Financial Services (Banking Reform) Bill

Jacob Rees-Mogg Excerpts

Monday 8th July 2013 Commons Chamber

[Greg Clark]

The hon. Gentleman is perfectly aware that the standard response time for a Command Paper responding to a report is two calendar months. That would have taken us into the recess, which clearly is not possible, so we would have had to respond after the recess. I think he is being churlish when I have asked my officials to move at great speed to respond in a very short space of time—13 working days—to make the response available. I thought it was better for us to have it for these debates than to have it next week or in September. I am grateful to my officials for their alacrity, even if he is not.

[Jacob Rees-Mogg (North East Somerset) (Con)]

I join my right hon. Friend in commending his officials for their amazingly speedy response. The only thing I would ask is that we should have plenty of time on Lords amendments. We had an excellent discussion in Committee, but unfortunately it was on a Bill that will be completely different from the one that is ultimately passed. To maintain the supremacy of this House, I feel it is important that we should have a proper discussion of and decision on the amendments that will be made in the other place.

[Greg Clark]

My hon. Friend, who was a distinguished member of the Public Bill Committee, is absolutely right. I have given assurances to the House before that we will have enough time to consider these very important matters, and we always have done. In Committee, we arranged things in such a way that we were able to consider every line of the Bill and every amendment and new clause with time to spare. When I saw the amendments that had been tabled, I made representations through the usual channels to extend what in the original programme motion had been a one-day Report and Third Reading. I had said that I would reflect on the volume of amendments and was able to secure an extra half day of consideration. I repeat that assurance—when the amendments return from the House of Lords, it is absolutely right that this House should have the chance to consider them all at leisure and thoroughly. My hon. Friend has my assurance on that.

Let me turn to amendments 1, 2 and 3. In Committee, I gave a number of undertakings that I would table amendments on Report. One such commitment related to the effectiveness of the ring fence, which is the common denominator of the amendments in this group. The hon. Member for Nottingham East (Chris Leslie) will immediately spot that amendments 1, 2, 3 and 4 act on a commitment I gave to the Committee that in turn reflected the recommendations of the first report of the PCBS, on which the hon. Member for Edmonton (Mr Love) and my hon. Friend the Member for Chichester served.

For Members who did not have the privilege of being part of our discussions in Committee, let me set the context. The Independent Commission on Banking set three objectives for the ring fence: first, to insulate essential day-to-day banking services against shocks originating elsewhere in the financial system; secondly, to make banks more resolvable; and, thirdly, to curtail the perceived implicit Government guarantees to banks, which follows from the first two. The Bill turns those ring-fencing objectives into law by making them part of the statutory objectives of the regulators—the PRA and the FCA.

--- Later in debate ---

[Chris Leslie]

That raises the question of the operation of the inflation target. If I draw a parallel between a leverage target and an inflation target, clearly the Chancellor has been setting out his inflation target. It has been missed on a number of occasions—quite a few months and quarters have gone by—so the interplay between the Chancellor and the Bank of England is critical here. I am more than happy to come back to the issue. My point in the new clause today is that we need to start seriously discussing how, from a UK perspective, we are going to deal with the issue of leverage from a home-grown point of view, rather than waiting for the European Union to come along with a set of arrangements which may or may not fit our circumstances.

[Jacob Rees-Mogg]

There are two points that occur on the hon. Gentleman’s target weighting. One is that it is very arbitrary. If the regulator could set it for each individual bank, that would give a very strong arbitrary power to the bank to meet that overall target. The second is that although people say that their assets are particularly good ones and better than others, that is exactly what they said in the crisis and it turned out not to be reliable.

[Chris Leslie]

I agree with the hon. Gentleman, but it would be invidious for us as politicians to try to delve into the specific analysis of bank-by-bank asset or liability, quality and the risk weighting of assets. That is why we have regulators and what their job should be, but it is important that as a body politic, so to speak, we make a judgment about the level of leverage that we should have in the economy as a whole. That is why I raise the issue today.

For us, tackling the leverage question is incredibly important. We should not wait for the European Union to decide these things for us. We sought in Committee to clarify this in part. Rather than put it in the “too difficult to handle” box, as the Government seem to be doing, we should try to move forward constructively. The approach that we have taken is on the amendment paper. First, it is necessary to prevent the banks from over-extending themselves beyond the point of safety. Ring-fencing does not do that. We think ring-fencing changes should go alongside capital requirements and leverage regulation.

Secondly, we have been hearing arguments recently about the leverage ratio as anathema to bank lending into the real economy. Sometimes it is characterised as one or the other. I do not necessarily agree that there is a seesaw trade-off between the two. Andrew Bailey at the Prudential Regulation Authority has recently made the particularly pertinent argument that capital can be lent onwards in any case, so it should not be a case of one or the other.

For the sake of clarity, in new clause 9 we looked to address this explicitly by framing a leverage target strategy for the system as a whole, which must be constructed in such a manner so as to maintain adequate credit availability to support a growing economy. It is important to recognise that we will always operate with a degree of leverage. That is part and parcel of the way our banking system works, and our constituents rightly want us to focus on getting the economy moving, while preventing excessive risk-taking. In the spirit of constructive engagement, we hope the amendment strikes the right balance.

It is sometimes argued that leverage should be a back-stop rather than a front stop. The argument about what is a back-stop and what is a front-stop can get rather theological. Andy Haldane makes the point in his famous “The Dog and the Frisbee” speech that leverage needs to be brought much further forward as a primary tool for the regulators, and that other capital and risk-weighting issues should be subordinated. The main point is that leverage should be recognised as a key dynamic in our economy and needs to be regulated in a way not dissimilar to the regulation of inflation.

For us, there are three essential elements: set a leverage target for the system as a whole, which is a task for the Government; measure that risk—the threats to whether loans are going to be repaid—more accurately by sector, to determine which sector needs more capital to make it safe if leverage is rising and which could be dealt with in a normal way; stress-test to back-test the pressures in those particular institutions to be clear that the choice of the leverage target is correct. The regulator should do that.

New clause 9 would also augment Bank of England independence in relation to operational decisions on monetary policy and take into account the need to supply credit to the wider economy. I am glad that the Building Societies Association and others support it.

Finance Bill

Jacob Rees-Mogg Excerpts

Monday 1st July 2013 Commons Chamber

[Jacob Rees-Mogg (North East Somerset) (Con)]

rose—

[Cathy Jamieson]

I want to make progress but I will, of course, give way to the hon. Gentleman.

[Jacob Rees-Mogg]

I am extremely grateful to the hon. Lady; she always covers these issues with great interest. Why is the shadow Chancellor able to commit to following our spending plans, yet will not give any indication of tax rates? Surely that is the second side of the coin.

[Cathy Jamieson]

I always listen with interest to what the hon. Gentleman has to say, and I know from his contributions in the House and in Public Bill Committees that from time to time he scrutinises the Government fairly thoroughly. There is a difference between saying that the overall spending limit put on by the Government will be our starting point, and accepting their approach in full, which is not what the shadow Chancellor has said, of course. He has made it clear that we would look at that overall spend and see how we could allot resources more fairly.

Despite the fact that the Government tried to make much of fairness in the spending review, let us look at the millionaires who will benefit from the tax cut. First, 643 bankers earn more than £1 million and the combined tax cut will be worth £34.6 million to them—[Interruption.] There is a lot of grumbling and other muttering from a sedentary position by Government Members. If they wish to speak, they will be able to do so later.

