Finance Bill (Second sitting)
Debate between Simon Hoare and Baroness Keeley(9 years, 1 month ago)
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Barbara Keeley
I was not in anything like my current role at the time; I am afraid that I cannot explain the thinking of the former Chancellor.
To bring us back to policy priorities, there is much to be said about the technical detail of this legislation. Inheritance tax is already a complex tax to navigate, and the Bill creates a new level of complexity. The tax faculty of the Institute of Chartered Accountants in England and Wales has set out 10 tenets for a better tax system, one of which states that
“the tax rules should…be simple, understandable and clear in their objectives.”
This tax has never been that. The institute says of the clause:
“The measure is excessively complex; it would be simpler to just increase the nil rate band to £500,000.”
Why has the Minister chosen to implement the policy in its current form? There seems to be a simpler way of administering the tax.
Chris Williams of the Chartered Institute of Taxation said:
“The proposals add further complexity to an already complex system. The government has recognised that the problem of downsizing”—
to which the Minister referred—
“must be addressed but proposes only to allow for downsizing that takes place on or after 8 July 2015. Other problem areas include the need to define a main residence consistently throughout the tax system, and to recognise the diverse patterns of the modern family when attempting to restrict the benefit to children and descendants.”
I will come on to that, because there is an important point about what a modern family consists of.
The Mirrlees review, led by the IFS and funded by the Nuffield Foundation and the Economic and Social Research Council, noted that inheritance tax was a
“somewhat half-hearted tax, with many loopholes and opportunities for avoidance through careful organization of affairs.”
That is well known. It went on to say:
“This leads to charges of unfairness and makes a principled defence of the current inheritance tax difficult.”
I grant it that the Minister tried. With such a generous increase in the nil-rate band and such low estimated returns to the Exchequer, the question now is whether we should start revising this to a quarter-hearted, rather than half-hearted, tax. Is this policy a priority at a time when families and first-time buyers are struggling to get a home of their own? The average house price outside London is just over £183,000. The current nil-rate band is £325,000. That would be enough to cover the average value and include a buffer. Why has the Chancellor decided to introduce that additional residence nil rate band?
Simon Hoare
Why does the hon. Lady’s narrative automatically presume that because an estate is asset-rich, descendants are cash-rich? She referred to people trying to get on the property ladder—to pay the deposit, stamp duty, and so on. Take the widow who has stayed for years in the family home, which she bought reasonably cheaply in a part of London where property values have risen. It is the disposal of that asset on her death, and her descendants’ inheritance of it, as free of tax as possible, that allows those descendants, who may be in low or middle-paid jobs, to get on the property ladder. Why do the hon. Lady and the Labour party automatically exclude them from their thinking?
Barbara Keeley
I will come on to a very good reason why. I will answer the hon. Gentleman’s points. I ask the Minister why—I hope he does not lose this question—given the average house price outside London, the Chancellor has decided to introduce this additional band. There are wider questions, which I said I would come to, about the scope of who will benefit from the nil rate band.
The new tax exemption applies to lineal descendants. We welcome the clarification of who will benefit outlined in the Government amendment, and the apparent extension of the nil rate band to a lineal descendant’s spouse or civil partner in the event of the lineal descendant’s death. However, the Institute of Chartered Accountants has pointed out that it could be seen as discriminatory to allow the relief only to lineal descendants; many godparents, aunts and uncles are as close to, and their lives are as intertwined with those of, godchildren, nieces and nephews as are those children’s parents. That is the kind of family structure that we have these days.
Barbara Keeley
My hon. Friend puts that in an excellent way. Will the Minister clarify the Government’s position on why the policy will apply only to lineal descendants? It has the potential to raise house prices by making property an even more attractive investment for the wealthiest, which would make it even more difficult for ordinary working people to get on to the property ladder.
Paul Johnson, the director of the IFS, has said that it is
“rather odd to give this special treatment to housing given that owner-occupied housing is already extremely tax privileged”.
He said:
“This will only increase the bias we have towards putting your money in a house, to inflating potentially the value of housing, without dealing with the lack of housing, which is driving up the value of private residences.”
Many of the policy’s features are similar to those analysed in a Treasury document that was leaked to, and published by, The Guardian. According to the estimates in the document, based on Budget 2014 forecasts, the policy would reduce the proportion of estates liable for inheritance tax from 8% in 2015-16 to just over 6% by the end of the Parliament, rather than increasing it to slightly more than 10%, as the current policy would have done. The document contains the argument that
“there are not strong economic arguments for introducing an inheritance tax exemption specifically related to main residences”.
A number of problems with the policy are set out in the document, such as the fact that it would encourage investment in owner-occupied housing rather than other more productive investments and that it would discourage downsizing late in life when that might otherwise be appropriate. Although the Government have made some provisions to prevent the downsizing problem, industry experts have said that the changes could lead to more people choosing to upsize later in life, which would have consequences for the availability of housing stock for other buyers.
