Chris Leslie
Main Page: Chris Leslie (The Independent Group for Change - Nottingham East)Department Debates - View all Chris Leslie's debates with the HM Treasury
(10 years, 1 month ago)
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Chris Leslie (Nottingham East) (Lab/Co-op)
I beg to move,
That this House believes it is a mistake to reduce the top rate of income tax at a time when working people, who are on average £1,600 a year worse off since 2010, are not feeling the recovery and while the deficit also remains high; notes that figures from the Institute for Fiscal Studies show that, by next year, households will be on average £974 a year worse off because of tax and benefit changes since 2010; believes that a fair plan to balance the books would reverse the cut in the top rate of income tax, which is worth £3 billion a year for the top one per cent of earners, for the next Parliament, and introduce a lower 10p starting rate of tax; and calls on the Government to rule out a further reduction in the top rate of income tax on earnings over £150,000 a year.
Four and a half years into this Government, the squeeze on lower and middle earners is as bad as ever. Wages are still failing to keep pace with prices, and the typical working person is £1,600 worse off. This is the longest suppression of living standards since the 1870s, and my Labour colleagues know that this gap is getting wider and wider. This Government are presiding over one of the worst records on income growth of any European country—only Portugal, Cyprus and Greece have seen wages erode more severely than we have. For most people, there is no economic recovery at all.
When the Chancellor was asked, however, in a recent ITV news interview why there was no feel-good factor, his answer was, “Well, I simply don’t accept that.” Of course, in the world the Chancellor and the Prime Minister inhabit life is sweet. Someone lucky enough to be in the richest 1% of society has seen their share of the nation’s income grow considerably. Over the past year, the share of the national post-tax income of the top 1% of taxpayers—just 300,000 people—has risen from 8.2% to 9.8%, whereas the bottom 90%, a total of 27 million taxpayers, have seen their share fall from 71.3% to 70.4%. Those are Her Majesty’s Revenue and Customs’ own statistics. That most privileged 1% elite have not just seen their fortunes grow by chance while others have fallen behind; they have been actively helped along by a cut in income tax for those earning more than £150,000. The shrinking share of national wealth held by the vast majority when compared with the growing share held by the richest does not represent a recovery for the many rather than the few.
Sir Bob Russell (Colchester) (LD)
Will the hon. Gentleman concede that the coalition Government, thanks to the input of the Liberal Democrats, have raised millions of people out of paying any income tax? Will he give an assurance that should there be a Labour Government they will match the pledge to raise to £12,500 the level before which income tax is levied?
Chris Leslie
There are a number of facets to the hon. Gentleman’s question. Let us just remember that it was the Liberal Democrats who voted to cut that top rate of income tax from 50p to 45p.
Chris Leslie
The hon. Gentleman nods and says, “Quite right” from a sedentary position, but of course he is not seeking re-election and so he is brave enough to say that. I wonder whether his Liberal Democrat colleagues would also say that about the cut from 50p to 45p. I will give way if Liberal Members want to defend the way they voted on that.
The hon. Member for Colchester (Sir Bob Russell) raised the issue of the personal allowance, and I expect the Minister will do the same. But the public out there are not going to be fooled by Government Members saying, “Just look over here at this particular change”, because they know very well by now that Tories and Liberals give a little with one hand but take away far more with the other. On the tax burden, there is a sense of people being worse off year after year, and they know the truth.
Charlie Elphicke (Dover) (Con)
If Labour went down the route of a 10p tax band in place of the £12,500 personal allowance that Government Members want to see, surely that would leave people on £11,000 worse off.
Chris Leslie
No, we believe that instead of having the married couples break, which does not actually help many married couples, it would be far fairer to introduce that 10p starting rate of tax, because it would help many, many more people. The hon. Gentleman has hit upon yet another example—perhaps this is one for an Opposition day debate on a different occasion—where the Government constantly choose the route of unfairness, limiting the help to those who need support and assistance. Labour believes that everybody should have a share in growth and prosperity, which is precisely the opposite of the trickle-down economics that we have had so far from the parties in the Government.
Pete Wishart (Perth and North Perthshire) (SNP)
Getting back to the 50p tax rate, does the hon. Gentleman have any explanation for the fact that when we voted on it in March 2012 only two Labour Members voted in that Division and the rest abstained? What is the explanation for that?
