Banking Reform
Charlie Elphicke Excerpts(11 years, 3 months ago)
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Greg Clark
I have explained on a number of occasions why we have not done so. One reason is that the regulator does not want that power, and a second reason is that it seems to us more appropriate that individual banks feel the consequences of their breach. The system itself does not have a mind to breach the rules; it is individual banks that do so. It is thus appropriate for the sanctions to apply to individual banks.
Charlie Elphicke (Dover) (Con)
In addition to the electrification of the ring fence, has the Minister considered adding a bit of barbed wire on top? We should look at depositor preference, so that deposits rank above the bondholders to give extra security. What are the Government’s thoughts on that at the moment?
Greg Clark
We agree with my hon. Friend, and that will form part of the Bill.
Oral Answers to Questions
Charlie Elphicke Excerpts(11 years, 3 months ago)
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Jeremy Lefroy (Stafford) (Con)
7. What progress HM Revenue and Customs has made in closing loopholes in the tax system.
Charlie Elphicke (Dover) (Con)
9. What plans he has to tackle corporate tax avoidance and to close the tax gap.
The Exchequer Secretary to the Treasury (Mr David Gauke)
Over this Parliament, we have introduced 31 measures to tackle tax avoidance, including loophole closures. This year, our work will focus on strengthening the disclosure regime, consulting on new sanctions for avoidance promoters and introducing the general anti-abuse rule. HMRC will also increase its risk assessment and specialist transfer pricing resources to target multinationals. Combined, those measures will strengthen our commitment to tackling tax avoidance and reducing the tax gap associated with it.
Mr Gauke
My hon. Friend is right to raise that point. The Prime Minister has said that he wants to use the G8 for this purpose and to have a serious debate about tax avoidance. The OECD is looking at this matter. We are encouraging it to do so and have provided it with additional resources. It will report back on solutions that could be developed to tackle profit-shifting by multinationals and the erosion of the corporate tax base.
Charlie Elphicke
May I say how welcome it is that the UK is using the presidency of the G8 to tackle international tax avoidance, after a decade in which the Government of this country stood by while industrial tax avoidance was allowed to run rampant? I urge the Government to focus on the issue of tax presence, particularly for companies such as Amazon, which we all know are in this country and should be paying tax in this country, but are playing the rules to avoid it.
Mr Gauke
I will not get into individual cases. As I have said, the OECD, at the urging of my right hon. Friend the Chancellor, is looking at these issues. We want to ensure that there is an international tax system whereby economic activity is taxed where it occurs. That has been overlooked for too long and we are determined to address it.
Corporate Tax Avoidance
Charlie Elphicke Excerpts(11 years, 4 months ago)
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Ian Swales
That is an interesting idea and I thank the hon. Gentleman for the suggestion. HMRC needs to look much more closely at companies that have that type of business model. I agree that we need to start making some presumptions.
Charlie Elphicke (Dover) (Con)
Is it not the case that for physical goods, Amazon would have to account for VAT in the UK? The issue is that for electronic goods, it accounts for VAT in Luxembourg, so Luxembourg is eating our VAT lunch.
Ian Swales
That could well be the case, and I shall speak about that later, too.
The person who wrote to me saying that they could not get a VAT number for the iPad they bought for business purposes was told that Amazon was unable to provide one. Had that been made clear to the buyer, they would have gone elsewhere to get a lower net price. Who knows, they might even have gone to Comet.
Amazon’s turnover in Europe is €7 billion. The gross VAT on that, even at Luxembourg’s lower rate of 15%, would be more than €1 billion. Where is it paid? That would be €2,000 a head for every man, woman and child in Luxembourg, but I would guess that is not paid at such a rate. I would also guess that Amazon’s UK order fulfilment subsidiary pays little or no VAT. I ask the Minister urgently to investigate how the business model operates.
Charlie Elphicke (Dover) (Con)
It is a pleasure to speak in this debate, and I congratulate my hon. Friend the Member for Redcar (Ian Swales) on securing it. I wish to discuss an area that has not been so deeply explored this evening, although it is the area where we are not as powerless as we are in so many areas of this debate because of international obligations. I wish to focus on companies in receipt of money from taxpayers under Government contracts.
I have undertaken a study of technology companies that benefit from taxpayers’ money under Government contracts and have found that Oracle, Xerox, Dell, CSC and Symantec paid no corporation tax whatsoever last year, despite earning more than £474 million from Government contracts and having a UK turnover of £7 billion. Overall, my study of 10 technology companies in receipt of more than £1.8 billion of taxpayers’ money found that they paid just £78 million in taxes on UK earnings of just over £17.5 billion of turnover. On the basis of group profitability—we are looking at the consolidated international group here—the 10 technology companies would have made more than £3.3 billion in profits in the UK, resulting in a tax liability of £879 million. The UK tax actually paid was just £78 million, so, according to my research, the tax gap was £801 million.
We are seeing big business tax avoidance on an industrial scale. To me, it is unacceptable, unethical and irresponsible. Hard-pressed families are struggling to get by and to pay their taxes—and they do pay their taxes—so it is quite wrong that highly profitable businesses abuse our tax system. We urgently need reform. No Government contracts should be awarded to businesses that are fleecing our tax system, and the Government should examine how much UK tax companies pay when deciding who gets plum Government contracts. If taxpayers’ money and a Government contract are being awarded, we should look at the taxpayers’ money we are paying out and the tax money that we get back when we assess the value for the nation of awarding a particular contract. If, for example, a Government contract for £500 million is awarded to a computer company, it should be asked what tax it pays. If it pays zero tax in the UK, and another company is paying £40 million in tax in the UK and says that it will do the work for £520 million, the balance of best value shifts. We should consider the question holistically, rather than simply thinking about how much the contract should be let for.
Ian Swales
The hon. Gentleman refers to a point that I made. Does he agree that if we are asked to give a Government contract to a company that makes no profit, we should take a view about that company’s long-term future? We should play it at its own game and ask whether, if it does not make any money, it will be around for the long term.
Charlie Elphicke
My hon. Friend makes a powerful point, but we all know the reality. We all know that companies are using Luxembourg sandwiches and parking profits in Bermuda while claiming that they are sending them back to the States, as the IP suddenly is not in any intellectual property territories outside the United States. I find that unacceptable.
Let us take Oracle as an example. The company had a turnover of about £1.4 billion and a global operating margin of 32%, so its UK projected profits should have been about £446 million. Its declared profits in the UK, however, were basically nothing and it did not pay any tax whatsoever. I regard that with concern, because its Government contract earnings were about £42 million.
Even more concerning was the fact that a small amount of tax was paid by Microsoft, which is interesting as it has about £700 million from Government contracts and paid £19 million in the UK on a turnover of £2.35 billion. It has a global operating margin of 40%, so if we apply the consolidated operating margin to the UK we can see that its projected profits in the UK would be about £945 million. Its projected tax would have been about £246 million. I am not saying that Microsoft should not have some wriggle room for the fact that its IP was generated outside the UK, but when we award Government contracts we should take into account how much tax will be paid in the UK by the person to whom it is awarded. There are difficulties with that under European procurement rules, but we could have a box on the procurement form asking how much corporation tax and how much in PAYE the company anticipated paying in the UK in relation to that contract. That would enable us to assess best value in awarding Government contracts. We could and should consider that.
