Clause 6
Finance Bill
9:00 am
John Howell (Henley, Conservative)
Allow me to add my congratulations on your appointment as our additional Chairman, Sir Nicholas. Unfortunately, not having been here on Tuesday, you missed the magisterial way in which my hon. Friend the Member for Hammersmith and Fulham explained the whole of clause 6 in great detail, including a large measure of the economic thinking behind it. You missed the delights of Laffer curves and the precision of the calculations of tax rates and their impact on people.
Having reflected since Tuesday’s sitting, I think that, inevitably, it all comes back to the adequacy and quality of the modelling used to underpin the assumptions within the 50 per cent. tax rate. The adequacy of the modelling is a topical subject. The Government will be aware of the wish of the TaxPayers Alliance for more dynamic modelling. I have some problems with that not being comprehensive enough; nevertheless it shows that the idea of modelling is very much on the table. That was recognised by the Institute for Fiscal Studies. One of the other things that seemed obligatory on Tuesday was quoting the IFS, and I have one such quote today. I must put down my glasses because, in my efforts to be frugal these days, I print things with two sides on the same page, so as not to increase expenses. The Committee will therefore have to excuse me if I peer somewhat as I read. The IFS says that, in its initial reaction to the Budget, it seems that the Treasury has
“not accounted for consumer spending falling as a result of this change. If these effects are taken into account, the Government could lose up to £1.5 billion in indirect tax revenues, even if the Treasury is right”.
There is a lot of concern about the underlying modelling that took place to justify the 50 per cent. tax rate—if, indeed, it was done to justify it. Given that it goes to the credibility of the tax system, it is important that it is based not only on political will in the United Kingdom but on analysis.
Matters are made even worse by the abandonment and the absence of the fiscal rules. I did not believe in them very much and nor, it seems, did the Chancellor or the Prime Minister before him; nevertheless, they were at least useful in pointing to a direction in which the Government would go.
I shall not go through the issues that we spoke about on Tuesday in detail, but it is important to understand where the tipping point is in each of the Laffer curves, depending on the range of behaviours. We heard my hon. Friend the Member for Hammersmith and Fulham talk about data on average taxpayers being used to inform decisions about specialist groups, which again goes to the heart of the credibility of the underlying modelling that took place.
The Institute of Chartered Accountants expressed concern about such matters in its pre-Budget submission to the Government and in its post-Budget assessment, in which it called for a detailed economic analysis to be undertaken. It used the same words in its pre-Budget statement, and the fact that it used the same words suggests strongly that it is not happy with the economic analysis done.
We heard about the confusion in the Treasury Committee about the adequacy of the modelling for the 50 per cent. tax rate. My hon. Friend the Member for Northampton, South, who is not here today, quoted question 335 from the proceedings of that Committee. The Chancellor was talking about the £150,000 limit and the 50 per cent. tax rate and said:
“There is no science behind it, it is just simply my judgment that I thought that figure was an appropriate figure. It is the top 1%, as it happens, of earners in this country and I decided that that was the right level”.
Again, there is some confusion.