Chris Leslie
We have consistently opposed this outrageous change to dish out a tax cut for the very privileged 1% in society. The hon. Gentleman should join us, and I hope he will, in voting for today’s motion, as it is about a key divide in British politics and in Scottish politics. It is very important that we expose the fact that by cutting the top rate of tax on earnings above £150,000 from 50p to 45p Ministers have wilfully accelerated the divide between the majority and the richest 1%.
Andrew Bridgen (North West Leicestershire) (Con)
Will the shadow Minister concede that the considerable increase in personal allowances under this Government has been of no benefit to those earning more than £150,000 because between £100,000-worth and £110,000-worth of earnings all the personal allowances are removed?
Chris Leslie
The hon. Gentleman has done more for the very wealthy earning over £150,000. At this time of pressure on our public spending and on his constituents and mine, what did he decide to do? A typical millionaire, he gave away a benefit worth £100,000. He voted for that cut in the 50p rate of tax, which the vast majority of people feel is an obscene example of the unfairness of this Government. It is particularly a stain on the reputation of the Conservatives, but I want to hear how the Liberal Democrats justify their votes for the cut in that 50p rate.
Sir Malcolm Bruce (Gordon) (LD)
Apart from the fact that the top rate of tax was 40% for all but 39 days of the Labour Government’s time in office, will the hon. Gentleman tell us which Chancellor of the Exchequer cut capital gains tax to 18%, which this Government have now increased to 28%, and which Government capped the amount of tax relief for high earners on pensions? It was not his Government, but the present Government.
Chris Leslie
It sounds as though the right hon. Gentleman is trying to wriggle out of voting for that cut in the 50p rate. He tries to change the subject—“Look over here, we’ve done this” or “We’ve done that,” but he voted for a cut in the 50p rate for the very wealthiest in society. He asks—I am sure we will hear this from the Minister as well—why we did not do that for 13 years. We had a global financial crisis that hit tax receipts significantly, and in 2009, looking at the state of the public finances, we felt that the fairest thing to do was to raise the rate to 50p, which is obviously shocking to Government Members.
Mr Jim Cunningham (Coventry South) (Lab)
The financial crisis actually started in America with JP Morgan. The Government are trying to rewrite history. Is it not true that under this Government people are worse off to the tune of £1,600 a year, and that the purchasing power of their wages has dropped 6%?
Chris Leslie
People faced a double whammy—the tax and the changes to their tax credits by the Conservatives, together with that squeeze on living standards as a result of wages failing to keep pace with prices.
We are doing the Government a favour today. We are trying our best to persuade them of the error of their ways. We have tabled a motion that allows them to put right the wrong they have done, get their priorities right and admit it was a mistake to reduce the top rate of income tax at a time when working people are not feeling any recovery.
Paul Uppal (Wolverhampton South West) (Con)
For nearly half a century the Indians and the Chinese pursued a punitive ideological politics. Since they turned away from that, they have pulled hundreds of millions of people out of poverty. With the exception of the Labour Front-Bench team and President Hollande, I think the hon. Gentleman will find himself very much in the minority. As Abraham Lincoln famously said, you never pull anybody up by pulling somebody down. Is not this debate about the Opposition’s political opportunism, rather than long-term economic reality?
Chris Leslie
There we have it—the voice of the ideological right wing of the Conservative party, which says we should not have progressive taxation in this country. The hon. Gentleman almost espouses the flat tax mentality, on which we know the Conservatives all agree. Perhaps he wants to elaborate.
Paul Uppal
Unlike those on the Opposition Benches, I have been poor—dirt poor. [Interruption.] I do not want any sympathy. The reason I sit on the Conservative Benches is that I want to empower the people in my constituency and give them a ladder of opportunity to escape from poverty, not keep them in poverty, which is the position of those on the Opposition Benches.
Chris Leslie
That ladder of opportunity is being pulled up by the hon. Gentleman. At a time when people’s pay is failing to keep pace with prices and the burden of taxation is greater, he not only votes to give tax benefits to the wealthiest in society but says, “If you’re lower or middle income, you have to pay higher VAT. You’re not going to leave the country. We have to reduce those tax credits and all the support that has been available before, but if you’re a wealthy individual in society, if you’re earning over £150,000, we have to cut your taxes because you might just leave the country.” That is not what has happened.
