Clause 6
Finance Bill
5:49 pm
Greg Hands (Shadow Minister, Treasury; Hammersmith and Fulham, Conservative)
The hon. Gentleman raises a very interesting question: quite what is meant by “this situation”? That might have referred to the banking crisis and the ongoing immediate financial crisis. Perhaps the Chancellor was not referring to the economy; perhaps he was not referring to budget deficits and overall levels of indebtedness. However, his comment introduced enormous uncertainty into the equation, not least because the Leader of the House, I think on the same day, implied that the change was to be made permanent. What will define this new term of resolving the situation? How long does the Financial Secretary expect the measure to be in place? If it is abolished, will tax allowances be reintroduced for higher rate taxpayers? Are the two things inextricably linked in his mind, or might some separation come about in the Government’s thinking?
There may be a hypothetical element to those questions, but they are important. For example, the behavioural response of higher rate taxpayers to a temporary surcharge on higher earners could be rather different from their response to a permanent system of higher taxes, which would mark a clear break with the established consensus on top marginal rates of tax. Tax predictability is important, and we need the Financial Secretary to shed some light on it.
The area of greatest controversy, which was mentioned in earlier interventions, is whether the 50p tax rate will raise all that the Treasury says it will. It is worth taking a quick look at the 45p tax rate—a rate that was abolished before it was introduced. In the pre-Budget report, we saw the reality that it is taxes on the many rather than on the rich that will fill the hole. The PBR estimated that introducing the 45 per cent. rate and raising the tax rate on trusts to 45 per cent. would raise £670 million in 2011-12, but that restricting the personal allowance for individuals with incomes of more than £100,000 would raise £1.32 billion in the same year.
By contrast, the PBR said that increasing the rates of national insurance by half a percentage point on employees, employers and the self-employed would have raised an estimated £5.4 billion in 2011-12. That increase in national insurance contributions would have raised eight times the revenue that would have been raised by the 45p tax rate, and five times the amount that was going to be raised by phasing out the allowances. With the 50p tax rate, that ratio is obviously tighter, but a much larger amount of tax is still being raised from the many than from the few. The real losers under this Budget and the Government’s approach in general are those being paid more than £19,000, who will have to cough up more on their national insurances contributions.
The words of the Institute of Chartered Accountants in England and Wales were instructive. It says:
“Whilst higher taxes for higher earners may be politically popular, the actual amounts they raise are relatively small and will make hardly a dent in the UK’s overdraft”.