Financial Statement

Angela Eagle Excerpts

Wednesday 21st March 2012 Commons Chamber

[Mr Osborne]

To be Europe’s technology centre we need to have the best technology infrastructure. Two years ago Britain had some of the slowest broadband speeds in Europe. Today our plans will deliver some of the fastest, with 90% of the population having access to superfast broadband, and improved mobile phone coverage for rural areas and along key roads across the UK. But we should not be complacent by saying it is enough to be the best in Europe when countries such as Korea and Singapore do even better, so today we are funding ultra-fast broadband and wi-fi in 10 of the UK’s largest cities—Belfast, Birmingham, Bradford, Bristol, Cardiff, Edinburgh, Leeds, Manchester, Newcastle and London. My hon. Friend the Member for Brighton, Kemptown (Simon Kirby) asked me to help small cities too, no doubt with his own city in mind. I agree; £50 million will be available for smaller cities too. The fastest digital speeds in the world available in our cities, with the most connected countryside in Europe and the most creative digital content anywhere—that is what a modern industrial policy looks like.

My right hon. Friend the Business Secretary and I have asked Michael Heseltine to review by the autumn how Government spending Departments and other public bodies can work better with the private sector on economic development. From Liverpool to Canary Wharf, Michael knows how it is done. Of course, these projects succeeded because they were not killed off by the planning system. No one can earn their future if they cannot get planning permission. Global businesses have diverted specific investments that would have created hundreds of jobs in some of the most deprived communities in Britain to countries such as Germany and the Netherlands, because they cannot get planning permission here. That is unacceptable.

Next week my right hon. Friend the Communities Secretary and the Minister of State, Department for Communities and Local Government, my right hon. Friend the Member for Tunbridge Wells (Greg Clark), the Minister with responsibility for planning, will publish the results of our overhaul of planning regulation. We are replacing 1,000 pages of guidance with just 50 pages. We are introducing a presumption in favour of sustainable development, while protecting our most precious environments. The new policy comes into effect when the national planning policy framework is published next Tuesday. This is the biggest reduction in business red tape ever undertaken.

As a country, we also want to make the most of the Olympic and Paralympic games. Some of the biggest events will be on a Sunday. When millions of visitors come to Britain to see them, we do not want to hang up a “Closed for Business” sign, so we will introduce legislation limited to relaxing the Sunday trading laws for eight Sundays only, starting on 22 July.

Earning our way in the world means giving young people the skills to compete. In time, the school reforms being introduced by my right hon. Friend the Education Secretary will do more to improve the long-term economic performance of our country than any Budget measure ever will. But we have got to help the young adults who have already been let down by the schools system. We are offering a record number of apprenticeships and our youth contract comes into force next month. I can tell the House that we are also exploring the idea of enterprise loans. Young people get a loan to go to university or college; now we want to help them get a loan to start their own business.

We are also looking to see whether we can make public sector pay more responsive to local pay rates. As we have just heard, that is something the last Government introduced in the Courts Service. London weighting already exists across the public sector. Indeed, the Opposition have proposed the interesting idea of regional benefit rates. So we should see what we can do to make our public services more responsive and help our private sector to grow and create jobs in all parts of the country. We have asked the independent pay review bodies to look at this issue. Today we are publishing the evidence the Treasury is submitting to them, and some Departments will have the option of moving to more local pay for those civil servants whose pay freezes end this year.

New infrastructure and investment and ambitious reforms of planning, education and welfare to help businesses create jobs will all help Britain to earn its way in the world, but we also need a tax system that supports work. Two hundred years ago Adam Smith set out the four principles of good taxation, and they remain good principles today: taxes should be simple, predictable, support work and be fair. The rich should pay the most and the poor the least. The tax system this Government inherited from our predecessor has drifted far from these principles. We have already addressed some of the problem. We have established an Office of Tax Simplification to drive out complexity. Companies are moving to Britain, not away. We stopped the jobs tax. We have taken 1 million low-paid people out of tax altogether. But now we need further reform. We need to give Britain a modern tax system fit for the modern world.

