15:58 - The House divided: - Ayes: 241 / Noes: 304 - Question accordingly negatived.
16:12 - The House divided: - Ayes: 301 / Noes: 246 - Question accordingly agreed to.
The Exchequer Secretary to the Treasury (Mr David Gauke)
I beg to move an amendment, to leave out from “House” to the end of the Question and add:
‘notes that this Coalition Government has cut income tax for 25 million people, taking over 2.2 million low income individuals out of income tax altogether, while at the same time increasing taxes on the wealthy, including raising stamp duty on expensive properties and restricting tax reliefs; further notes that both parts of the Coalition continue to support tax cuts for people on low and middle incomes; notes that the part of the Coalition led by the Deputy Prime Minister also advocates a mansion tax on properties worth more than £2 million, as set out in his party’s manifesto, and the part of the Coalition led by the Prime Minister does not advocate a mansion tax; and further notes that the top rate of income tax will be higher under this Government than under any year of the previous administration and that the rich are now paying a higher percentage of income tax than at any time under the previous administration, demonstrating that it presided over an unfair tax system where the rich paid less and the poor paid more in tax than now, meaning nobody will trust the Opposition’s promises on tax fairness.’.
After listening to the speech of the hon. Member for Nottingham East (Chris Leslie), we might have thought that it was the last Labour Government who increased stamp duty land tax to 7% on residential properties costing £2 million or more. We might have thought it was Labour that introduced a 15% rate of stamp duty for properties owned through a corporate vehicle. We might have thought that it was the last Government who imposed a cap on reliefs, limiting the extent to which the wealthy can drive down their tax rate, and we might have thought it was the last Government who deployed more resources to Her Majesty’s Revenue and Customs to tackle evasion and avoidance, and closed down loopholes such as disguised remuneration that cost the Exchequer nearly £1 billion a year.
We might also have thought that the Labour Government had introduced the 50p rate of income tax in their first Budget, not their 13th. We might have thought it was the Labour Government who had taken more than 2 million low-paid earners out of income tax by raising the personal allowance.
Whatever the differences that may exist on the Government Benches, and there are differences on this matter, one thing is very clear: the Opposition are in no position to lecture the two parties on the Government Benches about how to put in place a fair tax system that provides support to working people and taxes the wealthy effectively.
Alex Cunningham (Stockton North) (Lab)
At Treasury questions, one of the Minister’s colleagues said that the Government are focused on the causes of poverty. Can the Minister tell me how many of his millionaire friends getting a huge tax cut this year are actually pleading poverty?
Mr Gauke
In the last Budget package we increased taxes on the wealthy—higher rates of stamp duty, closing loopholes and putting a cap on reliefs. That is getting far more money from the wealthiest than a 50p rate that failed to do what income tax is supposed to do, which is raise funds to pay for public services. It did not do that.
Stewart Hosie (Dundee East) (SNP)
One of the reliefs that has been reduced is on 40p tax, which went down from £37,000 to £34,000 and then to £32,000 this year. The Minister has squeezed the genuine middle class—the people earning just over £40,000—not the £400,000 a year middle class. That bit of cynicism will never be forgotten by those people.
Mr Gauke
I am afraid the hon. Gentleman is wrong. People earning just over £40,000 have seen tax cuts and a reduction in the total amount of income tax they pay, because the personal allowance has increased to more than compensate them. The higher-rate threshold has not increased as it might have done, because higher-rate taxpayers would gain more from the personal allowance than basic rate tax payers. Someone on between £40,000 and £44,000 a year is paying less income tax as a consequence of the Government’s policies than they would have done otherwise.
Geraint Davies
Will the Minister take this opportunity to confess that the reason why the Treasury predicts less will be generated by the 50p rate in the one year of its operation than the 45p rate is that he knows, as I do, that millionaires can move their money between tax years? As the rate only runs for one year, they will move their money to the lower tax year. He would raise more money if he kept the 50p going. It is a con for his mates.
Mr Gauke
There are two points. It is correct that the wealthy are often able to move income from one year to another, but the conclusion that HMRC and the Office for Budget Responsibility reached is that even taking into account the forestalling effect, the behavioural consequences of the 50p rate were so significant that it barely raised any revenue. That is the reality. It even takes into account the hon. Gentleman’s point about forestalling. That approach has been confirmed by the OBR. The 50p rate failed.
