David Gauke
Main Page: David Gauke (Independent - South West Hertfordshire)Department Debates - View all David Gauke's debates with the HM Treasury
(12 years, 7 months ago)
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Rachel Reeves
I want the wealthy to pay their fair share in the deficit reduction, which is why I shall be voting this week against a cut in the taxes for 14,000 millionaires. Figures from the Institute for Fiscal Studies show that in Budget 2002—a Labour Budget—anti-avoidance measures were worth £1.7 billion. In Budget 2003—a Labour Budget—there were £1.7 billion of tax avoidance measures, and in Budget 2004, £1.7 billion-worth of tax avoidance measures—I could go on. The point is that in the Budget this year—a Conservative Budget, with a little bit of help from the Liberal Democrats—tax avoidance measures are worth £0.8 billion, lower than in all but two of the last 10 years. The idea that it is a tax avoidance Budget just does not stand up in the statistics. The Institute for Fiscal Studies knows it, so perhaps Members on the Government Benches should look at those numbers. Of course we should cut down on tax avoidance, but we should not then compensate the rich by giving them a tax cut worth £3 billion. If the right hon. Gentleman really wants to cut down on tax avoidance and ensure that the wealthy pay more, I hope he will join us in the Lobby to vote against a tax cut for the richest in society.
The Exchequer Secretary to the Treasury (Mr David Gauke)
The hon. Lady will be aware that in last year’s Budget, there was a measure to tackle tax avoidance through disguised remuneration. She will also be aware that her party voted against the measure in a Finance Bill last year. Does she regret that?
Rachel Reeves
In Budget 2011, there was £1.1 billion-worth of tax avoidance measures, which is less than half the amount spent on such measures in Labour Budgets. We want more wealthy people to pay their fair share, but nothing in the Budget ensures that. The Government need to tackle tax avoidance, but they should not compensate for that by giving a tax cut to the wealthiest in society.
The Chief Secretary to the Treasury said about the 50p rate:
“The idea that we are going to shift our focus to the wealthiest in the country at a time when everyone is under pressure is just in cloud cuckoo land”,
but it turns out that the Liberal Democrats have joined their Conservative coalition partners in cloud cuckoo land. I hope that the Chief Secretary is enjoying himself there, but I am sure he had hoped to cover his humiliating climbdown by pointing to the benefits to lower and middle-income earners from the increase in the personal allowance. However, as I said in my intervention on him, the Institute for Fiscal Studies has made it clear that the gains from the policy are cancelled out many times over by the losses suffered by ordinary families as a result of the Government’s tax hikes, benefit cuts and tax credit changes. The Government are giving with one hand and taking much, much, more from ordinary families, pensioners and young people with the other.
The cover story that the wealthy will pay more in other ways is unravelling day by day. We have already seen that in the House this afternoon. The cost of the cut to the top rate of income tax is 10 times higher than the amount of money raised by the cap on tax reliefs. I hope we all agree that more must be done to reduce genuine tax avoidance, but that should be a standard feature of every Budget and every Finance Bill. I direct the Chief Secretary to slide 9 of the assessment that the Institute for Fiscal Studies has made of the Budget. It shows that between 2002 and 2009, the Labour Government reduced tax avoidance by over £12 billion, while this Budget reduces tax avoidance by a mere £800 million—less than Labour’s annual average, and less than all but two other Budgets in the past decade. That is before one takes into account the fact that included in the Government’s definition of tax avoidance is tax relief for donations to charities including UNICEF, Macmillan Cancer Support, the Royal National Lifeboat Institution, Oxfam and many others. The fact that the Government cannot tell the difference between that and real tax avoidance shows how incompetent and out of touch they are.
Sir Stuart Bell (Middlesbrough) (Lab)
It is a pleasure to follow the hon. Member for Macclesfield (David Rutley), who made a number of important points. The first of those was that the recovery being sought by the Government is a private sector-led recovery. We would all say amen to that, but what concerns us on the Opposition Benches is the imbalance being created between a private sector-led recovery and the social model that we have espoused and continue to espouse. The Government are somewhat unbalanced when they attack the welfare state while at the same time seeking the recovery.
