Ian Lavery
Main Page: Ian Lavery (Labour - Wansbeck)Department Debates - View all Ian Lavery's debates with the HM Treasury
(11 years, 10 months ago)
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Cathy Jamieson
Again, I do not want to focus on such issues at this time. I am sure that Government Front Benchers will want to take responsibility for their own actions.
I now want to address some points that Ministers may make about the Bill’s measures to reduce tax avoidance. The IFS has again been very busy and has made some extremely helpful and interesting points. It says this Budget compared poorly with Labour Budgets, which cut tax avoidance by more than £12 billion between 2002 and 2009—an average of more than £1.3 billion each year. This Budget, however, is estimated to have cut tax avoidance by just £800 million. Closing loopholes to prevent avoidance should be something that every Budget does, and we should not be required to compensate the very rich for the inconvenience.
The Government’s last line of defence will no doubt be that cutting tax for those who already have the most will unlock investment and kick-start economic growth, but that is pure ideology, with no evidence to back it up. The OBR documents accompanying the Budget show a continued pattern of the promised recovery of business investment being postponed. An 8% increase was promised for 2011, but the amount actually fell by 2%. A further 10% increase had been projected for this year, but the forecast is now less than 1%. The role of such investment in driving growth for future years has been significantly written down.
As for growth, again the OBR is clear. It states in box 3.1 on page 46 of its latest economic and fiscal outlook, which is headed “The economic effects of policy measures”, that the only policy with a measurable effect is the cut in corporation tax. It says that that will lead to an increase in GDP of
“0.1 per cent by the end of the forecast period.”
Beyond that, it says in the policy costings document:
“We have made no other material adjustments to the economy forecast as a result of Budget 2012 policy announcements.”
Therefore, according to the best evidence and the advice of independent experts, this is a tax change that will have no discernible impact on our economic prospects and, at a time of tight public finances and tough decisions on deficit reduction, it could cost billions of pounds, making it harder to deal with the deficit and necessitating harsher sacrifices for others in society.
The granny tax is addressed in another of our amendments, which would reverse the Chancellor’s shameful raid on pensioners’ incomes. We must give the Government a chance to make amends for what is essentially a broken promise, and for their shabby attempts to sneak this past Parliament and the public. We call on the Government to cancel this unfair measure for a number of reasons. First, the Government made a commitment as recently as last year that the age-related allowance would be uprated each year of this Parliament in line with the retail prices index. It is there in black and white on page 35 of the 2011 Red Book. Recently it has been reported that the Prime Minister is resistant to suggestions from the Secretary of State for Work and Pensions that he break pre-election promises on benefits for older people. Yet here is a promise made only last year that the Government have consigned to the dustbin. Instead of acknowledging this most disreputable of U-turns, the Chancellor actually sought to conceal it, dressing a crude tax grab up as a “simplification”.
According to the House of Commons Library, by far the majority of those being asked to pay more live on incomes that put them in the bottom half of taxpayers. The crucial point—again, I am sure that Government Members will have heard this—is that having a small personal or occupational pension of just £67 a week, or little more than £3,000 a year, would be enough to put someone in line to lose under this measure. We are talking about the people who did not earn big salaries in their working lifetimes but managed to save so that they could provide for themselves. These are more people doing the right thing; they avoided the means-tested benefits. So yet again I say: why are the Government so keen on policies that penalise the people who are doing the right thing? Why do they penalise the people who are trying to work—the low-paid, part-time workers who lose their tax credits—and the pensioners who have tried to avoid the means-tested benefits and have saved for their retirement and done the right thing?
There is no doubt that pensioners have been hit hard by this Government’s decisions: winter fuel allowance has been cut; pensions have been indexed to a lower measure of inflation; the increase in the state pension age for women has been brought forward; last year’s VAT rise added £275 to the cost faced by an average pensioner couple; and cuts have been made to services such as the NHS, social care and local transport—all the things that matter on a day-to-day basis for pensioners. So pensioners have been hit hard by this Government’s decisions and policies, yet with this Finance Bill the Government are coming back for more. They are not content with all those things and are coming back for more. In total, this measure will raise more than £3 billion pounds over the next five years.
Ian Lavery (Wansbeck) (Lab)
Is it a coincidence that the tax cut to the rich costs £3 billion, which is exactly the same as the tax increase for elderly people in society?