Anas Sarwar (Glasgow Central) (Lab)
The message that the Government have repeated over and over again is that we are all in this together. Take the example of families in my constituency who live just one mile apart. One has been handed a tax cut as a result of the scrapping of the 50p tax rate. One mile in the other direction families will be handed a food parcel. Does the Minister think that is fair?
Mr Gauke
Let us look at what was in the last Budget in respect of stamp duty and the cap on reliefs. We could also look at what we have done with regard to capital gains tax. The independent Institute for Fiscal Studies has made it clear that the top 20% are affected most by the fiscal consolidation policies that have been pursued in this Parliament. Those with broadest shoulders are bearing the greatest burden. However, we have an enormous deficit that we have to get down—a deficit that we inherited from the Opposition.
Mel Stride (Central Devon) (Con)
Will my hon. Friend confirm that the highest rate of income tax currently under this Government is higher than was the case in the previous Government’s 13 years, all bar the last couple of weeks?
Mr Gauke
My hon. Friend is right. The Labour Government were in office for 4,758 days. For all but 36 of those days, the highest rate of income tax was at 40p. Then it moved to 50p. There is a good question to ask the Opposition about why they kept it at 40p for so long. Why did they leave it until the fag-end of their Government, when it was clear that they would not be in government any more? The reason is that the 50p rate, predictably enough, did not do what it was supposed to do. It did not raise revenue, and an income tax that does not raise revenue is not something that a sensible Government would persevere with.
I turn to the mansion tax.
Mr Gauke
No. I shall make a little progress, devastating though the hon. Gentleman’s interventions so often are.
We have always been quite clear that the proposed mansion tax is an issue on which the two parties in the coalition have differing views. Our Liberal Democrat colleagues have supported the principle for some time. I am sure that the Under-Secretary of State for Communities and Local Government, my right hon. Friend the Member for Bath (Mr Foster) will make that clear when he winds up the debate. In contrast, Conservative Ministers have very real concerns over such a proposal. We have concerns that a third of the properties in London worth more than £2 million have been in the same ownership for over 10 years, and that a mansion tax could hit asset-rich but potentially income-poor households, a point made by my hon. Friend the Member for Battersea (Jane Ellison).
Dame Angela Watkinson
My hon. Friend will know that £2 million does not buy a mansion in London, and certainly not in outer London, where I have a number of constituents who moved out from inner London decades ago. Their homes have increased in value beyond their wildest dreams over a very long period, but they are in fact cash-poor, quite often living on a modest pension. The thought of paying very large amounts of tax every year for the privilege of owning a home that they have had for many years would be extremely frightening. Can the Minister think of any practical way that an elderly person in that position could possibly pay that tax?
Mr Gauke
I noticed that that very point was one that the hon. Member for Nottingham East seemed to struggling with. He seemed to suggest that there were ways in which the Opposition would address that. I am not sure whether that was included in the costings they have produced. There is an issue for the asset-rich, cash-poor which would need to be addressed in the design and would obviously have an impact on the costing.
Sheila Gilmore (Edinburgh East) (Lab)
Would the Minister suggest to people in those circumstances that they might want to take a lodger, just as it has been suggested to my 60-year-old constituent that the answer to the bedroom tax is to take a lodger?
Mr Gauke
I am not going to debate at length the spare-room subsidy, which is an area of public spending constraint that we need to engage in. There is a genuine issue in respect of the asset-rich, cash-poor that the hon. Member for Nottingham East appeared to recognise and which would have to be addressed.
The mansion tax would be administratively burdensome for HMRC to operate, not to mention intrusive for the person having their home inspected. We would have concerns that in Labour’s hands, the starting level for such a tax would not stay at £2 million for very long. What began as a mansion tax would soon become a homes tax. To coin a phrase, it would become a tax for the many, not for the few.
Chris Leslie
I am surprised the Minister thinks that “the many” own properties worth £2 million and above. I wanted to ask him about the Treasury’s own proposition that residential properties of £2 million and above, albeit owned by a company, should have an annual charge based on a self-assessed valuation, with a banding process. Is he saying that his own policy is administratively burdensome?
Mr Gauke
Let us be clear. One of the weaknesses in the tax system that we inherited was the fact that people were able to walk around the paying of stamp duty. On very valuable properties, it was all too easy for people to arrange their affairs thorough corporate vehicles and not pay stamp duty. In the last Budget this Government introduced measures that will deal with that enveloping and deal with one of the unfairnesses in our tax system. One of the ways in which we are going to do that, as well as a high stamp duty charge for properties held in corporate vehicles, is to bring in an annual residential property tax. That is focused only on properties worth more than £2 million held by a corporate vehicle. It would apply to only 6,000 properties, we estimate. It is a very narrowly focused policy that will enable us to deal with an area of avoidance that was allowed to carry on for far too long under Labour.
