Finance Bill

Debate between Bill Esterson and Shabana Mahmood

Tuesday 1st July 2014 Commons Chamber

[Shabana Mahmood]

I am grateful to my hon. Friend for that powerful point. As I said, I will explore the details in relation to data and the argument over the yield from the 50p rate, but he is right: we cannot continue to rely on a report produced when the rate had been in place for only one year. The Government should accept the new clause and produce a much more comprehensive analysis.

It was the Labour Government who introduced the 50p rate, which came into effect in 2010-11, a decision made after the financial crisis, as we sought to get the deficit down. When this Government came to power they did not say anything in the coalition agreement about abolishing the 50p rate, but in 2011 the Chancellor said that he would ask HMRC to look at the yields from the 50p rate, which was the warning signal that he was looking to cut it. In 2012, with HMRC’s report “The Exchequer effect of the 50 per cent additional rate of income tax” to back him up, the Chancellor cut the rate to 45p.

Why go through the process of looking at yield and getting HMRC to produce a report? Everyone knew that there were not enough data to come to an accurate view about yield because the rate had not been in place for long enough—a point about which I shall say more later. Well, the Chancellor knew that he needed cover for that deeply ideological decision so he was desperate to claim that a 50p rate raised very little money. If he could stand before the House and say that it raised hardly any money at all, never mind the uncertainty and the incompleteness of the data, he calculated that he could justify giving a tax cut to the richest in our country, knowing that on his watch ordinary people—those on middle and lower incomes—would pay the price for his economic plan, which has failed on the terms that he set for himself when he came to power in 2010.

[Bill Esterson (Sefton Central) (Lab)]

There are 15,300 people in work in my constituency who earn less than the living wage. They have lost out, as have many others, by £1,600 a year since this Government came to power. To them, accepting the new clause would indicate that the Government recognise that tax changes should be to the benefit of everybody in our society, not just a few. Does my hon. Friend think the Government appreciate that, or can she think of another reason why they will not accept it?

[Shabana Mahmood]

I fear that on previous form the Government will not listen today and accept our new clause. Nothing that has been said in previous debates gives me any confidence that they understand the message that they have sent to my hon. Friend’s constituents, mine and those of Members across the House that a tax cut for the wealthiest is prioritised, while ordinary working people at the lower end of the income scale are worse off.

--- Later in debate ---

[Shabana Mahmood]

I am grateful to my right hon. Friend for his intervention. I was about to come to the topic of tax avoidance, which I hope will answer his question.

Another weakness in the Government’s argument is the proposition that behavioural change, or tax avoidance, means it is not worth while maintaining the rate at 50p. This must be the only example of tax avoidance resulting in a huge tax cut, rather than in Government crackdowns to tackle and fight tax avoidance, which they are normally so quick to say they are doing. The Chancellor is on record as saying that he considers tax avoidance to be “morally repugnant”, but in the case of the 50p rate he rewarded a particular form of avoidance with a tax cut. I wonder if that has ever happened for people on middle and lower incomes. I think not.

The message that this Government have sent out is that if people are sufficiently well off to pay for advisers who can tell them how to avoid paying the 50p rate, and are organised enough and can lobby the Government, they are up for a tax cut, but everyone else, sorry, is simply worse off.

[Bill Esterson]

Does my hon. Friend agree that the Government also send the message that a tax cut incentivises the wealthy to work harder, but that if everybody else is given benefits that does not work?

[Shabana Mahmood]

My hon. Friend is right.

The Government always tell us how proud they are of their record on tax avoidance, but how much effort did they put into thinking of ways in which they could protect revenue from the 50p rate? The Government have introduced the general anti-abuse rule, the so-called GAAR, which may have helped. They could have thought about a targeted anti-avoidance rule, a so-called TAAR. They could also have looked to HMRC to do more. I understand that no specific resources are allocated within HMRC to protect revenue from the 50p rate. A range of measures could have been taken to protect revenue. Before rushing to abolish the rate, the Government could and should have looked at protecting that revenue first. They were quick enough to publish an analysis saying that on their evidence it was not raising much money because of behavioural change, but their instinct was not to say, “Let’s look at how we might see off that behavioural change.” They did not commission a report or publish anything on that; they jumped straight to cutting it at the earliest opportunity: more evidence that this is an ideological and political choice made because they wanted to prioritise the tax cuts for the richest, while ordinary working people are worse off.