I am particularly concerned about IBM, which turns over about £4 billion in the UK but has a global operating margin of 16%, which means that its UK projected profits should have been about £642 million. Its declared profits in the UK, however, were about £327 million. Again, the tax gap is substantial and rather than the projected UK tax take of £167 million, only £41 million of tax was paid. We have a shifting and sliding in that the amount of tax we are getting is rather less than one might expect, even if we take into account the question of IP being based elsewhere and not being generated in the UK. We need to consider that more deeply and should consider the whole question of royalties paid for IP as well as licensing fees.
We should see how we can make the corporation tax system in this country flatter and much simpler by getting rid of a lot of the deductions that enable our tax system to be flouted. That would bring the rate down and give the UK a system with even lower tax than we already have.
I pay tribute to the work that the Government have done; I am merely trying to advance the argument, the discussion and the debate. We have a Chancellor who has started to take real and positive action in the OECD to start the discussion on how to change the international rules. We have a Prime Minister who is leading an international summit in Northern Ireland and making tax, including international tax, a key priority. The Government have taken tax very seriously, and rightly so. Over the past 15 years, the amount of income tax paid by the working nation has gone up by about 80% whereas the amount of tax paid by business has gone up by just 6%.
The previous Government were very keen on the whole prawn cocktail circuit; they were keen to be close to big business and to let it off the hook. It is well known that the former Prime Minister and his adviser, now the shadow Chancellor, were keen that the Revenue took a softly, softly approach to big business. I think we all feel that it has gone too far, and it is time to take international as well as domestic action and to be much firmer on big businesses that do not pay their fair share.
We have a deficit to clear. We need the revenue, so we need to be firmer, but we also need a system that has a level playing field, where there is a lower, more globally competitive rate that makes it more attractive for businesses to set up and trade in Britain whether they are domestic or foreign. The way forward is to start an honest and open debate about bringing in a flatter tax system in the UK and taking the rate of corporation tax right down, so that hopefully it will be even lower than in Ireland.
Simon Hughes (Bermondsey and Old Southwark) (LD)
This has been a really good debate. I pay tribute to my hon. Friend the Member for Redcar (Ian Swales) for going to the Backbench Business Committee and persuading it, with the support of some of us, that this is a debate we ought to have. We are on the centre court at the beginning of a new year, and I think that the Exchequer Secretary and his colleagues will be aware that this issue will remain an important one for the Treasury and the Government for the second half of this Parliament.
We have heard valuable contributions from among others my hon. Friends the Members for Bognor Regis and Littlehampton (Mr Gibb), for Stevenage (Stephen McPartland) and for Dover (Charlie Elphicke) and the right hon. Member for Oldham West and Royton (Mr Meacher), who is not currently in his place. We have paid tribute to others who have been part of the culture change, such as ActionAid’s tax justice campaign, people such as Richard Murphy and journalists such as Ian Griffiths and others who have ensured that we confront the issue.
My constituents, like yours, Mr Speaker, and others, will see posters reminding them that they have until 31 January to complete their tax returns if they have not done so already—MPs included. We all understand that there is a civic obligation to pay tax as individuals, but we all expect, particularly in times of austerity, that there should also be a corporate obligation to pay due tax, and that is what the debate is about. If we are encouraging people to be entrepreneurial and to start their own businesses, it is not a great encouragement for someone who wants to set up a coffee shop, a book shop or a garage, for example, to think that they will have to pay tax while some great international company might put them out of business or prevent them from gaining a foothold in the market by avoiding paying. It is about justice between small and medium-sized enterprises and big international enterprises.
There is a UK obligation, because some of the companies that offend most use tax havens that are UK Crown dependencies. Bermuda, the British Virgin Islands, the Cayman Islands, the Turks and Caicos Islands, Guernsey, Jersey and the Isle of Man feature regularly as places where the system is abused. There is clearly both a national obligation—we can do things ourselves—and an international obligation to act, and I am grateful that the Prime Minister understands that, as do others, and that it will be on the agenda for the G8 summit in Fermanagh later this year.
As I made clear earlier, when intervening on the right hon. Member for Oldham West and Royton, it was not really fair to criticise this Government on corporate tax, because all recent Governments have been very weak on it. The right hon. Gentleman conceded that new Labour had been poor and criticised it equally. I compliment the Government on their investment in additional effort in the Treasury on this issue, on the commitment to implement the anti-abuse rule later this year, on putting the subject on the international agenda and on making the UK more competitive for business to provide a disincentive for trying to fiddle the system. In particular, I congratulate my right hon. Friend the Chief Secretary to the Treasury on picking up on an idea I have lobbied him about a great deal: making sure that the Government look at those companies with which they, and local government, do business and ensuring that we do not give Government money to those who do not pay their taxes properly; it is exactly the right principle that they should not get contracts from the Government either. Of course, there have also been bilateral agreements with other countries.
Let me flag up one main area and one subsidiary area —in relation to the tax treatment of interest payments—which I ask Ministers to look at. Traditionally, interest has been seen as the cost of doing business while dividends are seen as the distribution of profits. For that reason, under accounting rules, interest payments are deducted from operating profits before corporation tax is paid, while dividends are distributed after tax has been paid. Debt can be used to strip out cash generated by companies and to move it offshore before it is taxed. There is also a large problem with private equity funds buying companies, making those companies take on a lot of debt, and using the cash to pay off the loans that they took out to buy them in the first place, so that they can end up owning a company for a fraction of its real price. Companies receive a huge tax advantage from the ratcheting up of debt.
In the finance sector, that is called creating a more efficient capital structure, and people will say that they are just working within the structure put in place by the Government. However, it has a huge effect on the businesses concerned and on the economy as a whole, as well as on the Treasury. It is not about efficiency, because the companies affected are often left seriously weakened and at risk. Many operate on the margins and are unable to withstand any financial shocks. That magnifies the impact of recent downturns. Comet is a recent example of the consequences of excessive borrowing. The increase in debt gives companies far less freedom to invest in new machinery or to make other capital investments, and that holds back growth.
Charlie Elphicke
If we believe in deleveraging the economy and deleveraging business, should we not put equity and debt on a similar footing?
Simon Hughes
That is a valid point.
As well as tax treatment of interest payments being an unfair incentive to avoid paying due taxes, shareholder loans are a particularly iniquitous example of these practices. That is my second and subsidiary point. Where owners of a company are receiving interest payments, they can manipulate the interest rates in order to remove their tax liability. The current transfer pricing rules are supposed to stop that, as they prevent a company from lending to a subsidiary at a higher rate than the market rate, but what is the market rate in a negotiated transaction between two parties that are, as it were, two sides of the same coin?
I want to give three examples of companies involved and then conclude with some proposals to add to those of my hon. Friend the Member for Bristol West (Stephen Williams) and others. I have often cited in this House the water industry in general and Thames Water—the local water company here, and a monopoly—in particular. In 2012, it paid £500 million in interest, which accounted for the vast majority of its operating profit of almost £650 million. In the same year, it paid no tax and instead received a tax credit of £38 million. In the previous year, it paid just £500,000 in corporation tax despite showing an operating profit of £600 million. Half its debt has been issued through its finance subsidiary in the Cayman Islands. Put simply, Thames Water raised the debt and gave the cash to Macquarie, which is based in Australia, so that that company could pay off the loans that it took out to buy Thames Water. The level of debt in the company is now equivalent to 90% of its value. Arqiva, which has Government contracts, receives annual revenues of about £1 billion a year, holds £3 billion in debt, and has an interest rate of 13%, which is extraordinarily high for a monopoly infrastructure provider. Boots, now Alliance Boots, has escaped paying £500 million in tax through a complex arrangement of companies.
