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Tax Avoidance

Oral Answers to Questions — Treasury – in the House of Commons at 2:30 pm on 13th July 2010.

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Photo of Jo Swinson Jo Swinson Liberal Democrat, East Dunbartonshire 2:30 pm, 13th July 2010

What assessment he has made of the level of tax avoidance during the period when the rate of capital gains tax was at 18%.

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Photo of David Gauke David Gauke The Exchequer Secretary

The Government estimate that prior to the emergency Budget, upwards of £1 billion of income tax revenues was forgone through income being turned into capital gains.

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Photo of Jo Swinson Jo Swinson Liberal Democrat, East Dunbartonshire

I thank the Minister for that reply, which shows that when the previous Labour Government reduced capital gains tax, they created an enormous loophole for tax avoidance for the wealthiest in our society. Does he have any further plans to clamp down on tax avoidance, to ensure that the wealthy pay their fair share?

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Photo of David Gauke David Gauke The Exchequer Secretary

There are measures contained in the Finance Bill, which we are currently debating, that will reduce tax avoidance. We take the issue seriously, but the hon. Lady puts her finger on one of the problems. There were a number of structural difficulties in the tax system as it was left to us, one of which was the wide disparity between income tax rates and capital gains tax rates, and we have been able to do something about that.

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Photo of Andrew Love Andrew Love Labour, Edmonton

In introducing the Budget, the Chancellor justified the move to a 28% rate in the following terms:

"I asked the Treasury to examine what would have happened if we had increased the rate much further beyond 28%, and its dynamic analysis showed that that would have resulted in smaller total revenues."-[ Hansard, 22 June 2010; Vol. 512, c. 178.]

Can the hon. Gentleman justify that?

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Photo of David Gauke David Gauke The Exchequer Secretary

Yes, and had the hon. Gentleman been in the Chamber at about quarter past 10 last night, he would have heard me doing so at some length. The fact is that for every 1% by which the gap between income tax and capital gains tax is reduced, we get an extra £60 million from income tax. However, there is also a countervailing pressure, which is that fewer transactions are entered into. The analysis based on studies done in America and elsewhere shows that 28% is about the level at which we maximise revenue.

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