Tax Fairness

David Gauke Excerpts

Tuesday 12th March 2013 Commons Chamber

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

I beg to move an amendment, to leave out from “House” to the end of the Question and add:

‘notes that this Coalition Government has cut income tax for 25 million people, taking over 2.2 million low income individuals out of income tax altogether, while at the same time increasing taxes on the wealthy, including raising stamp duty on expensive properties and restricting tax reliefs; further notes that both parts of the Coalition continue to support tax cuts for people on low and middle incomes; notes that the part of the Coalition led by the Deputy Prime Minister also advocates a mansion tax on properties worth more than £2 million, as set out in his party’s manifesto, and the part of the Coalition led by the Prime Minister does not advocate a mansion tax; and further notes that the top rate of income tax will be higher under this Government than under any year of the previous administration and that the rich are now paying a higher percentage of income tax than at any time under the previous administration, demonstrating that it presided over an unfair tax system where the rich paid less and the poor paid more in tax than now, meaning nobody will trust the Opposition’s promises on tax fairness.’.

After listening to the speech of the hon. Member for Nottingham East (Chris Leslie), we might have thought that it was the last Labour Government who increased stamp duty land tax to 7% on residential properties costing £2 million or more. We might have thought it was Labour that introduced a 15% rate of stamp duty for properties owned through a corporate vehicle. We might have thought that it was the last Government who imposed a cap on reliefs, limiting the extent to which the wealthy can drive down their tax rate, and we might have thought it was the last Government who deployed more resources to Her Majesty’s Revenue and Customs to tackle evasion and avoidance, and closed down loopholes such as disguised remuneration that cost the Exchequer nearly £1 billion a year.

We might also have thought that the Labour Government had introduced the 50p rate of income tax in their first Budget, not their 13th. We might have thought it was the Labour Government who had taken more than 2 million low-paid earners out of income tax by raising the personal allowance.

Whatever the differences that may exist on the Government Benches, and there are differences on this matter, one thing is very clear: the Opposition are in no position to lecture the two parties on the Government Benches about how to put in place a fair tax system that provides support to working people and taxes the wealthy effectively.

[Alex Cunningham (Stockton North) (Lab)]

At Treasury questions, one of the Minister’s colleagues said that the Government are focused on the causes of poverty. Can the Minister tell me how many of his millionaire friends getting a huge tax cut this year are actually pleading poverty?

[Mr Gauke]

In the last Budget package we increased taxes on the wealthy—higher rates of stamp duty, closing loopholes and putting a cap on reliefs. That is getting far more money from the wealthiest than a 50p rate that failed to do what income tax is supposed to do, which is raise funds to pay for public services. It did not do that.

[Stewart Hosie (Dundee East) (SNP)]

One of the reliefs that has been reduced is on 40p tax, which went down from £37,000 to £34,000 and then to £32,000 this year. The Minister has squeezed the genuine middle class—the people earning just over £40,000—not the £400,000 a year middle class. That bit of cynicism will never be forgotten by those people.

[Mr Gauke]

I am afraid the hon. Gentleman is wrong. People earning just over £40,000 have seen tax cuts and a reduction in the total amount of income tax they pay, because the personal allowance has increased to more than compensate them. The higher-rate threshold has not increased as it might have done, because higher-rate taxpayers would gain more from the personal allowance than basic rate tax payers. Someone on between £40,000 and £44,000 a year is paying less income tax as a consequence of the Government’s policies than they would have done otherwise.

[Geraint Davies]

Will the Minister take this opportunity to confess that the reason why the Treasury predicts less will be generated by the 50p rate in the one year of its operation than the 45p rate is that he knows, as I do, that millionaires can move their money between tax years? As the rate only runs for one year, they will move their money to the lower tax year. He would raise more money if he kept the 50p going. It is a con for his mates.

[Mr Gauke]

There are two points. It is correct that the wealthy are often able to move income from one year to another, but the conclusion that HMRC and the Office for Budget Responsibility reached is that even taking into account the forestalling effect, the behavioural consequences of the 50p rate were so significant that it barely raised any revenue. That is the reality. It even takes into account the hon. Gentleman’s point about forestalling. That approach has been confirmed by the OBR. The 50p rate failed.

[Anas Sarwar (Glasgow Central) (Lab)]

The message that the Government have repeated over and over again is that we are all in this together. Take the example of families in my constituency who live just one mile apart. One has been handed a tax cut as a result of the scrapping of the 50p tax rate. One mile in the other direction families will be handed a food parcel. Does the Minister think that is fair?

[Mr Gauke]

Let us look at what was in the last Budget in respect of stamp duty and the cap on reliefs. We could also look at what we have done with regard to capital gains tax. The independent Institute for Fiscal Studies has made it clear that the top 20% are affected most by the fiscal consolidation policies that have been pursued in this Parliament. Those with broadest shoulders are bearing the greatest burden. However, we have an enormous deficit that we have to get down—a deficit that we inherited from the Opposition.

[Mel Stride (Central Devon) (Con)]

Will my hon. Friend confirm that the highest rate of income tax currently under this Government is higher than was the case in the previous Government’s 13 years, all bar the last couple of weeks?

[Mr Gauke]

My hon. Friend is right. The Labour Government were in office for 4,758 days. For all but 36 of those days, the highest rate of income tax was at 40p. Then it moved to 50p. There is a good question to ask the Opposition about why they kept it at 40p for so long. Why did they leave it until the fag-end of their Government, when it was clear that they would not be in government any more? The reason is that the 50p rate, predictably enough, did not do what it was supposed to do. It did not raise revenue, and an income tax that does not raise revenue is not something that a sensible Government would persevere with.

I turn to the mansion tax.

[Geraint Davies]

Will the Minister give way?

[Mr Gauke]

No. I shall make a little progress, devastating though the hon. Gentleman’s interventions so often are.

We have always been quite clear that the proposed mansion tax is an issue on which the two parties in the coalition have differing views. Our Liberal Democrat colleagues have supported the principle for some time. I am sure that the Under-Secretary of State for Communities and Local Government, my right hon. Friend the Member for Bath (Mr Foster) will make that clear when he winds up the debate. In contrast, Conservative Ministers have very real concerns over such a proposal. We have concerns that a third of the properties in London worth more than £2 million have been in the same ownership for over 10 years, and that a mansion tax could hit asset-rich but potentially income-poor households, a point made by my hon. Friend the Member for Battersea (Jane Ellison).

[Dame Angela Watkinson]

My hon. Friend will know that £2 million does not buy a mansion in London, and certainly not in outer London, where I have a number of constituents who moved out from inner London decades ago. Their homes have increased in value beyond their wildest dreams over a very long period, but they are in fact cash-poor, quite often living on a modest pension. The thought of paying very large amounts of tax every year for the privilege of owning a home that they have had for many years would be extremely frightening. Can the Minister think of any practical way that an elderly person in that position could possibly pay that tax?

[Mr Gauke]

I noticed that that very point was one that the hon. Member for Nottingham East seemed to struggling with. He seemed to suggest that there were ways in which the Opposition would address that. I am not sure whether that was included in the costings they have produced. There is an issue for the asset-rich, cash-poor which would need to be addressed in the design and would obviously have an impact on the costing.

[Sheila Gilmore (Edinburgh East) (Lab)]

Would the Minister suggest to people in those circumstances that they might want to take a lodger, just as it has been suggested to my 60-year-old constituent that the answer to the bedroom tax is to take a lodger?

[Mr Gauke]

I am not going to debate at length the spare-room subsidy, which is an area of public spending constraint that we need to engage in. There is a genuine issue in respect of the asset-rich, cash-poor that the hon. Member for Nottingham East appeared to recognise and which would have to be addressed.

