(9 years, 5 months ago)
Commons ChamberThe hon. Lady makes an important point, although it is for the Northern Ireland Executive to judge how to proceed. In the UK, our reductions in corporation tax have been an important part of our long-term economic plan, but they have not been the only part, and I know that the Northern Ireland Executive will want to do everything possible, in addition to this power, to put in place the conditions for economic growth. One should not pretend that this in isolation solves every problem. None the less it will be a very useful additional power for the Northern Ireland Executive, and, as my hon. Friend the Member for Macclesfield (David Rutley) said, there will be considerable interest elsewhere in how the policy develops and the benefits that accrue as a consequence.
To reduce the administrative burdens on SMEs, a special regime will be put in place. A simple in/out test will mean that the majority of companies will be spared the burden and cost of proportioning profits. More than 97% of SMEs operating in Northern Ireland meet the 75% employment test threshold and will benefit from the Northern Ireland regime.
I would like to take this opportunity to thank KPMG Belfast, the Association of Chartered Certified Accountants and PricewaterhouseCoopers for their written submissions to the Public Bill Committee and the other businesses that sent representations directly to HMRC, and I welcome the continued support shown by the Northern Ireland business community and businesses elsewhere in the UK for this measure. In January, 80% of firms polled at an Ernst & Young Ulster Hall seminar on the Bill believed that a cut in corporation tax would have a positive impact on their businesses.
As my right hon. Friend the Secretary of State for Northern Ireland made clear on Second Reading, the Bill’s progress through Parliament is dependent on the Executive parties delivering on their commitments in the Stormont House agreement, so I am pleased that the Executive has so far met their obligations. They agreed their budget for 2015-16, passing their Budget Bill last week, while the Welfare Reform Bill passed its Further Consideration stage in the Assembly at the end of February. The Government will continue to assess progress as the Bill moves forward, and in future years as decisions on implementing the powers are to be taken.
As we have recently seen, a cut in the higher rate of income tax leads to increased revenues—from the dynamic effects—so has the Treasury done any modelling on the optimum rate of corporation tax, if the aim is to maximise revenue?
My right hon. Friend will be aware of the Treasury’s study into the effects of our reductions in UK corporation tax, and it was clear that they would result in increased investment and growth in the UK. The Treasury’s assessment was that about half of the forgone revenue consequent on the reduction in corporation tax would be recovered over time. As the OECD has set out on numerous occasions, there is a strong case for saying that corporation tax is one of the more growth-damaging of taxes—it is economically very inefficient, being a tax on investment—and therefore making progress on that front is to be welcomed. Come April, the UK will have the lowest rate of corporation tax in the G20, and we on the Government Benches would want to maintain that position, despite the calls from others to abandon such an approach.
The Stormont House agreement also outlined the approach to adjusting the Executive’s block grant, alongside devolution of the power to set the rate of corporation tax. I recognise the interest of right hon. and hon. Members in the issue and have therefore set out further details in a letter to the Public Bill Committee. I would like to reassure Members that the UK Government and the Northern Ireland Executive continue to work closely to finalise the arrangements.
A minor and technical amendment was agreed in Committee to ensure that clause 5 was drafted in line with normal practice for commencement powers and to remove the scope for misinterpretation. It gives the Government the power to turn on the legislation by regulations made by statutory instrument.
The Bill is vital in allowing the Northern Ireland Executive greater power to rebalance the economy towards a stronger private sector, boosting employment, growth and the standard of living in Northern Ireland, with benefits for the wider UK. The unique challenges faced by Northern Ireland have been recognised by Members on both sides of the House, and I welcome the efficient and effective debate we have had so far. I am grateful for the Opposition’s commitment to co-operate with the Government to ensure that the Bill can be scrutinised appropriately and dealt with speedily in this Parliament, and I hope that hon. Members will see fit to read it the Third time.
I am grateful, Madam Deputy Speaker, and I will move on to the rest of my remarks.
Forgive me, but because of time considerations, I will not.
Let me raise a couple of issues that received lengthy debate in Committee and will be important aspects of the work needed to take the Bill forward. I speak particularly of the block grant. I am grateful for the letter that the Minister sent to the Public Bill Committee, further setting out the Government’s approach to calculating the element of the block grant that the Northern Ireland Executive will have to pay back to the UK Government. We are still a long way from a nail-down formula, as it were, for how the block grant reduction will be calculated, particularly in respect of measuring and calculating behavioural effects that will need to be taken into account.
I note the indication in one of the appendices to the letter that the devolution of corporation tax to the Northern Ireland Executive in 2019-20 is expected to cost about £325 million if Northern Ireland opts for a 12.5% rate rather than the United Kingdom’s 20% rate, but much more work will need to be done on that, and an agreement will need to be struck with the Northern Ireland Executive.
The right hon. Gentleman is persistent. I will give way to him very briefly.
When will the Labour party give justice to England? Surely, given the devolution of tax matters to Northern Ireland and Scotland—which we welcome—there needs to be a voice for England, and an ability for England to make her decisions on those matters as well.
With respect, responding to the right hon. Gentleman’s intervention would lead me into a much lengthier discussion on a matter that is not directly relevant to the Bill. However, he has put his point on the record once again, and I am sure that he is pleased about that.
As I was saying, it is clear that the methodology for calculating behavioural changes in particular will require detailed work between the United Kingdom Government and the Northern Ireland Executive.
The Minister said in Committee that there would be pressure on the Executive to take account of any profit shifting that might occur. Indeed, it is in their interest to limit profit shifting in order not to increase the amount that they must pay back to the Treasury. The Minister said that a memorandum of understanding would be drawn up between the UK Government and the Northern Ireland Executive in respect of the costs of policing the limitation of profit shifting, and the processes, governance and accountability that would be needed for assessment of the activity. That is an important part of the framework, but we have not been given many details so far.
We all hope that the devolution will go ahead in 2017, but a potential stumbling block is the condition that Northern Ireland’s finances must be put on a stable footing before that can happen. We have still not been told exactly what that will mean, and what threshold the Executive will have to cross in order to prove that they have met the condition. I hoped that the Minister might give some idea of the timetable agreed between the UK Government and the Executive in relation to when some of the key decisions will have to be made. I trust that they will be made well before 2017, although the Minister said in Committee that that was the deadline, because there is a great deal to be done between now and then. I think that we shall all have to return to the issue of conditionality after the general election.
We are in favour of all measures that will assist the people of Northern Ireland and their economy. It is in the interests of the whole United Kingdom for Northern Ireland’s economy to be rebalanced and strengthened. We therefore support the Bill, and will continue to support it.
Let me begin by thanking the Secretary of State and the Minister of State for the Bill, and thanking Opposition Members for supporting it.
I must also apologise for the absence of some of my colleagues. As a number of Members will know, the father of my hon. Friend the Member for Strangford (Jim Shannon) has died, and was buried this afternoon. That is why my hon. Friends the Members for East Antrim (Sammy Wilson) and for Upper Bann (David Simpson) are not present either, although they have a tremendous interest in this subject. On behalf of all Members, I wish to express our sincere sympathy to my hon. Friend the Member for Strangford. We pray that the Lord will strengthen and comfort his family, especially his mother, at this time of their grief and sorrow.
I know that some Members have felt rather envious as they have sat back and watched the progress of the Bill to its present stage. Nevertheless, both the Government and the official Opposition have acknowledged that the circumstances of Northern Ireland are unique because of its land border with the Irish Republic, which has one of the world’s lowest corporation tax regimes. Government policy has directed us to rebalance the economy—to move away from our high dependence on public sector employment and boost the local private sector—but we cannot do that with no more than an instruction from the House; we need the tools that will allow us to do the job. We have an earnest desire to move Northern Ireland forward, and to transfer our people from the unemployment list to meaningful and gainful employment.
I assure the hon. Gentleman that many of us have pressed for a measure of this kind for a long time, and welcome it greatly. I like to see all parties united behind the simple proposition that tax cuts make us a more prosperous society. I only hope that they learn the lesson in respect of the other parts of the Union and the other taxes.
I thank the right hon. Gentleman for his comments. I certainly believe that we need to be very prudent in our expenditure, but we also need to allow people to have more of their own money in their pockets, and we want to see prosperity across the United Kingdom. I certainly want to see that achieved. After we have gone to the 20% corporation tax there has, rather worryingly, been some talk of moving back to 21%. That would be a retrograde step and I trust it will be put to bed this afternoon because it would have implications for the block grant for Northern Ireland. We need to get that clarified.
Businesses throughout my constituency tell me that corporation tax could be a game-changer, or at least assist in our genuine efforts for growth. Those who have in the past opposed the devolution of corporation tax stated that this would assist only large multinational companies, yet Her Majesty’s Revenue and Customs estimates that a reduction in corporation tax in Northern Ireland would affect some 34,000 companies of all sizes, including 26,500 small and medium-sized enterprises.
As the hon. Member for North Down (Lady Hermon) said, corporation tax is not a silver bullet that will transform the economy of Northern Ireland, but it allows us to go out with confidence on to the world stage and sell Northern Ireland without being undercut by our neighbours in the Irish Republic. I accept that other economic reforms are necessary. We need to train and upskill our work force, and focus on skills and competiveness, and strengthen our infrastructure, thereby achieving a stronger economy and a higher standard of living for all our constituents.
I welcome today’s debate. I am disappointed in the Minister’s response to the amendment tabled by the hon. Member for Foyle (Mark Durkan) and supported by the hon. Member for Belfast East (Naomi Long). However, we are getting an opportunity to assist the Northern Ireland Executive in gaining greater power to rebalance the economy and boost employment and growth by attracting more high-quality investment. Opportunity awaits us. To do nothing is unacceptable; to do our best is honourable.
(9 years, 6 months ago)
Commons ChamberUrgent Questions are proposed each morning by backbench MPs, and up to two may be selected each day by the Speaker. Chosen Urgent Questions are announced 30 minutes before Parliament sits each day.
Each Urgent Question requires a Government Minister to give a response on the debate topic.
This information is provided by Parallel Parliament and does not comprise part of the offical record
The essence of the charge is that not enough has been done to address tax evasion or tax avoidance, but the reality is that this Government have consistently cleared up the mess that we inherited. It was the case that wealthy people could avoid paying stamp duty land tax—we have sorted that problem. It used to be the case that aggressive tax avoidance schemes were prevalent, meaning that people could sit on the cash for years while cases dragged through the courts—that has now been addressed through accelerated payments. It used to be the case that remuneration could be disguised through loans and other instruments and that no income tax would be paid—we have fixed that, although the Labour party voted against it.
