16:10 - The House divided: - Ayes: 248 / Noes: 287 - Question accordingly negatived.
Chris Leslie
It is amazing what contortions Ministers have forced their officials into in trying to justify why the 50p rate could no longer continue—the sort of ideological nonsense we heard from the hon. Member for Wolverhampton South West—such as the suggestion that somehow it would not raise important revenues at a time when our deficit is actually rising.
Chris Leslie
I am sure that the Financial Secretary will confirm that the deficit is actually rising.
Mr Gauke
The shadow Chief Secretary might be aware that earlier today the Daily Mail reported on its website that a former Labour Cabinet Minister, Alan Milburn, said at a Labour party conference fringe event that, as far as the state of the public finances was concerned, increasing the 45p rate to 50p would be “absolutely incidental”. Does he agree?
Chris Leslie
I do not agree that it would be incidental, but I have never suggested that it is the full solution to dealing with the deficit. However, it is an important part of it—[Interruption.] The Financial Secretary says that it is not an important part of it. He says that we should not worry about the revenues we would get from a 50p rate. I am sorry, but the country cannot afford that sort of attitude and those priorities from Government Members. The deficit affects our constituents because of its effects on public services and the accumulating interest that has to be paid to service the mounting debt under the Conservatives. We have a choice about a tax rate that would raise £3 billion, and it is important that we take that opportunity to tackle our deficit, rather than giving that money away to those people who are already in an extremely privileged position.
Chris Leslie
I do, and let me explain why. We have to debunk this myth, because it is essentially the argument that the Minister will set out in his speech today. The static cost of the 50p tax rate before behavioural effects are taken into account is £3 billion—those are the official HMRC figures and the Minister agrees with them. Ministers, however, including this one, have strained every sinew to try to prove that those behavioural effects would almost entirely erase any revenue generation whatsoever, claiming that it would raise only a net £100 million. That is the figure we have. However, we must not forget—perhaps he can confirm this—that it was a ministerial decision to pick the tax income elasticity rate of 0.45, which miraculously massaged the official figure down to that £100 million. Was that a Government decision, because that is what the HMRC figures say?
Mr Gauke
It was HMRC that determined that, but I just want to be absolutely clear about what the shadow Chief Secretary is saying. He is right that the £3 billion is the static cost, but he is saying that that is the actual cost that the Labour party believes it would raise. He is saying that there would be no behavioural change as a consequence of a 50p rate of income tax. That is the most extraordinary and incredible position, and it is inconsistent with the position that the Labour Government took when they introduced this some years ago. If that is what he really believes, he is stretching credibility even further.
Chris Leslie
We are making a little progress, because the Minister has at least acknowledged that the static cost of this change is £3 billion, and we have also pinned down the fact that it was HMRC and the Treasury, not the Office for Budget Responsibility, that picked the TIE rate, which is the device he used to massage the figure down to £100 million. [Interruption.] He says that that was not Ministers, so we will have to see whether a freedom of information request can elicit more information.
Even if we accepted the behavioural changes that the Minister has suggested, rather than tackling the tricks and manoeuvre used to avoid paying the tax, what is the attitude of the Treasury and the Minister? Their attitude is to wave the white flag and basically say, “Let’s allow them to get away with those behavioural effects.”
The Financial Secretary to the Treasury (Mr David Gauke)
It is a rare privilege for a Treasury Minister to respond to an Opposition day debate on an economic matter this year. In the course of 2014, we had a debate on banking in January and a debate on the Office for Budget Responsibility in June, and now this. Why the reticence on the part of the shadow Treasury team? Imagine the scene in the shadow Cabinet room. With the general election fast approaching and Labour’s economic credibility at record lows, the pressure is on for the shadow Treasury team to make their big economic argument. So they all sit there, straining to come up with a topic for an Opposition day debate. They could set out their case on economic growth, but having spent years saying that our policies inevitably meant that the economy would flatline—remember the hand gestures—we are now projected to be the fastest-growing economy in the G7. They could talk about unemployment. Remember the predictions of another 1 million unemployed. But employment is at record levels, and unemployment, youth unemployment and long-term unemployment numbers are dropping like a stone. They could talk about the exciting plans a Labour Government might have to make our economy more competitive and dynamic, except that they have not got such plans, only plans to increase business taxes. What about the cost of living? The problem here is that hardly anyone believes that a Labour Government would make a positive difference to the cost of living, because we need policies for growth and jobs to deliver improvements in standards of living. They could talk about how Labour would deal with the deficit, except, presumably, everyone forgot to mention it in the meeting. “We must have something we can say,” someone says in desperation, and after a long and painful silence someone eventually says, “We could always trot out the 50p tax cut again. Yes, that will have to do.” So for the first tax and spend Opposition day debate of 2014, we return to a lazy and populist measure, which, as a former Labour Cabinet Minister has been reported to say today, is incidental to the state of the public finances.
