Oral Answers to Questions
Debate between Geraint Davies and David Gauke(8 years, 1 month ago)
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Mr Gauke
What is important is for the United Kingdom to secure the best possible deal in our negotiations with the European Union. I do not think that it makes sense to bind our hands and close down options at this point; nor do I think it right for us to provide a running commentary on the matter.
Geraint Davies (Swansea West) (Lab/Co-op)
Wales will continue to receive convergence funding while we are in the EU, but will the Treasury nevertheless honour the Prime Minister’s pledge to electrify the Great Western Railway line all the way to Swansea in order to make it part of the pan-European network and stimulate manufacturing and exports?
Common System of VAT (Vouchers)
Debate between Geraint Davies and David Gauke(9 years ago)
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Mr Gauke
The first of the UK Government’s objectives was to address a level of inconsistency and confusion that exists under the status quo, so we were not in favour of the do-nothing approach. Equally, we see vouchers as having a role to play. Within the UK, we have one of the bigger markets, as one might expect—although it is perhaps bigger than one would expect based on the proportion of our economy. We would not therefore favour banning vouchers; that would be a very draconian approach.
To get the type of clarity that we think we need, we concluded that guidelines would not be sufficiently strong. Therefore, of the four options, we favour legislating and hope that we can reach agreement among all member states so that the Commission’s proposals can go forward in a legislative form, although, as I said, we have highlighted a couple of areas where we think they can be improved on.
Geraint Davies (Swansea West) (Lab/Co-op)
In the case of multi-purpose vouchers that are issued, for example, in Britain but redeemed in Germany, what account is the Exchequer taking of changes in exchange rates, in terms of the tax take?
Mr Gauke
The hon. Gentleman raises an important point. The reason why we think we need to make progress in this area is that, in itself, this area is complex. When one takes into account the potential cross-border nature of transactions, the need for greater clarity becomes all the more important.
If we want to facilitate cross-border trade—as the Government do, and there is cross-party consensus on that—addressing the VAT treatment of vouchers is an important factor. I have set out the principles of how the Government think that this should work; if we are looking at MPVs, the measure should apply at the end of the transaction as such. That principle would apply, notwithstanding any changes in the exchange rate.
Geraint Davies
In the case of a voucher worth €1when it was originally issued, but €1.20 or €0.80 when it was redeemed, would there be any bearing on the tax situation? Presumably if the voucher is redeemed in Germany, the tax is paid in Germany, is it not?
Mr Gauke
In terms of the principle, if the supply is in Germany, the voucher is subject to German VAT, for example. The exchange rate is essentially not an issue here; the issue is the VAT payable at the point of the transaction, which, in the case of MPVs, is at the end of the process, as it were—at the final point in the shop. That is the rate of VAT that has to be paid.
Geraint Davies
To put it simply, let us say that somebody had a pack of 240 PG tips with a 50p voucher on it and they redeemed that in Germany. Although perhaps it would not be accepted at all, if it was, the amount would be translated into euros and the tax would be paid on it, so it would have a different value than anticipated. I am asking whether that poses any problems.
Tax Credits (Working Families)
Debate between Geraint Davies and David Gauke(9 years, 4 months ago)
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Mr Gauke
Let me put this as simply as possible. The debt is essentially the accumulation of deficit and for the past five years every measure that the Government took to reduce the deficit was opposed by Labour. Indeed, Labour’s economic argument—its whole case—was that we were going too far, too fast in reducing the deficit and that we should have a looser fiscal policy. A looser fiscal policy means borrowing more. If we borrow more, the debt will rise more quickly. The hon. Lady cannot have it both ways. She can argue that we should have been prepared to borrow more and to allow the debt to rise because that was a price worth paying, but she cannot then turn around and say, “We want the debt to be lower, even though our policies called for higher debt.”
Geraint Davies (Swansea West) (Lab/Co-op)
The Minister is construing tax credits as a welfare cost, but will he not accept that if someone is starting a small business and can afford to pay someone £10,000 to run a café, or whatever it is, but the person who is being employed needs £15,000, those tax credits would have helped generate a business with a much greater turnover than just the incomes of the individual employees? Tax credits are an instrument for generating new small businesses, not simply an act of charity from the Tories.
