Wales Bill

Debate between David Gauke and Owen Smith

Tuesday 24th June 2014 Commons Chamber

[Owen Smith (Pontypridd) (Lab)]

The Minister is right: there is no confusion. He clarified the position in Committee. Does he agree, though, that the people of Wales might think it slightly peculiar that a Tory Member of the European Parliament who lives in England should be deemed a Welsh taxpayer?

[Mr Gauke]

All I can say is that Wales has a very good MEP in Kay Swinburne and I am delighted that she has been re-elected—[Interruption.] Indeed: by the people of Wales.

I return to the new clauses and amendments before us. However rare the circumstances that I set out a moment ago might be, the potential hardship that a delay in the calculation of entitlements would cause to individuals makes it essential that we make these amendments to cater for such circumstances.

Amendments 2 to 5 are consequential and relate primarily to the commencement of the new clause. As I said, these amendments are minor and technical, but they address an important set of circumstances that could have a serious impact on some of the most vulnerable in society. I urge all hon. Members to support them.

On Government amendment 1, clause 6 gives effect to the Silk Commission’s recommendation that the Welsh Government should be funded from a combination of a block grant and some devolved taxes, with the clause conferring the required competence on the Assembly to legislate for these devolved taxes. Amendment 1 slightly alters new section 116A of GOWA, inserted by clause 6, to correct the possibly misleading impression that those taxes listed in chapters 3 and 4 of part 4A are the only taxes for which the Assembly has competence. The Assembly already has competence for local taxation, which includes council tax and business rates, and this minor amendment clarifies the position.

On amendments 11 and 12, we have been working closely with the Welsh Government in relation to Welsh funding. In particular, the Government recognise that there has been convergence between the levels of funding in Wales and England since devolution, and that this is a significant concern in Wales. As a result, in October 2012 we agreed to implement a joint process to review the levels of funding in Wales and England in advance of each spending review. If convergence is forecast to occur during a spending review period, options will be discussed to address the issue in a fair and affordable manner, based on a shared understanding of all the available evidence.

In advance of the 2013 spending round, a joint review was therefore undertaken by the two Governments and the outcome set out in a written ministerial statement. The review determined that funding levels are not expected to converge during the period to 2015-16. In fact, an element of divergence is forecast to occur. The review also determined that relative funding levels in Wales are within the range recommended by the Holtham Commission. These arrangements ensure that we have a shared understanding of funding levels in Wales, and that a process is in place to consider options if convergence is forecast to resume. There is therefore a firm basis for proceeding with the new financial powers in the Bill, and I hope that when the opportunity arises, hon. Members will withdraw amendments 11 and 12, but I look forward to hearing them make their case.

I turn now to amendments 9 and 10. When it comes to the extent of income tax devolution in Wales, there is a careful judgment to make. Devolving an element of income tax would increase the financial accountability of the Assembly and the Welsh Government in three important ways. First, it would enable the Assembly to fund more of the spending for which it is responsible. Secondly, the Welsh Government’s budget would be directly linked to their economic decisions in areas such as education, skills, housing and planning. Thirdly, the Welsh Government would be able to vary the levels of tax and spending in Wales. However, creating the link between the Welsh Government’s decisions and their budget involves transferring some risk to the Welsh Government. Specifically, the Welsh Government’s budget would benefit if the income tax base grew faster in Wales than the UK average, but would be adversely affected if growth in Wales was slower.

The larger the proportion of income tax we devolve, the greater the potential impact on the Welsh Government’s budget. Devolving 15p of income tax would increase the size of these impacts by 50%, compared to devolving 10p. Devolving all income tax to Wales, which is the stated aim of amendment 9, would increase the potential impacts even further.

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[Owen Smith]

I suspect that that reveals why the Secretary of State cannot speak to his own Bill and instead relies on the Exchequer Secretary. The Secretary of State will know, of course, that irrespective of whether there is a referendum in future, the volume of income tax powers to be extended to Wales has a direct link to the amount of borrowing, because the Government have chosen to introduce a different rationale for affording Wales borrowing powers from that which they used for Scotland. The Scotland Act 1998 draws a connection between the amount of capital expenditure—the budget for capital—and the amount of borrowing. In this Bill, for some reason, the Government have chosen to pursue a different rationale, whereby the ratio of borrowing is to be equal to the ratio of income tax devolution. It is very important that the Government consider amendment 10, because it would increase the volume of income tax that could potentially be exercised by the Welsh Government, and should therefore, under the logic employed by the Government, increase the amount of borrowing above the £500 million that is currently envisaged.

[Mr Gauke]

In moving on to borrowing, the shadow Secretary of State is finding whole new areas in which he is confusing the House. Does he not appreciate that there is a link between the revenue streams that the Welsh Government will have independently, including income tax, and the maximum borrowing levels that they will have? If an element of income tax is devolved, the borrowing cap will be higher than if it is not devolved. Does he understand that, and, if so, will he attempt to reconcile it with his earlier comments?

[Owen Smith]

I will forgive the Exchequer Secretary’s slightly patronising tone and simply say that I absolutely understand it. Perhaps he has not understood my point. Why does this Bill draw a causal connection between the quantum of income tax and other taxes to be devolved to Wales on the one hand, and the amount of borrowing that can be afforded to the Welsh Government on the other, when that rationale was not employed explicitly in the Scotland Act? Would he like to come to the Dispatch Box and tell us why that is different? Obviously there is no explanation—none whatsoever. Clearly, the Government have chosen to employ a totally different rationale in order to justify the lower level of borrowing that they will give to the Welsh.

The shift from 10p to 15p would not only increase the amount of borrowing that Carwyn Jones’ Government could undertake to fill the £1.6 billion gap left by this Government, but afford greater symmetry between what Labour is proposing in Scotland and what we are proposing in Wales. That shift is another positive thing about the Bill, although it will be superseded by the next Labour Government introducing even greater tax devolution in Scotland.

Wales Bill

Debate between David Gauke and Owen Smith

Tuesday 6th May 2014 Commons Chamber

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

The hon. Gentleman said a moment ago that he did not believe that Wales should undercut England. In other words, he does not believe that Wales should have a lower level of income tax than England. Does he also believe that Wales should not have a higher level of income tax than England?

[Owen Smith]

No. That is why I said what I said and why we have tabled amendment 40. In the event of further cuts by a Tory Government to the taxes of the wealthiest people in Wales and England, we would afford the Welsh people the ability to set a more progressive rate and to reintroduce the 50p rate in Wales, just as we propose to do across the rest of the UK.

We are, of course, discussing a hypothetical point to an extent, because in the event of there being a Labour Government in Westminster—which is the only way Wales would enjoy these additional powers, unless the Secretary of State intends to amend the Bill—we would reintroduce the 50p rate right across the UK. The issue would then be a moot point in Wales.

[Mr Gauke]

This might be a hypothetical point, but it is interesting and revealing that, while the shadow Secretary of State is ruling out ever using income tax powers in Wales to reduce taxes, he is certainly not ruling out using them to increase taxes. As he is well aware, under the powers in the Bill, if he increased taxes at the additional rate, he would also increase the basic rate.