My constituents want to know how the Government can justify that tax cut for millionaires at a time when those on middle and low incomes are being squeezed so hard. I can understand why the public are angry and why they do not feel that the Government are acting fairly. They see many people on massive salaries that ordinary people can only dream of and working in the very same banks that were bailed out by the taxpayer now receiving a handout from the coalition. People do find that difficult to understand. That is why our amendment would require the Chancellor to consider the effect that the tax cut will have on the level of bonuses in the financial sector. That is what the taxpayer—ordinary people trying to make ends meet when their living standards are being reduced—wants to know.

--- Later in debate ---

[Cathy Jamieson]

No. I am going to finish what I am saying, because I want to make clear the extent to which people are losing out. The future jobs fund gave opportunities to many young people and it was short-sighted of the Government to scrap it. It seemed to me that the Government did so simply because it was brought in by the previous Government. However, following questions in the House and elsewhere, we know that the Work programme has not delivered for many young people in our constituencies.

I go back to the fact that individuals and families are losing out in our constituencies. Not only will a two-earner couple with children lose on average £1,869, while a millionaire gets a tax cut, but a single parent who works and has tried to do the right thing in getting into employment and holding down a job, as well as meeting their caring responsibilities, will lose £1,226. At the same time, the millionaire banker about whom we talked earlier will see his tax bill cut. Two earners without children who are a couple will lose £672.

Those are remarkable figures. As I said earlier, they sum up the coalition’s warped sense of priorities. They are looking after those at the top, while making everyone else pay the price for their economic failure.

[Jacob Rees-Mogg]

Will the hon. Lady give way?

[Cathy Jamieson]

I will in a moment.

No wonder that people think that there is one rule for the richest and another for the rest. No wonder people are questioning why the Government believe that the way to motivate people on low incomes is to pay them less, and the way to motivate people on high incomes is to pay them more. In these challenging economic times, surely we should focus on supporting those who need it most. New clause 8 asks the Government to look at the issue again. We are asking them to undertake a proper assessment of the impact of the cut, as well as an analysis of how much the Treasury would gain if the additional rate were returned to 50% in 2014-15. That is not an unreasonable request. I hope that, on this occasion, the Government will accept the new clause and report back in due course, although I suspect that that may not be the case.

I outlined earlier why the Opposition think that the Chancellor’s logic is rather odd. He claims to find tax avoidance morally repugnant and to want to crack down on it, but this tax cut simply rewards the wealthiest. He appears to justify it on the ground that the behavioural response to the 50p rate was more avoidance. There seems to be a rather strange logic here. Instead of cracking down on the avoidance, he is rewarding it. Surely those are not the values that we want in the Government: one rule for the richest and another for the rest of us.

It is not what the Government used to say, before their façade of fairness began to slip. The Prime Minister no less said:

“I have been very clear—we have all been very clear—that we have to do this in a way that is fair so that the broadest backs bear the biggest burden.

That is why we haven’t changed… the 50p tax rate.”

However, the Government are giving those with the broadest backs a tax cut, while people on lower incomes are shouldering the bigger burden. I heard Government Members supporting what the Prime Minister said. It is a pity that they now seem to have gone back on that.

--- Later in debate ---

As Government Members know, Her Majesty’s Revenue and Customs estimates of reduced levels of tax avoidance are based on only the first year’s yield, and there is real concern that the cut will incentivise people to bring forward their income. The first years of a new rate are no real basis for estimating the revenue raised by the 50p rate.

[Jacob Rees-Mogg]

rose—

[Cathy Jamieson]

I will give way to the hon. Gentleman, whom I feel sure will explain to me what the Government intend to do about tax avoidance and how they will stop this issue emerging?

[Jacob Rees-Mogg]

As it happens, I was going to say something different, which will not surprise the House particularly. I was going to say that history tells us that cutting taxes raises more money, and that is probably a better bet to working out what will happen than fishing around for convenient forecasts. In 1979 and 1988 tax rates were cut and revenue went up, and that is a pretty good basis for doing this again.

[Cathy Jamieson]

I look forward to the hon. Gentleman’s contribution in our future debates about the possibility of a mansion tax and a reduction to a 10p rate. I always listen with interest to what he has to say, but on this occasion I have to say to him that the first year of the new rate is not a real basis for estimating the revenue raised, or likely to be raised, by the 50p rate.

The Government should be tackling tax avoidance. We all want to see that, and we will be debating it more when we discuss later clauses.

Financial Transaction Tax and Economic and Monetary Union

Jacob Rees-Mogg Excerpts

Tuesday 18th June 2013 Commons Chamber

[Greg Clark]

I will come on to the hon. Gentleman’s point. I would point out that President Obama and his Treasury Secretary are deeply concerned about the progress of this financial transaction tax, which does not meet any of the in-principle ambitions that people have had for some time. It is a cause of a great alarm among those who believe in free trade around the world.

The proposal under the enhanced co-operation procedure is modelled substantially on the 2011 version. It contains a feature known as the “establishment rule”, under which a UK financial institution would be deemed to be established in the FTT area for the purpose of the tax by virtue of the mere fact that its trading counterparty is headquartered in a country participating in the tax. So in practice, a UK pension fund purchasing a UK Government bond from a UK branch of a German bank would be obliged to pay the tax, and it would pay the tax not to the Exchequer in this country, as would have been the case if we had signed up to the FTT, but to an overseas authority. Likewise, a UK company with significant Treasury operations would potentially be in scope of the FTT when its counterparty happened to be headquartered in the FTT area.

[Jacob Rees-Mogg (North East Somerset) (Con)]

What obligation would the British Government be under either to enforce or to collect this tax if the FTT were adopted as proposed?

--- Later in debate ---

[Chris Leslie (Nottingham East) (Lab/Co-op)]

I beg to move amendment (a), leave out

‘further notes that the proposals for the Financial Transaction Tax have been challenged by the Government in the European Court of Justice’;

and insert

‘calls on the Government to support the principle of an FTT and to learn lessons from the EU proposal and work with other global financial centres, especially the US, to reach a consensus on a design set at a modest rate without creating negative economic consequences and which minimises international tax arbitrage;’.

Before I discuss the amendment, let me briefly deal with the latter set of issues that the Minister raised—the general issues of national parliamentary sovereignty, the remit of EU policy, enhanced co-operation and so on. Clearly, the European Scrutiny Committee is right to monitor the relationship between EU decisions and the need for public engagement and accountability. Most Labour Members, however, take a more positive view of the role that Britain should be playing in Europe, because the European Union should be a force for good that increases the chances of greater prosperity, peace and the values we hold being asserted with greater impact across the world. We are comfortable, though, with a degree of flexibility and variance across member states; “enhanced co-operation” could be used to our advantage here in the UK for the future.

Individual member states should have some latitude rather than follow a blind adherence to anything and everything emanating from Brussels. There is a danger that sometimes those who regard themselves as good Europeans—pro-Europeans—end up defending the poor decisions that the Commission and the European Parliament can sometimes come out with. There is nothing wrong at all with national Parliaments disagreeing with the European institutions; it is a healthy sign of an internal dialectic, a constructive challenge and a reality check for those who are more distant from public opinion. We should acknowledge that both the European Commission and the European Parliament need to be reformed to improve their accountability and transparency.