Kate Green (Stretford and Urmston) (Lab)
A moment ago, the Minister commented on employment rates among young people, and across other groups too. Does it not trouble him and his colleagues that while employment rates are rising, in-work poverty is also rising, and the Government have no strategy to deal with this? What will he do about that?
Mr Gauke
The way to address that is by improving our productivity, by attracting additional business investment, and by ensuring that we are a good climate for businesses to invest in. That is how we get growth. It is through enterprise, not through punitive taxation that fails to deliver public finances to the Exchequer.
Geraint Davies
Will the Minister confirm that the amount of business loans from banks, including RBS, to businesses, is 30% down compared with 2008, and down 40% for small business, yet the loans for mortgages, for houses that already exist, are at 2008 levels? All the money is going into existing houses instead of into productivity and business. Why does he not do something about it?
Mr Gauke
The hon. Gentleman should also be aware that business investment is increasing. The last few quarters have been very positive on that front, and we are moving in the right direction, despite having to deal with the mess that we inherited. The truth is that in the place where a credible Opposition economic policy should be, we have an empty gesture that will do nothing for economic growth, nothing for job creation, nothing for the public finances, and nothing to help reduce taxes for working people.
Charlie Elphicke
Will my hon. Friend confirm the position on the change in receipts? It looks to me from my studies of Inland Revenue statistics, which are frequent, that the receipts from this additional rate seem to have risen from about £40 billion to £49 billion.
Mr Gauke
I will turn to the analysis done by Her Majesty’s Revenue and Customs, which is at the heart of the debate, but there is no reason to believe that that has proven to be inaccurate, or that suddenly there is this huge stream of revenue that is available to the Exchequer that we have forgone. The truth is that there are much better ways of raising money from the wealthiest than a 50p rate that proved to be ineffective.
Chris Leslie
Does the Minister agree with the Institute for Fiscal Studies, which says:
“The uncertainty around HMRC’s estimates mean it is possible that the 50p rate would be somewhat more effective at raising revenue than their initial estimate suggests”—
because we have had several subsequent financial years?
“Given this, there is certainly a case for HMRC looking again”.
Will the Treasury now conduct an impartial analysis of the true revenues of that 50p rate?
Mr Gauke
Let me quote what the IFS said in January of this year:
“there is little additional evidence to suggest that a 50p rate would raise more than was estimated by HMRC back in 2012…the best evidence we have still suggests that raising the top rate of tax would raise little revenue and make, at best, a marginal contribution to reducing the budget deficit”.
If the hon. Gentleman wants to pray in aid the Institute for Fiscal Studies, I can tell him that one thing that it would dismiss is the idea of a £3 billion pot here. The idea that there is no behavioural impact at all, which is the argument that we heard from him, is entirely fanciful.
Chris Leslie
I have quoted from the Institute for Fiscal Studies. Does the Minister disagree with the Office for Budget Responsibility, which questions the nature of the Treasury evaluation, calling it “highly uncertain?”
Mr Gauke
But it was the OBR that signed off the numbers in the March 2012 Budget. The hon. Gentleman seeks to pray in aid both the OBR and the IFS, but their position has been supportive of the Government. The fact that he suggests there is no behavioural impact here—that appears to be his position—is absolutely absurd.
Let us set out a few facts. As my right hon. Friend the Member for Gordon (Sir Malcolm Bruce) mentioned, the previous Government had a top rate of 40p for all but 36 of their 4,758 days in office. It is also the case that the richest in our society now pay more than at any point under the previous Government, with HMRC statistics showing that the top 1% is expected to pay 27.4% of all income tax this year. At the same time, 25 million working people are paying less income tax than they did in 2010. It is of course right that those with the broadest shoulders bear the greatest burden, and I will set out our actions in a few moments.
