15:27 - The House divided: - Ayes: 0 / Noes: 0 - Question accordingly negatived.
17:28 - The Committee divided: - Ayes: 231 / Noes: 295 - Question accordingly negatived.
17:42 - The Committee divided: - Ayes: 231 / Noes: 296 - Question accordingly negatived.
19:28 - The Committee divided: - Ayes: 226 / Noes: 286 - Question accordingly negatived.
Shabana Mahmood
I am really disappointed that the hon. Gentleman has not been listening to my speech. At what point did I bash big businesses? It was not something I said, and nor was it suggested by my tone. I have made it very clear that we supported the cuts to corporation tax in this Parliament. We are simply suggesting a switch spend—it will be in our manifesto for the next general election—which amounts to making a different choice on corporation tax in order to get practical and immediate help to smaller businesses that will make a real difference to them.
Given that the 2% of businesses that are larger have benefited by about £10 billion over the life of this Parliament as a result of a number of changes to their taxation, it is fair to switch our attention to a part of the business market that has been rather ignored. Although the Government have a number of schemes to help smaller businesses, those schemes are not going far enough or achieving the Government’s aims.
Our suggested switch spend is fair. It is not about pitting one business against another or valuing one above another. It is a simple recognition of the fact that 98% of businesses in this country have not received the practical help they need. They are desperate for change on their business rates and we will deliver it. The policy will be in our next manifesto.
The Exchequer Secretary to the Treasury (Mr David Gauke)
On support for small businesses, does the hon. Lady regret the fact that when her party was in office, it planned to increase the corporation tax rate for small businesses from 21% to 22%? Does she also regret the previous Government’s plans to increase employers’ national insurance contributions and fuel duty, which would have affected small businesses?
Shabana Mahmood
What I primarily regret is that, as a result of the choices they made, this Government choked off the economic recovery that was under way when they came to office. That is the most regrettable thing: it led to three damaging years of flatlining, and it is ordinary people who are paying the price.
Following a vocal campaign by a number of business groups, ahead of the autumn statement the Government decided not to go ahead with the planned 3.2% increase in business rates and decided instead to cap them at 2%. The Government also announced in the autumn statement that they would provide additional help to retailers. That was action—it was relatively late in the day but it was action—but it does not go far enough, and the Government’s policy does not compare favourably with ours ahead of the next general election.
Ultimately, business rates are still set to rise this month by an average of £270. The Government’s autumn statement offer of £1,000 business rate relief was welcome for retailers, but it excluded workshops and offices used by high-tech start-ups. I particularly have in mind small jewellery makers in my constituency, which is famous for the jewellery quarter at its heart. Such businesses will not benefit from the Government’s announcements in the autumn statement and, as I have said, a significant rise in business rates is still envisaged for small businesses.
Our proposal for a switch spend from corporation tax to business rates is a much more comprehensive measure that would offer genuine and more far-reaching support to small and medium-sized enterprises. Given the scale of the problem, our policy seeks to offer practical help that would truly make a difference on the Witton road, the Coventry road and the Soho road in my constituency. The Exchequer Secretary will be pleased to know that it would also make a difference in his constituency. The Office for National Statistics report “UK business: Activity, Size and Location 2013”—a great read—tells us that more than 80% of the 5,750 VAT or PAYE-based enterprises in South West Hertfordshire employ no more than four people, while almost 75% of them have a turnover of less than £250,000. They are therefore not affected by the changes to the main rate of corporation tax, which he himself oversees; they are more likely to be in properties with a rental value of £50,000, and are therefore more likely to benefit from Labour’s proposal to cut and then freeze business rates in 2015-16.
In conclusion, we believe that our policy is the right one for helping small businesses. It meets the scale of the challenge that they face on business rates, and it makes the right choice about how to pay for the policy. We will want to vote on our amendment later this afternoon to highlight the impact of this Government’s decisions and the imbalances in their approach.
Kelvin Hopkins
I made exactly the same speeches when my party was in government. I demanded that the previous Government employ many more tax officers. There has been a conspiracy between Front-Bench Members for some decades to get away from being too unpleasant to the corporates and to let them have their way. Well, I do not want to let them have their way; I want them to pay their taxes so that we can pay for the things that ordinary people need, particularly those who are less well off and those who are more vulnerable.
Kelvin Hopkins
That is very welcome, but I do not believe in the immutability of a certain level of tax revenue and that, whatever we do, we cannot change that level because somehow the world will not produce more than 38% of GDP in tax. It is just a question of collecting that tax and enforcing the tax rates to ensure that the big international corporates, in particular, pay their taxes. When we do that, we will see a substantial increase in revenue. Of course there are countries where overall tax revenues are substantially higher than ours, and they are not necessarily countries that are doing badly economically; they are countries that are doing well, but a higher proportion of their economy is in the public sector. Those countries have higher taxes and higher public spending, and they are civilised societies, too. The countries with the lowest levels of tax and public spending are often some of the poorest, where the gulf between rich and poor is much greater and, generally speaking, life is less pleasant, particularly for the poor and the less well off.
