Geraint Davies
Main Page: Geraint Davies (Independent - Swansea West)Department Debates - View all Geraint Davies's debates with the HM Treasury
(10 years, 10 months ago)
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Chris Leslie
I would be the first to concede that it was a mistake to abolish the 10p rate in 2007. I do not think that it creates complexity in the tax system. The Institute for Fiscal Studies has long been in favour of simplicity in the number of tax bands, but I believe that there is a genuine debate to be had about progressivity in the income tax system. The hon. Gentleman’s colleagues can see the case for a 10p rate, and I believe that it would be a useful way of introducing a transition from the tax-free personal allowance to the 20p basic rate of tax. A 10p rate would be an important staging post along the way. A tax cut for those on lower and middle incomes would be broadly welcomed throughout the country.
Geraint Davies (Swansea West) (Lab/Co-op)
Does my hon. Friend agree that it is in the very nature of progressive taxation to have increasing marginal tax rates as someone earns more money? The Institute for Fiscal Studies has shown that there is therefore a genuine trade-off between social justice and increasing fairness, as people have more money, and tax efficiency. That is fair enough, and we should opt for progressive justice.
Chris Leslie
Indeed. Having a 10p band in the income tax scale ensures that we can focus on that sense of fairness. “Fairness” is a word that might not necessarily be recognised by some Government Members, but it is important in our tax system. We know that their idea of fairness is to cut the highest rate of income tax from 50p to 45p. They can justify that in their own terms, and to their own constituents, but we believe that it is far better to focus on giving help by introducing that lower rate straight above the personal allowance.
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.
Geraint Davies
Surely my hon. Friend will agree that the figure of 55,000 is a complete red herring. It is being said that housing wealth should be progressively taxed, and that the current council tax rates are out of date. Some of these properties are worth much more than £2 million, and perhaps even £10 million—we hear stories about Russian oligarchs and all the rest of it. Add to that the Chancellor’s strategy to generate more sub-prime debt by offering cut-price mortgage deals, and we will presumably have a progressive system of different rates and a thought-out new council tax regime that would be progressive, and we would not end up with everyone paying £36,000 at all, and the Minister knows it.
Chris Leslie
That is why we must ensure that we move the issue forward and get some proper workings from the Treasury—[Interruption.] The hon. Member for Enfield, Southgate seems to think that he has all the answers, so why do the Government not publish them? What is going on with Government Members? They should share these things in the public domain. Do we really have to make a freedom of information request to Ministers in order to get those data?
Geraint Davies
My hon. Friend will know that there is an increasing trend of international financiers buying London properties in particular as part of their asset portfolio in an uncertain world and that, at the top end of the market, an increasing share of them are owned by Russian oligarchs, oil sheikhs and so on. Does he agree, therefore, that this is a great opportunity to introduce a charge on foreign owners who invest in London—which is fair enough—in order to redistribute some of their massive wealth to the poorest people in Britain?
Chris Leslie
Yes, I agree. Governments often ask Oppositions how they will pay for tax cuts for those who need them most. We have given a clear example of one possible option. It is important to show that there is a fair way to give a tax cut to the vast majority of lower and middle-income households through the introduction of the new 10p band. The mansion tax is feasible and has cross-party support, as indeed does the 10p starting rate, and the Minister’s arguments are diminishing by the day, to the extent that we have managed to get him to lift the skirt of the data and publish more of them, which is what we want to see.
It is important to consider the arguments for fairness behind the 10p starting rate, which we think would provide a good tax incentive into work, especially for those on lower incomes. It is widely supported, especially by those Conservative Members who were champing at the bit only a matter of months ago when they tried to persuade the Chancellor and the Prime Minister to consider the proposal. Conservative Back Benchers have managed to get the Government on the run on their favoured topics, including an EU referendum and a tax break for married couples. They have the bit between their teeth, so perhaps we can persuade them to consider the 10p tax rate, too.
