Income Tax

Iain McKenzie Excerpts

Wednesday 5th November 2014 Commons Chamber

[Mr Speaker]

Order. The shadow Chief Secretary is being most generous and accommodating in giving way. I simply point out to the House that the second debate has a comparable number of would-be contributors as does this one. If we are working on the assumption that this debate will finish at about 4 o’clock, it is important to ensure that there is maximum time available for Back Benchers who wish to make speeches. After that, I am in the hands of the House.

[Mr Iain McKenzie (Inverclyde) (Lab)]

To bring my hon. Friend back to the whole subject of fairness in taxation, especially in these economic times, it was this Government who told us that those with the broadest shoulders should bear the majority of the burden, yet the first thing they did was reduce the tax rate to take that burden off their shoulders. [Interruption.]

[Chris Leslie]

There is a lot of protest coming from Government Members. Only those who are not standing for Parliament again will dare to stand up and defend cutting the 50p rate. Mr Speaker, I have heard your entreaties about being a little more strategic in the way we progress through the arguments, but I thought that it was important—[Interruption.]

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[Andrew Bridgen]

The deficit of £150 billion that we inherited from the previous Labour Government has been reduced by a third, but there is much more work to be done. If the hon. Gentleman will bear with me and listen to my speech, during which he will have the chance to intervene, I think that I will answer many of his questions.

The ability to earn more than £150,000 does not give or guarantee happiness, health or friends, but it does give choices. People who earn more money have more choices. My definition of poverty is having no choices: people with no choices are in poverty. One of the choices people have is about where they are domiciled for tax. With taxes rising in France, there has been a flight of people to the UK, to such an extent that, as was pointed out at a meeting with the Mayor of London a few months ago, so many French people live in London that it is the fourth largest French city.

I have always been a great believer in this quote:

“Those who do not learn from history are doomed to repeat it.”

When the right hon. Member for Edinburgh South West (Mr Darling) brought in the 50p tax rate before the last election, I naturally assumed that he did not take on board George Santayana’s sentiments, as history has told us time and again that

“for a nation to try to tax itself into prosperity, is like a man standing in a bucket and trying to lift himself up by the handle.”

Yet the Labour party persist in this notion that having one of the highest top rates of tax in the world will increase revenues and make the country more competitive. My hon. Friend the Member for Wolverhampton South West (Paul Uppal) was quite right to quote Abraham Lincoln, who said:

“You can’t make the poor richer by making the rich poorer.”

He described economic inequality as benign, rather than malevolent. Understanding the difference leads to understanding why allowing the greatest number of opportunities works better for increasing everyone’s wealth than trying to equalise outcomes. That was true then, and it remains true now.

The Labour party’s economic blindness seems to extend to failing to take note of what is happening over the channel in France. It is in its third year of being led by the Leader of the Opposition’s comrade Francois Hollande. After the Socialist Government increased a range of taxes, including the top rate of tax, revenues have proven to be half of what was expected. France has virtually no economic growth, and it has a black hole of billions of euros in its public accounts, to the point that it now wants the UK to pay €2 billion to help to bail it out. An uncompetitive top rate of tax decreases the incentive to work, reduces the amount of money for investment and, as has been seen in France, ultimately reduces the size of the economy.

What the Opposition do not seem to grasp as they play 1970s politics is that we live in a different world from that of the 1970s, when the UK had draconian top rates of tax. The principal difference is that high earners now have the option to live elsewhere, without any inconvenience, because of the internet and much improved air travel. We do not want to go back to the brain drain, and to being the sick man of Europe.

Plenty of people have offered advice on this issue to the Labour party. Let us take the comments of Mark Giddens, a partner at UHY Hacker Young, who stated:

“We would lose some of the edge that we currently have over other Western European countries in attracting successful entrepreneurs and investors. We will also find it harder to compete against other major English speaking economies such as the USA”.

The evidence seems clear. Under the French model we see high tax rates, anaemic growth, high unemployment and lower Government revenues; under our current model the long-term economic plan is working, we have the fastest economic growth in the developed world, and an economy that has created more jobs than the rest of the EU combined, leading to more tax revenue.

We can see in the HMRC analysis that was mentioned by the Minister and published in 2012, that the 50p rate was raising nothing like the £3 billion that Labour estimated at the time and continues to hold dear. Indeed, the direct cost of the reduction in the rate of income tax at that time was estimated at only £100 million. When other lost tax revenues are taken into account, it is evident that there was no direct cost to the Treasury in cutting the top rate of tax from 50p to 45p, not to mention the wider economic impact of that higher rate of tax, as we have seen in the French economy.

When Nigel Lawson cut the top rate of tax from 60p to 40p in 1988, the tax take rose and top earners paid a larger share of it. When the Treasury decided to set the rate of capital gains tax at 28%—up from 18% under the previous Labour Government—it stated that its studies had concluded that that rate maximised the tax take. If the optimum rate of unearned income is 28%, I suggest it is unlikely that the optimum rate of income tax should be nearly double that level. Figures show that less than 1% of the population earn more than £150,000 a year, yet those people contribute approximately 30% of the total income tax take. That is a total of £49 billion from the 45p rate, compared with only £40 billion raised the year before when the rate was 50p— evidence that when we cut the rate of tax, revenues rise.

What is Labour’s case for tax rates that will lead to decreased revenues? When the measure was first suggested it was nothing more than a pre-election attempt to convince its core vote that it was still the party of squeezing the rich, and remains so today. At the same time, Labour was obviously laying a bear trap for the incoming coalition Government. It was a Trojan horse of a policy; a Trojan horse of a tax. Members will have noticed that I have referred to France rather a lot in my speech. That is because for the future of the UK should Labour win the next election, we have only to look across the channel and see what has happened. As the Leader of the Opposition said previously, “What Hollande is doing in France I want to do in Britain.”