In the short time available to us today, let us not lose sight of what our electors sent us here to do. Our view is that the British people want us to focus right now relentlessly on getting jobs created, boosting prosperity, creating wealth, and helping to stimulate the economic recovery which is now three years overdue. Navel gazing into the constitutional niceties that fall between the gap of domestic or European institutions is slightly indulgent in that context; we should not lose sight of the most important priorities that our constituents want us to focus on. That is why we tabled this amendment.

[Jacob Rees-Mogg]

There seems a slight illogicality in what the hon. Gentleman has been saying. He says that he wants to create jobs but it has already been established that the financial transaction tax would destroy half a million jobs across Europe. How can he have it both ways?

[Chris Leslie]

The Minister was talking about the European variant of the FTT, but of course he was forced then to admit that we have already got a partial FTT of sorts—the stamp duty that is in place. I will discuss that in a moment, but it was very instructive that he was vehemently against the extra-territoriality aspects of the European version. Of course the EU version does need to change, and I am not saying in any way that it is perfect. His argument is, “They should stop extra-territoriality aspects in their financial transaction tax”, but our stamp duty contains many of those characteristics, and individuals—those trading UK shares and UK equities—are liable wherever that trade takes place in the world. So the Government clearly have not thought through their position on these things.

--- Later in debate ---

[Jacob Rees-Mogg (North East Somerset) (Con)]

I begin by referring Members to my declaration of interests and by celebrating the 198th anniversary of the battle of Waterloo. We are debating Europe on Waterloo day, which commemorates an occasion when an alliance of nation states came together to defeat the ambition of a Frenchman to have a single European state, so it could not be a better day for debating these matters.

I will deal first with the financial transaction tax, because it is a rotten idea. The fact that we have stamp duty, a tax that has been around for centuries and is not paid on rapid transactions—it is paid only on long-term holdings—or by market makers, or for contracts for difference, or on American depositary receipts, is not an argument for saying that a financial transaction tax can work in the sophisticated financial system that the world operates today.

What the hon. Member for Nottingham East (Chris Leslie) consistently ignores is who the tax would ultimately fall on. In the wonderful world that he was creating, there was a tax that could be designed—not, of course, the one that the Europeans have designed, but another, imaginary tax—that would never seem to fall to anybody. It could take £10 billion out of the economy without anyone really having to pay for it, apart from some nasty, evil bankers who, when they take their hats off, can be seen to have horns underneath.

However, that is not the real world, because the transactions that take place in the City represent an underlying reality, be it the debt issued by the Government, mortgages sold on by banks, or pension funds being invested around the globe. Individuals would end up paying that tax because the costs of their doing business with banks would increase. We know that clearly from the mortgage market, complicated as it may be, because the ability to package mortgages and sell them reduces the cost of capital to banks and reduces the cost to people of buying their own homes. What the Opposition are saying is that they want to make mortgages more expensive. They want to put a tax on people who are least able to pay.

[Chris Leslie]

The hon. Gentleman was doing so well, but unfortunately the level of scaremongering undermines his whole argument. Is he really saying that there is absolutely no case for a tiny fraction, less than a tenth of one percentage point—[Interruption.] I am talking not about the EU variant but about the principle of a financial transaction tax. Is he saying that there is absolutely no case to be made for a financial transaction tax on derivatives or bonds when we have 50 basis points—half a percentage point—of stamp duty on UK equities, or is he also calling for repeal of UK stamp duty?

[Jacob Rees-Mogg]

There is no case for a financial transaction tax. It would be enormously destructive of this country’s financial system. The cascade effect to which the Minister referred is at the heart of this. When things are being traded dozens of times a day, what starts off as a little tax suddenly becomes a very big tax. The hon. Gentleman conjures £10 billion out of the air. We cannot withdraw £10 billion from the economy without it having an economic effect and without it being paid for by somebody.

[Stephen Doughty]

The hon. Gentleman is making a dramatic and scaremongering speech. If the FTT is such a terrible idea, I wonder why people such as Bill Gates, George Soros and, indeed, 1,000 of the world’s leading economists, backed the principle of such a tax.

[Jacob Rees-Mogg]

I seem to remember that 365 economists said that Margaret Thatcher had got it wrong in 1981, but one great and noble Prime Minister had got it right and 365 economists were flawed in their thinking. I would back the British politician against a collection of academic economists living in an ethereal world.

A financial transaction tax would ultimately be paid for by the British people through higher housing costs, lower pensions and possibly through higher Government borrowing costs leading to higher overall taxation. Of course the Labour party wants higher taxation, because that is what it has always been in favour of—more taxes, more spending and a worse economy.

I would now like to move on to the points made by my hon. Friend the Member for Stone (Mr Cash), because they, too, are extremely important. They relate to the European Union’s ambitions to become a superstate based on the euro. I accept that we are outside the euro, but that is not entirely a protection from the development of the EU along the lines of a single state with a single Government based in Brussels. Of the papers we are considering today, there is one from the European Commission showing that it wants within 18 months to have a eurozone seat on the International Monetary Fund’s board, that it wants within five years to co-ordinate eurozone tax and employment policies, and that it wants a political union with adequate pooling of sovereignty with central budgets as its own fiscal capacity and a means of imposing budgetary and economic decisions on its members. That means a single Treasury and a single fiscal union.

The danger for us is that, as the European Union obtains more powers for the eurozone, our association with it will become very different from the present one, and one in which we have little influence over what happens because we are outside it. Alternatively, we could get dragged into the arrangements because, as our experience of the European Union shows, our opt-outs will ultimately expire. We have seen that happening with the social chapter, and we will see it again next year with the decision on title V of the Lisbon treaty. We should therefore be very careful about the ambitions of the European Commission in relation to this single government for the eurozone.

We should also be cautious about what the President of the European Union, Mr van Rompuy, has to say. He has published a paper lauding the success of the euro and all that it has done. It states:

“The euro area needs stronger mechanisms…so that Member States can reap the full benefits of the EMU.”

That is a fascinating way of phrasing it: “the full benefits”. After all the other benefits that they have so far received, there are further benefits to give the member states if only they will join a tighter system of governance. I wonder whether the unemployed Greek youths have noticed all the benefits that they have received from this wonderful beneficent eurozone.

Mr van Rompuy has also been kind enough to say:

“‘More Europe’ is not an end in itself, but rather a means for serving the citizens of Europe and increasing their prosperity.”

I am proud to say that I am a subject of Her Majesty, and not a citizen of Europe. The idea that we need more Europe to benefit the citizens of the member states is palpably false. The more Europe we have had, the worse the situation has become. The more powers that have accreted to Europe, the more bureaucratic, less democratic and worse run has become the whole system of the European Union. The economies of the European Union have suffered because of the euro.

[Mr Cash]

Will my hon. Friend give way?

[Jacob Rees-Mogg]

I apologise, but I will not, as I have only 45 seconds left, and counting. I have had two extra minutes already.

I want to finish on the point of democratic legitimacy and accountability. I am glad that my right hon. Friend the Minister for Europe is in the Chamber, because it was his Bill in 2011 that so wisely reminded us that United Kingdom powers are ceded to Europe only by Act of Parliament and can be withdrawn. However, van Rompuy says that

“the involvement of the European Parliament as regards accountability for decisions taken at the European level”

is key. I deny that. It is this House that is key, and it is this House that should maintain our democracy.

