UK Economy: Post-Referendum Assessment
Debate between David Gauke and Chris Leslie(7 years, 11 months ago)
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Mr Gauke
The Treasury—indeed, some of the same civil servants—was involved in making the assessment of the five economic tests that kept us out of the euro. I suggest that my hon. Friend looks carefully at the report. We do not make any claims of the sort he suggests—about it being the greatest depression since the great depression of 1929—but suggest that the “shock” scenario involves the economy shrinking by 3.6% compared with the base, which is the forecast for the next few years. This is actually a very measured, conservative assessment of the impact, but none the less there would be an impact and it would result in 500,000 more people being unemployed than need be the case.
Chris Leslie (Nottingham East) (Lab/Co-op)
When does the Minister think that those advocating leaving the EU will level with the British public and provide their own economic assessment? Half of them think we can leave the EU and stay in the single market and the other half say, “Oh no, we won’t be part of the single market at all.” Is it not useful, therefore, that today’s analysis gives a snapshot of what a “severe shock” would look like if we were still in the single market? Will he also say a bit more about the “severe shock” analysis—falling back on the WTO membership rules—and how it could lead to 800,000 more people becoming unemployed?
Mr Gauke
The hon. Gentleman is right that under the more severe shock scenario, unemployment would increase by 800,000 and GDP would be 6% lower than it would otherwise have been. These are significant numbers. They are not equivalent to the great depression, but they are still significant numbers that would have a significant effect on his and my constituents. The hon. Gentleman raises an important point, and I hope we will get greater clarity about exactly what leaving the EU would involve. It seems to me that there is a clear trade-off: the closer a country is to membership of the EU, as for example with the European economic area model, the more it will continue to have the attributes of EU membership; the further away it is, it may have that greater freedom and flexibility, but it will clearly face a much bigger economic shock.
Oral Answers to Questions
Debate between David Gauke and Chris Leslie(8 years ago)
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Mr Gauke
It does take some time for HMRC to combine and match multiple datasets and hundreds of millions of lines of its own and the Department for Work and Pensions’ data. The intention is to publish the information alongside the ONS analysis. I note that according to its website the ONS plans to publish in May a note on migration incorporating the latest available migration data, and helping to explain further why the two datasets show different trends.
Chris Leslie (Nottingham East) (Lab/Co-op)
What about the 3.3 million people—one in 10 of the existing workforce—who pay their national insurance and tax and whose jobs are linked to UK exports to the EU? Does the Minister agree that leave campaigners should not just cross their fingers and dismiss reality and that Members on both sides of the House have a duty to spell out the fact that leaving the EU would put real jobs at real risk?
Budget Changes
Debate between David Gauke and Chris Leslie(8 years ago)
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Chris Leslie (Nottingham East) (Lab/Co-op)
The Minister has to accept that there will be a serious problem with the votes on the Budget resolutions tomorrow. How on earth is the House supposed to make a judgment when page 103 of the Red Book has been totally ripped up and changed? We are none the wiser about the contents of that section. Will he just answer one question? On a scale of one to 10, how embarrassed is he today?
Small Businesses: Tax Reporting
Debate between David Gauke and Chris Leslie(8 years, 2 months ago)
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Mr Gauke
That is a fair question. The hon. Gentleman raised that point in his remarks and there is a distinction between the nature of the information provided. Whereas a full return can be complex, the update will be based on business records that are already being recorded. There will be one process for both business and tax purposes, which will involve a summary of income and expenses.
The hon. Gentleman asks what is the use of the data and how will they be helpful. First, keeping records digitally will reduce error, partly because that will be done on a more timely basis. Secondly, the data will allow HMRC to focus its attention on the small minority of small businesses that are evading their taxes, and not on those who are trying to get it right. One must also bear it in mind that the software will help taxpayers identify any errors in the information they provide. One of the key benefits permitted by a more digital approach is that errors can be spotted earlier by the taxpayers themselves.
I reassure the House that HMRC does not intend to increase interventions on the basis of quarterly updates. On the contrary: HMRC is seeking to reduce error at source and so reduce the need for interventions. It is the case that by keeping records in real time instead of processing paperwork at the year end, businesses are less likely to lose receipts or make basic accounting errors.
I confirm that the proposal applies to large businesses—it is not exclusively for smaller businesses. On whether the software will work, let me point out that there are already six free products on the market and we expect there to be more as small software firms innovate to meet business needs. Such firms are clearly keen to engage and produce new products and services—we see that in the growth of apps—and already 30,000 small businesses have downloaded free record-keeping apps suited to all varieties of devices, whether tablets or smartphones.
One point that came up repeatedly and which was made by the hon. Member for East Lothian (George Kerevan) was that we are rushing this through. Let me reassure him and others that the Major Projects Authority has examined the plans and that it views them as deliverable. However, neither the Treasury nor HMRC are complacent, and we do understand that there are challenges, and I will pick up on some of them. However, it is worth noting that this is a five-year roll-out. We are engaging in substantial consultation this year. The piloting and testing of the technology and the various processes will then follow.
Phone calls were mentioned on a number of occasions. I said in the main Chamber earlier this afternoon that HMRC’s performance in January, which is traditionally a busy month, because of the self-assessment deadline, has been at a very high level. The last number I saw, which was for last week, suggested that 89% of calls were being answered and that the average waiting time is four minutes, which, it would be fair to say, is better than the historic norm for HMRC.
It is worth pointing out that the overall £1.3 billion package of investment for HMRC will allow more of its customers—not just businesses, but individuals—to go online, thus reducing calls. In addition, HMRC gets many calls about information that will in future appear in taxpayers’ digital accounts. For example, people call to find out their reference number or to chase a refund, and digital accounts will take out a large number of those calls. As I said, call centre performance is now also much improved.
My hon. Friend the Member for South Ribble (Seema Kennedy) raised the issue of sanctions. We will consult on the sanctions that will be appropriate in a digital environment. Penalties and other sanctions will not be the same as those that apply now to end-of-year returns. We will want the new process to bed in before we turn on any sanctions. There is no plan to penalise those who try to comply. I point hon. Members to HMRC’s record on the introduction of real-time information. There was a careful and measured approach to penalising people, and only deliberate non-compliance resulted in sanctions while the system was being introduced.
A couple of hon. Members asked whether quarterly updates will be required to take account of accounting adjustments for stock and work in progress, which are currently made only once a year. Detailed issues such as the allocation of capital allowances and the counting of stock levels will be addressed through consultation. I stress that all allowances, deductions and reliefs that are currently annual will remain so. Of course, for the many businesses that use cash accounting, that is much less of an issue, but I recognise that it is an issue for some businesses. Again, for issues such as work in progress, we are not requiring information quarterly.
Concerns were raised about payment. No decision has yet been made about changing payment dates. In December, alongside the “Making tax digital” road map, we published a discussion paper on options to simplify the payment of taxes. An initial consultation will take place shortly, with a further, full consultation to take place later this year.
My hon. Friend the Member for Morecambe and Lunesdale (David Morris), who does so much for the self-employed in the role he plays for the Government, raised the issue of payments following quarterly updates. Again, I stress that no decision has yet been made about changing payment dates.
Questions about how the changes will affect seasonal businesses will be addressed through this year’s consultation. Businesses trading seasonally may be due a tax refund in-year. If they update HMRC more frequently than they do now, that will allow HMRC to assess them for such a refund, so there may be a financial benefit for them. Let me also stress that the quarterly update will be based on actual information, not forecasts. I hope that that provides some reassurance.
In terms of implementation, I reassure hon. Members that we will carry out extensive testing. Roll-out to businesses will take place when the process and the design are known to work.
I touched on cash accounting earlier. About 2 million businesses operate on a cash basis and do not need to account for work in progress, stock and so on. For others, updates will provide an increasingly accurate picture through the year. However, direct taxes will remain annual taxes, so some adjustments will need to be made at the end of the year. That should, however, be less of a task than the traditional annual tax return, because much of the information will already have been pulled together.
Chris Leslie
I am trying to envisage what the Minister is discussing, because there is still quite a lot here that is open to consultation. Data on income and expenses would be supplied through these quarterly updates, but we might not necessarily be able to get rid of the annual return, which might still be necessary because of tax reliefs and so forth. [Interruption.] Yes, people could be doing these things five times a year—there would be one big final return and these updates along the way. Are we getting rid of the annual tax return or not?
Mr Gauke
The traditional annual tax return, we can get rid of. What I am saying is that, rather than starting largely from scratch and pulling all the information together, businesses that need to make adjustments at the end of the year will have already done much of that work. Now, as I say, the tax system remains an annual system, and one needs to be able to look at the year as a whole for things such as capital allowances. However, it is worth bearing it in mind that the capital expenditure of the vast majority—something like 98%—of businesses would fall within the annual investment allowance of £200,000, so that is not necessarily too much of an issue for them. However, I understand the point about work in progress.
The hon. Gentleman is absolutely right to make the point that there is still quite a lot to consult on. Sometimes, I fear that we are criticised both for rushing things, charging in and not listening and for things being a bit vague because we are still consulting on them, and there is a certain mutually exclusive element to those criticisms. However, the sense of direction is clear, and it is right that we consult on the details.
Finance (No. 2) Bill
Debate between David Gauke and Chris Leslie(9 years ago)
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Chris Leslie (Nottingham East) (Lab/Co-op)
It is a strange moment in the life of this five-year Parliament to be here debating the coalition’s last Finance Bill. Obviously I have great disagreements with the Financial Secretary and his colleagues in the Treasury team, but I want to extend a little hand of friendship across the Chamber. I know that this can be a difficult, even frenzied time, trying to draft legislation straight after a Budget and get things together at the last minute. However, we all aspire to be good parliamentarians, and it is incumbent on us to do our duty to scrutinise the Bill’s provisions properly and ensure that they are considered fully.
We are in the dying hours of this Parliament, but the Bill’s provisions—as my hon. Friend the Member for Edmonton (Mr Love) said, they will add to the tax code—are significant and will have a real impact on the economy and on many people’s tax and financial affairs. Ensuring that the Bill has proper scrutiny is therefore incredibly important. If we are honest, we have limped along in what has felt like a zombie Parliament in the past year in particular, with little going on. I am therefore a little surprised that there is a burst of energy all of a sudden, given that many of the Bill’s provisions could have been discussed, published and thought through at a more civilised pace. It is almost as though the Financial Secretary were doing one of those cycle races in a velodrome where it is all very slow until the last minute. There seems to be a bit of a panic in the Treasury.
The Bill contains 131 clauses of complex tax changes, affecting the energy generating sector, tax avoidance, pensioners and businesses, but we have been given only six hours to cover all of it. I accept that we have little choice about that because of how the Fixed-term Parliaments Act 2011 works—in the fifth and final year of the Parliament we can see that Parliament will prorogue at a given point. Nevertheless, I want to put on record our disappointment that we have not found a better way of improving the scrutiny of this year’s Finance Bill. Normally we would have a Public Bill Committee, in which we could spend fun-packed hours going through every provision. Sometimes I feel that such Committees go all too quickly.
Chris Leslie
I will; perhaps the Minister can say how we will compress that process into six hours.
Mr Gauke
I share the hon. Gentleman’s sense of loss that there is not the usual Committee stage upstairs this year. To be clear, it is necessary to pass a Finance Bill after Budget resolutions have been passed, and there is clearly a short period between those resolutions being passed and Prorogation. I am sure he recognises that there were discussions last week in the usual manner, and that clauses that the Opposition believed should be debated and dealt with in the next Parliament have been withdrawn. The clauses that remain are those that the Labour party accepted should be dealt with in the Bill.
Chris Leslie
I do accept that, and it is good that we have had discussions through the usual channels, treating the Finance Bill this year more in what is known as the “wash-up” procedure rather than our normal less-constrained procedures. Nevertheless, I think we should pause and dwell on the fact that in a fixed-term Parliament the date of the final Budget may have consequences downstream for the legislation that is spat out at the other end. Perhaps we should consider allowing a little more time between the final Budget and the end of the Parliament—obviously a Labour Government will be in power for the next five years, so this may be quoted back at me in five years’ time—so that we have a more considered approach.
Chris Leslie
My hon. Friend should bear that in mind when we hear Ministers trumpeting their apprenticeship numbers in aggregate, because there is always a story behind them. We need genuine apprenticeships to help the next generation obtain skills and career assistance, rather than what has been happening: the re-badging of many apprenticeship programmes, existing training courses and other arrangements that have been rebranded to allow tax support for applications for apprenticeships.
