Finance (No. 4) Bill

Christopher Chope Excerpts

Wednesday 18th April 2012 Commons Chamber

[Chris Bryant]

Well, I am really impressed by the hon. Lady. I can understand how my hon. Friend the Member for Wirral South read my notes but not how the hon. Lady managed to read them from over there. I was going to come to exactly the point she makes but not quite in the same way. Yes, there is an ethical clash about whether this is the right time to introduce this measure for political and economic reasons, but my concern is that because the Chancellor had, I think, personally decided that he was going to cut the 50p rate to 45p, so many other elements of the Budget had to follow that change. A prime example is the fact that the Prime Minister and the Chancellor wanted to be able to say that the rich would pay five times more tax after the Budget than before—I think that is, broadly speaking, the point that the hon. Lady is making. I am not opposed to some of the measures that will increase the amount of tax paid by people who have wealth in a variety of circumstances, but I think that some of the measures in the Budget and the Finance Bill ended up there only to try to shore up that argument, and I do not think that due diligence was done around them.

Let me take one example—I note the look in your eye, Mr Hoyle, and I shall bring my remarks to a close very soon. I think that the measure about capping the tax relief available for people giving money to charities is in the Budget solely so that the Government can argue that the rich will pay more. It is not based on fact or research. There might be perfectly good things we could do on whether charities outside this country that are not covered by the Charity Commission should be removed from the system or on whether greater powers should be given to the commission, but I think that the only reason that the measure was in the Budget was so that the Government could say that tax has increased. This has left the Chancellor and the Prime Minister somewhat double-faced—I shall not say two-faced, because obviously I could not. On the one hand they are saying that the top rate of tax should go down and the rich should not pay so much and, on the other, they are saying that the rich should pay more.

I hope that I have persuaded all the hon. Members on the Government side to change their mind. I see that I have persuaded the reckless Member over there, the hon. Member for Rochester and Strood (Mark Reckless), to support the amendment in the name of my hon. Friend the Member for Pontypridd.

[Mr Christopher Chope (Christchurch) (Con)]

I do not think it is necessary for me to speak to amendment 1 because my hon. Friend the Member for South West Norfolk (Elizabeth Truss) and others have, in their interventions, destroyed the Opposition’s argument. I recall that the TaxPayers Alliance organised a wonderful celebratory dinner not long ago, in the Guildhall I think, at which the guest of honour was none other than Dr Laffer of the Laffer curve. I am delighted that the Treasury is now paying more attention to the principles behind the Laffer curve, which, in my view, are well represented in the argument for reducing the top rate of tax back to 40%, rather than 45%. I hope that in due course my hon. Friend the Minister will explain why someone like me should not be tempted to vote for amendment 1 on the basis that it would reduce the level to 40%.

[Owen Smith]

When Dr Laffer attended the dinner at the Guildhall, did he bring with him the famous cocktail napkin on which he sketched the curve?

[Mr Chope]

Dr Laffer did not bring any visual aids with him; he was able to command his audience without them. I remember being surprised by how relatively youthful he was—it seemed that his principles and his curve had been talked about for so long that I had assumed he was going to come in with a walking stick, but he did not. He was very lively in mind, body and spirit so I think he is someone we can continue to listen to in the months and years ahead.

I want to use my short speech to comment on amendment 62, which is in my name and that of my hon. Friend the Member for Rochester and Strood (Mark Reckless). It calls on the Treasury to

“within two months of Royal Assent, make an assessment of the relative administrative costs of…making an additional charge to income tax payable by all individuals with an adjusted net income above a certain amount; and…the measures in section 8 of, and Schedule 1 to this Act.”

--- Later in debate ---

[Mark Reckless]

Will my hon. Friend confirm that the estimates of administrative and staff costs the Government have given us for the higher income child benefit charge are actually somewhat higher than the entire revenue that they estimate, with some uncertainty, we will lose from reducing the top rate of tax from 50p to 45p?

[Mr Chope]

Exactly. My hon. Friend’s excellent point shows the gravity of the complexity that the Government are introducing. The figure is more than £100 million in administration costs to take away child benefit from 1.2 million families, either in total or in part.

[Mark Field]

Is my hon. Friend concerned that the estimate is likely to be somewhat conservative? Many people are employed as consultants, so they do not know from one year to another whether they will be earning between £50,000 and £60,000. Huge costs will be involved in trying to collect the money, and I dare say a massive amount will have to be written off year on year if the charge goes through as proposed.

[Mr Chope]

My hon. Friend makes a series of good points that are recognised in the HMRC document to which I have referred. It says that the definition of a partnership will be the same as the one in the Tax Credits Act 2002, yet we already know that the Act and the technical manual that flowed from it resulted in an enormous administrative burden for those trying to work out who formed a couple, or when partnerships began or ended. There is a great file of documentation on how to interpret the tax credit definitions of partnership when people are cohabiting, whether or not they are in civil partnerships. The complications of the child tax credit system have resulted in a lot of fraud.

If we apply new rules to a fresh group of taxpayers and for the first time introduce in the tax system definitions of couples and partnerships, we shall create an enormous administrative burden. The document notes that the overall impact will be that HMRC will have to spend approximately £100 million on staff resources. If we say that that is £20 million a year—although it is actually more—at an average cost of £30,000 for a member of staff, we should be taking on 650 extra staff just to administer the removal of child benefit from 1 million families who currently enjoy it.