This Government have enabled HMRC to increase yields from £17 billion in 2010 to £26 billion this year, which is dramatic progress. Just as we have dealt with tax avoidance, we are dealing with tax evasion—we are seeing progress on the exchange of information—and that is a very big improvement on everything we inherited.
Is this not further proof that Labour’s fundamental changes to banking regulation at the beginning of its period in government did a lot of damage and meant that banks could not be regulated properly—most notably, they led to the collapse of a number of HSBC’s important competitors—and further evidence that Labour Members are blaming this Government for things that went wrong on their watch?
(9 years, 7 months ago)
Commons ChamberWhen I was elected, one of my first actions was to visit local schools because I felt that I should do my bit to pass on our proud British democratic tradition. Far from finding those schools filled with apathy and ignorance, I found classrooms filled with young people who were alive with anger and who believed, as the hon. Member for Redcar (Ian Swales) said, that their futures had been sold down the river by fiscally irresponsible government. At that point it was hard to reassure them. Fiscal tightening and public sector reforms are difficult to sell to young people who are making decisions about GCSEs, apprenticeships and UCAS applications. They felt that they were bearing the brunt of economically incompetent decisions in which they had no say. Today when I visit the very same schools, I can tell pupils of a falling deficit and record employment. Where they live, youth unemployment has fallen by 76%, more than 3,000 new businesses have started up, and 2,240 new apprentices have started since 2010.
Does my hon. Friend remember Labour’s gloomy predictions that our economic policies would deliver mass and rising unemployment? Instead, they have delivered record levels of new jobs for young people in her constituency.
I do indeed. I can also tell those young people that we are investing in their future through the Oxfordshire city deal and growth deal—not through centrally mandated planning committees, but through universities, local further education colleges, and future employers—and that local authorities of all stripes are working together to develop our own long-term local economic plan. We are targeting that funding exactly where it will stimulate growth and jobs—infrastructure, skills training, local business support, and urgently needed housing and flood defences. That twin message of more jobs and growth alongside targeted local investment is possible only because of the essential precondition mentioned by my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke). Incredibly difficult decisions on spending cuts across Government have been made with one end in sight: reducing our deficit while reforming our public services and protecting front-line services. That is why I support the motion.
If we do not commit to continuing along that path and maintaining fiscal consolidation and the public sector reforms necessary to bring our public finances back to health, and to boosting growth and wages in a sustainable way, rather than the chaotic manner outlined by the shadow Chancellor, our economic recovery will falter and we will lose the hard-won gains we have already made. Already, thanks to Labour’s billions of pounds of undisclosed tax rises and unfunded spending commitments, the single biggest risk factor facing markets is political instability, as economists consider the chaotic consequences of a Labour Government with the shadow Chancellor at the helm once again, free to borrow and tax us back into recession and rising unemployment. I for one am not prepared to go back to those schools and explain how we got halfway through the work of restoring our national finances, only to fail to complete the job.
I am grateful for the opportunity to participate in this debate, which is vital. It goes to the heart of the views of this Government and the next Government on fiscal policy. It is about much more, however. It is about the job prospects of people in Macclesfield and the north-west, and millions of people across the country. It is about the prospects of young people getting on to the property ladder. It is about the financial future and how we secure it for people who are planning for retirement or are already in retirement. It also deals with the issue, which many Members have touched on, of who will be tackling the mountain of debt we have faced since the recession. Are we going to pass the buck to the next generation, or is this generation going to do the right thing and tackle the debt burden in the years ahead?
We want to see action now and continue to see public finances getting back under control. The charter for budget responsibility will help the country to achieve that ambition. I support the Government’s aims to see debt fall as a share of GDP by 2016-17, and to return the cyclically adjusted current budget to balance by 2017-18. Those objectives do not, I admit, roll off the tongue, but the impact of turning the deficit into surplus and reducing the burden of debt is vital to bringing our country’s public finances back under control. That is where they need to be. Furthermore, the charter will help people decide which party is serious about getting our public finances under control. There will be a clear choice for voters on 7 May. There is only one party serious about tackling the deficit, getting our house in order and delivering the sustainable economic growth that is so important, and that is the Conservative party.
Did my hon. Friend hear the shadow Chancellor make it clear that not only does Labour not think that the current debt is excessive, but it would carry on increasing the debt every year of the next Parliament if it was leading it?
It always does. It is as if there is a drug that Labour is addicted to called “debt”; they cannot get away from it.
I was fortunate to serve on the Treasury Committee in 2010 when the OBR and the charter for budget responsibility were established, and I spoke in a debate in May 2011 that brought greater insight into Government policy, greater transparency and more trust. I was pleased to participate in it and highlight how the OBR had very quickly become—it still is—an important reference point. Since those early days of the Parliament, which seem a long time ago now, the Government have made clear progress on their long-term economic plan: on economic growth; job creation—1.8 million jobs over this Parliament; unemployment; deficit reduction—down by 50%; and reducing the rate at which the debt is growing. Their ambition and achievement are unprecedented.
Those were important tasks, but the progress has not been without challenges. The OBR, which has been much referenced by Members on both sides of the House, has highlighted how deep the recession was—much deeper than originally anticipated—and how the challenges in the eurozone contributed to the challenges faced by the Government. However, positive progress has been made, and it is vital that the charter be renewed, because further consolidation is required. We need to finish the job of getting public spending firmly under control, as was spelled out by my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke) and my hon. Friend the Member for Bury St Edmunds (Mr Ruffley). I support that view. Lower spending will lower the deficit and enable us to lower taxes for working people, which is something that Conservative Members feel passionate about.
Paul Johnson, the director of the Institute for Fiscal Studies, who has been broadly quoted, highlighted in The Times today something that has not been pointed out, which is that this approach is also vital to get the country’s finances better prepared for any future economic crises or recessions. We have to learn the lessons of the economic crisis we are emerging from. This Government have, but the Labour party clearly has not. I will be supporting the charter today because it is critical that we get our finances under control. The Government have found a way forward, and the long-term economic plan is delivering. The charter will take us a step closer to achieving our important ambitions for businesses and the public of this great country, and I will be supporting it.
(9 years, 7 months ago)
Commons ChamberThere may be a slight impact on house prices, but we must put that in context. Many factors determine house prices, and on the evidence before us our view is that the changes will not have a significant impact on the overall level of house prices. They are likely to have a bigger impact on removing some of those dead zones and distortions in the housing market, which is beneficial in creating a more efficient and effective housing market.
The reform has been welcomed by right hon. and hon. Members in all parts of the House and by outside bodies, including the Council of Mortgage Lenders, the Institute of Directors and the Institute for Fiscal Studies. Jonathan Isaby, from the TaxPayers Alliance, called it:
“an early Christmas present for young people looking to get on the housing ladder.”
Will the Minister comment on the impact on revenue? He may collect more revenue where rates have been cut, but lose revenue at the top end.
That is not our assessment. My right hon. Friend is an eloquent and distinguished advocate of the argument that it is possible to raise more revenue by reducing rates, and he has over many years demonstrated cases where that would apply. I do not believe that we will quite see that dynamic effect to that extent in this case. I think more revenue, and certainly a greater proportion of it, will be raised from properties above £2 million. Undoubtedly, we will see a few more transactions, which will mean additional revenue that would otherwise not come in. On balance, we will see a reduction overall in revenue across the SDLT regime, but we believe that that is none the less the right thing to do to ensure that we deliver a reform that benefits the vast majority of people who pay SDLT.
Under the rules as they applied on 3 December, the amount of tax payable was a percentage of the chargeable consideration—the purchase price—for the acquisition of the property. Different scales of percentages, table A and table B, applied respectively to transactions consisting wholly of residential property and to transactions that consisted of, or included, non-residential property. The clause substitutes a new table A, setting out the new tax rates and bands that apply to a transaction consisting wholly of residential property. It also amends the calculation rules for those transactions, so that each rate of tax applies only to that part of the consideration that falls within the relevant band. The total tax due is then the sum of the amounts of each band.
I will keep my remarks brief. I have spoken in each previous debate and do not have a great deal to add. My party very much supports these measures and, as I have said in previous debates, dealing with the slab system that we had and the consequent cliff edges and removing the incentives for strange behaviour and sub-optimal activity has to be the right thing to do.
I have only one point to add, which partly follows on from the remarks of the right hon. Member for Wokingham (Mr Redwood) and the assessments of the Office for Budget Responsibility. I would have thought that the taxation of a fixed asset transfer like this, with the certainty that that implies, would mean this is a very low risk method of changing a tax system, but if the OBR regards it as medium to high risk, and if the right hon. Gentleman is suggesting there may be more complex effects that I have not understood, I would like the Minister to clarify whether I am missing something. I would have thought this was a very straightforward way of raising taxes in a highly certain manner—and certainty is, of course, one of the hallmarks of a good tax system.
I will not detain the Committee any longer. Our party supports these measures. They affect 98% of the population favourably, and, broadly speaking, the other 2% are millionaires, and therefore those with the broadest shoulders. I am pleased that through this Bill this Government have found yet another way to help deliver a small amount of redistribution, with the pain felt by those with the broadest shoulders. The support for it is universal in my constituency, as I think everybody will be a winner. Overall, these measures will lead to a more liquid housing market and therefore a stronger economy, and they also make the system fairer.
First, may I remind the Committee that, as listed in the register of Members’ interests, I provide advice to an industrial company and an investment company?
The Minister has produced what is on the whole an excellent scheme. I support most of it and was one of those, along with my hon. Friend the Member for St Albans (Mrs Main), who was lobbying hard to get this major reform through. I congratulate the Minister and the Chancellor on dealing with the problems that the slab system created. The peaks and the dead areas were damaging to the property market and made it difficult for some people to buy or sell properties in certain price ranges. The system probably distorted pricing as well, to the benefit of some people and the detriment of others. It is therefore good that we have smoothed it out and introduced a more sensible progression up to £937,000, where most of the transactions lie. The new arrangements will represent a fairer, lower-cost system for practically all transactions, which is wholly admirable.
