Section 5 of the European Communities (Amendment) Act 1993
Debate between David Gauke and John Redwood(7 years ago)
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Mr Gauke
Clearly, since last year’s convergence programme debate there has been a momentous change in the UK’s relationship with the European Union. The article 50 process is now under way and the United Kingdom is leaving the European Union. There cannot, as some suggest, be any turning back from that. In accordance with the outcome of the referendum, we are leaving the European Union and will make our own decisions, take control of the things that matter to us and seize every opportunity to build a stronger and fairer Britain.
Given our decision to leave, some Members might find it odd that we are debating the UK’s convergence programme here today. It is right that we should do so, however, because we continue to exercise our full membership of the European Union until our exit and because to do so is a legal requirement that we must take seriously. I should, however, remind the House that the content of the convergence programme is drawn from the Government’s assessment of the UK’s economic and budgetary position. This assessment is based on the spring Budget report and the Office for Budget Responsibility’s most recent economic and fiscal outlook. It is that content, rather than the convergence programme itself, that requires the approval of the House.
I should also remind the House that although the UK participates in the stability and growth pact, which requires convergence programmes to be submitted, we are required—by virtue of our protocol to the treaty opting out of the euro—only to endeavour to avoid excessive deficits. The UK cannot be subject to any action or sanctions as a result of our participation.
John Redwood (Wokingham) (Con)
On that point, would my right hon. Friend like to comment on how much influence he thinks the convergence criteria and the deficit reduction requirements have had on successive UK Governments to drive more austerity and cuts?
Mr Gauke
In the seven years that I have been a Treasury Minister, I have not noticed the convergence programme having an influence on the decisions that we have taken. We have taken decisions to reduce the deficit because we believe that that is in the long-term interests of the United Kingdom, rather than because of any requirements under the EU treaties.
Let me provide a brief overview of the information that we will set out in the UK’s convergence programme. Members should note that this does not represent new information; rather, it captures the Government’s assessment of the UK’s medium-term economic and budgetary position, as we set out in the spring Budget. It is fair to say that in March 2017, we were in a better position economically than many had predicted. Growth in the second half of 2016 was stronger than the OBR had anticipated in the autumn statement. In fact, the UK economy grew faster last year than most other advanced major economies, and employment remains at a record high. So, following a period of robust economic growth, record employment and a falling deficit, we sought to safeguard that economic stability in the Budget. That is particularly important as we prepare our country to leave the European Union.
The OBR forecasts that business investment will remain subdued as we begin the period of negotiation with our EU friends and partners, and it continues to judge that, in the medium term, growth will slow due to weaker growth in consumer demand as a consequence of a rise in inflation. Accordingly, putting the public finances in good order will remain vital for the foreseeable future, and all the more so given that the deficit remains too high and that there is a range of potential risks in the global economy. That is why we are getting ourselves into a position of readiness to handle difficulties of any kind that might come our way. Our fiscal rules, which enable us to do that, strike the right balance between reducing the deficit, maintaining flexibility and investing for the long term.
Overall public sector net borrowing as a percentage of GDP is predicted to fall from 3.8% last year to 2.6% this year. This means that we are forecast to meet our 3% stability and growth pact target this year for the first time in almost a decade. Borrowing is forecast to be 2.9% in 2017-18 and then to fall to 1.9% in 2018-19 before reaching 0.7% in 2021-22, which will be its lowest level in two decades. The economic forecasts are broadly unchanged since the autumn, but the OBR has substantially revised down its short-term forecast for public sector net borrowing. As a consequence, we are within sight of bringing to a halt the increase in the national debt as a proportion of GDP. Debt is forecast to peak at 88.8% of GDP in 2017-18, and then to fall in subsequent years.
John Redwood
On that point, it is important to remind the House that £435 billion of the debt is now owned by the state, so the state owes the money to itself, meaning that it is not a debt in any normal sense.
Mr Gauke
My right hon. Friend is correct about where the debt is owed, but as a country we must none the less be wary of a debt that is high by recent historical standards. It is right that we show determination to set out a plan for how the debt to GDP ratio can be reduced to ensure that the UK is in a more resilient place to absorb the shocks to our economy and to the public finances that occur from time to time.
Beyond our fiscal rules to protect the public purse and prepare our economy, the Budget also set out a wide range of things that this Government will be doing to invest in our future. That includes giving our children the chance to go to a good or outstanding school that sets them up to succeed; helping young people across the country get the skills they need for the high-paid, high-skilled jobs of the future; and investing in cutting-edge technology and innovation, so that Britain continues to be at the forefront of the global technology revolution—three things that will be at the heart of our efforts finally to address the country’s long-standing productivity challenges.
The Budget also promised greater support for our social care system, with substantial additional funding so that people get the care they deserve as they grow older. The Budget works to strengthen our public services over the long term, too, in our determination to bring down the deficit and get the UK back to living within its means, and to fund our public services for the long term through a fair and sustainable tax system. The spring Budget, therefore, was one that made the most of the opportunities ahead by laying the foundations of a stronger, fairer and better Britain.
Following the House’s approval of the economic and budgetary assessment that forms the basis of the convergence programme, the Government will submit the convergence programme to the Council of the European Union and the European Commission, with recommendations expected from the Commission in May. The submission of convergence programmes by non-euro area member states, and stability programmes by euro area member states, also provides a useful framework for co-ordinating fiscal policies. A degree of fiscal policy co-ordination across countries can be beneficial to ensure a stable global economy, which is in the UK’s national interest.