Mr Gauke
Cutting corporation tax rates for small businesses, introducing the employment allowance, helping under-21s and apprentices whose employers no longer have to face national insurance contributions, reducing the regulatory burden, restoring the economy to health and ultimately improving access to finance is what helps small businesses, and that is a record that we are proud of.
Finance (No. 2) Bill
Debate between Geraint Davies and David Gauke(9 years, 8 months ago)
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Mr Gauke
I suggest that the hon. Gentleman look at the analysis by the Office for Budget Responsibility of why its forecasts on deficit reduction were not met. It has been very clear that the three reasons it did not happen were the eurozone crisis; the after-effects of the financial crisis being greater than it or, indeed, other independent observers had expected; and higher commodity prices than had been expected. That made deficit reduction harder than it would otherwise have been.
The critique of Labour Members is sometimes to say that we have rigidly stuck to our plans to reduce spending, and on other occasions to say that we have failed to reduce the deficit as fast as we said we would. As regards our spending plans, the departmental and welfare spending reductions that we set out have been delivered. The automatic stabilisers came into effect; we have shown the flexibility to allow that to happen. As a consequence, we have delivered what we set out in terms of reducing spending, although we have faced more difficult circumstances. Labour Members are all over the place in this debate. Sometimes they say that we have stuck rigidly to plans that we should not have stuck to, and at other times they say that we have let the deficit rise.
We must remember that Labour Members opposed every single measure that we took to reduce the deficit. Had they been in power and had they been consistent in what they said—at least in their rhetoric—in opposition, we would have seen borrowing at a substantially higher level over the past few years, leaving our public finances in an unsustainable position, putting our recovery at risk, and damaging the economic credibility of the United Kingdom. Thankfully, they did not have the opportunity to crash the car, having done so once already.
Geraint Davies (Swansea West) (Lab/Co-op)
Does the hon. Gentleman not accept that the deficit targets were not satisfied because the growth projections went down, and that is because consumption went down, and that is because VAT went up? I appreciate what the Prime Minister said earlier, but does the hon. Gentleman accept that if VAT went up now, when we have 0% inflation, that would spiral the economy down, and that it would be better to reduce VAT than to reduce tax thresholds in order to stimulate growth to balance the books?
Geraint Davies
I am saying that given a choice between lower VAT or lower tax thresholds, does the hon. Gentleman accept that lower VAT would give higher growth and help to reduce the deficit—or is he a just a politician without any economic sense?
Geraint Davies
The Minister assumes that the choice is between tax and spend. Does he accept that if the tax and spend options are made in one way rather than another they will promote more growth and therefore more revenues? If more money goes to poorer people who spend all their money, as opposed to rich people who hide it in tax havens—10% of UK wealth is offshore—and if we had a Labour Government and a fairer distribution, we would surely have more growth and fewer cuts.
Income Tax
Debate between Geraint Davies and David Gauke(10 years ago)
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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.
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.
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.
Wales Bill
Debate between Geraint Davies and David Gauke(10 years, 6 months ago)
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Geraint Davies
The Minister has made the case that, if the Welsh economy expands relative to the English economy, the new regime—the Welsh Exchequer, as it were—would gain. However, the corollary of that, of course, is that if the English economy grows faster than the Welsh economy as a result of the current Government generating growth through a London housing bubble, Wales will lose out. Why is the Minister putting only one half of the argument when this could in fact be a hidden trap?
Mr Gauke
One of the attributes of devolving an element of income tax is that it will ensure that the Welsh Government have the incentives to grow the economy as strongly as possible. I am rather surprised that the hon. Gentleman has so little faith in the Welsh Government that he does not want to encourage this opportunity and that he does not have the confidence that, by pursuing the right policies, the Welsh economy can grow significantly. I would have thought that that is what he wanted.
Geraint Davies
The Minister knows that investment and economic development in Wales would deliver jobs and that that would reduce social security costs and increase income tax. There is no proposition for social security to be devolved, so a lot of the benefits will be in England. What is more, with this new manifestation of the policy—this half-cocked version—there is a real danger that, if a London-centric recovery occurs, Wales will lose out.
