Income Tax

David Anderson Excerpts

Wednesday 28th November 2012 Commons Chamber

[Rachel Reeves]

My hon. Friend makes an important point. The work of Wilkinson and Pickett in “The Spirit Level”, and other academic research, has shown exactly that. Some people will be a lot happier next year—the 8,000 millionaires who will have their taxes cut—but ordinary working people who see their taxes go up will be a lot worse off and, I expect, not very happy with either their finances or the Government who have inflicted that situation on them.

In the same Budget as the Chancellor’s giveaway to the richest, buried in the small print as a tax simplification, was the Chancellor’s granny tax. The freeze in the age-related allowance for the over-65s will see 4.4 million pensioners who pay income tax losing an average of £83 each per year. People who turn 65 next year will lose most of all—up to £322. Listening to the Chancellor was like watching Robin Hood in reverse. Most pensioners who will be hit by the granny tax live on incomes that put them in the bottom half of income tax distribution. Those with a small personal pension of £67 a week—£3,000 a year—will be in line to lose under this measure. How insulting to pensioners who have worked hard all their lives, who have not earned large salaries, but who have done the right thing and saved responsibly so they could provide for themselves in later life.

[Mr David Anderson (Blaydon) (Lab)]

Does my hon. Friend recognise figures from Hansard that show that in the north-east some 4,000 taxpayers will benefit from the changes, but more than 278,000 will be worse off and they will mainly be pensioners? Does that not show all we need to know about the Conservative party?

[Rachel Reeves]

My hon. Friend makes an important point. People on modest incomes such as pensioners will lose out, while those at the top get a little bit more—well, not a little bit more; they will get £107,000 more next year from the Government. How insulting for those pensioners to see their taxes go up on the same day that millionaires have their taxes cut. Families, pensioners and young people cannot escape the Chancellor’s austerity programme—only millionaires can do that.

Pensioners have already seen their winter fuel allowance cut and their pension indexed to a lower measure of inflation. The increase in the state pension age for women has been brought forward, and the rise in VAT has added £275 to the costs faced by an average pensioner couple. Services such as the national health service, social care and local transport have been cut, and the TUC estimates that a single pensioner will lose access to services worth 11% of his or her income. No wonder so many people have spoken out against what the Chancellor is doing.

Age UK has stated:

“We feel it is disappointing that the budget offered a tax break of at least £10,000 to the very wealthy while penalising many pensioners on fairly modest incomes who are already squeezed.”

The chief executive of Saga has said:

“Over the next five years, pensioners with an income of between £10,500 and £24,000 will be paying an extra £3 billion in tax while richer pensioners are left unaffected”.

The National Pensioners Convention has said:

“We have been inundated by pensioners who are disgusted that those on around £11,000 a year will no longer get additional reductions in their tax…whilst those earning £150,000 or more will see their tax bills reduced…This is seen by many as the last straw…Pensioners feel they are being asked to bail out the super rich…and it’s simply not fair.”

The Opposition could not agree more. It is the same old out-of-touch Tories.

--- Later in debate ---

[Mr Gauke]

It depends where we are on the Laffer curve, but, if we have the highest rate of income tax of any of the G20 economies, we are clearly in a vulnerable position. That was the position we inherited and why we were right to remove it.

I want to touch on the HMRC report laid before the House of Commons at the time of the Budget. It contained the assessment of the 50p rate. It showed that the additional rate was distortive, inefficient, and damaging to our international competitiveness, and that the previous Government greatly understated its impact on the behaviour of those affected. High earners were able to bring forward about £18 billion before the new rate came in, which the previous Government did not account for in their revenue projections. The 50p rate has failed: it has been criticised by business, damaged the UK economy and raised much less for the Exchequer than the last Government had hoped. In fact, it could have generated a net loss. The HMRC report estimates that it raised at most only £1 billion, and, when indirect taxes are taken into account, could have raised less than nothing.

The Government have decided not to stifle the economy further and to show that we are open for business, which is why we will reduce the rate to 45p from April next year. This move to 45p, based on the central estimate of the taxable income elasticity, will cost only £100 million—a small price to pay to regain some of the international competitiveness we lost as a result of the previous Government’s decisions. In fact, when indirect taxes are taken into account, this move could even result in a positive yield.

The 50p rate not only harmed our economy and contributed little to the Exchequer, but placed us in the unwanted position of having the highest statutory rate of income tax in the G20. Our decision to lower the rate will see us drop below Australia, Germany, Japan and Canada. In 2011-12, the top 1% of taxpayers paid about 25% of income tax revenues, and for over a decade our dependence on them has grown. Owing to this considerable economic contribution to the UK, each highly mobile earner who is driven out by internationally high tax rates hits the Exchequer and results in less revenue for public services.

