Ian Swales
Main Page: Ian Swales (Liberal Democrat - Redcar)Department Debates - View all Ian Swales's debates with the HM Treasury
Finance (No.2) Bill
Ian Swales Excerpts(10 years, 7 months ago)
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Shabana Mahmood
I will come to the point about the different tax choices that we make and measuring their impact. Unlike the Minister, I do not have access to Treasury officials, so I am not versed in their methodology, but I do not deny that the Government’s corporation tax rate cuts in this Parliament, which we have supported, have benefited 2% of businesses. I will come later to the 98% of businesses that have not benefited from the cuts to the main rate of corporation tax, but which are struggling with the costs of running their business. The Opposition believe that the Government can and should go further in helping those businesses cope, in particular, with the business rates that they have seen increase.
Ian Swales (Redcar) (LD)
Will the hon. Lady acknowledge that the Government inherited plans to increase corporation tax for small businesses by 1%, but have cut it by 1%, so it is not true to say that the Government have done nothing for small businesses?
Shabana Mahmood
I will come to the Government’s record in helping small and medium-sized enterprises.
As I said, we have supported the reduction in the rate of corporation tax in this Parliament, except to raise concerns, which I am sure the Exchequer Secretary will remember, well before I was in my current post, about the financing of that change at the start of the Parliament by getting rid of investment allowances on which the Government have recently U-turned. But as the figures show, the change to the main rate of corporation tax, the central policy for business taxation, does not help 98% of business in this country. How are they faring under this Government?
Everyone agrees that SMEs are the engine of growth, a phrase that we hear regularly in the Chamber and the House, and it is also fair to say that they are part of our national life. High streets and corner shops are part of the very British way of life that we enjoy in this country. I have a personal affinity with these enterprises, as when I was younger, my parents had a corner shop. My first job was helping my parents by serving customers in our shop after school and at weekends, doing the stock-take and going with my dad to the cash-and-carry. Even if one did not grow up in such a business, they are easy to call to mind because there are so many of them. As I said, there are almost 5 million, and they are the heart and soul of our villages, towns and cities. They also provide about 47% of private sector jobs.
As for everyone—SMEs are no different—times have been tough, and SMEs have been struggling with a number of issues during this Parliament and I will come to the points raised by the hon. Gentleman. The first of those issues has been access to finance. Every time we discuss SMEs, access to finance is one of the key issues raised. It is fair to say that the Government have failed to get lending going to businesses. They are in their fourth year of office and their many schemes keep failing to have a significant and game-changing impact on the access to finance landscape. For example, business lending fell towards the end of last year as banks continued to squeeze funding for SMEs, despite attempts by the Bank of England to boost finance to the sector. Bank lending figures also show that businesses paid back £4.3 billion more than they had borrowed in the three months to the end of November. SMEs were the worst affected by that particular brake on lending, and that is despite the tweaks to the funding for lending scheme announced by the Bank that were designed to try to ensure that loans to smaller businesses would be favoured.
Although larger businesses can access the growing market for debt financing in the bond market, there is a problem for small businesses that are reliant on high street banks and specialist finance and lending businesses, which have become much more conservative in their lending practices since the global financial crash of 2008. SMEs have consistently reported that credit is either refused or offered at very high prices by the major lenders, as Members on both sides of the House must regularly hear from businesses in their constituencies. There has been much talk in this Parliament about the problems of access to finance for SMEs, but despite several different schemes being announced, the change in practices that is required if SMEs are to have the finance they need has not been seen.
That issue has also been considered by the Public Accounts Committee, which made a number of worrying findings in relation to the landscape for SMEs. It said:
“The departments’ schemes are managed as a series of ad hoc initiatives that are launched to address particular weaknesses in the market, rather than to act as a coherent programme.”
That is a real problem. The lack of a coherent programme from the Government, despite what I am sure are the best efforts of the Business Secretary and the Chancellor, has led to piecemeal action—a little bit here and a little bit there, but no overall drive to action, only some good rhetoric for set-piece debates in the Chamber, leading to not very much at all.
Ian Swales
Will the shadow Minister enlighten us on how the calculation of a £5,000 saving is made, and on what she predicts about prices before and after such a freeze?
