Finance Bill

Chris Leslie Excerpts

Tuesday 20th July 2010 Commons Chamber

[Mr Gauke]

Again, I refer the hon. Gentleman to the distributional charts, particularly those that examine these matters on the basis of the expenditure decile, which academics increasingly believe provides a better examination of those who are suffering from material deprivation. That approach demonstrates that the measures are progressive, when taken as a whole, and that the wealthier sectors of society are paying more. The distributional analyses show that the single tax measure that had a regressive effect was the dumping of the 10p rate of income tax that was announced in 2007, which hurt the bottom five deciles and benefited the top five. That does not seem fair, and I am glad that we were not part of the Government who did that.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

Will the Minister give way?

[Mr Gauke]

I will, because the hon. Gentleman has been such an assiduous attender of these debates, but I want then to make some progress.

[Chris Leslie]

I am grateful to the Minister for giving way. The distributional tables in section A of the Red Book that he mentions are quite interesting, but will he remind us why they extend for only two years? Does he plan to lay any more tables before the House, soon—I do not know whether we could get them before the end of Third Reading—so that we can talk about when the real cuts to benefits and to the poorest people will kick in?

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[Mr Gauke]

This Government have provided greater distributional analysis than any Government have done before. Clearly, in very difficult times, when it is necessary to raise substantial sums and to reduce the deficit very dramatically, we have managed to do so in a way that has spread the pain. It is not the Government’s desire from any great sense of pleasure to be taking tough measures, but that is unavoidable—we cannot ignore it or hide from it—and, yes, there will be pain, but there is no alternative.

Our long-term objective remains to increase the personal allowance to £10,000, as set out in the coalition agreement, and we have made progress in the Bill and the Budget. We are increasing the personal allowance on income tax and taking almost 1 million people—the lowest earning income tax payers—out of income tax altogether. That will also benefit 23 million people who work in Britain by up to £170 a year.

The second matter that the Bill stands for is freedom—freedom for the private sector to grow, unconstrained by uncompetitive tax rates. The Bill will take the first step towards that by cutting the corporation tax rate to 27%, and it will be cut every year until it reaches 24%—the lowest rate of any major western economy, one of the lowest rates in the G7 and the lowest rate that this country has ever known.

Hon. Members were concerned that cutting the main rate would mean that banks did not pay their fair share. Many sectors, including manufacturing, will benefit from the reduction in corporation tax, but we have made it clear that the reforms outlined in the Budget will ensure a greater contribution from the banking sector—one that far outweighs any benefit that they receive from lower corporation tax rates. The banking levy announced in the Budget is a surgical approach reflective of economic risk and intended to encourage banks to move to less risky funding profiles. Banks will pay at least £2 billion more in tax as a consequence of those proposals.

The hon. Member for Nottingham East (Chris Leslie), who has contributed a great deal to the debates on the Bill, was particularly concerned that the banks will be let off for risky behaviour. That is not the case, but I hope he will accept that a targeted approach is the best way forward. Tax competitiveness is good for employers and society as a whole, and the bank levy allows us to be competitive, while ensuring appropriate tax treatment for those activities that pose the greatest risk.

[Chris Leslie]

I will certainly look closely at the bank levy consultation, but I was looking at the Hansard report of the costs to the Exchequer of the corporation tax giveaway to the banks. It is not just £400 million in the final year, 2014-15; there is also £100 million of lost revenue in 2011-12; £200 million in 2012-13; and £300 million in 2013-14. Cumulatively, over the period of the Budget, there are £1 billion in corporate tax giveaways to the banks. Surely, if there really is no alternative, the hon. Gentleman should think again about that cash-back arrangement.

[Mr Gauke]

The hon. Gentleman was a Member of the House in the early days of the previous Government, so he knows all about rolling up numbers. I could roll up the numbers for how much will be raised from the bank levy—I do not have the details in front of me, but we would get to about £8 billion—but I am not sure that that is a terribly helpful way of approaching things.