Opposition Members might not care when internationally mobile individuals leave, but, given our dependence on high earners, we want them working in the UK, creating wealth and paying taxes, not moving abroad or retiring early. A competitive tax environment is unambiguously in the UK’s interests, and failing to act decisively as we did would be to ignore our long-term interests, as the 50p rate continued to drive high earners out of the country.

[Mr Anderson]

Has any assessment been made of how many people have become highly mobile and left, how many will leave and how many will come back?

[Mr Gauke]

The HMRC assessment set out the impacts that had already emerged. I highlighted the number of people moving to Switzerland and so on. The assessment of the behavioural impact was that about one third to half was a consequence of reduced economic activity—either people retiring or moving outside the UK. That is a considerable impact. It is not good for the UK economy, and the sooner we take steps to address it and set out plans to get rid of the 50p rate, the better.

--- Later in debate ---

[Mr David Anderson (Blaydon) (Lab)]

I start by congratulating my hon. Friend the Member for Cardiff South and Penarth (Stephen Doughty). He has two hard acts to follow, but he made a great start today and long may he continue.

On a point of clarification, the hon. Member for Beverley and Holderness (Mr Stuart), who is no longer here, said that my party had chosen the debate today because of the way it is funded—by the trade union movement. Can we be very clear? The funding that goes to the Labour party is dictated by rules and laws that were written mainly by the Conservatives and the arrangements are transparent and open to scrutiny. Let us also be clear that none of the people who donate to the Labour party has been in jail, unlike Michael Brown or Asil Nadir. Those two people were given back the money that they stole by the Conservatives and Liberal Democrats. Those two parties can have no credibility at all when they talk about paymasters.

I have been paying income tax since 1969—I know it is hard to believe, Mr Deputy Speaker, but I have—and I am quite happy to pay my share, but everybody else should be paying their share as well. It took a long time coming, but the hon. Member for Dover (Charlie Elphicke) said it—that this debate is about the politics of envy. It is not about the politics of envy; it is about the politics of fairness, and what is right and what is wrong.

The parties in government have a raft of policies based on the so-called politics of fairness. They believe it is fair to cut benefits, fair to sack 750,000 public servants, and fair to move people out of homes that they had lived in for decades just because the children have moved out. They think it is fair to sign sick and disabled people off the sick list if the incentivised company that they have employed says that that is the right thing to do. They think it is fair to make people work longer, pay more and receive less for their pension. They think it is fair to slash people’s living standards, fair to force young people to go to work for nothing on workfare schemes, and fair to treble the cost of going to university.

But now the Government also think it is fair to do other things. They think it is fair to tell 4.5 million pensioners that in a year’s time they will be losing £83 a year. People who have contributed all their lives will be paying more because of the Government’s failure. The Government think it is fair to tell thousands of people who are just turning 65 that, despite promises that reinstating the pensions link would be good for them, they will lose more than the amount of the pension rise—they will be losing more than £300 a year. They think it is fair to tell hard-working families struggling to bring up kids that from next year they will be more than £500 a year worse off.

Why do they think all that is fair? Because they want to give their pals a 100-grand backhander. There are 8,000 of them, so that is an £860 million giveaway to their friends, people who are raking in at least £1 million a year. This is the face of the modern Tory party and it is no different from the old one, except for the back-up by the yellow-livered Liberal Democrats. This is their way of looking after themselves, their pals in the City and the millionaires of this country. They want to give themselves a nice little six-figure Easter egg from the public purse, from a public worn out by cuts and austerity, and they are being supported every step of the way by the so-called nice guys, the Liberal Democrats.

Fairness? The Conservatives do not know the meaning of the word. This is not the politics of fairness and it is not the politics of envy. It is the politics of greed. It is the politics of a party intent on dismantling the consensus that has existed in this country since the end of the war. They are intent on slash and burn, and on feathering their own nests in the name of the people who bankroll them. This is the action of members of a party who do not care who they hurt, as long as it is not their kind.

The real sadness is that this is not new. It is the same kind of attack as they carried out in the 1930s when they destroyed communities throughout the country where people were living in desperation, despair and depression. It is the same kind of attack as in the 1980s when towns such as the one I lived in were wiped off the face of the earth, with debt, drugs and depression replacing years of hard work and people living in good quality communities. We saw crime going through the roof. We in the north-east of England became the car crime capital of the world. Burglary was commonplace, while the Tories were lighting cigars with £5 notes, swapping their Quattros for Porsches, and having battles to see who could spend the most on a bottle of Bolly.

They believe in a two-tier country, in two-tier government and in a two-tier, class-ridden ideology. It is the same old story with the same old Tories, backed by the Liberal Democrats. In this together? Not a chance!