I look forward to more enforcement and a higher tax take by enforcing the existing tax rates and ensuring that people, particularly the corporates, pay their taxes. When it comes to taxation, the behaviour of the economy is crucial.
Sheila Gilmore
Value added tax has been a difficulty for a lot of individuals and for small businesses. The amendment is an opportunity for us to review these matters. If Conservative Members are right that such a change would be harmful, a review would show that. It has to be demonstrated to the small businesses of this country why a proposal of this kind is thought to be harmful to our economy.
Mr Gauke
It is a great pleasure to serve under your chairmanship, Ms Clark, and to respond to the first of what will no doubt be many detailed debates over the course of this year’s Finance Bill. It may be helpful if I set out a little context as to what the Government have done in terms of corporation tax.
When we came to office in 2010, the main rate of corporation tax was 28%, and the small profits rate was 21% but was due to rise, under the plans of the previous Government, to 22%. In 2010, we set out the corporate tax road map. We set out our ambition to give the UK the most competitive tax regime in the G20. We wanted a corporation tax system that would support, not hinder, growth and would boost investment to support the economic recovery, so we reversed the previous Government's planned increase in the small profits rate and cut it to 20%, and embarked on the biggest reduction in the main rate of corporation tax since the 1980s. Last week, the rate was cut to 21%. Next year it will fall to 20%— the joint lowest rate in the G20.
Mr Gauke
The cuts in corporation tax were a central plank of the Government's economic strategy, a strategy that is working. Jobs are up and business confidence is increasing.
It may be helpful if I inform the House of the news that we have heard from the IMF this afternoon. The IMF has revised the UK’s growth forecast for 2014 and 2015 to 2.9% and 2.5% respectively, an upward revision of 0.4 percentage points in 2014 and 0.3 percentage points in 2015. Those are the largest increases for both years among major advanced economies and among the BRIC countries—Brazil, Russia, India and China—for both years. The UK is also forecast to be the fastest-growing major advanced economy in 2014. I make the point to the hon. Gentleman that the plan is working. Business investment has grown for four consecutive quarters for the first time since 2007. The OBR has forecast that investment will grow very strongly over the next two years—by 8% in 2014 and 9.2% in 2015.
More and more businesses are moving operations here, a point made by my hon. Friend the Member for Amber Valley (Nigel Mills). Just in the past two weeks, we have seen Hitachi Rail—referred to by my hon. Friend the Member for Redcar (Ian Swales)—and Brit Insurance announcing moves to the UK. Siemens has announced a £160 million investment in the Humber. Business surveys reflect the positive impact of the corporation tax reforms. For the past two years, the UK has ranked highest in the KPMG survey of international tax competitiveness, with business leaders putting us ahead of countries such as the USA, the Netherlands and Switzerland.
Ian Swales
As a champion of manufacturing, I would like to see more capital investment, but does the Minister accept that investment in people has clearly been going on during this period?
Mr Gauke
Indeed it has. I will say more about some of the other measures we are taking to make our tax system more competitive, but overall it is clear that our tax system—in terms of being open for business—has moved in the right direction over the last four years. It is important that we maintain that momentum and do not put it at risk by trying to reverse some of the progress we have made.
Charlie Elphicke
According to a report in City A.M. this morning, the British Chambers of Commerce has said that we are seeing the strongest investment and export growth for nearly a century. Did my hon. Friend see that report?
Mr Gauke
Indeed I did, and I heard the head of the BCC make the same point in a radio interview this morning. We are moving in the right direction, and this afternoon’s figures from the IMF are extremely significant. I hope that Members in all parts of the House welcome the news that the United Kingdom is the fastest-growing major advanced economy this year.
Mr Love
The Office for Budget Responsibility has forecast that there will be no net increase in net trade, so the export-led recovery simply will not happen. It has also said that the recovery is too dependent on consumer expenditure, and that as long as real wages do not increase—and it predicts that they will not increase very fast—that simply cannot continue.
Mr Gauke
Again, we are seeing movement in the right direction. In the Budget, the Chancellor announced additional support for exports through the expansion of the direct lending scheme. Moreover, in 2012-13 British business received £4.3 billion of support from UK Export Finance, which was a 12-year high.
Tom Blenkinsop
I think I am right in saying that the UK current account deficit has not been as bad as it is now since 1955, when records began. The Minister may wish to correct me, but I am certain that that is the case.
Mr Gauke
The Government are taking steps to ensure that we can export more. We recognise that we need to export more, and that we need more business investment. However, the way in which to ensure that that happens is not to try to avoid a competitive tax system, or to turn our back on the progress that we have made. All that would put the recovery at risk, and I fear that it is what we would get from Labour.
Sheila Gilmore
I do not think that the Minister has yet addressed the lack of balance in the growth that is being shown, and the concern that has been expressed about that by the IMF and others. If policies such as the reduction in corporation tax were intended to boost manufacturing and exports, I should like to know why that still does not appear to be happening to the degree that would convince people that this is a balanced recovery.
