Owen Smith
Main Page: Owen Smith (Labour - Pontypridd)Department Debates - View all Owen Smith's debates with the HM Treasury
(12 years, 8 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Danny Alexander
With this measure we are trying to strike the right balance between having a proper system of tax relief for charitable donations and ensuring that the wealthiest in this country pay a fair proportion of their income in tax. I would have thought that the hon. Gentleman would support that measure rather than oppose it, particularly when he considers it in the context of the many other measures that we have taken to encourage and support charities and voluntary organisations. For example, we have introduced for the first time gift aid on small donations received by small charities—from shaking tins on the street corner, holding coffee mornings and that sort of thing—which was not done when his party was in office. That will benefit thousands of small charities all around this country, and it is the sort of thing that he should welcome. Likewise, Big Society Capital has been created to help charities and voluntary organisations to raise funds.
Owen Smith (Pontypridd) (Lab)
Before the right hon. Gentleman moves off the 50p rate completely, can he explain to the House why the numbers revealed by the Treasury this morning seem to show that at least 75% of top-rate taxpayers were paying the full rate of tax? How can he explain to his hon. Friend the Member for Portsmouth North (Penny Mordaunt) that so little money—the £100 million that is ostensibly in the Budget—was being raised by the 50p rate?
Danny Alexander
First, the hon. Gentleman should study the figures based on the tax system from 2010-11, under the tax rules put in place by his Government. They show, for example, that 6% of those earning over £10 million a year were paying tax at under 10%, that 3% were paying it at 10% to 20%, that 8% were paying it at 20% to 30%, that 12% were paying it at 30% to 40%, and that 72% were paying it at above 40%. The figures do not say that they were paying at the 50% rate. The fact is that the independent Office for Budget Responsibility and the HMRC study, which I am sure the hon. Gentleman has reflected on in great detail, show the most reliable, reasonable, central estimates.
Danny Alexander
No, I want to make some progress, and the hon. Member for Pontypridd (Owen Smith) has already intervened on this point.
Danny Alexander
No, I am going to press on and address the question of the 50p rate. When I have done so, the hon. Gentleman and the hon. Lady will be free to intervene on me again.
Before discussing the 50p rate, I will refer briefly to clause 8, which will remove child benefit from the highest earners. We will withdraw child benefit from those in households earning more than £50,000 in a way that is gradual, so that only those earning more than £60,000 will lose all their child benefit. The measure will help to ensure that the burden of deficit reduction is fairly shared, and by implementing it as we propose, we will deal with the anomalies that have been highlighted.
Stewart Hosie (Dundee East) (SNP)
Before I begin my remarks on the Bill, may I make one small comment on the contribution of the hon. Member for Leeds West (Rachel Reeves), who was a little critical in her speech of the VAT change to ski tolls? Will the hon. Member for Pontypridd (Owen Smith) gently remind her that the systems in Glenshee, Glencoe, the Lecht, Aonach Mor and Cairngorm are important parts of the Scottish winter economy? I am sure she did not intend in any way, shape or form to be critical of the many jobs they provide for young people, or of the tens of thousands of working-class Scots who loyally use their local ski systems every winter.
Owen Smith
Of course my hon. Friend the Member for Leeds West (Rachel Reeves) was not in any way challenging the importance of those jobs. She was juxtaposing the Chancellor’s decision to introduce a tax break in that industry and a tax increase in the caravan park industry, in which there is another important set of jobs.
Stewart Hosie
Indeed—the caravan sector has my sympathy and support in attempting to change that decision.
There are many other reasons for opposing the Bill, and I shall highlight a number of them. One key reason is the introduction of the plans to reduce the 50p tax rate to 45p for those earning more than £150,000 a year—some of us have already managed to vote against the measure, but I shall say no more about that tonight. According to the Government’s numbers in the 2012 Budget book, the measure will mean that the Government forgo £360 million over the forecast period. It is quite something when a Government are prepared to sanction the loss of revenue yield when the deficit, debt and borrowing forecasts are worse than the forecasts in the previous Budget.