I want to tease out a little more information about the rather pessimistic forecasts of how much revenue will be lost up to the end of this decade. It is clear from the figures that cutting the higher rate of income tax has produced considerable extra revenue, as it was bound to do, given that the previous rate deterred people or meant that they did not come here at all. It is also clear from the figures that the much higher rate of capital gains tax has been very damaging to revenues, which are still miles below where they were prior to the crash. This is a difficult one to call, and I am not saying to the Minister that the proposals would either damage or increase revenues. I am merely suggesting that the Treasury’s forecasts for that lengthy time period could prove to be inaccurate, and that it would be nice to unpack those forecasts in order to understand what the Treasury thinks is going on.
The problem with trying to forecast the revenues at this juncture is that, on the one hand, we have seen a slowing of the mortgage market in recent months through regulatory intervention, and we would therefore expect fewer transactions because the regulators and the banks are now being much tougher about mortgages. On the other hand, however, we have Government intervention trying to mitigate that effect through the very successful and helpful Help to Buy scheme, which I believe to be necessary. It is certainly helping people in my area to buy their own home. However, the net result of these arrangements seems to be a dampening of transactions, and we must bear that in mind when trying to judge the impact of those policies and to assess the impact of the stamp duty change. All things being equal, we should expect to see an increase in the volume of transactions under the £937,000 level because buying such homes will be a bit cheaper, and in certain price bands we will see activity occurring that would not have occurred at all because of the slab effect.
Does my right hon. Friend share the optimism that I feel, having talked to small businesses in my community, that there could be a knock-on effect from people having a bit more money to carry out home improvements? Those businesses have suffered in recent years because people have not been investing in their own homes.
Yes, indeed there could.
This is difficult to predict, because all these things need to be modelled. The level of the reduction in some cases is quite large, and it will be difficult to make up for all that lost revenue through increased transactions. That is why it would be interesting to probe the Treasury a little more on its forecasts. I expect it thinks that there will be quite a big revenue gain where the rate has gone up, but that effect might not prove to be as strong as it hopes, because there will definitely be a disincentive effect at the top end following the introduction of the very top rate for the privileged few who can afford those types of properties. Those people are often in the fortunate position of owning more than one property, and of being able to decide whether they wish to buy property in this country or elsewhere. There will be some kind of disincentive effect, and we need to look at relative taxes and relative prices in relation to London and other centres.
It would therefore help if we knew a little more about the Treasury’s numbers at this stage of the debate, so that when we review this policy in a year or two, we can see what was right and what was wrong. For example, does the Treasury think that there will be extra revenue from the higher rate? That has clearly not been the case in relation to the two big taxes that I have mentioned. Does it envisage a loss of revenue despite the effect on transactions at the lower level? It would be good to have more detail, so that we can have some benchmarks as we try to assess the financial impact of the policy.
I thank all right hon. and hon. Members for their contributions to this short debate on clause 1, and I shall attempt to address as many as possible of their questions. The hon. Member for Birmingham, Ladywood (Shabana Mahmood) raised a number of points about the impact of the changes. First, let me deal with her question about HMRC’s handling of inquiries. I do not have all the detailed numbers available, but, as I mentioned earlier, about 1.25 million hits have been made on the HMRC calculator, which is a substantial number. There have been relatively few queries made over the telephone or in writing. In practice the great majority of those can be dealt with by HMRC’s stamp tax helpline or by reference to ongoing guidance. More complex queries are escalated to HMRC’s technical specialists. As I say, I cannot give the numbers but I do know that the view within HMRC is that this process has gone smoothly, including in respect of the helpline provided on the day of the autumn statement, when, as has been pointed out, a number of transactions were accelerated in order to benefit from the transitional regime. All that has gone smoothly and I am not aware of any particular difficulties in that area.
My hon. Friend brings me to an important point, which is that, over the course of this Parliament, the Government have been determined to address stamp duty land tax avoidance. It was a problem in the tax system. One certainly heard both anecdotally, and in the concerns of HMRC, of transactions being made to envelope properties and so on, which is why in 2012 we announced the introduction of the annual tax on envelope dwellings. It is why, over the course of this Parliament, we have taken a number of actions to deal with that avoidance. Had we not done so, it would have been difficult to make the reforms that we have in front of us today in an affordable way, as we would not effectively have been able to raise additional revenue from the top end of the housing market to counteract the reductions in revenue that will occur in the rest of the market.
Increasing rates would not have led to much, if anything, by way of additional revenue, because we would have found that it would have increased avoidance activity and we would not have got in the money that we would otherwise have done. As a consequence, the costs would have been unaffordable.
Are there not two obvious ways in which certain groups of people in the higher value properties decide not to pay this tax? The first is people who are in a two to three-bedroom flat or a small house in a very expensive part of the UK, normally London, may decide that they do not want to swap properties or downsize or upsize because it is too expensive. The other is that the very rich people at the top end coming in from abroad may decide that this is the straw that breaks the camel’s back on the transaction. Some people might welcome that but it could still be a behavioural impact of this particular provision.
My right hon. Friend is right to say that there will be behavioural responses. Some people might be dissuaded from entering into a transaction and decide to remain in the same place as a consequence of a higher level of duty. There may also be an impact on the attractiveness of the UK as a place in which to locate, but as he is well aware, that is but one factor among very many. I can think of greater threats to the attractiveness of the UK. I should not get drawn into what those threats may be, but they certainly exist. I am tempted to turn to the Opposition’s mansion tax, but I dare say you would haul me into line, Mrs Riordan, so let me not be drawn into what others might say. There is much I want to say, but it would probably not be in order.
I hope that my remarks are helpful to the Committee, and that the clause will stand part of the Bill.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2
Citation, commencement and transitional provision etc
Question proposed, That the clause stand part of the Bill.
I, too, support the Bill because it is a move in the right direction. I strongly welcome the decision to get rid of the slab structure, against which I and others have lobbied strenuously for some time, and it is good that the Government have listened.
However, given that many of us believe in the virtues of home ownership, it is a pity that we still need a tax on home ownership at all. I welcome the fact that it is now lower, but I do not welcome the fact that we still seem to need a tax on home ownership. It is a great pity when we have to tax good aspirations in our community. Many of my constituents are now fortunate enough to own their own home, but there is a new generation who wish to do so, and this is still a high tax on them which they have to find a way of financing.
I hope that in future Budgets, as the long-term economic plan produces its magic and as we get rid of the deficit, we can return to this tax. The rates are still very high and it is a tax on one of the most essential things that families need. They need shelter; they need housing. The preferred type of housing for most people in our country is to own their own home, and this is still quite a large tax on home ownership. I know that the Minister and his colleagues are working away to ease the burden wherever they can in the straitened financial times we live in, and I know that they have a number of schemes to promote home ownership.
I urge my hon. Friend to do everything he can to promote home ownership because owning that first home makes such a difference to people’s lives. It gives them something to be proud of and it means that they can look forward to an old age not facing a rent bill, when they have at last repaid the mortgage and can truly call their home their own. It is very galling for them if a big chunk of the mortgage is paying Government taxes, so I welcome this small step to make home ownership a bit more affordable.
Question put and agreed to.
Bill accordingly read the Third time and passed.
Consumer Rights Bill (Programme) (No. 3)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the Consumer Rights Bill for the purpose of supplementing the Order of 28 January 2014 in the last Session of Parliament (Consumer Rights Bill (Programme)), as varied by the Order of 13 May 2014 in that Session (Consumer Rights Bill (Programme) (No. 2)):
Consideration of Lords Amendments
(1) Proceedings on consideration of Lords Amendments shall (so far as not previously concluded) be brought to a conclusion three hours after their commencement at today’s sitting.
(2) The Lords Amendments shall be considered in the following order: Nos. 12, 1 to 11 and 13 to 78.
Subsequent stages
(3) Any further Message from the Lords may be considered forthwith without any Question being put.
(4) The proceedings on any further Message from the Lords shall (so far as not previously concluded) be brought to a conclusion one hour after their commencement.—(Jo Swinson.)
Question agreed to.
(9 years, 8 months ago)
Commons ChamberI warmly welcome the motion. I congratulate the Financial Secretary to the Treasury and the Chancellor on the help that they are giving to home buyers. I thank the Financial Secretary for listening, not just to the concerns of Members, particularly on the Government Benches, about stamp duty, but about how the Government may implement the policy. The Government have done absolutely the right thing to effect this policy immediately.
Back in the dark days of the great recession under Labour in 2009, when I was conveyancing residential property, the property market was on its knees. The Government of the day brought in a very welcome stamp duty holiday. That said, there were six or seven weeks between its announcement—at the Budget, I believe—and its implementation, depressing further an already very depressed property market. So I welcome what the Government have done and my hon. Friend’s taking on board those points.
The Government have taken the right approach to dealing with the problems associated with stamp duty. The major problem was the slab rate and the effect that it had, not just for people buying property who have to pay the stamp duty, but for people selling property. Those selling property at an asking price of £255,000, £265,000 or £275,000 have for some time been faced with the prospect of either having to do some dodgy deal involving carpets, curtains and other chattels, in which after the Finance Act 2004 and changes to stamp duty legislation most firms of solicitors were not willing to participate, or changing their price, often having to reduce it considerably, below the £250,000 mark, where 1% stamp duty would be payable and the buyer would have to pay £2,500 rather than £7,500. The reform will make a massive difference to people selling property.
One of the most persuasive points that we were able to make to the Chancellor when we lobbied him was that there were bands in the market where there were effectively no transactions at all because people could not get buyers to pay that little bit extra. That was distorting the value of their homes.
(9 years, 11 months ago)
Westminster HallWestminster Hall is an alternative Chamber for MPs to hold debates, named after the adjoining Westminster Hall.
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That can also happen.
We need to look at the slab rate again and to consider the distorting effect that it has on the market and the difficulties that it causes people, whether buying or selling—for people who want to sell because they want to downsize, or people who want to sell because they want to move on. That is one of the reasons why some of the suggestions that I have heard over the years to charge stamp duty to the seller would also be completely inappropriate and unacceptable; it would place a massive burden on those trying to sell the investment that they have often worked for over many years.
I make a final plea to Ministers. If they are ever minded to make any changes to how stamp duty is charged or to its rates, will they be extremely careful about how they do it? Back in the dark days of the great Labour recession in 2008, following pressure from the Conservative party, the then Prime Minister and Chancellor decided to create a stamp duty holiday. They announced it with great fanfare in the press and on the media, but it was probably six or seven weeks before the policy was implemented.