Shabana Mahmood
The hon. Gentleman is welcome to see our detailed calculations, which I can provide to him and are a matter of public record. If he really wants auditing of manifesto commitments, he should support our call for the Office for Budget Responsibility to be allowed to audit parties’ manifestos. We have nothing to hide on the policies that we have announced and the numbers behind them. We are very happy for the OBR to look at all that and to prepare a report for the benefit of the public so that they can see that what we are saying is based on good numbers and is deliverable. If the Government—both parts of the Government—have nothing to hide, they should fully support our proposal on the OBR audit, which is a good one. I am glad that the hon. Gentleman has given me a chance to remind the House that it is not Labour Members who are scared to have their numbers looked at.
Shabana Mahmood
I will not give way; I am going to make a little more progress.
As hon. Members will know, the level of business rates is set by the Treasury, although the revenues are collected locally. Business rates increase with inflation, and the rate of increase each April is set according to the rate of retail prices index inflation in the previous September. In September 2013, RPI was 3.2%, so business rates were due to rise by 3.2% this year. Of course, that was before the Government made their autumn statement announcement, which capped that increase at 2%. Business rates have risen rapidly during this Parliament because of high inflation. More than one in 10 small businesses now say that they spend the same or more on business rates as on rent. This April, businesses have been hit by a rise of £270, on average, at a total cost to business of £45 million.
Kelvin Hopkins
My hon. Friend is absolutely right. I have called many times in this Chamber, including in the past week or two, for more tax officers to be employed. Every tax officer collects many times their own salary. A VAT officer told me that, even for VAT on small businesses, tax officers collect some five times their own salary. When it comes to the big corporates, if we had a good chief tax officer, Vodafone might have paid a few more billions, as it should have done. We could then start to solve our problems. We have to focus on the big corporates, which are getting away with murder.
Ian Swales
I have a lot of sympathy with the hon. Gentleman’s comments on HMRC staff, which I raise frequently on the Public Accounts Committee, but surely he must regret the cut in 10,000 compliance staff when his party was in government and welcome the addition of 2,500 compliance staff under this Government.
Kelvin Hopkins
I made exactly the same speeches when my party was in government. I demanded that the previous Government employ many more tax officers. There has been a conspiracy between Front-Bench Members for some decades to get away from being too unpleasant to the corporates and to let them have their way. Well, I do not want to let them have their way; I want them to pay their taxes so that we can pay for the things that ordinary people need, particularly those who are less well off and those who are more vulnerable.
Mike Kane
I agree with my hon. Friend. Government Members have said that amendment 2 would create uncertainty, but if the Committee agreed to it and to a review, businesses would welcome it, because a review would be part of the ongoing debate.
The amendment would require the Government to publish a report on the impact of the planned cut in corporation tax in the 2015-16 financial year from 21p to 20p. The amendment calls for the assessment of the impact specifically on SMEs.
Ian Swales
I welcome the hon. Gentleman to the Chamber—this is the first time I have heard him speak. The amendment mentions “fewer than 50 employees”. Can he help me to make sense of that? Mainstream corporation tax would apply only to firms making more than £1.5 million profit. Is he suggesting that the amendment includes small companies that make more than £1.5 million profit? That is how it reads to me.
Mike Kane
I thank the hon. Gentleman for his welcome. Most SMEs have fewer than 50 people working for them, and a medium-sized enterprise is usually defined as one with fewer than 250 employees.
I welcome the fact that Labour Members want to cut business rates on properties with an annual rental value of less than £50,000 back to the level of the previous year. We would then freeze business rates for those properties in 2016. That can be paid for by reversing the additional cut in the main rate of corporation tax from 21% to 20% in 2015.
Nigel Mills
I might be tempted to agree that there is some merit in looking at the level of business rate cost, but I am not sure there is much merit in the proposal we are debating here this afternoon for yet another review. I welcome the measures the Government have taken to reduce business rates, or least reducing the increase through the 2% cap and discount for high street businesses. I think we are all very keen to see how we can help our high streets grow. That reduction has to be the right way forward.
Returning to the earliest of the series of interventions, on a 20% capital gains tax rate, companies that realise a capital gain will be paying at 20%. It is only individuals who will end up paying the higher rate. There is sense in having symmetry restored to that situation. I wholeheartedly support getting the corporation tax rate down to 20%. We could trumpet it around the world that we have one of the lowest rates in the G8. That long-term direction of travel has to be one of the most powerful ways to encourage investment in this country by the large corporations we want to see operating here. It would perhaps stop them setting up their headquarters in Switzerland, Ireland or elsewhere. This is now a trend we can see: large corporations choosing to bring more jobs to, and paying tax in, the UK.