Cathy Jamieson
My hon. Friend makes a very valid point. That must be purely coincidental, because surely no Government would want to take that amount of money from pensioners simply to give it to the richest. Perhaps this Government would though; perhaps we have the same old Tories with the same old policies, yet again. The pensioners who have been hit hardest by this Government’s decisions are seeing them coming back for more. That £3 billion raised over the next five years is the biggest revenue raiser in the whole Budget, and it is coming from the pockets of pensioners with modest incomes. And it is all going towards what? Is it going to paying down the deficit? No. Is it going to help young people get back to work? No. Is it going to help the poorer pensioners? No. Instead, this money is being taken from millions of older people living on modest pensions and redistributed to a few thousand individuals with incomes of more than £150,000 a year. What an absolute disgrace: taking from the pensioners to give to those already on those high earnings.
The Government were said to be surprised by the anger this tax change has aroused. If that is the case—if they were surprised—that shows just how out of touch they are with the values, principles and priorities of the British people. At the time, the response of Age UK was very clear. It said that it was disappointing that the Budget
“offered a tax break of at least £10,000 to the very wealthy while penalising many pensioners on fairly modest incomes, who are already being squeezed”.
We could not have put it better ourselves. The chief executive of Saga said:
“Over the next five years, pensioners with an income of between £10,500 and £24,000 will be paying an extra £3 billion in tax while richer pensioners are left unaffected.”
The National Pensioners Convention said:
“We have been inundated by pensioners who are disgusted that those on around £11,000 a year will no longer get additional reductions in their tax—whilst those earning £150,000 or more will see their tax bills reduced.
This is seen by many as the last straw...Pensioners feel they are being asked to bail out the super rich—and it’s simply not fair.”
Pensioners are absolutely right to feel that way.
These amendments are a chance for the Government to rectify one of the most blatant injustices in this Budget. It simply cannot be right to ask millions of pensioners on modest incomes to pay more while finding a way for a few thousand millionaires to pay less. It is extremely hard to comprehend how the Government could ever have thought that this was fair, or that it would be acceptable to pensioners and to others who care about pensioners, but now they have an opportunity to put it right, and Members from all parts of the House have a chance to show where they stand. They can support these amendments and do the right thing by the people who did the right thing for themselves.
Charlie Elphicke
I agree. There has been a climate in which it is somehow acceptable to avoid taxation and I made many speeches in Committee about how that culture is unacceptable and needs to change.
It is up to us to send a clear message, as Members of all parties, that tax avoidance is wrong. That was why I intervened on the shadow Minister earlier to say that the message sent by politicians who use personal service companies is deeply corrosive. They should all pay a fair share of taxation and should not try to avoid it in that way, because it sends the wrong message. In all fairness, I say that to members of my own party as much as to Labour members. It is not acceptable in the current age.
Ian Lavery
The hon. Gentleman and I had some good discussions in Committee—I would not call them enjoyable, but they were good. Does he think it is fair to hit the grannies—to hit elderly people—with a £3 billion loss and at the same time to cut taxes for the richest people in the UK?
Charlie Elphicke
I think it is fair to say that we are not cutting taxes yet, because the change would not come through to the next financial year. Hon. Members will correct me if I am wrong, but I believe that that is the case. We must consider the Exchequer numbers, which show that the cost of the cut is very low. I think those numbers are wrong, as they have not taken into account the dynamic effects of the change, which will probably be tax accretive to the Exchequer when all is taken into account.
As for the issue of age-related allowances, the Government’s triple-lock guarantee will mean that the overwhelming majority of older people—in fact, all of them, I think—will be better off and there are no cash losers. Secondly, we are talking about the very richest of the oldest. We are not talking about the oppressed pensioner with no savings but about the richest of the oldest and, as I say, there will be no cash losers. Although it is uncomfortable for many people and has been uncomfortable for all of us, the Government have been doing the right thing by the elderly and have been looking after the least well-off elderly first of all. It is really important to protect them from the difficult economic times we have had.
Charlie Elphicke
The age-related tax allowances only kick in to benefit those pensioners who have a substantial income, or a more substantial income, in retirement. We are not talking about the very least well-off pensioners who are affected by grinding poverty, but about pensioners who are better off and who have savings and income. As I said, there are no cash losers and they have had a massive benefit from the pensions triple lock.
Ian Lavery
When the hon. Gentleman says that there are no cash losers, does that mean that pensioners will not lose out?