The mansion tax would be administratively burdensome for HMRC to operate, not to mention intrusive for the person having their home inspected. We would have concerns that in Labour’s hands, the starting level for such a tax would not stay at £2 million for very long. What began as a mansion tax would soon become a homes tax. To coin a phrase, it would become a tax for the many, not for the few.

[Chris Leslie]

I am surprised the Minister thinks that “the many” own properties worth £2 million and above. I wanted to ask him about the Treasury’s own proposition that residential properties of £2 million and above, albeit owned by a company, should have an annual charge based on a self-assessed valuation, with a banding process. Is he saying that his own policy is administratively burdensome?

[Mr Gauke]

Let us be clear. One of the weaknesses in the tax system that we inherited was the fact that people were able to walk around the paying of stamp duty. On very valuable properties, it was all too easy for people to arrange their affairs thorough corporate vehicles and not pay stamp duty. In the last Budget this Government introduced measures that will deal with that enveloping and deal with one of the unfairnesses in our tax system. One of the ways in which we are going to do that, as well as a high stamp duty charge for properties held in corporate vehicles, is to bring in an annual residential property tax. That is focused only on properties worth more than £2 million held by a corporate vehicle. It would apply to only 6,000 properties, we estimate. It is a very narrowly focused policy that will enable us to deal with an area of avoidance that was allowed to carry on for far too long under Labour.

[Caroline Lucas]

As a tax that is much harder to evade or avoid, there is the land value tax. That is supported by one half of the coalition and by the OECD and the IMF. The IFS has said that the case for a land value tax is overwhelming because it is much fairer. Given that that is the case, can the Minister explain why his Government will not even do some basic research into it, as my private Member’s Bill requested?

[Mr Gauke]

We are left with the same issues of complexity of valuation across the board, and the issues of the asset-rich, cash poor. That is why my part of the coalition is not keen to proceed with that matter, but it is worth pointing out that we are raising more money from property. There is a stamp duty land tax of 7% on residential properties costing £2 million or more, a policy that is easy to administer and will not impact on existing home owners.

On the mansion tax, we have made no secret of the fact that the two parties disagree. If we did not disagree on some things, we would be one party, not two. But in the circumstances that we are in, it has been perfectly possible for two parties to work together in a sensible and mature way and to reach agreement on a host of measures that have made our tax system fairer, easier to understand and competitive. We heard much from the hon. Member for Nottingham East to the effect that we should do more to help low-income workers. May I just remind him and the House of the progress that we have made in raising the personal allowance? In 2010, someone on £6,500 was paying income tax at 20%. From next month, someone has to earn £9,440 before paying any income tax at all. Our measures on the personal allowance have provided a huge tax cut for millions of people and will take more than 2.2 million of the lowest earners out of income tax altogether. In fact, over the course of this Parliament, someone working full time on the national minimum wage will have seen their income tax bill cut in half.

Let us contrast our record with that of our predecessors. Let us remember that when the right hon. and absent Member for Kirkcaldy and Cowdenbeath (Mr Brown) did his last Budget, rather than cut taxes for the working poor, he increased them. People talk about the scrapping of the 10p rate, but Labour did not scrap it, they doubled it. They turned it into a 20p rate. For example, someone earning £9,000 a year in 2007 would have heard a Labour Chancellor stand up and announce that a Labour Government were going to increase their income tax bill by more than £200. Last year, someone on £9,000 a year would have heard a Conservative Chancellor stand up and announce that a coalition Government were going to take them out of income tax altogether. Our constituents on £9,000 a year will soon be paying no income tax at all, saving more than £500 since the coalition came to power. Labour turned a 10p rate of income tax into a 20p rate. This coalition has turned a 20p rate into a 0p rate.

[Mr Russell Brown (Dumfries and Galloway) (Lab)]

Will the Minister remind the House what he did with the personal allowance for pensioners? Am I not correct in saying that he froze that?

[Mr Gauke]

There is no particularly sensible reason why there should be a different personal allowance for someone who is 64, compared with 65 or 75. It is clearly a simpler and, I believe, fairer system that one personal allowance should apply to everybody. That was never an option available to the Labour party because the main personal allowance for someone under the age of 65 was so low. We have been able to increase it substantially so that one personal allowance can apply to everybody. That is a simpler and fairer way to deal with that issue. At the same time, we have increased pensions, thanks to the triple lock guarantee, by much more than we would have done if we had stuck with the plans that we inherited. Last year, pensioners saw their biggest increase in the state pension.

[Mr Gibb]

While my hon. Friend is on the subject of the last Labour Government, he will recall that in 2009-10, the last financial year of the last Labour Government, expenditure exceeded income by £159 billion, equal to 11% of the whole country’s income. Since he has been a Minister at the Treasury, have civil servants explained to him why that was allowed to happen, virtually bankrupting this country?

[Mr Gauke]

My hon. Friend makes a very good point. There is no explanation that civil servants can give for that. An explanation and an apology are due from the Opposition, but we await either of those. I think that they persist in the view that there was no structural deficit even before the crash—

[Chris Leslie]

rose—

[Mr Gauke]

If we are to have confirmation that there was a structural deficit before the financial crash, I will happily give way to the hon. Gentleman.

[Chris Leslie]

There was certainly a global financial crisis. But can the Minister confirm that under the current Chancellor of the Exchequer, national debt has risen from £811 billion to £1.111 trillion? Has debt risen by that much—yes or no?

[Mr Gauke]

Debt is the accumulation of deficits. We inherited the largest deficit in our peacetime history, and every measure that we have taken to reduce that deficit the Opposition have opposed, and then they complain that debt is rising. That is the most absurd position. We are criticised for not borrowing enough, and then we are criticised for our debt going up. There is no consistency or credibility in the Opposition’s position, just as there was no credibility or consistency in their treatment of low-paid workers. In government, they raised the rate of income tax; in opposition, they make promises that they will cut it. When we remember the reality, why should those on low incomes ever trust Labour again?

[Mr Alan Reid (Argyll and Bute) (LD)]

In fairness of taxation, another area where this Government have done a great job is on fuel duty. The fuel duty is now 10p a litre lower on the mainland and 15p a litre lower on islands than it would have been if the Labour party had still been in power. I hope that my hon. Friend will continue that good work and that in the Budget there will be an announcement that the September fuel duty increase inherited from Labour will not go ahead.

[Mr Gauke]

I will take that as a Budget representation. It is perhaps worth pointing out that there was a measure that the previous Labour Government had to reduce the deficit, which was substantial increases in fuel duty over the course of this Parliament. That is a measure that we have been able to stop, and quite right too.

[Debbie Abrahams (Oldham East and Saddleworth) (Lab)]

Will the Minister explain why four out of five people feel that austerity is not working? Is it related to the downgrading of the economy yet again for 2013? Is it the shrinking of the economy in the last quarter of last year by 0.9%? Or is it that the OBR had to call the Prime Minister to task and give him an economics lesson?

[Mr Gauke]

This is a difficult time for all major economies, and the UK is no exception, but matters would be much worse if we were to abandon our desire to bring some control to the public finances. We must ensure that there is the political will to deal with the public finances, and that is what this Government will continue to demonstrate. The approach of ignoring the deficit, believing that this is all an issue that can be addressed at some future time, is economically irresponsible and unfair on future generations who will face the bill that they will have to pick up because we failed to address those problems now.

[Geraint Davies]

Is this not also about fairness? For instance, while the threshold changes that he has mentioned of £3,000, which deliver a saving of £11.50 a week to taxpayers, cost £9 billion, he will save half a billion pounds from inflicting that £11.50 on people for the empty bedroom tax. With a small amount of the money used to raise the tax threshold, he could have alleviated that for the very poorest. Is not this about values and not inflicting the most hardship on the most poor while giving a bung to the voters?