Ian Swales
My hon. Friend is making a very good speech, as he always does on these matters. Will he join me in welcoming the fact that Hitachi has decided to relocate its rail headquarters to the UK, in the north-east?
Nigel Mills
I am always a little nervous talking about Hitachi and rail, as I am from Derbyshire. I support Bombardier and want it to get rail contracts. I am sure that it is great news for the country and the north-east that Hitachi has chosen to do that. However, I clearly say that Bombardier is a far better make of trains and that it fully deserves the Crossrail contract it got in recent weeks. I look forward to healthy competition between the two. It would be great to have two well-regarded, highly skilled train makers in this country. Just to be clear: Bombardier clearly has the trump card on that.
It would be a terrible message to send out to the rest of the world, having seen us go so far in the right direction by reducing the rate of corporation tax from 28% down to the planned 20%, to suddenly start reversing that journey and saying, “Perhaps we’re not quite so sure that that was the right thing to do. Let’s have that extra revenue back and not support those businesses.” That would be the wrong thing to do.
Mr Gauke
The cuts in corporation tax were a central plank of the Government's economic strategy, a strategy that is working. Jobs are up and business confidence is increasing.
It may be helpful if I inform the House of the news that we have heard from the IMF this afternoon. The IMF has revised the UK’s growth forecast for 2014 and 2015 to 2.9% and 2.5% respectively, an upward revision of 0.4 percentage points in 2014 and 0.3 percentage points in 2015. Those are the largest increases for both years among major advanced economies and among the BRIC countries—Brazil, Russia, India and China—for both years. The UK is also forecast to be the fastest-growing major advanced economy in 2014. I make the point to the hon. Gentleman that the plan is working. Business investment has grown for four consecutive quarters for the first time since 2007. The OBR has forecast that investment will grow very strongly over the next two years—by 8% in 2014 and 9.2% in 2015.
More and more businesses are moving operations here, a point made by my hon. Friend the Member for Amber Valley (Nigel Mills). Just in the past two weeks, we have seen Hitachi Rail—referred to by my hon. Friend the Member for Redcar (Ian Swales)—and Brit Insurance announcing moves to the UK. Siemens has announced a £160 million investment in the Humber. Business surveys reflect the positive impact of the corporation tax reforms. For the past two years, the UK has ranked highest in the KPMG survey of international tax competitiveness, with business leaders putting us ahead of countries such as the USA, the Netherlands and Switzerland.
Ian Swales
As a champion of manufacturing, I would like to see more capital investment, but does the Minister accept that investment in people has clearly been going on during this period?
Mr Gauke
Indeed it has. I will say more about some of the other measures we are taking to make our tax system more competitive, but overall it is clear that our tax system—in terms of being open for business—has moved in the right direction over the last four years. It is important that we maintain that momentum and do not put it at risk by trying to reverse some of the progress we have made.
Jonathan Edwards
That is certainly one argument, and I shall talk about how, with such an attitude, the super-wealthy are cutting off their own noses, and how a progressive taxation system would benefit them as well as people like the hon. Gentleman and me, who earn far less than those who get hit by the top rate.
As the 2012 HMRC paper that examined the effect of the 50% additional rate of income tax noted,
“there was a considerable behavioural response to the rate change, including a substantial amount of forestalling: around £16 billion to £18 billion of income is estimated to have been brought forward to 2009-10 to avoid the introduction of the additional rate of tax.”
This is a massive sum which would arguably have been included in taxation had the measure been announced with immediate effect.
The most recent figures from HMRC revised liabilities up by £2.8 billion in 2010-11, £3.3 billion in 2011-12 and £3.5 billion in 2012-13. This means that HMRC says it earned a total of £9.6 billion more than previously thought from the 50p tax rate. These are of course projections of taxable income, but that makes the case for the new clause which I am pushing.
Ian Swales
The hon. Gentleman makes the point about the £9.6 billion. Is he aware that HMRC says that the main part of that is due to higher income levels, not to changes in tax levels?
Jonathan Edwards
That is a fair point. We are making the case for a review. Let us have the figures divulged further. As I say, they are projections.
Jonathan Edwards
That is the key point. If we have effective anti-evasion and avoidance measures, an increased rate of tax will inevitably lead to a higher yield.
We are living in very worrying times where wealth inequalities at geographical and individual levels are unprecedented. Parts of London have gross value added 12 times higher than parts of Wales. While London has the highest GVA per head of any area in the European Union, west Wales and the valleys has one of the lowest. The contemporary history of geographical and individual disparities has been truly depressing in this regard. Successive Governments do not have a good story to tell, with rebalancing promised but never delivered.