I want to talk about the balance of the Government’s tax cuts, including changes to inheritance tax. Those changes will cost £24.6 billion over the Parliament, and they will be financed by five main sources, according to the Office for Budget Responsibility. Tax increases will raise £47.2 billion over the Parliament; we have talked about things such as insurance premium tax. Welfare cuts, including cuts to tax credit and many freezes, will raise nearly £35 billion. Other spending decisions will cut £8.1 billion. Cuts to departmental spending and to the BBC have been proposed. Various tax and spending decisions have indirect effects that will raise a further £14.2 billion.
The Budget decisions, interestingly, imply £3.5 billion of extra borrowing over the Parliament, on top of the £14.6 billion increase indicated by the OBR pre-measures forecast. Inheritance tax raised an estimated £3.8 billion in 2014-15, but house price inflation had been expected to drive the tax take up to £6.4 billion by 2019-20. Instead of the Exchequer receiving more revenue from inheritance tax, however, the policy is expected to cost it £940 million a year by 2020-21, when the additional family home allowance—like the existing allowance, it will be transferable between spouses—reaches £175,000 per person.
When they talk about borrowing, Conservative Members should bear in mind that if the Government had kept the existing allowance, they would have more than halved expected additional borrowing over the lifetime of the Parliament. In contrast, their position appears to mean more borrowing, when one of the Government’s specified aims is to do the opposite. It seems strange that in the debates we have had so far the Conservative party seems to be convinced that it is okay to increase taxes such as insurance premium tax and to make increases that hit very large numbers of people the main way to raise finances, while implementing changes to inheritance tax that will cost the Exchequer considerable sums of money.
Surely, keeping inheritance tax as it was would be better than increasing the insurance premium tax and making hefty welfare cuts. Those are the decisions that are weighed against each other. The Government are cutting a tax for the wealthier families in the country, while cutting tax credits for millions of those who are in need. That is what we are going to see over the coming years. We could say that this is a rather warped interpretation of Robin Hood: taking money from the poorest to pay for a tax cut for the richest.
To answer the point made by the hon. Member for North Dorset, this tax cut comes at the same time as the Government have decided to abandon a manifesto pledge to implement a £72,000 cap on care costs. In a written statement to the House of Lords on 25 July 2015, the cap on costs was described as an expensive new commitment. The cap—a pledge made by the Conservative party—was designed to prevent older people and younger people with disabilities from having to sell their homes when they went into care.
Here is the answer for the hon. Gentleman: why is it okay for people with care needs to have to sell their homes and have nothing to pass on, while the very wealthiest—the top 10%—are allowed to keep house values of £1 million? The Government have decided to abandon a cap, for which they had made legislation, on the grounds that it is too expensive, while they are opting to go with the introduction of the nil rate band for inheritance tax on properties, which will cost £1 billion by 2020. That £1 billion a year could have been an incredible investment in social care; instead, we are going the opposite way. We are talking about hundreds of thousands of pounds, if not millions. People who have to pay their own care costs will be under a huge burden and will have to give up their homes.
Simon Hoare
I would simply say to the hon. Lady that it is just about how an individual uses the asset. If someone needs to use their asset to pay for their care, that is what they must do. Greedy children will be hanging at the gate preventing them from putting up the “For sale” sign or whatever, but we just have to get used to using our residential assets better, as needs require.
Barbara Keeley
We were committed to a better way of funding social care, and in future we will be committed to even better ways.
I want to finish by questioning the Government’s priorities. It is a question not only of priorities, but of the unintended impacts of the policy. We talked about downsizing and the effect on the housing market. The clause may have a significant impact, which is why we tabled amendment 7, which would require a report on the effect of the inheritance tax changes on different UK regions and on housing prices. The Minister seemed to signal that he will not look at or accept our amendment, but it is very reasonable, asking only for a report. If he will not accept our proposal now, we will bring it back on Report.
Finance Bill (First sitting)
Debate between Simon Hoare and Baroness Keeley(9 years, 1 month ago)
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Barbara Keeley
Clauses 1 and 2 enact the promise that the Government made during the general election not to increase the rate of income tax or VAT in the next Parliament. Clause 1 states that the basic, higher and additional rates of income tax will not increase above 20%, 40% and 45% for the duration of this Parliament.
We support the Government’s pledges on tax locks for this Parliament. In fact, it would be surprising if we did not, because we made them first. The Labour party made the same pledge on 25 March, and our 2015 manifesto contained a commitment not to increase the basic or higher rates of income tax, or to raise VAT or national insurance. We are glad the Conservative party adopted our pledge during the election.
However, as my hon. Friend the Member for Torfaen said, and as was discussed in the Budget debates, legislating for that pledge represents a U-turn. As my hon. Friend rightly said, in 2009 the current Chancellor said he was very critical of Chancellors passing laws to ensure they fulfil their promises. The current Chancellor stated then:
“No other Chancellor in the long history of the office has felt the need to pass a law in order to convince people that he has the political will to implement his own Budget…As one commentator observed this week, there are only two conclusions. Either the Chancellor has lost confidence in himself to stick to his resolution, and is, so to speak, asking the police to help him, or he fears that everyone else has lost confidence in his ability to keep his word, but hopes that they might believe in the statute book if not in him. Neither is much of a recommendation for the Chancellor of the day.”—[Official Report, 26 November 2009; Vol. 501, c. 708.]