The corporation tax reduction is just one part of the wider package to build a private sector-led recovery. Instead of increasing the small profit rate by 1%, we will cut it to 20% in next year’s Bill, which will benefit some 850,000 companies from April 2011. We are increasing the threshold at which employers start to pay national insurance contributions and have announced a package of support for small businesses. The package will also include a reduction in the writing-down value of plant and machinery allowances to 18% and a reduction in the annual investment allowance to £25,000. That will still provide for allowances that are broadly in line with depreciation, while the annual investment allowance will still cover the annual qualifying expenditure of 95% of businesses. Furthermore, we are reducing the main rate of corporation tax this year and changing allowances in 2012. We are giving companies a timing benefit that will form part of the £13 billion extra that will be invested as a result of the changes.

The third and final area that we are addressing is fairness. Clause 2 increases the rate for capital gains tax for higher rate payers to 28%. That progressive change will substantially reduce the incentive for individuals to disguise their income as a return on capital. It will ensure that the appropriate rate of taxation is paid, which is fair in itself.

Avoidance is a significant issue for the Government and it has been a significant topic throughout the Bill’s passage. It was raised with reference to corporation tax and capital gains tax, and it is the target of clauses 8 and 9, which protect about £200 million of revenue a year. I assure the House that the Government are absolutely committed to tackling avoidance and evasion robustly.

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[Matthew Hancock]

I am always delighted to talk about when the previous Labour Government lost office, so I thank my hon. Friend for that intervention. Let me go through a few more elements of the economic evidence. I have here an extremely good literature review, by Policy Exchange, the think-tank, which lists—

[Chris Leslie]

Tories!

[Matthew Hancock]

What Policy Exchange has done is review the economic literature, which is what I am looking at. Perotti, in 1999, said:

“High debt levels are associated with higher probability for fiscal policy to have”

expansionary effects. The European Commission—not something that Labour Members tend to barrack—said: “Expenditure cuts may exhibit” expansionary features,

“even in the short and medium run.”

So the economic evidence is there. The best quotation from that review is this:

“Though now quite well established in economic literature”—

referring to the argument that fiscal consolidations promote growth—

“this work is still feeding its way into the wider public consciousness.”

No doubt part of the reason for the slow move of that argument into the public consciousness is the argument put forward by Opposition Members that it is not true.

There are two other important ways in which consolidation will get to higher growth. The first, of course, concerns expectations of future tax rates. If people around the country can see that spending is out of control, they will anticipate that taxes might have to rise in future, whereas setting out a clear path for taxes makes it clear that there will not have to be sharp and immediate tax rises in future, even if that path includes some tax measures. That forward-looking element of human nature, which is so important in understanding how the economy works, matters at a personal level—for some people far more than for others, as I entirely accept—but it especially matters in the corporate world. Businesses look to the future to see how much tax they will be paying, as well as how much it will cost them to pay it because of the complexity of that tax. That is why it is so important to have both the simplification of the tax system that my hon. Friend the Exchequer Secretary—soon to be right hon. Friend, no doubt—set out, and the ladder down in headline corporation tax rate, which will set out a 1% reduction year on year so that our businesses know that Britain is open for business.

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[Mary Creagh]

I am not saying people should buy everything new, but I am certainly not telling families in my constituency that when they have a second baby they should trawl around to the local hospice shop or British Heart Foundation shop in a desperate quest to get a car seat so as to take their child home from hospital without breaking the law. The hon. Lady says that those goods are in abundant supply. One of the important things about car seats is that if we buy them second hand, we have absolutely no idea whether they have been involved in a car accident. I am certain that no Member of this House has bought a car seat for their child—for their new baby—from a charity shop. What we ask for ourselves we should also stand up for in this House, and ask for our constituents.

[Chris Leslie]

When listening to interventions from the Government Benches, it comes as a shocking revelation to hear the notion expressed that those who are in financial difficulties can go round the charity shops looking for cots and prams. I do not quite see how they can do that for sanitary products or teething equipment, for instance: perhaps the hon. Member for South Northamptonshire (Andrea Leadsom) would suggest buying recycled baby bottles and so forth, too. All such products attract the higher rate of VAT at 17.5%, which will go up to 20% as a result of the Bill. Does not all this show a degree of condescension in the Conservative party’s attitude to those in the greatest need?

[Mary Creagh]

I think it does, and I also think it is indicative of the idea that the poor are no better than they should be, and that they should aspire to nothing better than charity shop purchases.