[Owen Smith]

Indeed. That should come as no surprise to anyone. The Exchequer Secretary, in his rather tortuous remarks, is attempting to put words into my mouth. I said in my speech in Llandudno—I say it again today—that in the event of a Labour Government in Westminster, we would afford the Welsh people the ability to put up the top rate of tax and reinstate the 50p rate in Wales. That is very simple.

[Owen Smith]

I will give way in a moment. We are not talking about increasing the basic rate or the top rate; we are talking about increasing the additional rate of tax. [Interruption.] No, it is called the additional rate.

[Mr Gauke]

You mean the higher rate.

[Owen Smith]

From a sedentary position, the Exchequer Secretary draws a distinction between the higher rate and the top rate. I fully accept that what I mean is the higher rate, by which I mean the 40% rate, as opposed to the additional rate of 45%.

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[Mr Gauke]

I am sure that my hon. Friend is right. As I have said, our intention is to work constructively. It will be for the Assembly to choose whether to make use of HMRC’s expertise, which is obviously considerable, but should it wish to do so, I think it reasonable for the UK Government to reserve the right to ensure that no demands are placed on HMRC that could disrupt the important work that it does throughout the United Kingdom, including in Wales.

Amendment 40, tabled by the hon. Member for Pontypridd (Owen Smith), seeks to place a duty on the Chancellor of the Exchequer to review

“the benefits of symmetry in the devolution of taxes between Wales and Scotland”

whenever a tax is devolved to either. It requires the Government to assess whether a tax that is being devolved to Wales should also be devolved to Scotland, and vice versa. I understand the intention of the amendment, but it fails to take into account the fact that key principles of tax devolution already exist. The UK Government have adhered to those principles, and we would expect future Governments to do so. They state that any changes should be evidence-based, and should be considered in a UK context. An assessment of the UK context would include an assessment of whether symmetry with the other devolved Administrations was desirable.

The amendment seeks to impose an unnecessary statutory basis on a process that the Government would undertake as a matter of course when considering the case for devolving further taxes to either Scotland or Wales. It could, indeed, lengthen the process of devolving new taxes in the future by placing a superfluous statutory requirement on the Government. I do not believe that it is necessary, or would improve the procedure for adding new taxes that is set out in the Bill. It may well be that the hon. Gentleman simply wants to probe Ministers to establish whether this or a future Government would take the issue of symmetry into account, but I do not find the argument for a statutory basis persuasive.

[Owen Smith]

We are indeed keen to ensure that the Chancellor has a statutory obligation to consider the benefits of symmetry across the piece on a statutory footing, but let me take up the Minister’s reference to the need for an evidence base to support taxation policy. Does he agree that it would have been wise of the Treasury to undertake some form of detailed behavioural analysis of the impact of tax competition in respect of income tax, or indeed any analysis of the impact that stamp duty land tax or landfill tax might have on behaviour?

[Mr Gauke]

I shall deal with stamp duty land tax and landfill tax later in my speech. As for income tax, I am tempted to explain to the hon. Gentleman yet again about the lockstep attributes of our reforms. He has expressed concern about tax competition, but it seems to me from his earlier remarks that he does not believe in it, and that, if he had a chance to seek greater tax competitiveness for any part of the United Kingdom, including Wales, he would not do so. Indeed, he seems to be advocating a policy of “tax uncompetitiveness” for Wales. However, I must not detain the Committee too long on that subject.

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[Mr Gauke]

What we want is greater devolution in terms of income tax. When we debated the subject last week, I explained in some detail why we thought that it was a good thing, primarily because it would increase the accountability of the Welsh Government to the Welsh people, which I would expect Members in all parts of the Committee to want.

Amendments 32 and 33 were tabled by members of Plaid Cymru. Clause 6 introduces an important new power to devolve further tax powers to the Assembly via an Order in Council. The power has a broad scope, and can apply to brand-new taxes and to existing UK-wide taxes. The clause sets out the process for making such an order, which would need to be approved by both the House of Commons and the other place, as well as by the Assembly. Amendment 33 would remove Parliament from the process, so that the order would need to be passed only by the Assembly.

We recognise that it is important to give the Assembly and the Welsh Government the economic levers that are needed to generate growth in the Welsh economy, including the ability to introduce new taxes. We also recognise that—although this would depend on the proposal under consideration—if we are to proceed in a timely manner, it would be advantageous to be able to devolve further taxes without requiring primary legislation. However, a balance needs to be struck. Tax devolution should not be at the expense of reducing the overall tax receipts or competitiveness of the United Kingdom as a whole.

That last point is particularly important. As we stated in the Command Paper that accompanied the Bill, we would assess any proposals for further tax devolution against a number of criteria. For example, we would consider whether any new tax would affect the UK’s wider economic policy, impose disproportionate burdens on businesses or individuals, or create new tax avoidance opportunities. In short, the criteria would ensure that any new tax would not be to the detriment of the UK as a whole.

It is important for the devolution of further tax powers to take place in the constructive and collaborative manner that led to the Bill. It is therefore right for the resulting legislative process similarly to involve both the Assembly and Parliament, so that the proposal can be considered from the perspectives of both Wales and the wider UK. It would not be right for either to be able to legislate to devolve further taxes without the agreement of the other.

[Owen Smith]

I am grateful to the Minister for giving way to me for the second time. He said a moment ago that the Treasury would be concerned if any reductions in taxes in Wales led to reduced receipts for the Exchequer. Does he not agree with the Secretary of State that a Conservative Government in Wales should cut taxes, or does he think that that would necessarily always lead to higher receipts?

Wales Bill

Debate between David Gauke and Owen Smith

Wednesday 30th April 2014 Commons Chamber

[Mr Gauke]

It is a great pleasure to serve under your chairmanship this evening, Mr Chope, and to set out the Government’s position on clauses 8 and 9 and the Government amendments. I will also take the opportunity to comment on the amendments tabled by others and will have the chance to debate taxation powers with the shadow Secretary of State for Wales, which I am sure will bring back many happy memories for him of serving on Finance Bills.

Subject to the outcome of a referendum, clause 8 amends the Government of Wales Act 2006 to introduce a Welsh rate of income tax to be paid by those defined as Welsh taxpayers. Clause 9 amends the Income Tax Act 2007 to set out how the Welsh rate of income tax determines the Welsh basic, higher and additional rates of income tax. It also defines the income that will be taxed at those rates.

I shall start with Government amendments 19 and 21. The income tax provisions in clause 8 form part of a new part 4A of the 2006 Act, which is introduced by clause 6. Part 4A’s introductory section includes a reference to the income tax provisions in chapter 2. The provisions in clause 6 will come into force two months after this Bill receives Royal Assent. However, the income tax provisions in clause 8 and 9 can of course be brought into force only following a yes vote in a referendum. Amendment 19 therefore removes the reference to chapter 2 from clause 6, and amendment 21 reinserts the reference into clause 8, bringing the commencement of the reference into line with the rest of the income tax provisions. That will ensure that the amended Act accurately reflects the legislative competence of the Assembly at a given point.