[Mr Gauke]

I take it from what the hon. Gentleman says that rather than raise the personal allowance, he would prefer us to spend more on the welfare bill. If that is the hon. Gentleman’s position, fair enough, but I do not agree. Raising the personal allowance, taking people out of income tax, and making sure that work pays, are all things that a sensible Government should do, and I am delighted that this coalition Government are able to do that.

I come now to the taxation of those on highest incomes, on which we have already touched. The top 1% of taxpayers, those with incomes of over £150,000 a year, will pay more than a quarter of all income tax, while the top 5% of taxpayers, those with income of £68,000 or more, will pay nearly half of income tax. We agree that it is important that we create a tax system that ensures that those who earn the most contribute the most, but it is also important that we create a tax system that works. Among other things, that means a tax system that does not damage our economy by undermining our international competitiveness.

The Government inherited a top rate of tax at 50p, a rate that our predecessors, who this afternoon have painted themselves as the party of taxing the rich more, had put in place for just 36 of their 4,758 days in power. The rate that they left us with was the highest top rate among major economies. The last Labour Chancellor had made it clear that it was temporary. It was also very clear that it was having an immediate impact on our competitiveness.

Let me say something that I hope is not controversial: the principal purpose of income tax is to raise revenue. So we commissioned HMRC to analyse just how effective the 50p rate was in raising revenue.

That HMRC report, laid before the House, set out thorough and compelling evidence on the impact of the 50p rate. It showed that the rate was uncompetitive, distortive and inefficient. Not only did it not raise much revenue, but it could even have cost the Exchequer money when the indirect impacts on other taxes were taken into account. This Government were not prepared to maintain a rate of income tax that was both ineffective at raising money and that left us with the highest statutory rate of income tax in the G20, so we acted, in the interests of the country, and the top rate of tax will fall to 45p from April this year. This will see our top rate of tax drop below that of Australia, Germany, Japan and Canada, which will send a signal to businesses taking decisions on investment and location that the UK is a competitive environment.

[Rehman Chishti (Gillingham and Rainham) (Con)]

Has the Minister seen the KPMG report that states that Britain’s competitiveness is better than that of Switzerland and the United States and that that is a consequence of the measures taken by the Government?

[Mr Gauke]

My hon. Friend is absolutely right to raise that point in the context of the changes we have made to our corporate tax system. In 2009 KPMG commissioned a survey of tax professionals, asking them to name the three most competitive countries. The UK was nominated by just 16% of respondents. In 2012 KPMG undertook the same survey and the UK was nominated by 72% of respondents. That is a dramatic change, which we are proud of, and it will help our economy grow. We have also had the courage to reduce the 50p rate, which will help our competitiveness, too.

[Andrew George (St Ives) (LD)]

One thing we do know is that mansions cannot emigrate if the tax rate goes up. Earlier my hon. Friend the Minister said that the problem with the mansion tax is that it becomes a home tax. Does he agree that the council tax is also a home tax, and may I understand from what he has been saying that the Conservatives are coming round to the Liberal Democrat view that we should consider introducing a local income tax as an alternative for financing local authorities?

[Mr Gauke]

No, I think my hon. Friend would be wrong to reach that conclusion from what I have said. There is an interesting debate on the balance between property and income taxes, however, and I note his suggestion in that context.

May I now return to the topic of the 50p rate, as I know the hon. Member for Nottingham East likes to focus on it? The Opposition may think that in this day and age 50p is the least the wealthy should pay in income tax. I want to put to them the question raised earlier by my hon. Friend the Member for West Worcestershire (Harriett Baldwin). In less than four weeks the 50p rate will have gone. The additional rate will be 45p. Will Labour seek to reverse that? I am happy to take an intervention on this point. Will Labour seek to reverse that after the next election?

[Chris Leslie]

The Minister is asking the Opposition what is going to happen in two years’ time, but can he tell us what will happen in next week’s Budget?

[Mr Gauke]

That is very amusing, but of course I am not going to do so. I am fairly confident, however, that at the next general election the Conservative party will not be advocating a 50p rate of income tax. The hon. Gentleman is calling for a 50p rate of income tax, however. He will not tell us why. He is now saying, “Well, we don’t know what the economic circumstances will be.” That is fair enough, but does he think that his party will make a manifesto commitment at the next general election to introduce a mansions tax? Is that a commitment? I am happy to give way again.

[Chris Leslie]

It is very simple: now, in 2013, we can see the deficit rising and getting worse and we can see borrowing increasing, growth flat-lining and living standards falling, and the Minister is asking us to predict what we are going to do in two years’ time. How on earth do we know what other horrors are in next week’s Budget box or, heaven forfend, in the spending review of 26 June? Can he tell us what is in that spending review?

[Mr Gauke]

This is starting to get interesting, because we have now learned that the Labour party has moved a motion trying to persuade Liberal Democrats to vote in support of a mansion tax, yet Labour will not confirm whether it thinks a mansion tax is a sensible policy for the next Parliament. The position of the Liberal Democrats is clear and the position of the Conservatives is clear; what is not clear is whether the Labour party, after all, supports a mansion tax. Will it be in its manifesto? That is a perfectly clear question.

[Debbie Abrahams]

rose—

[Mr Gauke]

I will give way to the hon. Lady, and she can tell us whether she thinks that ought to be in the manifesto.

[Debbie Abrahams]

The Minister is being very generous in giving way, but I want to ask him what his Government are doing. I tabled a written parliamentary question to his Department asking about the average tax rates for different groups of people, and he may be astounded to know—as I am sure many of my constituents in Oldham will be—that 6% of people on incomes over £10 million pay under 10% income tax. What is he doing to address that inequity?

[Mr Gauke]

That is exactly why in the last Budget this Government brought in a cap on reliefs preventing the wealthy from driving down their tax rate to such levels—something the Labour party never did in 13 years in government. I note, however, that I get no answers to my question.

Let us be clear: we hear lots of complaints about the 50p rate being reduced to 45p, but we get no indication as to whether the Labour party would or would not reverse that if it were to win the next election. I can only assume that that is because deep down it knows that campaigning on 50p might look good on a leaflet but is lousy for the economy; after all, that seemed to be Labour’s approach when it was in government. We have also learned this afternoon that the Labour party is not committed to a mansion tax in the next Parliament, after all. So what do we have? We have opportunism on the 50p rate and opportunism on the mansion tax.

[Several hon. Members]

rose—

[Mr Gauke]

I am going to press on.

This is what we have seen from the Labour party, therefore: we have a party that increases the tax rates on the low-paid and then lectures a Government who take the low-paid out of income tax; we have a party that is in uproar at our reducing the additional rate of income tax to 45p but that will not promise to reverse it; and we have a party that did little, or nothing, to tax expensive properties more now being converted to a mansion tax for the purposes of this afternoon’s vote for transparently political reasons, but refusing to confirm that it will be their policy at the next election. That is pathetic. It is insincere, it lacks any semblance of credibility, and it deserves to be defeated. I urge my hon. Friends to defeat the motion and support the amendment.

[Several hon. Members]

rose—

Double Taxation Agreement (UK and the People's Republic of China)

David Gauke Excerpts

Monday 4th March 2013 Written Statements

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

A protocol amending the double taxation agreement with the People’s Republic of China was signed on 27 February 2013. The text of the protocol has been deposited in the Libraries of both Houses and is available on HM Revenue and Customs’ website. The text will be scheduled to a draft Order in Council and laid before the House of Commons in due course.

Finance Bill 2013

David Gauke Excerpts

Thursday 7th February 2013 Written Statements

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

The Finance Bill will be published on Thursday 28 March.