At the heart of the argument for a reduced top rate of tax is the trickle-down theory that underpins much of the now-discredited neo-liberal economics that the Thatcher and Reagan era ushered in. It was always sold to us that the newly re-empowered financial elites would spend their money and it would trickle down, and the people at the bottom would become wealthier as a result of this benevolent spending. But what has happened over the past 30 years? Inequality has, in fact, grown massively. Instead of the wealth of the super-rich flowing down, the rich, especially the super-rich, have got steadily even richer and hoarded their money. That money is not simply made out of the sweat and toil of their own good fortune, skill and brilliance, but often on the backs of those who work hard on the bottom rung but gain little financial reward for the true value of their efforts.
We often hear the super-rich whine that they have made their money, so why should they pay a lot of awful tax on it? Well, that tax goes towards paying for important services such as schools, to educate the work force of the next generation, and hospitals, to maintain the work force in good health. It also pays for a police force that keeps our communities safe, and a legal system that ensures that the law operates smoothly and in a trusted way to allow for a broadly prosperous economy and a society free from corruption. We erode these provisions at our peril. Taxes do not exist in a vacuum; they provide the services that create the whole that enables individuals to go on to enjoy the freedom of being able to make money and enjoy relative prosperity. That is what the proponents of the trickle-down effect have forgotten and wilfully ignored over the past 30 years, as the hon. Member for Ogmore (Huw Irranca-Davies) said.
My new clause would pave the way for the additional rate to be raised to 50%—a small rise of 5%—primarily because that would be symbolic of a move towards a more equal and just society. Only last month, the International Monetary Fund released a report that concluded that the more equal societies stand a better chance of long-term sustainable economic growth. Of course, the IMF is the high priest of austerity which, throughout the 1980s and ’90s, forced developing-world Governments to privatise their publicly owned industries wholesale and enact wildly free-market policies in exchange for international loans. The result was the plundering of those countries’ natural resources by global multinationals, with little benefit being felt by the poor local populations and the elites doing handsomely. It is therefore quite a turnaround for the IMF to conclude that income inequality impedes growth and that efforts to redistribute are positive.
This is the real political challenge that will face us over the next generation. That is why we should be ensuring that those with the broadest shoulders bear the burden in what will continue to be very hard times for those at the bottom of the income scale, given the massive cuts that this Government are still intent on inflicting. Let us remember that a vast tract of the austerity programme has yet to feed into the system. An additional rate of 50% would help to ensure that the super-wealthy bear the burden and pay their fair share. I urge the House to support the new clause.
Ian Swales
It is a privilege to serve under your chairmanship, Ms Clark.
I represent areas that, I am sure, are not dissimilar to those of Members who have already spoken and intervened and where there is a great deal of deprivation. Anybody who wants to learn about my constituency can look at the long article about it in the business section of last weekend’s edition of The Sunday Times.
The amendments tabled by Opposition Members forget some important things. The Labour party kept the top rate at 40% throughout its time in office, until its very last day in power. The only day the rate was 50% was 6 April 2010—the day Parliament was dissolved for the general election.
The right hon. Member for Wokingham (Mr Redwood) and the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) have both questioned how principled the former Prime Minister and the former Chancellor, the right hon. Members for Kirkcaldy and Cowdenbeath (Mr Brown) and for Edinburgh South West (Mr Darling), were in their commitment to raising the rate to 50%. One thing is for sure: a general election was approaching and they probably knew that the increase would be the gift that kept on giving in terms of headlines. They had levied taxes in any way they could and they knew that going up from 40% was a dubious move in terms of raising revenue; otherwise, they would have done it earlier. What it did do was lead to more headlines.
Millionaires are paying £381,000 more in income tax in this Parliament than they did in the previous Parliament. Having said that, cutting the rate was not the top priority for me or my party. Our priority was to cut taxes for ordinary working people and we are very proud of the large moves we have made in that direction.