The Bill is not just divisive and unfair but a missed opportunity. There are several omissions. It is not just that the Chancellor could barely drag from his lips those three little letters, NHS, which I think got one mention in the Budget—Agincourt got twice as many. We should have had action to help the next generation, for example by reducing tuition fees to tackle the burden of debt facing students. Students graduate typically with £44,000 of debt, which is a burden not just on those individuals but on the national finances. Government Members should be very scared by some of the projections. Owing to their inability to collect tuition fees from some students, barely half of all tuition fees will be collected, which is adding to the national debt in the hundreds of billions of pounds. That needs to be tackled.
Chris Leslie
We are delighted that the Government took a shine to our proposals for pension tax relief changes—I suppose that imitation is the best form of flattery. We will stick with our policy to reduce tuition fees to £6,000, and we will set out in our manifesto, in a matter of days and weeks, how it will be funded. Still at this late hour, the full costings in our manifesto are available for the Office for Budget Responsibility to audit and verify—if only the Minister had shaken my hand on that. I offered him the hand of friendship—was it on the “Daily Politics” the other day?—but sadly he could not do it. It is important that we have fully costed and funded manifestos and that all parties engage in the process. We will look closely at the Conservative party manifesto. The Conservatives have made some grand promises about tax which will cost at least £10 billion to implement, even in the final year of the next Parliament, yet we have not seen a dicky-bird—even in the Budget figures—on how they will be paid for. I am looking forward to reading that chapter in its manifesto.
Future Government Spending
Debate between David Gauke and Chris Leslie(9 years, 1 month ago)
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Mr Gauke
My hon. Friend is absolutely right. I was struck that when it came to the substance of the shadow Chief Secretary’s speech, he rather rushed through that process. He tells us that he does not like our spending plans—I will come to the details of that in a few moments—but he does not tell us how much extra he would spend, or, if he is going to spend extra, how he is going to pay for it. Will it be through higher taxes or through more borrowing? We did not get any indication.
Chris Leslie
If the Minister wants to clear all these things up and make sure that we have an independent appraisal, does he back the hon. Member for Wyre Forest (Mark Garnier) in supporting the idea that the Office for Budget Responsibility should be allowed to report on the proposals of all the parties? What is so wrong with that?
Mr Gauke
I am afraid that that is a bit of a red herring. If the shadow Chief Secretary wants to set out what his plans are, and if he believes that spending needs to be higher than it would be under a Conservative Government, he can tell us how much higher—he does not need the OBR to look at his numbers. Does he believe that spending should be financed through more borrowing or more tax? What is it to be—a tax bombshell, a borrowing bombshell, or both? I will happily give way to him. He does not want to answer.
Mr Gauke
My hon. Friend makes a very important point, to which I will return in a moment.
Although we have made considerable progress, the reality is that we face further difficult decisions. On that basis, the House signed up to the “Charter for Budget Responsibility” last month. It enshrines in law that the Government elected in May, whatever their colour, must have a plan to tackle the deficit and to bring our national debt under control. Pretty well all of us, with one or two exceptions, committed to achieving falling national debt as a share of GDP by 2016-17, and to balance the cyclically adjusted current budget by the end of the third year of the rolling forecast period, which is 2017-18.
On the latest forecasts, the charter requires about £30 billion of consolidation in the first two years of the next Parliament. Under the plans set out by the Chancellor, it will be achieved by bearing down on spending, the welfare budget, and tax avoidance and evasion. To break the figure down, that is at least £13 billion of savings from Departments’ spending, at least £12 billion from welfare and more than £5 billion from tax avoidance and evasion.
The Labour party agreed to the charter: the motion was passed by 515 votes to 18. Perhaps it believes that a fiscal consolidation of £30 billion is too much. After all, that is the position of the Greens and the nationalist parties, who have explicitly said that they would borrow more over the next three years. That position is irresponsible, but I accept that it is coherent with everything else that those parties are saying. Labour, however, has voted to accept that a fiscal consolidation of £30 billion is necessary, so where is it coming from?
Mr Gauke
In a moment. If the Labour party does not believe in making savings from departmental budgets or welfare, where is the money coming from? To quote its leader,
“if we just try and cut our way to getting rid of this deficit, it won’t work.”
That is the Labour party’s position. Out come the old answers, but where is the money coming from?
Chris Leslie
The Minister must have the charter for budget responsibility with him. I will give him a moment if he wants to pick it out of his file. Where does it say in the charter for budget responsibility—perhaps he could give us a page or line reference—that the figure is £30 billion? Can he quote the OBR on that figure either? Is it not the case that the charter for budget responsibility was about agreeing to focus on current budget plans, and not about the absolute budget surplus that his party was apparently committed to? What on earth was going on?
Mr Gauke
That position is supported by the IFS. The figure is £30 billion. Where is it coming from? The Labour party simply does not have an answer. If it is not prepared to accept the £30 billion figure, it will be borrowing more. If it does accept the £30 billion figure, where is it coming from? If it is not coming from spending, it must be coming from tax.
Mr Gauke
As I said, the money has to come from somewhere, and middle-income earners are probably pretty high up the list. To be fair, it is not just the 50p rate, although that is the only policy mentioned in the motion. In television interviews, the shadow Chief Secretary to the Treasury has proclaimed one other policy to reduce the deficit. This is the key to deficit reduction and the policy that will restore public finances to health: a future Labour Government will put up fees for gun licences. How much will that raise? A whopping £17 million—except, to be fair, the shadow Home Secretary has already pledged to spend that money elsewhere.
Chris Leslie
The hon. Gentleman urged me to give the Minister both barrels, but I will try to resist. It is all very good banter trying to claim that that is the only way we would deal with the deficit, but of course that is absolute nonsense—when asked for examples, we give examples. The Minister raises an important point about gun licences. It is a small amount of money but it is still worth doing. Is he saying that we should not raise gun licence fees? Is he ruling that out because he thinks it is the wrong idea?
Mr Gauke
It was an attempt to show how ridiculous the Labour party’s economic policy is when the only example it puts forward, apart from the 50p rate, which is likely to cost money, is increasing the cost of gun licences. I did not really expect the shadow Chief Secretary to take it seriously that that was the big policy. Does he disagree that the shadow Home Secretary has already claimed that that money will be spent on policing? It is going to be spent on policing, is it not? There was a time in debating these matters when the big argument from Labour Members, their big macro-economic analysis, was that we were going too far, too fast. Now it has come down to this. What have they got a few days away from a general election? They have a policy on gun licences—that is it. What has the great Labour party come to? Gun licences!
Oral Answers to Questions
Debate between David Gauke and Chris Leslie(9 years, 2 months ago)
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Mr Gauke
My hon. Friend raises an important question to which I could give a lengthy reply. But what I will say is that, as a Government, we have taken action, for example, to improve the automatic exchange of information between various jurisdictions, so that there is nowhere for people to hide their money. The net is closing in on those who have evaded their taxes, and we are increasingly effective at dealing with tax avoidance as well.
Chris Leslie (Nottingham East) (Lab/Co-op)
With economic growth now showing signs of slowing and wages stagnating, is the Minister not worried that the amount of income tax and national insurance that he said he would collect is failing to live up to expectations? Will he tell the House by how many billions of pounds income tax and national insurance receipts have fallen short because of low wages, compared with the original Office for Budget Responsibility forecasts back in 2010?
Mr Gauke
We are aware that, since 2010, the economy has had to face challenges, which in 2010 were not anticipated by the OBR to occur in the way that they did. We have had to deal with the eurozone crisis, the high commodity prices at the time and the aftershocks of the financial crisis. The consequences have been significant, but if we want wages to rise we need to improve productivity. That is about improving our education system, and having more apprentices and a competitive tax system, and that is what this Government are delivering.
Chris Leslie
The answer is that income tax and national insurance receipts are down by a staggering £95 billion over this Parliament. Is it any wonder that the Minister and the Chancellor have failed so woefully to eradicate the deficit, and when will he realise that it is the low-wage economy that is the recipe for more borrowing, more welfare spending and more debt?
Mr Gauke
We discovered this morning that in 2014 the UK was the fastest growing major western economy. Employment is at a record level and unemployment has fallen dramatically, contrary to the Opposition’s predictions—but, yes, we have got further to go to reduce the deficit, which is why we need a Government who are prepared to make difficult decisions. All that we have heard from the hon. Gentleman is that he is going to put up fees on gun licences, which is not going to solve the deficit.
Income Tax
Debate between David Gauke and Chris Leslie(9 years, 5 months ago)
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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
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.
Finance Bill
Debate between David Gauke and Chris Leslie(9 years, 9 months ago)
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Chris Leslie
That is already on the record. Our view is that the proposed change in corporation tax from next April—from 21p to 20p—should not proceed. That help, instead of going to 2% of companies, should go to 98% of businesses, including the small and medium-sized companies that are the backbone of our economy and that form the bedrock of enterprise in this country. Funnelling that resource through business rates is our preferred choice, but we will set out all our plans in a manifesto, as I suspect the Minister will do as well. We had a debate on this matter earlier, in which we focused on annual investment allowances—the capital allowances for businesses. As we all know, the Minister cut that allowance to a very small level straight after the general election, causing great chaos for very many businesses. Amazingly, it is going up again, in time, coincidently, for the next general election. He revealed in the small print today that it is a temporary change, so the allowance will presumably go back down again.
Chris Leslie
I will give way to the Minister if he will tell us what that investment allowance will fall back down to in 2015. Will he tell us?
Mr Gauke
It is hardly in the small print. It was in the announcement that was made when we extended and increased the annual investment allowance until December 2015. After that, it is a rate of £25,000. That rate is in the public domain, and, presumably, it is the rate that the Opposition have as well.
As the hon. Gentleman did not quite respond to the question from my hon. Friend the Member for Braintree (Mr Newmark), let me ask it again. The Labour party has given a heavy hint this week that it could increase corporation tax up to 26%, as that would still be the lowest rate in the G7—that is the test that it has set itself. Will he provide some reassurance today that a Labour Government would not increase corporation tax to 26%?
Chris Leslie
We know the Minister’s game. He is again trying to scare firms and businesses with various suggestions on tax. We have made it very clear that we need to ensure that corporation tax levels remain at their most competitive among the G7. We will set out our tax plans in a manifesto, as the Minister will be required to do as well. If my hon. Friends think that VAT is due to stay at 20% under a Conservative Government, they should think again. I have heard that the Conservatives may wish to increase VAT to 21% or 22%. I will give way to the Minister if he can rule it out for us right now, here in the Chamber, that he does not have any plans to increase VAT in the next Parliament. Will he rule that out?
Mr Gauke
I will tell the hon. Gentleman what we can do: we can continue to reduce the deficit without increasing taxes. That is more than he can offer. Unlike his party, we have not given a heavy hint that the test based on the most competitive rate in the G7. Canada has a rate of 26.5%. If the Labour party imposed a rate of 26%, it raises the question of whether it would be complying with that commitment.
Chris Leslie
Let the record show that the Conservative Minister did not rule out increasing VAT to above 20%. It is telling that he gave a heavy hint that that remains open as an option. We can have these discussions and examine these particular issues, but I am looking at the missed opportunities—the things that should have been in the Finance Bill. We are now on its Third Reading, and it is time that Ministers realised that people from across the country are crying out for significant changes and improvements that will affect their lives.
I am thinking, for example, of the 5 million people in low pay and the incentives to deliver a living wage. That could have been part of the Finance Bill, but it is not. I am thinking of those families who are struggling with the high cost of child care, which is increasing at a rate higher than inflation. If only the Minister had designed his bank levy properly in the first place and collected the £2.5 billion that he promised the country, we could afford to move from 15 hours of free child care for working parents of three and four-year-olds to 25 hours. That is the sort of reform that could make a big and appreciable difference to the lives of working people up and down the country.
Chris Leslie
I do not know what evidence the hon. Lady has for that spurious assertion.
We will see what happens in the coming months. We will make sure that mortgage customers in the hon. Lady’s constituency know that the increases in interest rates are partly related to the condition of the housing market, which is causing significant risk. The Governor of the Bank of England is trying to deal with this very lopsided situation. Of course, it is a matter for him to decide on. Government Members need to speak to the Chancellor to get him to pull his finger out on the housing market and make sure that this is pursued correctly. They do not understand why it is important for the recovery to be fair for all—to be something that everybody in every part of the country benefits from. The richest 1% having been doing especially well in the past year.
Finance Bill
Debate between David Gauke and Chris Leslie(9 years, 9 months ago)
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Mr Gauke
My hon. Friend makes an important point. It is investors in pension schemes who will bear the cost. The UK investment management industry, which exists up and down the country—we had a debate about the regional nature of that industry—will also be damaged. The cost makes it hard for UK-domiciled funds to compete. We want UK-domiciled funds to compete. [Interruption.] Maybe that is not Labour’s position, although I note that the shadow Chief Secretary seems to be accepting from a sedentary position that this is not a tax cut for hedge funds.