I hope that in the forthcoming Budget Ministers will look at the tax treatment of interest payments and, specifically, do what countries such as Germany do in limiting the amount of interest payments that can be deducted before tax, adopting the earnings-stripping rule which applies there and elsewhere. I also ask them to consider whether that should be further dealt with if the company uses a tax haven, to address the question of UK dependencies, and to have an annual debate, as part of the Budget, on how to avoid such abuses of the tax system.
Oral Answers to Questions
Charlie Elphicke Excerpts(11 years, 5 months ago)
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Sajid Javid
The right hon. Gentleman was a senior member of the previous Government, who, over 13 years, presided over an increase in the number of workless households to a record 3.9 million. In his constituency, in the last Labour term, the number of youth jobseeker’s allowance claimants increased by 148%. I hope that he will join me in welcoming the fact that such claims are down by 19% under this Government.
Charlie Elphicke (Dover) (Con)
May I ask the Minister to confirm that the previous Government’s child poverty targets were missed by 600,000, that according to the latest figures child poverty fell last year by 300,000 and that universal credit will reduce child poverty further, by up to 350,000?
Sajid Javid
My hon. Friend is absolutely right. The Government are relentlessly focused on eradicating poverty and the measures he has talked about, such as universal credit, increase work incentives and help people back into work.
The Economy
Charlie Elphicke Excerpts(11 years, 5 months ago)
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Rachel Reeves
Let us see what the rating agencies have to say in the new year. Of course we are on negative watch, but it was not we who said the rating agencies should be the be-all and end-all. Indeed, they were giving Lehman Brothers a triple A rating until that company crashed and almost took the global economy with it. It was the Chancellor who said that a triple A rating would be the watchword of his chancellorship, so if it were to go, it would be a damning indictment of what this Government have presided over.
What was the Government’s response to all the bad economic news last Wednesday? Let us give credit where it is due. The Chancellor now agrees with us that we should not go ahead with the fuel duty increase in January; he agrees with us that introducing regional pay in our public services would be costly and impractical; he agreed with us that we should reverse the relaxation of restrictions on pension tax relief for the very rich; he agreed with us that it was a mistake to implement deep cuts to capital programmes such as Building Schools for the Future; and he agreed with us that cutting investment allowances risked damaging incentives for long-term wealth creation. We propose the creation of a British investment bank to support small businesses, and the Chancellor has produced a pale imitation of that, but I am afraid that all these measures are too little, too late—robbing Peter to pay Paul. Smoke and mirrors will not hide the lack of a real, purposeful growth strategy.
The chief executive of British Airways summed it up yesterday when he said:
“I don’t see an agenda for growth.”
I agree, and so does the Office for Budget Responsibility. Taking into account all the Government’s measures from the autumn statement, the OBR has concluded that they will add just 0.1% to UK GDP over the next five years. The economy is shrinking this year. Growth next year—forecast at 2.9% just two years ago—is now forecast at just 1.2%. Indeed, we have seen downgrades not just this year and next, but the year after.
Charlie Elphicke (Dover) (Con)
Why does the Institute for Fiscal Studies say that there would be £200 billion more borrowing under Labour’s plans?
Rachel Reeves
There is £212 billion more borrowing under this Government’s plans.
Families will continue to feel the Chancellor’s failure in their wallets and their homes. Average earnings will not outpace inflation until the second quarter of 2014. It will take even longer for families to recover the loss to their living standards that this Government’s economic failure has cost them.
The lack of growth and the increase in borrowing under this Chancellor have meant that he has had to come back and ask the country for more. And who are the Government asking to bear the brunt of the past two and a half years of failure? Luckily, Andrew Neil asked the Chief Secretary to the Treasury that question on BBC1 last Wednesday. He asked him whether
“those who are on ordinary incomes are suffering a lot more than most”.
The Chief Secretary to the Treasury replied: “That is absolutely right.” That was the only sense he spoke all day. It is no surprise that he is increasingly described as the Conservatives’ favourite Liberal Democrat in the Cabinet. Apparently, they regard him as easier to deal with and more persuadable. The Chancellor’s favourite Liberal Democrat has finally told the country what we have known for a long time: that this Government are asking ordinary families to foot the bill for their economic mess.
The facts speak for themselves. Analysis by the House of Commons Library shows that a one-earner family on £20,000 with two children will lose £279 a year from next April. Slide 24 of the Institute for Fiscal Studies report shows that a two-income family with children will lose £534 as a result of the changes, including all the measures in the autumn statement. Slide 17 of the IFS assessment shows that middle and lower earners will lose most as a result of the autumn statement, with the poorest 40% losing more than the richest 10%. How can that be fair? And this is all to pay for the Government’s £212 billion of extra borrowing. They are hurting those who are trying to get on and do the best for themselves and their families. That cannot be fair.
Mothers across the country will be worried about the real-terms cut in maternity pay, worth £180, that the Chancellor announced last Wednesday. That comes on top of other deep cuts that will hit pregnant women on low incomes, such as the abolished Sure Start maternity allowance and the health in pregnancy grant. This is further proof that the Government are out of touch and simply do not understand the pressures families are facing, day in, day out.
Rachel Reeves
My hon. Friend is right. It is a false economy to cut the incomes of the lowest paid, because they will have less money to spend in their communities. What really matters, however, is the real impact that the changes will have on their living standards and those of their children.
The Resolution Foundation has said that 60% of the cuts to benefits and tax credits will hit working households—that is, those who are trying to get on in life. Given that the welfare bill is forecast to be £13.6 billion higher in this Parliament than the Chancellor thought it would be—another target tossed aside—perhaps it is time for the Government to concentrate on getting people back to work in order to reduce the welfare bill. In February this year, the former employment Minister, now the Secretary of State for Justice, said:
“The Work Programme is doing a good job and is on track. It is helping long-term unemployed people into work.”
And only today the Chief Secretary to the Treasury said that the scheme was going well, but we now know that for every 100 people who are unemployed, the programme has seen only two people back into work. If that is the Government’s idea of a programme that is on track, I would hate to see one that is not.
It is not surprising that OBR documents released last week showed that the number of people claiming jobseeker’s allowance was set to rise from 1.58 million this year to 1.69 million in 2014, and that the number forecast for 2016 had been revised up by 340,000. That will be a third of a million more people receiving JSA compared with the number forecast in March this year.
Let us not forget that the Prime Minister dismissed the last Labour Government’s future jobs fund, which helped 120,000 young people back into work, yet an impact analysis for the Department for Work and Pensions found that we all gained £7,750 per participant through wages, increased tax receipts and reduced benefit payments. This Government ditched a plan that worked for one that has failed, so we will not be lectured by them on welfare or on job creation.
At the same time, one group of people continue to gain from the Chancellor and the Chief Secretary’s policies. If someone earns more than £1 million a year, next year they will receive an average tax cut worth £107,000. It beggars belief that while taking from families on low incomes with one hand, the Chancellor gives to millionaires with the other—there is one rule for the very richest, another for everyone else.
Charlie Elphicke
The hon. Lady talks about the Government favouring the richest, but if we look at the distributional impact of tax and benefit reforms on the IFS slides to which she has referred, we can see very clearly that the richest 10% lose £260 in net income whereas everyone else is far less disadvantaged. Does she not agree that the richest are shouldering more of the burden?