The changes to age-related allowances for older people—the granny tax—will impact on about 40% of pensioners, which is another a reason to oppose the Bill. The measure will affect those who are above the basic state pension and pension credit level, but below the £30,000 a year level—people on that level will not benefit anyway. That will leave some 4.41 million people worse off than they would otherwise have been.
The Budget and the Bill are full of wrong-headed decisions, not least the Government’s determination to increase air passenger duty. Let us look at what they have done. In the Budget, the Chancellor announced that APD will rise by 8%, or double the rate of inflation and confirmed that it will rise again in April 2013 in line with inflation, ignoring the fact that Scottish, Welsh and English people, who live on an island, already pay the highest aviation duty in any country in Europe.
It is therefore no wonder that Scottish airport bosses united prior to the Budget in calling for the Chancellor to rethink the planned hike in APD and give the Scottish operators what they called “a fighting chance” to compete against European rivals. Their joint statement says:
“At a time when the Government talks about creating jobs and growth, its blinkered insistence on further increases in APD achieves precisely the opposite.”
It goes on to say:
“Youth unemployment is at record levels”,
which should concern us all, and that “inbound tourism” and importing
“is a major employer of young people, but international visitors are being turned off the UK because of the exorbitant level of APD…which is by far the highest air travel tax in the world.”
We are not all in it together, and so much for Britain being open for business, as the hon. Member for York Outer (Julian Sturdy) claimed.
Let us analyse what the Government are planning for APD. The £2.2 billion the Treasury collected last year is almost twice as much as every other European country combined. A family of four travelling to Spain will pay a total of £52 in tax. If they travel to Florida, they pay £260, and if they fly to Australia, they pay £368. That is why the Airport Operators Association chief executive said that his organisation will be campaigning against the rise as the Bill progresses through the Commons. The Scottish National party intends to move amendments to cancel the rises and, more importantly, to devolve air passenger duty to Scotland and Wales.
Air connectivity is crucial to the economy. The increase in APD is unhelpful and unwelcome, and will hit the tourism industry and needlessly jeopardise the recovery of the economy as a whole, but the key problem in the Bill is the complete failure, as the hon. Member for York Outer said, to tackle the rising price of fuel. Let us be under no illusion about the significance of that. The Forum of Private Business has said that more than one third of its members cited transport costs—predominantly the price of fuel—as their main cost pressure. When they were asked what would help to improve the business climate in the UK, they said that their main priority was not regulation, but reducing the cost of fuel duty. They were incredibly blunt in their reaction to the Budget upon which this Finance Bill is based, saying:
“Businesses and consumers just can’t afford to keep paying out more and more for their fuel. There is a serious risk that economic recovery in the UK is strangled at birth if the Government doesn’t act, and act fast.”
We hope the Government listen to the Forum of Private Business, because the economic plan they are following simply is not working. They are following a path that is failing. Much as I like the hon. Member for Macclesfield (David Rutley), who is not in his place, I do not recognise the positive progress he said he had seen in the economy. We can see that the Government’s plan is failing because, in the 2011 Budget, the deficit was forecast to be £90 billion for 2011-12 and it is now £98 billion. The 2011 Budget forecast for 2011-12 was that the net borrowing requirement would be £122 billion, but it is now £126 billion. National debt, on the treaty calculation, was due to peak at 87.2% of gross domestic product, or £1.25 trillion, in 2013-14, but on the same calculation, it is now expected to peak at 92.7% of GDP, or £1.365 trillion, in 2014-15.
That means that even the Chancellor’s fiscal rules—that the structural current deficit should be in balance and that debt is falling as a share of GDP in the final year of the forecast—are under pressure, because both objectives are highly dependent on GDP growth, which, according to the OBR, is dependent on incredible rates of business investment, as other hon. Members have said. In 2010, the Government suggested that business investment had to grow by between 6.7% and 10.6% a year every year from 2011, but by the time of the OBR November 2011 outlook, growth in business investment had turned negative for 2011 and the forecasts had been changed to suggest business investment growth from 2012 to 2016 of between 7.7% and 12.6% a year. The Government have now changed that again—they expect business growth at heroic levels of between 6.4% and 10.1% a year between 2013 and 2016.
