(11 years, 4 months ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
17:40 - The House divided: - Ayes: 229 / Noes: 290 - Question accordingly negatived.
19:50 - The House divided: - Ayes: 226 / Noes: 281 - Question accordingly negatived.
22:19 - The House divided: - Ayes: 0 / Noes: 0 - Question accordingly negatived.
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
I beg to move, That the clause be read a Second time.
The Government have previously declared that we are “all in this together”, and I want to develop that theme. I am sure the Exchequer Secretary will be listening intently. They have insisted that those with the broadest shoulders should bear the greatest burden, but in Work and Pensions questions earlier, we heard that some Opposition Members are somewhat sceptical about that claim. Although the Government have also consistently told us that their priority is to cut the deficit by what they describe as “fair and reasonable means”, in politics it is actions, not mere words, that show priorities. The same Government, in tough times and against the backdrop of falling living standards—borrowing up last year, growth continuing to flatline and drastic cuts being made to benefits for hard-working families—have decided to give millionaires a tax cut. [Interruption.] I hear the hon. Member for Beverley and Holderness (Mr Stuart) call out that that is nonsense. I am more than willing to take an intervention from him should he wish to justify the tax cut for millionaires.
Mr Graham Stuart (Beverley and Holderness) (Con)
I am delighted to intervene on the hon. Lady. She will be aware that the art of taxation is to extract the maximum amount of money with the minimum amount of hissing. Is she aware of the principle that a lower tax rate can often lead to a higher tax take, and does she think it might apply in this case, thus meaning that millionaires pay more, not less?
Cathy Jamieson
It will be no surprise to the hon. Gentleman that I do not agree with his point.
Cathy Jamieson
I am aware of that point of principle and I will come to it in due course, because it is an issue to consider.
Stewart Hosie (Dundee East) (SNP)
Before the hon. Lady comes to that principle, she will be aware that the 2012 Red Book confirmed that, according to the Government’s own figures, the change would cost £450 million. At the most basic level, whether we agree with that number or think it is too low, if there is £450 million going spare, it would be better to do something socially productive with it than to give it back to people who are already wealthy.
Cathy Jamieson
I thank the hon. Gentleman. He and I do not always agree on every matter that is discussed in the Chamber, but on this occasion I accept what he says.
We have heard disagreement on the Government Benches with the point that I was making, but the reality is that as of this April, 13,000 people earning more than £1 million a year are receiving a tax cut equivalent to £100,000. Another 254,000 people earning more than £150,000 a year are also seeing their income tax bills go down. At the same time, if we take into account the changes that the Tory-led Government have made to tax, tax credits and benefits, households in the UK will be an average of £891 a year worse off. That is the reality that people face. As I have said in a number of previous debates, that may not seem a lot of money to the millionaires who are getting a tax cut from the Government, or to those on the highest wages, but it is a lot of money for my constituents and, I am sure, for the constituents of other hon. Members. I see some heads nodding on the Government Benches. It is a huge amount for constituents throughout the country, who are being ruthlessly squeezed to pay for the Chancellor’s economic failure.
Andrew Gwynne (Denton and Reddish) (Lab)
It is indeed a lot of money for many of my constituents and my hon. Friend’s. Is she aware of the figures published by the Institute for Fiscal Studies showing that for a two-earner couple with children, the loss caused by the changes rises to £1,869.09?
Cathy Jamieson
Yes indeed. My hon. Friend makes an important point on which I will comment further in due course.
Cathy Jamieson
Let me answer my hon. Friend’s point because it is important to understand the impact that this Government’s policies are having on families across the country. He makes the important point that a couple with children in such circumstances will face difficulties, and in some instances must make choices about how they will pay for things that we or our children perhaps take for granted. Government Members have simply failed to recognise or respond to, or in many instances acknowledge, that point.
Cathy Jamieson
The hon. Gentleman has probably heard many Opposition Members stand at the Dispatch Box and make our position absolutely clear: if we were in government just now, that is not what we would be doing. There is a whole range of other things—
Cathy Jamieson
I want to finish this point. If the hon. Gentleman can contain his excitement, I am sure he will have the opportunity to develop his arguments at some stage. It is important to recognise that the Government are doing many things that Labour simply would not do. We suggested a whole range of things that the Government could do to get growth back into the economy, and I will mention some of those today. It is important, however—[Interruption.] I hear the Minister from a sedentary position say, “Borrowing more”. Is that an admission that his Government are borrowing more than they set out to do, that they have not got the deficit down as planned, and that they have not brought growth back into the economy as they promised? I would be more than happy if the Minister wished to put something on the record at this point. [Interruption.] He does not, so I will give way to the hon. Member for Nuneaton (Mr Jones).
Mr Jones
The hon. Lady said that if Labour was in power now it would reverse the decision and reinstate the 50p tax rate, but there will not be a general election for the next two years. If the Labour party is in government in two years’ time, would it then reverse that decision and reinstate the 50p tax rate—yes or no?
Cathy Jamieson
I find it astonishing that Government Members never seem to take any responsibility for what is going on under their watch. Under their watch, the deficit has not come down as much as they promised, borrowing is higher than planned, and the Government have failed to get growth back into the economy.
Richard Fuller (Bedford) (Con)
The hon. Lady made some important and passionate points about the impact of being worse off every year by £800, which is a big amount of money for many of my constituents. Given that we have just broadly agreed public expenditure figures for the next Parliament, does she feel that if this is a point of principle it is beholden on her to answer the question posed by my hon. Friend the Member for Nuneaton (Mr Jones) about whether a Labour Government would stick to their principles in the next election?
Cathy Jamieson
I can say to the hon. Gentleman that yes, we would stick to principles of fairness and equality, and we would not seek to advantage those who already have the highest incomes at the expense of those on lower incomes. Once again, I repeat what a number of Labour Members have said: at this point we do not know in what shape the economy will be two years from now, and as a responsible Opposition we intend to look in detail at where spend would be best put in the years ahead.
Cathy Jamieson
I want to make progress but I will, of course, give way to the hon. Gentleman.
Jacob Rees-Mogg
I am extremely grateful to the hon. Lady; she always covers these issues with great interest. Why is the shadow Chancellor able to commit to following our spending plans, yet will not give any indication of tax rates? Surely that is the second side of the coin.
Cathy Jamieson
I always listen with interest to what the hon. Gentleman has to say, and I know from his contributions in the House and in Public Bill Committees that from time to time he scrutinises the Government fairly thoroughly. There is a difference between saying that the overall spending limit put on by the Government will be our starting point, and accepting their approach in full, which is not what the shadow Chancellor has said, of course. He has made it clear that we would look at that overall spend and see how we could allot resources more fairly.
Despite the fact that the Government tried to make much of fairness in the spending review, let us look at the millionaires who will benefit from the tax cut. First, 643 bankers earn more than £1 million and the combined tax cut will be worth £34.6 million to them—[Interruption.] There is a lot of grumbling and other muttering from a sedentary position by Government Members. If they wish to speak, they will be able to do so later.
My constituents want to know how the Government can justify that tax cut for millionaires at a time when those on middle and low incomes are being squeezed so hard. I can understand why the public are angry and why they do not feel that the Government are acting fairly. They see many people on massive salaries that ordinary people can only dream of and working in the very same banks that were bailed out by the taxpayer now receiving a handout from the coalition. People do find that difficult to understand. That is why our amendment would require the Chancellor to consider the effect that the tax cut will have on the level of bonuses in the financial sector. That is what the taxpayer—ordinary people trying to make ends meet when their living standards are being reduced—wants to know.
Richard Fuller
The hon. Lady makes a good point about the impact on bonuses. Does she welcome the recommendation from the Parliamentary Commission on Banking Standards, which the Prime Minister has accepted, which will change from very short-term bonuses to long-term ones? Would not that mitigate some of the very real concerns that she has mentioned?
Cathy Jamieson
I am glad that the hon. Gentleman recognises the points that I have made. He will, of course, be aware of some of the discussion that took place in Committee on the Finance Bill and the Financial Services (Banking Reform) Bill. It is unfortunate that the Government chose not to accept our amendments to those Bills, and so far we have not seen legislation to enact the change that he mentions. I look forward with interest to further debates on that subject at a later date.
Mr Graham Stuart
The hon. Lady is making a powerful speech, but she has mentioned what makes the public angry. I think what makes the public angry is when they see members of a party opposing in principle, and expressing great moral outrage about, the bedroom tax—the spare room subsidy—or the 50p tax rate and then refusing to answer a straightforward question about whether they would reverse one or both of them. It is not good enough, and it is no wonder that the public think politicians are slippery and cannot be trusted.
Cathy Jamieson
The hon. Gentleman started by trying to pay me some sort of compliment, saying that I was making a powerful speech, but I simply do not accept his assertion that what outrages the public is politicians standing up to make passionate speeches on their behalf. The points that I am making are the very ones that have been made by my constituents, by the constituents of my hon. Friends and—I am sure—by many of the hon. Gentleman’s own constituents.
It is not good enough for Government Members simply to sit there and say, “What is the Labour party going to do two years from now?” when they are taking no responsibility whatever for what they are doing at the moment. It is a responsible position for us as the Opposition to say, “We understand that there will be an overall spending limit; that will be our starting point, but that does not mean that we have committed to it as an end point, and it does not mean that we are committed to doing exactly what the Government would do.” I am sure that as we move forward, a number of initiatives will be developed and outlined in greater detail.
Sheila Gilmore (Edinburgh East) (Lab)
Does my hon. Friend agree that what is going to annoy many of our constituents is that they were told three years ago that all the measures put in place then were for a purpose, that the deficit would be brought down by the end of this Parliament and that we were all in it together, when that has simply not happened?
Cathy Jamieson
Once again, my hon. Friend is absolutely correct. When we heard the spending review announcements last week, many members of the public recognised that this was a spending review brought forward not because it was part of some grand plan by the Government or something that they were always going to do, but because of the Government’s own failures on the economy—their failure to get the deficit down as promised; their failure to deal with borrowing; and, indeed, their failure to get growth back into the economy.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
I congratulate my hon. Friend on her excellent speech. Further to confirm her point so that everybody gets it, did not the Chancellor promise not to introduce another spending review before the next election, and is not the failure of his economic policies the reason why we needed to have that spending review?
Cathy Jamieson
My hon. Friend is absolutely correct. Many members of the public will not look at the Chancellor’s spending review as a success—it is not—and they will recognise that this Government have, as we said at the outset, cut too far and too fast, so that we have had all the pain and none of the gain that the Government promised. [Interruption.] Conservative Members can sit and sigh, make all sorts of side interventions, look at the ceiling, look to their feet or whatever else, but the harsh reality is that the constituents we all meet on a day-to-day basis know that their living standards are dropping. They know that the money in their purse does not go as far at the end of the week, because prices are rising at a time when wages have stagnated at best, and are dropping at worst.
To return to the new clause, the bankers earning £1 million or more a year will benefit from the combined tax cut at a cost of at least £34.6 million. As I said earlier, we can understand why the public are angry and why they do not feel that this Government are acting fairly. Given some of today’s comments, I suspect that many of the people watching this debate will gain the impression that the Government are not listening to them, that they have no understanding of the issues they face and that, sadly, in many instances, if not all, they do not actually care.
Our new clause is a relatively mild-mannered amendment—one of the sort that we proposed regularly in the Finance Bill Committee, asking the Government to look at the impact of the policies that they are introducing. In this particular instance, the new clause asks the Chancellor to consider the effect that his tax cut will have on the level of bonuses in the financial sector. There 30 million taxpayers in the UK—30 million people who go out to work every day and have to pay their way—yet they realise that the Chancellor has decided to cut taxes for the richest among them. There is no getting away from that. That tells you everything you need to know, Mr Speaker, about this Tory-led coalition. Never mind the rhetoric of “We’re all in it together”, and never mind the risible attempts to paint themselves as the party of fairness as they tried to do in the spending review, because when it comes down to it, the Tories and the Liberal Democrats are effectively topping up bank bonuses with a further tax cut. That is the reality of what is happening.
Labour Members believe that there is a better way. We have consistently said that we would use a tax on those massive bonuses to fund a jobs guarantee for every young person who has been out of work for a year or more. We would do that because the trends in long-term employment remain extremely worrying.
Kwasi Kwarteng (Spelthorne) (Con)
How much money does the hon. Lady expect to raise through a tax on bank bonuses, and how does she think it could be spent on the projects on which she wants to spend it?
Cathy Jamieson
We have consistently said that we would seek to use the tax specifically to provide a jobs guarantee for every young person who has been out of work for a year or more. I am sure that the hon. Gentleman, and indeed most Members in all parts of the House, will have met—or received e-mails, letters or telephone calls from—young people who are absolutely desperate to be given that first start, to walk through the doorway, to show what they can do, to use their skills and to learn more. Sadly, as we have heard, the guarantees provided under the Work programme have not met expectations, so it is important for us to think about what we could do. In March this year—
Cathy Jamieson
I want to finish what I am saying. In March this year, 167,000 adults had been out of work for more than two years. The figure has increased by 97% since 2012, and by 216% since 2011. We believe that the way to get people back into work is to tax the very richest. I am sure that Members in all parts of the House would agree—
Cathy Jamieson
I want to finish what I am saying, and I want to make progress. I think that I have been reasonably generous with my time so far.
I am sure that Members in all parts of the House would agree that returning people to work is the best way of reducing the benefits bill and getting the economy moving again. However, the facts speak for themselves, showing that the Government prioritise those at the top and leave everyone else to struggle. Let me return to what my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) said earlier.
Cathy Jamieson
No; I really do want to put this on the record. As my hon. Friend said, a two-earner couple with children are losing an average of £1,869 while a millionaire receives a tax cut. Would the hon. Gentleman care to explain to a two-earner couple with children in his constituency why that is fair?
Kwasi Kwarteng
I am grateful to the hon. Lady for giving way. I did not catch the answer to my earlier question. How much money in a fiscal year does the hon. Lady expect to raise from the bank bonus tax?
Cathy Jamieson
I note that the hon. Gentleman showed no inclination to explain to that two-earner couple with children in his constituency why it is right for a millionaire to receive a tax cut at a time when they are set to lose a significant amount of money.
Barbara Keeley (Worsley and Eccles South) (Lab)
I wonder whether my hon. Friend remembers two things. She may remember that, an hour before the beginning of the debate, we witnessed a lamentable performance by Ministers who failed to answer question after question about the Work programme, which is one of the worst and least successful programmes for the unemployed that we have seen for years; and I am sure that she remembers the future jobs fund, which was hugely successful in my constituency and returned hundreds of people to work. I think constantly about the people—nearly 1,000, including 195 young people—who have been unemployed for more than a year, and I fervently wish that we still had the future jobs fund, which was not only a successful programme but returned more than it cost.
Cathy Jamieson
My hon. Friend is right to mention the success of the future jobs fund. I still believe that, as we said at the time, the Government made a huge error in abolishing the future jobs fund. As I know from my own constituency, it gave young people an opportunity to get into the habit of going to work and learning skills, and gave the voluntary sector, the social economy, the third sector, call it what you like, an opportunity—
Cathy Jamieson
No. I am going to finish what I am saying, because I want to make clear the extent to which people are losing out. The future jobs fund gave opportunities to many young people and it was short-sighted of the Government to scrap it. It seemed to me that the Government did so simply because it was brought in by the previous Government. However, following questions in the House and elsewhere, we know that the Work programme has not delivered for many young people in our constituencies.
I go back to the fact that individuals and families are losing out in our constituencies. Not only will a two-earner couple with children lose on average £1,869, while a millionaire gets a tax cut, but a single parent who works and has tried to do the right thing in getting into employment and holding down a job, as well as meeting their caring responsibilities, will lose £1,226. At the same time, the millionaire banker about whom we talked earlier will see his tax bill cut. Two earners without children who are a couple will lose £672.
Those are remarkable figures. As I said earlier, they sum up the coalition’s warped sense of priorities. They are looking after those at the top, while making everyone else pay the price for their economic failure.
Cathy Jamieson
I will in a moment.
No wonder that people think that there is one rule for the richest and another for the rest. No wonder people are questioning why the Government believe that the way to motivate people on low incomes is to pay them less, and the way to motivate people on high incomes is to pay them more. In these challenging economic times, surely we should focus on supporting those who need it most. New clause 8 asks the Government to look at the issue again. We are asking them to undertake a proper assessment of the impact of the cut, as well as an analysis of how much the Treasury would gain if the additional rate were returned to 50% in 2014-15. That is not an unreasonable request. I hope that, on this occasion, the Government will accept the new clause and report back in due course, although I suspect that that may not be the case.
I outlined earlier why the Opposition think that the Chancellor’s logic is rather odd. He claims to find tax avoidance morally repugnant and to want to crack down on it, but this tax cut simply rewards the wealthiest. He appears to justify it on the ground that the behavioural response to the 50p rate was more avoidance. There seems to be a rather strange logic here. Instead of cracking down on the avoidance, he is rewarding it. Surely those are not the values that we want in the Government: one rule for the richest and another for the rest of us.
It is not what the Government used to say, before their façade of fairness began to slip. The Prime Minister no less said:
“I have been very clear—we have all been very clear—that we have to do this in a way that is fair so that the broadest backs bear the biggest burden.
That is why we haven’t changed… the 50p tax rate.”
However, the Government are giving those with the broadest backs a tax cut, while people on lower incomes are shouldering the bigger burden. I heard Government Members supporting what the Prime Minister said. It is a pity that they now seem to have gone back on that.
Cathy Jamieson
If the hon. Gentleman can contain himself for a few more moments, I would like to quote the Chancellor. I am sure he will want to hear what his own Chancellor said. Indeed, he may even have been at his party’s conference when the Chancellor said this:
“We could not even think of abolishing the 50p rate on the rich while at the same time I am asking many of our public sector workers to accept a pay freeze to protect their jobs. I think we can all agree that would be grossly unfair.”
Does the hon. Gentleman agree that would be grossly unfair?
Kwasi Kwarteng
The hon. Lady will know that I have always consistently argued for lower tax rates across the board, so that is my answer to her point. I am also perplexed as to why she will not give an answer to my earlier question about the amount of money she hoped to raise from a bankers bonus tax, given that that is such a key element of her party’s fiscal plans.
Cathy Jamieson
Once again, it is rather strange that the hon. Gentleman does not seek to give any comfort to his own constituents or give any explanation of his own policies. We have put forward the idea of the bankers bonus tax to get young people back into employment, and I also think the general public would like those bonuses to be less than they have been over the past few years.
I want to go back to the point the Chancellor made. He said at his party conference that he would not
“think of abolishing the 50p rate on the rich while at the same time…asking many of our public sector workers to accept a pay freeze”.
I do not often agree with the Chancellor, but I do think he was right then—and that he is absolutely wrong now.
In the interests of balance, however, I should also quote what is perhaps my favourite of these interventions. It was made by the Chief Secretary to the Treasury—the Lib Dem Chief Secretary. He summed things up quite neatly when he said:
“People who think that the priority for this Government should be reducing the tax burden on the very wealthiest are living in cloud cuckoo land.”
So in the words of the Government’s own Chief Secretary to the Treasury, this is a decision from cloud cuckoo land. I think that many members of the public would agree with that.
No doubt Government Members will protest and say that the higher rate was not raising any money—
Cathy Jamieson
No, I want to move on. I have been very generous in taking interventions, and it is important that I now move on to make the many points I have not yet had the opportunity to put on the record.
As I have said, no doubt Government Members will protest and say that the higher rate was not raising any money due to tax avoidance, but the Institute for Fiscal Studies has said:
“By giving out £3 billion to well-off people who pay 50p tax…the Government is banking on a very, very uncertain amount of people changing their behaviour and paying more tax as a result of the fact that you’re taxing them—”
Cathy Jamieson
I want at least to get to the end of that quote—that would be quite nice. I would like other Members to have the opportunity to contribute to the debate; indeed, I am sure the hon. Gentleman is gearing himself up for that as we speak.
Just in case anyone missed that IFS quote, let me make clear what it said:
“By giving out £3 billion to well-off people who pay 50p tax…the Government is banking on a very, very uncertain amount of people changing their behaviour and paying more tax as a result of the fact that you’re taxing them…There is a lot of uncertainty, a lot of risk on this estimate.”
I know that Government Members will from time to time quote the IFS and will, from time to time, doubt its figures. Just in case they do not accept what the IFS has said, let us look at what the Office for Budget Responsibility has said about this issue. It said that any decrease in tax avoidance from the reduced rate would be “highly uncertain”. A written answer from the Exchequer Secretary in the summer of 2012 stated that in 2010-11 70% of people earning over £250,000 were paying more than 40% in tax and 80% of people earning between £500,000 and £10 million were paying the 50p rate. Each and every one of those people is now in line for the tax cut.
Cathy Jamieson
I will give way to the hon. Gentleman, whom I feel sure will explain to me what the Government intend to do about tax avoidance and how they will stop this issue emerging?
Jacob Rees-Mogg
As it happens, I was going to say something different, which will not surprise the House particularly. I was going to say that history tells us that cutting taxes raises more money, and that is probably a better bet to working out what will happen than fishing around for convenient forecasts. In 1979 and 1988 tax rates were cut and revenue went up, and that is a pretty good basis for doing this again.
Cathy Jamieson
I look forward to the hon. Gentleman’s contribution in our future debates about the possibility of a mansion tax and a reduction to a 10p rate. I always listen with interest to what he has to say, but on this occasion I have to say to him that the first year of the new rate is not a real basis for estimating the revenue raised, or likely to be raised, by the 50p rate.
The Government should be tackling tax avoidance. We all want to see that, and we will be debating it more when we discuss later clauses.
Cathy Jamieson
I will give way to the hon. Gentleman, as I know he takes this issue very seriously.
Richard Fuller
I wish to take the hon. Lady back to the impact of the bankers bonus tax on getting young people back to work, because I do not think she had the numbers to hand. May I just indulge you with some statistics, in order to help the Opposition, Mr Speaker? Last year, the bankers’ bonus total was £5.2 billion. There are 61,000 young people who have been out of work for more than a year. Much of that £5.2 billion would have been paid to taxpayers who are not UK-resident—they will work for a UK bank but not be resident here—but let us assume that it is all paid to UK residents. An increase in the rate from 45% to 50%, as the Opposition are proposing, would yield £260 million a year—the equivalent of £4,500 per young person out of work. Is the basis of her argument that £4,500 is enough to employ a young person who has been out of work for more than a year?
Cathy Jamieson
I thank the hon. Gentleman for his information; I gave way to him because I know he takes these issues seriously. As with a range of other issues, we would have to look—if the bankers bonus tax was brought in—at the circumstances at the time and how best to get young people into employment. Other hon. Members will have heard me speak about this issue before, but I can tell the House that we believe young people and those who have been out of work for two years ought to accept that there will be a compulsory jobs guarantee. From speaking to a number of small businesses and some of the larger ones, I know they believe that a range of things could be done to encourage them, as local companies and national companies, to take on young people and get them into employment.
Where the Government have done things that we think are helpful, for example, in relation to national insurance contributions, we have supported them. As has been said, we do not accept that the move away from the future jobs fund was the correct thing to do.
Mark Field (Cities of London and Westminster) (Con)
Does the hon. Lady not recognise the fatuousness of her argument that this money could somehow be ring-fenced for the less well-off, which has been exposed by my hon. Friend the Member for Bedford (Richard Fuller)? The same applies to the next set of amendments on the mansion tax and the 10p tax rate—the figures are not well-researched. The proposition might be attractive to the public at large, but the comparison is fatuous and has been ably exposed by my hon. Friend.
Cathy Jamieson
I do not think that my constituents in Kilmarnock and Loudoun who are out of work and desperate to get jobs—including the 400 or so people across East Ayrshire and into neighbouring Lanarkshire who lost their jobs as a result of the collapse of Scottish Coal, the people who lost their jobs when Diageo moved out of the town of Kilmarnock and closed the historic bottling plant, which bottled Johnnie Walker whisky, and all the people who are out of work as a result of the squeeze on small local businesses—would believe that it is fatuous to suggest that a tax cut for millionaires is the wrong priority when cuts have also been made to working tax credit and when other things could be done to support people into work.
Barbara Keeley
I want to follow up on the points made by the hon. Member for Bedford (Richard Fuller) about the future jobs fund and to hark back to an impact analysis of the fund done for the Department for Work and Pensions, which found that society gained £7,750 per participant through wages, increased tax receipts and reduced benefit payments. Participants were calculated to have gained £4,000 and employers to have gained £6,850, with the cost to the Exchequer calculated at £3,100 a job. The figures the hon. Gentleman cited would cover the cost. Even better, two years after the start of their time with the fund, those former jobseekers were much less likely to go back to being on benefits. Is that not something we should be re-exploring?
Cathy Jamieson
My hon. Friend has made her point extremely succinctly and has put on the record why we feel that the future jobs fund was not only important but a successful initiative. I say again to Government Members who think that the proposal has no impact on the lives of ordinary people that all those who went through the future jobs fund programmes and who worked on them say that the fund was a valuable way of getting young people back into work. People in my area would certainly have liked it to continue.
Let me come back to the points about the new clause. As I said, the Government should be tackling tax avoidance—we will debate that further later—but that does not mean that we should compensate the wealthiest at the expense of those on middle and low incomes. I would have hoped, in the light of everything the Government proclaimed around the time of the spending review about fairness and ensuring that growth came back into the economy, that even at this stage they might have dropped the plan for a millionaires tax cut. That is a forlorn hope, however.
The decision to create that tax cut goes to the heart of the coalition’s political vision and beliefs—and by that I mean both sides of the coalition. We face a period of national upheaval at a time when resources are stretched. The Government criticise the Opposition when we take responsible decisions to think about the way forward while failing to explain their positions. At a time when resources are stretched, when people up and down the country are working harder and harder than ever before for less in their pockets and when public services are being cut so drastically, it is even more crucial that our Government should be a uniting force rather than a dividing one. In that context, I must ask again why on earth this is the time for a tax cut for the richest.