We should also remember that taxing the rich is not only about the headline rate of income tax. Let us consider some of the other measures this Government have already taken. Withdrawal of the personal allowance on incomes of more than £100,000 means that there is already a 60% tax rate on incomes between £100,000 and £120,000. On capital gains tax, anybody lucky enough to make a capital gain of £1 million will pay £100,000 more tax under this Government than they did under the previous Government. The 18% rate of capital gains tax under Labour meant that City operators who made capital gains paid less tax on them than their office cleaners paid on their income, which was truly outrageous. People with a pension contribution of £250,000 are now paying £94,000 more tax on it. If anyone is lucky enough to have £1 million to spend after all those taxes, they will pay £25,000 more in VAT, if they spend it on standard rate items. Tax avoidance has also gone down; Her Majesty’s Revenue and Customs, with its extra resources, is clamping down on it. The idea that this Government are sitting around allowing the rich to do whatever they want is absolute nonsense.
Labour’s proposal to put the rate back up to 50% has already been thrown into doubt by the Institute for Fiscal Studies. I am the first to admit that £100 million is a lot of money, but that is all that would come out of it and the IFS has said that it is not a good way to narrow the deficit. HMRC has already said that what the rise to 50% would actually achieve is doubtful. If hon. Members want to review it, we already have real experience of rates of 40%, 50% and now 45%. The Treasury and HMRC conduct regular reviews and a similar review could be conducted on real, existing data. There was a 50% rate for a period, so a real review could be conducted. It is also worth remembering that national insurance is currently 2%, so the marginal rates that people are paying to the Government are not 45%, but 47%.
We have to be careful. The experience in France is fascinating. There has been a wholesale exodus, with the actor Gérard Depardieu taking the extreme step of moving to Russia to avoid what he regards as extreme tax rates. There is no doubt that people with such incomes and that kind of money can, largely, live wherever they like these days. We need to bear it in mind that the population is more fluid than it used to be.
The Red Book makes it very clear that the top decile pays far more tax than it did. That is right because, as the hon. Member for Carmarthen East and Dinefwr said, people with the broadest shoulders should bear the biggest burden; and they are doing so, because of all the changes that have been made. Despite the fact that the amendment suggests otherwise,
“income inequality is at its lowest level since 1986”,
as the Red Book states. I find the idea that income inequality widened under a Labour Government abhorrent, because such Governments should have narrowing it in their DNA. My four grandparents, who all helped to launch the Labour party, must have been spinning in their graves during the 13 years of the previous Government. I am deeply cynical about Labour’s commitment: they cut taxes for millionaires every year that they were in government.
I look forward to discussing this further in Committee. I do not have a particular argument with reviews, but they do not need to be specified in Bills.
Sheila Gilmore
We touched on this issue in the earlier debate. The right hon. Member for Wokingham (Mr Redwood), who is no longer in his place, told me that I probably did not mix with many very rich people, which I suspect is probably true. My whole life and the constituency I represent have not been chock-full of people living in millionaires’ row and having lots of money in their pockets. However, his points, which other hon. Members have mentioned, about whether the recent rate changes—from 40% to 50% and back to 45%—are a good test do not bear much weight. It is quite clear, in such a short space of time that people, could rearrange their affairs in various ways first to forestall the income and then to ensure that the tax due in previous years was paid last year.
The Office for Budget Responsibility has said the same—that there has been an increase in payments, but that it was largely due to the fact that people could arrange their income in such a way as also to arrange their tax. When my hon. Friend the Member for Edmonton (Mr Love) intervened on the right hon. Member for Wokingham to suggest that people had rearranged their finances to suit the current tax regime, he was told that that was not the case. However, the right hon. Gentleman then talked about how those with high incomes—the rich, in his words—have plenty of ability to rearrange their affairs, so he in fact made precisely our case.
The argument that because something was not done during a certain period, it is not a good idea does not bear scrutiny either. Such a line does not relate to the financial situation in which we found ourselves. We hear a lot about the need for deficit reduction, as we have throughout this Parliament, and we know that the rate of deficit reduction has been far lower than was originally promised and planned for. Many of the changes—to tax credits, to benefits, to local government funding—were justified as absolutely essential for reducing the deficit. Under the previous Government, the reason for introducing the 50p rate was largely about that as well. It was and it remains our belief that we need a better balance when we are trying to reduce the deficit.
We all accept that there is no great virtue in running a long-term deficit. The debate has been about not whether to do something about it but the pace and efficacy with which we do something about it. Within that, there are choices to be made. There is a balance to be struck between taxes and spending cuts, and the Government have chosen to place a lot of emphasis on spending cuts and far less on tax. The 50p tax rate could have been sustained throughout this Parliament as part of the process.
Ian Swales
I am following the hon. Lady’s argument about the tax changes, and I have two questions. First, does she object to the raising of the threshold to £10,000? Secondly, will she oppose her party’s policy of adding a 10p rate? She seems to feel that such things do not help the people she wants to help.