Chris Leslie
I will give way to my right hon. Friend, but first I want to hear a little more of the logic and the ideology espoused by the hon. Member for Wolverhampton South West (Paul Uppal).
Paul Uppal
If the hon. Gentleman is correct in what he says, will he explain why, under the Labour Government, venture capitalists paid 10% tax, as opposed to their cleaners, who paid 20%, whereas they had previously paid 10%?
Chris Leslie
Again, Conservative Members do not want to talk about the 50p rate of tax. They will find any example of other things. They will talk about the personal allowance or venture capital arrangements, and maybe we will get them on to VAT. We want to know the ideological basis for cutting the 50p rate to 45p. They may have thought that that would suddenly enliven enterprise across the country, but it has not done so.
Frank Dobson
There have been references to the ladder of opportunity. Education and training are a major part of that. It is this Government who have taken away the education maintenance allowance, which allowed large numbers of working class children to stay on at school, at college and in training. Taking that away has shifted several steps out of the ladder of opportunity.
Chris Leslie
It is important that we look in aggregate at the fate that has befallen so many of our constituents since 2010. We have had 24 different tax rises, as well as the effect of wages not keeping pace with prices. Let us look at some of the changes that have taken place since 2010—freezing child benefit, cutting maternity grants, cutting tax credits, abolishing the education maintenance allowance, higher insurance premium taxes, a frozen higher rate threshold, the granny tax, freezing allowances for pensioners and, of course, raising VAT to 20%.
In what must count as one of the most brazen transfers from the least well-off to the richest in recent years, the Chancellor announced in his conference speech a £3 billion strivers tax hit on tax credits until 2018—the same £3 billion sum given away in the tax cut to millionaires. There we have the comparative priorities—£3 billion in a tax cut to the very wealthiest in society, and the same amount taken away from some of the poorest and middle income families.
Chris Ruane (Vale of Clwyd) (Lab)
My hon. Friend mentions the Chancellor of the Exchequer. What does he say about the Chancellor’s words in 2009, when he said:
“Well, I’ve set out the principles we will adopt when it comes to the 50p rate. I’m not a fan. I regard it as a temporary feature but I cannot even consider lifting it while I’m asking others in the economy to bear a burden.”
Chris Leslie
My hon. Friend hits the nail on the head—as if our constituents are not still bearing a burden. The Chancellor of the Exchequer said that he could not countenance reducing that 50p rate until people were no longer bearing that economic burden. Are we in that position? Absolutely not. What does he do? He chooses to give that tax cut to the very wealthiest in society. Has there ever been a fallacy greater than the Chancellor’s hollow claim that “we’re all in this together”?
How strange that before the last election, as my hon. Friend says, the Chancellor said, “No, no, no, we certainly wouldn’t tackle that 50p rate,” but after the election, amazingly, he decides to do what Conservatives always do. That was at a time when Oxfam reports that 20 million meals were given out in food banks last year, up by more than 50% on the previous year. Its chief executive is right to say that the fact that they are needed in 21st century Britain is a stain on our national conscience. We cannot and we must not allow these warped and perverse priorities to go unchallenged.
There is an alternative and a different set of choices. When Government borrowing is 10% higher in the past six months compared with the same period last year and the deficit is rising, the Treasury cannot afford to dole out tax breaks to those at the top of the pile. Borrowing so far this year has been £58 billion, compared with just over £52 billion for the first six months of last year. The revenue from the 50p rate of tax remains essential when that deficit is pressing so heavily on vital public services and bearing down on the shoulders of lower and middle income households in our constituencies.
Geraint Davies (Swansea West) (Lab/Co-op)
As my hon. Friend will know, income tax receipts were projected to rise by 7% this year but have, in fact, gone up by only 0.1%, so there is a pressing need for extra income. He will also know—perhaps he will comment on this—that the marginal rate of tax for national insurance and income tax is 62% for people on incomes between £100,000 and £120,000, so how can the Government argue that behavioural changes resulting from a 50p rate will suddenly drive everyone away? It is obviously a load of bunkum designed to protect their rich friends.