Rachel Reeves
If the hon. Gentleman thinks that those on average incomes being worse off by £534 year is not very much, it is up to him to justify that to the people of Dover and Deal. Page 17 of the IFS analysis shows that the poorest 10% are 1.6% worse off, the second decile are 1.7% worse off, the third 1.3%, the fourth 0.6% and the top only 0.5%. The four lowest deciles—those on the lowest and modest incomes—are being hit hardest by the changes in the autumn statement, while those at the top get off relatively unscathed. That is the reality and if he wants to put that slide in his leaflets in Dover and explain it to his constituents, I am sure that they would appreciate it.
As I have said, it is one rule for the richest and another for everyone else. The poor are expected to work harder or else they will be made poorer, but apparently the rich will work harder only if they are made richer. It is the same old out-of-touch Tories and their Liberal Democrat accomplices.
There are some who think that the Chancellor is a master of political strategy; his autumn statement was clearly delicately put together. He said that borrowing was down this year, but that is only by using money from the sale of 4G contracts, which has yet to happen. He said that his cuts were targeting the workshy, when in reality they hit working people. He said that austerity was necessary for us to compete with our global competitors when, after two years of austerity, we have fallen further behind. He lived up to his reputation as a part-time Chancellor, because it was a statement that worried more about tomorrow’s headlines than the economic reality. For all of the Chancellor’s cynical political games and for all the smoke and mirrors, the real story is being felt across the country. Living standards are being squeezed, long-term unemployment is rising, borrowing is up, growth is flatlining: it is a story of a failed Chancellor and his Lib Dem accomplice desperately trying to find a way out of the mess their economic failure has got them into.
Mr Alistair Darling (Edinburgh South West) (Lab)
I hope that the hon. Member for Macclesfield (David Rutley) will forgive me if, in the time available to me, I do not follow him down the road of bulldozers or anything else. I should begin by drawing the House’s attention to my entry in the Register of Members’ Financial Interests.
I am sorry that the Chancellor is not present, partly because he used to kick up a real fuss whenever I did not appear in the House or was slightly delayed. It would have been nice if he had been here: I am sure that plenty of us would have liked to press him on the question of how on earth he can claim abject failure as success, which is what he was trying to do last week.
Two years ago, it was not meant to be like this. Two years ago, the new Government said that they would be able to balance the books by the end of the current Parliament, and that debt would be falling as a proportion of national income. In 2010, they said that all the problems we faced were entirely home-grown. They compared this country mendaciously with Greece, and said that we would lose our credit rating, which they may yet regret. In other words, they set about trashing confidence and blaming the last Government for everything. That is despite the fact that the Conservatives supported every single penny of our spending until December 2008, and the Liberals were doing exactly the same until the evening of 10 May 2010, when they changed their minds.
The new Government’s position was that it was all the fault of the previous Government. How much has that changed? Last week, they began saying that this was an international crisis. They said that it had been caused by the eurozone; by the United States fiscal cliff; by inflation. However, all three of those things were around in 2010, and were known about. The problem that we have at present is that we simply do not have the growth that we were expecting, with the result that the Government have missed their debt reduction target and are experiencing serious difficulties in relation to borrowing. I shall say more about that shortly.
The Chancellor’s problem is that the growth profile that is presented in the report from the Office for Budget Responsibility, which was published last week, is remarkably similar to the profile that was published two years ago, but it is now running at least between two and four years late. If we do not achieve the growth profile that is set out in the report, both our borrowing and our debt will be higher, because the two are completely interlinked. I see no evidence for believing that the figures will be any more right this time than they were two years ago.
It is interesting to note that the OBR assumes, just as the Treasury modelling used to assume, that somehow we will always return to a 2.5% trend rate of growth. That theology was being questioned when I was in the Treasury, and I think that we will have to look at it again now. The Japanese are apparently contemplating what would be the fifth recession in 15 years. I honestly do not think that those of us in the western world—and Japan is, economically, in the same position—can assume that everything will bounce back as if nothing had happened. This will have a profound implication for all the political parties in the House, as well as further afield.
However, it is in relation to borrowing that I would have taken the Chancellor to task had he been here. During his speech last week, he made great play of how transparent he was being in taking into account the money that he had managed to find as a result of quantitative easing at the Bank of England and from the Royal Mail’s pension funds. What he did not say was that he could claim that borrowing was falling this year only because he had banked the sale of the 4G auction, which will bring in a very handy £3.5 billion—and, furthermore, will have to bring it in before the end of March if it is to score properly. That is the only reason why he could claim that, because the figures show that although borrowing has a downward profile, we are in fact borrowing £212 billion more than the Chancellor intended to borrow. We are borrowing much more, therefore.
The OBR report contains a number of findings that ought to worry those on the Treasury Bench as well as the rest of us. For example, over the next few years a very handy cumulative total of £73 billion will come in from the asset purchase facility—quantitative easing by the Bank of England. That money is not being created because of increased revenues or increased economic activity, however. It is basically a financial transaction that the OBR has said is okay to put in the books in this way, as opposed to scoring things differently which would have left a large hole in the economic figures.
Charlie Elphicke
The right hon. Gentleman is making a typically thoughtful speech. If he were the Chancellor, would he pursue the five-point plan the shadow Chancellor has proposed, given that it would cost £20 billion? Does he think there is the capacity to do that, and does he think it would be a sensible policy to pursue?
Mr Darling
I will address that point later. It is an important point, and I do not believe we should just sit back and hope that growth returns. The shadow Chancellor and many others both inside and outside the House also do not believe that the Government’s approach is right.
We are heavily dependent on money that is coming in from a financial transaction. In addition, the OBR has now found that by 2016-17 our revenues will be £30 billion less than it forecast in March. That is a huge gap, which will have to be filled.
What should we do? Whenever the Opposition suggest that perhaps the Government could do a little more, the Government parties—the Conservatives and Liberal Democrats—always say, “That’s all about borrowing more.” This Government are borrowing £212 billion more than they said they would not because we are spending money on projects and so forth, but because of failure—because our revenues are down. That is why we have got this gap.
When we eventually have a recovery, this country will need infrastructure. Over many years, we spent a lot of money on transport and energy. That was the sort of spending the Government say should not have been made, but we now know it was desperately needed, and we need to invest more in infrastructure, as well as get debt and borrowing down. We must invest in education, too.
On energy, the Government’s policy is completely contradictory. We are getting different signals every day of the week. On transport, I say again that it is not good enough to have no airport policy until halfway through the next Parliament, when we will not be able to do anything as another election will be coming up. That is not the right signal to send to our country, let alone the outside world.
Investing more in infrastructure projects would be one way to get confidence back. Confidence was trashed two years ago. If anyone were running a business now, would they hire more people or open a new production facility? No, they would not, because it appears that the economy will be bumping along the ground for another five years or so. I again remind Members of what has happened to Japan. People say, “We would never be like that,” but Japan has had non-existent growth for 15 years.
Kwasi Kwarteng
I can answer the hon. Gentleman very directly. With reference to our public finances, we have been borrowing money every year—every single year. It is likely that even if we are able to eliminate the structural deficit by 2018, this country will have seen nearly 20 years of continual deficits. This is an appalling legacy that Labour has left the country. Since the end of the second world war, we have never run 20 years of continual deficits, which we will do as a consequence of Labour mismanagement and old-fashioned incompetence.
Charlie Elphicke
In his praise for the former Chancellor, has my hon. Friend noticed that the right hon. Gentleman said in his memoirs not only that the Labour Government overspent, but that they ran a parallel Treasury operation while he was Chancellor trying to sort it all out as a night-watchman, undermining his work while he was trying to stabilise the ship?
