Tax Fairness

Stephen Williams Excerpts

Tuesday 12th March 2013 Commons Chamber

[Stephen Williams (Bristol West) (LD)]

Thank you, Mr Deputy Speaker—indeed, a man from Swansea.

It is a pleasure to speak in favour of the Government amendment tabled by the Deputy Prime Minister and the Prime Minister, because it reflects the realities of coalition Government. The amendment is completely frank about the fact that there are two parties in coalition and that one of them—my party, the Liberal Democrats—supports a mansion tax while the other, the Conservative party, does not. When we conducted our coalition negotiations back in May 2010, the Liberal Democrats were successful in getting many of our policies into the coalition agreement that is now being implemented by the Government, but the mansion tax was resisted by the Conservative party, and that is why the Chancellor has not, thus far, put it forward in his Budgets. We accept that position. Our amendment reflects the realities of the coalition.

[Anas Sarwar]

Will the hon. Gentleman tell us what part of the Opposition motion he cannot support?

[Stephen Williams]

I will come to that, if the hon. Gentleman is patient.

The key sentences in the Opposition motion and in the coalition Government amendment are those which refer to our support for tax cuts for people on low and middle incomes; we have that in common. However, it rather depends on what one means by that. We know what we mean by it. At the last general election, the Liberal Democrats said that the most effective way to cut taxes for people on low and middle incomes was to raise the income tax threshold to £10,000. That policy was accepted by our coalition partners and it has now been delivered by the coalition Government. I listened carefully to what the Leader of the Opposition said in his speech just a month ago when, lo and behold, Labour was converted to a mansion tax. The purpose of that conversion was specifically to right the wrong that the hon. Member for Nottingham East (Chris Leslie) acknowledged was done in 2007—in other words, to reintroduce the 10p rate. That is what Labour’s policy is. The motion is not entirely clear about that, but we have heard the words of the Leader of the Opposition. We know that, yes, they are now in favour of a mansion tax, but specifically to fund a 10p tax rate, which we think will be completely ineffective.

[Nic Dakin]

Was it yesterday that the hon. Gentleman said on the BBC2 “Daily Politics” show that he could have written the Labour motion himself?

[Stephen Williams]

Yes, it was. I said it on “Westminster Hour”, on Radio 5, on the “Daily Politics” show, and on other programmes as well. Indeed I could have written it myself. However, I know precisely what I mean by a mansion tax, but we have not heard spelled out in any detail what Labour Members think it should be. I know what I mean by a tax cut for low and middle-income earners, because that is what this Government are doing while we are in office. I am entirely clear what I mean by the text of the motion; the trouble is that it has not been exactly clear what Labour Members mean by their words.

[Chris Leslie]

We support the proposition that the hon. Gentleman has elucidated about a mansion tax, so, okay, we are clear about what we mean by a mansion tax. When the Business Secretary said that if the motion were

“purely a statement of support for the principle of a mansion tax, I’m sure my colleagues would want to support it”,

was he wrong?

[Stephen Williams]

The Business Secretary is never wrong; he is a very wise man. I do not see any great difference between what he said and what I said on the record several times yesterday and over the weekend. We know what we mean by a tax for low and middle-income earners. We know what Labour Members mean as well—a reintroduction of the 10p tax rate, and that is why we disagree with them.

[Stephen Lloyd (Eastbourne) (LD)]

Will my hon. Friend give way?

[Stephen Williams]

I cannot give way again because I have now lost all my concessions.

The reason the Business Secretary—our shadow Chancellor, as he then was—proposed a mansion tax towards the end of 2009 was that property wealth in our country is woefully under-taxed. Our only property tax is council tax. In England, the top council tax band, band H, is twice the rate of the broadest band, band D, and three times that of the basic band, band A. That means, in effect, that in our only property tax the rate for a £10 million mansion is only three times the rate for a bedsit. That is clearly a ludicrous way to tax property. The band H top rate is only £320,000. Let us take as an example the royal London borough of Kensington and Chelsea, just along from where we are now. A £90 million mansion—I can see no other way to describe a £90 million house—in Kensington Palace gardens pays council tax of £2,151. That is the top rate of council tax that can possibly be paid in the London borough of Kensington and Chelsea—exactly the same as the rate for a small flat in that borough. That is a nonsensical property tax. That is why my party, the Liberal Democrats, backs the introduction of a mansion tax on properties with a value of over £2 million, with an annual levy of 1% on the excess over £2 million. That means that someone who had a £2.1 million mansion would pay mansion tax of £1,000 tax a year, while someone with a £3 million mansion would pay mansion tax of £10,000 a year.