Economic Growth

Jacob Rees-Mogg Excerpts

Wednesday 15th May 2013 Commons Chamber

[Ed Balls]

I do not want to prolong this argument, but I must explain to the hon. Lady the term structure of interest rates. The 10-year bond yields are the accumulation of market expectations of three-month interest rates added up every three months over 10 years. Why are our long-term interest rates so low? It is because people think that short-term rates are going to stay low because the economy is flat on its back. People would have to be economically illiterate to think that our long-term interest rates were driven by market confidence at a time when we are being downgraded by the agencies. Our long-term interest rates are low because our economy is not growing.

[Jacob Rees-Mogg (North East Somerset) (Con)]

rose—

[Ed Balls]

I was hoping to debate the Europe issue with the hon. Gentleman in a moment, but I am happy to give way to him on this one as well.

[Jacob Rees-Mogg]

I look forward to debating many issues with the right hon. Gentleman. The markets show confidence in this Government’s policy by keeping interest rates low. This is not purely to do with an expectation of where short-term rates will be; it is about confidence in the creditworthiness of the British Government under this Chancellor.

[Ed Balls]

I have to say that that is a deluded view of the way in which credit ratings work. Let us not forget that in 2007 these same credit rating agencies were saying, “Stick with Lehman Brothers” and giving America a triple A rating despite all the sub-prime lending. That is the reality. The fact is that the credit rating agencies are downgrading Britain because our economy is not growing. That is the fundamental problem.

I will give the hon. Gentleman a bit of ground, however. It is true that the Labour Government left a longer-term interest rate structure than other economies. We had far less foreign currency borrowing and more index-linked borrowing than other countries. That helped, but the fundamental thing was that we did not join the single currency. In Spain, Italy and elsewhere, we see a currency risk premium, which relates to the central bank’s ability and willingness to stand behind sovereign debt. That is not an issue here. Our interest rates are low, and they have fallen because our economy is not growing. The market is therefore reflecting expectations of continuing stagnation. I am afraid that that is the reality—aside from the political rhetoric of the Chancellor.

[Jacob Rees-Mogg]

In my previous intervention, I was careful to talk about the markets, not the credit rating agencies. It is the markets that count, because they reflect people investing their money. I agree with the right hon. Gentleman that the credit rating agencies got the whole of the pre-crash period wrong, but it is the markets we need to bank on.

[Ed Balls]

Unlike the Chancellor, the markets do not pay a huge amount of respect to the credit rating agencies. The hon. Gentleman agrees with me on that. That is why, two or three years ago, it was so ridiculous for the Chancellor to say, “Trust me. I’ll keep us as a safe haven because I’ll keep the triple A credit rating.” We told him, in 2011 and 2012, that the plan was not working, that the economy was not growing and that the deficit was not coming down, but when we told him to change course, he said, “I can’t do that because the credit rating agencies will downgrade us.” Well, they downgraded us anyway, because the economy was not growing.

Oral Answers to Questions

Jacob Rees-Mogg Excerpts

Tuesday 14th May 2013 Commons Chamber

[Mr Gauke]

Of course that is not true. As the Institute for Fiscal Studies has shown, the biggest contribution to reducing the deficit is coming from the wealthiest 10%. The hon. Gentleman might also wish to ask himself why, when his party was in office, it had a top rate of income tax of 40% for all but 36 days out of 4,758.

[Jacob Rees-Mogg (North East Somerset) (Con)]

The Minister will be aware that in 1978-79 the top 1% of taxpayers paid only 11% of total income tax. That is now nearer 30%, which shows that the Laffer curve works and we are better off with lower rates. May I therefore encourage the Government to cut rates further?

[Mr Gauke]

I note my hon. Friend’s representation. It is worth pointing out that in 2010-11, the year in which the Government came into office, the top 1% paid 25% of income tax receipts: this year it is forecast that the top 1% will pay almost 30% of income tax receipts.

Section 5 of the European Communities (Amendment) Act 1993

Jacob Rees-Mogg Excerpts

Monday 22nd April 2013 Commons Chamber

[Mr Cash]

The hon. Member for Stone—who is also Chairman of the European Scrutiny Committee—will of course do just that. I am grateful to you, Madam Deputy Speaker, for drawing my attention to these interesting documents. Among the interesting statements in the documents is this in paragraph 2.17:

“The euro area is the key market for UK exporters, accounting for 42 per cent of UK exports in 2011. As a consequence, the euro area sovereign debt crisis and subsequent recession have weighed heavily on the UK recovery. Action by European policy makers in 2012”—

I must say that I am astonished by the phrase that follows—

“helped ease the crisis and there are signs of investor confidence improving, but as the situation in Cyprus demonstrates the challenges facing the euro area are not fully resolved.”

Well, we can tell that to the people of Cyprus, but we can also say it to the people of Britain. This is not just a eurozone problem; it is a European Union problem, but above all else it is a British problem, and that is why we must take the necessary action.

The document is completely wrong to describe the euro area as “the key market”. In fact, as I pointed out in a paper that I wrote with my hon. Friend the Member for Harwich and North Essex (Mr Jenkin), the UK runs a trade deficit with the other 26 member states of £47 billion a year, yet we have a surplus of about £20 billion in our trade with the rest of the world. Furthermore, the Germans—about whom I shall say more in a moment, because of what was said by Angela Merkel at 3 pm today—run a surplus of no less than £29 billion a year with the other 26 member states.

That is why the debate is so important.

[Jacob Rees-Mogg (North East Somerset) (Con)]

On paragraph 2.17, does my hon. Friend share my view that it is a mistake to look at the euro area as one export market, as the individual countries that make up the eurozone have their own characteristics, and we naturally have a huge trade with Ireland, as all countries do with their nearest nation, irrespective of which currency bloc they belong to?

[Mr Cash]

Absolutely, and one of the greatest pleasures I have had in the past couple of years has been to have my hon. Friend serving on the European Scrutiny Committee, with the diligence, knowledge and judgment he brings to all these matters.

It is also stated, at paragraph 2.19, that

“Brazil, Russia, India and China taken together were the destination for 6.5 per cent of UK exports in 2011.”

The real problem here is that our exports certainly have to go to the BRIC countries and also to the rest of the Commonwealth, which is where the emerging markets are, as well as to the United States.

I strongly recommend that this House of Commons and this Government start waking up a bit. I really mean that, as I am very concerned indeed, as any right-minded person in this country should be.

It is also argued in this paper that:

“Between 2009 and 2012 UK goods exports to Brazil increased by 49 per cent, to Russia by 133 pre cent, to India by 59 per cent and to China by 96 per cent.”

I have heard those figures before, but I asked what our actual import penetration into China was in relation to that of the rest of the world. It is 2%. The 96% increase is entirely relative, therefore. The real question is how much we are managing to export into China. Germany exports into China 45% of all the EU exports into China. I do not cite that figure in order to denigrate the expert efficiency, determination and political will of those who run Germany, but I do say that we had better get our act together. Continuing to be locked into these absolutely penalising treaties is causing us enormous damage, when we could gain so much by trading not only with Europe, but with the rest of the world on a much more enhanced basis.

There is far too much discussion and not enough action, and I was glad to note the campaign launched today by 500 business men and run by Matthew Elliott, and I also commend the book about the euro by the Institute of Economic Affairs, which puts its finger on many of the problems in the euro area.