Explanatory notes on the Bill will be available in the Vote Office and the Printed Paper Office and placed in the Libraries of both Houses on that day. Copies of the explanatory notes will be available on the Treasury’s website.

Tax Transparency (FTSE 100)

David Gauke Excerpts

Wednesday 6th February 2013 Westminster Hall

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

It is a great pleasure to serve under your chairmanship, Mr Betts. I congratulate my hon. Friend the Member for Stevenage (Stephen McPartland) on securing this debate and setting out his case so clearly. In recent months, he has shown great tenacity on the issue, including by raising it on the Floor of the House a few weeks ago.

I want again to put on the record the Government’s view that companies must pay tax in accordance with the law, and it is crucial that they are seen to do so. Many businesses help their cause by releasing data or other information relating to their tax payments, and I very much welcome greater transparency from businesses about their tax affairs. As a Minister, I have said for some years that businesses need to do much more to explain the taxes that they pay and how they comply with their obligations. Such transparency can go a long way towards building greater trust between them and their customers, and might end up having commercial benefits.

Of course, Her Majesty’s Revenue and Customs, as the tax collector in the UK, has a statutory duty of confidentiality that protects the tax affairs of all taxpayers, and it is important that it continues to honour that duty. I make that point because that is one of the reasons why it is difficult for Ministers to engage in individual cases, some of which have been very high profile, because we do not of course see any information that is not in the public domain.

I want to focus on what we in this country can do to assist developing countries in collecting the tax that is due, which is at the heart of my hon. Friend’s concerns. We are committed to supporting developing countries to access sustainable sources of revenue, while balancing action in this area against costs to Government and industry. To achieve that, our priorities, which I will set out before turning to my hon. Friend’s specific questions, are capacity building; improving exchange of tax information and assisting developing countries in accessing the benefits from that; and increasing transparency, particularly in the extractives sector, to address corruption.

On capacity building, it is of course up to individual jurisdictions to make decisions on how best to run their tax systems, but the Government are committed to supporting developing countries to access sustainable sources of revenue and to collect the tax that is due. The most effective way of doing that is to provide the technical support to their tax administrations that will help them maintain sustainable domestic taxation systems.

The Government’s work with the Ethiopian Revenues and Customs Authority, for example, has helped strengthen the accountability and efficiency of revenue collection in Ethiopia. As a result, tax collection in Ethiopia in 2011 was seven times higher than it was in 2002. Furthermore, Ethiopian customs clearance times for low-risk imports have been reduced from seven days to 10 minutes. The UK will also continue to work with international organisations such as the African tax administration forum, the World Bank and the OECD to support other capacity-building projects in developing countries.

There is increasing recognition that strong institutions are important for a country’s development. In the light of that recognition, the success or otherwise of the revenue-raising authorities in a developing country is absolutely crucial. We want to do everything we can to assist them.

[Stephen McPartland]

The Minister will be delighted to know that many FTSE 100 companies see capacity building, revenue building and the secondment of HMRC civil servants to developing countries as positive steps towards helping create that tax base. Many have offered to help, so I would be delighted to pass on those names to him.

[Mr Gauke]

I am grateful for my hon. Friend’s constructive point. It is recognised that effective tax authorities are important. That feeds into political benefits as well, because a broad base of revenue raising will result in stronger political institutions that will be held accountable by the people of that developing country. I welcome his remarks and I know that he welcomes the measures that we are taking in this area.

Related to strengthening capacity building is ensuring that information is available to tax authorities around the world. The international tax transparency agenda, and the tax information exchange in particular, is a key tool in tackling offshore tax evasion, and we are actively promoting that agenda. Through the G20, we are providing leadership and direction in increasing tax transparency and the exchange of tax information. Through the global forum on tax transparency, we are ensuring that jurisdictions meet the international standard on tax transparency. Through the expansion of the multilateral convention on mutual administrative assistance to more jurisdictions, we are providing a mechanism to access the benefits of tax transparency, which is particularly suited to developing countries. Furthermore, our direct assistance to Ghana ensured that it was in a position to join the convention and access the benefits of exchange of information, and we look to build on that. I am confident that the sensible, considered conversations that we are having internationally, and the exchanges of information coming from them, will have a real impact on the overall tax landscape.

Extractive industries is the third area of international action that I want to highlight. This sector and the fears of corruption in it are of great concern to not only this debate, but the wider global community. My hon. Friend will therefore be pleased to hear that we are committed to greater extractives transparency through the accounting directive, which addresses civil society accountability without imposing unnecessary burdens on business. Not only do we support EU proposals to improve transparency in the extractives and forestry sectors, but we have extensively consulted representatives from civil society groups and industry to reach a position of reporting in greater detail that is proportionate with existing burdens upon industry.

I want to address my hon. Friend’s concerns about country-by-country reporting, which is a somewhat broader approach than the one that we have been taking on extractives and forestry. The country-by-country reporting model is currently being considered in the proposed amendments to the EU accounting and transparency directives. The UK supports EU requirements for extractives companies to ensure that they disclose the payments that they make to Governments—as I said, corruption is a particular concern in this sector—and that proposal will have an immediate impact on reducing potential corruption by allowing citizens of resource-rich countries to hold their Governments to account for their use of the extractives revenue received. However, we are not yet convinced of the merits of the wider model of country-by-country reporting proposed by some and neither is the OECD. We do not believe that the case has been made in terms of the costs and benefits of extending the proposals for EU mandatory requirements to report payments to Governments beyond the extractives sector and forestry. We will of course keep the matter under review, and it will be interesting to see how the experience of greater extractives transparency plays out.

On profit shifting, there are international concerns over whether the current international tax rules manage properly to capture the profits generated by multinational companies. It is an issue that all countries face, and we need to work together to develop the appropriate solutions. As with most major economies, the tax system in the UK is based on the internationally agreed OECD guidelines that mean that a multinational company pays corporation tax where it carries out the economic activity that generates its profits and not on its sales. We have already reaffirmed our support for the OECD work to address profit shifting by multinationals and erosion of the corporate tax base at the global level. At the G20 meeting of Finance Ministers last November, the Chancellor of the Exchequer issued a joint statement with his German equivalent calling for concerted international co-operation to strengthen international tax standards as a first step to promoting a better way of dealing with profit shifting and base erosion of corporate tax at the global level. To back that up, the UK, alongside France and Germany, has offered additional resources to the OECD to speed up progress. We will hear of that progress at the G20 meeting later this month.

My hon. Friend asked specifically what we are doing in the UK on the matter. The problem is essentially international, because the UK complies with the OECD rules, as do all other major economies. We are, however, strengthening HMRC’s capacity in the area. In the autumn statement last year, additional funding for HMRC was announced, much of which is to be focused on strengthening the transfer pricing capacity of HMRC, challenging multinationals to ensure that their arrangements are compliant with the rules that currently exist, and ensuring that tax is paid in the jurisdiction where economic activity occurs. I do not want to be drawn into individual cases, but it is clearly not acceptable for multinationals artificially to inflate the costs apparently incurred in a low-tax jurisdiction, resulting in tax not being paid on profits that should, in truth, be attributed to other jurisdictions. We are determined to give HMRC the capacity to deal with that. It is worth pointing out that HMRC’s activity on transfer pricing over the past four years, for example, has brought in some £4.1 billion. Last month, I visited one of the transfer pricing teams in HMRC and we should recognise the good work that is being done, but we want to build on that, which is why we are strengthening HMRC’s capability in this area, which my hon. Friend will support.

I hope that the Government’s actions, both domestically and internationally, also have my hon. Friend’s support. We have taken steps to address concerns and we are clearly moving to a climate of greater international tax transparency. The Government do not necessarily accept all the numbers that are cited on the loss to developing countries, but we want to strengthen developing countries’ capacity, and we are at the forefront of ensuring that we do precisely that.