Nobody wants growth in business investment more than I do. If we can power the economy in that way, it will be fantastic, but there is precisely no evidence that it is happening. Indeed, the downgrade of a previous high estimate tells us that it is unlikely. That should be a concern to all hon. Members, because it makes a negative rate of central Government consumption at the same time more dangerous. There is nothing to offset the lack of growth in the whole economy as a result of lower-than-expected business investment, but that is precisely the risk that the Chancellor has put into his plans.
The Chancellor’s 2011 Budget showed that between 2012 and 2015 there would be a fall in Government consumption and expenditure of 1.2%, 1.8%, 2.4% and 1.8% a year. This Budget’s figures and the Finance Bill that delivers it are no better. They show falls of between 1.3% and 2.6% from 2013 through 2016. At a time when there is no guarantee of growth in business investment, it strikes us as particularly foolish to continue down the path of reductions in central Government consumption and expenditure. The key point is that any Chancellor getting his sums wrong on growth will deliver an economy that has a serious impact on real people, on public expenditure for the services that communities rely upon and on the Government’s ability to grow the economy out of its current stagnation.
In those three areas, because the UK Government’s policy is wrong and is not working, real people are paying the price. But that should come as no surprise. The Government inherited £73 billion of cuts and tax rises every year from 2014 to 2015 onwards. That was a balance of £52 billion in cuts and £21 billion in tax rises. That increased to £113 billion of cuts and tax rises every year from 2014 to 2015 in the 2010 Budget, and went further with cuts and tax rises of £128 billion every year from 2015 to 2016. As the Red Book made clear, this Finance Bill now sets us on a path of fiscal consolidation—cuts and tax rises—of £155 billion every year from 2015 to 2016. And of course the proportion of cuts to tax rises is no longer 3:2 but 4:1. Yet despite brutally cutting so much money from the public services on which people depend, they have still managed to deliver a tax cut for millionaires. In essence, that makes this a Tory Budget, a shameful Budget and one, of course, that we must resist by opposing the Bill.
But the Government have been honest. The 2011 Budget told us that every single population quintile would see a reduction in its net income. So they are at least clear about the impact of their polices. This year’s Budget Book and Finance Bill have delivered no help. Indeed, the Budget Book told us again that every single population quintile would still be worse off.
As I said earlier, however, of everything that ought to have been done but was not, the failure to act on fuel was the most disgraceful. My criticisms of the previous Government are well known. I criticised the fuel duty escalator and their refusal to act on and outright opposition to measures to introduce a regulator. But this Government are no better. Their plan for a stabiliser is no such thing: it will see fuel costs rise by inflation when the oil price is high and by inflation plus—an escalator—when the price is low. A real fuel duty stabiliser would see the rate of duty fall when the price rises, precisely because the UK Government are already getting VAT on the North sea windfall to pay for it.
No doubt the failure properly to address this issue is why the Federation of Small Businesses has expressed its disappointment that the Chancellor
“did not announce a cut in the level of Fuel Duty”.
It is why the Licensed Taxi Drivers Federation has said:
“rising fuel costs are creating detrimental factors”
and leading to businesses being unable
“to invest in businesses as they’d like to.”
It is why bodies as diverse as the Scottish Grocers Federation, the National Farmers Union of Scotland and the Road Haulage Association, among many others, all recognise that rising fuel prices are inhibiting economic growth and are calling for Government action to deal with it.
The costs are being borne across business and society. The NFUS has told me that it is
“very concerned about the rising cost of fuel and its effect on rural businesses and communities. This is being felt most acutely in the Highlands and Islands of Scotland, where public transport is severely limited and fuel prices are among the highest in the UK.”
I say to the hon. Member for Bassetlaw (John Mann) that if unleaded or diesel was only £1.45 a litre in some of these communities, the constituents there would be absolutely delighted.