Mr Gauke
As a result of our corporation tax reforms, businesses are moving their headquarters here. The north-east of England, for instance, has benefited from Hitachi’s investment. However, if the hon. Lady’s point is that the job has not yet been done and that further steps are needed to make our economy more productive and competitive, I entirely agree with her. That is why we must stick to the long-term economic plan.
Mr Redwood
Does the Minister agree that increases in investment require consumption growth? Does he agree that the whole point of investment is to satisfy future consumption increases, and that we need both for a balanced recovery?
Mr Gauke
Indeed I do. As ever, my right hon. Friend brings great expertise to the debate.
Clauses 5 to 7 provide further evidence that we are continuing to make progress towards the delivery of a simpler and more competitive tax regime. They charge corporation tax for the financial year 2015. They set the small profits rate and the ring-fence small profits rate for 2014 at 20% and 19% respectively. They fix the ring-fence rates so that we need not reconfirm them every year in the Finance Bill. That is consistent with the way in which we handle the supplementary charge, the 32% tax levied on profits from oil and gas production. They set the fractions that will be used for businesses to calculate their marginal relief: the standard fraction is set at one four-hundredth, and the ring-fence fraction at eleven four-hundredths.
Shabana Mahmood
The Exchequer Secretary speaks about a positive business environment. Business rates have increased by £1,500 on average since his Government have been in power. Does he think that that has led to a positive business environment for those businesses affected?
Mr Gauke
It is worth pointing out that business rates have increased in line with RPI, which is exactly what the previous Government planned to do, and, indeed, exactly what the previous Government did when they were in office. What we have done, however, is double small business rate relief for every year of this Parliament, saving small businesses over £1.5 billion on their business rates bills to date. In the autumn statement we introduced the biggest business rates cut in over 20 years. This package of measures was larger than that proposed by the Opposition. Their proposal would have been worth significantly less than the £1 billion our package cost. Of that £1 billion, over 90% is going to businesses occupying small premises and targeted support is going to help the retail sector on the high street and bring empty shops back into use. The combined effect of the measures is to freeze, or even reduce, business rates bills for 35% of the smallest rate payers. This Government’s business rates measures are both more generous and better targeted than those proposed by the Opposition and benefit all businesses.
Amendment 2, tabled by the shadow Chancellor and his colleagues, proposes a review of the impact of the additional cut in corporation tax with particular reference to businesses with fewer than 50 employees. I understand from the comments made by the shadow Chief Secretary in last week’s debate that what is driving this amendment is a concern about the business environment for small businesses. The Government have done far more for small businesses than the Opposition would have done, including making it easier for small businesses to create new jobs by introducing the £2,000 employment allowance, which will benefit up to 1.25 million businesses and charities in the UK. We are lifting 450,000 small businesses out of employer national insurance contributions altogether. We have made it easier for small firms to invest and grow. We have doubled the annual investment allowance to £500,000 per year so that 99.8% of businesses will receive relief on 100% of their investment in the first year, and we have increased the small business research and development tax credit to the maximum level available under EU law. We have cut costs for small businesses by delivering the longest fuel duty freeze for 20 years and through the £7.1 billion package announced in the Budget to reduce energy costs for businesses and households.
It is worth pointing out that the rate reduction for corporation tax will lead to large firms investing more, with huge benefits for SMEs in their supply chains. Economic modelling by HMRC has shown that the corporation tax cuts introduced in this Parliament will increase long-run business investment by 2.5% to 4.5%. In today’s prices that is an extra £3.6 billion to £6 billion every year, a boost for the whole business community. As John Longworth, director general of the British Chambers of Commerce, said last year:
“All companies will cheer the news that Corporation Tax will fall to 20% by 2015.”
This is just one element of what we have done. If Members look at what we have done on business rates, the employment allowance and energy costs, it is clear that this is a Government who are supporting business. I am afraid, however, that, as always, what we hear from the Opposition is policies that are anti-business and that will drive away investment and growth, and no realisation of how the world has changed. The UK needs to compete for jobs and investment. The best way of doing that is through a competitive tax system. I am afraid that the biggest risk to our achieving a competitive tax system and economic growth is the Labour party.
These clauses see us continue to make progress towards delivering a simpler and more competitive tax regime that supports investment, productivity and growth. I urge the House to support the clauses and to reject the Opposition amendment.
Shabana Mahmood
We have had a very good and interesting debate. I was a little horrified when the right hon. Member for Wokingham (Mr Redwood) began his remarks by making what sounded almost like positive comments about me, but he very quickly moved on to comments that better reflected both his politics and mine. He raised a point that I did not hear clearly, but I am sure it was a withering put-down about me not doing my homework. On his criticisms of both the amendment and what it seeks to achieve, I say to him as gently as possible that if he had done his homework, he would know that the Opposition are somewhat constrained in the amendments we can table to Finance Bills and the impact they could have on the Exchequer, so often the best way for us to get a good debate on what we seek to achieve is through asking for a review. I hope that that settles his mind as to the nature of our amendment.
