Finance (No. 2) Bill
Debate between Catherine McKinnell and Stephen Williams(11 years, 7 months ago)
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Catherine McKinnell
I very much share the deep concern expressed by my hon. Friend about the figures published yesterday. I hope the Chancellor will start to pay attention to the effect that his economic plan is having on people throughout the country but, I agree, particularly in the north-east, where unemployment is above 10%, which is a shocking figure and spells deep trouble for the long-term entrenchment of unemployment. I will come to that shortly.
As we have heard so often from this out-of-touch Chancellor, he is not for turning, despite the fact that the consequence of his economic failure means that Government borrowing is rising, not falling, with the Tory-led coalition set to borrow £245 billon more than it forecast in autumn 2010. His promise to balance the books by 2015 will not be met and the national debt will not fall until 2017-18 at the earliest. Who knows how many times that will need to be pushed back before the Chancellor realises that his plan is not working?
Of course, that dire situation has led to the downgrading of Britain’s triple A rating by Moody’s and the more recent decision by Fitch to place the UK on rating watch negative, both of which had been prized by the Chancellor and used as cover for the austerity measures he introduced back in 2010.
At a time when living standards are being squeezed, average earnings are rising at their lowest rate since the end of 2009, Government borrowing is up, growth forecasts have been downgraded again, the public services on which people rely are being cut or threatened up and down the country, and ordinary people are being asked to pay the price for the Chancellor’s economic failure, what we needed was a Budget that was on the side of ordinary, hard-working people and families, increasing numbers of whom are clearly struggling to make ends meet.
As my hon. Friend the Member for Stockton North (Alex Cunningham) noted, unemployment is rising again. What we needed was a Budget that would back Labour’s jobs guarantee, using money raised from the tax on bank bonuses to fund a guaranteed job—a real job—for every young person who has been out of work for a year or more. I am not sure whether Government Members have had a chance to analyse the long-term unemployment figures published yesterday, but I can tell them that in March this year 167,345 adults over the age of 25 had been claiming jobseeker’s allowance for more than 24 months. Let me repeat that figure: 167,345 adults had been out of work for more than two years, compared with 84,765 in February 2012 and 52,895 in February 2011. That is a disturbing rise of 97% since February 2012 and 216% since February 2011.
Targeted and urgent action is required if the unemployment situation is not to become dangerously entrenched. We believe that it is a totally unacceptable state of affairs and that action is needed now to stop people being put on the scrap heap and left there, as they were under the previous Conservative Government—and, of course, so that we do not continue building up long-term costs for the taxpayer.
What we needed from the Budget was a reversal of the Government’s decision to stop tax relief on pension contributions for people earning over £150,000 being limited to 20% to fund Labour’s compulsory jobs guarantee for long-term unemployed adults.
Stephen Williams (Bristol West) (LD)
Perhaps the hon. Lady will remind us of the maximum amount of pension relief an individual could get right up to April 2010, or perhaps a little later. In case she does not know, someone could put just over a quarter of a million pounds a year into their pension fund and get higher-rate tax relief, including at 50%. This Government have lowered that figure to £40,000.
Catherine McKinnell
I said that the Budget needed to be about priorities and that we need to look now at how to help people struggling on the lowest incomes and ensure that those with the broadest shoulders bear the greatest burden. In government, Labour took steps to ensure that its pension reliefs were fair to those at the bottom as well as those at the top. This Government have reversed that decision to limit the relief to 20%, and we have seen the result: the impact across the board is being unfairly borne by those at the bottom. When times are as tough as they are now, it cannot be right to subsidise the pension contributions of the top 2% of earners at more than double the rate for people on average incomes who pay the basic rate of tax. However, the Conservatives and Liberal Democrats clearly believe that the time is right to prioritise those earning more than £150,000.
What we got in this year’s Budget, and in the very first clause of the Finance Bill, is the coalition’s unjustifiable and grossly unfair decision to reduce the top rate of income tax from 50p to 45p, a cut that benefits just 267,000 people earning more than £150,000, 13,000 of whom are lucky enough to earn more than £1 million. Indeed, those lucky few are receiving an average tax cut of a whopping £107,000 according to HMRC figures. Who wants to bung a millionaire indeed?