Kwasi Kwarteng
That is right. Many historians will be needed fully to plumb the depths of the goings-on of that Administration—the level of incompetence, the level of secrecy, the high spending, the culture of fear that prevailed in the Treasury for much of that time. It will need many people to investigate that.
It was always the function of the British Treasury, as my hon. Friend well knows, to have a very conservative approach to public finances. It was always the tradition that we in the British Treasury tried to match expenditure to income.
Autumn Statement
Charlie Elphicke Excerpts(11 years, 5 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Osborne
First, may I congratulate the hon. Gentleman on his election in Corby? We were talking earlier about construction projects that had not been started. I saw for myself on an enjoyable visit to Corby, which was ultimately unsuccessful in terms of the by-election, the Corby link road which is being built—I hope he would welcome it. As I say, we have set out the public finance numbers, and we have taken the decision to use the spectrum money to help with further education and to fund the annual investment allowance, which starts in January next year—in this financial year.
Charlie Elphicke (Dover) (Con)
What action is my right hon. Friend taking to close the tax gap and enable British business to complete on a level tax playing field, after the serious failure to modernise or enforce our business tax system over the past decade by the previous Labour Government?
Mr Osborne
My hon. Friend has been a powerful advocate for a more competitive business tax system in this country, and we have reduced again the headline rate of corporation tax. That makes it even more of an advantage for companies to headquarter and pay their taxes here, and it is part of what we are doing to win the global race. I congratulate him on the advice and support he gives in this area.
Income Tax
Charlie Elphicke Excerpts(11 years, 5 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Rachel Reeves
Thank you, Mr Speaker.
The increase in the top rate of tax from 40p to 50p was introduced to help to reduce the deficit because the last Labour Government thought that it was right that those with the broadest shoulders paid a little bit more towards achieving that. The fact that this Chancellor has reversed that and is reducing the top rate of tax shows that he thinks exactly the opposite—that his priorities are not with ordinary working people but with the richest 1%. [Interruption.]
Rachel Reeves
I will—and if the hon. Member for Beverley and Holderness (Mr Stuart) has an intervention to make, then he can make it.
Charlie Elphicke
Does the hon. Lady accept the calculation by the Office for Budget Responsibility that this proposal would cost £100 million—yes or no?
Rachel Reeves
Let us look at what Robert Chote, the chair of the OBR, says about the cut in the 50p rate:
“This is a judgement based on not even a full year’s data based in terms of how people have responded to the 50p rate, in particular in terms of those self assessment tax-payers.”
Indeed, we know that a series of larger-than-usual dividends were paid in the days and weeks just before the introduction of the 50p rate. For example, the Prime Minister’s friend Emma Harrison, who is the Government’s adviser on their welfare-to-work programme—we know how successful that has been—was paid on 1 April 2010, before the new tax year, which meant that her dividend was taxed at the old 40% rate, saving her £800,000.
That is why the Government’s claims about the yield of the 50p rate do not stand up. People have had the opportunity to anticipate the introduction of the new taxation rate by bringing their income forward, as they did when the rate was reduced. As the Office for Budget Responsibility and the Institute for Fiscal Studies said, it is difficult to produce a definitive estimate for the long-term yield of a tax that has been in place for only a short period, and it is fiscally irresponsible and wholly misleading to use figures from the first year to justify the policy.
Charlie Elphicke
I thank the hon. Lady for giving way again, but let me press her a bit more on this point. The OBR said that its calculation was a “reasonable and central estimate.” Does she disagree with that?
Rachel Reeves
Robert Chote has said:
“This is a judgment based on not even a full year’s worth of data”
and the estimates are very uncertain. Another group of experts at the IFS stated that
“by giving out £3 billion to well-off people who pay 50p tax…the Government is banking on a very, very uncertain amount of people changing their behaviour and paying more tax as a result of the fact that you’re taxing them…There is a lot of uncertainty, a lot of risk on this estimate.”
If the Government think that lots of millionaires who were not paying the 50p rate of tax will start flooding to these shores to pay the 45p rate—well, we will see what happens when the numbers come out.
Charlie Elphicke
Let us talk about those millionaires. Today’s Daily Mail states that the number of millionaires slumped from 16,000 to 6,000 after the 50p rate of tax was introduced, and that revenues fell from £13.4 billion to £6.5 billion. Does that show that if the rate of tax is increased too much, it will have a negative impact on the public finances?
Rachel Reeves
I thank the hon. Gentleman for at least highlighting that thousands of people with declared incomes of more than £1 million who were paying the 50p rate will get a tax cut next year. His figures show that in 2010-11 there were 6,000 people with declared incomes of more than £1 million, and 10,000 in 2011-12. A written answer that I received from the Exchequer Secretary to the Treasury on 19 June stated that 70% of people earning more than £250,000 were paying more than 40% in tax, and 80% of those earning more than £500,000 were paying the 50p rate. In the new year, each and every one will get a large tax cut.
If the Government honestly want people to pay their fair share of tax, they should spend more time and resources on tackling tax avoidance, not compensate the wealthiest by cutting the headline rate of tax. No wonder they have cut staff numbers at Her Majesty’s Revenue and Customs by 11%—they have just given up.
I am happy to debate the Government’s record on raising revenue through taxation. Last autumn, as a result of the slowing economy, projected income tax revenues across the board had to be written down by £51.2 billion by the Office for Budget Responsibility because of the weakness of the economy and the double-dip recession. Only last week, the Office for National Statistics released statistics showing that public borrowing in October was £2.7 billion higher than for the same month last year.
Over the first seven months of financial year 2012-13, the Government have borrowed around £5 billion more than for the same period last year. Why are we seeing that increase in borrowing? It is not as if the Government have not put up taxes for ordinary people or cut public services. The Chancellor’s flatlining economy has forced a 10% slump in corporation tax revenues, and VAT revenues are expected to be down by 2.5%. The Government can spend all the time they like defending a tax cut for millionaires, and Ministers as much time as they like in Cabinet arguing among themselves about why there has been no growth, but it is time they changed course and adopted a plan for jobs and growth.
Mr Gauke
My hon. Friend is right, and harks back to what I was saying a moment ago. We have to bear in mind that the ability of high-earning individuals to be mobile has increased over time. It is striking, for example, that the number of UK citizens moving to Switzerland in 2010 increased by 29%. That demonstrates the fact that individuals will respond to fiscal incentives. They will respond to one of the highest rates of personal tax in the developed world, which was the position that the UK was in.
Charlie Elphicke
Is not the Minister’s point thrown into sharp relief by the fact that millionaires were paying approximately £13.4 billion before that measure was introduced, and that that went down to £6.5 billion? Is it not dangerous for our public finances to start jacking up the rate and driving people out of the country, as the previous Government did?
Mr Gauke
My hon. Friend sets out some dramatic numbers. They are the correct numbers, although it would be right to say that an element of that had to do with forestalling and people moving their income around. However, Opposition Members should not take great comfort from that. They demonstrate the enormous amount of behavioural change as a consequence of high rates. That level of forestalling is striking. What is also striking is that when the previous Government made their estimate of what would happen with income, no allowance was made for forestalling whatsoever, which again demonstrates flaws with the methodology that was in place.