I can tell hon. Members that a flat property market was depressed further, because people did not want to conduct transactions between when that announcement was made and when the measure came in, because that would not make financial sense and they could save money. I implore Ministers to make any changes carefully and to consider the implications for the overall housing market, which is extremely important to our economy. The housing market is now on the move, which is part of the reason why our services sector in this country is doing so well.
I ask Ministers to consider the issue extremely carefully. It affects not only the south-east or London, but all parts of the country in differing ways. It creates massive distortion, because of the slab rate. I ask the Minister to consider it carefully not only in reply to the debate, but in his work on our party manifesto.
Order. I say to the right hon. Member for Wokingham (Mr Redwood) that it is slightly unconventional to come into the Chamber halfway through the debate; as he is aware, other people have spoken and a debate is normally about exchanging views and listening to other people. On this occasion, however, we have plenty of time and I will still call him.
I am grateful, Mr Betts, and I give my apologies to you and to the Chamber, but my constituents also wanted me to make it clear that Wokingham supported the puppies motion in the main Chamber. I felt that I had to do that first, before coming to debate the important issue of stamp duty. I pay tribute to my hon. Friend the Member for St Albans (Mrs Main), who proposed it as a subject for debate. I supported her, so it would have been wrong not to attend and pledge my support.
I have three main reasons to advance for why the Government should do something to reduce the imposition of individual stamp duty on property transactions. First, the existing stamp duty regime has an adverse impact on home ownership, which the Government should wish to promote. Secondly, the regime does not optimise the revenues; we could get more revenue out of stamp duty if we had lower and different rates. Thirdly, it distorts the housing market adversely, meaning that many people are deterred from buying and selling and from obtaining the kind of housing that they most need or want by the extra charges that the Government have imposed on this most essential of goods and services.
I strongly support the Government in their wish to see home ownership promoted. As they are well aware, however, in many parts of the country house prices are high relative to incomes and have been rising in recent months as a result of the Government’s success in stimulating credit, transactions and activity in the economy again.
Although we welcome the general growth and that upward movement, as well as the fact that some extra houses are now being built, the Government must be aware that housing is extremely expensive for many people who wish to get on the first rung of the housing ladder or who would like to trade up from a smaller house to a location where they can accommodate their children and make a good family home for them.
One reason for that expense is that many people now face paying stamp duty on quite modest homes. Such people are often not rich but are having to pay substantial sums—many thousands of pounds—to the Government for the privilege of getting their first home or moving to a home that is more suited to their needs. I would hope that the Government would want to find a way of easing the burden on people who wish to buy their first home or the right home for their family, particularly if that can be done without having much or any adverse impact on revenues.
My second reason is that if we look at the pattern of stamp duties, we see that the Government have not got total revenues back to their level prior to the crash, yet we now have extra higher rates in the system. We should ask whether the rates are now acting as a kind of deterrent to people undertaking transactions, particularly at the top end of the market, leading to revenues being depressed. We need to bear in mind that in the most expensive parts of the country—indeed, in large areas of the country—house prices are now at or higher than their level before the crash. Stamp duty on shares is now also reflecting the fact that share prices are back at new highs thanks to the success of the general economic policy. There is a case for saying that we would get more transactions if we had a different structure of rates or, in some cases, lower rates, and that there would be a volume offset to the obvious loss on individual transactions.
The third reason is the damage being done to the general market. I know quite a few people who would like to move down the housing ladder—their families have left home and they could do with a smaller place—but the total costs of the transaction put them off. The fact that the buyer has to pay a large stamp duty on the house they are going to buy might be a further deterrent to the transaction taking place at all, because that will affect market prices.
We can see an obvious market distortion because the Government have inherited and lived with the slab-rate approach to stamp duty taxation. If someone moves from trying to buy a flat or house at £125,000 to trying to buy one at £125,001, they suddenly have to pay £1,250 in tax, whereas they pay none when the price is £1 lower. At the £250,000 threshold, there is a sudden slab increase of £5,000 in extra tax if the flat or house someone is trying to buy goes up from £250,000 to £250,001, and at the £500,000 threshold there is a £5,000 increase if the price goes up by £1. In practice, people will not try to sell properties at £250,000 plus a little bit or at £500,000 and a little bit, because the huge increase in tax incurred when that threshold is crossed makes that unrealistic.
We therefore now have zombie price ranges in the marketplace, in which there are very few or no transactions. People hold fire: if they have a property worth £250,000, and the market is rising, they think, “Well, I’ll wait until it is worth £275,000 or £300,000. I won’t sell now because it will be very difficult to sell at £255,000: everyone will want to knock me down by £5,000 or so, to avoid the big increase in stamp duty.” We are creating a distortion, which is another reason why there are parts of the market in which people are much more reluctant to bring their properties to the market at all, because the stamp duty is getting in the way of proper price formation.
What could be the answer to all those problems? I do not like taxes very much at all, as the Minister knows, but I know that our constituents want good schools and good hospitals, and that those cost money; I also know that we are still borrowing too much as a country. The Minister therefore has a problem and needs to maintain revenues from a variety of sources. We need a system that still enables him to collect revenue from property—that is the situation he inherited and that is the current need—but we also need one that is more likely to produce a bit more revenue while easing some of the burdens.
My first suggestion, then, is that we taper the tax rather than having a slab rate. If we put in a taper, it would make homes more affordable at £125,000 to £150,000 and at £250,000 to £300,000. The market would start to clear again in those quite popular price ranges, which are currently being restricted or removed altogether. That would also help with extra transactions.
That is how I would start off. The Minister will doubtless have some figures from his Treasury model claiming that that would produce too big a revenue loss. He will also know, however, that the Treasury has always been wildly pessimistic about any kind of Laffer effect on taxation and that the policy of cutting top-rate income tax from 50% to 45% has produced a massive surge of revenue. There was obviously no loss there, but in fact quite a big increase. Conversely, we know that moving the capital gains tax rate up from 18% to 28% has done a lot of damage to revenues and did not produce the expected increase.
The same could be true of stamp duty. We need to experiment. The Minister could try the idea at one or other of the thresholds, rather than the whole lot, if he is really nervous and cannot get the Treasury numbers changed, but we need to find out. I think I will be right. I would start at the lowest end, because that is where most people are affected and where affordability is the biggest issue of all. I urge the Minister to do that. We need more home ownership, which means having a lower and a different profile of tax, and better market clearing so that people can buy and sell and have the property they want of the size they want, which will also help. I urge him to do it for the revenue as well.
(10 years, 1 month ago)
Commons ChamberI beg to move, That the clause be read a Second time.
It is a pleasure to start the Report stage of the Finance Bill, Mr Speaker. We had many good and long debates in the Bill Committee, and I am sure we will continue that trend over the next couple of days.
The new clause, which stands in my name and those of my right hon. and hon. Friends, would require the Chancellor of the Exchequer to publish within three months of the passing of this legislation a report on the additional rate of income tax—the top rate, which was 50p until last year, when it was cut by this Government to 45p. The report we envisage would set out the impact on Exchequer receipts of an additional rate, set at 50p, in the first year of the next Parliament. The Chancellor would also be required to set out the impact of reducing the additional rate for last year, 2013-14, and the amount of income tax paid by all additional rate payers, those with incomes over £250,000 a year and those with incomes over £1 million a year. Finally, the report would set out the impact of the reduction in the additional rate in 2013-14 on the level of bonuses awarded in April 2013 to employees in the financial sector.
Since the coalition Budget of 2012, we have had a number of debates on the Floor of the House and in Public Bill Committee on the Government’s decision to cut the additional rate from 50p to 45p. Indeed, the Minister has referred to such debates being an annual event during the passage of the Finance Bill. Why is it so important that we continue to press the Government on this one decision, made in 2012, after they have refused to listen to all and any attempts to get them to change course? It is because if there is one decision taken by the Government that tells us all we need to know about their priorities and who they stand for, this is it.
The Government who said, “We’re all in it together,” and the Chancellor who promised that he would not balance the books on the backs of the poor, saw fit to give, at a time when ordinary working people were seeing their living standards fall and when the combined impact of tax and benefits changes has left households on average more than £974 a year worse off, an absolutely huge tax cut to the wealthiest in our country. For millionaires, this tax cut is worth an average of £100,000—a vast sum, far out of reach for the majority of working people. So although this may appear to be simply an annual event and part of the House’s debates on the Finance Bill, it is much more than that. This Government made a bad choice—the wrong choice—when they prioritised a tax cut for millionaires while ordinary working people continued to struggle as a result of their decisions, and we will not let them forget it.
How does the hon. Lady explain the fact that income inequality rose under Labour and has fallen under the coalition?
I am pleased that the right hon. Gentleman is here. I recall in the debate in Committee of the whole House that he argued for a further cut in the rate to 40p, citing in evidence the increase in revenues resulting from the cut, but as he should know—I am sure he does—that is a result of bonuses being deferred. I shall return to that point, but I think it tells us all we know about where the Government stand on fairness.
My hon. Friend makes a good contribution, which I agree with.
The Government have published all the figures and they show that after the tax cut the better-off are paying more, not less.
The right hon. Gentleman is wrong. The Government have published one set of figures from only one year’s data. Much more data are now available for a further, more comprehensive review to be carried out, and the Government should do so. If they have nothing to hide, and if they are confident that they have made the right decision, they should submit that to scrutiny.
Returning to data and yield from the 50p rate, we know from the Government’s own assessment that the cost of cutting the rate from 50p to 45p was more than £3 billion, excluding all behavioural changes. In Treasury terms, £3 billion is a big deal, so how could the tax cut be justified? Well, the Government say that most of that potential £3 billion revenue would effectively be lost as a result of tax avoidance, the so-called behavioural change effect. Having assessed revenue lost as a result of tax avoidance and other behavioural change, the Government go on to say that the cost to the Exchequer of cutting the rate to 45p is only £100 million. So, on the Government’s figures, an additional rate of tax set at 50p would raise only £100 million.
The hon. Gentleman has made that point in previous debates, and I repeat the answer that I gave then. We have said that we would increase the rate to 50p in the next Parliament as we get the deficit down. I could not be clearer than that.
