Income Tax

Stephen Williams Excerpts

Wednesday 28th November 2012 Commons Chamber

[Stephen Williams (Bristol West) (LD)]

I am glad to join others in saying how pleasant it was to listen to the new hon. Member for Cardiff South and Penarth (Stephen Doughty). I am well familiar with various parts of his constituency from family visits. It is nice to welcome another Welsh Stephen to the Chamber; I just wish our accents were as mellifluous as the hon. Member for Islwyn (Chris Evans).

We are discussing an Opposition motion, so let us examine the Labour party’s record when in office. In 1997, Tony Blair said that there would be no increase in the basic rate or the top rate of income tax while he was Prime Minister. As the Exchequer Secretary was saying, the Labour Government were in office for 13 years—for just over 4,700 days—and it was only in the last 35 days that the top rate of tax was increased to 50%. To put it another way, only one of the 156 pay slips that higher rate taxpayers would have received in that period would have shown an increase in their taxation. That suggests that the Labour party had no record of action and no philosophical appetite when it was in government and had the opportunity to do these things for higher taxes on high earners.

On tax relief for high earners Labour also had a lamentable record compared with its rhetoric today. It increased the relief for higher rate taxpayers to set against their pension contributions; people could put £215,000 into their pension fund and get higher rate tax relief in 2006, but that had been raised to £255,000 by 2010. The capital gains tax rate that Labour inherited in 1997 from the previous Government was 40%, but that was reduced steadily to 18% by the time Labour left office. On the lowest paid in society, the 10p rate of income tax was introduced in 1999, with the then Chancellor saying it was a measure to help the low-paid. I agree with that, but unfortunately he scrapped it in 2007, to loud cheers from his Labour colleagues—I well remember witnessing it from the Opposition Benches—because that tax rise for the lowest paid was financing tax cuts for those on higher earnings. Such is the record of the Labour party when it was in office.

[Annette Brooke (Mid Dorset and North Poole) (LD)]

Does my hon. Friend agree that it is really unusual that under a Labour Government in power for so long the rich became richer and the poor became poorer?

[Stephen Williams]

My hon. Friend says it is unusual, but I would say that it should not be surprising, given what Tony Blair said would be the intention of his party while it was in office. Of course, that gives us another opportunity to remind ourselves of Lord Mandelson’s comment that new Labour was

“intensely relaxed about people getting filthy rich”.

Let us compare the Labour Government’s record with what the coalition has done. Liberal Democrat priorities in the coalition are twofold: tax cuts for the lowest paid and effective taxes on the wealthy. We have seen the £10,000 tax-free threshold go from the front page of our manifesto and election leaflets through to the coalition agreement and it is on course for delivery within this Parliament. We will have raised the tax threshold from £6,475 steadily towards £10,000 possibly within four years and certainly within five. In the previous decade under the Labour Government, the tax threshold was raised by just £2,090. Under the coalition, more than 20 million people will have a tax cut of up to £700 and 3 million will have been raised out of income tax altogether. That disproportionately helps people who work part time, who are disproportionately women, and is particularly effective in helping the young. Indeed, a young person on the minimum wage can now work full time without paying any income tax. That is a huge difference from the position we inherited.

[Sheila Gilmore]

I am listening very carefully to what the hon. Gentleman is saying. Would he support urging the Government to change how they will approach universal credit? Under the new rules, people will be assessed on their post-tax income and as a result for every £1,000 increase in tax allowance people on tax credit will receive only £70. Would he support an amendment or a change to that?

[Stephen Williams]

I think that universal credit will be seen in time as a major piece of welfare reform, sitting with what the 1945 Labour Government and 1906 Liberal Government did, and will have huge significance in simplifying the benefit system. Surely the hon. Lady, like me, will have visitors in her surgeries who fall between the stools of council tax benefit, housing benefit, jobseeker’s allowance, employment and support allowance, and all the others and who ask her to sort that out for them. The Government are making progress on that. There are intricacies to sort out—I grant her that—but the reforms are yet to be brought in and I hope that there is still time to ensure that the system, when it starts, genuinely helps the most vulnerable in society, which we certainly want to see.

The top priority for the Liberal Democrats in this coalition is the £10,000 tax-free threshold. That is now the flagship policy of the coalition and both parties should be pleased that it is being delivered, but we also want to see effective taxes on the wealthy. The Government have already raised the rate of income tax from the 18% we inherited to 28%. We have raised stamp duty on properties worth more than £2 million from 5% to 7%. That is an extra £40,000 of stamp duty that someone will pay when acquiring a property worth £2 million or more. We have also imposed a 15% surcharge stamp duty to discourage the tax avoidance that was rife under the previous Labour Government, when people used corporate vehicles to acquire personal property. We have effectively put measures in place to block that. Of course, I now want the Government to go further and to see whether in our next couple of Budgets we can get an effective mansion tax and annual wealth tax in place.

When the announcement was made in this year’s Budget that the 50p top rate would be reduced next year to 45p, the Chancellor ensured that other measures put in place would raise five times as much revenue as was predicted to be lost as a result. I am interested in having an effective top rate of income tax and 45% compares well with the international situation. In Germany, the top rate of tax is 47.5%, but it bites only after about £208,000 of income. In the US, the rate is roughly 42% in the states that have the highest rates of taxation, but it bites only at £240,000. In France—I am surprised that Opposition Members have not mentioned President Hollande more often—the top rate of tax is 41%, lower than the 45% that ours will be next year, whereas the 75% that he talks of introducing will be only on incomes of more than €1 million if it is introduced in 2013.

Rates and thresholds are effective only if taxes are collected, which is why I am pleased that the Treasury has set up an affluence unit to target people who have assets and income of more than £1 million and why we are introducing a general anti-abuse and anti-avoidance rule, for which I have called for many years. That action has been taken by this Government and was dismissed by the two Chancellors of the previous Government.

When Labour was in office, it made a virtue of low taxes on the wealthy and high earners. The coalition has slashed tax for the poor, has effective taxes in place on the wealthy and is cracking down on tax avoidance. I know which record I prefer.