Charlie Elphicke
That is my understanding, yes. Pensioners will not lose out, there will be no cash losers and no pensioners will be worse off in cash terms, As the hon. Gentleman well knows, we can have the argument about future rates of inflation and future rates of RPI, but one must also take into account the other side of the equation, as pensions and benefits for elderly people will rise in the same way and at the same time. Overall, we are not talking about a great difference; we are certainly looking after the least well-off of the elderly, and we have done so very well indeed. That is an important achievement of this Government. Pensioners have been better off under the Government and have been shielded from the austerity measures.
Let us look across the piece at what the Government have done. We have done the right thing to reduce taxation at the top level, which was meant to be temporary, to encourage investment in our economy and to encourage entrepreneurs. The Government need to take further action to deal with people who abuse personal service companies and other tax wheezes and to ensure that we have stronger measures against avoidance by individuals. We have seen enough of it in the newspapers, so I shall not go into individual cases because, as we know, that ends up in a spat about whether one likes Take That or late-night comedy shows. Nevertheless, it is right that we should ensure that individuals cannot play the system and that the law should be changed. It is all very well for the Labour party to take the moral high ground on the issue of tax allowances, but Labour was asleep at the wheel for about a decade and failed to deal with tax avoidance in the individual and corporate spheres. That was completely wrong.
Barry Gardiner (Brent North) (Lab)
“No cash losers”: I must say that I think that those are the most disingenuous words that I have heard in this Chamber for a great many years. I remember that in the Budget the Chancellor was not particularly keen to draw the House’s attention to this change.
In the Budget, the Chancellor glossed over the whole issue of the granny tax very quickly indeed, yet only a year before, he came to the Dispatch Box on Budget day and said that he would not hide anything—he would tell it like it was. He would tell the bad with the good. That was just a year before, but in this year’s Budget, he glossed over the granny tax altogether.
“No net losers”—how accurate is that if we look at the total picture for pensioners? For existing pensioners, the age-related allowance will be frozen. It is interesting that the year before, it was not the Chancellor, but the Prime Minister, no less, who promised that the allowance would increase in line with the retail prices index. “No net losers”—those who believed the Prime Minister’s promise to pensioners might be excused for feeling that they were losers under the change. That is what happens. People listen to what the Prime Minister says, and make their financial plans on the basis of it: “The Prime Minister promised me, so of course I can expect to have that.” Well, it did not happen, and I think that is disingenuous.
We heard in this Chamber that there are no net losers, but what about people who are about to become pensioners? Are they net losers? They certainly expected an age-related allowance, but they find that, for them, it is not frozen, but cut. We can stand here and call black white, but it is incumbent on us not to take the public for fools, and I am afraid that the speech from the hon. Member for Dover (Charlie Elphicke) did that. I regret that, because he is not a disingenuous character—he is quite a lovable character in this House—but to say what he did is to treat people with contempt. It is treating them as though they do not understand their own affairs, when it is their own affairs—their own pennies, in many cases—that we are talking about. That hits hard.
Ian Lavery
Is it not a fact that 4.4 million pensioners will lose roughly £83 a year from next year, and that people who turn 65 next year could lose up to £322 a year? That implies that it is disingenuous to suggest that people are not losing out—
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. “Disingenuous” is not a word that we should use. I know that it is meant to be an appropriate term, but it is not the sort of parliamentary language that we accept. I am sure that we will not be using it again.
Ian Lavery
The hon. Gentleman is very kind to give way. Does he agree with hitting pensioners hard with the £3 billion tax increase?
Mr Syms
About a quarter of my constituents are pensioners, but I have received only three or four e-mails on this subject. It is not a major issue in Poole, where most of my constituents pay tax. I do not think that it is the big issue that Opposition Members claim it is. It depends on how fast the basic allowance for all taxpayers overtakes the age-related allowance, which I presume is logically what the Government want it to do. Of course, it also depends on the level of inflation. If we freeze the allowance and have higher inflation, it will be eroded more quickly than if we have lower inflation. Thankfully, one of the good points about the past few months is that inflation is starting to crash back down towards 2%, and the sooner we reach that rate, the better.
