Finance Bill

John Redwood Excerpts

Tuesday 1st July 2014 Commons Chamber

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

I beg to move, That the clause be read a Second time.

It is a pleasure to start the Report stage of the Finance Bill, Mr Speaker. We had many good and long debates in the Bill Committee, and I am sure we will continue that trend over the next couple of days.

The new clause, which stands in my name and those of my right hon. and hon. Friends, would require the Chancellor of the Exchequer to publish within three months of the passing of this legislation a report on the additional rate of income tax—the top rate, which was 50p until last year, when it was cut by this Government to 45p. The report we envisage would set out the impact on Exchequer receipts of an additional rate, set at 50p, in the first year of the next Parliament. The Chancellor would also be required to set out the impact of reducing the additional rate for last year, 2013-14, and the amount of income tax paid by all additional rate payers, those with incomes over £250,000 a year and those with incomes over £1 million a year. Finally, the report would set out the impact of the reduction in the additional rate in 2013-14 on the level of bonuses awarded in April 2013 to employees in the financial sector.

Since the coalition Budget of 2012, we have had a number of debates on the Floor of the House and in Public Bill Committee on the Government’s decision to cut the additional rate from 50p to 45p. Indeed, the Minister has referred to such debates being an annual event during the passage of the Finance Bill. Why is it so important that we continue to press the Government on this one decision, made in 2012, after they have refused to listen to all and any attempts to get them to change course? It is because if there is one decision taken by the Government that tells us all we need to know about their priorities and who they stand for, this is it.

The Government who said, “We’re all in it together,” and the Chancellor who promised that he would not balance the books on the backs of the poor, saw fit to give, at a time when ordinary working people were seeing their living standards fall and when the combined impact of tax and benefits changes has left households on average more than £974 a year worse off, an absolutely huge tax cut to the wealthiest in our country. For millionaires, this tax cut is worth an average of £100,000—a vast sum, far out of reach for the majority of working people. So although this may appear to be simply an annual event and part of the House’s debates on the Finance Bill, it is much more than that. This Government made a bad choice—the wrong choice—when they prioritised a tax cut for millionaires while ordinary working people continued to struggle as a result of their decisions, and we will not let them forget it.

[Mr John Redwood (Wokingham) (Con)]

How does the hon. Lady explain the fact that income inequality rose under Labour and has fallen under the coalition?

[Shabana Mahmood]

I am pleased that the right hon. Gentleman is here. I recall in the debate in Committee of the whole House that he argued for a further cut in the rate to 40p, citing in evidence the increase in revenues resulting from the cut, but as he should know—I am sure he does—that is a result of bonuses being deferred. I shall return to that point, but I think it tells us all we know about where the Government stand on fairness.

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[Shabana Mahmood]

My hon. Friend makes a good contribution, which I agree with.

[Mr Redwood]

The Government have published all the figures and they show that after the tax cut the better-off are paying more, not less.

[Shabana Mahmood]

The right hon. Gentleman is wrong. The Government have published one set of figures from only one year’s data. Much more data are now available for a further, more comprehensive review to be carried out, and the Government should do so. If they have nothing to hide, and if they are confident that they have made the right decision, they should submit that to scrutiny.

Returning to data and yield from the 50p rate, we know from the Government’s own assessment that the cost of cutting the rate from 50p to 45p was more than £3 billion, excluding all behavioural changes. In Treasury terms, £3 billion is a big deal, so how could the tax cut be justified? Well, the Government say that most of that potential £3 billion revenue would effectively be lost as a result of tax avoidance, the so-called behavioural change effect. Having assessed revenue lost as a result of tax avoidance and other behavioural change, the Government go on to say that the cost to the Exchequer of cutting the rate to 45p is only £100 million. So, on the Government’s figures, an additional rate of tax set at 50p would raise only £100 million.

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[Shabana Mahmood]

The hon. Gentleman has made that point in previous debates, and I repeat the answer that I gave then. We have said that we would increase the rate to 50p in the next Parliament as we get the deficit down. I could not be clearer than that.

It is the richest in our country who are benefiting the most from the recovery delivered by the Government. The return of economic growth has overwhelmingly benefited the top 1%, as shown by analysis of HMRC figures by the House of Commons Library, which covered the year when GDP growth returned and the top rate of income tax on earnings over £150,000 was reduced. The share of post-tax income of the top 1% of taxpayers—300,000 people—rose from 8.2% in 2012-13 to 9.8% in 2013-14. Yet during the same period, the bottom 90%— 27 million taxpayers—have seen their share of post-tax income fall.

