Income Tax

Catherine McKinnell Excerpts

Wednesday 28th November 2012 Commons Chamber

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

We have certainly had an interesting debate. The planned cut in the 50p rate of tax is still what this Government will be remembered for. At a time when families with children are being hit by cuts to tax credits, when VAT has been hiked and when pensioners are being hit by the granny tax, the Government have chosen to spend almost £3 billion on a tax cut for the richest 1% of the population.

As many of my hon. Friends have stated passionately in different ways today, the tax cut will be worth a staggering £107,500 on average for 8,000 people earning more than £1 million a year. It is staggering for members of the public. The decision to go ahead with the cut is even more staggering when we consider the fragile state of the economy. With growth at just 0.6% since the comprehensive spending review, rather than the 4.6% the Chancellor predicted, the Government’s economic plan is clearly failing. Prioritising the tax cut in these circumstances shows just how out of touch the Government are.

The Prime Minister and the Chancellor used to agree with us on that point. Before their omnishambles Budget of 2012, they repeated at every opportunity the view that a tax cut for the richest would not be fair in such difficult economic circumstances. The Chancellor said in November 2009:

“I cannot even consider lifting”

the 50p rate

“while I’m asking others in the economy to bear a burden.”

The Prime Minister said in November 2011:

“I have been very clear and we have all been clear, we have to try to do this in a way that is fair so that the broadest backs bear the biggest burden. That is why we haven’t changed… the 50p tax rate.”

The Deputy Prime Minister said in September 2011:

“At a time when millions of people who play by the rules, work hard, pay their taxes and try to look after their families, it would be incomprehensible to them to have a government which actually says our priority is to lower the tax burden on the top 1% of people who aren’t in the same position of distress.”

It has not been said for some time, but I agree with Nick. This move is indeed incomprehensible to those who are feeling the squeeze. They do not understand why the Government want to spend £3 billion at this time on a give-away for the very richest.

Labour Members have expressed clearly today that they do not understand why the Government have done this either, and we heard some powerful contributions that showed the strength of feeling. I want to pay particular tribute to my hon. Friend the Member for Cardiff South and Penarth (Stephen Doughty), who gave a real tour de force in his maiden speech, which took us from the shores of Wales to the far-flung parts of Africa but all the time emphasised the impact the Government’s policies are having on the constituents he is so proud to represent. My hon. Friend the Member for Islwyn (Chris Evans) made a characteristically passionate speech that expressed the voice of ordinary people who are concerned about this policy.

We also heard from Government Members. The hon. Member for Dover (Charlie Elphicke) brought up the politics of envy, although my hon. Friend the Member for Blaydon (Mr Anderson), rebutting that claim passionately, stated that this is about the politics of fairness. The hon. Member for West Worcestershire (Harriett Baldwin) subjected us to a rather dubious maths lesson, and I fear that she highlighted the dubious “back of an envelope” approach that the Government seem to be taking to their tax calculations. I pay tribute to all Members who have contributed to the debate, but particularly Opposition Members, who forcefully made clear the feelings of constituents up and down the country who are concerned about the choices the Government are making.

New figures released today show that just 27% of the public agree that the Chancellor has proved since 2010 that we are all in this together. Indeed, the Government have not even persuaded their own supporters, only 51% of whom are on board. Just 23% of women feel that we are all in this together, which is hardly surprising, given that 85% of the top rate taxpayers who will benefit from the tax cut are men. It is abundantly clear from the impact of the tax cut that we are not all in this together. The Government are planning to raise £3 billion, almost exactly the cost of the 50p tax cut, through the granny tax. Millions of pensioners are set to lose an average of £83 in 2013-14, while those just turning 65 will lose more than three times that amount.

Families with children are set to lose an average of £511 as a result of the Government’s policies, and that comes on top of the damaging VAT rise, which will cost them up to £450 a year and a pensioner couple £275 a year. Working couples with children earning less than £17,000 on average will lose their working tax credits, worth up to £3,870, if they have not been able to increase their working hours. It is clear that families are paying a much higher price than the banks. I think it was my hon. Friend the Member for Leeds West (Rachel Reeves) who pointed out that the Government seem to believe that the poor will work harder if we cut their incomes, but that millionaires will work harder only if we cut their tax. It does not stack up.

Where will this extra work come from? Welfare bills are going up, not down, because there is simply no plan for jobs and growth. We heard yesterday that the Work programme is performing worse than if it did not exist. Only two in every 100 participants are getting jobs through the programme. That is in stark contrast to the future jobs fund, which the Department for Work and Pensions itself confirmed gave a net gain to the taxpayer of more than £7,000 per participant. This Government scrapped the fund, left nothing in its place and then gave us a double-dip recession. There is also increased borrowing and rising long-term unemployment, yet the Chancellor’s priority is still to spend £3 billion on a tax cut for the richest 1% of the country. It is the wrong priority at the wrong time.

Government Members have tried to argue today that the 50p rate was not working, yet the Office for Budget Responsibility has said that the Government’s projected figures on the yield are “highly uncertain”. We have discussed that at length today. The Institute for Fiscal Studies stressed:

“If the future of the 50p rate is to be determined on the basis of evidence about its impact, then Budget 2012 will be too soon to form a robust judgement.”

Despite the Prime Minister’s claims that the top rate of tax has not raised any money, the Treasury’s own figures show that higher-rate taxpayers have been paying the tax.

In next week’s autumn statement, the Chancellor has a chance to change direction. He can scrap the tax cut for millionaires and focus on getting the economy—which is putting more people on the dole and seeing borrowing going up, not down—off its knees. Now is not the time to give handouts to the top 1%; it is time to give a real hand up to the hard-working majority of the people of Britain.