Income Tax

Barry Gardiner Excerpts

Wednesday 28th November 2012 Commons Chamber

[Mr Gauke]

I admire the hon. Gentleman’s ambition. To be fair, he did not make this point, but, when Labour voted on this matter in the Finance Bill debates, effectively they would have got us to a 40p rate—but there we go. It was HMRC’s assessment that a reduction from 50p to 45p would be relatively inexpensive, and, given the damage the 50p rate was doing to our competitiveness, we believed it would be well worth doing. Of course, all taxes are under review, but the 45p rate remains in place.

[Barry Gardiner (Brent North) (Lab)]

I understand the Exchequer Secretary’s point. He calculates that the reduction in the top rate of tax has been, in his eyes, more than compensated for—five times over, he said—by the other taxes. How, then, will the reduction in the top rate of tax provide the incentive to those taxpayers he wants to domicile here? How will this fivefold increase in tax not send them rushing abroad? I thought that was precisely his point.

[Mr Gauke]

Very simply, different taxes have different elasticities. It is perfectly simple: people are more likely to respond to high direct rates of income tax than to stamp duty. Of course, the OBR took into account the behavioural impacts when it assessed how much revenue would be raised on, for example, stamp duty land tax. As Tony Blair sets out in his memoirs, which I was flicking through last night, direct rates of income tax are not a good way of raising income.