Chris Leslie
It is amazing what contortions Ministers have forced their officials into in trying to justify why the 50p rate could no longer continue—the sort of ideological nonsense we heard from the hon. Member for Wolverhampton South West—such as the suggestion that somehow it would not raise important revenues at a time when our deficit is actually rising.
Chris Leslie
I am sure that the Financial Secretary will confirm that the deficit is actually rising.
Mr Gauke
The shadow Chief Secretary might be aware that earlier today the Daily Mail reported on its website that a former Labour Cabinet Minister, Alan Milburn, said at a Labour party conference fringe event that, as far as the state of the public finances was concerned, increasing the 45p rate to 50p would be “absolutely incidental”. Does he agree?
Chris Leslie
I do not agree that it would be incidental, but I have never suggested that it is the full solution to dealing with the deficit. However, it is an important part of it—[Interruption.] The Financial Secretary says that it is not an important part of it. He says that we should not worry about the revenues we would get from a 50p rate. I am sorry, but the country cannot afford that sort of attitude and those priorities from Government Members. The deficit affects our constituents because of its effects on public services and the accumulating interest that has to be paid to service the mounting debt under the Conservatives. We have a choice about a tax rate that would raise £3 billion, and it is important that we take that opportunity to tackle our deficit, rather than giving that money away to those people who are already in an extremely privileged position.
Chris Leslie
I do, and let me explain why. We have to debunk this myth, because it is essentially the argument that the Minister will set out in his speech today. The static cost of the 50p tax rate before behavioural effects are taken into account is £3 billion—those are the official HMRC figures and the Minister agrees with them. Ministers, however, including this one, have strained every sinew to try to prove that those behavioural effects would almost entirely erase any revenue generation whatsoever, claiming that it would raise only a net £100 million. That is the figure we have. However, we must not forget—perhaps he can confirm this—that it was a ministerial decision to pick the tax income elasticity rate of 0.45, which miraculously massaged the official figure down to that £100 million. Was that a Government decision, because that is what the HMRC figures say?
Mr Gauke
It was HMRC that determined that, but I just want to be absolutely clear about what the shadow Chief Secretary is saying. He is right that the £3 billion is the static cost, but he is saying that that is the actual cost that the Labour party believes it would raise. He is saying that there would be no behavioural change as a consequence of a 50p rate of income tax. That is the most extraordinary and incredible position, and it is inconsistent with the position that the Labour Government took when they introduced this some years ago. If that is what he really believes, he is stretching credibility even further.
Chris Leslie
We are making a little progress, because the Minister has at least acknowledged that the static cost of this change is £3 billion, and we have also pinned down the fact that it was HMRC and the Treasury, not the Office for Budget Responsibility, that picked the TIE rate, which is the device he used to massage the figure down to £100 million. [Interruption.] He says that that was not Ministers, so we will have to see whether a freedom of information request can elicit more information.
Even if we accepted the behavioural changes that the Minister has suggested, rather than tackling the tricks and manoeuvre used to avoid paying the tax, what is the attitude of the Treasury and the Minister? Their attitude is to wave the white flag and basically say, “Let’s allow them to get away with those behavioural effects.”
Chris Leslie
I will give way to my hon. Friend the Member for Inverclyde (Mr McKenzie).
Mr Speaker
Order. The shadow Chief Secretary is being most generous and accommodating in giving way. I simply point out to the House that the second debate has a comparable number of would-be contributors as does this one. If we are working on the assumption that this debate will finish at about 4 o’clock, it is important to ensure that there is maximum time available for Back Benchers who wish to make speeches. After that, I am in the hands of the House.
Mr Iain McKenzie (Inverclyde) (Lab)
To bring my hon. Friend back to the whole subject of fairness in taxation, especially in these economic times, it was this Government who told us that those with the broadest shoulders should bear the majority of the burden, yet the first thing they did was reduce the tax rate to take that burden off their shoulders. [Interruption.]
Chris Leslie
There is a lot of protest coming from Government Members. Only those who are not standing for Parliament again will dare to stand up and defend cutting the 50p rate. Mr Speaker, I have heard your entreaties about being a little more strategic in the way we progress through the arguments, but I thought that it was important—[Interruption.]