Consideration must also be given to ensuring that the United Kingdom is competitive in attracting wealth-creating individuals to locate and stay in this country, which is a point that even the previous Labour Government recognised for most of their time in office. Making our country an attractive place in which to invest is something that this Government are committed to doing. Indeed last week, the World Bank published its 2015 Ease of Doing Business report, placing the UK eighth overall and sixth among the OECD countries.
As I have already noted, the right hon. Member for Edinburgh South West (Mr Darling) announced in his 2009 Budget that the additional rate of income tax would come into effect in April 2010. It was accepted by that Government that there would be behavioural changes as a result of this policy. To be specific, not including forestalling, they accepted that it would result in revenues from the additional rate being around £4 billion lower than the static cost of the change. That is an important point. The 2009 analysis that Labour produced suggested that it would raise £2.5 billion, with £4 billion having been lost because of behavioural changes. Those behavioural changes are now being ignored by Labour, which is extraordinary.
The previous Government told us that the increase from 40p to 50p for incomes above £150,000 would raise approximately £2.5 billion a year. But the evidence suggests that it fell short of even that, raising at best £1 billion and at worst less than nothing. That is the conclusion not of my party, but of the HMRC report, which was laid before the House by the Chancellor alongside the Budget in 2012. The report lays out thorough and compelling evidence on the impact of the 50p rate. It showed that the additional rate was distorted, inefficient and damaging to our international competitiveness and that the previous Government greatly understated the impact of the additional rate on the behaviour of those affected. It has been criticised by business and has damaged the UK economy. The Government have decided not to stifle the economy further, but to show that we are open for business, which is why we reduced the rate to 45p.
Guy Opperman (Hexham) (Con)
Lower taxes allow more businesses to be set up and create employment, and we are beginning, slowly but surely, to see that in the north-east. I am sure that the Minister will wish to celebrate with me the fact that the north-east has seen the highest rise in the value of exports, the fastest rate of private sector growth in the past quarter and the most tech start-ups of any part of this country outside London.
Mr Gauke
My hon. Friend makes a good point. He also made a good point when he intervened on the Prime Minister earlier today. I am delighted that he has again had the opportunity to talk about what the Government are doing and the benefits that are being spread across this country.
The move to 45p, based on the central estimate of the taxable income elasticity, only cost £100 million a year, which is a small price to pay to regain some of the international competitiveness that we lost as a result of the previous Government’s decisions. The additional rate not only harmed our economy and contributed little to the Exchequer, but had significant impacts on our international competitiveness. It placed us in the unenviable position of having the highest statutory rate of income tax in the G20, which is precisely what we do not want when we need investment, jobs and long-term economic growth. By creating a competitive tax environment, this Government’s actions to reduce the additional rate have unambiguously been in the UK’s best interest. A return to the 50p rate would be to ignore the long-term interest of this country.
As a Government, our tax policy has focused on three broad areas: it has ensured that people play by the rules and pay the taxes they owe; that the highest earners make a fair contribution without damaging this country’s competitiveness; and that we lower taxes for hard-working people. I am proud that we have taken concrete action on all three fronts in every single Budget while delivering the fastest economic growth in the G7. This Government’s policies have repeatedly increased the tax contribution of the wealthy, creating a fairer tax system in which those with the broadest shoulders bear the greatest burden. We increased the rates of capital gains tax to 18% and 28%, ending the situation in which a director could pay a lower rate of tax than their secretary. We have introduced a stamp duty rise that will raise around £200 million a year from those who buy properties worth more than £2 million, and we have been particularly harsh on evasion and aggressive tax avoidance. For example, at Budget 2011, we introduced the disguised remuneration legislation, which raises £3 billion and protects almost £3 billion over the next five years, mainly from higher and additional rate taxpayers—a policy, by the way, that Labour voted against.
