Living Standards

Debate between Lord Redwood and Richard Fuller

Monday 5th March 2012 Commons Chamber

[Mr Redwood]

That is a very good example of the problem one can get into, and that is why I wish my right hon. Friends on the Treasury Bench every success in dealing with what we can all see is a problem, but I am not recommending to them that they give up and say that somebody on £200,000 a year should still be able to get full child benefit. That is not the right answer, and I should hope that Labour might sympathise with that proposition and agree, but I am grateful that some Opposition Members are now coming round to my view that high marginal rates of tax and of benefit withdrawal, at all levels of income, are a disincentive.

Just as Government Front Benchers are rightly trying to tackle the very serious problem at the lower end, perhaps with some support from Labour, they should have some sympathy for people in the middle of the income scale, where the situation can be equally unpleasant and difficult for families struggling to meet their bills. Sometimes Opposition Members forget that, although people in my constituency tend to have a higher average income than many of the average incomes in their constituencies, my constituents’ housing costs, their travel costs and other factors in their cost of living mean that they need higher incomes in order to have the same living standard as those whose houses are half the price or less, because housing is a very big component.

The Labour party has rightly said that it would be wonderful if we could tax the banks more, and I again find myself in agreement with that. It is an immediately attractive proposition. We all know that banks are pretty unpopular, and we like to think of them as very rich, so it would be good if we could tax them more. Unfortunately, Labour is wrong to suggest that the Government have just offered another tax break to some banks by cutting the marginal rate of corporation tax. The reason we are getting so little tax out of them is nothing to do with a small drop in the corporation tax rate; it is that two of the biggest banks, Royal Bank of Scotland and Lloyds HBOS, are loss-making, so it does not matter what corporation tax rate we set, because they are not going to pay a penny of it. That is a disgrace, but it is where we have got to because of the disasters and problems in bank management over recent years.

Worse still, we are in the position whereby, if those banks do start to make money—it is true that the losses have been much reduced in the past year and they might start to make money—they will not be about to pay any tax, because they have such huge inherited losses from the period under Labour when they plunged into massive deficit and got into a disastrous position.

[Richard Fuller]

My right hon. Friend is making very good points about the importance of companies being profitable so that they can pay tax, but when it comes to bankers and high earners paying taxes does he think that it is more important that the tax take is as high as it can be, or that we have a headline-grabbing marginal tax rate? Which is more important: the take or the rate?

[Mr Redwood]

I am very much of the view that we want a higher tax take, and I favour taking the tax from the people with the money, the rich, and from the companies with the money, rather than from the people who do not have it. That is what I believe, and I would hope that that again was common ground. The way we do so is by charging a rate that people are prepared to stay and pay, because the danger is that if we set the rates too high, people do not stay or they do not pay; they find clever accountants and lawyers, do less, invest less, risk less or go. It is the same with banks: if we get the rate wrong for banks, instead of getting more money out of them, we get less.

In 1979 when Labour had had a strongly socialist Government, they left office with a marginal income tax rate—in which some current Opposition Members would take pride—of 83p in the pound. In those days the top 1% of income tax payers contributed just 11% of the total income tax take, because the rich had either gone or had clever arrangements to avoid paying tax. When the Conservatives brought the rate down to 40%, not only did the amount of money paid by the rich go up, and the real amount that they paid go up significantly, but the proportion of total income tax that they paid more than doubled. Surely that is a desirable outcome, and it is the same with banks: we need to find a way of taxing them.

My first recommendation to the Chancellor for his Budget is to sort out the banks. We need to create some working banks out of the RBS framework, get them out there in the market, sell them off, get them into a profitable state without all the back history of tax losses, and create new entities that can trade properly and lend money for the recovery, and then we can get some tax revenue out of them. I hope that Labour Members might agree with that proposition. We then need to tackle the problem of inflation, which has been rising too rapidly.

I am glad that those on the Front Bench have done something about council tax bills—I hope that Labour councils will join Conservative councils in keeping those bills down, because they are very difficult for many people to afford—and have started to do some work on fuel prices, although they are still extremely high. We could do more to get water and energy bills down. I recommend that we allow more competition in those industries, particularly water. In the energy industries, we need more private sector-led investment, with an emphasis on cheaper power, which is needed to tackle fuel poverty and inflation and to secure an industrial recovery. The Government need to recognise that energy is now usually the biggest cost in many industries and, instead of favouring dear power, follow competition and private investment policies that will promote cheaper energy.