Legal Aid, Sentencing and Punishment of Offenders Bill

Debate between John McDonnell and Andrew George

Tuesday 1st November 2011 Commons Chamber

[John McDonnell]

I went through 13 years of new Labour, so commenting on short-term populism might not be the most appropriate thing. I would not say: “A plague on all your houses!”, but let us all learn a few lessons.

[Andrew George (St Ives) (LD)]

Just so we are clear about the hon. Gentleman’s position, does he agree that it is unacceptable for anyone to be made homeless as a result of the kind of actions that we are talking about? Does he also agree, as a consequence, that passing new clause 26 in its current form would place an additional burden on the legal aid budget?

[John McDonnell]

I wholeheartedly agree.

Let me press on, because others want to speak. Clearly there are a small number of cases, which we have already identified, that have caused genuine concern. The problem appears to be not with the existing law, but with its operation, as the consultation has made clear. Annington Holdings plc, a property holder of considerable size, said:

“In Annington’s experience enforcement is the crux of the problem; our past experiences have shown that delays arise in removing squatters from properties due to limitations on police resources.”

If the current problem is with police resources, the question—which has been raised by the High Court enforcement officers, the Criminal Bar Association and the Law Society—is whether the police would have the resources to enforce the law if a new offence is created, when they appear to be unable to enforce it against the existing offences. The Met has acknowledged that and is seeking to address it, as my hon. Friend the Member for Hammersmith and the Minister have said. The Metropolitan Police Service said in its statement that there was a lack of training and practical knowledge on the law on squatting, particularly section 7 of the 1977 Act, which may be a barrier to effective enforcement, and that it was conducting further training to address the issue.

By criminalising squatting, the new clause certainly does not appear to be needed, but it will have consequences if introduced, some of them unintended. The new law will have consequences for those who will be brought into the criminal justice system for the first time, and it is worth repeating who those people are likely to be. The housing charity Crisis commissioned research into squatting from the centre for regional, economic and social research at Sheffield Hallam university, which was published only a month ago, in September. It found that, by and large, squatters were homeless people. The House of Commons Library note sets out for Members that

“squatting is a common response to homelessness”,

and that

“most homeless people who squat try other avenues to resolve their housing problems before squatting”

Finance Bill

Debate between John McDonnell and Andrew George

Monday 12th July 2010 Commons Chamber

[John McDonnell]

I fully concur, which is why I think that HMRC must apply a lot more resources to tackling quantification. The estimates I have been given range widely from the £40 billion from the Treasury for both avoidance and evasion—its figures do not distinguish between them—to the £25 billion from the TUC solely for tax avoidance, to the higher estimates of anything between £70 billion and £150 billion for both evasion and avoidance. I know that Richard Murphy in particular has focused on evasion, which could account for anything between 40% and 60% of the budget deficit—the structural deficit as well—that this House has recently been debating, and dividing on almost unnecessarily it seems to me.

[Andrew George (St Ives) (LD)]

I congratulate the hon. Gentleman both on raising the issue and on the manner in which he is doing so. He has made it clear that he has raised it under two Governments. Putting aside the tribal aspects of the debate, I agree that we need to bear down on this issue, and I have asked parliamentary questions on evasion and avoidance that are due for answer today. Does the hon. Gentleman agree that it is to be hoped that once we understand a great deal more about this issue, we will be able to close the loopholes, and address other issues such as where Treasury officials go and work after they leave the Treasury?

[John McDonnell]

I fully agree.

I have not included any reference to VAT, which is one of the largest areas of tax evasion and avoidance. Interestingly, it appears from the responses we have had over the years from the Treasury that it uses different methodologies to calculate the different forms of evasion and avoidance for particular taxes. I find that extremely confusing.

The amendment has been described as not tribalist. Well, I am a tribalist, but I am trying not to be on this issue; instead, I am being as consensus-seeking as I can be. Even though I come from a class-based politics, I am trying to come at this from a straightforward administrative perspective, asking how we can arrive at a situation in which HMRC will report to the House—to the Chancellor of the Exchequer—on the extent of evasion and avoidance and the measures that are going to be pursued. The reason why I am making a link to the changes in tax measures is that I want there to be a time limit, so that we get a report back to the House; otherwise, this situation will continue year after year.

This issue does relate to that of staffing, which I raised with the previous Government and am raising with this one. I chair the cross-party PCS trade union group in Parliament, which regularly meets PCS members who work in HMRC and who are tax inspectors. It is clear that they have performed an excellent service to our country over the years, and their productivity has been increasing year on year. However, over the past three years job cuts totalling 12,000 within HMRC have been announced that specifically affect staff involved in tax generation. At a time when we are desperately trying to tackle the deficit through measures other than reductions in public expenditure and cuts in public services, we could do that by tackling tax evasion and tax avoidance. However, at the same time, we have the prospect of another 12,000 jobs being lost within HMRC.

--- Later in debate ---

[John McDonnell]

Following on from my right hon. Friend’s exposition, I want to speak briefly to amendment 10, which stands in my name. Amendment 10 simply calls for a report on the implications of aligning the rates of capital gains tax with those of income tax. I drafted amendments that were not in order, which calls into question the ability of Back Benchers to amend the Finance Bill and is perhaps something that can be discussed at a later date.