It is the richest in our country who are benefiting the most from the recovery delivered by the Government. The return of economic growth has overwhelmingly benefited the top 1%, as shown by analysis of HMRC figures by the House of Commons Library, which covered the year when GDP growth returned and the top rate of income tax on earnings over £150,000 was reduced. The share of post-tax income of the top 1% of taxpayers—300,000 people—rose from 8.2% in 2012-13 to 9.8% in 2013-14. Yet during the same period, the bottom 90%— 27 million taxpayers—have seen their share of post-tax income fall.
This cut to the 50p rate cannot be justified when the deficit is high and will not be eliminated towards the end of the next Parliament. Labour in government will increase the rate back to 50p to help us to get the deficit down in a fairer way. Just as we have said that we want the Office for Budget Responsibility to have powers to audit manifestos ahead of the next general election, because we believe that that scrutiny will add to public understanding about the choices that are being made—a call the Government only last week rejected—so too we think that a report as envisaged by the new clause would help the public to understand the impact of the top rate of tax so that they can make up their own minds about who is standing up for them and other working people like them.
Let me deal first with an old canard from the Labour Benches that is simply untrue and unfair: the idea that Conservatives welcome tax cuts for the rich, but do not think that tax cuts are appropriate for anybody else. Government Members believe strongly that tax cuts work for everybody, and that is why the Government have given back a lot of tax revenue to people on low pay by taking them out of tax altogether. We have supported and welcomed that, and that is where the missing revenue that Labour worries about is concentrated.
The right hon. Gentleman says that the Government are taking many low-income people out of tax. But he must recognise that by raising value added tax, the least progressive of taxes, which everyone purchasing goods has to pay, regardless of their income, they are increasing the burden on the lowest paid.
VAT is not as regressive as the hon. Lady suggests, because I am pleased to say that important items, such as food and children’s clothes, are VAT exempt, which makes it a little less unpalatable. I agree with her that all tax rises are bad news, but they are a necessity given the large deficit that we inherited, and when some important public services need financing. I also entirely agree with Labour that, given that we have a large deficit and need to spend money on important benefits and public services, we need to get that money from the rich and the better off. They are the people with money, and we have to find the best way to get the money off them.
Why is the right hon. Gentleman so scared of the new clause? All it does is request a report. Surely he supports the idea of having a report on these issues so that we can get to the bottom of the matter.
If I am given a chance to develop my argument, I hope I will satisfy any independent-minded people on the Labour Benches that we already have the evidence. We have had a long-term experiment on this very subject, which satisfies some Conservative Members that the way to get more money off the rich is to set a rate that they are prepared to pay and will stay and pay. If the rate is set too high, they leave. If the rate is set too high, their clever lawyers and accountants find entirely legal ways to pay rather less tax than we would like.
The hon. Member for Birmingham, Ladywood (Shabana Mahmood) did not answer my intervention when I asked her to confirm that the Red Book has made it clear that after the cut in the rate, the amount that the better off and the rich paid went up—of course it did. That is the experience we would expect. The hon. Lady is left trying to say that there are special reasons. I will give her this point: it is probably best to judge these things over a longer period than a year or two. One can get odd variations, which is why I want to give the evidence to the House that it has clearly forgotten, which relates to the big reductions in top rate tax that were put through in the 1980s. The Conservative Government reduced the top rate of tax in two stages, from 83% to 60% and then from 60% to 40%, and the Labour Government kept that rate right up until they knew that they would lose office. They were wise to do so, because over those years the amount of cash paid by the rich went up, the real-terms amount of tax paid by the rich went up and the proportion of total income tax revenue paid by the rich went up. What is not to like about that treble win?
The right hon. Gentleman said earlier that if the top rate of tax was too high people would leave—I presume he meant that they would leave the country. How many rich people have returned to the country as a result of the top rate being reduced from 50p to 45p?
We will be able to answer that question in due course, because these are still early days, but there are encouraging signs that more revenue is coming in from the rich. We will know the results of the latest experiment later, but we know fully the results of the 1980s tax cuts. They were clear enough to convince not only all sensible Conservative MPs at the time, who were happy to vote for the tax cuts and kept them throughout their period in office, but, more importantly, the long-running Chancellor of the Exchequer who took office in 1997 and held it for a decade before becoming Prime Minister. He is not an easy man to convince to be nice to the rich. I think that he decided to run with that tax rate because he was entirely convinced that he would get more money out of the rich at 40% than he would at 83% or 60%.
Does not the evidence show that any increase in the tax paid by the rich is the result of their share of income rising at the same time as everyone else’s living standards are falling?
The main reason they pay more tax, of course, is that they generate and declare more income here, which is surely what we want them to do. If the Labour party is with me so far in wanting decent public services, and if it is with me in accepting that the money for those services has to come from the better-off, because by definition we do not want to tax the poor, then surely it is with me in wanting to have more rich people here to venture, save, put their money at risk and to make more money with their money so that there is more of it to tax. This country is now very dependent on income tax from the top group of earners, who produce 30% of income tax, and on the capital gains tax, stamp duty and other taxes that apply mainly to rich people with big assets. That is sustaining public services. It is very important that Members of this House, who might not like those people—clearly the Labour party dislikes them intensely—recognise that they are very useful members of society and that their revenue is crucial to being able to redistribute money across the country. If Labour Members wish to have more equality, they must think about the optimising rate. Surely it is best to try to find the rate that maximises revenue, rather than a penal rate that satisfies people’s sense of jealousy—or whatever it is—about those who have or make a lot of money.
The right hon. Gentleman is wrong about the Labour party disliking rich people intensely and should retract that statement. If he is not prepared to do so, perhaps he will explain why many people feel that his party dislikes ordinary families and poor families intensely, as highlighted by their policies.
That is simply not true. I am delighted to hear that the hon. Lady likes rich people—there are quite a few in her party, so let us hope she gets on well with them—but it is absolutely false to suggest that Conservatives have no interest in people who are out of tax altogether or who are on low incomes; we are desperately concerned that they should get better educational standards and have more opportunities so that they can get a job and then go on to get a better job. We wish them well, and we are very keen to work with all those in our constituencies so that they can take advantage of opportunities. We would like them to be on higher incomes. In the meantime, unlike the Government she supported, we have taken many more of those people out of tax altogether, because we think that those on an income of less than £10,000 a year should not have to pay tax. They will probably be receiving some benefit assistance.
Another point that the hon. Member for Birmingham, Ladywood did not respond to was the fact that the latest figures show that inequality rose under the Labour Government but has actually fallen a bit under the coalition, mainly because we have taken an awful lot of people at the lower end of the income scale out of tax. We have a very progressive system: the income tax system now exempts anybody on less than £10,000 and has a 47% rate, if we take national insurance as well on the highest incomes; and the benefit system rightly gives a lot of money to people at the low end of the scale and should not give any money to people at the top end.
The right hon. Gentleman has made a number of assertions in his last few sentences. I wonder whether he has seen the report published this week by the Joseph Rowntree Foundation, which states that the cuts in child benefit and tax credits
“have typically created losses double the amount of tax allowance gain for working couples, and nearly four times the amount for working lone parents.”
I wonder whether he has seen the latest HMRC report, which states that the Gini coefficient started to rise significantly in 2012-13.
The figures I have been using refer to the whole coalition period and show a reduction in inequality, which I hope the hon. Gentleman will welcome. I do not recognise his figures on the child tax changes. The overall effect of taking a lot of people out of tax has been a very positive impact on their net incomes, as we would hope.
If the right hon. Gentleman disputes whether an increase in the additional rate of tax would bring in more money, does he agree with the new clause’s call for a report? If it shows that the 50p tax rate brings in more money, will he and his Conservative colleagues advocate increasing it again?
I thought that I had dealt with that point. As far as I am concerned, it was proven conclusively in the ’80s that taking the rate down from 83% to 40% increased the revenue very substantially and on a sustainable basis. That was sufficient to persuade the official Labour party—perhaps not some Labour colleagues here today—not to increase the tax rate from 40% throughout its long years in government until the very end.
Does the right hon. Gentleman not recognise that the economic circumstances are now rather different from those he is talking about. Surely we need a study, as the new clause proposes, to enable us to look at what is happening now.
I do not think that the economic circumstances were as different as the hon. Gentleman thinks. In the early ’80s the Conservative Government inherited an economic crisis from Labour, just as this Government did. There was a lot of unemployment and a big task in getting people back to work and getting the economy growing again, rather like today. The Government at the time managed to do that, just as this Government are, so I do not accept his point.
However, I find the fact that Labour is going backwards on these issues rather perturbing. Why can the modern Labour party not understand the basic points that the Labour party that was victorious between 1997 and 2010 understood fully? Why can it not understand that it is possible to take the tax rate too high and get less revenue? The Treasury has now accepted the doctrine of the Laffer curve and understands that putting the tax rate above the optimising rate would surely be a very foolish thing to do. It knows that that applies to capital gains tax, as it clearly does to income tax. I submit that 50% was well above the optimum rate, because we collected rather less revenue than many people would have liked. I welcome the fact that the Government have started to put that right.
I do not think that we need the study that the Labour party is recommending today, and I advise it to think again about what it learnt in the ’80s and ’90s but appears now to have forgotten. It shows that the former Labour Chancellor was clearly not crowd-pleasing when he refused to increase the rate from 40%—he was clearly antagonising many of his Back-Bench colleagues by not doing so—so there must have been a good reason for it. I think that reason was a sensible one: it would have raised less revenue, rather than more. I urge the Government to reject new clause 14.
It is worth considering some of the context of our debate today on the Finance Bill. Almost 15 years ago, the then Labour Government introduced the national minimum wage. That historic measure increased the value of work for around 2 million people across the UK. At its heart was fairness and dignity for all at work. Yet today we are debating the impact of a substantial tax cut for 13,000 millionaires introduced by this Government. At a time when more than four out of five people surveyed in a recent Ipsos MORI poll said that they faced a cost of living crisis, the contrast cannot be overstated. It would be almost impossible to find so clear a contrast between the ambitions and motivations of two Governments. The bottom line in this debate is that the Government’s proposals in the Finance Bill do almost nothing to address the cost of living crisis.