The first goal is a far simpler tax system that businesses can easily navigate and where ordinary taxpayers understand what they are being asked to pay, so we will radically change the administration of tax for our smallest firms. Last year I asked the Office of Tax Simplification for recommendations. It has proposed that we tax small firms on the basis of the cash that passes through their businesses, rather than asking them to spend a huge amount of time doing calculations designed for big businesses. I agree, so we will consult on this new cash basis for calculating tax for firms with a turnover of up to £77,000, double what the Office of Tax Simplification proposed. This will make filling in tax returns dramatically simpler for up to 3 million firms.

We are also pressing forward with our ambition to integrate the operation of income tax and national insurance, which I announced at last year’s Budget, so that we do not ask businesses to run two different payroll tax administrations. A detailed consultation on how we will do this will be published next month.

We will also address some of the loopholes and anomalies in our VAT system. For example, at present soft drinks and sports drinks are charged VAT, but sports nutrition drinks are not. Hot takeaway food on the high streets has been charged VAT for more than 20 years, but some new hot takeaway products in supermarkets are not. Some companies are using the VAT rules that exempt the rental of land to avoid the tax that their competitors are paying. We are publishing our plans today to remove loopholes and anomalies, but we will keep the broad exemptions on food, children’s clothes, printed books and newspapers.

We should also simplify the age-related allowances, which the Office of Tax Simplification recently highlighted as a particularly complicated feature of the tax system. The National Audit Office points out that many pensioners do not understand them. These allowances require around 150,000 pensioners to fill in self-assessment forms, and as we have real increases in the personal allowances, their value is already being eroded.

So over time we will simplify the tax system for pensioners by doing away with the complexity of the additional age-related allowances for anyone reaching the age of 65 on or after 6 April 2013, and I will freeze the cash value of the allowance for existing pensioners until it aligns with the personal allowance. This will protect the existing level of allowance pensioners have while introducing a new single personal allowance for all. It is a major simplification, it saves money, and no pensioner will lose in cash terms.

Under this Government, pensioners next month will receive the largest ever cash increase in the basic state pension of £5.30 a week. Now we want to simplify the basic state pension and its interaction with the second state pension. I pay tribute to the work my hon. Friend the Pensions Minister has done on this. Such is the complexity of this means-tested system that only someone like our Pensions Minister can work out exactly what someone is entitled to and what they need to save, so I can confirm that we will introduce a new single-tier pension for future pensioners, set above the means test. This is currently estimated at around £140. It will be based on contributions and will cost no more than the current system in any year. We will bring forward further details later this spring. It will be a single, generous, basic state pension for those who have worked hard and saved hard all their lives, and a further major simplification of our tax and benefit system.

In the information age people should know what taxes they are paying and what their money is being spent on. My hon. Friend the Member for Ipswich (Ben Gummer) recently proposed to this House that we send taxpayers an annual statement showing them just that. I think this is an excellent idea and intend to put it into practice. HMRC contacts roughly half of taxpayers each year. From 2014, these 20 million taxpayers will at the same time receive a new personal tax statement. This will tell people how much income tax and national insurance they have paid, their average tax rates and how this contributes to public spending—in other words, how much, proportionately, of their tax bill goes to fund the healthcare, education, or welfare bills and how much is spent on servicing interest payments on the national debt. People will know what they are paying and what they are paying it for. A tax system that is simple and transparent: that is our first goal.

Our second goal is a tax system that is more competitive for business than any other major economy in the world. Our predecessors wanted to increase taxes on small businesses. Instead, we have cut the tax rate on small companies to 20%. Our predecessors wanted to increase national insurance on jobs, and we have cut it. Our new controlled foreign company rules will be legislated for in the coming Finance Bill and will stop global firms leaving Britain, as they were, and encourage them to start coming here.

This Government also support research and development here in Britain instead of abroad. We have already increased the generosity of the R and D tax credit for smaller firms. I confirm that from next year we will also introduce an above-the-line R and D tax credit that business organisations such as the Engineering Employers Federation, the Institute of Directors and the CBI have campaigned hard for. We will help new start-up businesses to recruit and retain talent by more than doubling the enterprise management incentive scheme grant limit to £250,000 and easing the rules so that academics in our universities can turn great ideas into great companies. The Treasury will review for this autumn what more we can do to encourage employee ownership.

