Finance Bill

Brooks Newmark Excerpts

Monday 1st July 2013 Commons Chamber

[Mr Gauke]

My hon. Friend brings me to the point that I wanted to move on to: the report that the Chancellor of the Exchequer commissioned in Budget 2011 to evaluate the Exchequer impact of the additional rate of income tax. The report was published alongside Budget 2012. It concluded that the underlying yield from the increase from 40% to 50% was much lower than originally forecast, owing to large behavioural effects—it was possibly only £1 billion and could in fact be negative. The 50% rate also risked damaging growth and the UK economy if it had remained permanent.

[Mr Brooks Newmark (Braintree) (Con)]

The hon. Member for Islwyn (Chris Evans) focused on our policies. The inconvenient truth for the Labour party is that it had the opportunity for 13 years to test the 50p rate to destruction, but we quickly saw the evidence of the Laffer curve, which shows that, as we lower tax rates, we can collect more revenue. The Government should be congratulated on finding alternative ways of trying to get the rich to pay their just deserts, if the Labour party wants them to do that. In fact the Government have collected more money from the rich by lowering the rate from 50p to 45p and by looking at other ways to collect that money.

[Mr Gauke]

My hon. Friend is absolutely right. The point is not whether we should seek to get a significant contribution from the wealthiest; it is how we go about doing it. There is a real problem with a very high rate of income tax directed at the most mobile people, who have many more options in how they respond. Not surprisingly, the evidence that the HMRC evaluation discovered is that there is a significant behavioural response.

The hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) said, “This is all tax avoidance and one should crack down on tax avoidance.” I agree: one does need to address tax avoidance, and we have more ambitious targets for HMRC than it has ever had before. We have made a number of changes to the law to address avoidance. I could go on at some length about the steps that we have taken, but the behavioural effect is not only about tax avoidance, it is also about behaviour that is entirely consistent with Parliament’s intentions. One might find people making bigger pension contributions, for which the House has determined tax relief should be available. One might find people retiring earlier or locating in other jurisdictions. All those things have an impact.

Therefore, there is a significant behavioural effect in this area, which brings me to the point that my hon. Friend the Member for Braintree (Mr Newmark) made: the 50p rate is not an effective way of raising revenue, which is why, in my opinion, the Labour party will not give a commitment to bringing the 50p rate back. It knows it is bad economics and does not raise revenue. It knows it sends a bad message about the UK as a location in which to do business. That is why Labour had a 40p rate for 4,722 of the 4,758 days that it was in office. There was a 50p top rate for just 36 days at the very fag end of the last Government, when they knew with a fair degree of confidence that they were going to lose office.

[Mr Newmark]

I sympathise somewhat with the point of the hon. Member for Islwyn (Chris Evans) about his and his party’s desire to target bankers, but if we want to create an entrepreneurial society, we must realise that not all the big wealth creators are bankers; they are also people in manufacturing, hi-tech industry and so forth. If we want them to settle in the UK, we must make our tax environment attractive and competitive internationally.

[Mr Gauke]

I entirely agree with my hon. Friend. The challenge for any sensible Government has got to be how to ensure both that the wealthiest pay a fair share and that we encourage a spirit and culture of entrepreneurialism. The 50p rate simply failed to deliver that.

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[Chris Leslie]

My hon. Friend has touched on the other argument in favour of the proposal. This is not just a matter of fairness; there is also an economic imperative involved.

I apologise for boring the House about the need for growth and jobs in our economy. That seems to be anathema to some Members on the Government Benches. Many lower and middle income families have suffered increased taxes and cuts to their tax credits, and that is the price that they are paying for the failure of the Government’s economic ideology. The Government promised that all this pain would be worth while. The Chancellor promised that he had done all he needed to do, and that he would not need to come back and ask for more, but what did we see last week? He came back for yet more. That is the price to be paid for the Government’s failed economic plan. The economy is flatlining, and the Government have delivered barely 1% of economic growth since the fabled 2010 spending review in which they promised 6% by now. And let us not forget the rising deficit in the last financial year, up from £118.5 billion in 2011-12 to £118.7 billion in 2012-13. That is a rise in the deficit—

[Mr Newmark]

rose—

[Chris Leslie]

And the hon. Gentleman is rising as well. Perhaps he would like to confirm those figures.

[Mr Newmark]

Following on from what my right hon. Friend the Member for Wokingham (Mr Redwood) said, I would like to ask the hon. Gentleman whether he shares my concern that many elderly people are asset rich but cash poor. How would his proposal deal with that particular challenge?

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[Chris Leslie]

That is why we must ensure that we move the issue forward and get some proper workings from the Treasury—[Interruption.] The hon. Member for Enfield, Southgate seems to think that he has all the answers, so why do the Government not publish them? What is going on with Government Members? They should share these things in the public domain. Do we really have to make a freedom of information request to Ministers in order to get those data?

[Mr Newmark]

rose—

[Chris Leslie]

I will give way to the hon. Gentleman in a moment. The Liberal Democrat 2010 manifesto—I know that he has his own signed copy—said that they would introduce a mansion tax at the rate of 1% on properties worth more than £2 million, paid on the value of property above that level. We looked closely at the workings they did on the issue. They suggested that £2 billion of revenue could be raised. If that was extrapolated through to the 10p band, the band would be roughly £1,000, but it might not be. We should look at the details.

[Mr Newmark]

I know that maths is not the hon. Gentleman’s strongest suit, because in Committee we heard that he could raise £2 billion from £1.85 billion in bonus taxes. The Minister has been very clear that £2 billion divided by 55,000 is £36,000 on average. Does the hon. Gentleman at least accept the principle that this is going to cost taxpayers £36,000 per household on average, not in relation to bands?