Mr Gauke
Again—I hope the record will pick that up—this is for investment managers, not hedge fund managers. That is the argument the hon. Gentleman is making, which is different from the argument we have heard from the Opposition on occasions. For example, in July last year, the Leader of the Opposition accused us of making a tax cut for hedge funds. In the shadow Chancellor’s response to the autumn statement in December last year—he gave a speech that many of us will remember for a long time—he called on the Government to reverse the tax cut for hedge funds. It appears that the Labour Front-Bench position is to accept that there is no tax cut for hedge funds. That, I suppose, is progress. [Interruption.] As the hon. Member for Kilmarnock and Loudoun says, it is for investment managers, not hedge funds. She is still wrong, but she is perhaps less awry than she was. That is progress, and I hope that the Leader of the Opposition and the shadow Chancellor will withdraw any suggestion of a tax cut for hedge funds. We will be looking out to see whether that features in any Labour party promotional material over the months ahead, but I am glad we have made progress on that front at least.
In conclusion, clause 107 supports the Government’s objective to create a more competitive tax system and will increase the attractiveness of the UK as a location for fund domicile. Amendment 67 would serve no useful purpose, given the information already made available about this measure. New clause 7 rectifies a minor omission from clause 105 and ensures that the reduction in the SDLT higher rate threshold to £500,000 operates as intended. I therefore move that new clause 7 be accepted and request that amendment 67 not be pressed.
Finance (No.2) Bill
Debate between David Gauke and Chris Leslie(10 years ago)
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Mr Gauke
Let me see if I can find a point of consensus with the hon. Gentleman. We want—and I suspect he wants—to ensure that the wealthiest make a fair contribution towards reducing the deficit, and the challenge for any Government is to work out the best way of doing that. Let us look at this Government’s record on raising money from the wealthiest. Budget 2010 increased the higher rate of capital gains tax and Budget 2011 tackled avoidance through disguised remuneration—a policy that was opposed by the Labour party, even though it addressed avoidance by high earners. Budget 2012 raised stamp duty on high-value homes and autumn statement 2012 took action to reduce the cost of pensions tax relief, while Budget 2013 and autumn statement 2013 announced further measures to tackle offshore evasion by high earners. In 2013-14, the richest 1% of taxpayers contributed a larger share of income tax receipts than in any other year, including every year under the Labour Government.
The point is how we raise money from the wealthiest. The 50p rate is not the most effective way of doing that, because the behavioural effects are so strong that it fails to raise money. Now that growth is finally picking up, the Government will not consider any actions that might put the UK’s recovery at risk. Despite reducing the additional rate, the richest now pay more income tax than they did in any year under Labour.
Chris Leslie (Nottingham East) (Lab/Co-op)
The Minister was generously trying to find a point of consensus and I want to build on that, following the question asked by my hon. Friend the Member for Ogmore (Huw Irranca-Davies). The Minister talked about what might be raised by closing avoidance loopholes for the very richest, but what about the 13,000 honest millionaires who my hon. Friend says have benefited from a tax cut of £100,000 each? Will the Minister address that specific point and confirm that those honest millionaires—this is not about avoidance and loopholes—will each benefit from a tax cut of £100,000?
Mr Gauke
I suppose we are talking about the people who for almost the entire time the Labour party was in power were paying a lower rate of income tax, a lower rate of capital gains tax and a lower rate of stamp duty. I hear the Labour party’s position. [Interruption.] If we are trying to build consensus, let us look at what some Labour politicians have said. The noble Lord Myners, a former Treasury Minister, has said:
“The economic logic behind Ed Balls’s thinking would not get him a pass at GCSE economics,”
and that
“Ed Balls takes us back to old Labour and the politics of envy.”
Lord Jones, the former trade Minister in a Labour Government, described the policy as “lousy economics”.
Finance (No. 2) Bill
Debate between David Gauke and Chris Leslie(10 years ago)
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Chris Leslie
I disagree with the hon. Gentleman on that point, not least because the shortfall in the amount the Treasury said it would raise from the levy has been so much larger than £800 million. I think he needs to speak with Ministers. If he disagrees with £2.5 billion, he needs to tell them now. The Exchequer Secretary is in the Chamber, because he is the one—unbelievably—who was responsible for designing the bank levy. He must be massively embarrassed by its total failure. Why has it raised so little? How does he explain the shortfall? I will give way to him if he wishes to offer an explanation.
National Insurance Contributions Bill
Debate between David Gauke and Chris Leslie(10 years, 5 months ago)
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Mr Gauke
My hon. Friend makes a good point. I want to turn to the employers’ national insurance contributions holiday, because I suspect it will feature in the speeches of Opposition Members. They will make the point that take-up was not as high as we had anticipated. [Interruption.] Let me give the numbers: 26,000 employers and 90,000 employees have benefited from it. Our expectation was that take-up would be much higher. [Hon. Members: “How much?”] Don’t worry; I am going to set it out.
We said that 400,000 businesses and 800,000 employees would benefit from the scheme. I think that the reason why that did not happen is closely aligned to what my hon. Friend has just pointed out: a scheme that was, essentially, quite targeted and required businesses to apply—even though we worked hard to try to make the application process as simple as possible—simply meant that fewer businesses applied for it than we had anticipated. Take-up was lower than expected and there are lessons to be learned from that. We should be open about that.
We need a system that is simple and that can be applied easily. Under the new proposal, no application process is needed as such. Businesses will receive the benefit of the employment allowance simply by using up-to-date payroll, and the introduction of real-time information makes that much easier to apply. We believe that this is a much-improved policy. It contrasts with the employers’ NICs holiday, because that was a targeted regime. It also contrasts both with the policy advocated by Labour in its five-point plan, which was even more targeted, and with the policy we heard about yesterday on the living wage. Complicated, temporary schemes requiring applications are likely to have disappointing levels of take-up, whereas permanent schemes automated through the payroll system will, we believe, apply much better.
Chris Leslie (Nottingham East) (Lab/Co-op)
Will the hon. Gentleman give way?
Chris Leslie
I am grateful to the Exchequer Secretary and I also welcome the new additions to the Government Front Bench. He will remember that we both sat on the National Insurance Contributions Bill Committee—I think it was one of his first Bills as a brand new Treasury Minister—and Labour said at the time that the proposal was very complicated. We said that he needed to be very careful with the convoluted regional design that he put in place and that the scheme would not get the anticipated take-up, which evidently it did not. It is sometimes invidious to say these things, but we told you so. Will the Exchequer Secretary go a little bit further, accept that we were right and he was wrong, and be big enough to say sorry?
Mr Gauke
If I remember correctly, that was in autumn 2010, when the next leader of the Labour party was saying that 1 million jobs would go missing. The hon. Gentleman says that the NICs holiday was too complicated. One of the lessons that can be learned from the NICs holiday is that the simpler the scheme, the better. Perhaps the Labour party has not been listening to him because since that debate, it has proposed two NICs schemes, both of which are more complicated than the one that we had in place. If he is making the case for keeping NICs schemes simple, perhaps he ought to have a word with his party leader.
Finance Bill
Debate between David Gauke and Chris Leslie(10 years, 9 months ago)
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Chris Leslie
That is precisely why we think the proposal needs the Treasury’s support—to ensure that we can see what the levy would be. To return to our new clause, we think that the Liberal Democrats make a reasonable point that £2 billion could be raised on properties worth more than £2 million. We have not included those figures in our new clause; we have simply said that the Exchequer Secretary should study the issue and consider a 10p income tax rate band, to be funded by the proceeds of a mansion tax. That obviously depends on how wide the 10p band would be, so it is obviously moveable and that would flow through into the figures on the mansions tax.
Mr Gauke
I am afraid that I am going to disappoint the hon. Gentleman. He says that the Labour party’s objective is to raise £2 billion. Our assessment, as my hon. Friend the Member for Enfield, Southgate (Mr Burrowes) has pointed out, is that there are 55,000 properties worth more than £2 million in the country. We have the finest minds in the Treasury working on this, and they have divided £2 billion by 55,000—it did not require a huge amount of work—and ended up with an average of £36,000 a year as the annual levy. That is an average, and there might be some cases where the hon. Gentleman would want a lower rate for those who are property rich but cash poor. Can we just have some clarity? Does the Labour party want an average levy of £36,000 on all properties worth more than £2 million?
Chris Leslie
That was a good try by the Exchequer Secretary, and I understand where he is going with that argument, but I am not an estate agent and do not have a figure for the number of properties worth more than £2 million. However, it is very interesting that the Government have started counting the number of such properties. He talks about how the £2 billion would be defrayed across that number, which I am not sure is correct, but of course there would be a banding exercise, with different bands for properties worth more than £2 million, and we would see how far that goes. That is precisely why we need the Treasury to share some of its calculations with us. I am sure that it must be more than a back-of-a-fag-packet calculation from the Exchequer Secretary. Let us do the work, publish the findings— [Interruption.] Well, I will give way to him if he will agree to publish that work. Will he publish the internal Treasury assessment of the policy, because it would be very helpful?
Mr Gauke
Short of showing the workings, £2 billion divided by 55,000 is £36,000. The hon. Gentleman says that there would be different bands, but we would still end up with an average of £36,000. He will also find that most of the properties worth more than £2 million are worth only slightly more—between £2 million and £3 million. He will not find huge numbers of properties worth between £5 million and £10 million and so on. He has all the numbers he needs. I think that we can move on to the next debate.
Chris Leslie
I know that the Liberal Democrats support the Government on that and note the sedentary remarks from one of only two Liberal Democrats in the Chamber today. It is typical of the Treasury to hold back key information on these facts and figures. We need to know where those properties are and what valuations have been made. The Exchequer Secretary has done the work on the annual tax on enveloped dwellings, but he did not say that he would publish those findings. I think that we might be about to reach some consensus on this, because he is suggesting that the Treasury has done some work on it secretly, rather like the secrets held back in the spending review document, which was so thin that we still do not really know where the cuts have hit. Why does he not publish that information and start telling us how that could work in those circumstances? Will he publish it?
Mr Gauke
Actually, I quoted the figure of 55,000, which appears to have come as a huge surprise to the hon. Gentleman, several times when we had a similar debate in Committee. Admittedly, he was not dealing with the matter; his hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) was. The figure has been in the public domain for some time. Has he done any work on the matter?
Chris Leslie
I do not know how simple I need to make the point for the Exchequer Secretary, so I will do so very slowly and particularly. The new clause suggests that the Treasury—that means him, by the way—should publish some proper, worked-through evidence on where those properties lie across the country, how a banding proposal might work and what the options for the width of the 10p starting rate of income tax might be. By the way, he did not say a word about whether or not he supports a 10p starting rate of income tax.
Mr Gauke
New clause 9 proposes the introduction of an income tax rate of 10p on a band of income determined by the Exchequer yield of a mansion tax. Let me explain why the Government do not believe that the new clause is sensible
We are already helping people on low and middle incomes by means of the tax system. In May 2010, the coalition agreement set out our commitment to making the first £10,000 of income free from income tax by the end of the Parliament. In April we increased the personal allowance to £9,440—that was the largest ever cash increase—and it will rise again, by a further £560, to reach £10,000 in 2014-15, meeting this Government’s commitment a whole year early.
Opposition Members clearly think that it would be better to introduce a starting rate of income tax, but let us not forget that they introduced a 10% rate once before and then scrapped it, to the cost of many of the people further down the income scale whom they claim to want to help. We have replaced the 10p rate that they doubled with successive increases in the tax-free personal allowance which effectively provide a 0% band. Our changes in the personal allowance have already more than compensated those who lost out when the 10% rate was abolished. In fact, since April 2013, those who lost the most as a result of the last Government’s policy have paid no income tax at all.
According to the Institute for Fiscal Studies,
“the proposal for a new 10p starting rate of income tax, has no plausible economic justification. It would complicate the income tax system and achieve nothing that could not be better achieved in other ways.”
The IFS says:
“A far simpler and more sensible way of achieving these aims would be to spend the same amount of money on increasing the personal allowance...This would have virtually the same impact on individuals’ tax payments… be slightly more progressive, take some people out of income tax altogether and avoid the complexity involved in introducing a new income tax rate.”
Proposed subsection (2) of the new clause proposes the introduction of a mansion tax to pay for the proposed introduction of a 10p rate. That proposal has already been debated a number of times in the House, and the Government’s position is clear. The coalition parties have different views, but the view of my party is that a mansion tax is not the answer.
We expressed our concern in the Public Bill Committee, during a debate on the annual tax on enveloped dwellings. As we made clear then, a third of the properties in London that are worth over £2 million have been owned by the same people for more than 10 years. Many of those people, such as elderly owners whose properties had increased substantially in value during that period, would be faced with an average tax of £36,000 every year, and could be forced out of their homes. Moreover, families or other owners of high-value homes would not necessarily have the liquid income that would enable them to pay the tax. A mansion tax could hit asset-rich but potentially income-poor households.