The UK has always taken part in international mechanisms for policy co-ordination, such as the G7, the G20 and the OECD. Although we are leaving the EU, we will of course continue to have a deep interest in the economic stability and prosperity of our European friends and neighbours, so we will continue to play our part in this process while we remain an EU member and in other international policy co-ordination processes once we have left the EU.
The Government are committed to ensuring that we act in full accordance with section 5 of the European Communities (Amendment) Act 1993, and that this House approves the economic and budgetary assessment that forms the basis of the convergence programme.
UK Economy: Post-Referendum Assessment
Debate between David Gauke and John Redwood(7 years, 11 months ago)
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Mr Gauke
If the hon. Gentleman wants a positive case, let us put it this way: according to the shock scenario we have set out, in two years’ time, the UK economy will be 3.6% bigger if we stay in the EU than it will be if we leave. He criticises and wants to re-fight the Scottish independence referendum. May I just remind him—I suspect it will not be for the last time—that the Unionists won that referendum?
John Redwood (Wokingham) (Con)
Why does the forecast leave out the very beneficial impact of spending another £10 billion, which we would get back in contributions, on our own priorities, jobs and services, which would boost the economy by 0.6%? Why does it leave out the impact of the lower interest rates and the big injection of liquidity that the Bank of England says it will grant the economy around the time of the vote?
Mr Gauke
First, the report is for the next two years. As my right hon. Friend will be aware, even if we vote to the leave the European Union, we will continue to be members of it for those two years as we negotiate our departure. During that two-year period, we would continue to make contributions to the EU budget. May I also point out what the International Monetary Fund has said? It said that, essentially, if the economy shrinks by 1% or more, any fiscal gain from ceasing to make contributions to the EU will be wiped out by lower tax receipts and greater costs. Indeed, under the central scenario set out in the report, the public finances will be £24 billion worse off as a consequence of our leaving the EU.
On interest rates, the assumption in the report is for no changes to fiscal or monetary policy. I point out to my right hon. Friend that one of the predictions in the report is that we would see the pound falling in value and inflation increasing. The Monetary Policy Committee has made it clear that it would have a difficult trade-off to try to get the economy going at a time when there would clearly be a slowdown. At the same time, the pound would be falling and inflation would be rising. In those circumstances, the safest thing to do is to make no assumptions on what monetary policy would be.
Section 5 of the European Communities (Amendment) Act 1993
Debate between David Gauke and John Redwood(8 years, 1 month ago)
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Mr Gauke
The important point here is that the United Kingdom is not obliged to converge with other EU member states. If I remember correctly, the terminology dates back to the Maastricht treaty, and this is a part of the process that originates from that. The UK is not subject to any sanctions as a consequence of our participation in this process, nor are we required to take any directions from the European Commission in respect of our economic policies.
John Redwood (Wokingham) (Con)
But surely the purpose of tabling the numbers to the Commission is that it puts it under what it calls “surveillance”? It can then make an adverse report. It is very clear that the intention is that our budget deficit should never be more than 3% of GDP. I note that, for the first time in some time, the Government will at least get the budget deficit below 3%. I am in favour of doing that anyway, but is it not the case that they have to do that because that is what convergence is all about?
Mr Gauke
It is the case that the provision dates back to the Maastricht treaty—no doubt my hon. Friend the Member for Stone (Sir William Cash) can provide further details on its history—which was incorporated into the European Union (Amendment) Act 1993. That requires us to submit a report. The important point for the House is that this does not give the European Commission the ability to impose sanctions on the UK. I am in complete agreement with my right hon. Friend that the UK should not have excessive deficits, but that is a matter ultimately decided by this House, this Parliament and the elected Government of the United Kingdom.
Budget Changes
Debate between David Gauke and John Redwood(8 years, 1 month ago)
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Mr Gauke
As the hon. Gentleman says, there will be a statement from the Secretary of State for Work and Pensions, and we also have two further days of Budget debates. As for changes to the fiscal position, in view of the oil price changes of recent months, I think we should look at the consequences for Scotland if it had been independent.
John Redwood (Wokingham) (Con)
On 9 December, the Government issued a policy document announcing an increase in VAT on energy-saving materials from 5% to 20% to raise £65 million in the first full year. May I take it that I can now welcome the Government’s decision not to go ahead with that proposal? I would dearly love it if they did not proceed with it. Also, how are they going to deal with the fact that the European Court and European VAT law require us to impose this very unpopular tax?
Mr Gauke
The decision was taken some weeks ago not to proceed with any changes to VAT on energy-saving materials in this Finance Bill because new evidence had emerged and we no longer believed that we needed to go ahead with what was previously suggested. It is also the case—the Prime Minister will say something about this later—that because the European Commission and other member states are willing to agree to our arguments about the need for greater flexibility on VAT rates, we do not believe that these changes will be necessary.
National Insurance Contributions (Rate Ceilings) Bill
Debate between David Gauke and John Redwood(8 years, 6 months ago)
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The Financial Secretary to the Treasury (Mr David Gauke)
I beg to move, That the Bill be now read the Third time.