The Government try to talk a good game, but as I said at the outset, reality does not match their rhetoric. They do not seem to understand the need for a one nation approach to politics and they are not able to encourage a sense of national mission, no matter how much they talk about being “all in it together”. This Government will go down in history as the most divisive.
Mr Graham Stuart
I am grateful to the hon. Lady, who is being most generous in giving way. She said earlier that this matter is about action, not words, and has just said that it is about reality, not rhetoric. She is making an impassioned speech, but will she explain why she did not vote against the 50p tax rate and why, in addition, she is not committed to reversing the measure? Why, after the faux outrage over the spare room subsidy, is she not committed to reversing that either? People outside will think that this has a stench of hypocrisy about it.
Cathy Jamieson
The reality for my constituents and those of Labour Members is that they want to know why the Government made the change in the first place. They want to see action taken in the future, but there are two years until the general election—we will lay out how we intend to take things forward in good time for that—and I respectfully suggest to Government Members that we do not know exactly what sort of mess we will be left with. We see no responsibility taken by the Government for the situation that the economy is in at the moment and what has happened on their watch—
Cathy Jamieson
I hear yet again that tired mantra from Conservative Members, as if, somehow, Labour created the global financial crisis—
Sheila Gilmore
We have been asked that question over and over again. Had we been asked it two years ago, and had we based our answers on the projections that we were given by the Government, that answer would be very different from the one we would have to give now. That might well be the case in two years’ time.
Cathy Jamieson
My hon. Friend speaks words of wisdom. I have repeatedly said today, and it has been said by others, that while we have accepted that, come 2015 if we are in government, we will have to take as a starting point the overall spending plans that have been laid out, that does not mean that we would have made the same choices or that we would make the same choices in the future.
Andrew Gwynne
I would not expect my hon. Friend to set out our tax policies two years before a general election, but is it not important to emphasise that there is a question of priorities here? The issue is that the Government have chosen to clobber some of the lowest-paid workers in my constituency and in hers with a council tax increase caused by their changes to council tax benefit?
Cathy Jamieson
My hon. Friend speaks with great passion on behalf of his constituents and he is correct to identify the fact that we need, in difficult times, to talk the language of priorities. That is why on previous occasions—from the Dispatch Box and elsewhere—I have asked the Government why they believe that it is fair to give the tax cut to the richest and, on top of that, to give those very same people the winter fuel allowance even if they happen to be pensioner millionaires. To me, that does not seem to be fair and reasonable, and I am sure it does not to my hon. Friend either.
Even where a council tax freeze has been put in place, people are seeing local services that they rely on being cut to the bone. They are not able to access educational opportunities, leisure opportunities, support via social services, library services, the arts and culture. It is all very well having a freeze, but in a range of areas people feel that they are not necessarily getting the services in return.
Andrew Gwynne
My hon. Friend is absolutely right, but the situation is even worse than that for 2.4 million low-paid families, who are losing some, if not all, of their council tax benefit. That is an in-work benefit, paid not just to people who are out of work. Those families will, for the first time, be getting a tax increase, because they will have to pay council tax.
Cathy Jamieson
Once again, my hon. Friend is absolutely right. He is a powerful advocate for his constituents and those on the lowest incomes. He is correct to identify the fact that, despite the rhetoric, the Government have, across the piece, consistently attacked the living standards of those in work and on low incomes. I need only refer again to tax credits, particularly for those working part-time hours. The Government seem to think it fairly straightforward for them simply to get additional hours of work, but we know that in many industries, it is not that easy; it is not possible to get the requisite number of hours. Many people who were, to use the Government’s mantra, doing the right thing—taking up employment, for however few hours and however low the wages, rather than doing nothing or sitting at home on benefits—found their working tax credits cuts. As my hon. Friend correctly says, that was compounded by changes to housing benefit, which mean that many of them are even worse off.
Let us look at the impact. I said that this Government will go down in history as a Government who divided; of the richest who are receiving a tax cut, 85% are estimated to be men, and about 70% of the revenue raised from direct tax and benefit changes will come from women. Some 52% of those benefiting are based in London and the south-east. I do not for a moment mean to suggest that there are not people there on extremely low incomes; of course there are, and many of my hon. Friends will no doubt wish to make that point. However, long-term unemployment, including in the north and Scotland, is on the rise.
Andrew Gwynne
My hon. Friend is being incredibly generous in giving way. She is right to emphasise the impact on low-income families, but the tax changes are also hitting moderate and middle-income families. She will be aware that the measures involve lowering the higher rate tax threshold to £41,450. Why is it that those on the lowest incomes and middle incomes are being clobbered, whereas those on the highest incomes are getting a tax cut?
Cathy Jamieson
Once again, my hon. Friend makes an important point, particularly in relation to many middle-income earners. The issue of the lowering of the threshold at which the higher rate of tax is paid has perhaps not had as much air time as some other topics, or other cuts that the Government are making, but the reality is that it affects many who would not see themselves as particularly well off, who have worked hard over the years and been promoted in a company or in the public sector, and who are trying to do the right thing for their family, and are feeling the squeeze.
To go back to the point about who will suffer most as a result of the Government’s policies, I emphasise that I know that in many places in London and the south-east, employment is not at the level that it is elsewhere, and incomes are being squeezed, but it is interesting to note the geographic spread.
Perhaps we should not be surprised to see the Tories operating in this way. I recall, on first entering this place, attending a debate on cutting and abolishing child trust funds. I was surprised that the Government thought that was the correct thing to do at that stage. They were once again attacking those who were trying to do the right thing and support their children and families. Under their approach, it is women and families— the very people they say they want to protect—who consistently suffer. The rhetoric and the reality are two very different things. We should perhaps not have been surprised by the Government’s proposals. It is an age-old Tory mantra that the poor—those on the lowest incomes—are expected to work harder; otherwise, they will be made poorer. At the same time, the rich will work harder only if we make them richer. In this instance, there seems to be one rule for the very richest and another for everyone else. This is arguably the same old out-of-touch Tories—this time, sadly, aided and abetted by the Liberal Democrats.
I always like to try to end on a positive note, however, and I come back to the point that the new clause is a relatively mild-mannered proposal. It seeks nothing more than that the Government should use their good offices to gather the necessary information to make an assessment of the impact of the changes and to produce a report. That does not seem an unreasonable request. Indeed, when the Exchequer Secretary to the Treasury was in opposition, he regularly requested such reports and no doubt regularly tabled amendments and new clauses to that effect. He is nodding his head. I hope that he will remember those days, and remember why it is so important to have such reports and assessments. I hope that he will show that he is not only a listening Minister but a Minister who is prepared to act, and that he will accept new clause 8.
Sir Edward Leigh (Gainsborough) (Con)
The hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) has waxed lyrical at some considerable length about the iniquity of the Government’s seeking to reduce the higher rate of tax, but the question that kept occurring to me was this: if she and her colleagues felt so strongly about this, why were the Labour Government quite happy to keep a maximum higher rate of tax of 40% for their entire 13 years in office?
Mark Field
I should just correct my hon. Friend: there was one month in that 13-year period when the rate was different. Does he agree, however, that it would be interesting, if the Minister were minded to accept the new clause, to see a full analysis of that 13-year period?
Sir Edward Leigh
I was going to go on to say that the Labour Government lasted 13 years, and that it was only in the last month that, under the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), they felt so strongly that they had to impose a 50% rate.
This is an important point. For their first 10 years, that Labour Government were led by Tony Blair. When he and Lord Mandelson were planning for that Government, they made a conscious decision not to replicate the old-fashioned language of class warfare that we have heard so much of today. They made a conscious decision that, if the Labour party was ever to regain the trust of the British people and regain power after 18 years in opposition, it would have to reach out to the centre ground. One of the principal ways in which they did that was to commit themselves, before getting into government, to accepting the spending plans of the then Chancellor of the Exchequer, my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke), now the Minister without Portfolio. They accepted his spending plans and made it absolutely clear that they would not raise the higher rate of tax during their term of office. That was a very sensible thing to do.
In truth, the only possible justification for raising the higher rate of tax above 40% is a political one. It is political because it appeals to the argument, which we have heard repeatedly today, that a right-wing, vicious, unpleasant Tory Government are only helping millionaires. At first sight that might seem quite an attractive argument for the Labour party to adopt in opposition, but if it is so attractive, why did the right hon. Tony Blair, when he was in opposition and planning for the greatest election landslide in Labour’s history, not follow it? He did not follow it because he realised that it was nonsense economically and, ultimately, nonsense politically.
Richard Fuller
My hon. Friend is making the point, very cogently, that elections are won on the middle ground. The old Labour party, under Tony Blair, understood that. What we are seeing today, in this new clause, is the new Labour party moving to the left and seeking to introduce more taxes. When we turn over the page in the amendment paper, we see that its next new clause proposes yet another tax. Is not this just the start of a further leftward lurch by the Labour party to tax people more and waste public money?
Sir Edward Leigh
I do not know why we are bothering to give the Labour party this friendly advice. Why are we trying to help it, when it is so obvious that its approach is increasingly to remain in its comfort zone on tax?
The speech we just heard was littered with the word “millionaire”. It is the old language of Denis Healey, going back to the 1970s, when they wanted to tax the rich until the pips squeak. It does not impress anybody, and one reason for that is that people think it is fundamentally hypocritical. The point has been made again and again: the Labour party is not making any commitment to reverse the changes. If Labour Front Benchers really felt so passionately about this matter, they could say now from the Dispatch Box that it is iniquitous and make an economic case against it.
Throughout the speech that we have just heard there was virtually a complete absence—a desert—of economic facts and justification on how much money would be raised. All we heard, constantly, was the mantra about millionaires getting richer. The truth is that the top 5% pay 25% of taxation. There is no evidence—Tony Blair understood this—that if we tax them more we will increase tax revenues for the Exchequer. All we would be doing is increasing avoidance. It is bad economically, bad politically and it does not make sense.
Mark Field
My hon. Friend has hit the nail on the head. I am afraid that the impulse has been a political one. If there was any understanding of economics on the Labour Front Bench—perhaps there was in the brief glimpse in 1996 and 1997 to which he referred—those Front Benchers would understand the Laffer curve and its operation and that reducing headline tax rates will bring in rather more money. That was the case in the 1970s and 1980s, as was mentioned earlier in the debate, and I am sure that it will prove to be the case again when we look at the numbers in the year ahead.
Sir Edward Leigh
We are all familiar with the Laffer curve and the point made by my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg). When taxes were reduced in the late 1970s and the 1980s, revenue increased. There is no economic case whatsoever for having a 50% tax rate. The only case, and I think it is very poor, is a political one. What I am seeking to argue—I do not know why I am seeking to help the Labour party—is that it impresses nobody.
One good point was made in the many interventions we heard from the Opposition side, and from the Government side: why are the Government dragging more people into the higher rate of tax at all? That is a fair point, and it leads me to an argument I have made many times: if we want to improve tax revenues and get more fairness in the tax system, we should move as much as possible towards a flat rate of tax. We have the longest tax code in history. If a Chancellor of the Exchequer on Budget day takes with one hand and gives with the other, and if has his little schemes to help investment or job creation, all he is doing is creating perverse incentives. A much better way of creating a modern, progressive and successful tax system would be to have as flat a rate of tax as possible, as is being done increasingly around the world. It is ridiculous that a deputy head teacher of a primary school, for example, has to pay a higher rate of tax. I think that shows some of the problems the country is in economically.
I do not want to repeat all the old arguments about who got us into this mess, but perhaps I will be forgiven for saying that unfortunately we have to pay our way, and the Government are therefore between a rock and a hard place. It is absurd to be dragging more people into higher rates of tax; what we should be trying to do, across the House, is to flatten the tax base and make it much simpler, much more coherent and much more understandable, so that people know that there is, to all intents and purposes, a single rate of tax. It does not matter whether they earn £30,000, £300,000 or even £3 million a year—they will be paying 35% of it in income tax. If we had such a modern tax system, it would generate a huge surge in productivity. The only people who suffered would be the chartered accountants, thousands of whom might lose their jobs; I pity the chartered accountants. I want to try to generate a modern, progressive tax system where people know that as they work harder they can increase the money coming into their family. If we are going to have a sensible debate as opposed to one based on party politics, these are the sorts of arguments that we should making. It is sad that we do not have the courage to do so.
Cathy Jamieson
I am listening to the hon. Gentleman with interest. I wonder what he would say in response to the Institute for Fiscal Studies, which has pointed out that the rise in receipts may be due to wealthier people trying to avoid the 50p tax rate. It says:
“Receipts in April will have been boosted by high income individuals shifting income such as bonuses and special dividends from 2012-13 to 2013-14 in anticipation of the fall in the top rate of income tax from 50 per cent to 45 per cent.”
Is he suggesting that the right way to deal with people avoiding paying their tax is to reward them with a tax cut?
Sir Edward Leigh
It is not a question of rewarding them. The truth is that the more complicated the tax system, the more it is the case that the only people who suffer are middle-income groups, often people in employment on pay-as-you-earn. The rich—the millionaires; let us talk about the group that the hon. Lady is always going on about—will always, through their expert accountants’ advice, seek to avoid paying tax, quite rightly, as it is perfectly legal and proper, and largely they will be successful. The people she is talking about—the millionaires—are precisely the sort of people who have income streams that are very mobile around the world. They are often foreign nationals. Does she honestly think that if we go on piling more and more tax on to these people they will just sit around doing nothing? Of course not; they will seek to avoid paying tax. It is a question not of rewarding avoidance but of accepting the facts of life. She might think it unfortunate—I do not—but we need these risk-takers, entrepreneurs and wealth creators in this country. Unfortunately we are in a highly competitive situation with other countries, particularly Ireland and other low-tax countries. Unless we attract these people here we will not create jobs and investment in the private sector.
We can go back to our comfort zone; we can lie in the warm bath of our own prejudices and dislike millionaires. We would probably all like to be millionaires. None of us are millionaires, unfortunately; we chose to go into public service and we are not going to become millionaires. We can have a pitch at millionaires and think that in doing so we are making ourselves popular with the rest of the population, but unfortunately they will not sit tight; they will simply leave and take that entrepreneurship and job creation away. That is what Tony Blair recognised and that is what we should recognise.
Barbara Keeley
I am surprised that the hon. Gentleman is not including the most obvious millionaires in this country. Does he really think that the risk-takers, the entrepreneurs and the wealth creators do not include football players, many of whom are earning multi-millions of pounds? Frankly, the notion that we need all these wealth creators—these people earning fantastic amounts in football—does not hold up.
Sir Edward Leigh
That is an absurd argument. I watched the Brazil match yesterday—did the hon. Lady? Millions of our constituents were watching it and enjoying it. I agree that these people are ludicrously overpaid, but they are men of 21 who have an amazing skill. What does it matter if they earn £1,000, £2,000, £3,000 or £100,000 a week or a month? It is none of our business; it does not matter. To claim that my argument is defeated because a few millionaires earn ridiculous sums of money and because there are footballers’ wives is such a ludicrous argument economically that it is barely worth answering.
Mr Graham Stuart
I am grateful to my hon. Friend for giving way; he is being most generous. I must correct him on one thing, if he meant income tax when he said that 25% was being paid by 5% of taxpayers. In fact, 40% of the Government’s largest single receipt—income tax—is paid by 5%, and that includes footballers, rock stars and entrepreneurs, all of whom left this country in the 1970s, leaving us all poorer. The hon. Member for Worsley and Eccles South (Barbara Keeley) and other Opposition Members are lurching to the left and want to send them out of this country again. That would impoverish all of us, but most of all the low-income people in our constituencies who rely on receipts from such people.
Richard Fuller
I am grateful to my hon. Friend for his generosity in giving way. He has highlighted the precise premise of the Opposition’s argument: they like talking about millionaires and football players because they realise that people perhaps do not like footballers and bankers earning lots of money. However, does my hon. Friend agree that, once they have started with bankers and footballers, they will then move on to judges, teachers and regional sales managers—the middle-income people who earn the money that produces the highest tax yield? Should we not all be aware of the danger in allowing Labour’s new tax policy to harm the middle classes and working people in this country?
Sir Edward Leigh
Of course. There should be a huge health warning on Labour’s proposal. British people should be warned that it is not footballers or bankers who will suffer, but middle England—people who work really hard to create small and successful companies, who are halfway up the corporate tree and who are near the top of the public sector. Moreover, it is those precise people in the public sector whom we need to incentivise to make efficiency savings, if we are to have a successful economy.
People should not swallow the lie that this is only about bankers and footballers. They can look after themselves in any country—they always have and they always will—and if there is a Labour Government, I predict that they will get richer and richer. We should forget them and concentrate on middle England.
Finally, if the Labour party wants to get back into power it should remember what Tony Blair did. He was its most successful leader ever, because he realised that politics had to be won on the centre ground. At the moment, Labour is going nowhere.
Chris Evans (Islwyn) (Lab/Co-op)
It is always a joy to follow the hon. Member for Gainsborough (Sir Edward Leigh). In a different life, when I worked for my predecessor, he was the Chairman of the Public Accounts Committee and I spent many a happy afternoon at the back of the room listening to him pontificating and taking on the tax dodgers and anyone else the National Audit Office thought was a little bit dodgy. I miss those days.
The more time I spend in this House and the more I listen to Government Members, the more I sense that all we do is talk about history and hark back to the past. Government Members like to talk about 13 years of Labour “misrule” and 18 golden years of Tory Government. The one conclusion that I have come to from studying economics at A-level and from listening to many hon. and right hon. Members speak in this House is that it is not possible to run the economy like a scientific discipline. It is not like that.
Hon. Members have mentioned the Laffer curve, which was meant to be the wonderful idea of its time. In 1980, a future US President—he was about to become vice-president at that time—said that trickle-down economics was voodoo economics. He was right then and he is right now. The hon. Member for Gainsborough gave the Labour party some advice and I want to do the same for his party. The Conservative party is still in the grip of an economic theory that failed.
I do not want to talk about history, even though I am an historian myself. I do not want to go back to the ’80s—there is no point in talking about that. It is a moot argument. I want to talk about the future, but in 1989 and 1990 we had the worst recession ever. That followed the recession in 1981, which, at the time, was the worst recession that we had had. Trickle-down economics is based on the mad belief that a tax cut for the very rich will somehow trickle down through society. It has never worked. Quite simply, that is common sense.
Mr Graham Stuart
I just want to make a simple point. Every time the tax rate for the richest was cut under the previous Conservative Government, the amount paid by the top 10% went up in cash terms and in relation to what was paid by the rest of the population. In other words, every time the tax rate was reduced, the amount that the rich paid went up and the percentage of the overall pot that they paid went up. How does the hon. Gentleman explain that trickle-down effect?
Chris Evans
The tool that the previous Tory Government used, which this Tory Government are using as well, was value added tax. Indirect taxation has always gone up under a Tory Government. Value added tax went up from 12% to 15%, and then to 17.5%. It is now 20%. This Government have also given a tax cut to the highest earners in society. The problem with indirect taxation is that everybody has to pay it. That is why the tax take always goes up. Such taxation is regressive. It does not matter what people are earning; everybody has to pay it. People who are very rich and have means do not have to worry about it, but those who are struggling at the bottom, such as those who are struggling to get by on the state pension, have to pay it, whatever the rate is.
Richard Fuller
I am very interested in what the hon. Gentleman is saying. Would he therefore approve of a permanent reduction in VAT, compensated for by an increase in income tax?
Chris Evans
As I was saying, there is a problem with trying to impose a scientific discipline on something that has nothing to do with science. I do not believe in that kind of economics. We have to take stock of the situation that we find ourselves in. That might have been a way forward in the ’90s, given the economic situation that was faced then. However, we do not know what we should do until we are faced with the economic situation.
Richard Fuller
It is almost impossible to have a debate when Opposition Members talk about the past but when questioned about what they would do just say, “We don’t know. We have no idea.” Presumably the hon. Gentleman will at least accept that if he is proposing a reduction in value added tax, given the state of the public finances, a future Labour Government would have to increase income tax. He must also accept that the yield on income tax comes from middle-earning people up and down the country. That is what a future Labour Government would do.
Chris Evans
The hon. Gentleman is not listening to what I am saying, if I may be so bold. I did not make any commitment to reducing VAT. I was harking back to the economic theory of the Laffer curve and supply-side economics, under which indirect taxation is used to cut taxes for those at the very top. When the top rate of tax is cut for people at the top, they have mobility and can spend the money in different countries. We have heard that already. That applies to footballers as well. However, when the tax rate is cut for middle earners, they tend to spend the money on the high street and stimulate the economy in that way.
I do not want anybody in this House to think that I have a problem with millionaires. Like the hon. Member for Gainsborough, I have a lot of friends who want to be millionaires. There is nothing wrong with aspiring to be something better. That is what the Labour party is about. I am sorry to hark back to his speech so much, but the hon. Member for Gainsborough said that that is what we understood in the mid-’90s. Human beings aspire to something better. There is nothing wrong with wanting to be a millionaire. My point is that if we could find the money to give a 5p tax cut to higher earners, why could we not do that for middle income earners? A 1p tax cut for people under the top rate of tax would have done more to stimulate the economy than a 5p tax cut for higher earners, because they will spend the money elsewhere.
I also sense that this is a moral argument. Whatever I believe about cutting tax for the very richest in society, a lot of the people I talked to when the top rate of tax was cut were very angry, especially constituents of mine. They said to me that it is the people who are riding in limousines who are getting the tax cut, not the ones who are driving white vans and keeping this country working. Those are the people who are feeling the pain. We should look at the level of anger.
If we look at a breakdown of the figures, taking into account all the changes to tax, tax credits and benefits that have been introduced since 2010, we see that households in the UK will be an average of £891 worse off this year, or £17 a week. A one-earner couple with children will be a staggering £3,995.65 worse off this year. For a multi-family household with children, it will be £1,723.88. It is all very well quoting statistics—I do it all the time, and everybody is guilty of it—but I am sure that every family affected aspire to something better for their children. Yet the message they are getting from the Government is that they should be worse off.
Mr Graham Stuart
The hon. Gentleman is being generous in giving way. I hope that he tells his constituents the truth about where the Government have concentrated their efforts to lower tax. The main effort has gone into lifting the tax threshold. Does he support the fact that, under this Government, people can earn up to £10,000 and not pay any income tax, because the Government are determined to try to make work pay?
Chris Evans
Surprisingly, I agree with the hon. Gentleman on his last comment—work does pay. At the end of the day, we can have any Government scheme we want to bring people out of poverty, but there is only one way out, and that is work. The only way out of the current difficulty is for people in work to pay their taxes. If there are even more cuts to the public sector, there will be even more people out of work and the welfare bill will go up, defeating the object of the exercise. It will lead to a high welfare bill, which will have to be paid for, and a low tax yield because of people being out of work.
I say to the hon. Gentleman that we have to wake up to the fact that the social benefits that we want to enjoy will come only from businesses being successful. We must do all we can to ensure that we have a fair, simple and transparent tax regime. How can we stimulate the economy when it seems that those in the middle are being squeezed?
The hon. Gentleman asks whether I talk to my constituents. I do, and those in social housing or council housing are concerned about the so-called bedroom tax. Some 80% of social tenants in Caerphilly county borough are in two or three-bedroom houses. That is not their fault, because no one-bedroom flats or houses are being built. After the war, when Aneurin Bevan invested in social housing, he invested in family homes so that people could bring up children and go to work.
We have heard from the Government, and from hon. Members today, about how much the cut in tax from 50p to 45p will raise. Everybody seems to be able to predict the future—every Government Member who has spoken today has done so, and even the Exchequer Secretary will be guilty of it. They seem to think that they are some sort of latter-day seer, guru or wise man who can see that in future, it will be wonderful under the Tories whereas it would be terrible under the Labour party. However, we do not know what is next. We might be lucky—we might find gas, or we might find oil off the Pembrokeshire coast or more oil in the North sea, which will stimulate the economy. On the other hand, we might have another financial crisis. We do not know. When we talk about what the tax cut will raise, we are basically licking our finger, putting it in the air and wondering which way the wind is going to blow.
To get back to the new clause, it is important that we have a review of the tax cut.
Barbara Keeley
One thing that is predictable is that the bedroom tax, which my hon. Friend mentioned, is going to lead to a hit of about £4 million in Salford, which will be one of the worst hit places in the country. That money will be taken out of pockets and shop tills in our local communities. It is now predicted that the arrears that will be run up as a result will also run into the millions. In fact, it looks like it may well get to the point where it is not worth having made the change, because those arrears will not be counteracted and because of the £4 million taken out of our local economy. That situation is becoming evident as the weeks go by, and we can predict what the result will be in a few months.
Chris Evans
I thank my hon. Friend for that wise intervention. Welfare reform is a warm and nice thing to say, especially for those of a right-wing bent who want to take out the scroungers and make them pay. But when benefits start to be cut and people are kicked out of their houses, it is a serious concern—I do not want to be melodramatic—that we could see the return of the workhouse.
In constituencies such as mine and those of my hon. Friends, I am fearful that we will see homelessness on a wide scale. The Government may have thought it was a good idea at the time to cap benefits and introduce the bedroom tax, but when we have a huge homeless population and emergency schemes need to be introduced to sort that out, I am afraid that it will be the taxpayer who picks up the bill.
Does the squeeze on benefits motivate anybody to go to work? If someone has arrears or debt and is seeing more of their pay go down the drain, why would they go to work? The Government should be motivating people to go to work; they should be tackling worklessness. Instead of cutting welfare, they should be stepping in to stimulate people to go to work, and talking to those people individually.
We talk about economics all the time, but it is not a scientific discipline—it is about people and how they react to certain circumstances. If I found myself out of work, my needs would be different from those of someone with a lower educational attainment or problems with reading and writing. However, we should be able to say to that person, “What is stopping you going to work? What are the barriers?” What can we provide to get people into work? Yes, that will cost money up front, but in the long term the country will win because of it.