[Chris Leslie]

The Government have apparently undertaken their own valuation exercise, perhaps stealthily, so they could publish the information on the numbers of properties across the country. Perhaps the Deputy Prime Minister, with his 16 special advisers, fanned out across the country to look at the issue. I do not know how they found out the 55,000 figure. If the hon. Gentleman has that information and publishes it, I will be interested to see it, but I am afraid I cannot be certain that it is the correct figure. Labour Members have to be very careful and cautious in taxation matters. We want to make sure that all the figures are very clear and well worked through instead of taking the Exchequer Secretary’s back-of-a-fag-packet approach. I take it as a commitment from him that all this information will be published in the public domain, and then perhaps we can work on devising this measure in a less partisan way.

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[Mr Gauke]

That is not quite what I said. I said that it would not be sensible for the UK to take unilateral action to change the tax law that applies internationally and that the best approach to dealing with international tax issues is to work multilaterally with other economies to update the tax system. I shall turn to some of the specific elements of new clause 12 in a moment, but I am setting out the framework. It is sensible for us to work with other countries to ensure that the international tax system does what it needs to, rather than going off on our own and making changes that could damage the UK’s competitiveness. I am sure that no one in this House would want us to do that.

[Mr Newmark]

I congratulate the Government on their work, particularly in the G8 meeting, in trying to co-ordinate efforts to prevent abuse by multinational companies. Such companies are extremely portable and, does he not agree that the big problem is that if we do not act on a multi-jurisdictional basis, they can move anywhere? If we take unilateral action and they move, that risks jobs in this country—that is why we must never act unilaterally in dealing with such situations.

[Mr Gauke]

My hon. Friend makes a very important point. Elements of a business are highly portable. In 2007-08, for example, the UK’s position on headquartered companies was very uncompetitive because of our controlled foreign companies regime and a number of businesses moved their headquarters out of the UK and went elsewhere, which had an impact not just through lost corporation tax revenue but more widely, as it meant that individuals paying income tax and decision making were moved out of the UK. That was not in the UK’s long-term interest, so we reversed the situation. Now we have a much more competitive position, which means that companies are moving back to the UK and that new businesses are moving here, too.

My hon. Friend the Member for Braintree (Mr Newmark) is absolutely right that elements of a multinationals’ business are very mobile and that we need a tax system that reflects that. An important part of making our tax system fit for purpose is that it should reflect that, which is why we should work multilaterally.

[Mr Newmark]

Not that I like to pick on individual countries, but does my hon. Friend agree that the evidence from France, with a relatively newly elected left-wing Government, suggests that businesses and wealthy individuals are moving across the channel in their droves to set up business in the UK?

[Mr Gauke]

I would say—I think that this is the most tactful way of putting it—that the Government are determined to send the signal that the UK is open for business. That is how we can win the global race. Other Governments might wish to take other approaches, and that is for them to decide. For the UK, we believe in open markets and a competitive tax system—but a tax system, none the less, in which businesses pay the tax they should and in which economic activity is properly taxed.

We have made a commitment to act and have backed that up with extra resources for the OECD. The UK has been actively participating in the development of the OECD’s comprehensive action plan for tackling such issues, which will be presented to the G20 later this month. It might interest hon. Members to know that at the recent Lough Erne summit the G8 called on the OECD to draw up a common template for multinationals to report to tax authorities where they make their profits and pay taxes around the world. That will give tax authorities a new tool against tax avoidance to help them efficiently identify and assess risks, but requiring publication of that information would put the UK at a competitive disadvantage to other countries that did not require publication. It would also impose costly administrative burdens on business and Government.

The new clause proposed by the Opposition would require all multinational companies to report all their UK corporation tax payments—not just tax related to the GAAR, but the whole of their UK corporation tax. That goes way beyond the clear policy that we have set for the GAAR and would risk giving an impression that the GAAR has an impact on all corporation receipts, creating the sense of uncertainty about the impact of the GAAR that we have gone to some lengths to avoid.

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[John Mann]

Somebody is making money, because my own football club would appear to have been part-based in the Cayman Islands, in a structure that then took it into the British Virgin Islands and into Monaco and who knows where else. There are intricate webs criss-crossing these so-called “tax-efficient countries”—these tax havens for tax dodgers, corporate and individual. This Bill follows the biggest financial crisis since the 1930s, with working people losing real income year by year, unemployment rising, a worldwide recession, and people less well-off than they were five years ago. The Bill, however, contains no constructive, detailed, productive proposals on how we are going to deal with these territories. We spend taxpayers’ money providing the armed services to guarantee them and then we turn around and claim that we are the world leaders. I say poppycock to us being the world leaders. This is an excuse of a policy. This is an excuse of an attempt in a Finance Bill. This is an embarrassment to the coalition partners, who would love, if they could come up with some ideas, a robustness to put behind it.

The big dividing point in British politics at the moment is this unwillingness to deal with the tax dodgers. These little clauses—new clause 4 and new clause 12—in their own small way encompass the problem in front of us and in front of the British people.

[Mr Newmark]

Will the hon. Gentleman give way?

[John Mann]

I will certainly give way to the hon. Gentleman, who has recently entered the Chamber.

[Mr Newmark]

I felt that the hon. Gentleman might need to refuel a little, as he was running out of breath. I am curious—given that many of the unions and pension funds invest in funds that invest in offshore places such as the Cayman Islands, making a lot of money for ex-union members and pensioners, will he suggest that the Labour party recommends that those unions and pension funds no longer use fund managers who invest in those offshore entities?