Finance Bill

Kevan Jones Excerpts

Monday 2nd July 2012 Commons Chamber

[Sheila Gilmore]

The policy on the higher tax rate is, in effect, an endorsement of tax avoidance, which worries me greatly. Some of us sat through the Finance Bill Committee and heard Government Back-Bench Members say how much they disapproved of tax avoidance, but throughout this episode we have heard people argue that because some people have taken steps to avoid tax, we should reduce it. That is highly unsatisfactory to the many people who, on pay-as-you-earn, have little ability to avoid tax. They are gobsmacked by all this.

If part of the problem was due to people forestalling, which is the technical term, in the first year of the new tax, perhaps—and this is a thought for the future too—we should have introduced it with immediate effect, as happens with some other taxes. For example, tobacco duty is generally increased on the day of a Budget, so that people do not rush out to fill their shopping bags—or whatever they do. Perhaps that would have been a way around it. I know it is not traditionally done with increases in tax rates, but if that is how people respond to these things, perhaps we should treat higher earners like we treat people we think will fill their bags with cheap booze or cigarettes, and forestall them, rather than letting them forestall the rest of us—because that is what they are doing to the communities in which they live. Unfortunately, in a year’s time, we are likely to hear Government Members saying “We told you so” even more. The reduction has been postponed for a year, but it will still happen, and a lot of people will no doubt do the same thing in reverse when it does.

It has become something of a mantra to say that no money was ever raised from the 50p rate of tax, but that is not true: £1 billion was raised, even in the year in which people were apparently forestalling. If we had let it run for somewhat longer, the situation could have been even more different. However, as the Institute for Fiscal Studies pointed out, to rush to judgment on this matter so quickly, because that suited the way in which the Government wanted to go, was not justified. We are, in effect, saying to people that it is all right to avoid tax.

I started to tell a little story earlier, and I hope that it will be seen to be relevant. I am fascinated by history, and particularly by housing, and—unusually, for me—I watched a television programme last night. It was entitled “The Secret History of Our Streets”, and last night’s episode was about Portland road, in London. It had been made long before the current debate on the Budget. A young, brash banker got up and said that the value of the property on that street had gone up even further since the taxpayers had bailed out the banks. Did we really think, he asked, that the banks were going to start lending to small businesses? No, they were going to give people like him an increase in income so that they could pay even more for those houses. He might have been one of those boastful types, but that was nevertheless an insight into the mindset of the kind of people in our community who think that tax avoidance is absolutely legitimate. There is a great deal of wealth in this country, as that example showed, and many ordinary people find this whole debate offensive and difficult to swallow.

At the other end of the tax issue, we have the question of raising the tax-free allowances. The Government keep saying how kind they are being to people on low incomes, but we should remember that once those people have had their tax allowance raised, they will get no further advantage in subsequent years because they are already out of the income tax regime. Other people, however, have gained considerable advantages from the raising of the basic tax threshold. Many people on considerably higher earnings—although not necessarily paying higher rates of tax—have gained from the measure.

It has been easy—for the Liberal Democrats in particular, as this is one of their favourite lines—to say that raising the tax threshold is all about helping the very poorest. However, the very poorest were already outside the income tax regime, and people on considerably higher earnings—particularly two-earner families without children—have benefited substantially from the raising of the threshold. We must also take into account what people on the margins who have been taken out of tax have lost. When we look at the details, we see that as a result of the measure, they could lose tax credits and, in some cases, housing benefit. Their gain is therefore very much less than has been suggested.

[Mr Kevan Jones (North Durham) (Lab)]

A lot of the people my hon. Friend is describing are actually in work, and the Government seem to forget that a lot of low-paid workers get housing benefit and other benefits. Does she agree that it is those individuals who will be hit the hardest?

[Sheila Gilmore]

Indeed, people who are working and who are, or were, paying tax stand to lose considerable amounts, particularly in the light of the way in which the tax credit system has been eroded as part of this process.

There are those who say—again, this is one of those things that keeps getting repeated as if it were true—that the Labour Government were not bothered about getting people into work or making work pay, but the whole thrust of tax credits, including child care tax credits, was indeed to make work pay. What this Government have done, by reducing the amount that can be claimed for child care, by taking away tax credits and, most inappropriately in my opinion, by taking away tax credits from some of the lowest-paid couples because they are deemed not to be working enough hours, more than detracts from the gains made by raising the tax threshold. Being realistic, these poor people whom the Liberal Democrats think they are standing up for have, particularly if they have children, lost out because of the combined effect of the Government’s measures.

I do not think there is any proof for the idea that if we lower tax rates, people will somehow invest. Let us look at what the Office for Budget Responsibility said about investment. It is predicting that the amount of investment going into business in the coming years will be much less than was previously thought. Despite what Government Members believe, if the people apparently not even paying this tax are not investing in the economy, is it clear where they are putting their money? Yes, they are clearly putting it into very expensive properties, but that does nothing to improve job prospects for young people.

[Mr Jones]

I suggest that those people are also putting their money into the Conservative party, whose largest donors are often hedge fund managers or financial services companies.

[Sheila Gilmore]

That may well be the case.

