Amendment of the Law

Ian Swales Excerpts

Monday 26th March 2012 Commons Chamber

[Paul Blomfield (Sheffield Central) (Lab)]

This Budget is based on the old Tory adage, “If you want to make the rich work harder, pay them more; if you want to make the poor work harder, pay them less”, with the added twist of clobbering the old at the same time. But its real disgrace is the way in which the Liberal Democrats rolled over and agreed to the cut in the 50p tax rate.

When The Daily Telegraph 500 first wrote their infamous plea for a cut in that rate—

[Ian Swales (Redcar) (LD)]

Will the hon. Gentleman give way?

[Paul Blomfield]

No, I will not give way—any more than the right hon. Member for Bath (Mr Foster) did when I tried to intervene on him on that point.

When that letter was written, Lord Newby, the Liberal Democrat tax spokesperson, was quick to reject the appeal, but unfortunately the orange book clique that now runs the party won the day, and we should not be surprised. Back in March 2010, before the general election, the now Deputy Prime Minister boasted to The Spectator that his politics were defined by his belief in “freedom from tax” and in a smaller state.

[Paul Blomfield]

No, I will not give way.

What happened to the party of Paddy Ashdown, whom I remember celebrating taxation as

“the subscription we pay to live in a civilised society”?

The Liberal Democrats are hiding their shame for backing the tax handout for the rich behind the fig leaf of the rise in the tax threshold. They claim, as the right hon. Member for Bath did earlier, that it helps the poorest—

[Ian Swales]

Will the hon. Gentleman give way?

[Paul Blomfield]

No, I will not give way. The Liberal Democrats would not give way to me on this point earlier.

The Liberal Democrats claim that the rise in the tax threshold is a progressive measure that helps the poorest; the truth is that it is not and never has been. We were reminded by the hon. Member for Grantham and Stamford (Nick Boles) at Prime Minister’s questions last week that the cause was originally championed from the right of the Conservative party by Norman Tebbit, but it was rejected even by the Thatcher Government as unjustifiable. It gives the same cash benefit to somebody earning £10,000 as to somebody earning £100,000—[Interruption.] Members should listen to this point. It gives a tax handout to, for example, every Member of this House. We, frankly, are not among those most in need; at this time, people such as us and those who earn more do not need a payout. The cruellest trick is to pretend that it is a progressive measure.

The Institute for Fiscal Studies looked at the impact of lifting the personal allowance and stated, first, that

“the poorest third of adults do not benefit at all”;

secondly, for families, that

“the highest average gain occurs in the second-richest tenth of the income distribution”;

and concluded that the assertion that increasing the personal allowance is progressive

“is not true if one considers the gains across all families”.

This Budget fails the test of fairness, it fails the test of growing the economy and it should fail to win the support of this House.

--- Later in debate ---

[Emma Reynolds (Wolverhampton North East) (Lab)]

Let me be clear from the outset that this is a Budget from a Government who are intent on dividing Britain, pitting the private sector against the public sector and one part of the country against another.

However, I congratulate the Chancellor on one thing: he did not divide the press on the Budget. Remarkably, he united the press in universal condemnation of its unfairness. At a time when my constituents are seeing their living standards decline, it beggars belief that the Government are prioritising a tax cut for the richest people in our country. Some 14,000 millionaires will be more than £40,000 better off. I wonder whether it is really a coincidence that many of those in the Conservatives’ “premier league” Downing street dining club have done so well out of the Budget.

I want to tackle head-on the arguments that the Chancellor has made to justify the tax cut for the wealthiest. I do not think that the tax rate should be set in stone, but any decision to change it should be based on the evidence, not on ideology.

[Ian Swales]

Will the hon. Lady give way?

[Emma Reynolds]

No.

As the Institute for Fiscal Studies has said, it is impossible to judge the effectiveness of the 50p tax rate on the basis of one year alone. Many high-income earners brought forward a lot of their income to avoid the higher tax burden. Having pored over the document by Her Majesty’s Revenue and Customs on the effect of the 50p tax rate, I can tell Government Members that it is a really good read. The conclusion is that the behavioural responses to the 50p tax rate are highly uncertain and hard to assess. When changing the tax rate, the taxable income elasticity is particularly difficult to estimate. The evidence that Government Members posit with such confidence simply is not there.

The Chancellor claims that the rich will pay five times more than they do at the moment. However, the much-trumpeted increase in stamp duty and the new revenue from behavioural change will fall short of that. He is not only living on a different planet; he is living in a different universe. If the Government are serious about shifting the tax burden from income to wealth, that is something that we will look at. However, if they are serious about it, why did the Chancellor not introduce something systematic? Indeed, why did the Liberal Democrats not push harder for a mansion tax?

The last fantastical claim by the Chancellor is that top earners will suddenly unleash jobs and growth in our country because of the tax change. That is patently absurd. It is an ideological double standard to claim that to incentivise the rich to work harder we have to make them richer, but to incentivise the poor to work harder we have to make them poorer. [Interruption.] If the Minister of State, Foreign and Commonwealth Office, the hon. Member for Taunton Deane (Mr Browne) wants to go back to the Foreign Office, it would make it better for all of us.

The Budget not only fails the fairness test, but fails to tackle the unemployment crisis that my constituents and millions of people across the country are facing. When we left office, unemployment was falling. Now, tragically, youth unemployment is at an all-time high with more than 1 million young people unemployed. European Governments in Austria and Finland have brought in a youth guarantee fund like that proposed by the Opposition.

The Budget has failed the fairness test and will create a divided Britain. The mask of compassionate conservatism has definitely slipped off. The Budget brings into sharp relief what we have known all along—it is the same old policies and the same old Tories.

--- Later in debate ---

[Rachel Reeves]

I agree. These are hard times for the charitable sector, and the VAT increase has hit it hard. That is one of the many reasons why charities, as well as ordinary families and businesses, would benefit from a reduction in VAT to 17.5% until the economy recovers. Charities are also affected by changes in tax allowances, and many have expressed fears that that will also create a big black hole.

[Ian Swales]

VAT cuts most benefit those who spend the most. Does the hon. Lady think that now is the right time to propose a policy under which the biggest winners would be pop stars, bankers and premiership footballers?