Income Tax

Geraint Davies Excerpts

Wednesday 5th November 2014 Commons Chamber

[Chris Leslie]

My hon. Friend hits the nail on the head—as if our constituents are not still bearing a burden. The Chancellor of the Exchequer said that he could not countenance reducing that 50p rate until people were no longer bearing that economic burden. Are we in that position? Absolutely not. What does he do? He chooses to give that tax cut to the very wealthiest in society. Has there ever been a fallacy greater than the Chancellor’s hollow claim that “we’re all in this together”?

How strange that before the last election, as my hon. Friend says, the Chancellor said, “No, no, no, we certainly wouldn’t tackle that 50p rate,” but after the election, amazingly, he decides to do what Conservatives always do. That was at a time when Oxfam reports that 20 million meals were given out in food banks last year, up by more than 50% on the previous year. Its chief executive is right to say that the fact that they are needed in 21st century Britain is a stain on our national conscience. We cannot and we must not allow these warped and perverse priorities to go unchallenged.

There is an alternative and a different set of choices. When Government borrowing is 10% higher in the past six months compared with the same period last year and the deficit is rising, the Treasury cannot afford to dole out tax breaks to those at the top of the pile. Borrowing so far this year has been £58 billion, compared with just over £52 billion for the first six months of last year. The revenue from the 50p rate of tax remains essential when that deficit is pressing so heavily on vital public services and bearing down on the shoulders of lower and middle income households in our constituencies.

[Geraint Davies (Swansea West) (Lab/Co-op)]

As my hon. Friend will know, income tax receipts were projected to rise by 7% this year but have, in fact, gone up by only 0.1%, so there is a pressing need for extra income. He will also know—perhaps he will comment on this—that the marginal rate of tax for national insurance and income tax is 62% for people on incomes between £100,000 and £120,000, so how can the Government argue that behavioural changes resulting from a 50p rate will suddenly drive everyone away? It is obviously a load of bunkum designed to protect their rich friends.

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[Mr Gauke]

The way to address that is by improving our productivity, by attracting additional business investment, and by ensuring that we are a good climate for businesses to invest in. That is how we get growth. It is through enterprise, not through punitive taxation that fails to deliver public finances to the Exchequer.

[Geraint Davies]

Will the Minister confirm that the amount of business loans from banks, including RBS, to businesses, is 30% down compared with 2008, and down 40% for small business, yet the loans for mortgages, for houses that already exist, are at 2008 levels? All the money is going into existing houses instead of into productivity and business. Why does he not do something about it?

[Mr Gauke]

The hon. Gentleman should also be aware that business investment is increasing. The last few quarters have been very positive on that front, and we are moving in the right direction, despite having to deal with the mess that we inherited. The truth is that in the place where a credible Opposition economic policy should be, we have an empty gesture that will do nothing for economic growth, nothing for job creation, nothing for the public finances, and nothing to help reduce taxes for working people.

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[Mr Gauke]

My hon. Friend makes a good point. He also made a good point when he intervened on the Prime Minister earlier today. I am delighted that he has again had the opportunity to talk about what the Government are doing and the benefits that are being spread across this country.

The move to 45p, based on the central estimate of the taxable income elasticity, only cost £100 million a year, which is a small price to pay to regain some of the international competitiveness that we lost as a result of the previous Government’s decisions. The additional rate not only harmed our economy and contributed little to the Exchequer, but had significant impacts on our international competitiveness. It placed us in the unenviable position of having the highest statutory rate of income tax in the G20, which is precisely what we do not want when we need investment, jobs and long-term economic growth. By creating a competitive tax environment, this Government’s actions to reduce the additional rate have unambiguously been in the UK’s best interest. A return to the 50p rate would be to ignore the long-term interest of this country.

As a Government, our tax policy has focused on three broad areas: it has ensured that people play by the rules and pay the taxes they owe; that the highest earners make a fair contribution without damaging this country’s competitiveness; and that we lower taxes for hard-working people. I am proud that we have taken concrete action on all three fronts in every single Budget while delivering the fastest economic growth in the G7. This Government’s policies have repeatedly increased the tax contribution of the wealthy, creating a fairer tax system in which those with the broadest shoulders bear the greatest burden. We increased the rates of capital gains tax to 18% and 28%, ending the situation in which a director could pay a lower rate of tax than their secretary. We have introduced a stamp duty rise that will raise around £200 million a year from those who buy properties worth more than £2 million, and we have been particularly harsh on evasion and aggressive tax avoidance. For example, at Budget 2011, we introduced the disguised remuneration legislation, which raises £3 billion and protects almost £3 billion over the next five years, mainly from higher and additional rate taxpayers—a policy, by the way, that Labour voted against.