There has been a great deal of discussion today about our proposals to increase the headline rate of corporation tax from 20% to 21%. We would use every penny of the revenue from that tax increase to cut business rates for small businesses in 2015 and to freeze them the year after. Nothing that Government Members have said today has shown that they understand the true impact that business rates are having on small businesses up and down the country. The Government are not prepared to make choices or spending switches to support those small businesses, but that is what the next Labour Government will do in 2015. We intend to press our amendment to a vote.
Question put, That the amendment be made.
The House divided: Ayes 219, Noes 289.
Shabana Mahmood
I will not, because of a lack of time.
The HMRC report says that all the analysis and estimation is highly uncertain, as does the Institute for Fiscal Studies. The scale of behavioural change is ultimately decided by Ministers, and it is primarily based on an assessment of taxable income elasticity—TIE. The IFS says that there is a huge margin for error. Staying within that margin, one could easily say that, depending on the TIE, cutting the rate could cost £700 million or could raise £600 million. That gives us an idea of the range of figures that we are talking about and how uncertain the projections are.
It might have fitted the Government narrative for them to imply that they knew for certain that the 50p rate would raise only £100 million, but even on their figures and HMRC’s report, there is a huge margin for error and this is all very uncertain. That is not the only thing that was wrong with the analysis. The HMRC report was based on only one year’s worth of data—the data related to 2010-11—which is a weakness in itself. It came too early. Given the history of the introduction of the rate and the Government’s decision to cut it, the reliance on year one is a further weakness in the Government’s argument, because we know that incomes were taken earlier to avoid the 50p rate and as a result incomes in 2010 and 2011 were artificially lower, suggesting a lower yield. Hence our request for a review.
The original HMRC analysis does not give a true picture, was done too soon after the rate had been introduced and was based on only one year’s worth of data. Income figures for that year were lower than otherwise might have been the case because people brought their income forward to 2009-10 before the rate came into effect. No one has redone the analysis so we are still going on the figures from the 2012 Budget. The Government should, at the very least, update the analysis based on the more recent data and prepare the report that our amendment and new clause 4 call for. A comparison of 45p and 50p rates for those on incomes over £150,000 and £1 million would be instructive to the public debate about the top rate, especially as some Members on the Government Back Benches want to reduce the rate to 40p.
Mr Gauke
The hon. Lady is generous in giving way. When her party announced that it would reintroduce the 50p rate in the next Parliament, she wrote in the New Statesman:
“latest figures from the HMRC show that people earning more than £150,000 a year paid almost £10 billion more in tax”
than was taken into account in the assessment that HMRC made. Is she happy to put on record the fact that the HMRC assessment took into account the numbers that she was talking about, and that the claims that she and her colleagues made at the time of the announcement of the 50p policy were in fact wrong about that?
Shabana Mahmood
Our analysis was based on projections that were available to us at that time, and on those projections that analysis was correct. The truth is that everyone accepts that all analysis in relation to the 50p rate—HMRC’s analysis and everyone else’s—is uncertain because we did not have the rate in place for long enough to make a full and thorough assessment. Now HMRC has available to it records for the following two years when the 50p rate was in place and it could update the report that was used for Budget 2012. That would give a much clearer picture to all of us who are relying on other figures and forecasts.
Just as people shifted income into 2009 and 2010 to avoid the 50p rate when it was introduced, once the Chancellor had said in his 2012 Budget that he would abolish it the following year in 2013, unsurprisingly people effectively decided to delay their bonuses and income until the new tax year 2013-14 began so that they could avoid paying 50p and pay 45p instead. That is what accounts for the revenue from 45p being higher, which in our earlier debates Government Members sought to rely on in support of cutting the rate further to 40p. The Government clearly reward tax avoidance at 50p with a tax cut to 45p, and their Back Benchers are now calling for 40p on the basis of revenue that they know is inflated owing to income shifting, which may well have cost the Treasury millions in lost revenue—warped priorities if ever there was a case of them.
The Chancellor is on record as saying that he considers tax avoidance to be “morally repugnant”, but as I have just said, he has rewarded a particular form of tax avoidance with a tax cut. I wonder if that has ever happened for people on middle and lower incomes. I think not. This is a Government who always tell us how proud they are of their record on tax avoidance, but I wonder how much effort they put into thinking of ways in which they could protect revenue from the 50p rate. The Government have introduced the general anti-abuse rule, the GAAR, which may have helped. They could have thought about a targeted rule. They could have looked to HMRC to do more. I understand that no specific measures are taken within HMRC to protect revenue from the 50p rate. Before rushing to abolish the rate, the Government could and should have looked at protecting revenue first. The truth is that there was no justification for giving a huge tax cut to the richest in our country. Bonuses, we now know, are up by 83% for those in the financial sector, while ordinary people are worse off now and will be worse off in 2015 compared with 2012. That certainly makes a mockery of the now not very often repeated phrase, “We are all in it together.”