This cut to the 50p rate cannot be justified when the deficit is high and will not be eliminated towards the end of the next Parliament. Labour in government will increase the rate back to 50p to help us to get the deficit down in a fairer way. Just as we have said that we want the Office for Budget Responsibility to have powers to audit manifestos ahead of the next general election, because we believe that that scrutiny will add to public understanding about the choices that are being made—a call the Government only last week rejected—so too we think that a report as envisaged by the new clause would help the public to understand the impact of the top rate of tax so that they can make up their own minds about who is standing up for them and other working people like them.

[Mr Redwood]

Let me deal first with an old canard from the Labour Benches that is simply untrue and unfair: the idea that Conservatives welcome tax cuts for the rich, but do not think that tax cuts are appropriate for anybody else. Government Members believe strongly that tax cuts work for everybody, and that is why the Government have given back a lot of tax revenue to people on low pay by taking them out of tax altogether. We have supported and welcomed that, and that is where the missing revenue that Labour worries about is concentrated.

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

The right hon. Gentleman says that the Government are taking many low-income people out of tax. But he must recognise that by raising value added tax, the least progressive of taxes, which everyone purchasing goods has to pay, regardless of their income, they are increasing the burden on the lowest paid.

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[Mr Redwood]

VAT is not as regressive as the hon. Lady suggests, because I am pleased to say that important items, such as food and children’s clothes, are VAT exempt, which makes it a little less unpalatable. I agree with her that all tax rises are bad news, but they are a necessity given the large deficit that we inherited, and when some important public services need financing. I also entirely agree with Labour that, given that we have a large deficit and need to spend money on important benefits and public services, we need to get that money from the rich and the better off. They are the people with money, and we have to find the best way to get the money off them.

[David Wright]

Why is the right hon. Gentleman so scared of the new clause? All it does is request a report. Surely he supports the idea of having a report on these issues so that we can get to the bottom of the matter.

[Mr Redwood]

If I am given a chance to develop my argument, I hope I will satisfy any independent-minded people on the Labour Benches that we already have the evidence. We have had a long-term experiment on this very subject, which satisfies some Conservative Members that the way to get more money off the rich is to set a rate that they are prepared to pay and will stay and pay. If the rate is set too high, they leave. If the rate is set too high, their clever lawyers and accountants find entirely legal ways to pay rather less tax than we would like.

The hon. Member for Birmingham, Ladywood (Shabana Mahmood) did not answer my intervention when I asked her to confirm that the Red Book has made it clear that after the cut in the rate, the amount that the better off and the rich paid went up—of course it did. That is the experience we would expect. The hon. Lady is left trying to say that there are special reasons. I will give her this point: it is probably best to judge these things over a longer period than a year or two. One can get odd variations, which is why I want to give the evidence to the House that it has clearly forgotten, which relates to the big reductions in top rate tax that were put through in the 1980s. The Conservative Government reduced the top rate of tax in two stages, from 83% to 60% and then from 60% to 40%, and the Labour Government kept that rate right up until they knew that they would lose office. They were wise to do so, because over those years the amount of cash paid by the rich went up, the real-terms amount of tax paid by the rich went up and the proportion of total income tax revenue paid by the rich went up. What is not to like about that treble win?

[Graeme Morrice (Livingston) (Lab)]

The right hon. Gentleman said earlier that if the top rate of tax was too high people would leave—I presume he meant that they would leave the country. How many rich people have returned to the country as a result of the top rate being reduced from 50p to 45p?

[Mr Redwood]

We will be able to answer that question in due course, because these are still early days, but there are encouraging signs that more revenue is coming in from the rich. We will know the results of the latest experiment later, but we know fully the results of the 1980s tax cuts. They were clear enough to convince not only all sensible Conservative MPs at the time, who were happy to vote for the tax cuts and kept them throughout their period in office, but, more importantly, the long-running Chancellor of the Exchequer who took office in 1997 and held it for a decade before becoming Prime Minister. He is not an easy man to convince to be nice to the rich. I think that he decided to run with that tax rate because he was entirely convinced that he would get more money out of the rich at 40% than he would at 83% or 60%.

[Steve McCabe]

Does not the evidence show that any increase in the tax paid by the rich is the result of their share of income rising at the same time as everyone else’s living standards are falling?