The hon. Gentleman said that Opposition Members have not referred to corporation tax. Actually, I referred to it when the Chief Secretary to the Treasury wound up the Budget debate, because he omitted to say that the reduction in corporation tax to 22% would not come into effect until 2014. He amended that today and stated that that is the case. The Opposition welcome that, but we wonder whether the benefit of the corporation tax reduction will go into shareholder dividends rather than into growth. Although growth is a major topic in this debate, the Government have yet to say how a measure that will come into effect in 2014, which by my reckoning is two years off, will help growth.
We have heard a lot about growth and, in particular, about national insurance holidays, which were mentioned by my hon. Friend the Member for Leeds West (RachelReeves). I will come back to that later. The hon. Member for Macclesfield mentioned business investment, which is important. The £20 billion scheme introduced by the Government is very welcome. I will also come to that later.
The hon. Gentleman also mentioned Ronald Reagan. That was the second mention of him today. The hon. Gentleman talked about him in relation to alligators and cleaning the swamp. Earlier, my hon. Friend the Member for Leeds West referred to the Laffer curve, which was written on a napkin. It suggests that if one reduces taxation, one will get growth. It was pointed out on the Floor of the House that that does not really happen. Nevertheless, it is one of those myths that are in the system and that will stay there.
The hon. Gentleman mentioned cutting the regulatory burden. I agree with that. When I was in opposition before, a Minister came to a meeting and showed us the regulations that the former Government had introduced and those that the Conservative Government of the time had introduced. The second pile was twice as high. A great amount of what the Government do increases red tape and the regulatory burden. We are therefore happy that there is an attack on red tape.
The hon. Gentleman also mentioned Winston Churchill. This has been a day of famous names being thrown around the House. I will entertain the hon. Gentleman by telling him something that I imagine he does not know. The allowance that the Government are abolishing with their granny tax was brought in by Winston Churchill in 1925. That fact is little known, but my mind is full of useless and irrelevant information that I wish to share with the House. When Churchill made his Budget speech on that day, he used a whisky flask to replenish himself and, as he pointed out, to replenish the Treasury. The hon. Gentleman is therefore in good company in discussing these matters.
The hon. Member for Christchurch (Mr Chope), who is still in the Chamber and following the debate with great interest, made a number of important and significant points. He contradicted the hon. Member for Cities of London and Westminster (Mark Field) on the issue of child benefit. The hon. Member for North East Somerset (Jacob Rees-Mogg) also spoke about universal benefits. The hon. Member for Christchurch, who describes himself as a humble Back Bencher, although we would not necessarily agree with that term, said that there is a debate to be had about universal benefits. He mentioned fairness and asked where the fairness is in the system. People who have children receive child benefit and those who do not have children do not. The word “fairness” is in vogue; it is the great word. It is used by Opposition Members and by Government Members. However, unless fairness is linked to values, we have no idea what it means and what it should come to. There is no great appetite among Opposition Members for attacking universal benefits.
I congratulate the hon. Member for Christchurch because for a short while he was Chancellor of the Exchequer—not for a day, not for a week, but for the few minutes in which he made his speech and gave his own proposals. I predict that over the years, universal benefits will be whittled away. We are already seeing it. They will become lower and lower. As I tell taxi drivers when I talk to them about child benefit, free television licences for the over-75s and the winter fuel payment, in the years to come people will look at us in amazement and say, “Did you really have those benefits in the past?” That is the way things are going.
My hon. Friend the Member for Leeds West talked about VAT and my hon. Friend the Member for Dumfries and Galloway (Mr Brown) talked about the VAT on caravans. I would like to talk about the sad event of the 5% VAT rate on church repairs ending. The Chancellor called it an anomaly. When I was the Second Church Estates Commissioner, the Church of England worked long and hard to persuade the then Chancellor, my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown), on this matter. The former Archbishop of Canterbury took him across to Lambeth palace and offered him a cup of tea or coffee—not the celebrated whisky of Winston Churchill. On the back of that, the then Chancellor understood the importance of the heritage and fabric of our churches, and agreed effectively to reduce the rate of VAT to 5% for three years. When he became Prime Minister, he made the change for the duration of his Government. It is a matter of regret to the Church that the rate has now been called an anomaly and will no longer exist. That is a great pity for the Church and will create problems in maintaining its fabric.