HM Revenue and Customs

David Gauke Excerpts

Tuesday 5th February 2013 Westminster Hall

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

It is a pleasure to serve under your chairmanship, Mr Howarth, and to respond to the debate. I congratulate the hon. Member for Hayes and Harlington (John McDonnell) on securing it. He has taken a close interest in HMRC funding over a number of years. Although I did not agree with everything he said, I commend him for his consistency and the non-partisan way in which he has pursued this issue over many years with a willingness to criticise Governments of both descriptions.

Time may be short, but before addressing the points raised today, it will be helpful to set out some context by discussing the history of the resources available to HMRC over recent years and the results that it has managed to achieve with those resources.

As hon. Members will know, HMRC was formed a little under eight years ago by the merger of Customs and Excise and the Inland Revenue. At that time, it was made up of around 100,000 staff. The previous Government sought efficiencies and, as a result, staff numbers fell by around 25,000 between 2005 and 2010. As part of that process, the number of staff engaged in compliance work also fell each year, and by 2010, about 10,000 staff had been lost in those important revenue-raising areas.

In 2010, as part of this Government’s first spending review, it was crucial that we recognised the dual role that HMRC would play in contributing to deficit reduction, through both cost reductions and, more significantly, collecting additional revenue by tackling tax avoidance and evasion—a point that several hon. Members raised this morning. Our priority was to ensure that HMRC delivered a service that would provide the best possible value for money to taxpayers. Consequently, we required HMRC to make 25% efficiencies to reduce its costs. We then agreed to reinvest a proportion of those efficiencies to tackle avoidance and evasion. The result was a net impact of overall savings over the spending review period of about 16% and a net reduction in overall staff numbers of about 10,000. I say “net” because in that figure is an actual increase of about 2,500 in the number of staff HMRC deployed on its compliance activities over the period.

[John McDonnell]

The Minister mentioned the impact. One of the points made by PCS, ARC and the ICAEW is that the impact assessments religiously fail properly to assess not only the implications for staff, but the cost to business and taxpayers overall. Will the Minister look at, and perhaps consult on, how such impact assessments are undertaken and how they can be improved?

[Mr Gauke]

I will indeed. I understand that the NAO will publish a report tomorrow on cost savings in HMRC and the way in which HMRC has proceeded. Time prevents me from running through in detail all the areas in which there have been savings, but it is worth pointing out that there have been significant savings of £74 million in the price paid for IT equipment and services, and savings in estate costs through vacating buildings. It is important that HMRC seeks savings, but it is also important that we raise the revenue. A number of hon. Members mentioned the tax gap.

[Ian Swales]

Will the Minister give way?

--- Later in debate ---

[Mr Gauke]

I will give way, but I have a lot of material and a very short time.

[Ian Swales]

It is a very important point. The Minister said that HMRC was required to lose 25% of staff. Was an assessment made of the tax that would be lost as a result, or was taking 25% of people out deemed to be tax neutral?

[Mr Gauke]

We ought to be clear about this and look at outputs rather than inputs. As it happens, the number of staff working in compliance and enforcement is going up under this Government—a reversal of what happened under the previous Government. Although we think that it is right to seek savings and efficiencies—if we can spend less on IT and less on estates, that is surely sensible—we also want to do more to raise revenue.

The reinvestment of efficiencies involves £917 million over the spending review period, and, in return, HMRC has agreed to bring in an extra £7 billion of tax every year to 2015. That means that, cumulatively, over the spending review period, HMRC will bring in about £20 billion of additional revenues, and an additional £7 billion every year thereafter. Additional revenues will come from a range of initiatives, including: increasing the number of criminal prosecutions fivefold; cracking down further on offshore evasion; and extending HMRC’s coverage of businesses, focused on providing resources to tackle high-risk areas.

HMRC results have shown that it can deliver the additional yield. As the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) noted, in 2011-12, it delivered £16.6 billion against its targeted increased yield of £15 billion, and is on course to deliver an additional £17 billion this year. In the light of that record of success, it was decided that we would exempt HMRC from cuts imposed on other Departments in the 2012 autumn statement. Instead, we made the decision to invest in HMRC in two separate ways.

First, we made a further, new £77 million of investment in HMRC to increase its efforts to tackle tax avoidance and evasion, through improving HMRC’s computerised risking systems; further strengthening the risk assessment capability across the large business sector; increasing the attention given to offshore evasion and avoidance, and—probably of most interest to hon. Members here—increasing the staff employed to target avoidance and evasion by the wealthy.

Secondly, in the autumn statement, we invested a further amount, totalling £77 million, to accelerate HMRC’s debt collection activities and bring in about £1 billion in tax over the period; to reduce tax credit error and fraud and reduce losses by about £0.5 billion; and to expand HMRC’s digital service to its customers, which will include help to small businesses as part of our initiatives to introduce growth into the small and medium-sized enterprise sector. My hon. Friend the Member for Cities of London and Westminster (Mark Field) is right when he says that we want to do everything we can to ensure that the burden on small businesses can be reduced and that it is easier to deal with HMRC.

Taken as a whole, the investment package will mean that HMRC will collect an additional £2 billion in 2014-15. That is over and above the £7 billion in additional revenue that HMRC will collect in that year as a result of the spending review settlement in 2010. On top of that, our investment in digital will allow HMRC to offer a modernised service to customers, while working more efficiently.

The Government have recognised the crucial role that HMRC has played, and will continue to play, in helping to manage the deficit we inherited. It is bringing in more additional revenues than ever before, and that is not the only area where HMRC is delivering well. The latest performance figures, from December 2012, show that post handling in local offices is the best it has been since HMRC was formed, with about 90% cleared within 15 days of receipt in recent months. The hon. Member for Newcastle upon Tyne North highlighted press reports saying that 100,000 items of post have not been dealt with, but that must be put in the context of HMRC’s receiving 200,000 items of post every week. We are talking about post that has by and large arrived in the past two or three days.

HMRC’s self-assessment filing system is a clear success: 92.9% of self-assessment tax returns for 2011-12 were filed on time this year—the best result since HMRC was created—and 82.5% of those returns were filed online, which is a new record. We are all aware of the difficulties that HMRC faced a few years ago in handling the fallout from the new computer system, but such difficulties are now behind it and it is on track to bring PAYE up to date by March 2013. We are also taking steps to improve automation.

I would like to say more, but it is sadly not possible to do so today in the time available. I apologise to hon. Members for not being able to address every question that has been asked. We appreciate what the taxpayer wants from HMRC. We want to raise revenue and reduce the tax gap. We are giving HMRC the resources to do precisely that. I will continue to work with HMRC to ensure that it continues to provide the best possible value for money for the taxpaying public.

Finance Bill 2013 (Draft Legislation)

David Gauke Excerpts

Thursday 31st January 2013 Written Statements

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

The Government are today publishing draft legislation for inclusion in Finance Bill 2013, in addition to that published on 11 December. The draft legislation will be open for technical consultation as detailed below.

Details of the clauses and explanatory notes published today are available on both the HM Treasury and HM Revenue and Customs website.

Annual Residential Property Tax

At Budget 2012, the Government announced changes to stamp duty land tax (SDLT) and the introduction of an annual residential property tax (ARPT) to ensure the fair taxation of residential property transactions. Changes to the scope of the ARPT and higher rate of SDLT were announced at autumn statement 2012.

The draft legislation published today provides further detail about the ARPT. This legislation includes some additional clauses promised in December and clarification of the reliefs intended to exempt genuine commercial activities from the charge. Revised draft legislation to provide equivalent reliefs from the higher rate of SDLT is also published today. The Government continue to consider the responses to the current consultation on the draft legislation already published.