Caroline Lucas
As a tax that is much harder to evade or avoid, there is the land value tax. That is supported by one half of the coalition and by the OECD and the IMF. The IFS has said that the case for a land value tax is overwhelming because it is much fairer. Given that that is the case, can the Minister explain why his Government will not even do some basic research into it, as my private Member’s Bill requested?
Mr Gauke
We are left with the same issues of complexity of valuation across the board, and the issues of the asset-rich, cash poor. That is why my part of the coalition is not keen to proceed with that matter, but it is worth pointing out that we are raising more money from property. There is a stamp duty land tax of 7% on residential properties costing £2 million or more, a policy that is easy to administer and will not impact on existing home owners.
On the mansion tax, we have made no secret of the fact that the two parties disagree. If we did not disagree on some things, we would be one party, not two. But in the circumstances that we are in, it has been perfectly possible for two parties to work together in a sensible and mature way and to reach agreement on a host of measures that have made our tax system fairer, easier to understand and competitive. We heard much from the hon. Member for Nottingham East to the effect that we should do more to help low-income workers. May I just remind him and the House of the progress that we have made in raising the personal allowance? In 2010, someone on £6,500 was paying income tax at 20%. From next month, someone has to earn £9,440 before paying any income tax at all. Our measures on the personal allowance have provided a huge tax cut for millions of people and will take more than 2.2 million of the lowest earners out of income tax altogether. In fact, over the course of this Parliament, someone working full time on the national minimum wage will have seen their income tax bill cut in half.
Let us contrast our record with that of our predecessors. Let us remember that when the right hon. and absent Member for Kirkcaldy and Cowdenbeath (Mr Brown) did his last Budget, rather than cut taxes for the working poor, he increased them. People talk about the scrapping of the 10p rate, but Labour did not scrap it, they doubled it. They turned it into a 20p rate. For example, someone earning £9,000 a year in 2007 would have heard a Labour Chancellor stand up and announce that a Labour Government were going to increase their income tax bill by more than £200. Last year, someone on £9,000 a year would have heard a Conservative Chancellor stand up and announce that a coalition Government were going to take them out of income tax altogether. Our constituents on £9,000 a year will soon be paying no income tax at all, saving more than £500 since the coalition came to power. Labour turned a 10p rate of income tax into a 20p rate. This coalition has turned a 20p rate into a 0p rate.
Mr Russell Brown (Dumfries and Galloway) (Lab)
Will the Minister remind the House what he did with the personal allowance for pensioners? Am I not correct in saying that he froze that?
Mr Gauke
There is no particularly sensible reason why there should be a different personal allowance for someone who is 64, compared with 65 or 75. It is clearly a simpler and, I believe, fairer system that one personal allowance should apply to everybody. That was never an option available to the Labour party because the main personal allowance for someone under the age of 65 was so low. We have been able to increase it substantially so that one personal allowance can apply to everybody. That is a simpler and fairer way to deal with that issue. At the same time, we have increased pensions, thanks to the triple lock guarantee, by much more than we would have done if we had stuck with the plans that we inherited. Last year, pensioners saw their biggest increase in the state pension.
Mr Gibb
While my hon. Friend is on the subject of the last Labour Government, he will recall that in 2009-10, the last financial year of the last Labour Government, expenditure exceeded income by £159 billion, equal to 11% of the whole country’s income. Since he has been a Minister at the Treasury, have civil servants explained to him why that was allowed to happen, virtually bankrupting this country?
Mr Gauke
My hon. Friend makes a very good point. There is no explanation that civil servants can give for that. An explanation and an apology are due from the Opposition, but we await either of those. I think that they persist in the view that there was no structural deficit even before the crash—
Chris Leslie
There was certainly a global financial crisis. But can the Minister confirm that under the current Chancellor of the Exchequer, national debt has risen from £811 billion to £1.111 trillion? Has debt risen by that much—yes or no?
Mr Gauke
Debt is the accumulation of deficits. We inherited the largest deficit in our peacetime history, and every measure that we have taken to reduce that deficit the Opposition have opposed, and then they complain that debt is rising. That is the most absurd position. We are criticised for not borrowing enough, and then we are criticised for our debt going up. There is no consistency or credibility in the Opposition’s position, just as there was no credibility or consistency in their treatment of low-paid workers. In government, they raised the rate of income tax; in opposition, they make promises that they will cut it. When we remember the reality, why should those on low incomes ever trust Labour again?