Sheila Gilmore
We have to be honest about the tax threshold. The primary driver behind the change is constantly presented as being concern for the low paid, but the major part of the benefit has accrued to those who are better off. The change also has a substantial cost, at a time when we are told that money is tight. It is worth considering what would help the less well-off in a more concrete way. When the threshold was raised, tax credit rules were changed, tax credit rates were lowered and child care help for people on tax credits was slashed. At some undefined point in the future, the threshold will again be increased, but that is not a lot of help for those who, for the past four years and for however long it takes to establish universal credit, have had their help with child care cut.
The threshold is not what it seems, and we have to be clear about that. If we genuinely want to help the low-paid, we have to consider the model that we use. Many commentators have suggested that, for example, we should consider child care costs and work allowances within universal credit. One change that the Government have made to universal credit since it was first proposed—not that many people are on universal credit yet—is to reduce the work allowances, which means that people lose universal credit faster as their earnings rise, so the low-paid will again suffer. It now turns out that the introduction of assistance covering 85% of child care costs for those on universal credit will have to be paid for from another part of universal credit, so people who, by definition, are not very well off will be paying for that child care assistance. That is rather strange because I do not believe that the tax relief for child care will necessarily be funded in quite the same way. If we really want to help the low-paid, it is worth considering other proposals and no longer simply arguing that raising the tax threshold is helping the lowest paid and will always be the best way to do so.
On the 50p tax rate, I contend that there has been a series of decisions that have heavily affected those who earn the least and are struggling the most, and no number of graphs showing that people at the high end are now paying more tax, or that the proportion of tax changes that affect their income is at least as high as the proportion affecting the low-paid, can show otherwise. The reality is that five percentage points off the tax rate for those on very high incomes is very different from five percentage points off the tax rate for those on very low incomes; it is the difference between parents being able to pay for their children to go on a school trip or being able to think about taking the bus into town because those things cost. A five percentage point difference for someone on a very high income might be the same numerically, but it does not have the same consequences for people’s lives.
Ian Swales
I am following the hon. Lady’s argument carefully, and she is straying from tax into welfare, which I understand is a real concern for her. She makes a good point on the effect of proportionate tax rates. The cut in tax through raising the threshold has actually reduced the tax and national insurance bills of people on the minimum wage by some 70%. If we are talking percentages, does she welcome that figure? Does she also accept that anyone working 30 hours a week or more on the minimum wage is earning £10,000? Finally, will she answer the question about the 10p tax rate? Will she oppose that policy?
Sheila Gilmore
The hon. Gentleman suggests that it is irrelevant to link welfare and tax, but I do not agree. Welfare and tax are intimately linked in a very practical way for someone who may have seen their tax bill go down but who has also seen their benefits go down substantially and so are either no better off or are actually worse off. That is a very real link, because raising the tax threshold has a substantial cost; it is not a pain-free, non-costed policy. At £10 billion, the policy costs a considerable amount of money that could have been spent in some other way. I am not convinced that the net effect for the lowest paid is such that they benefit. Given that so much of the benefit goes to people who are better off, I would have thought he would want to question that policy.
Huw Irranca-Davies
I apologise to the Committee for being absent earlier; I was with a group of young people from my constituency who are interested in politics and in what is being debated in the Chamber today. I am glad to have a few minutes now to say a few words.
The new clause and the amendment are innocuous and harmless proposals. They simply ask the Government to be transparent and to produce a review within a few months to show the effect of a 50p tax rate on those whose taxable income is between £150,000 and £1 million a year. I have struggled to find many such people in my constituency. I have tweeted about this on social media, asking people whether they think our amendment would be a bad idea, but, unsurprisingly, no one has come forward to say that they earn that much.
It is in the Government’s interest, as well as ours, to have this transparency. It is also in all our interests to tell people that we get the message about proportionality and contributing to public services. There is an emerging trend among the Conservatives to describe themselves as being the party of the working class and of working families. If that is the case they should support our proposals, because they would create full transparency and allow a debate to take place on whether we should set a tax rate of 50%, 49% or whatever. The proposals would also allow them to explain to working people—not the ones who earn between £150,000 and £1 million a year, but those who earn about £20,998, the median wage in Ogmore Vale—and to Conservative supporters why they think it is not a good idea to say to people, “Pay your share. We are genuinely all in this together.”