That is not the end of the story. We also have the problem that 500,000 tax-paying families who previously have not had to make a tax return will now have to do so. That is not mentioned in the cost analysis, but it is a cost on the tax-paying public that will not be borne by the Exchequer.

The proposal is highly flawed, as the Treasury Committee has recognised. Paragraph 23 of its report on the Budget notes:

“We recognise that the Government needs to take difficult decisions to tackle the Budget deficit. Nonetheless, the Government’s latest proposals for reform of Child Benefit solve only one of the two main problems identified with its original policy. They add further complexity.”

That conclusion is based on evidence the Committee received from the Chartered Institute of Taxation, the Institute of Chartered Accountants of England and Wales and other experts. They all drew attention to the complexity involved, and some of them pointed out the odd distinction between the child benefit charge and the justification articulated by the Chancellor for removing the age allowance for the over-65s. During the Budget debates, the Chancellor told us that the main justification for removing the age allowance was to bring about simplification, yet that will be the reverse of the added complexity that he is introducing through the child benefit tax charge.

I hope we shall have a bit of give from the Government. If they want everybody on a higher income to make an additional and fair contribution to deficit reduction, will they tell us why their proposals are targeted on those on higher incomes with children, while those on higher incomes who do not have children are excluded? I hope the debate will give us the opportunity to get answers from the Government on those points.

[Mark Durkan (Foyle) (SDLP)]

Does the hon. Gentleman also hope to have clarification from the Government of why, if the measure is about deficit reduction, they have refused to say that it will be reviewed or revised when the deficit is reduced? It will not necessarily be temporary, whereas the Chancellor was very clear that the 50p rate, while he adhered to it, would only be temporary.

[Mr Chope]

Absolutely. The hon. Gentleman makes a very good point. He may be of an age to recall what happened in the 1970s when we had the International Monetary Fund dictating to the then Labour Government what they should do to bridge the fiscal deficit that existed then. One of the measures that was introduced as a result was, in effect, an income tax surcharge which was retrospective for a year, but everybody who had been paying tax at a particular level had to pay a surcharge to help deficit reduction.

It would be possible for the Government to do something similar in this Budget to put a time limit on that, but the problem is that because of the enormity of the mess that the previous Administration made of things, we will not begin to reduce the debt until well on into the next five or seven years. In the meantime our debt will go beyond £1.5 trillion, so I am not sure that if we introduced a time limit, it could be an early time limit. It might have to be reviewed by Government in about 20 years. However, I take the hon. Gentleman’s point. Before he intervened, I was about to conclude my remarks as I know that many more colleagues wish to lay into the Opposition on their wholly misconceived amendment 1.

[Jonathan Edwards]

It is a pleasure to serve under your chairmanship this afternoon, Mr Hoyle, and to contribute to the debate. I shall speak to amendments 7 and 76, in my name and that of the hon. Member for Foyle (Mark Durkan), relating to the cut in the additional rate of income tax, and consequential amendments. I intend to press amendment 76 to a Division at the appropriate time unless, of course, it is accepted by the Treasury.

Despite heavy lobbying over the past year to remove the 50p additional rate of tax, the switch to a lower rate of 45p was one of the more surprising announcements in the Budget last month. It had been assumed by many that the Government mantra of being “in it together” meant that it would be politically necessary to show that all parts of society were paying more tax and facing the same level of public service cuts. Many therefore assumed that the 50p rate would be with us for at least as long as the Government maintained their plan A for cutting the deficit. After all, pressing issues such as Barnett formula reform have been conveniently parked in the name of the war on the deficit.

For my party, the issue is a matter of principle, irrespective of the timing and the state of the wider economy. Those with the broadest shoulders should bear the burden of taxation. A progressive taxation system based on the Scandinavian model is part of our political DNA. Someone who earns at the additional rate of £3,000 of taxable income per week is clearly in that category. Only a handful of people who earn that kind of money reside in my constituency. We therefore support the maintenance of the current 50p additional rate.

As I made clear in my speech on Second Reading on Monday, my opposition to this tax cut is on the record, as I voted against it during the Budget votes last month. The income tax rates for 2013-14 were one of the founding resolutions of the Budget, and offer very little scope for change today. My amendment 6, which would mean that the additional rate would be 50%, appears on the amendment paper but was not selected.

Hon. Members can therefore imagine my surprise that the official Opposition did not join my colleagues from a variety of smaller parties in opposing this measure on 26 March. That was the vote against a cut in the additional rate, but the Labour party unfortunately abstained, apart from two honourable exceptions. The hon. Member for Leeds West (Rachel Reeves) representing the official Opposition kindly allowed me to intervene on her during the debate on Monday. I asked her to confirm whether this was a deliberate or a tactical abstention. Her response was that the Opposition had voted against the whole Finance Bill and that was sufficient.

The hon. Lady’s answer would have been a semi-appropriate response, were it not for the fact that, if my memory serves me well, her party divided the House on resolution No. 8 on higher income benefit. Clearly, some resolutions were more important than others that evening.