[Mr Redwood]

The main reason they pay more tax, of course, is that they generate and declare more income here, which is surely what we want them to do. If the Labour party is with me so far in wanting decent public services, and if it is with me in accepting that the money for those services has to come from the better-off, because by definition we do not want to tax the poor, then surely it is with me in wanting to have more rich people here to venture, save, put their money at risk and to make more money with their money so that there is more of it to tax. This country is now very dependent on income tax from the top group of earners, who produce 30% of income tax, and on the capital gains tax, stamp duty and other taxes that apply mainly to rich people with big assets. That is sustaining public services. It is very important that Members of this House, who might not like those people—clearly the Labour party dislikes them intensely—recognise that they are very useful members of society and that their revenue is crucial to being able to redistribute money across the country. If Labour Members wish to have more equality, they must think about the optimising rate. Surely it is best to try to find the rate that maximises revenue, rather than a penal rate that satisfies people’s sense of jealousy—or whatever it is—about those who have or make a lot of money.

[Rushanara Ali (Bethnal Green and Bow) (Lab)]

The right hon. Gentleman is wrong about the Labour party disliking rich people intensely and should retract that statement. If he is not prepared to do so, perhaps he will explain why many people feel that his party dislikes ordinary families and poor families intensely, as highlighted by their policies.

[Mr Redwood]

That is simply not true. I am delighted to hear that the hon. Lady likes rich people—there are quite a few in her party, so let us hope she gets on well with them—but it is absolutely false to suggest that Conservatives have no interest in people who are out of tax altogether or who are on low incomes; we are desperately concerned that they should get better educational standards and have more opportunities so that they can get a job and then go on to get a better job. We wish them well, and we are very keen to work with all those in our constituencies so that they can take advantage of opportunities. We would like them to be on higher incomes. In the meantime, unlike the Government she supported, we have taken many more of those people out of tax altogether, because we think that those on an income of less than £10,000 a year should not have to pay tax. They will probably be receiving some benefit assistance.

Another point that the hon. Member for Birmingham, Ladywood did not respond to was the fact that the latest figures show that inequality rose under the Labour Government but has actually fallen a bit under the coalition, mainly because we have taken an awful lot of people at the lower end of the income scale out of tax. We have a very progressive system: the income tax system now exempts anybody on less than £10,000 and has a 47% rate, if we take national insurance as well on the highest incomes; and the benefit system rightly gives a lot of money to people at the low end of the scale and should not give any money to people at the top end.

[John McDonnell (Hayes and Harlington) (Lab)]

The right hon. Gentleman has made a number of assertions in his last few sentences. I wonder whether he has seen the report published this week by the Joseph Rowntree Foundation, which states that the cuts in child benefit and tax credits

“have typically created losses double the amount of tax allowance gain for working couples, and nearly four times the amount for working lone parents.”

I wonder whether he has seen the latest HMRC report, which states that the Gini coefficient started to rise significantly in 2012-13.

[Mr Redwood]

The figures I have been using refer to the whole coalition period and show a reduction in inequality, which I hope the hon. Gentleman will welcome. I do not recognise his figures on the child tax changes. The overall effect of taking a lot of people out of tax has been a very positive impact on their net incomes, as we would hope.

[Ian Murray]

If the right hon. Gentleman disputes whether an increase in the additional rate of tax would bring in more money, does he agree with the new clause’s call for a report? If it shows that the 50p tax rate brings in more money, will he and his Conservative colleagues advocate increasing it again?

[Mr Redwood]

I thought that I had dealt with that point. As far as I am concerned, it was proven conclusively in the ’80s that taking the rate down from 83% to 40% increased the revenue very substantially and on a sustainable basis. That was sufficient to persuade the official Labour party—perhaps not some Labour colleagues here today—not to increase the tax rate from 40% throughout its long years in government until the very end.

[Bill Esterson]

Does the right hon. Gentleman not recognise that the economic circumstances are now rather different from those he is talking about. Surely we need a study, as the new clause proposes, to enable us to look at what is happening now.

[Mr Redwood]

I do not think that the economic circumstances were as different as the hon. Gentleman thinks. In the early ’80s the Conservative Government inherited an economic crisis from Labour, just as this Government did. There was a lot of unemployment and a big task in getting people back to work and getting the economy growing again, rather like today. The Government at the time managed to do that, just as this Government are, so I do not accept his point.

However, I find the fact that Labour is going backwards on these issues rather perturbing. Why can the modern Labour party not understand the basic points that the Labour party that was victorious between 1997 and 2010 understood fully? Why can it not understand that it is possible to take the tax rate too high and get less revenue? The Treasury has now accepted the doctrine of the Laffer curve and understands that putting the tax rate above the optimising rate would surely be a very foolish thing to do. It knows that that applies to capital gains tax, as it clearly does to income tax. I submit that 50% was well above the optimum rate, because we collected rather less revenue than many people would have liked. I welcome the fact that the Government have started to put that right.