The NFUS accepts, as we all do,
“that the global price of oil is beyond the Government’s control, however MPs could help to address this critical problem through introducing a fuel duty regulator to cushion the blow of soaring oil prices. Such a mechanism would benefit not only the farming community, but also Scotland’s rural economy as a whole. Transport is at the core of the rural economy, where there is far less scope to use public transport than in urban areas.”
The NFUS makes a key point:
“The cost of transporting the inputs of feed, fertiliser and fuel is so high, as is the cost of delivering produce to the market, that it is putting Scotland’s already fragile rural communities at a competitive disadvantage with other EU producers. Rural businesses could play a vital role in…economic recovery and high fuel duty is holding them back”.
I would have thought that if the Government recognised anything, they would recognise the drag on growth and recovery that all these trade bodies and others recognise in their day-to-day lives. So we need to take action, and we need to take it now. As the NFUS has said, we cannot mitigate all price rises because they occur for a variety of reasons, but we need to militate against the worse rises, particularly when they are driven by the barrel price of oil.
That was the same fundamental point made by the Scottish Grocers Federation, which also appreciated
“that the rising cost of fuel cannot indefinitely be reduced”,
but which would
“support any measure which would provide more stability and predictability in fuel prices.”
It continued:
“The rising cost of fuel, along with other significant increases in overheads including energy prices”—
again, the fuel dependents—
“continue to erode the viability of many small and medium sized retailers in Scotland… Government should be doing everything it can to support small and medium sized businesses which are fundamental to economic growth and employment. And that is why we are certain that the Government should introduce a proper Fuel Duty Regulator - to smooth out spikes - provide certainty - allow for investment - And most importantly remove this drag on recovery.”
The FSB spoke for everybody when it said it was
“disappointed that the Chancellor has not announced a cut in the level of fuel duty and that the rise deferred to August is still to go ahead. This will still hit small businesses and households hard and so we need to see a long term solution to address high and volatile fuel prices. We remain concerned that the Government’s Fair Fuel Stabiliser will not trigger an actual reduction in the price paid at the pumps.”
Nor will it because it was never designed to do so. That is why businesses such as those in the taxi trade, which are not in control of their own prices—they cannot set their own fees or fares because they are set by local authorities—have to take this hit on the chin. As the taxi industry said, that is leading to many detrimental factors: profit margins cut, people unable to invest in their businesses in the way they would like to, drivers having to put in extra hours and take-home pay for families reduced.
The taxi industry supports our position on the introduction of a fuel duty regulator, but the Government argue that this cannot be done and that there is no yield to fund a cut in fuel duty. They have made that case several times. But how much worse is it without a regulator in place and businesses of all sorts being forced to take these hits—hits that are a drag on economic recovery? The Forum of Private Business has said:
“The pips are squeaking, and everybody is feeling the pain.”
And by goodness they are. Yet action could have been taken. Businesses and consumers cannot afford to keep paying out more and more for their fuel. There is a serious risk that economic recovery in the UK will be strangled at birth if the Government do not act and act fast.
With those remarks on fuel and the absence of certain measures in the Bill, plus my other remarks, I hope that I have put our opposition on the record. We hope to return, with appropriate amendments at the appropriate stages, to issues such as the 50p tax cut, changes to age-related tax allowances, APD and, most importantly, the failure to deal with the fuel issue.
Owen Smith
I am following the hon. Gentleman’s argument with great interest. Will he confirm whether he plans to vote with his Government on the controlled foreign companies changes that will give a reduction of about £1 billion a year to UK-based multinationals?
Charlie Elphicke
The hon. Gentleman will know, first, that that means that we will get more tax in the UK and, secondly, that we already have a 0.7% commitment to the international aid budget. If he wants to pledge—a spending commitment from Labour of £1 billion or so—to extend that commitment, let him do so. I am sure that the shadow Chancellor would be fascinated.
Owen Smith
No, I am explaining to the hon. Gentleman that the Finance Bill, supported by the Chancellor, contains a measure on changes to the controlled foreign companies legislation that will reduce the revenues to the Exchequer by £1 billion per year—companies in the UK avoiding tax. Is he in favour of that?