--- Later in debate ---

[Jacob Rees-Mogg (North East Somerset) (Con)]

May I begin by saying how pleased I am that this debate has come to the Floor of the House and commend my right hon. Friend the Leader of the House for bringing it here? He was unduly modest to send it upstairs to Committee because this gives us an opportunity to highlight the Government’s achievement and send it to Brussels with a panache that says, “We know what we are doing and we are pleased to educate you.” Unlike the hon. Member for Nottingham East (Chris Leslie), who I think has been confused in his economics this evening, the document shows how well we are doing, compared to our continental colleagues.

Before I adumbrate our great achievements and the success of this Government since 2010 as set out in the document before us, there is one little matter that I wish to raise about the surveillance mission that the European Union is entitled under a 2011 agreement to send into a country that is not meeting the convergence criteria. Although it cannot punish us for failing to meet the convergence criteria, the European Union can, I believe, send in a surveillance mission or even a rather ominous-sounding enhanced surveillance mission.

I hope the Government will be clear, and I thought from what my right hon. Friend the Minister was saying that the Government are being clear, that they will not accept such surveillance and will use all their abilities to discourage the European Commission from sending any surveillance mission. It would be a great audacity—a great cheek—if it were to do so when 19 member states are in special measures for their economic failings for the excessive deficit procedure. We, of course, are in it too because of our deficit, but those 19 other members are in the eurozone, which is why bringing their budgets together is so important, whereas for us it is essentially a technicality from the Maastricht treaty.

It is a matter of importance that the Government have got the policy right. The key to getting it right is found on page 31 of the documentation and then on page 15. Page 31 deals with the quality of the public finances. It deals with what the Government are doing to consolidate our situation and the projection. Projections should be treated with the greatest suspicion. All forecasts are wrong, and it is merely a question of how wrong they will turn out to be. None the less—

[Stephen Pound (Ealing North) (Lab)]

Is that a forecast?

[Jacob Rees-Mogg]

That was a wonderful interjection, as always, from the hon. Member for Ealing North (Stephen Pound). I fear not. It is a statement based on a knowledge of history that forecasts invariably turn out to be inaccurate and it is merely a question of how inaccurate they turn out to be.

But if we look at what the Government are trying to do, they are getting spending down from 47.4% of GDP to about 40% of GDP. We know from our history that about 40% of GDP is a sustainable level of Government spending. It is a level that I personally would like to see reduced further, but it is none the less a level that has been consistently affordable over the long run, certainly going back to the early 1970s, based on taxation revenues going up to 38.3% of GDP. Now, 38.3% of GDP for tax revenues is very near the peak level that has ever been achieved. It is rare for tax revenues to go above 38% of GDP or to remain there for a sustained period.

So what is being done with the public finances is an extraordinarily effective consolidation on both sides, with taxes being pushed up and expenditure being cut, with most of the burden being taken by expenditure cutting and with a small amount of it on tax raising. That is setting the basis for a long-term recovery of the economy. Where I think the hon. Member for Nottingham East was perhaps unduly party political in what he said—uncharacteristically so, because he is normally a man of such consensus, support for the middle way and so on—was in ignoring the benefits of monetary activism.

I refer right hon. and hon. Members to page 15. The key difference between the UK economy and the continental economies is that we have the ability to change our monetary policy to ease the austerity—[Interruption.] Indeed, printing money. Absolutely right. It is the printing of money that is allowing the deficit to be sustainable and is allowing businesses and individuals to carry on borrowing and work through a consolidation of their finances, which is also in the document—the consolidation of individual finances—to take place in a way that is not crippling. On the continent that is not happening, which is shown up in the gilt yield figures. The latest gilt yield figure is 1.65%. That is the lowest in our history. In Italy it is at 4.05% and in Spain just under 4.5%, which shows the much tighter monetary situation in Spain and Italy as compared with the United Kingdom. That is why the austerity programmes in those countries are causing such extraordinary pain, whereas in this country it is manageable.

That is why I say the document is a model for our friends and neighbours across the channel. We ought to send it to them with a fanfare, with trumpeters, with Garter King of Arms leading the way, to say to them, “Look, this is how you do it. This is how you restore a country to fiscal sense, and you do it through monetary easing.” Although I loathe the fact that we have to report to a multinational body about matters that are our own sovereign right and should not be interfered with from abroad, on this occasion we can take real pride in what the Government are achieving and what they are working towards and the manner in which they are doing it.

Finance (No. 2) Bill

Jacob Rees-Mogg Excerpts

Thursday 18th April 2013 Commons Chamber

[Fiona O’Donnell]

No, I am not. I would say that the catastrophic political mistakes are most often made on the nationalist Benches. We are stating clearly that, if we were in government today, we would not be scrapping the 50p rate. There is no ambivalence or doubt about that. That is the position of Labour Members in the Chamber.

I appeal to Liberal Democrat Members to remember their Lib Dem values, and to all Government Members to think about the people who are contacting them. Are they the people who earn more than £150,000 a year, or are they the families and pensioners who are struggling with the cost of daily living? I urge Government Members to vote according to the representations that they are receiving.

[Jacob Rees-Mogg (North East Somerset) (Con)]

It is a particular pleasure to serve under your chairmanship today, Ms Primarolo. I welcome you back, and I am glad to see you in fine health.

I have been spurred on by the hon. Member for East Lothian (Fiona O’Donnell) to speak in the debate and to defend the Government’s policy, which is wise and right and good—[Interruption.] I do not often cheer up the Whips, but if I do so, that will be an added advantage. The amendment tabled by Her Majesty’s official Opposition is completely unnecessary and wrong-headed.

[Ian Lucas]

The hon. Gentleman said that the Government’s policy was wise. He is a moral man, so will he tell me how it can be right for the richest people in our society to have their income boosted while disabled constituents of mine are having theirs reduced?

[Jacob Rees-Mogg]

Because it does not actually work like that. We know from experience that high rates of tax reduce the amount of taxation that is received. The Laffer curve is not a myth. If you put rates up, tax revenues decline.

--- Later in debate ---

[The Second Deputy Chairman of Ways and Means (Dawn Primarolo)]

Order. I remind the Committee that the guidance on conventions and courtesies is quite clear on the language to be used in the Chamber. Hon. Members will know that “you” refers to the Chair as all remarks are made through the Chair. I would therefore be grateful if hon. Members would refer to each other by their constituency names, or as “the hon. Member”, “my hon. Friend” or “the Minister”. They should desist from saying “you”; otherwise, I might feel the need to answer the debate as well, and then we would have disorder. We do not want that, do we, Mr Rees-Mogg?

[Jacob Rees-Mogg]

Ms Primarolo, your answer to the debate would be so fine that it would hold the rest of us silent.

The hon. Member for Edinburgh East (Sheila Gilmore) is absolutely right. It is difficult to say at exactly what point on the Laffer curve revenue is maximised. As I understand it, however, the latest academic studies suggest that around 37% is the level at which income tax revenues would be maximised. That is why I would favour the Government going further and reducing the rate of income tax to the level at which it was kept by the Labour party when it was in office.

[Fiona O’Donnell]

I did not think that I had spurred the hon. Gentleman to speak; given his posture during my speech, I thought that I had woken him from his slumbers. Do we have another split in the coalition here? Lib Dem Members have been criticising the previous Labour Government for not having the 50p rate for longer.

[Jacob Rees-Mogg]

The coalition is, I am sure, united at the highest level, but that does not mean that Back Benchers do not sometimes disagree. My hon. Friend the Member for Bristol West (Stephen Williams) and I often discuss these matters, and we do not invariably agree on every aspect of them. The Lib Dems have their own particular policies, which they will no doubt put forward in an election campaign, but the coalition at large is committed to a single policy.