Let me return to my point about putting a finger in the air and wondering which way the wind will blow. It has been estimated that 267,000 people who earn more than £150,000—including 13,000 people who earn more than £1 million—will receive an average tax cut of £100,000, according to figures from HMRC. In contrast, child benefit will be frozen for a third year, and tax credits and other working-age benefits will increase by just 1%, and these real-terms cuts will affect a shocking 9.7 million households. Can we understand that? My constituency has 56,000 electors, but 9.7 million households will be affected by this measure and each person will have an individual story and will have struggled.
The figure of 9.7 million in relation to benefits might conjure up an image of worklessness, but 7.3 million of those households—75% of all households claiming benefits—are in work. That is the crux of the problem we face. We talk about welfare reform and so-called scroungers, but the people suffering most are those we are trying to encourage—those who work hard and play by the rules but who are locked in an economic theory that has clearly failed. Some 2.4 million families will pay on average £138 more in council tax in 2013 as a result of cuts to council tax benefit. That is the ultimate failure of Government—six in 10 working people are claiming benefits. For all the talk of work paying, for many people work is not paying.
Let me return to what I said about the new clause. We need a report. I sat on the Finance Bill Committee with the Minister—I feel sorry for him, as I would for anybody who sat through that. Every day he felt as if he was batting off different reviews. However, this is such an important issue, and the coalition Government have made it such a cornerstone policy, that it needs to be reviewed. We have heard so much about it being wonderful, but we must test the theory: is it stimulating the economy, bringing money through and making work pay? We will not know unless we have a review. That is why it is so important.
I hope the Minister listens. I have a lot of time for him. As I have said, I was in Committee with him: he is sensible and takes a rational view of these matters—[Interruption.] That is the problem—we judge a man by his friends. This is such a cornerstone policy that I hope the Minister will give us some prospect of monitoring it.
I do not want to go into the history of the 1980s and tax cuts again, because I have touched on it already. But I am deeply concerned that we again face a Government who believe in an economic theory that ultimately failed the country. It was not just that we lost heavy industry in the valleys: I think of all the people in the 1980s who were motivated by the dream of starting a business or buying their own homes. By the end, their businesses went bust or they were forced into rented accommodation because they could no longer afford the mortgage. For all that Government’s lauding of their control of inflation, it was through the roof and interest rates hit 15%. We have heard recently from the Governor of the Bank of England that interest rates will go up next year, and I am deeply concerned that this Government will blindly follow the theory of supply-side economics, of Karl Popper and of leaving everything to the market.
Governments have responsibilities. They have a responsibility to create the environment for businesses to flourish and for people to achieve their dreams. I came into politics because I wanted people to aspire to something better, but the Government are giving the very rich a tax cut and everybody else is losing out—660,000 people will lose an average £728 a year under the bedroom tax. Why are the people at the bottom—the people we should be helping—feeling the pain?
I have said before many times that I do not want to knock the bankers. I worked in banking myself and I know how difficult the industry is. I have met my fair share of bankers and they are not all bad, and banking is the cornerstone of this economy, so I always tread carefully when we talk about bankers, but any industry has people who are guilty of criminal activity. In this case, the guilty have not been punished for their criminal activity. It is the Government’s failure that has allowed people to walk away.
Richard Fuller
The hon. Gentleman may be right about that, but the acts that he is complaining about happened under the last Labour Government, and it is the laxity of their regulation that means that people are not facing criminal prosecutions now.
Chris Evans
When Conservative Members were talking about the Laffer curve, Ronald Reagan came to mind. For some reason, when the hon. Gentleman stood up, Ronald Reagan came to mind again, as I recalled him saying to Jimmy Carter in the 1980 election campaign, “There you go again.” The person sitting tonight at their kitchen table, worrying about paying the rent, the mortgage, the gas bill or the electric bill, and watching this debate—although given the time they will probably be watching “Pointless”—[Interruption.] I walked into that one. They might be watching ITV instead—
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. I think that is enough about television shows.
Chris Evans
I was just wondering what the man at the kitchen table was watching. I apologise, Mr Deputy Speaker. All we hear is the same old debate and the same charge that it is all the Labour Government’s fault, so let me challenge the hon. Member for Bedford (Richard Fuller).
Mike Thornton (Eastleigh) (LD)
The hon. Gentleman talks about banking fraud. The laws that would have been broken would have been laws under the Labour Government, and most of us do not believe in retrospective legislation. I agree with him that most bankers are decent people, but there have been exceptions. Unfortunately, those people did not actually break laws; they simply took appalling decisions with other people’s money, which I agree is a disgrace. As far as I know, however, we have seen no accusations of banking fraud; I could be wrong, but that is my understanding.
Chris Evans
I agree that we do not know, as there has been no investigation.
Mr David Ruffley (Bury St Edmunds) (Con)
To help the hon. Gentleman out here, if he had been in the Chamber this time last year, he would recall the Chancellor of the Exchequer saying in respect of LIBOR rigging that he had referred the facts in those cases to the Serious Fraud Office, which is, as we speak, still undertaking a review. Before the hon. Gentleman says, “Why haven’t the Government done anything?” let me remind him of the core principle under the British constitution of the independence of prosecutorial authorities from Ministers. Will he concede that?
Chris Evans
Yes, but I should tell the hon. Gentleman that I was in the Treasury Committee when Bob Diamond came to give evidence about LIBOR and that I was in the Chamber when the Chancellor announced the investigation. I listened to it and it made me sad. It made me sad because I realised for the very first time that people do not trust anybody any more. That is the problem. It goes much deeper than economics, politics, banking or whatever. People simply do not trust others any more. [Interruption.] I know that I am digressing from the new clause, Mr Deputy Speaker, and that you are itching to stop me. I want to put it on the record, however, that I genuinely feel that people do not trust each other any more. That is the saddest thing of all about this issue. It does not matter whether we are talking about Conservatives or Labour, people just do not trust politicians, journalists, lawyers or others. This is a much deeper problem than anything else for our society.
That brings me to the issue of anger about what the family man or family woman will save from what is on the kitchen table tonight. When those people hear about the tax cuts for the rich, I am sure they will think of those bankers who may or may not have committed crimes, of the journalists who may or may not have committed crimes, and of the editors of national newspapers—people earning six-figure salaries—and they will believe that those are the people who will get rewarded. That may not be the case, but that is the perception, and as we all know as politicians, the perception is usually stronger than reality. What members of the public will think about this Government and about this place is that they are run by an elite who are more interested in helping out their friends in the City than anything else. That is the real tragedy of this issue.
I have sat here and heard all the arguments about the tax cuts. Yes, I have attacked what I believe is a failed economic theory, but the truth is that the Government won the election in May 2010. I do not like that personally, and I hope that we can turn that around in 2015. The Government have the right to put whatever they want into the Finance Bill, and we cannot change it, much as I would have loved to table an amendment to abolish this tax cut. I cannot, and all we can do is bring about a review. This review is crucial because it will allow us to see how much this cut for millionaires is affecting the British economy.
This may be deemed an aside, Mr Deputy Speaker, and you may call me to order, but let me ask the Minister one more question. When the Treasury was considering the 5p tax cut, did it also consider a 1p tax cut for those whose earnings were below the threshold? If it did not consider that option, why did it not do so, and if it did, why did it rule it out?
You are clearly champing at the bit, Mr Deputy Speaker. Perhaps you want me to wind up my speech, and I shall try to do so. [Interruption.] Do not get too enthusiastic, please!
We need a review. We need to know the facts, because this is so important.
The Exchequer Secretary to the Treasury (Mr David Gauke)
We have heard a couple of rather lengthy speeches about a topic that is fairly familiar to those of us who have dealt with Finance Bills in the past. We discussed the reduction in the top rate of income tax at some length during the early, middle and late stages of last year’s Bill, and we have discussed it on a number of occasions during our earlier debates on this Bill. It is striking, however, that the number of Labour Back Benchers present during much of today’s debate so far has been three or perhaps four. Although we have heard some passionate and lengthy speeches, I am not sure that I need to make a lengthy speech in response, but a few basic points are worth making.
The Government agree that the wealthiest should make the biggest contribution to deficit reduction, and it will be clear to anyone who looks at our record across the board that we have stuck to that principle. In the 2010 Budget, the higher rate of capital gains tax was increased. In the 2011 Budget, we tackled a major area of tax avoidance, namely disguised remuneration. The Labour party opposed that measure in Committee, but we tackled the problem none the less, and our action has resulted in considerable extra revenue, particularly from high earners.
The 2012 Budget, which contained the measure that has provided the subject matter of most of today’s debate—the cut in the 50p rate of income tax—also introduced a new rate of stamp duty for high-value homes, measures to clamp down on stamp duty land tax avoidance, and a cap on reliefs used in the tax system, which raised an amount considerably larger than the cost of the cut in the 50p rate. The 2012 autumn statement provided for action to reduce the cost to the Exchequer of pensions tax relief, and the 2013 Budget contained further measures to tackle offshore tax evasion by, in particular, high earners.
We clearly have a strong record in this respect. We have gained additional revenue not only from capital gains tax and stamp duty, but—as is shown by the distributional analysis—from the income tax paid by the top 1% of earners. That was mentioned by a number of my hon. Friends, including my hon. Friend the Member for Gainsborough (Sir Edward Leigh), who pointed out that we are receiving more from the top 1% than the Labour party ever managed to.
It is interesting to note that the proportion of income tax contributed by the top 1% exceeded 25% in only one year during Labour’s time in office, namely 2009-10, which was a slightly strange year because a large amount of income was brought forward so that the tax could be paid at a rate of 40% rather than 50%. In that year, 26.5% of income tax was paid by the top 1%, but in the remaining years the proportion was 25% or lower. We estimate that in 2013-14, with the new lower rate of 45%, nearly 30%—to be precise, 29.8%—of income tax receipts will come from the top 1%. The problem with the 50p rate was that it was not very good at doing what a tax is supposed to do—raising revenue. That is the Labour party’s essential difficulty in advocating a 50p rate of income tax.
Bob Stewart (Beckenham) (Con)
I do not understand all the differentials, but is the Treasury model that we would get more tax income by reducing the rate than by leaving it at 50%?
Mr Gauke
My hon. Friend brings me to the point that I wanted to move on to: the report that the Chancellor of the Exchequer commissioned in Budget 2011 to evaluate the Exchequer impact of the additional rate of income tax. The report was published alongside Budget 2012. It concluded that the underlying yield from the increase from 40% to 50% was much lower than originally forecast, owing to large behavioural effects—it was possibly only £1 billion and could in fact be negative. The 50% rate also risked damaging growth and the UK economy if it had remained permanent.
Mr Brooks Newmark (Braintree) (Con)
The hon. Member for Islwyn (Chris Evans) focused on our policies. The inconvenient truth for the Labour party is that it had the opportunity for 13 years to test the 50p rate to destruction, but we quickly saw the evidence of the Laffer curve, which shows that, as we lower tax rates, we can collect more revenue. The Government should be congratulated on finding alternative ways of trying to get the rich to pay their just deserts, if the Labour party wants them to do that. In fact the Government have collected more money from the rich by lowering the rate from 50p to 45p and by looking at other ways to collect that money.
Mr Gauke
My hon. Friend is absolutely right. The point is not whether we should seek to get a significant contribution from the wealthiest; it is how we go about doing it. There is a real problem with a very high rate of income tax directed at the most mobile people, who have many more options in how they respond. Not surprisingly, the evidence that the HMRC evaluation discovered is that there is a significant behavioural response.
The hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) said, “This is all tax avoidance and one should crack down on tax avoidance.” I agree: one does need to address tax avoidance, and we have more ambitious targets for HMRC than it has ever had before. We have made a number of changes to the law to address avoidance. I could go on at some length about the steps that we have taken, but the behavioural effect is not only about tax avoidance, it is also about behaviour that is entirely consistent with Parliament’s intentions. One might find people making bigger pension contributions, for which the House has determined tax relief should be available. One might find people retiring earlier or locating in other jurisdictions. All those things have an impact.
Therefore, there is a significant behavioural effect in this area, which brings me to the point that my hon. Friend the Member for Braintree (Mr Newmark) made: the 50p rate is not an effective way of raising revenue, which is why, in my opinion, the Labour party will not give a commitment to bringing the 50p rate back. It knows it is bad economics and does not raise revenue. It knows it sends a bad message about the UK as a location in which to do business. That is why Labour had a 40p rate for 4,722 of the 4,758 days that it was in office. There was a 50p top rate for just 36 days at the very fag end of the last Government, when they knew with a fair degree of confidence that they were going to lose office.
Mr Newmark
I sympathise somewhat with the point of the hon. Member for Islwyn (Chris Evans) about his and his party’s desire to target bankers, but if we want to create an entrepreneurial society, we must realise that not all the big wealth creators are bankers; they are also people in manufacturing, hi-tech industry and so forth. If we want them to settle in the UK, we must make our tax environment attractive and competitive internationally.
Mr Graham Stuart
My hon. Friend is giving a thoughtful economic analysis, but he perhaps misunderstands where the Opposition are coming from, because I do not think they are particularly interested in the economics. The fact is that their position is now so desperate that they have their 36% strategy, they are entirely paid for by the union movement, and their desire now is to lurch to the left. They do not care if they get less money; what they want to do is appeal to a core vote which they hope will be enough to return them to power because of the invidious and unfair electoral system we have. That is what is going on, which is why we waste our time when we talk about entrepreneurialism or the benefits to public services, because they are not really interested.
Mr Gauke
My hon. Friend takes a sceptical view of the Opposition, and events may well turn out to justify it. I want to take a more charitable view, however—although perhaps it is, in fact, a different form of scepticism or cynicism. My view is that they are not really serious about the 50p rate at all; much though they talk about it, they will not, in truth, pursue this policy because they know it is so damaging and that it does not do anything to raise revenue. That is why, despite repeated questions earlier, the hon. Member for Kilmarnock and Loudoun, who does like to be straightforward with the House, refused to say whether Labour would support a 50p rate after the next general election. She makes the argument that Labour will have to delay and wait to see what the state of the economy is, but given that we know this does not raise any substantial amount of revenue, it cannot be dependent on the state of the public finances; instead, it is a matter of political calculation. I hope my hon. Friend is wrong and that the Opposition are trying to edge away from a position that they saw as populist but which, in truth, is economically incoherent.
Cathy Jamieson
I am intrigued by the amount of advice being given to the Labour party by those on the Government Benches. Given that the Minister said he wanted to be in charitable mode, to return to the new clause, will he not concede that there is an argument for looking at the matter more thoroughly and having this review in order, as the Treasury Committee concluded in its report on the 2012 Budget, to discover what the actual impact of reducing the rate would be?
Mr Gauke
I am not persuaded by that argument. I hoped the hon. Lady would take that opportunity to provide some clarity on the Labour party’s position, but she did not do so. We do not need another review. We have evaluated the impact of the 50p rate. It was an economic failure. It failed to raise revenue. It in effect put up a “closed for business” sign over the UK economy. It was about politics, not economics.
I urge the Opposition to withdraw the new clause, and I hope they will also return to their approach of a few years ago. As my hon. Friend the Member for Gainsborough pointed out, when Tony Blair was in charge he was making pledges not to increase the top rate of income tax. That at least demonstrated a sense of where the UK needed to be and its place in the world, but that has, I am afraid, been long forgotten by the Labour party which just drifts ever leftwards.
Cathy Jamieson
Following the Minister’s example, I will be brief. We have had a useful debate containing some impassioned speeches, not least those from my hon. Friend the Member for Islwyn (Chris Evans) and from the hon. Member for Gainsborough (Sir Edward Leigh), who, interestingly, sought to give advice to the Labour party. My hon. Friend gave an interesting critique of Laffer curve economics but related it, importantly, to what happens in the real world. He spoke with a great deal of passion and experience from his time working in the financial services sector. He was absolutely right to say that not everyone working in the banks was wrong, and many people working on the front line are trying to change things and to clear up the problems. These people did not adopt the principles that got the banks into such difficulty.
Earlier, I read out a couple of quotes from various hon. Members about cutting the top rate, but, to keep a balance across the coalition, let me cite one that I missed from the president of the Lib Dems. The hon. Member for Westmorland and Lonsdale (Tim Farron) has said:
“Cutting the top rate was a stupid thing to do. It probably raised up to £3bn a year. We should pledge to restore the 50p rate at the next election. It’s not enough to be fair, you have to be seen to be fair.”
That has been one of the threads running through this afternoon’s debate. [Interruption.]
Again, I hear Government Members muttering from a sedentary position about what the Labour party is going to do. I outlined this earlier, but I will state it again: we will, of course, set out our manifesto in due course, in time for the general election—that is absolutely the correct thing to do—but we will not make false promises. We will not make promises that we will not be able to keep. Let me remind the House of that quote from the Prime Minister:
“I have been very clear—we have all been very clear—that we have to do this in a way that is fair so that the broadest backs bear the biggest burden.
That is why we haven’t changed… the 50p tax rate.”
As I outlined, that particular pledge was not kept and those with the broadest backs do not appear to be carrying the biggest burden.
The Minister said that he wanted to be charitable and to understand why we tabled the new clause, and I know from Finance Bill Committees that he does at least reflect on things. He rarely gives in to temptation to resist the advice he is given to reject all amendments and new clauses, but he does at least give the appearance of reflecting. In this case, I cannot understand why he will not accept a mild-mannered proposal that simply seeks to have a review of the impact of this measure and to bring forward further information for the interest of hon. Members across the House. That is a reasonable and sensible thing to do, and I know that the Minister, certainly in opposition, has regularly argued for this type of review. We have heard nothing from him today to explain why, suddenly—[Interruption.] Given the side conversation that is going on, I am sure that the Minister never got any of those reviews into the legislation at that time, but I say to him that there is a first time for everything. He could, even at this late stage, decide it was the correct thing to do to allow the review to go ahead and ensure that the House had further information.
I do not want to repeat all the points made earlier, as that would not be helpful at this stage. However, I simply remind the House that it is not only Opposition Members who are claiming or suggesting that there are concerns about this measure. To go back to the IFS, it stated:
“By giving out £3 billion to well-off people who pay 50p tax…the Government is banking on a very, very uncertain amount of people changing their behaviour”.
Much of the Government’s argument has been predicated on the notion that people will change their behaviour, but I have heard nothing from the Government that suggests to me that behaviour would be changed in such a way that there would suddenly be a huge influx of resource into the Treasury. The IFS went on to say:
“There is a lot of uncertainty, a lot of risk on this estimate.”
Cathy Jamieson
I am coming to a conclusion.
Let me finish by quoting the Office for Budget Responsibility, which stated:
“This is a judgement based on not even a full year’s data based in terms of how people have responded to the 50p rate, in particular in terms of those self assessment tax-payers.”
I have heard nothing from the Government that convinces me that we do not need to look at this issue in more detail. I am disappointed that they have not accepted the new clause and I therefore want to press it to a vote.
Question put, That the clause be read a Second time.
Chris Leslie (Nottingham East) (Lab/Co-op)
I beg to move, That the clause be read a Second time.
New clause 9 calls for the Chancellor of the Exchequer, within six months of Royal Assent to the Finance Act, to lay before Parliament proposals for an income tax rate of 10% on a band of income above the personal allowance. The range of income to be covered by that 10% rate should be determined by the Exchequer yield from a mansion tax—a Liberal Democrat proposal that I used to think the Liberal Democrats stood four-square behind. Perhaps in a moment those Liberal Democrats who remain in the Chamber—they are diminishing in number—will tell us a little about where they stand on the issue.
We feel that the full benefit of that 10% or 10p rate of income tax should not be available to taxpayers paying the higher or additional rates—the £50,000-and-above levels, or higher rate payers. It should be targeted and focused on basic rate taxpayers. That is the logic of new clause 9.
We think that the measure would be welcomed across the country, and that all hon. Members, including Conservative Members, should consider it seriously, because living standards are being squeezed, and for most people, life is getting a lot harder, as is manifested by the fact that wages have fallen in real terms. In fact, at the beginning of the year, we saw the steepest fall in living standards since the 1970s. That is a direct consequence of the tax and spending choices and priorities of the Government parties—the tax credit cuts that have hit lower and middle-income households; the squeeze on child benefits; and the rise in the VAT rate to 20%.
Mr Ruffley
What does the hon. Gentleman say to the Institute for Fiscal Studies, which states that the latest Labour proposal to reintroduce the 10p rate
“has no plausible economic justification. It would complicate the income tax system and achieve nothing that could not be better achieved in other ways”?
Chris Leslie
I would say that the aim of the 10p policy should be to encourage people on low incomes to take higher-paid work, to work longer hours and to start the transition up the income scale. That is why it
“is right that we need to introduce a 10p tax rate in the interim; otherwise, people will go straight from their tax-free allowance to being taxed on any income above that.”—[Official Report, 22 January 2013; Vol. 557, c. 37WH.]
Those are not my words but those of the hon. Member for Camborne and Redruth (George Eustice), in a debate in favour of a 10p starting rate of tax that was held some months ago.
Mr Ruffley
I want to return to the question that I asked the hon. Gentleman. Most technical experts say that a 10p rate would complicate the tax system. Let me ask him once again: would not his proposal complicate the tax system? Indeed, was not that the reason why the Labour Government abolished the 10p rate in 2007?
Chris Leslie
I would be the first to concede that it was a mistake to abolish the 10p rate in 2007. I do not think that it creates complexity in the tax system. The Institute for Fiscal Studies has long been in favour of simplicity in the number of tax bands, but I believe that there is a genuine debate to be had about progressivity in the income tax system. The hon. Gentleman’s colleagues can see the case for a 10p rate, and I believe that it would be a useful way of introducing a transition from the tax-free personal allowance to the 20p basic rate of tax. A 10p rate would be an important staging post along the way. A tax cut for those on lower and middle incomes would be broadly welcomed throughout the country.
Geraint Davies (Swansea West) (Lab/Co-op)
Does my hon. Friend agree that it is in the very nature of progressive taxation to have increasing marginal tax rates as someone earns more money? The Institute for Fiscal Studies has shown that there is therefore a genuine trade-off between social justice and increasing fairness, as people have more money, and tax efficiency. That is fair enough, and we should opt for progressive justice.
Chris Leslie
Indeed. Having a 10p band in the income tax scale ensures that we can focus on that sense of fairness. “Fairness” is a word that might not necessarily be recognised by some Government Members, but it is important in our tax system. We know that their idea of fairness is to cut the highest rate of income tax from 50p to 45p. They can justify that in their own terms, and to their own constituents, but we believe that it is far better to focus on giving help by introducing that lower rate straight above the personal allowance.
Mr John Redwood (Wokingham) (Con)
The hon. Gentleman wishes to pay for a 10p rate from the proceeds of a mansion tax. Will he advise the House of Labour’s definition of a mansion? Could it, for example, include an one or two-bedroom flat in central London that was lived in by people of rather modest means?
Chris Leslie
I think the right hon. Gentleman is thinking of the bedroom tax, and we can come to that in a moment. I will come to the details of what a mansion tax would look like. We have looked carefully at the well-crafted and evidently well-thought-through proposal from the Liberal Democrats. They have proposed that properties worth £2 million or more should attract an annual charge, saying that that could net approximately £2 billion. That would allow an income tax band of around £1,000, which would give a tax cut of about £100 to those benefiting from the 10p band.
Mr Russell Brown (Dumfries and Galloway) (Lab)
It is interesting that the mansion tax could raise £2 billion. I wholeheartedly agree with such a proposal. If we could transfer that £2 billion from the pockets of the wealthy and give it to the poorest, it would undoubtedly find its way back into the economy. That is very much what is needed. We need to push more money into the economy, and to try as best we can to stimulate some kind of growth. We are seeing nothing at the moment.
Chris Leslie
My hon. Friend has touched on the other argument in favour of the proposal. This is not just a matter of fairness; there is also an economic imperative involved.
I apologise for boring the House about the need for growth and jobs in our economy. That seems to be anathema to some Members on the Government Benches. Many lower and middle income families have suffered increased taxes and cuts to their tax credits, and that is the price that they are paying for the failure of the Government’s economic ideology. The Government promised that all this pain would be worth while. The Chancellor promised that he had done all he needed to do, and that he would not need to come back and ask for more, but what did we see last week? He came back for yet more. That is the price to be paid for the Government’s failed economic plan. The economy is flatlining, and the Government have delivered barely 1% of economic growth since the fabled 2010 spending review in which they promised 6% by now. And let us not forget the rising deficit in the last financial year, up from £118.5 billion in 2011-12 to £118.7 billion in 2012-13. That is a rise in the deficit—
Chris Leslie
And the hon. Gentleman is rising as well. Perhaps he would like to confirm those figures.
Mr Newmark
Following on from what my right hon. Friend the Member for Wokingham (Mr Redwood) said, I would like to ask the hon. Gentleman whether he shares my concern that many elderly people are asset rich but cash poor. How would his proposal deal with that particular challenge?
Chris Leslie
I am not sure how many elderly people would find themselves in that predicament, but such circumstances ought to be dealt with in the design of a mansion tax. The hon. Gentleman will therefore see the logic of our new clause, which seeks to encourage the Chancellor to introduce proposals within six months. Let us look at the design of them, and think about those rare circumstances in which someone might be living in a £2 million property but have no means by which to pay an annual levy. I imagine that that would be quite rare—it is perhaps quite difficult to believe—but such circumstances might exist. I am convinced that the hon. Gentleman’s Liberal Democrat colleagues have thought through all those points when they drew up their carefully crafted proposals. Perhaps there are channels between the coalition parties that we are not party to, and perhaps they exchange information on these matters. I am sure that such a tax could be designed correctly, if not by the Chancellor then by the Office for Budget Responsibility, if that would be a better way of doing it.
