Tax Reform Commission

1st reading
Tuesday 15th November 2022 Commons Chamber

Motion for leave to bring in a Bill (Standing Order No. 23)

12:43

[Liz Saville Roberts (Dwyfor Meirionnydd) (PC)]

I beg to move,

That leave be given to bring in a Bill to establish a commission to assess the differential impact of the tax system in the UK on different groups of people; to require that commission to make recommendations for reform of the tax system; and for connected purposes.

All proposals put forward by the commission would have to be consistent with the aim of increasing enough revenue to maintain spending on public services at current levels in real terms as a minimum, and support the delivery of policies aimed at reducing inequalities. This would be a joint endeavour by all Governments: the Welsh Government, the Scottish Government, the Northern Ireland Executive and the UK Government.

Why do we propose a tax reform commission? Two days from now we will be responding to the Chancellor’s autumn statement, itself a sticking plaster over the previous Chancellor’s fiasco of a fiscal statement in September. Running through the measures is likely to be the principle of temporary relief, but in no way are they likely to recognise the challenge of long-term changes in demographics, in climate and in geopolitics. There is a policy of denial from the Government that the common good is indeed dependent on the public purse. We are not self-sufficient individuals throughout our lives—covid should have taught us that. There is such a thing as society. The social contract requires actions to safeguard the common good that can be provided only by central Government and which require central Government to have sufficient funds to realise them. The Government have spent 12 years unpicking that social contract. David Cameron preached austerity as though it were the only remedy to the 2008 financial crash. Austerity was and remains the Conservatives’ value of choice, but austerity is an ideological decision and it has resulted in the slow-motion collapse of those public functions that should act as a scaffold for the common good. The effects of austerity: 300,000 excess deaths; hollowed-out, zombie public services; and the quilt of our social fabric ripped apart. Every service that depends on values held in common is failing: justice, energy infrastructure, transport infrastructure, environmental protections, social care, state education and health. Now, in 2022, that same assumption—that same lie—is peddled again.

The Prime Minister and the Chancellor lecture us that “difficult decisions” are necessary to respond to the aftershock of Russia’s illegal assault on Ukraine and the effects of covid. We know that they mean Brexit, too, even though they do not dare admit it in public. They talk about restoring economic credibility—credibility was of course demolished by the Government themselves —but no veneer of clichéd Conservative fiscal fine words can hide the fact that the Budget will be a continuation of a calculated austerity agenda. Even if the Chancellor sticks to current budgets, the result will be real-term cuts driven by inflation and below-inflation public sector pay deals.

To put that into context for Wales, the Welsh Government have already estimated that the value of their three-year budget may well be £4 billion less in real terms than expected. Public sector budgets have been cut through the flesh and into the bone. There is nothing left for the Treasury to hack. Indeed, the Institute for Government has warned that, in virtually all cases, quick cuts to funding will result in worse services and the need to provide emergency funding at a later date. We all know that public services are the only way to provide the safety net that will save each and every one of us when we fall into need. Let us face it: debates over taxation and spending should be at the heart of democracy, but where are those debates? That is why we need a tax reform commission.

The commission would be empowered to consider a broad range of possible reforms. I will focus on a handful that I believe merit consideration and, at the very least, need to be discussed properly in the House. Let us begin with the question of wealth inequality. In the UK, the financial wealth held by the richest 1% of households is greater than that held by 80% of the population. The Chancellor says that everyone will have to make sacrifices, but we must ask: why should ordinary people pick up the bill when the wealth of the richest 1% is more than £3.6 million per household? There is no lack of wealth in the UK. What is lacking is a tax system that distributes it equitably.

We need to know what that weasel word “equitably” means. It is not just an abstract concept. Perhaps we would like to ask what equitable means in this context. I put it to hon. Members that, with a heartbreaking 34% of children in Wales living in poverty, our definition of “equitable” should be driven by the aim of raising enough revenue to be able to deliver policies that ensure that no one in the UK lives below the poverty line. Why would we aspire to anything else?

We need to ask why income is treated differently according to its source. Why are we treating income from work and income from wealth differently? Why not extend the same national insurance contribution rates that are applied to earnings from employment to income that is received from other forms of activity, for example, holding investments such as dividends, rent and interest on savings? That could raise an additional £8.6 billion every year. Why not look at reforming national insurance? Academics at Warwick University suggest that, if contributions were fully equalised for higher earners, it could raise £19.7 billion. Oil company BP reported obscene profits of £7 billion in the third quarter. Shell reported its second highest quarterly profit on record but did not contribute to the UK’s windfall tax on energy firms. The Chancellor is reportedly looking to expand the tax, but he should go further and remove the investment allowance which enables many companies to pay no tax if they commit to making investments, regardless of the environmental cost. That simply makes no sense.

As another high-profit industry, banks and the level of taxation they pay should also be considered by the commission. The Chancellor is reportedly considering shielding the banks from the increase in corporation tax by cutting the bank surcharge, a mechanism that is supposed to ensure that banks pay a higher effective rate of corporation tax on profits above a certain level compared with other businesses. The timidity of this Government towards the banking sector is, frankly, embarrassing. Given that the industry will benefit from increased interest rates and mortgage costs, is it not appropriate for the banks to pay a fairer share towards introducing further cost of living payments? The Government could also choose to end the fundamental unfairness of non-dom status, which allows a select few to live in the UK but receive special tax treatment. Abolishing that could raise more than £3.2 billion each year.

The final reform I would like to touch on today is further devolution of tax powers. Currently, the Welsh Government are severely limited in how they can raise public funds. Setting our own income tax bands in a way that recognises who profits from what sort of wealth could provide a more sustainable source of income for Welsh public services.

The commission is a recognition that poverty is always a political choice. The UK Government can choose to identify new and fairer ways of raising money. In turn, that would allow the Chancellor to stand before the House and put forward proposals for reforms to the welfare system and long-term solutions to the energy crisis, and to set out how the UK Government will inflation-proof the budgets of our public services.

There is recent precedent for this work. Last year, the Irish Government established the Commission on Taxation and Welfare, chaired by Professor Niamh Moloney, Professor of Law at the London School of Economics. The commission was tasked with reviewing how best the taxation and welfare systems can support economic activity and income redistribution, while ensuring sufficient resources are available to meet the costs of public services. Among the principles on which they based their work was “adequacy”, and the understanding that one of the objectives of taxation should be to redistribute market incomes to achieve greater equality and prevent poverty.

To close, the UK Government may well have valid reasons to reject different ways of raising money. If they are confident of their own arguments, they would support the Bill to facilitate an open discussion in this House. Ahead of another austerity Budget, we in this House must ask ourselves: do we really aspire to condemning future generations to an unchallenged ideology that the common good is unaffordable, or is there another way?

Question put and agreed to.

Ordered,

That Liz Saville Roberts, Hywel Williams, Ben Lake, Alison Thewliss, Bell Ribeiro-Addy, Caroline Lucas, Claire Hanna, Clive Lewis and Stephen Farry present the Bill.

Liz Saville Roberts accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 24 March 2023, and to be printed (Bill 190).