I want to come back to the amendment, which is about getting back to the 50p rate. We already have a situation in which the top 1% of taxpayers pay nearly 28% of the total income tax receipts—that is, £50 billion. If the rate of tax is put up to too high a level, people will change their behaviour to alter the amount of tax they pay. That is very straightforward, and they can do a number of things. Some people leave the country, so that their tax is paid overseas. Some work less hard, reducing their earnings to reduce their tax payments. Some use pension funds or legitimate forms of tax avoidance to minimise their income. That is all perfectly well known by those on the Opposition Front Bench, who are a fine and intelligent group of people, yet they try to make political points on the argument about fairness. Fairness seems to me to be about doing what is right.

[Julie Hilling (Bolton West) (Lab)]

It seems to me that the argument is not that we should reduce tax so that people will be kind enough to pay it; rather, we should be looking into closing down tax avoidance schemes. We should be presenting the moral case that everyone should be paying in according to their ability to pay, particularly in these difficult times.

[Jacob Rees-Mogg]

However much we tackle tax avoidance, if we set tax rates at so high a level that people decide not to work, no legislation can force them to work to earn more. Unless we want to be like the Russia of the 1980s, we cannot pass a law to prevent people from leaving the country to work elsewhere if the taxes are too high here.

[Sheila Gilmore]

The point is constantly made that the top 1% pay a very high proportion of income tax and that that makes this measure okay, but presumably they pay that because their income is high. The gap in this country between low-income people and high-income people has widened considerably. That happened under the Government of the late Baroness Thatcher, but, admittedly, not enough was done to address it under the subsequent Labour Government. The point, however, is that if people are paying so much, it is because they have the income to do so.

[Jacob Rees-Mogg]

The hon. Lady almost makes my argument for me. In 1979, that hallowed year in which the great lady to whom she referred came to office, the highest rate of income tax was 98%, and the proportion of income tax revenues paid by the top 1% was about 10%. When the rate fell, the proportion paid by the top 1% went up, so more money came from the richest in society when rates were lower. Lower rates of taxation therefore resulted in the advantage of an increase in revenue for the Government and the ability to spend more on the services deemed necessary.

This argument was proved in 1979 when the rate went down from 98% to about 60% and again in 1988 when it went down from 60% to 40%. On both occasions, the amount of tax revenue increased because people were willing to work harder and people were attracted to work in this country—so the burden was, indeed, put on to the shoulders of those best able to bear it.

An argument is made about fairness. We say it is fairer to have a high rate of tax. We say that that is symbolically right—that we should have it so that people know they are doing something difficult and we are all in this together—but what is the symbolism of saying to people we will take less tax from them, and what is the symbolism of having lower revenue for the Government?

[Julie Hilling]

Her Majesty’s Revenue and Customs says that in the one year when the 50% tax rate applied, revenues went up—the figure it is currently giving is £1 billion. It is therefore difficult to argue that we should get rid of this tax rate, especially as we do not yet have all the evidence. We are only beginning to get the evidence now, because people are paying that rate now.

[Jacob Rees-Mogg]

In fact, HMRC came out with figures showing the tax paid by the highest taxpayers declined; there was a loss in revenue of £6 billion, I think. I would prefer to take the actual figures that come in. I may be disloyal on this point—for which I hope those on the Treasury Bench will forgive me—but I think that forecasts from Her Majesty’s Treasury are absolutely useless. We do not want to go on economic forecasts; we want to follow facts, and the facts on the revenue that has historically come in make it clear that lower rates increase the tax take.

[Julie Hilling]

It is my understanding that, although tax takes went down in the first year when people could pre-pay and will definitely go down in this year when people will post-pay, they rose in the middle year, which is the one full year when the rate has applied, and for which people are now paying their taxes.

[Jacob Rees-Mogg]

The problem with that argument is that we have facts that show that the amount of revenue has gone down. Over a three-year period it has gone down very substantially, because the rate was high. The hon. Lady’s comments also serve to illustrate the following point on my behalf, for which I am grateful: when tax rates are raised, people change their behaviour so that the tax they pay is reduced. That is where the Laffer curve comes in. Income is reduced when tax rates are too high.

[Kerry McCarthy]

I am sure that the hon. Gentleman is a student of behavioural psychology, as he is of so many other subjects, so can he explain why the Government believe that if we give more money to wealthy people that encourages them to work harder, whereas the lower paid are encouraged to work harder if we give them less money?

[Jacob Rees-Mogg]

The hon. Lady—my near neighbour, as she represents a Bristol constituency—is very wise and does, I am sure, understand this point. The answer is that the question being asked differs between benefits and earnings, although the argument is essentially the same. Inevitably, where there is a level of benefits that discourages people from working, if that increases more slowly, it encourages people to work. It is an identical argument to the one that says people keep more of the money they earn if taxes are set lower.

[Sheila Gilmore]

The problem for many people at present is that the jobs simply are not out there. In my speech on Monday I explained that I had used the Government’s new universal job match. When I put in “shop assistant” on behalf of a constituent of mine, I discovered there were 76 entries, which sounds good, but 57 of them were for vacancies all over the region, not just in my city, and involved going around delivering catalogues and trying to sell things to people. Those are the kinds of so-called “jobs” that are out there, and that explains why people cannot find work.

--- Later in debate ---

[Jacob Rees-Mogg]

I am always doubtful when people are sniffy about jobs that people take. I and others in the Conservative party voluntarily go around knocking on people’s doors trying to sell them party policies. That is known as canvassing, and I wish I got paid for that activity, but I do it out of the goodness of my heart. I do not think one should be sniffy about jobs that people might apply for; they are all welcome and all valuable.

[Fiona O'Donnell]

The hon. Gentleman is completely out of touch on this point. The point is not that people are being sniffy, picky or choosy about jobs. The point is that someone might live in Edinburgh East while the job is in Fife, and we do not all have drivers and chauffeurs to take us to Fife to do the job.

[Jacob Rees-Mogg]

I wish I was in this fortunate position of having a chauffeur or driver to take me to Fife to get a job. When I tried for a job in Fife in 1997, I was distinctly unsuccessful, and came back to a job in London, but that is slightly beside the point.

The overall point is that income at whatever levels has a determinant effect on the employment people seek and the work they are willing to do. That applies to benefits— paying benefits at too high a level can create a benefit trap that makes it not worth while for people to apply for jobs—and it applies very clearly to high tax rates when people decide not to earn.

[Kelvin Hopkins (Luton North) (Lab)]

There is some research that counters part of the hon. Gentleman’s argument. In the 1980s in Germany they found that if the income of people on very high salaries is increased, they want to take more time off to enjoy it. There comes a point when they have so much income that what they want is time, not more money.

[Jacob Rees-Mogg]

As always, the hon. Gentleman makes a very interesting point, but if we aggregate across society at large, the determining factor will be that people want to earn more money. Although some individuals may prefer leisure, of course, many will want to continue earning to increase their standard of living or to provide for future generations. We are slightly moving away from the point, however, and there are some key aspects to which I wish to return.

I mentioned fairness. It is a bizarre definition of fairness to say that it is fair to set tax rates at a level that raises less tax. That is an argument that makes PR and spin and the like much more important than the realities of economics, and it is bad politics as well as dreadful economics.