David Wright (Telford) (Lab)
Is my hon. Friend as puzzled as I am by the Government’s opposition to this proposal? During the previous debate on the top rate of tax, the Minister and Government Back Benchers were suggesting that our proposal would not deliver revenue because people would avoid the tax system. They suggested that a higher rate system would not generate income, but they now seem to be opposed to a proposal for a tax on a fixed asset, which presumably would not move. My hon. Friend is making a valuable contribution and I hope that some Members on the Government Benches will join us in the Lobby later.
Chris Leslie
It is the oft-trotted-out claim of the Liberal Democrats that they are there to temper the worst excesses of the Conservative party, and perhaps they do exercise such influence. We all know that the Conservatives are there to defend the wealth of the very wealthiest in society—that is a given—but we want to see whether the Liberal Democrats in the coalition have managed to bend that ideology a little more towards the centre ground of politics and towards the space in which most people would agree that those with the greatest assets and wealth should make a fairer contribution. That would be a good thing to do.
Mr David Burrowes (Enfield, Southgate) (Con)
Can the hon. Gentleman clarify, for any of my constituents who might inhabit one of those 55,000 properties, that the levy that would be imposed on them would be £36,000? Is that correct?
Chris Leslie
I do not think that it would necessarily be £36,000. Again, I suggest that the hon. Gentleman talks with the Liberal Democrats, who have done some careful workings on this. He will be interested to know that the Government have introduced about 90 clauses in the Bill that relate to ATED—annual tax on enveloped dwellings—which is basically code for a mansions tax on properties owned by companies. I recommend that he reads through the 90-odd clauses. Essentially, the Government are introducing a tax on properties worth more than £2 million, with a new annual fee, to be assessed in a very detailed way. He will see that there is a set of bands for the value of the property, from £2 million to £5 million and right up the scale. The Treasury has therefore been doing a lot of work on the issue, and I think that it should be commended, because it is very worth while. When we debated the matter in Committee, we asked what would happen if the annual tax on enveloped dwellings applied not only to properties owned by companies, but to all those worth more than £2 million. That information would allow us to work out properly what the rates would be.
Mr Burrowes
There is a real question of financial competence, particularly in relation to the hon. Gentleman’s boss, so can he substantiate his argument, because it is his new clause that we are discussing? He needs to give us answers. My maths is not so good, so can he tell me, if he wants to raise £2 billion, how much the levy would be for 55,000 properties?
Chris Leslie
That is precisely why we think the proposal needs the Treasury’s support—to ensure that we can see what the levy would be. To return to our new clause, we think that the Liberal Democrats make a reasonable point that £2 billion could be raised on properties worth more than £2 million. We have not included those figures in our new clause; we have simply said that the Exchequer Secretary should study the issue and consider a 10p income tax rate band, to be funded by the proceeds of a mansion tax. That obviously depends on how wide the 10p band would be, so it is obviously moveable and that would flow through into the figures on the mansions tax.
Mr Gauke
I am afraid that I am going to disappoint the hon. Gentleman. He says that the Labour party’s objective is to raise £2 billion. Our assessment, as my hon. Friend the Member for Enfield, Southgate (Mr Burrowes) has pointed out, is that there are 55,000 properties worth more than £2 million in the country. We have the finest minds in the Treasury working on this, and they have divided £2 billion by 55,000—it did not require a huge amount of work—and ended up with an average of £36,000 a year as the annual levy. That is an average, and there might be some cases where the hon. Gentleman would want a lower rate for those who are property rich but cash poor. Can we just have some clarity? Does the Labour party want an average levy of £36,000 on all properties worth more than £2 million?
Chris Leslie
That was a good try by the Exchequer Secretary, and I understand where he is going with that argument, but I am not an estate agent and do not have a figure for the number of properties worth more than £2 million. However, it is very interesting that the Government have started counting the number of such properties. He talks about how the £2 billion would be defrayed across that number, which I am not sure is correct, but of course there would be a banding exercise, with different bands for properties worth more than £2 million, and we would see how far that goes. That is precisely why we need the Treasury to share some of its calculations with us. I am sure that it must be more than a back-of-a-fag-packet calculation from the Exchequer Secretary. Let us do the work, publish the findings— [Interruption.] Well, I will give way to him if he will agree to publish that work. Will he publish the internal Treasury assessment of the policy, because it would be very helpful?
Mr Gauke
Short of showing the workings, £2 billion divided by 55,000 is £36,000. The hon. Gentleman says that there would be different bands, but we would still end up with an average of £36,000. He will also find that most of the properties worth more than £2 million are worth only slightly more—between £2 million and £3 million. He will not find huge numbers of properties worth between £5 million and £10 million and so on. He has all the numbers he needs. I think that we can move on to the next debate.
Chris Leslie
I know that the Liberal Democrats support the Government on that and note the sedentary remarks from one of only two Liberal Democrats in the Chamber today. It is typical of the Treasury to hold back key information on these facts and figures. We need to know where those properties are and what valuations have been made. The Exchequer Secretary has done the work on the annual tax on enveloped dwellings, but he did not say that he would publish those findings. I think that we might be about to reach some consensus on this, because he is suggesting that the Treasury has done some work on it secretly, rather like the secrets held back in the spending review document, which was so thin that we still do not really know where the cuts have hit. Why does he not publish that information and start telling us how that could work in those circumstances? Will he publish it?
Mr Gauke
Actually, I quoted the figure of 55,000, which appears to have come as a huge surprise to the hon. Gentleman, several times when we had a similar debate in Committee. Admittedly, he was not dealing with the matter; his hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) was. The figure has been in the public domain for some time. Has he done any work on the matter?
Chris Leslie
I do not know how simple I need to make the point for the Exchequer Secretary, so I will do so very slowly and particularly. The new clause suggests that the Treasury—that means him, by the way—should publish some proper, worked-through evidence on where those properties lie across the country, how a banding proposal might work and what the options for the width of the 10p starting rate of income tax might be. By the way, he did not say a word about whether or not he supports a 10p starting rate of income tax.
Geraint Davies
Surely my hon. Friend will agree that the figure of 55,000 is a complete red herring. It is being said that housing wealth should be progressively taxed, and that the current council tax rates are out of date. Some of these properties are worth much more than £2 million, and perhaps even £10 million—we hear stories about Russian oligarchs and all the rest of it. Add to that the Chancellor’s strategy to generate more sub-prime debt by offering cut-price mortgage deals, and we will presumably have a progressive system of different rates and a thought-out new council tax regime that would be progressive, and we would not end up with everyone paying £36,000 at all, and the Minister knows it.
Chris Leslie
That is why we must ensure that we move the issue forward and get some proper workings from the Treasury—[Interruption.] The hon. Member for Enfield, Southgate seems to think that he has all the answers, so why do the Government not publish them? What is going on with Government Members? They should share these things in the public domain. Do we really have to make a freedom of information request to Ministers in order to get those data?
Chris Leslie
I will give way to the hon. Gentleman in a moment. The Liberal Democrat 2010 manifesto—I know that he has his own signed copy—said that they would introduce a mansion tax at the rate of 1% on properties worth more than £2 million, paid on the value of property above that level. We looked closely at the workings they did on the issue. They suggested that £2 billion of revenue could be raised. If that was extrapolated through to the 10p band, the band would be roughly £1,000, but it might not be. We should look at the details.
Mr Newmark
I know that maths is not the hon. Gentleman’s strongest suit, because in Committee we heard that he could raise £2 billion from £1.85 billion in bonus taxes. The Minister has been very clear that £2 billion divided by 55,000 is £36,000 on average. Does the hon. Gentleman at least accept the principle that this is going to cost taxpayers £36,000 per household on average, not in relation to bands?
Chris Leslie
The Government have apparently undertaken their own valuation exercise, perhaps stealthily, so they could publish the information on the numbers of properties across the country. Perhaps the Deputy Prime Minister, with his 16 special advisers, fanned out across the country to look at the issue. I do not know how they found out the 55,000 figure. If the hon. Gentleman has that information and publishes it, I will be interested to see it, but I am afraid I cannot be certain that it is the correct figure. Labour Members have to be very careful and cautious in taxation matters. We want to make sure that all the figures are very clear and well worked through instead of taking the Exchequer Secretary’s back-of-a-fag-packet approach. I take it as a commitment from him that all this information will be published in the public domain, and then perhaps we can work on devising this measure in a less partisan way.
Susan Elan Jones (Clwyd South) (Lab)
Does my hon. Friend find it extraordinary that Government Members appear to have been sitting down with their pocket calculators regarding the mansion tax, but none of them has come up with how much ordinary taxpayers who pay the basic rate of tax would benefit from the 10p proposal?
Chris Leslie
It is all because their focus is on protecting the wealth of the wealthiest. Ducks go quack and Conservatives defend wealth and privilege. It is in their DNA; it is how they operate.
Bob Stewart
On the 10% tax rate, I understand graduated taxation in principle, but a lot of people who pay the higher rate of tax are not very rich. Paragraph (3) of the new clause says:
“The full benefit of the 10 per cent rate shall not be available to taxpayers paying the higher or additional rates of tax.”
That seems to be pretty unfair on some people.
Chris Leslie
I am grateful for the hon. Gentleman’s thought on this issue, but I disagree. I do understand that more and more people are being brought into the 40p rate. That is another stealthy move by the Chancellor as he broadens out the 40p band. In the interests of fairness, our concern has to be with basic rate taxpayers on the 20p rate. There are 25 million basic rate taxpayers, and if revenue is to be generated from a mansion tax, then most of our efforts should be focused on that group. As my hon. Friend the Member for Clwyd South (Susan Elan Jones) said, that group in society feel under the most pressure and are finding it hardest to get by and to make ends meet, and they would therefore benefit most from this tax cut. It is an important point, and I am glad that the hon. Gentleman raised it.
Mr Redwood
I wish to make a procedural point. Does not the shadow Minister accept that when a Minister asks his officials for some information and they research it, and he then comes to the House to impart that information to us, that is publishing the information? I know that that will come as a shock to a Labour shadow Minister, because Labour Ministers always made sure that somebody else was told rather than Parliament, but I rather like the fact that the Minister researches this, takes us seriously and tells us the answer. Why cannot we now work from the published answer?
Chris Leslie
Obviously I believe every word that the Exchequer Secretary utters, because it would be unparliamentary to do otherwise, Madam Deputy Speaker, but I am asking for just a little bit more from him. I just want to see the detail that the Treasury has produced on the mansion tax proposition. It would be entirely possible for him to put that in the public domain. I am sure that even Liberal Democrats would like to see it and would find it of interest, as would other hon. Members.
Sheila Gilmore
Does my hon. Friend agree that we seem to have got involved in a debate that is certainly not the debate that the Deputy Prime Minister was engaged in as recently as February when he talked about the advantages of a 1% levy on properties over £2 million or the possibility of extending council tax bands? It seems a bit strange that he was in favour of that and, presumably, his hon. Friends are in favour of it. Perhaps that is what we should really be talking about.
Chris Leslie
On 24 February the Deputy Prime Minister said:
“Victor Hugo observed that it is near impossible to resist an idea once its time is come…He was again proved right as calls for a mansion tax, first proposed by the Liberal Democrats in 2009, gathered new momentum…I offer certainty: the mansion tax, or a version of it, will happen.”
We all know that when he is determined to get these things through, he is a very persuasive individual.
In clause 97—on page 57 at about line 27, for those who are interested—there is a table of the amount chargeable under the mansion tax for homes owned by companies, which is, in essence, what the Government are proposing. For properties worth between £2 million and £5 million, the annual chargeable amount would be £15,000 a year; for those worth between £5 million and £10 million, it would be £35,000; for those worth between £10 million and £20 million, it would be £70,000; and for those worth more than £20 million, it would be £140,000. That is the Government’s half-hearted attempt at a mansion tax. Thankfully, we have it in black and white—well, black and green—in this Bill. We tabled the new clause because we would like to see equivalent detail on how a mansion tax would work on a range of different widths of the 10p tax rate band, and then we can make a judgment about what change it is reasonable and prudent to implement.
My hon. Friends are right to start to focus on the other part of the pantomime horse. I am sure that the Liberal Democrats are sometimes in the lead on these issues in the coalition. They are in a very precarious position on the mansion tax. Having advocated it for so long, they have consistently found ways and means to vote against it whenever it has been presented to the House. I do not know whether the Liberal Democrat present in the Chamber, the hon. Member for Eastleigh (Mike Thornton), wants to say how he is going to vote today, but I live in hope. In a spirit of cross-party consensus, I hope that he will agree with his noble Friend Lord Ashdown, who warned those in his party before the last time they changed their minds on this issue that it would be “weird” for fellow Liberal Democrats to vote against such things. The Business Secretary said:
“It depends entirely on how they phrase it. If it is purely a statement of support for the principle of the mansion tax I’m sure my colleagues would want to support it.”
That was like the version of the amendment that we tabled previously. We did not get very far with it on that occasion, so this time we have tried a proposal that explicitly talks about passing on the revenue to those who need it most of all through the 10p rate of income tax.
The proposal has not been plucked from the air. Other jurisdictions have equivalent property charges at certain levels. I gather that in New York City, which is hardly a bastion of socialism, owners of properties worth more than $3 million—roughly £2 million—can find that they need to pay the equivalent of £22,000 a year under their form of mansion tax. The Treasury’s own documents have blown apart the argument that the Exchequer Secretary used to deploy, which was “This stuff isn’t workable; it would mean mass revaluations of council tax.” All those things have been pushed to one side as the Government propose their brand-new tax—the annual tax on enveloped dwellings. That is clear as the light of day. It has four bands, which suggests that it is entirely feasible.
The documentation on ATED states:
“The aim of the new annual charge is both to deter avoidance and to ensure the owners of high value residential property pay their fair share of tax.”
We can all go along with that. The document continues:
“The interest to which the charge will apply will be the freehold or leasehold interest”.
So far, so good. It also notes that the annual charge will be applied separately to the freehold and the leasehold and that the value of the property interest
“which will be relevant for the annual charge”
will be its value on 1 April 2012.
Geraint Davies
My hon. Friend will know that there is an increasing trend of international financiers buying London properties in particular as part of their asset portfolio in an uncertain world and that, at the top end of the market, an increasing share of them are owned by Russian oligarchs, oil sheikhs and so on. Does he agree, therefore, that this is a great opportunity to introduce a charge on foreign owners who invest in London—which is fair enough—in order to redistribute some of their massive wealth to the poorest people in Britain?
Chris Leslie
Yes, I agree. Governments often ask Oppositions how they will pay for tax cuts for those who need them most. We have given a clear example of one possible option. It is important to show that there is a fair way to give a tax cut to the vast majority of lower and middle-income households through the introduction of the new 10p band. The mansion tax is feasible and has cross-party support, as indeed does the 10p starting rate, and the Minister’s arguments are diminishing by the day, to the extent that we have managed to get him to lift the skirt of the data and publish more of them, which is what we want to see.
It is important to consider the arguments for fairness behind the 10p starting rate, which we think would provide a good tax incentive into work, especially for those on lower incomes. It is widely supported, especially by those Conservative Members who were champing at the bit only a matter of months ago when they tried to persuade the Chancellor and the Prime Minister to consider the proposal. Conservative Back Benchers have managed to get the Government on the run on their favoured topics, including an EU referendum and a tax break for married couples. They have the bit between their teeth, so perhaps we can persuade them to consider the 10p tax rate, too.
The principle of fair taxation is at stake in this debate. It should transcend party differences. We should be looking at funding a tax cut, not defending the wealth of the wealthiest. If the Government really mean it when they say that we are all in this together, the time has come for a mansion tax to help those most in need. The Government have a history of giving tax cuts to the wealthiest—they have already reduced the 50p rate, thereby giving millionaires a tax cut—and they have hit pensioners with what came to be known as the granny tax.
Kwasi Kwarteng
If the 10p rate is such a good idea, why did the previous Labour Government get rid of it?
Chris Leslie
I did say earlier—I do not know whether the hon. Gentleman was in the Chamber—that it was a mistake to get rid of it in 2007. There were arguments. The Institute for Fiscal Studies looked at the issues. The basic rate of income tax had been reduced and calculations had to be made about how to pay for it. I think, however, that the right thing to do is to take these steps and have progressivity in the income tax scale.
It is wrong to hurt those in society who are most in need. They are paying the price and life is getting harder for them because the Government’s economic plan has failed. We need to concentrate on the contribution that the wealthiest 1% in society should make. They should pay a fairer share and we should make sure that that money goes to the vast majority—25 million people—on lower and middle incomes.
Geraint Davies
In essence this debate is about political choices and not just the technical efficiencies of marginal rates of tax. When this Government took over from Labour in 2010, two thirds of the deficit had been created by the banking community and a third by pump-priming in response to the financial tsunami after a history of sustained growth under the Labour Government. The new Government decided to focus not on growth, but on cuts to get down the deficit, which was a fundamental error that has led to a flatlining economy. They then had to decide who should bear the brunt in order to pay down the deficit—80% in cuts and 20% in taxes—and the answer that the Conservatives and the Liberal Democrats came up with was that it should be the poorest who were hit hardest.
The recent spending review and infrastructure plans replayed the same Tory agenda: the cuts will hit hardest in the poorest areas, including Wales and the north, and 80% of the investment in infrastructure for growth will benefit London and the south-east in order to shore up the Tory and coalition votes. This new clause is about making a move in the other direction so that the very rich make a slightly greater contribution, which will be redistributed to people in the middle and at the lower end of the income scale.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
The hon. Gentleman may have read an Institute of Welsh Affairs blog today by Gerry Holtham, the well-respected Welsh economist, who was scathing in his criticism of the hon. Gentleman’s party for adopting Tory austerity policies. How concerned is the hon. Gentleman, on the back of his criticisms of the UK Government’s austerity policies, about the fact that his party has adopted the very same strategy?
Geraint Davies
A moment ago I talked about Arab oil sheiks and now I am going to talk about Welsh milk shakes. On a serious note, what the Labour party has said is that when we take over in 2015, should the people of Britain give us their confidence, as I hope they will, we will inherit—this is self-evidently true—the current Government’s spending plans for 2015-16, so we will carry them out. As we make progress, I hope that the focus will switch to growth more than cuts, as it did after we inherited the Conservative party’s spending plans when we took over in 1997. We ran with those plans for a year and then we had consistent growth. The economy grew by 40% from 1997 to 2008 before the financial tsunami caused by sub-prime debt. I imagine that we will do the same in 2015. We offer no apology that we will have fiscal discipline alongside a focus on growth and that we will get people into jobs to pay down the debt. We will also change the composition of cuts to the rich and poor in certain areas.
Mr Russell Brown
My hon. Friend and I arrived in this House in 1997. In government, Labour confined itself to the overall spending of the previous Government, but we had different priorities which we put in place. It is not as if we came to power in a golden era. There was a debt and servicing it cost the equivalent of what was being spent on transport and defence put together. There was no golden inheritance. We had difficult choices to make as well.
Geraint Davies
I am glad that my hon. Friend brings that point up in this debate about the mansion tax. In 1997, we had the same old Tory economics, which we are seeing again because history is repeating itself. There was massive unemployment and that was being paid for by cutting services for the poorest. There was a huge debt that the Labour party paid down. The interest on that debt was excessive. We all remember Black Wednesday. We made the Bank of England independent to keep interest rates low.
The Opposition are serious about keeping interest rates low and having fiscal discipline, but our priority is economic growth. That is what any sensible business would suggest. A business man in Swansea said to me the other day, “If I was running at a loss, the last thing I would do is sack my workers and sell my tools, because I would not have a business. I would tighten up and focus on new product development and sales.” That is the balance that we want. We want a mansion tax and a 10p rate, because if we can recover some money from the richest and redistribute it to make it more worth while for everybody to work, that has to be a good thing.
The right hon. Member for Wokingham (Mr Redwood) brought out his violin and gave the heart-breaking story of the poor people who have a two-bedroom flat in Chelsea worth £2 million. He said, “Isn’t that awful. Surely you wouldn’t do that.” That is in sharp contrast to what Tory Members say about the person in the two-bedroom council flat who will be punished because their children grow up, get on their bike and get a job, as Norman Tebbit said, and vacate their bedroom. They say that there is nothing wrong with the forced evacuation of such people from London to a one-bedroom flat in a lower cost area; but they say that it is wrong that somebody who is living in a £2 million two-bedroom flat should have to rebalance their asset portfolio to generate revenues to pay the mansion tax. If someone has a £2 million Chelsea flat, it is possible for them to rent it out at enormous rents, live somewhere else in the countryside that is many times bigger, pay the mansion tax and make a handsome profit. That is not a heart-rending problem compared with the bedroom tax. However, it appears that Tory Members are more concerned about people who own £2 million properties than people in council flats.
A woman from my neck of the woods in Swansea came to see me two weeks ago and said that she had been on the waiting list for 11 years, asking to be moved from her two-bedroom flat to a one-bedroom flat, but the council does not have any one-bedroom flats. Why is that? It is because the local council has rightly been building for families in need with children. Suddenly we have the bedroom tax, which makes no economic or social sense, but there is no admission of that from the Government.
We have made the sensible suggestion, which has been thought through by the Liberal Democrats, that we should make the council tax more progressive.
We are all aware that house prices have gone up and down in different areas at different rates. In London, there is a skewed situation, because there is very quick house price inflation compared with elsewhere. People are making enormous capital appreciations. In essence, the financial disaster was caused by the bankers and sub-prime debt. That is likely to be repeated as we approach the general election because the Chancellor and his assistant, the Exchequer Secretary, have suggested triggering more sub-prime debt by covering people’s deposits. On the one hand, they are telling the banks to run a tight ship and to have enough capital reserves to cover their lending, because they do not want them to go bust again. On the other hand, they are saying that they will subsidise the purchasing of new houses. That is likely to happen in London, because people know that there is price inflation and will take a punt with a lower deposit and at a lower risk, hoping that they will recover their money through an escalation in house prices.
The very high-value property in London is being gobbled up by foreign speculation. The expensive property is being bought by people who want to get their money out of places such as Russia and by people who have huge accumulations of money from trade or oil surpluses. There are many cases of blocks of flats in London being bought outright. Nobody is living in them because the people who buy them know that they will make so much money through appreciation that they cannot even be bothered to rent them out. It is unbelievable.
We are asking, at a time of difficult choices and austerity, for a percentage of those transactions by multi-millionaires to be redistributed to make life easier for people who work in communities across Britain, not just in London. I accept that most of these properties are in London. For example, the constituency of the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) does not contain a £2 million house.
Paul Uppal (Wolverhampton South West) (Con)
The hon. Gentleman is making some partisan points, so I want to add balance to the debate. I have been poor—dirt poor. I used to share my bedroom with my siblings and cousins. By modern descriptions, I would have been classified as homeless. His main argument is about foreign capital coming to the UK and London. Does he not think that that is symptomatic of people recognising that we have a Government who are making credible decisions and creating financial stability?
Geraint Davies
I am grateful to the hon. Gentleman for telling me his economic background. It is useful that people of modest means come here and represent a range of views.
I am all for attracting foreign capital into infrastructure and productive opportunities. For example, Swansea will celebrate the centenary of Dylan Thomas’s birth next year and is on the shortlist to become city of culture in 2017. I am all in favour of encouraging foreign investors to invest in infrastructure that supports our cultural asset base. They would get a return from that over time, while generating wealth, tourism and jobs.
However, we are not talking about that. We are talking about people making speculative investments in house prices. They could just as easily be investing in aluminium futures or anything else. It just happens that London houses are on the up. If people have loads of money, they can buy a few of them and their money will grow. They know that that will continue because the Exchequer is irresponsibly putting taxpayers’ money into sub-prime debt to subsidise profits and further boost inflation. That will cause an imbalance in asset values and house prices between London and the rest of Britain. That situation is being stoked up by the irresponsibility of the Government, because they think that rising house prices in London will help them deliver Tory constituencies in the general election. That cynical ploy is unbalancing everything and encouraging foreign investors to take a punt.
That is not a symptom of the great stewardship of the Tories—far from it. The record of the Tory Government has been judged. The triple A rating has been torn up and thrown away.
Madam Deputy Speaker (Dawn Primarolo)
Order. Mr Davies, do you think that we could come back to the mansion tax and the 10p rate? Your setting of the scene has gone rather too wide of the specific issues that we are discussing.
Geraint Davies
I am grateful for your expert advice, Madam Deputy Speaker. I will move quickly back to the mansion tax.
At the moment, foreign investors are buying mansions for capital appreciation. A properly worked-out mansion tax would not be a simplistic flat rate of £36,000. That was the Government’s arithmetic—it was laughable, wasn’t it? It was, “Oy, what yer gonna do? ’Ave I got this roight? We want £2 billion, we’ve got 55,000 mansions, so you divoid it in—that’s it, it’s £36,000, innit? That’s what you’re gonna do.” Obviously, that would not be the strategy. It would be to have an escalating rate according to capital values, which would change over time.
The system would obviously have to be refined and played with, and as my hon. Friend the Member for Nottingham East (Chris Leslie) pointed out, the impact would depend on the delivery. To a certain extent, £2 billion is just a ballpark figure. That is why he asked for more detailed figures. There are various factors driving demand for such properties, and they have a range of prices in the marketplace, so the likely yield would change over time. We therefore need to consider a sophisticated system. However, it is clear that it is the right direction of travel for the very richest to make a contribution at the most difficult times, to make work pay for everybody else.
It is clear from international examples, such as in New York city, which already charges a mansion tax on $3 million properties, that the tax is tried and tested. We can learn from our friends and colleagues in America how to apply it correctly. We should come together—I know that the Liberal Democrats have always been keen on the tax, and I hope that they will join us in the Lobby to support it.
Sheila Gilmore
When the debates took place on whether the 50p tax should be changed, Government Members were keen to tell us that we could make up a lot of what was lost, and perhaps make even more, through various forms of property taxation. They obviously had in mind changes in stamp duty, ways of dealing with companies that buy very expensive houses and so on. We were told how much better a property tax would be than a tax on income, and that we would get far more money from it. However, when we follow that train of thought and suggest that there is merit in considering a mansion tax, we are suddenly told, “No, no, that would be terrible.” We are told either that it would be terribly expensive, and people would not be able to afford it, or that it would simply be the wrong thing to do. It seems that when we come to talk about something real, the Government run backwards as fast as they can.