When capital gains tax was introduced in 1965, it was an attempt to get some equivalence between income tax and taxation on gains through capital investments. There has been reform since then. It is interesting that, under Conservative Chancellors, capital gains tax was aligned with income tax rates. Then, in the late 1990s, the Labour Government introduced the tapers and the link to the time that an asset was held. In 2007, there was further need for reform when it was discovered that executives of hedge funds were determining carried interest—their bonuses, that is—as part of their capital gains tax relief. As a result, they were effectively paying 10% tax on their income—less than their own cleaners. All parties in the House acknowledged that that was a scandal and recognised the need for reform.

It is accepted that there is an element of compromise between, on the one hand, an equitable tax relationship between income tax and capital gains tax, and, on the other, an arrangement that will support genuine entrepreneurs and business. There has always been an element of fudge, but there was a view that we would try to address the issue in this Finance Bill, whoever was in Government. The previous Government were considering capital gains tax reform, and that was widely supported by the Institute for Fiscal Studies and the Institute of Chartered Accountants. Indeed, Lord Lawson himself made statements about the need for a more equitable relationship between the two, in order to tackle tax avoidance. Such reform was also included in the Liberal Democrats’ manifesto. I do not want to bait the Lib Dems tonight. This is too important an issue for that, although it can be quite entertaining.

In an interview with Andrew Marr, the Prime Minister said:

“I think everyone recognises there is a problem. When you have a capital gains tax rate of 18% and a top rate of income tax at 50%, you’ll find people finding all sorts of ways to treat income as capital gains.”

He went on to say that the new Government would look at taking a different route to help what he described as the fairness agenda. The problem is exacerbated by the 50% increase. With income tax at 50%, even the 28% rate of capital gains tax proposed in the Bill will still leave a 22% differential to encourage further tax avoidance as people designate their income as capital gains.

My amendment simply asks for a report to be produced that will examine afresh the implications of the alignment between income tax and capital gains tax. I believe that we shall return to this issue in further Finance Bills, because I do not believe that this compromise will hold, or that it will be seen to be equitable or fair. I believe that tax avoidance will continue, certainly among the highest paid, who will re-determine their income as capital gains in order to pay the lower rate of 28%. I accept that an increase of 10% is significant, but it is not significant enough to implement the fairness agenda that the incoming Government have proposed.

[Andrew George]

It is a pleasure to follow the hon. Member for Hayes and Harlington (John McDonnell). I am pleased that, unlike the right hon. Member for East Ham (Stephen Timms), he chose not to bait the Liberal Democrats tonight. At this late hour, it would perhaps not be a good idea to respond to the rather combative approach taken by the right hon. Gentleman in his opening remarks. I shall merely point out that the Labour party, which claims to be the champion of the working poor, created a capital gains tax environment in which the cleaners of wealthy bankers were paying a higher marginal rate of tax than the bankers themselves. That is no doubt a cause of great embarrassment to the previous Government, so I do not think the Liberal Democrats need take any lectures from Labour Members on this issue.

Reducing the capital gains tax rate from 40% to 18% had many unintended consequences for communities across the country, including my own, which sucked in a lot more second home ownership. The more advantageous tax environment enabled more people to purchase second homes, and this made the housing environment, particularly for affordable homes, a great deal worse in many parts of the country. It is worth responding to the right hon. Gentleman: if he wishes to bait, we can certainly fight back. As for the questions he asked, most were directed at those on the Treasury Bench. The intention behind the starred amendments—I cannot refer to those standing in my name—was to probe the Government about the purpose of and background to the decision to set the capital gains tax rate at 28%.

The Exchequer Secretary has done an excellent job of responding to the issues raised this evening. I previously put questions to him—about his Department’s economic modelling to determine the level of capital gains tax; what research or impact assessments he undertook before deciding to roll forward with the capital gains tax proposals; and the Department’s estimates of the revenue accruing to the Exchequer from capital gains tax if the income tax rates for those with an income above the higher rate threshold were set at a range of different levels—which he answered on 7 July. Unfortunately, I was not given the requisite information to make an adequate assessment of the likely impact of this particular measure in contrast to the setting of capital gains tax at another threshold.

I put questions to my right hon. Friend the Business Secretary in the Budget debate—on 1 July, I believe, but I might have to check that. I asked him why the capital gains tax rate had been set at 28% and not a higher rate. The answer was that there is a law of diminishing returns. By the time that level is reached, the return to the Treasury would be significantly less, making it not worthwhile to take it beyond that particular level. Unfortunately, we do not have the statistical or factual basis on which to make that assessment.

Partly in response to the right hon. Member for East Ham, who commented on the Liberal Democrat manifesto commitments in the context of the level at which the threshold should be set, we have to address ourselves to the lack of evidence and information that the previous Government provided. The information on which many policy decisions were taken might well have been unreliable Treasury estimates at the time.

In conclusion, I urge the Exchequer Secretary to provide a little more information in response to my previous questions, which I think would help us all to understand rather better why the capital gains tax rate has been set at 28% and not at some other level. That would help to reassure us that it is not going to attract those who would have had to pay income tax at a much higher level if they had not simply transferred their assets into capital.