If we look at what the Government have promised in their triple lock for pensioners—the increase in the basic state pension of over 5%—along with the winter fuel allowance, which we continue to pay, and free bus travel, we will see that their priority has been to support pensioners. We have been criticised over the reduction in the winter fuel allowance, but I point out that the previous Government put it up for the election year but made no budget provision for the year after, and we are faced with some very difficult problems. Unfortunately, it is an expensive item and the Government have been unable to keep it at the level it was for one year, but on the whole we have kept it at the level it was for most years at the end of the previous Government’s time in office, and that is a boon to many pensioners. I think that what the Government are doing on the age-related allowance is probably the right thing to do.
Ian Lavery
I am surprised to hear that only three or four of the hon. Gentleman’s constituents have contacted him on that point—I wish him good luck on that. Various figures have been bandied about and I wonder whether he disputes them. It has been suggested that 4.4 million pensioners will lose up to £83 a year and those turning 65 next year could lose up to £322. Does he support that?
Mr Syms
I am not sure that that is a massive loss of income. The most recent issue we debated was the 3p cut on fuel, which will make more of a difference to pensioners in my constituency than this minor change in tax allowances. I think that the Government’s policy towards pensioners is fine.
Let me turn to the top rate of tax. We all know that there is a lot of politics in this. The rate was 40p under the previous Government, except for the last 37 days they were in office, so the 50p rate was one of the wonderful inheritances from them. Clearly, if we want to stop people looking to avoid paying tax, we have to keep a competitive rate. At 40p we have a rate that was competitive with many western European countries, but at 50p we do not. If we have a country without exchange controls, a very mobile population, as we do, and people with highly tradable skills, there is a danger that if we start to put up the rates we will lose revenue and people will go abroad. As my hon. Friend the Member for Dover (Charlie Elphicke) said, having had a 50p rate which meant people started looking at how to avoid taxation, that might stay in the system for some time. I welcome what the Government have done by reducing the higher tax rate to 45p. I think that it is a pity they delayed it, because I suspect that the impact will be to reduce income tax take for the current year, but when the rate drops to 45p for the year after, we will see an increase in the income tax yield.
It is important to give a message. I was in this House when the previous Government put up income tax. In one of his last speeches from the Government Back Benches, Stephen Byers said that he very much regretted that the Labour party had decided to do that. If all the evidence suggests that that has not raised very much this year, it seems to me that it is being done for ideological reasons, rather than practical, economic ones. If nothing else we ought to be practical in how we do things. Therefore, the Government’s reducing the top rate, as a start, is the right thing to do which will have a beneficial effect in the long term. But let us not forget that the allowances for the lower paid have gone up this year. The top rate of tax will come down next year, by which time we will have had another Budget in which I hope the Government will have made more progress on assisting some of those on lower pay and taking more people out of the tax net.
The one thing that can be said about the Government is that their thinking is joined up. We have welfare reform, we are pushing up the tax allowances to increase work incentives, and we are dealing with a whole range of tax rates, including trying to make corporation tax more competitive, and I think that that will make us a much more competitive country in the world. We look like an island of stability, certainly compared with the eurozone countries. Let us hope that they sort out their problems so that we can start selling them our excellent goods, but let us face the fact that we live in a competitive world and unless our taxes are competitive we will not be able to generate the wealth to pay for all the things we want: health, schools, foreign aid, defence and all the things we need to do. I think that the Government are on the right track. Clearly, it is a very bumpy economic environment, certainly rather bumpier than we might have thought it would be when we came into office, but provided we have leadership and vision, we will get through.
Ian Lavery
The hon. Gentleman recognises that we cannot please everybody, but does he agree that cutting taxes for the rich pleases the rich, while the ones who will be less pleased are pensioners, having £83 a week taken off them, and people who turn 65 next year, losing £322?
Nigel Mills
I am sure that people who benefit from a tax cut will be pleased and those who lose out from a tax change will not be, so I guess I can agree with most of that, but it will be interesting to see in the Lobby later whether the hon. Gentleman votes for his party’s amendment, which would mean the House passing the Bill after abolishing the 45p rate completely and reducing it to a 40p rate.
It is all right saying, “Perhaps we can do that and perhaps the Government will do something different in future,” but we are legislating in Parliament, and if we were to vote for the amendment and remove the 45p rate, it would not actually exist, and I am not sure that those Members who would rather the provision read “50p” than “45p” could in all conscience vote for that. I clearly will not vote for the amendment, because it would be the wrong measure at this time; I will vote for there to be a 45p rate in next year’s tax regime.