We have had some figures thrown at us that are not mentioned in our new clause. They come not from anything that we have said but from what the Government have said, yet we are being told that we have to justify them. We are being told that figures such as a £2 billion yield and 55,000 houses are correct, which will mean people having to pay £36,000. I do not know whether 55,000 houses is the correct number of those that would be affected, but I do know that at the moment, according to Zoopla, there are 3,847 properties on the market for £2.1 million or more in London. That is not all the properties of that price but just those that are for sale. On that basis the figure of 55,000 is perhaps a conservative estimate, but the whole debate has been based on that figure.
Mr Jim Cunningham (Coventry South) (Lab)
In relation to the mansion tax, does my hon. Friend not think that there is too much looking at London and not enough looking at how the rest of the country would fare? It often strikes me that debates on legislation apply only to London, even though they matter to the rest of the country. I agree with a mansion tax, but the Government are split on it—the Conservatives do not support it; the Liberals do.
Sheila Gilmore
We had certainly always understood that the Liberals supported a mansion tax, but every time the opportunity comes up to consider it, vote on it or even speak about it, they seem conspicuously absent.
The differences between London and the rest of the country, on property prices and other issues, are a serious matter. The gap is increasing, and we should all be seriously concerned about the impact of that on the whole UK. It has happened during nearly all previous recessions, after which Governments of all parties have sought to restore some balance and encourage economic growth in places outside the south-east. We always seem to be running to stand still. The situation is serious, and we should consider it.
Jobs and people are being sucked southwards in quite a big way, and local government finance now works in such a way that there are huge differences. In many areas, for example the north-east of England, the loss of public sector jobs and income for local government means that there are no jobs for people who have just qualified as teachers, for instance. All the jobs are in the south-east. We should be worried about that. We should not wait for three, five or 10 years and then say that we have to do something to redress the balance.
Property taxes do have significant advantages over income taxes. We hear a lot about the mobility of income. One argument that has always been made against raising income tax rates—it was made against the 50p tax rate when it was introduced and has been made in favour of reducing it—has been that people will leave the country or not come here. It has been argued that, faced with that tax, people will simply move elsewhere and we will not attract people here. The one advantage of a property tax—it has been an advantage of council tax and its predecessor the rates—is that it is much harder to evade or avoid, because the property is actually there. There is a significant place in our fiscal balance for property taxation.
Chris Leslie
My hon. Friend is making a powerful point about the mansion tax. Has she followed the Government’s argument on clauses 97 and beyond, which are about the annual tax on enveloped dwellings? Has she noticed over the past hour that Government Members have not made a single argument against the administration and operation of a mansion tax? All that they can come up with is particular cases and arguments about how many properties will be affected. The administration of a mansion tax would not involve changes to council tax or other such matters. The annual charge could be used as a broad foundation of a mansion tax.
Sheila Gilmore
I thank my hon. Friend for that helpful steer towards the point that it might not be as difficult as some people assert to implement something of that kind. The advantage of property taxation is that it is more solid than income taxation, as we have clearly seen. Worryingly, the biggest reason some people give for why the 50p tax rate does not raise as much as they thought it would is that people were able to move income forward and back. Income is quite mobile.
Geraint Davies
Using that argument, people have said, “Oh well, we’ll raise more with a 45p rate than a 50p rate” yet my hon. Friend will know that year on year, bankers’ bonuses went up 64%. Does she agree that bankers were moving their income from a 50p year into a 45p year, and that if we had kept that rate up we would have raised that money? We should have done that as well as the mansion tax.
Sheila Gilmore
It certainly sounds on the face of it as if some sort of income arrangement was possible. For a lot of us, including people on PAYE, that would be difficult to do, but it is easier for other people. I have advocated not running away from a tax on property too easily. Not long ago we had that debate at some length in Scotland after a proposal by the Scottish Government to move to local income tax—again, they decided not to proceed with that. Some of the problems with local income tax concern the mobility of individuals’ incomes and the fact that some wealthy people might be able to avoid paying that tax. Those of us in political parties in Scotland that opposed moving to local income tax argued strongly the advantages of a property tax. Interestingly, the SNP Government, from 2007, backed away from their proposal in the face of those arguments.
Geraint Davies
I am grateful for my hon. Friend’s enormous generosity in giving way. She may know that in the past two years, the top 10% have seen their income rise by 5.5% each year—that is 11% in two years while everyone else is being squeezed. The rich are getting richer and richer, and the Tories are cutting the top rate of tax. Given that people are buying bigger and bigger houses with the great huge buckets of money they are getting, is it not right that they should face a mansion tax?
Sheila Gilmore
I was looking through the property pages of The Sunday Times yesterday, and interestingly it was full of descriptions about valuable houses and how property prices are rising. Since property prices at the top end were rising so much—driven partly by investment from abroad—it was argued that that would be good for everyone because it would lever up property prices for all. The argument is that high property prices are always beneficial, but those who tried to buy homes up and down the country long before the credit crunch know that high property prices are a double-edged sword because many could not get on the property ladder at all. In many parts of the country, not just in London, the amount that must be earned to buy even an average-priced house is more than people can earn in that area.
Mr Jim Cunningham
As property prices go up, rents also start to go through the roof. That has been reflected up and down the country and it will make it more difficult for people to rent property.
Sheila Gilmore
There has undoubtedly been a huge increase in the private rented sector. When I was elected as a councillor and became interested in housing, all the housing authorities and textbooks said that the private rented sector had become a residual sector and was disappearing. It might perhaps be there as a niche for young professionals or students, but it was not expected to be an important part of the housing mix. Within a short period—probably 10 to 15 years—we have seen an explosion in the private rented sector and in private sector rents. That is another issue for young people, particularly those who might wish to settle permanently. They cannot afford to buy a home because house prices are too high or they cannot get a mortgage. In the meantime they pay very high rents, which makes it difficult to save. I am not entirely convinced that high property prices are always a great bonus, and we should be looking for a more stable property market.
Geraint Davies
I am grateful for my hon. Friend’s enormous generosity in giving way again. Is she aware—I am sure she is—that property prices in London have grown so much that some local authorities have greater asset value than the entirety of Wales? Therefore, the mansion tax is a sort of cap—
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. Mr Davies, you were right when you said that you have intervened a lot. I do not mind you intervening but please do not take up so much time that you are almost making a speech.
Sheila Gilmore
I was not aware of the figure to which my hon. Friend the Member for Swansea West (Geraint Davies) refers, but if that is the case, it is a fascinating reflection on the huge differences between different parts of the country. If we do not do something about that soon, we will regret it in the near future.
Labour Members are constantly berated about the fact that we—the previous Government—abolished the 10p tax rate. At the same time, the current Government do not seem that keen on reintroducing it. We are accused of changing our mind, but it now appears that the Government are changing theirs. When the 10p tax rate was abolished, they attempted to make great political capital out of the issue—fair enough; that is what politics is about—and they have done so since by saying that it was a bad thing for us to have done and should not have happened. Now we are talking about reintroducing a 10p tax rate, and suddenly that is a bad thing to do. For people in low-paid employment—of whom there are many—there are advantages in having a more graduated taxation system that enables them to build up disposable income as they go. As we know, disposable income has fallen for many households in this country, which is a serious matter.
Looking specifically at the new clause, I hope it is not unreasonable to suggest that we consider and study such a measure. It perhaps prompts the question of why the Government are so against it, because if they are sure that a study would show that it would not be practicable or successful, there is nothing much to lose. From what the Minister said during an intervention, it sounds as if the Government may have already done some work on the provision, and on that basis, it should not be so difficult. People in the country want to see whether the measure could be a feasible means of ensuring that those who have asset wealth pay their fair share.
Jonathan Edwards
It has been a number of weeks since we debated the provision in earlier stages of the Bill. My concern about the mansion tax policy, which I support in principle, is whether agricultural land would be included as a part of the estate that would be taxed. Does the hon. Lady agree that we must ensure that farmers are protected?
Sheila Gilmore
And Scottish farmers, I am sure, and so on.
A mansion tax—I think my colleagues on the Front Benches would agree—is about residential property, not business property, which is already taxed in various ways. Obviously, a whole raft of taxes are appropriate for businesses, and that would be the best way to deal with the issue, rather than a mansion tax. If a mansion tax is a way of ensuring that we can appropriately tax wealth, we should consider it very seriously, given that it is probably a better basis for taxation than income, which people can move around—I have yet to see a house be dragged offshore. That may not be impossible, but in this country we generally do not put houses on wheels and move them, unlike in the United States—at least, so we see in the movies. A mansion tax would be a way to help the low-paid, through the introduction of the 10p rate.
Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)
My hon. Friend has made a strong speech so far, but is she—as I am—completely bemused by the position of the Liberal Democrats? In February, the Deputy Prime Minister said:
“My approach is simple: taxes on mansions; tax cuts for millions.”
It is more like no taxes on mansions and tax cuts for millionaires.
Sheila Gilmore
I suspect that that policy got lost in the negotiations that are part of a coalition. I have also heard the Deputy Prime Minister say that he would flex his muscles on all kinds of issues, the most recent being the number of children that could be cared for. The Deputy Prime Minister was keen to tell the country that he had flexed his party’s muscles and prevented that change from being introduced, but he has not flexed them on the mansion tax. Either it is possible for the junior partner in the coalition to flex its muscles successfully or it is not. There are other areas in which the Liberal Democrats have seemingly not thought it necessary to use the muscle they claim to have.
In relation to the mansion tax we will doubtless hear a lot about income-poor people—how will they be able to afford it? Would we expect them to sell their homes or move elsewhere? We cannot have that debate, however, without talking about the bedroom tax. A constituent of mine is 59 and has recently been made redundant. She is looking for work, but with a retirement age of 63 she will not easily find another job. She has been living in her home for 18 years, but it has a relatively small single second bedroom. The kitchen opens off the living room, which militates against taking in a lodger—one of the things people have been advised to do. Her current income is less than £72 a week. From that, she is paying £14 towards her rent as a result of the bedroom tax. That is a significant proportion of her income.
My constituent does not want to leave her home, as she has put a lot of effort into it and she lived there with her husband until she was widowed about four years ago. She has looked into the possibility of moving, but there is a shortage of one-bedroom homes in the city. Two weeks ago, 23 one-bedroom homes were advertised—the total from all the social landlords in the city, the housing associations and the council. Those homes attracted varying numbers of applications, but the lowest was 45 and the highest was 370. Four had more than 200, and another seven had between 100 and 200. My constituent’s prospects of being rehoused are, therefore, not great. Our city also has a large number of people waiting for this kind of housing who are living in expensive private rented housing or temporary accommodation that costs far more in housing benefit than the rent being charged to my constituent.
People like my constituent are being asked to make some serious sacrifices, and they do not have an easy choice. It is not easy to downsize, because there is nowhere to downsize to—
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. I am sure that the hon. Lady must be getting to the point at which she links her remarks with the new clause. I am struggling to see the link at the moment.
Sheila Gilmore
The link is that some would argue that a mansion tax would be oppressive on people who may live in a house that is valued at more than £2 million, but have a very low income, and they should not be expected to find that payment. As has been suggested to my constituent and others, such people may wish to consider taking in a lodger, releasing some of their equity or downsizing. I suspect that downsizing with that type of property would be easy. I would hope, therefore, that such arguments would not be made against a mansion tax. I hope that the Government will support the new clause, because if their arguments are as strong as they say, they will be able to disprove our case very quickly.
Chris Evans
I feel as though this is part two of my speech. I listen to Government Members, and I hear the sound of the creation of two Britains. We have the Britain of the elite who are protected by the Government, who bring about tax cuts for the most affluent in our society. Then we have the other Britain—people who are playing by the rules but have seen their benefits squeezed, their tax credits cut and their council tax benefits cut. When they go shopping, their bills have increased because of the VAT increase. Nor is this society encouraging work, because work does not pay. Those people in work can be reliant on the benefits system, but the policies of the coalition Government are skewed against them—the vast majority of people in this country who are playing by the rules and want something better from their lives.
I feel sorry for the hon. Member for Eastleigh (Mike Thornton), who has not been a Member for very long. He is in his place alone as we challenge the Liberal Democrats on their approach to the mansion tax. As on tuition fees, VAT, tax avoidance and the tax cut for the most affluent, what they said in opposition, when they sat on this side of the House with no hope of being in government, was a different kettle of fish from what they say in government.
I can never clear my mind of the image of the Deputy Prime Minister, in a party political broadcast, implying—I do not wish to use unparliamentary language—that anyone who was not a Liberal Democrat was a teller of mistruths. Students remember that party political broadcast saying that tuition fees would not go up under any Liberal Democrat Government. It was a different matter when they found themselves in government.
In February, the Deputy Prime Minister said:
“I continue to believe we should ask for what would be a modest contribution from the very wealthy, either in the form of a Mansion tax—a 1% levy on properties worth more than £2m—applied just to the value over and above £2m; my preferred option. Or, alternatively, we could introduce new council tax bands at the top end, again, affecting properties worth over £2m…Nothing could do more to demonstrate a commitment to greater fairness in our tax system. I will continue to make this argument, in this Coalition and beyond. My approach is simple: taxes on mansions; tax cuts for millions.”
What did the Deputy Prime Minister do in the coalition? Did he sit there and fight for a mansion tax? No, the evidence—and we have to go on the evidence—is against it. In every major decision that the coalition has made, many of them unpopular, the Deputy Prime Minister has been found wanting. Let me explain something to the hon. Member for Eastleigh, who, in fairness, is the only Liberal Democrat Member who has sat through this entire debate. If that is who his leader is—if that is what his leader is about—he should ask whether the Deputy Prime Minister is equipped to lead the Liberal Democrats into the next election.
David Wright
It gets even worse for the Liberal Democrats. Not only did the Deputy Prime Minister say in that discussion point that he was a supporter of the mansion tax, but the Business Secretary went on to say to the BBC in March this year:
“Nick Clegg and I are very strong supporters of the mansion tax”.
I am really pleased to hear that, and I am sure my hon. Friend will be, too. I await to see how they will vote in the Lobby this evening.
Chris Evans
I, too, hope to see them in the Lobby, but I am sure that they will not be there. That is the wonderful thing about the Liberal Democrats: it is the only party that can support something—have the bare-faced cheek to stand up in favour of something—and then vote for the exact opposite in the Division Lobby. That is what the Liberal Democrats should remember: in the marginal seats that they need to hold on to, they will be judged on their priorities—[Interruption.] Does the hon. Member for Eastleigh want me to give way to him, or is he happy to listen? [Interruption.] Indeed, we do not usually hear from a Liberal Democrat.
The Liberal Democrats will be judged on their priorities, and their priorities have not been what they said they would be. They are not for the students; they are not for the elderly; they are not for the poorest paid in society: they are simply there to prop up this coalition Government. They are becoming nothing but voting fodder for this Tory Administration. I notice that the Tory Members were nodding when I said that. If any further proof were required about who is in the senior part of—
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. Mr Evans, I gave you a little leniency on the earlier new clause, but on this one, we have got so far off the mark that I do not know how to drag you back. I am worried about the time ticking away, and it would be better for the House if you spoke to the new clause. I am sure that that is exactly what you are going to do next.
Chris Evans
I have the Bill in my hand, Mr Deputy Speaker, and I am going to come to the relevant clause.
Mr Deputy Speaker
Having the clause in the hon. Gentleman’s hand is not necessarily helpful; it is what he says that matters more.
Chris Evans
I was just coming on to that point, Mr Deputy Speaker, I just needed time.
Chris Evans
I ask anybody who says that this mansion tax cannot be introduced to read clause 92, which relates to the annual tax on enveloped dwellings. Under the heading of “Charge to tax”, it states:
“A tax (called ‘annual tax on enveloped dwellings’) is to be charged in accordance with this Part…Tax charged in respect of the chargeable interest if on one or more days in a chargeable period…the interest is a single-dwelling interest and has a taxable value of more than £2 million, and…a company, partnership or collective investment scheme meets the ownership condition with respect to the interest.”
That seems very much like a mansion tax to me. Clause 97 goes on to state:
“The amount of tax charged for a chargeable period with respect to a single-dwelling interest is stated in subsection (2) or (3).”
A table then sets out the annual chargeable amounts, highlighting the taxable value of the interest on the relevant day. It shows that if the property is worth more than £2 million but not more than £5 million, it would raise £15,000; if it is worth more than £5 million but not more than £10 million, it would raise £35,000; if it is worth more than £10 million but not more than £20 million, it would raise £70,000; and if it is worth more than £20 million, it would bring in a whopping great £140,000. If that is not a step towards a mansion tax, I do not know what it is. But still—
Mr Deputy Speaker
Order. I can cope a little bit with this speech. The Liberals may well want to hear the hon. Gentleman, but he has to address the Chair. Constantly looking at the Liberal is not helpful for Mr Thornton, but it would be helpful for Mr Evans if he were looking at the Deputy Speaker. I am sure that the rest of his speech will be conducted through this Chair, rather than through the Opposition chair—much as Mr Leslie would provide him with advice, he really should speak to this Chair.
Chris Evans
I am sorry, Mr Deputy Speaker. Much as I think the Liberal Democrats believe that the world revolves around them—[Interruption.]
Jonathan Edwards
Let me try to help the hon. Gentleman out. He will be aware that in Wales we had a council tax revaluation for domestic properties in 2005. Does he think that a similar evaluation for England might achieve the objectives of a mansion tax and probably raise far more?
Chris Evans
I find myself in shock, but I agree with a member of the Welsh nationalist party. There is some merit in that idea, which is something we can look at.
This new clause presents an opportunity for the Conservatives to reverse the inequality that I have talked about—the two Britains that are starting to emerge in our society. If we agree with a mansion tax, we will be able to fund a tax cut for millions of people. We support the increase in personal allowances, but the reintroduction of the 10p tax would mean that work pays once again. I know that the Tories will say that we abolished it. We must be big enough in politics to admit that we got something wrong, and we got it wrong when we abolished the 10p tax rate, which would give the lowest in society an opportunity to go out to work and make work pay. This is what I mean when I talk about how difficult it is to get back to work once someone is out of it. We can do this today.
Bill Esterson (Sefton Central) (Lab)
My hon. Friend makes an important point about how work will pay. The other side of the coin is how the 10p tax rate would make it advantageous for employers to take people on, because it becomes far more attractive to employers to do that. Does he see that benefit for employers, too?
Chris Evans
Yes, I do. I think this is a win-win situation for everyone. Yes, I have said that we got the 10p tax wrong, but I think a lot of employers would welcome a 10p tax rate. As I have said here before, Opposition Members agree that work is the only way out of poverty, and a mansion tax could provide a way forward on that.
The new clause deals with a mansion tax. Labour has often been accused of having no policies and of not setting out our policies or of not being forthcoming enough, but we have said that we need to introduce a mansion tax to bring about a 10p tax cut and bring some fairness into society. Fair taxation should not be a Labour issue, a Tory issue or a Lib Dem issue; it should be across party. Fair taxation should interest us all, but without a fairer and less complex system, we cannot hope to achieve what we want, which is to see more people in work, paying their taxes and bringing down the deficit that way. With that, and after a number of interventions from you, Mr Deputy Speaker, I shall sit down.
David Wright
I was in the Chamber at the opening of the debate, and I would like to make a brief contribution on this subject. I am keen to see us move the debate forward a little on the issue of progressive taxation. My hon. Friend the Member for Islwyn (Chris Evans) was right to say that the Labour party was wrong to abandon the 10p tax rate before the last election, as it caused a good deal of concern in constituencies right across the country. It is important that we reassess that policy position now.
It is useful that we are matching the commitment to reintroduce the 10p band with a proposal for a mansion tax, linking the two objectives, and I am particularly supportive of the mansion tax. As we heard in an earlier segment of the debate, one of the key issues is tax avoidance, and Government Members made great play of the fact that the higher rate of income tax introduced at the end of the last Labour Government was not going to deliver much revenue because people would attempt to avoid it. I can understand that argument, but I think they are wrong, because we did not have a long enough period to see it work though, and not enough time was given to allow the new top rate we brought in to bed down.
One thing that can be said of the mansion tax is that one can with certainty ensure that income is being delivered for the Exchequer. Clearly, by their very nature, properties do not move. Some Members have referred to the possibility of revaluation of the council tax base. I do not think that there should be a broad revaluation in England at this stage, but I do think that it would be logical to apply a mansion tax to the largest properties in the country, given the need to generate a tax system that is fair and progressive.
Mr Gauke
New clause 9 proposes the introduction of an income tax rate of 10p on a band of income determined by the Exchequer yield of a mansion tax. Let me explain why the Government do not believe that the new clause is sensible
We are already helping people on low and middle incomes by means of the tax system. In May 2010, the coalition agreement set out our commitment to making the first £10,000 of income free from income tax by the end of the Parliament. In April we increased the personal allowance to £9,440—that was the largest ever cash increase—and it will rise again, by a further £560, to reach £10,000 in 2014-15, meeting this Government’s commitment a whole year early.
Opposition Members clearly think that it would be better to introduce a starting rate of income tax, but let us not forget that they introduced a 10% rate once before and then scrapped it, to the cost of many of the people further down the income scale whom they claim to want to help. We have replaced the 10p rate that they doubled with successive increases in the tax-free personal allowance which effectively provide a 0% band. Our changes in the personal allowance have already more than compensated those who lost out when the 10% rate was abolished. In fact, since April 2013, those who lost the most as a result of the last Government’s policy have paid no income tax at all.
According to the Institute for Fiscal Studies,
“the proposal for a new 10p starting rate of income tax, has no plausible economic justification. It would complicate the income tax system and achieve nothing that could not be better achieved in other ways.”
The IFS says:
“A far simpler and more sensible way of achieving these aims would be to spend the same amount of money on increasing the personal allowance...This would have virtually the same impact on individuals’ tax payments… be slightly more progressive, take some people out of income tax altogether and avoid the complexity involved in introducing a new income tax rate.”
Proposed subsection (2) of the new clause proposes the introduction of a mansion tax to pay for the proposed introduction of a 10p rate. That proposal has already been debated a number of times in the House, and the Government’s position is clear. The coalition parties have different views, but the view of my party is that a mansion tax is not the answer.
We expressed our concern in the Public Bill Committee, during a debate on the annual tax on enveloped dwellings. As we made clear then, a third of the properties in London that are worth over £2 million have been owned by the same people for more than 10 years. Many of those people, such as elderly owners whose properties had increased substantially in value during that period, would be faced with an average tax of £36,000 every year, and could be forced out of their homes. Moreover, families or other owners of high-value homes would not necessarily have the liquid income that would enable them to pay the tax. A mansion tax could hit asset-rich but potentially income-poor households.
Mr Gauke
I will in a moment. I look forward to the hon. Gentleman’s question, and will listen to it attentively. Before I do so, however, I should acknowledge his assurance that there would be a case for some type of mitigation for people in the circumstances to which I have just referred. That would, of course, have an impact on the yield, and the average of £36,000 would increase.
Chris Leslie
With whom do the Minister’s sympathies lie most? Do they lie most with the householder faced with the hardships of the bedroom tax, or with the householder faced with having to deal with the mansion tax?
Mr Gauke
Let me reply by echoing what was said by my right hon. Friend the Secretary of State for Work and Pensions during Question Time this afternoon. For all that we hear from Labour Members about the so-called bedroom tax—the spare-room subsidy—they have given no indication that they would reverse the current Government’s policy. For all the bluster on that—[Interruption.] Let me make this point. Labour Members should be straightforward about the fact that their policy would have an impact on, for example, elderly widows who have lived for many years in a property whose value has increased. Would they seek to address that?
In addition, the mansion tax would not be precisely targeted at the very wealthy. It would not take into account the number of properties owned. Therefore, a person owning two properties valued at £1.9 million each would not fall within its scope but a family owning a £2 million home would, even though their property wealth was much lower. Any mansion tax would be complex to introduce and administratively burdensome for HMRC to operate. It would come at a cost for taxpayers, not to mention that it would be intrusive for the person having their home inspected.
I know that the essence of Labour’s argument is that we already have the annual tax on enveloped dwellings. However, that is a very targeted tax. Essentially, only 1,000 properties are likely to be affected by it, so it applies to only a very small group of taxpayers. HMRC can therefore administer the tax manageably, relying on self-assessment, with a limited number of inquiries. A mansion tax would affect a much larger number of taxpayers and require greater administration and valuation, which would make it much more expensive, time consuming and difficult to collect.
Chris Leslie
I am interested in the fact that the Minister thinks that the analogy is not applicable. How, though, would the administration of the mansion tax be more time consuming? The owner of the property would have responsibility for the valuation. It would not be more onerous for HMRC in that respect, if it were to follow the design of the ATED arrangements.
Mr Gauke
We do not believe that that model could be scaled up to apply more generally. A proper valuation process will be needed if the mansion tax is a much less targeted tax. Let me give the Labour party a degree of credit, however. The hon. Gentleman said that Oppositions are often asked how they would pay for a measure, and the hon. Member for Islwyn (Chris Evans) said that Labour has a policy to pay for this proposal. However, under the mildest of questioning, the policy appeared to unravel before our eyes. The target yield is £2 billion. I repeat a number that I gave some weeks ago in Committee: the Treasury believes that 55,000 properties are valued at above that level. We undertook that research to cost the annual tax on enveloped dwellings. That is the number. A very simple calculation gives us an average of £36,000 a year. Rather than Labour saying, “We accept that. That is how we will pay for this. That is how we will get a yield of £2 billion,” it is sliding away from the policy. It is not accepting that that is the consequence of what it is advocating. If it thinks that £36,000 is too steep—maybe it does not, maybe it does—it should acknowledge that, but that is the average cost. I suspect that Labour does think that it is too steep and that is why the £2 million threshold is under threat. That is why, to raise £2 billion, any Government would have to apply the mansion tax to lower down the property ladder. That is why a tax that is designed for the few will become a tax for the many. The tax is ill thought out. Either it will result in very high sums being levied on small groups, or it will not raise anything like the yield that the Labour party claims it will and it will apply more generally.
