Finance (No. 2) Bill

Debate between Jacob Rees-Mogg and George Kerevan

2nd reading: House of Commons
Tuesday 18th April 2017 Commons Chamber

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

It is a great pleasure to follow the hon. Member for Birmingham, Selly Oak (Steve McCabe) and to join in this discussion on the great subject of sugar. While listening to my hon. Friend the Member for Vale of Clwyd (Dr Davies), who told us the extraordinary fact that an average five-year-old eats his own body weight in sugar during the course of a year, I considered my own children. I do not have a five-year-old—I have a six-year-old, a four-year-old and lots of others—but the six-year-old weighs 3 stone, which seems to me to be similar to the weight likely to apply to five-year-olds. That is 42 lb, or 672 oz, so if a five-year-old is eating his own body weight in sugar in a year, he is eating 1.84 oz of sugar a day, which is equivalent to 11 teaspoons of sugar. One thinks of the lines of Mary Poppins:

“Just a spoonful of sugar helps the medicine go down”,

and one wonders whether the medicine goes down even better after 11 spoonfuls of sugar.

In spite of thinking that 11 teaspoons of sugar is quite a lot, I am not in favour of sugar taxes, because I do not think it is the job of the Government to tell me how much sugar to give to my children. I think that is a matter for parents to decide for themselves, and the tax system should be there to raise the revenue the country needs to pay its way. The tax system is not there to tell us how to live our lives. There may be an exception with tobacco, but that is not really the case with alcohol, which is a matter of raising revenue. Our rates on alcohol work very well in raising revenue, as, incidentally, do those on tobacco, which is a serious generator of funds for the Treasury to pay its way.

I am sceptical about the proposed approach. I was struck by my hon. Friend’s comments that a lot of obesity is in fact genetic. If that is the case, we are penalising people who have a genetic propensity to obesity while it is fine for people like me.

[George Kerevan]

rose—

[Mr Rees-Mogg]

I give way to another hon. Gentleman for whom it is fine to eat lots of sugar.

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[George Kerevan]

Indeed, I had a fine East Lothian Easter egg. Does the hon. Gentleman accept that the difficulty with the hands-off approach he suggests, leaving it entirely to the individual, is that there is a vast advertising industry that also influences consumer behaviour and that using a sin tax is a way of evening out that process?

[Mr Rees-Mogg]

There is indeed an advertising industry, but we live in a free country and people ought to be able to advertise products. We have a lot of misinformation, have we not? We now learn that fat is not as bad for people as it was said to be, and that people have put sugar into products from which they have removed the fat in order to make them taste nicer because fat-free products without sugar taste disgusting. Advice that turned out to be wrong has led to manufacturers doing things that then turn out to be unhealthy. I am suspicious of the advice that comes from Government and their ability to get it right. If they end up getting it wrong, force us to change our behaviour and tax us, we get the worst of all possible worlds.

A little bit of sugar does nobody any harm at all—only taking it to excess does so—and the only justification, which has indeed been made, is for children. However, I think that ignores the responsibility of parents, most of whom are responsible, and puts up the cost for responsible parents of giving their children what may, in many households, be an occasional treat rather than a regular habit. It is a tax that falls hardest on the poorest in society, who may occasionally be giving their children something that they like, because of the excesses of others. I do not really think that that is the job of the Government.

That leads me to the issue of hypothecated taxation. Ministers should write out 100 times a day, “Hypothecation is a bad idea.” That has been the Treasury orthodoxy for as long as there has been a Treasury. Hypothecated tax does not work because it produces the wrong amount of money for what it is seeking. We see that with the prospect of putting money from the sugar tax into schools. We now discover that not enough money is likely to come from the sugar tax to meet the obligations given to schools, and that money will therefore have to come out of general taxation.

If it were a good idea to put the money into schools in the first place, it ought to have come out of general taxation in the normal way. If it was not a good idea, but just a clever way of spending the money, taxpayers’ money should not have been used. If we get into the position that something is now being done that did not need to be done because it was promised as money from a tax that has not arisen, that is not a good way of carrying out Government policy. All hypothecation of taxation should be struck off: it simply leads to the wrong amounts.

That leads me to the broader point I want to make about this Finance Bill and the Budget that preceded it. It is very good news that an election has been called, because the Budget has become so hemmed in by the number of promises on taxation and revenue expenditure that have quite rightly been kept. Governments ought to keep their promises, and this Government have been absolutely rigorous in doing so, even ones that I do not like. For instance, I am not in favour of the 0.7% going on overseas aid, which I think has been a wasteful and extravagant promise when money is needed elsewhere. However, the justification was that it was in our manifesto, and in manifestos parties make a pact with the electorate that they ought to continue with except under the most extraordinary circumstances that have not arisen.

Such an approach has led to very many areas of expenditure being fixed, while taxation has been limited at the same time. The deficit has been brought down to a third of what it was when this Government came in—a very substantial achievement, of which this Government and their predecessor ought to be proud—but it has become very hard to take that any further because of the encapsulating commitments that are limiting the Chancellor’s freedom of action. That is why the Finance Bill, for all that it has 700 pages, will not lead to a great deal of fundamental reform. It is tweaking things at the edges—looking at little bits of money here and little bits there—rather than taking a fundamental or basic approach to our tax system.

