Finance (No. 2) Bill

James Murray Excerpts

Committee of the whole House
Wednesday 8th May 2024 Commons Chamber

[James Murray (Ealing North) (Lab/Co-op)]

I rise to speak on behalf of the Opposition to new clauses 1 and 4, which stand in my name and that of my hon. Friend the Member for Hampstead and Kilburn (Tulip Siddiq).

“This remains a parliament of record tax rises.”

Those are not my words but those of Paul Johnson, the director of the Institute for Fiscal Studies, following the spring Budget from which this Finance Bill derives. However, the IFS was not alone in its view. In response to the Budget, the Institute for Government was clear as well, saying that taxes were set to rise

“to a post-war high as a result of decisions made by Conservative chancellors over the past 14 years.”

Meanwhile, the National Institute of Economic and Social Research described the Chancellor’s announcements in March as a

“low-key budget…unlikely to unlock the UK’s growth and productivity problems”.

The verdict is clear. People in Britain are facing higher taxes, squeezed living standards and weaker public services, and they have a Government who are unable to undo the damage that they have caused. No matter what the Conservatives now say or do, the truth is that the tax burden is set to rise to its highest level in 70 years. The decisions taken by Conservative Chancellors in this Parliament—and, let’s face it, there have been a few of them—mean that the average family will face a tax bill that is £870 a year higher by 2028-29. For pensioners, it is even worse: people over the state pension ago do not even benefit from any changes in national insurance, which means that pensioner taxpayers will pay an eye-watering £960 more a year by the end of the forecast period.

People across Britain are struggling to make ends meet as they find their wages squeezed and taxes rising relentlessly, yet the Conservatives have decided to tell the British public that they have never had it so good. I note that Ministers are trying to do that again today, telling us that their plan is working, although that is not the reality of life for people who, at the next general election, will be asking themselves whether they and their families feel better off than they did 14 years ago. It is that reality that new clauses 1 and 4 seek to expose: as the Conservatives gaslight the British people, our new clauses are there to call them out.

New clause 1 does that by requiring the Government to come clean over how many people will be liable to pay income tax at 20% and 40% in the current tax year, how the number has changed over the last three years, and how it will change in the three years ahead. We want the Government to admit the impact that their six-year freezing of the income tax personal allowance and the higher rate threshold will have. According to the Office for Budget Responsibility, 3.7 million more people will be paying tax by 2028-29, and 2.7 million more will be paying the higher rate, as a result of the Government’s threshold freezes. Will the Minister repeat those figures and admit that they are correct? We believe that the Chancellor should be honest about this too, and that is what new clause 1 seeks to achieve.

We know that the outcome of the Conservatives’ decisions during the current Parliament is hitting pensioners who pay tax especially hard: because taxpayers over the state pension age do not benefit from any of the changes in national insurance, they will feel the impact of the Conservatives’ tax rises even more. That is why we tabled new clause 4—again, requiring the Chancellor to come clean about the impact of his and his predecessors’ policies. The new clause requires the Chancellor to set out the number of pensioners who will be liable to pay income tax this year and in each of the next three years, and what the average pensioner’s tax bill will be. Pensioners deserve to know the truth about how the Government’s decisions will affect them, and they have good reason to be concerned about this Government.

While Labour has guaranteed that the pensions triple lock will be in our manifesto and protected for the duration of the next Parliament if we win, the Conservatives refuse to say what impact on pensioners their £46 billion unfunded pledge to abolish national insurance altogether would have. As the shadow Chancellor, my right hon. Friend the Member for Leeds West (Rachel Reeves) said yesterday, it is a tax bombshell aimed squarely at Britain’s pensioners. The Conservatives are refusing to say how they would pay for this massive commitment, so it is hard not to suspect that they are concealing their plans to make pensioners pay the bill. Perhaps they will pay for the revenue lost through the abolition of national insurance by making changes to pension rates or to the state pension age, but if they are planning to keep pensions the same and make up the revenue by raising the basic and higher rates of income tax, that would mean an 8% increase in income tax rates.

My colleagues and I have asked Ministers time and again to come clean about how they would pay for their plans, but they resolutely refuse to do so. They could clear this up right here, right now, by either abandoning their unfunded commitment or explaining how they would pay for it. I would happily give way if the Minister would like to do that, but I suspect that he will not. We know that the Conservatives find the reality of their tax-raising record so hard to bear that they would rather hang on to a reckless, unfunded plan to abolish national insurance to make them feel better about themselves and to desperately try to keep their divided party together. It is crystal clear that for the Conservatives it is party first, country second.