Mr Gauke
Very simply, different taxes have different elasticities. It is perfectly simple: people are more likely to respond to high direct rates of income tax than to stamp duty. Of course, the OBR took into account the behavioural impacts when it assessed how much revenue would be raised on, for example, stamp duty land tax. As Tony Blair sets out in his memoirs, which I was flicking through last night, direct rates of income tax are not a good way of raising income.
Charlie Elphicke
I thank my hon. Friend for giving way once more; he is being incredibly generous.
On the point about elasticity, is income tax not notorious for raising more revenue, the more it is cut? We saw that throughout the ’80s, when it fell from the sky-high levels of Labour to 60% and then 40%. Each time, the take increased. Is it not the case that, if we cut the rate of income tax, broadly we end up increasing the take?
Mr Gauke
It depends where we are on the Laffer curve, but, if we have the highest rate of income tax of any of the G20 economies, we are clearly in a vulnerable position. That was the position we inherited and why we were right to remove it.
I want to touch on the HMRC report laid before the House of Commons at the time of the Budget. It contained the assessment of the 50p rate. It showed that the additional rate was distortive, inefficient, and damaging to our international competitiveness, and that the previous Government greatly understated its impact on the behaviour of those affected. High earners were able to bring forward about £18 billion before the new rate came in, which the previous Government did not account for in their revenue projections. The 50p rate has failed: it has been criticised by business, damaged the UK economy and raised much less for the Exchequer than the last Government had hoped. In fact, it could have generated a net loss. The HMRC report estimates that it raised at most only £1 billion, and, when indirect taxes are taken into account, could have raised less than nothing.
The Government have decided not to stifle the economy further and to show that we are open for business, which is why we will reduce the rate to 45p from April next year. This move to 45p, based on the central estimate of the taxable income elasticity, will cost only £100 million—a small price to pay to regain some of the international competitiveness we lost as a result of the previous Government’s decisions. In fact, when indirect taxes are taken into account, this move could even result in a positive yield.
The 50p rate not only harmed our economy and contributed little to the Exchequer, but placed us in the unwanted position of having the highest statutory rate of income tax in the G20. Our decision to lower the rate will see us drop below Australia, Germany, Japan and Canada. In 2011-12, the top 1% of taxpayers paid about 25% of income tax revenues, and for over a decade our dependence on them has grown. Owing to this considerable economic contribution to the UK, each highly mobile earner who is driven out by internationally high tax rates hits the Exchequer and results in less revenue for public services.
Opposition Members might not care when internationally mobile individuals leave, but, given our dependence on high earners, we want them working in the UK, creating wealth and paying taxes, not moving abroad or retiring early. A competitive tax environment is unambiguously in the UK’s interests, and failing to act decisively as we did would be to ignore our long-term interests, as the 50p rate continued to drive high earners out of the country.
Charlie Elphicke (Dover) (Con)
It is a real pleasure to follow a maiden speech, particularly that of the hon. Member for Cardiff South and Penarth (Stephen Doughty), whom I congratulate on his excellent speech. He has a hard act to follow, as he acknowledged, having had two illustrious predecessors: “Sunny” Jim Callaghan and Alun Michael, late of this House. We will all watch his career with interest to see whether the constituency can provide a trio of senior Cabinet Ministers in due course. I must warn him, however, that no one ever tells us before we come to this place how busy it is and how hard-worked we are. I hope that he will still find the time to go and see Cardiff City play, and to pursue his singing hobby, which I understand he is partial to.
Moving on to the matter of income tax, I believe that the right policy is one of fair taxes, not only in regard to the higher rates but across the piece. For me, that means taking the poorest out of tax altogether, as well as taking the middle classes out of the higher rate and not allowing them to be consumed by fiscal drag as they have been over the past decade. It also means avoiding punitive rates that drive people out of the United Kingdom altogether, and ensuring that multinationals pay their fair share of tax on their UK revenues. Putting all that together would create the system of fair taxes and tax justice that this country urgently requires.
Did Labour do any of those things when it was in office? It did not do much to take the poorest out of tax. Indeed, many of the comments from the Opposition today on our policy of increasing the personal rate to £10,000, which I hope to see, have been mealy-mouthed at best. They appear at times even to oppose it.
Sheila Gilmore
Does the hon. Gentleman accept that there are different ways of assisting those on lower wages? The Institute for Fiscal Studies has suggested that tax credits are more efficient than raising the tax threshold, which is very expensive. Furthermore, once people have fallen below the threshold and out of tax, they get no further help. It is at least arguable that the Government’s much-vaunted raising of the personal allowance will not help the poorest families, and that it will come at a very high price.
Charlie Elphicke
I prefer aspiration to the welfare dependency that Labour has offered over the past decade.
We have cut income tax for 25 million people in this country, and we are taking 2 million people out of tax altogether. I am proud that this Government have done that. We are increasing the personal allowance to £9,205 in April 2013, and I want to see it increased to £10,000 in due course. These are real achievements for the Government. It was wrong that the previous Government allowed so many people on middling incomes to get stuck in the 40p rate, where they should not have been. I hope that, as the public finances recover, we will be able to find more space to take middle-earning people out of the higher rate. They are not rich people; they are the people in the squeezed middle created by Labour when it was in power, and I hope that that situation will change over time.
The most important thing is to look at the effects of the punitive rates that Labour introduced. Let us face the facts. Today’s Daily Mail reports that about two thirds of Britain’s highest earners “deserted the UK” after the 50p top rate of tax was introduced. It found that in 2009-10 some 16,000 workers with an income of over a million quid paid tax, but that the number then dropped to 6,000 after the former Prime Minister brought in new tax rules.
I would like to congratulate my hon. Friend the Member for West Worcestershire (Harriett Baldwin) on asking the questions that drew forward these important figures. The tax paid by top earners fell from £13.4 billion to just £6.5 billion in 2010-11. That is the issue, is it not? If the rate is increased so much that it becomes punitive, people will leave the country, squirrel away their income, not declare their income, leave it in companies—personal service companies—or cash boxes where it is not subject to tax. When that happens, tax revenue is lost.
Charlie Elphicke
I will give way to the hon. Gentleman if he can tell me whether the Labour party, if it formed a Government, would scrap this Government’s move?
Gregg McClymont
I thank the hon. Gentleman for giving way, although I am not sure that it is within his purview to specify what subject I should intervene upon. If what he says about the 50p tax rate is all true, why is it so popular with the electorate, as evidenced by poll after poll after poll?
Charlie Elphicke
I think the most important thing is to look at how we get the most money in. We have a massive deficit—a massive amount of debt caused by the Labour party when it was in government and overspent for years and years and years. It created a massive structural deficit in our public finances, shattered our public finances and maxed out on our country’s credit card, so we need to get the maximum amount of money in to repair that chaos, that mess, that economic mismanagement.
What we are doing today is ensuring that we say that the country is open for business, that we are interested in companies growing and doing really well and that we want to encourage aspiration, not envy. I think this is an important gulf that lies between the Government and the Opposition. As I say, the most important thing is how to get the most money in, and if we jack up the rate, as the Labour party did, we will not get more money; rather, people will leave the country and we will lose the wealth creators. That is why what Labour did with a little grenade just before it left office was so dangerous and so toxic. It did so through political opportunism, damaging the people of this country and damaging our economy—shame on it for doing so.
Gregg McClymont
I thank the hon. Gentleman for giving way again. I am listening to his speech. Is the issue one of a failure of communication on the Government’s part? If everything he says is true, one would think that the public would support the Government’s tax cut for millionaires, yet every single poll shows that the 50p rate is popular.