My hon. Friend the Member for Leeds West made a very fine speech. When she was taking interventions, which she handled with great capacity and knowledge, there was confusion among Conservative Members about tax avoidance and tax evasion. Tax avoidance is legal, whereas tax evasion is not. I had the feeling that there was obfuscation among Conservative Members about the taxation regime for contributions to charity. The clear view is developing that the Chancellor will consider that matter again, which we respect and welcome. I will give my age away when I say that in the first Finance Bill on which I sat, which was in 1983, there was a measure that would have liquidated the co-operative insurance company. It would have wiped it out. We took the matter to Lord Lawson, who considered it and removed the measure from the Bill. We welcome the fact that the Government are looking at this issue and I am sure that they will take into account, among other representations, the statement made by the Archbishop of Canterbury.
My hon. Friend the Member for Leeds West talked about the Ernst and Young ITEM Club and mentioned a number of facts from its report today. My hon. Friend the Member for Dumfries and Galloway and the hon. Members for Cities of London and Westminster and for Macclesfield also mentioned it. Its spring forecast makes it clear that this year we can expect 0.4% growth:
“ITEM says that what the economy needs now is for UK companies to invest their substantial cash reserves. The strong recovery in the UK is partly due to buoyant business spending, whereas in the UK investment has fallen to 12% below its 2008 level”.
That is important and serious. There is a lack of investment and companies prefer to hold their money under the bed because of the Bank of England’s concepts of moral hazard and too big to fail, and because of the Basel accords, which have a higher capital requirement. The banks are therefore reluctant to lend and, of course, companies are reluctant to borrow. That is an important and significant fact that we have to deal with.
Ernst and Young also states:
“Ernst & Young’s Eurozone Forecast, Spring edition suggests after a fall of 0.4% in 2012, Eurozone GDP is expected to grow by about 1% in 2013 and some 2% a year in 2015-16. This year, economic conditions will test policy-makers’ commitment and ability to preserve the Eurozone in its current form, with large amounts of public and private sector debt to be re-financed, tighter credit conditions, job losses and further fiscal austerity.”
In these debates, we have been spared an attack on the eurozone and a declaration that the eurozone is responsible for our low growth. The eurozone sorted itself out in December.
Sir Stuart Bell
The Minister shakes his head, but Italy and Spain were able to raise finance on the markets at a reasonable rate. Since then, a firewall of something like £720 billion has been put in place. Does the Minister really want the eurozone and the euro economies to fail, given that 60% of our trade is with Europe? He is still shaking his head, so I invite him to intervene.
Sir Stuart Bell
I was able to drink my glass of water during that intervention, so it was appropriately timed.
I presume that the Minister is referring to Spain, where the yields have reached 6% on the open market. That is not the yield that investors are asking for on new issues, so he should settle down a bit—there is no crisis in the eurozone and the euro this week.
A lot has been said about growth in the small and medium-sized enterprise community. My hon. Friend the Member for Leeds West, the hon. Member for Cities of London and Westminster, my hon. Friend the Member for Dumfries and Galloway and the hon. Member for Macclesfield all referred to it. We, and the SME community, welcome the credit easing scheme that the Chancellor has introduced, which will enable the Government to help the banks lend it a further £20 million at 1% less interest than usual bank loans.
I note that although the hon. Member for Chichester (Mr Tyrie) welcomed that credit easing in his contribution to the Budget debate, he feared that the money would not go beyond the banks’ balance sheets. My concern is that it will not go up to the Tees valley and other local economies. It has always been a matter of regret to those of us in the north-east that when the Government came into office, they chose to treat all regions equally, failing to understand the vast discrepancy between the south-east and the old industrial heartlands of the north-east.
The hon. Member for Macclesfield referred to the investment in Jaguar. I congratulate the Prime Minister on announcing when he was in Tokyo that a new Nissan model would be manufactured in Sunderland, which followed a similar announcement about another model. Yesterday, we saw the unique event of a blast furnace that had closed two years ago, which everybody said could not be reignited, being reignited under the auspices of a new Thai investor who put £4 billion into buying the plant and £2 billion into getting the furnace going. What does it tell us about the global economy that a Thai investor can come over and invest that money in the north-east, and that steel slabs will be put on ships and sent right across the world to Thailand? We ought to remember that when we criticise the global economy and its impact on our own economy.