We also know that the Conservatives’ high tax record goes hand in hand with their record of low growth in the economy. Indeed, one of the reasons taxes are so high is the fact that economic growth has been so weak over the past 14 years. Again, no matter what the current set of Ministers say, the idea that the economy is turning a corner is simply not reflected in reality. The truth is that our economy is smaller per person than it was when the right hon. Member for Richmond (Yorks) (Rishi Sunak) became Prime Minister. Our country is forecast by the OECD to have economic growth of just 1% next year, weaker than that in every other G20 country except Russia. If, under the Conservatives, the UK economy had grown at the average OECD rate, it would now be £140 billion larger—and that growth would have provided an extra £50 billion in tax revenues to be invested in our public services. Instead, economic growth is on the floor, taxes are going up, and public services are falling over. That is the Conservative doom loop that we are in. We know that the only way out of the doom loop of ever-rising taxes with nothing to show in return is to get the economy growing with Labour’s plan.

Labour’s plan for economic growth is driven by the need for stability, investment and reform. Stability, something so sorely lacking in the recent years of Conservative chaos, must be the basis of a secure and responsible approach to the economy, and with strong fiscal rules, a new fiscal lock and respect for independent institutions, we will put stability at the heart of our approach.

[Jonathan Edwards]

At the beginning of his speech the hon. Gentleman mentioned Paul Johnson, whom the press has quoted today as saying that the Government and the Opposition are tied to the same fiscal path. Is that an ideological decision or a general election tactic? I am genuinely interested in hearing the answer.

[James Murray]

We in the Labour party believe that having fiscal rules that are iron-clad is essential to being trusted to manage the economy in a responsible way that puts family security and family finances first. Having strong fiscal rules and stability underpinning every other decision that we make is absolutely essential to everything that a Government might hope to do. Indeed, that stability forms the foundation for getting the economy growing, because with stability we will be able to work in partnership with businesses to remove the barriers to investment, using catalytic public investment to unlock more than £20 billion from the private sector to invest in the industries of the future. To support that investment, we will reform the systems that our economy needs to thrive, from reform of our planning system and employment rights to devolving powers to elected Mayors on transport, skills, enterprise, energy and planning. That is how Labour will begin to grow the economy if we win the next general election.

We know that a new approach and a new Government are needed, because that is what people across the country are telling us. People want a new approach whereby they can feel better off, rather than struggling to make ends meet as their taxes rise relentlessly. The Conservatives are desperate to distract from the mess they have created. They go from the simply unbelievable, like the Chancellor claiming yesterday that they had abolished low pay, to the unbelievably reckless, like their £46 billion unfunded plan to abolish national insurance. But no matter what they say, or how hard they try to pretend that their plan is working and that people in Britain have never had it so good, people know the reality of life. People know that taxes are at record levels.

Today we want the Conservatives to at least come clean and admit how many more people are paying tax as a result of their decisions in this Parliament, and how hard they are hitting pensioners in particular. Frankly, however, no matter whether they come clean, come the general election, people across Britain will ask themselves whether they and their family feel better off today than they did 14 years ago. The answer to that question is the reality from which the Conservatives cannot hide.

[Sir John Redwood (Wokingham) (Con)]

I have declared my business interests in the Register of Members’ Financial Interests.

I rise to speak in support of tax-cutting proposals. We are not discussing the national insurance reductions in this group of clauses, but both previous speakers have spent some of their time discussing them because they are relevant, as they are the other side of the issues related to the correct levels and thresholds for income tax, which are the proper matter of our current debate. I wanted any kind of tax cut in the Budget, because we are over-taxed and the right kinds of tax cuts can speed up growth, which all the major parties in this House want, although there are some disagreements about the exact mix of policies that might create it.

The first thing we need from the Treasury is for its official forecasts and those of the OBR to have greater belief in the fact that if we promote more growth by cutting some tax rates, we may end up with more tax revenue. The best generator of more revenue to pay for our public services is a growing economy. The best generator of more growth is productivity improvements, and there is particular scope for such improvements in the public sector. The public sector was badly damaged by the covid experience. We lost a lot of productivity through the hasty and unnecessary reorganisation of public services during the pandemic, but we are finding it hard work and slow going to get the lost productivity back.