Charlie Elphicke
On that basis, I am sure that the hon. Gentleman will jump up next to say that he is in favour of hanging, along with most of the British people. I do not see him or his Labour colleagues supporting that particular measure—or, indeed, a measure to leave the European Union, which is what most people in this country say they want when they are polled. I urge the hon. Gentleman to be cautious when it comes to these issues; he needs to be careful about what he wishes for.
I think that the Treasury is right to cut the 50p rate to a more sustainable level. We know it will cost £100 million, but we also know that five times that amount has been raised by taxes that are less elastic. This measure is right for the public finances and it is the right economic policy to encourage growth and prosperity in this country. It is also the case that if we cut the rate, we up the take; and I suspect the Treasury figures might turn out to be a little bit better—or perhaps it has been a little more cautious—than we think. I suspect that we might well end up with more money in the bank as a result of these measures.
Broadly, what the Government have done is right. It is important to remember that if we encourage millionaires to stay in Britain and to set up and run businesses here, they will do so far more effectively. It is important, too, for the Government to look at multinationals and ensure that they pay a fair share. We should also note that in the past decade, the Labour Government allowed multinationals to flout our tax law and not pay a fair share of tax. The reason we are talking about the super-rich—Apple, Amazon, Google and all the rest of these large combines—today is that the Labour Government let them completely off the hook. They were so determined to be the pro-business party that they did not collect the revenue from these companies that they should have done. They did not keep our tax law up to date for the internet age.
The Opposition may well want to talk about millionaires and the people who earn amounts that lead to the 50p rate, but it is wrong for them to do so while they completely let off the hook the really large businesses that have substantial revenues that they could and should pay in the UK but do not. Shame on them for that. Let us face the fact that the working nation under Labour saw income taxes rise by about 80%, whereas non-oil corporation tax revenues went up by just 6%. I do not think that is a record of which the Labour party should be proud; it is not a good record or a justifiable record, and people are very angry about the fact that Labour was completely asleep at the wheel on that score.
I think the Government took the right measure in dealing with tax avoidance by the super-rich. It is not just about the 50p income tax rate, as it is also about tackling tax avoidance. An important consultation on tax avoidance is taking place, along with the introduction of the general anti-abuse rule. It is important, too, that we are raising more money from less elastic taxes as a result of getting rid of the 50p rate. We have a package of measures, such as stamp duty land tax, cracking down on tax avoidance and introducing a cap on uncapped income tax reliefs. Reducing the 50p rate for millionaires is not the right way to approach these things; the right thing to do is to look at the inelastic taxes.
It is very revealing that we have seen interventions by Labour Members today attacking the measures on stamp duty land tax, implying that they are almost the wrong thing to do. It is important to go for the less elastic taxes and use the elastic taxes to encourage entrepreneurs, wealth creators and those who will create jobs and money. It is important, too, that the figures in the Office for Budget Responsibility report and from Her Majesty’s Custom and Excise show that the 50p rate raised next to nothing. Analysis showed that the 50p rate meant £16 billion to £18 billion of income was deliberately shifted into the tax year before it was introduced.
Charlie Elphicke
I have already given way.
Self-assessment receipts for 2011-12 are below the forecast by £3.6 billion and the increase from the 40p to the 50p rate raised only a third of the £3 billion that the Labour Government said it would raise. It is easy for Labour to say, “Ah, but eventually this money will pop up”—but not necessarily. The money could be kept in a personal service company, as so many Labour Members and, indeed, the former Labour Mayor of London have done, and lent to oneself with a beneficial loan, helping to avoid paying tax. People can take those sorts of measures, or they can capitalise their income and invest it in something else, meaning that the money never comes into charge. That is why super-high rates are unwise. It also means driving people abroad. That is exactly what happened: people were driven abroad by the Labour Government’s penal tax rates. Again, that is not the right thing to do. We need to look at how to repair our nation’s finances, not look at how to play politics with the politics of envy.
It is important to remember that the former Chancellor of the Exchequer said that the 50p rate was always meant to be temporary and that the Revenue has been very effective in cracking down on tax avoidance, which is where the really big numbers lie. The 50p rate does not raise a whole of lot of money and it discourages a whole load of people by sending out a negative message on the competitiveness of Britain, while the tax avoidance and evasion yield has jumped to a record £21 billion. It is important to crack down on all those tax avoiders and tax evaders, making sure that they pay a fair share.
Finally, I would like to quote what the OECD says about the effect of the 50p rate on our competitiveness and on our economy. Back in July 2010, it said:
“Consider reducing the top rate of PIT”—
personal income tax—
“which is substantially above the OECD average and likely adversely to affect work incentives and entrepreneurship, particularly of high skilled workers. Consideration should be given to reducing the top rate of personal income tax to close to 40 per cent”.
It is very telling that an international organisation is saying that a country’s tax system is going to drive people away, particularly the high skilled, highly able, highly job-creating, highly entrepreneurial people that a country most needs to have. The Government have been very brave in putting the economics before the politics in the last Budget. I commend them for what they have done and for taking the tough decisions that are right for our economy.
Harriett Baldwin
I seem to recall that in my lifetime—under the Government of, I think, the predecessor but one of the hon. Member for Cardiff South and Penarth—income tax was set at more than 90%. If it were set at 100%, we should have no income tax revenue, because no one would consider it worth while to work.
I then ask my students what would happen if we lowered the rate of income tax from 100% to 70%. Would we raise more or less revenue? Again, I should welcome interventions from Opposition Members. Everyone realises that we would raise more revenue, because if the rate was 70%, we would take home 30p in the pound. I notice that the new socialist Government across the channel recently introduced that income tax rate. We will see how that stacks up over time, but I expect that it will prove to be a deterrent to additional work, too.
The motion contains the seeds of its own mathematical inconsistency, because the Opposition are extrapolating a linear relationship between the income tax rate and the amount of income tax revenue raised. They are also extrapolating that those who can, in what is a global market, take their labour to any other country in the world will not take into account any difference in tax rates between the UK and other nations, yet all the evidence shows that that is not the case.
The Labour motion refers to 8,000 people paying income tax on income of £1 million or more. In 2009-10, which is the last tax year in which we had the 40p tax rate, some 16,000 people had an income of £1 million or more. Through raising the tax rate from 40p—a rate that was in place for all but one month of Labour’s entire 13 years in office—we can see that millionaires can do other things with their income. They can take their entire labour overseas, or they can decide to shelter their income or not to take a dividend that year, or they can use any of the other methods to ensure they do not pay that increase in income tax. There was a reduction of £7 billion in revenue after the income tax rate went up from 40p to 50p.
Harriett Baldwin
I think that I have already taken two interventions, and I have only a minute and a half, unfortunately.
The Government have reduced the number of ways in which people on high incomes can reduce their taxable earnings. The Opposition opposed measures to reduce the amount people could put into their pension fund from more than £250,000 to £50,000. I also voted for the abolition of disguised remuneration, which was quite rampant under the previous Government. That also serves to limit the ways in which people on high incomes can reduce the amount of income tax that they pay.
The relationship between the rate of income tax and the amount of revenue raised by the Chancellor is non-linear. Between 0% and 100% there is a curve, and we need to agree about the optimal point on it—the point where the Treasury can get the most revenue from those at the highest end of the income spectrum. I suspect that 45p will be a lot closer to that optimal rate than 50p was.
The Government are focusing on tax cuts for those who are on the lowest incomes, lifting them out of income tax, and ending this tax cull on millionaires.