Mr Gauke
I will in a moment. I look forward to the hon. Gentleman’s question, and will listen to it attentively. Before I do so, however, I should acknowledge his assurance that there would be a case for some type of mitigation for people in the circumstances to which I have just referred. That would, of course, have an impact on the yield, and the average of £36,000 would increase.
Chris Leslie
With whom do the Minister’s sympathies lie most? Do they lie most with the householder faced with the hardships of the bedroom tax, or with the householder faced with having to deal with the mansion tax?
Mr Gauke
Let me reply by echoing what was said by my right hon. Friend the Secretary of State for Work and Pensions during Question Time this afternoon. For all that we hear from Labour Members about the so-called bedroom tax—the spare-room subsidy—they have given no indication that they would reverse the current Government’s policy. For all the bluster on that—[Interruption.] Let me make this point. Labour Members should be straightforward about the fact that their policy would have an impact on, for example, elderly widows who have lived for many years in a property whose value has increased. Would they seek to address that?
In addition, the mansion tax would not be precisely targeted at the very wealthy. It would not take into account the number of properties owned. Therefore, a person owning two properties valued at £1.9 million each would not fall within its scope but a family owning a £2 million home would, even though their property wealth was much lower. Any mansion tax would be complex to introduce and administratively burdensome for HMRC to operate. It would come at a cost for taxpayers, not to mention that it would be intrusive for the person having their home inspected.
I know that the essence of Labour’s argument is that we already have the annual tax on enveloped dwellings. However, that is a very targeted tax. Essentially, only 1,000 properties are likely to be affected by it, so it applies to only a very small group of taxpayers. HMRC can therefore administer the tax manageably, relying on self-assessment, with a limited number of inquiries. A mansion tax would affect a much larger number of taxpayers and require greater administration and valuation, which would make it much more expensive, time consuming and difficult to collect.
Chris Leslie
I am interested in the fact that the Minister thinks that the analogy is not applicable. How, though, would the administration of the mansion tax be more time consuming? The owner of the property would have responsibility for the valuation. It would not be more onerous for HMRC in that respect, if it were to follow the design of the ATED arrangements.
Mr Gauke
We do not believe that that model could be scaled up to apply more generally. A proper valuation process will be needed if the mansion tax is a much less targeted tax. Let me give the Labour party a degree of credit, however. The hon. Gentleman said that Oppositions are often asked how they would pay for a measure, and the hon. Member for Islwyn (Chris Evans) said that Labour has a policy to pay for this proposal. However, under the mildest of questioning, the policy appeared to unravel before our eyes. The target yield is £2 billion. I repeat a number that I gave some weeks ago in Committee: the Treasury believes that 55,000 properties are valued at above that level. We undertook that research to cost the annual tax on enveloped dwellings. That is the number. A very simple calculation gives us an average of £36,000 a year. Rather than Labour saying, “We accept that. That is how we will pay for this. That is how we will get a yield of £2 billion,” it is sliding away from the policy. It is not accepting that that is the consequence of what it is advocating. If it thinks that £36,000 is too steep—maybe it does not, maybe it does—it should acknowledge that, but that is the average cost. I suspect that Labour does think that it is too steep and that is why the £2 million threshold is under threat. That is why, to raise £2 billion, any Government would have to apply the mansion tax to lower down the property ladder. That is why a tax that is designed for the few will become a tax for the many. The tax is ill thought out. Either it will result in very high sums being levied on small groups, or it will not raise anything like the yield that the Labour party claims it will and it will apply more generally.
Introducing a mansion tax would create real fairness issues by hitting asset-rich but potentially income-poor households. It would serve only to create complexity and uncertainty. The personal allowance is the most effective way to support those on low and middle incomes, because it enables people to keep more of their money. It is a better policy than reintroducing the 10p rate of income tax. The Government have made huge strides to make a fairer society and a stronger economy. All elements of the new clause are flawed. I urge the hon. Member for Nottingham East (Chris Leslie) to withdraw the motion.
Finance (No. 2) Bill
Debate between David Gauke and Chris Leslie(11 years ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Gauke
Of course, that has been far outweighed by the steps that we have taken to reduce fuel duty. The net effect has been a substantial reduction in the amount of tax collected for every litre of petrol.
New clause 2 returns us to the big, fundamental economic argument that we have been having for some years on deficit reduction. I could deliver the standard speech that we give in such circumstances about how it is a strange way to deal with a debt crisis to try to increase borrowing. However, this is one of those rare occasions when the Opposition have put forward a policy and we have an opportunity to ask questions about it. I know that the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) will be keen to enlighten the House on the policy she has set out in new clause 2, and if I may, I will ask a number of questions—[Interruption.] I am sorry; there seems to be some objection from the Labour party. New clause 2 is being proposed by the Labour party. I want to ask questions about the policy behind it, so let me ask those questions.
First—this is the point raised by my right hon. Friend the Member for Wokingham (Mr Redwood)—new clause 2 states that VAT will be reduced until “strong growth” is achieved. What is strong growth?
Mr Gauke
I would give way to the hon. Gentleman, but he was not here for the early part of the debate. He may not have read the new clause, but the policy depends on the definition of “strong growth” and the Labour party has not provided a definition.
Secondly, the cost of this measure will be £12 billion to £13 billion a year. How will that be paid for—an issue raised by my hon. Friend the Member for Peterborough (Mr Jackson)? Will it be through higher taxes, a reduction in spending or—as we believe—an increase in borrowing? What consideration has been given to the impact on the cost of borrowing? A 1% increase in Government bond yields would add around £8 billion to annual debt interest payments by 2017-18 and result in an increase of £12 billion in households’ mortgage interest payments—the equivalent of £1,000 for a household with an average mortgage in its first year. Has the Labour party considered the consequences of that discretionary fiscal stimulus?
What is Labour’s view on the profile of deficit reduction? We believe that over the whole deficit reduction period, 80% should be achieved through spending cuts and 20% through tax increases. The Darling plan had two thirds on spending cuts and one third on tax increases. What is the view of the Labour party, given that it has put in front of the Committee a proposal for a £12 billion or £13 billion tax cut? Does it suggest that the ratio should lean more towards public spending cuts rather than tax rises? What assessment has Labour made of the impact of different taxes on the economy? My right hon. Friend the Member for Wokingham mentioned the fact that VAT is, as many economists would argue, less harmful to growth than other taxes. Is that the view of the Labour party? Why has VAT been picked as a particular issue?
The Labour party does not come forward with policies often, but I am pleased that it has done so today so that Labour Members have the opportunity to tell the Committee exactly what their policy is. They can explain that policy, and if they would care to answer those questions the Committee will be able to judge whether it should support new clause 2. My advice to my right hon. and hon. Friends is that this is just more of the same from the Labour party. It is more borrowing and more debt, and it fails to get to grips with the fiscal situation and the mess in which the Labour party left this country and which we, the coalition Government, are addressing.
Finance (No. 2) Bill
Debate between David Gauke and Chris Leslie(11 years ago)
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Mr Gauke
Borrowing is down by a third from the position it was in when we came into office—that is the reality of the situation. We have to remember that if we had the policies advocated by the previous Government, borrowing in this Parliament would be £200 billion higher than it is going to be.
Chris Leslie (Nottingham East) (Lab/Co-op)
I do not know whether the Minister did not get the memo, but the Office for Budget Responsibility confirmed that, compared with the Government’s predictions for the 2010 spending review, borrowing is predicted to be £245 billion more. The Minister needs to get a grip on the fact that borrowing is getting higher. I dare him to say that the deficit is being reduced in this financial year as compared with the previous financial year, because that is just not happening.
Mr Gauke
The hon. Gentleman is right to say that borrowing levels are higher than predicted by the OBR three years ago, but that is not the same thing as saying that borrowing is higher now than it was. The fact is that at the last Budget the OBR forecast that the deficit was going to be lower this year than it was last year.
Mr Gauke
The reality is that, had we pursued the policies the Opposition advocated at the last general election, let alone now, the deficit would be much, much higher. In fact, the Opposition are not standing behind any of the deficit-reduction policies they advocated at the last general election. For example, I think they support what we are doing on the fuel duty—it was one of the few measures the previous Government had in order to reduce the deficit.
Chris Leslie
I thank the Minister for giving way so generously, but I just want him to answer my question. He is not claiming that the deficit is still being reduced, is he? It is not falling this year compared with the last financial year, is it?
Mr Gauke
My hon. Friend is absolutely right. We want an international tax system that ensures that economic activity is taxed where it occurs. That involves working internationally, and he is right to highlight the Prime Minister’s ambitions while we have the presidency of the G8, which will feed through to the G20 and the work that the OECD is already doing, which we support. It is right to have an international tax system that reflects the reality of how multinational businesses work.
Clauses 203 to 212 introduce the UK’s first general anti-abuse rule—GAAR—which will provide a significant new deterrent to abusive avoidance schemes and strengthen HMRC’s means of tackling them. On top of that, we are taking action to close a further 15 tax avoidance loopholes, which will increase tax revenues by almost £1 billion up to 2017-18, as well as protect future revenues. The Chancellor gave a clear warning in the 2012 Budget that the Government would take action on aggressive stamp duty avoidance. The Bill follows up on that warning by legislating against those who continue to avoid tax on property transactions. All these measures will stop people exploiting legislation to gain tax advantages that were never intended, and they will also encourage fairness.
Chris Leslie
While the Minister is on the subject of companies that might not pay their fair share of corporation tax, will he confirm that the banks received a substantial corporation tax cut in the past financial year and the one before that, yet he has done nothing to correct the situation?
Mr Gauke
No, I cannot confirm that, because it is not correct. The reality is that the reductions in corporation tax falling to banks have been more than offset by increases in the bank levy. We have sought on every occasion to offset the decreases in corporation tax through increases in the levy.
Chris Leslie
I had a feeling the Minister would say that the corporation tax reduction had been offset by the bank levy. However, although the Prime Minister promised that the levy would raise £2.5 billion, it raised only £1.8 billion in 2011-12—[Interruption.] Perhaps the hon. Gentleman is getting an answer to this point from the Economic Secretary. In the past financial year, the levy raised only £1.6 billion, so there is a massive shortfall compared with the amount that the Prime Minister said it would raise. How on earth does that offset the corporation tax cut for the banks?
Mr Gauke
We were clear that our objective was that the bank levy would collect £2.5 billion, on a permanent basis, which is more than the bank payroll tax ever collected. When the amount has fallen below our expectations, we have adjusted the levy, and the independent Office for Budget Responsibility anticipates that the bank levy will raise £2.5 billion this year. We have made adjustments largely because the banking sector has continued to be afflicted by economic difficulties throughout the world, as a consequence of the crash, so fragile global conditions have played a part. I am not going to be preached to by the Opposition on the taxation of banks. We have introduced a bank levy; the Opposition had 13 years in which to do something about that, but failed to do so.
Tax Fairness
Debate between David Gauke and Chris Leslie(11 years, 1 month ago)
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Mr Gauke
I am not going to debate at length the spare-room subsidy, which is an area of public spending constraint that we need to engage in. There is a genuine issue in respect of the asset-rich, cash-poor that the hon. Member for Nottingham East appeared to recognise and which would have to be addressed.
The mansion tax would be administratively burdensome for HMRC to operate, not to mention intrusive for the person having their home inspected. We would have concerns that in Labour’s hands, the starting level for such a tax would not stay at £2 million for very long. What began as a mansion tax would soon become a homes tax. To coin a phrase, it would become a tax for the many, not for the few.
Chris Leslie
I am surprised the Minister thinks that “the many” own properties worth £2 million and above. I wanted to ask him about the Treasury’s own proposition that residential properties of £2 million and above, albeit owned by a company, should have an annual charge based on a self-assessed valuation, with a banding process. Is he saying that his own policy is administratively burdensome?
Mr Gauke
Let us be clear. One of the weaknesses in the tax system that we inherited was the fact that people were able to walk around the paying of stamp duty. On very valuable properties, it was all too easy for people to arrange their affairs thorough corporate vehicles and not pay stamp duty. In the last Budget this Government introduced measures that will deal with that enveloping and deal with one of the unfairnesses in our tax system. One of the ways in which we are going to do that, as well as a high stamp duty charge for properties held in corporate vehicles, is to bring in an annual residential property tax. That is focused only on properties worth more than £2 million held by a corporate vehicle. It would apply to only 6,000 properties, we estimate. It is a very narrowly focused policy that will enable us to deal with an area of avoidance that was allowed to carry on for far too long under Labour.
Mr Gauke
My hon. Friend makes a very good point. There is no explanation that civil servants can give for that. An explanation and an apology are due from the Opposition, but we await either of those. I think that they persist in the view that there was no structural deficit even before the crash—
Chris Leslie
There was certainly a global financial crisis. But can the Minister confirm that under the current Chancellor of the Exchequer, national debt has risen from £811 billion to £1.111 trillion? Has debt risen by that much—yes or no?