The principle of fair taxation is at stake in this debate. It should transcend party differences. We should be looking at funding a tax cut, not defending the wealth of the wealthiest. If the Government really mean it when they say that we are all in this together, the time has come for a mansion tax to help those most in need. The Government have a history of giving tax cuts to the wealthiest—they have already reduced the 50p rate, thereby giving millionaires a tax cut—and they have hit pensioners with what came to be known as the granny tax.
Chris Leslie
I did say earlier—I do not know whether the hon. Gentleman was in the Chamber—that it was a mistake to get rid of it in 2007. There were arguments. The Institute for Fiscal Studies looked at the issues. The basic rate of income tax had been reduced and calculations had to be made about how to pay for it. I think, however, that the right thing to do is to take these steps and have progressivity in the income tax scale.
It is wrong to hurt those in society who are most in need. They are paying the price and life is getting harder for them because the Government’s economic plan has failed. We need to concentrate on the contribution that the wealthiest 1% in society should make. They should pay a fairer share and we should make sure that that money goes to the vast majority—25 million people—on lower and middle incomes.
Geraint Davies
In essence this debate is about political choices and not just the technical efficiencies of marginal rates of tax. When this Government took over from Labour in 2010, two thirds of the deficit had been created by the banking community and a third by pump-priming in response to the financial tsunami after a history of sustained growth under the Labour Government. The new Government decided to focus not on growth, but on cuts to get down the deficit, which was a fundamental error that has led to a flatlining economy. They then had to decide who should bear the brunt in order to pay down the deficit—80% in cuts and 20% in taxes—and the answer that the Conservatives and the Liberal Democrats came up with was that it should be the poorest who were hit hardest.
The recent spending review and infrastructure plans replayed the same Tory agenda: the cuts will hit hardest in the poorest areas, including Wales and the north, and 80% of the investment in infrastructure for growth will benefit London and the south-east in order to shore up the Tory and coalition votes. This new clause is about making a move in the other direction so that the very rich make a slightly greater contribution, which will be redistributed to people in the middle and at the lower end of the income scale.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
The hon. Gentleman may have read an Institute of Welsh Affairs blog today by Gerry Holtham, the well-respected Welsh economist, who was scathing in his criticism of the hon. Gentleman’s party for adopting Tory austerity policies. How concerned is the hon. Gentleman, on the back of his criticisms of the UK Government’s austerity policies, about the fact that his party has adopted the very same strategy?
Geraint Davies
A moment ago I talked about Arab oil sheiks and now I am going to talk about Welsh milk shakes. On a serious note, what the Labour party has said is that when we take over in 2015, should the people of Britain give us their confidence, as I hope they will, we will inherit—this is self-evidently true—the current Government’s spending plans for 2015-16, so we will carry them out. As we make progress, I hope that the focus will switch to growth more than cuts, as it did after we inherited the Conservative party’s spending plans when we took over in 1997. We ran with those plans for a year and then we had consistent growth. The economy grew by 40% from 1997 to 2008 before the financial tsunami caused by sub-prime debt. I imagine that we will do the same in 2015. We offer no apology that we will have fiscal discipline alongside a focus on growth and that we will get people into jobs to pay down the debt. We will also change the composition of cuts to the rich and poor in certain areas.
Mr Russell Brown
My hon. Friend and I arrived in this House in 1997. In government, Labour confined itself to the overall spending of the previous Government, but we had different priorities which we put in place. It is not as if we came to power in a golden era. There was a debt and servicing it cost the equivalent of what was being spent on transport and defence put together. There was no golden inheritance. We had difficult choices to make as well.
Geraint Davies
I am glad that my hon. Friend brings that point up in this debate about the mansion tax. In 1997, we had the same old Tory economics, which we are seeing again because history is repeating itself. There was massive unemployment and that was being paid for by cutting services for the poorest. There was a huge debt that the Labour party paid down. The interest on that debt was excessive. We all remember Black Wednesday. We made the Bank of England independent to keep interest rates low.