Mr Gauke
That is a matter for the Welsh Government. They might want to pursue tax policies, but I repeat that policies on education, skills, housing and planning all contribute towards economic growth. The situation at the moment is that the Welsh Government control many of the key levers to generate economic growth, but do not currently benefit from any resulting economic performance through the impact on its budget. This devolution of tax will address that situation. Equally, to go back to the point made by the hon. Member for Swansea West (Geraint Davies), it means that if bad policies are pursued and they damage growth, that will have a consequence for the Welsh economy. I am sure that he is not suggesting that the Welsh Government will pursue growth-damaging policies.
Geraint Davies
Does the Minister accept that although some powers to effect economic performance are in Wales, the mass of powers are in this place in terms of the Exchequer, our relationship with the Bank of England and macro-economic policies across the United Kingdom? With the budget that it has, Wales alone cannot determine its economic future. To say so is simply misleading, and he should withdraw it. It is a disgrace.
Mr Gauke
The hon. Gentleman may say that the mass of powers are here, but we are talking about a relative test involving Wales versus the rest of the United Kingdom. United Kingdom policies apply across the United Kingdom; the specific policy of the Welsh Government may result in changes in growth in the economy and the impact of that on the budget.
Living Standards
Debate between Geraint Davies and David Gauke(11 years, 2 months ago)
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Mr Gauke
What is striking about the data we have seen is the encouraging, broad-based signs. The manufacturing numbers are very encouraging. Let us not say that the situation is about consumer spending only. There are encouraging signs in the economy, which was not reflected in the remarks of Labour Members.
Geraint Davies
The Minister will have heard my speech, so I will not recite it, but will he accept that there is a problem with the amount of lending to business by banks? Can he give any undertaking that the Bank of England will put pressure on banks to redirect the funds they have been given under the funding for lending scheme towards business rather than to household mortgages that are now out of the woods?
Mr Gauke
The fact that we have credibility in our fiscal policy means that the Governor of the Bank of England has been able to say what he has said about the greater certainty for interest rates, which is helpful for businesses. If we throw away that fiscal credibility, we will make life more difficult for businesses wanting to get credit.
We have talked about what the motion contains. It says that we should get more people into work: we agree with that. Over the year, employment has increased by 301,000, and unemployment has fallen by 49,000. In July, the claimant count fell, for the ninth consecutive month, to 1.44 million, the lowest level since February 2009. This is the result of a Government who have created the right tax and regulatory environment for businesses to flourish. The proposals from the Opposition would put all of that at risk.
We hear about bringing forward capital investment. We also recognise the need for infrastructure investment to spur the jobs and growth of the future, and that is why in June the Chief Secretary unveiled the biggest public housing programme for more than 20 years; the largest programme of rail investment since Victorian times; the greatest investment in our roads since the 1970s; fast online access for the whole country; and the unlocking of massive investment in cleaner energy to power our economy forward. We have increased expertise in Whitehall and we are working hard to deliver those projects as soon as possible.
The cost of living is an important issue, and we recognise that times are tough for many people. But let us look at the difference between the parties. Whereas we have reduced income tax for 25 million people—we have increased the personal allowance—the previous Government doubled the rate of income tax on low-paid workers. This Government have ensured that we have credibility so that we have been able to keep mortgage rates low: the Opposition would lose our credibility. Council tax doubled under the previous Government: it has been frozen under us.
The previous Government raised fuel duty 12 times while in office and had plans to raise it six more times subsequently—the equivalent of 13p per litre—and we have frozen fuel duty. When we came to office, the UK had almost the highest child care costs in the world, and we will help families with child care. Energy bills soared under Labour. Between 1997 and 2010, the average domestic gas bill more than doubled. Electricity bills went up by more than 50% and Labour remains committed to an expensive 2030 decarbonisation target that will only add to energy bills, whereas this Government are forcing energy companies to put customers on the lowest tariff. When it comes to beer duty, Labour planned to raise the tax: we not only froze it, we cut it.