The loopholes that were closed at various Budgets mean that we have around three quarters of a billion pounds more coming into the Exchequer. Our policies do not stop there. We have also imposed a 15% rate of stamp duty land tax on residential properties bought through companies; introduced a cap on certain unlimited reliefs to limit their excessive use to reduce taxable incomes; and introduced the general anti-abuse rule. We are also requiring that tax is paid up front, preventing the richest from gaining unfair cash flow advantage by delaying tax payments. As we recognise that tax systems no longer operate on just a national level, we have signed information-sharing agreements with many countries to tackle overseas tax evasion, ensuring that no one can get away with evading payment of the tax they owe.

[Geraint Davies]

I thank the Minister for his generosity in giving way. After mentioning all these improvements he has made to tax efficiency and collection, he said that the Labour party calculated that there would be a behavioural shift of £4 billion but a tax take of £2.5 billion. If we apply that ratio to the £3 billion static figure, we would be getting £1.15 billion, and not £100 million. How does he explain that discrepancy?

[Mr Gauke]

I can go through it slowly if it is helpful. There are two points there. That was the analysis of the previous Government in 2009, and, as I said earlier, that understated the behavioural impact. It is also the case that the impact of the behavioural changes is greater between 45p and 50p than it is between 40p and 45p, so there is no discrepancy there. I am interested in the fact that the hon. Gentleman has reduced by a little the claims of his Front-Bench team that the measure would raise £3 billion. At least he acknowledges that the static cost cannot be entirely relied on, which is a degree of progress for which we should be grateful.

[Geraint Davies]

rose—

[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.

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[Geraint Davies (Swansea West) (Lab/Co-op)]

It is a great joy to follow the hon. Member for North West Leicestershire (Andrew Bridgen). He told me that he is capable of generating energy out of potato peelings, and he certainly illustrated that today. I am also pleased to follow my hon. Friend the Member for Stretford and Urmston (Kate Green), who made a point about the inequality imposed by the Government’s economic policies. Given the inequality between men and women’s earnings, if women earned the same as men—they do not—I understand that they would basically be working for free from today onwards. That is the level of inequality we face.

It is all very well talking about raising tax thresholds. Everybody likes that, I guess, but as has been pointed out, it is not a panacea, certainly not for people who are moving in and out of work on zero-hours contracts—the 1.1 million people moving in and out of benefits—and having to go to food banks and so on, or those who cannot get jobs regularly. While many people welcome raising tax thresholds, it is costing us £11 billion a year. I mention that because it has been suggested that the measure under discussion today, the 50p tax rate—the static value of which is supposed to be £3 billion—is somehow insignificant and incidental, but it is still a significant figure, given the money the Government are giving away in raising tax thresholds.

Today the Prime Minister said again that he will be giving away £7 billion—there will basically be cuts in public services to pay for more tax giveaways. We are moving now to a situation where the Tories are saying, “Public services bad; tax cutting good” and many communities are feeling the pinch as a result, which is unfortunate.

During Prime Minister’s questions, the Prime Minister said that it would be “immoral” to rack up debt and leave it to our children as an inheritance, yet I put it to the Minister that the Government are doing precisely that. Their economic strategy is generating a low-income, low-wage economy, at the same time as pushing up the tax thresholds, which people have welcomed. The net outcome is that income tax receipts are going down. Instead of going up by 7%, they have risen by 0.1%, and the tax and national insurance increase that was supposed to continue to rise is £13 billion short this year.

The deficit reduction that the Chancellor planned for the autumn statement will be £11 billion down. Why? Because he predicted that wages would rise by 2.5% and they have risen by 0.5%. And why is that? As I mentioned, it is about insufficient investment from banks in productivity, and cuts to benefits for students or fees for sixth formers. In addition, the infrastructure that generates productivity and higher wages is being undermined, so the tax take is getting worse. Under Labour, 55% of the economy was debt; it is now about 75%. Borrowing under this Government over the past four years has been more than in 13 years of a Labour Government. It is a complete catastrophe.

[Andrew Bridgen]

rose—

[Geraint Davies]

I will give way to the hon. Gentleman in a moment. He was banging on about the 1970s, but let us remember more recent history and the fact that in the 10 years to 2008, the economy grew under Labour by 40% before we met the banking disaster. Two years on, thanks to the fiscal intervention of Brown and Obama, it was growing again by 2010. We have been flatlining since then because of the economic incompetence of the hon. Gentleman and his colleagues.

[Andrew Bridgen]

Perhaps I can drag the hon. Gentleman back to today’s motion and Labour’s wish to bring back the 50p tax rate. What does he say about the comments of Lord Myners, a Labour peer, who said of the shadow Chancellor:

“The economic logic behind his thinking would not get him a pass at GCSE economics…he takes us back to old Labour and the politics of envy”?

That was in The Daily Telegraph on 25 January 2014.

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[Geraint Davies]

As the hon. Gentleman knows, being from south Wales I normally support miners, but I would say that he is very much an intellectual minor. [Interruption.] Yes he is. Yes—we all know where Lord Myners came from, God help us.

Focusing on the 50p tax rate, I have already made the case that income tax receipts are not going up owing to Government mismanagement—a low-wage economy with low skills and low productivity, and raising tax thresholds, which does not add up. It may be desirable to raise tax thresholds, but it does not add up and it is incompetent. Labour is talking about people making a marginal contribution at the 50p level.