We have now reached the final stage of this House’s deliberations on this Bill, which implements our manifesto commitment not to increase national insurance contributions—NICs—for employers and employees. On Second Reading, hon. Members were reminded of the Government’s strong record of significantly reducing the burden of NICs on employers. At Budget 2011, my right hon. Friend the Chancellor of the Exchequer announced a £21-a-week above-inflation increase to the employer NICs threshold. In 2014, we introduced the employment allowance to support businesses and charities across the UK by reducing their employer NICs bills by up to £2,000 every year, and this has already benefited more than 1 million employers. The Government are now going further; hon. Members will recall that the Chancellor announced at the summer Budget that this would be increased to £3,000 from next April. From April 2015, the vast majority of employers employing under-21s were lifted out of employer NICs. This NICs exemption will be extended to cover apprentices who are under 25, supporting employers to provide young people with valuable workplace skills. The Bill enacts the Government’s commitment to provide certainty on NICs rates for the duration of this Parliament. Hon. Members will be aware that the commitment contained in the manifesto was not to increase the main rates of income tax, VAT or NICs. The Finance Bill contained measures to deliver that commitment for income tax and VAT, and this Bill delivers on that commitment for NICs.
Let me now deal with the detail of the Bill. First, it provides that the rate of class 1 NICs paid by employees and employers must not exceed existing rates. Secondly, it has been the convention that the level of the upper earnings limit for NICs is aligned with the level of the higher rate threshold for income tax. This Bill formally limits increases to the UEL so that its annual equivalent amount cannot exceed the level of the HRT for income tax. Both the restriction on NICs rates rises and changes to the UEL come into force on Royal Assent of this Bill, and apply until the start of the tax year following the date of the first parliamentary general election to take place after Royal Assent.
This Bill provides certainty for employers and employees: that the NICs rates that affect millions of employees and employers across the UK will not rise for the duration of this Parliament; and that the UEL will not exceed the HRT for income tax.
John Redwood (Wokingham) (Con)
My hon. Friend will agree with me that more jobs would be a very good thing and that better-paid jobs for people are a very good thing. He is saying that there will not be any increases but he is presumably not ruling out cutting taxes on jobs, because the less we tax, the more jobs we might have.
European Union (Finance) Bill
Debate between David Gauke and John Redwood(8 years, 10 months ago)
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John Redwood (Wokingham) (Con)
Has my hon. Friend seen the work of the so-called five presidents of the euro area, which sets out how they wish to press for full fiscal union, with a euro Treasury and a euro budget under central control. Will he assure the Committee that we will have nothing to do with any of that?
Mr Gauke
Yes; my right hon. Friend makes an important point about the euro area. No doubt he will have heard the speech delivered by my right hon. Friend the Chancellor of the Exchequer at the Mansion House a couple of weeks ago, in which he made it clear that one of our priorities in the UK’s negotiations ahead of any referendum will be to ensure that the “euro-outs”—the European Union member states that are not in the eurozone—are properly protected and do not find themselves disadvantaged by the eurozone countries working together to the disadvantage of the “euro-outs”. That is a real priority for the United Kingdom.
Mr Gauke
It is important that we meet that objective.
On the subject of the report, I would make the point that we benefit from the single market and do not want to stand in the way of the eurozone resolving its difficulties, but we will not let the integration of the eurozone jeopardise the integrity of the single market or disadvantage the United Kingdom in any way. That is one the important objectives in our negotiation with the European Union, and it is exactly the point that the Chancellor of the Exchequer was making in his Mansion House speech. My hon. Friend the Member for Stone (Sir William Cash) and my right hon. Friend the Member for Wokingham (John Redwood) are right to raise the importance of this point, which we fully recognise.
John Redwood
The five presidents’ press release and work programme, which will result in a White Paper, are about taking over the European Union budget and using it for transfers throughout the eurozone. Clearly, Britain does not want to be part of that. I was asking the Minister about the budget, not about single market regulations.
European Union (Finance) Bill
Debate between David Gauke and John Redwood(8 years, 10 months ago)
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Mr Gauke
As I have said, the estimated cost over the previous seven years was £6.6 billion, and in future it will be about £2 billion a year. I understand the point that the hon. Gentleman is making: he want us to clear up yet another mess that was created by the last Government, although I acknowledge that he was as disappointed by his Government as we were. As for what the UK Government can do about the financial position, let me explain what we did in the 2013 negotiations. Whereas the last Government had agreed to an 8% increase in the spending ceiling, we proceeded with an agenda that was in the UK’s interests. This time, the two sensible things that we could do to protect the British taxpayer were to get the overall budget down and to protect our rebate, and that is precisely what we achieved.
The agreement that the Prime Minister secured back in 2013 was good for Europe and good for the United Kingdom. At the time, some argued that it was not possible, and that the interests of the UK were in some way incompatible with the wider aims of the European Union, but the Government showed them that they were wrong.
John Redwood (Wokingham) (Con)
Does the Bill not endorse a system that takes £12 billion of our taxpayers’ money and spends it elsewhere on the continent, while we receive not a penny of benefit? If the British people voted “out”, they could presumably be given a £12 billion tax cut to celebrate our leaving the European Union.
Mr Gauke
My right hon. Friend has taken me in the direction of the wider issue of our EU membership. As became clear this week, the people of the United Kingdom will have an opportunity to vote on that, but this is the system that applies while we are members of the European Union. My right hon. Friend may wish to present his argument during a future debate, but what cannot be in doubt is that the Prime Minister’s achievement during the 2013 negotiations constituted a huge improvement on the record of the last Government. It protected the rebate, and it ensured, for the first time, that we were able to reduce the overall expenditure of the EU over the multi-annual financial framework period.