My hon. Friend the Member for West Worcestershire (Harriett Baldwin), in an excellent speech, asked how we ensure that we have the sustainable growth that we need. We need sustainable public finances—an argument that we have made consistently and that has been consistently opposed by the Opposition. We need a highly skilled work force, and that is why 500,000 apprenticeships have been undertaken under this Government. It is why we are undertaking ambitious educational reform. We need welfare reform, with a system that makes sure that work is rewarded—not something that we inherited from Labour. We need a competitive tax system that encourages investment in the United Kingdom, not one that drives it away. We need to deal with the regulatory burdens that prevent growth—we have undertaken planning reform, which will help to increase housing supply.
What do we get from the Opposition? We get a Labour party that presided over a squeeze in living standards from 2003; a Labour party that must accept some responsibility for the deepest recession in a century; a Labour party that doubled the rate of income tax on low-paid workers; a Labour party that planned for increase after increase in fuel duty; a Labour party that remains signed up to decarbonisation targets that would increase energy prices; a Labour party that has consistently set out an economic policy that would consist of more borrowing, an approach that would lead to higher mortgage rates and ultimately higher taxes; and a Labour party that has opposed our council tax freeze. For Opposition Members to lecture us on living standards is extraordinary. As President Obama might have said, it is the audacity of the hopeless.
If we want to help hard-working people—I think we all do—it is vital that we stick to the task. [Interruption.]
Finance (No. 2) Bill
Debate between Geraint Davies and David Gauke(11 years, 7 months ago)
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Geraint Davies
Every week during Prime Minister’s Question Time the Leader of the Opposition asks why, at a time when there is so much poverty and a need for austerity, the richest in society are benefiting from a cut in the 50p income tax rate, and the Prime Minister replies, “We will raise more money from the 45p rate than from the 50p rate.” We all know why that is, and the Minister knows why it is. It is because rich people are able to manage their affairs and can move their income between tax years, and in this instance they will simply move it into the 45p year. The Minister knows that, and he also knows that if we retained the 50p rate on a sustained basis, we would gather more money.
The Minister shakes his head with a smug expression, but he knows that, and he also knows that many people already pay 52p in the pound. Those with incomes of £32,000 or £42,000 are paying 40% in tax plus 12% in national insurance. The Minister’s claim that we could not possibly have a 50p rate because all those rich people would get on their yachts and leave Britain is absolute rubbish.
Mr Gauke
Let me make two points. First, I do not know whether the hon. Gentleman has read the HMRC report on the 50p rate, but if he has, he will have seen that a large element of the loss is due to a reduction in economic activity, and has nothing to do with tax avoidance. Secondly, I am afraid that he has got his facts wrong: people stop paying 12% in national insurance contributions as soon as they reach the higher-rate threshold.
Geraint Davies
That is not my understanding. According to the Minister’s own analysis of economic activity, which he mentioned, the yield from a 50p rate would be greater over a period. The analysis factors in the behavioural change to which I have referred, namely rich people moving their incomes around. It is also the case that people are paying the rates to which I referred. I have commissioned research from the House of Commons Library. It is all very well for the Minister to sit there nodding away, but that is the fact of the matter. It is completely unjustifiable that, at a time when the incomes of some of my constituents are being reduced to about £11 a week and they are on a starvation diet, his rich friends should be enabled to have this extra money.
The Minister continues to resist calls for a bankers’ bonus tax. At one moment he claims that bankers should be taxed in that way, and at the next moment he gives them 5p back. It is absolutely preposterous. The Minister hopes that the food banks that are now emerging in their thousands will help to cope with the Dickensian circumstances that he is causing, in which people are starving in their own homes, but, as I have already pointed out, unless a supplement to the social security system is introduced such people will not be able to survive.
The Minister is pushing us into a situation in which the state is withdrawing in the hope that the charitable sector will help to sustain certain very poor communities. It is absolutely appalling. We have a dementor Government who are sucking the lifeblood out of our poorest communities. Those people want to spend their money, and would otherwise be reviving our local economies. All that they want is a chance to work, and to do a job.
We should be investing in infrastructure, skills and connectivity. We should be marketing local areas and helping businesses to succeed and create jobs, rather than taking away the demand in those local areas. We should also be promoting spending. At present everyone is saving instead of spending because they are scared of the future, but we do not want a future of fear; we want a future of hope. We do not want a future of division; we want a future that cares and a future that works. We want a “one nation” Britain, rather than a divided and weak society moving forward under the Tories.