The provisions in clause 9 concerning the Welsh rate have been revised since the draft Bill. That necessitated changes to the power to allow for further consequential changes to be made under secondary legislation introduced by clause 8 in new section 116I of the 2006 Act to ensure that it continued to work as intended. Government amendments 22, 27 and 28 make further technical changes to that power in order to clarify that proposed new section 11B does not impose a charge to income tax. Rather, the effect of the new section 11B is to apply the Welsh rates of income tax to a Welsh taxpayer’s non-savings income.

On Government amendments 23 to 26, the power in new section 116I also allows an order to be made to ensure that HMRC can continue to operate the PAYE system effectively in the event that the Assembly passes a Welsh rate resolution at a late stage in the preceding tax year. Such an order would require employers to continue to operate PAYE on the basis of the information issued by HMRC, rather than the correct tax position for a specified period. The tax position of employees would ultimately be correct over the course of the tax year.

The scenario I have set out would also apply if, for whatever reason, the Assembly did not pass a rate-setting resolution at all, assuming that that had not previously been announced by the Welsh Government. Although I accept that that is unlikely to arise in practice, it is important to recognise that the Assembly has the option not to pass a rate if it so chooses. Amendments 23 to 26 therefore extend the order-making power to cover that scenario. I hope that hon. Members will support those amendments and Government amendments 19, 21, 27 and 28.

In amendment 41, I was pleased to see an amendment from the hon. Members for Pontypridd (Owen Smith) and for Llanelli (Nia Griffith) that supports the principle of income tax devolution, although I note that their latest approach would not provide Wales with quite the same outcome that they have now proposed for Scotland. None the less, it is progress. Although I confess to not having previously studied the issue very closely, I was not sure whether the Labour party opposed income tax devolution or thought that there was not enough of it. No doubt we will receive an explanation later.

[Owen Smith]

rose—

[Mr Gauke]

Perhaps we will receive an explanation immediately. I will happily give the hon. Gentleman that opportunity.

[Owen Smith]

I am grateful to the Exchequer Secretary, and this of course brings back warm memories of time spent debating Finance Bills. He failed to mention our amendments 38 and 39—I presume he will do so in due course—which seek to give symmetry between Scotland and Wales in relation to tax powers. While I am on my feet, may I ask him to return to what he said earlier about Welsh taxpayers under this legislation? Will he confirm for the House that that would designate all MEPs in Wales as Welsh taxpayers, including Kay Swinburne, a Conservative, who does not live in Wales?

[Mr Gauke]

All Welsh MEPs will be Welsh taxpayers. I will deal with the amendments the hon. Gentleman mentions, although I do not think that they would achieve symmetry. I note that he was not very clear in responding to my point that only a little while ago he said that devolution of income tax to Wales was a Tory trap, or something of the sort. Now he proposes that devolving 10p is insufficient and that it should be 15p. I do not know whether he holds both views at the moment, or just one. I will certainly give way if he can provide some clarity on that point.

[Owen Smith]

Of course, they are entirely reconcilable, as I shall explain later. However, I did not hear an answer from the Exchequer Secretary on whether Kay Swinburne, the Conservative MEP for Wales, who still lives in Ledbury in England, would be designated as a Welsh taxpayer under the terms of the Bill. That strikes me as an extraordinary oversight by a Conservative Minister.

[Mr Gauke]

I will repeat what I said: Welsh MEPs will be Welsh taxpayers. I am not sure that I can be any clearer.

On the extent of income tax devolution, there is a careful judgment to be made. Devolving an element of income tax increases the financial accountability of the Assembly and the Welsh Government in three important ways. First, it will enable the Assembly to fund more of the spending for which it is responsible. Secondly, the Welsh Government will be able to vary the levels of tax and spending in Wales. Thirdly, while the Welsh Government currently control many key levers to generate economic growth in Wales such as education, skills, housing and planning, the resulting economic performance currently has no impact on their budget. Devolving an element of income tax will directly link the Welsh Government’s budget to their economic decisions.

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[Mr Gauke]

This is not about charging for public services. We have devolution of income tax in Scotland, where the issues that the right hon. Gentleman has mentioned may arise. I am surprised that, as a distinguished shadow Minister, he appears to be taking a position at odds with his own Front Benchers.

[Owen Smith]

rose—

[Mr Gauke]

Perhaps if I give way to the hon. Gentleman he will explain the apparent contradiction between his amendments and a statement that seems to involve opposition to the devolution of income tax altogether.

[Owen Smith]

There is absolutely no contradiction on our part. The Minister has come very late to the debate; I do not know why the Secretary of State does not feel able to answer these questions, but that is for him to respond to. We have said throughout that we have never thought that income tax devolution to Wales was a priority. We do not think there is a significant appetite for it in Wales, and we consider that it creates a Tory trap in two respects. The Conservative party is committed, in Wales and across the rest of the UK, to cutting taxes further for the wealthiest people. The Secretary of State has said that he wants to do that. He has further said that he favours tax competition, with Wales able to undercut England. We are not in favour of that. However, given that in the Bill the Secretary of State has drawn a clear line between the quantum of income tax that is nominally to be devolved to Wales and the amount of borrowing that will be afforded to the Welsh Government, and given that £1.7 billion has been cut out of the Welsh budget, particularly in capital, we are in favour of increasing the amount of money that they might borrow. Our 10p to 15p change would achieve that, if the Welsh people agreed to it in a referendum.

[Mr Gauke]

I am grateful for that lengthy speech. I may have come late to the debate, but it is perfectly clear that Labour has been all over the place on this matter. I come back to what I said about the advantages of devolving income tax. One of those, very significantly, is that there is much greater accountability for the Welsh Government, because if they are able effectively to use the powers that they currently have to get the Welsh economy to grow, they will benefit from that as a consequence of increased revenues.

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[Owen Smith]

I am grateful to the Minister for giving way; he is being very generous with his time. This is like all our yesterdays, in that we are debating, by implication at least, the Laffer curve. He said a moment ago that if Wales were to pursue the right policies, it would see economic growth by deploying these new powers. Does he mean by that that taxes in Wales should be cut, as the Secretary of State has said he would do? If so, which taxes does the Exchequer Secretary propose to cut and by how much?

[Mr Gauke]

That is a matter for the Welsh Government. They might want to pursue tax policies, but I repeat that policies on education, skills, housing and planning all contribute towards economic growth. The situation at the moment is that the Welsh Government control many of the key levers to generate economic growth, but do not currently benefit from any resulting economic performance through the impact on its budget. This devolution of tax will address that situation. Equally, to go back to the point made by the hon. Member for Swansea West (Geraint Davies), it means that if bad policies are pursued and they damage growth, that will have a consequence for the Welsh economy. I am sure that he is not suggesting that the Welsh Government will pursue growth-damaging policies.

[Geraint Davies]

rose—

[Owen Smith]

rose—

[Mr Gauke]

I will give way one last time to each hon. Gentleman.

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[The Temporary Chair (Mr Christopher Chope)]

Order. The Minister is not giving way to the hon. Member for Swansea West (Geraint Davies). We must have some order. There are not many Members in the Chamber, but they seem to be making a mockery of the rules of order. I think that the Minister is giving way to the hon. Member for Pontypridd (Owen Smith).