Mr Gauke
The deal Scotland gets includes support from the structural funds which have been protected as a consequence of decisions made by the UK Government in the last Parliament.
Turning to the deal secured on the revenue side, as hon. Members may be aware, the system by which EU member states finance the annual EU budget is set out in EU legislation known as the own resources decision—ORD for short. At the 2013 February Council, there was strong pressure from some member states, the Commission and the European Parliament to reform the way member states finance the EU budget. These included proposals to introduce a financial transaction tax and do away with the UK rebate, or at least change the way it works.
The Prime Minister stood his ground and made it clear that the UK would not agree to such proposals, nor agree to anything that changed the way our rebate worked. It was a specific objective for the UK that this new financing system would require no new own resources or EU-wide taxes to finance EU expenditure, and no change to the UK rebate, and that is precisely what we achieved.
The political agreement at the 2013 February European Council was accurately reflected in the financing arrangements which all EU member states agreed unanimously at a meeting of the Council of Ministers in May 2014. Under the agreement, which this Bill will implement, the Prime Minister protected what is left of the UK rebate, and this is maintained without any change throughout the life of this agreement.
The agreement also ensures there will be no new types of member state contributions and no new taxes to finance EU spending over this period. The new ORD does not make any changes to the way that the EU budget is financed. There are some changes in the detail of the ORD compared with the previous one, however. For example, it reintroduces reductions in the GNI-based contributions of the Netherlands and Sweden, and introduces small reductions in these contributions for Denmark and Austria. The UK will contribute to these small corrections, which will mean an additional £16 million in contributions from the UK per year compared to the last ORD; that is around 0.1% of our total gross contribution in 2014. Moreover, this will be largely offset by changes in other corrections.
John Redwood
I congratulate the Prime Minister and the Minister on defending Britain’s interests against a far worse settlement, but is it not also the case that under the pre-existing agreements if Britain grows more quickly than the euroland, which it is doing and appears that it will carry on doing, we will get caned by having to pay more tax?
Mr Gauke
Part of the calculation of member states’ contributions is based on the size of their economy. That means that bigger economies pay more and smaller ones pay less. As an economy becomes relatively bigger, it makes a bigger contribution. That is the factual situation; that is how it works.
I referred earlier to the corrections and the small reductions in the contributions from Denmark and Austria. The UK has always supported the principle of budgetary corrections set out at the 1984 Fontainebleau European Council, which gave us our rebate. In the absence of any meaningful reform on the expenditure side of the budget, we believe that those member states that make disproportionately large net contributions to the budget in relation to their prosperity, such as the UK, should receive corrections.
Corporation Tax (Northern Ireland) Bill
Debate between David Gauke and John Redwood(9 years, 2 months ago)
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Mr Gauke
The hon. Lady makes an important point, although it is for the Northern Ireland Executive to judge how to proceed. In the UK, our reductions in corporation tax have been an important part of our long-term economic plan, but they have not been the only part, and I know that the Northern Ireland Executive will want to do everything possible, in addition to this power, to put in place the conditions for economic growth. One should not pretend that this in isolation solves every problem. None the less it will be a very useful additional power for the Northern Ireland Executive, and, as my hon. Friend the Member for Macclesfield (David Rutley) said, there will be considerable interest elsewhere in how the policy develops and the benefits that accrue as a consequence.
To reduce the administrative burdens on SMEs, a special regime will be put in place. A simple in/out test will mean that the majority of companies will be spared the burden and cost of proportioning profits. More than 97% of SMEs operating in Northern Ireland meet the 75% employment test threshold and will benefit from the Northern Ireland regime.
I would like to take this opportunity to thank KPMG Belfast, the Association of Chartered Certified Accountants and PricewaterhouseCoopers for their written submissions to the Public Bill Committee and the other businesses that sent representations directly to HMRC, and I welcome the continued support shown by the Northern Ireland business community and businesses elsewhere in the UK for this measure. In January, 80% of firms polled at an Ernst & Young Ulster Hall seminar on the Bill believed that a cut in corporation tax would have a positive impact on their businesses.
As my right hon. Friend the Secretary of State for Northern Ireland made clear on Second Reading, the Bill’s progress through Parliament is dependent on the Executive parties delivering on their commitments in the Stormont House agreement, so I am pleased that the Executive has so far met their obligations. They agreed their budget for 2015-16, passing their Budget Bill last week, while the Welfare Reform Bill passed its Further Consideration stage in the Assembly at the end of February. The Government will continue to assess progress as the Bill moves forward, and in future years as decisions on implementing the powers are to be taken.
Mr John Redwood (Wokingham) (Con)
As we have recently seen, a cut in the higher rate of income tax leads to increased revenues—from the dynamic effects—so has the Treasury done any modelling on the optimum rate of corporation tax, if the aim is to maximise revenue?
Mr Gauke
My right hon. Friend will be aware of the Treasury’s study into the effects of our reductions in UK corporation tax, and it was clear that they would result in increased investment and growth in the UK. The Treasury’s assessment was that about half of the forgone revenue consequent on the reduction in corporation tax would be recovered over time. As the OECD has set out on numerous occasions, there is a strong case for saying that corporation tax is one of the more growth-damaging of taxes—it is economically very inefficient, being a tax on investment—and therefore making progress on that front is to be welcomed. Come April, the UK will have the lowest rate of corporation tax in the G20, and we on the Government Benches would want to maintain that position, despite the calls from others to abandon such an approach.