I hope that the Minister will think again about the need for those with the broadest shoulders to make the highest contribution, rather than just smirking with his colleagues. I would guess that they—in their richer communities in the divided Britain whose divisions they are accentuating—will not have to deal with the number of people who approach our surgeries in despair, asking what they can do with the very limited amount of money that they have.
Some of the changes in the Budget are completely unnecessary. The bedroom tax was originally expected to raise £490 million. The figure has just been revised to £400 million, but in fact the tax will raise no money at all. It was supposedly intended to confront the problem of rising housing benefit costs, which have doubled over the last 10 years, but we know that 70% of that rise was due to the fact that not enough houses were being built and private-sector rents were going up. The displacement into the private sector of people who are being punished because their children have grown up will simply increase housing benefit costs further.
The Minister knows in his heart, and from the analysis, that such changes are unnecessary. They will not raise money, so why make them? Why not let the rich pay a little bit more towards the public good? Even if the bedroom tax does raise £400 million, the Minister is spending £12 billion on ever-increasing tax thresholds. While that in itself is welcome, the fact remains that these changes are about choices. If the Minister’s choice is to give the richest more and hand a bit from the very poorest to the squeezed middle, he is taking the wrong direction in terms of the prosperous and united Britain that I believe we all want to see.
Mr Gauke
We know what the big issues are with growth. We are having to deal with the aftermath of the financial crisis, the eurozone crisis, high commodity prices and the terrible fiscal situation we inherited from Labour. Having an uncompetitive top rate of income tax does not help, a point that previous Labour Governments recognised until we got to the fag end of the previous Government when, as a political ploy, the then Prime Minister put the rate up to 50p. It is striking how the Opposition will not confirm that they will return to a 50p rate.
Geraint Davies
I am grateful to the Minister for his generosity in giving way. Does he agree with the trickle-down theory, which is that if we give the rich more money the poor will eventually get a bit more? Or does he believe that it is more of a trickle-up and that if one crushes the poor, like the dementors I mentioned, one can take their money and give it to the rich, so that we have the bloated group of people whom he represents side by side with people in massive poverty?
Finance (No. 2) Bill
Debate between Geraint Davies and David Gauke(11 years, 7 months ago)
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Mr Gauke
I am grateful to my hon. Friend for his remarks. It is right to say that exporting is important. It is one area where, as an economy, we have not performed as well as we would have liked over many years, although we are making striking progress in some of the major developing economies. However, we face difficulties, in particular with the eurozone, which is our biggest export market.
Let me return to what we are doing as a Government to ensure that we meet our objective of having the most competitive tax system in the G20. We have already made considerable progress. As evidence, let us look at the KPMG annual survey of tax competitiveness, in which senior tax professionals were asked to name their three most competitive tax jurisdictions. In 2009, just 16% named the UK among their top three, but by 2012 the UK was named by 72% of respondents, ahead of every other jurisdiction. Since that survey was undertaken, the corporation tax rate has fallen from 24% to 23%, but we will not be complacent. Clause 4 will cut the main rate of corporation tax to 21% from April 2014. As we announced at the Budget, we will then reduce the corporation tax rate by an additional one percentage point from April 2015—a measure in clause 6 that will mean that the United Kingdom has the lowest business tax rate of any major economy in the world.
Geraint Davies (Swansea West) (Lab/Co-op)
Given that before and after the Budget the corporation tax rate in France was 33%, while in Germany it was 29% and in Britain it was 21%, why is it necessary to reduce it to 20% and in so doing to get rid of 5% of the corporation tax yield? How long will it take to get that 5% back? Will we produce 5% more inwardly investing businesses or will the size of the business community grow by 5% to make it up? We are already extremely competitive on that front, so how long will it take to make up that money, which the Minister has given away for no apparent reason?