Mr Gauke
Debt is the accumulation of deficits. We inherited the largest deficit in our peacetime history, and every measure that we have taken to reduce that deficit the Opposition have opposed, and then they complain that debt is rising. That is the most absurd position. We are criticised for not borrowing enough, and then we are criticised for our debt going up. There is no consistency or credibility in the Opposition’s position, just as there was no credibility or consistency in their treatment of low-paid workers. In government, they raised the rate of income tax; in opposition, they make promises that they will cut it. When we remember the reality, why should those on low incomes ever trust Labour again?
Mr Gauke
No, I think my hon. Friend would be wrong to reach that conclusion from what I have said. There is an interesting debate on the balance between property and income taxes, however, and I note his suggestion in that context.
May I now return to the topic of the 50p rate, as I know the hon. Member for Nottingham East likes to focus on it? The Opposition may think that in this day and age 50p is the least the wealthy should pay in income tax. I want to put to them the question raised earlier by my hon. Friend the Member for West Worcestershire (Harriett Baldwin). In less than four weeks the 50p rate will have gone. The additional rate will be 45p. Will Labour seek to reverse that? I am happy to take an intervention on this point. Will Labour seek to reverse that after the next election?
Chris Leslie
The Minister is asking the Opposition what is going to happen in two years’ time, but can he tell us what will happen in next week’s Budget?
Mr Gauke
That is very amusing, but of course I am not going to do so. I am fairly confident, however, that at the next general election the Conservative party will not be advocating a 50p rate of income tax. The hon. Gentleman is calling for a 50p rate of income tax, however. He will not tell us why. He is now saying, “Well, we don’t know what the economic circumstances will be.” That is fair enough, but does he think that his party will make a manifesto commitment at the next general election to introduce a mansions tax? Is that a commitment? I am happy to give way again.
Chris Leslie
It is very simple: now, in 2013, we can see the deficit rising and getting worse and we can see borrowing increasing, growth flat-lining and living standards falling, and the Minister is asking us to predict what we are going to do in two years’ time. How on earth do we know what other horrors are in next week’s Budget box or, heaven forfend, in the spending review of 26 June? Can he tell us what is in that spending review?
Mr Gauke
This is starting to get interesting, because we have now learned that the Labour party has moved a motion trying to persuade Liberal Democrats to vote in support of a mansion tax, yet Labour will not confirm whether it thinks a mansion tax is a sensible policy for the next Parliament. The position of the Liberal Democrats is clear and the position of the Conservatives is clear; what is not clear is whether the Labour party, after all, supports a mansion tax. Will it be in its manifesto? That is a perfectly clear question.
Budget Leak Inquiry
Debate between David Gauke and Chris Leslie(12 years ago)
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Urgent Questions are proposed each morning by backbench MPs, and up to two may be selected each day by the Speaker. Chosen Urgent Questions are announced 30 minutes before Parliament sits each day.
Each Urgent Question requires a Government Minister to give a response on the debate topic.
This information is provided by Parallel Parliament and does not comprise part of the offical record
Chris Leslie (Nottingham East) (Lab/Co-op)
(Urgent Question): To ask the Chancellor of the Exchequer if he will make a statement on whether he will instigate a Budget leak inquiry, in view of the accurate pre-reporting of a number of the detailed proposals in his Budget statement, including one of the matters that was agreed under the Provisional Collection of Taxes Act.
The Exchequer Secretary to the Treasury (Mr David Gauke)
As with every Budget, we have seen a vast amount of speculation, and, as ever, a vast amount of it has proven to be unfounded. As the Chancellor has said, a Budget produced within a coalition is different. The days of the Chancellor coming up with a Budget in secret are gone. This was not a Conservative or a Liberal Democrat Budget; it was a coalition Budget. In the course of coalition Budget negotiations, various proposals were raised, discussed and debated. That occurred more widely than in the past, when the Chancellor told the Prime Minister what was in the Budget the day before or, as in even more recent days, when the Prime Minister told the Chancellor what should be in the Budget the night before. The Treasury does make announcements throughout the year. For my own part, people will have seen the work on tax transparency and personal tax statements, which was in response to a consultation on this very issue laid before the House in November and subject to a ten-minute rule Bill from my hon. Friend the Member for Ipswich (Ben Gummer).
On the specific question, it is a long-established practice of the Treasury not to comment either on whether a leak inquiry has been established, or on its conduct or outcome. There will be ample opportunity to debate the Budget over the coming days. Today is the second of four days of debate on the Budget. It is perhaps an unfortunate consequence of this urgent question that this is being delayed, and so is delaying the shadow Chancellor, from whom I am sure the House is eager to hear.
Chris Leslie
Coalition government is absolutely no fig leaf for these very serious breaches of the ministerial code—[Interruption.] Government Members may wish to listen. Paragraph 9.1 of the code states:
“When Parliament is in session, the most important announcements of Government policy should be made in the first instance, in Parliament.”
There have been clear and flagrant violations of this crucial principle. It is a significant insult to the primacy of Parliament and this House of Commons, to whom the Chancellor should be accountable. It is a shame he was not able to come here to answer for himself on this matter.
Our constituents expect that Members of Parliament should be the first to hear and question policy announcements from the Chancellor, and hold him directly to account. The Chancellor is treating Parliament as a peripheral afterthought, and that is totally unacceptable. But this is not just about the sovereignty of Parliament; if the Chancellor and his acolytes are prepared to pre-brief and leak key information about very sensitive tax changes, that risks handing privileged information to those who can take advantage of any advance knowledge.
The ministerial code is enforced by the Prime Minister, who should instigate a leak inquiry if the Exchequer Secretary refuses to do so. He did not say whether he was or was not going to have an inquiry—at least he could leak that little bit of information for us today. It is also necessary, of course, to include an investigation of conversations between the Chancellor’s special advisers and the civil service and the media. Of course, civil servants are guided by the civil service code. It is unlikely that newspapers will reveal their sources, but Ministers and special advisers should be interviewed and asked who they spoke to, when the conversations occurred and who sanctioned those conversations. If information was released pre-Budget without approval from the Chancellor and was leaked, it is a very serious breach of security and of the civil service code.
Yesterday’s Budget was described by The Economist as
“more of a newspaper review than a Budget”.
Another view was that
“the Budget has had all the leak-free qualities of a teabag in a sieve.”
It might be quicker to list what the papers did not publish before the Budget, but for the benefit of the House I shall list some of those measures that did come out: the reduction in the 50p rate appeared in The Guardian last week and in the Financial Times; the changes to the personal income tax allowance appeared on ITV News on Tuesday night, when the exact figure was given; the stamp duty land tax changes appeared very precisely in the Financial Times and in basically all the newspapers on Wednesday morning; the changes to stamp duty land tax on residential property associated with capital gains tax changes appeared on the “Andrew Marr Show” at the weekend; and the North sea oil and gas commissioning certainties appeared in the Herald Scotland on Saturday 17.
The one Budget change that was not leaked was the £3 billion raid on pensioners, now dubbed the “granny tax”. Some 4.5 million pensioners are to lose an average of £83 next year. In times gone by, Chancellors did the honourable thing when it was revealed that their Budgets had leaked. In contrast, when asked about the Budget leaks on this morning’s “Today” programme, the Chancellor said:
“inevitably the days when the Chancellor dreamt this all up in secret, shared it with the PM 48 hours before he delivered his speech...are gone”.
Well times are not so different that they give licence to the Chancellor to fling around the contents of the Budget red box to any passing journalist, regardless of the consequences. Mr Speaker, we have heard the usual dismissive indifference from the Minister to these serious concerns, so perhaps I need to ask you, as a point of order, for general guidance about how the rights of this House, and the public’s expectations of orderly policy announcements, can be protected? Can you take steps to ensure that the Chancellor does not treat Parliament and the wider public with such utter contempt in the future?
Mr Gauke
I was not entirely sure whether that was a question or a point of order, Mr Speaker, and at one point I was not entirely sure whether the hon. Gentleman was complaining about measures not being briefed in advance or being briefed in advance. He referred specifically to the 50p tax rate. In the days running up to the Budget there were various reports about the 50p rate and it was public knowledge that the Chancellor had commissioned HMRC to undertake a report on the 50p rate and how much that tax was raising—an issue that I am sure the hon. Gentleman does not want to debate for very long. In that time, it was very clear that the Chancellor was going to make a statement, but what did we see in the press? We saw stories that it was going to stay at 50p, be cut to 45p or be cut to 40p. We saw press reports that it was going to happen this year or next year. There were at least five different versions of what was going to happen on the 50p rate, so it is not surprising that one of them turned out to be correct. However, it is also the case that four of them turned out to be incorrect.
The hon. Gentleman asked about sensitive numbers. I can assure him that the numbers on the stamp duty land tax—the increase to 7%—which I am sure he welcomes, certainly did not come from the Treasury, and neither did the exact number regarding the personal allowance as far as I am aware. We also heard from the hon. Gentleman that in days past these things did not happen. May I remind him what happened when he was last a Government Minister? In the 2005 Budget there was a leak about tax credit increases that turned out to be correct, a leak about alcohol duties that turned out to be correct, a leak about fuel duty that turned out to be correct, a leak about inheritance tax that turned out to be correct and a leak about stamp duty that turned out to be correct. There were also leaks about council tax refunds and the winter fuel allowance, all of which were entirely correct.
I could look at more recent announcements such as those about VAT in 2008, about the green bank, the youth jobs package, fuel duty and schools, all of which turned out to be accurate. I am sure that Government Ministers would then have said that that was speculation and I am sure that in many cases they were absolutely correct. It is difficult to give full credit to the hon. Gentleman given that detailed information about Budgets has been put into the public domain by previous Governments for many years, but he has only now suddenly become very upset. I am not surprised that the Labour party wants to focus on an issue of process rather than on the substance because this Budget is going to get the country growing again and is reforming the tax system in a sensible and growth-friendly way.
Finance (No. 3) Bill
Debate between David Gauke and Chris Leslie(12 years, 9 months ago)
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Chris Leslie
The amendments look reasonably uncontentious. It is sensible to find ways to support mutual assistance between nation states in the recovery of tax debts and duties. I am glad that the consents have come from the devolved Administrations. Those justify the amendments, so we do not wish to oppose them.
May I, too, take this opportunity to congratulate the hon. Gentleman on the prestigious award of tax personality of the year. I am sure that there is more to his personality than tax. Perhaps in his speech, as well as thanking his parents and his agent, he could also thank his accountant.
Amendment 1 agreed to.
Schedule 7
Investment companies
Finance Bill
Debate between David Gauke and Chris Leslie(12 years, 9 months ago)
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Chris Leslie
The hon. Gentleman could have speeded that up by not intervening.
I shall finish by saying that, clearly, there are major problems with the transferable allowance. It is costly and not targeted, and it is unfair to those without a marriage certificate, whether they are divorced, widowed, single or in a couple. There are a host of anomalies and unintended consequences, as several of my hon. Friends have said. For instance, if a husband is killed in a tragic road accident, his widow and children will be left without support, and so on. The proposal undermines the principle of independent taxation, but most of all, we should focus our tax and benefits system on need and on the alleviation of poverty. I sincerely hope that the House will reject new clause 5.
The Exchequer Secretary to the Treasury (Mr David Gauke)
As we have heard, new clause 5 would introduce transferable personal allowances for married couples, allowing one spouse in all married couples to transfer unused personal allowance to the other. I am very grateful to my hon. Friend the Member for Congleton (Fiona Bruce) for tabling the new clause. It highlights an important point: that marriage is a positive institution, and one that the Government are committed to support.
We are keen to send a clear message that family and marriage matters, and that strong and healthy families help to create a strong and healthy society. In little more than a year, this Government have proved our determination to tackle the wider issues that can affect family stability.
National Insurance Contributions Bill
Debate between David Gauke and Chris Leslie(13 years, 3 months ago)
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Mr Gauke
That was the shadow Chancellor’s position then, but I believe that a few days earlier he had said that there was
“no logic, sense or rationality”
to the policy. If he has changed his position, Government Members would welcome that. The Prime Minister—my “big boss”, as the shadow Health Secretary has described him—has said that we are
“confident that we will fulfil our goal of real-terms increases every year in the NHS.”—[Official Report, 15 December 2010; Vol. 520, c. 902.]
That will occur, regardless of whether any amendment such as that proposed by the right hon. Member for Wentworth and Dearne is included in the Bill; this is a matter of spending and this mechanism is not terribly helpful. Given those comments, I hope that he will withdraw the amendment, although I am not optimistic.