The technical consultation on this draft legislation will be open for comments until Friday 22 February.

Capital Gains Tax

Related to the measures above, Budget 2012 introduced a capital gains tax charge on non-resident non-natural persons which dispose of UK residential property that is worth more than £2 million. The charge will apply to gains on disposals on or after 6 April 2013. Increases in the value of property before 6 April 2013 will not be subject to capital gains tax under this measure. Liability to capital gains tax will be closely aligned with liability to the ARPT on the property disposed of.

Following consultation, the Government have decided that, for consistency, capital gains tax will also apply to non-natural persons that are resident in the UK in respect of gains built up on or after 6 April 2013.

The draft legislation published today therefore contains provisions that include UK resident companies within the scope of the charge. The draft legislation provides that corporation tax will apply to the part of any gain built up before 6 April 2013, with the new capital gains tax charge applying only to the gain built up on or after 6 April 2013.

The technical consultation on this draft legislation will be open for comments until Friday 22 February.

Oil and gas

Draft legislation is published today on the restriction of allowances for certain decommissioning expenditure in the oil and gas industry.

The drafting of one clause published on 11 December has been found to be defective and a revised draft clause addresses this; and

Most of the relevant legislation was published on 11 December but a small amount was omitted and is now published.

The technical consultation for these clauses will be open for comment until Monday 18 February.

Oral Answers to Questions

David Gauke Excerpts

Tuesday 29th January 2013 Commons Chamber

[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.

[Jeremy Lefroy]

I thank the Minister for that answer. How will the Government use the presidency of the G8 this year to tackle international tax loopholes that have an effect on receipts to the UK Treasury?

[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.

[John Mann (Bassetlaw) (Lab)]

Will the Minister join me in calling on all political parties in this country to refuse or return any donations from tax avoiders?

[Mr Gauke]

I think perhaps the hon. Gentleman might want to have a word with those on the Opposition Front Bench before he ventures into that territory.

[Clive Efford (Eltham) (Lab)]

Will the Minister say why there are fewer people in the offshore investigation and affluence investigation units in Her Majesty’s Revenue and Customs than there are working on cutting child benefit for families?

[Mr Gauke]

I should point out that those units were not in existence under the previous Government and were introduced as a consequence of our reinvestment programme. On enforcement and compliance more generally, I also point out that if we are looking only at numbers, under the previous Government the number of people working in HMRC’s enforcement and compliance department fell by 10,000. Under this Government it will increase by 2,500.

[Mr Nick Gibb (Bognor Regis and Littlehampton) (Con)]

The managing partner of Ernst & Young has dismissed the concerns of the House about aggressive tax avoidance by stating:

“The simplest solution is to stop banging on about morality and change the law.”

Does the Minister share my view that in a civilised society we do not live by rules and regulations alone, but by what we consider to be right? Should not boards of companies that operate in this country be asking themselves a key question about all their activities, including their tax policy: is this the right thing to do?

[Mr Gauke]

Increasingly, artificial contrived behaviour is something that all of us, including the public, simply do not accept. My hon. Friend is right to say that this is a board matter, and boards should take tax policy seriously. Companies should think very seriously about aggressive, artificial, contrived behaviour and there is low tolerance for such behaviour.

[Kevin Brennan (Cardiff West) (Lab)]

Did the Minister see the footage that recently came to light of the Chancellor of the Exchequer, then in opposition, appearing on the “Daily Politics” programme and advising the public about how to take advantage of tax loopholes?

[Mr Gauke]

This Chancellor has done more to tackle tax avoidance than any of his predecessors, and this Government have taken tax compliance much more seriously. I will give one more statistic: when we took office the yield from HMRC’s enforcement and compliance activity was £13 billion. We expect that number to have increased to £22 billion by the end of this Parliament. We are taking real steps to address this matter.

[Dr Julian Huppert (Cambridge) (LD)]

10. How much VAT was paid by (a) sixth-form colleges and (b) further education colleges in 2012.

--- Later in debate ---

[Priti Patel (Witham) (Con)]

15. What plans he has to simplify the tax system.

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

The Government are committed to simplifying the tax system. Since 2010, we have set up the Office of Tax Simplification and have acted on a range of its recommendations. The Government are improving tax administration for small businesses and, from April 2013, will introduce a new cash basis for calculating tax, benefiting up to 3 million small self-employed businesses.

[Priti Patel]

Does my hon. Friend agree that the most effective way to simplify the tax system and to maximise tax yield is to reduce the burden of taxes through lower taxes?

[Mr Gauke]

It would be right to say that the Government have taken 2.2 million people out of income tax—that is certainly a simplification for them. We have reduced the small profits rate of corporation tax and reduced the main rate of corporation tax. We have taken steps, wherever possible, to reduce taxes.

[Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)]

Can the Minister reassure the House that these attempts at tax simplification will be more successful than last year’s attempts, which saw U-turns on caravans, pasties, charities and the oil and gas sectors? Can he reassure the House that these attempts will work a lot better this year?

[Mr Gauke]

I can remember one particular tax simplification from the last Government, which was the abolition of the 10p rate. I think we have a better record than that.

[Mark Pritchard (The Wrekin) (Con)]

Following on from my hon. Friend the Member for Witham (Priti Patel), who made her case well, given that the Exchequer benefited from the courageous decision to reduce the top rate of tax from 50p to 45p, may I encourage the Chancellor to go even further in the Budget and reduce the top rate of tax to 40p, in order to see more funds come into the Exchequer?

[Mr Gauke]

I will take that as a Budget representation. The point is that the 50p rate was not effective in raising revenue—my hon. Friend is absolutely right to make that point—and it was damaging to our competitiveness. There are better ways in which we can get more money from the wealthiest, and that is exactly what this Government have done.

[Sheila Gilmore (Edinburgh East) (Lab)]

Perhaps the Minister could explain how the changes in child benefit have simplified the tax process in this country.

[Mr Gauke]

A moment or so ago we heard lots of shouting about the 50p rate, yet the Labour party is the first to defend the idea that those very people should continue to receive benefits. Ensuring that child benefit is targeted best meant either looking at this on a household basis—which would have meant putting 8 million households into the tax credit system—or adopting the approach that we have chosen, but the Labour party is always there, ready to spend taxpayers’ money where—

[Mr Speaker]

Order. We are obliged to the Minister, but we will move on to one more question.

--- Later in debate ---

[Penny Mordaunt (Portsmouth North) (Con)]

The Minister may be aware of the report on football governance which was published today by the Culture, Media and Sport Committee. I want to record my thanks to him and to Her Majesty’s Revenue and Customs for their help in dealing with Portsmouth football club. Will he assure us that his Department will play its full part in ensuring that prospective owners who are not fit and proper do not get their mitts on these important community assets and destroy them?

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

The Government will, of course, look closely at the Committee recommendations. As my hon. Friend the Minister of State, Department for Culture, Media and Sport has made clear, it is time for football to get its house in order.

[Mr David Anderson (Blaydon) (Lab)]

The Chancellor is well known for trying to help us Back Benchers to do our job. Would he be so kind as to place in the Library the criteria that he uses to define whether or not the economy is in the danger zone, and will he tell us whether it is in the danger zone today?

Taxation of Pensioners

David Gauke Excerpts

Wednesday 23rd January 2013 Written Statements

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

The Government launched the Office of Tax Simplification (OTS) in July 2010 to provide independent advice on simplifying the tax system.

The OTS has today published the final report of its review of the taxation of pensioners, commissioned by the Government on 5 July 2011.

The Government asked the OTS to carry out a two-stage review of pensioner taxation. The first stage of the review looked at the administrative and legislative complexities faced by pensioners and suggested key areas for further review. This was completed in March 2012 and the Government gave their response at Budget 2012.