Mr Alan Reid (Argyll and Bute) (LD)
In fairness of taxation, another area where this Government have done a great job is on fuel duty. The fuel duty is now 10p a litre lower on the mainland and 15p a litre lower on islands than it would have been if the Labour party had still been in power. I hope that my hon. Friend will continue that good work and that in the Budget there will be an announcement that the September fuel duty increase inherited from Labour will not go ahead.
Mr Gauke
I will take that as a Budget representation. It is perhaps worth pointing out that there was a measure that the previous Labour Government had to reduce the deficit, which was substantial increases in fuel duty over the course of this Parliament. That is a measure that we have been able to stop, and quite right too.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
Will the Minister explain why four out of five people feel that austerity is not working? Is it related to the downgrading of the economy yet again for 2013? Is it the shrinking of the economy in the last quarter of last year by 0.9%? Or is it that the OBR had to call the Prime Minister to task and give him an economics lesson?
Mr Gauke
This is a difficult time for all major economies, and the UK is no exception, but matters would be much worse if we were to abandon our desire to bring some control to the public finances. We must ensure that there is the political will to deal with the public finances, and that is what this Government will continue to demonstrate. The approach of ignoring the deficit, believing that this is all an issue that can be addressed at some future time, is economically irresponsible and unfair on future generations who will face the bill that they will have to pick up because we failed to address those problems now.
Geraint Davies
Is this not also about fairness? For instance, while the threshold changes that he has mentioned of £3,000, which deliver a saving of £11.50 a week to taxpayers, cost £9 billion, he will save half a billion pounds from inflicting that £11.50 on people for the empty bedroom tax. With a small amount of the money used to raise the tax threshold, he could have alleviated that for the very poorest. Is not this about values and not inflicting the most hardship on the most poor while giving a bung to the voters?
Mr Gauke
I take it from what the hon. Gentleman says that rather than raise the personal allowance, he would prefer us to spend more on the welfare bill. If that is the hon. Gentleman’s position, fair enough, but I do not agree. Raising the personal allowance, taking people out of income tax, and making sure that work pays, are all things that a sensible Government should do, and I am delighted that this coalition Government are able to do that.
I come now to the taxation of those on highest incomes, on which we have already touched. The top 1% of taxpayers, those with incomes of over £150,000 a year, will pay more than a quarter of all income tax, while the top 5% of taxpayers, those with income of £68,000 or more, will pay nearly half of income tax. We agree that it is important that we create a tax system that ensures that those who earn the most contribute the most, but it is also important that we create a tax system that works. Among other things, that means a tax system that does not damage our economy by undermining our international competitiveness.
The Government inherited a top rate of tax at 50p, a rate that our predecessors, who this afternoon have painted themselves as the party of taxing the rich more, had put in place for just 36 of their 4,758 days in power. The rate that they left us with was the highest top rate among major economies. The last Labour Chancellor had made it clear that it was temporary. It was also very clear that it was having an immediate impact on our competitiveness.
Let me say something that I hope is not controversial: the principal purpose of income tax is to raise revenue. So we commissioned HMRC to analyse just how effective the 50p rate was in raising revenue.
That HMRC report, laid before the House, set out thorough and compelling evidence on the impact of the 50p rate. It showed that the rate was uncompetitive, distortive and inefficient. Not only did it not raise much revenue, but it could even have cost the Exchequer money when the indirect impacts on other taxes were taken into account. This Government were not prepared to maintain a rate of income tax that was both ineffective at raising money and that left us with the highest statutory rate of income tax in the G20, so we acted, in the interests of the country, and the top rate of tax will fall to 45p from April this year. This will see our top rate of tax drop below that of Australia, Germany, Japan and Canada, which will send a signal to businesses taking decisions on investment and location that the UK is a competitive environment.
Rehman Chishti (Gillingham and Rainham) (Con)
Has the Minister seen the KPMG report that states that Britain’s competitiveness is better than that of Switzerland and the United States and that that is a consequence of the measures taken by the Government?