As a consequence of the Budget, the local enterprise partnerships in the north-east will receive £10 million of additional funding for the Growing Places fund, to unblock local projects. The hon. Member for Cities of London and Westminster mentioned that investment. We in the north-east, and certainly on Teesside, also welcome the manner in which our local enterprise zone has developed and is succeeding, which is a great tribute to our local community’s belief that there is a future for us.
I have no interest in being negative about the north-east and manufacturing, but as the Business Secretary has said, manufacturing has dropped from 18% to 10% as a share of our economy. He has also declared that he is a social democrat, and we welcome him to the fold. He must be disappointed, as we are, that the Budget does not go far enough or fast enough to increase jobs and growth and offset the pace of the Chancellor’s deficit reduction. The hon. Member for Cities of London and Westminster made that point ably.
I turn to the essence of the debate and of the Government’s proposals, which my hon. Friend the Member for Dumfries and Galloway and the hon. Member for Cities of London and Westminster touched upon—how to achieve growth at a time of steep deficit reduction. The Government could not even carry through their own deficit reduction programme for 2015, and they have had to extend it to 2017. My hon. Friend the Member for Leeds West made the point, which the hon. Member for Cities of London and Westminster took up, that public expenditure is still rising. That cannot be gainsaid.
The hon. Member for Cities of London and Westminster said that we could not live beyond our means. That reminded me of Oscar Wilde, who said when he was in Paris:
“I am dying beyond my means.”
Let us hope that the Budget will prove to be more on the upturn than the Oscar Wilde downturn.
The Opposition welcome any measure that helps manufacturing, reduces red tape and gives our people optimism and confidence. That word was used in an intervention earlier, and we want confidence, but we are not entirely convinced that this Budget will give it.
The Exchequer Secretary to the Treasury (Mr David Gauke)
We have had a wide-ranging debate, and I thank the 20 Back Benchers who contributed. Many of the speeches touched on the three great challenges that we face in our economy: how to reduce the deficit, how to ensure that we do it fairly, and how to ensure that the UK can be competitive and grow strongly. However, the first point was tackled exclusively by Government Members. Labour Members still show no recognition of the previous Government’s disastrous legacy or the fact that it is not credible to advocate that the way to reduce borrowing is to borrow yet more. A structural deficit of the size we faced meant that difficult measures on spending cuts and tax rises were necessary, but Labour Members continue to oppose almost every effective measure to reduce the deficit. That is why the country continues not to trust the Labour party on the economy.
The Bill is consistent with our determination to return our public finances to a position of respectability.
Mr Gauke
The provision on cable cars applies not only in Aviemore, but in, for example, the Isle of Wight and London. I confess that it does not apply in South West Hertfordshire or in Wrexham, but it applies in places around the country. It is worth pointing out that, by and large, public transport is exempt from VAT, and the provision brings cable cars into line with that.
Let me consider fairness. We inherited a personal allowance of £6,475, and the Bill increases that to £8,105. Next year, there will be a further increase of £1,100. The Government are taking 2 million people out of income tax, providing a tax cut for 24 million people and are well on course to meeting our target of a personal allowance of £10,000.
Let me turn now to the controversial issue of age-related allowances. We must look at the changes in the context of the £275 increase in the state pension. Labour Members tend to say, “That is simply because of inflation,” but let me remind the House that the plans we inherited from the previous Labour Government were for the state pension to increase in line with average earnings. That would have meant an increase of £127 less than our increase, so the Government have increased it more than Labour would have done.
Owen Smith
Will the Exchequer Secretary confirm—we asked one of his colleagues to confirm this earlier—that, on average, families in Britain, taking into account all the changes, will be £511 worse off, as suggested by the Institute for Fiscal Studies?