Charlie Elphicke
Aid charities have made the case that corporations headquartered in the UK should be paying more tax overseas. That is not our job. Our job is to secure our own tax base in the UK. That is what I want to focus on, and it is what the previous Government totally failed to do over many, many years. If we put a stop to it and raise the due amount of tax from companies not resident in the UK with anti-avoidance measures and proper tax reform, we could have lower fuel duties for hard-pressed families and a lower basic rate of tax—and goodness knows we could even pay down some more of the debt that the previous Government shockingly, disgracefully saddled this country with.
I hope that the anti-avoidance measures in the Bill will be widened in the following way: the first principle is that business tax rates should be low, simple and attractive. Britain should be open for business, but open for business on a level playing field for national and international companies. Businesses should have a social responsibility to pay a fair share of tax. Some object to the idea of morality in the tax system, but this is an issue of corporate social responsibility. Tax avoidance should be dealt with firmly and rules changed to stop the avoidance. I shall come to specific measures in a moment.
For many years, the European Union has consistently and systematically sought to undermine our tax base in its pursuit of a common corporation tax base. We need the EU to support member states in protecting tax revenues rather than undermining them with so-called anti-discrimination rules.
Jacob Rees-Mogg
Very simply, because £150 billion extra has not got to be borrowed. Forecasts of what may happen are fundamentally unreliable. In a large economy, no efforts to forecast a small percentage of growth that there may or may not be have been successful. In the history of economic forecasts both in this country and across the world, there is one thing of which we can always be certain: that they are wrong and that the outcome will be different. This extra £150 billion that is proposed is based on a theoretical level of growth that was never going to be achieved, and that was never able to be achieved.
Owen Smith
Does the hon. Gentleman therefore agree that it is equally uncertain that the revenue to be lost as a result of the change in the 50p rate will be just £100 million, as his Treasury colleagues contend?
Jacob Rees-Mogg
I am grateful to the hon. Gentleman for making that point, because I think the reduction from 50p to 45p will, in fact, raise revenue. I think the estimates are far too unambitious and that, actually, there will be an opportunity for the Government to go further in future. I am extremely encouraged that the Treasury is producing reports on what is the best level of higher rate tax.
On that point, the Government have yet again been right, brave and bold. It is, of course, marginally politically embarrassing in an age of austerity, when we are all in it together, to cut the higher rate of tax, but it is right to do so if that raises more tax for the country—it is right if that allows the Government to spend on the priorities that both they and the British people have. Yes, there may be unpleasant headlines and we may be mobbed up by the hon. Ladies and hon. Gentlemen on the Opposition Benches, but it was the right thing to do. Time will show that the 45p rate will end up raising more revenue, because rich people can leave the country and not pay tax, can decline drawing dividends from their companies and not pay tax, and can postpone taking revenue and not pay tax. It has been shown time and again that reducing rates results in higher rates of total income. The Government were right to introduce this measure, therefore.
Owen Smith (Pontypridd) (Lab)
What a pleasure it is to follow that barnstorming speech by my hon. Friend the Member for Bassetlaw (John Mann), which is one of many powerful speeches that we have heard from Opposition Members. There have also been some interesting speeches from Government Members, which I will come to in a moment.
People used to say that Budgets from Tory Chancellors, and Tory Chancellors themselves, were cruel but competent. After this Budget, they do not say that any longer. Opposition Members do not say it and nor do Government Members. We have heard quite a bit of criticism of the Budget, but little praise for it. Over the past few weeks, as the chicanery at the heart of the Chancellor’s Budget has been exposed, line by line, clause by clause, in the newspapers and in this House, the scales have fallen from the eyes of people across this country, and especially from the eyes of the people who were kidded into voting Conservative at the last election; from the eyes of the people who thought that the Chancellor was an astute political strategist and a smart steward for the economy; from the eyes of the people who thought that the NHS was safe in the hands of the Conservatives; from the eyes of the people who bought the balderdash about the big society; and from the eyes of voters in my constituency and constituencies like it across the country who heard that, apparently, we were all in it together.