When I debate these things, I could take a narrow constituency view. I suspect that very few of my constituents pay the 50p tax rate, as I have many pensioners who are not that well-off and will be adversely impacted by the granny tax, so from a political and personal view I could happily oppose the tax cut and the granny tax, too, but we have to get our economy into sensible working order.
Ian Lavery
I totally agree with my hon. Friend. Ten thousand pounds a year equates to £833 a month, and it is more than hundreds of thousands of people in my constituency make on an annual basis.
Meg Hillier
Absolutely. If we have a duty in this House, it is constantly to remind ourselves of what life is like for our constituents. We can get lulled into a sense of safety and snugness on these green Benches and enjoy intellectual repartee and debate, but we are here to represent the people who elected us. It is incumbent on us to remember that many people are living on £10,000 a year or less, and it is important that we reflect their concerns in this House. For me, that is a burning issue. I want my constituents to earn more than £10,000 a year, but they will not be able to do so unless we get the economy moving.
Locally, we have real poverty and high unemployment. Youth unemployment has risen to about a quarter of the total number of my constituents aged under 24, as roughly a third of them are, and we are seeing an increase in over-50s unemployment. These are the people who are not gaining but seeing those earning over £150,000 gain considerably. There is a lot that we need to do.
We must look at the unfairness of the cut overall and at the needs of the people who are earning less. I do not think that the money that is supposed to come back will be used to reverse the cuts to further education, to make the banks lend or restore the overdraft facilities of small businesses in my area, or to restore the education maintenance allowance, which had a big impact in helping those in my constituency who wanted to skill themselves up to earn more money—the end of EMA put those people on the back foot. Those matters all impact on the lives of people in Hackney South and Shoreditch today.
A year ago, the Chancellor promised that the measures in the Budget, some of which we are debating today, would boost the economy. What have we seen in the past year? The economy has not just stalled, but shrunk. Again, who suffers the most? It is not the people who have gained from the reduction in the 50p rate of tax, but ordinary men and women up and down the country who are working hard and paying tax. The Chancellor has also had to borrow £150 billion more than planned.
I have mentioned the freezing of the personal allowance overall, but the decision to take away the pensioner element has the biggest impact on those who earn between £10,000 and £29,000 a year. There are not many pensioners in my constituency who earn more than that, although it does have an interesting mix. Being on the edge of a city, there are people of greater wealth in my constituency, but they are not many in number.
Somebody who is due to retire in 2013-14 aged 65 will lose £323 a year, which other Members have talked about at length. It is worth reiterating the point that I made to the hon. Member for Amber Valley: somebody who is on a fixed income or who will be on a fixed income in a year’s time will have to adjust their affairs overall, including their savings if they are lucky enough to have any. That £323 may not seem much to us on our comfortable salaries as Members of Parliament, but for people on low-level fixed incomes of just above the amount where they would get help other than the basic state pension, that will have a real impact on their household income. I reiterate that we must think about the message that that sends out: pensioners are the victims; those earning £150,000 a year or more are the victors. That is unfair.
Jacob Rees-Mogg
It is a real pleasure to follow the hon. Member for Edinburgh East (Sheila Gilmore), who made such an enormous contribution to the Public Bill Committee. She enlivened it regularly with her thoughts, with which I have almost invariably disagreed—and today is no exception.
We are now dealing with the best part of the Budget: the heart, soul and even the guts of it. We are doing some big and bold and important things, with which I shall deal in turn. One of them is tough and brave and noble. It is the proper aim of Government to take on difficult things which, although difficult, are right. But I shall start, instead—
Ian Lavery
Is it bold and tough to rob the pensioners of £3 billion and give the millionaires a £3 billion tax cut?
Jacob Rees-Mogg
The pensioners are not being robbed. The pensioners have been extraordinarily well looked after by this Government, and rightly so. I agree in many respects with the hon. Member for Dunfermline and West Fife (Thomas Docherty), who talked earlier about how important the elderly were to our society. He called them the golden generation. I thought that, out of respect to Her Majesty, we ought to call them the diamond generation, as they are all over 60.
Of course we owe a great deal to the elderly. That is why it is right that they have kept their bus passes—which they are pleased to have, although there are not many buses in North East Somerset—and their winter fuel allowances. If they are over 75, they will also retain their free television licences so they can watch the BBC free of charge. I think that many of them prefer Sky nowadays, but that is a separate issue. The Conservative party, in alliance with our Liberal Democrat friends, has looked after the pensioners.