The Minister and several other Members have asked what would happen to people who are asset-rich but income-poor. We have always had a very simple answer to that. In those cases, the tax would be rolled up and would crystallise once the property was sold and then be met from the sale price. That is a very simple concept for a very simple tax. We have also said that it should be a national tax, not a local tax. We have not hypothecated it to any particular tax measure, and we have not tied it to the reintroduction of a 10p tax rate as the Opposition have, which is why we do not support their motion. However, it could take us to the final milestone of getting to the £10,000 income tax-free threshold that I am reasonably confident will be announced very shortly. It could certainly contribute to getting the Liberal Democrats to where we wish to go next—that is, to making sure that every adult on the national minimum wage, which is currently £12,071, should not be caught in the income tax net. We may be able to make progress towards that in the latter days of this coalition, but it will certainly be in the Liberal Democrat manifesto in 2015; we are completely clear about that.

Labour Members have linked their mansion tax proposal—at least the concept, as they have not fleshed out what it really is—to the reintroduction of the 10p tax rate. I think it is fair to have a little look at Labour’s record on the 10p tax rate. I love Budget debates, and I have been in the House for all of them in the eight years that I have been an MP. In March 2007, I was sitting just where the hon. Member for Stockton North (Alex Cunningham) is sat on the Opposition Benches as I listened to last Budget speech of the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) in which he announced the abolition of the 10p tax rate. That was met on the then Government Benches with wild cheers and waving of Order Papers because it was to finance a cut in the basic rate of tax from 22% to 20%. Why was that being done? What was so crucial about its timing? As we know, the then Chancellor was heir apparent to the then Prime Minister, Tony Blair. He thought that there was going to be an autumn 2007 general election and that an income tax cut for better-off people in society, financed by the poorest, whom he assumed would always vote Labour, seemed like a good piece of populist politics—but it backfired and blew up in his face. Six years on, we are asked to believe that Labour wants to make good for that mistake.

There was another tax change in 2007 that does not get much attention. A lot of Labour Members here today were not Members of the House at that time, so I will forgive them for not remembering, but perhaps someone else on the Labour Benches wants to remind us of the other tax change that the former Prime Minister introduced in 2007. I see that there are no volunteers, so I will tell the House, because I can see that Members are now in suspense: it was a doubling of the inheritance tax threshold from £325,000 to £650,000 in a double-income household. That is Labour’s record in government: tax cuts for the wealthy. We know that they were completely discombobulated by the then shadow Chancellor’s announcement to the Conservative party conference of a cut in inheritance tax and were keen to match it.

I am sure that Labour Members love reading Polly Toynbee’s column every week and that it is compulsory reading at the breakfast table in Labour households and in the Tea Room. In her column in The Guardian this morning dear Polly said:

“Labour barely dared breathe on the riches that soared upwards on their watch.”

I could not agree more. At the time of its abolition, the 10p tax rate taxed incomes under £7,455 at 10%, but since taking office we have taken such incomes out of tax altogether. Surely it is better to be taxed at 0% than at 10%, so the coalition has been much fairer to people on low incomes.

That is not all that the coalition has done. We have restricted pension tax relief. Up to May 2010 under Labour someone could put more than £250,000 a year into their pension pot, whereas this year under the coalition the figure is only £40,000. We raised capital gains tax from 18% to 28% and stamp duty on properties worth more than £2 million to 7%. We might not have been able to persuade our coalition partners on an annual mansion tax, but we have persuaded them on a mansion duty when properties of that value are acquired.

