Income Distribution and Taxation

Debate between Andrew Smith and Mark Harper

Wednesday 9th April 2014 Westminster Hall

[Mr Mark Harper (Forest of Dean) (Con)]

I am pleased to serve under your chairmanship, Mr Weir, and to welcome my hon. Friend the Member for Loughborough (Nicky Morgan), who is having a double personality day. She started as Economic Secretary and ended as Financial Secretary. I congratulate her on her well-deserved promotion, and I am very pleased that she is still able to respond to this debate. I wrote to her earlier today to congratulate her on her innovative way of avoiding responding to my debate, but she is stuck with me for the next 29 minutes or so.

I secured the debate because, although I touched on the matter briefly in my short contribution to the Budget debate, it was, as you know, Mr Weir, time limited, and I did not have a chance to make all the points I wanted. In the debate running up to the Budget, there was a lot of discussion about “middle-income taxpayers” and what that meant. I want to set out what I think the Government’s priority should be and congratulate them on landing the income tax cuts in the right place on the income scale.

In the run-up to the Budget, a number of newspaper articles—there was one in The Guardian—referred to middle-income earners being dragged into the 40p tax bracket, but that is not a sensible use of “middle income”. Even the Leader of the Opposition used the phrase, saying that

“if you are in the middle, paying 40p, you should be pleased to pay more”.—[Official Report, 19 March 2014; Vol. 577, c. 797.]

He was referring to what he said was someone else’s argument.

In the Labour party’s list of 24 so-called Tory tax rises, four of them are changes to the higher rate threshold. It seemed slightly odd for the Labour party to complain about ensuring that those on higher incomes paid their fair share in dealing with the deficit. While I am touching on that list, it is interesting to note that the spare room subsidy, which is a housing benefit issue—the Opposition insist on calling it a tax—was not on it. That was a very good demonstration of the fact that even they accept in their heart of hearts that it is not really a tax, even though they keep trying to call it that.

That was an aside, but the point I wanted to make about 40p taxpayers is that I am not saying that they are rich; they are not. Equally, they are not in the middle. Looking at the 2013-14 tax year, someone would pay 40p tax only if they had £32,010 of taxable income, which is on top of a £9,440 personal allowance. They would have to earn a gross income of £41,450 to pay that tax rate. In 2011-12—the most recent year for which the detail is available—the income distribution figures show that a higher rate taxpayer is in the top 14% of income earners. For that year, the median income was £20,300. Some helpful projections have been done using the Office for Budget Responsibility’s economic and fiscal outlook. They show that the median income was £21,000 in 2012-13 and £22,200 in 2013-14. That is only just more than half the income someone would have to earn to pay the 40p tax rate.

If I look at the level of income in my not untypical constituency—these figures are for 2011-12, the latest ones available that are broken down by parliamentary constituency—the mean income of all taxpayers is £24,300, and the median income is only £18,800. If the overall national figures have gone up by some 10% since 2011-12, we can use that assumption with the constituency figures, but that would take the median figure to only a little over £20,000. That figure is for total income. If we look at how that is split between the self-employed, the employed and pensioners, the figures present a different picture. However, it is clear that the median taxpayer is not earning anything like enough to pay the 40% tax rate; they are paying basic rate tax. That is why I thought the Chancellor’s Budget judgment was right.

I even looked at parliamentary constituencies that people would generally accept as having a higher than average number of people earning good incomes. A piece of data that is available from the Office for National Statistics shows that even in constituencies with a high level of mean income—Kensington, Cities of London and Westminster and Chelsea and Fulham—the numbers are clearly driven by a small number of well-remunerated people. The median income in those constituencies is: £37,900 in Cities of London and Westminster; £36,200 in Kensington, and £34,300 in Chelsea and Fulham. Even in those constituencies, the median taxpayer is not paying anything close to 40% tax.

The focus should be on delivering tax cuts for the lower paid and those on more modest incomes and that is what the Chancellor did in his Budget. He made it clear that the personal allowance was going to rise in this current tax year, which has just begun, to £10,000 and next year it rises to £10,500, which will lift more than 3 million of the lowest paid out of income tax altogether. He also confirmed, rightly, that the higher rate threshold will rise a little bit as well, for the first time in this Parliament, which means that everyone on incomes up to £100,000 will benefit from some tax cut, but obviously the main benefit is for those on a lower rate.

The list of tax rises that the Labour party put out referred to the higher rate income tax threshold cuts earlier in this Parliament, which were equitable and made to ensure that those significant rises in the personal allowance did not disproportionately benefit higher rate taxpayers. Of course, if the personal allowance is increased and the higher rate threshold is not changed, someone on 40% tax has income moved out of that band into the basic rate band and gets a bigger benefit than someone on basic rate tax. That would be wrong. The judgments that we made earlier in this Parliament, when we had to make difficult financial decisions, to share the pain and have the burden on those with the broadest shoulders, were right. I am pleased that the Chancellor confirmed that.