[Owen Smith]

I merely wanted to ask whether, while talking about good and bad policies, the Minister would care to congratulate the Welsh Government on the good policy of Jobs Growth Wales. The policy has been seven times more effective than the Work programme in Wales, and has resulted in Wales having higher growth and, indeed, better unemployment figures than anywhere else in the UK.

[Mr Gauke]

It is worth pointing out that 12,000 new jobs, as I understand it, have been created under the Work programme in Wales, but I think that I should make a little progress, Mr Chope.

The change involves creating incentives for the Welsh Government, which of course means transferring some risks to them. Specifically, the Welsh Government’s budget will benefit if the income tax base grows faster in Wales than the UK average, but it will be adversely affected if growth in Wales is slower. Crucially, the larger the proportion of income tax that we devolve, the greater the potential impact on the Welsh Government’s budget. Devolving 15p of income tax would increase the size of the impacts by 50% compared with devolving 10p. There is a balance to be found between risks and rewards, and at this stage we see no evidence to suggest that we should move away from the Silk commission’s assessment, which resulted in the recommendation to devolve 10p of income tax. That recommendation is now reflected in the Bill.

[Owen Smith]

Will the Minister give way a final time?

[Mr Gauke]

I remember debates on Finance Bills in which it was very difficult to speak for long without a contribution from the hon. Gentleman, and nothing has changed. I will give way again.

[Owen Smith]

I aim to entertain and to scrutinise legislation properly. Simply on the question of risk, will the Exchequer Secretary tell us what risk the Welsh Government will bear in relation to the potential costs of the change? We know that it will cost between £40 million and £42 million to do it in Scotland. Will it be more or less for Wales? How much will it be?

[Mr Gauke]

At this point, it is not possible to say what the cost will be. I must say that, with the gain in greater accountability and the greater devolution of powers, hon. Members should welcome the change. The hon. Gentleman is aware that the issue is one for a future referendum. Whether the Welsh people want to go down such a route is a question for them, and such matters will clearly be relevant to that debate. However, on having a 10p rate rather than a 15p rate, I hear the arguments in favour of essentially no devolution whatsoever and those for having a larger sum, but we believe that we have got the balance right. I hope that hon. Members will accept the balance achieved by the Silk commission recommendation, and that the hon. Gentleman will not persist with amendment 41.

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[Mr Gauke]

The hon. Gentleman will be aware that, under the provisions in this Bill, a tax cut for one rate of income tax will apply to every rate of income tax. Does he understand that point, because that is what a lockstep means?

[Owen Smith]

I entirely understand that point, absolutely, completely and utterly. I also understand that the leader of the Conservative party in Wales has placed on the record his desire to cut solely the top rate of tax—[Interruption.] The Secretary of State is muttering from a sedentary position. I presume that he is referring to his colleague, the leader of the Tory party in Wales, because it was he who called for a cut to the top rate of tax. We understand perfectly well how this legislation will work in Wales, but we are not in favour of any one part of Britain undercutting another through tax competition, which is unfortunately the position of the Secretary of State for Wales—[Interruption.] He keeps chuntering from a sedentary position that I do not understand it, but, dare I say, if he had greater faith in his own understanding of his own Bill, introduced in this House with amendments tabled in his name, he would stand at the Dispatch Box to explain the Treasury position and the tax amendments. Unfortunately, he clearly does not understand it sufficiently not to have to rely on his colleague the Exchequer Secretary. We are extremely grateful to the Exchequer Secretary for turning up to act as a human shield for the Secretary of State for Wales, but it is a crying shame that the Secretary of State and the Minister require his support.

[Mr Gauke]

There is no doubt that the Secretary of State understands the measure but, given what we have heard so far from the shadow Secretary of State, perhaps it would have been better if one of the shadow Treasury team had been making the speech instead. They might have understood it.

[Owen Smith]

The Exchequer Secretary can continue to attempt to suggest that I do not understand the Bill, but I understand it perfectly. I understand perfectly how lockstep works, but equally understand that this Government have cut taxes for the wealthiest in Britain. They have exclusively cut the additional 50p rate to 45p. I also know that his party in Wales has proposed that it would like to go further with Wales, so he will forgive us if we are suspicious of the “tax cuts for the wealthy” motives of the Conservative party. I think we will continue to be suspicious. Unless he would like to get to his feet and tell us that he does not intend that his colleagues in Wales should cut taxes for the wealthiest, I suspect that he will not wish to intervene further.

On the subject of the complexity and cost of the Bill, the Exchequer Secretary left us entirely without answers about how it will work. In order to illustrate its complexity, I highlighted that he has today moved a poorly drafted clause that will see a Welsh Tory Member of the European Parliament who does not live in Wales and who does not have a residence of any description in Wales, but who lives in England, designated as a Welsh taxpayer. The logic of that is entirely lost on me, but I should have thought that he would want to check who his European Members are in Wales and where they lived before he determined that they would get a tax break—in her case, a £700 tax break—were his Government to do what the Secretary of State for Wales has suggested and cut all the tax bands in lockstep by 1%. That is the tax cut that she would get in Wales, despite the fact that she does not actually live in Wales.

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[Owen Smith]

I intend to answer. I fully anticipate that my friend, Mr Kinnock, were he to be so lucky as to win the forthcoming general election and be returned as the hon. Member for Aberavon, a great and noble seat in the Welsh Labour tradition, intends, as he has stated on the record, to live in Aberavon. The irony of this poorly drafted legislation that has been brought before us by those on the Treasury Bench today is that it would not matter where he lived. He could live in Copenhagen or in England and he would still, for the purposes of this half-cocked Bill, be considered a Welsh taxpayer. I do not think that the people of Aberavon would understand that and I suspect that the people of Wales will not understand why an English Tory MEP living in Ledbury will be deemed a Welsh taxpayer.

Let me return to the point about the complexity, if I may, and read a small section of the Bill to the Minister for the delectation of the House. It is entitled “Close connection with Wales or another part of the UK” and can be found in proposed new section 116G in clause 8. It says in subsections (3) and (4):

“T”—

the Welsh taxpayer—

“has a close connection with a part of the UK if in that year—

(a) T has 2 or more places of residence in the UK,

(b) for at least part of the year, T’s main place of residence in the UK is in that part of the UK,

(c) the times in the year when T’s main place of residence is in that part of the UK comprise (in aggregate) more of the year than the times when T’s main place of residence is in each other part of the UK (considered separately), and

(d) for at least part of the year, T lives at a place of residence in that part of the UK.

(4) In this section ‘place’ includes a place on board a vessel or other means of transport.”

I read those subsections for the enjoyment of the Leader of the House, who I am delighted to say has joined us, to point out what a ludicrously complex piece of drafting that is, and what a ludicrously complex Bill it is. We point that out because attending that complexity is cost—enormous cost.