The Stormont House agreement also outlined the approach to adjusting the Executive’s block grant, alongside devolution of the power to set the rate of corporation tax. I recognise the interest of right hon. and hon. Members in the issue and have therefore set out further details in a letter to the Public Bill Committee. I would like to reassure Members that the UK Government and the Northern Ireland Executive continue to work closely to finalise the arrangements.
A minor and technical amendment was agreed in Committee to ensure that clause 5 was drafted in line with normal practice for commencement powers and to remove the scope for misinterpretation. It gives the Government the power to turn on the legislation by regulations made by statutory instrument.
The Bill is vital in allowing the Northern Ireland Executive greater power to rebalance the economy towards a stronger private sector, boosting employment, growth and the standard of living in Northern Ireland, with benefits for the wider UK. The unique challenges faced by Northern Ireland have been recognised by Members on both sides of the House, and I welcome the efficient and effective debate we have had so far. I am grateful for the Opposition’s commitment to co-operate with the Government to ensure that the Bill can be scrutinised appropriately and dealt with speedily in this Parliament, and I hope that hon. Members will see fit to read it the Third time.
Tax Avoidance (HSBC)
Debate between David Gauke and John Redwood(9 years, 2 months ago)
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Mr Gauke
The essence of the charge is that not enough has been done to address tax evasion or tax avoidance, but the reality is that this Government have consistently cleared up the mess that we inherited. It was the case that wealthy people could avoid paying stamp duty land tax—we have sorted that problem. It used to be the case that aggressive tax avoidance schemes were prevalent, meaning that people could sit on the cash for years while cases dragged through the courts—that has now been addressed through accelerated payments. It used to be the case that remuneration could be disguised through loans and other instruments and that no income tax would be paid—we have fixed that, although the Labour party voted against it.
This Government have enabled HMRC to increase yields from £17 billion in 2010 to £26 billion this year, which is dramatic progress. Just as we have dealt with tax avoidance, we are dealing with tax evasion—we are seeing progress on the exchange of information—and that is a very big improvement on everything we inherited.
Mr John Redwood (Wokingham) (Con)
Is this not further proof that Labour’s fundamental changes to banking regulation at the beginning of its period in government did a lot of damage and meant that banks could not be regulated properly—most notably, they led to the collapse of a number of HSBC’s important competitors—and further evidence that Labour Members are blaming this Government for things that went wrong on their watch?
Stamp Duty Land Tax Bill
Debate between David Gauke and John Redwood(9 years, 3 months ago)
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Mr Gauke
There may be a slight impact on house prices, but we must put that in context. Many factors determine house prices, and on the evidence before us our view is that the changes will not have a significant impact on the overall level of house prices. They are likely to have a bigger impact on removing some of those dead zones and distortions in the housing market, which is beneficial in creating a more efficient and effective housing market.
The reform has been welcomed by right hon. and hon. Members in all parts of the House and by outside bodies, including the Council of Mortgage Lenders, the Institute of Directors and the Institute for Fiscal Studies. Jonathan Isaby, from the TaxPayers Alliance, called it:
“an early Christmas present for young people looking to get on the housing ladder.”
Mr John Redwood (Wokingham) (Con)
Will the Minister comment on the impact on revenue? He may collect more revenue where rates have been cut, but lose revenue at the top end.
Mr Gauke
That is not our assessment. My right hon. Friend is an eloquent and distinguished advocate of the argument that it is possible to raise more revenue by reducing rates, and he has over many years demonstrated cases where that would apply. I do not believe that we will quite see that dynamic effect to that extent in this case. I think more revenue, and certainly a greater proportion of it, will be raised from properties above £2 million. Undoubtedly, we will see a few more transactions, which will mean additional revenue that would otherwise not come in. On balance, we will see a reduction overall in revenue across the SDLT regime, but we believe that that is none the less the right thing to do to ensure that we deliver a reform that benefits the vast majority of people who pay SDLT.
Under the rules as they applied on 3 December, the amount of tax payable was a percentage of the chargeable consideration—the purchase price—for the acquisition of the property. Different scales of percentages, table A and table B, applied respectively to transactions consisting wholly of residential property and to transactions that consisted of, or included, non-residential property. The clause substitutes a new table A, setting out the new tax rates and bands that apply to a transaction consisting wholly of residential property. It also amends the calculation rules for those transactions, so that each rate of tax applies only to that part of the consideration that falls within the relevant band. The total tax due is then the sum of the amounts of each band.
Mr Redwood
Yes, indeed there could.
This is difficult to predict, because all these things need to be modelled. The level of the reduction in some cases is quite large, and it will be difficult to make up for all that lost revenue through increased transactions. That is why it would be interesting to probe the Treasury a little more on its forecasts. I expect it thinks that there will be quite a big revenue gain where the rate has gone up, but that effect might not prove to be as strong as it hopes, because there will definitely be a disincentive effect at the top end following the introduction of the very top rate for the privileged few who can afford those types of properties. Those people are often in the fortunate position of owning more than one property, and of being able to decide whether they wish to buy property in this country or elsewhere. There will be some kind of disincentive effect, and we need to look at relative taxes and relative prices in relation to London and other centres.