I also want to tackle the question of the morality of taxation. Is it morally right that people should pay half their earnings over to the Government? I think it is morally wrong. I think there is a moral case for low taxation and allowing people to keep the fruits of their labours, and when the rate gets to 50% that is simply too high in a moral sense, even if it is economically successful, which it is not. I do not believe the state has the right to take half of somebody’s earnings.

[Robert Flello]

Is it morally right that time and again constituents come to my surgery with the figures in front of them, saying, “This is my income and these are my outgoings; I cannot afford to live”, because of the low level of their income and the apparent inability of the benefits system now to support them?

[Jacob Rees-Mogg]

I obviously do not know about the individual cases that come to the hon. Gentleman’s surgery, but with a benefits bill for this country of £220 billion a year, there really ought to be—

[Chris Leslie (Nottingham East) (Lab/Co-op)]

And rising.

[Jacob Rees-Mogg]

It is rising, as the hon. Gentleman says. There is a huge amount of money in the benefits system. If it is not going to the right people, that will be rectified by the reforms being pushed through by my right hon. Friend the Secretary of State for Work and Pensions, which are some of the Government’s most ambitious and important changes.

--- Later in debate ---

[The Temporary Chair (Mr Jim Hood)]

Order. I ask hon. Members to desist from commentary during the contributions of other hon. Members.

[Jacob Rees-Mogg]

Unless such money is put in a mattress, it has an effect, because it goes into the banks. As hon. Members know, the banks have been short of capital to lend out and short of deposits.

[Kelvin Hopkins]

My study of economics, which I also used to teach, always showed that the rich have a lower marginal propensity to consume than the poor. If we want to drive economic growth, we should give money to poor people because they spend it immediately in the domestic economy, rather than hiding their surplus cash in tax havens abroad.

[Jacob Rees-Mogg]

I am grateful to the hon. Gentleman for that intervention, because it demonstrates an unduly simplistic approach. Indeed, poorer people may have a higher propensity to spend than richer people, but that is not the end point of the economic cycle. There need to be deposits in banks so that money can be lent to businesses—small businesses as well as large—and so that people can take out mortgages. There is a cycle and a flow of money.

[Andy McDonald (Middlesbrough) (Lab)]

Will the hon. Gentleman explain why, when I speak to banks—I had a conversation with Barclays bank not many weeks ago—they say that they do have deposits and the ability to lend, but that money is not flowing out because people are not approaching them? Is that the reason or is it that the terms on which they propose to lend money are so onerous that the transactions do not proceed? Whichever it is, my understanding is that the banks do have the funds.

[Jacob Rees-Mogg]

One of the major flaws that led to the banking crisis was that loan-to-deposit ratios across the banking sector were out of kilter. Banks were lending more than they had on deposit and were therefore entirely dependent on the wholesale market. The wholesale market dried up, which led to a huge calling in of loans. That was at the heart of the financial crisis.

The banks may be saying that they are more comfortable with their loan-to-deposit ratios, but if one looks at the figures, even HSBC’s loan-to-deposit ratio—for its UK business, rather than its international business—is about 100%. Historically, banks have been more comfortable in the 70% to 80% range. We therefore do need more savings in the economy and those come from the better-off saving some of the income that they earn.

[Kelvin Hopkins]

The hon. Gentleman seems to be making a powerful case for the reintroduction of exchange controls, so that money made in the domestic economy goes into the domestic banks and helps us all.

[Jacob Rees-Mogg]

I do not agree with the hon. Gentleman on that at all, because this country attracts a huge amount of foreign investment. Sticking to the example of the Hongkong and Shanghai Banking Corporation, that company was able to ease its way through the financial crisis because it could lend its overseas deposits to its British business. It was on the backs of savers in Hong Kong and China that HSBC was secure during that period.

Rich people saving their income is a good thing economically because it boosts the pool of saving that is available for productive investment, such as loans to businesses and individuals. Even if the argument were right that this policy is a great boondoggle for the wealthy, which it is not, it would be beneficial because it would help the economy get back on to a path to growth by providing the capital that is needed for the banks to lend.

In summary, it is clear that putting rates up leads to less tax. That is not a sensible thing to do when the Government are short of money. It is not fair, indeed it is unfair, because it puts a greater burden on other members of society who have less ability to pay. It is not morally defensible because high rates of tax are not a moral good and low rates a moral evil; in fact, it is the other way round. People have a right to keep the money that they earn, unless the state can show that it is essential to take it. That is economically beneficial because one of the great problems of our economy is a lack of saving. We are not in the paradox of thrift circumstance, in which excess savings deflate the economy.

For all those reasons, the amendment should be rejected and Her Majesty’s Government should be proud of what they have done. Indeed, they should go further and look to get the higher rate of tax down to 40% and perhaps even to that magic figure of 37%, which, as I said earlier, some studies show would be the perfect rate to maximise revenue, encourage people to work hard and continue us on our path to success.

[Andy McDonald]

It is a pleasure to serve under your chairmanship, Mr Hood.

I will address the amendment directly. The lowering of the top rate of income tax to 45p will benefit 267,000 people who earn more than £150,000. In my view, it cannot be right that those who earn more than £1 million a year will receive a tax cut of more than £100,000. Families across the country will be £891 worse off on average as a result of the Chancellor’s changes to tax, tax credits and benefits since 2010. I am at a loss as to how that fits with the concept that we are all in it together. The 1% cap on tax credits and working-age benefits means a cut in real terms. At the bottom, inflation outstrips increases in earnings, whereas at the top, earnings outstrip inflation.

Acres of copy have been written about Baroness Thatcher over the past week, but one of her utterances that has not received the attention that it deserves is her expression of disappointment that, despite having made it possible for a small minority of people to gain control of the majority of the wealth of this country, that has not given rise to a greater degree of charity or generosity. Interestingly, it is often those who have the least who give the most. Two examples of such generosity are imprinted on my mind. The first was in 1984, when people from my community made regular trips up to Easington colliery with bags and boxes of food to assist families in County Durham who were finding life such a struggle.

The second example is from recent weeks, when I visited one of the five food banks in my constituency run by the Trussell Trust. It was heartbreaking to hear from the local director of the trust, Nigel Perrott, that food parcels were being sent to my town of Middlesbrough from places such as York and Thirsk. He hails from the home counties and credits people in that part of the country with tremendous generosity. However, he said that he had been surprised and overwhelmed by the generosity of the people of Middlesbrough. When they come out of the supermarkets, they do not donate the occasional tin of beans or packet of rice, but bags and bags of food. It seems that everything changes, but nothing changes. It is perhaps no coincidence that such desperate need arises when the Conservative party is in power.

We used to hear a lot from the Prime Minister about the big society, although a lot less so recently. The genuine big society is, as it ever was, ordinary people looking after each other.

Finance (No. 2) Bill

Jacob Rees-Mogg Excerpts

Wednesday 17th April 2013 Commons Chamber

[Nigel Mills]

I am grateful to my hon. Friend and I would like to expand a little on this theme. It has been said before that there are various ways of interpreting what the rule of law means. One version from the 17th century is that the rule of law is the

“supremacy of regular power as opposed to arbitrary power”.

In the case before us, rather than saying “Here is the law that applies to everyone,” we are giving the Revenue the right to rewrite the law only for certain people subject to certain permissions. That sounds like arbitrary power to me.