By virtue of increasing the allowance, the Chancellor was able to show that, looking at this Government’s tax arrangements, compared with the previous Government’s policy, everybody earning up to £100,000 is better off. They have all had a tax cut, but the tax cuts are more focused and bigger for those on lower earnings.

[Mr Andrew Smith (Oxford East) (Lab)]

I congratulate the hon. Gentleman on securing this debate on an important issue. I resisted intervening on the bedroom tax and so on because I wanted to make this point. Does he share my concern, notwithstanding what he said about raising the allowance, that the impact of the tapers on people in receipt of universal credit will be such that, for somebody just above the tax threshold, the rate of withdrawal on both a first and second earner in a family will be as high as 76%? Is there not a danger that that gives people a perverse incentive to work fewer rather than more hours, because they do not reckon that they are being rewarded for the extra hours, or to do undeclared work?

[Mr Harper]

The right hon. Gentleman is right to drawn attention to the tapers and the withdrawal of benefits as people earn income—of course, they are high—but this issue was raised during the Budget debates. However, the fact is that, under universal credit, the withdrawal rates and the tapering arrangements mean that there is a smaller rate of withdrawal of benefit than under the existing levels of benefit. I am sure the Minister will correct me if I am wrong; this is not an area that I have studied in detail. The issue the right hon. Gentleman raises is important, but it is always a challenge to deal with the withdrawal of income-related benefits and to be careful that the effective marginal rate for people is such that it is always worth their while working. Ideally, we want to get that marginal rate as low as possible, but it is expensive to drive it down to a low level. My understanding is that, under universal credit, those withdrawal rates of benefit are lower and therefore more encouraging of people to work, either more hours or in the first place, than under the existing combinations of income-related benefits.

[Mr Smith]

My understanding is that the rates are higher for people working more hours, for 35 hours or more. The hon. Gentleman is right in that the rates are lower for people working fewer hours. That is my worry—the perverse incentive for people to work less.

[Mr Harper]

If I am picking that up correctly, the right hon. Gentleman is saying that at lower levels of earning, or for people who work fewer hours, the effect of universal credit is—

[Mr Smith]

I should correct that. It is not that the rate is lower; it is that people will be better off working fewer hours, as compared with the position under tax credits, whereas those who are working 35 hours or more will be slightly worse off under universal credit than they would have been under tax credits. The withdrawal rate is 76%, just above the tax threshold, under universal credit.

[Mr Harper]

I cannot answer the right hon. Gentleman’s detailed question, because I have not studied the matter, but the other thing that he needs to do—I am not sure whether he has incorporated this into his judgment—is look at the interaction of the tax changes that we have made with the benefit system. Over this Parliament, there will be a significant increase in the personal allowance from what it was in 2010-11 when we came to power, and what it will be when this Parliament finishes, from something in the order of £6,000 or £6,500 to £10,500. A lot of people on lower incomes, such as those on the minimum wage, are moved out of the taxation system altogether. Previously, people could be on a relatively modest income and paying tax, but at the same time getting various income-related benefits.

I think that I have set that out carefully, but if I have not, the Minister will do so in her response. Otherwise, because the debate is not about universal credit and she might not have all those facts at her fingertips, I am sure she is happy to write and to set it out in detail later. I am, however, grateful for the point made by the right hon. Gentleman.

Student Visas

Debate between Andrew Smith and Mark Harper

Thursday 6th June 2013 Commons Chamber

[Mr Harper]

That is a helpful point, which has been mentioned by several hon. Members—for example, the hon. Member for City of Durham (Roberta Blackman-Woods) told us about sharp increases in the number of international students at her local university.

As my final point—I do not want to test your patience, Madam Deputy Speaker—I will touch on the student visitor visa route, on which the hon. Member for Rhondda expressed two slightly different views. First, he said he was pleased that international students are coming here on shorter courses, but then he voiced some concerns. I hope he noticed that yesterday we published some detailed research that I think makes it clear that the visitor route is being used exactly as intended. It is attracting high-value, low-risk migrants who contribute positively to economic growth; in large part, they attend institutions that are accredited by bodies approved by the Home Office, and most are doing English language programmes or university exchanges. There is literally no evidence of displacement from tier 4 into the student visitor route. The number of students from countries where we have seen abuse under tier 4 and where we have cracked down on that abuse is rising in single figures—fewer than 10—so there is no evidence of further abuse, which I think is very positive. It is perfectly proper that the hon. Gentleman raised the question, but the evidence shows no risk at all.

