Finance (No. 2) Bill

Kelvin Hopkins Excerpts

Tuesday 1st April 2014 Commons Chamber

[Jacob Rees-Mogg]

That does not follow. It is like looking at the weather forecast on the BBC and saying that it is the fault of the newsreader if the weather then turns out to be different. The two are not the same. The forecasts were made in good faith, based on what was known of the global economy at the time. But of course, things change and responses are different. The global economy continued to be relatively sluggish, but the figures that have been achieved by the Government are enormously respectable. There has been economic growth pretty much since 2010 and, most importantly, in the past couple of years. Everyone knows that economic policies have a long-term impact. If a Government come to office in May 2010, we cannot expect the figures in June 2010 to be the result of that Government’s policies—there is inevitably a lag. The effects, as we have seen, have been positive; the economy is now growing, and growing increasingly strongly.

The problem that the Government faced when they came to office was severe. The deficit in 2009-10 was 11.2% of GDP, falling to 10% of GDP in 2010-11. That is not the structural deficit but the actual real money deficit. I happen to think that is a much better figure than the structural deficit, which is to some extent speculative, as economists try to work out what is structural and what is not. If we deal with actual fact, the figure was minus 11.2% in the last year of the socialists, falling very slightly to minus 10% in the first year of the coalition.

The reason the deficit was so high was of course in part the global financial crisis, but it was also because Government spending was simply too high. It had reached 47.4% of GDP in 2009-10, when revenue was only 36.2% of GDP. That latter figure for tax revenue ought not to be any surprise. One of the most remarkable things about this series of figures, going right the way back to Harold Wilson’s prime ministership, is that Governments find it incredibly difficult to get much more than 37% of GDP in taxation. It is interesting that, since 2010, although the Government have increased taxation and the tax take has gone up from 36.2% to 37.4%, the amount has not risen as much as was anticipated. The reason is that it is actually very hard to tax much more than 37% from an economy.

[Kelvin Hopkins (Luton North) (Lab)]

In Scandinavia, tax receipts in previous years have been much higher than 37%.

[Jacob Rees-Mogg]

Indeed they are in France as well, but in our economy there seems to be a resistance at about that level. It is almost unprecedented to get much over 38%. That has been managed in two years out of the past 40. That may tell us something about our society, about the willingness to pay tax and the incentives when tax rates are set. A realistic Government therefore need to think of public spending levels of around 37%, which is the level that can actually be afforded through ordinary taxation.

[Kelvin Hopkins]

Does the hon. Gentleman know how much of that situation is due to the abolition of exchange controls when Mrs Thatcher first came to office, and the fact that we now have an enormous tax gap because of tax avoidance and tax evasion, much of it overseas?

[Jacob Rees-Mogg]

The calculation from the removal of exchange controls is not one that I know or would be able to make. The effect of their removal has been to create a much larger economy for the United Kingdom, so we are talking about 37% of a larger pie rather than getting a higher rate in a closed economy. However, it is worth bearing in mind that in the years before exchange controls were lifted in 1979 we still were not getting a tax take of more than 38% of the economy. The series goes back longer than the abolition of exchange controls.

I part company from the Government to some degree on the question of tax avoidance and tax evasion. It is measurably important not to elide the two. Tax avoidance is perfectly legal—indeed, the Government come up with schemes in every Budget to encourage it. One example is saving for pensions—that is tax avoidance on people’s income. ISAs are a form of tax avoidance, as is duty free. In the Budget and the Finance Bill there are schemes for investing in films and television programmes that actively encourage tax avoidance. Such schemes become part of Government policy for growing the economy.

Governments then get very upset when people use the tax avoidance schemes, which the Government themselves have put into legislation, for purposes that the Government had not thought of. That strikes me as a fault of the legislative process and an incompetence of the legislators—I am sorry to say, Mr Deputy Speaker, that it is our fault—for allowing such loopholes. It is not the fault of the taxpayer for using them. Any sensible, intelligent taxpayer will pay the minimum amount of tax that is legally required. To elide avoidance and evasion is, I think, against the rule of law: it undermines the rule of law by pretending that something that is innocent is nefarious.

It is important to crack down on tax evasion, which is rank criminality, but the Government should not take excessive measures against that which is legal. Instead, they should write simple tax law because, to go back to the point I was making, Governments manage regularly to raise 37% of GDP in taxation almost regardless of the taxes they levy—they change a tax here and a tax there, but still get roughly 37% of GDP. Simple tax laws can probably get us to that level without the need for complex anti-avoidance legislation that undermines the rule of law. That is the one part of the Bill about which I have my doubts.