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 Gauke
There is a balance to be struck, and we have rightly focused on bringing down the rate of corporation tax, not only for larger businesses but for smaller ones as well. Let us remember that the small profits rate was set to go to 22% when we came into office, and that it is now 20%. We have increased the annual investment allowance for that two-year period to try to stimulate investment at a time that is not necessarily the easiest for many businesses. That is part of what we have done to help small businesses during this difficult period. Taking steps to bring the rate down is important; it is a tradition, if you like. It has been our direction of travel in the UK over many years, and I think that we have now got the balance about right.
Geraint Davies
I have here a letter to the Chancellor from the Admiral group in Swansea—the biggest business in Wales. It expresses disappointment that Swansea was not included as a city with super-connected city status in the last Budget and asks that it continues to be considered in future. Will the Exchequer Secretary positively consider that request? Business is asking for the infrastructure tools to succeed, particularly so that large businesses can connect worldwide with suppliers and prospective clients. We obviously welcome the investment in the creative industry, which is also very important.
Mr Gauke
I shall certainly take that intervention as lobbying in support of the proposal. The hon. Gentleman is right to highlight our super-connected cities policy, which is further modernising our economy and further benefiting a number of cities. I appreciate the case he makes for Swansea, and I am sure that it will be properly considered.
Geraint Davies
I am grateful for the Minister’s enormous generosity in giving way a third time. On the issue of transparency in pensions, does he accept that the people who are going to be hit hardest are the current young, who are the future old? They are also paying much higher student loans, they face debts, they will need much higher deposits for their mortgages, they will have to pay higher rents so they cannot save, and they face much greater uncertainty about job prospects. Downstream they will be hit again by the pension changes, which are not transparent to them, partly because they are not thinking about that now because they are young.
Mr Gauke
I will try not to digress too much. If I can be helpful to the hon. Gentleman, I do not think he is concerned about the proposals in the Bill, which will apply only to those who make the biggest contributions to their pension fund and receive tax relief for that. He makes a number of important points, but those are not necessarily relevant to the proposals on pension tax relief. If he is concerned about that, I look forward to hearing his concerns over the course of the many debates that we will have.
The Bill is substantial. Building on the invaluable work of Michael Jack and John Whiting at the Office of Tax Simplification, it delivers a number of important reforms to simplify the tax system, including the implementation of recommendations from their reviews of small business tax and tax-advantaged share schemes. This is a significant Bill. It is a clear statement of our ambition to secure a tax system that restores the competitiveness of our private sector, clamps down on avoidance and evasion, and helps to build a fairer society for those who want to work. It is a clear statement that we remain committed to reducing the deficit and building a prosperous economy in the United Kingdom once again. It is a Bill that will energise business and support hard-working people, and it is a Bill that I wholeheartedly commend to the House.
Tax Fairness
Debate between Geraint Davies and David Gauke(11 years, 8 months ago)
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Mr Gauke
I am afraid the hon. Gentleman is wrong. People earning just over £40,000 have seen tax cuts and a reduction in the total amount of income tax they pay, because the personal allowance has increased to more than compensate them. The higher-rate threshold has not increased as it might have done, because higher-rate taxpayers would gain more from the personal allowance than basic rate tax payers. Someone on between £40,000 and £44,000 a year is paying less income tax as a consequence of the Government’s policies than they would have done otherwise.
Geraint Davies
Will the Minister take this opportunity to confess that the reason why the Treasury predicts less will be generated by the 50p rate in the one year of its operation than the 45p rate is that he knows, as I do, that millionaires can move their money between tax years? As the rate only runs for one year, they will move their money to the lower tax year. He would raise more money if he kept the 50p going. It is a con for his mates.
Mr Gauke
There are two points. It is correct that the wealthy are often able to move income from one year to another, but the conclusion that HMRC and the Office for Budget Responsibility reached is that even taking into account the forestalling effect, the behavioural consequences of the 50p rate were so significant that it barely raised any revenue. That is the reality. It even takes into account the hon. Gentleman’s point about forestalling. That approach has been confirmed by the OBR. The 50p rate failed.
Mr Gauke
My hon. Friend is right. The Labour Government were in office for 4,758 days. For all but 36 of those days, the highest rate of income tax was at 40p. Then it moved to 50p. There is a good question to ask the Opposition about why they kept it at 40p for so long. Why did they leave it until the fag-end of their Government, when it was clear that they would not be in government any more? The reason is that the 50p rate, predictably enough, did not do what it was supposed to do. It did not raise revenue, and an income tax that does not raise revenue is not something that a sensible Government would persevere with.