In conclusion, Madam Deputy Speaker—

[Mr Andrew Smith]

Will the Minister give way?

[Mr Harper]

Yes; I think I am allowed to give way briefly.

[Mr Smith]

Before the Minister concludes his remarks, will he tell the House how he intends to respond to the Select Committee recommendations and his reasons for that response? He has not yet done so.

[Mr Harper]

The right hon. Gentleman knows that the Government have responded to the Select Committee reports and to each of the Select Committees. The clearest response is this: we do not have a cap on student numbers, and I do not think our net migration target means that we will have to take action that damages universities. Universities were originally concerned that having a net migration target and counting student numbers, as all our international competitors do, would drive the Government to take decisions on future policy that would damage universities. The fact that we have stated clearly that not only do we not have a cap but we are not going to have a cap—that was stated not only by me but by the Prime Minister—should reassure universities.

We will take every opportunity to communicate that positive message about our excellent offer for international students, and we will work in partnership with our excellent universities to continue to increase the number of international students who come here from around the world. In that, I think I can say that I speak for every right hon. and hon. Member who participated in the debate.

Immigration

Debate between Andrew Smith and Mark Harper

Thursday 6th September 2012 Commons Chamber

[Mr Brazier]

rose—

[Mr Harper]

I will not give way to the hon. Member for Islington North (Jeremy Corbyn) because he has not been in the Chamber for the debate. The right hon. Member for Oxford East (Mr Smith) and my hon. Friend the Member for Canterbury (Mr Brazier) have been here, so I will take their interventions and then conclude, because a very important and well subscribed Backbench Business Committee debate will follow this one.

[Mr Andrew Smith]

Following the answer to my right hon. Friend’s question just now, will the Minister give an assurance that he will consider lifting the threat of deportation from the bona fide students at London Metropolitan university?

[Mr Harper]

We have not threatened anyone with anything yet. We have set out the steps we have taken and we will contact all the students involved. I have only been doing this job for 48 hours and I will look at that very closely. I have heard very clearly the points that have been made in the debate.

Parliamentary Standards Act 2009

Debate between Andrew Smith and Mark Harper

Thursday 15th December 2011 Commons Chamber

[Mr Harper]

I want time to set out our recommendations, but the report states:

“Some of our recommendations require legislative changes; others are not dependent on legislation, but could be brought about in that way if IPSA does not act.”

If the Committee had stopped there, my hon. Friend’s point would have had some force, but it did not. The report goes on to say:

“We believe that step should be taken”—

meaning that legislation should be introduced—if IPSA

“has not implemented the recommendations of this report by 1 April 2012.”

[Mr Andrew Smith]

I strongly support the line of argument that the Minister is advancing. Quite apart from the unacceptable proposals within the recommendations—the hon. Member for Windsor (Adam Afriyie) tries to belittle them, but they are there, they mean what they say, and the House is being invited to approve them—is it not crucial that this House does not give the impression that it is seeking to use its legislative power to lean on IPSA? That would be wrong, and we must make that clear.

[Mr Harper]

I welcome the right hon. Gentleman’s point, which is an important one.

The House set up a proper way in which to express its views when it legislated to create IPSA—statutory consultees include Members. IPSA also has an annual review, as the amendment makes clear. The proper thing to do is to state our views through that. IPSA has published a document in which it acknowledges quite a number of the concerns that Members have raised today and in the report, including, for example, those on staffing. IPSA has made dealing with staffing one of its focuses. It seems to me that Members need to respond to IPSA. The consultation stage is open until 20 January. I urge every Member of the House who has a concern about how the system works to take full advantage of that opportunity and to feed their views back to IPSA.

--- Later in debate ---

[Mr Harper]

I hear what the right hon. Gentleman says, but I have made it clear that IPSA has a legal duty to carry out its work and to ensure that we are “efficiently, cost-effectively and transparently” supported in the carrying out of our functions. However, IPSA must balance that duty with a range of other duties, one of which is restoring and maintaining public confidence. It will not be possible for it to have a sole objective.

[Mr Andrew Smith]

In common-sense terms, does it not come down to the question of whether IPSA is seen as working for us—which should not be the case—or as working for the British public? Yes, it has a responsibility to ensure that we do our job in an accountable and transparent way and so forth, but ultimately, if public confidence is to be restored, it must be seen to be working for the public and not for Members of Parliament.

[Mr Harper]

The right hon. Gentleman has put it very well. I cannot really add anything to what he has said.

A number of Members talked about costs and how efficiently IPSA did its job. I should emphasise that IPSA itself has a legal duty to be efficient and cost-effective. The National Audit Office’s report, which has been mentioned by a number of Members, noted that IPSA had significantly reduced its cost per claim, observing:

“This is impressive by the end of its first year of operation”.