I have no doubt that at this juncture Liberal Democrat Members will want to trumpet the increase in the personal allowance—to pipe up and explain that they are not prioritising the richest in society over those who genuinely need support, but unfortunately for them the facts state otherwise. Let us remind ourselves of the analysis of figures published by the independent Institute for Fiscal Studies. It shows that taking into account all the changes to tax credits and benefits introduced since 2010, households in the UK will, on average, be a staggering £891, or £17 a week, worse off this financial year.
Catherine McKinnell
The hon. Gentleman is chuntering from a sedentary position. Does he wish to intervene?
Stephen Williams
If you are going to quote from independent reports, you should not quote—
Stephen Williams
The hon. Lady should not quote from reports selectively. Perhaps she should go on to say that the Institute for Fiscal Studies says that the top decile of income earners has been hit hardest by the combination of Government tax changes.
Catherine McKinnell
I suggest that the hon. Gentleman is quoting selectively in leaving out the fact that the greatest impact is on the bottom decile of earners. When you take the cuts and changes overall, those at the bottom bear the greatest proportional brunt.
Catherine McKinnell
We have made it perfectly clear from day one that we do not support the cut to the 50p rate now, and we call on the Government to analyse the impact of the introduction and premature removal of the 50p rate. When we come to publish our next manifesto, we will review the state of the economy and whether a 50p rate would be the right response. I hope that Members of other Opposition parties, as well as Liberal Democrats, will support our amendment, because it would help to establish whether the 50p rate would bring in the additional Exchequer revenue that was anticipated—but if the Government refuse to back it today, we will never know.
The President of the Liberal Democrats, the hon. Member for Westmorland and Lonsdale (Tim Farron), said:
“Cutting the top rate was a stupid thing to do. It probably raised up to £3bn a year. We should pledge to restore the 50p rate at the next election. It’s not enough to be fair, you have to be seen to be fair.”
Their current, or former, Treasury spokesman—I can never work out which he is—Lord Oakeshott—
Catherine McKinnell
Okay. I am pleased that that has been clarified for the record. Other hon. Members will feel the same.
Lord Oakeshott said:
“In such hard times, we should never have rolled over when the Tories wanted to cut the 50p rate unless we got a mansion tax in return. At the next election, both the mansion tax and a 50p rate should be at the forefront of Lib Dem tax policy.”
I have news for him. Liberal Democrats have had the opportunity to vote for the mansion tax, and today they have the chance to vote for their 50p rate. They do not need to wait for the next manifesto. They can make it happen today. Lord Oakeshott’s is an interesting view, however, given the Liberal Democrats’ decision to vote against their own mansion tax policy twice in as many months. I would join him, however, in urging his party colleagues not to roll over for the Tories on this issue, but to support our amendment.
We are obviously disappointed that our amendment to clause 16 was not selected for debate. The clause introduces schedule 3, which provides for the cap on 11 named income tax reliefs for amounts greater than £50,000 or 25% of an individual’s income. This policy was first announced in 2012. Like many others, the Opposition are pleased that this provision no longer includes the original proposal to limit tax relief on charitable giving. In one of the several U-turns on last year’s omnishambles, the Chancellor was forced to back down on this ill-thought-through policy, which threatened the charitable sector with a cut of up to £500 million in income per year. A powerful campaign backed by more than 1,000 charities was given the very simple title, “Give it Back, George.”
Several concerns about clause 16 remain, however, particularly about its potential impact on entrepreneurialism and small businesses. The Association of Accounting Technicians believes that the restriction of small reliefs on losses runs counter to the Government’s apparent commitment to encourage new business start-ups. It stated:
“In the current economic climate, start-up businesses are likely to operate at a loss in their early years, therefore our view is that an imposition of an arbitrary cap will be a further obstacle to entrepreneurship… Furthermore, existing legislation already prohibits relief for ‘artificial losses’”.
That means that any genuine losses sustained in starting or developing a business should be relievable, in accordance with existing legislation, in a way that enables the entrepreneur to recover tax previously suffered as quickly as possible in order to help to fund their new venture.