The Secretary of State, or rather the Exchequer Secretary—the Secretary of State did not answer because he was not at the Dispatch Box—could not tell us how much it would cost to implement these measures in Wales. That is a surprise. He also talked about accountability. He might have been a little more accountable for his own Department, because it is today that the Government and his Department should have published the second annual report on the implementation of part 3 of the Scotland Act, inwhich we were anticipating, as outlined in the Secretary of State’s impact assessment to this Bill, a renewedand updated view on the costs associated with the implementation of these measures in Scotland. That has not been published today. It was not published in April as Ministers promised.

That is a dereliction of duty, not least because it leaves us in Wales with no idea as to how much these measures will cost. But we have reason to believe and to fear that it will be a significant amount of money, because we know from the first report on the implementation of the Scotland Act that it will cost more than £40 million to implement such measures in Scotland, and we know from the Government’s own impact assessment that it is likely to cost more in Wales. The reason is the porosity and populous nature of the border between England and Wales: 48% of the Welsh population and 10% of the English population live within 25 miles of that border, which means that fully 6.3 million people live along that border. In contrast, just 4% of the Scottish population and just 0.5% of the English population live within 25 miles of the border between England and Scotland, which means that just 450,000 people live along that border.

If it has taken so far, as the Government have conceded, £1.7 million to start the analysis of how these measures will work in Scotland, how Scottish taxpayers will be identified, how a pay-as-you-earn system will work, how employers will deal with it, and what the nature of the information to be provided to newly designated Scottish taxpayers will be—it is already £2 million-ish and counting, and soon to be £40 million for Scotland—do we not need to have some idea in Wales, as a part of prudent management of Treasury finances, and eventually Welsh Government—finances, of how much money it will cost the Welsh? If the Minister wants to offer us some indication, I should be grateful, but at the moment we are in the dark, and in the dark we remain concerned that the costs will be greater for Wales, and the disbenefits for Wales, therefore, potentially also greater.

In the light of the fact that there is such a long period before the measure comes into force, we will not press the amendments that we have tabled to the clause, but we will maintain our concerns about the motivations that lie behind it. We will continue to push for fair funding for Wales, not to the detriment of Scotland but in the interests of the people of Wales, and we will continue to ask the Minister to clarify what exactly this measure will mean for the Welsh people, and whether they will be better or worse off if the Bill were ever to be enacted.

[Mr Gauke]

After what is a relatively short speech from the hon. Member for Pontypridd (Owen Smith), I am still not entirely sure whether he is for or against it, but we are certainly for the devolution of income tax in the way set out in the clauses. I hope that the clauses and the Government amendments will have the support of the whole House, and that all other amendments will not be pressed.

Amendment 21 agreed to.

Oral Answers to Questions

Debate between David Gauke and Owen Smith

Tuesday 24th April 2012 Commons Chamber

[Mr Gauke]

My hon. Friend is absolutely right. We saw that in leaflets before the election and we see it in leaflets now. None of it is true.

[Owen Smith (Pontypridd) (Lab)]

The Chancellor claims to be credible and consistent in his decision making, including his decision to withdraw the age-related tax allowances—the so-called granny tax that my hon. Friend the Member for Blaenau Gwent (Nick Smith) just asked about. In that case, will the Minister confirm why, in February 2009, the present Chancellor explicitly called for the tax-free allowance for pensioners to be increased?

[Mr Gauke]

In the light of the very substantial increase in the general personal allowance and of the concerns raised by the Office of Tax Simplification that the current structure does not have support, that is the right move. Pensioners are well protected by our policies and will continue to be so, but that move is one that results in a simpler and fairer tax system.

Finance (No. 4) Bill

Debate between David Gauke and Owen Smith

Wednesday 18th April 2012 Commons Chamber

[Owen Smith]

It is a great pleasure to be under your chairmanship, Mr Hoyle.

The legislation we deal with in this House can sometimes appear rather obscure or require a significant amount of interpretation. For financial legislation that is often true in spades, but not so with this Bill, because what do we have, straight off the bat, on page 1, in part 1, chapter 1, clause 1? A tax cut for millionaires—£40,000 for 14,000 millionaires, signed away in one short line, in subsection (2)(c), which cuts the additional top rate of tax from 50p to 45p. Let me be clear: our amendment would get rid of that provision. It would do what we as the Opposition are able to do and strike out from the Bill the change from 50p to 45p. Let there be no doubt whatever: we will be voting to remove paragraph (c) later today.

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

rose—

[Owen Smith]

But for now I look forward to the intervention that I am about to receive from the Exchequer Secretary.

[Mr Gauke]

I am grateful to the hon. Gentleman for giving way, but under his amendment there would be two rates of income tax for 2013-14: 20% and 40%.

[Owen Smith]

No; which is why I wanted to nose off on this point. Let us clear out of the way this obscurantist nonsense that we are hearing from those on the Treasury Bench—first from the Prime Minister earlier today and now from the Exchequer Secretary. He will know that protocol dictates that we cannot table an amendment that would straightforwardly put the rate back to 50p. That is what colleagues on the nationalist Benches attempted to do, and they were ruled out of order. However, what has been ruled in order by the senior Clerk responsible for this Bill is precisely what we have done, to try to get rid of the Government’s shift from 50p to 45p. The Government would then need to decide exactly what they would do with that rate, but our view is clear: it should be 50p, as it was previously. That is why we have tabled what we have tabled, on the Clerk’s advice.

[Mr Gauke]

rose—

[Owen Smith]

I will give the Minister one more chance, but I warn him that he will listen to the country, and the country is telling him that it knows where Labour stands on this issue. We are in favour of keeping the rate at 50p. The Government are getting rid of the 50p rate; the rest is complete nonsense, and smoke and mirrors. If he wants to blow some more smoke, come on up.

[Mr Gauke]

The country is aware that Labour did not vote against the change to the 50p rate in our debates on the Budget resolutions, although the nationalists did. It is indeed the case that there would be two income tax charges as a consequence of the amendment that the hon. Gentleman is moving. I do not want to do his job for him, but if he wanted to achieve the objective that he is setting out, he could have tried to remove subsection (2) entirely, but he did not. He has kept the charge at 20% and 40%. If his amendment succeeds, we will have those two rates of income tax next year.

[Owen Smith]

I am not going to indulge in this procedural nonsense much longer, because frankly the country is interested in the substance of the debate. However, if the Exchequer Secretary wants to intervene on me one more time, he can take the opportunity that the Prime Minister eschewed earlier today and correct the misleading comments that he made about the 50p rate, which he said raised no money. We know that it did raise money. We know that page 52 of the Her Majesty’s Revenue and Customs report makes clear how much money it raised and how much it would have raised in future. If the Exchequer Secretary wants to intervene on that point he can, but as for our amendment, drafted on the Clerk’s advice, we are confident in it, we are happy about it and we will debate the substance rather than the nonsense.

--- Later in debate ---

[Mr Gauke]

rose—

[Owen Smith]

I am not going to give way again to hear more obscurities of protocol. They are nonsense and are just being used to distract attention from the measures.