We have done more to tackle avoidance. We set up an affluence unit in Her Majesty’s Revenue and Customs, which will examine in detail the affairs of 500,000 of the most wealthy people, and placed a 15% charge on domestic properties bought via a company—a classic example of avoidance that the previous Government did little to block, just as they did not block and, indeed, voted against disguised remuneration when we proposed to tackle it in one of our first Finance Bills.

We have been through many Opposition days, both in government and in opposition. When the votes are counted at 10 past 4, very little will have changed. What are the origins of this motion? We know that it is based on a policy stolen from the Liberal Democrats. I understand the right hon. Member for South Shields (David Miliband) also proposed it in his leadership bid, so one brother steals from the other as well as from the Liberal Democrats. This is pantomime politics, but nobody is laughing.

--- Later in debate ---

[Mark Reckless (Rochester and Strood) (Con)]

It is a pleasure to follow the hon. Member for Dumfries and Galloway (Mr Brown), who ingeniously addressed the topics of both of this afternoon’s debates and some even broader topics.

I will confine my remarks to the taxation of high-value property. The motion refers to a mansion tax on properties worth more than £2 million. A serious problem with the motion is that the Government have already brought in a range of measures to increase the incidence of tax on the owners of properties worth more than £2 million. No definition of “mansion tax” per se is provided in the motion.

The Leader of the Opposition hypothecated the revenues that would purportedly be raised by the mansion tax to reintroduce the 10% rate of tax, which was abolished by the previous Government. The cost of that would be some £7.3 billion. Research that was published recently shows that to raise that amount of money, a so-called mansion tax would have to be introduced not on properties worth more than £2 million, but on properties worth more than £415,000. It may be that the Opposition wish to tax people in that class of income more. Perhaps they think that they are rich, are benefiting too much and need to pay more to the Government. I look forward to their fighting the next election on that basis.

Meanwhile, our coalition partners have said that there should be a mansion tax that applies only to residential property worth more than £2 million. However, we have also heard from the Liberal Democrats—I am not sure whether it came from the federal policy committee or quite how they develop these policies—that it would apply not just to mansions above £2 million, but to property generally above £2 million. It is therefore just as important for somebody who has 10 flats worth £200,000 each to pay the extra tax as somebody who has a so-called mansion worth £2 million. Apparently, they are going to go further and inspect the contents of jewellery boxes and levy taxes on those as well.

[Stephen Williams]

My hon. Friend is setting various hares flying across the field. Of course, I am not in favour of hunting, but those hares need to be stopped from running. The jewellery tax is complete nonsense. As I have said many times on the record, we are not in favour of a net wealth tax that allows HMRC to look beyond people’s front doors. On the property portfolio, if somebody owned 10 flats, the nine that they did not live in would probably be attracting rental income and so would already be taxed. A mansion tax would apply to somebody’s principal residence if it was worth more than £2 million.

--- Later in debate ---

[Nic Dakin (Scunthorpe) (Lab)]

This debate is about tax fairness, with contributions from both sides having focused on that challenge. The year 2013 is not 2008 or 2001; we are in different times and facing different challenges and, therefore, different choices. We are undoubtedly in tough times, in difficult times; we are in a period of austerity, and, as a result, we have different choices to make.

Individuals also have different choices to make. I am being contacted, as I am sure every other right hon. and hon. Member is, by constituents living through these tough times and finding it difficult to make ends meet, owing to rising prices, fuelled by the hike in VAT, which was one of the very first decisions of this Conservative-led Administration. Despite describing it as a tax bombshell in the general election campaign, the Liberal Democrats sadly supported this most regressive of tax increases. Energy bills, fuel bills, food bills and rail fares are all rising, making it difficult for ordinary people and families to make ends meet.

Prices are rising and incomes are falling. Ordinary people are finding it difficult to make ends meet, because incomes are falling and people are losing their jobs or losing hours they want to work or reducing their pay in order to help businesses through these difficult times and to manage the situation together. That is what businesses in my constituency are doing—managing the situation with their work force—which often means reducing hours and pay, but keeping businesses and households afloat.