Mr Speaker
Order. I say to the hon. Member for Taunton Deane (Mr Browne)—[Interruption.] Order. I have always regarded the hon. Gentleman as a very cerebral denizen of his House. I do not know whether he has become a bit demob happy because he is standing down, but I look to the hon. Gentleman, whom I have always regarded as a gentleman, to comport himself with a dignity comparable to that of his right hon. Friend the Member for Gordon (Sir Malcolm Bruce), who is beaming on the Liberal Democrat Front Bench.
Chris Leslie
The hon. Member for Taunton Deane (Mr Browne) might be demob happy, but his constituents are demob happier.
I want to look at some of the other arguments we will hear from the Minister. When he came up with his calculation of £100 million, which was supposedly the only revenue from cutting the 50p rate, HMRC did not take into account the forestalling effect it would have—[Interruption.] No, it did not. If the Minister reads the small print of the Treasury costing, he will see that it did not take account of forestalling. I will send it to him, because it is there in black and white.
Everybody knows that wealthy individuals, usually paying themselves through personal services companies, merely changed the date when they paid themselves, from the financial year when the tax rate was 50p, and waited until the Chancellor did the business and cut it to 45p. The OBR has observed that substantial amounts of PAYE tax liabilities were deferred from the end of 2012-13 to the early part of 2013-14 in order to be taxed at 45p, rather than 50p. It estimates that around £1.7 billion in tax was deferred in that way. If that charge was at the lower rate, clearly there would be far more income lost to the Exchequer. The Chancellor has colluded in the wholesale avoidance of the 50p rate, and they telegraphed it so far in advance that they almost created the circumstances in which they were able to give the impression that it did not really matter that it would not have an effect.
The Conservatives will also make a number of other allegations about the 50p rate. They will say that it stifles enterprise and repels entrepreneurs abroad. However, recent studies have shown that a 50p rate did not deter or discourage wealthy people from locating in the United Kingdom. A new report from the New World Wealth organisation looked at millionaire migration and found that more millionaires migrated to the UK between 2003 and 2013 than to any other country.
The real question in the minds of so many Conservative ideologues, as Conservative Members are, is whether they will get their way and see this 45p rate cut even further to 40p, because that is essentially what they want.
Chris Leslie
There are plenty of the Chancellor’s friends, some of them standing opposite, who want that to happen. The Mayor of London, Boris Johnson, says:
“The Government should open up some more blue water, and cut the top rate back to 40p.”
The hon. Member for Altrincham and Sale West (Mr Brady) says that 40p would be his priority. The politics of the 45p cut
“was very straightforward and it really wouldn’t have made any difference to the popularity…of the measure if you went from 50p to 40p rather than 45p.”
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
Does my hon. Friend agree that the important point is that, yes, a marginal income is raised through the top rate of tax, but it is also about the principle? We know that the UK has one of the highest levels of income inequality, with the impact that that has on matters such as life expectancy and health. If the Government do not recognise the divisions and hardship that this is creating, it is a sad day.
Chris Leslie
I sometimes get the impression from Ministers that they would not understand fairness if it hit them in the face. They certainly do not get it when it comes to the moral imperative as well as the economics of ensuring that we have a fair tax system that ensures that those with the broadest shoulders contribute a fairer share.
A Labour Government would reduce the deficit in a fairer way than the approach that we have seen from the Government. Of course, we have not seen much deficit reduction in recent years. We want to balance the books as soon as possible in the next Parliament, but to do so in that fairer and balanced way. We will reverse this Tory and Liberal Democrat tax cut for millionaires. We have to make some tough choices.
Chris Leslie
No, we have heard enough from the hon. Gentleman.
We will stop paying winter fuel allowances to the richest pensioners. We will have to raise child benefit by just 1% for two years, and Ministers’ pay also should be restrained. But we also have to cut out the waste and incompetence of this Government —£3 billion wasted on an NHS reorganisation; the universal credit debacle; the pointless exercise of a worse than useless Work programme. A fair plan to balance the books in the next Parliament would reverse this obscene tax cut for the top 1% of earners. We will have to finish the job that this Chancellor has so patently failed to deliver, and we will do so with a plan that will create sustained and balanced growth, 200,000 homes by 2020 and a British investment bank; cutting business rates for small firms; providing a jobs guarantee and child care to help people back to work; reconnecting the wealth of our country with the finances of individuals and families; and, above all, ending dogmatic trickle-down Tory economics, which hits lower and middle income households while the Government lavish tax cuts on the rich.