The Chartered Institute of Taxation shares similar concerns, describing the cap as a “blunt instrument” that could have an
“adverse effect on genuine businesses and the UK economy”
and saying that
“it gives the wrong message to entrepreneurs thinking of setting up a business. The net effect could be to reduce the tax take rather than increase it.”
It has drawn particular attention to concerns that the cap will catch owners of genuine commercial businesses who happen to incur a loss, instead of a profit—for example, where a new business is being established; where a business is weathering economic conditions and concentrating on simply surviving until the climate has improved; and where there has been an exceptional level of business expenditure, such as on the purchase of a major item of machinery or the recruitment of additional staff in anticipation of expansion.
The Institute of Chartered Accountants in England and Wales has said that the measure
“will hit small businesses by restricting loss relief for commercial losses. The measure will reduce cashflow, hamper business growth and could lead to small businesses that are experiencing difficulty in the current economic climate going bust”.
Surely even this Government would not want that outcome as a result of a Budget measure. I would therefore greatly welcome hearing from the Minister that the Chancellor might just be for turning on this issue.
Tax Fairness
Debate between Catherine McKinnell and Stephen Williams(11 years, 8 months ago)
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Catherine McKinnell
I thank my hon. Friend for his impassioned slap-down of the hon. Member for Central Devon (Mel Stride). What is clear from today’s contributions is the gap between what Labour Members—and, we hope, Liberal Democrat Members—believe to be the fair and right thing to do, and what many Conservative Members believe.
As I said, the Opposition motion is based on a simple premise: a mansion tax on properties worth more than £2 million should be part of a fair taxation system and used to fund a tax cut for millions of people on middle and low incomes. Let us be honest—I know that Government Members cannot stay in denial of this any longer—those people are finding that their household budgets are seriously squeezed. An increasing number of hard-working families up and down the country are reaching breaking point. A number of hon. Members gave heartfelt accounts of the difficulties that many of their constituents are facing: the rise in the use of food banks; the VAT increase; rising energy and fuel bills, rail fares; and other household budget difficulties.
Catherine McKinnell
I will give way to the hon. Gentleman because he has been mentioned twice.
Stephen Williams
The hon. Lady again mentioned the tax cut for millions of people on middle and low incomes, which is in the Labour motion and indeed the coalition Government’s alternative. Will she confirm that the tax cut in the Labour motion matches up with what the Labour leader said last month when endorsing our policy of a mansion tax and that the tax cut that Labour is talking about is reintroducing the 10p tax rate?
Catherine McKinnell
We have made Labour’s approach clear. We have said that we would like to fund a 10p tax rate for the lowest earners. We have not specified that that is what the Government should do with this; we have said that it should be used to fund a tax cut for those on low and middle incomes. So if the Liberal Democrats want to support us in the Lobby, they can then pressure the Government to use that money in any way they see fit.
So let me remind the House of the context of today’s debate. Many of our constituents are struggling to make ends meet, due to a combination of under-employment, stagnating wages, rising food, fuel and child care costs, and of course the Government’s hike on VAT. Our constituents will be further hit by a £6.7 billion cut in working-age benefits and tax credits over the next four years. [Interruption.] The Under-Secretary of State for Communities and Local Government, the right hon. Member for Bath (Mr Foster)—the Liberal Democrat Minister—is groaning but that is the reality for many families up and down the country. At the same time, we read of hundreds of bankers at different financial institutions, including one owned by the state, earning more than £1 million per year. We have a Chancellor seeking but failing to use his ever-diminishing influence in Europe to fight against proposals to limit bankers’ bonuses to “just a year’s salary”. We have a coalition Government who will give the 13,000 people in this country earning more than £1 million a year a tax cut of £100,000 next month. No wonder people are angry and no wonder our economy is not growing when ordinary people cannot afford to spend and invest. We—or, more accurately, the Prime Minister—heard only last week from the OBR that fiscal consolidation measures have reduced economic growth over the past couple of years.