These are difficult times, with the squeeze on hard-working families worsened by the reduction in tax credit eligibility and the looming spectre of the bedroom tax, to which several right hon. and hon. Members have referred. People are struggling to make ends meet. They are doing their best to keep their heads above water. As my hon. Friend the Member for Stockton North (Alex Cunningham) said, we see the number of food banks expanding and child poverty rising. In 2013, these are things that none of us would wish to see in the United Kingdom—one of the richest countries in the world—on our collective watch. These are tough times in the real world.

[Stephen Williams]

Yes, in tough times we have to make tough choices. I recognise that some of them are uncomfortable, but does the hon. Gentleman lament the fact that in 2007, when budget revenues were increasing and the economy was perceived to be booming, the previous Labour Government decided to put up taxes on the very poorest?

[Nic Dakin]

The hon. Gentleman will be alert to the fact that I came into this House only in 2010. We can all look back with hindsight and be critical of decisions made at different times. One of the issues for us all in these difficult times is whether with hindsight on the decisions we are making today people will say we made the right decisions.

--- Later in debate ---

[Catherine McKinnell]

I thank my hon. Friend for his impassioned slap-down of the hon. Member for Central Devon (Mel Stride). What is clear from today’s contributions is the gap between what Labour Members—and, we hope, Liberal Democrat Members—believe to be the fair and right thing to do, and what many Conservative Members believe.

As I said, the Opposition motion is based on a simple premise: a mansion tax on properties worth more than £2 million should be part of a fair taxation system and used to fund a tax cut for millions of people on middle and low incomes. Let us be honest—I know that Government Members cannot stay in denial of this any longer—those people are finding that their household budgets are seriously squeezed. An increasing number of hard-working families up and down the country are reaching breaking point. A number of hon. Members gave heartfelt accounts of the difficulties that many of their constituents are facing: the rise in the use of food banks; the VAT increase; rising energy and fuel bills, rail fares; and other household budget difficulties.

[Stephen Williams]

rose—

[Catherine McKinnell]

I will give way to the hon. Gentleman because he has been mentioned twice.

[Stephen Williams]

The hon. Lady again mentioned the tax cut for millions of people on middle and low incomes, which is in the Labour motion and indeed the coalition Government’s alternative. Will she confirm that the tax cut in the Labour motion matches up with what the Labour leader said last month when endorsing our policy of a mansion tax and that the tax cut that Labour is talking about is reintroducing the 10p tax rate?

[Catherine McKinnell]

We have made Labour’s approach clear. We have said that we would like to fund a 10p tax rate for the lowest earners. We have not specified that that is what the Government should do with this; we have said that it should be used to fund a tax cut for those on low and middle incomes. So if the Liberal Democrats want to support us in the Lobby, they can then pressure the Government to use that money in any way they see fit.

So let me remind the House of the context of today’s debate. Many of our constituents are struggling to make ends meet, due to a combination of under-employment, stagnating wages, rising food, fuel and child care costs, and of course the Government’s hike on VAT. Our constituents will be further hit by a £6.7 billion cut in working-age benefits and tax credits over the next four years. [Interruption.] The Under-Secretary of State for Communities and Local Government, the right hon. Member for Bath (Mr Foster)—the Liberal Democrat Minister—is groaning but that is the reality for many families up and down the country. At the same time, we read of hundreds of bankers at different financial institutions, including one owned by the state, earning more than £1 million per year. We have a Chancellor seeking but failing to use his ever-diminishing influence in Europe to fight against proposals to limit bankers’ bonuses to “just a year’s salary”. We have a coalition Government who will give the 13,000 people in this country earning more than £1 million a year a tax cut of £100,000 next month. No wonder people are angry and no wonder our economy is not growing when ordinary people cannot afford to spend and invest. We—or, more accurately, the Prime Minister—heard only last week from the OBR that fiscal consolidation measures have reduced economic growth over the past couple of years.