Chris Leslie
Does the Minister agree with the Institute for Fiscal Studies, which says:
“The uncertainty around HMRC’s estimates mean it is possible that the 50p rate would be somewhat more effective at raising revenue than their initial estimate suggests”—
because we have had several subsequent financial years?
“Given this, there is certainly a case for HMRC looking again”.
Will the Treasury now conduct an impartial analysis of the true revenues of that 50p rate?
Mr Gauke
Let me quote what the IFS said in January of this year:
“there is little additional evidence to suggest that a 50p rate would raise more than was estimated by HMRC back in 2012…the best evidence we have still suggests that raising the top rate of tax would raise little revenue and make, at best, a marginal contribution to reducing the budget deficit”.
If the hon. Gentleman wants to pray in aid the Institute for Fiscal Studies, I can tell him that one thing that it would dismiss is the idea of a £3 billion pot here. The idea that there is no behavioural impact at all, which is the argument that we heard from him, is entirely fanciful.
Chris Leslie
I have quoted from the Institute for Fiscal Studies. Does the Minister disagree with the Office for Budget Responsibility, which questions the nature of the Treasury evaluation, calling it “highly uncertain?”
Mr Gauke
But it was the OBR that signed off the numbers in the March 2012 Budget. The hon. Gentleman seeks to pray in aid both the OBR and the IFS, but their position has been supportive of the Government. The fact that he suggests there is no behavioural impact here—that appears to be his position—is absolutely absurd.
Let us set out a few facts. As my right hon. Friend the Member for Gordon (Sir Malcolm Bruce) mentioned, the previous Government had a top rate of 40p for all but 36 of their 4,758 days in office. It is also the case that the richest in our society now pay more than at any point under the previous Government, with HMRC statistics showing that the top 1% is expected to pay 27.4% of all income tax this year. At the same time, 25 million working people are paying less income tax than they did in 2010. It is of course right that those with the broadest shoulders bear the greatest burden, and I will set out our actions in a few moments.
Consideration must also be given to ensuring that the United Kingdom is competitive in attracting wealth-creating individuals to locate and stay in this country, which is a point that even the previous Labour Government recognised for most of their time in office. Making our country an attractive place in which to invest is something that this Government are committed to doing. Indeed last week, the World Bank published its 2015 Ease of Doing Business report, placing the UK eighth overall and sixth among the OECD countries.
As I have already noted, the right hon. Member for Edinburgh South West (Mr Darling) announced in his 2009 Budget that the additional rate of income tax would come into effect in April 2010. It was accepted by that Government that there would be behavioural changes as a result of this policy. To be specific, not including forestalling, they accepted that it would result in revenues from the additional rate being around £4 billion lower than the static cost of the change. That is an important point. The 2009 analysis that Labour produced suggested that it would raise £2.5 billion, with £4 billion having been lost because of behavioural changes. Those behavioural changes are now being ignored by Labour, which is extraordinary.
The previous Government told us that the increase from 40p to 50p for incomes above £150,000 would raise approximately £2.5 billion a year. But the evidence suggests that it fell short of even that, raising at best £1 billion and at worst less than nothing. That is the conclusion not of my party, but of the HMRC report, which was laid before the House by the Chancellor alongside the Budget in 2012. The report lays out thorough and compelling evidence on the impact of the 50p rate. It showed that the additional rate was distorted, inefficient and damaging to our international competitiveness and that the previous Government greatly understated the impact of the additional rate on the behaviour of those affected. It has been criticised by business and has damaged the UK economy. The Government have decided not to stifle the economy further, but to show that we are open for business, which is why we reduced the rate to 45p.
Mr Gauke
I have given way to the hon. Gentleman on a number of occasions, and I know that many Members wish to speak in this debate.
I have set out the measures we have taken on avoidance and evasion. At the same time, though, we have used the tax system to help hard-working people on lower middle incomes to keep more of the income they earn through personal allowances. The tax-free allowance has increased from £6,475 in 2010 to £10,500 in April 2015—a tax saving of £805 for a typical basic-rate taxpayer. These changes will have given tax breaks to over 25 million individuals and will have taken 3.2 million low-income individuals out of income tax altogether by the end of this Parliament. A future Conservative Government will go further, increasing the personal allowance to £12,500 and the higher-rate tax threshold to £50,000.