Catherine McKinnell
These arguments have been rehearsed many times and we have made clear our absolute opposition to cutting the top rate of tax at this time while slapping charges on the poorest in society. No wonder the hon. Member for Harlow (Robert Halfon) has spoken of the Government’s need to neutralise claims that they cut taxes for the rich.
Let us look at the Opposition motion, because I think the Liberal Democrats are dancing on the head of a pin when they say that they cannot support it. It calls for the introduction of a charge on properties worth more than £2 million, a mansion tax that the Liberal Democrats have estimated would raise £2 billion. We say that it could be used to fund a 10p tax band of up to £1,000, benefiting 25 million basic rate taxpayers to the tune of £100. We believe that Liberal Democrat Members should put aside their loyalty to the Conservatives and vote in favour of a principle—the principle of tax fairness at a time when so little of it is in evidence from this Government.
How could the Liberal Democrats do otherwise? Only last month, they made the introduction of a mansion tax the centrepiece of their Eastleigh by-election campaign. Recent media appearances have certainly suggested that they will support the principle, with the Business Secretary declaring that if the Opposition motion
“is purely a statement of support for the principle of a mansion tax I’m sure my colleagues would want to support it.”
Asked again at the weekend which part of the Opposition motion he disagreed with, the Liberal Democrat president, the hon. Member for Westmorland and Lonsdale (Tim Farron), replied, “None of it.” The former leader, the right hon. Lord Ashdown, declared that it would be “weird” if the Liberal Democrats voted against it. He is not the first person to call Liberal Democrats weird, but they have the opportunity to put that right today and to get on the road to normality by supporting their own policy.
Only yesterday, the hon. Member for Bristol West—I shall mention him one last time—said of the Opposition motion,
“I could have written it myself”,
yet today he complains that we have stolen his party’s policy. If such childishness gets in the way of the Liberal Democrats supporting their own policy in the Lobby, members of the public will be baffled and extremely disappointed.
Catherine McKinnell
I would give way, but I am running out of time.
We think that the Opposition motion presents those of us who believe in a fair and equitable taxation system with the opportunity to demonstrate that fact by voting in favour of it today. Will this be yet another example of the Liberal Democrats saying one thing to the electorate and doing something very different in government? What about their partners in crime—I am sorry, Mr Deputy Speaker, I mean partners in government—the Conservatives? We know that an increasing number of Conservative Members fear that they appear out of touch and that some, most notably the hon. Members for Harlow, for Camborne and Redruth (George Eustice), for Aberconwy (Guto Bebb) and for Cleethorpes (Martin Vickers), all of whom are noticeably absent from the Chamber, have argued that a way to counter that impression would be to reintroduce a 10p tax rate.
I have argued before that the best way to neutralise the impression that the Government are out of touch and only cut taxes for the rich is to stop cutting taxes for the rich, such as the millionaires’ tax cut that will take effect from April. I also acknowledge that it was a mistake to get rid of the 10p rate in 2007, although it enabled the 22p rate to be reduced to the 20p rate that is still in place today.
We believe that the best way to fund a new 10p tax band is through the mansion tax. Many right hon. and hon. Members have expressed concerns about how the mansion tax would work in practice, about how properties would be valued and about how people who live in £2 million properties but are apparently cash poor would pay. We have also heard, however, that the Treasury is drawing up detailed proposals for an annual charge on high-value residential properties owned by companies, partnerships or investment vehicles. It demonstrates that our plans—Liberal Democrat and Labour plans—for a mansion tax, an annual charge on high-value residential properties owned by private individuals, are entirely feasible, entirely realistic and entirely possible.
Our motion calls on the Government to bring forward proposals for a mansion tax, so that they can be considered in more detail by the House. The Opposition motion is simply expressed; it responds to Liberal Democrat concerns, and we still hope they will support us by voting for it. It calls for a tax on individuals fortunate enough to live in a high-value residential property, to support a tax cut for millions of hard-working low and middle-income families up and down the country at a time when they desperately need our support to put money back into household pockets and demand back into the economy. The motion provides all Members with the opportunity to demonstrate their support for a tax system based on fairness and equity, and I commend it to the House.