The hon. Members for Carmarthen East and Dinefwr (Jonathan Edwards) and for East Antrim (Sammy Wilson) have made good contributions to the debate, and I made a couple of mischievous interventions on them earlier. I have faith in the wealthy and the super-wealthy in this country. We will not have many Gérard Depardieus fleeing the country and heading off to Russia, or wherever the British, Welsh or Scottish equivalent might be. They will say, “We have respect for the communities that we work and employ people in, and it will not bankrupt us to stay here. We are not going to flee overnight to another country like some carpetbagger. We are not going to up sticks and relocate our premises.” That is not going to happen; it did not happen before, even when taxes were at much higher levels. It is a discredit to those people to suggest that it would happen.
In preparation for the debate, I looked into a few examples of people who had said that a return to the 50p tax rate would be a disaster. I was about to say that it would be wrong to name them, but one of them, the chief executive of Kingfisher, has been very outspoken in saying what a terrible detrimental effect such a measure would have. He has said that it would be a disaster for the country, and that entrepreneurs and businesses would flee. Well, okay, it might be just a coincidence that Ian Cheshire is an adviser to the Prime Minister as well as being the chief executive of Kingfisher. It might also be just a coincidence that he was knighted in the new year’s honours list. I am sure that that is pure coincidence. However, he clearly has a direct influence on the Government. When he says, “This is not good”, things happen. It is not only him, however.
It was fascinating to note the reaction of one other person, when this debate was raging about 18 months ago. I will not name this individual, but people can look him up in the Daily Mail. It is pretty obvious who I am talking about. He had said that he objected to a 50p tax rate on the basis that people like him would no longer be inspired to go out and earn money. He was reported in the Daily Mail as being about to sell his £3 million mock-Tudor home. He was explaining that he was now in a great place but when he had previously had trouble expanding the property, he had solved the problem by snapping up the property of his next-door neighbour. This was in an area inhabited by rock stars, football players and other highly paid celebrities. He had snapped up the house next door so that he could put in a swimming pool, a games room and a garage block for his Bentleys. We do not have many garage blocks in Ogmore. The properties were in a patrolled, gated community with private security.
My constituents who are on less than £21,000 a year think that that is another world. They think, “Why doesn’t that guy think he should be paying a couple of pennies more to keep the national health service going, because I can’t afford to have private health care or to send my children off to private school? I need what the state provides.” I know that this is like an old comedy sketch—“I look up to him because he is better than me.” But, that is not the case. The person I am talking about was one of those hardworking Tory supporters who some Government Members would like to appeal to now as the working Tory voter. Let us have a reality check. To those who say, “We feel really unhappy about this change, and it will drive us off”, I say, “Go.” They should subscribe to the values and ethos of this country—from each according to his ability to each according to his need. If they do not, they are not living in the country in which I was brought up. They should think twice about saying that they will go. Most people will sensibly recognise the skills and the quality of the work force, the good environment here for building up companies and our position in the European Union, and they will stay in the country and continue to work. All this amendment asks is that at a certain point in time, not too long in the future, we should be told what the impact is on those who are earning £150,000 or £1 million. Be transparent and tell us.
Ian Swales
I represent a constituency with similar income levels to that of the hon. Gentleman. However, does he regret the fact that a senior member of the Government he was in described himself as being “intensely relaxed” about the situation that he has just described?
Huw Irranca-Davies
I would never use that same phrase. I do not find myself intensely relaxed about this. Sorry, what I mean is that someone playing for the Ospreys rugby team might not earn as much as a premiership footballer, but good luck to them. Let them make a lot of money. Let them do well for their families. Let someone travel to France and play for Perpignan and earn four times the money. Good luck to them, but I want them paying their taxes. When they are back here, I want them to contribute the right amount. I want to encourage the people in my constituency, and say, “If you have the abilities and the skills, and if you are willing to put in the effort, don’t accept that job that you are doing now. Work your way up and do what you can do. The sky is your limit.” But I want them also to contribute. I do not want this ludicrous situation in which people can say, “I tell you what, at a certain point I will leave the country.” I do not believe that they will leave the country. It will not happen. I have much more faith in them than that.
One of the major hedge fund operators, again a Conservative donor, told the Financial Times:
“There probably aren’t many votes in cutting the 50p top rate of tax, but among those that give significant amounts to the party, it’s a big issue, and that’s probably why it’s a big issue for the party too.”
Four months after he said that to the Financial Times, the Budget happened and we had the cut in the tax rate. It is probably just a coincidence again.