Chris Leslie
We asked the Chancellor a question yesterday and did not get very far, and my right hon. Friend the Member for Derby South (Margaret Beckett) asked it of the Prime Minister today and did not get very far, so can this Minister now tell us how, specifically, the £7.2 billion promise that he has repeated will be paid for?
Mr Gauke
I have answered the hon. Gentleman’s question and the Chancellor answered it yesterday—we will reduce public spending to pay for it.
Members in all parts of the House agree that those who can most afford it should contribute their fair share to the Exchequer, but Labour Members insist that we should achieve that through a 50p rate that damaged our economy, sacrificed our international competitiveness, and did not raise the revenues intended. Those advocating a return to a 50p rate have to answer this question: given that it will not raise any significant amount of revenue, is “absolutely incidental” to the public finances, to use Alan Milburn’s phrase, and may even cost money, why do it? It is not about deficit reduction, it is not about economics, and it is not even about getting more from the wealthy, because there are better ways of doing that. It is all about the politics—but at what cost? At a time when the UK must compete to prosper in a global world and when we have a choice as to whether we sink or swim, those who advocate a 50p rate are taking the easy choice—short-term populism triumphing over increased competitiveness, with a stone age message of “bash the rich” prevailing over the need to attract wealth creators and keep them in this country.
This country’s route to success will not be through the lazy populism we have heard from Labour. Instead, we have taken steps to ensure that those with the most contribute the most, while maintaining a tax system that enables us to compete on a global stage. We are creating a tax system that is not only fairer but shows that the UK is open for business, encourages work, and gets people doing the right thing.
Andrew Bridgen
Thank you, Madam Deputy Speaker. If the shadow Minister wishes to intervene, I am more than happy to give way.
Chris Leslie
The hon. Gentleman said that the 50p rate was clearly ridiculous, but my hon. Friend the Member for Vale of Clwyd (Chris Ruane) quoted the previous Chancellor of the Exchequer, my right hon. Friend the Member for Edinburgh South West (Mr Darling), who said before the last election that he could not countenance reducing the 50p rate while so many people were bearing such a burden in our society. Does the hon. Gentleman really think that that burden has lifted?
Andrew Bridgen
The deficit of £150 billion that we inherited from the previous Labour Government has been reduced by a third, but there is much more work to be done. If the hon. Gentleman will bear with me and listen to my speech, during which he will have the chance to intervene, I think that I will answer many of his questions.
The ability to earn more than £150,000 does not give or guarantee happiness, health or friends, but it does give choices. People who earn more money have more choices. My definition of poverty is having no choices: people with no choices are in poverty. One of the choices people have is about where they are domiciled for tax. With taxes rising in France, there has been a flight of people to the UK, to such an extent that, as was pointed out at a meeting with the Mayor of London a few months ago, so many French people live in London that it is the fourth largest French city.
I have always been a great believer in this quote:
“Those who do not learn from history are doomed to repeat it.”
When the right hon. Member for Edinburgh South West (Mr Darling) brought in the 50p tax rate before the last election, I naturally assumed that he did not take on board George Santayana’s sentiments, as history has told us time and again that
“for a nation to try to tax itself into prosperity, is like a man standing in a bucket and trying to lift himself up by the handle.”
Yet the Labour party persist in this notion that having one of the highest top rates of tax in the world will increase revenues and make the country more competitive. My hon. Friend the Member for Wolverhampton South West (Paul Uppal) was quite right to quote Abraham Lincoln, who said:
“You can’t make the poor richer by making the rich poorer.”
He described economic inequality as benign, rather than malevolent. Understanding the difference leads to understanding why allowing the greatest number of opportunities works better for increasing everyone’s wealth than trying to equalise outcomes. That was true then, and it remains true now.
The Labour party’s economic blindness seems to extend to failing to take note of what is happening over the channel in France. It is in its third year of being led by the Leader of the Opposition’s comrade Francois Hollande. After the Socialist Government increased a range of taxes, including the top rate of tax, revenues have proven to be half of what was expected. France has virtually no economic growth, and it has a black hole of billions of euros in its public accounts, to the point that it now wants the UK to pay €2 billion to help to bail it out. An uncompetitive top rate of tax decreases the incentive to work, reduces the amount of money for investment and, as has been seen in France, ultimately reduces the size of the economy.
