Income Tax

Greg Clark Excerpts

Wednesday 28th November 2012 Commons Chamber

[The Financial Secretary to the Treasury (Greg Clark)]

It is a pleasure to respond to this debate, not least because of the maiden speech made with such distinction by the hon. Member for Cardiff South and Penarth (Stephen Doughty), whom I warmly welcome to the House. He spoke in a way that was assured and fluent and with a degree of geniality that I think will make him many friends throughout the House. I have one issue of contention with him. He outed himself as a fan of Cardiff City and, since they are locked in a promotion battle with my hometown club of Middlesbrough, that will be a point of disagreement between us during the weeks and months ahead.

Call me naive, but I had hoped that, during an Opposition day debate, we might have heard something—anything—about the Opposition’s policy, but sadly it was not to be. At the end of this debate, their economic policy is, if possible, even more obscure than it was at the beginning. There are four fundamental matters crucial to this debate that both shadow Ministers—the hon. Members for Leeds West (Rachel Reeves) and for Newcastle upon Tyne North (Catherine McKinnell)—failed to address.

The first could not be more basic. What do the Opposition believe to be the purpose of the 50p rate of income tax? Is it to raise revenue, to punish the rich, as the right hon. Member for Oldham West and Royton (Mr Meacher) has said, or to serve as a piece of rhetoric? We need to know, because if the Opposition are clear that its purpose is to raise money, will the hon. Member for Newcastle upon Tyne North say—she is welcome to intervene—whether they will drop their support for the 50p rate if the evidence continues to support our assessment and those of HMRC and the OBR that it raised very little indeed and would be likely to cost the public purse even more? Will she be clear—is the argument that the rate raises money the criterion for the Opposition’s support for it, or is it a price worth paying just to send a message that they want to soak the rich?

Secondly, do the Opposition accept, in the words of HMRC, that

“high tax rates in the UK make its tax system less competitive and make it a less attractive place to start, finance and grow a business”?

Do they accept HMRC’s assessment that high taxes are bad for the international standing of the country? I would be pleased to take an intervention from the hon. Lady. My hon. Friend the Member for The Wrekin (Mark Pritchard) asked the shadow Chief Secretary whether she subscribed to that view, and she could not answer. Is tax competitiveness important to the Opposition? We do not know. In their view, does it matter if the UK has the highest tax rate in the G20? Is that a concern or not? Does it make a difference to British competitiveness? The last time the hon. Member for Pontypridd (Owen Smith) was asked he said, “I don’t know.”

The third issue is whether the Opposition agree with the former Chancellor, the right hon. Member for Edinburgh South West (Mr Darling), who said that this measure should be only temporary. We have had no clarity on that from Opposition Front Benchers.

The fourth matter that the Opposition need to consider, given that they regard this tax as being so crucial—so totemic—that they wanted to call this debate about it, is whether they will send a clear message that they would restore it if they came to power. Again, we have silence. Let us bear in mind that we are now in the second half of the Parliament, and the time for posturing and procrastination is over. The time has come for the Opposition to tell the country what they would do in government—or do they simply not have the courage to face up to the need to be straight with the British people? I strongly suspect that this will be one of the last occasions when we debate the 50p tax rate as it gets shuffled off to the retirement home of meaningless gestures that the Opposition no longer have time and use for.

Labour is, to its core, the party of tax and spend, and, to be fair, it takes a very consistent view of both sides of the equation. With regard to spending, it is always a matter of “How much?” and not “To what end?”—of inputs, not outcomes; of the number in the headline on the press release, not what is achieved with the money. On taxation, too, for Labour it is all about the price tag—the headline rate, not the revenue actually raised, nor, indeed, the amount of tax that the wealthy actually pay. The top rate of tax paid by the rich in all but the last month of the previous Government was lower than what they pay now. The top 1% of earners now contribute over 27% of income tax revenue—far more than they did under Labour—and the effect of this year’s Budget is to take from the richest five times what they gave through the reduction of the 50% rate.

Of course, the tax system that we inherited from the previous Government was a mess—a typically socialist tangle of tripwires and loopholes which, as my hon. Friend the Exchequer Secretary made clear, we are taking action to close. Too much of the money made under the previous Government was in keeping with the ethos of the previous Government—short term, reckless and unsustainable; the boom before the bust. In future, if there is money to be made it will be done in the responsible way, through real enterprise and real innovation. As we seek to rebuild a productive economy on the ruins of Labour’s cardboard economy, this is the worst time to punish the producers, innovators and entrepreneurs on whom our future depends.

[Rachel Reeves]

If the Government are doing so well on the economy, why has it shrunk over the past year, and why is Government borrowing now rising, not falling?

[Greg Clark]

The hon. Lady will be aware that the record structural deficit in the G7 bequeathed by the previous Government has been paid down by a quarter.

As we seek to rebuild our productive economy, Labour Members know all about the power of the headline figure—that is why they have made such big play of the top rate of income tax. It is interesting that the shadow Minister was more familiar with the opinion polls than with the cost of this measure to the economy. If they think that it plays well to the gallery, then how do they think it plays to those who might or might not want to invest in this country, and who might create the new private sector jobs that a financially exhausted public sector can no longer pay for?

For our part, we want to create an economy in which those who prosper most are those who are best at creating wealth for all. That will require moderate tax rates, properly enforced, and the long, hard slog of tax reform and simplification. As in so much else, we have chosen the difficult path but the right one. Today’s debate provides further proof that Labour has made the opposite choice. As always, the politics are cheap but the consequences would cost our country dear.

Question put (Standing Order No. 31(2)), That the original words stand part of the Question.