I turn to the mansion tax.
Mr Gauke
No. I shall make a little progress, devastating though the hon. Gentleman’s interventions so often are.
We have always been quite clear that the proposed mansion tax is an issue on which the two parties in the coalition have differing views. Our Liberal Democrat colleagues have supported the principle for some time. I am sure that the Under-Secretary of State for Communities and Local Government, my right hon. Friend the Member for Bath (Mr Foster) will make that clear when he winds up the debate. In contrast, Conservative Ministers have very real concerns over such a proposal. We have concerns that a third of the properties in London worth more than £2 million have been in the same ownership for over 10 years, and that a mansion tax could hit asset-rich but potentially income-poor households, a point made by my hon. Friend the Member for Battersea (Jane Ellison).
Mr Gauke
This is a difficult time for all major economies, and the UK is no exception, but matters would be much worse if we were to abandon our desire to bring some control to the public finances. We must ensure that there is the political will to deal with the public finances, and that is what this Government will continue to demonstrate. The approach of ignoring the deficit, believing that this is all an issue that can be addressed at some future time, is economically irresponsible and unfair on future generations who will face the bill that they will have to pick up because we failed to address those problems now.
Geraint Davies
Is this not also about fairness? For instance, while the threshold changes that he has mentioned of £3,000, which deliver a saving of £11.50 a week to taxpayers, cost £9 billion, he will save half a billion pounds from inflicting that £11.50 on people for the empty bedroom tax. With a small amount of the money used to raise the tax threshold, he could have alleviated that for the very poorest. Is not this about values and not inflicting the most hardship on the most poor while giving a bung to the voters?
Mr Gauke
I take it from what the hon. Gentleman says that rather than raise the personal allowance, he would prefer us to spend more on the welfare bill. If that is the hon. Gentleman’s position, fair enough, but I do not agree. Raising the personal allowance, taking people out of income tax, and making sure that work pays, are all things that a sensible Government should do, and I am delighted that this coalition Government are able to do that.
I come now to the taxation of those on highest incomes, on which we have already touched. The top 1% of taxpayers, those with incomes of over £150,000 a year, will pay more than a quarter of all income tax, while the top 5% of taxpayers, those with income of £68,000 or more, will pay nearly half of income tax. We agree that it is important that we create a tax system that ensures that those who earn the most contribute the most, but it is also important that we create a tax system that works. Among other things, that means a tax system that does not damage our economy by undermining our international competitiveness.
The Government inherited a top rate of tax at 50p, a rate that our predecessors, who this afternoon have painted themselves as the party of taxing the rich more, had put in place for just 36 of their 4,758 days in power. The rate that they left us with was the highest top rate among major economies. The last Labour Chancellor had made it clear that it was temporary. It was also very clear that it was having an immediate impact on our competitiveness.
Let me say something that I hope is not controversial: the principal purpose of income tax is to raise revenue. So we commissioned HMRC to analyse just how effective the 50p rate was in raising revenue.
That HMRC report, laid before the House, set out thorough and compelling evidence on the impact of the 50p rate. It showed that the rate was uncompetitive, distortive and inefficient. Not only did it not raise much revenue, but it could even have cost the Exchequer money when the indirect impacts on other taxes were taken into account. This Government were not prepared to maintain a rate of income tax that was both ineffective at raising money and that left us with the highest statutory rate of income tax in the G20, so we acted, in the interests of the country, and the top rate of tax will fall to 45p from April this year. This will see our top rate of tax drop below that of Australia, Germany, Japan and Canada, which will send a signal to businesses taking decisions on investment and location that the UK is a competitive environment.
Budget Leak Inquiry
Debate between Geraint Davies and David Gauke(12 years, 8 months ago)
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Geraint Davies (Swansea West) (Lab/Co-op)
Leeks are normally very popular in Wales, but given that only 4,000 people in Wales pay the 50p rate of tax, compared with 94,000 in London, taken alongside the regional pay leak, this represents a massive transfer from poorer people in Wales to richer people in London. Does the Minister not agree that spreading that sort of fear through leaks ahead of the Budget announcement is disgraceful, and has he not admitted that he has given leaks by referring to our alleged leaks?