The loopholes that were closed at various Budgets mean that we have around three quarters of a billion pounds more coming into the Exchequer. Our policies do not stop there. We have also imposed a 15% rate of stamp duty land tax on residential properties bought through companies; introduced a cap on certain unlimited reliefs to limit their excessive use to reduce taxable incomes; and introduced the general anti-abuse rule. We are also requiring that tax is paid up front, preventing the richest from gaining unfair cash flow advantage by delaying tax payments. As we recognise that tax systems no longer operate on just a national level, we have signed information-sharing agreements with many countries to tackle overseas tax evasion, ensuring that no one can get away with evading payment of the tax they owe.
Geraint Davies
I thank the Minister for his generosity in giving way. After mentioning all these improvements he has made to tax efficiency and collection, he said that the Labour party calculated that there would be a behavioural shift of £4 billion but a tax take of £2.5 billion. If we apply that ratio to the £3 billion static figure, we would be getting £1.15 billion, and not £100 million. How does he explain that discrepancy?
Mr Gauke
I can go through it slowly if it is helpful. There are two points there. That was the analysis of the previous Government in 2009, and, as I said earlier, that understated the behavioural impact. It is also the case that the impact of the behavioural changes is greater between 45p and 50p than it is between 40p and 45p, so there is no discrepancy there. I am interested in the fact that the hon. Gentleman has reduced by a little the claims of his Front-Bench team that the measure would raise £3 billion. At least he acknowledges that the static cost cannot be entirely relied on, which is a degree of progress for which we should be grateful.
Mr Gauke
I have given way to the hon. Gentleman on a number of occasions, and I know that many Members wish to speak in this debate.
I have set out the measures we have taken on avoidance and evasion. At the same time, though, we have used the tax system to help hard-working people on lower middle incomes to keep more of the income they earn through personal allowances. The tax-free allowance has increased from £6,475 in 2010 to £10,500 in April 2015—a tax saving of £805 for a typical basic-rate taxpayer. These changes will have given tax breaks to over 25 million individuals and will have taken 3.2 million low-income individuals out of income tax altogether by the end of this Parliament. A future Conservative Government will go further, increasing the personal allowance to £12,500 and the higher-rate tax threshold to £50,000.
Chris Leslie
We asked the Chancellor a question yesterday and did not get very far, and my right hon. Friend the Member for Derby South (Margaret Beckett) asked it of the Prime Minister today and did not get very far, so can this Minister now tell us how, specifically, the £7.2 billion promise that he has repeated will be paid for?
Mr Gauke
I have answered the hon. Gentleman’s question and the Chancellor answered it yesterday—we will reduce public spending to pay for it.
Members in all parts of the House agree that those who can most afford it should contribute their fair share to the Exchequer, but Labour Members insist that we should achieve that through a 50p rate that damaged our economy, sacrificed our international competitiveness, and did not raise the revenues intended. Those advocating a return to a 50p rate have to answer this question: given that it will not raise any significant amount of revenue, is “absolutely incidental” to the public finances, to use Alan Milburn’s phrase, and may even cost money, why do it? It is not about deficit reduction, it is not about economics, and it is not even about getting more from the wealthy, because there are better ways of doing that. It is all about the politics—but at what cost? At a time when the UK must compete to prosper in a global world and when we have a choice as to whether we sink or swim, those who advocate a 50p rate are taking the easy choice—short-term populism triumphing over increased competitiveness, with a stone age message of “bash the rich” prevailing over the need to attract wealth creators and keep them in this country.
This country’s route to success will not be through the lazy populism we have heard from Labour. Instead, we have taken steps to ensure that those with the most contribute the most, while maintaining a tax system that enables us to compete on a global stage. We are creating a tax system that is not only fairer but shows that the UK is open for business, encourages work, and gets people doing the right thing.
The Exchequer Secretary to the Treasury (Priti Patel)
We have had a lively debate this afternoon, and that is no great surprise, as it is only the third Treasury Opposition day debate this year. We have heard from the Opposition repeated claims that the decision to reduce the additional rate of income tax was the same as handing cheques to millionaires. Those claims show the Opposition’s true colours when it comes to tax, and how they would revert to their failed policies of spending more than this country can afford, with hard-working taxpayers continuing to pay back Labour’s debt.
The Opposition had 13 years to take action and ensure that those with the most to contribute in tax did so, yet it was their discredited and failed Government who introduced the 50p rate just 36 days before they were kicked out of office.
