Finance (No. 3) Bill

Debate between Julian Knight and Vince Cable

2nd reading: House of Commons & Programme motion: House of Commons
Monday 12th November 2018 Commons Chamber

[Sir Vince Cable]

That was at the heart of the Dilnot proposals that Lib Dem Ministers sponsored and supported in government. If that is the idea, we do not have any problem.

On the income tax changes, and particularly the lifting of the higher-rate threshold at a cost of about £1.3 billion, I certainly do not regard people on £50,000 a year as rich—they have a lower income than we do, among other things—and, in an ideal world in which there was plenty of tax revenue and the economy was booming, lifting the threshold would be perfectly reasonable, but given other priorities it is a bad choice. As it happens, that £1.3 billion is equal to the shortfall between the amount of money the previous Chancellor took from universal credit two years ago and the amount that was reinstated this year. Filling that shortfall would be a much better use of the funding.

[Julian Knight]

Has the right hon. Gentleman thought about the effect of fiscal drag on productivity? The fact is that, as more people get into the higher-rate tax bracket, the less productive they may become, which lowers tax receipts and lowers productivity in the economy.

[Sir Vince Cable]

It is a good policy, in general, to eliminate fiscal drag, and the Government should do that. But it is a question of priorities, and the disparity between standard-rate taxpayers, who stand to gain £130 a year from this measure, and upper-rate taxpayers, who stand to get £800 a year, reflects the Government’s priorities, which are completely wrong.

It would be less bad if the Chancellor had been willing to tackle something that he acknowledges is a problem, which is the expense of the reliefs given to higher-rate taxpayers through the pension system. He described the pension tax relief, which costs the Treasury £25 billion a year, as “eye-wateringly expensive”. We started to approach it in coalition, and, in a difficult fiscal situation, this is something that the Government should be addressing here, but they are not. However fair-minded we want to be to all groups of taxpayers, it is very clear that this is a political gesture. The social priorities are completely wrong.

It is very welcome that there has been a big relief for shopkeepers and others through the business rates system, but it does not address the underlying problem that business rates are a bad tax—they tax improvement in property. The Liberal Democrats and some of the think-tanks have been associated with another proposal, and it would not be difficult to replace the business rates system with a tax on commercial landowners. That would be a much simpler system, as there are far fewer landowners than there are people who pay commercial rates. It would be much more equitable, and it would not discourage business improvement. Currently if a factory installs machinery, it makes itself eligible for higher commercial rates. This is a thoroughly bad system, and extreme Treasury conservatism is why the problem is not being addressed.

One thing the Government have done, which is positive, is attempt to deal with the digital sector, but I reinforce the point made by the hon. Member for Dundee East (Stewart Hosie) that the magnitudes involved are very small. We are talking about £5 million next year, rising to £440 million, in a context where the National Audit Office, not a political body, has estimated that the retail sector in the UK had lost £9 billion of revenue as a result of competition from internet platform companies—in essence, we are talking about eBay and Amazon. The disproportion is enormous and the measure, although welcome, is very weak.

To conclude, there are a lot of small, sensible things in this Budget—I do not want to be grudging about them—but the big picture is dire, and the big Budget judgment, which is about giving priority to reducing income tax, is fundamentally wrong.