Finance (No.2) Bill
Debate between Geraint Davies and David Gauke(14 years ago)
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Mr Gauke
The hon. Gentleman asks a fair question, but I will not give him a precise number because that is something that we continue to consider. The implementation of any policy clearly involves a cost, but I assure him that this cost will be small when compared with £2.5 billion. I am keen to ensure that the policy does not place an undue burden on HMRC. He made a fair point about HMRC. It faces a budget reduction, even though the Government are protecting it by ensuring that it has more resources to tackle evasion and avoidance, but we are keen to ensure that the burden of administering the policy will not cause it undue difficulty.
We have to take tough decisions and make tough choices, and this is one of the decisions that the Government have taken because we believe it is the right thing to do. We do not think it is fair to tax people on low incomes to pay for the child benefit of those earning much more. We cannot afford to continue providing financial support through child benefit to better-off households where there is a higher rate taxpayer. From January 2013, the Government will therefore withdraw child benefit from families that contain a higher rate taxpayer. Despite the noises from the Opposition, the British people understand that this is a tough, but fair, decision.
Geraint Davies
Can the Minister explain why the proposal to tax higher rate taxpayers in that way was made and announced before the comprehensive spending review? I put it to him that the reason for that was to warm up the audience and to make out that the comprehensive spending review would be fair and balanced, as opposed to the IFS’s conclusion that it hit the poor two and a half times as much as it hit the rich. Was not the timing of the announcement entirely cynical?
Mr Gauke
The policy underlines the fact that the Government are looking to address our deficit in a way that is fair, and to ensure that all parts of society play their part and those with the broadest shoulders make the biggest contribution. That is what we are doing. It is remarkable that it is Opposition Members who appear to be trying to prevent that happening, though I am not sure whether they object to the way in which it is being done or whether they intend to fight in the last ditch to defend the principle of universality as it applies to child benefit.
We wanted to avoid creating a complex new means test for household income. To do so would fundamentally change the nature of child benefit and come at a significant cost to the taxpayer. This policy has therefore been designed to avoid affecting the vast majority of the population—some 80%—who are basic rate taxpayers. It also avoids additional systems being developed, as the measure can be delivered within existing pay-as-you-earn and self-assessment systems.
Let me deal with the issue behind the new clause—the principle of independent taxation, which was introduced in the Finance Act 1988. It is a great pleasure to hear Opposition Members applauding the 1988 Budget. If I remember rightly, proceedings in this place at the time were interrupted as the Chancellor of the Exchequer was shouted down by some Opposition Members. Section 32 abolished the provision that a wife’s income was income of her husband for income tax purposes. That remains the case, and none of the proposed changes to child benefit alters it.
Child benefit is provided for a child within a family and it is therefore necessary to consider the family as a group. The policy merely withdraws child benefit from a family to whom it is difficult to justify paying it. Furthermore, the withdrawal of child benefit from families containing a higher rate taxpayer will not affect the personal allowance or rate band applicable to an individual. The changes apply a simple test to ensure that child benefit is not provided to those who need it the least.
Of course, the House will have the full opportunity to debate the changes to child benefit when they are legislated, ahead of implementation in January 2013. That would be a better time to discuss the various specific issues that have been raised in the course of the debate. Although I understand that Opposition Members may wish to draw a link between child benefit and independent taxation in order to have this debate today, it is clear that the two systems remain separate and independent.
Oral Answers to Questions
Debate between Geraint Davies and David Gauke(14 years, 4 months ago)
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Geraint Davies (Swansea West) (Lab/Co-op)
Can the Chief Secretary tell the House whether he thinks it is completely ethical for the definition of “unemployment” to be changed just before Prime Minister’s Question Time and for that be made public without telling the media that that was the case? Would he comment on the fact that the person who did this was seconded from a hedge fund and is therefore not independent? Will the Chief Secretary therefore confirm that that was the reason why this person had to resign and bring scorn—