I welcome the fact that, in the latest set of Budget numbers, the Government have put in future productivity recoveries over the next few years, but it is slow progress, even to get back to the levels of productivity in 2019. I put it to the Government that they do not need to spend extra money on new technology, such as artificial intelligence, to get back to the levels of 2019. They may wish to recommend schemes for AI investment to get above 2019 levels but, by definition, we were able to get to 2019 levels of productivity without AI, because it had not been invented at that stage.

There should be more common agreement about the urgency of productivity recovery in public services. We are missing out on at least £20 billion due to the productivity problems that have developed since 2020 and the lockdown experience. However, there is also a source of extra revenue from lower taxes, because if we cut tax rates in the right way, we will generate more cash, rather than less. I think everybody now agrees that cutting certain taxes has that effect, because it is quite obvious that if we impose certain kinds of turnover or activity taxes, they will lower turnover and activity. Indeed, many taxes are imposed with a moral wish to lower activity or usage rates. For example, alcohol and tobacco attract higher taxes because the wish is that people buy them less or, in the case of tobacco, do not buy them at all. We get the same effect with things that we should be promoting.

--- Later in debate ---

[The Second Deputy Chairman of Ways and Means (Mr Nigel Evans)]

I call the shadow Minister.

[James Murray]

Thank you, Mr Evans, for the opportunity to speak on behalf of the Opposition to new clauses 2 and 3, which are in my name and that of my hon. Friend the Member for Hampstead and Kilburn (Tulip Siddiq).

Earlier this afternoon, we pressed the Government on the impact of tax rises, particularly stealth tax rises, on families and pensioners. Of course, it is not only taxpayers and their families who are struggling to make ends meet under the Conservatives. Businesses in Britain are struggling too, and when I meet those from businesses across all sectors, of all sizes and in different parts of the country, they are clear that they want a Government who support them to succeed and grow. What the people I speak to from businesses want from Government, first and foremost and above all else, is stability, predictability and a plan for growth. Stability is greatly prized by businesses, which want to make decisions about investment and growth, which are critical to creating jobs and making people across Britain better off.

--- Later in debate ---

[Sir Christopher Chope (Christchurch) (Con)]

It is a pleasure to follow the hon. Gentleman. I wish to speak briefly on clause 12 stand part and the new clause to which he has just spoken.

Clause 12 is a simple clause. The title is “Charge and main rate for financial year 2025”, and it states:

“Corporation tax is charged for the financial year 2025…The main rate of corporation tax for that year is 25%.”

Just over four years ago, I was re-elected to this House on a Conservative party manifesto that said that we would keep corporation tax at 19% and would not increase it. As the hon. Member for Ealing North (James Murray) just reminded us, the Chancellor of the Exchequer thought that 19% was far too high, and he had a radical proposal to reduce it to 15%. At the time, I did not buy into that leadership bid of his, but it is clear now that it was an extraordinary gesture, completely at odds with what he must believe, because I presume that he supports clause 12, which sets corporation tax for the following year at 25%. That is far too high. I voted against the increase originally, and if clause 12 stand part was pressed to a Division today, I would certainly vote against it.

It was with some incredulity that I listened to the hon. Member for Ealing North. His new clause 2 talks about reviewing the impact of section 12. The incoherent subsection (1) says:

“The Chancellor must, within three months of this Act being passed, conduct a review of the impact of section 12 of this Act.”

Obviously, section 12 will not come into effect until the 2025 financial year, while the Bill will be on the statute book within a couple of months. What would be the point of conducting, within three months of that date, a review into something that will not come about until next year? If the new clause mentioned reviewing the impact of the current high levels of corporation tax, I would be with him. [Interruption.] He is shouting at me from a sedentary position. I will happily give way to him, so that he can make his point. Let us have a debate. If he does not want to engage in debate, so be it.

All I am doing is reading out the terms of the hon. Gentleman’s new clause 2. If he wishes to resile from that, let him say so. I am sure that, even at this late stage, Mr Evans, you would accept him withdrawing the new clause because its terms do not bear out what he is telling us.

[James Murray]

The hon. Gentleman invites me to respond. The key point of the new clause, as I am sure he realises, is to make it clear that Labour would cap corporation tax at 25% for the whole of the next Parliament. Does he agree with that?