I do not think that we need the study that the Labour party is recommending today, and I advise it to think again about what it learnt in the ’80s and ’90s but appears now to have forgotten. It shows that the former Labour Chancellor was clearly not crowd-pleasing when he refused to increase the rate from 40%—he was clearly antagonising many of his Back-Bench colleagues by not doing so—so there must have been a good reason for it. I think that reason was a sensible one: it would have raised less revenue, rather than more. I urge the Government to reject new clause 14.

[Rushanara Ali]

It is worth considering some of the context of our debate today on the Finance Bill. Almost 15 years ago, the then Labour Government introduced the national minimum wage. That historic measure increased the value of work for around 2 million people across the UK. At its heart was fairness and dignity for all at work. Yet today we are debating the impact of a substantial tax cut for 13,000 millionaires introduced by this Government. At a time when more than four out of five people surveyed in a recent Ipsos MORI poll said that they faced a cost of living crisis, the contrast cannot be overstated. It would be almost impossible to find so clear a contrast between the ambitions and motivations of two Governments. The bottom line in this debate is that the Government’s proposals in the Finance Bill do almost nothing to address the cost of living crisis.

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[Frank Dobson]

I strongly support new clause 14. It would appear that the Treasury’s Orwellian motto is “Ignorance is strength”. It is not just that the Treasury will not have this study done, but it has not had it done and does not know the answer. The Government are clearly afraid of the answer; what have they got to hide? That is typical of the current Treasury position. On a number of occasions I have asked the Treasury what estimate it has made of the income that would come to it from the implementation of a Tobin tax or Robin Hood tax—a tax on financial transactions such as that being sensibly suggested by Mrs Merkel for the rest of Europe. The answer I get is that the Treasury has never made any such estimates. Having never made any estimate of the possible income—and apparently never estimating what it would cost the City of London—the Treasury nevertheless states that it would be fatal for the City to impose a tax of 0.05% on financial transactions, when every other business in the country pays a 20% tax on transactions known as VAT. It appears that the Treasury is into “Ignorance is strength”.

We constantly hear from those on the Tory Benches about the wonders of Mrs Thatcher and how we should follow her example, so I remind them that for nine of the 11 years that she was Prime Minister, the top rate of income tax was 60p in the pound. Apparently, people managed to pay it. Apparently the money came in, and even rich people did not need a greater incentive to turn up at work.

[Mr Redwood]

Will the right hon. Gentleman give way?

[Frank Dobson]

No, I will not give way—[Interruption.] Well, I have sat here throughout the whole debate and listened to what other people had to say, so I am going to get a little further in.

One thing that is particularly irksome for badly off people in this country is hearing apologists for the City talking about bankers’ compensation packages—compensation apparently for the horrid requirement that they turn up at work. The dictionary definition of compensation is,

“recompense for loss, suffering or injury”.

Those bankers—how they suffer when they are helping people to swindle their tax liabilities; laundering money for gun runners or drug runners; or fiddling money to help people evade sanctions and then having to pay up. We clearly need to ensure that those rich people pay more tax, and the only way to do that is by increasing the rate to at least 50p.

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[Mr Gauke]

I note the fact that the right hon. Member for Holborn and St Pancras referred to a rate of “at least 50p”, and I suspect that he speaks for many of his colleagues in that regard. The fact is that there is an ideological divide involved here, in that the Opposition want the higher rate, regardless of the practicalities.

The reality is that, if we want to raise money from the wealthiest, a high rate of income tax is ineffective. My right hon. Friend the Member for Wokingham (Mr Redwood) made it clear that the changes in the 1980s resulted in more income being raised from the wealthiest. If we want to raise money from the wealthiest, there are much better ways of doing it, as my hon. Friend the Member for Redcar (Ian Swales) said. For example, we have taken a number of steps to deal with avoidance and disguised remuneration—those measures were opposed by Labour, by the way—and to deal with stamp duty avoidance. We have increased stamp duty rates. We have also introduced measures relating to capital gains tax and restricted the cost of the pensions tax relief. Those measures have raised far more than the revenue forgone from the 50p rate.

We talk about priorities. Let me set out one fact for the House. Even if we put aside the additional sums raised from the wealthiest, and even if we put aside the damage to competitiveness from the 50p rate, for every £1 forgone as a result of our measures on the 50p rate, we have forgone £160 as a consequence of the increase in the personal allowance. That is where our priorities lie, and I am proud of that record.

[Mr Redwood]

Will my hon. Friend confirm that the Treasury publishes figures every month on tax collection, and that they show that the rich are paying more?

[Mr Gauke]

That is correct. It is a higher proportion than ever; it is more than was being received under Labour—