I think the Government have been hoping that if they keep going on about the increase in the personal allowance, people will forget that they have made a political decision, a political choice and a political priority to cut taxes for the richest in our country. The truth is that the Government have given with one hand and taken away much more with the other. As I said, if one looks at wages, ordinary people are £1,600 a year worse off, and the combined effect of tax and benefit changes means that households will, on average, be £970 a year worse off.
This cut to the 50p rate cannot be justified at a time when the deficit is high and will not be eliminated towards the end of the next Parliament. Labour in government will increase the rate back to 50p to help us to get the deficit down in a fairer way. Just as we have said that we want the OBR to have powers to audit manifestos ahead of the next general election, because we believe that scrutiny will add to public understanding about the choices that are being made, so too we think that a review as envisaged in our amendment would help the public to understand the impact of the top rate of tax so that they can make up their own minds about who is standing up for them and other working people like them. Therefore, we will press amendment 4 to a vote.
Mr Gauke
It is a great pleasure, Mr Amess, to serve under your chairmanship. Before I deal with our annual debate at this stage in the Finance Bill on the 50p rate, I want to say a word or two about clause 1, which is included within the group, which ensures that income tax will be collected in 2014-15. Income tax is the Government’s biggest revenue source and the annual charge legislated in the Finance Bill is essential for its continued collection. There will be around 30 million income tax payers in the UK in 2014-15, and clause 1 states that these taxpayers will pay income tax this year at the same rates as in 2013-14. The basic and higher tax rates remain at 20% and 40% respectively, and the additional rate is 45%.
Clause 1 also means that the Government are meeting their commitment of raising the personal allowance to £10,000 one year ahead of schedule. The increase of the personal allowance to £10,000 reduces the income tax bills of another 255,000 low earners to zero and gives 25 million taxpayers an average gain of £50 in real terms. In other words, increasing the personal allowance by £560 will put an extra £112 of cash in the pockets of typical basic rate taxpayers in 2014-15.
Allow me to explain how these changes will help the Government to meet their objectives. When this Government came to office, the personal allowance was only £6,475. In 2010, everyone, including those working on the national minimum wage, had to pay income tax at the basic rate on incomes above this low threshold. Let me give an example of what this meant in practice. Someone working full-time on the October 2010 national minimum wage would have had to pay over £860 in income tax in 2010-11 alone. Thanks to this Government’s increases to the personal allowance, this year someone working full-time on the higher October 2014 national minimum wage will pay nearly £500 less than that.
Kelvin Hopkins
Ministers have talked a lot about low incomes, and that is all very well, but is not the reality that the better off people are and the higher the rate of tax they are on, the more they benefit, so in fact higher-rate taxpayers benefit more than lower-rate taxpayers?
Mr Gauke
That is not correct, because of the way we have done this. I will not spend a lot of time on the matter, but I can tell the hon. Gentleman that in preparation for this speech I have seen various responses from those raising concerns about higher-rate taxpayers not benefiting from the increases in the personal allowance in the way that basic-rate taxpayers have. Indeed, those earning more than £100,000 a year do not benefit from increases in the personal allowance because it starts to be taken away.
The reality is that basic-rate taxpayers have benefited most from the measures that we have taken in increasing the personal allowance. More than 26 million taxpayers will be up to £570 better off in real terms in 2015-16 as a result of this Government’s changes. In 2014-15, basic-rate taxpayers already pay up to £700 less income tax than they would have done four years ago. By 2015-16, the Government will have cut their income tax bills by over £800 per year. Together, all the personal allowance increases since 2010 mean that this Government have cut the number of income tax payers more in five years than any Government in a similar period since records began.
Huw Irranca-Davies
Will the Minister correct what may be a misunderstanding? Is it correct that 13,000 people who earned more than £1 million a year would have benefited to the tune of £100,000, on average, from the reduction in the top rate of tax?
Mr Gauke
Amendment 4 and new clause 4, tabled by Opposition parties, deal with familiar matters that we debate every year. They propose, once again, that within three months of passing the Finance Act, the Chancellor should publish a report reviewing the impact of setting the additional rate at 50%. In addition, amendment 4 asks for an assessment of the impact of setting the additional rate for 2014-15 at 45% and at 50% on the amount of income tax currently paid by those with taxable incomes of over £150,000 and over £1 million per year. Needless to say, such an analysis, in order to be credible, would need to take behavioural impacts into account, as did the HMRC report on the additional rate published at Budget 2012. When increasing taxes, it is not enough merely to look at theoretical income tax liabilities. Let me assure hon. Members, once more, that this Government already consider the impact of any policy decisions taken. The HMRC report on the additional rate concluded that the underlying yield from the introduction of the 50p rate was much lower than originally forecast due to large behavioural effects. It even said that it is possible that the 50p rate could have reduced income tax revenue instead of increasing it. It would be illogical and unfair to reintroduce a tax rate that is ineffective at raising revenue from high earners and that would end up making ordinary taxpayers pay more and risk damaging growth.