The Opposition are serious about keeping interest rates low and having fiscal discipline, but our priority is economic growth. That is what any sensible business would suggest. A business man in Swansea said to me the other day, “If I was running at a loss, the last thing I would do is sack my workers and sell my tools, because I would not have a business. I would tighten up and focus on new product development and sales.” That is the balance that we want. We want a mansion tax and a 10p rate, because if we can recover some money from the richest and redistribute it to make it more worth while for everybody to work, that has to be a good thing.
The right hon. Member for Wokingham (Mr Redwood) brought out his violin and gave the heart-breaking story of the poor people who have a two-bedroom flat in Chelsea worth £2 million. He said, “Isn’t that awful. Surely you wouldn’t do that.” That is in sharp contrast to what Tory Members say about the person in the two-bedroom council flat who will be punished because their children grow up, get on their bike and get a job, as Norman Tebbit said, and vacate their bedroom. They say that there is nothing wrong with the forced evacuation of such people from London to a one-bedroom flat in a lower cost area; but they say that it is wrong that somebody who is living in a £2 million two-bedroom flat should have to rebalance their asset portfolio to generate revenues to pay the mansion tax. If someone has a £2 million Chelsea flat, it is possible for them to rent it out at enormous rents, live somewhere else in the countryside that is many times bigger, pay the mansion tax and make a handsome profit. That is not a heart-rending problem compared with the bedroom tax. However, it appears that Tory Members are more concerned about people who own £2 million properties than people in council flats.
A woman from my neck of the woods in Swansea came to see me two weeks ago and said that she had been on the waiting list for 11 years, asking to be moved from her two-bedroom flat to a one-bedroom flat, but the council does not have any one-bedroom flats. Why is that? It is because the local council has rightly been building for families in need with children. Suddenly we have the bedroom tax, which makes no economic or social sense, but there is no admission of that from the Government.
We have made the sensible suggestion, which has been thought through by the Liberal Democrats, that we should make the council tax more progressive.
We are all aware that house prices have gone up and down in different areas at different rates. In London, there is a skewed situation, because there is very quick house price inflation compared with elsewhere. People are making enormous capital appreciations. In essence, the financial disaster was caused by the bankers and sub-prime debt. That is likely to be repeated as we approach the general election because the Chancellor and his assistant, the Exchequer Secretary, have suggested triggering more sub-prime debt by covering people’s deposits. On the one hand, they are telling the banks to run a tight ship and to have enough capital reserves to cover their lending, because they do not want them to go bust again. On the other hand, they are saying that they will subsidise the purchasing of new houses. That is likely to happen in London, because people know that there is price inflation and will take a punt with a lower deposit and at a lower risk, hoping that they will recover their money through an escalation in house prices.
The very high-value property in London is being gobbled up by foreign speculation. The expensive property is being bought by people who want to get their money out of places such as Russia and by people who have huge accumulations of money from trade or oil surpluses. There are many cases of blocks of flats in London being bought outright. Nobody is living in them because the people who buy them know that they will make so much money through appreciation that they cannot even be bothered to rent them out. It is unbelievable.
We are asking, at a time of difficult choices and austerity, for a percentage of those transactions by multi-millionaires to be redistributed to make life easier for people who work in communities across Britain, not just in London. I accept that most of these properties are in London. For example, the constituency of the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) does not contain a £2 million house.
Paul Uppal (Wolverhampton South West) (Con)
The hon. Gentleman is making some partisan points, so I want to add balance to the debate. I have been poor—dirt poor. I used to share my bedroom with my siblings and cousins. By modern descriptions, I would have been classified as homeless. His main argument is about foreign capital coming to the UK and London. Does he not think that that is symptomatic of people recognising that we have a Government who are making credible decisions and creating financial stability?
Geraint Davies
I am grateful to the hon. Gentleman for telling me his economic background. It is useful that people of modest means come here and represent a range of views.