All these tax reductions will help to win business for Britain, but the headline rate of corporation tax remains the most visible sign of how competitive our country is. We have already cut the rate from 28% to 26%. This April it is due to fall again to 25%. I can tell the House today that we will have a further cut of 1%, to be implemented right away.

From next month, Britain will have a corporation tax rate of just 24%, and we will continue with the two further cuts planned next year and the year after, so that by 2014 Britain will have a 22% rate of corporation tax. That is the biggest sustained reduction in business tax rates for a generation—a headline rate that is not just lower than our competitors, but dramatically lower: 18% lower than the US, 16% lower than Japan, 12% below France and 8% below Germany. That is an advertisement for investment and jobs in Britain, and it is a rate that puts our country within sight of a 20% rate of business tax that would align basic rate income tax, the small companies rate and the corporation tax rate.

I am also increasing the rate of the bank levy to 0.105% from next January, so that the additional corporation tax cuts do not benefit the banks, and so that our levy will in addition raise the £2.5 billion a year that we said it would.

That brings me to the main duties. Let me start with alcohol duty. The Government will shortly be publishing their alcohol strategy to address the growing problem of alcohol abuse, and the many billions of pounds it costs our NHS and criminal justice system, but today I have no further changes to make to the duty rates set out by my predecessor.

Turning to tobacco duty, smoking remains the biggest cause of preventable illness and premature death in the UK. There is clear evidence that increasing the cost of tobacco encourages smokers to quit and discourages young people from taking it up. So duty on all tobacco products will rise by 5% above inflation. That is 37p on a packet of cigarettes, and this will take effect at 6pm tonight.

One area where I am today making substantial changes is gambling duties. The VAT treatment of gaming machines is being repeatedly challenged by operators in the courts, so I will introduce a new machine games duty, with a standard rate of 20%, and a lower rate for low stakes and prize machines of 5%, of net takings. The current duty regime for remote gambling introduced by the last Government was levied on a “place of supply” basis. This allowed overseas operators largely to avoid it, and much of the industry has, as a result, moved offshore. Ninety per cent of online gambling consumed by our citizens is now supplied from outside the UK, and the remaining UK operations are under pressure to leave. This is clearly not fair—and not a sensible way to support jobs in Britain. So we intend to introduce a tax regime based on the place of consumption—where the customer is based, not the company—and, from this April, we will also introduce double taxation relief for remote gambling. These changes will create a more level playing field, and protect jobs here.

I turn now to fuel and vehicle excise duties. High oil prices have put real pressure on household budgets and on businesses. That is why we took action in last year’s Budget to cut fuel duty so that it is 6p lower than our predecessors planned. We have also scrapped the last Government’s fuel duty escalator of annual above-inflation rises, regardless of the oil price, and we are today confirming the fair fuel stabiliser. Above-inflation rises will return only if the oil price falls below £45 on a sustained basis—currently equivalent to about $75. These measures mean that this Government have eased the burden on motorists by £4.5 billion at a time when money is very short. I do not propose to make any further changes to the fuel duty plans already set out.

I am increasing vehicle excise duty by inflation only. To encourage fuel efficient fleets, we will extend the 100% first-year capital allowance for low-emission business cars, reduce the CO₂ threshold for the main capital allowance rates and increase the percentage list price of company cars subject to tax. I can also announce that I am again freezing vehicle excise duty for road hauliers.

I now turn to personal and property taxation. My goal is a tax system where the lowest paid are lifted out of tax altogether, while the tax revenues that we get from the richest increase. Most wealthy people pay their taxes, and without them we could not begin to afford the public services upon which this country depends, but under the last Government it was the boast of some high earners that, with the help of their accountants, they were paying less in tax than their cleaners.

I regard tax evasion and, indeed, aggressive tax avoidance as morally repugnant. We have increased both the resources and the number of staff working on evasion and avoidance at HMRC. Taken together, the anti-avoidance measures in this year’s Finance Bill will increase tax revenue over the next five years by around £1 billion, and protect a further £10 billion that could have been lost. This week we have signed a further agreement with the Swiss to stop UK residents evading tax.