[Catherine McKinnell]

These arguments have been rehearsed many times and we have made clear our absolute opposition to cutting the top rate of tax at this time while slapping charges on the poorest in society. No wonder the hon. Member for Harlow (Robert Halfon) has spoken of the Government’s need to neutralise claims that they cut taxes for the rich.

Let us look at the Opposition motion, because I think the Liberal Democrats are dancing on the head of a pin when they say that they cannot support it. It calls for the introduction of a charge on properties worth more than £2 million, a mansion tax that the Liberal Democrats have estimated would raise £2 billion. We say that it could be used to fund a 10p tax band of up to £1,000, benefiting 25 million basic rate taxpayers to the tune of £100. We believe that Liberal Democrat Members should put aside their loyalty to the Conservatives and vote in favour of a principle—the principle of tax fairness at a time when so little of it is in evidence from this Government.

How could the Liberal Democrats do otherwise? Only last month, they made the introduction of a mansion tax the centrepiece of their Eastleigh by-election campaign. Recent media appearances have certainly suggested that they will support the principle, with the Business Secretary declaring that if the Opposition motion

“is purely a statement of support for the principle of a mansion tax I’m sure my colleagues would want to support it.”

Asked again at the weekend which part of the Opposition motion he disagreed with, the Liberal Democrat president, the hon. Member for Westmorland and Lonsdale (Tim Farron), replied, “None of it.” The former leader, the right hon. Lord Ashdown, declared that it would be “weird” if the Liberal Democrats voted against it. He is not the first person to call Liberal Democrats weird, but they have the opportunity to put that right today and to get on the road to normality by supporting their own policy.

Only yesterday, the hon. Member for Bristol West—I shall mention him one last time—said of the Opposition motion,

“I could have written it myself”,

yet today he complains that we have stolen his party’s policy. If such childishness gets in the way of the Liberal Democrats supporting their own policy in the Lobby, members of the public will be baffled and extremely disappointed.

[Stephen Williams]

rose—

[Catherine McKinnell]

I would give way, but I am running out of time.

We think that the Opposition motion presents those of us who believe in a fair and equitable taxation system with the opportunity to demonstrate that fact by voting in favour of it today. Will this be yet another example of the Liberal Democrats saying one thing to the electorate and doing something very different in government? What about their partners in crime—I am sorry, Mr Deputy Speaker, I mean partners in government—the Conservatives? We know that an increasing number of Conservative Members fear that they appear out of touch and that some, most notably the hon. Members for Harlow, for Camborne and Redruth (George Eustice), for Aberconwy (Guto Bebb) and for Cleethorpes (Martin Vickers), all of whom are noticeably absent from the Chamber, have argued that a way to counter that impression would be to reintroduce a 10p tax rate.

I have argued before that the best way to neutralise the impression that the Government are out of touch and only cut taxes for the rich is to stop cutting taxes for the rich, such as the millionaires’ tax cut that will take effect from April. I also acknowledge that it was a mistake to get rid of the 10p rate in 2007, although it enabled the 22p rate to be reduced to the 20p rate that is still in place today.

We believe that the best way to fund a new 10p tax band is through the mansion tax. Many right hon. and hon. Members have expressed concerns about how the mansion tax would work in practice, about how properties would be valued and about how people who live in £2 million properties but are apparently cash poor would pay. We have also heard, however, that the Treasury is drawing up detailed proposals for an annual charge on high-value residential properties owned by companies, partnerships or investment vehicles. It demonstrates that our plans—Liberal Democrat and Labour plans—for a mansion tax, an annual charge on high-value residential properties owned by private individuals, are entirely feasible, entirely realistic and entirely possible.

Our motion calls on the Government to bring forward proposals for a mansion tax, so that they can be considered in more detail by the House. The Opposition motion is simply expressed; it responds to Liberal Democrat concerns, and we still hope they will support us by voting for it. It calls for a tax on individuals fortunate enough to live in a high-value residential property, to support a tax cut for millions of hard-working low and middle-income families up and down the country at a time when they desperately need our support to put money back into household pockets and demand back into the economy. The motion provides all Members with the opportunity to demonstrate their support for a tax system based on fairness and equity, and I commend it to the House.