It would therefore help if we knew a little more about the Treasury’s numbers at this stage of the debate, so that when we review this policy in a year or two, we can see what was right and what was wrong. For example, does the Treasury think that there will be extra revenue from the higher rate? That has clearly not been the case in relation to the two big taxes that I have mentioned. Does it envisage a loss of revenue despite the effect on transactions at the lower level? It would be good to have more detail, so that we can have some benchmarks as we try to assess the financial impact of the policy.
Mr Gauke
I thank all right hon. and hon. Members for their contributions to this short debate on clause 1, and I shall attempt to address as many as possible of their questions. The hon. Member for Birmingham, Ladywood (Shabana Mahmood) raised a number of points about the impact of the changes. First, let me deal with her question about HMRC’s handling of inquiries. I do not have all the detailed numbers available, but, as I mentioned earlier, about 1.25 million hits have been made on the HMRC calculator, which is a substantial number. There have been relatively few queries made over the telephone or in writing. In practice the great majority of those can be dealt with by HMRC’s stamp tax helpline or by reference to ongoing guidance. More complex queries are escalated to HMRC’s technical specialists. As I say, I cannot give the numbers but I do know that the view within HMRC is that this process has gone smoothly, including in respect of the helpline provided on the day of the autumn statement, when, as has been pointed out, a number of transactions were accelerated in order to benefit from the transitional regime. All that has gone smoothly and I am not aware of any particular difficulties in that area.
Mr Gauke
My hon. Friend brings me to an important point, which is that, over the course of this Parliament, the Government have been determined to address stamp duty land tax avoidance. It was a problem in the tax system. One certainly heard both anecdotally, and in the concerns of HMRC, of transactions being made to envelope properties and so on, which is why in 2012 we announced the introduction of the annual tax on envelope dwellings. It is why, over the course of this Parliament, we have taken a number of actions to deal with that avoidance. Had we not done so, it would have been difficult to make the reforms that we have in front of us today in an affordable way, as we would not effectively have been able to raise additional revenue from the top end of the housing market to counteract the reductions in revenue that will occur in the rest of the market.
Increasing rates would not have led to much, if anything, by way of additional revenue, because we would have found that it would have increased avoidance activity and we would not have got in the money that we would otherwise have done. As a consequence, the costs would have been unaffordable.
Mr Redwood
Are there not two obvious ways in which certain groups of people in the higher value properties decide not to pay this tax? The first is people who are in a two to three-bedroom flat or a small house in a very expensive part of the UK, normally London, may decide that they do not want to swap properties or downsize or upsize because it is too expensive. The other is that the very rich people at the top end coming in from abroad may decide that this is the straw that breaks the camel’s back on the transaction. Some people might welcome that but it could still be a behavioural impact of this particular provision.
Mr Gauke
My right hon. Friend is right to say that there will be behavioural responses. Some people might be dissuaded from entering into a transaction and decide to remain in the same place as a consequence of a higher level of duty. There may also be an impact on the attractiveness of the UK as a place in which to locate, but as he is well aware, that is but one factor among very many. I can think of greater threats to the attractiveness of the UK. I should not get drawn into what those threats may be, but they certainly exist. I am tempted to turn to the Opposition’s mansion tax, but I dare say you would haul me into line, Mrs Riordan, so let me not be drawn into what others might say. There is much I want to say, but it would probably not be in order.
I hope that my remarks are helpful to the Committee, and that the clause will stand part of the Bill.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2
Citation, commencement and transitional provision etc
Question proposed, That the clause stand part of the Bill.
Finance Bill
Debate between David Gauke and John Redwood(9 years, 10 months ago)
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Mr Gauke
I note the fact that the right hon. Member for Holborn and St Pancras referred to a rate of “at least 50p”, and I suspect that he speaks for many of his colleagues in that regard. The fact is that there is an ideological divide involved here, in that the Opposition want the higher rate, regardless of the practicalities.
The reality is that, if we want to raise money from the wealthiest, a high rate of income tax is ineffective. My right hon. Friend the Member for Wokingham (Mr Redwood) made it clear that the changes in the 1980s resulted in more income being raised from the wealthiest. If we want to raise money from the wealthiest, there are much better ways of doing it, as my hon. Friend the Member for Redcar (Ian Swales) said. For example, we have taken a number of steps to deal with avoidance and disguised remuneration—those measures were opposed by Labour, by the way—and to deal with stamp duty avoidance. We have increased stamp duty rates. We have also introduced measures relating to capital gains tax and restricted the cost of the pensions tax relief. Those measures have raised far more than the revenue forgone from the 50p rate.
We talk about priorities. Let me set out one fact for the House. Even if we put aside the additional sums raised from the wealthiest, and even if we put aside the damage to competitiveness from the 50p rate, for every £1 forgone as a result of our measures on the 50p rate, we have forgone £160 as a consequence of the increase in the personal allowance. That is where our priorities lie, and I am proud of that record.
Mr Redwood
Will my hon. Friend confirm that the Treasury publishes figures every month on tax collection, and that they show that the rich are paying more?
Finance (No.2) Bill
Debate between David Gauke and John Redwood(10 years ago)
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Mr Gauke
As a result of our corporation tax reforms, businesses are moving their headquarters here. The north-east of England, for instance, has benefited from Hitachi’s investment. However, if the hon. Lady’s point is that the job has not yet been done and that further steps are needed to make our economy more productive and competitive, I entirely agree with her. That is why we must stick to the long-term economic plan.