Our tax system has become overly complex and, from the pressure of having to find little bits of money, it is becoming even more complex, which makes it difficult for taxpayers to pay the right amount of tax. We can see that more anti-avoidance legislation has come in to stop avoidance, because we have overcomplicated the tax system in the first place and a corrective measure has therefore had to be taken to try to prevent revenue from seeping away. A good example is the discussions we are having about perceived employment as opposed to self-employment. The Government were extremely proud of their achievement in making self-employment easier, but a constituent who came to see me explained that the £3,000 national insurance contributions exemption for small businesses had led to all the people working for him having to become individual companies, whereby it cost £3,000 a year less to pay them than if they were directly employed or were employed through one subsidiary company.

Very good ideas come into individual Budgets—particular tax breaks to encourage particular forms of behaviour to lead to certain outcomes that the Government wish to see—but they then have to be corrected by anti-avoidance measures because they get taken and used in a way that was not intended under the initial legislation. That is why the election will be a great opportunity to stand on a platform of tax simplification, and I hope we will achieve the sort of majority that will help to push that through. To achieve tax simplification, it will be necessary to ensure that avoidance is removed at source, rather than by anti-avoidance measures. That means taking away some of the existing exemptions and incentives that encourage people to set up more complex systems than they need to minimise the amount of tax they pay.

I am a defender of people taking such an approach. If Parliament legislates for tax to be collected in a certain way, with certain exemptions and thresholds, the individual taxpayer is completely and legitimately entitled to use them to their fullest extent. The approach is the fault not of the taxpayer, but of Parliament for putting exemptions into or leaving them in legislation. We should always be very careful to distinguish avoidance from evasion. Evasion is straightforwardly criminal—not paying the amount of tax that is, by law, due. Avoidance is looking at the tax system and saying, “I do not owe that tax, and I do not have to pay it because Parliament has not legislated for me to pay it.” As individual taxpayers, we are all entitled, as are all our constituents, to pay the tax Parliament requires, not a penny less or a penny more. If we had a system that was simpler overall, that would be hugely beneficial.

There is a lot about anti-avoidance in the Finance Bill, including the new rules for non-doms, about which I would be very careful. We live in a world where some very rich people want to come to the United Kingdom, and when they are here they employ people, spend money and pay taxes. We have a system that has barely changed since the days of Pitt the Younger—I cannot say I remember them, but I wish I did—and that broadly unchanged system was actually very beneficial for our economy because it brought into this country wealthy individuals who then provided economic activity. It is absolutely right to ensure that people who are obviously domiciled here in all normal senses of the word should be seen as being domiciled here, but we do not want such a difficult regime that people who might come here and contribute to our economy feel that they cannot do so.

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[Mr Rees-Mogg]

Targets are based on forecasts and forecasts have variables within them that even the wonderful, or not always wonderful, boffins cannot get absolutely right. What matters is not the precision of the forecast, but the broad trend of the economy. We have had consistent economic growth. We have the highest employment on record. This is an enormous achievement. As I said a moment ago, we have the fastest growing G7 economy.

[George Kerevan]

I cannot let the hon. Gentleman continue with his analysis of the previous Chancellor’s single plan for the economy. In the first two years of the previous Chancellor’s reign, from 2010 to 2012, there was a very rapid move to austerity—tax rises and cuts in spending. Growth slowed precipitously and by 2012 the Chancellor reversed his policy. In fact, he got the Treasury and the Bank of England to print money and pump it into the housing market, so there was a change in policy. The original austerity did not work.

[Mr Rees-Mogg]

I do not agree with that analysis. My analysis is that the austerity allowed for a looser monetary policy which had beneficial consequences, that between 2010 and 2012 it was essential to operate a very tight fiscal policy to permit exactly the type of monetary policy to which the hon. Gentleman has referred, and that it would not have been possible to maintain the confidence of the markets if we had operated a loose fiscal policy and a loose monetary policy during those two years. The lack of economic growth during that period ties in with the considerable problems—the severe crisis—experienced by the eurozone and other economies.

On this occasion, I do not agree with the hon. Gentleman’s analysis of what went wrong, although I often do agree with him. I see a continuity in the policy of my right hon. Friend the Member for Tatton. However, although no time limit has been imposed this evening, I do not feel that I should go on forever. Many Members wish to speak, and others want to have their dinner. Let me end by reiterating that we face a great choice: between the higher taxes proposed by the hon. Member for Bootle and the opportunity for lower taxes, sound economic growth and prosperity. I know you are independent, Madam Deputy Speaker, but vote Conservative.

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[George Kerevan]

I am happy to agree with that point. The weakness of the euro is that across Europe it has locked the German supply chain into an artificially low exchange rate. On the back of that, Germany has generated a massive trade surplus, which it is not redistributing. That is undermining the whole European economy. I perfectly accept that. I was not arguing that the German economy is perfect; rather, I am suggesting that it is too simplistic to link the headline level of corporation tax with the performance of the economy, because we can find all sorts of examples that go the other way.