I strongly support new clause 14. It would appear that the Treasury’s Orwellian motto is “Ignorance is strength”. It is not just that the Treasury will not have this study done, but it has not had it done and does not know the answer. The Government are clearly afraid of the answer; what have they got to hide? That is typical of the current Treasury position. On a number of occasions I have asked the Treasury what estimate it has made of the income that would come to it from the implementation of a Tobin tax or Robin Hood tax—a tax on financial transactions such as that being sensibly suggested by Mrs Merkel for the rest of Europe. The answer I get is that the Treasury has never made any such estimates. Having never made any estimate of the possible income—and apparently never estimating what it would cost the City of London—the Treasury nevertheless states that it would be fatal for the City to impose a tax of 0.05% on financial transactions, when every other business in the country pays a 20% tax on transactions known as VAT. It appears that the Treasury is into “Ignorance is strength”.
We constantly hear from those on the Tory Benches about the wonders of Mrs Thatcher and how we should follow her example, so I remind them that for nine of the 11 years that she was Prime Minister, the top rate of income tax was 60p in the pound. Apparently, people managed to pay it. Apparently the money came in, and even rich people did not need a greater incentive to turn up at work.
No, I will not give way—[Interruption.] Well, I have sat here throughout the whole debate and listened to what other people had to say, so I am going to get a little further in.
One thing that is particularly irksome for badly off people in this country is hearing apologists for the City talking about bankers’ compensation packages—compensation apparently for the horrid requirement that they turn up at work. The dictionary definition of compensation is,
“recompense for loss, suffering or injury”.
Those bankers—how they suffer when they are helping people to swindle their tax liabilities; laundering money for gun runners or drug runners; or fiddling money to help people evade sanctions and then having to pay up. We clearly need to ensure that those rich people pay more tax, and the only way to do that is by increasing the rate to at least 50p.
I note the fact that the right hon. Member for Holborn and St Pancras referred to a rate of “at least 50p”, and I suspect that he speaks for many of his colleagues in that regard. The fact is that there is an ideological divide involved here, in that the Opposition want the higher rate, regardless of the practicalities.
The reality is that, if we want to raise money from the wealthiest, a high rate of income tax is ineffective. My right hon. Friend the Member for Wokingham (Mr Redwood) made it clear that the changes in the 1980s resulted in more income being raised from the wealthiest. If we want to raise money from the wealthiest, there are much better ways of doing it, as my hon. Friend the Member for Redcar (Ian Swales) said. For example, we have taken a number of steps to deal with avoidance and disguised remuneration—those measures were opposed by Labour, by the way—and to deal with stamp duty avoidance. We have increased stamp duty rates. We have also introduced measures relating to capital gains tax and restricted the cost of the pensions tax relief. Those measures have raised far more than the revenue forgone from the 50p rate.
We talk about priorities. Let me set out one fact for the House. Even if we put aside the additional sums raised from the wealthiest, and even if we put aside the damage to competitiveness from the 50p rate, for every £1 forgone as a result of our measures on the 50p rate, we have forgone £160 as a consequence of the increase in the personal allowance. That is where our priorities lie, and I am proud of that record.
Will my hon. Friend confirm that the Treasury publishes figures every month on tax collection, and that they show that the rich are paying more?
(10 years, 4 months ago)
Commons ChamberWill the hon. Lady remind hon. Members how much she wants to raise from the tax in the first full year? What impact would it have on banks’ capacity to lend?
I will come to that. In discussions I have had with banks they say that they want to lend and have the resources to do so, but some of the schemes have not necessarily encouraged people to come forward and have not been as successful as they might have wished. I have also heard the criticism from some banks, not all, that perhaps another levy or a different approach to the bankers bonus tax would have implications for capitalisation of the banks and so on. However, when we look at the scale of some of the bonus pots, it is difficult to make the argument that the money will not be there. The money appears to be there in some instances for excessive remuneration and bonuses, rather than other schemes.
Compensation costs for the mis-selling of payment protection insurance—the PPI scandal—have now reached £22 billion, an astonishing sum, with Lloyds alone incurring compensation costs not far short of £10 billion. Significant fines have been imposed on Barclays, RBS, Lloyds and Deutsche Bank for attempts to rig LIBOR, doing huge damage to the banks’ credibility and showing how important it is to change the culture and behaviour. That change has been much talked about, but has yet to be delivered entirely.
I am not trying to bash the bankers, as it is sometimes portrayed. I well understand the difficulties faced by front-line staff in the banks—the people in the lower tiers of the management system. They operated in and had to comply with the prevailing culture, and were set particular targets and given sales incentives. When we look back at that approach, we can begin to pinpoint the move away from the notion that the bank was there to look after people’s money, both individual depositors and local businesses, towards the retail culture, in which the emphasis was on selling and making profits without, in some instances, due care and attention to fiscal responsibilities and duties to the customer. I hope that changes brought about by recent legislation will see an end to that culture. Many of the banks are talking about that, and it will understandably take time, but we need the nudges, the pressures and the reminders, not just from the regulators, but through public opinion. Unless a watchful eye is kept on the banks, the change in culture will not necessarily succeed.
Despite having racked up billions of pounds in fines, several of the big banks still proposed significantly higher bonuses for 2013—the latest year for which figures are available—than for the previous year. They went up 10% to £2.4 billion at Barclays; up 8% at Lloyds to £395 million; and up 6% at HSBC to £2.3 billion. RBS, which is 81% owned by the taxpayer, has also announced a bonus pool of £588 million this year. I know that some of the banks claim that their overall bonus pool is coming down, but for the ordinary person in the street the figures are more than they would ever hope to win in a lottery in their wildest dreams, never mind expect to earn in the course of a year. They also find it astonishing that the banks might seek to breach the EU cap on bankers bonuses. It is difficult to understand why people who are paid in excess of £1 million, and have a range of other benefits, seek bonuses of twice their annual salary.
(10 years, 4 months ago)
Commons ChamberI assure the hon. Gentleman that Labour Members are passionate about business and our policy of a business rates cut for small and medium-sized businesses, which I will come to later.
The Government’s impact assessment says that the 1% cut in 2015 will lower the bills of 40,000 businesses that have profits of more than £1.5 million and pay the main rate of corporation tax. It will also benefit a further 41,000 businesses that have profits between £300,000 and £1.5 million and pay the main rate of corporation tax but receive marginal relief.
The Department for Business, Innovation and Skills estimates that the UK has 4.8 million private sector businesses, the majority of which, around 3.6 million, are sole proprietorships, and a further 1.02 million have fewer than 10 employees. That means that if 81,000 businesses benefit from cuts to the main rate of corporation tax, fewer than 2% of the total businesses in the UK are benefiting.
I would be grateful if the hon. Lady explained how the Treasury should go about making the calculations that she wants it to make. How would the Treasury know the consequence of that one particular tax change, and how would it know what it would be like without it?
I will come to the point about the different tax choices that we make and measuring their impact. Unlike the Minister, I do not have access to Treasury officials, so I am not versed in their methodology, but I do not deny that the Government’s corporation tax rate cuts in this Parliament, which we have supported, have benefited 2% of businesses. I will come later to the 98% of businesses that have not benefited from the cuts to the main rate of corporation tax, but which are struggling with the costs of running their business. The Opposition believe that the Government can and should go further in helping those businesses cope, in particular, with the business rates that they have seen increase.
What I primarily regret is that, as a result of the choices they made, this Government choked off the economic recovery that was under way when they came to office. That is the most regrettable thing: it led to three damaging years of flatlining, and it is ordinary people who are paying the price.
Following a vocal campaign by a number of business groups, ahead of the autumn statement the Government decided not to go ahead with the planned 3.2% increase in business rates and decided instead to cap them at 2%. The Government also announced in the autumn statement that they would provide additional help to retailers. That was action—it was relatively late in the day but it was action—but it does not go far enough, and the Government’s policy does not compare favourably with ours ahead of the next general election.
Ultimately, business rates are still set to rise this month by an average of £270. The Government’s autumn statement offer of £1,000 business rate relief was welcome for retailers, but it excluded workshops and offices used by high-tech start-ups. I particularly have in mind small jewellery makers in my constituency, which is famous for the jewellery quarter at its heart. Such businesses will not benefit from the Government’s announcements in the autumn statement and, as I have said, a significant rise in business rates is still envisaged for small businesses.
Our proposal for a switch spend from corporation tax to business rates is a much more comprehensive measure that would offer genuine and more far-reaching support to small and medium-sized enterprises. Given the scale of the problem, our policy seeks to offer practical help that would truly make a difference on the Witton road, the Coventry road and the Soho road in my constituency. The Exchequer Secretary will be pleased to know that it would also make a difference in his constituency. The Office for National Statistics report “UK business: Activity, Size and Location 2013”—a great read—tells us that more than 80% of the 5,750 VAT or PAYE-based enterprises in South West Hertfordshire employ no more than four people, while almost 75% of them have a turnover of less than £250,000. They are therefore not affected by the changes to the main rate of corporation tax, which he himself oversees; they are more likely to be in properties with a rental value of £50,000, and are therefore more likely to benefit from Labour’s proposal to cut and then freeze business rates in 2015-16.
In conclusion, we believe that our policy is the right one for helping small businesses. It meets the scale of the challenge that they face on business rates, and it makes the right choice about how to pay for the policy. We will want to vote on our amendment later this afternoon to highlight the impact of this Government’s decisions and the imbalances in their approach.
I remind the House that I offer advice for an industrial company and an investment company, although not on these subjects.
I thought that the hon. Member for Birmingham, Ladywood (Shabana Mahmood) started her speech very promisingly. I admire her background, and I can think of a former great Member of Parliament who came from a very similar background and who deduced some very sound principles about how economies and shops work. I thought that the hon. Lady was going to develop in that style. I was delighted when she said that she is now a convert to tax reduction. She said that she and the Labour party now think that taking corporation tax down from 28% to 21% was right. It is wonderful news that we seem to have cross-party accord on the fact that lower tax rates can bring businesses to Britain, keep more profit in Britain and, if we let such policies fructify for long enough, even lead to more revenues and help to promote the economic growth that we all want.
The hon. Lady went even further and thought up another tax reduction that she wants. I am not normally one to let a tax reduction opportunity go by, and she said that a reduction in business rates would be a very good idea. She said that it would be good to find a way to make a further reduction in business rates, because that would be very welcome after years of increases.
I was then disappointed, however, because the hon. Lady said, “Oh, you can’t have too much of a good thing. It might start to work. You’ve got to have a tax rise, as well as a tax reduction.” She did set one part of the business community against another, although she claims that she did not do so. I find that rather curious, because we are meant to be debating the Opposition’s amendment 2, which does not propose a reduction in business rates or an increase in the corporation tax rate, although she says that that is their policy. The amendment allows us to talk about that because it is very wide ranging. We can talk about any kind of tax because it invites us to look at alternatives to corporation tax in ways that she spoke about.