--- Later in debate ---

[Mr Gauke]

The hon. Gentleman has referred to the academic debate. May I refer him to page 20 of the HMRC document, which relates to the IFS study? It states that Brewer, Saez and Shephard estimated a TIE of 0.46 in 2008, and Gruber and Saez estimated a TIE of between 0.5 and 0.7. It also states:

“The TIE estimate of 0.35 used in the Budget 2010… estimate”

—which the hon. Gentleman described as “standard”—

“was deliberately at the low end of the academic elasticities surveyed.”

The 0.45 TIE is much more consistent with the academic position than the claims of the last Government.

[Owen Smith]

I am thrilled to have given way to the Minister, because his intervention has revealed that, although he may have read the dodgy dossier, he has not read the academic literature. If he had done so, he would have read more recent publications such as that of Saez, Slemrod and Giertz, which is a review of all the pieces of work done on TIE. It concluded that many of the earlier studies, including the HMRC study, had relied on estimates that were excessively high owing to flaws in the data and the methodology used. Saez et al suggested that

“the best available estimates range from 0.12 to 0.40”.

That is the same Saez from whose earlier paper the Minister quoted. In his most recent paper, he changed his mind and concluded that between 0.12 and 0.4 was the generally accepted estimate. The Treasury has cooked the figures on the basis of one academic study produced as part of the Mirrlees review.

--- Later in debate ---

[Mr Gauke]

As we all know, the previous Government were reluctant to take any meaningful steps to reduce the deficit. However, they could point to the imposition of an increase of more than 10% in the additional rate in three months, even though there was scepticism at the time about the projected levels of revenue. It is also worth pointing out that the then Chancellor, the right hon. Member for Edinburgh South West (Mr Darling), accepted that the increase was “a temporary measure”. He recognised some of the difficulties with the policy. He accepted that the behavioural effect would steeply reduce potential revenues—the estimate at the time was that the measure would reduce revenues by two thirds. That is about £4 billion of revenue that he accepted would never materialise, owing to behavioural adjustments, such as individuals deciding to work less or not remain in the United Kingdom. He also accepted that the 50p rate would damage the UK’s international standing, giving us the highest statutory income tax rate in the G20. He also accepted, I am sure, the fact that although the measure was temporary, it would be politically difficult to reverse.

However, I have to say to the Opposition, and to the many hon. Members who have participated in this debate, that although Labour may claim to want to raise taxes on the wealthy, the reality is that the 50p rate was not succeeding in getting the money in. I do not think that it is a coincidence that the 50p rate was in place for only 36 of the 4,758 days for which the previous Labour Government were in power. When we came into office, we inherited a tax rate that we were told would damage our competitiveness, that would bring in questionable levels of revenue and that was always expected to be temporary.

[Owen Smith]

The Minister has repeated the line that the 50p rate was not getting the money in. What exactly does he mean by that? His own HMRC report says, in paragraph 5 on page 2, that the yield was

“around £1 billion or less”.

It does not say by how much less. Page 39 of the report states that the figure for the yield is £1.1 billion.

[Mr Gauke]

The hon. Gentleman cites the report; let me give him the full quote. On page 2, the summary gives the estimate that the yield from the 50p rate could be

“around £1 billion or less…and that it is quite possible that it could be negative.”

We need to compare that with the previous Government’s estimate of a yield of £2.6 billion—[Interruption.] Ah! The hon. Member for Pontypridd (Owen Smith) says that it was £1.3 billion in the first year. Let me explain why the figure was £1.3 billion in the first year. He is presenting that as a great triumph. Most of the money that comes in from wealthy individuals comes in through the self-assessment system, and most of the money raised from the top rate will be collected in the year after the rate is introduced. Only a certain proportion will come in through PAYE. The reason the figure was £1.3 billion in the first year was purely one of cash flow. If the hon. Gentleman is claiming that the revenue was only ever expected to be £1.3 billion, that is not a fair representation of the previous Government’s estimate, which was of a steady rate of £2.6 billion and rising.

[Owen Smith]

rose—

[Mr Gauke]

I will give way to the hon. Gentleman if he wants to make a correction.

[Owen Smith]

I simply want to ask the question one more time. If the yield was less than £1 billion, how much less was it? Surely the Minister knows how much the top rate got him.

[Mr Gauke]

The central estimate, which the OBR has confirmed, is £700 million. We are reducing the rate to 45%, and the central estimate of the cost of that is £100 million. Were we to take it down to 40%, which would be the consequence of the hon. Gentleman’s amendment, the central cost would be £700 million.

--- Later in debate ---

[Mr Gauke]

Thank you, Mr Hood.

As I was saying, there has been a 29% increase in the number of Britons given permission to work long-term in Switzerland, and the United Kingdom has become less competitive. As a result of our reforms—the additional measures that we are taking to cap charitable and other reliefs, and the measures we are taking to deal with avoidance—27% of revenue from income tax will come from the top 1%, who paid between 20% and 25% under the Labour party.

The reduction in the additional rate is understandably controversial, but we should look at the evidence, not the Opposition’s rhetoric. The 50p rate did not raise the revenues that it was intended to raise, and what money it did raise came with a cost of damage to growth and competitiveness. This is not a sustainable position, so we are reducing the rate to 45p, providing certainty and clarity for those affected. That will mean a relatively small cost to the Exchequer and a significant boost to our competitive position. As the CBI has said,

“Reducing the 50p income tax rate will send a clear signal that the UK is open for business. We must continue to encourage top talent to live and work in the UK.”

This change is good for our long-term tax revenues, it is good for our economy, and it is good for the UK as a whole. I therefore ask hon. Members not to press their amendments, and propose that the clause should stand part of the Bill.

[Owen Smith]

Labour Members do not believe that the cut from 50p to 45p is good for the economy, and we do not think for a moment that the Minister has justified it today. Nor do we think that he has justified the claim that the rate raised practically nothing, which is what the Prime Minister, rather curiously, told the House earlier today. The Minister himself contradicted the Prime Minister in conceding that it raised perhaps £1 billion. In fact, I think the Minister definitively said £700 million whereas the Prime Minister said it raised nothing. I do not know which of them is right, but I am assuming the Minister is right.

[Mr Gauke]

Will the hon. Gentleman give way?

[Owen Smith]

I do not think I have time to give way, as I want to press the amendment to a Division.

Nor do I think the Government have succeeded in persuading any Member of this House that it is anything other than voodoo economics to suggest that the cost of this rate change will be only £100 million. It is very likely to be closer to £3 billion than to £1 billion.

As we remain wholly unpersuaded, we shall press the amendment to a vote—

Finance (No. 4) Bill

Debate between David Gauke and Owen Smith

Monday 16th April 2012 Commons Chamber

[Mr Gauke]

The provision on cable cars applies not only in Aviemore, but in, for example, the Isle of Wight and London. I confess that it does not apply in South West Hertfordshire or in Wrexham, but it applies in places around the country. It is worth pointing out that, by and large, public transport is exempt from VAT, and the provision brings cable cars into line with that.

Let me consider fairness. We inherited a personal allowance of £6,475, and the Bill increases that to £8,105. Next year, there will be a further increase of £1,100. The Government are taking 2 million people out of income tax, providing a tax cut for 24 million people and are well on course to meeting our target of a personal allowance of £10,000.