We have done all these things, but today we do even more. On coming to office, I asked Graham Aaronson QC to establish whether a general anti-avoidance rule could work in the UK tax system. He recommended that such a rule would improve our ability to tackle tax avoidance without damaging the competitiveness of the UK as a place to do business. We agree, so we will introduce one. We will consult on the details of the new rule and legislate for it in next year’s Finance Bill.

A major source of abuse, and one that rouses the anger of many of our citizens, is the way in which some people avoid the stamp duty that the rest of the population pays, including by using companies to buy expensive residential property. I have given plenty of public warnings that this abuse should stop, and now we are taking action. I am increasing the stamp duty land tax charge applied to residential properties over £2 million that are bought into a corporate envelope. The charge will be 15%, and it will take effect today.

We will also consult on the introduction of a large annual charge on those £2 million residential properties that are already contained in corporate envelopes, and, to ensure that wealthy non-residents are also caught by these changes, we will be introducing capital gains tax on residential property held in overseas envelopes. We are also announcing legislation today to close down the subsales relief rules as a route of avoidance.

Let me make this absolutely clear to people. If you buy a property in Britain that is used for residential purposes, we will expect stamp duty to be paid. This is the clear intention of Parliament, and I will not hesitate to move swiftly, without notice and retrospectively if inappropriate ways around these new rules are found. People have been warned. It is fair when money is tight, and so many families could do with help, that those buying the most expensive homes contribute more. From midnight tonight, we will introduce a new stamp duty land tax rate of 7% on properties worth more than £2 million.

I also intend to deal with the unlimited use of income tax reliefs. Let us be clear: most rich people pay a lot of tax. It is also right that we have tax reliefs that promote investment, support charitable giving and reflect genuine business loss. But it cannot be right that some people make unlimited use of these reliefs year after year. Everyone in this country, and particularly those with the highest incomes, should contribute a fair share to the Exchequer. Some reliefs, such as the enterprise investment scheme and pensions relief, are already capped, and I do not intend to make any significant changes to pensions relief in this Budget. But, to make sure that those on the highest income contribute a fair share, I am introducing a new cap on those reliefs that are currently uncapped.

From next year, anyone seeking to claim more than £50,000 of these reliefs in any one year will have a cap set at 25% of their income. We have capped benefits. Now it is right to cap tax reliefs too.

That brings me to the rates of income tax and the additional rate of 50p. This tax rate is the highest in the G20; it is higher not just than the tax rate of America, but also of major European countries like France, Italy and Germany. It is widely acknowledged by business organisations and international observers as harming the British economy. Like the previous Chancellor who introduced it, I have always said that it was temporary. But I also said, three years ago, that I would not be prepared to reduce it while we were asking the whole public sector to accept a pay freeze, and I will stick to those pledges.

A 50p tax rate, with all the damage it does to Britain’s competitiveness, can only be justified if it raises significant sums of money. In last year’s Budget, I asked Her Majesty’s Revenue and Customs to look at the evidence, and especially to look at the self-assessment tax receipts that have come in since this January. I am publishing its report today. What it reveals is that the 50p tax rate has caused massive distortions.

HMRC finds that an astonishing £16 billion of income was deliberately shifted into the previous tax year, at a cost to the taxpayer of £1 billion—something that the previous Government’s figures made no allowance for whatsoever. Self-assessment receipts this year are below forecast by some £3.6 billion, while other tax receipts have held up. The increase from 40p to 50p raised just a third of the £3 billion that we were told it would raise.

Of course, the previous Government initially proposed a rate of 45p and then increased that to 50p. Let me tell the House what HMRC says about the difference between 50p and 45p. Its figures—

[Ms Angela Eagle (Wallasey) (Lab)]

What about the OBR?

[Mr Osborne]

I am coming on to the OBR, don’t you worry.

The HMRC figures tell the story. The direct cost is only £100 million a year. Indeed, HMRC calculates that the loss of other tax revenues may even cancel that out. In other words, it raises at most a fraction of what we were told, and may raise nothing at all. So from April next year, the top rate of tax will be 45p. No Chancellor can justify a tax rate—[Interruption.]