I am all for attracting foreign capital into infrastructure and productive opportunities. For example, Swansea will celebrate the centenary of Dylan Thomas’s birth next year and is on the shortlist to become city of culture in 2017. I am all in favour of encouraging foreign investors to invest in infrastructure that supports our cultural asset base. They would get a return from that over time, while generating wealth, tourism and jobs.
However, we are not talking about that. We are talking about people making speculative investments in house prices. They could just as easily be investing in aluminium futures or anything else. It just happens that London houses are on the up. If people have loads of money, they can buy a few of them and their money will grow. They know that that will continue because the Exchequer is irresponsibly putting taxpayers’ money into sub-prime debt to subsidise profits and further boost inflation. That will cause an imbalance in asset values and house prices between London and the rest of Britain. That situation is being stoked up by the irresponsibility of the Government, because they think that rising house prices in London will help them deliver Tory constituencies in the general election. That cynical ploy is unbalancing everything and encouraging foreign investors to take a punt.
That is not a symptom of the great stewardship of the Tories—far from it. The record of the Tory Government has been judged. The triple A rating has been torn up and thrown away.
Madam Deputy Speaker (Dawn Primarolo)
Order. Mr Davies, do you think that we could come back to the mansion tax and the 10p rate? Your setting of the scene has gone rather too wide of the specific issues that we are discussing.
Geraint Davies
I am grateful for your expert advice, Madam Deputy Speaker. I will move quickly back to the mansion tax.
At the moment, foreign investors are buying mansions for capital appreciation. A properly worked-out mansion tax would not be a simplistic flat rate of £36,000. That was the Government’s arithmetic—it was laughable, wasn’t it? It was, “Oy, what yer gonna do? ’Ave I got this roight? We want £2 billion, we’ve got 55,000 mansions, so you divoid it in—that’s it, it’s £36,000, innit? That’s what you’re gonna do.” Obviously, that would not be the strategy. It would be to have an escalating rate according to capital values, which would change over time.
The system would obviously have to be refined and played with, and as my hon. Friend the Member for Nottingham East (Chris Leslie) pointed out, the impact would depend on the delivery. To a certain extent, £2 billion is just a ballpark figure. That is why he asked for more detailed figures. There are various factors driving demand for such properties, and they have a range of prices in the marketplace, so the likely yield would change over time. We therefore need to consider a sophisticated system. However, it is clear that it is the right direction of travel for the very richest to make a contribution at the most difficult times, to make work pay for everybody else.
It is clear from international examples, such as in New York city, which already charges a mansion tax on $3 million properties, that the tax is tried and tested. We can learn from our friends and colleagues in America how to apply it correctly. We should come together—I know that the Liberal Democrats have always been keen on the tax, and I hope that they will join us in the Lobby to support it.
Sheila Gilmore
When the debates took place on whether the 50p tax should be changed, Government Members were keen to tell us that we could make up a lot of what was lost, and perhaps make even more, through various forms of property taxation. They obviously had in mind changes in stamp duty, ways of dealing with companies that buy very expensive houses and so on. We were told how much better a property tax would be than a tax on income, and that we would get far more money from it. However, when we follow that train of thought and suggest that there is merit in considering a mansion tax, we are suddenly told, “No, no, that would be terrible.” We are told either that it would be terribly expensive, and people would not be able to afford it, or that it would simply be the wrong thing to do. It seems that when we come to talk about something real, the Government run backwards as fast as they can.
We have had some figures thrown at us that are not mentioned in our new clause. They come not from anything that we have said but from what the Government have said, yet we are being told that we have to justify them. We are being told that figures such as a £2 billion yield and 55,000 houses are correct, which will mean people having to pay £36,000. I do not know whether 55,000 houses is the correct number of those that would be affected, but I do know that at the moment, according to Zoopla, there are 3,847 properties on the market for £2.1 million or more in London. That is not all the properties of that price but just those that are for sale. On that basis the figure of 55,000 is perhaps a conservative estimate, but the whole debate has been based on that figure.
