Capital Gains Tax (Rates)

Liz Kendall Excerpts

Wednesday 23rd June 2010 Commons Chamber

[Vince Cable]

The Government did look at the possibility of raising capital gains tax further. They did serious analysis and the conclusion was that it would not raise any more revenue. That was the problem. It certainly would not have raised anything remotely like £10 billion. That is why we cannot evade this issue.

Let me turn to the central concern about value added tax, which is expressed on both sides of the House: the worry about regressiveness. I checked back on what independent analysts were saying about value added tax and its income distribution effects. It is worth looking at the work of the Institute for Fiscal Studies, which has conducted a distributional analysis based on expenditure. It came to the conclusion—this is its word, not mine—that value added tax was fairly “progressive” because of the exemptions that are given for zero rating, as food, children’s clothing and other essentials are key items in the expenditure patterns of poorer people. [Interruption.] The top 10% of the population pay three times as much in value added tax as the bottom 10%. [Interruption.]

Opposition Members are expressing righteous indignation about what they regard as regressive measures. Let me tell them which is the most regressive tax: it is council tax. Do they remember what happened to council tax under the Labour Government? On average, it went up 70%. Taking into account rebates, for the poorest 10% of the population it rose by 93%. It is the most regressive tax of all, yet they lecture us in this sanctimonious way about regressive taxation. They have no basis for doing that.

Finally, let me turn to the crucial issue of growth, which the shadow Chancellor raised. He is right that growth does not happen automatically; of course it does not. How do we proceed from the austerity that has to happen—from cuts in public spending—to growth in business investment and net exports, which we want to see? That is a genuinely important question, to which there are no simple answers. The perfectly fair point has been made that there are risks involved here, just as there are risks, which we judge to be bigger, in doing nothing, so let me try to answer this question seriously. If we are going to get growth, it will come partly through demand and partly through supply. How do we sustain demand? Essentially, we do so through monetary policy. That is what happened under the last Government. The reason why the economy kept on going through the recession was not Government fiscal stimulus. That was trivial, and it has now been withdrawn anyway. It was not for that reason; it was because we had very low interest rates, the expansion of money through quantitative easing and, of course, a big devaluation.

Those factors drove the economy in terms of demand and they will continue to do so. There is a reason for believing that that is what will happen: the Governor of the Bank of England called for this Budget and has now got it, and he has every reason to understand the need for monetary policy to support recovery.

[Liz Kendall (Leicester West) (Lab)]

Will the right hon. Gentleman give way?

[Vince Cable]

Is it on that point?

[Liz Kendall]

Yes.

[Vince Cable]

Okay.

[Liz Kendall]

The right hon. Gentleman says that the Budget will increase growth, but the Office for Budget Responsibility says in the Red Book, at paragraph C.18, that

“economic activity is weaker than in the pre-Budget forecast…this reflects Budget measures which restrain government spending and real household disposable income, holding back consumer demand.”

Does he agree with the OBR or does he now admit that the Budget will not increase growth?

[Vince Cable]

That was not on the point I was speaking about. I know that the hon. Lady is a new Member, but I am sorry that she felt the need to read out her question in the way that she did. Nevertheless, there is a very simple answer on page 94 of the Red Book. It is a technical point made by Sir Colin Budd, who drew up this part. These issues are not comparable. Had the Labour plans been implemented, interest rates would have been higher than they now are, which would have dragged down the rate of growth and pushed up the level of unemployment beyond what it is. That is the distinction he makes. He also refers to the fact that there is a basic confusion. I noticed that the Chancellor did not repeat the point in his speech, but it was raised yesterday. That explains the hon. Lady’s genuine misunderstanding.

In addition to issues about how to stimulate demand, there is an issue about how to get business investment moving—how to get supply, and an understanding of the supply side of the economy. A lot of the Budget’s stronger points were about that issue. The Budget was about creating a tax environment within which business is confident to invest. It is about doing the things that my Department is now starting to do in conjunction with the Cabinet Office, such as looking at the 20,000-plus additional regulations that were built in by the last Government and which are shackling small business. It is about addressing the issue of bank credit that was lamentably neglected by our predecessors, and investing in things like apprenticeships, which we have started to do even within our few weeks in office.