[Sir Christopher Chope]

No, I do not, because that would be capping corporation tax at far too high a level. I would like to see it reduced, ideally back to 19%, as soon as possible. I certainly would not support any notion that we should stick with a 25% rate for the duration of the next Parliament.

That intervention was interesting. If that is the purpose of the hon. Gentleman’s new clause, I think we can say that it is rather opaque, because it does not say, for example, “Between 2025 and 2030, corporation tax shall be set at the rate of 25%”. It says that there should be

“a review of the impact of section 12 of this Act.”

What would the review look at? One thing would be how the 25% rate of corporation tax provided for by section 12 had affected

“investment decisions taken by businesses”.

Surely we know—I think he said so in his remarks—that having corporation tax set at 25% adversely affects businesses making investment decisions, including decisions on whether to increase their investments, or whether to invest in the United Kingdom for the first time. It is because such adverse investment decisions have been taken by businesses that, as he accepts, we have low growth, coupled with rising taxes and a stagnant economy.

It surprises me that more of my colleagues do not wish to engage in this debate. I very much support those Government Members who believe that the Chancellor of the Exchequer’s main objective should be to grow our economy, rather than stifle it through high taxes and more regulation, which seems to be what is happening.

In a sense, the hon. Gentleman has answered his own question—high rates of corporation tax adversely affect investment decisions taken by businesses—so why do we need a review to establish that? How can he both want a review because he does not know the answer to that question, and be so confident about its results that he can announce today that corporation tax will be at 25% for the next five years? It seems a pointless exercise. One is left with the feeling that the main parties have very similar policies on many aspects of taxation.

--- Later in debate ---

[Gareth Davies]

We agree. We want taxes to come down, but we are not going to announce tax decisions from this Dispatch Box outside fiscal events. It is clear for all to see that this Conservative Government believe in lower taxes. We have reduced national insurance contributions for 29 million people by some 30% in just the last six months, and the record is very clear on that.

[James Murray]

The hon. Gentleman says that the Government are not in the habit of making policy commitments outside the normal fiscal process. Does that mean the £46-billion unfunded black hole created by the promise to abolish national insurance is no longer a policy of this Government?

[Gareth Davies]

It is neither unusual nor incorrect for a Government, or any party, to set out a long-term ambition to let the public know where we stand on taxation and what we want to see in the future. In 2010, for example, we said that we wanted to increase the personal allowance for income tax to £10,000, and we met that. Actually, we exceeded it. It is now over £12,500, so a person in this country can earn £1,000 every month without paying any tax at all. That is a long-term ambition that we have delivered.

[James Murray]

The Minister is being generous in giving way. I notice that he is keen to talk about a long-term ambition to abolish national insurance. Yesterday, the Chancellor of the Exchequer said at Treasury questions that

“our policy is to abolish employees’ national insurance”.—[Official Report, 7 May 2024; Vol. 749, c. 437.]

Was the Chancellor wrong?

[Gareth Davies]

As I said, it is a long-term ambition. It is right for a party that is serious about governing to set a direction for the country. I know it is an unusual idea for the hon. Gentleman that having a plan for government is the right thing to do, but we have made it very clear to the British people that, if they vote for a Conservative Government at the next general election, their taxes will come down.

The amendments before the Committee propose that we publish information that is already publicly available. They are not needed, so I urge the Committee to reject them.

Question put and agreed to.

Clause 12 accordingly ordered to stand part of the Bill.

Clauses 13 and 19 ordered to stand part of the Bill.

New Clause 2

Review of impact of section 12

“(1) The Chancellor must, within three months of this Act being passed, conduct a review of the impact of section 12 of this Act.

(2) The review must consider how the rate of corporation tax provided for by section 12 affects—

(a) investment decisions taken by businesses,

(b) the certainty of businesses about future fiscal and market conditions.

(3) For comparative purposes, the review must include an assessment of how the factors in subsection (2)(a) and (b) would be affected by maintaining corporation tax at a rate no higher than that set out in section 12 until the end of the next parliament.”—(James Murray.)

This new clause requires the Chancellor to conduct a review of how the rate of corporation tax set by the Bill set out in clause 12 affects business investment and certainty, including what the effect would be of capping it at its current level for the next Parliament.

Brought up, and read the First time.

Question put, That the clause be read a Second time.