Mr Redwood
Does the Minister agree that increases in investment require consumption growth? Does he agree that the whole point of investment is to satisfy future consumption increases, and that we need both for a balanced recovery?
Mr Gauke
Indeed I do. As ever, my right hon. Friend brings great expertise to the debate.
Clauses 5 to 7 provide further evidence that we are continuing to make progress towards the delivery of a simpler and more competitive tax regime. They charge corporation tax for the financial year 2015. They set the small profits rate and the ring-fence small profits rate for 2014 at 20% and 19% respectively. They fix the ring-fence rates so that we need not reconfirm them every year in the Finance Bill. That is consistent with the way in which we handle the supplementary charge, the 32% tax levied on profits from oil and gas production. They set the fractions that will be used for businesses to calculate their marginal relief: the standard fraction is set at one four-hundredth, and the ring-fence fraction at eleven four-hundredths.
National Insurance Contributions Bill
Debate between David Gauke and John Redwood(10 years, 6 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
I beg to move, That the Bill be now read a Second time.
The Bill underlines this Government’s belief that pro-business policies help growth and job creation. For too long, our economy has been dependent on a booming financial services sector, on the one hand, and unsustainable levels of public spending, on the other. That made us particularly vulnerable to the crisis of 2007-08, the consequences of which continue to be felt today.
The challenge the Government faced in 2010 was how to begin the process of getting our public finances in order and to put in place the conditions for growth. Some believed that it was not possible to do both and some argued that measures to reduce the deficit would result in higher levels of unemployment. It was the Leader of the Opposition, no less, who said that the Government clearly had
“a programme that will lead to the disappearance of one million jobs”.
That was just over three years ago and there are now more people in work than ever before.
Since the coalition came to power, employment has increased by more than 1 million and there are 1.4 million private sector jobs, more than there were at the time of the last election. Employment in the three months until August 2013 was at its highest ever level, at 29.87 million. Those predicting disaster massively underestimated the capability of businesses up and down the country to adapt, innovate and expand, but they also failed to appreciate that we now had in place a Government on the side of businesses who were willing to put in place the conditions that help them to invest and expand, whether by addressing burdensome regulations or reforming our tax system.
In case we forget, such action included reversing the worst effects of the previous Government’s jobs tax. Yes, at a time when we needed businesses more than ever to take on more staff, Labour’s contribution to deficit reduction consisted of increasing the tax on jobs.
Mr John Redwood (Wokingham) (Con)
Does my hon. Friend think that it is possibly because they are embarrassed by that record that there are only two Labour Back Benchers in the whole Chamber and nobody from the other Opposition parties? How many extra jobs does he think his excellent Bill might help to create?
Mr Gauke
My right hon. Friend makes a very good observation. I can rarely remember so few Labour Members being present for the opening of a Second Reading debate. I was beginning to take it personally, but he has reassured me that this issue does not attract the interest of the Opposition. Labour is the party that intended to increase the jobs tax. Pretty much the only measure that they had for deficit reduction was to increase employers’ national insurance contributions, which was not a sensible approach at all.
We are not predicting how many jobs the Bill might create because a number of factors apply. It is interesting to note, however, that the Federation of Small Businesses believes that the measure is better than the one that it had advocated, which it anticipated would have created 45,000 new jobs. It has carried out a survey of its members and 28% of respondents believed that this measure would help them to increase the number of people they employ. That is a very encouraging step.
Finance (No. 2) Bill
Debate between David Gauke and John Redwood(11 years ago)
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Mr Gauke
As I was trying to make clear a moment ago, I will turn to the subject of evasion and avoidance later on in my speech. The Government have a proud record of taking steps to reduce evasion and avoidance, with legislative measures, support for Her Majesty’s Revenue and Customs and what we are doing at an international level to encourage greater co-operation between jurisdictions to ensure that the net is closing in on those who wish to evade their responsibilities. We will continue to take positive steps on that front.
Mr John Redwood (Wokingham) (Con)
The Labour Government set capital gains tax at 18%, which is somewhere near the revenue-maximising rate. This Government put CGT up to 28% and, predictably, their own figures show that revenue is lower. When will they promote enterprise with a lower rate that will generate far more revenue, something we clearly need?
Mr Gauke
One has to look at the tax system as a whole, including capital gains tax, and I am not sure that I necessarily agree with my right hon. Friend’s interpretation of the period as a whole in relation to CGT revenues. In the year in question, there was certainly a reduction in deals done and transactions completed after the increase in the rate of CGT, but subsequent CGT revenues have picked up. We also have to bear in mind the relationship between CGT and income tax. I agree strongly with my right hon. Friend that it is important to have a competitive tax system that encourages enterprise and growth—indeed, I will turn to that now.
One of the most important questions facing the country is this: at a time when much of the world is still coming to terms with the consequences of the financial crash, when many of our export markets face significant difficulties, and when international competition is becoming greater, and, because of the recklessness of the previous Government, we cannot afford to borrow more, how do we put in place the conditions for growth? In the specific context of the Bill, how do we ensure that we have a tax system that helps us to achieve growth and encourages businesses to locate and invest in the United Kingdom? As the Chancellor has made clear, our objective is to have the most competitive tax system in the G20.