Mr Gauke
My hon. Friend is absolutely right to raise that point in the context of the changes we have made to our corporate tax system. In 2009 KPMG commissioned a survey of tax professionals, asking them to name the three most competitive countries. The UK was nominated by just 16% of respondents. In 2012 KPMG undertook the same survey and the UK was nominated by 72% of respondents. That is a dramatic change, which we are proud of, and it will help our economy grow. We have also had the courage to reduce the 50p rate, which will help our competitiveness, too.
Andrew George (St Ives) (LD)
One thing we do know is that mansions cannot emigrate if the tax rate goes up. Earlier my hon. Friend the Minister said that the problem with the mansion tax is that it becomes a home tax. Does he agree that the council tax is also a home tax, and may I understand from what he has been saying that the Conservatives are coming round to the Liberal Democrat view that we should consider introducing a local income tax as an alternative for financing local authorities?
Mr Gauke
No, I think my hon. Friend would be wrong to reach that conclusion from what I have said. There is an interesting debate on the balance between property and income taxes, however, and I note his suggestion in that context.
May I now return to the topic of the 50p rate, as I know the hon. Member for Nottingham East likes to focus on it? The Opposition may think that in this day and age 50p is the least the wealthy should pay in income tax. I want to put to them the question raised earlier by my hon. Friend the Member for West Worcestershire (Harriett Baldwin). In less than four weeks the 50p rate will have gone. The additional rate will be 45p. Will Labour seek to reverse that? I am happy to take an intervention on this point. Will Labour seek to reverse that after the next election?
Chris Leslie
The Minister is asking the Opposition what is going to happen in two years’ time, but can he tell us what will happen in next week’s Budget?
Mr Gauke
That is very amusing, but of course I am not going to do so. I am fairly confident, however, that at the next general election the Conservative party will not be advocating a 50p rate of income tax. The hon. Gentleman is calling for a 50p rate of income tax, however. He will not tell us why. He is now saying, “Well, we don’t know what the economic circumstances will be.” That is fair enough, but does he think that his party will make a manifesto commitment at the next general election to introduce a mansions tax? Is that a commitment? I am happy to give way again.
Chris Leslie
It is very simple: now, in 2013, we can see the deficit rising and getting worse and we can see borrowing increasing, growth flat-lining and living standards falling, and the Minister is asking us to predict what we are going to do in two years’ time. How on earth do we know what other horrors are in next week’s Budget box or, heaven forfend, in the spending review of 26 June? Can he tell us what is in that spending review?
Mr Gauke
This is starting to get interesting, because we have now learned that the Labour party has moved a motion trying to persuade Liberal Democrats to vote in support of a mansion tax, yet Labour will not confirm whether it thinks a mansion tax is a sensible policy for the next Parliament. The position of the Liberal Democrats is clear and the position of the Conservatives is clear; what is not clear is whether the Labour party, after all, supports a mansion tax. Will it be in its manifesto? That is a perfectly clear question.
Debbie Abrahams
The Minister is being very generous in giving way, but I want to ask him what his Government are doing. I tabled a written parliamentary question to his Department asking about the average tax rates for different groups of people, and he may be astounded to know—as I am sure many of my constituents in Oldham will be—that 6% of people on incomes over £10 million pay under 10% income tax. What is he doing to address that inequity?
Mr Gauke
That is exactly why in the last Budget this Government brought in a cap on reliefs preventing the wealthy from driving down their tax rate to such levels—something the Labour party never did in 13 years in government. I note, however, that I get no answers to my question.
Let us be clear: we hear lots of complaints about the 50p rate being reduced to 45p, but we get no indication as to whether the Labour party would or would not reverse that if it were to win the next election. I can only assume that that is because deep down it knows that campaigning on 50p might look good on a leaflet but is lousy for the economy; after all, that seemed to be Labour’s approach when it was in government. We have also learned this afternoon that the Labour party is not committed to a mansion tax in the next Parliament, after all. So what do we have? We have opportunism on the 50p rate and opportunism on the mansion tax.
Mr Gauke
I am going to press on.
This is what we have seen from the Labour party, therefore: we have a party that increases the tax rates on the low-paid and then lectures a Government who take the low-paid out of income tax; we have a party that is in uproar at our reducing the additional rate of income tax to 45p but that will not promise to reverse it; and we have a party that did little, or nothing, to tax expensive properties more now being converted to a mansion tax for the purposes of this afternoon’s vote for transparently political reasons, but refusing to confirm that it will be their policy at the next election. That is pathetic. It is insincere, it lacks any semblance of credibility, and it deserves to be defeated. I urge my hon. Friends to defeat the motion and support the amendment.