Huw Irranca-Davies
I genuinely thank the Minister for trying to explain that to me, but he has just described the top-end tax cut as a theoretical tax cut when my understanding is that it is a very real tax cut whereby 13,000 people who are millionaires or richer have each saved more than £100,000 per year. At this very moment, my constituency is digging deep as a result of cuts to school transport. Will the Minister confirm that the tax cut is not theoretical, but real, and that 13,000 people who are millionaires or richer have each saved to the tune of £100,000 as a result of it, when the median wage in my constituency is sub-£21,000?
Mr Gauke
Let me see if I can find a point of consensus with the hon. Gentleman. We want—and I suspect he wants—to ensure that the wealthiest make a fair contribution towards reducing the deficit, and the challenge for any Government is to work out the best way of doing that. Let us look at this Government’s record on raising money from the wealthiest. Budget 2010 increased the higher rate of capital gains tax and Budget 2011 tackled avoidance through disguised remuneration—a policy that was opposed by the Labour party, even though it addressed avoidance by high earners. Budget 2012 raised stamp duty on high-value homes and autumn statement 2012 took action to reduce the cost of pensions tax relief, while Budget 2013 and autumn statement 2013 announced further measures to tackle offshore evasion by high earners. In 2013-14, the richest 1% of taxpayers contributed a larger share of income tax receipts than in any other year, including every year under the Labour Government.
The point is how we raise money from the wealthiest. The 50p rate is not the most effective way of doing that, because the behavioural effects are so strong that it fails to raise money. Now that growth is finally picking up, the Government will not consider any actions that might put the UK’s recovery at risk. Despite reducing the additional rate, the richest now pay more income tax than they did in any year under Labour.
Chris Leslie (Nottingham East) (Lab/Co-op)
The Minister was generously trying to find a point of consensus and I want to build on that, following the question asked by my hon. Friend the Member for Ogmore (Huw Irranca-Davies). The Minister talked about what might be raised by closing avoidance loopholes for the very richest, but what about the 13,000 honest millionaires who my hon. Friend says have benefited from a tax cut of £100,000 each? Will the Minister address that specific point and confirm that those honest millionaires—this is not about avoidance and loopholes—will each benefit from a tax cut of £100,000?
Mr Gauke
I suppose we are talking about the people who for almost the entire time the Labour party was in power were paying a lower rate of income tax, a lower rate of capital gains tax and a lower rate of stamp duty. I hear the Labour party’s position. [Interruption.] If we are trying to build consensus, let us look at what some Labour politicians have said. The noble Lord Myners, a former Treasury Minister, has said:
“The economic logic behind Ed Balls’s thinking would not get him a pass at GCSE economics,”
and that
“Ed Balls takes us back to old Labour and the politics of envy.”
Lord Jones, the former trade Minister in a Labour Government, described the policy as “lousy economics”.
Huw Irranca-Davies
The hon. Gentleman gives us examples of people arguing that the policy is economically illiterate, but we are politicians, not economists. I will try to reach consensus with him by saying, although perhaps I should not, that the policy is in his party’s interests. The biggest segment of those who donate to the Conservative party—providing more than half its donations—are from financial services. To say to them, “We are all in it together. You will have to accept a little bit more pain”, would be a good political signal, let alone an economic one.
Mr Gauke
I am always grateful to the hon. Gentleman for his political advice. I cannot but notice that he talked about wanting to uphold the values of the British people and then quoted Karl Marx—but there we go. My point is that the wealthiest are making a bigger contribution in income tax, capital gains tax and stamp duty, and that this Government are taking further action to deal with avoidance and evasion more effectively than any previous Government have done.
Ian Swales
It is not for me to disagree with the mathematics of the hon. Member for Ogmore (Huw Irranca-Davies), but assuming that he is right, does his point not prove that 13,000 people were paying £100,000 less tax in the year up to April 2010?
Mr Gauke
I suspect that my hon. Friend may well be right, so I am grateful to him on that point.
Clause 1 will help the Government to achieve our aim of a tax system that is fair for everyone, while rewarding those who want to work hard and progress. We will achieve those goals by cutting income tax for the vast majority of income tax payers, including those in greatest need of support, while making sure that the tax system remains easy to understand. I again stress that the reports proposed in amendment 4 and new clause 4 are entirely unnecessary. The impact of reducing the additional rate of income tax has been examined in great detail. The 50p rate was ineffective and meant risking the recovery for which everyone in this country is working hard. I therefore commend clause 1 and urge the House to reject the amendment and the new clause.
Jonathan Edwards
We have had a very interesting debate. We heard excellent speeches from the hon. Members for Redcar (Ian Swales), for Edinburgh East (Sheila Gilmore) and for Ogmore (Huw Irranca-Davies), and my good friend the hon. Member for East Antrim (Sammy Wilson), as well as from both Front Benchers.
My new clause 4 is rather harmless, if I may say so. It calls for a review that might make the case for the Government’s policy—they might want the evidence to back it up—or the case for my party’s policy of a 50p top rate. With all three Westminster parties signed up to continuing austerity, whoever wins the next Westminster election, we need transparency to ensure that the wider public are confident that everybody is paying their fair share. I regret that because the Government have not accepted my new clause, I will have to divide the House.
