Finance Bill (First sitting)

Mark Garnier Excerpts

Thursday 17th September 2015 Public Bill Committees

[Mr Gauke]

We fought the last general election saying that we would introduce this legislation. We won that general election, which suggests that the British people had confidence in the overall package of our fiscal policies. If Labour Members are worried about fiscal confidence, perhaps they should look somewhat closer to home.

[Mark Garnier (Wyre Forest) (Con)]

Does my hon. Friend agree that one thing any Government should be able to do is give some sort of confidence to households that their tax rates will not go up, providing them with the opportunity to plan for the future with more security than they would have if this measure were not in place?

[Mr Gauke]

My hon. Friend makes an important point. A striking point made by a number of my hon. Friends on Second Reading of the National Insurance Contributions (Rate Ceilings) Bill earlier this week was that the introduction of the tax lock in the context of employers’ national insurance contributions gives employers much greater confidence. Providing economic stability and security is an important part of the Government’s long-term economic plan. A credible party needs to present to the British people how it will provide economic security and stability. That is what this Government are doing. I look forward to the day when there is cross-party consensus that economic security and stability are important to this country.

--- Later in debate ---

[Barbara Keeley]

I do not think it is. In fact, if it is seen in the same way, someone needs to have a word with the Prime Minister. He constantly refers to the 0.7% commitment as a matter of huge pride and has quoted it a great deal in our debates about the refugee crisis over the past week or two. The difference with financial matters—this is probably why the current Chancellor was so critical of things in 2009—is that there are many opportunities to legislate. This is the third Finance Bill this year, so things could change. The 0.7% international aid commitment was a very long-term commitment. It came up a great deal in international discussions and still does, so there is a difference.

I was talking about the insurance premium tax and the fact that people are not protected from those sorts of tax increase. Paul Johnson, director of the Institute for Fiscal Studies, has said:

“The tax and welfare changes between them mean that poorer households have lost quite significantly and as a result of yesterday’s Budget, much more significantly than anything that has happened to richer households.”

He also said:

“Unequivocally, tax credit recipients in work will be made worse off by the measures in the Budget on average.”

Let us bear in mind that many of the households that benefit from this tax lock have been adversely impacted by other tax changes. In fact, the summer Budget did not cut the overall tax bill; it raised it.

[Mark Garnier]

The hon. Lady makes a lot about feeling it unnecessary that the Government have to promise to legislate not to change tax rates and about the importance of not affecting working households, particularly those at the bottom end. Is it not the case that when her party was in government, there was an understanding that people at the bottom end would be protected, yet at that time the 10p tax rate was removed, causing huge problems for working households? What is sauce for the goose is sauce for the gander.

[Barbara Keeley]

There is a great deal of looking back, but let us look at what is happening this year and what will happen in the years following this Budget. The Office for Budget Responsibility forecasts net taxes to rise by more than £47 billion over the next four years, with much of the money coming from increases in dividend tax, insurance premium tax, vehicle excise duty and cuts in pension tax relief. Of course, welfare cuts will also raise almost £35 billion. It is one thing saying that families will benefit from the tax lock, but all of those measures will hit many families and individuals in the UK hard.

The combination of changes needs to be seen in the context of the cut to tax credits that Government Members voted through this week, which are likely to leave millions of families worse off. I was asked the other day, “What else would you do?” It is our contention that the welfare reform we need is to things such as overpayments and the error and fraud in the welfare system, because things are not properly checked at the point of application. Error and fraud cost £3 billion a year. The cut to tax credits will hit working people on middle and lower incomes, which undermines the Government’s argument that this is a Budget for working people.

--- Later in debate ---

[George Kerevan]

I am mindful of the fact that we have got another 48 clauses, so I will try to be brief—which is difficult for me. There are particular issues about the VAT lock that have to be put to the Minister.

VAT income to the Treasury is notoriously variable because VAT is a tax on consumption. It varies with the business cycle because it is a consumption tax. Unfortunately, in clauses 1 and 2 the Government are introducing the new doctrine that major taxes, including VAT, will be set once every five years at the start of each Parliament. I presume that in the Government’s mind the tax lock will exist in perpetuity and will be set at a different level every time we elect a Government. They are decoupling the raising of revenue—the revenue function of the Government and the Treasury—from the business cycle. As the business cycle goes up and down, income to the Treasury will go up and down independently of when we set tax rates—particularly VAT.

[Mark Garnier]

I am acutely aware of the fact that we have got a lot to get on with, but I find the hon. Gentleman’s argument utterly preposterous. He is arguing that, should the business cycle slow down, he would increase VAT—were he in a position to do so—which would have the effect of stifling consumption and thereby amplifying the problem, rather than negating it. This measure is quite clearly a cap, not a floor, so we can reduce VAT should we want to stimulate the business cycle.

[George Kerevan]

My good friend from the Treasury Committee anticipates what I was not going to say. All I am arguing is that we require flexibility in setting taxes to respond to events in the real economy. The doctrine that the Government are introducing of a tax lock in perpetuity removes such flexibly. That in itself creates uncertainty in the minds of business and the financial community, which the Government will have to address.

I accept the principle that we should try to set taxes in a way that is not destabilising. That should lead us to consult with the business community and community interest groups before we change taxes. That is perfectly possible and it is done in other countries. In Germany, for instance, there is mandatory consultation between the federal and regional Parliaments before income tax levels are changed. There are other ways to do that. The Chancellor accepted that principle in relation to North sea oil taxes when he gave an undertaking that any major changes would come only after consultation with the industry. Unfortunately, he did not extend that doctrine to the renewables industry, which would have been sensible.

To put a tax lock on VAT in perpetuity decouples revenue setting from the business cycle and, in the end, that is not tenable, because the taxes would be varied in an emergency. It is not tenable to decouple them, so the Government will live to rue the day that they put the lock in. That explains the reason for the lock. It is not for economic reasons; they are playing a political game. It is a gimmick.