Finance (No. 2) Bill

Debate between Alison Seabeck and David Gauke

Wednesday 9th April 2014 Commons Chamber

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

It is a great pleasure to respond to the debate. I shall make some remarks on clause 11 and on amendment 3 and address some of the arguments that we have heard in this interesting and passionate debate on a subject in which many right hon. and hon. Members have taken a long-standing interest.

Clause 11 introduces a transferable tax allowance for married couples and civil partners. We have targeted the benefit of the measure on married couples and civil partners with the lowest incomes, when one member of the couple has an income below their personal allowance of £10,500. The clause allows individuals to transfer 10% of their income tax personal allowance to their spouse or civil partner, providing that neither partner is liable for income tax above the basic rate. For the year 2015-16, when the measure comes into effect, the amount of personal allowance that can be transferred will be £1,050, significantly higher than the £750 included in the Conservative party manifesto at the last general election. It is also higher than the £1,000 allowance announced at the autumn statement as a result of the Budget announcement that the personal allowance would be increased even further in 2015-16. That means that more people will now be able to gain from the measure and by a higher amount.

Let me remind the Committee of the purpose of the policy. Marriage is an important institution in this country and I have been struck by the contributions from both sides recognising that point. The hon. Member for Newcastle upon Tyne North (Catherine McKinnell) described marriage as a force for good. We have also recently had a debate about marriage in the context of single-sex relationships and, indeed, the first gay and lesbian marriages took place just over a week ago. In that debate, a variety of views were expressed but it was striking how those on both sides of the argument recognised the importance of marriage. Indeed, the hon. Lady made a powerful and persuasive speech on that very issue in the course of those debates. Whether or not one agrees with the decision that the House reached, the strength of views expressed in those debates makes it clear that people believe in the importance of marriage as a building block of our society. The policy we are debating today is about recognising it in the tax system.

That recognition in itself is not a new idea. People born before 6 April 1935 can still claim the income tax married couple’s allowance, which the previous Government abolished for everyone else from 2000, and marriage is already recognised in the tax system in inheritance tax and capital gains tax. I shall come back to inheritance tax a little later. Marriage is also recognised in the income tax system in most other developed countries, a point that has been made repeatedly this afternoon. In fact, the United Kingdom is the only G7 country not to recognise marriage in the income tax system in some form. Now we want to recognise it more widely in the UK income tax system. That formed part of the Conservative manifesto in 2010 and I am pleased that we have now introduced legislation for that policy.

Let me remind the Committee that that is not the only reason for the policy. It also provides a way of allowing lower income married couples and civil partners to feel more of the benefit from our increases to the personal allowance. As discussed in Committee yesterday, by 2015-16 our successive increases to the personal allowance will mean that a typical basic rate taxpayer will be more than £570 better off than under the previous Government’s plans. That could mean a tax cut of more than £1,000 for a couple, but that is the case only if both partners use all of their personal allowance. If one spouse is a low or non-earner, the couple will be able to benefit only from one personal allowance increase. Let me give an example. By April 2015, one couple with each spouse earning £15,000 will see more than £800 more benefit from the personal allowance increases this Parliament than a couple with one spouse earning £30,000 and the second earning nothing. The policy allows us to change that. It gives married couples and civil partners the opportunity to benefit from the £1,050 of the second unused personal allowance, and thus benefit from the increases to the personal allowance, providing further support to some households with a low or non-earner. That will help just over 4 million married couples and civil partnerships, with each couple gaining up to £210 a year.

Amendment 3, which was tabled by the Opposition, commits the Government to publishing a report on the impacts of the policy within six months of the Finance Bill receiving Royal Assent. I do not believe that such a report is necessary, as there are comprehensive arrangements to report on the impacts of Government policy. First, we have reported the impacts of the clause in the tax information and impact note, which was published on the Government website on 27 March. Secondly, as the Committee will know, the Government believe that the impacts of policies should be considered in the round. The Government regularly produce an analysis of the cumulative impact of changes on households across the whole income distribution. That analysis is published by the Treasury at every major fiscal event, and the analysis at autumn statement ’13 and at Budget ’14 will have included that policy. Thirdly, it is worth pointing out that the amendment requires a report on the impacts of the policy within six months of Royal Assent, but the policy will not be in effect then, so we will not have any additional information or data to analyse. For that reason alone, I hope that the Opposition will not press their amendment.

Let me deal in a little more detail with what the amendment would do. It requires a calculation of the proportion of married couples and civil partners eligible under the policy. We have said that we expect just over 4 million couples to benefit, which means that about 300,000 more couples are in a position to benefit than if we had just increased the personal allowance in line with the retail prices index, which was the approach taken by the previous Government. The 4 million couples who will benefit represent just over a third of married couples. The heart of the Opposition’s case seemed to be that two thirds of married couples will not gain from the policy, so what was the point of it? It is worth explaining how the policy is targeted. First, in 3 million couples, one or both partners are higher or additional-rate taxpayers. Some of them can benefit from the changes to the personal allowance, but if we had a policy that extended the transferable tax allowance to higher and additional rate taxpayers, the Opposition would complain that it was not well targeted and that it should be directed at low-earning households. I think that my hon. Friend the Member for East Worthing and Shoreham (Tim Loughton) made the point that the logic of the Opposition’s argument was that we should extend the policy. I know that he takes that view, but it would be rather strange for the Opposition to make that argument.

The second group that does not benefit is the 1.8 million couples in which both partners are non-taxpayers. It is worth pointing out that since 2010 about 350,000 couples have become non-taxpayers because we have taken them out of income tax. It is impossible to provide an income tax cut for people who do not pay income tax. The Opposition argue that what we should do instead is have a 10p rate of income tax, but a 10p rate would not help those married couples either.

[Alison Seabeck]

I have a genuine question for the Minister. Has his Department looked at the question of whether the change would stand up to a challenge in the European courts on the grounds that it is discriminatory?

Finance Bill

Debate between Alison Seabeck and David Gauke

Monday 1st July 2013 Commons Chamber

[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.