As for the thresholds, it is absolutely right that they should be evened out. Let us consider the people who are paying tax across the country. How is it fair for those who have retired to be given an automatic tax break, rather than those who are working hard and perhaps bringing up children? They need the income just as much as the pensioners, and in some cases more. That, I think, was bold and brave of the Government, and right.
I want to begin, however, by discussing the easiest step to defend—the one that was so startlingly obvious that it is surprising that the Government did not take it earlier and go further. I am talking about the reduction in the 50p tax rate to 45p. We know well that high taxes drive out enterprise and people, and drive down tax revenues. That is not because of evil schemes of tax avoidance; it is because people simply decide that if they are not going to get paid, they will not work. They remove their labour. Our socialist friends—
Jacob Rees-Mogg
But my concern was about Somerset county cricket club. Football teams such as Manchester United do very well through having more foreign players. Somerset, however, has yet to win the county championship, but this lower level of tax and greater freedom in employing overseas players may lead to its achieving that.
Returning to the question of the 45p tax rate, we have had a discussion about avoidance in that context, and I want to defend tax avoidance. I know this is not the most popular cause to espouse, but I do so because I believe in the rule of law, and I do not believe the rule of law is best maintained by Parliament being arbitrary in its taxation.
We have the power, through our votes this evening, to set rates of tax as we choose—to set schemes that allow people to be charged tax, or not to be charged tax, as we choose. If we in this House are too incompetent to draw up the tax law properly, is it reasonable to say to the taxpayer, “You must work out what Parliament may have wanted. This is not what is said, but Parliament may have wanted you to pay this extra amount on top”? Should we then also say that to people who put money into their individual savings accounts? Should we retrospectively say that they ought to have paid more tax on their ISA sums, or on their pension funds?
Ian Lavery
Does the hon. Gentleman agree that there is a moral obligation on people to pay taxes, as well as a legal obligation?
Jacob Rees-Mogg
No, I do not. I do not believe that taxation is a matter of morality. I believe the law is a matter of morality and it is immoral to break the law, and therefore I divide very firmly between tax evasion and tax avoidance, which is the historical position of this Parliament—and, indeed, of English law. Tax evasion is criminal and should be prosecuted to the full extent of the law. I think the scheme used by a comedian, whose name momentarily escapes me but who is quite famous, was almost certainly unlawful, and that scheme should be prosecuted.
Jacob Rees-Mogg
The hon. Gentleman is wrong on that last point; I recognise that there is a need for taxation, though slightly beyond the clauses we are immediately discussing. However, I will answer the important point that he has raised on the tribal nature of football and why people are willing to see these high salaries paid. It is because they recognise that those salaries get them the best quality players and they want to see the best quality players playing for the team that they so ardently and passionately support—it is an ardent passion that I do not have, but I understand that many people do have it. That requires low taxes, because otherwise these players take their talent abroad.
I come back to Professor Laffer, because his argument is one that is so obvious as to be self-evident: if the tax rate is zero, nothing will be raised and if it is 100%, no sane person will pay it either as there is no point in working or in earning. There is some point along that curve where the least legal avoidance takes place—I emphasise that avoidance is legal—the most amount of working is done and the highest amount of revenue is received. We have seen this. I know that some Conservative Members, myself included, think that there was a golden age when Baroness Thatcher was in charge—
Ian Lavery
I intervened just too early, because he mentioned Margaret Thatcher—another issue. Is there anywhere on this curve that the hon. Gentleman continues to mention where morality comes into play?
Jacob Rees-Mogg
This argument is not a moral one. We are not the House of Bishops. I am all in favour of the Lords Spiritual having a view on this, but I am not one of them. I did not go into the Church; I went into politics. Politics is about raising the revenue that is needed for the country to carry out its business, and it is not an issue of morality in terms of how we phrase the laws. That those laws are then obeyed is a matter of morality. I can probably quote paragraphs of the Catholic catechism on this, but you are looking fretful at that thought, Mr Deputy Speaker, so I shall move back to the golden age of the noble Baroness Thatcher, Lady of the Garter, Order of Merit.