Question put, That the clause be read a Second time.
Bridget Phillipson
I will make a brief contribution and put on record just how much progress was made under the previous Labour Government. Child care was previously regarded as something for families to deal with on their own. When Labour came to power in 1997, there was no guarantee that children had access to a nursery place. In many areas, nursery school provision was such that there simply were not the places available even when children wanted them. We should also remember the Sure Start children centres and all the work that went into them. It is important to acknowledge that a major transition was made. The fact that we are debating child care here today shows just how much progress we have made.
I recognise that Government Members want to deal with this issue. It is just unfortunate that the measures they are talking about will not come into force until after the general election, if they were to be re-elected. That is disappointing because families in my constituency need help now.
Families across the country are facing a reduction in the number of places at the same time as costs are rising. Those of us with children know just how difficult it can be to find child care that meets the needs of families now. As has been pointed out, we in this House are very fortunate in having the luxury of being in well-paid jobs that allow us to make choices, but for many of my constituents who work shifts or who are on zero-hours contracts or have insecure employment those choices simply are not available.
We have had an interesting discussion about the role of informal child care, with some useful points being made on both sides. Many families, mine included, rely on grandparents and other friends and family to help out, and they provide invaluable support and play a very useful role. I do not in any way denigrate that support, but children from the most disadvantaged backgrounds benefit the most from having access to high-quality formal child care.
When I visit nurseries and primary schools in my constituency, it becomes clear just how important for their development it is that children are given the best start in life and have access to early years child care. That enables their vocabulary to develop and gives them access to a whole range of different experiences that sometimes are not available in the home for one reason or another, whether it be poverty, domestic violence or mental health.
We have a long way to go on this issue. Labour’s policies are on the right lines. This is a sensible new clause, and I hope the Government will take action now to help families, rather than waiting until later. Families need action now.
The Economic Secretary to the Treasury (Nicky Morgan)
It is a pleasure to serve under your chairmanship, Mr Amess, and I thank all Members who have spoken in this debate. After a rather partisan opening speech, the debate improved and we had a genuine discussion of views, which will no doubt carry on throughout the Committee stage of the Finance Bill. We will also be able to discuss child care measures in greater detail later in the year.
I take on board the comment of the hon. Member for Hackney South and Shoreditch (Meg Hillier) that there is a certain irony in the fact that all of us in the Chamber debating this matter today have children yet we are discussing this rather than spending time with them. If my son were here at the Dispatch Box, he would be very opinionated and have plenty to say on the subject of what I get up to, and I suspect that applies to the children of other Members.
New clause 1 asks the Government to conduct a review of the affordability of child care, but while Opposition Members are proposing yet another review, this Government are taking action, and have taken action, to address the rising costs of child care faced by families.
Before I address the Opposition new clause, let me briefly set out this Government’s approach to supporting parents with their child care costs. As the hon. Member for Hackney South and Shoreditch said, we on this side of the House believe in the importance of flexibility. We do not want to prescribe any further the number of hours that families should have. We want there to be full flexibility, and that is one of the advantages of the tax-free child care provisions this Government are suggesting. Parents and families will be able to build up credits in accounts and will then be able to spend them in the way that suits them best.
Meg Hillier
The flexibility of provision is as important as the flexibility of payment. It is no good talking about flexibility if the child care provider does not provide it or does not provide the number of hours and length of day needed, whether long or short. What are the Government planning to do about that?
Nicky Morgan
I take that point on board. I shall come on to talk about the number of child care places, but the hon. Lady is right: flexibility in all sorts of different ways is what is important. Having the money in an account that the family can decide how to spend is an important part of the policies we have introduced.
My hon. Friend the Member for Enfield, Southgate (Mr Burrowes) was absolutely right to say that this was all about choice. The hon. Member for Houghton and Sunderland South (Bridget Phillipson) talked about maternal employment. That is a debate that we need to have in this country. We know from various surveys conducted by the Department for Education that some mothers want to work, and some need to work. Many of those who need to work find child care costs a barrier to going to work. That is why it is so important to have this discussion.
Child care costs are a major part of most working families’ budgets. Figures from the Family and Childcare Trust show that, between 2002 and 2010, child care costs increased by around 50%. The Government have therefore taken action to tackle those rising costs. We have funded 15 hours a week of free child care for all three and four-year-olds, and extended that offer to the 20% most disadvantaged two-year-olds. We are now extending it further so that, from September 2014, about 40% of two-year-olds will be eligible. As my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) pointed out, the Government have also increased child tax credit to £3,265 a year, which is £420 a year more than it was at the last election, representing a rise significantly above inflation. We have also introduced shared parental leave.