When it comes to fairness this Government will not take any lectures, because it was a Conservative Chancellor who took the decisive action to ensure that those with the most to contribute did so. It was measures announced by this Government throughout this Parliament that increased the contribution of the wealthiest by many times more than the cost of reducing the additional rate to 45p. It was this Government, led by a Conservative Chancellor of the Exchequer, who delivered lower taxes for more than 25 million hard-working people, taking low earners out of tax altogether.
It is worth reflecting on the number of low earners taken out of tax altogether. The hon. Member for Bethnal Green and Bow (Rushanara Ali) spoke about justice and fairness in the tax system. I remind the House that it is this Government who are supporting hard-working people. In her constituency alone, more than 52,000 people are now benefiting from the increases in personal allowances introduced by this Government. In Inverclyde 34,000 people, in Heywood and Middleton more than 41,000 people, and in Holborn and St Pancras more than 61,000 are benefiting from this Government’s policy and the increases in personal allowances. That is down to the fact that we trust the British people with their money, unlike the Labour party, which believes that it is right to take more of people’s money out of their pockets.
The report laid before the House alongside the Budget found that the 50p rate of income tax raised considerably less than the anticipated sum. A number of contributions have highlighted that simple fact today, and I pay tribute to my hon. Friend the Member for North West Leicestershire (Andrew Bridgen), my right hon. Friend the Member for Gordon (Sir Malcolm Bruce), my hon. Friend the Member for Wyre Forest (Mark Garnier), and, in particular, my hon. Friend the Member for Taunton Deane (Mr Browne) for his concise contribution on basic economics, showing that higher tax rates do not result in greater revenues, and, more important, damage the country’s long-term economic stability.
The 50p rate has been distortive and uncompetitive, and it pushes away the very wealth creators that this country needs to create jobs and economic growth. At a time when labour mobility is greater than it has ever been before, the Government recognise that the UK is competing for talented individuals and business investment. It is investment that creates jobs, economic security and a long-term economic future for Britain. A 50p rate of income tax does not help to do that. At a time when global economies are still struggling to compete, it is this Government who understand the value of ensuring that Britain is open for business.
The evidence speaks for itself. The 50p rate did not work. This Government reduced the rate to 45p because it was not rational to persist with a tax rate that was distortive and harmful to this country’s economy and did not raise any revenue. We have heard that the 50p rate left the UK with the highest statutory rate of income tax in the G20. In a world of increasing competition, it would be totally irresponsible for a Government of any colour to put this country at an economic disadvantage with a punitive rate of tax.
Hon. Members have heard throughout today’s debate that the top 1% of taxpayers pay more than 27% of income tax revenue, more than at any point under previous Governments. Maintaining an uncompetitive rate is counter-productive and will result in long-term economic failure. When it comes to long-term economic failure, we know that the Labour party has a specialism in that area. Clearly, tax competitiveness and a sustainable, prosperous economy do not matter to the Labour party, because if they did we would not be having this debate. As the HMRC report shows, we would not just be losing the additional tax revenues as a result of the higher rate, but would lose all the tax revenue of that group of taxpayers.
Britain is a country that is open for business. We want those with the most to offer and the most to contribute in tax working in the UK, creating wealth, jobs and growth, and, importantly, paying taxes. It is this Government who have shown that contrary to the myth generated by the Opposition, we have made the changes in every Budget to ensure that those with the broadest shoulders contribute more. We have increased capital gains and introduced the new rate of stamp duty on properties over £2 million, we are restricting the excessive use of certain tax reliefs, and, most significantly, we are clamping down on the minority of individuals who choose to avoid and evade tax.
The Labour party had 13 years to undertake such measures and it did not do so. We have made historic steps to support those on low and middle incomes. We have more people in employment and more young people and women in work. We have increased the personal allowance, frozen fuel duty, frozen council tax, and increased the national minimum wage.
Labour wishes to use an inefficient income tax rate to damage our economy, and to put our international competitiveness at risk by backing a failed tax. It is willing to drive wealth creators out of this country and to risk long-term damage to the economy. That is not what a responsible Government would do, and it is certainly not what we are doing. We have a long-term economic plan that is working. We are getting on with the job of putting the economy back on track, creating jobs and growth and securing Britain’s long-term economic future, which is why the motion should be thoroughly rejected.
Question put.