That myth has been wholly debunked over the past couple of weeks, and in the speeches of my right hon. Friend the Member for Knowsley (Mr Howarth), my hon. Friends the Members for Dumfries and Galloway (Mr Brown), for Middlesbrough (Sir Stuart Bell), for Kingston upon Hull North (Diana Johnson) and for Llanelli (Nia Griffith), my right hon. Friend the Member for Stirling (Mrs McGuire), my hon. Friend the Member for Edinburgh East (Sheila Gilmore) and, of course, my hon. Friend the Member for Bassetlaw, we have heard it exposed once more today. They have exposed the black hole at the heart of the Bill where there ought to be measures for growth. The price for that black hole will be paid for by working people across this country. They have exposed the ludicrous, unthought-through, ill-judged measures, whether on pasties or caravans, that have been rightly and roundly mocked in the press.
Government Members have also made significant and challenging speeches. The hon. Member for Cities of London and Westminster (Mark Field), with his characteristic candour, pointed out the lack of growth measures in the Bill and bemoaned the fact that the Chancellor has not done more to deliver growth and to stop the economy flatlining. The hon. Member for Christchurch (Mr Chope) exposed the perversity at the heart of the changes in clause 8, which relate to child benefit. The hon. Member for York Outer (Julian Sturdy) gave a particularly good dissection of the madness of the pasty tax and the caravan tax. Those Government Members know that they no longer have a Chancellor whom they can trust to run the economy or to take charge of their party in the future, because in this Budget he presided over a slow-motion car crash.
With the tax on pasties, grannygate, the conservatory tax, VAT on caravans and the charity charge, this is not a Budget to boost growth or a Budget for any particular sector of our economy, except for the headline writers. They are the ones who have been waving their Order Papers and who continue to celebrate this Budget—the gift that keeps on giving.
Only this morning, we heard the Exchequer Secretary trying to justify the proposed changes on charitable giving and the 25% cap on tax relief. He did so by revealing that a handful of people in this country who earn more than £1 million and more than £10 million succeed in dodging paying their tax. There is no news in that. One would have thought that a competent Government who understood what they were doing would have realised that the flipside of that argument was to reveal that more than 75% of higher rate taxpayers—those paying 40% and 50%—do pay all of their taxes.
Members do not need to believe my words about that, or even examine the Treasury’s own analysis that reveals it. They simply need to read what the BBC’s economics editor Robert Peston said today. He pointed out that more than 73% of people earning more than £250,000 had been paying the 40p and 50p rates. Even among people earning between £5 million and £10 million, 70% or 80% paid the full rate. What does that mean? According to the economics editor of the BBC, it
“implies that many tens of thousands of people were (and are) paying the 50% tax rate, and were unable to dodge it. To state the bloomin’ obvious, all of those people were given a very lovely tax cut in the budget.”
It must surely have occurred to a competent Chancellor that he would be exposed by such analysis.
Owen Smith
I will in a moment, because the hon. Gentleman has some interesting perspectives on the value of the 50p rate.
One would have thought that a competent Chancellor, or perhaps some of his Ministers, would have spotted that if such data were put into the public domain, some of us might realise not only that the 50p rate garnered £1 billion in the last year, as has now been confirmed, but that it was going to bring us £3 billion to £4 billion a year steadily, not the £100 million figure that the Government are suggesting using smoke and mirrors.
Jacob Rees-Mogg
Even though the economics editor of the BBC says it, it does not necessarily mean it is so. The hon. Gentleman does not know what income people would have been able to draw but decided not to because it would be liable to the 50p rate. People with large incomes can decide not to take them. All that is known is that they paid the right rate on the income that they took.