In 1979, the top tax rate was 98%—83p in the pound on income tax and a 15p surcharge. [Interruption.] I hear Labour Members saying that that was excellent and a jolly good thing. It is rather splendid to know that I am not the only one with dinosaur-style views in this House; there are even greater dinosaurs on the Labour Benches. When those tax rates were reduced they came down first to 60% and then to 40%, to fury from hon. Members. I believe that the House was suspended when the noble Lord Lawson introduced the rate of 40p in the pound; I think the Scottish nationalists got up in a passion of anger, wishing for higher taxation to spread across the realm of the United Kingdom. What did that reduction do? It raised more money for Her Majesty’s Government, which meant that the Government could spend money on their priorities and pay down their debt. We had a golden economic scenario when the noble Lord Lawson was at the helm, because we believed in low tax rates and had the courage of our convictions.
Jacob Rees-Mogg
I agree with my hon. Friend. I believe that there are studies that show that that rate would be 36p in the pound. I hope that the Minister is listening and that we can look forward in the next Budget to the rate being lower still.
We have heard discussion about the morality of tax rates, and I dispute that there is morality to tax rates, but there is a perniciousness about taxing for the sake of it and about taxing for the sake of envy, because people do not like the rich or because they wish to crush the income earners in society. That is not the type of envy that we have on these Benches. Even our Liberal Democrat friends do not suffer from that type of envy; they recovered from it after their experience in 1909.
We Conservative Members have never had that type of envy. We recognise that if the maximum amount of revenue is raised, it is better for everybody. We heard our Prime Minister giving an invitation to our friends in France, saying, “Come and join us. The weather here may be rainy, but the tax rate is only 45p in the pound, compared with the 75p that you may have to pay.”
Ian Lavery
Will the hon. Gentleman enlighten the House on what personal tax allowances he would put in place at different levels, if he were the Chancellor and had the power?
Jacob Rees-Mogg
It would be an impertinence for someone who entered the House in only the past two years to aspire, even hypothetically, to the height of Chancellor of the Exchequer. I leave that question to my hon. Friends on the Government Front Bench, who, having listened carefully to all that is said in this debate, will no doubt advise the Chancellor. They may consider the figure of 36p in the pound to be perfectly suitable—or they may go further and advocate a flat tax, which is a very attractive proposition. Perhaps people could have tabled an amendment to that effect, but sadly they did not. As I understand from my hon. Friend the Member for Amber Valley (Nigel Mills), who is no longer in his place—
Mr Gauke
My hon. Friend makes an important point. If we are talking about unfairness in the tax system as far as rates are concerned, I should say that the much greater unfairness is when wealthy individuals are paying very low rates of income tax—lower rates than are paid by the vast majority of people working in this country.
Let me say a word or two about avoidance. In the Budget, we announced a package of measures that will yield more than £1 billion and protect more than £10 billion in revenues over the next five years. Our approach to tackling stamp duty land tax avoidance and the banking scheme closed down in February demonstrate that we are prepared to move quickly and take radical action where necessary. We are introducing strategic changes to address the underlying loopholes in the tax system, as can be seen in clause 22, which is about the treatment of manufactured overseas dividends. More generally, the Government have been active in their response to tax avoidance schemes and can and do act as soon as they become aware of abusive schemes. We have provided HMRC with additional financial support and we remain absolutely committed to tackling tax avoidance.
Amendment 1 asks us to leave out the additional rate for 2013-14. It is exactly the same amendment as was tabled in the Committee of the whole House. I will not repeat every point that I made then, but as my hon. Friend the Member for Amber Valley (Nigel Mills) said, that might well leave us with just a 40p rate rather than a 45p rate. There is an alternative interpretation, which would mean that no income tax was charged for earnings above £150,000. I say that with some nervousness. I hope that I have not overexcited my hon. Friend the Member for North East Somerset; I think that even he would accept that that was below the revenue maximising point.
When the 50p rate was introduced, the right hon. Member for Edinburgh South West (Mr Darling), the then Chancellor, explicitly stated that it was a temporary measure. We are announcing the cut to 45p now to provide stability for investment decisions and certainty for employees and the self-employed. That is why my right hon. Friend the Chancellor set out the rate for 2013-14 this year.
It is right that we take these measures to improve competitiveness, and our doing so has been widely welcomed. This matter must be viewed in the context of the personal allowance increase, which shows that we are committed to a fairer tax system that provides greater reward for work while supporting the public finances. This year there is a £630 increase in the personal allowance, as introduced by clause 3. That represents the second step in our commitment to increase the personal allowance to £10,000 on top of last year’s increase of £1,000. We have also announced a further increase of £1,100 next year—the largest ever increase in cash terms. The Government are taking 2 million people out of income tax, we are providing a tax cut to 24 million people, and we are well on course to meeting our target of a personal allowance of £10,000.
