Finance (No. 4) Bill

Debate between Owen Smith and Charlie Elphicke

Wednesday 18th April 2012 Commons Chamber

[Charlie Elphicke]

Much of the discussion on the 50p rate has been on whether it is an economic decision or a political one. My viewpoint is very simple. If we wanted a nice, easy time, and if our Ministers wanted a nice easy ride on the “Today” programme, where all those nice, gently liberal-leftie, metropolitan BBC people would congratulate us on doing nothing whatever, we would have left the higher rate at 50p. I am sure the hon. Member for Pontypridd (Owen Smith) would have approved and been happy to congratulate us. If, on the other hand, we wanted to take action and do the right thing economically—the one thing that really matters is getting this country growing as quickly as possible—even if it were politically hard for us to sell, we would support the entrepreneurs, wealth creators and aspirant people who create the jobs and money that make this country go. For my money, that is the bottom line. The economics trump the politics.

[Owen Smith]

I wholeheartedly agree with the hon. Gentleman that getting the country growing is the most important thing. The trouble is that that blue book he was waving around a moment ago, taking into account the 50p rate cut and all the other measures, says that the Government will increase GDP by 0.1%. Are they not failing?

[Charlie Elphicke]

I completely disagree. The Government are doing a great job. We have had the most difficult year, in which recovery was effectively postponed because the European and eurozone crisis caused massive uncertainty. I will not shirk from the point: that uncertainty has caused businesses to delay the business investment that was expected by about a year. The OBR, in the blue book that the hon. Gentleman says I am waving around, makes that perfectly clear. I will happily take him on on the issue of business investment. The situation has come to pass basically because of the eurozone. Also, the OBR says that business investment for the fourth quarter can be a bit lower than expected but that it often, statistically, bounces. It also says that the Government’s pioneering reduction of business taxes will have a positive effect in helping the country to grow.

The bottom line of economics is that we need to ensure more jobs and money as quickly as possible to help the country to grow faster despite the chaos and financial mismanagement in the eurozone. Let us not forget that Labour, if it had had its way, would have taken us into that chaos and into the euro. If Labour had won the election, it would also have carried on spending at an unsustainable rate and rapidly taken us the way of Greece, Spain, Italy, Portugal and Ireland, which would have put us in an extraordinarily difficult position.

On the revenue numbers, Labour’s central argument is that we should not cut the 50p rate because, first, we need to hit the rich and squeeze them until the pips squeak and, secondly, we are letting money go that would otherwise be brought into the Exchequer and are looking after our rich friends. That is its analysis. However, the summary in paragraph 4.7 on page 84 of the OBR report states:

“The Chancellor’s decision to cut the”

50p rate

“has an estimated direct cost to the Exchequer of £0.1 billion, excluding the impact of ‘reverse forestalling’ as people shift…income from”

one year to another

“to take advantage of the lower rate. The figure is small because the additional rate is now assumed to be close to its revenue-maximising level.”

In other words, it does not make much difference—£100 million here, £100 million there, out of a total budget that I believe is getting on for £700 billion, is a small amount, particularly given that it sends a positive message to aspirants, entrepreneurs and the people who work hard to deliver so much value-added for our country.

[Charlie Elphicke]

I thank the hon. Gentleman for bringing me on to my next point. The hon. Member for Pontypridd is fond of saying, “Ah, look at the HMRC impact report. It brought in £1.1 billion but the estimate was that it would then have brought in much more.” [Interruption.] Some £3 billion, he says. That was the estimate in the March 2010 Budget, which mentioned an additional £2.6 billion. In the June 2010 Budget forecast, that increased to £2.7 billion. However, when we look in detail at what happened and how much was brought in, it appears that the OBR and HMRC now estimate the figure to be £0.6 billion in 2012-13.

[Owen Smith]

I will explain to the hon. Gentleman why there is a step from year 1, when we anticipated it would raise £1.3 billion but when it actually raised £1.1 billion, to the subsequent figure of £3 billion. The explanation, of course, is that it gets far harder to bring money into earlier years. It gets far harder to forestall the income. That is what happened in the first year, but it would have been increasingly difficult to do so afterwards.

[Charlie Elphicke]

The hon. Gentleman makes that assertion. Let us consider the detail of what the OBR says, leaving aside forestalling. Page 108 of its report, which considers this matter in great detail, states:

“These steps might include labour supply responses (e.g. working less”—

working less hard, basically—

“taking a lower paid job, retiring early, or leaving the country)”.

As we know, many people have given up, upped sticks and gone—driven away by the anti-business, anti-aspiration policies of the Labour party.