Owen Smith
All that we know is what is written on page 52 of the review by Her Majesty’s Revenue and Customs of the 50p rate, in table A2. It states in black and white that £3 billion a year will be forgone as a result of the changes, not the £100 million figure that is arrived at with smoke and mirrors about the taxable income elasticity calculation that Treasury Ministers signed off. What does the Office for Budget Responsibility say about that? As the hon. Gentleman said, it says that there is huge uncertainty about that calculation. We contend that we should rely on the absolute numbers, as revealed this morning—that £1 billion was raised from the 50p rate last year, not the nonsense £100 million figure.
That situation reveals the priorities of the Government, who are taking £3 billion from pensioners. On average, £83 is being taken from them, and £285 is being taken from those turning 65 this year, to pay for a tax cut of an average of £40,000 for 14,000 millionaires. That is the Government’s priority. We cannot pretend to understand it, but it is unfortunately the priority that working people will pay for.
Lorely Burt
The hon. Gentleman talks about the 50p tax rate, which his party’s Government introduced. I cannot remember how many days before the general election at which the coalition Government came into office that that happened—was it 48 days? May I invite him to speculate as to why the former Prime Minister had 13 years in government but brought in the 50p tax rate only such a short time before his Government left office?
Owen Smith
Perhaps the hon. Lady could remind us whether it was 48 days before the election, or just before that, when her party talked about the VAT bombshell that it would stop when it came into government. Was it 48 days? I am not sure. We have made the argument about why we introduced the 50p rate, and we do not intend to make it once more.
The reality is that the Government are entirely out of touch. Both Government parties—the one down there below the Gangway and the one up here opposite me —are completely out of touch with the reality of working people in this country. [Interruption.] The Chief Secretary tells me from a sedentary position to answer the question. I have answered it, and I will answer it again on Wednesday when we debate the 50p rate. It was introduced in a period of recession to ensure that the people with the broadest shoulders paid the most. We would have stuck by that decision and not, in the midst of a continuing period of austerity, asked the most vulnerable to pay. That is a desperately bad choice.
If there was ever any doubt that the Government were out of touch, hon. Members should have come in earlier and listened to the Chief Secretary, a Liberal Democrat, parrot the Government line on working family tax credits that all people need to do is go out there and earn a little bit more by working an extra eight hours a week. Let me put him and the Chancellor, who is sitting next to him, in touch with the reality for working people in this country. In my constituency of Pontypridd, Mr Chancellor, a new supermarket is opening. It will create 200 jobs. A fortnight ago, 2,500 people queued 600 yards down the main road and across a bus station to try to secure jobs in a supermarket. Those people need a Chancellor who will deliver growth and jobs. They need a Government who give a damn about working people. That is why we needed a Budget for growth. We did not get it and that is why the Opposition will vote against this bad Budget.
Mr Gauke
The provision on cable cars applies not only in Aviemore, but in, for example, the Isle of Wight and London. I confess that it does not apply in South West Hertfordshire or in Wrexham, but it applies in places around the country. It is worth pointing out that, by and large, public transport is exempt from VAT, and the provision brings cable cars into line with that.
Let me consider fairness. We inherited a personal allowance of £6,475, and the Bill increases that to £8,105. Next year, there will be a further increase of £1,100. The Government are taking 2 million people out of income tax, providing a tax cut for 24 million people and are well on course to meeting our target of a personal allowance of £10,000.
Let me turn now to the controversial issue of age-related allowances. We must look at the changes in the context of the £275 increase in the state pension. Labour Members tend to say, “That is simply because of inflation,” but let me remind the House that the plans we inherited from the previous Labour Government were for the state pension to increase in line with average earnings. That would have meant an increase of £127 less than our increase, so the Government have increased it more than Labour would have done.
Owen Smith
Will the Exchequer Secretary confirm—we asked one of his colleagues to confirm this earlier—that, on average, families in Britain, taking into account all the changes, will be £511 worse off, as suggested by the Institute for Fiscal Studies?
Mr Gauke
We inherited the biggest deficit in our history and have taken measures—through both spending and taxes—to reduce it. The fact is that the measures we have taken on the personal allowance will result in, for example, a tax cut of £170 a year for every basic rate taxpayer in the country.