Simon Hoare (North Dorset) (Con)
On Tuesday the hon. Lady advised us on the Floor of the House that she would not seek to defend or reference remarks made on previous occasions by the new leader of her party. Surely what is sauce for the goose is sauce for the gander.
Barbara Keeley
I think comments that somebody made when they were a Back-Bench MP are different. Once somebody has taken on a role, either in opposition or in government, what they say carries a certain weight. There is a freedom to the Back Benches that I and others here have experienced. Many Members of the Conservative party say things that their Front-Bench team would not agree with. That is my distinction, and I am sticking to it.
It appears that the Chancellor had a change of heart, and now feels the need to pass a law to convince people that he has the political will to implement his own Budget. During the debate on the National Insurance Contributions (Rate Ceilings) Bill earlier this week we discussed the view that measures such as this are in fact gimmicks. We questioned why Ministers feel the need for this additional legislation when the promises that the Prime Minister and the Conservative party made during the election should be good enough. To people outside Westminster, it could appear that Treasury Ministers have lost confidence in their ability to stick to their resolutions, or perhaps they fear that everyone else has lost confidence in their ability to keep their word. The Minister may want to tell us which he thinks it is.
Although Labour supports the pledge to make no increase to VAT, income tax and national insurance contributions during this Parliament, I still question whether introducing legislation to ensure those locks is the best course of action. Rather than gimmicks, we need long-term tax reform and sensible policies to ensure that the taxpayer gets a good deal.
We have some concerns about the durability of the income tax lock in clause 1. As it stands, it appears that rates could be raised by repealing the Bill in a future Budget. Can the Minister assure the Committee that it is not simply a gimmick? Will he outline how he intends to show that the lock will remain in place? In our deliberations, we should consider the impact of that tax change and the other changes to the tax system announced in the Budget. As many tax experts have pointed out, only then will we be able to see the real impact of Government measures on particular groups of people.
In Committee of the whole House, I raised the issue of the insurance premium tax. Although the clause protects workers against an income tax rate rise, I note that they will not be protected from the other tax increases in the Bill.
Simon Hoare
The hon. Lady is being generous in giving way, as always. Under the moderate and reforming Labour leadership of the right hon. Member for Doncaster North (Edward Miliband), Labour Front-Bench Members for the whole of the previous Parliament were never able to say what they would actually do. They were very good at saying what they would not do and at opposing everything that my right hon. Friends in the Treasury sought to do to reduce spending and bring it back under control. We await—with bated breath, it has to be said—what the reforming instincts of the new Labour leader will bring forward, but can the shadow Minister say what she would do? She has spoken about her long-term plans for house building, and so on, but, in the shorter to medium term, what would the Labour party do today, or what would it have done recently, to balance the nation’s finances better?
Barbara Keeley
That is a very easy question to answer. We heard earlier about the former shadow Chancellor, my hon. Friend the Member for Nottingham East, who put in a great deal of work this year on zero-based budgeting spending reviews. He came up with a list of savings that amounted to £12 billion. We talked about that a great deal during the election—
Barbara Keeley
I think it would be better, Sir Roger, if we could move away from things to do with the Labour party and concentrate on the Bill. It is not helping progress.
National Insurance Contributions (Rate Ceilings) Bill
Debate between Simon Hoare and Baroness Keeley(9 years, 1 month ago)
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Barbara Keeley
I will come on to my party’s manifesto commitments in a very short while. I do not think it is helpful, and I am not going to respond, to any interventions or points made by Government Members that refer to things the current Leader of the Opposition said before he was Leader of the Opposition. [Interruption.] That is a different situation. What I have just said is that when the Prime Minister was elected in 2010, he raised VAT when he had said that he would not do so.
Beyond the broken pledge on VAT, which is a serious matter—[Interruption.] Government Members can sit giggling, but these are very serious matters that hit the country hard. It is worth remembering that the Prime Minister appeared to rule out cuts to tax credits when appearing in front of a special “Question Time” audience during the recent election campaign. Yet, we are due to vote later today on that measure, and the Government’s cuts to tax credits will leave some 8 million families on average over £1,000 a year worse off. That is a shocking broken pledge.
Simon Hoare
Unlike the hon. Lady, not all Government Members are obsessed with the new leader of the Labour party. Surely she has to accept that on broken promises, the greatest albatross around her party’s neck is the previous Prime Minister, Mr Brown, who promised the end of boom and bust? That was signally incorrect and is the biggest albatross from which the Labour party can never be freed.
Barbara Keeley
Government Members should stop going back in time. I have just referred to the fact that the Prime Minister promised before the 2010 election not to raise VAT. [Interruption.] Look at your record. You’re in government. You’re defending your Bills.