Chris Leslie (Nottingham East) (Lab/Co-op)
I should like to say how pleased I am that my right hon. Friend the shadow Health Secretary has been able to extend the offer of support to the Government with this amendment. He seeks to be as helpful as an Opposition can be and to encourage the Government to live up to their coalition agreement promise to ensure real-terms growth for our national health service.
As many of my hon. Friends have said, the NHS is absolutely at the top of our constituents’ concerns and it is important that we ensure that we deliver a real-terms increase, particularly given the relatively high level of NHS inflation compared with mainstream inflation. I am sorry that, despite the hand of friendship being offered, the Minister felt that amendment 8 was “a pointless exercise” and “unnecessary”. I thought that rather cruel. We think that the National Audit Office probably would be more than happy to undertake a study to find out how much money the Chancellor would need to add to the sum already committed in order to fulfil the Prime Minister’s promise. Interestingly, the Minister said that he was confident that the Government “will” meet their commitment; he did not say that they “have” met it. Perhaps I am reading between the lines in a way that I should not, but it was almost as though the Minister was conceding, to a degree, that the sums allocated in the spending review do not fulfil that real-terms growth.
I am sorry that the Minister did not address the two key points, and I would be more than happy to give way to him if he would care to address them. The first relates to the social care switch, whereby accounting and statistical opportunities have suddenly been taken to move a sum that had been and still is to be delivered by local authorities under the budget heading of the NHS—of course, social care will continue to be delivered by local authorities. Perhaps the Minister would like to confirm that that is the case. Therefore, to classify this money as part of the NHS growth is disingenuous in almost anybody’s book.
Oral Answers to Questions
Debate between David Gauke and Chris Leslie(13 years, 3 months ago)
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Mr Gauke
With reference to the comprehensive spending review, the council tax freeze and the other measures that we have announced demonstrate that we are making every effort to ensure that the difficult decisions that we have to make because of the deficit are reached in a way that is fair.
Chris Leslie (Nottingham East) (Lab/Co-op)
But will the Minister now acknowledge that the spending review was in fact brutally regressive and hit the poorest hardest, especially when we see how the figures announced last week will affect individual councils and communities? For example, how can he justify the percentage changes announced last week to the local authority specific grants for learning disabilities, Sure Start and One to One tuition? The most deprived 10th of local authorities will see a drop—minus 12%—whereas the wealthiest decile will see an increase of more than 24%. How is that fair or progressive?
Mr Gauke
When we look at 2011 and onwards, we see that this is a Government who are bringing in the pupil premium and funding social care. Labour Members, when they were in government, were planning to make cuts in 2011-12. Where would they have made their cuts? We have done everything we can to protect the poorest in the very difficult circumstances left us by the Opposition.
Finance (No.2) Bill
Debate between David Gauke and Chris Leslie(13 years, 5 months ago)
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Mr Gauke
The policy underlines the fact that the Government are looking to address our deficit in a way that is fair, and to ensure that all parts of society play their part and those with the broadest shoulders make the biggest contribution. That is what we are doing. It is remarkable that it is Opposition Members who appear to be trying to prevent that happening, though I am not sure whether they object to the way in which it is being done or whether they intend to fight in the last ditch to defend the principle of universality as it applies to child benefit.
We wanted to avoid creating a complex new means test for household income. To do so would fundamentally change the nature of child benefit and come at a significant cost to the taxpayer. This policy has therefore been designed to avoid affecting the vast majority of the population—some 80%—who are basic rate taxpayers. It also avoids additional systems being developed, as the measure can be delivered within existing pay-as-you-earn and self-assessment systems.
Let me deal with the issue behind the new clause—the principle of independent taxation, which was introduced in the Finance Act 1988. It is a great pleasure to hear Opposition Members applauding the 1988 Budget. If I remember rightly, proceedings in this place at the time were interrupted as the Chancellor of the Exchequer was shouted down by some Opposition Members. Section 32 abolished the provision that a wife’s income was income of her husband for income tax purposes. That remains the case, and none of the proposed changes to child benefit alters it.
Child benefit is provided for a child within a family and it is therefore necessary to consider the family as a group. The policy merely withdraws child benefit from a family to whom it is difficult to justify paying it. Furthermore, the withdrawal of child benefit from families containing a higher rate taxpayer will not affect the personal allowance or rate band applicable to an individual. The changes apply a simple test to ensure that child benefit is not provided to those who need it the least.
Of course, the House will have the full opportunity to debate the changes to child benefit when they are legislated, ahead of implementation in January 2013. That would be a better time to discuss the various specific issues that have been raised in the course of the debate. Although I understand that Opposition Members may wish to draw a link between child benefit and independent taxation in order to have this debate today, it is clear that the two systems remain separate and independent.
Chris Leslie
I am trying to follow the Minister’s logic. Does HMRC envisage child benefit continuing to be paid to all mothers, but that higher rate taxpayers will have a sum equivalent to child benefit deducted from their income, on top of taxes?
Mr Gauke
The hon. Gentleman, who has been somewhat ingenious in tabling the new clause, again seeks to draw me into a wider debate about the implementation of child benefit. He sets out one way in which it could work; in other circumstances, claimants might seek to stop receiving child benefit. However, I must stress that, although he has been somewhat ingenious in raising the issue in the context of the Finance (No.2) Bill, the new clause has nothing to do with independent taxation, so I ask him to withdraw it.
Chris Leslie
I am astonished by the Minister’s blinkered approach in sticking to the robotic text, “This has absolutely nothing to do with independent taxation,” when it patently does. If a higher rate taxpayer is being asked to pay for income that their partner or spouse receives, that clearly breaches the principle of independent taxation. The hon. Gentleman would not be drawn into the mechanism by which the scheme would be set up, but, given the great fanfare with which the policy was announced at the Conservative party conference, I would have thought that by now the panic stations at the Treasury might surely have subsided, and that he would be able to share with the House exactly how the measure would work.
Chris Leslie
I will come to deferred tax in a moment, because the corporation tax questions require much greater scrutiny. That is one reason we tabled the new clause. I hope that the hon. Gentleman will join me in the Lobby, should we divide on this issue—unless the Treasury concede it—and that he agrees that we should have a review of the level of tax the banks are paying. If they are paying too much, which I doubt, I will be happy to look at the evidence and the facts. However, there is opacity about these questions, and given the hit falling on the shoulders of families and children in this country, it is incumbent on us to ask whether the banks will be paying their fair share. That is all we are asking this evening.
We think that the Government’s banking levy has been a limp effort so far. Given some of the corporation tax changes, there is a bit of a cashback arrangement for some of the banks. I would like to touch on three areas of corporation tax that I think require more serious and rigorous review. The first is that cashback boost for the banks resulting from the reduction in corporation tax rates announced in the Budget. The Exchequer Secretary confirmed in a written answer that over the lifetime of the spending review the Treasury expects that the cut in corporation tax main rate from 28% to 27%, and eventually down to 24%, will return £1 billion to the banks—specifically to the banks:
“£0.1 billion in 2011-12, £0.2 billion in 2012-13, £0.3 billion in 2013-14 and £0.4 billion in 2014-15.”—[Official Report, 1 July 2010; Vol. 512, c. 610W.]
Mr Gauke
It is dangerous to intervene given that I do not have the answer to which the hon. Gentleman has referred in front of me, but my recollection is that the answer to that parliamentary question was in the context of financial services companies as a whole, including insurance firms, not specifically banks.
Chris Leslie
It might well be that in that written answer the Exchequer Secretary’s definition of “financial services” extends slightly beyond the banks. I am happy to concede that point. Of course, we framed the new clause in order to explore the tax burden not just on the banks but on financial services more widely. However, even the hon. Gentleman would have to concede that the banks will probably be the principal beneficiaries of the corporation tax cut that he is choosing to give them at a time when he is taking money from young, pregnant mothers—the health in pregnancy grant, to name one example of an incongruous decision that might be questioned by our constituents.
Chris Leslie
The hon. Lady has several thousand civil servants—for the time being, at least, before they are made redundant—in the Treasury to help her with the costings for such questions. I can only go with the facts published in Hansard. Perhaps she could save me the trouble of tabling a further written question to find out what the bank cashback arrangement will be on corporation tax. I will give way to her if she has to hand the precise figures on what the UK banks will be gaining from the corporation tax cut. Can she tell us what those figures are? If not, I will table a written question. If she can swiftly answer that, it will be for the benefit of the House. I am pretty sure that it will be a net gain for the banks.
Mr Gauke
Let me deal with this directly. The Treasury and Her Majesty’s Revenue and Customs figures that we have look at hits by sector—in this case, the financial services sector, which includes not only banking but insurance and financial auxiliary services. The hon. Gentleman quoted his figures and suggested that they represent a net gain. In fact, by the time we get to 2014-15, the bank levy will be £2.4 billion. At the same time, the corporation tax cuts in 2014-15 will benefit the financial services sector by £0.4 billion. However we divide £0.4 billion, it is hard to see how it will ever be higher than £2.4 billion.
Chris Leslie
Were those the only two relevant factors, that might be the case, but of course they are not. There are other tax changes through which the banks will more than benefit from the arrangements. If the Exchequer Secretary had had the patience to wait, I would have elaborated on that. I will come to that quicker.
It is important that the Exchequer Secretary listens to those experts who have talked about the benefit to the banks from the corporation tax change. Lloyds Banking Group plc could gain more from a cut in corporation tax than it loses under the new banking levy, according to analysts at Redburn Partners legal practice. Lloyds, 41% of which is owned by the British Government, might see a 3% rise in its earnings per share in 2012 as corporation tax begins to fall to 24% from 28% over those four years, according to Redburn analyst, Jon Kirk. There will therefore be a net positive for Lloyds. That is one example of a net gain for the banks.
Secondly, the banks have already found a way of minimising their corporation tax liabilities. A report published only last week by the TUC on the corporation tax gap showed a gap between the headline rate of corporation tax paid and the actual or effective rate of corporation tax paid. The TUC’s analysis of data on UK corporate returns showed that the larger a company is, the better it tends to be at reducing its effective rate of corporation tax, which fell from 28% in 2000, when the headline rate was 30%, to about 23% in 2009, when the headline rate was 28%. On that basis, the TUC’s economists predict that by 2014, the largest companies will be paying corporation tax at a rate of no more than 17% on average, while small companies will still be paying corporation tax at 20% or more.
Chris Leslie
I beg to move, That the clause be read a Second time.
New clause 5 takes us into completely different territory from that of the previous debate, and it picks up on a discussion we had in Committee about the legal definition of incapacitated persons. Committee members were concerned by the outdated nature of some of our tax law, under which antiquated terminology can often still find its way into our tax regime through extracts from statutes simply being cut and pasted into today’s legislation.
One such anomaly concerns a definition in the Taxes Management Act 1970, which I am told is still very much a cornerstone of our tax law. It defines an “incapacitated person” as
“any infant, person of unsound mind, lunatic, idiot or insane person”.
Those terms of reference are clearly insulting and demeaning to people who would be regarded as incapacitated. Not only is it out of date for those terms of reference to be extant in our legislation, but it is hurtful to those individuals who may suffer from incapacitation to be categorised and described in such derogatory terms. That definition derives from the 19th-century lunacy Acts and today appears grotesquely at odds with modern terminology, and this insulting state of affairs ought to have been reformed many years ago. That definition relates to section 72 of the 1970 Act, which says that an incapacitated person’s tax liabilities should apply to their
“trustee, guardian, tutor, curator or committee”
as if to a non-incapacitated person.
In Committee, we pressed Ministers to concede this small and surely non-controversial reform. We did not feel that it was a matter of party politicking; after all, it should not be a dividing line between the parties. The new clause is simply and straightforwardly about replacing and modernising the definition of an “incapacitated person” and aligning it with the meaning in the more modern and more appropriate Mental Capacity Act 2005, whose far more flexible and sophisticated definition is less hurtful in tone and more precise in its interpretation. It states:
“For the purposes of this Act, a person lacks capacity in relation to a matter if at the material time he is unable to make a decision for himself in relation to the matter because of an impairment of, or a disturbance in the functioning of, the mind or brain.”
That is a far more appropriate definition.
By updating the definition, we would also update provisions to encompass new arrangements relating to trusteeships. For example, the new arrangements would also modernise those of donees of powers of attorney, who would be properly included in the legal definitions, as well as those of Department for Work and Pensions appointees. I should like to thank the Chartered Institute of Taxation’s low incomes tax reform group—LITRG—for highlighting the issue consistently. It has been championing this minor technical change in the law for at least seven years and has been promised on numerous occasions that, “A tax law rewrite is just around the corner”, “More time is needed for consultation” and so on. I gather that it has been having discussions with officials, following our discussion in Committee. Although LITRG may have cause to trust the Minister’s officials, I believe that time is running out for this change to be made. When the Minister was unable to concede on this point in Committee, I said that we would try to have this debate on the Floor of the House because of the importance and urgency of making this reform.
