Finance (No. 4) Bill

Debate between Rachel Reeves and Simon Hughes

Monday 16th April 2012 Commons Chamber

[Rachel Reeves]

The point I am making is that the consumption growth forecast for this Parliament is being funded by increased indebtedness. A VAT reduction would boost the spending power of households without their having to take on extra debt. With incomes stagnating and, in many cases, falling, many families are resorting to taking on more debt because they cannot afford to make ends meet—that is the point I am making. That is why a reduction in VAT would help put money into the pockets of ordinary families, who are struggling so much with rising gas, electricity, train, bus and petrol prices.

[Simon Hughes]

Has the hon. Lady seen the OECD reports, which make it clear that raising tax thresholds is a far more effective way of getting money back into the economy than changing VAT? Such an approach benefits poorer people much more, whereas VAT changes benefit the rich just as much as the poor.

[Rachel Reeves]

The right hon. Gentleman would do well to look at the analysis by the Institute for Fiscal Studies, which shows that the increase in the personal tax allowance most benefits those who are in the second highest income decile. Increasing the income threshold is not a progressive policy; in fact, pensioners do not benefit from it at all, and nor do people who are on such low incomes that they do not pay income tax—[Interruption.] The right hon. Gentleman says something from a sedentary position. I am happy to take another intervention if he wants to dispute the analysis of the IFS.

[Simon Hughes]

Of course some pensioners will not benefit, but some will. Some pensioners receive an income on which they pay tax and the rise in the threshold will benefit them. The hon. Lady has avoided my question about the OECD study, which makes it very clear that if one is choosing between reducing VAT and increasing the threshold and if the aim is to help people on lower incomes and to get money into the economy, one should go for the increase in the threshold.

[Rachel Reeves]

That is just not true and it is not accurate. A reduction in VAT helps people who do not pay income tax, which includes the poorest people, and benefits pensioners. The increase in the personal tax threshold does not benefit pensioners one jot, nor people who are not earning enough to benefit from a change in personal allowance. A cut in VAT helps all those people, however, including the lowest paid who will not benefit from the changes to the tax threshold. The right hon. Gentleman is just wrong.

--- Later in debate ---

[Rachel Reeves]

The Labour party voted against the entire Finance Bill, including the cut in the 50p rate. On Wednesday and Thursday, we will have an opportunity to vote on the tax cut for the wealthiest 1%, and I hope that Members on both sides of the House will join us in the Lobby to vote against a tax cut for the very wealthiest in society at a time when ordinary families are being asked to pay more.

[Simon Hughes]

rose—

[Rachel Reeves]

I look forward to hearing how the right hon. Gentleman will be voting later this week.

[Simon Hughes]

The hon. Lady was not a Member in the last Parliament, and she used a phrase that I find a bit rich. The Labour Government regularly failed to close the loopholes to deal with tax evasion and tax avoidance, and only in their last weeks in office put income tax rates up to 50p in the pound, yet the hon. Lady now comes to the House saying that she would prefer not to change the top rate of tax even though it might be far less effective than a range of measures that would make the wealthy pay five times more. Does she want the wealthy to pay more? If so, is she willing to support measures that would deliver that?

[Rachel Reeves]

I want the wealthy to pay their fair share in the deficit reduction, which is why I shall be voting this week against a cut in the taxes for 14,000 millionaires. Figures from the Institute for Fiscal Studies show that in Budget 2002—a Labour Budget—anti-avoidance measures were worth £1.7 billion. In Budget 2003—a Labour Budget—there were £1.7 billion of tax avoidance measures, and in Budget 2004, £1.7 billion-worth of tax avoidance measures—I could go on. The point is that in the Budget this year—a Conservative Budget, with a little bit of help from the Liberal Democrats—tax avoidance measures are worth £0.8 billion, lower than in all but two of the last 10 years. The idea that it is a tax avoidance Budget just does not stand up in the statistics. The Institute for Fiscal Studies knows it, so perhaps Members on the Government Benches should look at those numbers. Of course we should cut down on tax avoidance, but we should not then compensate the rich by giving them a tax cut worth £3 billion. If the right hon. Gentleman really wants to cut down on tax avoidance and ensure that the wealthy pay more, I hope he will join us in the Lobby to vote against a tax cut for the richest in society.