What the Opposition do not seem to grasp as they play 1970s politics is that we live in a different world from that of the 1970s, when the UK had draconian top rates of tax. The principal difference is that high earners now have the option to live elsewhere, without any inconvenience, because of the internet and much improved air travel. We do not want to go back to the brain drain, and to being the sick man of Europe.
Plenty of people have offered advice on this issue to the Labour party. Let us take the comments of Mark Giddens, a partner at UHY Hacker Young, who stated:
“We would lose some of the edge that we currently have over other Western European countries in attracting successful entrepreneurs and investors. We will also find it harder to compete against other major English speaking economies such as the USA”.
The evidence seems clear. Under the French model we see high tax rates, anaemic growth, high unemployment and lower Government revenues; under our current model the long-term economic plan is working, we have the fastest economic growth in the developed world, and an economy that has created more jobs than the rest of the EU combined, leading to more tax revenue.
We can see in the HMRC analysis that was mentioned by the Minister and published in 2012, that the 50p rate was raising nothing like the £3 billion that Labour estimated at the time and continues to hold dear. Indeed, the direct cost of the reduction in the rate of income tax at that time was estimated at only £100 million. When other lost tax revenues are taken into account, it is evident that there was no direct cost to the Treasury in cutting the top rate of tax from 50p to 45p, not to mention the wider economic impact of that higher rate of tax, as we have seen in the French economy.
When Nigel Lawson cut the top rate of tax from 60p to 40p in 1988, the tax take rose and top earners paid a larger share of it. When the Treasury decided to set the rate of capital gains tax at 28%—up from 18% under the previous Labour Government—it stated that its studies had concluded that that rate maximised the tax take. If the optimum rate of unearned income is 28%, I suggest it is unlikely that the optimum rate of income tax should be nearly double that level. Figures show that less than 1% of the population earn more than £150,000 a year, yet those people contribute approximately 30% of the total income tax take. That is a total of £49 billion from the 45p rate, compared with only £40 billion raised the year before when the rate was 50p— evidence that when we cut the rate of tax, revenues rise.
What is Labour’s case for tax rates that will lead to decreased revenues? When the measure was first suggested it was nothing more than a pre-election attempt to convince its core vote that it was still the party of squeezing the rich, and remains so today. At the same time, Labour was obviously laying a bear trap for the incoming coalition Government. It was a Trojan horse of a policy; a Trojan horse of a tax. Members will have noticed that I have referred to France rather a lot in my speech. That is because for the future of the UK should Labour win the next election, we have only to look across the channel and see what has happened. As the Leader of the Opposition said previously, “What Hollande is doing in France I want to do in Britain.”
Mr Browne
Let me finish this point. The crucial philosophical problem I have with a 50p tax rate is the underlying presumption that the state co-owns your income with you, and that when you work you are in a 50:50 shareholding relationship and for every extra hour of work you do, half the money belongs to the former Member for Shipley and half belongs to you. It is as though it is good of him that he is letting me keep half my cash; I do not accept that as a basic philosophical argument.
Chris Leslie
The hon. Gentleman’s conversion to Conservatism is now complete. Let me ask him a clear question. He is implying that the 50p rate is on the entirety of somebody’s income. Does he accept that it applies on earnings of more than £150,000 of income or has he totally abandoned any notion of progressivity in our tax system? Is he arguing for a flat rate of income tax?
Mr Browne
I will finish in a moment, Madam Deputy Speaker. I have not abandoned that, which is why people earning up to £10,500 pay no income tax under this Government, whereas under Labour the relevant figure was £6,500. Of course there is then a standard rate and a higher rate. The hon. Gentleman made a mistake in his speech when he talked about tax cuts for millionaires. Let me give an example, which is party political. The Leader of the Opposition is a millionaire who does not pay this top rate of tax, but somebody who has just got a job earning £160,000 a year is not a millionaire but does pay his 50p rate of tax. It was deliberately misleading from the hon. Gentleman and it reflected badly on him.