Introducing a mansion tax would create real fairness issues by hitting asset-rich but potentially income-poor households. It would serve only to create complexity and uncertainty. The personal allowance is the most effective way to support those on low and middle incomes, because it enables people to keep more of their money. It is a better policy than reintroducing the 10p rate of income tax. The Government have made huge strides to make a fairer society and a stronger economy. All elements of the new clause are flawed. I urge the hon. Member for Nottingham East (Chris Leslie) to withdraw the motion.
Chris Leslie
I can assure the Minister that he is wrong to have concerns that anyone is looking to apply the policy to properties below £2 million in value. I can assure him that Gauke Towers will be safe, unless of course in leafy Hertfordshire that property has now increased in value to that level. Perhaps the Valuation Office Agency could give us an estimate, but I assure him that that is not the intention. We simply urge the Government to come clean on the research, which we now understand the Treasury has commissioned.
We now have a couple of Liberal Democrats in the Chamber, albeit looking at their iPhones—[Interruption.] Their Samsung Galaxys—my apologies. They will be interested to know that the Treasury has commissioned research into the feasibility of a mansion tax, so now we know that it is worth a freedom of information request to try to elicit the information. Let us draw out the information.
The Minister mentioned that there are 55,000 properties worth £2 million or above. The Liberal Democrat manifesto promise may well yet come to fruition. We know that the Liberal Democrats put a lot of effort into pulling together the detailed figures on the proposal. We were persuaded of the case and now it looks as though slowly but surely the Treasury is coming into that frame of mind, too.
It is right that we focus on finding a way to support a tax cut that would supplement the personal allowance zero rating. The 10p starting rate would be a better and more progressive tax, which could be supported by the hon. Members for Harlow (Robert Halfon), for Camborne and Redruth (George Eustice), for Aberconwy (Guto Bebb) and for Cleethorpes (Martin Vickers)—those Conservative Members who have voiced the case in favour of a 10p starting rate of income tax in recent months.
We know that the annual tax on enveloped dwellings could be the foundation upon which the administration of the policy could work. I was not convinced by the Minister’s argument that there was no read-across from that new tax, which the Treasury is introducing in this Bill. My hon. Friends the Members for Swansea West (Geraint Davies), for Edinburgh East (Sheila Gilmore), for Islwyn (Chris Evans) and for Telford (David Wright) spoke eloquently about the economic benefits that could arise if the new 10p band were in place for lower and middle-income households. That money could feed through into the economy more directly and in a progressive way. The hardship and the tax rises that we have seen from the coalition parties have not reduced the deficit, which is going up. Unfortunately, that is the price being paid for the Government’s failed economic plan.
We still hope to persuade the Government that steps can be taken to help people on lower and middle incomes this year. Let us get the Treasury to publish that work. Now we know that research has been commissioned, let us have it published and in the public domain. It could help to stimulate the economy and help the many people who are finding life much harder under this Government. The concept of a mansion tax, asking those with considerable wealth to pay a fairer share to help those on more modest means, is an idea whose time has come.
Nigel Adams (Selby and Ainsty) (Con)
In my neck of the woods, there are not too many people with £2 million houses. There may well be in Nottingham East. This issue was raised earlier, but will the hon. Gentleman make it absolutely clear whether the Labour party’s plans for the mansion tax include farmhouses?
Chris Leslie
I do not think that our plans do. We would look at mansions—that form of housing accommodation. However, I would be prepared to see whether the Treasury study, which could be commissioned under the new clause, could look at whether farmhouses would be ruled out. We would be happy to look at such questions. We should, however, be looking at personal estates of £2 million and more in that built-mansion context. That is the nature of the proposition before us. In clause 97 and beyond, definitions of property are set out in respect of the annual tax on enveloped dwellings. They provide a series of exemptions and set out where the line should be drawn in terms of farmhouses and so forth. I recommend those clauses to the hon. Gentleman, as they may well serve as a guide to how a mansion tax could work in future.
We need that work to be undertaken, however. This new clause does not seek instantly to implement the Liberal Democrat proposition. It simply seeks to find ways of building on that as a basis on which to look at the annual tax on enveloped dwellings, thinking of how that might apply to a mansion tax, and in particular using that revenue to help 25 million basic rate taxpayers. That is the objective. We have got to give more help to those who are finding it difficult to make ends meet. That is why I commend this new clause to the House.
Question put, That the clause be read a Second time.
Madam Deputy Speaker (Dawn Primarolo)
With this it will be convenient to discuss the following:
Government new clause 5—Restrictions on buying capital allowances.
New clause 12—Anti-abuse measures—
‘(1) Her Majesty’s Revenue and Customs shall review the possibility of bringing forward measures as part of the GAAR to work in conjunction with other G8 countries to require multi-national companies to publish a single easily comparable statement of the amount of corporation tax they pay in the UK.
(2) The Chancellor of the Exchequer shall review the effect of incorporating a global standard for public registration of ownership of companies and trusts via a convention on tax transparency, including a requirement on companies to publish a single easily comparable statement of the amount of corporation tax they pay in the UK, on Treasury tax receipts.
(3) The Chancellor of the Exchequer shall consider, when counteracting tax advantages arising from tax arrangements that are abusive, what steps HM Government could take, working alongside developing country governments, to assess how UK companies could report their use of tax schemes that have an impact on developing countries, and how the UK could assist in the recovery of that tax.
(4) Within six months of the passage of Royal Assent, the Chancellor of the Exchequer shall place copies of the review in the House of Commons Library, and consult with G8 countries on their effectiveness.’.
Government new schedule 1—Transfer of deductions.
Government new schedule 2—Restrictions on buying capital allowances.
Mr Gauke
This Government are determined to crack down on tax avoidance by the small minority of individuals and companies who are unwilling to pay their fair share of tax. This Bill includes some important anti-avoidance provisions, including the general anti-abuse rule—the GAAR—a major new development in UK tax law and a key part of this Government’s drive to tackle tax avoidance, and, in particular, abusive tax avoidance schemes. The Government have also made it clear that we will continue to legislate to close down specific loopholes if there is a clear case for doing so.
Before addressing the GAAR and the Opposition’s new clause 12, let me discuss new clauses 4 and 5, and new schedules 1 and 2. At this year’s Budget, the Chancellor of the Exchequer announced that the Government proposed to introduce legislation in the Finance Bill 2013 to prevent companies from entering into arrangements to access, as part of a business transfer, various forms of unrealised corporation tax losses from unconnected third parties—a practice that, for the sake of brevity, I will refer to for the rest of the evening as latent loss buying. Legislation on that matter was not included in the Finance Bill published in March, in order to allow more time for consultation with interested parties. Technical detail on the circumstances and manner in which the proposed legislation would operate was published on 20 March. That was followed on 28 March by the publication of draft legislation for a period of technical consultation. New clauses 4 and 5 and new schedules 1 and 2 introduce those targeted latent loss buying rules to this Finance Bill, and take on board comments received during the technical consultation.
Let me set out a little background to these new clauses and schedules. The UK’s loss relief system provides a measure of parity between taxing profits and relieving losses over the life cycle of a business, ensuring that businesses with different patterns of profit and loss pay a broadly similar amount of tax. Relief is based on long-standing underlying principles that: brought-forward trade losses should only be relievable against future profits from the same trade, carried on by the same legal entity; tax losses should not be transferable against profits of unconnected parties; and the movement of losses between companies should be allowed only where they are under common economic ownership for the accounting period when the losses arise. Within those principles, companies can gain relief for losses through being set off against profits in a number of ways. However, loss relief and business reorganisation rules are designed to prevent companies from passing the benefit of a loss to an unconnected third party. Those tax rules are designed to prevent companies from “selling” losses to some unconnected company that has taxable profits.
However, Her Majesty’s Revenue and Customs is now seeing a marked increase in companies entering into different arrangements to access deductions not caught by those existing rules. Indeed, we are expecting the new rules to bring in revenue of close to £1 billion over the next five years. A particular pressure point arises where it is possible to dictate or predict the amount and timing of reliefs, allowances and deductions. Where those are sizeable, they can encourage tax-motivated reorganisations through which unconnected entities may get access to what are, in effect, unrealised losses.
Where the amount and timing can be dictated or predicted, ownership or part-ownership changes can take place in advance of the crystallisation of the amount, enabling the current loss-buying rules to be bypassed. Such arrangements may take the form of selling all or some of the shares in a company or the assets of a company, where either there are allowances that could have been claimed but were not by the previous owner or where it is known that a debit will be created in a future accounting period. Arrangements can, however, be more complex and contrived, and may also involve moving profits into a company to use up relevant deductions.
These new clauses and schedules therefore deliver on what the Chancellor announced at the Budget. They bring the tax treatment of unrealised amounts, involved in a transfer between unconnected parties, more closely into line with the long-standing treatment of realised losses. The proposed changes introduce three separate rules to combat latent loss buying. The first rule expands the application of current rules in chapter 16A of part 2 of the Capital Allowances Act 2001—I am sure you have fond memories of that Act, Madam Deputy Speaker. The other two rules are targeted anti-avoidance rules—TAARs—to be included in a new part of the Corporation Tax Act 2010. One seeks to counter tax-motivated reorganisations between unconnected parties involving other forms of relevant deductions, and the other seeks to counter arrangements that aim to transfer profits to companies so that the relevant deductions can be used.
A draft of the legislation was published for technical consultation on 28 March and nine responses were received: four from legal firms, two from accountancy firms and three from individual businesses. The majority of representations related to the technical application of the legislation rather than the underlying policy intent and have been addressed in the provisions before us today. I hope that is helpful to the House and anticipates some of the questions that might be raised by those on the Opposition Front Bench. Of course, I am happy to deal with any further questions later this evening.
Let me turn to what I suspect will take up most of the time for our debate this evening—that is, new clause 12. As I have said already, the GAAR is an important new tool, but it is not a panacea. New clause 12 focuses on much broader issues to do with the taxation of multinational companies, which have already been extensively debated during the course of the Bill and fall beyond the scope of the GAAR. Let me once again explain why that is the case.
New clause 12 first asks for a review of ways to require companies to publish a clear statement of their UK tax payments. That is not a matter for the GAAR. I am aware that the GAAR does not do what people want it to do by tackling a wider range of tax issues, particularly those involving multinational companies. We have never pretended otherwise.
The GAAR can of course apply to multinational companies if they engage in abusive schemes, but the broader issues concerning where and how their profits are taxed are grounded in how the international tax system operates. That is why we are driving forward the OECD’s work on improving international tax standards through the G8 and G20. Both the Chancellor and the Prime Minister have set out clearly that international tax problems need international solutions.
We accept that tax rules have not kept up with the age of electronic business, but the answer is not for the UK to take unilateral action. That approach would do the UK no favours as a location for business investment. It would risk setting in train a disparate approach among our trading partners, with serious consequences for international trade and growth and hence for jobs in the UK.
The OECD report on base erosion and profit shifting, which was endorsed by the G20 in February this year, shows that to tackle the issue effectively requires collective action to strengthen international tax standards. The Government have been at the forefront in taking forward work on the issue through the OECD.
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
The Minister has made some rather bold statements. Will he reiterate what he just said? He suggested that the proposal made by new clause 12, which asks the Chancellor to review proposals for the Government to require the production of a single corporate tax figure, as well as the other amendments, would result in lost jobs in the UK. Will he confirm whether that was what he said and on what evidence the statement was based?
Mr Gauke
That is not quite what I said. I said that it would not be sensible for the UK to take unilateral action to change the tax law that applies internationally and that the best approach to dealing with international tax issues is to work multilaterally with other economies to update the tax system. I shall turn to some of the specific elements of new clause 12 in a moment, but I am setting out the framework. It is sensible for us to work with other countries to ensure that the international tax system does what it needs to, rather than going off on our own and making changes that could damage the UK’s competitiveness. I am sure that no one in this House would want us to do that.
Mr Newmark
I congratulate the Government on their work, particularly in the G8 meeting, in trying to co-ordinate efforts to prevent abuse by multinational companies. Such companies are extremely portable and, does he not agree that the big problem is that if we do not act on a multi-jurisdictional basis, they can move anywhere? If we take unilateral action and they move, that risks jobs in this country—that is why we must never act unilaterally in dealing with such situations.
Mr Gauke
My hon. Friend makes a very important point. Elements of a business are highly portable. In 2007-08, for example, the UK’s position on headquartered companies was very uncompetitive because of our controlled foreign companies regime and a number of businesses moved their headquarters out of the UK and went elsewhere, which had an impact not just through lost corporation tax revenue but more widely, as it meant that individuals paying income tax and decision making were moved out of the UK. That was not in the UK’s long-term interest, so we reversed the situation. Now we have a much more competitive position, which means that companies are moving back to the UK and that new businesses are moving here, too.
My hon. Friend the Member for Braintree (Mr Newmark) is absolutely right that elements of a multinationals’ business are very mobile and that we need a tax system that reflects that. An important part of making our tax system fit for purpose is that it should reflect that, which is why we should work multilaterally.
Mr Newmark
Not that I like to pick on individual countries, but does my hon. Friend agree that the evidence from France, with a relatively newly elected left-wing Government, suggests that businesses and wealthy individuals are moving across the channel in their droves to set up business in the UK?
Mr Gauke
I would say—I think that this is the most tactful way of putting it—that the Government are determined to send the signal that the UK is open for business. That is how we can win the global race. Other Governments might wish to take other approaches, and that is for them to decide. For the UK, we believe in open markets and a competitive tax system—but a tax system, none the less, in which businesses pay the tax they should and in which economic activity is properly taxed.
We have made a commitment to act and have backed that up with extra resources for the OECD. The UK has been actively participating in the development of the OECD’s comprehensive action plan for tackling such issues, which will be presented to the G20 later this month. It might interest hon. Members to know that at the recent Lough Erne summit the G8 called on the OECD to draw up a common template for multinationals to report to tax authorities where they make their profits and pay taxes around the world. That will give tax authorities a new tool against tax avoidance to help them efficiently identify and assess risks, but requiring publication of that information would put the UK at a competitive disadvantage to other countries that did not require publication. It would also impose costly administrative burdens on business and Government.
The new clause proposed by the Opposition would require all multinational companies to report all their UK corporation tax payments—not just tax related to the GAAR, but the whole of their UK corporation tax. That goes way beyond the clear policy that we have set for the GAAR and would risk giving an impression that the GAAR has an impact on all corporation receipts, creating the sense of uncertainty about the impact of the GAAR that we have gone to some lengths to avoid.
Stella Creasy (Walthamstow) (Lab/Co-op)
I am interested by the Minister’s comments. The Minister has concerns about publishing such data, but in other cases the Prime Minister extols sunlight as the best disinfectant. Is it not important, if the public are to be confident in our tax system, for them to have such information? Why does he feel that tax receipts should be exempt from that disinfectant process?
Mr Gauke
There is a long-standing and widespread approach that tax is a matter of confidentiality between taxpayers and the tax authorities. I say that the approach is long standing; it is the approach we have had in the UK for time immemorial.
It is also the position that applies in pretty well all major economies, and if we were to change that approach, it would be sensible to do so multilaterally. If we introduced a requirement that multinationals based in the UK had to publish information in a way that would not apply if they were based elsewhere, that would raise questions about the attractiveness of the UK as a place in which to do business.
On how to move forward in this area, I would make the wider point that we work multilaterally. That approach was endorsed by Tony Blair, who, in a recent interview, said that if countries move unilaterally, others will eat your lunch, to put it bluntly. I think that was the phrase he used. It is right that we work with other countries to ensure that we have an effective tax system, but I would not favour measures that left the UK isolated in such a way.
Stewart Hosie
I am genuinely confused. The Minister said that the measure would go wider than the GAAR as intended, because it covered all a business’s corporation tax, but part 5 of volume II of the Bill states at clause 203(3):
“The general anti-abuse rule applies to…corporation tax, including any amount chargeable as if it were corporation tax or treated as if it were corporation tax”.
The idea that the proposal would widen the measure beyond the scope of the Bill does not appear to be correct.
Mr Gauke
I hope I can clear up the hon. Gentleman’s confusion. The GAAR applies to corporation tax—I am not arguing for a moment that it does not—but the point is that lumping in the new clause, which is based on the GAAR, and moving from the GAAR being quite carefully targeted at abusive tax avoidance to essentially saying that everything needs to be published under the GAAR as part of a general anti-avoidance or anti-abuse rule would rather confuse things. It is a pity to muddle the two. There is an argument for greater transparency and for publishing things, and there is an argument for a GAAR, but to bring the two together as the Opposition have done—perhaps that is partly due to parliamentary constraints and so on—sends out an unfortunate message. The two should be kept apart. I hope that has made things clearer for the hon. Gentleman.
Stewart Hosie
Well, not particularly, because the other argument that the Minister used is that the proposal might put us at a competitive disadvantage. However, the Bill is clear: one of the priority rules is the double taxation agreements that are already in place, so nothing could be done that impacted on the amount of tax a corporation paid in relation to its tax in the UK and elsewhere, because the double taxation agreements would have priority in any event. The Minister is trying hard to explain why he does not like the proposal, but he is not really succeeding.
Mr Gauke
The double taxation agreements are part of the international structure, but that is not the only element that determines whether the UK tax system is competitive. The point I am arguing is that our engagement and the leadership shown by the Prime Minister and the Chancellor represent the right way to go about changing how multinationals are taxed. I would consider, for example, what came out of the Lough Erne summit and, more broadly, measures to ensure that people pay the right amount of tax, as well as the dramatic progress that has been made including, on tax evasion, the exchange of information between Crown dependencies and overseas territories, and indeed the creation of a new international norm based on the American Foreign Account Tax Compliance Act, or FATCA. That is a big step forward, and we continue to take steps, leading the way in this multinational effort to give tax authorities new tools to deal with tax avoidance by providing more information about beneficial ownership. All those are steps that can help us to deal with tax avoidance and tax evasion. I hope they will be welcomed by all Members of the House.
John Mann (Bassetlaw) (Lab)
May I say how pleased I am to hear that the Minister is a converted Blairite these days? In extolling the virtues of what he has done with the overseas territories, he has ignored the fact that none of us, including Treasury officials, knows who owns what company and what company structures are there, and therefore what moneys are around. That includes some of the big banks and state-owned banks.
Mr Gauke
I am grateful to the hon. Gentleman, who brings me on neatly to the next issue, which is registration of ownership. New clause 12(2) asks for a review of the effects of
“a global standard for public registration of ownership of companies and trusts via a convention on tax transparency”.
At the recent Lough Erne summit, the G8 leaders all committed to work internationally to ensure that tax collectors and law enforcers can easily obtain information about who really owns companies. That represents real progress in the UK’s aim to secure a substantial change in international tax transparency. That is an important point and something that we have been pressing. We have agreement from the overseas territories to develop their plans to ensure that there is access to information on beneficial ownership.
John Mann
I thank the Minister for generously giving way. We do not even know in this country about thousands of companies based here because inadequate returns are made to Companies House, which has neither the wherewithal nor, it would appear, the desire to do anything about that. How on earth is anyone meant to get on top of structures abroad when we are not even on top of corporate structures in this country?
Mr Gauke
The hon. Gentleman tempts me into an area that I am very much looking forward to debating with him on Thursday afternoon. He has secured a debate on that very subject, so perhaps I shall keep some of my powder dry for that occasion. The point that I am making is that the Government are making substantial progress in this area and we also have an international agenda, ensuring that other countries move as well, so that there is much more information about beneficial ownership. That is not to say that the job is done and that there are not challenges that we face, but we have made a great deal of progress, particularly at the recent Lough Erne summit. That should be acknowledged.
Returning to new clause 12, the final element takes us back to an issue that we have debated previously, which is a requirement on the Government to assess how UK companies could report avoidance of tax in developing countries and how assistance could be offered in the recovery of that tax.
Under the disclosure of tax avoidance schemes—DOTAS—regime, UK companies are already obliged to report to HMRC their use of tax avoidance schemes carrying certain hallmarks. That applies to avoidance schemes that have an impact on developing countries, but only where UK taxes are affected.
The Opposition’s new clause 12 effectively suggests that Her Majesty’s Government should require UK companies to report their use of tax schemes, so that developing countries’ tax authorities can be notified of tax avoidance schemes, and that the Government should assist them in recovering any tax lost. It is unlikely that HMRC will have sufficient understanding of the details of developing countries’ tax systems to enable it to do that.
Catherine McKinnell
I appreciate that we debated the issue at some length in Committee, but I should like to pick up on the Minister’s language: he stated that it was “unlikely” that HMRC would have sufficient information on developing countries’ taxation regimes. Will he clarify whether HMRC and the Treasury have undertaken an assessment? That is what the new clause is asking for. It is not asking whether they can do these things, but whether they will undertake an assessment of what they can do, and how they could do it.
Mr Gauke
I have certainly sought advice, in preparation for this and other debates, on how practicable it would be for HMRC to provide such a service. HMRC makes the point that it is not something that it is well set up to do; its expertise is on how the UK tax system works. It is also worth pointing out that DOTAS is based on hallmarks set by UK tax law. Trying to extend it in the way suggested would be very difficult. That would require a major change to a successful tool—the hon. Lady and I have debated this point before—for tackling tax avoidance, and would risk disrupting the effectiveness with which HMRC does its job. My answer to her is one that I have given in the past: I do not believe that this is something that HMRC could do effectively. It is not a good priority for us. All sides want to do more to help developing countries to develop their tax systems, but it is better to focus on building capacity by providing training and support than for HMRC to try to judge, police and assess the tax system in developing countries.
Catherine McKinnell
The Minister perhaps betrayed the true answer at the end of his comments. His previous response sounded a bit “computer says no”; he said it was all very difficult and he did not believe it would be possible. However, he just said that it would not be a good use of HMRC resources. Does he not agree that a bit of transparency on the possibility of putting the clause into action would be of benefit, not only to Parliament, but to the public, so that it could understand the reasoning and how the conclusion was arrived at?
Mr Gauke
The reasoning remains what it always was. HMRC has a large number of specialists on the UK tax system, and the UK tax system does not apply in other countries. Assessing whether a particular arrangement constituted tax avoidance in Tanzania, to pluck a country at random, would require a detailed understanding of the Tanzanian tax system. If the hon. Lady is asking whether we could train up somebody to learn an awful lot about the Tanzanian tax system, in theory that could be done, but it would be a better use of HMRC resources to help train the Tanzanian tax authority, so that it was in a better position to collect the taxes that are due. Indeed, that is exactly what we do; we provide a lot of support to the Tanzanian tax authority.
Stephen Doughty
The Minister will recall our debates on this issue in Committee. I am afraid that I still do not buy the arguments that he makes, just as I did not buy them then. Does he not understand the disappointment felt by the many campaigners on this issue? The Enough Food for Everyone If campaign said that Treasury Ministers’ refusal to consider the amendments put forward in Committee, which are very similar to new clause 12, was shocking. There is a real contrast between the Prime Minister’s big words at the G8 and what is happening in practice. This is a reasonable new clause, and campaigners just do not buy the arguments.
Mr Gauke
It is not just me saying this, and there is no desire to be unhelpful. Indeed, the Government’s record on building up tax capacity in developing countries is very good, with regard to providing them with technical assistance so that they gain a better understanding of the tax that they could collect. Indeed, we are providing support to help developing countries to make greater use of the new information exchange positions.
I will again quote Richard Murphy, whose views on these matters tend to differ profoundly from mine. He works closely with the non-governmental organisations, and he has said:
“I admit, I have never seen how extending DOTAS internationally could work. I can’t see how HMRC could know if they got accurate data, or none at all and as such can see no way such a scheme could be enforced in which case I admit I can’t see how it could ever be workable.”
I do not often pray in aid Richard Murphy, but he makes that point not from any desire to limit the help that we provide to developing countries but as a matter of sheer practicality. He makes a reasonable point.
Catherine McKinnell
The Minister certainly does not often pray in aid Richard Murphy. Indeed, I think this is the only thing that Richard Murphy has said that he agrees with, and he is using it to advance his argument. Will he acknowledge that all the elements of new clause 12 relate to information sharing and transparency? We are asking the Government to consider how they can improve information sharing and transparency and use DOTAS to that end, and it would be helpful if the Minister could focus his comments on that. I think that members of the public will struggle to understand why the Government are refusing even to consider that proposal.
Mr Gauke
It is important that our debates on these matters should not simply be about the expression of warm words. They should also be about working out what we can do at a practical level, and what will and will not work. I take the view that extending DOTAS will not be effective, but our response to the hon. Lady’s proposals should not be, “Oh, they are all terrible.” It should be to ask ourselves what would be effective. There is a lot that we can do that is effective. This is about capacity building. It is about ensuring that developing countries have the right information, and about bringing them into the existing web of treaties so that they can have access to more information. It is also about ensuring that multinationals provide information that is useful to tax authorities in order to ensure that the right amount of tax is collected and the tax authorities’ efforts can be focused in the right place. That is the agenda that we have been pursuing, with some success.
I am sympathetic to what new clause 12 is getting at, and I do not in any way doubt the motives behind it, but I do not believe that it is necessary. We are already leading international action on tax transparency and on the taxation of multinational companies, and I do not believe that the GARR, as drafted, is the right vehicle for tackling these issues. For those reasons, I urge Opposition Members not to press the new clause to a vote.
Catherine McKinnell
It is a pleasure to speak here today on these important issues. I shall focus particularly on those covered by amendment 56 and by new clause 12. First, however, I shall touch on new clauses 4 and 5, and on new schedules 1 and 2, which relate to measures announced in Budget 2013. Together, they introduce three separate rules to combat what the Minister describes as loss buying. That activity goes against the accepted concept that losses brought forward on or after a change in company ownership should be allowable for corporation tax relief to the company and to the trade in which they occurred.