The OTS has now completed the second stage of its review, focused on the key areas suggested in the first stage. The Government will make their response to this report at the appropriate time.

Electronic copies of the report have been placed in the Libraries of both Houses.

Taxation (Living Wage)

David Gauke Excerpts

Tuesday 22nd January 2013 Westminster Hall

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

It is a great pleasure to serve under your chairmanship, Mr Robertson, and to respond to this debate. I congratulate my hon. Friend the Member for Harlow (Robert Halfon) on securing it. He has such a reputation for being a strong representative of his constituents that it is not surprising that the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) might even believe that his constituency was named after him—I know that Harlow is a new town, but a change of name might not be appropriate. However, he does a splendid job on behalf of his constituents as a whole and he does a particularly good job of representing hard-working, low-paid people up and down the country. If I may, I shall describe them as strivers, and my hon. Friend represents them very well. He sets out the case for a 10p rate clearly, with great eloquence and understanding, and I hope to respond to his points.

I thank other hon. Members who have participated in the debate, particularly those who have made speeches: my hon. Friends the Members for Aberconwy (Guto Bebb) and for Cleethorpes (Martin Vickers), and the hon. Member for Strangford (Jim Shannon). I also thank other hon. Members who have participated through their interventions.

During my remarks, I hope to set out what the Government are doing to help the very people that my hon. Friend the Member for Harlow identified as being in need of support: those hard-working, low-paid individuals who are taxed in circumstances where they do not have a lot of money. None the less, they have income tax deducted from their salary, and I will set out what we are doing to help such people.

I would like to take us back to the abolition of the 10p rate, which has obviously featured heavily during our debate this afternoon, and set out a little more information about the arguments that were made at the time and perhaps discuss some of the difficulties that those of us who were in the House had in getting to the truth of the impact of the 10p rate’s abolition—perhaps I should say the doubling of the 10p rate of tax, because that, in truth, is what happened.

In 1997, the Labour party’s manifesto stated that it was Labour’s long-term objective to have

“a lower starting rate of income tax of 10 pence in the pound.”

In the 1998 Budget, the then Chancellor, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), confirmed his intention to bring in such a starting rate

“When it is right for the economy”.—[Official Report, 17 March 1998; Vol. 308, c. 1104.]

The measure was implemented from April 1999, with taxpayers paying only 10p in the pound on their first £1,500 of taxable income. The rationale was to put work first and to ease the poverty trap, whereby people on low pay were discouraged from climbing the earnings ladder due to high marginal deduction rates. The 10p rate remained in place until the announcement in the 2007 Budget, which was the last to be delivered by the right hon. Gentleman. Those of us who were there will remember that the intention behind the abolition was pretty clear. It was a theatrical coup to conclude the last Budget by that Chancellor with a reduction in the main rate of income tax from 22% to 20%. Other measures were taken with regard to the indexation of personal allowances for those aged 65 and above and the retention of the 10% rate for savings income, but what was clear was that great, theatrical moment just before the then Leader of the Opposition stood up, not able to see all the details, and there was this surprise tax cut. Of course, questions then started to be asked about how that was to be funded in what was a fiscally neutral set of tax measures.

At the time, it became clear, once we saw the Red Book, that the Government estimated that the removal of the starting rate of income tax would yield the Exchequer an additional £7.3 billion in 2008-09, so where would the extra cash come from? It was a little difficult to get all the answers at the time. The Budget book at the time set out a list of all the people who would be winning from the changes, and the Budget statement said that four out of five households would either gain or remain in the same position as a result of the Budget measures, but we did not get much detail on the one out of five households that would lose.

The IFS confirmed that 5.3 million households would lose. A senior Treasury official, giving evidence to the Treasury Committee—I should inform hon. Members that I was a member of that Committee at the time—confirmed that that number was in the right ball park. The very next day, the Chancellor of the Exchequer came along to answer questions on the Budget. He was asked five times by my right hon. Friend the Member for Sevenoaks (Michael Fallon) about the 5.3 million households that were going to lose out, and five times he refused to confirm that number. There is a lesson to be learned from that whole episode. We should be more transparent about the impact of policy decisions, and the present Government have taken significant steps to do that.

[Mr Andrew Smith]

In the light of that commitment to transparency, will the Minister give us his estimate of how many people lost out through the vote last night?

[Mr Gauke]

The reality is that one has to look at all the measures that we are undertaking, which is what I would seek to do. It is worth pointing out that working households will gain an average of £125 in 2013-14 as a consequence of all the measures that we are undertaking. The right hon. Gentleman raises an important point—I shall return to the 10p rate in a moment—but let us remember the context in which we are having this debate now about the steps that we can take.

I will set out a case about the way in which the Government have taken substantial steps with regard to the personal allowance to help low-paid workers. We have done that at a time when we inherited an enormous deficit, and we have had to make difficult decisions about how we reduce that deficit. We have been clear in the distributional analysis of where the contributions are coming from. The facts are very clear. The top 20% of earners are making the biggest contributions, not just in cash terms but in relative terms, to reducing the deficit.

Let me return to the people who lost out from the abolition of the 10p rate of income tax. People under the age of 65 with non-savings income between £5,435 and £19,355 would have paid more, because they lost more from the abolition of the 10% rate than they gained from the cut in the basic rate. It is worth reminding ourselves that a Labour Government took that measure and that those low-paid workers would have paid more tax. The loss was greatest, at £232 a year, for someone earning £7,755—the top of where the 10% band would have been. Those most affected by the abolition of the 10p rate appear to have been those below the age of 65 with an income under £18,500 who were in childless households. The effect was greatest on those households where no individual was above the age of 60, because the household would not then benefit from the higher winter fuel allowance. That is the legacy of the last Budget of the right hon. Member for Kirkcaldy and Cowdenbeath.

Let us now consider what we have done in this difficult financial situation. We should remember that 2007 was still the age of apparent plenty; we have been in a much more difficult situation. Rather than reintroducing the 10% rate of tax, we have taken steps by increasing the personal allowance; we have taken real steps towards making the first £10,000 of income free from tax. I am grateful to a number of hon. Members for supporting that policy this afternoon. Since 2011, we have announced successive increases in the personal allowance, totalling £2,965. That includes a £1,100 increase announced in the 2012 Budget and a further £235 announced in the autumn statement last month. Following those announcements, the personal allowance rises by £1,335—the largest cash increase in history—to £9,440 from April 2013. Taken together, those changes will benefit 25 million individuals and provide a real-terms gain of £443 to most basic rate taxpayers in 2013-14. More than 2.2 million individuals with low incomes will have been taken out of income tax altogether.

I shall give some more examples of how the changes work. Let us take the context of the national minimum wage. My hon. Friend the Member for Carlisle (John Stevenson) referred to the personal allowance matching the national minimum wage for full-time employees, but let us examine what has happened to a person on the national minimum wage in full-time employment. In 2010-11, someone earning the national minimum wage would have had earnings of £10,979 and paid income tax of £901. In 2013-14, someone earning the national minimum wage will have estimated earnings of £11,691 and pay estimated income tax of £450. In other words, their bill will be halved. Another way to look at it is that, in 2010-11, such a person would have been able to work only 22 hours a week tax free; they can now work 29 hours a week before starting to pay income tax.

Another way to look at the situation is by comparing the approach that we have taken in increasing the personal allowance with the approach that the previous Government took in doubling the 10p rate of income tax. I talked about those who earn £7,755 a year and lost the most—£232 a year—as a consequence of the doubling of the 10p rate in 2008-09. In that year, an individual would have paid £344 in income tax. Under the present Government, in 2012-13, such an individual, with income adjusted for inflation to £8,299 a year, will pay about £39 in income tax—not £344 but £39 in tax, which is a saving of £305. In 2013-14, again with income adjusted for inflation, such an individual will pay no income tax at all. That is a contrast that I am very happy to highlight.

