Finance Bill

Debate between Huw Merriman and Catherine West

Tuesday 21st July 2015 Commons Chamber

[Catherine West]

I thank my hon. Friend for her intervention. Does she also remember the huskies trip? I am not sure whether we will be visiting polar bears any more with the huskies, but I remember around 2009 the promise to which she refers and, for a short while, a real sense that we were generating some momentum and genuinely approaching green issues with energy and commitment.

I wonder whether, as we move towards the Paris summit, we will see any improvement and any genuine debate, because this Budget fails to give any hope on the green agenda. I am pleased that Opposition colleagues have chosen the climate change levy as one of three topics to be debated in Committee in September. That is when we will all have more of a chance to debate this important deal—or lack of—and when we will table amendments.

Some of the statements on taxation are quite welcome, particularly those provisions that assist people on low and medium incomes. However, there are other provisions with which we could do more. In particular, we could consider gaining a little bit more from the financial sector. As we know, there have been some announcements on anti-avoidance measures. Provided that HMRC is resourced adequately to deal with those, we might see some positive developments in that regard.

However, we could be doing much more in relation to private equity and hedge fund managers. We could strengthen some of the proposed measures around the “Mayfair” tax loophole. For example, we could look at how private equity fund managers manage to shrink their tax bills, arranging to pay 28% capital gains tax rather than 45% income tax, which is what we could be getting.

Members will be aware from their advice surgeries that we are still in the tail of the recession. There should not be one rule for certain people in society and another rule for others. That is why we need to consider charging that 45% income tax rate—rather than the 28% capital gains tax—on the portion of income paid out of the profits of the funds that those managers manage, which is called carried interest. Carried interest is their remuneration for managing other people’s money and should therefore really be taxed as income tax. Their ability to pay capital gains tax on what is properly income also allows fund managers to avoid paying any national insurance contributions on a major portion of their income.

The “Mayfair” tax loophole also permits some fund managers to reduce their tax bills even further, sometimes qualifying for additional capital gains reliefs such as entrepreneurs’ relief. I do not hear that being offered to the small cafés or the small businesses on our high street, but the entrepreneurs’ relief for people in the City allows them to pay just 10% tax on up to £10 million of their carried income. That is why I throw back the idea that this is a Budget for working people—perhaps it is a Budget for those who work in the square mile. Some people in the City are still getting a 40% tax cut. They are paying less tax on much of their income than many nurses and teachers. We know what is happening to public sector recruitment: we are losing nurses and teachers every day, because they tend to earn much lower wages than others, and of those wages they are paying a higher proportion in tax than our friends in the City.

[Huw Merriman (Bexhill and Battle) (Con)]

Is it not the case that raising the tax threshold to £12,500 may help not only those in the City who are paid very low rates, but the very people that the hon. Lady is talking about outside the square mile?

[Catherine West]

I am very concerned about those people who are on that level. Indeed, many people in the financial sector, a large percentage of whom live in my constituency, work very long hours and are on low pay. I welcome some of the new tax changes, which is why I will abstain rather than vote against Second Reading tonight. However, we also know that certain others who go in on the tube with those lower paid workers, or ride their bikes in with them, might, in a good year, be earning between £1.2 million to £15 million or more. Using the private equity industry’s own statistics, we estimate that the “Mayfair” loophole may be sacrificing UK tax revenues of between £280 million to £700 million every year. That is likely to be a conservative estimate as it does not take into account forgone national insurance contributions, or the effects of some fund managers qualifying for additional entrepreneurs’ relief. Given that the Chancellor’s smaller plans are predicted to raise more than £350 million a year, we can be confident that a further tightening of the rules will raise substantially more. A simple legislative change, similar to those already achieved in our neighbouring European countries— I make no apologies for mentioning the word “Europe” in this Chamber—could ensure that some of the highest earners of the financial sector start to pay a fairer share in tax. That could be introduced as early as in this Bill, with a small change to the proposed legislation.

In conclusion, let me make some general points about productivity. The first relates to childcare, and this Budget and Bill and the various elements of productivity that need to accompany them. I understand from press reports this morning that various Departments face a difficult time on their savings targets, and I am worried that some of the good things that have come out of this Budget, small though they be in number, will be undermined by things such as the lack of childcare provision. In particular, I am thinking about cuts to local authorities, which are trying to introduce the Government’s 30-hour pledge on childcare. Children’s centres and Sure Start centres will once more be facing terrible cuts. We know that it is crucial to get women, and parents in general, back into the workforce, and that that is key to proper growth in the economy. Many economists have estimated that if we can return women to the workforce within two years after the birth of their first child—and indeed after the birth of subsequent children—the economy can take off exponentially. In many local authority areas, however, children’s centres and nurseries are closing, whereas they should be remaining open to provide that crucial childcare.