Mr Meacher
My hon. Friend makes her own point. It is very difficult to reach a final conclusion on this matter, because of forestalling and because this change is seen as temporary. The very rich will, therefore, ensure that most of their income is put forward until the rate is lowered.
Charlie Elphicke
On tax avoidance, would the right hon. Gentleman support a higher tax on second and third homes?
Mr Meacher
I believe that second or third homes—and all other non-primary homes—should incur a higher rate of tax. I never supported the discount given for second homes, which has now been raised to a level nearly equal to that for first homes, and there is a case for the rate for empty homes being raised above that.
As I was saying, HMRC’s report shows that the loss will be £3 billion a year, as opposed to the sum that the Exchequer Secretary kept on talking about today: the £100 million that Treasury Ministers signed off originally, on the basis of arcane taxable income elasticity calculations, about which the Government’s own Office for Budget Responsibility said there was huge uncertainty.
A table given in Hansard on 25 April this year, at column 898, is also interesting. It shows that 80% of those earning more than £1 million paid more than 40% in tax. In other words, tens of thousands of people were—and are—paying the 50p tax rate. They were unable to dodge it. That is an important point, because it serves to destroy the Government’s argument that the 50p rate is a very inefficient method of raising tax revenue and that its abolition will have a negligible effect. I think it will have a very significant effect.
The Exchequer Secretary’s other argument in support of cutting the 50p rate was the old Thatcherite canard—which he stated repeatedly in his speech—that we should not tax the wealthy more because we depend on them for our future. That is the old trickle-down theory. However, we know that the opposite is, in fact, the case. Over the past 30 years, there has been a steady trickle-up effect. There has been a ballooning of inequality, with most middle England incomes having stagnated. That would not be so bad if the trickle-up effect made us more competitive.
The fact is that since 1987, when the top rate went down from 83% to 40%, we have not had a surplus on our current account in the balance of payments for the past 35 years. Our share of world trade was 6.5% in 1970, but it has dropped by two thirds to just 2.3% and our deficit on traded goods last year was £100 billion. That is a monument of uncompetitiveness.
Not only did the Chancellor originally impose £18 billion cuts on the poorest families in the country, but he is now proposing a further £10 billion of cuts to fill the gap left by his failed deficit-cutting policies. The housing benefit cuts that are coming in next April will remove thousands of families across the country from their homes because they simply will not be able to pay the rent. The disability living allowance cuts will leave thousands of disabled people housebound. Atos is cutting a swathe through thousands on incapacity benefit who simply cannot get a job. The poor are being punished for what they did not do, and the rich, who have a great deal to answer for, are almost getting off unscathed.
The second reason for keeping the 50p rate is that the very rich are in a far better position at this time to contribute to meeting Britain’s needs. According to The Sunday Times rich list published this April, the richest 1,000 people—a tiny group who make up 0.003% of the adult population—racked up gains in the past three years of austerity of £155 billion. If those gains were charged to capital gains tax, about £40 billion would be raised. Perhaps the real figure would be less and only £20 billion or £30 billion would be raised, but if it were well invested, it would be enough to kick-start the economy and begin to reduce the deficit in a way that we need to do—by real growth.
The third reason for keeping the 50p rate is the real anger building up across the country about what rich individuals and rich multinationals are getting away with on tax avoidance. I return to the Exchequer Secretary’s table, because it shows that 9% of those earning more than £10 million, which is more than £200,000 a week, paid tax at a lower rate than their cleaning ladies—
Bank of England
Charlie Elphicke Excerpts(11 years, 5 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Osborne
Fiscal policy is the responsibility of the elected Government and the House of Commons, but I would say that all the business organisations have supported our plan to deal with the deficit because they know how important it is to securing low interest rates and stability. Frankly, I have yet to hear what the current alternative is from the Labour party. I will save this for next week, but the Opposition used to have a five-point plan and I have no idea whether they are still committed to it. They claim that they want to be responsible with the deficit, but they have absolutely no plans to cut the deficit. I am just getting warmed up for next week, but we will wait a week to have those arguments.
Charlie Elphicke (Dover) (Con)
Will the Chancellor and the new Governor examine the possibility of bringing in depositor preference with a view to reducing the risk of bail-outs and nationalisations of UK banks in future?
Mr Osborne
Depositor preference does not exist in the UK, but it does exist in countries such as the United States and Switzerland. It is something that we are planning to introduce and it was one of the recommendations of the Vickers commission.
Fuel Duty
Charlie Elphicke Excerpts(11 years, 6 months ago)
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Cathy Jamieson
I shall give way to the hon. Member for Dover (Charlie Elphicke), who I am sure is going to tell me how many of his constituents have contacted him asking him to back our motion.
Charlie Elphicke (Dover) (Con)
I am not sure that this will quite fuel the hon. Lady’s bandwagon, but why did the Labour Government, in their closing stages, include in their Budget six further rises for this Parliament?
Cathy Jamieson
It may have escaped the hon. Gentleman’s notice that his party is now in government, and it has to take responsibility for its actions, including the Chancellor’s VAT rise, which has added 3p to the price of a litre of petrol, costing motorists on average over £100 more.
Cathy Jamieson
I want to move on, because it is important that we get to the meat of the debate.
As has been said in earlier discussions on the economy, any recovery we have seen so far is fragile at best. Labour has put forward proposals that we believe the Government should put in place: a jobs plan to boost the economy, including using funds from the 4G mobile auction to build 100,000 affordable homes; a temporary VAT cut, which would cut around 3p off the price of a litre of petrol and give an immediate £450 boost for a couple with children; help for our high streets and pensioners; and a bank bonus tax to fund jobs for young people who are out of work. The Opposition believe that the Chancellor should use his autumn statement to help those on low and middle incomes with the rising cost of living.
Cathy Jamieson
I have given way to the hon. Gentleman already and want to make some progress.
We believe that the Chancellor should rethink his plan to give a tax cut to millionaires in April while putting up taxes for pensioners. As the shadow Chancellor announced on Friday, we believe that the Chancellor should cancel the 3p rise in fuel duty planned for January until at least April.
Charlie Elphicke
There is opportunism not only on fuel duty but on tax avoidance. Under the previous Government, income tax paid by hard-working families in the working nation rose by 81%, but Labour Members let business off the hook, with corporation tax receipts going up by only 6%, because they were so obsessed with the prawn cocktail circuit.
Sajid Javid
My hon. Friend has done a lot of work in this area and speaks with great knowledge. He is absolutely right to point out Labour’s inaction.
Oral Answers to Questions
Charlie Elphicke Excerpts(11 years, 6 months ago)
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Danny Alexander
Rather than the proposal to use revenues from the auction, there are other policies that we can use to support the objective highlighted in the question, including those highlighted by the hon. Member for South West Devon (Mr Streeter)—planning reform, releasing public sector land and other fiscal steps that the Government can take which do not involve committing to this policy now.
Charlie Elphicke (Dover) (Con)
Will the Minister confirm answers to my written questions—that the reserve for the auction is £1.4 billion and that half has been allocated to science and higher education investment? Is this a case of Labour spending money that we do not have, yet again?
Danny Alexander
It is exactly that. The reserve price is £1.4 billion, of which £600 million has been allocated to important science projects, such as the Graphene institute in Manchester. Were we to follow the advice of the Opposition, we would have to cancel significant science projects which are vital to growth in this country. That would be the wrong policy for the British economy.