[Catherine McKinnell]

The Minister is setting out an interesting argument. Is he therefore making the case or suggesting that the Government will support the hon. Member for Harlow in his call for the reintroduction of the 10p tax rate?

[Mr Gauke]

The argument that I am making is about the contrast that can be drawn with the approach taken by the present Government, who have focused on reducing the tax bill for low-paid workers. That could be done in different ways, but we have undoubtedly, as a Government, reduced the income tax bill for low-paid workers. That compares favourably with the approach taken in the last Budget of the right hon. Member for Kirkcaldy and Cowdenbeath, in which he introduced a measure that increased pretty substantially the amount of income tax that low-paid workers had to pay. It is worth highlighting the point that we as a Government have done more, in very difficult circumstances, for those low-paid workers than the previous Government did.

I think that my hon. Friend the Member for Harlow agrees that we should meet the £10,000 target. The debate is then about where we go next. I will not be drawn into going beyond the firm commitment that we have in the coalition agreement and that has been evidenced by the steps that we have taken at every Budget and in the last autumn statement to make progress towards meeting that £10,000 target for the personal allowance.

My hon. Friend has set out very clearly the case for focusing on reintroducing a new lower rate. There are pros and cons of such an approach, and the debate on that will continue. As he would expect, I will not make any commitments on the matter. Clearly, there is a substantial fiscal cost in reintroducing a 10p rate of income tax. However, the Government’s values are clear. The overall cost of the personal allowance by the end of this Parliament will be around £9.5 billion a year as a consequence of the measures that we have taken. Clearly, where we can, we have been prepared to take substantial steps, at quite significant cost, to reduce the income tax bill for those on low earnings. That is something of which we should be proud, and as a number of my hon. Friends have said, we should be communicating that out there, because it demonstrates our values.

[George Eustice]

I give credit to the Government for everything that they have done to help those on low incomes get out of the tax bracket altogether by increasing the thresholds. I entirely understand that the Minister will not want to predict what might happen in the future, but, looking to the recent past, will he explain what the Government believe the advantages are of lifting thresholds as an alternative to a 10p tax rate? In other words, why did the Government decide to lift the thresholds rather than reintroduce a 10p rate?

[Mr Gauke]

There is a case for simplicity in focusing on the increase in the personal allowance. My hon. Friend the Member for Cleethorpes quoted the Forsyth Commission, which looked into this matter, and there is a question why we should ask people who are on quite low wages to be contributing income tax. I appreciate the arguments that everyone should make a contribution, and I do not in any way dismiss them, but when we are asking people earning such relatively low amounts to pay income tax, there are the significant questions of work incentives and simplification. The Government must bear those in mind when considering whether to reintroduce the 10p rate. There is a debate to be had on both sides. There are pros and cons both to personal allowance increases and to a new lower rate. In our coalition agreement, we rightly set out our determination to get to £10,000. Fiscal drag had brought more people into income tax than was right, and we have rightly made it our priority to address that.

[Robert Halfon]

Does the Minister accept that raising the tax threshold to £12,500—the minimum wage—would cost around £14 billion, whereas reintroducing the 10p tax would cost between £6 billion and £7 billion?

[Mr Gauke]

I should perhaps check the numbers, but I believe that my hon. Friend is in the right area. Those are, I think, the realistic costs. I am not here to make any further commitments beyond what we have said in the coalition agreement, but it is right that we have this debate. It is also right that we acknowledge that we are all trying to do the same thing, which is to reduce the tax burden on those hard-working, low-paid workers who have to pay more tax, partly as a consequence of a specific decision taken by the previous Chancellor in 2007 to double the 10p rate.

[Catherine McKinnell]

We are nearly at the end of the debate, and I am conscious that the Minister has not really addressed any of the issues that relate to the living wage and what the Government might do to promote that policy as well.

[Mr Gauke]

The Government are supportive of the living wage, which the hon. Lady has described as commendable or laudatory. However, unlike the Opposition, the Government do not believe that it should be mandatory. She appears to be in search of a dividing line on that issue. [Interruption.] I am pleased to see her shaking her head. There is cross-party consensus that the living wage has a useful role to play. We support it; we welcome it when organisations adopt it; but we do not believe that it should be mandatory. There are risks involved. In some circumstances, it might increase the cost to the taxpayer in higher salaries, and in others, it might result in higher unemployment. That is why we do not think it should be mandatory and why, I assume, she feels the same way, unless she has a different rationale.

[Catherine McKinnell]

I was seeking clarity on the questions that I raised and whether the Government are taking positive steps to promote the living wage.

[Mr Gauke]

It is very much for organisations and institutions to determine their own remuneration policy. We support such a wage in principle, but we will not make it mandatory, and there is cross-party consensus on that.

I turn now to the other steps that we are taking to support the low-paid workers whom my hon. Friend highlighted so well in his remarks. We have helped local authorities to freeze council tax for three years in a row, and we are proposing to set the council tax referendums thresholds at 2% for 2013-14.

I cannot, of course, go through a debate with my hon. Friend without referring to fuel duty. He is a keen campaigner on that point and he will be well aware of the steps that we have taken to ensure that average pump prices are currently 10 pence per litre lower than if we had implemented the fuel duty escalator. They will remain at least 10 pence per litre lower over the remainder of the Parliament than they would have been had we stuck to the plans that we inherited. In practical terms, it will cost £5 less for a typical motorist to fill their tank today and £8 less by the end of the Parliament.

We are taking numerous other steps to ease the load on those on low and middle incomes. We have capped average regulated rail and Transport for London fare increases at RPI plus 1% for the third year in a row. We have increased the basic state pension by £5.30 last year, which is the biggest cash increase ever, and we have introduced a triple guarantee, to ensure that it will increase each year using the increase in earnings, prices or 2.5%, whichever is highest.

I am conscious of the time, so let me say that I congratulate my hon. Friend on securing the debate and all the other attendees on their excellent contributions. As I have said, I think that my hon. Friend and I agree that the Government should reduce the tax burden on people on the lowest incomes. Our focus has been on increasing the personal allowance. I am confident that our policies, both on the minimum wage and the personal allowance, are exactly the right ones to achieve that.

Finance Bill

David Gauke Excerpts

Thursday 17th January 2013 Written Statements

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

The Government are today publishing draft legislation for inclusion in Finance Bill 2013, in addition to that published on 11 December. This will be open for technical consultation until Wednesday 6 February 2013.

Details of the clauses “Tax Information and Impacts Notes” and “Explanatory Notes” published today are available on both the HM Treasury and HM Revenue and Customs website.

The draft legislation includes clauses on the following policies announced at Budget 2012:

The removal of a tax charge under the remittance basis of non-domicile taxation which can arise inadvertently in certain circumstances;

The definition of trusts with vulnerable beneficiaries. This is a revision of legislation published on 11 December 2012 and contains detailed provisions originally planned to be introduced by secondary legislation but which will now be introduced via Finance Bill 2013.

The draft legislation also includes two other clauses:

As announced at autumn statement 2012, the Government are publishing draft legislation to raise the annual drawdown pension limit from 100% to 120% of the value of an equivalent annuity;

Legislation which amends the Corporation Tax Act 2010 to ensure that, as with police authorities before them, chief constables and the Commissioner of Police of the Metropolis are exempt from any liability to pay corporation tax on any profits from chargeable activities. This is a new announcement and the legislation will take effect from the dates the new legal entities came into existence. For the Commissioner of Police of the Metropolis the legislation will take effect from 16 January 2012, and for chief constables it will take effect from 22 November 2012.