We have a contradiction: the Opposition say that they have a settled policy to put up the corporation tax rate for larger companies and to cut and then freeze business rates. However, we are asked to vote on a much weaker amendment, which just says that the Chancellor of the Exchequer should conduct a review of the impact of cutting the corporation tax rate from 21% to 20%, as well as of other options, presumably including the one that the hon. Lady has already adopted.
Does the right hon. Gentleman accept that the primary cause of that increase in revenue is income shifting from one year to the next? Many individuals held back income in the year when the rate was 50%, and brought it forward when the rate was reduced to 45%.
I do not accept that at all, because the revenue in the previous year was very similar to the figure for the year before that, which was before people knew that there might be a cut in the tax rate. I suspect that next year will also see good levels of revenue. I do not expect a sudden reduction of £9 billion in revenue in the financial year we are just starting. As always, the hon. Gentleman is peddling misery for no good reason. Labour Members should rejoice and accept the fact that if we cut a rate, we sometimes get more money. They always want to spend other people’s money, so surely they should listen to how we can maximise the amount we get out of people.
Will the right hon. Gentleman explain where, following the rate change, this money has suddenly come from if it is not re-phased income? Is he suggesting that people have somehow avoided tax or that people have suddenly come into this country to pay it? He must have some reason for the increase, if he does not accept the one given by my hon. Friend the Member for Edmonton (Mr Love).
We are talking about people who are a serious amount richer than any of us on MPs’ salaries, and if the hon. Lady meets such people occasionally she will discover that they have many more freedoms than other people on when and where they earn income, what they invest in and where they organise their affairs. Some of them were not in this country before and came here when the rate was lowered. Some have some money in one country and some in another, and they can quite legally shift their money around and decide where they are going to earn more income. That is what companies do, as she has discovered and sometimes complained about. Rich people have a lot of flexibility, which means that a country that sets sensible tax rates attracts and keeps more of them and gets them to do more things.
There is also a disincentive effect, because someone who is legally here and keeps all their money here might not do extra work—why should they, when they are going to be taxed at too high a rate? Or they might not take an extra risk with their investments—why should they? If it works they will get taxed, and if it does not work they will take 100% of the loss. We can therefore change the climate by setting a competitive rate to encourage more confidence and action.
I do, because I want to explore the Arthur Laffer effect. The right hon. Gentleman seems to be saying that if we reduce income tax, we increase the amount of money we take. How far would he take that? Would he make income tax 40p in the pound, or 35p? Would he abolish income tax entirely and raise even more money?
The hon. Gentleman is now being completely stupid, is he not? There are two rates of tax that will raise no money—0% and 100%—and there is a curve between the two, which, as he rightly said, was first drawn by Mr Laffer, I believe on a napkin. Most people, including the Treasury, accept that there is a Laffer curve, and that it is a question of judgment where the rate is that maximises revenue. It is quite clear from the evidence in this year’s Revenue and Customs figures that 50% was too high a rate to maximise revenue, and that 45% gets us more revenue than 50%. I believe that 40% would get us more revenue than 45%. I am pleased to hear today that a Liberal Democrat, of all people, is writing a book on the subject. I welcome that and look forward to more progress in coalition talks about the maximising rate of income tax. If it were taken down to 20%, we would clearly lose a lot of money, so somewhere between there and where we are now is the maximising rate, and getting it right is partly science and partly trial and error. We can be sure that we are now moving in the right direction, having gone in the wrong one previously.
It is interesting that the previous Prime Minister, during all his time as Chancellor of the Exchequer, never took the top rate above 40%. I do not think that was because he liked rich people or wanted to be unkind to the left wing of the Labour party. I believe it was his judgment that anything over 40% would have cost him revenue. As a modest man, I therefore accept that there was something about which he was absolutely right—he was correct in not raising the top rate of tax above 40%.
The right hon. Gentleman has made a case about corporation tax and about the top rate of income tax being reduced from 50p to 45p. Would he apply the same logic of Laffer to indirect taxation? It would be interesting to hear his comments about the raising of VAT to 20%.
It is clear from the figures that the raising of the rate to 20% increased revenue. Yes, there is a Laffer effect in VAT, and 20% is clearly below the optimising point if our only interest is in increasing revenue. Going from 17.5% to 20% has not got us to the point where it costs us revenue. If it had, I would have been the first to tell Ministers that it was a ridiculous idea. I understand their need for more revenue, because they inherited such a huge deficit.
Of course, companies often pay VAT before they even make a profit.
Indeed, there are timing issues with VAT, as the hon. Gentleman says, but I do not really see how that affects the argument about whether putting the rate up brings in more money. That is in the figures.
I fear that we are drifting a bit far even from the wide subject of the amendment, but I suppose the alternative options to help business could include cutting VAT. However, it is clear that if we cut the rate of VAT again, there would be a substantial loss of revenue, whereas we have just cut the income tax rate and there has been a colossal revenue gain. We should learn from those points.
I think the shadow Minister suggested that there would be no loss of revenue to local government from cutting and then freezing business rates. I do not know whether she wants to intervene, but that was my understanding of what she said. I think the Labour party has been converted to the Laffer effect. It now asserts—I do not know on what evidence—that if we cut and then froze business rates, we would collect the same amount of revenue. I would need persuading about that, because I am not sure that business rates are at that point yet, but if they were, it would be a sensible proposal for the coalition Government to take up. It would make it an even bigger pity that Labour has not bothered to table a proposal along those lines for us to vote on today, which might even have drawn me into the Lobby against my own party’s Front Benchers if the case had been well made and I felt that the Laffer effect of lower business rates was well established. I have profoundly shocked my Front-Bench colleagues now, having earned myself a brownie point through my earlier remarks. As they are well aware, they are quite safe, because there is no proposal on the amendment paper to cut business rates. [Interruption.] The Whip has just found that out—she needs to do a little more homework before coming to these debates. [Interruption.] Now she is complaining that she did not say that. As she will be in the record as having said nothing, who am I to disagree?
Before I get into any more trouble, I will conclude my remarks by saying that I will not support the amendment. I do not believe that a review would help, and I do not understand how it would be judged. Nor does it seem that it would have any impact on Labour policy. I am perplexed by the fact that when Labour has a clear policy for once, it has not tabled a proposal so that we can debate it fully and vote on it. I strongly support lower corporation tax rates, which will be very helpful.
It is a great pleasure to speak briefly in this debate. There is everything to be said for reviewing the effects of changes in tax rates, but to do that one must eliminate all other factors. A great surge in demand over a certain period, with unemployment going down and output going up, and all sorts of other factors can affect tax revenues. It is not just tax rates. As my hon. Friend the Member for Edmonton (Mr Love) said, if there was a direct relationship between lower tax rates and increased revenues, a zero tax rate would mean big revenues and a higher tax rate would mean lower revenues. It is just not like that.
I also suggest that marginal changes to tax rates will not make much difference. Everybody in business likes lower taxes, and no doubt most citizens do. It is in the nature of things, because they have more money in their pocket. At the same time, in a civilised society—I like to think that we still have some remnants of a civilised society—taxation is vital to pay for the things that make it civilised. I would personally like higher revenues, so that we could spend more on the things that make our society worth living in. Over the past few decades, there have been some regrettable cuts in tax revenues. Perhaps we should not go back to the 98% top rate of the 1970s, but when Nigel Lawson got rid of the 60% rate and brought in the 40% rate, it led to substantial income for better-off people.
Would the hon. Gentleman not accept that cutting the top rate from 83% to 40%, or from 98% to 40% for so-called investment income, meant a huge surge in revenue? Rich people not only paid more in cash terms and real terms but paid a bigger proportion of total income tax. What’s not to like?
We can argue about particular cases, but when we measure the impact of tax changes, we have to ensure that we are not measuring other factors. I met some people in the City just after Nigel Lawson cut the tax rate, and a lot of them were aghast at the Budget, saying, “Why has he cut the taxes? We don’t need the money.” They were clearly not of the same mind as the right hon. Gentleman, but they were civilised, decent people who thought that good tax revenues and higher taxes were a good thing.
As they were civilised people who did not need the money, all they had to do was give it away. They could have given the money to the state or to charity.
It is a pleasure to speak in the debate. If there is one attraction to the amendment, it is that it allows a broad-ranging debate on any tax measure one can think of. Perhaps I could talk about the impact that a carrier bag tax would have on small businesses, especially a tax on bags that would allow the biodegradable element to get into the recycling stream, which damages recycling businesses in the plastics industry. That would perhaps stretch the debate a little too far away from the main rate of corporation tax, even though hon. Members might agree on such a measure.
We are going in exactly the right direction in trying to get the main rate of corporation tax down to 20%. That has been the direction of travel for this Parliament and it is the right place to be. I suspect that, if we get it to 20%, that will be the end of the journey, for the very good reason that having a corporation tax rate lower than the basic rate of income tax creates lots of interesting tax planning opportunities, as the previous Government found out when they had a small companies rate of 10%. Lots of strange people incorporated themselves as businesses—they looked a lot like one-man bands who ought to have been self-employed and made interesting tax deferrals or savings when pretending to be companies.
If we get to 20%, that is the end. I suspect that that is why we can no longer have a small companies rate of corporation tax that is lower than the large companies rate. If we lower one rate, we encourage behaviour that we do not want to encourage. It is right that we get both rates down to 20% and to have one rate of corporation tax. We can then scrap the hugely complex marginal relief calculation and everyone will know what rate of tax they pay on their profits. That has to be the right situation. A small growing business, whose profit increases during the year and suddenly hits more than a quarter of a million pounds, will wonder what tax rate it will pay in that year, so losing that whole calculation completely is a huge advantage.
Does my hon. Friend agree that the review could very usefully come up with a 20% capital gains tax rate, too? I would settle for 20% capital gains tax, 20% corporation tax and 20% income tax. There would then be fewer tricks.
A symmetry of tax rates would make perfect sense. Whatever form of income one had, one would know what rate one was paying.
We must review constantly what we do to get it right. The suggestion is that a review in itself causes uncertainty, but there are many uncertainties in business. The constant discussion about the EU, Britain’s place in it and whether there should or should not be a referendum is an uncertainty. I am sure that many people who feel strongly about that nevertheless feel it is so important that they are willing to risk that level of uncertainty.