As a classics graduate, I thought I would dip back into history and finally find some use in having done a classics degree. Plato said:

“Where the law is subject to some other authority and has none of its own, the collapse of the state in my view is not far off; but if the law is the master of the government and the government is its slave, then the situation is full of promise.”

What we are doing here is saying that the law now has no authority, as we are giving somebody else the power to change the law, and that rather than the Government having to follow the law, the Government and its agencies can change the law retrospectively. We need to be clear that we are weighing up whether the real sin of the existing excessive, outrageous and truly abominable level of complex tax avoidance by people who should know better and should not be doing it is enough for us to risk weakening the rule of law.

[Jacob Rees-Mogg (North East Somerset) (Con)]

I entirely agree with my hon. Friend on the issue of the rule of law. However, I wonder whether the outrageous examples that have caused such scandal over tax avoidance were actually examples of tax evasion, and whether HMRC has in fact been very weak about enforcing the tax law as it exists now.

[Nigel Mills]

I agree with my hon. Friend that tax evasion is a crime that should be prosecuted to the fullest possible extent, but in this instance we are talking about tax avoidance.

We should be clear about the principle of what we are doing. We are saying to HMRC, “You can enforce something that is not in law.” If we are to pursue that line, we must be certain that safeguards are in place so that we do not see—metaphorically, of course—tax inspectors turning up with baseball bats, banging down the door of the taxpayer and saying “Give us money or else.” The “or else” would mean, of course, HMRC making the assessment and taking the money in any event, and the other party having to go through expensive court proceedings to try to get it back. I have worked with many tax inspectors, and clearly I do not think that any of them would literally pick up a baseball bat, but there is a risk that in any difficult situation in which there is some doubt about the application of the law, tax inspectors will start writing letters saying, “Unless you agree with my analysis, I reserve the right to apply the general anti-abuse rule, in which case”—effectively—“you will be in deep trouble.”

I think it would be very generous of Members to assume that, in all circumstances and for ever, HMRC would apply this power only to the largest, most abusive and most complicated taxpayers. I suspect that, in the experience of most Members, the Revenue has at times been a little weaker when tackling the very large taxpayers with very big pockets, and a little stronger when tackling those who are a bit smaller and a bit less sophisticated, and who may not be able to fight back as effectively. There is a real risk here. If we give the Revenue a power amounting to complete discretion in regard to whether it applies this rule to individual taxpayers, what is to prevent a large organisation from buying its tax inspector a nice lunch, and an application to apply the rule perhaps never actually being made?

I am not suggesting that that would ever happen. I have certainly never known such things to happen; tax inspectors are usually very law-abiding, and very committed to their role. However, there have been instances in which we as a Parliament have been concerned that the Revenue has not treated the largest and the smallest taxpayers equally. In this instance, we are giving the Revenue a discretionary power, and allowing it to choose when to try to use it. Are we sure that the Revenue will use that power against the people against whom we think it should be used, and not against our constituents who have not done anything particularly wrong?

It has been suggested that we are introducing too many safeguards, and questions have just been asked as to why we are imposing the burden of proof on the Revenue rather than on the taxpayer, as in every other situation. This is plainly not a normal piece of tax law. We are saying, “You may have complied with the law but we still think that you are in the wrong, so we will retrospectively pretend that the law said something different from what it actually said.” In such circumstances it must be right for the Revenue to have a duty to demonstrate that that is appropriate, rather than saying to the taxpayer, “You must prove somehow that you acted within a law that had not actually been published.” That would be nonsensical. It would be equally nonsensical to make the penalties for contravening the GAAR higher than the penalties for contravening the published law. If I flout the law and am defeated in my claim on the basis of the published law, I will rightly be subject to penalties, but for me to be subject to higher penalties when I have not actually broken the published law, which I can read, would certainly be nonsense.

I accept that the Government have undertaken long and detailed consultation and have tried to find a way of introducing a power to tackle the most aggressive, egregious and outrageous tax avoidance without creating some of the pitfalls that would worry me and, I think, my hon. Friend the Member for Cities of London and Westminster (Mark Field). We do not want to create a tax system that is based not on law, but on random interpretations of various transactions by HMRC at some point in the future. I also accept that the Government have made the safeguards as reasonable as is commensurate with ensuring that the law retains some teeth.

I shall ask some questions about the drafting of the Bill later, but let me first explain why I tabled my amendments. I wanted to try to ensure that the power focused on the large, complex, aggressive, expensive schemes peddled by naughty solicitors and accountants, rather than being used as a general threat against ordinary taxpayers who had tried to structure their affairs sensibly and had chosen to conduct a transaction in a way that we could accept.

There are many innocent ways of trying to reduce a tax bill. It is possible to make a pension contribution rather than taking income as taxed earnings. I do not think any of us would object to that. The law clearly identifies it as a choice that we can all make. The owner of a company can choose whether to take a dividend, a salary or a bonus, or whether to leave the cash in the company and to be taxed on a capital gain when he leaves. I do not think many of us would say that someone who chose not to take a bonus in the year in which he sold his company but instead to allow the cash to be deemed a capital gain in order to secure a lower tax rate would be perpetrating an outrageously aggressive tax abuse arrangement of the kind that we should prevent by rewriting the law. We must be careful not to allow the Revenue to apply this power to every piece of innocent, sensible tax planning, when the only fallback will be the definition of a reasonable use of the rules.

Some people might consider it reasonable for Parliament to intend what it says it intends. When we pass a law, it is reasonable to assume that we mean what we put in that law. If we meant something different, we probably ought to have said that something different, and if it turns out that we have got it slightly wrong, we should amend the law. I accept that we have been doing that in various situations for the last God knows how many years, and have ended up with a hugely complex tax code. Every time we build in more complexity, we create more loopholes, and then we have to create even more complex rules to try to close those loopholes—and then we create more and more. Perhaps the answer is to have much shorter, simpler tax codes. I hope that, once the Government have put the GAAR on to the statute book—as I fully expect them to do—we can attempt a wholesale simplification of our tax regimes.

Cyprus

Jacob Rees-Mogg Excerpts

Monday 18th March 2013 Commons Chamber

[Greg Clark]

Yes.

[Jacob Rees-Mogg (North East Somerset) (Con)]

As the EU has now arbitrarily abandoned its £85,000 deposit insurance scheme, what advice would my right hon. Friend give British subjects in other European countries, such as Ireland, Portugal, Spain, Greece and Italy, whose deposits might also be at risk in future? Would it be best for them to repatriate their funds?

[Greg Clark]

The ECB made a clear statement today that the situation in Cyprus is unique, and I think that a study of the situation there would confirm that.

Oral Answers to Questions

Jacob Rees-Mogg Excerpts

Tuesday 12th March 2013 Commons Chamber

[Mr Osborne]

We are increasing capital spending more than in the plans we inherited from the Labour Government. This Government are spending more on roads than the previous Government did and, of course, the deficit has come down by 25%.

[Jacob Rees-Mogg (North East Somerset) (Con)]

Although article 153(5) of the treaty on the functioning of the European Union may be esoteric to some, it is rather important because it prohibits the European Union from running an incomes policy. It seems to me that the bonus limit is an incomes policy; it is not a power of the European Union and therefore ought to be resisted by the Government by all possible means. Will the Chancellor take it to the European Court of Justice?

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

I am delighted to answer my hon. Friend’s question. We are looking carefully at the provisions of the treaty and at every aspect of the proposals. We think that this country has a particularly rigorous set of arrangements, and we do not want to see them diluted.