Income Tax

Andrew Bridgen Excerpts

Wednesday 28th November 2012 Commons Chamber

[Rachel Reeves]

We have already debated this; when we debated the Finance Bill, Labour MPs voted against the cut in the top rate from 50p to 45p, as the hon. Gentleman is aware.

Let us look at the facts. There are 30 million taxpayers in the UK—30 million people who go out to work each day and pay their tax—yet the Chancellor’s tax cut helps only the richest 300,000, of whom 8,000 take home more than £1 million a year. According to table 2.5 on page 30 of Her Majesty’s Revenue and Customs’ income tax liabilities statistics of April this year, their total income in 2012-13 is expected to be £18.4 billion, and they will pay £8.6 billion of tax on that income at the 50p rate. From next April, when the additional rate is lowered to 45p, they will pay £7.7 billion of tax on that income. This represents £860 million of lost revenue because of a tax cut for people earning over £1 million, and an average tax giveaway of £107,000 to each and every one of them—not just in one year but in each year to come.

[Andrew Bridgen (North West Leicestershire) (Con)]

rose—

[Rachel Reeves]

I give way, and I look forward to hearing a justification for that.

[Andrew Bridgen]

Will not the hon. Lady be honest with this House and this country? This was a Trojan horse of a tax brought in at the very fag end of the Labour Government as part of a scorched-earth policy that has been shown to have cost the Exchequer almost £7 billion already—something else that the previous Government messed up and that this Government have to put right.

[Mr Speaker]

Order. In using the word “honest”, it should be taken as read that Members are always honest in the Chamber.

--- Later in debate ---

[Mr Gauke]

I suspect, Mr Speaker, that you would not want us to be drawn into a lengthy debate about party funding. All I can say is that the Conservative party and this coalition Government will make decisions on tax policy on the basis of ensuring that we have a fair and competitive tax system, and that is exactly what we are doing.

[Andrew Bridgen]

Does the Minister agree that when data show that the top 1% of earners already pay 28% of all income tax, we want to encourage them to stay, and, indeed, attract other high earners to our economy?

[Mr Gauke]

My hon. Friend makes an important point. Our income tax receipts are dependent on high earners, and that will continue to be the case. We will continue to raise substantial sums from those high earners, but we must ensure that the UK is an attractive place for them to be located. At a time when labour mobility is perhaps greater than it has ever been before, particularly for such individuals, we have to recognise that the UK is competing for talented individuals and business investment, and that a 50p rate of income tax does not help us do that. That is the essence of the reason why we reduced the rate to 45p.

It may be helpful to provide some background to the policy we are debating. As the House will be aware, the previous Chancellor, the right hon. Member for Edinburgh South West (Mr Darling), announced in his 2009 Budget that the additional rate of income tax would come into effect in April 2010. It was accepted that there would be behavioural change as a consequence of that. The shadow Chief Secretary referred to the figure of £3 billion, which she alleged was the cost of cutting the 50p rate to 45p. She got that figure by looking at the static cost—not including any behavioural change whatsoever. It is worth pointing out that when the previous Government announced the increase from 40p to 50p, they assumed a behavioural change that would mean that rather than raising £6 billion, approximately only £2.5 billion would be raised. That was the assumption made by the previous Government. Such a substantial behavioural impact is inevitably bad for the economy. Not only were we left with an economy in a disastrous state and a huge budget deficit resulting in public sector debt growing very rapidly, we were left with a tax system that was highly uncompetitive and drove away big contributors to tax revenue.

[Andrew Bridgen]

I thank the Minister for giving way again—he is very generous. Does my hon. Friend agree that having a high income does not guarantee friends, happiness or health but does guarantee choice, and that one of the major choices is where one is domiciled for tax?

[Mr Gauke]

My hon. Friend is right, and harks back to what I was saying a moment ago. We have to bear in mind that the ability of high-earning individuals to be mobile has increased over time. It is striking, for example, that the number of UK citizens moving to Switzerland in 2010 increased by 29%. That demonstrates the fact that individuals will respond to fiscal incentives. They will respond to one of the highest rates of personal tax in the developed world, which was the position that the UK was in.

--- Later in debate ---

[Mr Gauke]

The HMRC assessment set out the impacts that had already emerged. I highlighted the number of people moving to Switzerland and so on. The assessment of the behavioural impact was that about one third to half was a consequence of reduced economic activity—either people retiring or moving outside the UK. That is a considerable impact. It is not good for the UK economy, and the sooner we take steps to address it and set out plans to get rid of the 50p rate, the better.

[Andrew Bridgen]

Following on from the Exchequer Secretary’s last point, has the Treasury assessed the impact that the top rate of tax was having on dissuading foreign people from coming here?

[Mr Gauke]

That is also included in the HMRC assessment of the consequences for economic activity. My hon. Friend raises an important point, however: it is not just about people leaving the UK, but the fact that people would not be moving to the UK, thus damaging our reputation as a business centre. I am pleased to say that under this Government we now have a competitive top rate and corporate tax system. That is why, just this week, UBM and Seadrill announced they were moving to the UK—because it is a good place to do business, and our tax system plays a part in that.

We have taken measures to ensure that high earners make a fair contribution without resorting to punitive and populist measures that damage the economy. We have raised revenues from the most well-off in society in every Budget since we came to power, creating a fairer tax system—one where those with the broadest shoulders bear the greatest burden. That has included increases in capital gains tax and stamp duty. We have also taken a tough stance on avoidance and evasion. For example, we introduced the disguised remuneration legislation in the 2011 Budget, raising £750 million a year, mainly from higher and additional rate tax payers. That is seven and a half times the amount that was being raised by 50p as compared with 45p—and by the way, the Opposition voted against it.

In the 2012 Budget we set out policies on tackling tax avoidance. All our Budgets have included firm measures to close loopholes and strengthen HMRC’s ability to deal with tax avoidance.