--- Later in debate ---

[Charlie Elphicke]

With the 45% rate, there is less utility and less maximisation of revenue from doing so. Of course, it is marginal, but the unacceptability of paying—paying, not avoiding—at 45% is less than it is at 50p. People resent 50p and think, “These people are trying to stuff me and take all my money away.” The 40p rate was well settled and people’s behaviour was sort of booked in. The judgment is that the most revenue will be raised halfway between the two because, on the one hand, people will think it acceptable—they will not go the extra mile to avoid it—and, on the other hand, they will not think they are being fleeced as they were under the so-called temporary 50p rate, which Labour is now saying was not temporary.

[Owen Smith]

rose—

--- Later in debate ---

[Charlie Elphicke]

I will give way to the hon. Gentleman one more time, but I would ask him to say whether it was always the intention that the 50p should be temporary. Yes or no?

[Owen Smith]

I have already answered that three times in this debate, so I am not going to repeat myself. Yes, the rate was temporary, although we would not have got rid of it for the whole of this Parliament. However, let me remind the hon. Gentleman what the Business Secretary’s response was to the argument, which he has just made, about the equanimity with which people will pay full tax at the 45p rate: “Pull the other one”.

[Charlie Elphicke]

The Business Secretary is well known for having strong and principled positions from which he never resiles. The hon. Gentleman makes a fascinating point, although I do not know the detail of that quotation.

Let me turn to tax planning, and avoidance and evasion. As I have said, people set up personal service companies and, quite frankly, fiddle the system. To be honest, we need stronger anti-avoidance legislation to stop that kind of thing. However, the important point is that we need it if the rate is at a level at which people regard it as socially acceptable to pay, and do not feel that they are being completely fleeced.

Finance (No. 4) Bill

Debate between Owen Smith and Charlie Elphicke

Monday 16th April 2012 Commons Chamber

[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]

rose—

[Charlie Elphicke]

Is the hon. Gentleman making that commitment—yes or no?

[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.

Budget Resolutions and Economic Situation

Debate between Owen Smith and Charlie Elphicke

Friday 23rd March 2012 Commons Chamber

[Owen Smith]

The principal reason why we did not introduce it was because the economy was growing through most of our period in government, unlike the economy under her Government.

Let us return to the taxable income elasticity measure. The OBR says that it might be reasonable, but it also says on no fewer than seven occasions throughout the document that there is “huge uncertainty” around the assumptions—not small uncertainty, but huge uncertainty. The Treasury itself, in its document—albeit buried on page 68 of 69—says:

“The results of this evaluation are highly uncertain.”

The reality is that, based on the Laffer curve, the Government have made up that £100 million number, but over the last year we got £1 billion from the 50p rate.

[Charlie Elphicke]

There is more evidence that reducing the rate ups the take. Each time there was a reduction, from 80% to 60% in the ’80s, and then to 40%, revenues went up hugely. We know that it works, from the evidence.

[Owen Smith]

What we know is that last year we got £1 billion from the rate—not £100 million, but £1 billion. What we also know is that the OBR thinks the estimate of £100 million is highly dubious. That is the reality. If we had waited two or three years—a reasonable period—to make the estimate, when people would not be able to pull the money into an earlier year, which is increasingly difficult as the years go by, we should have seen a reasonable number.

The real issue is not the estimate, but what will actually happen as a result of the Government’s cooking the books in that fashion. Ordinary people will pay the price. In this country, 4.77 million pensioners will pay between £80 and £280 extra as a result of the changes to the personal allowance. That is the reality of the Budget, not what the hon. Gentleman describes.

What about the 1.3 million ordinary working people earning about £41,000 who have been sucked into the 40p rate? We have not heard a lot about them in the Budget. We have not heard about the teachers, policemen and middle managers who will be paying more, or indeed about the 1.3 million who will be affected by the big cut in their child benefit—£1,300 for most of them. That is the reality of the Budget for ordinary working people.

Many Members talked about business and growth. We heard a fascinating contribution from the hon. Member for West Suffolk about the need for an interventionist business and industrial strategy. I completely agree. There were two measures in the Budget along those lines: one was for video games and the other was the patent box that is said to be benefiting GSK. I know a bit about the patent box, because I was one of the industry side negotiators with the Labour Government back in 2009 when we struck the deal on the patent box. It was not a Tory policy—an industrial strategy made not by the Tories, but by Labour, and we are now reaping the benefits.

What about the video games measure? The hon. Gentleman thinks of himself as a bit of a historian of economic facts, so he should look back to the first Budget of his great friend the Chancellor, when the right hon. Gentleman got rid of tax relief for video games. Two years later, with the video games industry pointing out that it was a really duff move, the Government have reinstated the relief: not a policy made on the Tory side, but on the Labour side.

What is the reality? It is 0.1% extra growth, 4.77 million pensioners paying the price, inflation still at 3.2% and wages only up 1.4%. The reality is that the Government are ill serving our economy and ill serving Britain. They do not know what they are doing. They are making a mess and the time has come for us to think again.