What we need to do is to find ways to invest in our economy that will genuinely benefit not just those who are unemployed, but those who are under-employed. The Government like to suggest that the rate of growth in the private sector has increased slightly in the last few months, but most of the jobs created over the last couple of years are part-time jobs. As a result of that, these very people are simultaneously losing tax credits and have to claim other benefits. The housing benefit bill has risen substantially in the last year, despite the Government’s changes, and that is because many people in part-time jobs are having to claim. What we saw in May, for example, was that the tax take had dropped and expenditure had risen, particularly on various kinds of welfare benefits.

Taken as a whole, this policy is simply not working. I would have greater respect for the Government if they were now saying, “We must look at why it is that some people are seeking to avoid the additional rate of tax. We must find ways—perhaps it is nudge, perhaps it is enforcement—to make them pay.” As others have said in this and previous debates, we seem to say to one group of people that if we take their benefits away they will work harder, while we say to another group of people that we have to give them more money through tax breaks so that they will work harder. It does not make a great deal of sense, and it is profoundly unfair.

Some of the differentials in our society now are huge. If the proportion—not necessarily the amount—of tax being paid by the top 1% of earners has risen, it might well be because their incomes have risen so much further than those of the rest of the community. The gap between the top earners and the rest has widened hugely over the last few years, which creates a profoundly unequal society.

--- Later in debate ---

[Jacob Rees-Mogg]

No, I do not. I do not believe that taxation is a matter of morality. I believe the law is a matter of morality and it is immoral to break the law, and therefore I divide very firmly between tax evasion and tax avoidance, which is the historical position of this Parliament—and, indeed, of English law. Tax evasion is criminal and should be prosecuted to the full extent of the law. I think the scheme used by a comedian, whose name momentarily escapes me but who is quite famous, was almost certainly unlawful, and that scheme should be prosecuted.

[Mr Kevan Jones]

I know the hon. Gentleman lives in a rarefied world, but does he not understand the anger felt not only by low-paid workers, but middle-earners, who pay their tax through pay-as-you-earn and have no opportunity to avoid tax, unlike the footballers to whom he referred? This situation cannot be fair in any society.

[Jacob Rees-Mogg]

It is very important, once again, to differentiate between avoidance and evasion. If we have passed laws that allow people, for example footballers, to sell the rights to their name and corporatise that, we can change the law, and the fact that this Parliament has not changed the law means that people are entitled to do it.

[Mr Jones]

Does the hon. Gentleman get it? Does he not understand the anger of even middle-income earners, who pay their taxes, work hard and cannot use any schemes such as those he has been suggesting which are open to those on ludicrous sums of £250,000 a week? Many people in Somerset must be in this category?

[Chris Heaton-Harris (Daventry) (Con)]

rose—

--- Later in debate ---

[Jacob Rees-Mogg]

Oh, he is behind me. My hon. Friend the Member for Amber Valley said that the effect of the amendment from our Labour friends would be to bring the tax rate down to 40p. I am not sure that it was wise of him to say that, because those of us who were listening may be tempted to go into the same Lobby as the Opposition later, to help them achieve that objective.

I want to talk about the other great aspect of the Budget, and to give full credit to our Liberal Democrat friends for twisting Conservatives’ arms to get them to do something that they have always wanted to do anyway: get as many people out of taxation as possible by raising the thresholds. As the thresholds are raised, so the incentive to work becomes greater. The hon. Member for Edinburgh East (Sheila Gilmore) said that we wanted to make the out-of-work work harder by cutting their benefits, and the in-work work harder by cutting their taxes, and thought that was illogical. Of course it is not, because a person does not get unemployment benefit for working; if a person works, they lose their benefit, and if we encourage people to work, they have more money. Likewise, if we cut people’s taxes, they have more money, so they are likely to work harder.

When we raise the threshold, we find that many millions of people are able to work more easily. They will be taken out, to some degree, of the poverty trap, which is one of the most crushing and pernicious taxation and benefit traps that anyone has to face. The move, in stages, to a £10,000 threshold is a very bold thing to do in a time of economic difficulty, but it may have some of the greatest social benefits of any of the policies that the Government are following. It really is a noble approach to taxation—an objective that is fundamentally worthy.

[Mr Kevan Jones]

I have listened carefully to the hon. Gentleman, but I am not sure that he realises that a large number of my constituents, and possibly his, who are in low-paid jobs claim council tax benefit, housing benefit and tax credits. However, all of those have been cut by the Government, and that counters the encouragement to work, in terms of the increase in the threshold.

[Jacob Rees-Mogg]

I am always grateful for the hon. Gentleman’s thoughtful interventions, but one of the greatest mistakes that Governments make is to have this merry-go-round of taxation and benefits, whereby we tax people and then pay them back their own money in benefits, with a cut taken for administration in between. It is much more sensible to take people out of tax altogether. I would like the threshold to be raised considerably higher, basically towards average earnings, so that the bulk of people do not pay tax at all on what they earn, but do, of course, pay in other ways, through other taxes—through indirect taxation. That takes away the major disincentive to go into employment, and lets people benefit from the fruits of their labour. That is an important proposal that has come forward, and it is popular throughout the country, though I would not say that there was literally cheering in the streets.