Let me turn to the second subject that we have debated—age-related allowances. Amendment 23 seeks to leave out clause 4, which introduces a phased withdrawal of age-related income tax personal allowances. Those will remain in place until the income tax personal allowance for those born after 5 April 1948 aligns with or overtakes these levels. At that point, the clause guarantees that older people will receive the higher allowance. Amendment 23, like others tabled by Opposition Front Benchers, is a repeat of an amendment tabled in the Committee of the whole House. The Government have committed to increasing the personal allowance above the rate of inflation. Next year, the personal allowance will increase by £1,100—£840 above inflation—and so from 2013-14 everyone born after 5 April 1948 will receive the same personal allowance of £9,205. This will take a further 880,000 people out of tax altogether. Similarly, everyone born after 5 April 1938 will continue to receive the age-related allowance that they currently receive instead of moving on to the higher age-related allowance, which will be maintained for those born on or before this date. There will be no new recipients of age-related allowances from next April.
One of the Government’s key objectives for the tax system is to make it simple and straightforward for people to understand. Clause 4 helps to provide for a simpler system while ensuring that nobody will lose out in cash terms as a result. It will help to make sure that people get the allowances to which they are entitled and pay the right amount of tax, and make the system simpler for Government to administer, thereby minimising costs to the taxpayer.
Ian Lavery
It has been mentioned a hundred times tonight that no one will lose out in cash terms. Will there be any losers in this?
Mr Gauke
Nobody will lose out in cash terms; that is the point.
Age-related allowances are complex and hard for older people to understand, as the Public Accounts Committee confirmed in a 2009 report. The same report also stated that too much emphasis is placed on older people having to prove their eligibility, resulting in erroneous claims and potential overpayments of tax. Furthermore, in March this year the Office of Tax Simplification published its interim report on its review of pensioner taxation in which it highlighted no fewer than nine complexities with the age-related personal allowance.
Half the people aged over 65 in 2013-14 will pay no income tax at all and are therefore unaffected by these changes. Those who will now not receive an age-related allowance will benefit from a £1,100 increase in the personal allowance, which represents the largest cash increase ever. At the same time, those who are affected by the withdrawal of age-related allowances will still see the total deductions they pay reduce significantly because we have retained the exemption from national insurance contributions for those of state pension age.
It is important to consider these changes to age-related allowances in the context of the wider support that the Government offer to pensioners. Only 40% of pensioners benefit from age-related allowances, about 50% are unaffected by the changes made by the clause because they pay no tax and will continue to pay no tax, and the remaining 10% have incomes above the taper limit for age-related allowances and are therefore unaffected by these measures.
Let us also remember that the triple lock ensures that each year, the basic state pension will be uprated by the highest of these: inflation, earnings or 2.5%. This April, the basic state pension increased by the consumer prices index inflation rate of 5.2%. That meant that there was an increase of £5.30 a week in the full basic state pension—the largest ever cash increase in the basic state pension. Under the previous Government’s plans, the basic state pension would have increased by only 2.8% from this April—an increase of only £2.85 per week. That means that the full basic state pension is £127 a year higher in 2012 than it would have been under the previous Government’s plans. Next year, a full basic state pension is forecast to be £130 a year higher than under the previous Government’s plans, and the year after that, it is forecast to be £133 higher.
Each year, more than 11 million pensioners will benefit from the introduction of the triple lock. An existing pensioner with a full basic state pension will gain more from the triple lock in each of the next three years than they will lose from the freeze in age-related allowances. The Institute for Fiscal Studies has said:
“Our analysis shows that they have lost considerably less from recent tax and benefit changes than any other demographic group. And over the past decade and more pensioner incomes have risen faster than those of the working age population.”
To conclude, the Government are making changes to ensure that there is a fair and competitive tax system. Some of them are controversial, but we should look at the evidence, not the Opposition’s rhetoric. The 50p rate is not sustainable. The introduction of the triple lock on state pensions means pensioners continue to be better off. These changes are good for our long-term tax revenues, good for our economy and good for the UK as a whole. I ask the Opposition to seek leave to withdraw the amendment.