Geraint Davies
Using that argument, people have said, “Oh well, we’ll raise more with a 45p rate than a 50p rate” yet my hon. Friend will know that year on year, bankers’ bonuses went up 64%. Does she agree that bankers were moving their income from a 50p year into a 45p year, and that if we had kept that rate up we would have raised that money? We should have done that as well as the mansion tax.
Sheila Gilmore
It certainly sounds on the face of it as if some sort of income arrangement was possible. For a lot of us, including people on PAYE, that would be difficult to do, but it is easier for other people. I have advocated not running away from a tax on property too easily. Not long ago we had that debate at some length in Scotland after a proposal by the Scottish Government to move to local income tax—again, they decided not to proceed with that. Some of the problems with local income tax concern the mobility of individuals’ incomes and the fact that some wealthy people might be able to avoid paying that tax. Those of us in political parties in Scotland that opposed moving to local income tax argued strongly the advantages of a property tax. Interestingly, the SNP Government, from 2007, backed away from their proposal in the face of those arguments.
Geraint Davies
I am grateful for my hon. Friend’s enormous generosity in giving way. She may know that in the past two years, the top 10% have seen their income rise by 5.5% each year—that is 11% in two years while everyone else is being squeezed. The rich are getting richer and richer, and the Tories are cutting the top rate of tax. Given that people are buying bigger and bigger houses with the great huge buckets of money they are getting, is it not right that they should face a mansion tax?
Sheila Gilmore
I was looking through the property pages of The Sunday Times yesterday, and interestingly it was full of descriptions about valuable houses and how property prices are rising. Since property prices at the top end were rising so much—driven partly by investment from abroad—it was argued that that would be good for everyone because it would lever up property prices for all. The argument is that high property prices are always beneficial, but those who tried to buy homes up and down the country long before the credit crunch know that high property prices are a double-edged sword because many could not get on the property ladder at all. In many parts of the country, not just in London, the amount that must be earned to buy even an average-priced house is more than people can earn in that area.
Sheila Gilmore
There has undoubtedly been a huge increase in the private rented sector. When I was elected as a councillor and became interested in housing, all the housing authorities and textbooks said that the private rented sector had become a residual sector and was disappearing. It might perhaps be there as a niche for young professionals or students, but it was not expected to be an important part of the housing mix. Within a short period—probably 10 to 15 years—we have seen an explosion in the private rented sector and in private sector rents. That is another issue for young people, particularly those who might wish to settle permanently. They cannot afford to buy a home because house prices are too high or they cannot get a mortgage. In the meantime they pay very high rents, which makes it difficult to save. I am not entirely convinced that high property prices are always a great bonus, and we should be looking for a more stable property market.
Geraint Davies
I am grateful for my hon. Friend’s enormous generosity in giving way again. Is she aware—I am sure she is—that property prices in London have grown so much that some local authorities have greater asset value than the entirety of Wales? Therefore, the mansion tax is a sort of cap—
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. Mr Davies, you were right when you said that you have intervened a lot. I do not mind you intervening but please do not take up so much time that you are almost making a speech.
Jonathan Edwards
It has been a number of weeks since we debated the provision in earlier stages of the Bill. My concern about the mansion tax policy, which I support in principle, is whether agricultural land would be included as a part of the estate that would be taxed. Does the hon. Lady agree that we must ensure that farmers are protected?
Sheila Gilmore
And Scottish farmers, I am sure, and so on.
A mansion tax—I think my colleagues on the Front Benches would agree—is about residential property, not business property, which is already taxed in various ways. Obviously, a whole raft of taxes are appropriate for businesses, and that would be the best way to deal with the issue, rather than a mansion tax. If a mansion tax is a way of ensuring that we can appropriately tax wealth, we should consider it very seriously, given that it is probably a better basis for taxation than income, which people can move around—I have yet to see a house be dragged offshore. That may not be impossible, but in this country we generally do not put houses on wheels and move them, unlike in the United States—at least, so we see in the movies. A mansion tax would be a way to help the low-paid, through the introduction of the 10p rate.