[Mr McKenzie]

How does the hon. Gentleman feel about comments from the hon. Member for Harlow (Robert Halfon) who said that cutting the rate of tax to 45p would emphasise to the public that again, the Conservative party is indeed the party of the rich?

[Madam Deputy Speaker (Dame Dawn Primarolo)]

Order. I said at the beginning of the debate that if we co-operated with each other and each speaker spoke for no more than nine or a maximum of 10 minutes, everybody would be able to speak without a time limit. The hon. Gentleman has now spoken for 13 minutes, so I would be grateful if he would think about drawing his remarks to a conclusion.

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[Mr Iain McKenzie (Inverclyde) (Lab)]

I will follow your direction, Madam Deputy Speaker, on the length of Members’ contributions because I know that some Members still wish to speak in the debate.

I think that we will have no argument about the fact that austerity has been painful. What divides us in the Chamber is where we see that pain being inflicted most. Labour Members believe that it is targeted on the whole at people at the lower end of the income scale—they have been feeling most of the pain in these difficult economic times. Incredibly, billions in tax cuts have been given to people at the upper end of the income scale. The top 1% of earners have been given a tax cut worth £3 billion, in stark contrast to those at the other end of the income scale, who have been struggling in these difficult times.

Let us look at what little has been given to lower earners and how that was paid for. It did not come from the top earners; it came from the Government dragging down the tax bracket to take in middle-income families, who have paid through going into the higher tax bracket for anything that has been conceded to people at the lower end by moving the threshold up. I suspect that the Government wished that to go unnoticed but we have well and truly figured that one out and the public have noticed it, too.

On top of that, households will on average be nearly £1,000 a year worse off by 2015 as a result of Government tax cuts and benefit changes. That means that hard-working, middle-income families are being squeezed into a cost of living crisis. We see that day in, day out. I certainly do in Inverclyde. I see that in everyday events. More and more families are having to shop around during their weekly shop, looking for bargains. Those families are in work, yet they are finding it difficult.

As has been highlighted, whatever happened to putting into practice the Government’s well-used phrase, “Those with the broadest shoulders should bear more of the burden”? That was pushed to one side when those people were relieved of that burden through tax cuts.

If people can pay more, they should pay more in these difficult times. That is only fair. That is what this debate is about—fairness in these times of tax pain. It is not only me saying that. Some members on the Government Benches have been saying it, too. The coalition partners, the Liberal Democrats, have been saying it. Most notably, the Deputy Prime Minister said that this was the wrong time to send the wrong message by cutting the higher-tax level. Even Lord Heseltine, who once looked as if he would lead the Conservative party and become the next Prime Minister, has said that it is the wrong message to send out.

Tax avoidance is increasing under this Government. As we heard only the other day, £35 billion of tax has been avoided, yet the Government are reluctant to go after the tax-avoidance loopholes and to take the burden off lower-income earners. In addition, the Government have again cut staff levels at HMRC.

Austerity is being applied at the wrong end of the social spectrum by this Government. That is as clear as day. By their actions, those who can least afford it will be asked time and again to step up and make that contribution. It is not just the lowest paid—middle to low-income earners are also taking the brunt of the austerity.

Let me talk a little about hard-working families in Inverclyde. Government Members claim that they are producing more employment—that more people are in jobs. In Inverclyde, 26% of children live in poverty. Three quarters of them come from working homes. It is an absolute disgrace that, in this day and age, that level of child poverty is allowed to exist.

People say that good things come to those who wait and they talk about the Government’s long-term economic strategy. I will tell Members what good things came to those who waited: it came to those bankers who paid themselves a bonus after waiting to cash in on the lower tax rate. However, it did not come for one of my constituents, who waited almost a year to be assessed for her disability benefit and had to rely on the good will of others.

We support lifting many of the low paid out of tax altogether. They are not being lifted out of poverty. They are still captured in the circle of poverty. Their outlay does not match their income and that is evident when we look at where they are buying the basics of life: they have to look for bargains time and again.

[Andrew Bridgen]

The hon. Gentleman is talking with great passion and emotion about the hard-pressed people in his constituency. I am completely with him on that, but can he explain how deterring the top 1% of earners, who are already paying 30% of all income tax, from economic activity, or even driving them out of the country, will help his hard-pressed, hard-working constituents, or mine?

[Mr McKenzie]

The hon. Gentleman argues that, if we put the 50p rate back in place, we would see a mass exodus of billionaires. It is not me who is saying that that would not happen; it is his coalition partners. The Lib Dems say that that would not happen; they do not see it transpiring. If he is talking about the employment that has been created, he will see that in my area of the country, part-time work and temporary work, especially at this time of year, are on the increase. Labour Front Benchers have talked about helping those on lower pay and lowering the starting rate of tax to 10p. The public were hit by one of the first increases in tax that the Government put in place: the VAT rise, which has hit them hard, too.

Remember that this Government promised to balance the books in this Parliament. They have reneged on that promise and are actually borrowing more. Therefore, the time scale to balance the books under this Government has been pushed out even further. That can mean only one thing for those already feeling the pinch of austerity: they are going to feel the punch of austerity if this Government get back into power. It is about balancing the books in a fairer way.

We say that a 50p higher rate would help to do that. It is time for the economic circumstances to require those who can pay more to pay more. A 5p increase will not chase them out of the country, despite what the hon. Member for North West Leicestershire (Andrew Bridgen) thinks. Labour will reverse the £3 billion tax cut for the top 1% of earners as part of our plan to balance the books in a fairer way. In contrast this Government have increased tax for millions while millionaires are given huge tax cuts. It is time for top earners to pay the 50p rate. If this Government will not put that in place, the next Labour Government will.