Let me turn now to the controversial issue of age-related allowances. We must look at the changes in the context of the £275 increase in the state pension. Labour Members tend to say, “That is simply because of inflation,” but let me remind the House that the plans we inherited from the previous Labour Government were for the state pension to increase in line with average earnings. That would have meant an increase of £127 less than our increase, so the Government have increased it more than Labour would have done.

[Owen Smith]

Will the Exchequer Secretary confirm—we asked one of his colleagues to confirm this earlier—that, on average, families in Britain, taking into account all the changes, will be £511 worse off, as suggested by the Institute for Fiscal Studies?

[Mr Gauke]

We inherited the biggest deficit in our history and have taken measures—through both spending and taxes—to reduce it. The fact is that the measures we have taken on the personal allowance will result in, for example, a tax cut of £170 a year for every basic rate taxpayer in the country.

[Owen Smith]

Will the Minister give way?

[Mr Gauke]

No. I am going to make more progress.

Returning to the age-related allowance, it will remain the case that those receiving employment income above the retirement age will not pay national insurance contributions. We have heard nothing this evening about why the Opposition believe as a matter of principle that those under the age of 65 should have a lower personal allowance than those over the age of 65. Given that the personal allowance has increased so substantially, it is reasonable and sensible to simplify the tax system and have one generous personal allowance, regardless of age.

We have taken decisions to remove anomalies in the VAT system, but VAT is a broad-based tax and it is neither fair nor economically justifiable for similar or identical products to be treated in different ways on the basis of arbitrary distinctions. The same approach should apply to mobile caravans as to static, non-residential caravans, and to a hot pie served in a fish and shop and one served in a bakery.

Labour Members argue that removing those anomalies will hit living standards, but may I put those measures in context? Next year, basic rate taxpayers will get a £170 income tax cut. That will be sufficient to pay VAT on 1,300 Greggs hot sausage rolls. I confess that those consuming more than 1,300 Greggs hot sausage rolls—that is 26 a week—will lose under the Budget, but I suspect that that is the least of their worries.

We are taking a tough decision on child benefit, but it is right that those earning £20,000 or £30,000 should not pay taxes to fund child benefit for the families of those who earn substantially more. Each of those policies has produced opposition, and whenever there is opposition to a difficult decision, along comes the Labour party. It opposes each and every measure, however logical or fair it may be. Labour agrees with every interest group that comes along and says, “Don’t tax us,” or “Keep spending on this.” The Labour party is the party that likes to say yes, just as it did in government. Is it any wonder that it left the public finances in such a mess?

There is one tax increase that Labour has supported: the increase in the additional rate of income tax to 50p, which the hon. Member for Pontypridd (Owen Smith) spent so much time on. What is the effect of the 50p rate? We have the assessment of HMRC. What has the 50p rate achieved? More people work overseas; total income has fallen by between £2.9 billion and £4.4 billion; and GDP is between 0.2% and 0.3% lower. All of that is from the HMRC assessment.

[Owen Smith]

Will the Exchequer Secretary confirm that the HMRC report on the 50p rate stated on no fewer than three separate occasions that the calculation was highly uncertain and that table A2, which contains absolute numbers, shows that the loss will be £3 billion rising to £4 billion over the spending period?

[Mr Gauke]

Both HMRC and the OBR have made a central estimate, and that is what we have used. I am sorry it does not fit into Labour’s ideology, but the reality is that HMRC’s assessment is that the 50p rate raised less than half the expected amount and might even have cost the Exchequer. The OBR’s assessment is that it is a reasonable and central estimate.

It takes a special kind of incompetence to produce a policy that sends a terrible signal to our competitors, drives higher earners out of the country, damages GDP and fails to raise revenue. There are better ways of raising revenue from the wealthy—for instance, by addressing SDLT avoidance, raising the SDLT rate on properties worth more than £2 million and capping reliefs to ensure that the wealthy cannot opt out of income tax. Both sides of the House want to raise more money from wealthy people. The reality is that we are better at doing it.

We will get more money out of the rich as a proportion of income tax each and every year than the previous Government managed in 13 years in any year. We will not only end our having the least competitive higher rate of income tax in the G20 but provide for a corporate tax regime that becomes increasingly competitive—the main rate will fall to 22% in 2014. We are updating our controlled foreign companies regime, ensuring that companies choose to locate here, not move away. We are implementing the patent box, which is already resulting in additional investment in the UK, as announced by GlaxoSmithKline and AstraZeneca, and we have more generous arrangements for enterprise investment schemes and venture capital trusts, and a new enterprise investment scheme.

The Bill is good for growth. It encourages investment. It attracts entrepreneurs. It tackles avoidance. It helps those on low incomes. It asks the better-off to pay more. And it provides for a significant restructuring of our tax code. It takes difficult steps but delivers real change. Those changes will improve the tax system and the economy as a whole. I commend the Bill to the House.

Question put, That the Bill be now read a Second time.

Northern Ireland Economy

Debate between David Gauke and Owen Smith

Thursday 1st March 2012 Westminster Hall

[Owen Smith]

We need to make work pay—there is no doubt about that—and we need to make work attractive. However, the hon. Gentleman will know that while the unemployment rate may be relatively better than that of the rest of the UK, one of the blacker marks of the Northern Ireland economy is that the economic inactivity rate is worse—27% versus 23%. Such things are neither simple nor straightforward, and they will prove to be difficult. However, we need to ensure that we apply changes fairly and proportionately.

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

May I be clear about the two points the hon. Gentleman has raised on public sector employment and welfare cuts? Is he saying that if his party were in power, there would be no reduction in public sector jobs in Northern Ireland and no welfare cuts affecting Northern Ireland?

[Owen Smith]

No, I did not say that for a minute. We have not at any point said that there would not be any cuts. We have said that there would be cuts, although they would be on a different trajectory. I suggest that we would not have seen the same volume of cuts over the same period, because Labour Members do not believe, despite what the Secretary of State said in his remarks to Queen’s university Belfast, that we can grow the private sector and liberate its surpluses by cutting the public sector. That is poor economics and it will not work. We also believe that such an approach has been demonstrated as not working by the facts on the ground. That is why we are borrowing an extra £158 billion in the current spending period: to pay for the failure to get the economy moving. That is the truth.

I hate to tell the Minister, but another area in which the Government are failing in Northern Ireland is in respect of enterprise and getting enterprise moving. When one turns the page in the “Rebalancing the Northern Ireland Economy” document from the section about fairness and enterprise, one comes to what the Government think are the principal measures required to strengthen the private sector and promote fairness in Northern Ireland. First among them is a scheme to help new businesses in countries and regions outside London, the east and the south. It will exempt new businesses from £5,000 of employer national insurance contribution payments. The document says that that will help up to 15,000 businesses in Northern Ireland. I hate to tell the Minister but that scheme has so far helped 461 businesses in Northern Ireland, according to the Government’s own figures. That is just 3% of the target that was originally intended. I put it to him that that is a woeful performance.