Mr Gauke
No. I am going to make more progress.
Returning to the age-related allowance, it will remain the case that those receiving employment income above the retirement age will not pay national insurance contributions. We have heard nothing this evening about why the Opposition believe as a matter of principle that those under the age of 65 should have a lower personal allowance than those over the age of 65. Given that the personal allowance has increased so substantially, it is reasonable and sensible to simplify the tax system and have one generous personal allowance, regardless of age.
We have taken decisions to remove anomalies in the VAT system, but VAT is a broad-based tax and it is neither fair nor economically justifiable for similar or identical products to be treated in different ways on the basis of arbitrary distinctions. The same approach should apply to mobile caravans as to static, non-residential caravans, and to a hot pie served in a fish and shop and one served in a bakery.
Labour Members argue that removing those anomalies will hit living standards, but may I put those measures in context? Next year, basic rate taxpayers will get a £170 income tax cut. That will be sufficient to pay VAT on 1,300 Greggs hot sausage rolls. I confess that those consuming more than 1,300 Greggs hot sausage rolls—that is 26 a week—will lose under the Budget, but I suspect that that is the least of their worries.
We are taking a tough decision on child benefit, but it is right that those earning £20,000 or £30,000 should not pay taxes to fund child benefit for the families of those who earn substantially more. Each of those policies has produced opposition, and whenever there is opposition to a difficult decision, along comes the Labour party. It opposes each and every measure, however logical or fair it may be. Labour agrees with every interest group that comes along and says, “Don’t tax us,” or “Keep spending on this.” The Labour party is the party that likes to say yes, just as it did in government. Is it any wonder that it left the public finances in such a mess?
There is one tax increase that Labour has supported: the increase in the additional rate of income tax to 50p, which the hon. Member for Pontypridd (Owen Smith) spent so much time on. What is the effect of the 50p rate? We have the assessment of HMRC. What has the 50p rate achieved? More people work overseas; total income has fallen by between £2.9 billion and £4.4 billion; and GDP is between 0.2% and 0.3% lower. All of that is from the HMRC assessment.
Owen Smith
Will the Exchequer Secretary confirm that the HMRC report on the 50p rate stated on no fewer than three separate occasions that the calculation was highly uncertain and that table A2, which contains absolute numbers, shows that the loss will be £3 billion rising to £4 billion over the spending period?
Mr Gauke
Both HMRC and the OBR have made a central estimate, and that is what we have used. I am sorry it does not fit into Labour’s ideology, but the reality is that HMRC’s assessment is that the 50p rate raised less than half the expected amount and might even have cost the Exchequer. The OBR’s assessment is that it is a reasonable and central estimate.
It takes a special kind of incompetence to produce a policy that sends a terrible signal to our competitors, drives higher earners out of the country, damages GDP and fails to raise revenue. There are better ways of raising revenue from the wealthy—for instance, by addressing SDLT avoidance, raising the SDLT rate on properties worth more than £2 million and capping reliefs to ensure that the wealthy cannot opt out of income tax. Both sides of the House want to raise more money from wealthy people. The reality is that we are better at doing it.
We will get more money out of the rich as a proportion of income tax each and every year than the previous Government managed in 13 years in any year. We will not only end our having the least competitive higher rate of income tax in the G20 but provide for a corporate tax regime that becomes increasingly competitive—the main rate will fall to 22% in 2014. We are updating our controlled foreign companies regime, ensuring that companies choose to locate here, not move away. We are implementing the patent box, which is already resulting in additional investment in the UK, as announced by GlaxoSmithKline and AstraZeneca, and we have more generous arrangements for enterprise investment schemes and venture capital trusts, and a new enterprise investment scheme.
The Bill is good for growth. It encourages investment. It attracts entrepreneurs. It tackles avoidance. It helps those on low incomes. It asks the better-off to pay more. And it provides for a significant restructuring of our tax code. It takes difficult steps but delivers real change. Those changes will improve the tax system and the economy as a whole. I commend the Bill to the House.
Question put, That the Bill be now read a Second time.