--- Later in debate ---

[Jacob Rees-Mogg]

Without being too hard on that specific case, I am clear that some of the cases reported as tax avoidance were tax evasion, and HMRC has taken on some of them successfully. I absolutely agree that it is right for HMRC to challenge schemes to see whether they are, in fact, evasion. Most of the schemes that gave extraordinary results seemed to be evasion rather than avoidance, but we must remember that, day by day, honest people avoid tax that they are not required by law to pay.

[Kelvin Hopkins]

I thank the hon. Gentleman for giving way yet again. The big losses from tax avoidance and evasion are to do with the corporates. The cosy relationship in recent years between HMRC and some of the corporates, particularly Vodafone, is appalling. I am sure the hon. Gentleman would like to talk about that.

[Jacob Rees-Mogg]

I am grateful to the hon. Gentleman for that intervention. The thing about corporation tax is that a lot of corporations can be taxed almost anywhere in the world. That is why I think the Government are absolutely right to bring down the rate of corporation tax. It will help businesses to be headquartered in the United Kingdom, which is good for the UK in terms of employment and, indeed, tax revenues, by which I mean not just corporation tax revenues, but the other tax revenues paid by companies, namely business rates and employer national insurance contributions, as well as the taxes paid by their employees. We get a larger, more successful economy if we are relatively generous to corporates.

Northern Ireland Members have spoken of the particular circumstances there and the competition Northern Ireland faces from the Republic of Ireland. That is a very good case of tax competition between neighbours and it can be seen very bluntly in Northern Ireland because of the land border. We see less of it on the mainland of the United Kingdom because we do not cross borders quite so easily and we do not necessarily focus on it as much as we should. I think that the Government are absolutely right on corporation tax and that they should continue down that line.

The Government have also been right on the raising of thresholds and I hope they will continue with it. It makes sense, as my hon. Friend the Member for Redcar (Ian Swales) has said, because it is not logical for people on the minimum wage to be paying taxes. There is no point in taxing people who are low earners merely to pay them benefits with their own money. Although it was a Lib Dem policy in the last election and they deserve credit for that, it was suggested earlier by Lord Saatchi and Peter Warburton in a booklet they produced for the Centre for Policy Studies. The Conservative antecedents of the policy are pretty good and solid. It is a Tory policy in origin and it ought to continue.

The aim of the Government in the long run should be that people on the minimum wage should pay neither tax nor national insurance. In that way, the amount of benefits that needs to be paid to them will be very significantly reduced, as will the administrative burden. Roughly speaking, tax collection costs 1% of the amount collected, and benefit payments cost about 2% of the benefits paid out, so if we tax people to pay them benefits, the overall cost will probably be about 1.5% of the total amount paid and received. The policy is very good and welcome.

Another policy that must be welcomed is the change to pensions. Questions about pension funds came up when my right hon. Friend Chief Secretary to the Treasury spoke. What the Government are doing is very simple: they are allowing people to keep their own money. That is not very popular among Labour Members, who seem to have the view that it is the Government’s money and should be distributed as they, rather than individuals, wish. Conservative Members and, indeed, Liberal Democrats who still have some residual liberal attachment believe that the money belongs to the individual taxpayer.

The policy has a very clear advantage for the tax authorities, because it clarifies the idea that pension saving is nothing but a tax avoidance boondoggle. It is about taxing people once, rather than twice. People are taxed when they withdraw the money from their pension fund, with a 25% exemption, rather than taxed when they put it in. It is worth bearing in mind that if that was at any point reversed, the withdrawal would be taxed as a capital gain rather than as income, and the rates that applied might be very different from those that currently apply to withdrawals from pension funds. Any Government who intend at any point—whether at the higher or the lower rate—to withdraw the benefits of saving through a pension fund should consider the ultimate pay-out, and how the policy is a fair means of taxing people and ensuring that they are not taxed more than once.

As my hon. Friend the Member for Dover (Charlie Elphicke) said, this was a “steady as she goes” Budget. It is very impressive. The Government have not gone for cheap gimmicks, as parties sometimes do before elections; they have gone for continuing the work, which they started in 2010, of getting the country back on track. They are doing so in a way that benefits the least well-off in society the most. It is absolutely striking that the real incomes of every decile other than the highest-paid decile will rise by more than prices this year, as they did last year.

That Government achievement is helping where help is most needed: it is helping business to allow it to invest; doing more to help exporters; helping to rebalance the economy for the long term; and—gloriously, splendidly and rejoicingly—it is doing something to ensure that people have their own money. What a fine Conservative principle that is. We believe that the individuals and their families who build up society have the greatest wisdom about how they spend their money, not the tax authorities that dish it out. What is being done with pensions is the clearest statement of that. Yes, if people buy Lamborghinis, Bentleys or Porsches, they will spend it unwisely—