The Government’s new clauses seek to strengthen the loss-buying rules, first by expanding the application of chapter 16A of part 2 of the Capital Allowances Act 2001 so that it applies to “qualifying activities” and not just trades, as is currently the case. The other two rules introduced by the clauses are targeted anti-avoidance rules and will be included in a new part of the Corporation Tax Act 2010. As a consequence of the new clauses, companies will be prevented from entering into arrangements to access, as part of a business transfer, various forms of unrealised corporation tax losses from unconnected third parties. The Opposition support the introduction of these anti-avoidance measures, but it would be helpful if the Minister outlined, in response to this submission, what additional annual yield the Exchequer is expected to receive as a result of their introduction.
Before speaking specifically to the Opposition’s new clause 12, I would like to refer more generally to the Government’s general anti-abuse rule, which will be introduced by clauses 203 to 212, and take the opportunity to probe the Minister on its implementation, because it was last discussed in Committee of the whole House back in April. The Government have made much of the GAAR, their flagship policy for tackling tax avoidance, but, as the Minister knows, several serious concerns were raised about its likely impact, or lack thereof, during our debate in April.
We have been advised that the GAAR will target only “egregious”, “very aggressive” or “highly abusive” avoidance schemes, which the Bill defined as those that use “contrived or abnormal steps” to obtain a tax advantage. Yet the GAAR guidance’s definition of what those entirely subjective terms mean is inadequate. It states merely that they will be interpreted and applied in their “normal” sense. I do not know how Government Members would apply those terms in their normal sense, but I am interested to know whether Opposition Members would know how to apply those terms in their normal sense, given that we will be voting on that tomorrow when the Bill is considered on Third Reading.
Stella Creasy
I wonder whether my hon. Friend, like me, is concerned that the subjectivity and lack of clarity on this subject is a little like the concept of pornography; we all know it when we see it, but defining it is very difficult unless there is clarity. With tax avoidance schemes, clarity is absolutely crucial.
Catherine McKinnell
I fear that you, Madam Deputy Speaker, might accuse me of straying into rather unexplored territory if I were to compare tax avoidance to pornography, so I simply acknowledge the point my hon. Friend makes, which is that they are very subjective terms. That point has been made not only by me, but by many experts who are very concerned about the wording in the legislation. That is why it would be useful if the Minister responded to some of the concerns that have been raised during the Bill’s consideration.
The GAAR is projected by the Government to result in an additional yield of only £85 million a year by 2017-18. That is a notable sum of money, but it does not even come close to putting a serious dent in the £5 billion tax gap estimated to arise each year as a result of avoidance activity, and it is a mere drop in the ocean compared with the overall annual tax gap of £32 billion estimated by HMRC, which we know is a conservative projection. We also know that concerns remain about the so-called “double reasonableness” test and the GAAR advisory panel that will judge whether arrangements can
“reasonably be regarded as a reasonable course of action.”
As I have highlighted previously, what one person—let us say, a tax expert who has spent his or her entire career advising companies on how they might reduce their tax liability—regards as reasonable could be very different from what a member of the public or, indeed, a Member of this House might consider to be reasonable.
Stewart Hosie
The hon. Lady is asking whether the GAAR is too narrow. It is designed to squeeze out tax advantage through abusive means. The advantages include
“relief or increased relief from tax…repayment or increased repayment of tax…avoidance or reduction of a charge to tax or an assessment…avoidance of a possible assessment…deferral of a payment of tax or advancement of a repayment”
and
“avoidance of an obligation to deduct or account for tax.”
What else could she add to widen that if she thinks it is too narrow?
Catherine McKinnell
The hon. Gentleman makes a helpful point. One would question to what extent the Government can rely on their general anti-abuse rule when they still have to invoke targeted anti-abuse rules, many of which we debated in Committee. Yet the GAAR is supposed to provide reassurance in relation to these matters. Will the Minister clarify exactly how it will work? As the hon. Gentleman says, there is much debate about whether it is too general or too narrow—too general to be effective or too focused on what could be deemed by a reasonable person to be egregious behaviour, and therefore arguably too narrow. I would be interested to hear the Minister explain exactly how the GAAR will work in reality.
The Minister will be aware of the concerns raised in Committee about how the GAAR’s effectiveness will be reviewed. Our amendment calling for an evaluation to be held two years post-implementation was dismissed on the grounds that it would be impractical. At what stage does the Minister think it would be practical to conduct a post-implementation review, given that this is one of the Government’s main tools to tackle tax avoidance? At what point does he think it would be appropriate to consider whether the GAAR needs to be strengthened by, for example, a penalty regime? He has said that it will be kept under review, so it would be extremely helpful if he could provide details of the time scales involved.
One of the most widely held concerns about the GAAR is that it simply does not deal with many of the issues about which members of the public in particular are understandably angry with regard to corporation tax avoidance. The Minister has said that the Government have never sought to give the impression that they will deal with these issues, but many people feel that when they raise concerns about corporate tax avoidance the Government give the impression that their general anti-abuse rule will somehow deal with them.
We believe that the Government could and should use this Finance Bill to go much further on tax avoidance and on increasing tax transparency in particular. We have presented the Government with many opportunities to put their money where their mouth is and to take action now.
I was pleasantly surprised to read in The Guardian on Friday that the Minister voiced his intention to take firm action on this issue—the Minister is looking at me blankly; I am not sure whether he reads The Guardian—during last week’s Back-Bench business debate on multinational companies and UK corporation tax avoidance. I usually pay attention to everything the Minister says, but I confess that Friday’s revelation passed me by. Given his reported new-found enthusiasm for tackling the issue head on, the Opposition would like to take this final opportunity, through new clause 12, to persuade the Minister and Government Members to use this year’s Finance Bill to demonstrate a commitment to increasing tax transparency and to cracking down on tax avoidance both here and abroad. It is unfortunate that the Liberal Democrat Benches are devoid of Liberal Democrat Members, because this is their opportunity finally to walk the walk on this issue, given that they have been very good at talking the talk on it for so many years.
The nub of the issue is this: there has been a monumental breakdown in public confidence in the corporation taxation system and it is clear that the era of tax secrecy should end. At a time of austerity around the world, when people have lost or are losing their jobs and are seeing their services cut and the cost of living rising while the value of their wages does not, they are rightly angry when they see the complex and extraordinary lengths to which multinational companies may go in order to avoid paying their fair share of tax in the countries where their profits are actually being generated. People, including more than 1 million supporters of the IF campaign, are equally furious that aggressive tax avoidance activity is reducing the ability of developing countries to tackle the issue effectively and contributing to their failure to combat hunger and invest in the vital infrastructure that we take for granted. As the OECD estimates, these countries lose three times more through tax avoidance than they receive in aid every year.
The Opposition believe that rather than simply calling on the OECD
“to develop a common template for country-by-country reporting”,
which the G8 has said it will do, we should actively work with our G8 partners to ensure that all multinationals, regardless of sector, are required to publish a single, easily comparable statement on the amount of tax that they pay in each country in which they operate. That needs to be introduced as a matter of urgency.
Kerry McCarthy (Bristol East) (Lab)
My hon. Friend is doing a good job of spelling out the sheer ludicrousness of countries losing more by profits being put into tax havens than they are given in aid. I am sure that she is aware of the recent ActionAid report, which mentions a single transaction made through UK-linked tax havens that would have provided the Indian Government with $2.2 billion in tax if it had not taken place offshore. Surely that is something that the Government ought to rectify.
Catherine McKinnell
My hon. Friend gives a powerful example of how ludicrous the failure to act on this issue is.
At a stroke, statements would give people, whether they are experts or not, the information they need to assess the amount of tax that multinationals pay. That would give British consumers the power to take such matters into consideration when they decide who to buy from. It would also give developing countries a vital boost to their resources so that they could tackle hunger and invest in the infrastructure that they so desperately need.
As the Minister is all too well aware, the Opposition have backed the calls of the IF campaign for a convention on tax transparency. We saw the UK’s presidency of the G8 as a prime opportunity to take international leadership on the issue by launching a convention at the G8 summit to establish a global standard of public registration for the ownership of companies and trusts. As the House knows, the G8 nations took a step in that direction; we have acknowledged that steps have been made in the right direction.
The G8 stated in “Common principles on misuse of companies and legal arrangements”:
“Beneficial ownership information on companies should be accessible onshore to law enforcement, tax administrations and other relevant authorities including, as appropriate, financial intelligence units. This could be achieved through central registries of company beneficial ownership and basic information at national or state level. Countries should consider measures to facilitate access to company beneficial ownership information by financial institutions and other regulated businesses.”
At the end of the day, there was a statement about what could or should be achieved or considered by G8 nations, and the UK promised to establish a register at Companies House on beneficial ownership of companies in the UK, but to make it available only to HMRC, not the public. That was a step in the right direction, but the Opposition feel that it did not go far enough. We believe that we need proper transparency about who is holding their wealth behind shell companies and trusts in tax havens, not just secret lists at Companies House.
My hon. Friend the Member for Bassetlaw (John Mann) put to the Minister doubts about the effectiveness of the UK’s proposed arrangements. Those doubts have been well articulated recently. Private Eye commented:
“Those with knowledge of the Companies House reality would take a great deal of convincing that it is about to become a tough enforcer able to scare global or even home-grown tax evaders—any more than it has ever deterred conmen the world over.
Companies House is merely a receiver and filer of documents. It is not set up to be reactive, never mind proactive. ‘We do not have the statutory power or capability to verify the accuracy of the information that companies send to us,’ a Companies House official candidly admitted to the Mail on Sunday last month when the newspaper wanted to know if a foreign currency investment company director actually existed. Hardly surprising when it is considered that there are 3 million ‘live’ companies on the UK register.”
Aware of the Government’s steadfast opposition to our proposals on country-by-country reporting and a global standard of public registration of company ownership, we have tabled new clause 12 to ask HMRC and the Government to at least review the possible effect of those measures. It is eminently reasonable and perfectly sensible for Government Members to support it. Crucially, on the subject of abusive tax arrangements, it calls on the Government to consider what steps they could take when working alongside the Governments of developing countries—not should, but could—to assess how UK companies could report their use of tax schemes that might have an impact on those countries, and how the UK could then assist in the recovery of that tax.
Stella Creasy
My hon. Friend is making a powerful case about the importance of the measures in question for developing countries. Does she agree that the Exchequer Secretary, having spoken about the importance of acting multilaterally and understanding how international companies operate, should be able to see the benefits of transparency to the UK tax system? Surely one thing that we are concerned about right now is UK companies using overseas territories to avoid paying tax in the UK. If we had the transparency that we suggest and HMRC worked with countries such as Tanzania, there would be benefits for both UK taxpayers and developing nations. It would be a win-win situation for all concerned.
Catherine McKinnell
My hon. Friend makes a good point. The Government have trumpeted their commitment to 0.7% of GDP being spent on international aid, but they stand by and say that they can do little to assist in ensuring that that is not swallowed up by the three times more that is lost in tax avoidance every year. If they could assist, that would be a win-win situation for developing countries and the UK.
In new clause 12, we call for additional transparency in what the Exchequer Secretary admitted are four fairly reasonable requests. Those requests are well considered and are made in all sincerity. We want to be able to bring in additional tax receipts for the UK Treasury, but we also want to use our powers and information, and the additional intelligence that we would gain from transparency, not only to benefit the lives of UK citizens, for whom public resources could be funded through the tax receipts, but to support developing countries.
My hon. Friend makes the point that it is a win-win situation, and we very much agree. That is why we urge hon. Members to support our new clause. As I have said, it is completely reasonable and I cannot see why Government Members would oppose it, particularly Liberal Democrat Members—I am pleased that the hon. Member for Burnley (Gordon Birtwistle) is in the Chamber to hear this debate on an issue that I know the Liberal Democrats feel strongly about. Indeed, at their recent party conference they held a debate in support of some of the measures we are proposing. I therefore see no reason why Liberal Democrat Members will not vote with the Opposition in the Lobby this evening.
Stephen Doughty
My hon. Friend has been making strong points. Does she agree that in a way this debate exemplifies the difference between settling for charity and seeking justice on some of these issues? I would not say that the Government are not charitable. They continue to give aid; we continue to give aid—that is charity and people on both sides of the House do charitable work. However, when it comes to achieving justice on these issues, and getting a grip of the problems and understanding why they are there in the first place, we often find the Government wanting.
Catherine McKinnell
My hon. Friend makes the important point that we are talking about justice. We talk about justice and fairness in relation to developing countries when considering how a disclosure of a tax avoidance scheme, and the information we receive from it, might be used to support developing countries and international justice on that level. However, it is also about justice for UK taxpayers. We must ensure that companies that engage in the sort of tax avoidance activities that so rile members of the public, and should concern every Member of the House, do not have a competitive advantage over companies that do not engage in such activities, which may mean that their business ends up suffering.
That is what we are discussing and the amendments should not be just a step in the right direction. The announcements that came out of Lough Erne and the G8 agreement contained warm words and welcome sentiments, but there is an opportunity for the Government to start walking the walk, not just talking the talk. They must make not only warm statements but legislative changes that will move the issue forward and show the leadership that the UK should be showing. That would give us greater leverage when debating such matters on an international scale.
The Prime Minister rightly put tackling tax avoidance and evasion at the top of the G8 agenda, and Government Members now have the opportunity to demonstrate their commitment to delivering in that area. What came out of the G8 does not have to remain a statement of intent; it could become a reality for the UK today. We believe that our amendments would help the UK to take genuine action towards securing tax transparency and the fairness the world needs in the 21st century. I therefore urge all Members on both sides of the House to back our suggestions for how the Government can put their money where their mouth is on this issue.
Nigel Mills (Amber Valley) (Con)
It is a pleasure to be here to discuss issues that we have already discussed once or twice this year. The Government’s new clauses have rightly been introduced to tackle loss buying and capital allowance avoidance planning. Those are examples of what we can, following the logic of the hon. Member for Walthamstow (Stella Creasy), call hard-core tax abuse. The rules have been allowed to get out of date and have been exploited for years, so it is right that they are tackled.
The new clauses demonstrate, however, that the system is far too complex. There are far too many different types of loss and of relief, which create the scope for transactions to try to exploit them. I am not entirely sure why we need trading losses, schedule A losses, D3 losses, non-trade debits and capital losses—and probably a few more I cannot remember off the top of my head. If we moved to a simpler corporation tax system that had only revenue losses and capital losses, we could perhaps tackle avoidance more easily, rather than having to introduce separate anti-avoidance rules for each different kind of loss to try and ensure that they all work. I encourage the Minister for the umpteenth time to try to simplify our corporation tax system, because it would help in tackling these problems.
There is an interesting question on the interaction of legislation with the general anti-abuse rule—if each time we see some aggressive abuse that we think the general anti-abuse rule should stop, we end up producing a specific anti-abuse rule, what does that say about how strong we believe the general anti-abuse rule is? I would personally prefer specific, clear legislation that all taxpayers can read, understand and abide by, rather than relying on some general statement of principle, but there has to come a point when we say, “We think that is abusive and falls foul of the general anti-abuse rule, and that is enough for us to tackle it. We do not need to introduce more complexity to our tax code: instead, we will rely on the rule.” It will be interesting to see, as the years pass, how confident the Government are in that position. For us to be able to evaluate how successful the general anti-abuse rule is, we will probably need to see if the Treasury—or, at least, HMRC—can win some court cases relying on that rule. It may be a few years before we have some returns filed and challenged on that basis.
Catherine McKinnell
Does the hon. Gentleman share the concerns of some people that we will never see those court cases, because the panel, depending on how it is selected, may deem most tax behaviour to be so eminently reasonable that it prevents such cases from ever getting to court?
Nigel Mills
I doubt that. The general anti-abuse rule came out of some proposals by Graham Aaronson, a leading tax counsel, so it is not fair to suggest that the whole industry is so wedded to egregious tax abuse that they will find any arrangement acceptable. That would make a complete mockery of the whole thing. I do not share that concern, but we have to be careful in how we draft the general anti-abuse rule. Effectively, it comes back to saying, “Although Parliament may have passed legislation in these terms, what we really meant was something slightly different.” Perhaps we did not envisage a complex scheme that works its way into what we actually said, rather than what we really meant.
If we tried to define a general anti-abuse rule too closely, we would be straight back on the horns of the dilemma of what Parliament meant when it passed a certain piece of legislation. I suspect that most people would say that we actually mean what we write in the many hundreds of pages of taxes that we pass each year. We have to allow the courts room to interpret where arrangements are clearly not what we intended when we passed them. The clue is in the word “general” in “general anti-abuse rule”. If we make it too focused, it will not work. We will see in a few years what happens.
Another measure we could use is whether the tax gap comes down. Do we see fewer of these abusive arrangements being entered into? Is that because of the threat of a general anti-abuse rule? Perhaps we could also measure it by the weight of the Finance Bill next year. If we do not need all these anti-avoidance clauses, the Bill will be an inch thinner and the Government will be happy that the general anti-abuse rule is working. I expect I will serve on the Committee next year and I am not optimistic about the Bill being much shorter.
I cannot support new clause 12. I can see why it was drafted, and I might have drafted some amendments in Committee that were equally creative as a way to force an issue into a debate where it does not really fit. I generally agree with the idea that we should require more transparency from our largest corporate taxpayers about how much tax they are paying, but also crucially why they are paying that amount of tax.
Kerry McCarthy
What the hon. Gentleman says about the requirements he proposes for Companies House would go some way towards addressing the issue of transparency, but a recent report by ActionAid noted that one in 10 of this country’s top companies were not complying with existing Companies House rules on declaring how many subsidiaries and associate companies they had overseas. As I understand it, his suggestions relate only to accounts that would be filed in respect of their UK operations. We would not be able to tell from that whether such companies were channelling their profits through other companies and making use of tax havens, which is what people are really concerned about.
Nigel Mills
I agree with the hon. Lady’s sentiment, but I was confining my remarks to the content of new clause 12, which refers to
“a single easily comparable statement of the amount of corporation tax they pay in the UK.”
My thought was that the most single easily comparable statement would be the corporation tax return, which obviously has a consistent format, as everyone has to file it. She is right about the use of tax havens. Where tax havens are used underneath a UK corporate, HMRC has the power to get a group structure and to use the controlled foreign company rules to look at what is happening in the tax havens. It is clearly much harder for HMRC when those havens are sat above the UK, making it much harder to get the information because there is no shareholder ownership that obliges disclosure. That is why we need global work to get a clear and full corporate structure published. It will be interesting to see how much progress is made on that. It needs to be global, not just for the G20, because if one nation somewhere in the world will not agree to publish its share, that might be the one that blocks the attempt to disclose the havens.
Kerry McCarthy
I thank the hon. Gentleman for his generosity in giving way. Is it not the case that about one in five of the tax havens used by companies are UK-owned tax havens in UK overseas territories? To ensure some compliance, we should be able at least to start working with them to get them to share information.
Nigel Mills
I am not sure that we should use the term “UK-owned” as I am not sure that our friends in Jersey or Guernsey would appreciate that kind of description, although perhaps it is true in respect of the Crown. The hon. Lady is right that we should set an example of leadership, however, and try to ensure that the territories over which we have some influence have rules that comply with global standards. We heard some encouraging noises from the UK’s overseas territories when they agreed some issues with the Prime Minister before the G8 summit. Quite a few have taken pretty good steps in the direction of transparency by signing information exchange agreements, so we should not impugn them all with the same accusations, as some are clearly more a matter of concern than others.
Let me return to the proposal to require the publication of corporation tax returns. The requirements applying to UK company accounts include a requirement to publish a tax note that reconciles accounting profit with the tax charge and lists the key factors involved. It was intended to provide a summary of the tax return in some respects. If the tax charge is materially different from, say, 24% of the accounting profit, the reasons should be set out so that the user of the accounts can understand what is happening.
I have probably read more sets of accounts than most Members of Parliament. I am not sure that the tax note takes the user any further, because it is so brief, because there are so many ways of merging entries, and because of the impact of deferred tax. The note was designed to deal with the absence of complete transparency in regard to corporate tax affairs, but I think we could achieve that much more effectively by requiring the publication of actual tax returns. That would not reveal too many commercially sensitive data; indeed, I think that far more information is required in a set of statutory accounts than would ever be required in a corporation tax return.
We would probably not be acting unilaterally, given the disclosures that are required by many other stock exchanges around the world. The disclosures required by, for example, the Securities and Exchange Commission for its listed corporations are well in excess of those required in the UK. I do not think that this simple step would put us out of line with the rest of the world. Given requirements to disclose the tax amounts, taxable profits, how they were arrived at, and the details of overseas transactions with related parties, including amounts and charges, I do not consider it particularly onerous for a company to be required to declare “We have paid royalties of £5 million to our US parent.” In fact, many sets of accounts include such declarations. There are measures that we could take as a UK regime that would not harm our standing in the world.
I think that if there is one action that will damage prospects for UK investment, it is allowing a series of large multinational investors to be dragged through the newspapers, hauled over the coals and accused of engaging in abusive tax practices, especially when they are innocent. We do not want a regime that allows information relating to selected people to be leaked. Let us enable that information to be clearly, generally and widely published so that everyone can see who is responsible for bad behaviour, rather than trying to attack those who are innocently taking advantage of reliefs that we have sensibly introduced.
Although I agree with the intention behind most of new clause 12, I do not think that it will work. I have proposed a way of ensuring that the information we need is in the public domain year after year without imposing an unacceptable burden on UK corporate taxpayers. Perhaps the Opposition will back that proposal, which I shall continue to advance whenever we debate an issue that we have probably already debated half a dozen times this year.
John Mann
It is always a pleasure to follow the hon. Member for Amber Valley (Nigel Mills). I trust that Opposition Front Benchers were taking detailed notes, because the hon. Gentleman speaks common sense. It is no surprise that Ministers repeatedly ignore that common sense.
Unlike the hon. Gentleman, I am not volunteering to sit annually on the Finance Bill Committee. I was sadly not afforded the honour of participating this year, but the opportunity to participate in a debate on the Floor of the House could not be missed. I shall confine myself to expressing avid support for the excellent new clause 12 rather than straying into matters that would be better dealt with in the Backbench Business Committee’s debate on Thursday, in which I urge all Members to take part. I want to allow some of the adjuncts of matters raised in this debate—not least the issues of the role of Companies House, company structure and formation, and company records—to be discussed in appropriate detail, so that future Governments can be informed of what they should do, and the current coalition can be informed of what it has failed to do.
We know why the rhetoric from Government Front Benchers is as it is. They all now wish to become a bunch of pasty eaters and to be recognised in society and by the electorate for the way in which they are battling for the little man against the big multinationals. However, when it comes to the detail, the natural instincts of those on the Conservative Treasury Bench overwhelm the common sense of people such as the hon. Member for Amber Valley and other Back Benchers, who have pragmatic, practical, positive ideas that could be considered immediately. Some could be put into action.
What those Ministers fall back on is the perceived vested interest of the multinational. We have a charade, led by the Prime Minister and his sidekick the Chancellor —the Liberals are counted out of this; they are not important enough when it comes to economic matters—where the Government try to portray themselves as wishing to grab additional taxation. They have put up taxation such as VAT on the motorist, the consumer and the rest of society, so Conservative Front Benchers are a bunch of tax grabbers. Through the minimal changes that they are proposing and through the Prime Minister’s proposals to the G8, they wish to portray themselves as being the ones who are going to roll back against the multinationals.
Kerry McCarthy
My hon. Friend is, as ever, making a powerful case. We see the mismatch between the rhetoric and the action of the Government on other issues such as climate change; they claim to be the greenest Government ever, yet they do not implement measures such as the decarbonisation targets. Is he aware that, after the Prime Minister spoke at the G8 saying that he would tackle the tax issue, the Finance Bill Committee refused to consider amendments on the issue? Enough Food IF said:
“It seems like Treasury ministers haven’t got the memo. The government is saying one thing while doing another.”
Is that not exactly what is happening?
John Mann
I do so wish I had been offered the chance to sit on the Finance Bill Committee in order, day after day, to be able to get into the details and hold the Government more to account, although sadly next year ends with a 4 and I am unable in any year that ends with a 4 to sit on a Finance Bill Committee.
Jonathan Edwards
Following the G8 summit, the Prime Minister said that the provisions of the summit would raise about £1 billion for the Exchequer, which leaves about £29 billion unaccounted for, according to HMRC. Has the hon. Gentleman’s Front-Bench team informed him how much new clause 12 would raise for the Exchequer?
Catherine McKinnell
I thought I would take this opportunity to say that we have thoroughly missed my hon. Friend on the Finance Bill Committee this year. In response to the intervention by the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards), I point out that the new clause asks for a review of how these aims can be achieved. The cost of HMRC undertaking the review would be the issue to consider.
John Mann
I thank my hon. Friend for that intervention. In this matter, as in many matters, my approach is to beef up my own Front Bench, as well as expose the fallacies, weakness and hypocrisy of the Conservative Front Bench and the absence of anything from the Liberal Front Bench. Therefore, the stronger the Opposition Front Bench is in the practical detail, and in saying to the British public that it is unfair and unjust that these large companies pay so little tax that a company such as Starbucks pays less than a café in the centre of Worksop, the better. How can that in any way be just?
This is not just about justice, however. Those of us on the Opposition Benches must articulate the fact that this is about economic efficiency. Let us consider the small entrepreneur or the new company, the company looking to grow, or the company that has reached its place in society, such as a small family café that is providing an excellent service to the community and that pays its taxes and is being undercut by multinationals. How can they compete with large multinationals avoiding their taxes?
Stella Creasy
I should start by saying that I have been remiss in respect of reading the Worksop Guardian, but I will wager that it is full of comments from people who are concerned about value for money in our taxation system and those who are desperately concerned about the impact of cuts on local services. Those cuts have been driven by the fact that we do not get the tax-take in this country that we seek. This new clause and new clause 12 seek to help the Government to be better at collecting tax. Does my hon. Friend think that that would go down well with the readers of the Worksop Guardian?