Clearly, the Minister needs to consider the targeting of that scheme and whether he needs to revise it. I suggest that the Minister reads the bit elsewhere in the document that talks about the possibility of changing the parameters of that scheme and revising its targeting to expand it to all companies with fewer than 10 employees, as the Labour party suggests, as opposed to concentrating simply on start-ups. If he did that, those businesses might be able to get some of the billions of pounds that are currently languishing in the Treasury not being spent on incentivising enterprise.

Of course, the Minister could consider other tax possibilities. The document is quite insightful in showing us where the Treasury is contemplating different measures for Northern Ireland. One area is in respect of the annual investment allowances. It is very interesting that the document suggests that those annual investment allowances, which are designed to help capital intensive companies, manufacturing and so on, have been cut from £100,000 a year to £25,000 a year across the UK. Those are the sorts of companies one would have thought should be incentivised if one were serious about rebalancing the economy away from financial services towards a productive economy. Apparently, in Northern Ireland, that allowance could go back up to £100,000. That is a very interesting idea and I urge the Minister to think about that, not only in Northern Ireland, but across the UK.

Of course, the corporation tax measure is the big bazooka that we are hearing about the Government rolling out. The document talks about driving down corporation tax in Northern Ireland to bring it in line with the 12.5% in the south, as Members here today have also mentioned. Labour places great faith in the fact that parties in Northern Ireland have expressed some support for that measure, as did some 75% of respondents to the document. During the debate, it has been instructive to hear hon. Members highlight the risks—

Scottish Football (Tax Liabilities)

Debate between David Gauke and Owen Smith

Wednesday 29th February 2012 Westminster Hall

[Mr Gauke]

I do not know what advice the Scottish First Minister provided, if indeed he provided any. I know that there were discussions informing him of the issues, as was appropriate; for example, whether there were going to be any public order issues that could be related to progress on this particular matter. There was nothing in any way improper about a discussion with the First Minister in broad terms. Similarly, I assume that the discussions with Ministers of the UK Government were not about specific tax information, but in the broadest of terms.

[Owen Smith]

I appreciate what the Minister has said about the limited nature of the advice that he has been given by HMRC, given the nature of his relationship with HMRC. Can he tell us whether he in turn has impressed on HMRC that it needs to think of the wider financial nexus around Rangers, and of course the cultural significance of the club? It is a business, but it is not just a business.

[Mr Gauke]

HMRC is well aware of the significance of Rangers football club and its importance in Scotland. I have no doubt that HMRC is aware of that sensitivity. I am sure the hon. Gentleman is not suggesting that Rangers should receive special treatment, but HMRC is aware of the importance of Rangers to Glasgow and to Scotland, and indeed to the UK more widely. I have no doubt about that.

I return to the issue of the support that businesses receive from HMRC, both generally and in respect of football. Of course, facing tough conditions, many businesses can stumble upon difficult times. That is why HMRC invests so much time and energy to support those businesses, whether they are start-ups or established large businesses, when they encounter difficulties.

I will focus on the support that is provided for the many thousands of businesses, large and small, through the time to pay arrangements, which allow them to spread the payment of their liabilities beyond the due date. That facility took on a more prominent role in November 2008 when the Business Payment Support Service was launched. Its purpose is to provide speedy access to quick decisions from HMRC for businesses facing short-term financial difficulties and who wish to discuss time to pay arrangements.

Many hundreds of thousands of businesses have accessed the service since its launch. The time to pay arrangements have helped hundreds of thousands of individual taxpayers and businesses suffering short-term financial difficulties. This has been particularly helpful during the past four years, given the economic challenges that the UK has faced. HMRC will continue to offer that support service where it is appropriate to do so, although I make it clear that the facility is not there to prop up an insolvent business whose existence is dependent on not paying the taxes for which it is liable. That is why HMRC will probe deeper when a business comes back repeatedly to seek time to pay. Such repeat requests can indicate a more deep-rooted financial difficulty, which can mean a time to pay arrangement is unlikely to be the appropriate outcome.

At a time when the public finances are as they are, it is crucial that businesses and individuals pay the tax that is due. That is a point that every speaker has made this afternoon. Businesses and individuals who do not pay their taxes are restricting growth and getting an unfair advantage over those who follow the rules. The Government are committed to levelling the playing field for the compliant majority. Even as HMRC puts in place services to support businesses, small and large, to realise that ambition, it also expects all businesses, be they football clubs or not, to be run effectively from a tax management point of view.

As reported in the media, it is true that in recent years some football clubs have had poor compliance records for the payment of tax liabilities. I am not talking about the payment of tax on profits; I am referring to the PAYE and national insurance that the clubs have deducted from their players and other employees and the VAT that they have charged their customers. Too often some football clubs have used those moneys, which were never theirs, to fund their business, because they have overstretched themselves in other areas. Many hon. Members will doubtless have views on why that situation has arisen, and why clubs so often apparently spend more than they can afford. I think all hon. Members will agree that it would not be right for taxpayers to fund such shortfalls.

However, things have begun to change. One practical way was when the previous chairman of the English football league, Lord Mawhinney, approached HMRC to explore how they—the football league authorities and HMRC—could work together to reduce the levels of tax debts in the football league.

From those initial discussions emerged a working arrangement that remains in place today. All English football league clubs consented to HMRC sharing information with the football league on their payment compliance in respect of PAYE and national insurance. Not only does any club that withholds those taxes face decisive action by HMRC, it will also encounter sanctions from the football league.

However, the issue is not always about sticks. The carrot is that eventually, all clubs will compete on an even basis. No club should benefit over another simply because it retains taxpayers’ money to fund its operation. That is an absurd proposition, with which I know hon. Members will disagree.

The decisive action taken by HMRC and collaboration with the football league authority has paid dividends. Similar arrangements are now in place with the Irish Football Association and the football conference, which is the tier immediately below the football league.

In addition, some months ago HMRC met the Scottish premier league and the Scottish football league authorities to explore whether similar arrangements could be put in place for the top four divisions of football in Scotland. Further discussions are scheduled soon on that proposal. HMRC will meet the Scottish leagues next week to monitor the payment of taxes, which addresses one of the specific points raised by the hon. Member for Dunfermline and West Fife.

--- Later in debate ---

[Owen Smith]

Will the Minister give way?

[Mr Gauke]

I have provoked the hon. Gentleman. Before we go too far off the topic, I will let him come in.

[Owen Smith]

I want to confirm that the Minister is saying that there will be 10,000 further jobs going under this Government over the spending period, as well as the 4,000 job losses announced in January.

[Mr Gauke]

The working assumption is as I have said, and as is in the public domain. The hon. Gentleman will be aware that there is redeployment within that, so that there are additional staff dealing with tax evasion. There is capability to reduce the number of staff working in processing, where the use of new technology can substantially reduce the need for manual work.

I cannot comment on the case of Rangers specifically, but I assure the hon. Member for Dunfermline and West Fife that HMRC is working with the administrators, alongside other creditors, to reach the best solution for the public purse and the club. We have heard how Rangers going out of business would be a disaster for Scottish football. The purpose of administration is to save the club and to ensure that creditors get as much as possible.