a Squeezed Britain report by the Resolution Foundation think tank, Mr Laws said more could be done in the tax system to "cushion" people in lower income groups.

"There isn't money to do that through net tax cuts given the state of the public finances, but there is an argument for seeking to reduce the amount of avoidance in the tax system and clamp down on the reliefs and allowances that particularly tend to favour people at the very upper end of the income distribution," he said.

"But those changes need to be delivered not through higher marginal rates of tax on that particular group, which just incentivise tax avoidance activity or could after a period of time cause them to relocate.

"It's much more about the average rate of tax paid by the people in those particular groups."

Laws, who is seen as likely to return to the Cabinet in any future reshuffle, said most tax increases to deal with the deficit had now been implemented but there would still only be "modest gains" in disposable income before the planned 2015 general election.

And he said there would be no "easy choice" for the political parties between tax cuts or spending rises going into that election.

"We are going to continue to be for some time to come - under any conceivable government - in a period where there is a lot of austerity in the public sector," he said.

"The politicians of all political parties are going to be in a period of time where there are going to be significant constraints on public spending."

Laws said there would be pressure for both higher spending and tax cuts by the time of the next election.

"It's fairly clear that in 2015 and the general election and beyond we are going to be in an unusual period where the run-in to the election is going to have a very tight squeeze on earnings - particularly in the pre-2012 period - but also what is going to be a very nasty squeeze on public spending to bring the deficit down," he said.

"So therefore politicians are not going to be able to make an easy choice between higher public spending or giving an emphasis to reduce taxation."