New Wealth Taxes

Lucy Frazer Excerpts

Tuesday 14th June 2022 Westminster Hall

[The Financial Secretary to the Treasury (Lucy Frazer)]

It is a pleasure to serve under your chairmanship, Sir Edward. I congratulate the hon. Member for Leeds East (Richard Burgon) on securing today’s important debate. I know that he and others feel passionately about it, particularly—as many have mentioned—at a time when households up and down the country are struggling.

I propose to start my response by talking about the tax system and the degree to which wealthier individuals already pay a significant—and proportionately significantly greater—amount in tax. However, before I do, I want to recognise the important contribution that many wealthy individuals make to the UK economy. The Conservative party—this Government—supports entrepreneurship; we support wealth creation and we support ensuring that successful businesses in our constituencies contribute to our local and national economies. However, we also understand the importance of ensuring that wealthy individuals make a fair contribution and pay the tax that is owed.

That is not just our thinking of the moment; it is the way we have dealt with this issue for a number of years. We already have a very progressive income tax system, with the top 5% projected to pay nearly half of all income tax in 2021-22. The hon. Member for Leeds East mentioned the top 1%, and he may know that they will be paying more than 28% of all income tax.

The hon. Member for Hemsworth (Jon Trickett) mentioned other taxes, and the principles I have set out apply well beyond income tax, with several other taxes on wealth across many different economic activities, including the acquisition, holding, transfer and disposal of assets and income derived from assets. Those all generate significant revenue for the public purse. For instance, for this tax year—2022-23—the OBR estimates that there will be inheritance tax revenues of £6.7 billion, capital gains tax revenues of £15 billion and property transactions taxes of £17.1 billion.

The Wealth Tax Commission’s July 2020 report found that, taking the narrowest definition of a tax on wealth—that is, inheritance, estate and gift taxes—UK taxes on wealth were about average compared with other G7 countries. At the same time, Government policy is, and will continue to be, highly redistributive in the round. In 2024-25, on average, households in the lowest income 10% will receive more than £4 in public spending for every £1 they pay in tax.

The hon. Member for Christchurch (Sir Christopher Chope) made some interesting points about the downside of higher taxes. That is why we are committed to ensuring that we are a low-tax economy.

The hon. Member for Leeds East mentioned the Wealth Tax Commission’s report. That was an important piece of work, which set out a significant amount of detail. The hon. Member for Salford and Eccles (Rebecca Long Bailey) suggested an annual wealth tax, but she may be aware that the commission rejected the idea of an ongoing wealth tax, charged on an annual basis, for a range of reasons. It is true that it saw some potential merit in a one-off wealth tax, as the hon. Member for Leeds East said, but that does not provide long-term revenues for the future.

[Rebecca Long Bailey]

Is the Minister aware that the report did discount an annual wealth tax, and looked at exploring the possibility of an annual wealth tax if it was done in tandem with overall reform of our taxation system? Does she agree that our taxation system is long overdue an overhaul?

[Lucy Frazer]

The Government are making changes to the tax system, including through a number of measures to ensure that those on the lowest pay are paying fewer taxes. The Wealth Tax Commission identified that there would be some advantages to a one-off tax, but it acknowledged:

“although one can point to entirely new taxes introduced within the recent past, there are none on this scale.”

This is not a matter of lack of political will, as the hon. Member for Brighton, Pavilion (Caroline Lucas) suggested. This is not a measure that we would bring forward, for a variety of good reasons. Denis Healey, a Labour Chancellor of the Exchequer, came to understand that later in life, when he wrote of his time in office in the 1970s:

“We had committed ourselves to a wealth tax; but in five years I found it impossible to draft one which would yield enough revenue to be worth the administrative cost and political hassle.”

[Jim Shannon]

In my contribution, I referred to eight companies that have purposely avoided tax, without breaking the law, by moving their money overseas. Amazon, Google, Apple and Facebook are four of those eight. Have the Government any intention to put pressure on those companies to ensure that they pay tax? All the people of the United Kingdom could then get the benefit of that through education, health and betterment.

[Lucy Frazer]

The hon. Gentleman makes an important point. This matter needs international action, and he will know that international action is being taken. More than 130 countries signed up to a new international corporate tax framework in October 2021. That will help to ensure that multinational businesses pay their fair share, with the right companies paying the right amount of tax in the right place.

The hon. Member for Leeds East talked about capital gains tax. We recognise the importance of preserving the incentive for individuals to invest in this country and grow the economy, when they can choose to spend money in any jurisdiction. Having said that, we also recognise the importance of ensuring that a fair amount of tax is paid from assets through capital gains tax.

We have made a number of steps to reform both the dividend tax and the CGT regimes. For example, in 2016, the Government reformed the old, complex system of dividend taxation, simplifying it at the same time as increasing effective rates. In 2018, we reduced the tax-free dividend allowance from £5,000 to £2,000 per annum. In 2020, the Chancellor cut the lifetime limit of CGT entrepreneurs’ relief from £10 million to £1 million.

I would like to touch on the context in which this debate is taking place and the cost of living pressure on families, because those issues are important, as was recognised by many Members, including the hon. Member for Leeds East, the right hon. Member for Hayes and Harlington (John McDonnell) and the hon. Members for Strangford (Jim Shannon) and for Cynon Valley (Beth Winter). The hon. Member for Wansbeck (Ian Lavery) made a passionate speech, recognising the need to look after other people. That is exactly what the Government are trying to do, within the constraints and the global economic position we are in.

We are trying to support other people through our recent announcement of a £37 billion support package. We want to ensure that those who cannot work get support. We are taking a number of measures through the restart and kickstart schemes to ensure that people get into work and can support themselves. We are then ensuring that they are paid properly in work, and hon. Members will know about the increase in the national living wage and our measures to cut taxes to ensure that those in the lowest income brackets get sufficient sums when in work. We are also upskilling people so that they can increase their pay.

[Ian Lavery]

Does the Minister agree with the hon. Member for Christchurch (Sir Christopher Chope), who suggested that very wealthy people and companies should only pay extra, if indeed they choose to do so, in the form of a donation?

[Lucy Frazer]

My hon. Friend the Member for Christchurch was right to identify that that option is available, if people choose to take it. The Government have set out our tax regime, and that option is available to those who wish to pay more tax.

I was touching on the cost of living, which is important. As many Members have said, this is not just about statistics; it is about people. To give an example, a single mother with two children who works full time on the national living wage will receive £2,500 a year in additional support because of the measures we have taken. On the subject of statistics, the right hon. Member for Hayes and Harlington did mention some, but our latest statistics show that in 2020-21 1.2 million fewer people were in absolute poverty than 10 years earlier, in 2009-10.

[Peter Grant]

Will the Minister give way?

[Lucy Frazer]

I would love to, but I am coming to the end of my time.

[Sir Edward Leigh (in the Chair)]

We have to finish at 4.12 pm. Would you allow the mover of the motion two minutes?

[Lucy Frazer]

I am happy to give way.

[Peter Grant]

Thank you, Sir Edward, for intervening on my behalf. That is the second or third time that the Minister and her colleagues have quoted figures on how much better off certain people will be because of changes to the tax and benefits system. They have not yet been able to answer the question of how much of that additional income has already disappeared because of the increasing cost of the basic essentials of life.

[Lucy Frazer]

I anticipated that point, which is an important one, and we will of course bring forward more statistics for this year in due course.

[Sir Edward Leigh (in the Chair)]

Order. Minister, could you allow one minute for the mover to say something?