The Government are also taking action to drive up the supply of high-quality child care provision—for example, by legislating for childminder agencies, which will make it easier to set up a childminding business; making it easier for schools to change their school day and encouraging primary schools to open for longer; and reducing bureaucracy and red tape for providers. Encouragingly, the most recent information shows that costs in England have stabilised. The National Day Nurseries Association has reported that the average fee increase across all nurseries was 1.5%, which was well below inflation. The latest survey from the Family and Childcare Trust shows that the cost of after-school clubs in 2013 was £49.71 per week, and that in 2014 it is £48.40. Also, the cost of childminders’ after-school pick-up was £72.79 in 2013 and it is now £64.75—a 12.8% reduction in real terms. Opposition Members have talked about the availability of child care places, but it is worth noting that the number of child care settings rose from 87,900 in 2010 to 90,000 in 2011. This equates to 2 million early-years places, or a 5% increase on 2009.
My hon. Friend the Member for Enfield, Southgate talked about informal child care, and he was right to suggest that that is an important subject. A number of families rely on grandparents and other family members to provide child care, and it is important that we recognise that. However, I also have sympathy with the view that formal child care settings are important. We need to know that our young children are ready and able to go to school. I am not saying that that cannot happen in an informal child care setting, however. As I have said, it is a question of choice and flexibility.
Let me now turn to new clause 1, which asks the Chancellor to publish a review of the affordability of child care costs. We believe that such a review is unnecessary, because in addition to the actions I have already outlined, the Government announced a new scheme in Budget 2013 to help working parents with their child care costs. I do not know whether the hon. Member for Hackney South and Shoreditch really meant it, but she said that the review would “not tie anyone to anything much”. Actually, that is part of the problem with the proposal. We want to get on and bring in our provisions as soon as possible.
Meg Hillier
What I meant was that the review would not require the Government to act on its findings. However, it would give us all a basis on which to argue about what was best for local people and, I hope, reach consensus. It would not stop the Government doing what they were already doing, but it could open up other opportunities.
Nicky Morgan
I believe that some of those policy issues will come out in the debates that we are going to have on tax-free child care. Rather than postponing our activities while we have yet another review, I want to get on and make progress. I want families to know that we are serious about listening and helping them with child care costs and the availability of places.
We have consulted widely on the detail of the scheme. More than 35,000 responses were received to last year’s consultation, and we have listened to that feedback. On 18 March this year, we published our response to the consultation on tax-free child care. This was welcomed by families and child care providers around the country, and as a result of the consultation, we are rolling out tax-free child care more quickly than had previously been announced. It will be launched in autumn 2015 and rolled out to all eligible families with children under 12 within the first year of the scheme’s operation. That is significantly faster than previously announced, as children under 12 would have gradually qualified for the scheme over a seven-year period.
The Government will also now provide 20% support on child care costs up to £10,000 per year for each child via a new simple online system. The cap had previously been set at £6,000. That means that families could receive up to £2,000 child care support per child—two-thirds more than originally planned.
We expect that tax-free child care will be open to at least twice as many families as the current employer-supported child care scheme. At the same time, we announced that all families eligible for universal credit will benefit from additional support at 85%, rather than just taxpayers as previously consulted on. We have also announced £50 million for an early-years pupil premium to help improve outcomes for the most disadvantaged three and four-year-olds in Government-funded early education. Taken together, the Government’s child care offer will provide flexible support for all eligible working families while maintaining free, universal early education support.
The Government are also taking wider steps to support hard-working families. The income tax personal allowance will rise to £10,000 in 2014-15, and in the Budget we announced a further increase to £10,500 in 2015-16. That is a tax cut for 25 million people. Since 2010, this Government will have taken 3.2 million people on low incomes out of paying income tax altogether. It is worth noting that of that 3.2 million, 56% are women, which is something to be recognised and welcomed.
The Government have also helped local authorities freeze council tax in every year of this Parliament, and we have taken action on fuel duty, saving a typical motorist £680 by 2015-16. The shadow Chief Secretary to the Treasury talked about the fuel duty cut being a theoretical cut. Perhaps he would like to chat to the shadow Economic Secretary who quoted from the Asda Index, which showed that families now have slightly more discretionary income to spend per week, and it attributed that to a fall in motoring costs—[Interruption.] I suggest that the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) read the press release, as it made encouraging reading.
The changes suggested in new clause 1 are unnecessary and would not help hard-working families with the cost of child care. The Government have already reviewed how best to improve child care through the Childcare Commission, which was launched in June 2012. We do not need another review. We need to take action now to support hard-working families, which is why we are supporting parents through tax-free child care and universal credit. More people than ever before will be eligible for that support. We have consulted widely on these changes, and our proposals have been welcomed by families and providers around the country. I therefore request that new clause 1, which was tabled by Opposition Members, be withdrawn.
Catherine McKinnell
This has been a well-considered and well-argued debate, but the essential facts remain. This Government have presided over soaring child care costs and have cut tax credits for thousands of families, meaning that even when their proposed long-grass support is eventually introduced, most families will still be worse off than they were in 2010. Parents and working families need help now, not in 18 months’ time, so I urge hon. Members on both sides of the Committee to back new clause 1, which would secure a review of action that the Government can take to provide the support that hard-pressed families up and down the country so desperately need today.
Question put, That the clause be read a Second time.