The Labour Front-Bench team made a great deal of the need for banks to lend more money to small businesses being crucial to their future. How would an increase in the corporation tax rate and a special bank levy on payroll help? Would not that mean that the banks had less money to lend?
We still see high levels of remuneration and bonuses at banks while small businesses are told that there is no money to lend. Sometimes, of course, we are told the opposite is the case: banks allege that it is not a lack of money, but that businesses are not coming forward and do not want to expand. For a lot of small businesses who want to borrow, it is galling to find that banks are still seemingly able—despite all the difficulties they allege they have—to pay out so much in bonus payments.
To review these matters and to make a genuine attempt to provide additional help for the small businesses we all say we want to help would be useful. The terms of the amendment would enable us to get details of the impact of the cut in corporation tax to see exactly what the impact has been and what the impact of the suggested minor and very small increase might be before a decision is made.
As a result of our corporation tax reforms, businesses are moving their headquarters here. The north-east of England, for instance, has benefited from Hitachi’s investment. However, if the hon. Lady’s point is that the job has not yet been done and that further steps are needed to make our economy more productive and competitive, I entirely agree with her. That is why we must stick to the long-term economic plan.
Does the Minister agree that increases in investment require consumption growth? Does he agree that the whole point of investment is to satisfy future consumption increases, and that we need both for a balanced recovery?
Indeed I do. As ever, my right hon. Friend brings great expertise to the debate.
Clauses 5 to 7 provide further evidence that we are continuing to make progress towards the delivery of a simpler and more competitive tax regime. They charge corporation tax for the financial year 2015. They set the small profits rate and the ring-fence small profits rate for 2014 at 20% and 19% respectively. They fix the ring-fence rates so that we need not reconfirm them every year in the Finance Bill. That is consistent with the way in which we handle the supplementary charge, the 32% tax levied on profits from oil and gas production. They set the fractions that will be used for businesses to calculate their marginal relief: the standard fraction is set at one four-hundredth, and the ring-fence fraction at eleven four-hundredths.
(10 years, 4 months ago)
Commons ChamberI thank my hon. Friend, who characteristically makes a very good point. The problem is that to give the kind of detailed personalised advice that people want, the fee has to be at a certain level to reward professionals for doing the job, but smaller pension pots make that very difficult. That is nothing to do with regulation; it is simply about being able to charge the correct amount for their time. I hope that there will be alternative systems, although they may not perhaps give quite the bespoke advice that is available for people with larger pots. In other fields, such as accountancy, there are ways in which people can get good advice without having to spend the vast amounts of money available to those with larger pots.
My second point about changes in pensions legislation is just a thought. Many billions of pounds will become available that would have been dealt with directly in the insurance market through the annuity system. Have the Government given any thought to providing a facility involving national savings in which the Government or an organisation acting on their behalf deal with it on a managed fund basis? There is a similar system in Australia and New Zealand, where there is a kind of sovereign wealth fund that comes from people’s pensions pot, accrued together, with the necessary caveats about risk, a portfolio approach and all such matters. The Government thereby take advantage of the savings system, so that people can retire with a very good, solid and Government-guaranteed choice—of different types of products and risks—about what to do with their money. It would be very simple, with perhaps one or two choices; it obviously could not compete with the great panoply of schemes of the large fund management companies. It would be simple so that people could understand it, and I hope that it would provide a vehicle for funds that are safe and give a good return for the public, while also providing the Government with extra funds, as happens with National Savings & Investments.
On the Budget generally, which I support fully, my fear is that this country still lacks a business culture. Both this Government and the previous one quite rightly focused on small and medium-sized enterprises, businesses and apprenticeships, with different schemes and systems to try to help them. When I speak at schools in my constituency—as for all hon. Members, they are a regular feature in my diary—it is interesting to talk to young people about what they want in life, yet very few of the brighter ones seem to desire to go into a business environment. Those who do have such a desire tend to be interested in graduate schemes with larger multinational companies or the professions. There is nothing wrong with that—some of them, heaven forbid, want to be politicians—but these are the very people whose families often have small businesses in my constituency, and there are 1,600 businesses in Watford that employ between two and seven people. It seems to me that the establishment—schools, parents and everyone else—very much look for brighter young people to go into the professions and find alternatives to self-employment.
It is very hard to change that culture, but I want to commend the Government for what they have done to help small businesses and to help people to start up businesses. Wenta in Watford—the Exchequer Secretary may be familiar with it, because it is near his constituency —is an incubator for many start-up businesses. I saw several of them when I was there only a couple of weeks ago, including a small business started by James Morgenstern in which, in arrangement with Google, people who find an image of a building on Google Earth can then see a video of its interior. He started it in his bedroom and has now moved to an office at Wenta, and the business will expand.
To use James Morgenstern’s business as an example, his next big step is to have a first employee. I can speak with a little authority, because many years ago—I am probably about the same age as his parents or, depressingly, his grandparents—I was in that position. One starts a business and it is all great: one does everything oneself, being up 20 hours a day, and all that—it is a great pity that the shadow Chief Secretary is not in his seat at the moment, because he would be very interested in this, so perhaps I should brief him fully outside the Chamber—and the next step is to have a first employee.
I am very pleased that the measures taken by this Government have helped somebody to take that step. There have been different schemes relating to national insurance, and in particular schemes that have made it very reasonable for small companies to take on apprentices, who are given a tailor-made programme. To get to employees Nos. 1, 2 and 3—after employing only oneself—is the biggest step for a small business. From the point of view of the economy, in reducing expenditure on welfare, while people benefit from earning money themselves and eventually pay tax, that step is most critical. Many of the measures in this Budget and in previous Budgets will help with that.
In the end, most people set up businesses for one reason. It may be a noble reason or a selfish reason, depending on one’s perspective, but people set up businesses to make money for themselves and their family. When I speak to students in my constituency, I always commend those who want to be teachers, social workers and doctors because when they graduate, they will give their lives to help other people in society. However, to those people who put their hands up and say that they want to become rich, live in a big house and get a Ferrari—there are a few of them—I say that, provided that they pay their taxes and employ people, they will benefit society just as much as the first group of people. I really believe that. I believe in everything that the Government have done in the Budget and in the Finance Bill to help people to do that.
The tax cut for millionaires is a mantra for the shadow Chief Secretary. I am sure he is having his cup of tea and saying the same thing to anyone around the table who cares to ask. However, I do not believe that what he says holds water, because we want people to become millionaires. I want my constituents to want to become millionaires. By the way, on the first million, they will pay about half a million in tax and will hopefully spend another 200 grand on the Ferrari. Can we please let people become millionaires? The Government should help people to generate wealth and a lot of tax to support the people in this country who really need help.
Are not people who set up businesses performing a public service in their own right? They are not just given a million pounds because they want a million pounds. They have to open a chemist shop and provide pharmaceuticals to people or whatever. Is that not as much of a public service as anything else?
My right hon. Friend makes a valid point. That is another benefit. That is another way in which setting up a business is a public service.
Many of the things that the Government are doing involve not only the Treasury, but other Departments. I mentioned the pension changes, which relate to the Department for Work and Pensions. There are also changes in skills and education. The new university technical college in Watford completed on its property in Colonial way today. That has been put together by David Meller of the Meller Education Trust, who has several projects in the area, and myself. It will provide pre-apprenticeship education for businesses in the area that have jobs and that want trained people.
The UTC is sponsored by the Hilton hotel group, which is based in Watford. In fact, it runs the world from Watford. Everyone in Watford thinks that they run the world from there, but Hilton actually does. For the sake of clarity, people should understand that that excludes the United States, the rest of the world being a region of the United States in many people’s perception. The important point is that such firms are thinking, “If we want skilled employees to build up our business, we need them to be trained from quite an early age.” Hilton and Twin Technology, which is an IT company, are the two main sponsors of the UTC. They helping to design the courses because they are prepared to guarantee that there will be work experience and apprenticeships for people who come through the college. The Government have helped to facilitate that through the Budget and the Finance Bill.
In the dream world of the Opposition, they say, “Hey, everybody should get a job and it is guaranteed for a year.” No one has explained to me where those jobs will come from. I saw people working in the park as a result of the last Government’s attempt at that. People were taken on for a year to help the park keeper, but the job disappeared because it was not really a job. I am pleased that this Government have done their best to avoid that trap.
My hon. Friend is exactly right. I have met many such individuals in my constituency. Two of the main food banks in my constituency are Cardiff Foodbank and the Tabernacle food bank, which is run independently by a church in Penarth. During the festive period in the run-up to last Christmas, demand for the Tabernacle’s services was eight times higher than it had been over the previous festive period, and demand in Cardiff overall doubled. I found that information very revealing. If it does not give an impression of what is really going on—of the hardship that people are facing, and the number of people who are on the edge as a result of the cost of living crisis—I do not know what else does.
Since devolution and the advent of a Labour Government in Wales, there has been more public spending per head in Wales than in London and the south-east, yet the economy of London and the south-east has greatly outgrown that of Wales. Why should that be?
I am interested that the former Secretary of State for Wales should want to make comparisons between the economic performance of Wales and that of the rest of the United Kingdom. As I said earlier, the Jobs Growth Wales scheme has secured work for 12,000 people who would not otherwise have obtained it. In fact, Welsh unemployment is now lower than unemployment elsewhere in the UK. I think that the Welsh Labour Government are doing a very good job, notwithstanding the constant war on Wales being waged by the Conservatives, which the right hon. Gentleman appears to want to continue.
What I have described is the reality of life in Britain today for the constituents I have met at food banks, because of the cost of living crisis. We want the Government to take the steps we have recommended. We would like to see a Finance Bill that froze energy bills, reformed the broken market, returned people to work—not just in Wales, but throughout the UK—with a compulsory jobs guarantee, cut taxes for 24 million people on middle and low incomes by introducing a 10p rate, and cut business rates for small firms rather than cutting corporation tax for the biggest. A moment ago, we were talking about the Welsh Labour Government. It was only yesterday that their Economy Minister announced a new business rates relief scheme for retail companies. That is another example of the way in which they are prioritising small businesses, whereas this Government are prioritising those at the top. Of course, we would also reverse the £3 billion tax cut for people earning more than £150,000 a year.