It is a pity that the Minister has not tabled a Government new clause on Report, but I shall wait to hear what he has to say. We did try to reflect on the points that he raised in Committee. The provision that we had tabled then did not refer specifically to children and we have rectified that by making the appropriate change for the Report stage. As far as I can see, this new clause has no revenue implications and there is no clear reason for any Member to dispute the need to modernise this terminology. There is clear evidence that people are hurt and insulted by the terminology from a bygone age. It therefore seemed sensible to put this point again on Report, and I urge the Minister to accept the new clause.
Mr Gauke
As we have heard, new clause 5 seeks to change the definition in the Taxes Management Act 1970 of an “incapacitated person”. I appreciate that the purpose of the new clause is not to change the scope of the definition, but to ensure that it better reflects the modern understanding of an “incapacitated person”. Members of the Committee will recall that we debated a similar proposal at the end of the Committee stage. As I explained then, a definition is required to ensure that the obligations of the 1970 Act properly fall to those acting for children or for those with mental health problems. The existing definition can be traced back to at least 1880, and I reiterate that I agree that the wording used, such as “lunatic” or “idiot”, no longer feels appropriate, belonging as it does to the Victorian age, rather than to today’s times.
Mr Gauke
I am delighted if that is how the hon. Lady interprets my remarks, and if that pleases her, it pleases me.
In June, we produced our paper on the making of tax policy and we believe that it is very important to adopt a deliberative and consultative approach and, wherever possible, to consult thoroughly. We wish to avoid the experience of making reactive and piecemeal policy announcements that have been insufficiently thought through and result in unexpected consequences—we saw too much of that under the previous Government. Instead, we believe that appropriate consideration should be given to changes, thus providing an opportunity for those affected to comment and have certainty about our decisions. Any change on this matter should go through that process to ensure that we can come to this House with legislation that will work as intended.
Let me be clear that I agree that the wording in the current definition is outdated and that I am committed to delivering change. As I have said, my officials have already started to work with LITRG and will work with other groups that have the expertise to ensure that we get this right. The hon. Member for Nottingham East (Chris Leslie) has alluded to the fact that LITRG is happy to work with Treasury officials and accepts the need to get this right. I believe that it will be possible to deliver change to the definition in the next couple of years along the timetable that LITRG accepts.
I ask the hon. Gentleman not to press his new clause to a vote, but I hope that he will engage with us on how to make the change behind the clause that we both agree is necessary. I am grateful to him for raising the issue in Committee and today. I agree that this should not be a matter of party political dividing lines and we will seek to address it. It has been of long-standing concern, but the Government are determined to address it, so I ask him to withdraw the clause.
Chris Leslie
I am impressed that the Minister has taken the time to encourage his officials to meet LITRG. I am pleased that he agrees about the outdated nature of some of these archaic terms: “idiot”, “lunatic”, “insane” and so on should not be part of our modern legislative lexicon. I am interested that yet again he manages to find a flaw in the drafting. It is almost like one of those circular nightmares: no matter what point any Opposition party makes to any Government, there is always a desire to resist by pointing out drafting and terminological problems. I think that the Minister accepts the spirit in which we have been trying to raise this issue.
I agree entirely that it is important to take whatever time is necessary to frame the definitions correctly in law, but we are not talking about designing a whole new regulatory regime for financial services or some convoluted way of taxing child benefit. We are simply talking about a minor change to modernise the terminology in tax law. I am still slightly sceptical about the argument that we need to take another couple of years to do so.
Chris Leslie
I beg to move amendment 1, in page 7, line 40, leave out clause 4.
In Committee, we discussed the implications of clause 4, which I am happy to discuss again. It seeks to extend to seafarers resident in the European economic area the same 100% deduction from income tax of their earnings from employment as a seafarer wholly or partly outside the UK during an eligible period. I know that this is something about which many Members of the House will be very concerned.
At present the tax relief is available only to those seafarers who are ordinarily resident in the UK, but there are clearly seafarers resident in other EEA states yet not ordinarily resident in the UK who might also warrant the seafarers’ earnings deduction. The measure is listed in the Budget Red Book as costing the Exchequer £5 million annually and we debated the technical details of the clause, such as the navigation of waters beyond the UK continental shelf, how long would be spent away from the UK and how many seafarers are involved in the concession. The Minister said that it was in the order of 16,000.
The Minister also helpfully explained that the clause was brought forward as a result of the European Commission’s decision to challenge the compatibility of seafarers’ earnings deductions with the UK’s treaty obligations and to comply with our EU and EEA associations. It is welcome that the Conservative party is rushing to legislate to comply with these European arrangements. I know that some hon. Members—including the Minister of State, Foreign and Commonwealth Office, the hon. Member for Taunton Deane (Mr Browne), who is sitting on the Front Bench opposite—will be more pro-European than others, but he seems to be persuading the Conservative party towards the pro-European stance. It is interesting that there is no dissent from that interpretation.
In Committee I raised in particular a specific and contemporary issue that has been a subject of some controversy: the impact on the mackerel fishing dispute between UK and Icelandic fishermen. The clause is highly relevant and might have a significant bearing on that dispute, because if enacted it would grant to the Icelandic fishermen—and the Norwegians for that matter—a set of tax relief arrangements that would be very useful to them. I asked the Minister a series of questions on that, but he merely asserted in his indomitable way that the clause was “not relevant” to those discussions. So, I want to try again.
Will the Minister say what discussions have taken place between the Government and the Governments of Norway and Iceland in the drafting of the provisions and in what respect they will be reciprocated for UK-resident seafarers in those countries? Has the Minister spoken with his counterparts in the Department for Environment, Food and Rural Affairs, the Scottish Executive—I know that some hon. Members will be interested to learn about that—and the FCO regarding the impact that the change might have on the sensitive negotiations between the EU, Norway and Iceland over the mackerel quota? I gather that the practice of the Icelandic fishing community unilaterally to declare a larger catch quota for valuable fish, risking the sustainability of fish stocks and disrupting previously settled agreements, has caused consternation in some quarters. Is it therefore appropriate for the Treasury to grant this tax concession to Icelandic fishermen while there is such great sensitivity?
On Friday, I understand that the Icelandic ambassador to the UK, Benedikt Jonsson, met the chief executive of the Scottish Fishermen’s Federation and others to discuss the mackerel dispute at a meeting in Aberdeen organised by the Icelandic consulate. I gather that “frank views”, as they are often called, were exchanged about what constitutes responsible management of that mackerel quota. Iceland continues to assert its right to catch a significantly increased quota this year outside the bounds of the international agreements. What are the UK Government doing to bring the dispute to a sensible conclusion? Would it not be wise to pause on the gifting of the seafarers’ earnings deduction to the Icelandic fishing community until such time that the question over the fair fishing of mackerel stocks is resolved?
Other issues might be relevant, too. Are we, for instance, still confident that the relationships between the UK and Iceland are ensuring that our fiscal position is protected? For example, the UK ought to be getting money back from the collapse of Icesave and other Icelandic banks, but there have been recent suggestions, particularly resulting from protests in Iceland, that there might be some delay in repaying foreign creditors with the priority that is deserved. Is it sensible to be offering tax concessions to Iceland when such negotiations are going on? I understand that there are also some question marks over whether the EEA treaty arrangements necessarily require such a tax concession to be ceded to the Icelanders.
I have asked a number of questions and I wonder whether the Minister can address them. They are not necessarily at the top of people’s minds in every constituency in this country, but there are some corners of the country where this is a big issue. I would be grateful for the Minister’s attention to it.
Mr Gauke
As we have heard, amendment 1 seeks to remove clause 4 on the seafarers’ earnings deduction from the Bill. Doing so would prevent the extension of seafarers’ earnings deductions to EEA resident seafarers. By way of background, it is worth pointing out that in November 2008 the European Commission sent a pre-infraction letter on this matter. The Commission stated that the rules for seafarers’ earnings deductions are incompatible with the EU rules because the deduction is available only to seafarers who are ordinarily resident in the United Kingdom. After due consideration of the Commission’s letter, the previous Government decided to respond by enacting a change in the law. Consequently, last year they said that they would legislate to extend the rules for this deduction, enabling European economic area resident seafarers from outside the UK to claim. The previous Government committed to implementing the change from April 2011.
Finance Bill
Debate between David Gauke and Chris Leslie(13 years, 9 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
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
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?
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.
Office of Tax Simplification
Debate between David Gauke and Chris Leslie(13 years, 9 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Urgent Questions are proposed each morning by backbench MPs, and up to two may be selected each day by the Speaker. Chosen Urgent Questions are announced 30 minutes before Parliament sits each day.
Each Urgent Question requires a Government Minister to give a response on the debate topic.
This information is provided by Parallel Parliament and does not comprise part of the offical record
Chris Leslie (Nottingham East) (Lab/Co-op)
Many hon. Members have made points about fairness. Will the Minister ensure that the OTS will not simply dance to the tune of the wealthiest in society, and their accountants, in putting issues on the agenda? I refer to the decision in the Budget to reduce the backdating of new claims and changes of circumstance for tax credits from three months to one month, at a cost of £1 billion to ordinary people. Is it not the case that this Government are more interested in helping the wealthiest and putting obstacles in the way of the least well-paid?
Mr Gauke
I really do not accept the point that having a simpler tax system, which is understandable by everyone and not just those who can afford expensive advice, is in any way a regressive step. As my hon. Friend the Member for Dover (Charlie Elphicke) said, it will benefit everybody and we are pleased to be able to do it.
Finance Bill
Debate between David Gauke and Chris Leslie(13 years, 9 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Chris Leslie
I hear what my hon. Friend says, but I am reluctant to extend compulsion in that regard. We should certainly encourage people to take out travel insurance and inform them of what might befall them should they not do so—they could be stranded abroad or find themselves without adequate medical or health cover, for example. I do not know whether hon. Members always remember to fill in their E111 forms when they travel to other countries in the European Union, but our constituents often do not. They can find themselves in significant jeopardy. In those circumstances, travel insurance is very useful.
Many people are employed in the insurance industry, and if there are disincentives against our constituents’ taking out decent, high-quality policies there will be an impact on the insurance sector and the financial services sector more widely. The financial services sector, including insurance, is one of the great industries of our country. It has been subject to a lot of criticism, and we can talk about that on another occasion, but it is important that we should not take steps that harm the products that we consume in this country and sell worldwide.
I conclude by reiterating to the Treasury the importance of assessing the impact of the insurance premium tax increase on our constituents and the Revenue. We do not know from the Red Book how the £455 million annual yield precisely breaks down between pensioners, young people and beyond. My right hon. Friend the shadow Chief Secretary says that the impact on pensioners will be significant and I take his word for that. That issue is a great worry. These are serious matters and I hope that the Treasury and other hon. Members will hear some of the points shared across both sides of the Chamber today.
The Exchequer Secretary to the Treasury (Mr David Gauke)
We have had a wide-ranging debate on clause 4 and the amendments tabled to it; I am sure, Mr Evans, that you want to hear its conclusion. I was grateful to hear the contribution made by my hon. Friend the Member for Wellingborough (Mr Bone), who highlighted the freedom given to Government Back Benchers in Committee debates. I hope that my remarks will persuade my hon. Friends not to make full use of that latitude. We shall see.
The amendments are concerned with the general impact of the rise in the standard rate of insurance premium tax, particularly in respect of its impact on personal health insurance and the motor industry. I will come to those issues in detail in due course. Before I do so, I propose to set before the Committee the reasons behind the course that we have chosen.
Reducing the deficit and ensuring economic recovery are the most urgent issues facing the UK and they are the Government’s top priority. In the words of the shadow Business Secretary, it is no good wishing the deficit away; it is only by acting quickly to tackle the deficit and restore confidence in the public finances that we will achieve economic growth. That has meant that we have had to take many tough decisions to ensure that everybody makes a fair contribution. Part of that contribution will come from increases to the standard and higher rates of IPT.
Clause 4 legislates for that by increasing the standard rate of IPT from 5% to 6% and the higher rate of IPT from 17.5% to 20%, both with effect from 4 January 2011. IPT is, of course, a tax on insurers, not on their customers; 80% of all the insurance sold in the UK is exempt from IPT. All long-term insurance, such as life insurance and pensions, is exempt from IPT. My hon. Friend the Member for Christchurch (Mr Chope) mentioned Conservative party policy on long-term insurance. If he is a little patient, I am sure that my right hon. and hon. Friends at the Department of Health will say more on the subject. I just underline the point that IPT is not levied on long-term insurance.
Mr Gauke
As a Government—I am sure that this is a principle that my hon. Friend would support—we believe in giving people choice, and that is what we will do. We have set out our policies in that context, and I am merely underlining this Government’s commitment to the national health service.