The report went on to say, however, that

“IPSA is dealing with a much higher number of claims”

than were made in other UK legislatures in the UK,

“and should therefore be able to be the most efficient in the future.”

Given that, as I said, IPSA itself has a legal duty to be efficient and cost-effective, I think that it will be mindful of the thorough work done by the National Audit Office and the important recommendations that it has made.

I shall read out recommendation 3 so that Members can be clear about what it says:

“IPSA’s current administrative role should be carried out by a separate body, so that IPSA is not regulating itself, and the Act should be amended to permit this. The best arrangement would be for that separate body to be within the House of Commons Service, both because such a body would avoid imposing undue burdens on MPs and because it would benefit from the economies of scale of being part of a larger organisation in areas such as human resources and IT. Independent regulation by IPSA and transparency would ensure that it did not replicate the deficiencies of the old expenses system.”

I entirely accept that the Committee’s intention is not—here I paraphrase a media report—to go back to the old Fees Office, but it did not exactly go out of its way to make it difficult for the media to draw that conclusion, and I think it would be difficult for the House to agree to a recommendation that contains such a reference.

Another point requires clarification. IPSA’s administrative role falls into two categories: deciding whether claims should be allowed—what is called in the legislation “determining” claims—and paying those allowed claims. IPSA already has the power to contract out the payment of those claims, which is set out explicitly in the legislation. It can also contract out the payment of our salaries and the administration of our pensions, now that it is responsible for those. Under the legislation, however, it must retain direct control of the scheme for our expenses and decisions on the claims.

I believe that the deciding of claims should remain with IPSA, and the best way of explaining why I believe that is to quote paragraph 74 of the report, which quotes the Committee on Standards in Public Life:

“The CSPL noted in 2009 that both the Scottish Parliament and the National Assembly for Wales”—

the way in which the Scottish Parliament carried out its work was referred to in our debate in May, and has also been touched on today—

“had felt able to retain self-regulation by adding safeguards, but noted that ‘the difference is that neither ... has suffered a crisis of trust remotely comparable to that which has affected Westminster.’”

I think that, for that reason, the determination of our claims should remain with IPSA. The payment can already be contracted out if IPSA considers that to be more cost-effective and sensible. Other Members have said that we should not return to the old Fees Office approach, and I accept that the Committee did not mean to suggest that we should, although some may have interpreted its observations in that way.

Words mean what they say, and we must judge them on that basis. The House is being asked to approve these words in paragraph 17(c):

“In not more than six months’ time, the House should have the opportunity to consider the merits of the cost-benefit analysis and evaluation”—

as proposed in recommendation 17(b)—

“and to make a decision on whether there should or should not be a system of regional supplements instead of the existing travel and accommodation provisions.”

My hon. Friend the Member for Windsor said that what was meant was that the House should simply express a view—nothing stronger than that—but I am afraid that that is not what the report says. The right hon. Member for Oxford East (Mr Smith) spotted that point and drew it to the attention of the House, and I think that it raises a fundamental issue.

Review of Parliamentary Standards Act 2009

Debate between Andrew Smith and Mark Harper

Thursday 12th May 2011 Commons Chamber

[Mr Harper]

As with all reports from Committees of this House, the Government will look carefully at the recommendations. I do not think that my hon. Friend would expect me, given that the Committee has not even been set up, let alone started its work, to give assurances that the Government will carry out its every recommendation. The Government will of course study its recommendations. If its recommendations are about process, the scheme and how IPSA operates, they will be for IPSA to consider. Only if they are recommendations for legislative change will they be for the Government to recognise. Every Member who has spoken in this debate has confirmed that they are in favour of an independent and transparent scheme for paying our costs. Clearly, even if Members thought that there were issues, they would not immediately want the Government to rush into legislating. The right hon. Member for Leeds Central said wisely that when this House legislates on such matters in haste, it often comes to repent it.

The Government will look carefully at the considerations that the Committee makes, and I hope that IPSA will look carefully at them. If the review is carried out in that spirit, I think that it will be very productive.

[Mr Andrew Smith]

I want to underline the importance of the point that the Minister has just made. Will he assure us that the Government’s response will scrupulously and absolutely uphold the independence of IPSA?

[Mr Harper]

Yes; I have said that several times and it is important. Although this House has many new Members, it is important that we remember why we got to this position. We have to ensure that we move things forward, and focus on independence and transparency. We have had debates recently on our pay, and the consideration of our pay will be moved across to IPSA in the not-too-distant future. Its independence is important so that people have confidence. The Committee, when it is set up, will have to remember that the recommendations it makes about the scheme and the operation of the scheme will be made to IPSA.