John Mann
I think the readers of the Worksop Guardian will hear my hon. Friend’s comments. Those such as your good self, Mr Speaker, who are expert at using the internet can read those pearls of wisdom without having to go all the way to Worksop or order a copy at this difficult time for the parliamentary budget. I recommend it to all.
Although I failed to be selected to serve on the Finance Bill Committee, I am prepared to volunteer for a new task, if it is not too late to do so. This relates directly to new clause 4 and the Minister’s speech, and I should make it abundantly clear that I am prepared to accept the task for no additional salary, directly or indirectly. It is to do with the advisory panel on the GAAR. If its members have not yet been selected, surely the Minister would love the opportunity to select an Opposition Member who is prepared to ask some questions that the public would perhaps want asked. I would be prepared to sit on this body without additional remuneration, should the Minister, the Government and the House wish that to happen. The Minister is not intervening, so perhaps I will have to put in a written application as well.
The question of the overseas territories is very important. Hansard will record precisely what the Minister said some minutes ago, but I shall paraphrase his comments as I did not have the opportunity to take down his exact words verbatim. In essence he said that we are the leaders in the world in dealing with tax avoiders, we are showing the way, and we are going to ensure that this all happens, yet we should not do more than anybody else. But the UK Crown dependencies and overseas territories are not German, French or American, and they rely on the British armed services to protect them in times of crisis or against the threat of invasion or assault. They rely on the British legal system and on the British royal family as part of their very essence, as democracies. Therefore, our relationship with these territories is a symbiotic one, in which we should expect absolute transparency in all matters relating to taxation and to companies and individuals from here.
The banks are the worst examples of complex structures that they themselves do not understand. They allow money laundering from Mexican gangsters—the worst kind—as proven by many successful US court proceedings. Big banks at the top are happy to tell us that they do not understand their own structures because they are so complex, but the structures are established in order to maximise profit—in other words, to minimise taxation—in territories that rely on our armed services, on our legal system and our democracy to underpin and oversee them. That is a cost to us that we rightly bear, yet corporates and individuals can hide things behind the opaqueness of structures there, so that these days my constituents cannot even discover who owns their football club and what moneys are there. This applies to even the most simple of examples, never mind the biggest and most complex of banks, financial institutions and other multinationals.
Kerry McCarthy
I wish to give one example. The Cayman Islands have a population of about 57,000, yet 92,000 companies are based there and it is estimated by the Bank for International Settlements that $1.4 trillion of bank assets and liabilities are there. My hon. Friend has raised an important question: how on earth can a country that is so small govern what Professor Jeffrey Sachs describes as a financial “time bomb” in its own territory?
John Mann
Somebody is making money, because my own football club would appear to have been part-based in the Cayman Islands, in a structure that then took it into the British Virgin Islands and into Monaco and who knows where else. There are intricate webs criss-crossing these so-called “tax-efficient countries”—these tax havens for tax dodgers, corporate and individual. This Bill follows the biggest financial crisis since the 1930s, with working people losing real income year by year, unemployment rising, a worldwide recession, and people less well-off than they were five years ago. The Bill, however, contains no constructive, detailed, productive proposals on how we are going to deal with these territories. We spend taxpayers’ money providing the armed services to guarantee them and then we turn around and claim that we are the world leaders. I say poppycock to us being the world leaders. This is an excuse of a policy. This is an excuse of an attempt in a Finance Bill. This is an embarrassment to the coalition partners, who would love, if they could come up with some ideas, a robustness to put behind it.
The big dividing point in British politics at the moment is this unwillingness to deal with the tax dodgers. These little clauses—new clause 4 and new clause 12—in their own small way encompass the problem in front of us and in front of the British people.
Mr Newmark
I felt that the hon. Gentleman might need to refuel a little, as he was running out of breath. I am curious—given that many of the unions and pension funds invest in funds that invest in offshore places such as the Cayman Islands, making a lot of money for ex-union members and pensioners, will he suggest that the Labour party recommends that those unions and pension funds no longer use fund managers who invest in those offshore entities?
Mr Speaker
I have known the hon. Member for Bassetlaw (John Mann) for 27 years and I can think of a long list of adjectives that could, in various scenarios, be applied to him, but breathless is not one of them.
John Mann
But on this occasion, Mr Speaker—one scratches one’s head at some interventions, which are so inaccurate, so irrelevant and so unconnected to the clause. I will not rise to the bait, Mr Speaker, and risk your ire by explaining to the hon. Member for Braintree (Mr Newmark) exactly how the unions invest their money, interesting though that subject would be. I fear your wrath, Mr Speaker, if I did so. Instead, I shall return to the key core theme of the clauses, which is morality—
Chris Heaton-Harris (Daventry) (Con)
The hon. Gentleman is being very generous in giving way. In his shy, retiring and meek way he is making some interesting points. I sometimes wish he would come out of his shell a bit more and tell us what he actually thinks. He weakens his case, does he not, when he tries to say that this is a party political matter? Last week, my hon. Friend the Member for Dover (Charlie Elphicke) highlighted how little money water companies and utilities were paying in tax in this country. My hon. Friend the Member for Stevenage (Stephen McPartland) has a website with a record of what corporate taxes are being paid by major corporates in this country. I am a member of the Public Accounts Committee, and across the parties on the Committee there has been a big push in this area. Is it not better for us to work together to try to sort it out?
John Mann
I thank the hon. Member for Daventry (Chris Heaton-Harris)—the fruit and veg man, a successful small business man—and I commend him. He is another on the Tory Back Benches like the hon. Member for Amber Valley, whom I specifically itemised in precise praise, as I did in last year’s Bill Committee, encouraging him to press to a vote his sensible and modest proposals to simplify the tax system. He would have had my support in that. In this House, there are times when we need to work across the parties to deal with an incompetent Treasury Front-Bench team. I would welcome further discussions beyond this Chamber with the hon. Gentlemen and others on the Conservative Benches about how best those of us who fully understand—be it a café in Worksop, or the fruit and veg man in Daventry or the accountant in Amber Valley—the economic inefficiency of this Prime Minister, this Chancellor and this immoral Treasury Front Bench’s failure to deal with tax dodgers, tax avoiders, corporate structures and the opaqueness of the overseas territories.
As a country, through this Government, we are unwilling to give the international lead that our position in providing defence and other support to the Cayman Islands and many others requires. That economic efficiency, that justice and that morality would liberate good British companies who are prepared to do the decent thing and to pay modest, small amounts of taxation rather than avoiding their appropriate duty to do so. That is what competition in the market is about and what those of us on the Opposition Benches are about. It is also what some—I am happy to give them plaudits—on the Conservative and Liberal Back Benches are about, but it is absent from the Prime Minister, the Chancellor and Treasury Front-Benchers, who are devoid of it. They do not get the real world, have not come from it and will never understand it. They do not get what the public and small businesses are saying. I would suggest that they do not really care about that, because they are interested in their paymasters and in ensuring that the status quo remains. They are failing to challenge vested interests.
Stella Creasy
I am sorry to stop my hon. Friend mid-flow because he is making a powerful case not only for the readership of the Worksop Guardian, but for being on a Bill Committee with him, especially when it comes to finance measures. That would clearly be a unique experience. Does he agree that new clause 12 would be beneficial because it offers an opportunity to gather the evidence on the tax take that would show whether the Prime Minister’s warm words about tackling tax avoidance were being put into practice? I agree with the hon. Member for Daventry (Chris Heaton-Harris), who talked about Members on both sides of the House being interested in the matter, but one thing we all need is the information. The new clause offers precisely that opportunity.
John Mann
The new clause is so modest and so moderate. How could any reasonable and rational Member of the House possibly not vote for it? I would go much further and give more robustness, including a great wealth of powers to ensure that those overseas territories and Crown dependencies were forced to give economic efficiency, justice and morality in return for the defence and everything else that they get from this country, but I recognise that one needs a majority in the House to do such things. Therefore, I appeal to those decent, sensible, smiling Back Benchers to join us in an historic vote tonight—vote with the Opposition.
David Rutley (Macclesfield) (Con)
I understand the real passion that the hon. Gentleman brings to the debate, as he often does, but I have some concerns. It is great to see a politician put his body on the line, wanting to ensure that he serves on the GAAR board, but is this now a bid for him better to represent the British overseas territories in Parliament as well? Has he consulted the residents of Retford and of Worksop to check whether they can spare him, given all the hard work that he is doing in the constituency?
John Mann
I fear that due to our expedition next year with injured British soldiers, which I expect to take place via the parliamentary mountaineering group, I will perhaps be too busy to make a big commitment of time other than to that great cause, which the hon. Gentleman and I hope to push forward with other mountaineers and injured servicemen.
The hon. Gentleman gives us a timely reminder of priorities. I give that reminder to those on the Treasury Bench. This is about priorities: their priorities in government, which are the wrong priorities, the failed priorities, letting down the small businesses and the honest taxpayers of Britain. That is who they are letting down tonight and who they have been letting down for three years. Here is a modest opportunity for those who wish to save their seats: join the Opposition, do the right thing—the modest, the moderate thing—and support new clause 12.
Alison Seabeck (Plymouth, Moor View) (Lab)
It is a real pleasure to follow the two previous speakers. The hon. Member for Amber Valley (Nigel Mills), who is just trying to escape the Chamber, gave a particularly thoughtful speech, understandably, given his background in taxation. My hon. Friend the Member for Bassetlaw (John Mann) gave a rabble-rousing speech. By the end of it, I was absolutely gutted that he did not make it on to the Bill Committee. I am sure that Government Members do not share my sorrow. I fully expect him at least to ask the readers of the Worksop Guardian whether he should be on the GAAR board—a proposition put forward by the hon. Member for Macclesfield (David Rutley).
Turning to new clause 12, I want to talk about my visit to Gala Bingo in Plymouth last week, at which I met the chief executive officer of the Bingo Association, Miles Baron. As hon. Members would expect, those present wanted to talk about tax—mainly VAT—and the lack of a level playing field, but we moved beyond the debate that we had on that in Committee, and they talked to me about the competition in gambling and bingo from offshore, tax-avoiding, multinational companies. Gala highlighted that it pays tax in the UK, but it feels that it loses out when it comes to VAT levels, and loses out significantly to offshore multinationals, which use innovative means to avoid paying tax in the UK. It feels that it is a smaller company trying to do the right thing.
Gala is not alone, as my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) made clear. If new clause 12 is taken forward, there could be a win-win situation for a number of companies in Britain and internationally, including in many third-world countries. British taxpayers are gambling away not only their income but our country’s tax revenues by using online offshore companies. If the UK is losing out, so too are many other countries; gambling is an international pastime, whether we like it or not.
Customers made clear their anger at corporation tax avoidance by Starbucks; I hope that they will continue to be discerning in a range of other fields, including gambling. To do that, they need a little more information about exactly who is doing the avoiding, and where and how avoidance happens. That is why new clause 12 is so important. The plea from my Front-Bench team for greater transparency is really welcome, because it empowers consumers.
At a time when we hear Members of the House, charities such as Christian Aid, non-governmental organisations involved in the third world as well as the general public express clearly the need to trade ethically, the need for more transparency, the need not to disadvantage developing and third-world countries, and the need for tax to be paid in the UK, we must ask whether the general anti-abuse rule in the Bill goes far enough. Does it have teeth? The Minister made all sorts of excuses and gave all sorts of reasons for not going any further, but he really needs to address the very sensible series of questions put to him by my hon. Friend the Member for Newcastle upon Tyne North on the GAAR’s lack of scope, and its failure to tackle the tax avoidance activity of multinationals.
The point that my hon. Friend the Member for Bassetlaw made about clarity of company ownership is one that virtually every MP in this House will have some sympathy with, because on a constituency level, we will have tried to track down directors of companies, and to get background information on companies, to solve relatively minor problems. Here, we are trying to ascertain exactly where they pay their tax.
To come back to bingo, a lot of people disapprove of gambling, but it is just one small part of the tax avoidance picture. It is the part of the issue that I have highlighted, simply because it is fresh in my mind following my visit. People may disapprove of gambling, but they probably disapprove more of tax avoidance. We have heard many examples of the type of companies that have been using the rules to avoid paying tax in the UK. It is worth repeating that the estimate for the tax that could be recouped by the GAAR is about £85 million, and that the current tax gap between the money that HMRC estimates could be collected and the actual amount collected is £4.5 billion. That is a significant difference.
I note that the Minister said that the GAAR was not a panacea. In fact, it is barely a sticking plaster. Although first aid is always welcome, the problem probably needs more major surgery, in the form of a strong commitment from the UK Government and the wider international community. Developing countries lose an estimated £160 billion per annum through tax dodging by multinational companies. That is much more than they receive in aid. Poor countries struggle to access the information that they need to counteract tax avoidance by foreign nationals and multinational companies. Our own tax rules need to make it easier for developing countries to identify and share vital information in order to avoid those losses. If an expert on the tax regime in a particular country were required, for example, that would be an appropriate course of action to take.
Stella Creasy
Is my hon. Friend surprised, as I am, that there is not more support for this proposal from some of those Members on the Government Benches who are less committed to the aid budget. After all, if we could tackle this problem—
Mr Speaker
Order. I say to the hon. Member for Bridgwater and West Somerset (Mr Liddell-Grainger): be quiet, and if you cannot be quiet, get out. You are adding nothing, and you are subtracting a lot. It is rude, it is stupid, it is pompous and it needs to stop—whoever it was.
Stella Creasy
Thank you, Mr Speaker. I was merely reflecting that if we could tackle the way in which tax avoidance is affecting the developing nations, we might not need to have an aid budget in the future.
Alison Seabeck
Indeed, but that is a whole separate debate. My hon. Friend makes a serious, sensible point.
In this recession, we really cannot afford to allow those billions to disappear. Nor should we allow those developing countries to lose out so substantially. We need to work closely with other Governments to bring consistency into the process and, in doing so, ensure that doing the right thing in taxation terms is given value. We need transparency so that the public can take more informed decisions about the products they buy and from whom they buy them. I hope that those Members on the Government Benches who have been toying with the idea of supporting new clause 12 will see the sense in getting justice into the taxation system, and that they will support the new clause.
Mr Gauke
We have had a thorough debate. I do not intend to reprise all my earlier arguments, but I want to pick up some of the points that hon. Members have raised. The issue of the yield for the loss-buying rule was raised by the hon. Member for Newcastle upon Tyne North (Catherine McKinnell). It is around £200 million a year, but there is a more precise breakdown available in the tax information and impact note.
Several hon. Members have mentioned the general anti-abuse rule—the GAAR—which is expected to raise around £235 million over the next five years. It will also protect revenue that would otherwise be lost. We believe that it will change the avoidance landscape as its impact starts to be recognised. It will act as a deterrent to those tempted to engage in abusive avoidance schemes, and where those schemes persist, the GAAR will give HMRC the means to tackle them and to secure payment of the right amount of tax.
We have accepted the proposal from Graham Aaronson that a narrowly targeted GAAR is the right approach to tackling the persistent problem of abusive avoidance schemes. This has to be viewed in the context of the fact that the previous Government did not bring in a general anti-abuse rule. We believe that a broader rule would be likely to generate considerable uncertainty, which could lessen the attractiveness of the UK as a place to do business, and generate significant cost for HMRC. We are not complacent, however, and we will continue vigorously to tackle all forms of tax avoidance. Indeed, the Bill will close 10 loopholes, and the Budget announced further reviews of tax law that is being exploited for avoidance.
Simply because a scheme is not caught by the GAAR will not mean that it is okay. The GAAR will not set the boundary for tax avoidance. It deliberately targets abusive avoidance schemes, but HMRC will continue to tackle all forms of tax avoidance using the full range of tools available. As for the argument that we will not need targeted anti-avoidance rules in future, we believe that it would be reckless to remove a central protection against avoidance without being fully confident that doing so would not create risks. Although we expect the proposed GAAR to be effective in tackling and deterring abusive tax avoidance schemes, it might take time for those who engage in persistent avoidance to accept that their schemes do not work, so there will still be a need to retain existing anti-avoidance provisions and amend other legislation that provides unintended tax planning opportunities that are not within the scope of the GAAR.
The Financial Secretary to the Treasury (Greg Clark)
I beg to move, That the clause be read a Second time.
New clause 6 is a technical amendment designed to give a belt-and-braces protection to prevent any possible attempt to avoid the incidence of the bank levy on the part of banks in a particular respect. Paragraph 70 of schedule 19 of the Finance Act 2011 specifies that high-quality liquid assets held by banks are not liable for the levy. This is to make sure that there is no disincentive for banks to hold assets that give liquidity protection in the event of a crisis. By their nature, the return on such assets is small, and without relief the bank levy would reduce the margins, making it uneconomic to hold such assets. It was always envisaged that the definition of assets covered would be the same as that of the high-quality liquid assets recognised by the regulator —now the Prudential Regulation Authority.
It has come to the attention of HMRC that some banks were contemplating arguing that a wider definition of assets might apply, against the intention of the original legislation. In fact, the Government do not believe that the current legislation can be interpreted in this wider way, and HMRC could and would make a legal challenge against any bank engaging in this. However, such a challenge would take some time to be heard, and in the meantime other banks could follow suit and attempt to use a wider interpretation. I hope that the House will agree that the most straightforward way to proceed is to amend the relevant Act to put the matter beyond doubt by defining high-quality liquid assets explicitly as
“assets that are eligible for inclusion in a firm’s regulatory liquid assets buffer”.
It is right that the new clause should be applicable from the introduction of the bank levy in 2011, as the Government have been clear from the outset that this was the intention. For example, the Government’s consultation document in October 2010 stated that the deduction would be for those assets
“which meet the FSA definition of high quality liquid assets for the purposes of inclusion in the liquidity buffer”.
I hope that the House will agree that it is right to move quickly to close the scintilla of a possibility that ingenious lawyers could help any bank to avoid paying its full contribution to the levy.
Chris Leslie
It is good to see the Minister popping up in the debates on the Finance Bill for the first time, at the eleventh hour. [Interruption.] That is not true; I apologise. He took part in Committee of the whole House, although he did not do the heavy lifting in Committee upstairs. Perhaps it seems now as though it never happened.
This is an interesting little Government new clause. Because of the hour, it would not be surprising if hon. Members’ eyes glazed over and they did not necessarily spot what is going on, but this is an admission from the Government that their bank levy has not been successful. In fact, they are having retrospectively to adjust the rules around the bank levy to make sure that they can net in the supposed £2.5 billion of revenue that the Prime Minister, no less, promised it would yield.
Let us recall the facts about the bank levy. In the last financial year, 2012-13, the bank levy did not bring in £2.5 billion, it did not even bring in £2 billion—it brought in a pathetic £1.6 billion. We should not forget that that does not include the cut in corporation tax that the Chief Secretary and others collaborating in the coalition gave away to the banks at that time. In other words, it raised a net £1.4 billion—a shortfall of over £1 billion on the amount that the Government said that it was supposed to produce. My hon. Friend the Member for Bassetlaw (John Mann), and others in the Chamber, could certainly think of ways in which £1 billion of revenue could be put to good use. That was the giveaway that the design of the bank levy set in train for the banks. It raised not £2.5 billion but just £1.4 billion in the last financial year.
It is worse than that, because in the previous financial year, 2011-12, the bank levy raised just £1.8 billion. Deducting from that the £100 million in corporation tax, it raised a net £1.7 billion. The levy has not brought in the money it should have. The Government said that it would raise £2.5 billion, but in total it has brought in £1.9 billion—nearly £2 billion—which is less than they said it would raise.
If any other Department promised to bring in £5 billion over those two financial years but raised only £3 billion, there should and would be outrage. However, given that the Treasury hide a lot of these issues in the complex lexicon of bank taxation, many would be forgiven for not spotting that this is an absolute scandal.
John Mann
I thank my hon. Friend for inviting me to suggest what this money could be spent on. The infrastructure projects of Serlby Park school and Elkesley bridge—not started in three years under this Government—are shovel-ready and could immediately be commenced. I have launched a campaign today to send a postcard a day to the Chancellor until he gets his shovel out and starts work on them.
Chris Leslie
That is the point. The Government like to say that they are trying their best to bring in revenues, but when it comes to the banks and the wealthy they have a blind spot. Is that any wonder when nearly £2 billion of bank levy money has gone uncollected over the past two financial years?
Will the Minister give us an absolute, cast-iron commitment that the £2.5 billion from both 2011-12 and 2012-13 will retrospectively be brought into the Treasury? That, as a basic minimum, should be the intention of this new clause, although I do not necessarily think that it is the only tweak that will have to be made to the bank levy. Can we be sure that the lost £2 billion will be brought into the Treasury?
Will the Minister confirm that, by making this change, he is in effect ceding the bank levy policy to the regulators? If tax deductibility for liquid asset buffers is to be set by the regulators, does that not mean that bank levy policy will henceforth be in the hands of the Financial Policy Committee and the Prudential Regulation Authority? Will the Minister explain the consequences of last week’s decision by the Financial Policy Committee to relax the liquidity buffer rules for many of the banks? That big change will reduce significantly the amount of liquidity that banks are required to hold. That could be good news, because it may mean that there will be less tax deductibility for bank levy purposes. Will the bank levy be allowed to rise above £2.5 billion—that would be welcome—or will the Minister adjust the revenue available back down to £2.5 billion for each financial year even though the liquidity deductibility is not relevant in this particular case?
Will the Minister also explain whether the regulators will be given the right in statute to define equity or other liabilities? Other aspects of the bank levy that are enshrined in legislation could nevertheless be affected by the regulators, such as the definition of capital requirement.
I want a sense of what the new clause will do. We know that the Government are soft on the bankers because they do not want to repeat the bonus levy, which will result in a big tax cut for those bankers who did very well on their bonuses—they went up 64% in one month—in April. We also know that the millionaires’ tax cut has handed 643 bankers in this country a tax cut of at least £54,000 a year, so they are doing very well. We want to hear commitments on the bank levy. Will the Minister bring in the full £2.5 billion for financial years 2011-12 and 2012-13?
Greg Clark
I am glad to respond to this short debate.
I do not think that the hon. Member for Nottingham East (Chris Leslie) listened to my remarks earlier, in which I said that the purpose of the new clause was not to raise additional revenue, but to protect the assumptions that were there from the outset. It was always envisaged, going right back to the consultation documents that the Government published before introducing the levy, that the deduction had to be in line with the regulatory requirement. It was a rumour that legal advice was being taken on whether liquid assets could be deducted that went beyond that regulatory buffer which caused us, in anticipation, to close off that possibility and to emphasise that this definition was always what was intended and that there should be no possibility of wriggling out of it. I hope he would acknowledge that that is sensible.
The new clause is not one of the measures that we are taking to increase the yield of the levy. That is dealt with elsewhere. It will protect the yield that was always assumed would be made by the levy. As the hon. Gentleman raises the question of the yield, he will recall our debates in Committee of the whole House on the new clauses that I moved to increase the rate of the bank levy, reflecting our commitment to raise £2.5 billion from it. He will know that in the Budget earlier this year, the Office for Budget Responsibility made its assessments on the basis of the proposed increase in the levy that we have set out. This year, rather than raising £2.5 billion, the OBR forecasts that we will raise £2.7 billion. Next year and for every subsequent year, the OBR estimates that the levy will raise £2.9 billion. That means that we will recoup the under-collection of the bank levy. It is a new levy and it is not always possible to know exactly what such a levy will raise. It has always been clear that the Government intend it to raise at least £2.5 billion. The OBR’s central estimate is that we will more than recoup the requirement that we set out.
Chris Leslie
The Minister has said that there will be a £200 million increase above the £2.5 billion for this financial year. However, we have established that the Government are £2 billion behind the curve. There is £2 billion to be recouped. The Minister is culpable for the loss of significant sums of money. He has not given any commitments on that. It would be wrong if he did not go back to the drawing board and think again about this issue.
Greg Clark
Our commitment is clear that we will raise £2.5 billion a year. The amendments that we have made to the Bill will do precisely that. We have introduced a permanent bank levy, in contrast to the one-off tax that the Labour party imposed on the banks. During 13 years in government, the only bank levy that the Labour party introduced was, in effect, a levy by the banks on the taxpayer. This levy is the opposite of that: the taxpayer is benefiting from revenue from the banks.
It is right that we target the £2.5 billion yield that we have always had in mind. In addition, when we spot opportunities that might be taken to avoid the levy, we should close them. That is what the new clause does.
Question put and agreed to.
New clause 6 accordingly read a Second time, and added to the Bill.
New Clause 12
Anti-abuse measures
‘(1) Her Majesty’s Revenue and Customs shall review the possibility of bringing forward measures as part of the GAAR to work in conjunction with other G8 countries to require multi-national companies to publish a single easily comparable statement of the amount of corporation tax they pay in the UK.
(2) The Chancellor of the Exchequer shall review the effect of incorporating a global standard for public registration of ownership of companies and trusts via a convention on tax transparency, including a requirement on companies to publish a single easily comparable statement of the amount of corporation tax they pay in the UK, on Treasury tax receipts.
(3) The Chancellor of the Exchequer shall consider, when counteracting tax advantages arising from tax arrangements that are abusive, what steps HM Government could take, working alongside developing country governments, to assess how UK companies could report their use of tax schemes that have an impact on developing countries, and how the UK could assist in the recovery of that tax.
(4) Within six months of the passage of Royal Assent, the Chancellor of the Exchequer shall place copies of the review in the House of Commons Library, and consult with G8 countries on their effectiveness.’.—(Catherine McKinnell.)
Brought up, and read the First time.
Question put, That the clause be read a Second time.
The House divided: Ayes 231, Noes 300.
“arrangements (in Part 14A) | section 730B” |
“as a deduction (in Part 14A) | section 730B” |
“C (in Part 14A) | section 730B |
“deductible amount (in Part 14A) | section 730B” |
“qualifying change (in Part 14A) | section 730B” |
“the relevant day (in Part 14A) | section 730B”. |