The combined effect of the amendments tabled by my hon. Friend the Member for Christchurch would be to slow down fiscal consolidation. Through the Budget and this particular measure, the Government are trying to get our deficit under control, and slowing it down would not be an appropriate step.
Chris Leslie
Specifically in terms of the contribution to fiscal consolidation, how much of the yield from the increase in IPT will come from the motorist via car insurance?
Mr Gauke
If I may, I will provide a little more information breaking down the numbers in a moment or so, and we shall see whether that is specific enough for the hon. Gentleman.
Exempting motor insurance from the IPT rise would reduce revenue by £160 million a year, and exempting medical insurance would reduce it by a further £40 million. Taken together, those figures total £200 million—nearly £1 billion over the lifetime of the Parliament. That would leave us with quite a shortfall, and a couple of options. First, we could raise £1 billion from elsewhere. We have to be open about the fact that the purpose of the IPT rise is to raise revenue, and if we were to look to raise the outstanding £1 billion through IPT, that would mean increasing very considerably the rate of tax on the remaining classes of insurance. For reasons that I will set out, we do not think that that is the right way to go. The second option is to leave ourselves with £1 billion outstanding, which would leave us further away from plugging the deficit, with all the risks that that entails. We are certain that that is not the right way to go.
It has always been a principle of IPT that the tax applies to a relatively broad base of general insurance, with few exceptions. That broad base allows us to keep the standard rate of the tax low by international standards. Even at the new rate of 6%, the UK’s standard rate of IPT is far lower than in, say, Germany, where it is 18% for property and 19% for motor insurance, or France, where it is 9% for property and 18% for motor insurance. Narrowing the base of the tax through specific exemptions of the type that my hon. Friend the Member for Christchurch suggests would put that low rate at risk.
To respond to the perfectly fair question of the shadow Chief Secretary, the fact that we have announced the increase should not be taken as a signal that we intend to harmonise tax levels with those elsewhere. To quote what the shadow Chancellor used to say, we always keep taxes under review and it would be daft to rule things out, but this increase should not be taken as a signal of an ongoing programme of further increases.
We do not take any pleasure in introducing this tax rise, even though the reasons for it are clear. However, by keeping a broad base of tax within general insurance, we are able to raise revenue so as to cut the deficit, while keeping the increases at a level that will not have any significant impact on the number of people buying insurance.
Finance Bill
Debate between David Gauke and Chris Leslie(13 years, 9 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Gauke
Amendments 21, 34 and 50 relate to the impact of the corporation tax cuts on the banking sector. Amendment 21 would leave the
“main rate of corporation tax for financial year 2011…at 28%”
for
“banking institutions”, disapplying the 1% decrease, and amendments 34 and 50 ask for an assessment of the impact of the rate reduction on banks.
The proposals are helpful. Understandably, there is a frustration with the banking sector and a desire that it pay a fair share. The Government share that belief. We think that banks should make a fair contribution in respect of the risk that they pose for the UK financial system, which we have seen in the past few years. That is exactly why we announced in the Budget the introduction of a bank levy from 1 January 2011. Tomorrow, my hon. Friend the Financial Secretary to the Treasury will announce a public consultation with a view to implementing the levy on that date, and the measure will be included in next year’s Finance Bill.
The levy is a surgical approach, intended to encourage banks to move to less risky funding profiles, and a contribution reflective of economic risk. A tax based simply on profits, such as corporation tax, is not related to risk and will not create the behavioural effect that we believe the banking levy will achieve.
The overall impact on banks of the proposed reduction in corporation tax depends on a number of factors, and I will provide some details in a moment. None the less, I should like to put it on record that it is entirely right that hon. Members ask such questions. My hon. Friend the Member for St Ives (Andrew George) made a thoughtful and probing speech, and I was also interested to hear the comments of the right hon. Member for East Ham (Stephen Timms). However, I wondered, given his concern about the impact on the banking sector, precisely which angle he was coming from. Those who remember the debate prior to the general election will recall, for example, the remarks of the then Chancellor, the right hon. Member for Edinburgh South West (Mr Darling) who, in an interview on “The Andrew Marr Show” on 21 March, argued against proposals for a unilateral bank levy, saying that he thought it could work only if there were international agreement, as my hon. Friend the Member for West Suffolk (Matthew Hancock) said.
Of the Conservatives’ policy of introducing a unilateral bank levy, which was also a policy of the Liberal Democrats, the then Chancellor said that we were taking a hell of a risk, given that the banking industry employs more than 1 million people in this country. He seemed to be somewhat concerned that we were going to far and too hard. I do not know whether the shadow Minister is worried because the proposals are too tough on the banks, or because they are not tough enough.
Chris Leslie
I thank the Minister at least for that recognition, but I wonder whether he could take some time to justify the fact that the proposed banking levy is so low in relation to, for example, the American arrangement. Does he understand the incredulity and frustration that banks should be given this cashback bonus in the form of the corporation tax cut at this particular time? I want to hear him justify that.
Mr Gauke
Let me turn to the heart of this matter, because we have had quite a lengthy debate on it. We have heard concerns that the corporation tax would cancel out the effect of the bank levy or offset it, and that there would be a cashback bonus, to use the hon. Gentleman’s phrase. The shadow Minister asked whether the banking levy will “far outweigh” the benefit to banks of the cut in corporation tax. Perhaps the easiest thing I can do in response—there is much more one could say about corporation tax, and I will in future debates—is to refer to my answer to the right hon. Member for Holborn and St Pancras (Frank Dobson), who asked the
“Chancellor of the Exchequer what estimate he has made of the revenue from the financial services sector to be foregone by the Exchequer as a result of the proposed reduction in corporation tax in each financial year to 2015-16.”—[Official Report, 1 July 2010; Vol. 512, c. 610W.]
We have the numbers only until 2014-15, and I should point out that the financial services sector is somewhat broader than just banks. It includes insurance, pension funds and auxiliary financial services, so the numbers refer to the corporation tax cost not only for banks, but for other financial services. However, I will compare those with the bank levy yield. For 2011-12, the corporation tax costs will be £0.1 billion, whereas the bank levy yield will be £1.15 billion; for 2012-13, corporation tax costs will be £0.2 billion, compared with a bank levy yield of £2.32 billion; for 2013-14, corporation tax costs will be £0.3 billion, compared with a £2.5 billion additional yield from the bank levy; and for 2014-15, the corporation tax costs will be £0.4 billion, compared with a bank levy yield of £2.4 billion. Even in this last year, where the differential is at its narrowest, we can see that it has not been cancelled out or offset. There is no cashback, and the banks are not quids in as a consequence.
The test that the shadow Minister gave was whether the bank levy yield far outweighs the benefit of the corporation tax change, and the answer is clearly yes. Given that the proposal for a differential corporation tax rate in amendment No. 21 is not supported by the Front Benchers of the party to which the hon. for Nottingham East (Chris Leslie) belongs, I urge him to withdraw it.
Chris Leslie
The Minister is saying that £400 million is a small amount to be given in cashback to the banks in this corporation tax giveaway, but that sum could offset the necessity to scrap the health in pregnancy grant. It could offset the need to reduce the maternity allowance to just the first child. Those are important for users of public services, and he surely understands that.
Mr Gauke
Our aim was to rebalance the tax system. We are requiring the banking sector to pay at least £2 billion more in tax as a consequence of these proposals. That is not a minor matter. Other sectors, including manufacturing, will benefit from the reduction in corporation tax, but the banks will not benefit because we are introducing the bank levy. I urge the hon. Gentleman to withdraw amendment No. 21, given that his Front Benchers recognise the difficulties of a separate corporation tax rate for banks. I believe that I have satisfied the tests set out by the right hon. Member for East Ham, because the bank levy yield far outweighs the benefits of the corporation tax for banks.
I hope that I have satisfied my hon. Friend the Member for St Ives—
Mr Gauke
Beginning tomorrow, we will consult on the bank levy. The intention is to find a means of discouraging risk, and that is why the targeted approach of the bank levy is appropriate. It will raise additional revenue, and it is right to do so. We think that we have the balance right in raising additional revenue while enabling banks to lend more, and we are also taking steps to encourage that further.
In conclusion, I think that I have satisfied the concerns underlying the amendments and I hope that the amendment will not be pressed to a Division.
Chris Leslie
Having heard what the Minister had to say, I am not convinced that he makes a case for giving away £400 million to the banks, especially as Members on the other side of the House constantly ask us where the money would come from and how we would reduce the deficit. That sum would offset the need to abolish the health in pregnancy grant. It would offset the need to reduce to the CPI the indexation of housing benefit. It would offset the need to scrap the maternity allowance for second children, and so on. I hope that my hon. Friends will remember the £400 million giveaway to the banks in this corporation tax reduction.
I recognise that the consensus in the debate is that it is important to test the right amendment this evening. I therefore wish to withdraw my amendment, but I hope that one of the amendments that would require the Treasury to justify and assess the impact of the corporation tax change on the banks will be tested. That is the least we should be doing.
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment proposed: 34, in page 1, line 6, at end add—
‘(2) Prior to this rate taking effect, the Chancellor will place in the Library of the House of Commons an assessment of the impact of this clause on the banking sector.’.—(Stephen Timms.)
Chris Leslie
I do not agree that the private sector is crowded out in that way. I do not think that there is quite the evidence to suggest that. However, I am not sure that the hon. Gentleman, had he been in government during the crisis that the credit crunch provoked, would have done anything massively different to underpin and insure some of the banks against their losses at that time, purchasing shares in various banking institutions in order to keep the banking system going. I understand the partisan nature of his point, but all parties would have had to create that safety net for the banks at that time. I do not want to dwell on these matters, because time is limited and it is important to make my speech as brief as I can.
I want to ask the Minister specific questions about the absence of the small profits rate cut from the Bill, a matter on which I tabled an amendment. It is important to know why on earth it is not included. Typically, large corporations with their multi-million pound profits are at the front of the queue as far as this Government are concerned, but the real engine of growth in this economy is small firms. When I asked the Federation of Small Businesses about this, Stephen Alambritis, the head of public affairs, said that he was surprised at the signal sent to small businesses by the way in which the Bill is framed. He told me:
“It is important that small business is recognised in discussions about the Finance Bill. There should be a reduction in the tax rate for small business as there is for larger companies. There seems to be some discrimination from the coalition government, in that they are favouring large companies at the expense of small business”.
The Minister might say, “Of course they will get their cut,” but can we really trust the Government to deliver that if they are not putting such a measure in the Bill, particularly if they are not putting in the future years of the main rate cut, too?
A number of questions on this clause are exceptionally important. I obviously do not want to talk for too long, so I shall let the Minister respond.
Mr Gauke
In the Budget, my right hon. Friend the Chancellor announced a programme of measures aimed at improving the competitiveness of the UK economy, including four annual 1% reductions in the main rate of corporation tax, down to 24% in 2014, and a reduction in the small profits rate to 20% from April 2011, in contrast to the previous Government’s plan to increase it to 22%. That will reduce the tax rate for some 850,000 companies. The Budget also included, from April 2012, a reduction in the capital allowances main rate from 20% to 18%, a reduction in the special rate from 10% to 8% and a reduction in the annual investment allowance to £25,000. Despite that, investment allowances will permit more than 95% of businesses to offset completely their annual plant and machinery expenditure. As I said in our debate on amendment 49, by delaying these changes to allowances for two years but reducing the corporation tax rate next year, we are giving companies a year’s advantage.
We have been asked why we are legislating for the 1p cut in the main rate this year. This is the usual convention as the corporation tax main rate is usually set a year at a time. The right hon. Member for East Ham (Stephen Timms) is right to say that there was an exception in 1984, when four years were done together, but the usual convention is to do these things a year at a time. A distinction has been made between the mainstream rate and the small profits rate. The right hon. Gentleman, who was a distinguished Treasury Minister for several years, may have forgotten that payers of the corporation tax main rate are within the quarterly instalments payment regime and so require advance notice of the rate, as they might be making payments of corporation tax liability before 1 April of the relevant year in which profits fall in the next financial year. Payers of corporation tax at the small profits rate do not require advance notice, as they have until nine months after the end of the accountancy period to pay their tax.
Both main and small profits corporation tax rates have traditionally been set in this manner, and what we are doing is consistent with the usual approach. The right hon. Gentleman asked about deferred tax assets, but they are not the reason why we are doing this; we are simply following the usual convention.
Opposition Members have asked whether business can have faith in what this Government do, but they should give us some time and they will see exactly what we will do: we will follow through on these promises. No great concerns about this issue have been raised with us. On deferred tax assets, when I was in opposition, I received representations not from a bank but from a major manufacturer who made the point that the right hon. Gentleman has made, but that is not what has driven our thinking regarding the timing in this area.