Mr Gauke
We inherited the biggest deficit in our history and have taken measures—through both spending and taxes—to reduce it. The fact is that the measures we have taken on the personal allowance will result in, for example, a tax cut of £170 a year for every basic rate taxpayer in the country.
Mr Gauke
No. I am going to make more progress.
Returning to the age-related allowance, it will remain the case that those receiving employment income above the retirement age will not pay national insurance contributions. We have heard nothing this evening about why the Opposition believe as a matter of principle that those under the age of 65 should have a lower personal allowance than those over the age of 65. Given that the personal allowance has increased so substantially, it is reasonable and sensible to simplify the tax system and have one generous personal allowance, regardless of age.
We have taken decisions to remove anomalies in the VAT system, but VAT is a broad-based tax and it is neither fair nor economically justifiable for similar or identical products to be treated in different ways on the basis of arbitrary distinctions. The same approach should apply to mobile caravans as to static, non-residential caravans, and to a hot pie served in a fish and shop and one served in a bakery.
Labour Members argue that removing those anomalies will hit living standards, but may I put those measures in context? Next year, basic rate taxpayers will get a £170 income tax cut. That will be sufficient to pay VAT on 1,300 Greggs hot sausage rolls. I confess that those consuming more than 1,300 Greggs hot sausage rolls—that is 26 a week—will lose under the Budget, but I suspect that that is the least of their worries.
We are taking a tough decision on child benefit, but it is right that those earning £20,000 or £30,000 should not pay taxes to fund child benefit for the families of those who earn substantially more. Each of those policies has produced opposition, and whenever there is opposition to a difficult decision, along comes the Labour party. It opposes each and every measure, however logical or fair it may be. Labour agrees with every interest group that comes along and says, “Don’t tax us,” or “Keep spending on this.” The Labour party is the party that likes to say yes, just as it did in government. Is it any wonder that it left the public finances in such a mess?
There is one tax increase that Labour has supported: the increase in the additional rate of income tax to 50p, which the hon. Member for Pontypridd (Owen Smith) spent so much time on. What is the effect of the 50p rate? We have the assessment of HMRC. What has the 50p rate achieved? More people work overseas; total income has fallen by between £2.9 billion and £4.4 billion; and GDP is between 0.2% and 0.3% lower. All of that is from the HMRC assessment.
Owen Smith
Will the Exchequer Secretary confirm that the HMRC report on the 50p rate stated on no fewer than three separate occasions that the calculation was highly uncertain and that table A2, which contains absolute numbers, shows that the loss will be £3 billion rising to £4 billion over the spending period?
Mr Gauke
Both HMRC and the OBR have made a central estimate, and that is what we have used. I am sorry it does not fit into Labour’s ideology, but the reality is that HMRC’s assessment is that the 50p rate raised less than half the expected amount and might even have cost the Exchequer. The OBR’s assessment is that it is a reasonable and central estimate.
It takes a special kind of incompetence to produce a policy that sends a terrible signal to our competitors, drives higher earners out of the country, damages GDP and fails to raise revenue. There are better ways of raising revenue from the wealthy—for instance, by addressing SDLT avoidance, raising the SDLT rate on properties worth more than £2 million and capping reliefs to ensure that the wealthy cannot opt out of income tax. Both sides of the House want to raise more money from wealthy people. The reality is that we are better at doing it.
We will get more money out of the rich as a proportion of income tax each and every year than the previous Government managed in 13 years in any year. We will not only end our having the least competitive higher rate of income tax in the G20 but provide for a corporate tax regime that becomes increasingly competitive—the main rate will fall to 22% in 2014. We are updating our controlled foreign companies regime, ensuring that companies choose to locate here, not move away. We are implementing the patent box, which is already resulting in additional investment in the UK, as announced by GlaxoSmithKline and AstraZeneca, and we have more generous arrangements for enterprise investment schemes and venture capital trusts, and a new enterprise investment scheme.
The Bill is good for growth. It encourages investment. It attracts entrepreneurs. It tackles avoidance. It helps those on low incomes. It asks the better-off to pay more. And it provides for a significant restructuring of our tax code. It takes difficult steps but delivers real change. Those changes will improve the tax system and the economy as a whole. I commend the Bill to the House.
Question put, That the Bill be now read a Second time.