Mr Gauke
I hope the reduction to 20% will have all-party support, but I am sorry if it does not. The advantage of 20% is that we will have a corporation tax rate that is consistent with the small profits rate. It is the lowest in the G20 and sends a clear signal to businesses around the world that the UK is open for business. That is something that we in this Government are proud of and that we believe is putting in place the conditions for growth. I hope that the Opposition will support this measure, although Labour in government did not make as much progress in reducing corporation tax rates as it might have done and we lost a competitive advantage. This Government are restoring that competitive advantage, which is something we are proud of.
It is not just corporation tax rates: clause 34 will introduce the new above-the-line credit for large company R and D investment from April 2013—a measure that will make the level of support more visible to those making investment decisions and thus more beneficial to foreign-parented multinationals looking to invest in R and D in the United Kingdom. This Government have also made a clear commitment to support the creative industries through the tax system. Building on the success of the film tax relief, which last year supported investment in more than 300 British films, clause 35 introduces new corporation tax reliefs for the animation, high-end television and video games sectors. The new reliefs will be among the most generous in the world, encouraging investment in these highly skilled and innovative parts of the creative economy. They are measures that will bring jobs to the United Kingdom and funds to the Exchequer.
This Government recognise the need for a broad industrial base, and measures in the Bill will support a wide variety of sectors. Clauses 77 to 90, for example, provide certainty over decommissioning relief on the UK continental shelf. Clause 7 supports small business by increasing the annual investment allowance for two years and clause 56 provides for an extension of the capital gains tax holiday. Those measures send the clear message to businesses, entrepreneurs and investors across the world that if they want to come to the UK, invest in the UK and employ people in the UK, they will be very welcome in the UK.
Mr Redwood
I strongly support the corporation tax move, which will be extremely helpful to Britain’s competitiveness, but when people are thinking about where to locate their businesses, they worry not only about profits tax but about personal tax. Does my hon. Friend agree that, given the current inherited income rates and capital gains tax rates, a lot of the high earners in those companies do not want to be anywhere near London because the taxation rates are still very heavy?
Mr Gauke
My right hon. Friend makes a valuable point. This underlines the fact that the Government were right to reduce the 50p rate of income tax, because it was out of line with the vast majority of our international competitors. We have to look at the tax system as a whole. I believe that we have made striking progress in delivering that, and in ensuring that we are open for business. It is also striking that, since we have embarked on our package of reforms, the flow of businesses leaving the country has already been stemmed. Indeed, we have seen many businesses either returning to the UK or coming here for the first time. They include WPP, Lancashire, AON, Rowan and Seadrill, and I believe that more will follow.
Oral Answers to Questions
Debate between David Gauke and John Redwood(13 years, 5 months ago)
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Mr John Redwood (Wokingham) (Con)
Given that the Irish Government have said that they neither want nor need a bail-out, will the Chancellor support them at ECOFIN and put off those people in the EU who seem to want to make a crisis out of a problem?
Finance Bill
Debate between David Gauke and John Redwood(13 years, 9 months ago)
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Mr Redwood
My hon. Friend reinforces my point: avoidance covers a variety of different things. In this case, it seems to cover conduct that a Government are trying to encourage, as well as conduct that a Government are trying to repress or stop. That is why the House needs a little more humility instead of rushing into saying, “There’s all this tax being avoided.” Some of it is being avoided for reasons that the previous Government approved of.
Mr Gauke
I am grateful to my right hon. Friend, who brings me to my next point.
The Government see the distinction between tax avoidance and tax planning, but those lines can be blurred, and sometimes use of the terminology is not as accurate as it might be. For example, I quote the “Missing Billions” report, produced for the TUC, which, after setting out a series of numbers leading towards the estimate for corporation tax avoidance, states:
“Much may be due to legitimate tax planning, but by no means all is. Some, undoubtedly, is due to tax avoidance.”
That seems to me to suggest a slight blurring of the lines. Again, I am sure that I will be corrected in Mr Murphy’s blog if I am wrong, but there does appear to be some confusion.
I am not suggesting that tax avoidance and tax evasion do not matter. The £40 billion figure is significant. However, it is also true that we cannot pretend that if we just address this problem, the deficit will go away. Although it is always tempting for a new Minister in a new Government to attack everything that happened before, I must point out—not purely out of fondness for my predecessor, the right hon. Member for East Ham—that, in international terms, £40 billion is not too bad as a percentage of tax revenue raised.
HMRC does not do particularly badly. Indeed, it tends to lead the field in this respect. Nor has it deteriorated during a period in which it has incurred substantial job losses, as a number of Members have pointed out. I believe that it employed 97,000 people in 2005, and the most recent figure is 69,000. It is a question of deploying resources as effectively and efficiently as possible.
None the less, to the extent that it is possible to go further in reducing evasion and avoidance, the Government are keen to do so, and I have set out some of the ways in which we intend to do so. I can tell the hon. Member for Hayes and Harlington that we already assess the amount of tax lost through avoidance and evasion, and that we are committed to reduce those losses as much as possible. We will also continue to publish the tax gap figures as frequently as possible, to provide a focus for HMRC and to ensure that our debate is well informed.
I hope that what I have said gives some reassurance to the hon. Member for Hayes and Harlington. Let me also remind the shadow Minister that HMRC introduced a banking code of practice in 2009, and HMRC’s annual report will provide anonymised statistics on the number of banks that have adopted it. We believe that the code encourages banks not to enter into, or be party to, avoidance arrangements, but we will of course continue to monitor and review its operation.