My real criticism, which I still direct to the Minister, is that the growth that the Conservative Government have trumpeted as their success is based on the shifting sands of consumer debt, which has now reached a level that cannot be sustained, so we need something else. We definitely do need to increase the level of industrial investment, and that requires a different set of fiscal tools in order to encourage consumer saving and recycle that consumer saving into industrial investment. That is the whole weakness that underlies the Finance Bill: it is a set of small measures based on the assumption that the economy will go on growing because consumers will go on spending. If they do not, the whole rationale of the Finance Bill falls apart.

I will now briefly move on to the second pillar, and the second strategic weakness, of the Finance Bill. In order to maintain the level of consumer spending, this Government have had to pass a series of pieces of legislation to bind their own hands when it came to raising taxes on consumers. If we do that, we then have to find money from somewhere else. Therefore, although this Bill contains a series of small tax rises here and there, in the aggregate what is happening is that this Government are being forced to start distorting the entire tax system because they have no other way to go but to invent new stealth taxes to maintain the level of income to Government.

The Clerks to the Treasury Committee came up with a rather interesting example on probate—the tax, if tax it be, on the probating of wills. The proposal for the levy on probating added to the cut in inheritance tax results in an anomaly. Where a father and mother leave a house to their children that is worth, let us say, £1 million and one penny, the inheritance tax is tiny—it works out at 40p—but the probate that has to be paid is £8,000. So in effect, cutting inheritance tax and replacing it with a probate levy gets us back to where we started. We can see that once we start down that road, we will go on increasing the levy on probate simply as a revenue earner.

That is not just happening with the tax on probate; it is happening in a whole series of small tax changes. By legislating to put a lock on income tax and other taxes, we end up having to raise revenue in a series of anomalous and distorting ways, and that makes the Finance Bill even more complicated.

[Mr Rees-Mogg]

Does the hon. Gentleman share my concern that the difficulty with doing this through charges is that they come through in a statutory instrument, whereas new taxes go through a much fuller parliamentary procedure? We should all be concerned about taxes that do not see the full rigour of parliamentary scrutiny.

[George Kerevan]

I could not agree more, and I look forward to the hon. Gentleman taking that up in the 1922 Committee—as I am sure he has.

If we run through a whole series of the provisions in the Bill for raising taxation, we see this creeping distortion of the tax system, such as the tax-free allowance on dividend incomes being cut from £5,000 to £2,000 to raise £800 million, which is a substantial, chunky sum. We can see where the tax-free allowance on dividend income is going to go. As for VAT on mobile phones used outside the EU, I can pretty well guarantee that if this Government are returned, the moment we are out of the EU that roaming tax will go on to our phone bill when we are taking our holiday in the 27 member states.

The insurance premium tax is one of the worst means that this Government have tried simply to increase revenue. They keep raising it year by year, so the increase of 20% proposed in the November autumn statement is simply a revenue-raising tax—there is no rationale other than simply to raise money. In terms of the insurance premium tax, there is a whole series of insurance forms not yet covered by the tax, so one can quickly see a future Chancellor saying, “Well, let’s put the insurance premium tax on reinsurance, or on buying shipping and aircraft. Why shouldn’t an airline pay insurance premium tax on buying an aircraft?” Rather than using the core taxes like income tax, we will end up with a series of distorting taxes, including the rise in spirit duty and the tax on whisky in the March Budget. I presume the Chancellor said to himself, “Well, with the significant fall in the value of the pound, there will be a gain in terms of export prices, so we can afford to claw some of that back as a tax,” but it is not strategic to the needs of the industry; it is simply a revenue-raising power.

What is wrong with the Bill as it stands? It misunderstands the nature of where the economy is and makes no allowance for the fact that consumer spending is about to decelerate, and it introduces a whole raft of new taxes, or increases in stealth taxes, which are fundamentally a change in direction and a distortion of economic processes.

I hope that when we come back after 8 June for a second bite of the cherry with a second Finance Bill, the Government might, should this Government be returned, be willing to look at some of these matters.

Scotland Bill

Debate between Jacob Rees-Mogg and George Kerevan

Monday 6th July 2015 Commons Chamber

[George Kerevan (East Lothian) (SNP)]

I am surprised that such an ardent and professional monarchist as the hon. Gentleman is unaware that the Crown Estate is divided by jurisdiction, and there are other jurisdictions within the Commonwealth in which Crown property is managed separately. For instance, there is a receiver general for the Crown properties in Jersey. If the Scottish people wished to continue with the monarchy, it would be perfectly sensible for the Crown Estate to be managed separately rather than property being divided, as the hon. Gentleman has suggested.

[Mr Rees-Mogg]

The hon. Gentleman has been more helpful to me than he may have realised. I think that the symbolic importance of this division is that it is symbolic of independence for Scotland rather than further devolution. I think that the indivisibility of the Crown in one nation is such that the Crown Estate ought not to be divided.