Finance (No. 2) Bill

Bob Stewart Excerpts

Report stage
Tuesday 20th June 2023 Commons Chamber

I turn to the example of a young father of, say, three children who is doing well at work and who gets a promotion taking his income above £50,000 for the first time. We might think this would be unadulterated good news but, actually, the tax system will send him a message that this is perhaps not such a wise thing, because he will immediately go into the upper tax threshold and his marginal rate of tax will be 40%. He will get the extra 2 percentage point national insurance surcharge as well. If he has a student loan, 9% might be taken off the outstanding balance. And of course child benefit will start to taper. For a father of three children, that could mean a marginal withdrawal rate of a further 29%. Our potential go-getter would be left with only 20% of the pay rise he had been awarded, and this applies to the kind of people we want to encourage to take on pay rises and extra work because it is good for the economy.

[Bob Stewart (Beckenham) (Con)]

I am ignorant about tax affairs, but trying to sort it out might make it even more complicated.

[Harriett Baldwin]

My right hon. Friend highlights that this is not an easy task. The point I am trying to make with my amendments, which I hope he will support, is that, by abolishing the Office of Tax Simplification, we lose not only a source of valuable advice on how to simplify the tax system but the message that we want to do so, which I know the Chancellor wants to convey.

Higher up the income scale, the £100,000 income bracket triggers the withdrawal of the very welcome steps we have taken on tax-free childcare and the personal allowance. This means that a family with two children in full-time childcare, if they happen to live in London, would be better off earning £99,999 than earning more than £150,000 because they would have a more than 100% withdrawal of extra earnings in that income bracket, which is very distorting. It provides disincentives to work, and we see that obstacle to economic growth reflected in the workforce numbers produced by the Office for National Statistics.

The Chancellor agrees that

“the tax system is overcomplicated and the trend of ever more complication must be reversed.”

It is surprising that, on coming to office, he chose not to reverse the abolition of the Office of Tax Simplification. It was established in 2010, and it was given a ringing endorsement by the Treasury in its 2021 statutory review. Disbanding the independent champion for simpler tax sits very uncomfortably with the Government’s insistence that tax simplification is a priority.

However, the most important factor in securing tax simplification in practice would be for the Chancellor to take on the personal responsibility for simplification that he pledged to take, which brings me to the Treasury Committee’s new clause 2. We have heard that, while the Treasury and HMRC focus on new taxes, the Office of Tax Simplification did important practical work seeking to simplify the existing tax system. We also heard in our evidence session that the Office of Tax Simplification did good work listening to taxpayers to understand how the complexity of the tax system works against them. The reports of the Office of Tax Simplification were published very transparently, unlike the private advice given to Ministers, and they facilitated parliamentary scrutiny of tax simplification efforts.

The Chancellor told us that he intends to be a Chancellor who makes “progress on tax simplification.” I welcome the simplification of the lifetime allowance, which the Opposition opposed earlier, but the Committee wants the ability to hold him accountable for that. Under new clause 2, the Treasury would report to the Committee annually on the Chancellor’s promise to simplify taxes.