Let us look at the impact of this policy and the Government’s current policies on the wider population—beyond the wealthy and the super-wealthy. The Institute for Fiscal Studies’ figures on net income changes by 2014-15 show that overall, households are £974 worse off; a working lone parent is £1,335 worse off; a working couple with no children is £438 worse off; a working couple with children is £2,073 worse off. What about the millionaires? They get this enormous tax cut so that they can go out and buy a couple more Porsches. The Minister might say, “No, it is so that they can reinvest it in this, that and the other.” What about reinvesting in public services? Why does the Minister think that they want to escape from that obligation that we all have to each other to contribute? It may be 47p, 48p or 49p, but there is a message—there is clarity—about us all being in it together that comes with saying that it is 50p. If that 2p seriously makes a wealthy individual say, “We are leaving this country because it is a disgrace that any Government should come after me”, I would say that it is a disgrace that they are even thinking in that way. I have more faith in those people who have made wealth in this country. I believe that they will want to stay here and genuinely help us climb out of this economic morass. They will want to build jobs, grow the economy, skill the economy and lift up the wages of some of my constituents.
Shabana Mahmood
I will come on to the point about tax avoidance. One option open to the Government to protect revenue from the 50p rate was to do more on tax avoidance. This is a Government who like to trumpet their record on tax avoidance, but they certainly ducked the opportunity when it came to dealing with potential avoidance in relation to the 50p rate.
Shabana Mahmood
I will not, because of a lack of time.
The HMRC report says that all the analysis and estimation is highly uncertain, as does the Institute for Fiscal Studies. The scale of behavioural change is ultimately decided by Ministers, and it is primarily based on an assessment of taxable income elasticity—TIE. The IFS says that there is a huge margin for error. Staying within that margin, one could easily say that, depending on the TIE, cutting the rate could cost £700 million or could raise £600 million. That gives us an idea of the range of figures that we are talking about and how uncertain the projections are.
It might have fitted the Government narrative for them to imply that they knew for certain that the 50p rate would raise only £100 million, but even on their figures and HMRC’s report, there is a huge margin for error and this is all very uncertain. That is not the only thing that was wrong with the analysis. The HMRC report was based on only one year’s worth of data—the data related to 2010-11—which is a weakness in itself. It came too early. Given the history of the introduction of the rate and the Government’s decision to cut it, the reliance on year one is a further weakness in the Government’s argument, because we know that incomes were taken earlier to avoid the 50p rate and as a result incomes in 2010 and 2011 were artificially lower, suggesting a lower yield. Hence our request for a review.
The original HMRC analysis does not give a true picture, was done too soon after the rate had been introduced and was based on only one year’s worth of data. Income figures for that year were lower than otherwise might have been the case because people brought their income forward to 2009-10 before the rate came into effect. No one has redone the analysis so we are still going on the figures from the 2012 Budget. The Government should, at the very least, update the analysis based on the more recent data and prepare the report that our amendment and new clause 4 call for. A comparison of 45p and 50p rates for those on incomes over £150,000 and £1 million would be instructive to the public debate about the top rate, especially as some Members on the Government Back Benches want to reduce the rate to 40p.
Mr Gauke
I am always grateful to the hon. Gentleman for his political advice. I cannot but notice that he talked about wanting to uphold the values of the British people and then quoted Karl Marx—but there we go. My point is that the wealthiest are making a bigger contribution in income tax, capital gains tax and stamp duty, and that this Government are taking further action to deal with avoidance and evasion more effectively than any previous Government have done.
Ian Swales
It is not for me to disagree with the mathematics of the hon. Member for Ogmore (Huw Irranca-Davies), but assuming that he is right, does his point not prove that 13,000 people were paying £100,000 less tax in the year up to April 2010?
Mr Gauke
I suspect that my hon. Friend may well be right, so I am grateful to him on that point.
Clause 1 will help the Government to achieve our aim of a tax system that is fair for everyone, while rewarding those who want to work hard and progress. We will achieve those goals by cutting income tax for the vast majority of income tax payers, including those in greatest need of support, while making sure that the tax system remains easy to understand. I again stress that the reports proposed in amendment 4 and new clause 4 are entirely unnecessary. The impact of reducing the additional rate of income tax has been examined in great detail. The 50p rate was ineffective and meant risking the recovery for which everyone in this country is working hard. I therefore commend clause 1 and urge the House to reject the amendment and the new clause.