[Mr Jeremy Browne]

Will the hon. Gentleman give way?

[Geraint Davies]

I will not just now. We have heard the hon. Gentleman muttering for a while, but I shall take an intervention in a moment.

Let us consider behavioural changes. The rate of tax went from 40p to 50p to 45p. The hon. Member for North West Leicestershire, being a business man, knows that if someone running a business who wants to minimise their tax liability faces that quick succession, they will move their finances. Instead of bearing down on the 50p rate, they will pay much more tax in the 40p year, and then the following year they will move their expenses from the previous year into that year at the 50p rate, so they do not pay that as tax, and then to the 45p rate. It is therefore no surprise that companies, like his own probably, made behavioural changes in a rational way to limit the amount of higher rate tax. But it does not follow that if the rate is kept forever at 50p rather than going up and down, they can play games and not pay that tax. Of course, there would be behavioural changes, and the Labour party’s assumption is not that instead of raising £3 billion, £100 million would be raised—that is one thirtieth, which is frankly ridiculous and preposterous; it is more likely to be well over a third. We appreciate that there may be some behavioural changes, but we are talking about taking billions of pounds from the richest people at a time when the Minister, who is sitting there pointing, is basically arguing that we should save £400 million—against, say, a £1 billion take from the richest—by taking money out of the mouths of some of the poorest children through the bedroom tax.

[Mr Browne]

On the higher rates of personal taxation, I would like to quote Tony Blair from 2001 when he was Prime Minister. He rejected higher tax rates for the rich in a “Newsnight” interview, saying:

“It is not a burning ambition for me to make sure that David Beckham earns less money.”

This is the only Labour leader who has won a working majority in the past 48 years. Why has Labour decided to abandon his wise approach and adopt an avaricious socialist approach instead, which has proved to be both a political and economic failure?

[Geraint Davies]

I do not want to say anything rude about David Beckham. Tony Blair was obviously a very successful Prime Minister, and as I have already pointed out, he increased the size of the British economy by 40%. If we were not sitting here after four years of the Tories borrowing more than Labour did in 13 years and with the debt going up and up, we would not have to think of measures to raise more money. It is because of the economic incompetence and failure of this Government that we need to raise more tax at this point.

I have pointed out that there are people who already pay marginal tax rates of 62p—national insurance plus income tax. They are doing that and they are not suddenly leaving the country. This is a sustainable tax that can be borne at this point in the economic calendar, and we need to do it to protect the very poorest. As I have already pointed out, we are ripping £400 million—incidentally, the area most affected by the bedroom tax is Wales, where 42% of council households face it—away from people who have virtually no money. It is simply unfair that those judgments are made.

[Mark Garnier (Wyre Forest) (Con)]

The hon. Gentleman has said on a couple of occasions that under Labour the economy grew by 40%. He is absolutely right: it did grow by 40% under Labour in the years leading up to the 2008 crisis. However, that came from a massive asset bubble that was fuelled by a colossal rise in household debt. One of the greatest crimes of the Labour Government in the lead-up to the financial catastrophe was that it allowed household debt to increase by £1 trillion. It went from £450 billion to £1.45 trillion, an increase of household leverage from 100% to 175%. That debt is still with millions and millions of people.

[Geraint Davies]

I am very grateful indeed for that intervention. The reality is that less than a third of the deficit inherited in 2010 was due to the Government. The Government were spending more than they were earning to gear us out of recession, which was the right thing to do to stop a world depression. We had growth at that time, but thanks to the Chancellor of the Exchequer, the right hon. Member for Tatton (Mr Osborne), suddenly announcing in May 2010 that he was going to sack 500,000 people, everyone stopped spending money in the public sector and demand flatlined. We have had no growth so we do not have the tax receipts.

On debt, what is happening now, as I mentioned earlier, is that banks are lending 30% less to businesses to invest in productivity, entrepreneurship and growth, and they are giving the same amount as they did in 2008 to household debt to buy houses. That is not to build new houses, but to inflate houses in the south-east. There are no new houses, and it is ratcheting up the debt the hon. Gentleman rightly refers to. That is being inspired by the Government’s right-to-buy schemes and so on. That is completely irresponsible, so I am grateful to the hon. Gentleman for making the point about how irresponsible and poor the Government’s financial strategy is.

On infrastructure, a disproportionate sum is being spent in London and the south-east, when it should be spread across the country. Finally, if we want to get away from a low wage, low tax receipt economy, we need to invest in productivity. We need to think again about our strategy for tuition fees versus Germany and elsewhere. Ultimately—I am coming to a conclusion, Madam Deputy Speaker—we find ourselves in a situation where the poor are getting so poor that eventually they turn to parties like UKIP and worse. They start to blame immigration and all the rest of it, and we have social fracturing that will only continue unless we bring about a more equal, robust, fairer and stronger economy. This measure is a step towards that.